Kimball International Thursday reported consolidated net sales of $136.2 million, down 29% from $192.2 million in the year-ago quarter. Organic net sales were down 31% compared to the prior year. Gross margin declined by 60 basis points to 33.4%, mainly resulting from higher domestic and ocean freight costs and loss of leverage on the lower revenue, which more than offset transformation plan benefits. Selling and administrative expenses (S&A) of $46.0 million declined $3.8 million compared to the prior year; however, as a percentage of net sales, S&A expenses were 33.7%, compared to 25.9% in the same quarter a year ago. Adjusted selling and administrative expenses were $40.7 million or 29.9% of net sales, compared to $48.8 million or 25.4% of net sales in last year’s second quarter. The net loss was $0.8 million, or ($0.02) per diluted share, compared to earnings per diluted share of $0.30 reported in the fiscal 2020 second quarter. Adjusted earnings per share, which excludes acquisition- and restructuring-related charges of $0.08 and $0.03, respectively, was $0.09, compared to $0.33 last year. Adjusted EBITDA decreased 56% to $9.1 million, and adjusted EBITDA margin declined 420 basis points to 6.7%.
CEO Kristie Juster commented, “In the second quarter, we made significant progress on our strategy to emerge from the COVID health crisis as a stronger company highlighted by our acquisition of Poppin. We continued to execute on our Connect 2.0 strategy, which has created additional opportunities to gain share in our target end markets and accelerate our long-term growth. Additionally, Poppin, which brings us a digitally native platform that we can leverage across our portfolio of brands, has greatly advanced Kimball International’s eBusiness strategy.
“Business trends unfolded in line with our expectations in the second quarter. Our Health business posted double-digit sequential growth in revenue and order rates, supporting our thesis that this market would be the first to recover from the impact of COVID-19. Our Workplace business also showed sequential improvement in order rates, although at a more modest rate, benefiting in part from Kimball International’s significant presence in secondary markets, which are rebounding more quickly than large metropolitan areas.
“Second quarter revenue was reduced by approximately $6 million due to port congestion delays that pushed out shipments in our Hospitality end market. Additionally, we managed through considerable gross margin headwinds in the second quarter with transformation cost savings of $6.1 million and price realization offsetting part of the impact of lower volumes and significantly higher ocean and domestic freight costs. We announced price increases within our Workplace and Health product lines, effective March 1, 2021 to help offset a portion of the higher freight and commodity costs that we expect to continue for the remainder of this fiscal year.
“Kimball International’s first half fiscal 2021 performance demonstrated continued resilience while operating under difficult business conditions. The resurgence of COVID-19 has extended the timing of a recovery in the Workplace end market, and higher logistics expenses and inflationary impacts have pressured margins. We continue to effectively navigate this challenging business environment by making significant progress in reducing our long-term cost structure while focusing on building our growth initiatives around brands and products across our new omnichannel platform.
“With the acquisition of Poppin complete, we are moving forward with our stage one priorities, notably scaling Poppin in secondary markets where Kimball International is well-established, launching Poppin privacy pods into our existing dealer network, building work from home and corporate partnerships for Poppin and our Etc. brand, and developing a complementary Poppin Pro Dealer Program.
“At the same time, we are making investments in our Health business, where we have expanded our expertise with strategic hires and plan to launch six new clinical products by the end of fiscal 2021. In Hospitality, we continue to partner closely with our customers in navigating both the impact of the pandemic and the temporary impact of higher freight costs.
“Post pandemic, what we knew as the office will change into an exciting hybrid workplace. The office will be the center for collaboration, community and culture; the home will be an extension of work; and new, smaller office formats will emerge in satellite offices in secondary markets. Our deep knowledge in residential design, our multi-brand portfolio and new omnichannel capabilities will enable us to access each end market in the broader new workplace.
“Looking ahead, we expect third-quarter organic revenue to be similar to second-quarter levels based on our backlog of $144.9 million, of which approximately $80 million is expected to ship in the third quarter. While freight costs are expected to further pressure fiscal third-quarter gross margin, we anticipate a sequential increase in gross margin in the fourth quarter as price increases materialize and clarity around the new forming workplace begins to take shape,” Ms. Juster concluded.
