Flexsteel Industries, Inc. Price & Performance (FLXS)

If you look at our sales for both the quarter as well as year to date, mean, over half of our sales currently are from new products that have been launched in the last couple of years. So it's a huge driver of our continued kind of growth And what I'll emphasize is that as we think about navigating through this period of uncertainty, and you know this, Anthony, because you know us. Mean, we're going to be very prudent in terms of where we add structural costs, how we manage kind of spending. What we will not pull back though is our commitment to driving new product introductions, innovation, spending on marketing, because it is so core to our overall strategy. So to your question is, yes, we're going to continue to be very aggressive around bringing new product and innovation in the market regardless of the external environment.

That's encouraging to hear. And then just thinking about the tariffs, so guys have put in some tariff surcharges Just wondering if you could perhaps quantify what's embedded in your guidance. Just curious to know if you've seen any of your notable competitors respond with their own tariff surcharges or just curious as to what you're seeing from the competition?

Yes, Anthony, this is Mike. Yes, we've we have seen competitors implement surcharges and they vary based on their supply chains etcetera. Within our guidance it assumes that the current 10% Vietnam tariff we have in place remains in [indiscernible] We implemented a modest surcharge on some of our dealer direct on some of our dealer direct product categories where customers are importing containers We've ultimately held our pricing on our made to order product that we manufacture in Mexico as well as pricing on our product that we fulfill out of our warehouses. We typically carry four to or six to probably ten or twelve weeks of safety stock So in the quarter we don't expect that there will be a substantial impact in terms of the tariffs around our overall profitability. There will be a minor amount of dilution to our operating operating margins. But we would expect if those tariffs remain intact and or if they change there would be a larger impact into the Q1 timeframe.

Got you. And then just thinking about product sourcing, so obviously as you called out Mexico and Vietnam are the vast majority of where you source your products from. In the past, you guys have talked about other countries all over it. So are you it sounds like you are kind of speeding up that process a bit, I guess, terms of looking at other potential sources if you could maybe kind of expand on that and kind of as and then if you were to do more sourcing out of other countries, Do you think your gross margins could be comparable to what you've been here lately? Or how should we think about that? [indiscernible] Situation is fairly dynamic. As you can appreciate Anthony. So what we have done and what we'll continue to do is look for as many alternative sources as possible. So what we've already lined up is potential suppliers and other Southeast Asian countries. So depending on ultimately where trade negotiations go, country by country. Certainly, we'll have some agility to reshape our portfolio based upon a kind of tariff optimized mix. We've more aggressively started to seek out potential suppliers in other parts of the world granted that aren't as maybe sophisticated in terms of furniture supply chain and don't have the infrastructure.

But again, I think we are taking the appropriate steps to make sure, again, we have options And as soon as we have more clarity ultimately on on where the trade policy and and tariff discussions go. I think we can move fairly quickly to optimize our supply chain given ultimately where things land.

Got it.

I think in terms of your around kind of margins, depending on the magnitude, ultimately of where tariffs land, it will determine the margin impact. As Mike kind of suggested, near term, they're going to slightly dilutive. Certainly, if tariffs end up being much larger than 10%, they'll be even more dilutive. What we anticipate attempting to do though is working with our value chain partners and that's retailers, that's suppliers, to collectively figure out how do we minimize tariff impact to consumers in this kind of economic environment. I think consumer spending is going to be challenged and so it's there in our mutual best interest to figure out how we minimize passing certainly any significant pricing on the consumer. So that would be our approach.

Got you. All right. Well, it does sound like you guys certainly are well prepared and could have some market share gains given all the disruption. So I think that's all I had here. Best of luck to you guys and look forward to seeing you at High Point.

Sounds good. Thanks, Anthony.

Anthony. Thank you. Again, if you have a question, to ask a question. This concludes our question and answer session. I would like to turn the conference back over to Derek Schmidt for any closing remarks. In closing, I want to thank all of our Flexsteel employees for their hard work and dedication in driving the company's strong performance during the third quarter. I'm also thankful to all of you for participating on today's call. Please contact us if you have any additional questions, and we look forward to updating on our next call.

Thank you.

Thank you. The conference has now concluded. You for attending today's presentation. You may now disconnect.