Interface Reports Q3 Sales Decline of 5.1%, Earnings Down 30%

Atlanta, GA, November 6, 2023-Interface reported Q3 net sales of $311.0 million, down 5.1% versus $327.8 million in the prior year period.

The company recorded net income of $9.9 million in Q3 2023, down 30% compared to Q3 2022 net income of $14.1 million.

Net sales for the first nine months of 2023 were $936.4 million, down 2.7% versus $962.4 million in the prior year period.

The company recorded net income of $25.0 million in the first nine months of 2023, down 43% compared to the first nine months of 2022 net income of $44.2 million.

“Our third quarter results reflect the resiliency of our global diversification strategy and effective execution in a relatively sluggish market. Net sales declined in the quarter primarily driven by an outsized impact from retail sector softness and broader macroeconomic uncertainty. This was partially offset by strength in healthcare, up 13% year-over-year, and performance in other key segments. Despite lower volumes in the quarter, we increased gross profit margin by 226 basis points and our strong cash flow generation enabled us to pay down debt, driving accelerated improvements in our balance sheet,” commented Laurel Hurd, CEO of Interface.

“We hit an important milestone in our One Interface journey with the global product launch of our Past Forward carpet tile collection, which was the first time we launched a global collection at the same time around the world. As we close out 2023, we remain focused on leveraging the power of our entire organization to drive profitable growth and value for our shareholders,” concluded Hurd.

In the earnings calls, Hurd reported that “There were two primary factors that impacted our revenue growth in the third quarter, but we also expect to continue in the fourth quarter. First, the retail sector, which had an outsized impact on our third quarter sales for a good portion of our year-over-year decline. We don't often talk about the retail segment as it's about 4% of our year-to-date annual sales.

“However, this sector has been pressured, as you know, and we have seen significant unplanned deferrals of store remodel projects due to the macroeconomic uncertainty these retailers are facing. They're being cautious in their capital budget, pushing out projects and in some cases, closing locations and we're feeling the impact of that. Second, while we have seen broad-based resilience in a dynamic market, including several bright spots and our order rates have held up fairly well. We have started to see industry-wide sluggishness begin to develop across the commercial market. Turning to our segments in more detail. We saw notable strength in health care with billings up 13% in the quarter globally and up 21% in the Americas. As the health care industry continues to evolve, architects and designers are recognizing our right to win in this growing segment.

“I recently spent time in the Midwest and visited three major health care systems. They're making impressive investments to build new facilities, as well as renovate their existing facilities. Health care spaces are typically thought of as primarily sterile, clean environment, which is incredibly important, especially in the operating theaters. Our customers are now also increasingly focused on creating environments that prioritize patient and caregiver well-being and serenity. As these health care systems expand across the country and, in some cases, around the globe, other spaces are designed become a representation of their brands. Design matters more and more in this segment in addition to performance, and our brands of nora rubber and interface flooring and the integrated system that we offer is truly resonating.

“We also continue to see strong activity in education, both from K-12 and higher education. On a year-to-date basis, education is up across most of our major markets and up 5% for the total company. I also met with two of our important higher ed customers while in the Midwest. Sustainability matters to these customers. Often, we'll meet not only with the head of facilities or head of design, but also their head of sustainability. Many universities have made carbon commitments and are drawn to Interface because we have the lowest embodied carbon in the industry, and their students care and hold them accountable to deliver on their commitments. Often Interface is used as a case study in their university curriculum for our advancements in sustainability.

“So of course, they use our products in their floors. It also struck me how dynamic these higher ed customer’s needs are across classrooms, dorms and student unions, where they expect our LVT and carpet to their labs and health centers where Nora rubber is the solution. Again, is our integrated system of flooring solutions that our customers truly appreciate. Corporate office remains relatively steady, where we see continued renovations with more and more companies modifying their spaces as they bring people back to the office. Americas corporate office billings are up 3.5% year-to-date. Australia is up 2.4% with Europe fairly close to last year levels and continued softness in Asia. Moving to orders. Orders were stable in the third quarter with consolidated currency neutral net orders roughly flat year-over-year.”