Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
______________________________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2026
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-5151
FLEXSTEEL INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Incorporated in the State of Minnesota
42-0442319
(State or other Jurisdiction of
(I.R.S. Identification No.)
Incorporation or Organization)
385 BELL STREET
DUBUQUE, IA 52001-7004
(Address of Principal Executive Offices) (Zip Code)
(563) 556-7730
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
FLXS
The Nasdaq Stock Market, LLC
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such a shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one).
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer Smaller Reporting Company Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Common Stock - $1.00 Par Value
Shares Outstanding as of April 22, 2026
5,355,531
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED March 31, 2026
Page
Part I – Financial Information
Item 1.
Financial Statements
3
Consolidated Balance Sheets as of March 31, 2026, and June 30, 2025 (Unaudited)
Consolidated Statements of Income and Comprehensive Income for three and nine months ended March 31, 2026, and March 31, 2025 (Unaudited)
4
Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended March 31, 2026, and March 31, 2025 (Unaudited)
5
Consolidated Statements of Cash Flows for the nine months ended March 31, 2026, and March 31, 2025 (Unaudited)
6
Notes to Consolidated Financial Statements (Unaudited)
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
13
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
16
Item 4.
Controls and Procedures
Part II – Other Information
Item 1A.
Risk Factors
17
Unregistered Sales of Equity Securities and Use of Proceeds
Item 5.
Other Information
Item 6.
Exhibits
Signatures
18
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands)
March 31,
June 30,
2026
2025
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
57,283
40,006
Trade receivables - less allowances: March 31, 2026, $2,090, June 30, 2025, $1,790
41,455
35,229
Inventories
80,569
89,135
Other
21,158
8,002
Total current assets
200,465
172,372
NONCURRENT ASSETS:
Property, plant and equipment, net
36,501
36,212
Operating lease right-of-use assets
37,264
41,545
Deferred income taxes
9,095
12,444
Other assets
6,846
19,913
TOTAL ASSETS
290,171
282,486
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade
23,894
25,617
Current portion of operating lease liabilities
8,258
7,809
Accrued liabilities:
Payroll and related items
9,332
11,260
Insurance
1,629
1,950
Sales and advertising related items
9,372
8,061
5,741
7,317
Total current liabilities
58,226
62,014
LONG-TERM LIABILITIES:
Operating lease liabilities, less current maturities
45,645
51,561
Other liabilities
997
1,049
Total liabilities
104,868
114,624
SHAREHOLDERS' EQUITY:
Common stock - $1 par value; authorized 15,000 shares; 8,590 shares issued and 5,352 outstanding as of March 31, 2026; 8,514 shares issued and5,307 outstanding as of June 30, 2025
8,590
8,514
Additional paid-in capital
42,003
40,644
Treasury stock, at cost; 3,238 shares as of March 31, 2026, and 3,207 shares as ofJune 30, 2025
(72,861
)
(71,731
Retained earnings
207,571
190,435
Total shareholders' equity
185,303
167,862
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
See accompanying Notes to Consolidated Financial Statements (Unaudited).
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in thousands, except per share data)
Three Months Ended
Nine Months Ended
Net sales
115,125
113,972
343,813
326,462
Cost of goods sold
89,080
88,636
264,998
255,954
Gross profit
26,045
25,336
78,815
70,508
Selling, general and administrative expenses
17,823
17,070
52,609
49,532
Right-of-use asset impairment
—
14,079
(Gain) on sale of real estate
(753
(Gain) on disposal of assets held for sale
(4,991
Operating income (loss)
8,222
(5,060
26,206
12,641
Other income (expense):
Interest income
361
102
1,105
133
Interest (expense)
(70
Income (loss) before income taxes
8,583
(4,958
27,311
12,704
Income tax provision (benefit)
2,138
(1,216
6,895
3,252
Net income (loss) and comprehensive income
6,445
(3,742
20,416
9,452
Weighted average number of common shares outstanding:
Basic
5,349
5,271
5,333
5,240
Diluted
5,664
5,632
5,572
Earnings (loss) per share of common stock:
1.20
(0.71
3.83
1.80
1.14
3.63
1.70
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
Nine Months Ended March 31, 2026
Total Par
Value of
Common
Additional
Shares
Paid-In
Treasury
Retained
($1 Par)
Capital
Stock
Earnings
Total
Balance on June 30, 2025
Stock-based compensation
1,113
1,117
Vesting of restricted stock units
60
(1,991
(1,931
Stock options exercised, net
1
29
30
Treasury stock purchases
(1,130
Cash dividends declared
(1,091
Net income
7,327
Balance on September 30, 2025
8,579
39,795
196,671
172,184
1,140
1,144
(13
(12
(1,094
6,644
Balance on December 31, 2025
8,584
40,922
202,221
178,866
1,141
(99
(97
39
40
(1,095
Balance on March 31, 2026
Nine Months Ended March 31, 2025
Balance on June 30, 2024
8,407
39,573
174,118
150,367
1,135
1,138
(36
(32
(910
4,140
Balance on September 30, 2024
8,414
40,672
177,348
154,703
961
963
Vesting of restricted stock units and restricted shares
(14
(1,925
(1,865
(922
9,054
Balance on December 31, 2024
8,477
39,694
185,480
161,920
859
862
(921
Balance on March 31, 2025
8,480
40,553
180,817
158,119
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
2,753
2,777
3,349
(3,463
Stock-based compensation expense
3,405
2,963
Provision for credit losses
308
12
Loss (gain) on disposition of property, plant and equipment
99
(5,762
Changes in operating assets and liabilities:
Trade receivables
(6,534
5,771
8,566
9,438
Other current assets
(74
(1,302
(5,638
(1,338
(3,724
Accrued liabilities
(3,688
(3,454
Other long-term liabilities
(54
204
Net cash provided by operating activities
27,195
21,353
INVESTING ACTIVITIES:
Proceeds from sale of investments
1,155
Proceeds from sales of property, plant and equipment
15
7,538
Capital expenditures
(3,539
(2,690
Net cash (used in) provided by investing activities
(3,524
6,003
FINANCING ACTIVITIES:
Dividends paid
(3,294
(2,655
Proceeds from line of credit
202,344
Payments on line of credit
(207,262
Proceeds from issuance of common stock
70
141
Shares withheld for tax payments on vested shares and options exercised
(2,040
(2,051
Net cash (used in) financing activities
(6,394
(9,483
Increase in cash and cash equivalents
17,277
17,873
Cash and cash equivalents at beginning of the period
4,761
Cash and cash equivalents at end of the period
22,634
SUPPLEMENTAL INFORMATION
Interest paid
107
Interest received
Cash paid for income taxes, net
6,394
7,312
Capital expenditures in accounts payable
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED March 31, 2026
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc. and Subsidiaries (the “Company” or “Flexsteel” or “Our”) is one of the largest residential furniture manufacturers, importers, and marketers in the U.S., known for crafting comfortable, durable seating and timeless designs for rooms throughout the home. Product offerings include a wide variety of furniture such as sofas, loveseats, chairs, reclining rocking chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs, kitchen storage, bedroom furniture, and outdoor furniture. For more than 130 years, Flexsteel has built furniture with care, highlighted by its patented Blue Steel Spring technology that delivers lasting comfort and support. Today, Flexsteel products are available nationwide through retail partners and online channels, helping people create inviting, livable spaces they can enjoy for years to come.
BASIS OF PRESENTATION – The unaudited Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information contained in the Consolidated Financial Statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such Consolidated Financial Statements. Operating results for the three and nine months ended March 31, 2026, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2026. Certain information and footnote disclosures normally included in the Consolidated Financial Statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. Except to the extent updated or described below, the significant accounting policies in Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2025, appropriately represent, in all material respects, the current status of accounting policies.
2. INVENTORIES
A comparison of inventories is as follows:
(in thousands)
Raw materials
9,632
11,114
Work in process and finished parts
1,990
2,632
Finished goods
68,947
75,389
3. LEASES
The Company accounts for its leases in accordance with ASU 842, Leases. ASC 842 requires lessees to (i) recognize a right-of-use asset (“ROU asset”) and a lease liability that is measured at the present value of the remaining lease payments on the Consolidated Balance Sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease-related cash payments within operating and financing activities. The Company made an accounting policy election to not recognize short-term leases on the Consolidated Balance Sheets and all non-lease components, such as common area maintenance, were excluded. At any given time during the lease term, the lease liability represents the present value of the remaining lease payments, and the ROU asset is measured as the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct costs, the remaining balance of lease incentives received, and any impairment. Both the lease ROU asset and lease liability are reduced to zero at the end of the lease term.
The Company leases distribution centers and warehouses, manufacturing facilities, showrooms, and office space. At the lease inception date, the Company determines if an arrangement is, or contains, a lease. Some of the Company’s leases include options to renew at similar terms. The Company assesses these options to determine if the Company is reasonably certain of exercising these options based on relevant economic and financial factors. Options that meet these criteria are included in the lease term at the lease commencement date.
For purposes of measuring the Company’s ROU asset and lease liability, the discount rate utilized by the Company was based on the average interest rates effective for the Company’s line of credit. Some of the Company’s leases contain variable rent payments, including common area maintenance and utilities. Due to the variable nature of these costs, they are not included in the measurement of the ROU asset and lease liability.
The components of the Company’s leases excluding the impact of sublease income reflected on the Company’s Consolidated Statements of Income were as follows:
Operating lease expense
2,113
2,495
6,325
7,482
Variable lease expense
460
484
1,297
1,396
Total lease expense
2,573
2,979
7,622
8,878
Other information related to leases and future minimum lease payments under non-cancelable operating leases were as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases
7,510
7,381
Cash received from subleasing of operating lease:
Operating cash flows received from subleasing of operating lease
594
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases
456
4,119
Weighted-average remaining lease term (in years):
6.5
7.4
Weighted-average discount rate:
3.9
%
4.0
Future minimum lease payments under non-cancelable operating leases were as follows:
March 31, 2026
Remaining payments in FY2026
2,527
FY2027
10,255
FY2028
10,025
FY2029
8,949
FY2030
8,713
Thereafter
20,400
Total future minimum lease payments
60,869
Less imputed interest
6,966
Lease liability
53,903
4. CREDIT ARRANGEMENTS
On September 8, 2021, the Company, as the borrower, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), and the other lenders party thereto. The Credit Agreement has a five-year term and provides for up to an $85 million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5 million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to a prior lender and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00 to 1.00. In addition, the Loan Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other entities. As of March 31, 2026, management believes the Company was in compliance with all covenants.
8
On April 18, 2022, the Company, as the borrower, entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.
Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement ("Second Amendment to the Credit Agreement") with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate ("SOFR"). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61%, or an effective interest rate of 4.99%, on March 31, 2026.
On June 3, 2025, the Company entered into a third amendment to its Credit Agreement ("Third Amendment to the Credit Agreement") with Wells Fargo Bank, NA. The amendment reduced the maximum revolving line of credit amount to $55 million and modified certain definitions in the Credit Agreement which include dollar figures derived from the maximum revolver amount. The reduction in the maximum revolving line of credit amount was initiated by the Company to better align with current and projected borrowing availability under the terms of the Credit Agreement.
As of March 31, 2026, there were no outstanding borrowings under the Credit Agreement, exclusive of fees and letters of credit.
Letters of credit outstanding with the Lender as of March 31, 2026, totaled $0.9 million.
5. INCOME TAXES
The provision for income taxes for the interim periods is based on an estimate of the Company’s annual effective tax rate adjusted to reflect the impact of discrete items. Management judgment is required in projecting ordinary income to estimate the Company’s annual effective tax rate. The Company’s effective tax rate for the three months ended March 31, 2026, and March 31, 2025, was 24.9% and 24.5%, respectively. The Company's effective tax rate for the nine months ended March 31, 2026 and 2025, was 25.2% and 25.6%, respectively. For the three and nine months ended March 31, 2026, the effective tax rate differs from the statutory tax rate of 21% primarily due to state taxes, the impact of foreign operations, and non-deductible compensation, offset by credits for research and development. For the three and nine months ended March 31, 2025, the effective tax rate differs from the statutory tax rate of 21% due to nondeductible stock compensation, state taxes, and the impact of foreign operations.
6. STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans in accordance with ASC 718, Stock Compensation, which requires the Company to measure all share-based payments at grant date fair value and recognize the cost over the requisite service period. Restricted shares and restricted stock units (“RSUs”) generally vest over 1 to 3 years. Stock options are granted at an exercise price equal to the fair value of the Company’s common stock price at the grant date and are exercisable for up to 10 years from the date of grant. Stock-based compensation is included in selling, general and administrative expenses on the Consolidated Statements of Income and Comprehensive Income. Forfeitures are recognized as incurred.
The following table is a summary of total stock-based compensation expenses for the three and nine months ended March 31, 2026 and 2025.
Total stock-based compensation expense
The Company’s shareholders approved the Flexsteel Industries, Inc. 2022 Equity Incentive Plan (“2022 Plan”) on December 14, 2022 and approved amendments to the 2022 Plan on December 10, 2025.
The 2022 Plan replaced the Long-Term Incentive Compensation Plan (“LTIP”) and the 2013 Omnibus Stock Plan (collectively, the “Prior Plans”). No further awards will be made under either of the Prior Plans, but these Prior Plans will continue to govern awards previously granted under them.
The 2022 Plan is a long-term incentive plan pursuant to which awards may be granted to certain employees, independent contractors and directors of the Company, in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other stock-based awards. For periods beginning on or after July 1, 2023,
9
restricted stock units ("RSUs") and performance stock units ("PSUs") granted to officers and key employees as part of long-term compensation programs are issued from the 2022 Plan. RSUs and PSUs awarded from the 2022 Plan are included in the Long-Term Incentive Compensation or Restricted Share and RSUs tables below.
The LTIP provided for PSUs to be awarded to officers and key employees based on performance goals set by the Compensation Committee of the Board of Directors (the “Committee”). In conjunction with each grant of PSUs, the Committee granted RSUs under the 2013 Omnibus Stock Plan that vested at the end of three years. No further awards will be issued under this plan.
The 2013 Omnibus Stock Plan was for key employees, officers and directors and provided for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, and performance units. No further awards will be issued under this plan.
Long-Term Incentive Compensation
The table below sets forth, as of March 31, 2026, the number of unvested PSUs granted at the target performance level for the 2024-2026, 2025-2027, and 2026-2028 performance periods under the 2022 Plan and the number of unvested RSUs granted in conjunction with the PSUs. For PSUs awarded for the three year performance periods ending June 30, 2026, 2027 and 2028, achievement is based on meeting performance goals set for each year within the three year period. The Committee selected Adjusted Operating Income as the performance metric for the performance periods ending June 30, 2026, 2027, and 2028.
Time-Based Vest (RSUs)
Performance-Based Vest (PSUs)
Weighted Average
Fair Value
(shares in thousands)
Per Share
Unvested as of June 30, 2025
128
21.25
191
21.09
319
21.17
Granted
31
35.94
46
77
Vested
(48
19.23
(72
(120
Forfeited
(2
25.89
(4
(6
Unvested as of March 31, 2026
109
26.23
161
26.05
270
26.14
Total unrecognized stock-based compensation related to the unvested PSUs at the target performance level and the related unvested RSUs was $3.2 million as of March 31, 2026, which is expected to be recognized over a weighted-average period of 1.1 years.
Restricted Shares and RSUs
A summary of the activity in the Company’s unvested restricted shares and unvested RSUs (not granted in conjunction with PSUs) as of March 31, 2026, is as follows:
24.32
40.96
(5
4.96
(1
31.12
35.49
Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) was $0.3 million as of March 31, 2026, which is expected to be recognized over a weighted-average period of 1.2 years.
10
Options
A summary of the activity of the Company’s stock option plans as of March 31, 2026, is presented below:
Weighted
Average
Exercise Price
Outstanding at June 30, 2025
66
18.02
Exercised
37.06
Cancelled
43.09
Outstanding at March 31, 2026
62
16.60
The following table summarizes information for options outstanding at March 31, 2026:
Range of
Outstanding
Remaining
Exercise
Prices
Life (Years)
Price
9.97 - 15.14
43
4.1
10.62
18.30 - 19.72
5.2
18.30
21.96 - 27.57
2.8
24.49
31.06 - 32.80
2.4
32.80
43.09 - 47.45
1.0
45.03
9.97 - 47.45
3.8
There is no unrecognized stock-based compensation expense related to these options as of March 31, 2026.
Stock-based compensation granted outside a plan
During the quarter ended June 30, 2020, the Company awarded its former Chief Financial Officer/Chief Operating Officer (current Chief Executive Officer) 79,000 options outside of any Company stock plans. All 79,000 options remain outstanding as of March 31, 2026, with an exercise price of $9.97 and a remaining life of 4 years. There is no remaining unrecognized stock-based compensation expense related to these options.
7. EARNINGS PER SHARE
Basic earnings per share (EPS) of common stock are based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share of common stock include the dilutive effect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options, shares associated with the long-term incentive compensation plans, and non-vested restricted stock units. The Company calculates the dilutive effect of outstanding options and restricted stock units using the treasury stock method. Anti-dilutive options are not included in the computation of diluted EPS when their exercise price is greater than the average closing market price of the common shares.
Basic shares
Potential common shares:
Stock options
101
98
103
Non-vested restricted stock units and restricted shares
214
201
229
Diluted shares
Anti-dilutive shares
331
Cash dividends declared per common share were $0.20 for the three and nine months ended March 31, 2026, and were $0.17 for the three and nine months ended March 31, 2025, respectively.
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8. SEGMENT INFORMATION
The Company operates as one operating segment and one reportable segment reflecting the integrated nature of its operations across various products, manufacturing platforms and sales channels across the entire United States.
The Company's chief operating decision maker (“CODM”) is its President and Chief Executive Officer, who has final authority over the allocation of resources, assessment of performance, and key operating decisions.
The CODM manages the business on a consolidated basis and measures segment performance using operating income and net income, which the Company believes provide the best analysis of business performance. The CODM analyzes the performance of operating income and net income to provide insight into all aspects of the segment’s operations and overall success for a given period. In addition, the CODM reviews significant segment expenses focused on cost of sales, selling and general administrative expenses, and restructuring charges, net. These costs used to measure segment profitability are the same costs already reported in the accompanying Consolidated Statements of Income and Comprehensive Income. Similarly, segment assets are reported in the accompanying Consolidated Balance Sheets.
The Company has minimal export sales, primarily to Canada or Mexico. The Company leases and operates three manufacturing facilities in Juarez, Mexico and leases one manufacturing facility in Mexicali, Mexico. Long-lived assets, including property, plant & equipment and right-of-use assets related to leases, located in the United States and Mexico totaled $41.2 million and $32.6 million, respectively, at March 31, 2026 and $42.4 million and $35.4 million, respectively, at June 30, 2025.
9. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to various other legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company’s business. The Company does not consider any of such other proceedings that are currently pending, individually or in the aggregate, to be material to its business or likely to result in a material effect on its consolidated operating results, financial condition, or cash flows.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the disclosure impacts of this ASU on its consolidated financial statements.
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023 09 “Improvements to Income Tax Disclosures.” The amendments in this ASU are intended to increase transparency through improvements to income tax disclosures primarily related to the income tax rate reconciliation and income taxes paid information. The Company will adopt this ASU for the annual period ending June 30, 2026. The Company does not expect this guidance will have a material impact on our financial position and results of operations.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
The following analysis of the results of operations and financial condition of the Company should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this quarterly report on Form 10-Q.
CRITICAL ACCOUNTING POLICIES:
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our 2025 annual report on Form 10-K.
Overview
The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the three and nine months ended March 31, 2026 and 2025. The amounts presented are percentages of the Company’s net sales.
100.0
77.4
77.8
77.1
78.4
Gross margin
22.6
22.2
22.9
21.6
15.5
15.0
15.3
15.2
12.4
4.3
(0.7
(0.2
(1.5
7.1
(4.4
7.6
0.3
0.1
(4.3
7.9
1.9
(1.1
2.0
5.6
(3.3
5.9
Results of Operations for the Quarter Ended March 31, 2026 vs. 2025
Net sales were $115.1 million for the quarter ended March 31, 2026, compared to net sales of $114.0 million in the prior year quarter, an increase of 1.0%. The increase was driven by higher pricing from tariff surcharges, offset by lower unit volume, particularly in our made-to-order, ready-to-assemble and case goods categories.
Sales order backlog, inclusive of estimated tariff surcharges, was $79.5 million as of the quarter ended March 31, 2026, an increase of 1.5% compared to $78.3 million in the prior year quarter.
Gross margin as a percent of net sales for the quarter ended March 31, 2026, was 22.6%, compared to 22.2% for the prior year quarter, an increase of 40 basis points (“bps”). The 40-bps increase was primarily driven by favorable sales composition of higher margin products.
Selling, general and administrative (“SG&A”) expenses increased $0.7 million to $17.8 million in the quarter ended March 31, 2026, as compared to $17.1 million in the prior year quarter. As a percentage of net sales, SG&A was 15.5% in the quarter ended March 31, 2026 compared to 15.0% of net sales in the prior year quarter. The 50-bps increase was mainly due to investments in consumer insights, innovation, demand generation, and customer experience.
Income tax expense was $2.1 million, or an effective rate of 24.9% for the quarter ended March 31, 2026, compared to income tax benefit of ($1.2) million, or an effective rate of 24.5% for the quarter ended March 31, 2025. For the quarter ended March 31, 2026, the effective tax rate differs from the statutory tax rate of 21% primarily due to state taxes, the impact of foreign operations, and non-deductible compensation offset by credits for research and development.
Net income was $6.4 million, or $1.14 per diluted share for the quarter ended March 31, 2026, compared to net loss of ($3.7) million, or $(0.71) per diluted share in the prior year quarter. During the quarter ended March 31, 2025, the Company recorded a right-of-use asset impairment on the manufacturing facility in Mexicali, Mexico.
Results of Operations for the nine months ended March 31, 2026 and 2025
Net sales were $343.8 million for the nine months ended March 31, 2026, compared to net sales of $326.5 million in the prior-year nine-month period, an increase of 5.3%. The increase in sales of $17.3 million was driven by higher unit volume of sourced soft seating products and pricing from tariff surcharges, partially offset by lower unit volume in our made-to-order soft seating products and homestyles branded ready-to-assemble products.
Gross margin as a percent of net sales for the nine months ended March 31, 2026, was 22.9%, compared to 21.6% for the prior-year nine-month period, an increase of 130 bps. The 130-bps increase was primarily driven by favorable sales composition of higher margin products, partially offset by the dilutive impact of tariffs.
Selling, general and administrative expenses increased $3.1 million in the nine months ended March 31, 2026, compared to the prior-year nine-month period. SG&A as a percentage of sales was 15.3% in the nine months ended March 31, 2026, compared to the prior-year nine-month period of 15.2%. The 10-bps increase was mainly due to investments in growth initiatives.
Income tax expense was $6.9 million, or an effective rate of 25.2%, during the nine months ended March 31, 2026, compared to income tax expense of $3.3 million in the prior-year nine-month period, or an effective tax rate of 25.6%. The effective tax rate for the nine months ended March 31, 2026, was primarily impacted by state taxes, the impact of foreign operations and nondeductible compensation, offset by credits for research and development.
Net income was $20.4 million, or $3.63 per diluted share for the nine months ended March 31, 2026, compared to net income of $9.5 million, or $1.70 per diluted share in the prior-year nine-month period. During the nine-month period ended March 31, 2025, the Company recorded a right-of-use asset impairment on the manufacturing facility in Mexicali, Mexico. In addition the Company recorded pre-tax gains related to the sale of its Dublin, Georgia facility and an ancillary building, formerly part of its Huntingburg, IN distribution center.
Liquidity and Capital Resources
Working capital (current assets less current liabilities) on March 31, 2026, was $142.2 million compared to $110.4 million on June 30, 2025. The $31.8 million increase in working capital was primarily due to an increase in cash of $17.3 million, other current assets of $13.2 million, an increase in trade receivables of $6.2 million, and a decrease in accounts payable of $1.7 million, a decrease in other current liabilities of $1.6 million, a decrease in other current liabilities of $0.8 million partially offset by a decrease in inventories of $8.6 million and an increase in operating lease of $0.4. Refer to discussion of working capital changes below, under Net cash provided by operating activities. Capital expenditures were $3.5 million during the nine months ended March 31, 2026.
A summary of operating, investing, and financing cash flow is shown in the following table:
For the nine months ended March 31, 2026, net cash provided by operating activities was $27.2 million, primarily due to net income of $20.4 million, a decrease in inventories of $8.6 million and adjustments for non-cash items including stock-based compensation of $3.4 million, deferred income taxes $3.3 million, depreciation of $2.8 million, provision for credit losses of $0.3 million, partially offset by an increase in trade receivables of $6.5 million, a decrease in accrued liabilities of $3.7 million, a decrease in accounts payable of $1.3 million and an increase in other current assets of $0.1 million.
For the nine months ended March 31, 2025, net cash provided by operating activities was $21.4 million, primarily due to net income of $9.5 million, adjustments for non-cash items including a right-of-use asset impairment of $14.1 million, a pre-tax gain on sale of assets of $5.8 million, deferred income tax of $3.5 million, stock-based compensation of $3.0 million, and depreciation of $2.8 million, as well
14
as changes in operating assets and liabilities including, a decrease in inventory of $9.4 million, and a decrease in trade receivables of $5.8 million, offset by an increase in other assets of $5.6 million, a decrease in accounts payable of $3.7 million, a decrease in accrued liabilities of $3.5 million, an increase in other current assets of $1.3 and a decrease in other long-term liabilities of $0.2 million.
For the nine months ended March 31, 2026, net cash used in investing activities was $3.5 million due to capital expenditures.
For the nine months ended March 31, 2025, net cash provided by investing activities was $6.0 million due to proceeds from the sales of property, plant and equipment of $7.5 million, and corporate owned life insurance proceeds of $1.2 million, offset by capital expenditures of $2.7 million.
For the nine months ended March 31, 2026, net cash used in financing activities was $6.4 million, primarily due to dividends paid of $3.3 million, shares withheld for tax payments on vested shares and options exercised of $2.0 million and treasury stock purchases of $1.1 million.
For the nine months ended March 31, 2025, net cash used in financing activities was $9.5 million, due to payments on the line of credit of $207.3 million, dividends paid of $2.7 million, and shares withheld for tax payments on vested shares and options exercised of $2.1 million, partially offset by proceeds from the line of credit of $202.3 million and proceeds from issuance of common stock of $0.1 million.
Line of Credit
On September 8, 2021, the Company, as the borrower, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), and the other lenders thereto. The Credit Agreement has a five-year term and provided for up to an $85 million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5 million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to a prior lender and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00 to 1.00. In addition, the Loan Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other entities. As of March 31, 2026, management believes the Company was in compliance with all covenants.
On April 18, 2022, the Company entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender, and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term "Payment Conditions" and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.
Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement (“Second Amendment to the Credit Agreement”) with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate (“SOFR”). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61%, or an effective interest rate of 4.99%, on March 31, 2026.
Contractual Obligations
As of March 31, 2026, there have been no material changes to our contractual obligations presented in our Annual Report on Form 10-K for the year ended June 30, 2025.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of changes in the value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. In the normal course of our business we are exposed to various types of market risks, including foreign currency risk, interest rate risk and inflation risk.
Foreign Currency Risk – During the quarters ended March 31, 2026 and 2025, the Company did not have sales but had purchases and other expenses denominated in foreign currencies, primarily the Mexican Peso. The wages of our employees and certain other employee benefits and indirect costs related to our operations in Mexico are made in Pesos and subject to foreign currency fluctuation with the U.S. dollar. The Company does not employ any foreign currency hedges against this operating expense exposure. A negative shift in the value of the U.S. dollar against the Peso could increase the cost of our manufactured product. In addition, the Company has certain asset and liabilities related to our manufacturing operations which are denominated in pesos, primarily our VAT receivable for recoverable VAT paid in Mexico. A negative shift in the value of the Peso against the U.S. dollar could result in the value of our receivable decreasing which may impact our earnings. The Company does not currently hedge this foreign currency risk. See “Risk Factors” in Item 1A in the most recent Annual Report on Form 10-K for further discussion.
Interest Rate Risk – The Company has exposure to changes in interest rates related to interest which accrues on our cash deposits as well as floating interest rates on our line of credit. Increases in interest rates benefit interest accrued on our cash deposits while also increasing our cost of borrowing. Declining interest rates decrease the value earned on our deposits while reducing our cost of borrowing. On March 31, 2026, the Company had no outstanding borrowings on its line of credit, exclusive of fees and letters of credit.
Inflation Risk – We are exposed to market risks from price inflation in raw materials, production costs, importation costs and domestic transportation costs. The cost to import furniture products and raw materials can be adversely affected by political issues in the countries where suppliers are located, as well as disruptions associated with shipping distances and negotiations with port employees. Other risks related to the cost of furniture product importation include government imposition of regulations and/or quotas; duties, taxes or tariffs on imports; and significant fluctuation in the value of the U.S. dollar against foreign currencies. Our upholstery manufacturing processes include wood and steel which can be impacted by commodity prices for these materials as well as petroleum based foam which can be impacted by the cost of crude oil prices and availability of starter chemicals to suppliers. Increased energy prices, notably fuel, will also impact the cost associated with transportation of materials and delivery of customer orders. Any of these factors could interrupt supply, increase costs, decrease demand, and decrease earnings.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of March 31, 2026.
(b) Changes in internal control over financial reporting. During the quarter ended March 31, 2026, there were no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Cautionary Statement Relevant to Forward-Looking Information for “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995
The Company and its representatives may from time to time make written or oral forward-looking statements concerning long-term goals or anticipated results of the Company, including statements contained in the Company’s filings with the Securities and Exchange Commission and its reports to stockholders.
Statements, including those in this Quarterly Report on Form 10-Q, which are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause the Company’s results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risk and uncertainty. Some of the factors that could affect results are the cyclical nature of the furniture industry, supply chain disruptions, litigation, the effectiveness of new product introductions and distribution channels, the product mix of sales, pricing pressures, the cost of raw materials and fuel, changes in foreign currency values, retention and recruitment of key employees, actions by governments including laws, regulations, taxes and tariffs, the amount of sales generated and the profit margins thereon, competition (both U.S. and foreign), credit exposure with customers, participation in multi-employer pension plans, disruptions or security breaches to business information systems, the impact of any future pandemic, and general economic conditions. For further information regarding these risks and uncertainties, see the “Risk Factors” section in Item 1A of our most recent Annual Report on Form 10-K.
The Company specifically declines to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
PART II OTHER INFORMATION
Item 1A. Risk Factors
There has been no material change in the risk factors set forth under Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 11, 2024, the Board of Directors approved a share repurchase program authorizing the Company to purchase up to $30 million of the Company’s common stock.
The following table summarizes the activity of the common stock repurchases made during the three months ended March 31, 2026.
Total Number
Total Number of Shares
Approximate DollarValue of Shares
of Shares
Price Paid
Purchased
that May Yet
Period
per Share
as Part of Plan
Be Purchased
January 1, 2026, to January 31, 2026
28,870,242
February 1, 2026, to February 28, 2026
March 1, 2026, to March 31, 2026
Three months ended March 31, 2026
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2026, no director or officer of the Company adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
Exhibit No.
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.*
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.*
32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS
XBRL Instance Document**
101.SCH
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104.Cover Page
Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith
**
In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date:
April 22, 2026
By:
/s/ Michael J. Ressler
Michael J. Ressler
Chief Financial Officer
(Principal Financial & Accounting Officer)