Steelcase Reports Fourth Quarter and Fiscal 2025 Results

• Fourth quarter results compared to prior year:
  • Orders grew 9%, driven by 12% broad-based growth in the Americas
  • Gross margin improved 70 basis points
• Fiscal 2025 results:
  • Orders grew 4%, driven by 6% growth in the Americas compared to prior year
  • Gross margin improved 110 basis points compared to prior year, including benefits from cost reduction initiatives
  • Operating income margin reached 5.0%, an improvement of 130 basis points compared to the prior year
  • Adjusted earnings per share exceeded company targets
  • Returned $84 million to shareholders
  • Total liquidity strengthened by $73 million
• Company provides financial targets for fiscal 2026 of mid-single digit organic revenue growth and modest adjusted operating margin expansion

Revenue and order growth (decline) compared to the prior year were as follows:

Orders (adjusted for currency translation effects and the impact of an additional week in the current quarter) grew 9 percent in the fourth quarter compared to the prior year and included 12 percent growth in the Americas and 1 percent growth in International. The order growth in the Americas reflected growth from large corporate, government, small and midsize businesses and healthcare customers. In International, strong growth in India and Spain was largely offset by weakness in Germany and the UK.

"Our 12 percent order growth in the Americas was broad-based, driven by most of our customer segments, with especially strong growth from our large corporate and government customers," said Sara Armbruster, president and CEO. "This was our sixth consecutive quarter of year-over-year order growth in the Americas, reflecting our continued gains in market share. With more organizations bringing their employees back to the office, we are well positioned to serve their needs with our innovative solutions."

Operating income (loss) and adjusted operating income (loss) were as follows:

"Our fourth quarter International results did not meet our expectations," said Dave Sylvester, senior vice president and CFO. "Although we continue to win new business and see some signs of increased activity levels from large national and global accounts, we believe our volume levels from small and midsize businesses are being impacted by the challenging geopolitical and weaker macroeconomic environments in many of our global markets. As we aim to minimally achieve breakeven adjusted operating income levels in our International segment in fiscal 2026, while navigating the demand environment, we're considering additional actions to lower our cost structure."

Gross margin of 31.9 percent in the fourth quarter represented an improvement of 70 basis points compared to the prior year, driven by the benefits of cost reduction initiatives in the Americas offset in part by unfavorable shifts in business mix.

Operating expenses of $241.6 million in the fourth quarter represented an increase of $28.1 million compared to the prior year. The increase was driven by an estimated $17 million of operating costs related to the additional week in the current quarter, approximately $4 million of higher employee costs, and higher information technology costs primarily related to the company's business transformation initiative.

Other income, net of $0.9 million in the fourth quarter represented a decrease of $3.4 million compared to the prior year, primarily due to net favorable impacts related to unconsolidated affiliates in the prior year.

The company recorded an income tax benefit of $19.5 million in the fourth quarter, which included $21.8 million of favorable tax items primarily related to a recent change in tax regulations and implementation of tax strategies.

Fiscal 2025 Results

For fiscal 2025, the company recorded $3.2 billion of revenue, net income of $120.7 million, earnings per share of $1.02 and adjusted earnings per share of $1.12 (including $0.11 related to the tax benefits recorded in the fourth quarter). In fiscal 2024, the company recorded $3.2 billion of revenue, net income of $81.1 million and earnings per share of $0.68 and had adjusted earnings per share of $0.92.

Revenue was approximately flat in fiscal 2025 compared to the prior year, with a 2 percent increase in the Americas and a 5 percent decrease in International. On an organic basis, fiscal 2025 revenue was approximately flat compared to the prior year, with a 2 percent increase in the Americas and a 7 percent decrease in International. Orders grew 4 percent in fiscal 2025 compared to the prior year, with 6 percent growth in the Americas and a 4 percent decline in International.

Operating income for fiscal 2025 of $158.1 million (or 5.0 percent of revenue) represented an increase of $40.3 million compared to $117.8 million of operating income (or 3.8 percent of revenue) for fiscal 2024. The increase in operating income was driven by $30.1 million of higher gains on sales of fixed assets, $11.7 million of lower restructuring costs, and benefits from higher pricing and cost reduction initiatives, partially offset by lower volume and higher operating expenses (including $11 million (or 0.3 percent of revenue) of variable compensation expense related to the favorable tax items recorded in the fourth quarter). The prior year also included a $9.5 million benefit from a decrease in the valuation of an acquisition earnout liability. Adjusted operating income for fiscal 2025 of $158.4 million (or 5.0 percent of revenue) represented an increase of $1.7 million compared to $156.7 million of adjusted operating income (or 5.0 percent of revenue) for fiscal 2024.

"We believe our fiscal 2025 order growth of 6 percent in the Americas (including 12 percent growth in the fourth quarter) is supportive of our mid-term revenue growth targets of 4 to 6 percent,” said Dave Sylvester. "In addition, our fiscal 2025 adjusted operating margin demonstrates continued progress toward our mid-term targets of 6 to 7 percent, even though demand levels improved at a slower pace than expected.”

Total liquidity, which is comprised of cash and cash equivalents, short-term investments and the cash surrender value of company-owned life insurance, aggregated to $558.3 million at the end of the fourth quarter and represented an increase of $72.8 million from the beginning of the year. Total debt was $447.1 million. Trailing four quarter adjusted EBITDA was $262.3 million, or 8.3 percent of revenue.

During fiscal 2025, the company repurchased 2.1 million shares of its Class A Common Stock under its repurchase authorization for a total cost of $26.5 million. A total of $79.9 million remained under the company's share repurchase authorization at the end of the fourth quarter.

The Board of Directors has declared a quarterly cash dividend of $0.10 per share, to be paid on or before April 21, 2025, to shareholders of record as of April 7, 2025.

Outlook

At the end of the fourth quarter, the company's backlog was approximately $694 million, which was 11 percent higher than the prior year. The company expects first quarter fiscal 2026 revenue to be in the range of $760 to $785 million. The company reported revenue of $727.3 million in the first quarter of fiscal 2025. The projected revenue range translates to growth of 4 to 8 percent compared to the prior year, or organic growth of 5 to 9 percent.

The company expects to report earnings per share of between $0.10 to $0.14 for the first quarter of fiscal 2026 and adjusted earnings per share of between $0.13 to $0.17. The company reported earnings per share of $0.09 and adjusted earnings per share of $0.16 in the first quarter of fiscal 2025.

The first quarter estimates include:

• gross margin of approximately 33 percent, which includes an assumption of $9 million of higher tariff costs as compared to the prior year,
• projected operating expenses of between $230 to $235 million, which includes $4.3 million of amortization of purchased intangible assets,
• projected interest expense, net of investment income and other income, net, of approximately $2 million, and
• a projected effective tax rate of approximately 27 percent.

The fiscal 2026 targets reflect the following assumptions and expectations, as compared to fiscal 2025:

• a mid-single digit order growth rate, including continued growth from large corporate customers, and benefits from the strong beginning backlog of customer orders,
• benefits from pricing actions offsetting the impacts of higher tariffs and related inflationary cost increases,
• increased operating expenses, driven primarily by investments for strategic initiatives, and
• projected interest expense, investment income and other income, net, of approximately $10 million, and
• a projected effective tax rate of 27 percent.

1. The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a comprehensive portfolio of furniture, architectural, textile and surface imaging products that are marketed to corporate, government, education, healthcare and retail customers primarily through the Steelcase, AMQ, Coalesse, Designtex, HALCON, Orangebox, Smith System and Viccarbe brands.
2. The International segment serves customers in EMEA and Asia Pacific with a comprehensive portfolio of furniture and architectural products that are marketed to corporate, government, education, healthcare and retail customers primarily through the Steelcase, Coalesse, Orangebox, Smith System and Viccarbe brands.