Knoll (KNL, Financial) is an internationally recognized brand whose designs inspire, evolve and endure. Its portfolio has an array of products like furniture, textile, leather and accessories brands, including Knoll, KnollStudio, KnollTextiles, KnollExtra, Spinneybeck, FilzFelt, Edelman Leather and Holly Hunt.
Knoll reported strong third-quarter results recently. Its revenue is going to get even better with time. The company fared well in most of the segments with improved operating margins. The company is going to benefit from Holly Hunt, which it acquired last year. The investments the company made are going to deliver in the near future.
The company is going to continue its momentum. Adding this company to their portfolios, investors may reap great benefits.
Strong third quarter
Net sales were $263.6 million for the third quarter (a decrease of 1.8%, or 0.2% on a constant currency basis from the prior year quarter). Net sales for the Office segment were $160.8 million during the third quarter (a decrease of 3.6%, or 2.8% on a constant currency basis from the prior year quarter). Net sales for the Studio segment were $75.0 million during the third quarter (an increase of $2.8 million, or 3.8%, from the prior year quarter). Net sales for the Coverings segment were $27.8 million (a decrease of 4.9%, or 4.0% on a constant currency basis, from the prior year quarter).
Operating profit for the quarter increased to $28.7 million ($23.3 million in the prior year quarter). Adjusted operating profit for the quarter was $29.1 million (an increase of 24.4% from the prior year quarter).
Operating profit for the Office segment was $11.1 million in the third quarter (an increase of $2.8 million, or 33.2%, from the prior year quarter).
Office segment operating margins increased year over year from 5.0% to 6.9%. Operating profit for the Studio segment was $11.3 million in the third quarter (an increase of $2.2 million, or 24.2%, from the prior year quarter). Studio segment operating margins increased year over year from 12.6% to 15.1%. Adjusted operating margin for the Studio segment in the third quarter was 15.7%. Operating profit for the Coverings segment was $6.3 million for the third quarter (an increase of $0.4 million, or 6.8%, when compared to the third quarter of 2014). Coverings segment operating margins increased year over year from 20.4% to 22.5% for the third quarter.
Net earnings during the third quarter were $17.9 million (an increase of 14.7% when compared to the prior year quarter). Diluted earnings per share was 37 cents for the quarter (which was 33 cents per share in the third quarter of 2014). Adjusted diluted earnings per share was 38 cents in the third quarter.
Gross profit for the third quarter was $101.2 million (an increase of $6.2 million, or 6.5%, when compared to the prior year quarter). Gross margin (gross profit as a percentage of net sales) increased to 38.4% during the third quarter (which was 35.4% in the prior year quarter).
Other income was $1.8 million and $3.3 million.
Foreign exchange gains during the third quarter of 2015 were $1.7 million (which was $3.2 million in the prior year quarter).
Operating expenses were $72.5 million, or 27.5% of net sales during the third quarter (which was $71.6 million, or 26.7% of net sales, in the third quarter of 2014). During the third quarter of 2015, the company closed a Holly Hunt showroom in Brazil, which resulted in $0.4 million of restructuring charges in the Studio segment. These charges primarily relate to cash severance and employment termination-related expenses.
The effective tax rate was 38.0% for the third quarter.
Cash provided by operations was $30.7 million and $33.4 million.
Capex for the period totalled at $7.2 million (which was $14.3 million in the prior year quarter).
During the third quarters of 2015 and 2014, the company paid a quarterly dividend of $5.7 million, or 12 cents per share.
Strong attributes of third quarter
- Improved profitability
- Reduced debt levels have driven the leverage ratio to less than 2.0X.
Focus
The company is currently focused on the following:
- It is on track to deliver the upper end of its full-year goal of improving operating margins by 100 to 200 basis points.
- Quality
- Innovation
- Maximize office segment profitability and growth.
- Build a responsive and efficient customer centric service and technology culture and infrastructure across businesses.
On a concluding note
CEO Andrew Cogan commented, "We are very pleased to be reporting the highest level of quarterly operating profits since 2008."
A long history of collaborations, with pioneering modernists to bold contemporary designers, define not only the past but the future of Knoll through active, recent and future partnerships with Antenna Design, Formway Design, Don Chadwick, David Adjaye and Rem Koolhaas.
A recipient of the National Design Award for Corporate and Institutional Achievement from the Smithsonian's Cooper-Hewitt, National Design Museum, Knoll is aligned with the U.S. Green Building Council and the Canadian Green Building Council and can help organizations achieve Leadership in Energy and Environmental Design (LEED) workplace certification.
The company maintained a strong and flexible balance sheet. The company has a strategy of diversifying its sources of revenue and profitability across workplace and high design residential settings is delivering the kind of improved profitability and double-digit margins results.
In 2014, it achieved greater than 20% top-line growth with sales of $1,050,300,000, and nearly 10% organic growth, outpacing its markets. The company is trying to position itself as the go-to resource for high-design workplaces and homes, including the commercial contract, decorator to the trade and direct-to-consumer markets. The company expects 2015 capex to be around $30 million to $35 million.
The company has new product pipeline full of exciting and design-driven innovations. It is committed to a multiyear plan of increasing operating margins by 80 to 100 basis points annually.
(Source: Company Website)
