FGI Industries (FGI) Q2 2026 Earnings Call: Margin Expands, Guidance Reaffirmed

Key Takeaways

• Q2 2026 revenue rose 2.9% year over year to $31.9 million, led by growth in Sanitaryware and Shower Systems.
• Gross profit increased 22.5% to $10.7 million, while gross margin expanded to 33.4% from 28.1%, primarily due to trade-related recoveries.
• GAAP operating income improved to $1.4 million from a $0.8 million loss. GAAP net income attributable to shareholders reached $1.3 million versus a $1.2 million loss a year earlier.
• Operating expenses declined to $9.3 million from $9.5 million, reflecting lower selling and distribution costs and warehouse optimization.
• FGI reaffirmed its 2026 guidance, including revenue of $134 million to $141 million. However, management indicated that softer market conditions could place results toward the lower end of the range.
• Management expects Shower Systems momentum to continue and Covered Bridge cabinetry to return to growth in the second half of 2026.

Core Financial Data

Business and Operating Performance

Sanitaryware and Shower Systems generated year-over-year revenue growth. Sanitaryware benefited from normalized customer purchasing following tariff-related disruption in the prior year, as well as recently launched customer programs. Shower Systems gained traction through new products and wider customer distribution.

Bath Furniture and other product categories continued to face mixed market conditions. Management said the repair and remodeling market remained relatively flat, making customer promotions an increasingly important tool for driving incremental sales and market-share gains.

FGI is optimizing its distribution network and expects to open a new warehouse in Houston by the end of 2026. The facility is intended to support Southern U.S. distribution and expand the territory served by the company’s wholesale contract-brand business.

Geographically, Canada remained the most pressured market. Canadian wholesale activity was recovering slowly, while retail faced competitive and pricing pressure. The U.S. market was described as cautious and broadly flat, apart from gains tied to new customer programs. European order cadence remained consistent, with progress in wholesale expansion and market-share gains.

Management Guidance

FGI maintained its full-year 2026 guidance:

The guidance excludes trade-related recoveries. Adjusted operating income also excludes certain nonrecurring items, while adjusted net income excludes certain nonrecurring items and includes an adjustment for minority interest.

Management said customer orders and shipping cadence had remained relatively consistent, but caution around inventory and broader market softness could push performance toward the lower end of the guidance range. New customer programs expected to launch during the second half provide a potential offset.

Risks and Watchpoints

• Management views the quarter’s trade-related recoveries as a one-time partial offset to costs absorbed since the prior year, rather than a recurring earnings driver.
• FGI believes it has received all or the vast majority of recoveries related to IEEPA, while tariffs, other duties and supplier-related VAT tax drawbacks remain ongoing expenses.
• Management expects additional tariff levies could affect the business beginning in early 2027.
• Customers remain cautious about building inventory, and the U.S. market is broadly flat.
• Canadian retail continues to face competitive and pricing pressure.
• Some new customer program launches were delayed by market conditions, although management said the delays were not related to sales performance.

Analyst Q&A Highlights

On tariffs, management said the specific refund amount would be included in the company’s Form 10-Q. FGI believes it has received all or nearly all IEEPA-related recoveries, but emphasized that ongoing trade costs will continue.

On promotions, management said FGI worked with customers on larger Sanitaryware promotions during the quarter. Selective discounting is being used to generate incremental business in a relatively flat repair and remodeling market.

On branded products, management highlighted continued progress in Shower Systems. The planned Houston distribution center is expected to provide another route for expanding FGI’s contract-brand wholesale presence while the company continues to support customers’ proprietary and private-label products.

On second-half visibility, management cited stable ordering and shipping patterns, planned customer-program launches, continued Shower Systems momentum and an expected recovery in Covered Bridge cabinetry. Nevertheless, softer demand and cautious inventory management led executives to point toward the lower end of the unchanged revenue guidance.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good day, and welcome to the FGI Industries, Inc. Second Quarter 2026 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jae Chung, Chief Financial Officer. Please go ahead.

Jae Chung

Thank you. Welcome to FGI Industries 2026 Second Quarter Results Conference Call. Leading the call today are Chief Executive Officer, David Bruce; and Chief Financial Officer, Jae Chung. We issued a press release after the market closed yesterday detailing our recent operational and financial results.

I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control.

Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of our latest filings with the SEC, including our Form 10-K for the year ended December 31, 2025.

Additionally, please note that you can find reconciliations of historical non-GAAP financial measures in the press release issued yesterday and in the appendix of this presentation, which is available on the company's website.

Today's call will begin with a performance review and strategic update from Dave Bruce, followed by a financial review from Jae Chung. At the conclusion of these prepared remarks, we will open the line for questions.

With that, I'll turn the call over to Dave.

David Bruce

Thank you, Jae. Good morning, everyone, and thank you for joining our call today. I am pleased to report another quarter of revenue growth and improved operating expense performance for FGI. Revenue increased 2.9% year-over-year in the second quarter, and we remain disciplined in managing our cost structure, delivering lower operating expenses while continuing to invest in our brands, products and channels, or BPC, growth strategy. These efforts continue to strengthen our market position and create new opportunities for long-term growth.

Our strongest performance came from our Sanitaryware and Shower Systems businesses, both of which delivered year-over-year revenue growth. Sanitaryware benefited from the normalization of customer purchasing activity following last year's tariff-related disruptions, along with contributions from recently launched customer programs. Our Shower Systems business also continued to gain traction as new products and expanded customer distribution contributed to growth.

While market conditions remain mixed, particularly within our Bath Furniture and other product categories, we continue to manage the business with discipline and remain focused on opportunities where we see the strongest long-term potential.

Looking ahead, we expect Covered Bridge cabinetry to resume growth in the second half of the year. We also expect continued momentum in our Shower Systems business as recently introduced products and customer programs continue to expand, providing additional opportunities for growth through the remainder of 2026.

Although the external environment continues to evolve, including ongoing trade and tariff developments, I am proud of how our team has remained focused on execution. Their ability to adapt to changing market conditions while continuing to serve our customers has positioned FGI well for the remainder of the year.

With that, I'll turn the call over to Jae for a more detailed review of our financial results.

Jae Chung

Thank you, Dave, and good morning, everyone. I will begin by providing additional details on the quarter, followed by an update on our current liquidity and balance sheet.

For the second quarter 2026, revenue totaled $31.9 million, an increase of 2.9% compared to the second quarter of 2025. Gross profit was $10.7 million in the quarter, an increase of 22.5% year-over-year. Our gross margin increased to 33.4% in the quarter compared to 28.1% in the prior year, driven by trade-related recoveries in the quarter.

Our operating expenses decreased to $9.3 million compared to $9.5 million in the prior year due primarily to lower selling and distribution costs and optimizing our warehouse operations. These efforts are part of our broader initiative to diversify our supply chain and reduce freight costs. We expect to begin operations at a new warehouse in Texas to support distribution across the Southern United States.

GAAP operating gain was $1.4 million, improving from an operating loss of $0.8 million in the prior-year period. The improvement in the operating loss was a result of trade-related recoveries, which were reflected in the cost of goods sold and a decrease in total operating expenses.

GAAP net income attributable to shareholders was $1.3 million compared to a loss of $1.2 million in the same period last year. Adjusted net income was $1.2 million compared to a loss of $1.2 million in the same period last year.

Moving to our balance sheet. At the end of the second quarter, FGI had $7.9 million in total liquidity. Our 2026 guidance remains unchanged and does not include trade-related recoveries. Our revenue guidance is $134 million to $141 million. The adjusted operating income guidance is $0.7 million to $2.5 million.

The adjusted net income guidance is a loss of $0.3 million to a gain of $1.1 million. Please note that the guidance for adjusted operating income excludes certain nonrecurring items. Adjusted net income excludes certain nonrecurring items and includes an adjustment for minority interest.

That concludes our prepared remarks. Operator, we are now ready for the question-and-answer portion of our call.

Operator

[Operator Instructions] The first question comes from Reuben Garner with Benchmark Company.

Question-and-Answer Session

Reuben Garner

You referenced tariffs a few times. I was wondering if you could offer some clarity on any refunds you may have received to date, what might be on the come? And then I guess, the net effect for you guys, I know there's been a [Technical Difficulty] years, but just kind of where it's all shaking out today?

Jae Chung

Yes. Reuben, we're in the process of finalizing our Q, and the specific information on the amount of the refund will be in the Q to be released tomorrow. As far as further recoveries specifically related to IEEPA, we believe we've received all or the vast majority of it. So you can see the actual numbers tomorrow. And Dave, do you want to comment?

David Bruce

Yes. I think that we view any of these recoveries is really it's just a partial offset to the impact that we had to absorb going all the way back to last year. And we still continue to pay various trade-related expenses, not only tariffs but also other duties and VAT tax drawbacks that some of our suppliers are impacted by. And we expect, quite frankly, some additional tariff levies to be impacted at the beginning of next year.

So this is not a -- it's an ongoing, I'll call it, saga with the tariffs. It's not something that we anticipate is going to go away. And we continue to support our customers as we have recently and in the past, right? So we're looking at the recoveries as a onetime thing here, but the impact of tariffs are going to continue.

Reuben Garner

How about at your customer, what have you seen in terms of discounting relative to I don't know, normal discounting this time of year? Has that been increased at all with the changes in the tariffs or inventory levels or anything else at the retail level?

David Bruce

Yes. I think discounting, I would call it more promotional opportunities. We've taken -- I shouldn't say taken, but we've worked closely with some of our customers on promotional opportunities. We drove some larger promotions with our sanitary ware in the quarter.

The market overall, as we've discussed before, continues to be relatively flat in the R&R space. Promoting products is becoming a viable way for us to drive continued growth in market share. And I think that's what we see more than anything is opportunities to reach out to our customers and offer some discounting to try to drive incremental business.

Reuben Garner

Okay. And then last one for me. Your -- the products that you guys -- the branded sort of FGI branded products that you've been trying to grow over the last couple of years, what's kind of next on that front? Any big opportunities on the come in terms of expanding those kind of higher-margin businesses for you?

David Bruce

Yes. I think that's a great question. We're really -- we've become really successful and continue to be successful with our branded products in our -- particularly in our Shower Systems business that would be across our doors spaces and balls.

And I think in the call, we mentioned -- it was just a quick blur, but we mentioned our new distribution center that we are going to open by the end of this year in Houston. We're entering that quite shortly. That is going to be another avenue for us to expand territories on our wholesale business with our contract brand. So we're very excited about that. We've been working on that for a long time.

So yes, that -- our BPC strategy, despite the fact that we also obviously are large supporters of our larger customers' proprietary and private label, we continue to expand our own brand presence strategically throughout the market.

Operator

The next question comes from Greg Gibas with Northland Securities.

Gregory Gibas

I wanted to maybe just ask more basically on just kind of your visibility on back half growth, given you reaffirmed guidance. And what kind of gives you confidence in how the back half will trend, whether it's kind of your discussions with customers or just overall demand you're seeing in the market? If anything has changed maybe since your last provided guidance?

David Bruce

Yes. I think things have held where we have expected. The market, like I mentioned just on the previous call, it's relatively soft. There's still a cautionary tone in the market when it comes to building up inventory. Order placements have been relatively consistent and cadence on shipping. But we didn't change guidance. So I would venture to say that we're probably based on the softer market, looking at maybe more lower end on the guidance levels.

But we're also optimistic because we still are implementing some of our -- some new programs to customers that will launch. Some of those were delayed just due to various market issues, not anything in particular to do with the sales.

But we would anticipate -- we've taken all that into account to understand would we have wanted to change the guide. And we want to keep the guide where it's at, but we would probably venture to say we're going to look towards more of the lower side just based on the cautionary tone right now in the marketplace and some of the pressures that exist.

Gregory Gibas

Great. That's helpful. And then maybe similarly, just if you could discuss kind of puts and takes of kind of the demand across your channels geographically, but also kind of customer type.

David Bruce

Sure. Yes. We've had a little more pressure in our Canadian sales. That's been the most pressured this year. Initially, in the first part of the year, it was across both of our wholesale and retail. Wholesale is recovering slowly. Retail has been a little bit of a struggle. There's been a lot of competitive and pricing pressures up in the market, which we're addressing.

And then in the U.S., it's been more of, like I said, sort of a cautionary, flat market other than where we're taking share on incremental gains on new programs. And then on our European business, very similar. They've been pretty strong and consistent. Order cadence has been good. We've been expanding into our wholesale trade in the European market.

But there hasn't been any outlying bigger wins outside of -- with the market pressure over there, obviously, that still exists. But we've been very proud of actually the progress we've been able to make in taking -- particularly taking share on the wholesale side, which has been very important over in Europe.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to David Bruce for any closing remarks.

David Bruce

Thank you for your time and interest today. We really appreciate your continued support of FGI. Stay well. And if we don't connect during the quarter, we look forward to speaking with you on our next call.

Operator

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