DUBUQUE, Iowa — Flexsteel Industries, Inc., one of the largest manufacturers, importers, and marketers of residential furniture products in the United States, reported its fifth consecutive quarter of year-over-year sales growth. 

In its second quarter fiscal 2025 results, Flexsteel recorded net sales for the quarter of $108.5 million compared to $100.1 million in the prior year quarter, an increase of 8.4%. The company ranks #37 on Woodworking Network's FDMC 300 listing of top North American wood products' companys. 

Derek Schmidt, president and CEO of Flexsteel Industries Inc., said that while industry demand remains soft, many of its retailer partners were encouraged by improved traffic trends and sales close rates during the recent holiday season, which "provides optimism that demand declines may have bottomed and the industry could be positioned to start growing again, albeit modestly, in calendar 2025." 

Schmidt added that, "We are competing well and gaining share in a challenging business environment. We continued our strong momentum from the first quarter, delivering sales growth of 8.4 percent compared to the prior year quarter, which represents our fifth consecutive quarter of mid-single to low-double digit year-over-year growth. I’m especially encouraged because our growth was broad-based. We solidly grew in our core markets while simultaneously delivering growth in all our new and expanded market initiatives. Additionally, we continue to expand our operating margin and deliver strong positive free cash flow which has allowed us to pay off our remaining bank debt and begin accumulating cash.”

Operating results
Net sales were $108.5 million for the second quarter compared to net sales of $100.1 million in the prior year quarter, an increase of $8.4 million, or 8.4%. The increase was driven by higher sales in home furnishings products sold through retail stores of $9.2 million, or 10.3%, led by unit volume increases and to a lesser extent, ocean freight surcharges. Sales of products sold through e-commerce channels decreased by ($0.8) million, or (7.1%), compared to the second quarter of the prior year. Lower sales in the e-commerce channel were driven by softer consumer demand.

Gross margin for the quarter ended December 31, 2024, was 21.0%, compared to 21.9% for the prior-year quarter, a decrease of 90 basis points (“bps”). The 90-bps decrease was primarily due to margin dilution from higher ocean freight costs.

Selling, general and administrative (SG&A) expenses decreased to 14.9% of net sales in the second quarter of fiscal 2025 compared with 17.3% of net sales in the prior year quarter. The 240-bps decrease was due to leverage on higher sales and structural cost savings, partially offset by investments in growth initiatives for the quarter ended December 31, 2024.

During the quarter, the Company completed the sale of its Dublin, Georgia facility which had been previously recorded as held for sale. The Company recorded a pre-tax gain of $5.0 million related to the sale.

Operating income for the quarter ended December 31, 2024, was $11.7 million compared to $4.6 million in the prior-year quarter. Adjusted operating income for the quarter ended December 31, 2024, was $6.7 million compared to $4.6 million in the prior year quarter.

Income tax expense was $2.6 million, or an effective rate of 22.4%, during the second quarter compared to tax expense of $1.0 million, or an effective rate of 25.5%, in the prior year quarter.

Net income was $9.1 million, or $1.62 per diluted share, for the quarter ended December 31, 2024, compared to net income of $3.1 million, or $0.57 per diluted share, in the prior year quarter. Adjusted net income for the quarter ended December 31, 2024, was $5.3 million or $0.95 per diluted share compared to adjusted net income of $3.1 million or $0.57 per diluted share in the prior year quarter.

Liquidity
The Company ended the quarter with a cash balance of $11.8 million and working capital (current assets less current liabilities) of $98.2 million, and availability of approximately $60.8 million under its secured line of credit.

Capital expenditures for the six months ended December 31, 2024, were $1.3 million.

Financial outlook
For fiscal year 2025, the Company is increasing the previously disclosed range of expected sales growth from 3.5% to 6.5%, to 5.5% to 8.0%. Excluding the impact of potential tariffs, the range of operating margin is forecasted to increase from 5.8% to 6.5%, to 7.3% to 7.7%, and the expected adjusted operating margin is 6.2% to 6.6%. The impact of tariffs, as well as other potential U.S. policy changes, could materially change our business forecast. Besides tariffs, the most significant drivers of variability in the financial outlook are consumer demand, competitive pricing conditions, and ocean freight rates, all of which will be shaped by macro-economic factors.