FLEXSTEEL INDUSTRIES INC

Previous wording

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 six months ended December 31, 2024 and 2023. The amounts presented are percentages of the Company’s net sales.

Current wording

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, 2025 and 2024. The amounts presented are percentages of the Company’s net sales.

Previous wording

Net sales were $108.5 million for the quarter ended December 31, 2024, compared to net sales of $100.1 million in the prior year quarter, an increase of 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, freight surcharges, and product mix. 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.

Current wording

Net sales were $114.0 million for the quarter ended March 31, 2025, compared to net sales of $107.2 million in the prior year quarter, an increase of 6.3%. The increase was driven by higher sales in home furnishings products sold through retail stores of $10.6 million, or 10.9%, over the prior year quarter led by unit volume increases, freight surcharges, and product mix. Sales of products sold through e-commerce channels decreased by ($3.8) million, or (36.7%), compared to the third quarter of the prior year. Lower sales in the e-commerce channel were driven by softer consumer demand.

Previous wording

Home furnishings backlog was $77 million as of the quarter ended December 31, 2024, an increase of 40.0% compared to $55 million in the prior year quarter.

Current wording

Home furnishings backlog was $78.3 million as of the quarter ended March 31, 2025, an increase of 25.8% compared to $61.5 million in the prior year quarter.

Previous wording

Gross margin as a percent of net sales 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 ocean freight charge increases partially offset by cost savings initiatives.

Current wording

Gross margin as a percent of net sales for the quarter ended March 31, 2025, was 22.2%, compared to 21.7% for the prior year quarter, an increase of 50 basis points (“bps”). The 50-bps increase was primarily due to leverage of fixed costs on higher sales and favorable mix, partially offset by no sub-lease income from our Mexicali facility compared to the prior year period.

Previous wording

Selling, general and administrative (“SG&A”) expenses decreased ($1.3) million to $16.1 million in the second quarter ended December 31, 2024, as compared to $17.4 million in the prior year quarter. As a percentage of net sales, SG&A was 14.9% in the quarter ended December 31, 2024 compared to 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.

Current wording

Selling, general and administrative (“SG&A”) expenses decreased ($0.6) million to $17.1 million in the third quarter ended March 31, 2025, as compared to $17.7 million in the prior year quarter. As a percentage of net sales, SG&A was 15.0% in the quarter ended March 31, 2025 compared to 16.5% of net sales in the prior year quarter. The 150-bps was due to leverage on higher sales and cost savings, partially offset by investments in growth initiatives for the quarter ended March 31, 2025.

Previous wording

Income tax expense was $2.6 million, or an effective rate of 22.4% for the quarter ended December 31, 2024, compared to an income tax expense of $1.0 million, or an effective rate of 25.5% during the quarter ended December 31, 2023. For the quarter ended

Current wording

Income tax expense was ($1.2) million, or an effective rate of 24.5% for the quarter ended March 31, 2025, compared to an income tax expense of $0.9 million, or an effective rate of 32.2% during the quarter ended March 31, 2024. For the quarter ended March 31, 2025, the effective tax rate differs from the statutory tax rate of 21% primarily due to state taxes and the impact of foreign operations.

Previous wording

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.

Current wording

Net loss was ($3.7) million, or $(0.71) per diluted share for the quarter ended March 31, 2025, compared to net income of $1.8 million, or $0.33 per diluted share in the prior year quarter.

Previous wording

On February 1, 2025, the President of the United States issued executive order “Imposing Duties To Address The Situation At Our Southern Border” which imposed a 25% tariff on all products of Mexico beginning February 4, 2025. Further executive order issued February 3, 2025, paused the implementation of these tariffs until March 4, 2025. The current situation is dynamic, and it is unknown if the two countries will reach an agreement to further pause or eliminate the pending tariffs. Given the Company’s sizable manufacturing operations in Mexico, should these tariffs be enacted they could have a material impact on our future cost of goods sold, profit and cash flow. The ultimate impact will be dependent on the magnitude and duration of the tariffs and the Company is assessing options to mitigate any potential impact.

Current wording

On April 2, 2025, the President of the United States issued an executive order to regulate imports by imposing reciprocal country specific tariffs on multiple nations around the world, including 46% on goods imported from Vietnam where the Company sources a significant amount of finished product. A further executive order issued April 9, 2025, paused the implementation of the country specific tariffs on Vietnam and many other countries for 90 days, maintaining a 10% tariff while the United States works with its trade partners to negotiate new trade agreements. The current situation is dynamic, and it is unknown if the United States and its trade partners will reach an agreement to further pause or eliminate the pending tariffs. Should these tariffs be enacted they could have a material impact on our future net sales, cost of goods sold, profit and cash flow. The ultimate effect will be dependent on the magnitude and duration of the tariffs and the countries implicated. The Company is assessing options to mitigate any potential impact.

Previous wording

Results of Operations for the six months ended December 31, 2024 and 2023

Current wording

Results of Operations for the nine months ended March 31, 2025 and 2024

Previous wording

Net sales were $212.5 million for the six months ended December 31, 2024, compared to net sales of $194.7 million in the prior-year six-month period, an increase of 9.1%. The increase in sales of $17.8 million was driven by a $20.2 million increase related to home furnishing products sold through retailers offset by a decrease of ($2.4) million for home furnishing products sold through e-commerce channels.

Current wording

Net sales were $326.5 million for the nine months ended March 31, 2025, compared to net sales of $301.9 million in the prior-year nine-month period, an increase of 8.1%. The increase in sales of $24.6 million was driven by a $30.8 million increase related to home furnishing products sold through retailers offset by a decrease of ($6.2) million for home furnishing products sold through e-commerce channels.

Previous wording

Gross margin as a percent of net sales for the six months ended December 31, 2024, was 21.3%, compared to 20.7% for the prior-year six-month period, an increase of 60 bps. The 60-bps increase was primarily driven by sales volume leverage and structural cost reduction savings versus the prior year ended December 31, 2023.

Current wording

Gross margin as a percent of net sales for the nine months ended March 31, 2025, was 21.6%, compared to 21.1% for the prior-year nine-month period, an increase of 50 bps. The 50-bps increase was primarily driven by sales volume leverage and structural cost reduction savings versus the nine months ended March 31, 2024.

Previous wording

Selling, general and administrative expenses decreased ($1.4) million in the six months ended December 31, 2024, compared to the prior-year six-month period. SG&A as a percentage of sales was 15.3% in the six months ended December 31, 2024, compared to the prior-year six-month period of 17.4%. The 210-bps decrease was primarily due to sales volume leverage partially offset by investments in growth initiatives for the six months ended December 31, 2024.

Current wording

Selling, general and administrative expenses decreased ($2.1) million in the nine months ended March 31, 2025, compared to the prior-year nine-month period. SG&A as a percentage of sales was 15.2% in the nine months ended March 31, 2025, compared to the prior-year nine-month period of 17.1%. The 190-bps decrease was primarily due to sales volume leverage and structural cost savings partially offset by investments in growth initiatives for the nine months ended March 31, 2025.

Previous wording

During the six-month period ended December 31, 2024, 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. See Note 3, Assets Held For Sale, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information

Current wording

During the nine-month period ended March 31, 2025, 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. See Note 3, Assets Held For Sale, of the Notes to Consolidated Financial Statements, included in the December 31, 2024 Quarterly Report on Form 10-Q for more information.

Previous wording

Income tax expense was $4.5 million, or an effective rate of 25.3%, during the six months ended December 31, 2024, compared to income tax expense of $1.6 million in the prior-year six-month period, or an effective tax rate of 30.1%. The effective tax rate for the six months ended December 31, 2024, was primarily impacted by state taxes and the impact of foreign operations.

Current wording

Income tax expense was $3.3 million, or an effective rate of 25.6%, during the nine months ended March 31, 2025, compared to income tax expense of $2.5 million in the prior-year nine-month period, or an effective tax rate of 30.8%. The effective tax rate for the nine months ended March 31, 2025, was primarily impacted by state taxes and the impact of foreign operations.

Previous wording

Net income was $13.2 million, or $2.38 per diluted share for the six months ended December 31, 2024, compared to net income of $3.8 million, or $0.71 per diluted share in the prior-year six-month period.

Current wording

Net income was $9.5 million, or $1.70 per diluted share for the nine months ended March 31, 2025, compared to net income of $5.6 million, or $1.04 per diluted share in the prior-year nine-month period.

Previous wording

Working capital (current assets less current liabilities) on December 31, 2024, was $98.2 million compared to $95.0 million on June 30, 2024. The $3.2 million increase in working capital was primarily due to a decrease in accounts payable of $5.1 million, a decrease in payroll and related liabilities of $4.6 million, and an increase in other current liabilities of $0.6 million offset by an increase in other current assets of $7.2 million, an increase in cash of $7 million, and a decrease in net trade receivables of $7.9 million, a decrease in inventories of $5.5 million and a decrease in assets held for sale of $1.7 million. Refer to discussion of working capital changes below, under Net cash provided by operating activities. Capital expenditures were $1.3 million during the six months ended December 31, 2024.

Current wording

Working capital (current assets less current liabilities) on March 31, 2025, was $103.4 million compared to $95.0 million on June 30, 2024. The $8.4 million increase in working capital was primarily due to an increase in cash of $17.9 million, a decrease in accounts payable of $3.7 million, a decrease in payroll and related liabilities of $2.7 million, and an decrease in other current liabilities of $0.7 million offset by an decrease in inventories of $9.4 million, a decrease in net trade receivables of $5.8 million, and a decrease in assets held for sale of $1.3 million. Refer to discussion of working capital changes below, under Net cash provided by operating activities. Capital expenditures were $2.7 million during the nine months ended March 31, 2025.

Previous wording

For the six months ended December 31, 2024, net cash provided by operating activities was $9.1 million, primarily due to an increase in net income of $13.2 million, adjustments for non-cash items including a pre-tax gain on sale of assets of $5 million, stock-based compensation of $2.1 million, depreciation of $1.9 million, and a decrease in inventory of $5.5 million offset by an increase in trade receivables of $7.9 million, an increase in accrued liabilities of $4.9 million, a decrease in other current assets of $3.6 million, an increase in accounts payable of $5.4 million and a decrease of other assets and liabilities of $0.2 million.

Current wording

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 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.

Previous wording

For the six months ended December 31, 2023, net cash provided by operating activities was $17.2 million, primarily due to a decrease in inventory of $16.8 million, a decrease in trade receivables of $6.9 million, net income of $3.8 million, and adjustments for non-cash items including depreciation of $1.9 million, stock-based compensation of $1.8 million, and deferred income taxes of $0.1 million partially offset by an increase in other assets of $5.3 million, a decrease in accounts payable of $5.0 million, an increase in other current assets of $2.1 million, and a decrease in accrued liabilities of $1.7 million.

Current wording

For the nine months ended March 31, 2024, net cash provided by operating activities was $24.4 million, primarily due to a decrease in inventory of $25.5 million, net income of $5.6 million, an increase in accrued liabilities of $1.6 million, an increase in other long-term liabilities of $0.1 million, and adjustments for non-cash items including depreciation of $2.9 million, stock-based compensation of $2.7 million, and deferred income taxes of $0.1 million partially offset by an increase in other assets of $7.6 million, a decrease in accounts payable of $3.0 million, an increase in other current assets of $2.8 million, an increase in trade receivables of $0.6 million and an increase in trade receivables provision of $0.1 million.

Previous wording

For the six months ended December 31, 2024, net cash provided by investing activities was $6.5 million due to proceeds from the sale of Dublin of $6.7 million, and corporate owned life insurance proceeds of $1.1 million, offset by capital expenditures of $1.3 million.

Current wording

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.

Previous wording

For the six months ended December 31, 2023, net cash used in investing activities was $3.1 million due to capital expenditures.

Current wording

For the nine months ended March 31, 2024, net cash used in investing activities was $4.4 million due to capital expenditures.

Previous wording

For the six months ended December 31, 2024, net cash used in financing activities was $8.6 million, due to payments on the line of credit of $207.1 million partially offset by proceeds from the line of credit of $202 million, shares withheld for tax payments on vested shares and options exercised of $2.1 million, dividends paid of $1.8 million, and proceeds from issuance of common stock of $0.1 million.

Current wording

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.

Previous wording

For the six months ended December 31, 2023, net cash used in financing activities was $14.2 million, due to payments on the line of credit of $190.9 million partially offset by proceeds from the line of credit of $180.5 million, dividends paid of $1.7 million, $1.4 million paid for purchases of company stock, and $0.7 million paid for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.

Current wording

For the nine months ended March 31, 2024, net cash used in financing activities was $18.8 million, due to payments on the line of credit of $284.5 million partially offset by proceeds from the line of credit of $270.4 million, dividends paid of $2.4 million, $1.7 million paid for purchases of company stock, and $0.7 million paid for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock partially offset by proceeds from issuance of common stock of $0.1 million.

Previous wording

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 5.82%, on December 31, 2024.

Current wording

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 5.72%, on March 31, 2025.