Interface Inc

Interface reported second-quarter results that beat expectations on nearly every line, though one detail complicates the picture. Net sales climbed to $395.7 million, up 5.4% as reported, while adjusted EPS jumped 47% to $0.88. Backlog was up 22% year-to-date. A closer look at the results shows that not all of this quarter's profit came from operational improvement.

Interface shares jumped 21.9% over the past month, outpacing the broader market, while Macy’s and Carrier Global also posted double-digit gains but face structural headwinds. Interface’s earnings per share grew 33.7% annually over the last two years, its free cash flow margin expanded by 7.2 percentage points in five years, and returns on capital are rising. In contrast, Macy’s earnings per share contracted 17.8% annually over three years amid store closures and weak same-store sales, and Carrier Global’s earnings per share fell 6% annually over two years even as revenue grew, with eroding returns on capital. Interface trades at $35.68 per share, or 1.5 times trailing sales, while Macy’s is at $24.45 with an 11.8 times forward P/E and Carrier Global at $73.54 with a 26.3 times forward P/E.

Interface shares rallied 5.3% in the last trading session to close at $32.56, driven by notable volume and a favorable macroeconomic backdrop. The commercial flooring company benefited from easing oil price and inflation concerns tied to an interim United States-Iran peace agreement, as well as a decline in mortgage rates to 6.47% from 6.52% for the week ending June 18, per Freddie Mac, and the Federal Reserve's stable stance on keeping rates between 3.5% and 3.75%. Interface is expected to report quarterly earnings of $0.63 per share, a 5% year-over-year increase, on revenues of $390 million, up 3.9%. The stock carries a Zacks Rank of 2, or Buy, while peer Mohawk Industries finished 3.9% higher at $112.30 and holds a Zacks Rank of 4, or Sell.