Virco Mfg. Posts 15% Revenue Drop in Q2

Key Points

• Reflecting a sharp contraction in demand.

• Quarterly dividend was raised 25% to $0.025 per share.

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Virco Mfg. (NASDAQ:VIRC), a leading designer and producer of furniture for the U.S. education market, reported its earnings for the fiscal second quarter on September 5, 2025, offset by strong margin preservation and a dividend increase. Even as indicators like shipments and backlog pointed to a market in slowdown.

Business Overview and Strategic Focus

Virco Mfg. is known for manufacturing classroom and educational furniture—tables, desks, seating, and storage—for schools and learning environments throughout the United States. Its operations rely heavily on domestic manufacturing, with production facilities in California and Arkansas. This setup enables rapid response to seasonal demand and custom needs from customers in the education sector.

The business is highly seasonal, with about half of its annual revenue coming in the summer months. Virco Mfg.'s critical focus areas include careful inventory and working capital management, efficient scheduling for peak season sales, and maintaining tight control over production costs. The company's direct sales force, a dedicated project management team, and continuous product innovation have been key success factors. Its ability to adjust to market trends and supply chain shifts forms a core part of its competitive approach.

Quarter in Review: What Drove the Results?

The quarter was marked by a pronounced drop in demand. Shipments declined 15.1% compared to the same period in the previous year. The company explained that a major disaster recovery order in the prior year had inflated earlier comparisons but said that even after excluding such one-time effects, the underlying market for educational furniture had weakened notably. Combined shipments and backlog (non-GAAP) dropped by 25.8%, signaling continued softness in the buying patterns of school districts and other customers.

Margins reflect the percentage of revenue left after direct production costs and are a common way of measuring operational efficiency. The company credited its “domestically-based fabrication and service model” for preserving this margin (gross profit of 45.2% for the first six months of FY2026), even as overall sales declined. This approach gave Virco Mfg. good visibility and control over supply chain expenses.

Selling, general, and administrative costs—expenses associated with sales, marketing, oversight, and running the company—represented a larger percentage of revenue than in the prior year. With lower revenues, these fixed costs absorbed a greater share, even as management continued to prioritize cost discipline. The decline in operating leverage (the ability to spread fixed costs over higher sales) is a common risk when end-market sales falter as seen in this quarter.

Cash was down significantly from both the prior year's quarter and the most recent annual report. On the liability side, accounts payable dropped, and long-term debt decreased slightly.

While this signals some confidence in the company’s ongoing cash flow, it also comes at a time when net income and free cash are under pressure due to the revenue downturn and ongoing inventory needs.

Management highlighted its continued pursuit of market opportunities and the value of its domestic operations. Previous launches such as the R2M Series (an adaptable classroom table and seating system) and the Topaz Series (flexible seating and workstations) have helped the company address evolving needs in education.

Looking Ahead: Outlook and What to Watch

Management took a “cautious” approach to the outlook for the remainder of fiscal 2025, emphasizing deliberate control of output, expense, and inventory levels. No specific guidance was offered regarding revenue, profit, or order volumes for upcoming quarters. Instead, leadership highlighted the Shipments + Backlog metric as their best forward indicator.

Investors should continue to monitor liquidity, inventory build-up as the summer peak period wanes, and any further signals on customer order pipelines. Management noted that while past market disruptions have often been followed by a period of recovery, visibility remains limited, especially with shifting macroeconomic trends, potential impacts from new tariffs, and ongoing public school funding questions.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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