Interface Reports First Quarter 2023 Results
Interface, Inc. (Nasdaq: TILE), the global flooring solutions company where everything is certified carbon neutral, today announced results for the first quarter ended April 2, 2023.
First quarter highlights:
- Net sales totaled $295.8 million, up 2.7% year-over-year. Currency neutral net sales were up 5.2% year-over-year.
- GAAP loss per share of $0.01; Adjusted earnings per share of $0.07.
- Strong year-over-year order growth in the Americas and Australia offset by softness in China.
- Generated $29.6 million cash from operations, repaid $19.2 million of debt in the quarter.
“In the first quarter, we delivered currency-neutral revenue growth of 5%, driven by the Education and Corporate Office segments. Currency neutral orders were up 6% in the Americas, 19% in Australia, and 3% in Europe excluding Russia. Weakness in China, and the exit of our Russia business, drove an overall 2% currency neutral decline in consolidated orders year-over-year. We are investing in customer-facing activities and innovation to drive our short and long-term growth, while managing all other costs and focusing on productivity to improve our margins,” commented Laurel Hurd, CEO of Interface.
“Last quarter, Interface embarked on a multi-year journey to drive sustainable revenue and gross margin growth while enhancing value creation for stakeholders. We are reorganizing our innovation team globally to efficiently deliver more new products to our customers. We have also begun to globalize our core marketing, design, R&D, and our back-office functions to eliminate unnecessary costs and duplicative efforts, while bringing the best of Interface to the market. We are working to reduce the complexity of our business model and optimize our supply chain and global footprint. While these are multi-year initiatives, we believe they will allow us to continue to take market share and maintain a leadership position while meaningfully improving profitability,” concluded Hurd.
“We have adjusted our full-year guidance given the continued macro-economic uncertainty in 2023, particularly as we navigate persistent inflation and rising interest rates. During this period, Interface will continue to execute on our disciplined capital allocation strategy, focusing on paying down debt and generating strong returns for our shareholders,” added Bruce Hausmann, CFO of Interface.
First Quarter 2023 Financial Summary
Sales: First quarter net sales were $295.8 million, up 2.7% versus $288.0 million in the prior year period. Growth across the product portfolio was partially offset by currency headwinds.
Gross profit margin was 32.4% in the first quarter, a decrease of 467 basis points from the prior year period. Adjusted gross profit margin was 33.3%, a decrease of 466 basis points from adjusted gross profit margin for the prior year period due to lower fixed cost absorption, and higher raw material costs, partially offset by higher selling prices.
First quarter SG&A expenses were $86.3 million, or 29.2% of net sales, compared to $78.5 million, or 27.3% of net sales in first quarter last year. Adjusted SG&A expenses were $83.2 million, or 28.1% of net sales, in first quarter 2023, compared to $78.6 million, or 27.3% of net sales, in the first quarter last year.
Operating Income: First quarter 2023 operating income was $9.5 million, compared to operating income of $27.4 million in the prior year period. First quarter 2023 adjusted operating income (“AOI”) was $15.2 million versus AOI of $30.6 million in first quarter of 2022.
Net Income and EPS: On a GAAP basis, the Company recorded net loss of $0.7 million in the first quarter of 2023, or $0.01 per diluted share, compared to first quarter 2022 GAAP net income of $13.3 million, or $0.22 per diluted share. First quarter 2023 adjusted net income was $4.0 million, or $0.07 per diluted share, versus first quarter 2022 adjusted net income of $16.8 million, or $0.28 per diluted share.
Adjusted EBITDA: In the first quarter of 2023, adjusted EBITDA was $26.3 million. This compares with adjusted EBITDA of $42.9 million in the first quarter of 2022.
Cash and Debt: The Company had cash on hand of $101.3 million and total debt of $501.1 million at the end of the first quarter 2023, compared to $97.6 million of cash and $520.2 million of total debt at the end of fiscal year 2022.
First Quarter Segment Results
AMS Results:
- Q1 2023 net sales of $169.2 million, up 8.1% versus $156.5 million in the prior year period primarily due to the continued strong demand in the Corporate Office and Education market segments.
- Q1 2023 orders were up 6.2% compared to the prior year period on a currency neutral basis.
- Q1 2023 operating income was $8.7 million compared to $21.3 million in the prior year period.
- Q1 2023 AOI was $11.3 million versus AOI of $21.1 million in the prior year period.
EAAA Results:
- Q1 2023 net sales of $126.6 million, down 3.8% versus $131.5 million in the prior year period.
- Currency fluctuations negatively impacted Q1 2023 net sales by approximately $6.3 million as compared to Q1 2022 sales due to weakening of the Euro, British pound sterling and Australian dollar against the U.S. dollar. Excluding negative foreign currency impacts, EAAA’s Q1 2023 net sales were up 1.0% year-over-year.
- Q1 2023 orders were down 11.5% compared to the prior year period on a currency neutral basis. Excluding Russia (which was operating in the first quarter of 2022 but not in the current year), Q1 2023 orders were down 4.7% compared to the prior year period on a currency neutral basis with EMEA up 2.9%, Australia up 18.5%, and Asia down 49.5% due to weakness in China.
- Q1 2023 operating income of $0.8 million compared to $6.2 million in the prior year period.
- Q1 2023 AOI was $3.9 million versus AOI of $9.5 million in the prior year period.
Outlook
Interface is well positioned to navigate through continued macro-economic uncertainty in 2023 and has successfully managed through challenging periods in the past. The company remains cautious given continued pressures from ongoing inflation and rising interest rates. As a result, Interface has updated its full-year 2023 guidance and now anticipates the following:
For the second quarter of 2023:
- Net sales of $325 million to $345 million.
- Adjusted gross profit margin of approximately 33.0%.
- Adjusted SG&A expenses of approximately $85 million to $86 million.
- Adjusted Interest & Other expenses of approximately $10 million.
- Fully diluted weighted average share count of approximately 58.2 million shares.
For the full fiscal year 2023:
- Year-over-year net sales growth of 0% to 3%, updated from prior guidance of 1% to 5%.
- Adjusted gross profit margin of 33.0% to 34.0%, updated from prior guidance of approximately 35%.
- Adjusted SG&A expenses that are approximately 25.0% to 25.5% of net sales.
- Adjusted Interest & Other expenses of approximately $36 million.
- An adjusted effective tax rate for the full year of approximately 30%, updated from prior guidance of approximately 28.5%.
- Capital expenditures of approximately $32 million.
The full text of Interface’s 1Q23 earnings release, including all tables, and a replay of the company’s May 5 conference call may be accessed at https://investors.interface.com.
About Interface
Interface, Inc., (NASDAQ: TILE) is a global flooring solutions enterprise with an integrated portfolio of carpet tile and resilient flooring products, where everything is third-party certified carbon neutral. With our design approach to flooring systems, we help our customers create high-performance interior spaces that have a positive impact on people’s lives and the planet. Our range includes Interface® carpet tile and LVT, nora® by Interface rubber flooring, and FLOR® premium area rugs for commercial and residential spaces.
Interface is third-party certified as a Carbon Neutral Enterprise. We neutralized our carbon impact across our entire business, including all operations and our full value chain, marking an important milestone toward our objective to become a restorative and carbon negative enterprise by 2040.
Learn more about Interface at interface.com and blog.interface.com, nora by Interface at nora.com, FLOR at FLOR.com, and our sustainability journey at interface.com/sustainability, and our Carbon Neutral Enterprise certification at https://www.interface.com/US/en-US/sustainability/carbon-neutral-enterprise.html.
Follow us on Facebook, Instagram, LinkedIn, Twitter, and Pinterest.
