Interface, Inc. a worldwide carpet tile company and global leader in sustainability, Wednesday announced results for the second quarter ended July 3, 2016.

"Our business regained some momentum in the second quarter following a slow start to the year, and our margins continued to climb," said Daniel T. Hendrix, Chairman and Chief Executive Officer of the Company. "For the sixth quarter in a row, we posted a triple digit year over year increase in gross margin, which was up 150 basis points to a quarterly record 39.9%. The improvement in gross margin offset nearly all of the 6% decline in revenue, and we kept SG&A expenses in check while continuing to invest in growth platforms such as market development and new product introductions. These dynamics drove our earnings per share to $0.32, just a penny shy of the quarterly record of $0.33 in the second quarter last year."

SECOND QUARTER 2016 FINANCIAL SUMMARY & HIGHLIGHTS

Sales: Sales in the 2016 second quarter were $248.2 million, down 5.9% versus $263.6 million in the prior year period.

Second quarter sales in our Americas business declined 6.0% compared with its all-time record high in the prior year period, with similar decreases in both the corporate office and non-office segments, although the hospitality sector was up 27%. Sales in the Company's core U.S. modular carpet business were up 1% in the quarter, but this was more than offset by a decline in its InterfaceServices business due to large retail projects that were delayed until the second half of the year, coupled with soft business conditions in Canada and Brazil as a result of the weakened oil and gas sector.
In local currency, sales in our Europe business were down 9.3%, as performance was hampered by a confluence of geopolitical and economic developments, including uncertainty during the run-up to the Brexit vote, terrorist activities and the refugee crisis. The U.K. accounted for most of the decline, with pockets of modest growth in Central and Eastern Europe.
Sales in our Asia-Pacific region in the second quarter of 2016 were down 2.4% compared with the prior year period, with a 5% gain in Asia more than offset by declines in Australia.

Operating Income: Second quarter 2016 operating income was $31.8 million, or 12.8% of sales, compared with $33.2 million, or 12.6% of sales, in the second quarter last year. Gross profit margin was 39.9% in the second quarter of 2016, up 150 basis points compared with 38.4% in the prior year period. SG&A expenses were $67.3 million, or 27.1% of sales, in the second quarter of 2016, versus $68.0 million, or 25.8% of sales, in the second quarter of 2015. The year over year SG&A percentage increase was due to the softer sales figure, as these expenses in absolute dollars dropped $0.7 million over the same period notwithstanding enhanced initiatives in the areas of market expansion and new product introduction.

Net Income: Net income during the second quarter of 2016 was down slightly to $20.7 million, or $0.32 per share, compared with net income of $21.7 million, or $0.33 per share, in the record second quarter last year.

Patrick C. Lynch, Senior Vice President and Chief Financial Officer, commented, "The second quarter was a continuation of the dynamics we've been seeing over the past few quarters, with softer sales offset by substantial improvements in gross margin driven by higher selling prices, lower input costs, better material usage and improved production efficiencies from our lean manufacturing processes. We managed working capital well during the period, drawing down inventory levels with scaled back production, and we generated substantial cash from operating activities which allowed us to continue repaying debt and buying back stock. With gross margins lining up toward our near term target of 40%, we can now focus even more attention on growing the top line."

Year to Date 2016 Financial Results

Sales: For the first six months of 2016, sales were $470.8 million, down 5.9% compared with $500.5 million in the first six months last year. On a currency neutral basis, sales in the first half of 2016 were $475.1 million, down 5.1% compared with the first half of 2015.

Operating Income: Operating income for the 2016 six-month period was $52.8 million, or 11.2% of sales, versus $54.6 million, or 10.9% of sales, in the first six months of 2015. In the first six months of 2016, currency fluctuations had a negative impact of $0.3 million on operating income.

Net Income: The Company reported net income of $33.6 million, or $0.51 per share, for the first six months of 2016. This compares with net income of $34.0 million, or $0.51 per share, in the first six months of 2015.

Mr. Hendrix concluded, "Considering the slow order intake we experienced in the first quarter, I'm fairly pleased with where revenues ended up in the second quarter. I also couldn't be happier with our progress on gross margin, with each of our three operating regions posting substantial year over year gains. Due to the softer top line, SG&A expenses remain somewhat elevated as a percentage of sales, but the percentage increase represents the type of spending that we expect to yield future benefits in the form of higher sales. Our core U.S. modular business is healthy, and our Asia-Pacific business is exceeding expectations this year. I believe our biggest uncertainty lies in Europe, where the Brexit vote and recent terrorist activities are disrupting business conditions and impacting foreign currency values. Nevertheless, the second half of the year is typically better for us than the first half, and we expect that to be the case this year as sales and earnings continue to improve."