LSI Industries (NASDAQ: LYTS) recorded full-year net sales of $689 million for fiscal 2026, a 20% gain from the prior year and a company record, while adjusted EBITDA climbed 28% to nearly $70 million. The complication heading into fiscal 2027 arrives from inside the Royston Group acquisition. Management said lower-margin signage backlog at a Royston business is expected to create a margin headwind of 50 to 100 basis points over the next quarter or two, with the pressure expected to peak in the fiscal first quarter.
The case for the print rests on Display Solutions. Fourth-quarter sales in the segment doubled year over year to $164 million, representing 70% of LSI's quarterly revenue, with organic growth of 18%. Organic sales of refrigerated and non-refrigerated display cases in the grocery vertical rose 21% from a year earlier. Jim Clark, LSI's president and chief executive, said grocery customers resumed investing in store décor after an industry-wide pause in 2024, and management expects demand to remain elevated entering fiscal 2027. The refueling and convenience-store vertical added 16% organic growth in the quarter. LSI also received a multiyear award from a new large oil-retailer customer to renovate about 2,500 sites covering exterior branding elements, with potential future interior work. Clark said the program is expected to unfold over roughly 18 months, though the customer's execution pace will govern the release schedule. That award was not reflected in the figures discussed on the call.
Full-year adjusted diluted EPS came in at $1.25, up from $1.04 in fiscal 2025. The company generated $39 million in free cash flow, more than 50% of adjusted EBITDA. Fourth-quarter free cash flow came in just under $10 million, which LSI used to reduce debt by $9 million.
The Royston headwind
The counterargument to the record-year read lives inside SignResource, a Royston business where prices on certain signage projects failed to keep pace with raw-material cost increases, including petroleum-based polymers and plastics tied to crude-oil prices. Chief Financial Officer Jim Galeese said the margin drag was visible in the fourth quarter and expects it to be somewhat greater in the fiscal first quarter before declining and largely clearing by the end of the second quarter. Management said it has corrected the acquired business's project-quotation process, applying pricing discipline used elsewhere in the company. The adjusted EBITDA margin target under LSI's Fast Forward strategy remains 12.5%, and management maintained that Royston is accretive to the company's margin profile.
What's changed is the near-term visibility. Galeese said Royston's sales declined modestly on a pro forma basis during the quarter, partly because two large convenience-store customers are lagging the broader industry on renovation and new-store activity. Both have substantial investment plans over the next five years, Galeese added.
On balance, Lighting is a secondary variable. Full-year Lighting sales rose 7%, but the segment declined 3% year over year in the fourth quarter on softer automotive and quick-service restaurant demand. Clark said quote activity in the QSR vertical has begun to improve. Management expects fiscal first-quarter Lighting sales to be several points below a strong prior-year comparison.
One item outside the operating results: Galeese plans to retire at the end of October 2027. LSI has begun a formal search for a successor, considering internal and external candidates with the support of a global executive search firm.