Interface, Inc. (TILE), a worldwide modular flooring company and global leader in sustainability, today announced results for the first quarter ended April 2, 2017.

"As we continue to advance our strategic agenda to become the world's most valuable interior products and services company, we delivered solid financial results in the first quarter, including a new record for first quarter gross margin, largely driven by improvements in the Americas and Europe," said Jay D. Gould, president and chief executive officer of Interface. "We saw a shift in momentum leading into 2017, with orders up year-over-year compared with the first quarter of 2016. In addition, our Board approved a new $100 million stock repurchase program that demonstrates their support of our long-term strategy and belief in our growth prospects. Stock repurchases are an important aspect of our capital allocation strategy as we focus on delivering long-term value for our shareowners."

Interface launched its first modular resilient flooring offering, a luxury vinyl tile collection, in the middle of the first quarter in the Americas region, following a soft launch in select U.S. cities in 2016. LVT orders are showing early signs of momentum with initial sales flowing through the first quarter. Global rollouts continue over the next two quarters, and the Company expects to see more sales volume specific to LVT, particularly in the back half of the year.

First Quarter 2017 Financial Summary & Highlights

Sales: On a constant currency basis, sales for the first quarter of 2017 were $223.4 million, up 0.4% over the prior year period. As reported, 2017 first quarter sales were $221.1 million, down 0.7% from sales of $222.6 million in the first quarter of 2016. Growth in the Americas and Australia effectively balanced weakness in Asia.

In the Americas, our first quarter sales were up 0.5% year-over-year. Declines in the U.S. and Latin America were bolstered by gains in Canada. In addition, LVT sales are beginning to flow through and order volume is showing momentum toward the Company's full year target.
In Europe, sales were up 2.9% in local currency with strong growth in Germany, as well as a welcome uptick in the U.K., offset by declines in Southern Europe and Holland. As translated into U.S. dollars, sales in Europe were down 3% for the quarter.
In the Asia-Pacific region, sales were down 2.5%, primarily as a result of a decline in Asia, which was partially offset by an increase in Australia.
On a global market segmentation basis, 2017 first quarter sales were up year-over-year across government, education, and hospitality segments, balancing slight declines in corporate office and retail, and a larger decline in healthcare, compared to the first quarter of 2016.

In the 2017 first quarter, orders were up 3.8% year-over-year on a constant currency basis. Year-to-date, order growth is up 3% on a constant currency basis, tracking toward our 2017 targets.

Operating Income: As previously reported, the Company recorded a restructuring and asset impairment charge of $7.3 million in the first quarter of 2017, primarily for lease exit costs and asset impairments associated with the restructuring of its FLOR business. Excluding the charge, first quarter 2017 operating income was up 8% to $22.6 million, or 10.2% of sales, compared with operating income of $21.0 million, or 9.4% of sales, in the prior year period. Including the charge, first quarter 2017 operating income was $15.3 million.

The Company had a record first quarter gross margin of 39.7% (up 80 basis points versus the prior year period) driven by improvements in the Americas and Europe. In the first quarter of 2017, SG&A expenses were $65.2 million, which was in-line with the Company's targeted annual run rate. As a percentage of sales, SG&A expenses were flat year-over-year at 29.5%.

Net Income: Net income during the first quarter of 2017 was $13.2 million, or $0.21 per diluted share, excluding the restructuring and asset impairment charge, which was an increase over prior year net income of $12.9 million, or $0.20 per diluted share. Including the charge, net income in the first quarter of 2017 was $8.5 million, or $0.13 per diluted share.

Interface is focused on delivering the operational fundamentals to support growth across its core carpet tile and its new modular resilient flooring business. From a gross margin standpoint, the Company expects some contraction during the remainder of the year as a result of the FLOR restructuring and related store closures, as well as inflation of raw material costs.

"Overall, we delivered solid first quarter results in what is historically our slowest quarter of the year. With the fundamentals in place, we remain committed to our full year plan, which includes 3-4% top line growth, 38.0-38.5% gross margin, and $260-265 million in SG&A expenses," Gould concluded.