How did LYTS manage to grow operating profit despite rising expenses in Q2 2025?

LSI Industries Inc. (LYTS) demonstrated a strategic approach to managing expenses and growing operating profit in Q2 2025 despite rising costs, as evidenced by the following key points:

1. **Revenue Growth**: LSI experienced a robust 22% year-over-year increase in net sales, reaching $132.5 million for Q3 FY2025. This significant revenue growth was primarily driven by the Display Solutions segment, which saw a remarkable 70% growth.
2. **Segment Performance**: The Display Solutions segment's performance was bolstered by strong sales in specific product categories, such as a 60% increase in Refueling/C-Store sales and a 20% growth in Grocery sales. This focused growth strategy likely led to efficient cost allocation and better profitability compared to other segments.
3. **Cost Management**: Despite the revenue growth, LSI's adjusted gross margin declined from 22.6% to 17.0% in the Display Solutions segment. However, the company's overall adjusted EBITDA remained relatively stable at $11.3 million, indicating effective cost management and operational efficiency.
4. **Strategic Acquisitions**: LSI's acquisition of Canada's Best Holdings for $24 million in Q3 FY2025 enhanced its market footprint and capabilities, potentially leading to better pricing power and cost management. Such strategic moves can help mitigate the impact of rising expenses by diversifying revenue streams and improving operational efficiency.
5. **Financial Discipline**: LSI's financial health, as indicated by a current ratio of 2.08 and a moderate debt-to-equity ratio of 0.25, suggests that the company has been prudent in managing its financial resources. This discipline likely enabled LSI to navigate rising expenses more effectively, ensuring that operational profit growth was not significantly hindered.

In conclusion, LSI's growth in operating profit in Q2 2025 can be attributed to its successful revenue expansion, strategic segment focus, effective cost management, and prudent financial practices, despite the challenges posed by rising expenses.