Interface, Inc. (Nasdaq: TILE), a worldwide commercial flooring company and global leader in sustainability, today announced results for the fourth quarter and full fiscal year ended January 1, 2023.
Highlights:
Fourth Quarter:
- Net sales totaled $335.6 million, down 1.2% year-over-year. Currency neutral net sales were up 3.6% year-over-year.
- Currency neutral orders up 3.1% year-over-year.
- GAAP loss per share of $0.42, inclusive of non-cash goodwill and intangible asset impairment charge of $36.2 million; Adjusted earnings per share of $0.31.
Fiscal Year:
- Net sales totaled $1.3 billion, up 8.1% year-over-year. Currency neutral net sales were up 13.0% versus prior year.
- Continued reductions to both GAAP and Adjusted SG&A expenses as a percentage of net sales.
- GAAP operating income was $75.4 million in 2022 versus $104.8 million in 2021; Adjusted operating income was $132.4 million in 2022, up 8% versus $122.3 million in 2021.
- GAAP earnings per share of $0.33; Adjusted earnings per share of $1.25.
“Interface delivered strong results in 2022 driven by growth across all product lines and geographies. In a challenging macroeconomic environment, we grew net sales 13% on a currency neutral basis and increased adjusted operating income by 8% year-over-year. We continued to see robust demand for our carbon neutral and carbon negative products with currency neutral orders up 6.5% in 2022,” commented Laurel Hurd, CEO of Interface.
“In January, I unveiled a new company strategy to the internal Interface team, focused on leveraging our strengths as one global organization to drive profitable growth across the business. This will enable us to bring the best of Interface to our customers, propelling us to the next level and into the future,” continued Hurd. “We have already started to implement changes in our business that position us to capture the long-term growth and profitability of our differentiated products, innovative designs, and sought-after brands. We will also further focus our investments where they will have the most impact in our must win markets, segments, and products.”
“Interface had a strong finish to the year while navigating an inflationary environment and a cybersecurity event in the fourth quarter. We maintained strong cost discipline despite these conditions, reducing SG&A expenses as a percent of net sales for the year by 186 basis points on a GAAP basis. We also ended the year with strong liquidity while continuing to invest in new products. Our capital allocation strategy and strong financial foundation will continue to position Interface for growth and return value for our shareholders,” added Bruce Hausmann, CFO of Interface.
Fourth Quarter 2022 Financial Summary
Sales: Fourth quarter net sales were $335.6 million, down 1.2% versus $339.6 million in the prior year period as currency headwinds offset underlying growth in the product portfolio.
Gross profit margin was 31.4% in the fourth quarter, a decrease of 431 basis points from the prior year period. Adjusted gross profit margin was 33.2%, a decrease of 294 basis points from adjusted gross profit margin for the prior year period due primarily to higher raw material costs, partially offset by higher selling prices.
Fourth quarter SG&A expenses were $83.5 million, or 24.9% of net sales, compared to $87.4 million, or 25.7% of net sales in the fourth quarter of 2021. Adjusted SG&A expenses were $79.4 million, or 23.7% of net sales, in the fourth quarter of 2022, compared to $81.6 million, or 24.0% of net sales, in the fourth quarter of 2021.
Operating Income: Fourth quarter operating loss was $14.6 million, compared to operating income of $33.9 million in the prior year period. Current year operating loss includes a goodwill and intangible asset impairment charge of $36.2 million, severance, asset impairment and other charges. Prior year operating income includes severance, asset impairment and other charges as well as a reversal of a portion of previously recognized restructuring charges. Fourth quarter 2022 adjusted operating income (AOI) was $32.0 million versus AOI of $41.1 million in the fourth quarter of 2021.
Net Income and EPS: On a GAAP basis, the Company recorded net loss of $24.6 million in the fourth quarter of 2022, or $0.42 per diluted share, compared to fourth quarter 2021 GAAP net income of $21.8 million, or $0.37 per diluted share. Fourth quarter 2022 adjusted net income was $18.1 million, or $0.31 per diluted share, versus fourth quarter 2021 adjusted net income of $27.8 million, or $0.47 per diluted share.
Adjusted EBITDA: In the fourth quarter of 2022, adjusted EBITDA was $41.3 million. This compares with adjusted EBITDA of $52.8 million in the fourth quarter of 2021.
Fiscal Year 2022 Financial Summary
Sales: Net sales for fiscal year 2022 were $1,297.9 million, versus $1,200.4 million in the prior year.
Gross profit margin was 33.7% for fiscal year 2022, a decrease of 232 basis points from the prior year. Adjusted gross profit margin was 34.7%, a decrease of 184 basis points from adjusted gross profit margin for the prior year due to higher labor and raw material costs, partially offset by higher selling prices.
SG&A expenses for fiscal year 2022 were $324.2 million, or 25.0% of net sales, compared to $324.3 million, or 27.0% of net sales in the prior year. Adjusted SG&A expenses were $317.6 million, or 24.5% of sales, for fiscal year 2022 compared to $316.1 million, or 26.3% of net sales, in the prior year.
Operating Income: Operating income for fiscal year 2022 was $75.4 million, compared to operating income of $104.8 million in the prior year. Operating income for 2022 includes a $36.2 million goodwill and intangible asset impairment charge. AOI was $132.4 million for fiscal year 2022 versus $122.3 million in the prior year.
Net Income and EPS: On a GAAP basis, the Company recorded net income of $19.6 million in fiscal year 2022, or $0.33 per diluted share, compared to fiscal year 2021 GAAP net income of $55.2 million, or $0.94 per diluted share. Adjusted net income for fiscal year 2022 was $73.4 million, or $1.25 per diluted share, versus fiscal year 2021 adjusted net income of $72.3 million, or $1.23 per diluted share.
Adjusted EBITDA: In fiscal year 2022, adjusted EBITDA was $176.1 million. This compares with adjusted EBITDA of $169.4 million in fiscal year 2021.
Cash and Debt: The Company had cash on hand of $97.6 million and total debt of $520.2 million at the end of fiscal year 2022, compared to $97.3 million of cash and $518.1 million of total debt at the end of fiscal year 2021.
Fully diluted share count at the end of the fourth quarter of 2022 was 58.1 million shares
Fourth Quarter 2022 Segment Results
AMS Results:
- Q4 2022 net sales were $196.0 million, up 2.7% versus $190.8 million in the prior year period primarily due to strength in the education and retail markets.
- Q4 2022 orders were up 2% compared to the prior year period on a currency neutral basis.
- Q4 2022 operating income was $17.6 million compared to $27.0 million in the prior year period.
- Q4 2022 AOI was $27.9 million versus $30.4 million in the prior year period.
EAAA Results:
- Q4 2022 net sales were $139.6 million, down 6.2% versus $148.8 million in the prior year period.
- Currency fluctuations had an approximately $15.3 million negative impact on Q4 2022 sales as compared to Q4 2021 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 Q4 2022 net sales were up 3.9% year-over-year.
- Q4 2022 orders were up 4% compared to the prior year period on a currency neutral basis.
- Q4 2022 operating loss was $32.2 million compared to operating income of $6.9 million in the prior year period primarily due to a $32.3 million goodwill and intangible asset impairment charge in the current year.
- Q4 2022 AOI was $4.1 million versus $10.7 million in the prior year period.
Fiscal Year 2022 Segment Results
AMS Results:
- Net sales for fiscal year 2022 were $753.7 million, up 15.7% versus $651.2 million in the prior year.
- Operating income for fiscal year 2022 was $92.2 million compared to $81.4 million in the prior year.
- AOI for fiscal year 2022 was $102.4 million versus $85.0 million in the prior year.
EAAA Results:
- Net sales for fiscal year 2022 were $544.2 million, down 0.9% versus $549.2 million in the prior year.
- Currency fluctuations had an approximately $56.7 million negative impact on net sales in fiscal year 2022 as compared to the prior year, primarily due to the weakening of the Euro, British Pound sterling and Australian dollar against the U.S. dollar. Excluding negative foreign currency impacts, EAAA’s net sales were up 9.4% year-over-year.
- Operating loss for fiscal year 2022 was $16.8 million compared to operating income of $23.4 million in the prior year. Fiscal year 2022 included a non-cash goodwill and intangible asset impairment charge of $32.3 million.
- AOI for fiscal year 2022 was $30.1 million versus $37.3 million in the prior year.
Outlook
Interface has entered 2023 with positive momentum, including a strong backlog and customer demand. However, the Company remains cautious about 2023 given the considerable macro-economic uncertainty including ongoing inflation and rising interest rates. It is difficult to predict these conditions or their potential impact on the industry. Interface has successfully managed through many challenging periods, and the Company believes it is strongly positioned to navigate through these unpredictable macro dynamics in 2023.
As the Company continues to monitor this situation, it is anticipating:
For the first quarter of 2023:
- Net sales of $290 million to $305 million.
- Adjusted gross profit margin of approximately 34.0%.
- Adjusted SG&A expenses of approximately $82 million.
- Adjusted Interest & Other expenses of approximately $10 million.
- Fully diluted weighted average share count of approximately 58.7 million shares.
For the full fiscal year 2023:
- Year-over-year net sales growth of 1% to 5%.
- Adjusted gross profit margin of approximately 35.0%.
- Adjusted SG&A expenses that are 25.0% – 25.5% of net sales.
- Adjusted Interest & Other expenses of approximately $36 million.
- An adjusted effective tax rate for the full year of approximately 28.5%.
- Capital expenditures of approximately $32 million.
The full text of Interface’s 4Q22 earnings release, including all tables, and a replay of the company’s Feb. 28 conference call webcast 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.
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