Interface Q2 2026 earnings: Gross margin reaches 45% with a tariff refund boost

Interface (NASDAQ: TILE) reported fiscal Q2 2026 net sales of $395.7 million, up 5.4% year over year, while diluted GAAP EPS rose to $0.88 from $0.55. For the quarter ended July 5, earnings grew faster than revenue as favorable price and mix, higher volume, manufacturing efficiencies, and $15.6 million of IEEPA tariff refunds lifted margins; currency-neutral orders increased 5.4%.

Core Earnings Data

Reported sales growth included a favorable currency effect, with currency-neutral net sales rising 3.8% to $389.9 million. Profitability increased much faster than sales: GAAP operating income grew 43.9%, and adjusted EBITDA rose 35.2%.

Adjusted SG&A expense increased 10.4% to $103.1 million, reflecting higher sales commissions, variable compensation tied to increased sales and profits, and foreign-exchange variances. The gross-margin improvement was large enough to more than offset that expense growth.

Business and Segment Performance

Both segments increased sales and adjusted operating income. EAAA recorded the faster reported sales growth and nearly doubled adjusted operating income, although currency accounted for part of its revenue increase.

Currency-neutral orders increased 4.8% in AMS and 6.4% in EAAA. By end market, global Healthcare billings led with 19% growth, while Education and Corporate Office billings each increased 5%. Management characterized the growth as broad-based across regions and product categories.

Profitability, Cash Flow, and the Balance Sheet

Quarterly operating cash flow increased to $38.4 million despite a $47.0 million working-capital use from accounts receivable. Higher accounts payable and accrued expenses partly offset that pressure. Capital expenditures rose to $12.2 million from $7.4 million, leaving approximately $26.2 million of free cash flow, compared with about $22.8 million a year earlier.

Cash reached $81.5 million on July 5, up from $71.3 million at the end of fiscal 2025. However, total debt also increased to $204.4 million from $181.6 million, and net debt rose to $122.8 million from $110.3 million. Net leverage remained at 0.5 times last-12-month adjusted EBITDA. During Q2, Interface also spent $8.8 million on share repurchases and paid $3.5 million in dividends.

Tariff Refunds Supplied Roughly Three-Quarters of Adjusted Margin Expansion

Adjusted gross margin rose 524 basis points to 45.0%. Interface attributed 393 basis points of that improvement to $15.6 million of IEEPA tariff refunds, equivalent to approximately three-quarters of the total increase. The remaining 131 basis points represented operational improvement associated with price and mix, higher sales volumes, lower manufacturing costs, and efficiency initiatives.

The distinction matters when assessing the durability of Q2 profitability. The updated full-year margin guidance includes the refund, while the Q3 adjusted gross margin outlook of 40.8% is below Q2’s 45.0%, suggesting that the second-quarter margin should not be treated as the guided near-term run rate.

Earnings Guidance

Interface raised its full-year sales range by $5 million at both ends and materially increased its adjusted gross margin outlook. Management cited first-half performance and a robust backlog, while also acknowledging a dynamic and uncertain global macroeconomic environment.

For fiscal Q3 2026, the company provided the following approximate targets.

Recent Insider Transactions

The provided six-month summary shows 370,680 shares purchased across 14 transactions and 134,393 shares sold across five transactions, resulting in net purchases of 236,287 shares. Total insider holdings were reported at 1.43 million shares.

Among the 10 most recent individual records, two were direct sales and eight were director stock awards. The source supplied reported transaction values rather than individual share quantities.

Risks Investors Need to Watch

• Margin comparability: IEEPA tariff refunds contributed 393 basis points to adjusted gross-margin expansion, making Q2’s 45.0% margin higher than the 40.8% level guided for Q3.
• Expense growth: Adjusted SG&A increased 10.4%, faster than the 5.4% increase in reported sales. Continued growth in commissions, variable compensation, or currency-related expenses could reduce operating leverage.
• Macroeconomic uncertainty: The raised outlook relies partly on a robust backlog, but management also highlighted an uncertain global macro environment that could affect demand and order conversion.
• Currency exposure: EAAA sales grew 8.8% as reported but 4.5% on a currency-neutral basis, showing that exchange rates had a meaningful effect on reported growth.
• Higher net debt: Cash increased, but total debt and net debt also rose from fiscal year-end. Capital expenditures are still expected to total approximately $60 million in fiscal 2026.

Summary

Interface’s fiscal Q2 2026 combined mid-single-digit sales growth with substantially faster profit growth, supported by broad segment gains, operating improvements, and a significant tariff-refund benefit. The higher full-year outlook and order growth point to continued momentum, but investors should separate the underlying 131-basis-point operational margin improvement from the larger refund contribution and monitor Q3 margins, SG&A growth, backlog conversion, and net debt.