Interface, Inc. (TILE), a worldwide carpet tile company and global leader in sustainability, today announced results for the fourth quarter and fiscal year ended January 1, 2017.

"Despite a continued sluggish macroeconomic environment, our cost containment efforts were effective and produced a solid fourth quarter," said Jay D. Gould, President and Chief Operating Officer of the Company. "Although orders and revenue were down compared with the prior year period, we experienced positive trends since the U.S. presidential election in November, and the positive order trend has continued for the first seven weeks of the new year. Gross margin in the fourth quarter was compressed due to our transition to a centralized distribution center in the Americas business, but we substantially completed this move prior to year end and we expect our margin to recover in the first quarter. We also maintained our focus on controlling SG&A expenses, which were held to $64 million in the fourth quarter, putting us on pace to stay within our expected 2017 run rate of $260-265 million. Excluding the previously announced restructuring and asset impairment charge in the fourth quarter, we wrapped up 2016 as the second best earnings year in the history of the Company."

FOURTH QUARTER 2016 FINANCIAL SUMMARY & HIGHLIGHTS

Sales: Net sales for the fourth quarter of 2016 were $239.5 million, down 2.9% compared with sales of $246.6 million in the fourth quarter of 2015. The decline occurred primarily in Europe, where sales were down 9.0% due to Brexit impacts, while sales in the Americas and Asia-Pacific regions remained essentially even year over year.

Sales in the Americas region were down 1.0%, with declines in the U.S. (down 2%) and Canada (down 13%) being mostly offset by gains in Latin America (up 28%) and the InterfaceServices business (up 6%). The corporate office segment was down 1% year over year. Among non-office segments, a gain in education (up 14%) was more than offset by declines in retail (down 9%), healthcare (down 7%) and government (down 5%). FLOR sales were down 6% year over year.
Our Asia-Pacific sales were up 0.4% for the fourth quarter, with solid growth in Southeast Asia and Australia (up 6% and 11%, respectively) mostly neutralized by declines in China and India (down 12% and 22%, respectively).
In Europe, the sales decline occurred mostly in the U.K., where revenue was down 18% in Pounds Sterling and more than 25% as reported in U.S. dollars. The decrease was somewhat mitigated, however, by continued solid improvements in Germany and Central Europe.

Operating Income: As previously announced, the Company recorded a pre-tax restructuring and asset impairment charge in the fourth quarter of 2016, primarily relating to a reorganization of its FLOR business, workforce reductions and the write-down of impaired assets. Including the $19.8 million charge, fourth quarter 2016 operating income was $6.4 million, or 2.7% of sales. Without the charge, operating income in the fourth quarter of 2016 was $26.2 million, or 10.9% of sales, compared with $27.7 million, or 11.2% of sales, in the fourth quarter of 2015. Gross profit margin dropped 220 basis points to 37.6% of sales in the fourth quarter of 2016, versus a strong comparable of 39.8% of sales in the fourth quarter of 2015 – primarily due to the transition from several decentralized warehouses to a new centralized warehouse and distribution center in the Americas business. However, tight containment on SG&A expenses (down $6.8 million, or 200 basis points as a percentage of sales) largely offset the gross margin compression.

Net Income: Net income for the fourth quarter of 2016 was $4.7 million, or $0.07 per share, including the $19.8 million restructuring and asset impairment charge. Without the charge, fourth quarter 2016 net income was $17.8 million, or $0.28 per share, compared with net income of $18.3 million, or $0.28 per share, in the fourth quarter of 2015.

Mr. Gould commented, "Our balance sheet at year end remains very solid. In the fourth quarter, we borrowed approximately $63.5 million in Europe and distributed it to the U.S. to fund anticipated cash needs, including our Troup County manufacturing optimization project and the continuation of our previously announced stock repurchase program. So, even though our debt level increased from $214 million at the end of 2015 to $270 million at the end of 2016, our net debt – that is, our debt net of cash on hand – was reduced from $138 million to $105 million over the same period. We also repurchased more than a half million shares of common stock during the fourth quarter of 2016, pursuant to our share repurchase program."

FISCAL YEAR 2016 Financial Results

Sales: Net sales in 2016 were $958.6 million, down 4.3% from $1.0 billion in 2015.

Operating Income: Operating income for 2016 was $84.9 million, or 8.9% of sales, including the restructuring and asset impairment charge of $19.8 million recorded in the fourth quarter. Excluding the charge, operating income in 2016 was $104.7 million, or 10.9% of sales. This compares with 2015 operating income of $113.6 million, or 11.3% of sales.

Net Income: Including the fourth quarter restructuring and asset impairment charge, the Company reported net income of $54.2 million, or $0.83 per share, for fiscal year 2016. Excluding the charge, 2016 net income was $67.3 million, or $1.03 per share, compared with net income of $72.4 million, or $1.10 per share, in 2015.

Mr. Gould concluded, "The momentum we picked up in the fourth quarter gives us optimism about our prospects and positioning for growth in 2017. The orders progression we saw throughout the quarter, alongside improvements in U.S. macroeconomic indicators and signs of economic stabilization in Europe, point to top line growth in our core carpet tile business. In addition, following the successful test marketing of our new modular resilient flooring in the second half of last year, we are launching these products globally in 2017. The first group of products, which we introduced throughout the Americas region earlier this month, is a collection of luxury vinyl tiles that are designed to integrate with our modular carpet products and TacTiles®installation system. Similar launches in Europe and Asia-Pacific will follow in the coming months. Our new Climate Take Back mission also resonates strongly with our customers and should help us build upon our leading position in the pursuit of sustainability. With the operating leverage we've created in our business, even a modest increase in revenue is expected to translate into greater earnings this year."