LSI Industries Inc. (LYTS): 5 FORCES Analysis [Nov-2025 Updated]

You're looking for a clear-eyed assessment of LSI Industries Inc.'s competitive position, so let's map out the five forces using their $573.4 million fiscal year 2025 revenue and strategic moves. Honestly, the picture is mixed: while their vertical integration, like owning ADL Technology, helps temper supplier power, the intense rivalry in lighting and the high bargaining power of big B2B customers-who drove over half their sales via the Display Solutions segment-present real near-term pressure. We'll break down exactly how the threat of substitutes and new entrants stack up against their aggressive goal to reach $800 million by 2028, giving you the ground truth you need for your next move.

LSI Industries Inc. (LYTS) - Porter's Five Forces: Bargaining power of suppliers

You're assessing supplier power for LSI Industries Inc., and honestly, the picture is mixed. The company's structure gives it some real leverage, but external market forces are definitely pushing back on costs.

Power is moderated by LSI Industries' vertical integration model. This integration is a key defense. LSI Industries owns ADL Technology, which engineers and manufactures custom-designed circuit boards, assemblies, and sub-assemblies used in applications like solid-state lighting control. This acquisition, which happened back in 2009, was specifically aimed at controlling the delivery and driving down manufacturing costs for these critical electronic components. ADL Technology operates a LEAN facility, handling everything from concept to production, including surface mount and through-hole PCB assemblies.

The company actively pursues re-shoring and multi-sourcing to reduce supply chain risk and complexity. Management noted in their Fiscal 2025 third-quarter commentary that while most lighting components are sourced domestically, international sourcing remains the preferred option for several components. LSI Industries is clearly adjusting its sourcing decisions in response to global trade dynamics, which suggests a proactive stance against single-source dependency.

Input costs for key raw materials like LED components and metals remain volatile due to global geopolitical and inflationary pressures. While I don't have a specific volatility percentage for late 2025, we see the effect in management's stated plan. For instance, following the fourth quarter of fiscal 2025, management indicated they expect to partially offset higher costs with previously implemented price increases. This signals that input cost pressure is real enough to require direct customer price adjustments.

Rising labor and logistics costs across the industry put upward pressure on supplier prices. LSI Industries has a significant domestic footprint, employing approximately 2,000 people across 19 manufacturing plants in the U.S. and Canada as of the first quarter of fiscal 2026. This scale of internal labor base gives them some insight into, and perhaps some insulation from, general industry wage inflation, but it also means their own internal costs are subject to these pressures, which can then be passed up the chain to specialized component suppliers.

To give you a sense of the operational context LSI Industries is managing these supplier dynamics within, look at their recent performance:

The strong balance sheet, evidenced by the 0.8x net debt to TTM Adjusted EBITDA ratio at the end of fiscal 2025, gives LSI Industries financial muscle to negotiate or absorb minor price increases better than a highly leveraged peer.

The bargaining power of LSI Industries Inc.'s suppliers is generally kept in check by a few structural advantages the company holds:

• Vertical ownership of PCB assembly via ADL Technology.
• Financial strength, with a low net debt to adjusted EBITDA ratio of 0.8x.
• Proactive adjustment of sourcing strategies to mitigate tariff impacts.
• Ability to implement price increases to offset higher input costs.

Still, suppliers of specialized, non-integrated components, particularly those sourced internationally where the preferred option remains, hold leverage due to geopolitical risk and general inflationary trends affecting the entire supply chain.

LSI Industries Inc. (LYTS) - Porter's Five Forces: Bargaining power of customers

You're analyzing LSI Industries Inc.'s customer power, and honestly, it looks pretty concentrated. The bargaining power of customers is high because LSI Industries Inc. leans heavily on big, multi-site B2B clients across key verticals like convenience stores and grocery chains. These aren't small, one-off purchases; we're talking about major rollouts.

The Display Solutions segment, which is the main engine now, brought in $325.0 million in net sales for the full fiscal year 2025, which is over half of the company's total revenue. This concentration means the largest retail customers hold significant sway when negotiating terms.

Large customers definitely negotiate long-term, high-volume 'program' contracts. This is where their leverage really shows up. For instance, in the second quarter of fiscal 2025, sales to refueling/c-store customers increased by more than 60% compared to the year-ago period, showing the massive scale these deals represent. Still, to be fair, customers face low switching costs between providers for lighting and display solutions, which pushes LSI Industries Inc. to offer integrated, end-to-end services to lock in that business. It's a competitive necessity.

Customer purchasing decisions are clearly driven by the economics of energy efficiency and the return on investment (ROI) they can achieve. You see this demand reflected in the growth across those key verticals in the fourth quarter of fiscal 2025:

• Grocery vertical sales rose 31% year-over-year in Q4 FY2025.
• Convenience store channel sales grew 23% in Q4 FY2025.
• Total company orders ended the year up 11% year-over-year.

The company ended the fiscal year with a 13% increase in backlog company-wide, which suggests that while power is high, LSI Industries Inc. is successfully securing future work, likely by meeting those ROI and integration demands. Finance: draft 13-week cash view by Friday.

LSI Industries Inc. (LYTS) - Porter's Five Forces: Competitive rivalry

Rivalry is defintely intense in the fragmented commercial lighting and display solutions market where LSI Industries Inc. operates. You see this pressure reflected directly in the financial outcomes for the core segments. For the full fiscal year 2025, LSI Industries Inc.'s Lighting Segment saw its net sales decline by 5% year-over-year, landing at $248.4 million. This drop, despite a strong fourth quarter rebound, signals persistent price and volume competition from rivals vying for the same project dollars.

The competitive set includes large, diversified lighting giants alongside specialized fixture and graphics manufacturers. Key rivals LSI Industries Inc. faces include Acuity Brands, Signify N.V., Hubbell Lighting, and notably, Cree Lighting. The Display Solutions segment, which grew significantly to $325.0 million in FY 2025, up 57%, also contends with specialized display system competitors like Daktronics.

To counter this intense rivalry and gain market share-which is essential for the company's strategic goal to reach $800 million in revenue by the end of its fiscal year 2028-LSI Industries Inc. focuses on differentiation through integration and proprietary technology. A concrete example of this is the investment in innovation, such as opening the new R-290 refrigerant research and development facility for advanced, environmentally friendly refrigerated fixture production in January. This focus on integrated solutions helps LSI Industries Inc. move beyond pure price competition.

Here's a quick look at the segment performance that frames the competitive environment:

The company is actively trying to convert accounts from competitors, with the CEO noting that share gains are a result of product investments. The backlog exiting fiscal year-end 2025 for the Lighting Segment was up 20% over the prior year, suggesting that these competitive efforts are translating into future committed revenue.

LSI Industries Inc.'s mitigation strategy centers on several key areas to fight back against competitive pressures:

• Focusing on integrated lighting and display solutions.
• Investing in proprietary technology, like the R-290 refrigerant system.
• Aggressively pursuing market share gains to hit the $800 million revenue target by FY2028.
• Deepening relationships within vertical markets like grocery and convenience stores.

LSI Industries Inc. (LYTS) - Porter's Five Forces: Threat of substitutes

You're looking at how easily customers can switch away from LSI Industries Inc.'s offerings, and that threat is definitely present, though LSI Industries has built some defenses. The primary substitute you need to watch is the influx of generic, lower-cost LED lighting and display products coming from overseas manufacturers. While LSI Industries reported record full-year net sales of $573.4 million for fiscal 2025, this price competition pressures margins, even as the company benefits from strong demand in its core U.S. markets.

Digital signage and advanced graphics solutions are direct substitutes for traditional static signage, but to be fair, LSI Industries actively competes in both arenas. The strength of the Display Solutions segment shows this competition is being met head-on; for the full year ended June 30, 2025, Display Solutions net sales soared to $325.0 million, representing 57% of total sales, up 57% year-over-year. This segment's growth, including a 70% jump in Q3 FY2025, suggests LSI Industries is capturing the shift to digital displays.

Customers also have the option to bypass LSI Industries' integrated solutions by adopting a multi-vendor approach, sourcing their lighting and display needs separately. This is a constant strategic consideration for LSI Industries, which emphasizes its combined offering as a value-add. The fact that the Lighting Segment's sales were $248.4 million for FY2025, a 5% decrease year-over-year, while Display Solutions grew significantly, shows where the market's preference for specific solutions lies.

LSI Industries counters this substitution threat by focusing on proprietary advantages. They secure patents and offer unique, labor-saving products, like the Canopy luminaire mounting system, to increase the total cost of ownership benefit for the customer. The company's focus on domestic sourcing also mitigates risks like the tariffs management noted would affect certain components in early fiscal 2026. Still, you have to weigh the value of these proprietary features against the raw cost of substitutes.

Here's a quick look at how the segments stack up, which gives you context on where the substitution pressure might be most acute:

The broader market trend toward energy-efficient LED technology is not a substitute threat for LSI Industries; it's the core of the business. LSI Industries is a major LED manufacturer, and this transition supports their overall revenue growth, which hit a record $573.4 million in fiscal 2025. The company's P/E ratio of 23.06 is notably cheaper than the market average P/E of about 43.29, suggesting the market may not fully price in the growth potential from this LED shift or the strength of the Display segment.

The ability of LSI Industries to manage these substitute pressures is reflected in its financial health:

• FY 2025 Adjusted EBITDA was $55.0 million.
• FY 2025 Free Cash Flow reached $34.7 million.
• Net debt to TTM Adjusted EBITDA ratio stood at 0.8x as of June 30, 2025.
• The company declared an annual cash dividend rate of $0.20 per share.
• The estimated dividend payout ratio for next year is 19.80%.
• LSI Industries employs roughly 1,200 personnel across seven manufacturing plants.

LSI Industries Inc. (LYTS) - Porter's Five Forces: Threat of new entrants

The threat of new entrants for LSI Industries Inc. remains low to moderate, primarily because establishing a comparable, vertically integrated operation demands substantial upfront capital investment. You can't just start manufacturing high-performance commercial lighting and custom retail displays overnight; the barriers to entry are steep, honestly.

A new competitor would immediately face the challenge of matching LSI Industries' physical scale. LSI Industries currently operates 19 manufacturing plants spread across the U.S. and Canada, requiring massive real estate and equipment investment just to achieve parity in production capacity. Furthermore, the Display Solutions segment alone, which accounted for 57% of LSI Industries' total net sales of $573.4 million in fiscal year 2025, relies on a complex, built-to-order manufacturing process.

The complexity is compounded by the dual nature of the business. A new entrant must master both advanced lighting technology and intricate custom display fabrication. For the twelve months ended June 30, 2025, the revenue split shows this balance: Display Solutions generated $325.0 million in net sales, while the Lighting Segment generated $248.4 million. Successfully competing requires deep expertise in both areas, which takes years to develop.

The company's aggressive inorganic growth strategy further raises the bar for any potential challenger. LSI Industries has recently acquired key players to instantly gain scale and market access. For example, the acquisition of EMI Industries cost $50 million in cash, and the acquisition of Canada's Best Holdings (CBH) was for an all-cash price of USD $24.0 million, plus a $7.0 million performance-based earnout. These figures represent the cost of buying established capacity and customer bases, which a new entrant would have to replicate through slower organic growth or even more expensive acquisitions.

Established distribution networks and deep customer relationships act as a significant moat. LSI Industries has cultivated long-term partnerships, particularly with large B2B customers in sectors like grocery, convenience stores, and restaurants. The integration of CBH, which operates from four facilities in Canada, and EMI, with its five U.S. facilities, was strategic to secure these established channels. The low customer overlap with the acquired entities suggests that LSI Industries is buying access to new, entrenched relationships; for instance, approximately 80% of CBH's revenue in fiscal 2024 came from customers LSI Industries did not previously serve.

Here's a quick look at the scale and recent investment required to operate in this space:

The need to manage a complex portfolio, evidenced by the fact that LSI Industries' Display Solutions segment grew sales by 57% in fiscal 2025, while the Lighting Segment grew by 12% in Q4 FY2025, shows that new entrants must be prepared for rapid, segment-specific scaling challenges. You're looking at needing hundreds of millions in capital just to start competing on footprint alone.

The barriers are further reinforced by the specialized nature of the customer relationships:

• CBH had low customer overlap, meaning new entrants must build relationships from scratch.
• CBH served thousands of retail sites across North America.
• LSI Industries provides comprehensive project management for large rollouts.
• The company's strategy involves deepening relationships in key verticals like grocery and C-Store.

Finance: draft 13-week cash view by Friday.