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Interface Earnings: It's Time to Floor It

By Rick Munarriz - Apr 27, 2017 at 4:21PM

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The leading maker of modular carpet posts its sixth consecutive quarter of declining sales, but that's not the case if we adjust for currency fluctuations.

Sales keep going the wrong way for Interface (TILE -0.29%), but at least we're starting to see signs of stability at the leader in modular carpeting and flooring. Interface reported quarterly results after Wednesday's market close, and the stock opened higher on Thursday despite posting its sixth straight period of year-over-year declines in revenue.

Net sales during Interface's first quarter fell 0.7% to $221.1 million, the smallest of the top-line slides that Interface has posted in this otherwise unfortunate six-period streak. The news gets marginally better if we adjust for foreign exchange fluctuations, as on a constant currency basis Interface's top line would risen 0.4% to $223.4 million. It may not seem like much of a tweak, but it's ultimately the difference between a six-quarter streak of declining net sales and the first quarter of adjusted growth in a year and a half.

Interface is an international player, and you can whip out a map to see where Interface is thriving and where it's fading. Unfortunately for the carpet tile specialist, outside of gains in Canada, the U.K., Germany, and Australia net sales declined in most countries including its home stateside market. Interface's flooring solutions are gaining ground across government, education, and hospitality segments, but that's been offset by declines in healthcare and its flagship corporate office and retail markets.

Herringbone carpet tile concept on display.

Image source: Interface.

Making the pieces fit together

There was improvement in Interface's bottom-line results, as long as you're willing to overlook some one-time items. Reported net income clocked in at $8.5 million or $0.13 a share, but that includes restructuring and asset impairment charges. Back those one-time hits out and Interface's profit of $0.21 a share landed just ahead of the $0.20 a share it posted a year earlier. 

The encouraging news is that order growth was positive. New CEO Jay Gould -- he's been at Interface since 2015 but became its CEO just last month -- is sticking to his firm's earlier forecast of 3% to 4% in net sales growth and 38% to 38.5% in gross margin.

The first quarter is historically Interface's weakest period, so Gould's optimism for the balance of the year when sales traditionally start to pick up is a reaffirmation worth pocketing. "Interface will have some explaining to do if three months from now we're talking about a six-quarter streak of negative sales growth.," I wrote last time out.

That's technically where we find ourselves now, but between a pickup in orders and Gould's forecast for growth, there are at least some indications that things will get better.

 

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