Flexsteel at Lytham Partners: Strategic Growth Amid Challenges

On Tuesday, 30 September 2025, Flexsteel Industries Inc. (NASDAQ:FLXS) presented at the Lytham Partners Fall 2025 Investor Conference. The company outlined a robust strategy for growth despite industry headwinds, showcasing a mix of positive sales performance and future challenges. Flexsteel's leadership discussed their multi-pronged approach to capturing market share and expanding their product offerings.

Key Takeaways

• Flexsteel achieved 6.9% sales growth in fiscal year 2025, outperforming the broader furniture market.
• The company is expanding into new product categories and targeting younger consumers.
• Flexsteel anticipates 1% to 6% sales growth for Q1 fiscal year 2026.
• Margin expansion remains a priority, with a focus on higher margin products and cost savings.
• Flexsteel returned approximately $95 million to shareholders over the past six years.

Financial Results

• Fiscal Year 2025 Sales:

- Total Sales: Approximately $441 million

- Sales Growth: 6.9% year-over-year

• Recent Quarter (ended June 30, 2025):

- Seventh consecutive quarter of year-over-year sales growth

- Sales Growth: 3.4%

• Q1 Fiscal Year 2026 (ending September 30, 2025) Sales Growth Guidance: 1% to 6%

• Adjusted Operating Margin:

- Fiscal Year 2025: 7.1% of sales, representing over a 60% expansion

• Capital Expenditure:

- Roughly 1% of sales annually

• Shareholder Returns:

- Approximately $95 million returned to shareholders over the past six years

Operational Updates

• Manufacturing:

- Three plants in Juarez, Mexico

- One facility in Mexicali, Mexico (currently not in use but available for future growth)

• Distribution:

- Three distribution centers in the US

- Multiple trailer transfer points throughout the US

• Supply Chain:

- Offices and talent in three countries in Asia for global sourcing operations

- Diversifying supply base for increased agility and resilience

• Brands:

- Flexsteel (premium)

- Charisma (stylish, affordable)

- Homestyles (value-oriented, ready-to-assemble)

- Zeekliner (health/wellness sleep recliner)

- Statements (Bedroom dining and occasional solutions)

- Flex (modular furniture)

Future Outlook

• Sales Growth Guidance:

- Q1 Fiscal Year 2026 (ending September 30, 2025): 1% to 6%

• Growth Strategies:

- Gaining share in core markets

- Expanding into new markets (younger consumers, big box, e-tailers, new product categories)

- Investing in consumer research, innovation, and marketing

• Margin Expansion:

- Expect operating leverage from sales growth

- Higher margin hurdle rate for new products

- Continued cost savings in manufacturing, logistics, and global sourcing

• Industry Outlook:

- Bullish long-term due to demographic changes, migration trends, and housing demand

Conclusion

For a more detailed understanding, readers are encouraged to refer to the full transcript available below.

Full transcript - Lytham Partners Fall 2025 Investor Conference:

Robert Blum, Managing Partner, Lithium Partners: Alright. Hello, everyone, and thank you all for joining us during the Lithium Partners fall twenty twenty five investor conference. Again, my name is Robert Blum, managing partner at Lithium Partners. And for this next presentation, we welcome Derek Derek Schmidt, President and Chief Executive Officer and Mike Ressler, Chief Financial Officer at Flexsteel, who will be walking through the company slide presentation. As a reminder, Flexsteel trades under the ticker symbol FLXS on the Nasdaq.

Derek, Mike, thanks so much for joining us. The floor is now yours.

Derek Schmidt, President and Chief Executive Officer, Flexsteel: Alright. Thanks, Robert, and good morning, everyone. Before we begin, we'd like to remind you that the comments on today's presentation will include forward looking statements as described on this page. And this presentation can be referenced in its entirety on our website, ww.flexsteel.com, under news and events in the investors section. We'll start the day with a quick company overview.

So Flexfield was founded in the late eighteen hundred eighteen hundreds and is one of the top 10 furniture manufacturers in The US. We're also an importer and and marketer employing roughly about 1,400 team members. We do have a diverse hybrid supply chain and have a targeted mix of roughly 50% of our sales coming from North American manufacturing that we manage, and the other 50% supported by globally sourced product from from various partners. Our four manufacturing sites and three distribution centers efficiently support all major US markets, and we do have ample capacity to support future growth without any major investment. For the recent fiscal year ending 2025, which which actually did end here this this past June, we delivered sales of roughly $441,000,000 and delivered 6.9% growth in the industry that has been extremely challenged since the COVID pandemic.

Our growth strategies are working and enabling us to gain share in a difficult environment. Our most recent quarter, which, again, ended this past June, represented our seventh consecutive quarter of year over year sales growth, and we provided sales growth guidance for our first quarter fiscal year twenty twenty six of one to 6% as we anticipate continuing our strong growth momentum. We view our business in three different dimensions, the first being product, the second being consumer segments, and the third being sales distribution channels. From a product perspective, Flexsteel provides a full suite of solutions to address consumer needs in every major room of the home or apartment. That said, where we really excel is in the primary living area, such as living rooms or recreational rooms, which accounts for over 80% of our projected fiscal year twenty twenty six sales.

The big growth opportunity for us as a company from a product view viewpoint is expanding further into other areas of the home, like bedroom, dining, storage, outdoor, and health health and and wellness. We've got the capability. We've got the the the the the sales distribution, the product know how, and we're excited about the opportunity to penetrate in those areas. The second dimension is consumer segments, and we go to market through three primary brands. First, Flexsteel is our premium price solution that's known for comfort, quality, durability, all supported by our proprietary, Bluesteel Spring.

The second brand in in the newest is Charisma, which is designed to serve customers, especially younger consumers seeking good quality stylish furniture at affordable popular price points. And and our third brand, Homestyles, is a value oriented solution, primarily ready to assemble furniture, which is sold primarily through ecommerce channels like Amazon and Wayfair. In addition to those three primary brands, we also have three sub brands. Zeekliner is our health and wellness sleep solution recliner, which we specifically designed for the seven percent of US adults who cannot regularly sleep in their beds at night. The second is a sub brand called Statements, which is our bedroom dining and occasional solutions that are designed to make a statement wherever they are positioned in the consumer's home.

And the last sub brand is Flex. And that's our small parcel contemporary modular furniture solution built to flex with people's ever changing lives. The intent here is really a multi branded approach that allows us to tune and tailor solutions to specific customer consumer needs and effectively win in multiple market segments. Lastly, turning to our customer base and distribution, the breadth of our omnichannel national distribution is one of Flexsteel's greatest strengths. Good majority of our sales go through the independent furniture retail channel, of which we do business with over 1,400 different retailers.

This channel is vital of vital importance to us, and we are competing well, gaining share, and aligned with the right partners for long term growth. Our growth opportunity here is not only to continue to gain share with the independent retail channel, but also to expand beyond independent furniture retail to ensure that our brands are positioned everywhere where consumers want to buy furniture both now and in the future. We have long standing relationships with leading etailers like Amazon Wayfair through our Homestyles brand, and we are now leveraging those relationships to sell our other brands like Flexsteel, Flex, and Charisma. In the past year, we've also developed strong partnerships with Costco and TJX TJX companies and are growing profitably with these customers in the big box channel. And lastly, we are experimenting with our own direct to consumer sites.

While this is expected to remain a a a relatively small portion of our sales near term, these sites do complement our core selling channels while we build direct to consumer capabilities for long term growth. From an operational standpoint, we believe our supply chain is a clear competitive advantage due to our scale efficiencies, our agility, and competitive cost. Our manufacturing production currently comes from our three plants in Juarez, Mexico. We also have a facility in Mexicali, Mexico, which is currently not in use but is available mid to long term to support future growth. Our three distribution center network is complemented by multiple trailer transfer points throughout The US to efficiently serve all primary and secondary US markets, and we have a full breadth of fulfillment options from full truckload to direct to consumer that can serve a wide range of changing consumer and customer needs.

From a from a global perspective, our North American operation is complemented by a very strong and diverse global supply chain. We currently have offices and talent in three different countries in Asia just for our glow global sourcing operations, and we are aligned with the strongest and most capable suppliers in the industry who are committed to supporting our growth, continuing to deliver the quality that's expected of the Flexsteel brand, and we continue to expand and diversify our supply base in other parts of the world to become even stronger and more agile and more resistant. From a differentiation standpoint, we believe that Flexsteel clearly differentiates itself by providing a superior value through compelling designs that have unmatched quality, comfort, and durability, and the source of that differentiation is derived from innovations like our patented Blue Steel Sprint. We are absolutely committed to driving new innovation as an organization that is relevant to consumer needs as a key source of our future growth. Recent example of an innovation investment is our new modular flex line supported by a patented quick assembly, no tools required connection system, and also a stain resistant and sustainable fabric, and a unique set of hubs and accessories that truly flexes with consumers' ever changing needs.

These innovations position our modular seating solution at a lower cost with faster assembly, superior comfort, and greater functionality compared to the leading competitor in this space. Another recent innovation investment is our new ZCLINER, sleep solution recliner, which, as I mentioned earlier, addresses the unmet needs of seven percent of US adults who are unable to sleep consistently in their beds every night due to a a variety of different health or other reasons. Currently, these individuals sleep in the recliners or sofas, which were never built for sleep. So in contrast, we built the Zeekliner specifically to ensure that people can sleep comfortably for over eight hours a night. And we've used a unique set of technology and material innovation to achieve the superior sleep results, and we validated that through independent sleep studies.

As I noted, we are absolutely committed to continuing to pursue new innovations like this to differentiate Flexsteel and continue our our our our growth trajectory.

Mike Ressler, Chief Financial Officer, Flexsteel: With that, I will now turn it over to Mike. Mike? Thanks, Derek. There's five components to the investment thesis. First, a compelling long term industry outlook.

Second, promise promising growth prospects for Flexsteel, including market expansion. Third, operating margin expansion potential fourth, strong cash flow generation and fifth, disciplined capital allocation. And I'll quickly touch on each one of those points. While industry conditions near term remain challenged, largely due to economic uncertainty, low consumer confidence driven by concerns around inflation and a weakening job market, From a long longer term view, we're bullish on the prospects for industry growth due to three factors. First, we expect that significant demographic change and purchasing power shifts to millennials and Gen Zs will drive substantial churn and demand for furniture well into the future.

Second, the domestic state to state migration that accelerated during the pandemic is expected to continue due to broad adoption of remote working. And when people move, it creates a furniture purchase event. Similarly, housing production has not kept pace with population growth and new household formation. The strong demand for new housing will remain robust and for many years, which will drive demand for new furniture. While we expect the industry to grow long term, we're even more excited about the growth opportunities for FlexScale to gain share and penetrate into new markets.

At a high level, our growth priorities are threefold. First, we intend to continue to gain share in core markets where we compete today by leveraging and strengthening our market leadership, aligning ourselves with the strongest distribution partners, and offering them a differentiated value proposition, and continually developing fresh, on trend, and compelling new products. Second, as Derek highlighted in his overview, we have multiple pathways to expand in newer markets. We're transforming our brand portfolio to reach younger consumers. We're rapidly expanding our sales distribution to big box and leading etailers, and we intend to grow in major product categories where we're underpenetrated today.

At the same time, we are investing in key capabilities such as consumer research, innovation, and marketing and brand awareness. All of these are critical to accelerate growth in both our core and new markets. Our confidence in gaining share and expanding our market stems from our current performance. From a top line perspective, we are winning in a difficult environment because of the growth strategies I just outlined. As illustrated on the left hand chart, we saw sizable year over year declines in home furnishing retail sales for six consecutive quarters before bottoming in the back half of calendar year 2024.

As shown on the right hand chart, despite these challenging conditions, which we expect to continue near term, we delivered seven consecutive quarters of year over year growth with 3.4% growth in our most recent fourth quarter, which ended on 06/30/2025. In addition, we forecasted growth of 1% to 6% in our first quarter, which ends on 09/30/2025. We're also encouraged by the margin expansion potential of the business. We expanded our adjusted operating margin by over 60% in fiscal year twenty twenty five to 7.1% of sales, We believe we can continue to expand operating margin in the future, and there's kind of three main levers. First, we expect to realize operating leverage as we grow sales as we've got capacity and resources to support growth without significant investment in additive fixed costs.

Second, we've raised the margin hurdle rate for new products above our current portfolio average. So as new product makes up a larger and larger portion of our sales, we expect company margins to improve. And lastly, we've got very strong leaders over our manufacturing, logistics, and global sourcing, and our teams are executing well, driving sizable savings, which is more than offsetting inflation, and we believe that those, three areas, we've got sustainable momentum to continue to drive savings in the future. The other attractive aspect of our business is that the capital requirements are relatively low. For example, annual CapEx runs roughly 1% of sales.

Do we expect to generate strong free cash flow now and in the future to either reinvest for growth, including acquisitions, or return to shareholders through both dividends and share buybacks? We have a demonstrated history of disciplined capital allocation. Over the past six years, we've returned roughly $95,000,000 to shareholders. And as we think about cal capital allocation priorities, we expect to reinvest up to 70% of operating cash back into the business, including acquisitions, to accelerate growth, but only if we have a confidence of delivering an ROI above our cost of capital. Otherwise, we'll continue to return capital to shareholders as we've done in the past.

Looking longer term, we feel confident in our strategies and our ability to grow, Increased scale leverage, continued cost savings, and disciplined product portfolio management are the key levers to continue to improve profitability and generate robust cash flow. We have strong momentum right now in an aggressive agenda of sales and profit growth backed by an experienced leadership team that is committed to winning. In closing, we appreciate your time, and I'll turn the call back over to Robert.

Robert Blum, Managing Partner, Lithium Partners: Fantastic. Thank you, Derek and Mike so much for the presentation. Thank you to everybody watching here. Just as a quick reminder here, if you do have any questions for management or would like to schedule a, a meeting here during the conference, please go ahead and send me an email that's bloomblithempartners dot com. Further, if you'd like to learn more about lithium, you can visit our website or please make sure to follow us on LinkedIn so you can stay connected on future events like the Flexsteel presentation here.

Derek, Mike, again, thank you very much for your time today.

Derek Schmidt, President and Chief Executive Officer, Flexsteel: Thanks, Robert. Thank you.

Robert Blum, Managing Partner, Lithium Partners: Fantastic. Everyone, enjoy the rest of your day.

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