My Take-Away
- In general the trend seems to be that mid to high price point products and retailers in the home furnishings and commercial furnishings (reference Bed Bath and Beyond (NYSE: BBBY) release yesterday) industry are fairing better than the lower or lower perceive price point and brand companies (reference La-z-Boy NYSE: LZB release yesterday).
- Creating a pleasing customer experience in a broad channel of connection points including interactive and in person sales and service opportunities.
- Improved operating leverage including lower defect rates resulting in lower logistics costs Better inventory analysis and forecasting resulting in faster turns and lower inventory carry levels and fewer markdowns.
- Adjusted product assortment with larger offering of lower margin, higher volume products.
- Fresh product introductions focusing on "innovation"
- Expanding customer retention through initiatives including the Bed, Bath, Beyond and BuyBuy Baby wedding and baby registry synergies.
- Taking advantage of down economy by improving market share through new customer aquisition; BBBY adding retail stores at lower leasing costs. MLHR increasing
Web-Casts of Conference Calls
I am a big fan of listening to the quarterly conference calls. For some companies, including William Sonoma (Pottery Barn) I like to print out the transcript so I can highlight key points as I listen (they do great calls) (see my previous posts regarding William Sonoma here, here, here, here .) I glean all sorts of interesting information that is disclosed in the calls and through the Q&A following that isn't covered in the financials and listening I hear nuances that also speak volumes.
You can listen to the Herman Miller MLRH webcast here . And the Bed, Bath, & Beyond web-cast here (the BBBY one is not so great because it wasn't very detailed and they took investor questions offline.)
Herman Miller, Inc. (NASDAQ: MLHR), today announced results for its fourth quarter ended May 28, 2011. The company reported net sales in the quarter of $441.5 million; an increase of 37.3% from the same quarter last fiscal year. Orders in the period of $448.5 million were 23.0% above the prior year level. Diluted earnings per share in the fourth quarter of fiscal 2011 were $0.30 compared to $0.00 in the prior year period.
For the full fiscal year, net sales were $1,649.2 million, reflecting a year-over-year increase of 25.1%. Adjusted diluted earnings per share, which excludes the impact of restructuring expenses, were $1.09 and $0.66, in 2011 and 2010, respectively. Diluted earnings per share in fiscal 2011 and 2010 were $1.06 and $0.43, respectively.
Brian Walker, Chief Executive Officer, stated, "We finished the fiscal year in strong fashion behind continued strength in customer demand and improved operating leverage. Net sales in the quarter marked our fourth consecutive period of double-digit percentage growth and capped the largest full-year sales increase in our company's history. This recovery complements a host of milestones we achieved this year; all of which provide momentum as we begin fiscal 2012."
Fourth quarter net sales within the company's North American segment totaled $344.3 million. This amount is 40.1% higher than the year ago period. The company's non-North American business segment reported fourth quarter sales of $83.1 million - a year-over-year improvement of 27.7% over the fourth quarter of last year.
Orders within Herman Miller's North American business segment were up 21.4% from the fourth quarter of last fiscal year, while the company's non-North American segment reported a year-over-year increase in orders of 31.9%.
Herman Miller's consolidated fourth quarter gross margin was 33.0%, 20 basis-points above the same quarter a year ago. This year-over-year improvement was driven by increased leverage from higher production levels, which was partially offset by the impact of higher price discounting, commodity costs, and employee bonus expenses. On a sequential-quarter comparison, gross margin in the fourth quarter increased 90 basis-points. Improved production efficiencies and comparatively lower levels of price discounting drove the majority of the sequential-quarter improvement. These factors outpaced the negative impact of higher incentive bonus expenses and commodity costs in the quarter.
Operating expenses in the fourth quarter totaled $114.1 million. This reflects an increase of approximately $23 million on a year-over-year basis after excluding adjustments related to Nemschoff purchase price contingencies and bad debt charges associated with the write-off of dealer receivables in Australia; both of which were recorded in the prior year fourth quarter. Higher variable costs associated with increased sales between periods and a return to full employee benefit levels drove the majority of the year-over-year increase in operating expenses. Relative to the third quarter of this fiscal year, operating expenses increased $12.2 million. Approximately $5 million of the increase relates to a favorable adjustment recognized during the third quarter in settling the remaining contingent components of the Nemschoff purchase price. The remaining sequential-period increase was driven by variable costs on higher sales volume and a seasonal ramp-up in marketing expenses in advance of the NeoCon tradeshow.
Greg Bylsma, Chief Financial Officer, stated, "We continue to be encouraged by the growth of our business, which for the past several quarters has exceeded that of the broader industry in North America. Importantly, our results this quarter reflect a substantial improvement in operating leverage. We achieved an adjusted operating earnings contribution margin of 22% on our sequential quarter sales growth. This is especially encouraging given the relative impact this quarter of higher commodity costs and incremental employee incentive accruals." Herman Miller's effective income tax rate in the fourth quarter was 36.4%. This compares to 24.4% in the third quarter of this fiscal year. The higher rate in the current quarter resulted primarily from a true-up of the manufacturing deductions allowable against the company's full-year taxable income. In the fourth quarter of last fiscal year, the company recognized a consolidated income tax benefit of $2.3 million against a $0.2 million net loss before tax.
This related principally to the release of income tax reserves triggered by the closure of an IRS audit and benefits from the manufacturer's deduction under the 2004 American Jobs Creation Act.
For the full fiscal year, Herman Miller's effective income tax rate was 30.9% compared to 18.8% in fiscal year 2010. The company's cash position at the end of the fourth quarter was $148.6 million; a decrease of $16.1 million from the February ending balance. Net of new borrowings, Herman Miller paid $50 million in cash during the fourth quarter to reduce outstanding debt obligations. The company also made additional contributions to its employee pension plans in the period. Cash flow from operations in the quarter totaled $37.6 million. This compares to $36.3 million in the fourth quarter of last fiscal year.
Mr. Walker concluded, "There are many examples throughout our corporate history where innovative thinking and teamwork helped us weather times of challenge - only to emerge a stronger, more capable organization. I believe this is where we are today as a company. We accomplished a range of objectives in this year of economic recovery, from the launch of exciting new products to advances in how and where we do business. Importantly, all of this was achieved through the hard work and dedication of our employees, who understand the power of working together. I'm proud of these accomplishments, and look forward to seeing us reach even greater heights in the coming year."
Brian Walker, Chief Executive Officer, stated, "We finished the fiscal year in strong fashion behind continued strength in customer demand and improved operating leverage. Net sales in the quarter marked our fourth consecutive period of double-digit percentage growth and capped the largest full-year sales increase in our company's history. This recovery complements a host of milestones we achieved this year; all of which provide momentum as we begin fiscal 2012."
Fourth quarter net sales within the company's North American segment totaled $344.3 million. This amount is 40.1% higher than the year ago period. The company's non-North American business segment reported fourth quarter sales of $83.1 million - a year-over-year improvement of 27.7% over the fourth quarter of last year.
Orders within Herman Miller's North American business segment were up 21.4% from the fourth quarter of last fiscal year, while the company's non-North American segment reported a year-over-year increase in orders of 31.9%.
Herman Miller's consolidated fourth quarter gross margin was 33.0%, 20 basis-points above the same quarter a year ago. This year-over-year improvement was driven by increased leverage from higher production levels, which was partially offset by the impact of higher price discounting, commodity costs, and employee bonus expenses. On a sequential-quarter comparison, gross margin in the fourth quarter increased 90 basis-points. Improved production efficiencies and comparatively lower levels of price discounting drove the majority of the sequential-quarter improvement. These factors outpaced the negative impact of higher incentive bonus expenses and commodity costs in the quarter.
Operating expenses in the fourth quarter totaled $114.1 million. This reflects an increase of approximately $23 million on a year-over-year basis after excluding adjustments related to Nemschoff purchase price contingencies and bad debt charges associated with the write-off of dealer receivables in Australia; both of which were recorded in the prior year fourth quarter. Higher variable costs associated with increased sales between periods and a return to full employee benefit levels drove the majority of the year-over-year increase in operating expenses. Relative to the third quarter of this fiscal year, operating expenses increased $12.2 million. Approximately $5 million of the increase relates to a favorable adjustment recognized during the third quarter in settling the remaining contingent components of the Nemschoff purchase price. The remaining sequential-period increase was driven by variable costs on higher sales volume and a seasonal ramp-up in marketing expenses in advance of the NeoCon tradeshow.
Greg Bylsma, Chief Financial Officer, stated, "We continue to be encouraged by the growth of our business, which for the past several quarters has exceeded that of the broader industry in North America. Importantly, our results this quarter reflect a substantial improvement in operating leverage. We achieved an adjusted operating earnings contribution margin of 22% on our sequential quarter sales growth. This is especially encouraging given the relative impact this quarter of higher commodity costs and incremental employee incentive accruals." Herman Miller's effective income tax rate in the fourth quarter was 36.4%. This compares to 24.4% in the third quarter of this fiscal year. The higher rate in the current quarter resulted primarily from a true-up of the manufacturing deductions allowable against the company's full-year taxable income. In the fourth quarter of last fiscal year, the company recognized a consolidated income tax benefit of $2.3 million against a $0.2 million net loss before tax.
This related principally to the release of income tax reserves triggered by the closure of an IRS audit and benefits from the manufacturer's deduction under the 2004 American Jobs Creation Act.
For the full fiscal year, Herman Miller's effective income tax rate was 30.9% compared to 18.8% in fiscal year 2010. The company's cash position at the end of the fourth quarter was $148.6 million; a decrease of $16.1 million from the February ending balance. Net of new borrowings, Herman Miller paid $50 million in cash during the fourth quarter to reduce outstanding debt obligations. The company also made additional contributions to its employee pension plans in the period. Cash flow from operations in the quarter totaled $37.6 million. This compares to $36.3 million in the fourth quarter of last fiscal year.
Mr. Walker concluded, "There are many examples throughout our corporate history where innovative thinking and teamwork helped us weather times of challenge - only to emerge a stronger, more capable organization. I believe this is where we are today as a company. We accomplished a range of objectives in this year of economic recovery, from the launch of exciting new products to advances in how and where we do business. Importantly, all of this was achieved through the hard work and dedication of our employees, who understand the power of working together. I'm proud of these accomplishments, and look forward to seeing us reach even greater heights in the coming year."
FINANCIAL HIGHLIGHTS (Dollars in millions, except per share data) Millions of $$
| ||||||
Three Months Ended
|
Fiscal Year Ended
| |||||
5/28/11
|
5/29/10
|
% Chg.
|
5/28/11
|
5/29/10
|
% Chg.
| |
Net Sales
|
$441.5
|
$321.5
|
37.3
|
$1,649.2
|
$1,318.8
|
25.1
|
Gross Margin %
|
33.0%
|
32.8%
|
N/A
|
32.6%
|
32.5%
|
N/A
|
Operating Expenses
|
$114.1
|
$91.7
|
24.4
|
$411.8
|
$358.2
|
15.0
|
Restructuring Expenses
|
—
|
$9.6
|
N/A
|
$3.0
|
$16.7
|
-82.0
|
Operating Earnings %
|
7.2%
|
1.3%
|
N/A
|
7.5%
|
4.1%
|
N/A
|
Adj. Operating Earnings %*
|
7.2%
|
3.1%
|
N/A
|
6.7%
|
5.2%
|
N/A
|
Net Earnings
|
$17.1
|
$2.1
|
714.3
|
$70.8
|
$28.3
|
150.2
|
Earnings per share—diluted
|
$0.30
|
$0.00
|
N/A
|
$1.06
|
$0.43
|
146.5
|
Adj. Earnings per share—diluted*
|
$0.30
|
$0.10
|
200.0
|
$1.09
|
$0.66
|
65.2
|
Orders
|
$448.5
|
$364.5
|
23.0
|
$1,672.3
|
$1,322.4
|
26.5
|
Backlog
|
$275.8
|
$243.6
|
13.2
| |||
Fiscal Year Ended
| ||||
May 28, 2011
|
May 29, 2010
| |||
Net Sales
|
$1,649.2
|
100.0%
|
$1,318.8
|
100.0%
|
Cost of Sales
|
1,111.1
|
67.4%
|
890.3
|
67.5%
|
Gross Margin
|
538.1
|
32.6%
|
428.5
|
32.5%
|
Operating Expenses
|
411.8
|
25.0%
|
358.2
|
27.2%
|
Restructuring Expenses
|
3.0
|
0.2%
|
16.7
|
1.3%
|
Operating Earnings
|
123.3
|
7.5%
|
53.6
|
4.1%
|
Other Expense, net
|
20.8
|
1.3%
|
18.8
|
1.4%
|
Earnings before Income Taxes
|
102.5
|
6.2%
|
34.8
|
2.6%
|
Income Tax Expense
|
31.7
|
1.9%
|
6.5
|
0.5%
|
Net Earnings
|
$70.8
|
4.3%
|
$28.3
|
2.1%
|
Earnings Per Share—Basic
|
$1.24
|
$0.51
| ||
Weighted Average Basic Common Shares
|
57,118,777
|
55,997,781
| ||
Earnings Per Share—Diluted
|
$1.06
|
$0.43
| ||
Weighted Average Diluted Common Shares
|
57,675,120
|
57,490,368
| ||
