Thank you, and welcome to today's call to discuss Flexsteel Industries' first quarter fiscal year 2027 financial results. Our earnings release, which we issued after market close yesterday, Monday, October 26th, is available on the investor relations section of our website at www.flexsteel.com under News and Events. I'm here today with Derek Schmidt, President and Chief Executive Officer. On today's call, we will provide prepared remarks, and then we will open the call to your questions.

Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified using words such as estimate, anticipate, expect, and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, and assumptions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K as updated by our subsequent quarterly reports on Form 10-Q and other SEC filings as applicable.

These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Additionally, we may refer to non-GAAP measures, which are intended to supplement, but not substitute, for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today. With that, I'll turn the call over to Derek Schmidt. Derek?

Good morning, and thank you for joining us today. I'm pleased to share our first quarter fiscal year 2027 results. Despite a challenging macroeconomic environment and significant inflationary pressures across our supply chain, our team continued to execute well, delivering solid sales growth and profitability while advancing the strategic initiatives that we believe will drive long-term shareholder value. During the quarter, net sales increased 3.2% compared to the prior year toward the upper end of our guidance range and marked our 12th consecutive quarter of year-over-year growth.

Excluding the impact of our exit from the Homestyles ready-to-assemble furniture category, sales in our continuing Flexsteel branded business grew approximately 5%. Encouragingly, our growth momentum extends beyond reported sales. Orders increased approximately 5% during the quarter, and our ending backlog grew 8.2% compared to the prior year. These trends, combined with the continued performance of our key growth initiatives, reinforce our confidence in the underlying strength of our business.

Our growth continues to be driven by several complementary initiatives, including new product introductions, share gains with strategic accounts, and expansion in our health and wellness category. These initiatives are performing well despite continued softness in the broader furniture market, providing further evidence that our investments in consumer insights, innovation, product development, and customer experience are strengthening our competitive position. From a profitability standpoint, our results were solid, although impacted by an unfavorable foreign currency translation loss late in the quarter.

Reported GAAP operating margin was approximately 6%, below our guidance range of 6.5%-7%. However, our results included approximately $800,000 of unfavorable foreign currency impact related to the strengthening US dollar against the Mexican peso. Excluding the 70 basis point impact, operating margin was solid and in line with our expectations for the quarter. Given the significant inflationary pressures we're experiencing, I am encouraged by our underlying operating performance and ability to largely offset these cost headwinds to maintain healthy margins.

Ocean transportation rates have nearly doubled over the past six months, while domestic transportation costs have increased substantially with surging diesel fuel prices. These pressures, along with higher costs for materials and sourced products, are creating difficult operating conditions for our industry. Our teams continue to respond to these challenges with urgency and discipline, identifying cost savings opportunities, improving productivity, managing our product portfolio, and implementing modest pricing actions to mitigate these pressures.

While we've offset a portion of the inflationary impact, these cost pressures are expected to remain a meaningful near-term challenge. Looking ahead, our outlook for the broader industry remains measured. Consumer confidence continues to be weak, and households are increasingly selective about discretionary purchases as inflation and higher energy costs consume a greater share of budgets. Housing affordability remains challenging, and rising mortgage rates continue to constrain housing turnover, an important driver of furniture demand.

Geopolitical uncertainty, particularly the ongoing conflict in the Middle East, continues to create volatility in energy and transportation markets. In addition, tariff policy remains a significant source of uncertainty, including the scheduled increase in Section 232 tariffs on upholstered furniture from 25% to 30% on January 1st, 2027. These factors could continue to pressure both industry demand and profitability in the near term, and we recognize the importance of remaining agile as conditions evolve.

However, what gives me the greatest confidence in Flexsteel's future is not an expectation that the external environment will improve. It's the progress we're making strengthening the capabilities that allow us to compete more effectively in any environment. Over the past several years, we've invested deliberately in becoming a more consumer-driven and innovation-led organization. What I'm particularly encouraged by today is how these investments are beginning to work together as an integrated system.

We're listening more closely to consumers, translating those insights into meaningful innovation, sharpening our product platforms, and bringing differentiated products to market with stronger marketing and customer support. Our recent Fall High Point furniture market provided several compelling examples of that progress. First, we're strengthening our core made-to-order seating business through consumer-led innovation.

Our research continues to reinforce that comfort, quality, and durability are among the most important factors influencing furniture purchases. Consumers value personalization, but they also want the shopping experience to be simple and intuitive. These insights directly inform the introduction of our new 6000 series, featuring SixFlex, the sixth generation of our patented Blue Steel Spring technology, and our new Comfort Choice program.

SixFlex advances the comfort and performance of our signature seating technology, while Comfort Choice allows consumers to select from three distinct comfort levels without adding unnecessary complexity to the buying experience. What excites me about this launch is that we're taking one of Flexsteel's most enduring competitive advantages, comfort and quality, and making it even more relevant to today's consumer. It's a strong example of how consumer insights and innovation can reinforce the core of our business.

The response from our retail partners has been overwhelmingly positive to this new introduction, which provides us optimism about accelerated growth in this important category. Second, we're significantly expanding our opportunity in health and wellness. Our consumer research has identified attractive opportunities across four distinct wellness needs: sleep, care, restore, and assist. Building on the success of Zecliner in sleep, we're expanding into care, specifically nursery seating, through our new Embrace brand.

We're also expanding into restorative wellness through our Zen collection, and we're expanding our assist or mobility and independence solutions through our new Rise collection. Together, these four wellness platforms broaden our opportunity to serve consumers across different life stages, from young families to aging adults, with products designed around meaningful needs in the home. We believe our consumer-led approach positions Flexsteel to participate in attractive new categories while building on our long-standing strengths in comfort, ergonomics, and durability.

Third, we're introducing differentiated innovation that creates new reasons for consumers to choose Flexsteel. Our Pulse immersive seating platform is a strong example. With the introduction of Stratus, our second generation of immersive seating, we're elevating the home entertainment experience to a whole new level. By leveraging new innovation in advanced sound and sensory technology, we're delivering the first fully Dolby Atmos-certified solution that spans both the soundbar and the sound system integrated into the furniture, and in the process, setting a new bar for a truly amazing immersive seating experience.

We're also expanding our partnership with nationally recognized broadcaster Dan Patrick to build awareness and consumer demand for Pulse, following our work together supporting Zecliner. This combination of meaningful product innovation and targeted marketing is an important part of how we're working to strengthen our brand and drive consumer traffic to our retail partners. Finally, we're continuing to strengthen our position in casegoods.

Our Statements collection is benefiting from deeper consumer insights into how people shop for bedroom, dining, and occasional furniture. We're focused on quality, coordinated designs, and functional features that simplify purchasing decisions while helping retailers present compelling whole home solutions. In summary, while these four initiatives span different product categories, they share a common foundation: understanding consumer needs, developing differentiated solutions, and executing effectively with our retail partners.

That's the larger strategic point I want to emphasize. Flexsteel is becoming a more consumer-driven and innovation-led company, supported by increasingly disciplined execution. These capabilities are not operating independently. They are reinforcing one another, creating a stronger foundation for sustainable growth and market share gains. We recognize that the external environment may remain challenging. Consumer demand could continue to be uneven, and inflationary and tariff-related pressures may create additional volatility in our financial performance.

But even in challenging markets, companies are rewarded that are focused, differentiated, and disciplined. They reward companies that understand their consumers, support their customers, and consistently bring compelling products to market. That is exactly what we are working to do at Flexsteel. We're not standing still in a difficult environment. We are strengthening the core capabilities that have made Flexsteel a trusted brand for generations while creating new reasons for consumers and retailers to choose us.

Combined with our strong balance sheet, disciplined operating model, and continued strategic investments, these capabilities give me confidence in our ability to navigate near-term challenges and drive long-term profitable growth and shareholder value. With that, I'll turn the call over to Mike, who will provide additional details on our first quarter financial performance and outlook. Mike?

Thanks, Derek. For the first quarter, net sales were $114.0 million, or growth of 3.2% compared to net sales of $110.4 million in the prior year quarter. As Derek mentioned, this marks our 12th consecutive quarter of sales growth compared to prior year periods and near the upper end of our guidance range of 1%-4% growth. The increase was primarily driven by soft seating products, partially offset by lower sales of our Homestyles branded ready-to-assemble category, which we are exiting.

Sales of casegoods were relatively flat versus the prior year quarter. Sales order backlog at the end of the period was $77.7 million, which was up roughly 8% versus the prior year ending backlog. From a profit perspective, the company delivered GAAP operating income of $6.9 million, or 6.0% of sales in the first quarter. The GAAP operating income included a $0.8 million, or 70 basis point unfavorable impact from foreign currency translation for peso-denominated Mexico assets resulting from the significant strengthening of the US dollar in the quarter.

Excluding the impact of the foreign currency translation loss, results were in line with expectations for the quarter. Gross profit margin for the quarter was 22.0%, compared to 23.5% in the prior year quarter. The decrease was primarily driven by a 130 basis point negative impact from foreign currency translation, as the current quarter included a translation loss of $0.8 million, while the prior year quarter included a translation gain of $0.7 million.

Inflation in ocean freight, domestic transportation, raw materials, and source finished goods, driven by higher energy prices, was mostly offset by cost savings, product portfolio management, and modest price increases in the quarter. SG&A expenses for the quarter were $18.2 million, or 16.0% of sales, versus $17.0 million, or 15.4% of sales in the prior year quarter. The increase was driven by investments in consumer insights, innovation, new product, and marketing and demand generation to execute our growth strategy and strengthen our operating model.

Moving to the balance sheet and statement of cash flows. The company ended the quarter with a cash balance of $4.4 million, working capital of $80.5 million and no bank debt. Moving to the outlook. We project sales of $119.5 million-$123.0 million in the quarter, or growth of 1%-4%, led by continued growth in soft seating products, partially offset by a decline in Homestyles branded ready-to-assemble products. The key determinant to our top-line forecast with the largest variability will be consumer demand.

From a profit perspective, we project operating margin in the range of 6.5%-7.0% in the quarter. Relative to first quarter, we expect volume leverage, cost savings initiatives, product portfolio management, and modest price increases to largely offset incremental energy-driven inflation we are experiencing within ocean freight, domestic transportation, and materials. With that, I'll turn the call back over to Derek to share his closing perspectives.

Thanks, Mike. As we look ahead, we recognize that the external environment remains challenging. Consumer confidence continues to be pressured by inflation and economic uncertainty, while elevated transportation and material costs, geopolitical developments, and evolving tariff policies create additional risks for our industry. While we can't control these external forces, we can control how we respond, and I believe our first quarter results demonstrate that we're responding effectively.

We delivered another quarter of sales growth, strengthened our order backlog, and continued to gain traction across our key growth initiatives, all while navigating significant cost pressures. These results reinforce my confidence in both our strategy and the capabilities we've built to execute it. What excites me most is the progress we're making towards becoming a more consumer-driven and innovation-led company. Our investments in consumer insights, product development, innovation, and marketing are increasingly working together to create differentiated products, strengthen our customer partnerships, and generate new opportunities for growth.

We're not relying on a recovery in industry demand to drive our success. We're focused on creating our own opportunities through better execution, stronger innovation, and continued market share gains. While we'll remain financially disciplined and agile in managing near-term challenges, we're equally committed to investing in the capabilities that will strengthen our competitive position and create sustainable long-term value.

We believe our strong balance sheet, resilient operating model, and increasingly differentiated growth strategy position Flexsteel well to navigate the uncertainties ahead while continuing to build a stronger business for our customers and shareholders. With that, we'll open the call to your questions. Operator?

Good morning, Anthony. I would say when you look at pricing kind of on average versus the prior year, I would say it's up about 10%. Clearly, there's been a lot of changes with 25% tariff on upholstered furniture. So 10% increase overall on average. What's encouraging, though, is we did actually have meaningful unit volume growth within several of our key growth initiatives, including penetration and growth with strategic accounts.

We've seen unit volume growth across several new health and wellness category items. Then also we are seeing nice unit volume with our new immersive sound solutions we've introduced.

Anthony, let me hit those points real quick. So there has certainly been meaningful cost pressures on the business starting back to kind of before the conflict in the Middle East. We've seen ocean freight rates nearly double what they were six months ago. Certainly, everyone pays attention to what is going on with diesel, and a lot of that is trickling through the supply chain into a lot of the raw material costs, et cetera.

Obviously, we take a balanced approach in terms of what we can do to mitigate that. Certainly, pricing is one of the levers, and we do that, but we're also mindful of the sensitivity around pricing and wanting to be competitive in the market. We also are hyper-focused on delivering cost savings and productivity improvement initiatives to get to kind of what we think is the right amount. You could expect somewhere in the range of probably a 2%-3% kind of price adjustment that we are looking at taking here on average. As it relates to tariffs, go ahead.

Yeah. As it relates to your question on Section 232 tariffs, which are scheduled to go from 25% to 30% here January 1. Obviously, we've been planning around multiple scenarios there. Certainly, we will approach it like we have done other cost pressures we have in terms of driving productivity and cost savings. Obviously, we'll need to look at pricing as a lever as well, which we would expect it to be kind of an industry-wide event if the rates were to go up to 30%.

Yeah, I guess, the way we look at it, Anthony, is we look at cost savings and productivity improvements across the entire supply chain, and we also focus on optimization of our product portfolio and driving demand to more profitable products. What I would tell you is, we're looking at using it to largely offset a significant amount of cost headwinds. Just to give you an example, the inflation that we incurred, incremental inflation in this quarter was probably somewhere in the $1.5 million-$2 million range, and we would expect it to be that level of kind of incremental increase in Q2.

Maybe, Anthony, just to add on a little bit of color to Mike's point. If you're looking for specific examples of cost savings, we've got a phenomenal team down in our Juárez operations. They continue to redesign the flow in our plants, drive labor productivity. I think we've talked to you several times about all of our efforts around platforming. Majority of our or certainly our domestic manufactured products now that we're coming out with are all platformed.

So again, less parts, more commoditization. So we're seeing productivity and a better margin profile for those. And then we continue to align ourselves from a logistical standpoint with the best partners possible, driving economies of scale and scope. So I think those three areas would probably be the most meaningful in terms of where we're deriving our cost savings here in fiscal year 2027.

Anthony, Q1 is a typical quarter where we have heavy outflows. We have employee compensation payouts. We also have some of our larger software agreements and insurance contracts get paid out in Q1. So it's pretty normal seasonal type of activity, and we would expect positive cash flow generation here on moving forward in the future quarters. As far as capital allocation goes, our strategy is consistent with what we've communicated in the past.

We want to maintain a strong balance sheet, maintain financial flexibility to operate in a challenging environment. We'll certainly fund capital projects that drive productivity, evaluate opportunities to reinvest in the business where there's attractive returns. And then certainly, as we've demonstrated, we'll return capital to shareholders in a responsible manner.

Thanks, Anthony.

Thank you. In closing, I want to thank all of our Flexsteel employees for their continued hard work, dedication, and commitment to excellence. Our first quarter results reflect the strength of our team and the progress we're making in executing our strategy, even in a challenging operating environment. I want to thank all of you for joining us today and for your continued interest in Flexsteel, and we look forward to updating you on our progress next quarter. Thanks again.