TRG | The Bottom Line – 3/22

Steelcase – flipping the script: The stock’s negative reaction following Steelcase’s Q4’24 results has been baffling to us. The flashing lights of orders showing some sustained growth and the outlook of organic sales growth is a narrative shift that the market simply has not fully recognized… yet. We believe that the conservative balance sheet and low valuation (~6x EV on FY’24 EBITDA, ~13x the midpoint of FY’25 EPS guidance) will eventually be recognized by the market in a higher multiple on higher results.  Our perspective is that SCS will benefit from large corporations remodeling office space for separate but simultaneous reasons – attract and retain employees and make offices attractive and functional for employees in a hybrid work world. This brings a need for refresh. TRG spoke with an industry contact who does tenant improvement in the greater Chicago area who said he’s seeing some shift back to private offices from the open floor plan. We believe Steelcase, in the near/mid-term will benefit from their large exposure with large corporates, and that success with SMBs will take longer and could be additive to growth longer term.