Tempered by Time and Events: Moving to the Other Side of COVID



KEY POINTS
  • Named for the 15th time by Fortune Magazine as one of the world’s most admired companies and ranked #1 in the Home Equipment and Furnishings sector, Steelcase is a global market share leader for commercial/contract furniture. Its global capabilities and research-based approach make it a preferred partner for organizations in any part of the world. Simply put, Steelcase is seen as one of America's best companies.
  • COVID-19 significantly impacted Steelcase, which focuses on workplace furnishings and relies primarily on larger corporate accounts in major cities globally. Consolidated reported revenues fell ~30% YOY in fiscal 2021. Pre-pandemic, Steelcase was regaining market share and delivering improving profitability, having reported one of its best full-year results of the past 20 years in fiscal 2020.
  • COVID-19 caused significant declines in YOY order and sales comparisons of commercial/contract furniture during the last 9 months of calendar 2020 and first 3 months of calendar 2021, as reported by BIFMA, the industry’s trade association
  • The pandemic catalyzed the reality that work has changed. Steelcase’s predictable pandemic response was to sponsor and conduct extensive research into the future of work in the wake of the pandemic. Its Work Better research is extensive. This research is required reading to understand how organizations need to accommodate safety, hybrid work, work from home (WFH), and return to the office.
  • Steelcase’s experienced leadership has weathered recent past crises, and the recently disclosed upcoming CEO transition to Sara Armbruster signals continuity. Despite pandemic-caused revenue declines, Steelcase managed expenses well and posted F4Q21 with a GAAP pre-tax income and a 7% adjusted EBITDA margin. It also has exceptional financial strength and liquidity, ending F2021 with $490 million cash ($6 million net of debt), ~$170 million COLI assets, and a $250 million undrawn revolver.
  • ESG has been in the Steelcase DNA for decades. Its commitment to diversity, equity, and inclusion (DEI) reflects its long-held values. In August 2020, it announced achieving carbon neutrality and set goals, validated by the Science Based Targets Initiative (SBTi) to become carbon negative by 2030 driven by a 50% reduction in absolute emissions from its operations.
OUR INSIGHTS

The Opportunities

With the vaccination phase of the COVID-19 pandemic now taking hold, Steelcase is poised to regain momentum as businesses and other organizations return to some sense of normalcy. Owing to its having conducted extensive Work Better research, its strategic commitment to the workplace, remaining invested in product development throughout the pandemic, and its global reach and capabilities, Steelcase is in an ideal position to inform organization leaders about five key needs of people, post pandemic: (1) safety, (2) belonging, (3) productivity, (4) comfort, and (5) control. Steelcase will likely remain the global market leader and an ideal partner for leading organizations. Steelcase also has opportunities within its education channel, which still has unspent stimulus funding, that can bolster future revenues. Additionally, while underrepresented in the initial phase of WFH, Steelcase has digital assets and multiple residential partnerships that can provide improved future results given its financial capacity to support increased investment.

The Obstacles

Everything else about the pandemic aside, the key investor debates are: (1) what changes will companies make as they reopen their offices and other workplaces and (2) what will be the ultimate extent and speed of worker, student, and associate return to in-office/classroom and away from in-home work/learning?

Named for the 15th time by Fortune Magazine as one of the world’s most admired companies and ranked #1 in the Home Equipment and Furnishings sector, Steelcase is a global market share leader for commercial/contract furniture. Its global capabilities and research-based approach make it a preferred partner for organizations in any part of the world. Simply put, Steelcase is seen as one of America's best companies.

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