LSI INDUSTRIES INC Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Sales Growth: Fiscal Q3 net sales totaled $132.5 million, a 22% year-over-year increase, driven by strong performance in Display Solutions.
• Acquisition: Completed acquisition of Canada's Best Store Fixtures in Ontario, Canada.
• National Sales Meeting: Held national sales meeting in February in Cincinnati, introducing new products and discussing strategies to retain customers and pursue new business.
• EMI Performance: EMI continues to perform well, with cross-selling opportunities and margin improvements.
• Onshoring/Reshoring: Reduced dependence on foreign source products to 30% from 80% in 2019, aiming to leverage trade and tariff advantages.

Segment Performance

• Display Solutions: Achieved Q3 sales growth of 70% year-over-year, with 15% organic growth. Refueling/C-store sales increased 60% led by customer graphics programs, and Grocery vertical saw 20% growth despite order fulfillment changes. Contributed significantly to overall sales growth.
• Lighting: Sales lagged year-over-year, but operating margins improved by 110 basis points. Saw strong rebound in Q3 with large project order activity, ending the quarter with a lighting backlog 18% above prior year.

Guidance

• Fiscal Q4 Expectation: Expect to generate both reported and comparable sales growth in fiscal Q4, led by favorable third quarter orders and increased backlog.
• Margin Recovery: Anticipate regaining margin lost due to manufacturing and logistics inefficiencies as schedules stabilize, expecting to recover 200-250 basis points in gross margin.

Risks

• Tariff Impact: Uncertainty around trade tariffs and their application, which could impact pricing and sourcing decisions.
• Fluctuating Demand: Choppy customer demand schedules leading to manufacturing and logistics inefficiencies affecting margins.

Question and Answer

Q: Fluctuating demand levels and verticals affected?

A: Mostly Grocery vertical was affected due to industry chaos, but stability is returning.

Q: Display margins impact from inefficiencies and EMI mix?

A: Margin pressure from Grocery vertical and mix, expecting recovery as efficiency improves, with 200-250 basis points gross margin recovery expected.

Q: Tariffs and pricing/sourcing?

A: Procurement team working on alternative sources, monitoring tariffs, and passing real cost impacts to customers while using inventory to buffer price increases.

Q: Acquisition strategy and future products?

A: Active in M&A, looking for transformational and incremental acquisitions. Continues to release 30+ new Lighting and Display products annually.