Steelcase Inc. (SCS) in Grand Rapids, Mich., manufactures and sells integrated furniture settings, user-centered technologies, and interior architectural products in the United States and internationally. The stock has slumped 15.6% in price over the past year and 18% year-to-date to close its last trading session at $11.11. The stock is currently trading below its 50-day and 200-day moving averages.

The office furniture maker’s shares tumbled after the company reported lower than expected third-quarter top- and bottom lines on December 16. SCS’ shares fell 3.5% intraday in Friday’s trading session. The company’s revenue came in at $738.20 million, versus a $767.63 million consensus estimate. Also, its adjusted EPS came in at $0.08, missing analysts’ estimates by 11.1%. The company cited several supply chain disruptions, inflationary pressures, and higher costs associated with supply chain disruptions that have negatively impacted its growth trajectory over the quarter. SCS also noted that its earnings could “have been approximately three times higher this quarter” if the company had not dealt with these operational challenges. SCS expects its fourth-quarter revenue to be within $740 - $765 million, translating to 9 - 13% year-over-year growth. It expects its earnings per share for the quarter to be approximately breakeven. But its supply chain issues, and inflation are expected to continue through the quarter.

However, SCS is optimistic about its long-term growth. In addition, because companies worldwide are transitioning to hybrid work structures and bringing employees back to offices, requiring changes and re-equipment in those offices, SCS expects the shift to provide immense opportunities. However, the newly identified COVID-19 omicron variant is hampering  companies’ office return plans. Surging omicron cases have compelled companies to keep their return-to-office plans on hold, and if the variant continues to spread, SCS’ near-term growth expectations could be hindered.

Poor Profitability

SCS’ 0.72% EBIT margin is 92.6% lower than the 9.65% industry average. Also, its 0,47% net income margin is 92.6% lower than the 6.40% industry average.

Moreover, SCS’ 1.35%, 0.55%, and 0.75% respective ROE, ROA, and ROTC compare with the 13.58%, 5.15%, and 6.73% industry averages.

Weak Growth History

SCS’ revenues have declined at a 6.5% CAGR over the past three years and 2.2% over the past five years. Furthermore,  its EBIT and EBITDA have declined at CAGRs of 50.9% and 24.9%, respectively, over the past three years. Its net income has decreased at a 50.2% CAGR over the past three years, while its EPS decreased at a 51.8% CAGR over the same period.

Solid Third-Quarter Earnings Report

SCS’ revenues increased 19.5% year-over-year to $738.20 million in its fiscal third quarter, ended November 26. Its gross profit stood at $203.60 million, up 14.4% from the same period last year. Its net income grew 357.1% from the year-ago value to $9.60 million. And its adjusted operating income increased 39.5% year-over-year to $15.90 million.

POWR Ratings Reflect Uncertain Prospects

SCS has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Stability, which is consistent with its 24-month beta of 1.10.

SCS also has a C grade for Momentum. This is in sync with the company’s 15.6% share price decline over the past year.

Of the 61 stocks in the Home Improvement & Goods industry, SCS is ranked #31.

Beyond what I have stated above, one can also view SCS’ grades for Quality, Growth, Sentiment, and Value here.

View the top-rated stocks in the Home Improvement & Goods industry here.

Bottom Line

SCS’ financial growth history has not been impressive over the past few years. Moreover, in its most recent quarter, the company reported growth in its financials, but its top- and bottom lines fell short of analysts’ expectations. Furthermore, analysts expect its EPS to decline 69.2% year-over-year in the current year. And, considering its lean profit margins, we think it could be wise to wait for a better entry point in the stock.

How Does Steelcase Inc. (SCS) Stack Up Against its Peers?

While SCS has an overall POWR Rating of C, one might want to consider looking at its industry peers, Acuity Brands, Inc. (AYI), Duluth Holdings Inc. (DLTH), and Masonite International Corporation (DOOR), which have an A (Strong Buy) rating.

SCS shares were unchanged in premarket trading Monday. Year-to-date, SCS has declined -15.67%, versus a 24.20% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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