Interface Inc (TILE) (Q3 2026) Earnings Call Highlights: Margin Expansion and Double-Digit EPS ...

Negative Points

• Net sales were slightly below the low end of the outlook range, primarily due to timing shifts in retail billings and softer conditions in Europe.

• EAAA currency-neutral net sales grew only 0.3%, with a more challenging demand environment, particularly in EMEA.

• EAAA orders declined 7% as the macro environment in Europe softened during the quarter.

• The company revised its full-year net sales outlook downward to reflect softer conditions in Europe.

• Higher input costs from elevated oil prices and new tariffs in Canada are expected to impact future margins.

• Adjusted SG&A expenses increased to $91.5 million from $90 million in the prior year quarter.

• The timing of nora installation cycles created quarter-to-quarter variability in billings.

• Market conditions in Europe remain uncertain, with opportunities taking longer to convert to orders and billings.

Q & A Highlights

Q: On gross margin for Q3, slightly below guidance, but still very good. Margins for Q4 look to imply, I think, down year-over-year on input costs and some of the other stuff you mentioned in the prepared remarks. Can you just talk a bit more about the puts and takes in the quarter for Q4, and then how we should think about gross margins into next year? A: CFO Bruce Hausmann explained that the Q4 margin pressure reflects the flow-through and timing of raw material costs previously sitting on the balance sheet. He emphasized focusing on the run rate of gross profit margin, which is around 39% for the second half and full year, rather than just a single quarter. CEO Laurel Hurd added that the company's stated ambition was to reach 38.5%, and they feel great about being at 39% amid volatility, and they will continue to press forward on growth and margin expansion initiatives.

Q: On corporate office, I think you mentioned it was up 2% in the quarter. Good to see continued growth there. We've heard some pretty good trends from office R&R and the return to work kind of driving growth there. I mean, maybe would have expected to see a little bit stronger growth this quarter. I think you had pretty good growth numbers in Q1 and Q2 from office. I just kind of just want to understand, is that momentum for office R&R still there? A: CEO Laurel Hurd confirmed the momentum is still there, with a lot of R&R work happening. She noted some softness in Europe, where the macro environment became more challenging in the quarter, particularly in the DACH market (Germany and Switzerland) and France, while the U.K. continued to grow. She said the opportunity pipeline across Europe looks strong and up year-over-year, with consistent win rates and good activity, but it is just taking longer for opportunities to convert to orders and then to billings.

Q: The last one for me, I think still on Europe. You are rolling out kind of the One Interface selling strategy across Europe next year, it sounds like. Do you need the macro in Europe to come back and be stronger to really execute on that strategy, or can you still execute it to pretty much the same degree regardless of the macro? A: CEO Laurel Hurd expressed excitement about the progress, noting they have aligned the commercial organization under a single leader, who is now building out the selling team. Next year, they will move to One Interface selling team structures supported by centralized customer service and commercial analytics. She said it is a good time to do it, noting that when they started the U.S. rollout, the macro was not great there either, and they still methodically drove consistent growth. She is optimistic about the future of the business in Europe, coupling the commercial reorganization with productivity initiatives and new designs.

Q: I guess I wanted to just ask about how much of the cost inflation you incurred in the quarter was not expected as you came into the quarter? In other words, came about during the quarter. A: CFO Bruce Hausmann said the additional costs were principally related to Canadian tariffs, which were new inside the quarter, as well as some oil and energy cost increases. He noted they were able to offset most of that and largely came in at their guide, holding and reaffirming earnings guidance for the year. He quantified the Canadian tariffs at $5 million to $10 million annually, while oil prices have bounced around from $90 to $115 a barrel and change daily, so they are watching it closely and have activated plans to offset those costs.

Q: I guess that kind of feeds into the next question, which is, how are you planning to protect margins heading into 4Q and into 2027, more importantly? A: CEO Laurel Hurd outlined three levers: first, pricing, which they have been executing effectively, noting the U.S. commission-based selling organization can put price in the market quickly; second, productivity, with continued investment in automation driving efficiencies that continue to pay back; and third, mix, by aligning growth with the most profitable categories and markets.

Q: What do you think productivity can give you in 2027? Just given all the investments you've made in automation, I would think it's a meaningful number, but what's a good way to think about that? A: CFO Bruce Hausmann declined to provide 2027 guidance but said productivity has been rolling through the P&L this year, with a partial lift this year that rolls into next year, plus a multi-year rollout of productivity initiatives. He called it meaningful and said that is how they are able to get the gross profit margins being seen. CEO Laurel Hurd added that automation in carpet tile manufacturing in Georgia has been rolled out to Australia and Europe with favorable read-through, additional cutting and packaging automation in Georgia and Australia goes live next year, and nora investments help with both efficiencies and capacity to support growth.

Q: I wanted to maybe ask you a little more about some of the discussion on the previous question about market conditions, and you were talking about the timing delay that occurred in the third quarter. The discussion was around office. I am guessing it is around everything, not just office. What are you seeing in terms of pre-sale indicators? If this is a timing issue, are the pre-sale indicators, the underlying pre-sale indicators still positive and pointing towards good growth? Are you seeing order cancellations, or is this really just kind of things just taking longer to transpire? A: CEO Laurel Hurd put it in two buckets. In the Americas, momentum remains strong across office, healthcare, and education, with two specific timing items affecting the quarter: retail store installations, where the business was not lost and will come in future quarters, and nora project variability. She said there have been no order cancellations and no slowdown in momentum. The delay in orders converting to billings is specific to Europe, where the opportunity pipeline looks strong and activity remains good, but conversion is taking longer.

Q: How much of this do you think is just construction project delays and the ability to get the construction work done to get ready for the installation of your product? How much of it do you think is just budget exhaustion because of inflation, and some of this work just needs to get pushed forward into the 2027 budgets? A: CEO Laurel Hurd said it is probably all of that, including some labor availability challenges. But she noted the good news about their category is that customers can only push the timing so far: they need to refresh their spaces, and for projects in flight, the flooring needs to

For the complete transcript of the earnings call, please refer to the full earnings call transcript .