Flexsteel sales rise 3.2% to $114 million despite quarterly profit decline
Key Facts
On October 26, Flexsteel reported results for the first quarter of fiscal 2027, ended September 30, posting net sales of $114.0 million, up 3.2% from $110.4 million a year earlier. Revenue growth did not translate into higher profits: net income fell to $5.4 million from $7.3 million, and diluted earnings per share declined to $1.24 from $1.31. The company said operating income was $6.9 million, compared with $9.0 million in the year-earlier period. According to Investing.com, revenue and earnings per share topped its estimates, with revenue of $114 million versus consensus of $107.05 million and earnings per share of $1.24 versus $1.07. This comparison reflects Investing.com estimates; the company’s filing did not provide analyst estimates.
The sales increase came from Flexsteel-branded upholstered seating products, while a decline in Homestyles limited overall growth. Flexsteel-branded sales rose 5.1% to $112.6 million from $107.1 million, an increase of $5.5 million. By contrast, Homestyles sales fell to $1.4 million from $3.3 million, down 57.6% or $1.9 million. Management attributed sales growth to expansion in upholstered seating products, partly offset by a decline in ready-to-assemble Homestyles products. Sales of Flexsteel-branded furniture were largely stable, the company said. This shows that growth in the core business offset some of the sharp contraction in the other brand.
Operating costs weighed on profitability despite higher sales, with the operating margin falling to 6.0% from 8.1% a year earlier. Gross margin also declined to 22.0% from 23.5%, a drop of 150 basis points. The company attributed the gross-margin decline mainly to a negative currency translation impact of 130 basis points, as well as inflation tied to higher energy prices. It said ocean freight rates had nearly doubled in the six months before the filing, while fuel and material costs continued to pressure margins. Chief Executive Derek Schmidt said currency translation on Mexican peso-denominated assets added a negative impact of $0.8 million, or 70 basis points on the operating margin. The company said it mitigated some of the pressure through expense reductions, productivity improvements and product portfolio management.
Demand indicators improved during the quarter: Schmidt said orders increased 5% and the backlog at period-end rose 8.2% from the comparable period. The CEO linked growth to new products, market-share gains at strategic accounts and expansion in health and wellness. He said, "Orders increased 5% and our backlog at the end of the quarter grew 8.2% compared with the same period last year." These indicators point to a stronger forward order picture alongside the decline in reported quarterly profitability. On liquidity, the company ended the period with cash of $4.4 million and working capital of $80.5 million. It also reported approximately $29.1 million available under its secured credit facility.
In cash flow, operations used $1.465 million during the three months ended September 30, 2026, compared with generating $4.114 million in the same period of 2025. This shift in operating cash flow came alongside lower income and net earnings, despite sales growth. The company did not provide a separate explanation for this cash-flow change in the information presented here. Cash, working capital and credit availability figures provide parallel indicators of its financial position at quarter-end. Management attributed margin pressure to currency effects and higher energy, freight and material costs. It identified consumer demand and energy-driven inflation in logistics and material costs as the main sources of variation in its outlook.
For the second quarter of fiscal 2027, Flexsteel expects sales of $119.5 million to $123.0 million, representing year-over-year growth of 1% to 4%. Excluding the exit from the Homestyles brand, expected sales growth ranges from 3.5% to 6.5%. The company estimated a GAAP operating margin of 6.5% to 7.0%. Management named consumer demand and inflation in logistics and material costs, driven by higher energy prices, as key sources of variation in the outlook. Investing.com reported that FLXS shares closed at $82.55 on October 26, down 1.94% in the price move shown, without specifying a reason for the decline. The company had scheduled an investor call for October 27 at 8:00 a.m. Central Time to discuss results and answer questions.