Interface, Inc. (TILE), a worldwide carpet tile company and global leader in sustainability, Wednesday announced results for the first quarter ended April 3, 2016.

"The earnings power we have created in our business drove improvements in gross profit and net income despite a 6% decline in first quarter revenue," said Daniel T. Hendrix, Chairman and Chief Executive Officer of the Company. "The first quarter is typically our seasonally slowest period, and last year's first quarter contained 14 weeks versus 13 weeks this year, which impacts the year over year sales comparison. We continued our trend of gross margin expansion, up 285 basis points versus the first quarter last year, with improvements coming across all of our business units. SG&A expenses were up slightly versus the year ago period, however the revenue decline negatively skewed the figure as a percentage of sales. We trimmed spending where consistent with our strategic plan and continued to invest where we see growth opportunities. As a result of our improved operating structure, we were able to grow net income and earnings per share notwithstanding the lower sales figure."

First Quarter 2016 Financial Summary & Highlights

Sales: Sales for the first quarter of 2016 were $222.6 million, down 6.1% from sales of $236.9 million in the first quarter of 2015. With foreign currency held constant, sales in the 2016 first quarter decreased 4.5% to $226.3 million, versus $236.9 million in the prior year period.

In the Americas, our first quarter sales were down 6% year over year. The sales decrease was mostly due to geographical pockets of weakness in the oil and gas industry in the U.S., Western Canada and South America, as well as customer initiated project delays in our InterfaceServices business. The declines were seen in both the corporate office segment (down 5%) and non-office segments (down 9%), mostly within the government and education sectors. FLOR sales decreased 17% year over year, with volume down across all sales channels except crossover sales by our commercial salesforce. Currency fluctuations negatively impacted sales in the Americas by approximately $1.5 million.
In Europe, sales were down 10% (9% in local currency) as a result of the geopolitical and economic troubles that negatively impacted office renovations across the region. Among other issues, the potential Britain exit from the European Union, slowdown in the financial services sector, terror attacks and refugee crisis each weighed heavily on European governments, economies and corresponding business and consumer confidence levels. The decline occurred across the region, with the exceptions of Germany (up 10%) and Southern Europe (up 2%). Currency fluctuations had only a small negative impact (approximately $0.8 million) on the top line results in Europe.
In the Asia-Pacific region, our sales were up 3%, primarily due to strength in Southeast Asia and India, partially offset by a decline in China. Fluctuations in the Australian dollar had a $1.4 million negative impact on sales for the quarter.

Operating Income: Operating income in the first quarter of 2016 was $21.0 million, or 9.4% of sales, compared with operating income of $21.4 million, or 9.0% of sales, in the first quarter last year. Fluctuations in currencies negatively impacted first quarter 2016 operating income by approximately $0.3 million compared with the prior year period.

Net Income: Net income during the first quarter of 2016 was $12.9 million, or $0.20 per diluted share. This compares with net income of $12.3 million, or $0.19 per diluted share, in the first quarter last year.

Patrick C. Lynch, Senior Vice President and Chief Financial Officer, commented, "The lead story for the first quarter was our continued gross margin expansion, which made up for most of the lost ground at the revenue line. The margin improvement was fueled by lower raw material costs and usage, as well as higher average selling prices. Our SG&A expenses rose $1.6 million year over year, mostly due to marketing initiatives to support our growth platforms, and the softer top line resulted in SG&A expenses climbing to 29.5% of sales. Moving forward, we will closely monitor SG&A spending in relation to demand levels, and we will cut expenses where necessary and consistent with our strategic growth plans."

Mr. Hendrix concluded, "Operationally, our Company is strong, as evidenced by our greatly expanded gross margin. Our primary focus over the next few quarters will be on increasing sales volume and controlling SG&A expenses, as we realize SG&A expenses of 29.5% of sales is not sustainable. While recent order levels have not been encouraging, we have a number of initiatives underway to accelerate growth of our top line, such as introducing additional new products, enhancing our dealer channel and driving penetration of non-office segments. We also believe there is room for further gross margin expansion through lower raw material and labor costs at our production facilities, selling price increases, product mix management and margin accretive new products. Even though we will be running up against very tough prior year sales comparisons, we continue to forecast a modest sales increase for the full year."

Share Repurchase Program

The Company also announced that its Board of Directors amended the Company's share repurchase program to authorize the repurchase of up to $50 million of the Company's outstanding shares of common stock, commencing as of today. The program has no specific expiration date. Purchases made pursuant to the program may be made in either the open market or in privately negotiated transactions from time to time, including pursuant to a 10b5-1 plan, as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program does not require the Company to repurchase any specific number or amount of shares and may be amended, suspended or discontinued at any time in the Company's discretion and without notice.