Interface, Inc. (Nasdaq: TILE), a worldwide commercial flooring company and global leader in sustainability, today announced results for the second quarter ended July 2, 2023.
Second quarter highlights:
- Net sales totaled $329.6 million, down 4.9% year-over-year. Currency neutral net sales were down 4.7% year-over-year.
- GAAP earnings per share of $0.27; Adjusted earnings per share of $0.25.
- Generated $18.3 million cash from operations, repaid $25.9 million of debt in the quarter.
“Our second quarter results came in as we anticipated with currency neutral net sales down 5% against a particularly strong prior year comp that was up 23%. We saw steady order demand during the quarter and our backlog remains solid, up $23 million since the beginning of the year. We continue to benefit from effective execution of our global diversification strategy and remain focused on key segments, including Education, Healthcare, and Corporate Office. Education sales were particularly robust in the second quarter, up 7% year-over-year, as facilities teams and administrators invested in refurbishment and maintenance projects during their summer break,” commented Laurel Hurd, CEO of Interface.
“Our gross profit margins improved sequentially to 33.9% in Q2 due to higher pricing and favorable product mix, partially offset by lower fixed cost absorption,” added Hurd. “Our One Interface strategy is progressing as planned. Importantly, we recently hired the company’s first Chief Supply Chain Officer, a new global leader responsible for expanding our gross margins through efficiency and productivity initiatives across our global manufacturing and supply chain footprint. We are advancing well through our multi-year initiatives and remain focused on leveraging the strength of our entire organization to drive improved margins and profitable growth across the business,” concluded Hurd.
“In alignment with our continued focus on debt repayment as a top capital allocation priority, we repaid $25.9 million of debt during the second quarter, and our debt balances were down $69.8 million year over year. As we look to the back half of the year, we remain focused on strengthening our balance sheet and continuing to improve gross margins,” added Bruce Hausmann, CFO of Interface.
Second Quarter 2023 Financial Summary
Sales: Second quarter net sales were $329.6 million, down 4.9% versus $346.6 million in the prior year period.
Gross profit margin was 33.9% in the second quarter, an increase of 25 basis points from the prior year period. Adjusted gross profit margin was 33.9%, a decrease of 39 basis points from adjusted gross margin for the prior year period due primarily to lower fixed cost absorption, partially offset by higher selling prices.
Second quarter SG&A expenses were $85.5 million, or 25.9% of net sales, compared to $81.4 million, or 23.5% of net sales in the second quarter last year. Adjusted SG&A expenses were $83.9 million, or 25.5% of net sales, in the second quarter of 2023, compared to $80.4 million, or 23.2% of net sales, in the second quarter last year.
Operating Income: Second quarter operating income was $28.9 million, compared to operating income of $34.5 million in the prior year period. Second quarter 2023 adjusted operating income (“AOI”) was $27.9 million versus AOI of $38.5 million in the second quarter of 2022.
Net Income and EPS: On a GAAP basis, the Company recorded net income of $15.8 million in the second quarter of 2023, or $0.27 per diluted share, compared to second quarter 2022 GAAP net income of $16.8 million, or $0.28 per diluted share. Second quarter 2023 adjusted net income was $14.5 million, or $0.25 per diluted share, versus second quarter 2022 adjusted net income of $21.1 million, or $0.36 per diluted share.
Adjusted EBITDA: In the second quarter of 2023, adjusted EBITDA was $39.8 million. This compares with adjusted EBITDA of $49.0 million in the second quarter of 2022.
First Six Months of 2023 Summary
Sales: Net sales for the first six months of 2023 were $625.4 million, down 1.5% versus $634.6 million in the prior year period.
Gross profit margin was 33.2% for the first six months of 2023, a decrease of 201 basis points from the prior year period. Adjusted gross profit margin was 33.6%, a decrease of 234 basis points from adjusted gross margin for the prior year period due to lower fixed cost absorption, partially offset by higher selling prices.
SG&A expenses for the first six months of 2023 were $171.8 million, or 27.5% of net sales, compared to $159.9 million, or 25.2% of net sales, in the same period last year. Adjusted SG&A expenses were $167.1 million, or 26.7% of net sales, for the first half of 2023 compared to $159.0 million, or 25.1% of net sales, in the same period last year.
Operating Income: Operating income for the first six months of 2023 was $38.4 million, compared to operating income of $61.9 million in the prior year period. AOI was $43.1 million for the first six months of 2023 versus AOI of $69.2 million in the same period last year.
Net Income and EPS: On a GAAP basis, the Company recorded net income of $15.1 million in the first half of 2023, or $0.26 per diluted share, compared to first half 2022 net income of $30.1 million, or $0.51 per diluted share. Six-month 2023 adjusted net income was $18.4 million, or $0.32 per diluted share, versus first half 2022 adjusted net income of $37.9 million, or $0.64 per diluted share.
Adjusted EBITDA: In the first six months of 2023, adjusted EBITDA was $66.1 million. This compares with adjusted EBITDA of $91.9 million in the prior year period.
Cash and Debt: The Company had cash on hand of $92.9 million and total debt of $475.6 million at the end of the second quarter 2023, compared to $97.6 million of cash and $520.2 million of total debt at the end of fiscal year 2022.
Second Quarter Segment Results
AMS Results:
- Q2 2023 net sales of $201.3 million, down 2.7% versus $206.8 million in the prior year period.
- Q2 2023 orders down 2.9% compared to the prior year period on a currency neutral basis.
- Q2 2023 operating income was $24.8 million compared to $28.4 million in the prior year period.
- Q2 2023 AOI was $24.0 million versus AOI of $28.4 million in the prior year period.
EAAA Results:
- Q2 2023 net sales of $128.3 million, down 8.2% versus $139.8 million in the prior year period.
- Currency fluctuations were immaterial to net sales in the second quarter.
- Q2 2023 orders were down 0.4% compared to the prior year period on a currency neutral basis. EMEA was down 0.3%, Australia was up 5.5%, and Asia was down 8.5% due to the ongoing soft post-COVID recovery in China.
- Q2 2023 operating income of $4.2 million compared to $6.1 million in the prior year period.
- Q2 2023 AOI was $3.8 million versus AOI of $10.1 million in the prior year period.
First Six Months Segment Results
AMS Results:
- Net sales for the first six months of 2023 were $370.5 million, up 2.0% versus $363.3 million in the prior year period.
- Operating income for the first six months of 2023 was $33.5 million compared to $49.7 million in the prior year period.
- AOI for the first six months of 2023 was $35.3 million versus AOI of $49.5 million in the prior year period.
EAAA Results:
- Net sales for the first six months of 2023 were $254.9 million, down 6.1% versus $271.3 million in the prior year period.
- Currency fluctuations had an approximately $6.4 million negative impact on net sales in the first six months of 2023 compared to the prior year period, primarily due to the weakening of the Euro, British Pound sterling and Australian dollar against the U.S. dollar. Excluding negative foreign currency impacts, for the first six months of 2023, EAAA’s net sales were down 3.7% year-over-year.
- Operating income for the first six months of 2023 was $4.9 million compared to $12.3 million in the prior year period.
- AOI for the first six months of 2023 was $7.8 million versus AOI of $19.6 million in the prior year period.
Outlook
Interface remains cautiously optimistic about the back half of the year. The company has calibrated its net sales guidance to accommodate first half results and the ongoing slow post-COVID recovery in Asia, while increasing its gross profit outlook based on an improving supply chain environment. The company now anticipates the following:
For the third quarter of 2023:
- Net sales of $320 million to $330 million.
- Adjusted gross profit margin of approximately 35.5%.
- Adjusted SG&A expenses of approximately $84 million.
- Adjusted Interest & Other expenses of approximately $10 million.
- An adjusted effective tax rate of approximately 31%.
- Fully diluted weighted average share count of approximately 58.2 million shares.
For the full fiscal year 2023:
- Net sales of $1.285 billion to $1.310 billion.
- Adjusted gross profit margin of 34.0% to 34.5%.
- Adjusted SG&A expenses of approximately $336 million.
- Adjusted Interest & Other expenses of approximately $37 million.
- An adjusted effective tax rate of approximately 29%.
- Capital expenditures of approximately $32 million.
The full text of Interface’s 2Q23 earnings release including all tables, and a replay of the company’s Aug. 4 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.
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