Interface Inc.

05/12/2026 | Press release | Distributed by Public on 05/12/2026 14:02

Quarterly Report for Quarter Ending April 5, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2025, under Part II, Item 7 of that Form 10-K. Our discussions here focus on our results during the quarter ended April 5, 2026, or as of, April 5, 2026, and the comparable periods of 2025, and to the extent applicable, any material changes from the information discussed in that Form 10-K or other important intervening developments or information since that time. These discussions should be read in conjunction with that Form 10-K for more detailed and background information. The three-month period ended April 5, 2026 includes 14 weeks, and the three-month period ended March 30, 2025 includes 13 weeks.
Forward-Looking Statements
This report contains statements which may constitute "forward-looking statements" within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include risks and uncertainties associated with the economic conditions in the commercial interiors industry as well as the risks and uncertainties discussed under the heading "Risk Factors" included in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2025. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.
Executive Overview
During the quarter ended April 5, 2026, we had consolidated net sales of $331.0 million, up 11.3% compared to $297.4 million in the first quarter last year, primarily due to higher sales volume partially driven by an extra week in 2026. The sales increase was primarily in the corporate office market segment. Fluctuations in currency exchange rates positively impacted net sales during the first quarter of 2026, as discussed below. Consolidated operating income was $32.3 million for the first quarter of 2026, compared to $23.2 million in the first quarter last year, primarily due to higher gross profit margin as a result of higher average sales prices and product mix, lower manufacturing costs in EAAA, partially offset by increased tariff costs. Consolidated net income for the quarter ended April 5, 2026, was $23.6 million or $0.40 per diluted share, compared to consolidated net income of $13.0 million or $0.22 per diluted share, in the first quarter last year.
Impact of Macroeconomic Trends
Ongoing disruptions in economic markets and global energy markets, inflation, the war between Russia and Ukraine, conflicts in the Middle East, evolving trade policies and the impact of tariffs on the demand for our products, a challenging supply chain environment, slow market conditions in certain parts of the globe, significant financial pressures in the commercial office market globally, and other geopolitical factors, all pose challenges which may adversely affect our future performance. We plan to continue evaluating our cost structure and global manufacturing footprint to identify and activate opportunities to decrease costs and optimize our global cost structure.
In 2025, the U.S. government enacted a series of higher trade tariffs on goods imported into the U.S. As a result, the Company incurred higher tariff costs on rubber and luxury vinyl tile products imported into the U.S. in fiscal year 2025 and in the first quarter of 2026. In February 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act were invalid. The Company believes certain tariffs previously paid may be refundable. The Company has not yet recognized any recovery of tariffs in its consolidated financial statements.
Analysis of Results of Operations
Consolidated Results
The following table presents, as a percentage of net sales, certain items included in our consolidated condensed statements of operations for the three-month periods ended April 5, 2026 and March 30, 2025:
Three Months Ended
April 5, 2026 March 30, 2025
Net sales 100.0 % 100.0 %
Cost of sales 61.7 62.7
Gross profit 38.3 37.3
Selling, general and administrative expenses 28.5 29.5
Operating income 9.8 7.8
Interest/Other expense, net 1.1 2.0
Income before income tax expense 8.7 5.8
Income tax expense 1.6 1.4
Net income 7.1 % 4.4 %
Consolidated Net Sales
Below is information regarding our consolidated net sales, and analysis of those results, for the three-month periods ended April 5, 2026, and March 30, 2025:
Three Months Ended Percentage
Change
April 5, 2026 March 30, 2025
(in thousands)
Consolidated net sales $ 331,037 $ 297,413 11.3 %
For the quarter ended April 5, 2026, consolidated net sales increased $33.6 million (11.3%) versus the comparable period in 2025, primarily due to higher sales volume (approximately 6%) and the impact of currency fluctuations, which had a positive impact on net sales of approximately $13.4 million (5%). These currency fluctuations were primarily due to the strengthening of the Euro against the U.S. dollar. On a market segment basis, the sales increase was primarily in the corporate office, public buildings, healthcare, and retail market segments.
Consolidated Cost and Expenses
The following table presents our consolidated cost of sales and selling, general and administrative expenses for the three-month periods ended April 5, 2026, and March 30, 2025:
Three Months Ended Percentage
Change
April 5, 2026 March 30, 2025
(in thousands)
Consolidated cost of sales $ 204,314 $ 186,450 9.6 %
Consolidated selling, general and administrative expenses
94,393 87,736 7.6 %
Consolidated Cost of Sales
For the quarter ended April 5, 2026, consolidated cost of sales increased $17.9 million (9.6%) compared to the first quarter of 2025, primarily due to higher sales volume, increased tariff costs on rubber and luxury vinyl tile products imported into the U.S., partially offset by lower EAAA manufacturing costs driven by favorable fixed cost absorption on higher volume. Currency fluctuations had a negative impact on consolidated cost of sales for the first quarter of 2026 and partially increased our costs by approximately $8.6 million (4.6%) compared to the same period last year. As a percentage of net sales, our cost of sales decreased to 61.7% for the first quarter of 2026 versus 62.7% for the first quarter of 2025.
Consolidated Gross Profit
For the quarter ended April 5, 2026, consolidated gross profit, as a percentage of net sales, was 38.3% compared with 37.3% in the same period last year. The increase in consolidated gross profit percentage was primarily due to higher average sales prices (approximately 1%), favorable product mix (approximately 1%), partially offset by higher manufacturing costs (approximately 1%) driven by increased tariff costs that offset lower EAAA manufacturing costs.
Consolidated Selling, General and Administrative ("SG&A") Expenses
For the quarter ended April 5, 2026, consolidated SG&A expenses increased $6.7 million (7.6%) versus the comparable period in 2025. Currency fluctuations had a negative impact on consolidated SG&A expenses of approximately $3.0 million (3.4%) in the first quarter of 2026 compared to the same period last year. SG&A expenses were higher for the first quarter of 2026 primarily due to (i) higher variable compensation of $3.1 million; (ii) higher labor costs of $2.5 million; and (iii) higher advertising costs of $1.1 million due to a new product launch. As a percentage of net sales, SG&A expenses decreased to 28.5% for the first quarter of 2026 versus 29.5% for the first quarter of 2025.
Interest Expense
During the quarter ended April 5, 2026, interest expense was $2.7 million, a decrease of $1.8 million from the comparable period in 2025, primarily due to lower outstanding borrowings as the senior notes were redeemed in December 2025. Lower interest rates on borrowings under the Facility also contributed to the decrease in interest expense.
Provision for Income Taxes
The effective tax rate for the three months ended April 5, 2026 and March 30, 2025, was 18.3% and 24.0%, respectively. The decrease in the effective tax rate for the three months ended April 5, 2026, compared to the same period last year was primarily due to higher excess tax benefits related to share-based compensation.
See Note 12 entitled "Income Taxes" of Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
Segment Operating Results
AMS Segment - Net Sales and Adjusted Operating Income ("AOI")
The following table presents AMS segment net sales and AOI for the three-month periods ended April 5, 2026, and March 30, 2025:
Three Months Ended Percentage Change
April 5, 2026 March 30, 2025
(in thousands)
AMS segment net sales $ 195,671 $ 179,937 8.7 %
AMS segment AOI(1)
23,896 19,863 20.3 %
(1) Includes allocation of corporate and global support SG&A expenses. Excludes restructuring, asset impairment, severance, and other, net. See Note 10 entitled "Segment Information" of Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
During the first quarter of 2026, net sales in AMS increased 8.7% versus the comparable period in 2025 primarily due to higher sales volume and average sales prices. On a market segment basis, the AMS sales increase was primarily in the corporate office, healthcare, public buildings, and retail market segments.
AOI in AMS increased 20.3% during the first quarter of 2026 compared to the prior year period primarily due to higher sales. Higher gross profit margin driven by higher average sales prices and product mix, partially offset by increased tariff costs, also contributed to the increase in AMS AOI. As a percentage of net sales, AOI increased to 12.2% during the first quarter of 2026 compared to 11.0% in the same period last year.
EAAA Segment - Net Sales and AOI
The following table presents EAAA segment net sales and AOI for the three-month periods ended April 5, 2026, and March 30, 2025:
Three Months Ended Percentage Change
April 5, 2026 March 30, 2025
(in thousands)
EAAA segment net sales $ 135,366 $ 117,476 15.2 %
EAAA segment AOI(1)
8,827 5,591 57.9 %
(1) Includes allocation of corporate and global support SG&A expenses. Excludes purchase accounting amortization and restructuring, asset impairment, severance and other, net. See Note 10 entitled "Segment Information" of Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
During the first quarter of 2026, net sales in EAAA increased 15.2% versus the comparable period in 2025, primarily due to higher sales volume. Currency fluctuations had a positive impact on EAAA net sales of approximately $12.8 million (10.9%) from the strengthening of the Euro and Australian dollar against the U.S. dollar. On a market segment basis, the EAAA sales increase was most significant in the corporate office market segment.
AOI in EAAA increased 57.9% during the first quarter of 2026 versus the comparable period in 2025, primarily due to higher sales and higher gross profit margin as a result of lower manufacturing costs driven by favorable fixed cost absorption on higher production volume. As a percentage of net sales, AOI increased to 6.5% during the first quarter of 2026 compared to 4.8% in the same period last year.
Financial Condition, Liquidity and Capital Resources
General
At April 5, 2026, the Company had $61.2 million in cash. At that date, the Company had $173.6 million in term loan borrowings, $23.1 million in revolving loan borrowings, and $0.6 million in letters of credit outstanding under our Facility. As of April 5, 2026, we had additional borrowing capacity of $226.3 million under the Facility. We anticipate that our liquidity is sufficient to meet our obligations for the next 12 months, and we expect to generate sufficient cash to meet our long-term obligations.
Balance Sheet
Accounts receivable, net, were $163.3 million at April 5, 2026, compared to $174.5 million at December 28, 2025. The decrease of $11.2 million was primarily due to customer collections in the first quarter of 2026.
Inventories, net, were $294.2 million at April 5, 2026, compared to $275.0 million at December 28, 2025. The increase of $19.2 million was primarily due to finished goods inventory build attributable to expected higher customer demand in the remainder of 2026.
Analysis of Cash Flows
The following table presents a summary of cash flows for the three-month periods ended April 5, 2026 and March 30, 2025, respectively:
Three Months Ended
April 5, 2026 March 30, 2025
(in thousands)
Net cash provided by (used in):
Operating activities $ 13,538 $ 11,739
Investing activities (10,327) (7,467)
Financing activities (12,382) (8,668)
Effect of exchange rate changes on cash (921) 2,927
Net change in cash and cash equivalents (10,092) (1,469)
Cash and cash equivalents at beginning of period 71,323 99,226
Cash and cash equivalents at end of period $ 61,231 $ 97,757
Cash provided by operating activities was $13.5 million for the three months ended April 5, 2026, which represents an increase of $1.8 million from the prior year comparable period. The increase was primarily due to higher net income for the three months ended April 5, 2026, partially offset by a higher use of cash related to inventory build as discussed above.
Cash used in investing activities was $10.3 million for the three months ended April 5, 2026, which represents an increase of $2.9 million from the prior year comparable period, primarily attributable to a greater capital investment in manufacturing automation and robotics solutions during the three months ended April 5, 2026.
Cash used in financing activities was $12.4 million for the three months ended April 5, 2026, which represents an increase of $3.7 million from the prior year comparable period. The year-over-year increase was primarily due to higher outstanding borrowings under the credit facility resulting in higher repayments and the repurchase of common stock, partially offset by higher proceeds from line of credit borrowings under the credit facility during the three months ended April 5, 2026.
Share Repurchases
In May 2022, the Company adopted a share repurchase program in which the Company is authorized to repurchase up to $100 million of its outstanding shares of common stock. The program has no specific expiration date. During the three months ended April 5, 2026, the Company repurchased 460,882 shares of common stock at a weighted average price of $26.04 per share pursuant to this program.
Outlook
We anticipate revenue growth in the second quarter of fiscal 2026 compared to the first quarter of 2026. We anticipate that our second quarter and the remainder of fiscal 2026 will be impacted by higher raw material costs, higher energy costs, and higher costs to procure our luxury vinyl tile products amid increased global macro-economic uncertainty. We are activating initiatives to offset these impacts through incremental pricing and productivity.
Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements. However, the Company's cash flows from operations can be affected by numerous factors including raw material availability and cost, and demand for our products.
Backlog
As of April 27, 2026, the consolidated backlog of unshipped orders was approximately $256.6 million. As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 28, 2025, backlog was approximately $222.8 million as of February 2, 2026. Historically, backlog is subject to significant fluctuations due to the timing of orders for individual large projects. Disruptions in supply and distribution chains or delays in construction projects and flooring installations worldwide, have caused, and may continue to cause, fluctuations in our backlog.
Interface Inc. published this content on May 12, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 12, 2026 at 20:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]