Financial Overview

Virco Mfg. Corporation, the nation’s largest domestic manufacturer and distributor of furniture, fixtures, and equipment (FF&E) for the education (K-12) market, reported a solid financial performance in fiscal year 2025. The company earned a pre-tax profit of $28.4 million on net sales of $266.2 million, compared to a pre-tax profit of $29.2 million on net sales of $269.1 million in the prior fiscal year. Net income per diluted share was $1.32 in fiscal 2025, down slightly from $1.34 per share in fiscal 2024.

Cash flow provided by operations increased to $33.1 million in fiscal 2025, up from $27.0 million in the previous year. This strong cash generation allowed the company to reduce its borrowings under the revolving credit facility and return capital to shareholders through share repurchases.

Revenue and Profit Trends

Virco’s net sales decreased by 1.1% in fiscal 2025 to $266.2 million, compared to $269.1 million in fiscal 2024. This small decline was attributable to a slight increase in selling prices offset by a minimal decrease in unit volume. Order rates increased by approximately 3.3% in fiscal 2025 compared to the prior year, indicating that demand has substantially recovered from the impact of COVID-19 and related supply chain disruptions.

The company has been able to effectively increase selling prices under its largest contracts to recover volatile commodity, energy, freight, and labor costs incurred in recent years. However, management does not anticipate material margin growth, as recent price increases have primarily restored profitability rather than expanded it.

Virco’s cost of sales as a percentage of net sales remained flat at 56.9% in both fiscal 2025 and fiscal 2024. The material portion of costs as a percentage of sales decreased from 34.7% in fiscal 2024 to 33.2% in fiscal 2025, primarily due to relatively stable commodity costs. Direct labor and overhead costs increased slightly as a percentage of sales.

Selling, general, and administrative (SG&A) expenses increased by $2.6 million to $86.8 million in fiscal 2025, primarily due to higher variable selling and other compensation expenses. Pension expense decreased due to higher discount rates and the absence of settlement expenses incurred in the prior year. Interest expense was $2.3 million lower in fiscal 2025 compared to fiscal 2024 due to decreased borrowing levels.

The company’s effective tax rate for fiscal 2025 was 23.9%, which is more representative of the rates that will affect fiscal 2026, as the company utilized all of its federal net operating loss carryforwards and a significant portion of its state NOLs in prior years.

Strengths and Weaknesses

A key strength of Virco’s business model is its integrated, highly capable domestic manufacturing and distribution capabilities. The company has retained and invested in its domestic fabrication facilities, which have become a significant competitive advantage compared to competitors that have outsourced production to China and other overseas locations. Virco’s domestic manufacturing provides greater flexibility for custom specifications, faster delivery times, and the ability to respond to dynamic fluctuations in demand.

Another strength is Virco’s comprehensive product offering and value-added services, which allow the company to serve as a one-stop shop for the FF&E needs of the K-12 education market. The company’s proprietary PlanSCAPE software and project management capabilities further enhance its ability to provide complete solutions for bond-funded school construction projects.

A potential weakness is the company’s exposure to volatile commodity, transportation, and labor costs, which can pressure margins if Virco is unable to fully pass along price increases to customers, especially on longer-term contracts. The seasonal nature of the education market also creates challenges in managing production, inventory, and cash flow.

Outlook and Future Prospects

Looking ahead to fiscal 2026, Virco anticipates continued uncertainty and volatility in commodity costs, particularly with respect to imported components, raw materials like steel, transportation, energy, and the potential impact of tariffs and global economic sanctions. The company expects to face continued supply chain disruptions from both domestic and international suppliers.

To recover the cumulative impact of these increased costs, Virco has implemented price increases for fiscal 2026. However, due to current economic conditions, the company anticipates increased price competition and may not be able to raise prices further without risking market share loss.

Despite these near-term challenges, Virco sees several opportunities for the business:

• Underlying demographics of the student population are relatively stable, suggesting pent-up demand for quality school furniture, though the timing of when this demand will materialize is uncertain.

• Many schools have reduced support infrastructure during budget constraints, creating opportunities for Virco to provide services like project management, delivery to individual school sites, and classroom setup.

• Virco’s domestic manufacturing capabilities provide greater flexibility and responsiveness compared to competitors reliant on overseas supply chains.

• The company’s financial strength and ability to build inventory in advance of the seasonal summer delivery period is a competitive advantage over smaller, undercapitalized dealers.

Overall, Virco appears well-positioned to navigate the current economic environment and capitalize on opportunities in the education market, though near-term profitability may be challenged by cost inflation and competitive pricing pressures.