Is Steelcase's Recent Earnings Outperformance a Sign of Renewed Optimism in a Struggling Industry?

Steelcase (SCS) has long been a bellwether for the office furniture industry, a sector grappling with the lingering effects of the post-pandemic shift to hybrid work models. Yet, the company's recent earnings report and strategic pivot toward capital efficiency have sparked renewed interest among investors. The question now is whether Steelcase's outperformance in a challenging environment justifies optimism—or if it's merely a temporary reprieve in an industry still struggling to adapt.

Earnings Highlights: A Mixed Bag of Progress and Persistent Challenges

Steelcase's Q2 2025 results revealed a nuanced picture. Revenue rose to $855.8 million, a modest increase from $854.6 million in the prior year, driven by a 2% organic growth in the Americas. The Americas segment, now the company's growth engine, saw 3% volume gains from large corporate, education, and government clients. This contrasts sharply with the International segment, which posted a 4% decline, hit by weak demand in China and Europe.

Profitability metrics, however, showed meaningful improvement. Adjusted EPS climbed to $0.39, up from $0.31 in 2024, while operating income surged by $49 million to $90 million. The company credited cost-reduction initiatives, a $27.9 million land-sale gain, and gross margin expansion (34.5% in Q2 2025, up 130 bps year-over-year). Total liquidity also strengthened to $507.1 million, a 30% increase from 2024, providing a buffer for strategic investments or shareholder returns.

Yet, these gains mask deeper structural issues. Over the past five years, Steelcase's revenue has remained flat, and free cash flow turned negative in Q2 2025 at -$155.1 million, a stark contrast to the $71.2 million burn in 2024. Wall Street's bearish outlook is evident in the 4.3% expected EPS decline for the next 12 months.

Industry Context: A Market in Transition

The global office furniture market is projected to grow at a 7.69% CAGR from 2025 to 2032, driven by demand for ergonomic and sustainable furniture. Hybrid work models and corporate wellness initiatives are fueling this growth, but the sector remains fragile. Steelcase's competitors, including Herman Miller and MillerKnoll, are also navigating supply chain bottlenecks and raw material costs that have eroded margins.

What sets Steelcase apart is its market share momentum in the Americas. The company's 12% order growth in Q4 2025 marked its sixth consecutive quarter of gains, driven by large corporate clients and government contracts. This aligns with broader trends: as companies seek to re-engage employees in physical offices, Steelcase's focus on collaborative workspaces and tech-integrated designs is resonating.

However, the International segment remains a drag. Steelcase's 5% revenue decline in Q2 2025, particularly in Germany and the UK, underscores the uneven global recovery. The company's CFO acknowledged the need for “cost discipline and operational simplification” to stabilize this region, a process that could take years.

Capital Efficiency and ROCE: A Ray of Hope?

Steelcase's return on capital employed (ROCE) is a critical metric for assessing its ability to generate returns in a capital-intensive industry. While ROCE figures aren't explicitly disclosed, adjusted EBITDA of $262.3 million in FY2025 and a 5.0% operating margin suggest incremental progress. The company's gross margin expansion and liquidity improvements indicate a path toward better capital allocation, but ROCE of ~7% over the past five years lags behind peers like HNI Corporation (ROIC >25%).

The key question: Can Steelcase's cost-cutting and pricing power offset its structural weaknesses? The company's Q3 2025 guidance—revenue of $785–$810 million and adjusted EPS of $0.21–$0.25—suggests cautious optimism. Management's focus on “operational performance” and “sustainable design” may yet unlock value, but execution risks remain high.

Valuation: A Value Trap or a Bargain?

Steelcase's forward P/E of 9.2x appears attractive at first glance, but this low multiple reflects poor fundamentals. With a 5-year EPS CAGR of 0% and a PEG ratio of infinity (due to negative growth expectations), the stock trades at a discount to its 10-year average P/E of 12x. Competitors like MillerKnoll, with a P/E of 14x and stronger margins, offer a better risk-reward profile.

The company's net-debt-to-EBITDA of 1.7x is manageable, but its free cash flow burn and stagnant revenue raise concerns. For long-term investors, Steelcase's valuation may only justify optimism if the Americas' momentum translates into broader margin expansion and International cost discipline.

Investment Considerations

Steelcase's recent outperformance is rooted in its Americas strategy and margin improvements, but the company remains a high-risk bet in a fragmented industry. Investors should monitor:
1. International cost-cutting progress: Can Steelcase stabilize its European and Asian operations without sacrificing innovation?
2. Sustainability initiatives: As ESG investing gains traction, how will Steelcase's eco-friendly product lines differentiate it from peers?
3. Hybrid work adoption: Will demand for office furniture rebound as expected, or will remote work permanently reduce enterprise spending?

For now, Steelcase's valuation appears undervalued, but its fundamentals suggest a value trap. A buy recommendation would require stronger evidence of durable margin expansion and a clearer path to International profitability. Until then, investors may want to wait for a more compelling catalyst—such as a strategic acquisition or a sustained rebound in corporate office spending.