On August 7, Interface (NASDAQ:TILE) reported second-quarter results that beat expectations on nearly every line, though one detail complicates the picture. Net sales climbed to $395.7 million, up 5.4% as reported, while adjusted EPS jumped 47% to $0.88. Backlog was up 22% year-to-date.
A closer look at the results shows that not all of this quarter's profit came from operational improvement. Growth at Interface has been broad and consistent rather than concentrated in one region or category. Currency-neutral net sales rose 4% year-over-year in the second quarter, building on 7% growth in the same period last year, a sign the company is compounding gains rather than just lapping easy comparisons.
Consolidated currency-neutral orders increased 5%, with the Americas up 5% and EAAA up 6%. Healthcare stood out, with global billings up 19% on top of 28% growth a year earlier, a run that CEO Laurel Hurd credited partly to the combined selling teams from Interface's nora rubber flooring business. Education billings rose 5%, and Corporate Office billings rose 5% as well, both benefiting from renovation and modernization spending that shows no sign of slowing.
Interface also has a product pipeline working in its favor. Noravant timber, a rubber flooring line that mimics wood grain, was named Best Product for Health Care at Clerkenwell Design Week in London, while new offerings like Open Air Neutrals and Twist & Texture are extending the company's carpet tile lineup into new price points. Investments in automation across facilities in Europe, Australia and Germany are reportedly exceeding expectations, part of a broader push to cut manufacturing costs as the business scales.
The headline number investors will want to look past is the 524 basis point jump in adjusted gross margin to 45%. Of that expansion, only 131 basis points came from higher volumes, pricing, and manufacturing efficiency. The remaining 393 basis points, worth roughly $0.19 of earnings per share, came from a one-time $15.6 million IEEPA tariff refund that CFO Bruce Hausmann said was not part of the company's earlier guidance and will not repeat.
That distinction matters for what comes next. Interface's own third quarter guidance calls for adjusted gross margin of approximately 40.8%, well below the second quarter's print, and management flagged that proactive pricing used to offset rising raw material costs will show up in the cost side of the ledger in future quarters. Adjusted SG&A expenses also rose to $103.1 million from $93.4 million, driven by higher sales commissions and variable compensation tied to the stronger results.
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