INTERFACE INC (TILE)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2025, under Part II, Item 7 of that Form 10-K. Our discussions here focus on our results during the quarter and six months ended July 5, 2026, or as of July 5, 2026, and the comparable periods of 2025, and to the extent applicable, any material changes from the information discussed in that Form 10-K or other important intervening developments or information since that time. These discussions should be read in conjunction with that Form 10-K for more detailed and background information. The six-month period ended July 5, 2026 includes 27 weeks and the six-month period ended June 29, 2025 includes 26 weeks. The three-month periods ended July 5, 2026 and June 29, 2025 both include 13 weeks.

Forward-Looking Statements

This report contains statements which may constitute “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include risks and uncertainties associated with the economic conditions in the commercial interiors industry as well as the risks and uncertainties discussed under the heading “Risk Factors” included in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2025. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

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Executive Overview

During the quarter ended July 5, 2026, we had consolidated net sales of $395.7 million, up 5.4% compared to $375.5 million in the second quarter last year, primarily due to higher customer demand— particularly in the corporate office, healthcare, and education market segments — and higher average sales prices. Fluctuations in currency exchange rates positively impacted net sales during the second quarter of 2026, as discussed below. Consolidated operating income was $74.9 million for the second quarter of 2026 compared to $52.0 million in the second quarter last year, primarily due to higher sales and higher gross profit margin driven by lower manufacturing costs on higher volume, production efficiencies, product mix, and IEEPA tariff refunds recognized during the current quarter as discussed below. Consolidated net income for the quarter ended July 5, 2026, was $51.4 million or $0.88 per diluted share, compared to $32.6 million or $0.55 per diluted share in the second quarter last year.

During the first six months of 2026, we had consolidated net sales of $726.7 million, up 8.0% compared to $672.9 million in the first six months of last year, primarily due to higher customer demand partially driven by an extra week in the first six months of 2026. Consolidated operating income was $107.2 million for the first six months of 2026, compared to $75.3 million in the same period last year, primarily due to higher sales and higher gross profit margin, driven by lower manufacturing costs and tariff refunds as discussed above. Consolidated net income for the six months ended July 5, 2026, was $75.0 million or $1.28 per diluted share, compared to $45.6 million or $0.77 per diluted share in the same period last year.

Impact of Macroeconomic Trends

Ongoing disruptions in economic markets and global energy markets, inflation, the war between Russia and Ukraine, conflicts in the Middle East, evolving trade policies, impacts from government-imposed tariffs, a challenging supply chain environment, slow market conditions in certain parts of the globe and macro driven changes to customer demand for our products, significant financial pressures in the commercial office market globally, and other geopolitical factors, all pose challenges which may adversely affect our future performance. We plan to continue evaluating our cost structure and global manufacturing footprint to identify and activate opportunities to decrease costs and optimize our global cost structure.

In 2025, the U.S. government enacted a series of higher trade tariffs on goods imported into the U.S. As a result, the Company incurred higher tariff costs on rubber and luxury vinyl tile products imported into the U.S. in fiscal year 2025 and in the first six months of 2026. In February 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) were invalid. During the three months ended July 5, 2026, the Company recognized approximately $15.6 million in refunds for tariffs previously paid under the IEEPA. These refunds were recognized as a reduction to cost of sales in the consolidated condensed statements of operations. The Company also recorded approximately $0.5 million of interest income associated with these tariff refunds, presented as a reduction to interest expense, net in the consolidated condensed statements of operations. In the consolidated condensed balance sheets, the Company recorded $7.6 million as an accounts receivable as a portion of these tariff-related amounts recognized was not collected during the second quarter of 2026 but was realizable pursuant to the gain contingency guidance as of July 5, 2026, with the remainder of the tariff-related amounts recorded as an increase in cash. Any outstanding requests for IEEPA tariff refunds are not material.

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Analysis of Results of Operations

Consolidated Results

The following table presents, as a percentage of net sales, certain items included in our consolidated condensed statements of operations for the three-month and six-month periods ended July 5, 2026 and June 29, 2025:

Consolidated Net Sales

Below is information regarding our consolidated net sales, and analysis of those results, for the three-month and six-month periods ended July 5, 2026, and June 29, 2025:

For the quarter ended July 5, 2026, consolidated net sales increased $20.2 million (5.4%) versus the comparable period in 2025, primarily due to higher sales volume (approximately 3%), higher average sales prices (approximately 1%), and favorable currency fluctuations (approximately $5.8 million or 1%) from the strengthening of foreign currencies against the U.S. dollar. On a market segment basis, the sales increase was primarily in the corporate office, healthcare, and education market segments.

For the six months ended July 5, 2026, consolidated net sales increased $53.8 million (8.0%) versus the comparable period in 2025, primarily due to higher sales volume (approximately 4%) partially driven by an extra week in the first six months of 2026, favorable currency fluctuations (approximately $19.2 million or 3%) from the strengthening of the Euro against the U.S. dollar, and higher average sales prices (approximately 1%). On a market segment basis, the sales increase was primarily in the corporate office, healthcare, and education market segments.

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Consolidated Cost and Expenses

The following table presents our consolidated cost of sales and selling, general and administrative expenses for the three-month and six-month periods ended July 5, 2026, and June 29, 2025:

Consolidated Cost of Sales

For the quarter ended July 5, 2026, consolidated cost of sales decreased $9.9 million (4.4%) compared to the second quarter of 2025, primarily due to lower manufacturing costs driven by favorable fixed cost absorption on higher volume, manufacturing efficiencies, and the impact of $15.6 million in IEEPA tariff refunds recognized in the current quarter, which were recorded as a reduction to cost of sales. These favorable impacts were partially offset by other tariff costs of $3.5 million recognized during the second quarter of 2026. Currency translation had a negative impact on consolidated cost of sales in the second quarter of 2026 and partially increased our costs by approximately $3.8 million (1.7%) compared to the same period last year. As a percentage of net sales, our cost of sales decreased to 55.0% for the second quarter of 2026 versus 60.6% for the second quarter of 2025.

For the six months ended July 5, 2026, consolidated cost of sales increased $7.9 million (1.9%) versus the comparable period in 2025, primarily due to higher sales partially offset by the impact of tariff refunds and lower manufacturing costs as discussed above. Currency translation had a negative impact on consolidated cost of sales for the first six months of 2026 and partially increased our costs by approximately $12.4 million (3.0%) compared to the same period last year. As a percentage of net sales, our cost of sales decreased to 58.1% for the first six months of 2026 versus 61.5% for the first six months of 2025.

Consolidated Gross Profit

For the quarter ended July 5, 2026, gross profit, as a percentage of net sales, was 45.0% compared with 39.4% in the same period last year. The increase in gross profit percentage was primarily due to lower costs (approximately 5%) driven by tariff refunds recognized in the current quarter and lower manufacturing costs due to favorable fixed cost absorption and manufacturing efficiencies compared to the same period last year.

For the six months ended July 5, 2026, gross profit, as a percentage of net sales, was 41.9% compared with 38.5% in the same period last year. The increase in gross profit percentage was primarily due to lower costs driven by the factors discussed above.

Consolidated Selling, General and Administrative (“SG&A”) Expenses

For the quarter ended July 5, 2026, consolidated SG&A expenses increased $7.2 million (7.5%) versus the comparable period in 2025. Currency fluctuations had a negative impact on consolidated SG&A expenses of approximately $1.1 million (1.2%) in the second quarter

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our revenues are derived from sales of floorcovering products, primarily modular carpet, resilient flooring, including luxury vinyl tile (“LVT”), rubber flooring products, and installation services and accessories. Our business, as well as the commercial interiors industry in general, is cyclical in nature and is impacted by economic conditions and trends that affect the markets for commercial and institutional business space. The commercial interiors industry, including the market for floorcovering products, is largely driven by reinvestment by corporations and institutions into their existing operations in the form of new fixtures and furnishings for their workplaces. In significant part, the timing and amount of such reinvestments are impacted by the profitability of those entities. As a result, macroeconomic factors such as employment rates, office vacancy rates, work from home policies, capital spending, productivity and efficiency gains that impact profitability in general, also affect our business.

The Company has two operating and reportable segments – namely Americas (“AMS”) and Europe, Africa, Asia and Australia (collectively “EAAA”). The AMS operating segment includes the United States, Canada and Latin America geographic areas. See Note 19 entitled “Segment Information” included in Item 8 of this Annual Report on Form 10-K for additional information. The results of operations discussion below also includes segment information.

We focus our marketing and sales efforts on both corporate office and non-corporate office market segments, to reduce somewhat our exposure to economic cycles that affect the corporate office market segment more adversely, as well as to capture additional market share. More than half of our consolidated net sales were in non-corporate office markets in fiscal years 2025, 2024, and 2023, primarily in education, healthcare, public buildings, retail, residential/living, hospitality, transportation, and consumer residential market segments.

Executive Summary

Our One Interface strategy continues to fuel growth as we strengthen global capabilities, improve commercial productivity, and simplify and optimize our operations. During 2025, we had consolidated net sales of $1,386.9 million, up 5.4% compared to $1,315.7 million in 2024, primarily due to higher customer demand — particularly in the healthcare and education market segments. Consolidated operating income for 2025 was $164.0 million compared to consolidated operating income of $134.4 million in 2024, primarily due to higher sales and higher gross profit margin driven by higher average sales prices, favorable product mix, and manufacturing efficiencies, partially offset by higher input costs and tariff costs. Consolidated net income for 2025 was $116.1 million, or $1.96 per diluted share, compared to consolidated net income of $86.9 million, or $1.48 per diluted share, in 2024.

During 2024, we had consolidated net sales of $1,315.7 million, up 4.3% compared to $1,261.5 million in 2023, primarily due to increased customer demand – particularly in the retail and education market segments. Consolidated operating income for 2024 was $134.4 million compared to consolidated operating income of $104.5 million in 2023, primarily due to higher sales volumes and lower raw material costs. Consolidated net income for 2024 was $86.9 million, or $1.48 per diluted share, compared to consolidated net income of $44.5 million, or $0.76 per diluted share, in 2023.

A detailed discussion of our 2025 and 2024 consolidated and segment performance appears below under “Analysis of Results of Operations”.

Cybersecurity Event

As previously disclosed in our current report on Form 8-K filed with the Commission on November 23, 2022, we discovered a cybersecurity attack on November 20, 2022, perpetrated by unauthorized third parties, affecting our IT systems. During fiscal year 2024, we recovered $5.6 million in insurance proceeds representing business interruption proceeds and reimbursement of certain costs in connection with the Cyber Event. Of the total insurance proceeds received in fiscal year 2024, $4.8 million of business interruption proceeds were recognized as a benefit in other expense / income, net in the consolidated statements of operations and $0.8 million was recognized as a reduction of selling, general and administrative expenses. The insurance claim for the Cyber Event was closed at the end of fiscal year 2024, and we are not expecting to receive any additional proceeds in connection with the Cyber Event.

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During 2023, we incurred approximately $1.1 million in connection with the investigation of the Cyber Event, which was recognized in selling, general, and administrative expenses in the consolidated statements of operations.

Impact of Macroeconomic Conditions

Disruptions in economic markets due to inflation, the impact of tariffs on the demand for our products, a challenging supply chain environment, slow market conditions in certain parts of the globe, significant financial pressures in the commercial office market globally, and geopolitical factors including wars, civil and political unrest, and other conflicts, all pose challenges which may adversely affect our future performance. Management believes it is reasonably likely that these challenges will continue to affect our future operations and demand for our products to some degree during fiscal year 2026. We plan to continue evaluating our cost structure and global manufacturing footprint to identify and activate opportunities to decrease costs and optimize our global cost structure.

The Company expects higher production volumes and lower per unit fixed costs in 2026, and anticipates these impacts will benefit our gross profit margin in 2026. We also expect that continuing challenges in supply chain markets, tariff costs, and higher raw material costs will adversely impact our performance in 2026. We anticipate that continuing slow market conditions in parts of the globe and significant financial pressures in the commercial office market globally will adversely impact our future performance and demand for our products.

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Analysis of Results of Operations

Consolidated Results

The discussion and analyses below reflects the factors and trends discussed in the preceding sections. Fiscal years 2025, 2024, and 2023 each included 52 weeks.

The following table presents the amounts (in U.S. dollars) by which the exchange rates for translating Euros, British Pounds sterling, Australian dollars, Chinese Renminbi, Canadian dollars, and other currencies into U.S. dollars have affected our consolidated net sales and operating income during the past three years:

Consolidated net sales denominated in currencies other than the U.S. dollar were approximately 43% in 2025, 43% in 2024, and 46% in 2023. Because we have substantial international operations, we include the impact of fluctuations in foreign currency exchange rates in our discussion below.

The following table presents, as a percentage of net sales, certain items included in our consolidated statements of operations during the past three years.

Consolidated Net Sales

Below is information regarding our consolidated net sales, and analysis of those results, for each of the last three fiscal years.

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Consolidated net sales for 2025 compared with 2024

For 2025, consolidated net sales increased $71.2 million (5.4%) compared to 2024, comprised of higher sales volume (approximately 3.0%) and higher average sales prices (approximately 2.4%). Fluctuations in currency exchange rates had a positive impact of approximately $14.9 million on consolidated net sales for 2025, primarily due to the strengthening of the Euro against the U.S. dollar. On a market segment basis, the sales increase was most significant in the healthcare, education, public buildings, and transportation market segments. See the segment results discussion below for additional information on market segments.

Consolidated net sales for 2024 compared with 2023

For 2024, consolidated net sales increased $54.2 million (4.3%) compared to 2023, comprised of higher sales volume (approximately 2.7%) and higher average sales prices (approximately 1.6%). Fluctuations in currency exchange rates had a negative impact of $1.8 million on consolidated net sales for 2024, indicating that if currency levels had remained constant year-over-year, our 2024 net sales would have been higher by this amount. On a market segment basis, the sales increase was most significant in the retail, education, residential living, and public buildings market segments partially offset by decreases in the hospitality, corporate office, and consumer residential market segments. See the segment results discussion below for additional information on market segments.

Consolidated Cost and Expenses

The following table presents our consolidated cost of sales and selling, general and administrative (“SG&A”) expenses during the past three years:

Consolidated Cost of Sales

For 2025, consolidated cost of sales increased $16.8 million (2.0%) compared to 2024, primarily due to higher sales volume, increased tariff costs on rubber and luxury vinyl tile products imported into the U.S. (approximately $7.3 million), and higher raw material costs, partially offset by lower manufacturing costs driven by favorable fixed cost absorption on higher volume and production efficiencies. Currency translation had a negative impact on consolidated cost of sales for 2025 and increased our costs by approximately $9.1 million (1.1%) compared to 2024. As a percentage of net sales, our consolidated cost of sales decreased to 61.3% in 2025 versus 63.3% in 2024. Management believes it is reasonably likely that lower per unit fixed costs due to higher production volumes and plant productivity initiatives will reduce our costs to some degree in 2026. These favorable impacts are expected to be partially offset by continuing tariff costs and higher raw material costs i

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