Flexsteel Industries (NASDAQ:FLXS) reported second-quarter fiscal 2026 results that management said extended momentum built over the past two years despite “highly dynamic” industry conditions. Executives pointed to uneven demand, shifting consumer behavior, and quickly evolving tariff policy as key variables affecting the furniture market, while highlighting sales growth, profitability improvement, and ongoing share gains in parts of the portfolio.
Second-quarter results: sales up 9%, operating margin 7.6%
For the quarter, net sales were $118.2 million, up 9% from $108.5 million in the prior-year period. CFO Mike Ressler said the increase was driven primarily by higher unit volume in sourced soft seating products and pricing from tariff surcharges, partially offset by lower unit volume in made-to-order soft seating and Homestyles-branded ready-to-assemble products. Flexsteel said the quarter marked its ninth consecutive quarter of year-over-year sales growth.
CEO Derek Schmidt said margin performance benefited from “sales leverage, productivity improvements, and thoughtful product portfolio management,” and emphasized that the company views many of the gains as increasingly “structural” due to tighter cost discipline and improved operational efficiency.
Tariffs and pricing: surcharge revenue and margin expectations
Tariffs were a central theme throughout management’s prepared remarks and the Q&A session. During the quarter, Ressler said the impact of tariffs on operating margin was “largely mitigated” through pricing actions and cost savings initiatives.
In response to an analyst question about revenue drivers, Ressler quantified tariff-related revenue in the quarter at roughly $9–$10 million (about $9.5 million). He said unit volume was “relatively flat versus the prior quarter,” with gains in some categories and declines in others.
Looking ahead, management signaled more pressure in the back half of fiscal 2026. Ressler said the company expects “some margin dilution” relative to the second quarter as Flexsteel sells higher-cost inventory “burdened with 25% tariffs.” He added that current-quarter inventory was burdened with roughly a 20% tariff level, and that a key unknown is how tariffs and resulting price actions ultimately affect unit demand. Schmidt added that the company is pursuing additional cost initiatives that it expects could help offset tariff impacts over the midterm.
Given uncertainty around demand and tariffs, Flexsteel said it will continue to pause forward-looking guidance.
Product and channel trends: soft seating gains offset by Homestyles decline
Schmidt said Flexsteel is seeing balanced contributions from core categories and newer or expanded markets, including health and wellness and case goods. He highlighted new product introductions and share gains with strategic accounts as key drivers, while emphasizing that diversified growth reduces reliance on any single product category or customer.
On category performance, management said unit volume gains were notable in “many areas” of the soft seating business even after pricing actions tied to tariffs. Those gains were offset by softness in made-to-order seating and significant weakness in the Homestyles ready-to-assemble business, where Schmidt said sales were down “almost 50%.”
When asked how much sales come from new products, Schmidt said that over the last “6–8 quarters,” roughly 30%–40% of overall sales has come from new products. He said the company has an “exciting and focused pipeline” over the next “three markets,” which he equated to about 18 months, but declined to share more specifics, citing competitive concerns.
Strategic accounts, retailer relationships, and demand visibility
Schmidt reiterated the company’s focus on strategic accounts, describing them as about 20 large independent retailers that Flexsteel believes are advancing their omni-channel capabilities and positioned to gain share. He said Flexsteel has aligned its business model to serve those accounts in a differentiated way. While the company already has strong relationships with most of those retailers, Schmidt said there are “a handful” of emerging relationships where he sees significant growth potential, and he believes strategic accounts can continue to drive meaningful growth through both share gains and expanded penetration.
At the same time, management characterized the demand backdrop as uncertain. Schmidt said housing activity, consumer confidence, and discretionary spending patterns remain inconsistent, and retailer feedback suggests consumer engagement can swing quickly between periods of activity and pullbacks tied to economic uncertainty and inflation concerns.
Balance sheet: cash, working capital, and inventory positioning
Flexsteel ended the quarter with $36.8 million in cash, $126 million in working capital, and no bank debt. Ressler attributed the working-capital increase primarily to higher-cost inventory due to tariffs, along with an intentional increase in safety stock of top-selling products ahead of tariffs previously scheduled to increase on January 1. Accounts receivable also increased due to the timing of sales during the quarter.
Sales order backlog at the end of the period was $82.4 million, which includes estimated tariff surcharges.
Ressler also addressed the quarter’s higher tax rate, citing a “return to provision” true-up related to foreign taxes, and said he would expect the tax rate going forward to be closer to what the full-year tax rate reflects.
In closing remarks, Schmidt said the company is focused on managing risk, protecting profitability, and continuing to invest in growth platforms despite volatility. He said Flexsteel’s agility and discipline, combined with financial strength and continued investment in innovation and consumer-led growth, position it to navigate near-term challenges and pursue longer-term value creation.
About Flexsteel Industries (NASDAQ:FLXS)
Flexsteel Industries, Inc (NASDAQ: FLXS) is a U.S.-based furniture manufacturer specializing in the design, production, and marketing of residential upholstered furniture and wood casegoods. The company operates through two primary segments: Upholstery, which encompasses seating products such as sofas, loveseats, chairs, recliners, and sectionals; and Casegoods, which includes accent and occasional tables, cabinets, bookcases, and other wood-based furnishings. Flexsteel sells its products through a network of independent retailers, furniture stores, and distributors across North America.
Flexsteel’s upholstery segment is distinguished by its patented Blue Steel Spring® technology, which offers enhanced longevity and comfort by replacing conventional webbing and springs with a welded steel seat suspension.
