MillerKnoll Inc

NASDAQ:MLKN

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, and welcome to Herman Miller's Second Quarter Earnings Conference Call. As a reminder, this call is being recorded.

I would now like to introduce your host for today’s conference, Kevin Veltman, Vice President of Investor Relations and Treasurer.

[Kevin Veltman, VP of Investor Relations and Treasurer]

Good morning, everyone. Joining me today on our second quarter earnings call are Andi Owen, our President and Chief Executive Officer; Jeff Stutz, our Chief Financial Officer; John Michael, President of North America Contract; Debbie Propst, President of Herman Miller Retail and Ben Groom, our Chief Digital Officer.

Similar to last quarter, we have changed our approach to the quarterly press release, to adapt to shareholder letter format that replaces our prepared remarks on the conference call. We believe this approach both provides more timely information for investors and allows for more questions and dialogue on the call. We have posted yesterday's press release on our Investor Relations website at hermanmiller.com. Wherever any figures are presented on a non-GAAP basis, we have reconciled the GAAP and non-GAAP amounts within the press release as well.

Before we begin today's Q&A session, I would like to remind everyone that this call will include forward-looking statements. For information on factors that could cause actual results to differ materially from these forward-looking statements, please refer to the earnings press release, as well as our annual and quarterly SEC filings. Any forward-looking statements that we make today are based on assumptions as of this date and we undertake no obligation to update these statements as a result of new information or future events. Today's call is scheduled for 60 minutes.

With that, I'll turn the call back over to the operator and we'll begin to take your questions.

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Greg Burns with Sidoti & Company. Your line is open. Please go ahead.

[Greg Burns, Sidoti & Company]

Good morning. Could you start off talking about the order turns throughout the quarter on both the contract and the retail side and maybe some insight into the first couple weeks of the – of this quarter? Thank you.

[Jeff Stutz, CFO]

Good morning, Greg. This is Jeff. Yes, I’ll tack that a little for you. So what we thought at the consolidated group level, what we saw with an improvement in order trends in total as we moved towards the back -- portion of back-half of the quarter, to kind of give you an idea, we were down in the mid-teen percentages for September and October kind of on average,

that improved down closer to around 9% in the month of November. And in the first couple of weeks of the third quarter, we trended down close to that down 9% between 9% and 10%.

[Greg Burns, Sidoti & Company]

Okay. And at the segment level, is there any kind of notable trends there?

[Jeff Stutz, CFO]

Yes.

[Debbie Propst, President from Herman Miller Retail]

We have some interesting order trends in retail I can discuss. This is Debbie. Good morning. In September, our order trends were plus 29; October, plus 28; and then we saw a big spike in November, plus 62. And we have a cyber holiday period that will bridge Q2 and Q3. So we're coming into Q3 with really strong backlogs in retail of $70 million, well ahead of our technical backlog and saw strong orders in the first couple of weeks of Q3 pertaining to those cyber.

[Greg Burns, Sidoti & Company]

Okay. Great. And that, I guess, leads me to my next question. The order –the consolidated order growth for the retail side was, I guess, up 40% the last couple of quarters. So I thought – I was thinking maybe the growth would be even be a little bit stronger this quarter. So for this quarter, was there any supply constraints or pilot limitations that may be curtailed revenue a little bit? And then it sounds like as we look into the third quarter, maybe based on the backlog and the order growth, we might see revenue growth reaccelerate. If you could give us any color on that, that will be helpful?

[Debbie Propst, President from Herman Miller Retail]

Well, our order growth for the quarter was 41% ahead of last year for the Retail segment. And we specifically feel really good about the shift in growth from October into November. November, December, January are three months that we typically haven’t been aggressive from a marketing campaign perspective in the past. So what we're seeing as we bill from September and October into that nice November growth is some of our new initiatives activating across marketing, some build in digital and also executing some of our new task seating campaigning and go-to-market strategies.

So we feel like the growth that we're seeing throughout the quarter is indicative of continued strength in the residential channels. And it might be helpful just to break down the segment a little bit for you, Greg. Our retail consumer, the consumer that's purchasing product for themselves grew at 84% in orders in the quarter. And our trade business, obviously, interior designers purchasing on behalf of a residential consumer grew 14% in the quarter. The trade actually rebounded this quarter versus what we saw in Q1 and the residential channel grew. So we're feeling really good about the trends we're seeing in the consumer segment and we feel like we can continue to build on. And I think that also…

[Greg Burns, Sidoti & Company]

Okay. And if we…

[Debbie Propst, President from Herman Miller Retail]

…with that you see our architectural billings start to improve as you see homebuilding and home sales start to improve, there’s a nice tie-in there, too.

[Jeff Stutz, CFO]

Yes. And Greg, this is Jeff. Just one more bit of color for you. As you kind of look under the consolidated at the segment level from an order trend perspective, the North American contract business was kept, I would say, fairly consistent. When you draw line through the quarter, we were kind of in that down 30% to down 35% range pretty consistently throughout the quarter. It got a little deeper in October and rebounded in November a bit. But I wouldn't say any notable change there.

So clearly, we continue to see depressed order activity there still and John can speak to, there’s a lot of inquiries and conversations with customers that give us hope. But the one thing I want to highlight is our international business, which as we've said to you last quarter, is very encouraging because that, in many ways, kind of leaves the leading edge of the post-virus activity. We saw a nice bump in order activities. We moved through the quarter. In fact, in November, on an organic basis, international orders were actually up about 5%, bringing the full quarter to down 2% on an organic basis for total orders. So the trends there are very, very encouraging.

[Greg Burns, Sidoti & Company]

Okay. Great. And then in terms of the Retail segment when we look at -- can you maybe just give us a little bit of color on where the growth is coming from? Because if we look at the comparable sales seems - seem brand sales for DWR, they’re actually down. So where's the retail growth coming from? Is it coming from hermanmiller.com, HAY, like - and within DWR, what is the split between traditional brick-and-mortar channels versus e-commerce?

[Debbie Propst, President from Herman Miller Retail]

Greg, we typically don't break then at the brand level, the business performance. But certainly at the channel level, we continue to see really strong performance from our e-commerce up 220% to last year, but we're also really pleased with the performance we saw in the quarter from our studios our physical retail locations and which - and order built at 14% over last year despite the fact that traffic was down 35%. So we're seeing a slight improvement in AOB in our stores and studios and an improvement in conversion.

We're still seeing that very dedicated traffic coming into the studios and stores at the end of the customer journey to validate the decision that they've made for their online research.

[Greg Burns, Sidoti & Company]

Okay. Great. And then lastly, I know you updated the DWR website in July. Where are you in terms of updating, I guess, the rest of your e-commerce platforms of hermanmiller.com, hay.com and have you continued to see the benefit of those changes in the conversion rates in order numbers?

[Jeff Stutz, CFO]

Yes. Greg, so I'll take this. We've been really impressed with the performance of the new DWR.com since we rereleased that site in July. We've seen significant conversion improvement in that site. I can tell you that compared to immediately pre-launch, we're seeing a 26% increase in conversion on that site. So we're really impressed with how that site is performing. And as you mentioned, we're focusing now on developing the new Herman Miller store. We're currently on track to rerelease that site in Q4. So there is a lot of work going into that and then we'll turn our attention to hay.com and relaunch that in the next financial year.

[Greg Burns, Sidoti & Company]

Okay. Thank you.

[Operator]

Thank you. [Operator Instructions] I'm showing no further questions. And I'd like to turn the conference back over to Andi Owen for any further remarks.

[Andi Owen, President and CEO]

Okay. I am sorry, guys. We had some technical difficulty, so I hope you can hear me this morning. Thanks for joining us on the call. We really appreciate your continued interest in Herman Miller, and we look forward to updating you again next quarter. And on behalf of all of us at Herman Miller, I want to wish you and your families a wonderful holiday season. Thank you.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.