TRG | The Bottom Line – 6/23

Global office furniture manufacturer Steelcase (SCS) reported Q1’24 (May quarter end) earnings earlier this past week, and the stock moved nearly 10% post earnings and is up 20%+ from lows hit in late May. SCS sales and EPS beat guidance, and although orders fell 7% organically, the first three weeks of Q2 orders are seeing most growth. Pricing is flowing through to help gross margins improve (up 520 bps YOY to 31.2% in Q1, guidance of ~31.5% in Q2), offsetting slower volumes. Continuing business is outperforming project business YTD, as corporate customers remain cautious. Anecdotally, we are hearing of more and more companies mandating their employees to be back in the office the majority of the week, some all five working days. We believe this slow but general trend, should it continue to gather momentum, would be positive for the industry and particularly SCS as the largest provider. Management stated that many conversations at NeoCon one week ago reflected higher intent vs. simply “window shopping.” It is encouraging to see the company tracking slightly ahead of FY’24 guidance through 1H, but the company did not raise guidance given uncertainty in 2H. Our EPS estimate is near the midpoint of the $0.55-0.75 range. Should volumes come in higher in 2H and/or FY’25, with pricing being fully caught up to cumulative inflation, we believe earnings could rise meaningfully.