Southern Indiana Business Report
JASPER — In a Nov. 4 announcement, Kimball International Inc. (NASDAQ: KBAL) shared results for the first quarter ended Sept. 30. Consolidated net sales increased 6% to $156.6 million, compared to the prior year first quarter. Organic net sales were $141.4 million. Double-digit sales growth in workplace and health was offset in part by the year-over-year decline in hospitality sales. Kimball also experienced some pull forward of orders ahead of an announced price increase. Gross margin of 31.3% declined 410 basis points from 35.4% in the year ago quarter. Positive margin impact from the price increases and manufacturing efficiencies were more than offset by raw material inflationary pressures, increased freight and higher labor costs. The firm anticipates gross margin improvement in the second half of the fiscal year as its pricing actions and cost savings initiatives begin to catch up with inflationary pressures. Selling and administrative expenses (S&A) of $50.2 million increased $8.5 million compared to the prior year, primarily related to the Poppin acquisition and investments to accelerate future sales growth. Adjusted S&A was $48.6 million or 31.1% of net sales, compared to $40.8 million or 27.6% of net sales in last year’s first quarter. Net loss was $5 million, or $(0.14) per diluted share, inclusive of a non-cash after-tax contingent earn-out charge of $3.4 million, intangible amortization expense and restructuring charges. In last year’s first quarter, the company reported earnings per diluted share of $0.14. For the current quarter, adjusted net income and adjusted earnings per share were $0.8 million, and $0.02 per diluted share, respectively. Adjusted EBITDA for the quarter was $4.9 million compared to $15.8 million in the year ago quarter.
The company ended the first quarter in a strong financial position, with $111.2 million in short-term liquidity available, which includes cash, and cash equivalents, plus the unused amount of its credit facility.
CEO Kristie Juster commented, “First quarter demand trends were in line with our expectations, reflecting the recovery in our business that we signaled at the end of last fiscal year. Kimball International’s revenue performance, together with robust order rates, underscores our differentiated market positioning and supports our guidance for strong double-digit revenue growth and improving gross margin in the second half of fiscal 2022.”
Juster reported that sales in the firm’s workplace and health markets accounted for 86% of first quarter revenues and increased 16% in the aggregate, with growth across most verticals. “We were particularly pleased with the contribution from our Poppin acquisition, where sales increased 22% sequentially from fourth quarter fiscal 2021 levels and are on track to exceed pre-pandemic levels by the end of this fiscal year,” she noted. “Importantly, approximately 60% of Poppin’s first quarter revenue was generated through the core B2B channel, which is an indication of strength in its historical business model.”
According to Juster, Kimball continues to benefit from a broad portfolio of ancillary products, which she said accounted for 85% of revenues in workplace and health over the trailing 12 months. In addition, she highlighted the company’s geographic positioning in secondary markets from which it derived 78% of its revenue over the same period. “New product introductions also continued to drive revenue growth in our workplace and health markets and accounted for 25% of first quarter revenues, demonstrating how well Kimball International’s designs address changing dynamics within our key verticals,” Juster commented. “This strong showing from the major portion of our business was achieved within the constraints of the widely publicized supply chain disruptions that have delayed shipments across the U.S. Despite these challenges and inflationary pressures, we succeeded in expanding gross margin by 70 basis points on a sequential basis, reflecting benefits from the March 2021 price increase and higher production efficiencies.”
Juster pointed out order growth in the first quarter was broad-based, with strong year-on-year increases across all workplace and health verticals. The firm also saw its highest order level in its hospitality market in a year. “These trends are consistent with our strategy of capturing growth in the health market as it ramps post-COVID, pivoting to more customized projects in the hospitality market, and gaining traction in workplace by expanding our offerings with products and solutions that provide flexibility and adaptability,” she said. “The Poppin order acceleration is aided by growth in core markets, success of Poppin Pro and strong demand for our new categories of pods and spaces.”
Kimball International reports the quarter results and order trends, together with market research data, confirm the company’s workplace and health markets are firmly in a recovery phase.
“We reaffirm our guidance for revenues to increase 15% to 20% for the full year, with the most significant growth occurring in the second half of the year,” Just said. “While demand for our products remains strong, continued supply chain and labor issues have constrained our near-term ability to produce and ship, which has extended our lead times. Similarly, we believe gross margin expansion will also take place in the second half of the fiscal year, benefiting from higher volumes, a second price increase and ongoing efficiency projects. At the same time, we are projecting higher S&A spending than in fiscal 2021 to drive future growth as we continue to invest in building our sales force, marketing and promotional campaigns, and the opening of new Poppin showrooms in Miami, Austin and Atlanta during fiscal 2022.”
The company’s second quarter guidance contemplates continued supply chain constraints, as well as the potential for temporary operational challenges related to complying with the vaccine mandate for government suppliers.
Juster said Kimball International continues to be at the forefront of research into emerging workplace trends. As an example, she pointed to a partnership with Ipsos, a global leader in market research, that provided insights into the future of workspaces. “These findings have directly impacted the products and spaces highlighted in each showroom, and have guided the expansion of our product portfolio, including our new modular architectural workplace solution called EverySpace,” she said. “It is an extensive platform of flexible work environments for open plan workstations, private offices and collaborative spaces.” EverySpace, along with 21 other new product introductions, were launched at the national sales meeting in September and Neocon in October.
“Over the past several months, we have been encouraged by the increased level of new project opportunities along with overall demand, and as we navigate this challenging environment, I want to recognize and thank our employees for their hard work and continued focus on serving our customers,” Juster concluded.