Executive Summary / Key Takeaways

• Steelcase demonstrated continued momentum in Q1 fiscal 2026, reporting 7% revenue growth and a 25% increase in adjusted earnings per share year-over-year, driven by strong performance in the Americas segment.
• The company achieved its 12th consecutive quarter of year-over-year gross margin expansion in Q1 2026, reflecting the benefits of higher volume, cost reduction initiatives, and pricing actions offsetting inflationary pressures and tariffs.
• Strategic focus on leading workplace transformation for hybrid work, diversification into key verticals (Education, Healthcare, SMB), and operational efficiency initiatives are yielding results, particularly in the Americas, where market share gains are evident.
• While the Americas shows strength, the International segment faces headwinds from macroeconomic weakness in Germany and France, prompting restructuring actions aimed at achieving breakeven adjusted operating income in fiscal 2026.
• Fiscal 2026 guidance targets mid-single-digit organic revenue growth and modest adjusted operating margin improvement, contingent on stable macro conditions, continued return-to-office trends, and successful management of tariff impacts and ERP system implementation.

The Evolving Landscape of Work and Steelcase's Strategic Response

The nature of work has undergone a dramatic transformation over the past five years, fundamentally reshaping the office environment. As organizations grapple with hybrid work models, increased reliance on digital collaboration tools, and a growing focus on employee well-being and sustainability, the demand for static, pre-pandemic office designs is waning. Steelcase Inc., a long-standing leader in the office furniture and workplace solutions industry, finds itself at the forefront of this evolution, strategically positioning itself to capture opportunities presented by the need to reinvent the physical workspace.

With a history dating back over a century and operating as a public company since around 1999, Steelcase has weathered significant economic shifts, including the catastrophic declines experienced during the financial crisis and the pandemic. These periods underscored the cyclical nature of the industry but also highlighted the resilience required to adapt. Steelcase's response has been a multi-pillar strategy focused on leading the transformation of the workplace for hybrid models, diversifying its customer and market segments, improving profitability through operational excellence, and leveraging its business as a force for good. This strategic pivot is now beginning to yield tangible results, particularly within its core Americas segment.

The competitive landscape is dynamic, with key publicly traded rivals including MillerKnoll Inc. (MLKN), HNI Corporation (HNI), and Virco Manufacturing Corporation (VIRC), alongside various private companies and indirect competitors offering alternative solutions. Steelcase holds an estimated 15-20% aggregate market share in the global office furniture market. Compared to MillerKnoll, Steelcase offers a broader portfolio, including architectural products, and boasts a more extensive global dealer network, which facilitates market penetration and service delivery. However, MillerKnoll often leads in innovation speed, particularly in ergonomic seating technology, bringing new products to market potentially 6-12 months faster due to higher R&D investment (MillerKnoll invests 4-5% of revenue in R&D compared to Steelcase's 2-3% in FY25). This innovation gap can pressure Steelcase to increase its own R&D spending to remain competitive in premium segments.

Against HNI, which focuses on the affordable, mass market, Steelcase differentiates through its integrated solutions and premium brand portfolio like Coalesse. While HNI excels in supply chain efficiency and faster production cycles (15-20% faster), leading to lower manufacturing costs per unit (10-15% lower than Steelcase), Steelcase's global network and sustainability focus provide a competitive edge in international markets and with environmentally conscious clients. Virco, a significant player in the education segment, competes on price and speed (10-15% cheaper per unit, 20-30% faster delivery), challenging Steelcase's market share despite Steelcase's offerings providing greater durability (20% more durable in high-traffic settings) and broader service integration.

Steelcase's competitive advantages, or moats, lie significantly in its extensive global dealer network, which enables higher market penetration and recurring service revenue, contributing to stronger cash flow. Its strong focus on sustainability, evidenced by eco-materials and end-of-use services, appeals to a growing base of corporate clients with carbon reduction goals, differentiating it from competitors and potentially boosting revenue growth in this segment. However, Steelcase faces vulnerabilities, including higher operating costs relative to some peers like HNI and the aforementioned innovation lags compared to MillerKnoll, which could impact profitability and market share if not effectively managed.

Technological Edge and Innovation Pipeline

Steelcase's strategy is underpinned by a commitment to innovation, particularly in developing solutions for the hybrid workplace and addressing evolving customer needs. The company's approach is rooted in human-centered design research, aiming to uncover insights into how people work today and how spaces can better support them.

Recent product introductions like the expanded Ocular collection are designed to create a reimagined hybrid work experience, specifically improving how people see, hear, and connect in collaborative settings. The Jean Nouvel Seating Collection by Coalesse underscores a commitment to premium design and functional versatility, catering to the need for comfortable conversation spaces in any work environment. These products directly address the shift towards more collaborative and flexible office layouts.

Beyond physical products, Steelcase is leveraging technology in new ways. The company is adopting AI-driven analytics to analyze millions of workplace applications, uncovering emerging trends to inform product development and remain relevant to evolving needs. This data-driven approach provides valuable insights into customer behavior and space utilization.

In the realm of sustainability, Steelcase is a leader, with initiatives like the Circular by Steelcase program. This program includes remade services launching in the U.S. and expanding in Europe, empowering customers to meet their sustainability goals by reusing, repairing, remaking, and recycling furniture, keeping it out of landfills. The company uses 40% recycled content on average in Steelcase brand product packaging and leads the industry in BIFMA Level-certified products, demonstrating a quantifiable commitment to reducing environmental impact.

A significant technological investment is the ongoing implementation of a new enterprise resource planning (ERP) system in the Americas. This business transformation initiative aims to simplify processes, enhance capabilities, and strengthen competitive advantage. While the target go-live has been adjusted to the second quarter of fiscal 2026 to allow for additional development and testing, the long-term goal is to capture value from streamlined processes and enhanced system capabilities. However, this investment comes with near-term costs, including approximately $80 million in capital expenditures and capitalized cloud computing costs targeted for fiscal 2026, and an expected year-over-year increase of over $20 million in operating expenses in FY26 due to expensing implementation costs and initial amortization.

For investors, Steelcase's technological differentiation and innovation efforts are critical to maintaining its competitive moat. Solutions tailored for hybrid work, coupled with data analytics and sustainability initiatives, position the company to capture demand in a market focused on modernizing workspaces. The ERP system, while costly in the short term, is intended to drive long-term operational efficiency and enhance capabilities, potentially improving margins and competitive positioning over time. The success of these initiatives will be key to translating market opportunity into profitable growth.

Financial Performance and Operational Execution

Steelcase's recent financial performance reflects the impact of its strategic initiatives and the dynamic market environment. In the first quarter of fiscal 2026, the company reported revenue of $779.0 million, a 7% increase compared to $727.3 million in the prior year. Net income rose to $13.6 million ($0.11 per share) from $10.9 million ($0.09 per share), and adjusted earnings per share increased by 25% to $0.20 from $0.16. This performance continued the momentum from fiscal year 2025, where adjusted earnings per share finished above the company's initial targets despite the broader industry not growing as expected.

A notable achievement has been the consistent improvement in gross margin, reaching its 12th consecutive quarter of year-over-year expansion in Q1 2026. Gross profit as a percentage of revenue improved to 33.9% in Q1 2026 from 32.2% in Q1 2025. This improvement is attributed to the benefits of higher volume, cost reduction initiatives, and pricing actions implemented to offset higher tariff costs and inflation. In Q1 2026, higher tariff costs, net of pricing benefits, amounted to approximately $7 million.

Operating income in Q1 2026 increased significantly to $25.5 million from $17.6 million in the prior year, driven primarily by the benefits of higher volume. Adjusted operating income rose to $39.0 million (5.0% adjusted operating margin) from $28.2 million (3.9% adjusted operating margin). Operating expenses increased in dollar terms ($230.1 million vs. $217.5 million) due to factors like higher employee costs, variable compensation, and unfavorable currency translation effects, but decreased as a percentage of revenue.

Looking at the segments, the Americas was the primary driver of strength. Americas revenue grew 9% organically in Q1 2026 to $603.6 million, benefiting from a higher beginning order backlog and strong growth from large corporate, government, and healthcare customers. The segment posted a robust adjusted operating margin of 6.7% in Q1 2026, a significant improvement from 4.7% in the prior year. However, Q1 2026 orders in the Americas declined modestly year-over-year, impacted by significant declines from education and government customers due to changes in federal funding policies, which offset continued growth from large corporate clients.

The International segment, while showing a 1% organic revenue decline in Q1 2026 to $175.4 million, faced more significant challenges. The segment reported an operating loss of $2.5 million and an adjusted operating loss of $1.2 million, a decline compared to adjusted operating income of $2.3 million in the prior year. Weak macroeconomic factors and lower demand, particularly from small-to-midsize businesses in Germany and France, weighed on results. Growth in markets like India, the U.K., and China partially offset these declines. In response, the company initiated restructuring procedures in Europe targeting further cost reductions to improve profitability.

Liquidity remains a focus. As of May 30, 2025, total liquidity (cash, short-term investments, COLI cash surrender value) aggregated to $391.5 million. Cash and cash equivalents stood at $183.9 million. The company used $141.1 million in operating activities in Q1 2026, primarily due to seasonal disbursements of variable compensation and retirement plan contributions, and higher working capital driven by inventory build and supply chain mitigation efforts. Investing activities used $5.9 million, including $14.0 million in capital expenditures and $10.7 million for capitalized ERP implementation costs. Financing activities used $17.2 million for dividends paid ($12.2 million) and common stock repurchases ($5.0 million, primarily for tax withholding).

Steelcase maintains a $300 million global committed bank facility with no outstanding borrowings and was in compliance with covenants as of May 30, 2025. Total consolidated debt was $447.3 million, consisting of unsecured term notes due in 2029 with a 5.60% effective interest rate.

The company believes its liquidity position and future cash generation are sufficient to meet foreseeable needs, including planned capital expenditures and ERP costs of $70 million to $80 million in fiscal 2026.

Outlook and Key Risks

Steelcase's outlook for fiscal year 2026 reflects cautious optimism, balanced by awareness of external uncertainties and internal execution challenges. The company is targeting mid-single-digit organic revenue growth and a modest improvement in adjusted operating margin for the full fiscal year. This outlook is supported by a beginning backlog up 11% year-over-year entering FY26 and expectations for continued investment from large corporate customers, particularly in the technology sector, which management believes is approaching an inflection point for demand. Growth is also anticipated from diversification efforts in the small to midsized business, education, and healthcare segments, alongside positive signs in certain international markets like India and China.

The targeted adjusted operating margin improvement is expected to be driven primarily by the benefits of projected volume growth and ongoing gross margin improvement initiatives. Steelcase intends to offset higher tariff and related inflationary costs, estimated at approximately $20 million in Q2 2026, with higher pricing benefits, including the tariff recovery charge and list price increase implemented in the Americas.

However, the outlook is subject to several key assumptions and risks. The revenue target assumes the macroeconomic environment remains stable and that return-to-office sentiment continues to strengthen without significant disruption from shifts in U.S. trade policy and tariff uncertainty. The ability to fully offset tariff costs with pricing actions depends on the pace of tariff changes, available exemptions, the macroeconomic environment, and competitive factors.

The International segment remains a challenge, with the target of achieving breakeven adjusted operating income for the full fiscal year 2026 contingent on volume growth and the success of planned cost reduction actions, particularly in Europe, where losses are anticipated in the first half.

The ERP system implementation, while a strategic investment, poses execution risk. The shift in go-live timing and the expectation of expensing most related costs in FY26 will result in approximately $10 million of higher operating expense year-over-year (a >$20 million swing compared to FY25 when more costs were capitalized). Potential inefficiencies during the cutover period could also impact near-term profitability.

Other risks include changes in federal funding policies impacting education and government demand in the Americas, potential supply chain disruptions (like the recent laminate supplier issue), and broader market risks from foreign currency exchange, interest rates, and commodity prices.

Conclusion

Steelcase is executing a clear strategy to capitalize on the evolving workplace, focusing on hybrid solutions, market diversification, and operational efficiency. The recent financial results, particularly the strong performance and margin expansion in the Americas, demonstrate tangible progress. The company's competitive positioning is reinforced by its extensive dealer network and leadership in sustainability, although it faces challenges in innovation speed and cost efficiency relative to certain peers.

The outlook for fiscal 2026 points towards continued growth and profitability improvement, driven by anticipated strength in large corporate demand and benefits from strategic initiatives. However, investors should closely monitor the execution of the International segment turnaround, the impact and management of evolving tariffs, and the successful implementation of the new ERP system. While external macroeconomic factors and policy changes introduce uncertainty, Steelcase's strategic focus and operational discipline provide a foundation for navigating the dynamic market and potentially unlocking further value for shareholders.