Flexsteel Industries (FLXS 13.56%) reported fourth quarter 2025 earnings on August 18, 2025, delivering net sales of $114.6 million (up 3.4% YoY), adjusted operating margin of 9%, and $19.1 million in free cash flow. The company highlighted ongoing growth in both core and new markets, despite tariff headwinds, provided detailed guidance for fiscal Q1 2026 (period ended June 30, 2026), and discussed operational and strategic measures to sustain profitability and market share in a volatile demand climate.
Operating margin climbs to 9% on strategic execution
Adjusted operating income reached $10.3 million, or 9% of sales, exceeding the high end of guidance, with a $1.9 million tailwind from peso translation. This advance marked the ninth consecutive quarter of YoY operating margin improvement, supported by diversified sales growth and targeted product innovation.
"Our adjusted operating margin of 9% in the quarter represents our ninth consecutive quarter of year-over-year improvement and a 340 basis point improvement over the prior year quarter. The levers driving our profit improvement are unchanged and working effectively, and include sales growth leverage, strong operational execution and productivity, and product portfolio management. Additionally, we delivered free cash flow of $19.1 million in the quarter, and bolstered our ending cash to $40 million. Compared to our competitors, our strong financial position remains an advantage in this period of choppy demand and elevated uncertainty."
-- Derek Schmidt, President and Chief Executive Officer
Flexsteel Industries' sustained focus on operational efficiency and capital discipline has resulted in robust cash flow and balance sheet strength, reinforcing its ability to fund strategic investments, navigate industry headwinds, and potentially capture share from less resilient peers.
Tariff mitigation strategy enables company to protect margins and demand
The company prioritized maintaining retail price competitiveness by instituting 4%-8.5% tariff surcharges effective August 1, offset by reductions in ocean freight surcharges, while actively seeking supplier diversification beyond Vietnam and launching new cost-saving initiatives. Management indicated its pricing actions were at the low end of the competitive set, aiming to minimize negative unit demand elasticity and margin impact from the 20% tariff on Vietnam imports effective August 2025.
"We have benchmarked the pricing surcharges that we pushed through the market, which, as we've explained, range between 4% and 8.5%, effective August 1, 2025. We are actually at the low end of the competitive set in terms of what others have pushed out in the market. So we believe that, I don't know, I'm not sure if we're advantaged, but we're certainly not disadvantaged. The other important thing to note, Anthony, is that, simultaneously with the tariff surcharges that we put in place, we actually reduced existing ocean freight surcharges largely to keep retail prices of our product relatively stable at retail. So again, we pushed through a tariff surcharge, but we've also simultaneously pulled back on an ocean freight surcharge. And so we're trying to minimize the retail price impact to consumers, given the challenging environment. And I believe we're well-positioned given that approach to continue growing and gaining share in this environment despite some of the macroeconomic challenges."
-- Derek Schmidt, President and Chief Executive Officer
Flexsteel Industries' nuanced approach to pricing and cost management demonstrates a strategic commitment to protecting market share and mitigating margin compression amid external shocks, underpinning its long-term competitiveness against rivals less capable of agile tariff response.
Company invests in innovation and expanded distribution for durable growth
Diversified sales drivers included the health and wellness segment (notably the ZCLINR product family), case goods category growth, and retail partnerships with Wayfair and Costco, as well as developing new partnerships with Macy’s. The company plans to further scale marketing capabilities, accelerate product launches through standardized platforms, and invest in consumer insights to fuel both core and new market expansion in fiscal 2026.
"we are ramping and broadening our consumer insights capabilities to drive bigger, bolder innovation and bolster more relevant on-trend designs. We are also improving the standardization of our product platforms and commonization of parts to accelerate speed to market for new product development. Lastly, we've successfully invested in building stronger marketing capabilities over the past several years, and plan to continue to scale marketing to drive more brand awareness and demand generation. By driving more innovation, stronger product relevance, faster product launches, and more powerful marketing, we believe that new products will remain a key source of growth in the New Year."
-- Derek Schmidt, President and Chief Executive Officer
By investing in consumer insights, product platform standardization, and marketing, Flexsteel Industries is positioning itself to accelerate innovation and expand its reach in both established and emerging categories.
Looking ahead
Flexsteel Industries expects sales of $105 million to $110 million (1% to 6% YoY growth) in fiscal Q1 2026 (period ended June 30, 2026), gross margins between 21.5% and 22.5%, and operating margin of 5.5% to 7%. Free cash flow is projected at negative $5 million to $0, primarily due to seasonal outflows; capital expenditures are forecast at $1 million to $1.5 million. Management reaffirmed a multifaceted tariff mitigation plan and continued high-ROI strategic investments but acknowledged that persistent market volatility and tariff uncertainty could still impact demand and results.
