MillerKnoll Inc

NASDAQ:MLKN

Earnings Call Transcript 2021-Q4

[Operator]

Good morning and welcome to the Herman Miller's Fourth 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, executive]

Good morning. Joining me today on our fourth quarter earnings call are Andi Owen, President and Chief Executive Officer; Jeff Stutz, Chief Financial Officer; John Michael, President of North America Contract; Debbie Propst, President of Herman Miller Retail; and Jeremy Hocking, President of International Contract.

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.

Before I turn it over to Andi for a brief review of the quarter, 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.

At the conclusion of our prepared remarks, we will have a Q&A session. Today's call is scheduled for 60 minutes.

With that, I'll turn the call over to Andi.

[Andrea Owen, executive]

Thanks, Kevin. Good morning, everyone. Thank you for joining us today.

In addition to the announcement of our planned acquisition of Knoll during the quarter, our fourth quarter results reflected a continued rebound from the pandemic and highlight the resilience and diversity of our business model.

Consolidated sales for the quarter were up 31% compared to last year, and orders were up 29% compared to the prior year. Sales and orders also increased sequentially from third quarter levels, highlighting increased levels of activity that we're seeing in the markets that we serve.

Our Retail business delivered another quarter of record-breaking performance with the best quarterly fields performance in our company's history. Sales for the Retail segment were up 106% over last year and orders were up 81%. Segment operating margin of 19.2% for the quarter reflects strong profitability level as well. We continue to see growing demand beyond the home office and DWR Contract categories. Excluding those 2 categories, fourth quarter order growth was up 96% over last year.

Our Contract business is also feeling the positive impact of recovery from the pandemic as customers begin accelerating their plans to return to the office, especially in the second half of the quarter. Order rates for the North American Contract segment increased sequentially by 21% from Q3 and were flat compared to prior year. Leading indicators around the project funnel, mockups and proposal center activities have also been supportive and external measures such as the Architectural Billings and Office Demand Indices have been trending positively.

We continue to see rising demand across the International Contract segment as well with orders up 55% compared to last year.

Diluted earnings per share on a GAAP basis for the quarter was $0.12; while adjusted EPS, which excluded the impact of acquisition-related costs, restructuring and other special charges, totaled $0.56. This is an increase of over 400% from adjusted earnings per share in the same quarter last year.

Adjusted operating margins of 7% were 370 basis points over the same quarter last year. Higher sales levels and year-over-year gross margin improvement despite the near-term challenges of higher commodity costs drove profitability improvement during the quarter.

Looking ahead, as the pandemic continues to subside, we are reestablishing quarterly sales and earnings guidance. We expect sales in the first quarter of $640 million to $670 million and earnings per share between $0.52 and $0.58. Just a reminder, our outlook does not include any impact from the pending acquisition of Knoll.

We've navigated the challenges of the past year exceptionally well, accelerating our own transformation and further strengthening our leadership position across every segment of our business. We're entering this new era in our industry in a position of incredible strength and are confident in our ability to continue to grow the business and create value for all our stakeholders.

Our differentiated capabilities enable us to serve both contract and consumer audiences in every way and everywhere they want to do business with us. And we will continue to differentiate ourselves with a customer- and digital-first approach in everything we do.

Looking to the future, we're very pleased with the progress we're making towards finalizing our agreement to acquire Knoll. And we expect the deal will close within 1 week of the scheduled July 13 Shareholder Meeting, assuming, of course, we received both Herman Miller and Knoll shareholder approvals at those meetings.

In anticipation of deal close, our integration planning teams are preparing our Gate 1 readiness plan, designing organizational structures and operating processes and creating detailed synergy plans for their respective areas. Our goal is to bring the best of both companies together as we unite to create our new combined organization. We expect the integration process will be seamless for all our stakeholders.

As the preeminent leader in modern design, the combined Herman Miller and Knoll will be at the forefront of transforming our industry during this period of unprecedented disruption. We'll be poised to serve our customers everywhere with a broad portfolio of design-driven brands and products, advanced technologies and digital capabilities and a deep bench of talent. Together, we'll continue to drive sustainable design and innovation for years to come.

I have to say that none of this would be possible without the incredible people who make up the Herman Miller community, and I'm so grateful for their efforts this past year. I'll close with a huge thank you to our teams around the world who continue to power our transformation and have helped make fiscal 2021 one for the record books despite many obstacles. It's a very bright future, and it's an exciting time to be part of our organization.

With that, I'll turn it over to the operator for your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Greg Burns with Sidoti & Company.

[Gregory Burns, analyst]

Relative to the guidance for the first quarter, revenue was strong, a little bit better than what we were looking for, but EPS was a little bit light. So can you just walk us through your outlook for margins for the first quarter? What's kind of driving that EPS that you're looking for?

[Jeff Stutz, executive]

Greg, this is Jeff. I'll start and others can join in if they have some additional color they want to add. Maybe the first thing that I would say is just to level set and, Greg, I think you made reference to this in your note that you published this morning, but I think it's important that everyone understand. Our fourth quarter earnings per share reflects a lower-than-normal effective tax rate.

So let me start with our adjusted effective tax rate for the fourth quarter was just under 12%, and it was lower as a result of some favorable items that were all good news and will generate favorable cash flow for the business, but lower -- it lowered that rate from typical levels. Our normalized tax rate you can think of as being somewhere between 21% and 23%, as you probably know, Greg.

And so what were those favorable items? We had about $4 million of favorable tax items, $2 million of which came from the utilization of an NOL as well as we sold off some state tax credits that we were able to find a buyer for which was a great benefit to us. And then we had true-ups that made up about another $2 million.

So there's about $4 million of favorability in the tax rate. If you normalize for that in the fourth quarter, then you'd see sequential improvement going from Q4 to Q1 in earnings per share, which is what you would expect because our guide for revenue was higher in Q1. So I just wanted to make sure we level set with the effective rate.

Now to your question. Within the guide, you look at the drivers of gross margin, it's no secret we're feeling the impact of inflationary pressures in the business. We expect commodity pressures sequentially from Q4 into Q1 will drive an estimated $4 million of increased costs that will pressure gross margins.

Now we're doing everything that we can. And there are things we can do. We put a larger-than-normal price increase in effect effective beginning of June. But as you know, it takes time for that to layer itself into the results on the Contract business. So we'll start to feel the benefits of that as we move through the first half of the fiscal year. We're also feeling it in the area of direct labor costs, like so many companies are, and we expect that that's going to drive an estimated $1 million of sequential increased costs.

So those are two inflationary pressures that we're going to feel the impact of in our Q1 gross margin. Now we will offset some of that, not all of it, but some of it with improved leverage because, as we've said, order rates are improving in the North American Contract business, and that will translate itself into higher production levels, and that helps our gross margin story.

And then you also have -- it's probably worth highlighting as that North American Contract business begins to pick up steam in terms of revenue, you have a channel mix, basically, difference in the business from where we've been, right? So as the Contract business continues to grow, you'll see a blend -- a higher blend of Contract gross margins, which are structurally lower than you see in the Retail business. So that's just a mix issue as much as anything.

And then lastly, and I'll pause, make sure that I'm getting to your question. In the area of operating expenses, you've got higher sequential revenue in Q1. And with that, you've got variability in the operating expenses that come with that as well as some additional investments that we're making in the area of IT and digital, which isn't new news. These are initiatives that we've been talking about that are going to cause operating expenses to be up a little bit sequentially from Q4.

So hopefully, that gives you the kind of the major pieces that speak to the earnings per share trend.

[Gregory Burns, analyst]

Yes. No. That was perfect. And then in terms of the price increases, is that June -- is that your second for this year or your first? And what's your view on where we are in terms of the need for maybe additional price increases?

[Jeff Stutz, executive]

Yes. That's our first one in this calendar year, Greg. We're certainly -- we are keeping very, very tight watch on the commodity trends. And we will not hesitate to take additional action if we think that's needed. We're also doing, like we always have, everything we can to reduce costs by working with our suppliers, by looking at things like value-add, value engineering within the manufacturing plant. So those are all standard fare here at Herman Miller, and our teams are doing a great job leaning into those. However, the ramp-up in costs are real. They're upon us and we're looking closely at it. And if we have to, we will certainly consider an additional price increase.

I don't know, John Michael, if you have anything that you'd add there from the North American Contract side of this because so much of these commodity costs are impacting the Contract business. So feel free to add any other commentary.

[John Michael, executive]

I think you covered it well, Jeff. Obviously, we're feeling the pressure, but so are our competitors as well from a commodity perspective. And it kind of goes with sort of the general inflationary trend across our economy right now.

[Gregory Burns, analyst]

Okay. And then lastly, in terms of the order patterns in the North American Contract business, I guess we're starting to see some green shoots pop up here and pointing to kind of recovery in that market. But can you just give us some insight into maybe how the order patterns have trended as we move into the first quarter here in the first couple of weeks?

[Andrea Owen, executive]

John, you want to take that one for North America?

[John Michael, executive]

Sure. I'd be happy to. As Andi mentioned in her opening comments, from a year-over-year perspective, in Q4, we saw a significant strengthening in the second half of the quarter as opposed to the first half of the quarter. And from Q3 to Q4, again, significant increase as well, 21% sequentially from Q3 to Q4. Starting Q1, year-over-year comps were up just a tick under 30% from a year-over-year basis.

So we're seeing a strengthening really across the board. And I think one other thing of note is many of the largest markets in North America, from Boston, New York City, the Bay Area, Chicago, Toronto, are markets that are slower to open up than a number of other markets across North America that are already open.

So we're encouraged to see the strength that we're seeing already. And I think as some of these larger metro areas begin to open up even more in late summer and fall, that should continue to have a positive impact.

[Jeff Stutz, executive]

Yes. And Greg, this is Jeff. I might just add one other bit for you just to give you a sense for pacing through the quarter. At the consolidated group level, orders averaged in the months of March and April combined about $48 million a week. We saw a nice improvement in the month of May. They jumped up to $60 million. And in the first 3 weeks of the new quarter, they've maintained at that $60 million level.

So we've seen a nice acceleration. I think it just speaks to the fact that it was late in the quarter that we saw the pickup. But the good news is it's continued through the early part of the first quarter. And, as John mentioned, there's a lot of signs out there that give us reason for increased optimism going forward.

[Andrea Owen, executive]

Yes. And I would add, we're seeing the same in the international markets as well. So that's another good point.

[Jeff Stutz, executive]

Yes.

[Operator]

Your next question comes from Steven Ramsey with Thompson Group.

[Steven Ramsey, analyst]

Yes. Curious, I guess a couple of questions thinking about supply chain challenges. I guess does the Q2 sales guide reflect these challenges, I guess holding back the ability to deliver demand in a timely manner? Or in another way to ask it, is demand exceeding sales currently?

[Jeff Stutz, executive]

Steven, this is Jeff. So you referenced Q2, you mean Q1 guide, just to clarify. So clearly, there's some -- and I'll let Debbie and others might have some color that are real specific to their business. What I can tell you is that on the edges, we are feeling some of the impacts of things like container shortages and container delays. We've tried to do everything we can, and we're managing it quite well to date by adding -- selectively adding inventory and doing some expedited freight, which obviously comes at a cost, but we're trying everything we can to manage it, and I think we're doing an okay job.

So there's nothing there that is terribly alarming right now, but it's something we're watching and there's a lot of news these days on that. There's some additional challenges around availability of some inputs like glue. We had talked about foam earlier in the year, some other additives in the manufacturing process that we're working through those. Again, nothing super significant.

I think our biggest challenge right now is labor from a manufacturing standpoint, and that's occurring. And this is mainly a U.S.-based issue, although not exclusively in the U.S., but it's principally a U.S. contract. So as it stands right now, there are some extended lead times that we're seeing in pockets.

And I don't know, Debbie, on the Retail business, if you want to add any additional thoughts here. But we're managing it as best we can, but it's top of mind for sure. And there are issues on the edges.

[Debbie Propst, executive]

Absolutely. And Retail, in particular, our sales as a percent of demand in Q4 was about 91%. That's actually pretty typical for what we would expect in Q4 given that we have one of our largest promotional events of the year at the end of May. And so we typically expect to see those products ship in June and July.

So looking into June, we'll see that those 2 numbers closer to even, which is what we would expect coming out of that large promotional period at the end of the quarter. I'd say the place where supply chain issues are really impacting us is in our product lead time, which affects our conversion rate.

So certainly, as we bring customers into the funnel, we leave dollars on the table when those customers don't convert because of longer lead times than normal. And we believe that had a fairly significant impact in Q4. Of course, we're very happy with the performance of our sales growth and order growth in Q4, but there is some missed opportunity because of these order lead times.

I will say, as I look across the competitive set, I feel like we've been in a relatively strong position, especially given the amount of our overall offering that we manufacture ourselves and do so domestically, and that's been a real benefit for us, is the competitive set. There's some places where our in-stock rates, they're not quite where I'd like them to be. Outdoor, in particular, has been impacted. And as Jeff said, we're working very diligently to continue to mitigate these supply chain challenges, but they are very real.

[Steven Ramsey, analyst]

Helpful color. I have a couple of other questions on Retail. Maybe to start with on margins, the self-help story meeting strong demand clearly bearing fruit. I know self-help never ends, but you've come off this low base sustainably. How much further is left on the big improvements you can make in Retail? And as you open up new stores, how much are the new store openings reducing near-term margins?

[Debbie Propst, executive]

Well, the great news is that the new stores that we've been opening have been performing well above our operating income target. So we're exceptionally pleased with the performance and have a rollout plan. The pace is about the same rate as what you've seen from us in terms of store openings over the last 6 months. So those stores are adding to our operating income rates and our margin rates and what will become a meaningful way as that fleet grows.

In terms of the current sort of mix of margin improvement that we're seeing within Q4 year-over-year, the biggest element of margin improvement comes from department mix. And so we're monitoring closely as we see sort of shifting relationships between workspace and our non-workspace categories within Retail. However, given the absolute sales in workspace, demand increased 4% in Q4 over Q3. The total base increased.

And then within our non-workspace categories, we're actually seeing accelerated growth there versus what we're seeing in workspace. So that's indicative of an improving overall opportunity in our decorative furnishings category. And that is an area where I believe we have the opportunity to increase the amount of exclusivity in our assortment and the amount of private-label development where there's enriched margin opportunities.

[Andrea Owen, executive]

Just to add one thing -- thank you, Debbie. We really are at the infancy of our residential retail growth [ front ]. And what Debbie and the team have been doing have been really sort of building the business model for the future so that we can gain market share in our DWR concept, our Herman Miller brand-new store concept. And you have to remember too that, hey, it's also just beginning to get off the ground from a retail standpoint. So it's a hard low-hanging fruit.

The operational processes, the discipline, the assortment opportunities that Debbie had in the business are just beginning to take hold. So as we increase our market share in the residential part of the business, we see a long runway of opportunity in all of the brands that we have on a direct-to-consumer front.

[Steven Ramsey, analyst]

And then on the Retail margin moving from the high-teens, low-20s percent range in the last few quarters, can you maybe bridge that to the low-teens targets you have over the long term, trying to get a sense of how much of this is elevated sales and drop-through and if there's impact -- the impact of reduced expenses coming in, in that segment alone?

[Debbie Propst, executive]

Well, Steven, I view this as an investment year for our Retail organization. We have seen tremendous growth over the last 12 months. And that is on an infrastructure that was developed to support a very analog-sure model.

So this is the year that we will be building out the infrastructure to support a multibrand omnichannel business that is focused on both customer acquisition and LTV growth. And so what that looks like is the build-out of an omnichannel POS, a planning and allocation system, an order management system refresh. All of these things are critical to scaling the business on the vision that I've been pursuing along with my team over the last 12 months. And as Andi said, we're at the infancy of executing that vision. These infrastructure investments are critical to allow us to continue to grow.

[Steven Ramsey, analyst]

Great. Great. And then last one from me. As you think about the office look and feel post pandemic, what you see in order -- in your order book and backlogs and conversations, does that look much different than the prepandemic office?

[Andrea Owen, executive]

It looks quite a -- John, you're nodding your head. Do you want to step into that one?

[John Michael, executive]

Sure. I'd be happy to, Andi. Thank you, Steven. So just a couple of anecdotes to add some color to your question, we had in the last couple of weeks a roundtable with a number of A&D firm principals talking a bit about prepandemic versus postpandemic client engagements that they're having. And they all shared that prepandemic conversations were about cost per square foot and densification and those types of topics that have now switched to how do we attract and retain employees, how do we facilitate collaboration and connection across our employee base.

So totally different set of criteria, if you will, that people are thinking about in terms of what they want their space to do for them. And that obviously drives some change in modification in terms of the specification and the product solution set that we provide for individual projects and clients.

So we're seeing that shift. And quite frankly, we're encouraged by it because those types of conversations about using space strategically as an asset to improve business results is what we talk about and what we do well and what our products support. So we're definitely I think seeing the market conversation kind of move right into some areas where we've got a lot of help to provide.

[Jeremy Hocking, executive]

This is -- thanks, John. This is Jeremy. Let me just add some color from an international perspective. I'd say a couple of things here. One is some have said, well, some large users are talking about the need for less office space going forward because more people are working from home. But what we've been finding is that maybe the 90% of space that will be less, most all of it, it may not be quite fit for purpose. So all of it needs to be dealt with, and we are well placed with all of the investments we've made in research and insight to have those conversations with customers around the world.

And there's another piece that I think as an interesting development in recent years. As we've acquired more companies and as we're on the brink of acquiring another large one, we bring more global industrial design talent into this table. These are people who are well versed in the needs of global markets and are bringing to market products like OE1, which has just launched to rave reviews. It's a British investor design firm, tremendous potentials. And we're excited about the impact that's having as we preview that product line because it looks just like it was designed for this time, which it was. And that comes to market now.

And so we think we're extremely well placed to take advantage of the conversations that our customers are having as they scramble in these coming months to return to work.

[Operator]

Your next question comes from Reuben Garner with The Benchmark Company.

[Reuben Garner, analyst]

My first question, and apologies if this was asked, I had some connection issues at the end of Greg's questions. But can you just comment on the recent order trends? It sounds like it got better as the quarter progressed, I mean even into June. What can you tell us about where orders are, whether it's year-over-year or maybe even relative to prepandemic levels in North American Contract specifically?

[Jeff Stutz, executive]

Yes. Reuben, we did touch on that briefly, but I'm happy to just recap it because I think it's really an important point to emphasize.

So order trends, let me start first just talking about sequential order trends from the third quarter to the fourth quarter. And in total, we saw orders at the consolidated level grow 23% sequentially. And what was kind of fascinating is that across each of the 3 business segments, it was quite consistent sequential order growth. The North American Contract business was 21%, 22%. Retail was up I think 26% sequentially, and the International business was up 23%. So those are all very similar percentage changes, all positive sequentially, and I think very reflective of that growing momentum that we're seeing.

And then when you look at intra-quarter order pacing, I made this comment earlier, but I'll just repeat it. So order -- the -- in dollar terms, the average orders were $48 million per week in the months of March and April combined. That increased in May. So we saw a nice acceleration to $60 million. And in the first 3 weeks of June -- fiscal June, it's maintained at about that $60 million level.

So that's a good sign. I mean we -- it's not as though it bumped up in May and fell off a cliff in the early part of the quarter. And as Andi said at the beginning of the call, there's a lot of external -- and I know you're aware of this, but there's a lot of external factors that continue to point to reasons for continued optimism and ongoing growth moving forward.

So hopefully, that gives you some color that's helpful to your question.

[Reuben Garner, analyst]

It does. What -- Jeff, would the run rates have been in this time in 2019 relative to that $60 million? Are we 20% off still? Are we -- any rough estimates there?

[Debbie Propst, executive]

I'll jump and speak to Retail while Jeff's filling the Contract numbers. But in Retail, in particular, we're really focused on our performance to last, last year, 2019 given that we're now comping a quarter where we had stores closed and a surge in our e-commerce channel, but our order growth in Q4 was up 73% to 2019.

And so we feel very positive about that new watermark in the overall Retail business.

[Jeff Stutz, executive]

Yes. And then, Reuben, on a consolidated level just in total for the business, if you look at the orders were -- for the full quarter, now I'm comparing Q4 just completed to Q4 of 2019, so prepandemic fourth quarter, they were down I think 7% organically in total.

So still down, but here's the encouraging part. In the month of May, the orders were up 6% at the consolidated level versus prepandemic. So at this early phase of a recovery, that was a very encouraging metric to see the total orders for the entire group up to May of that 2019 year.

[Reuben Garner, analyst]

It is. That's perfect. And then on the price cost, just a follow-up. So I think you said there was $4 million of incremental cost pressure sequentially from Q4 to your Q1 guide and then $1 million of direct labor. Did I hear that right?

[Jeff Stutz, executive]

That is correct. Yes.

[Reuben Garner, analyst]

Okay. And so the follow-up question to that is maybe in terms of price cost, how much price cost pressure did you have in Q4? What does that look like in Q1? I know you're just starting to kind of layer in a price increase. And when do we see that price cost pressure on a year-over-year basis dissipate? Will it be as soon as Q2 or will you not be quite caught up yet?

[Jeff Stutz, executive]

Yes. It's funny. It's -- we had commodity pressures. I just want to be clear on reference points here. So if you look Q4 just completed fiscal '21 versus the prior year fourth quarter, commodities accounted for about 50 basis points of gross margin decline. So Kevin, keep me honest here, in dollar terms, $3 million.

[Kevin Veltman, executive]

About $3 million.

[Jeff Stutz, executive]

Yes. Year-over-year. That was -- and really no price increase to speak of to help offset that, Reuben. Now moving forward, we do have a price increase effective June 1. You referenced the $4 million expected additional pressure. This -- we've got a lot of history to look back to, to see how this plays out.

Obviously, there's lots of parts to this equation, including what happens to commodity prices from here forward because if they continue escalating, that's a very different answer. But we should start to see the effects of that price increase layer in. We won't get much benefit in Q1. We should definitely start to feel the effects of it as we move into Q2.

And then our hope and belief is we'll start to see some of these commodity pressures begin to abate in the back half of the calendar year, pure speculation at this point, that's our belief. But even if it doesn't, that price increase will continue to escalate and benefit our results as we move into the latter part of FY '22.

[Reuben Garner, analyst]

Okay. And I think a couple of your competitors have a couple of price increases out there. Can you comment on maybe what the level of your 1 increases? You mentioned I think it was larger than usual. Is your 1 increase sort of in the ballpark of what the others are out with 2 increases, and that's the right way to look at it?

[Andrea Owen, executive]

Yes. We were -- we -- our price increase in June is 5%. And then as we look forward, I know you guys may or may not remember that we revamped our kind of process around pricing increases, so we're able to take them much more quickly if we need to.

So as Jeff alluded to earlier, we're going with 5% because we're believing that the commodity pressure is going to ease up later on in the year. If we have to follow that with another, we will. But we feel good about what we've done so far to offset. And as you guys know, Retail is more fluid, that's really just for the Contract business.

[Reuben Garner, analyst]

Understood. And last one from me, if I could squeeze one more in, is just a -- Debbie, a follow-up, and I don't know if this question is best for Debbie or Jeff or whoever. But the retail margin this year, close to 20% for the year and that bridge to getting to the low teens, I -- so if low -- is low teens the target for your 2000 and your fiscal '22 and the difference between where you are today and there is your investing in the business?

But after '22, assuming those investments go away, is there anything stopping the margins from going back towards the level that you've done over the last year? What -- I guess are there any other elements besides the investments that you're going to make this year to grow the business that take you from 20% to the low teens?

[Debbie Propst, executive]

So what I outlined already is really an FY '22 investment plan. And beyond FY '22, we'll start to expect to see margin rates begin to build again. Those obviously investments we're making in growth, which I feel very bullish about, we will be continuing to invest in digital this year with the relaunch of the HAY website in the U.S. and the launch of a European HAY direct-to-consumer website experience at the beginning of next calendar year.

From an assortment perspective, we're continuing to drive newness on a monthly basis, and that's had a significant impact over the last fiscal year. In fact, our assortment newness between all the various categories in decorative furnishings and gaming drove $87 million of incremental volume in the full year. And so as we continue to expand in newness, we'll be watching the impact on margin mix very carefully. And as I said, the private-label development is an important part of that newness strategy so that we're protecting those margins longer term.

And then we continue to have really positive results in our marketing strategy as we've adjusted both our marketing channel mix and the quality of our content. And so our marketing spend as a percent of sales was down below 5% in Q4, and that's versus 7.5% same period last year. And our cost to acquire customers is down below $50 versus above $90 for FY '20.

So as we continue to enhance our data capabilities and our CRM capabilities, we should see continued growth in the LTV of our customer base as well as continuing to drive down our customer acquisition.

[Andrea Owen, executive]

So just to recap, it's an investment year. And we anticipate we'll go from high teens, and this is a ninner, ninner point, but to mid-teens, not low teens. But we also anticipate that getting back to high teens and beyond will be a definite possibility as we move out of this year for sure.

[Operator]

Your next question comes from the line of Alex Fuhrman with Craig-Hallum Capital.

[Alex Fuhrman, analyst]

I would love to get a little bit more color on where you started to see the demand coming back in North America. Have there been any big variations in terms of regions of the country or industry groups? And then in particular, I'd be curious to see, just recently, I guess only a couple of months ago, you launched Herman Miller Professional, I would be curious to see kind of what you're seeing from small and medium-sized businesses and if that could be a big growth vertical and a big part of your business in sort of the post-COVID economy.

[Andrea Owen, executive]

Alex, yes, I think it absolutely will. Jeff, do you want to add to that?

[Jeff Stutz, executive]

No. I was going to suggest -- I can speak to a few details on HM Professional. But I don't know if Andi or John, if you want to talk a little bit about what we're seeing regionally in North America.

[John Michael, executive]

Sure. I'd be happy to, Jeff. Alex, I think from a regional perspective, clearly, South and Midwest seem to have bounced back a bit more quickly in terms of their economies opening up, which obviously drives demand.

As I mentioned earlier in the call, I also think a number of the largest markets in North America, from a contract perspective, Chicago, New York City, the Bay Area, Toronto, have been a bit slower to recover. We're starting to see that activity in those markets now and believe that will bode well for continued demand increase in the fall.

[Jeff Stutz, executive]

Yes. And then, Alex, by the way...

[Jeremy Hocking, executive]

And Alex...

[Jeff Stutz, executive]

I'm sorry, Jeremy, go ahead.

[Jeremy Hocking, executive]

Well, it's a big place, Alex, [ that attract ] customers, but operating -- sorry, that are operating globally. Maybe a little quiet on one coast than in Northern -- North America, but, in fact, are very active in global markets.

Let me give you a couple of examples. In India, we recently landed a $6 million order for one of the big tech companies and for another one in -- okay. Sorry, can you hear me now?

[Alex Fuhrman, analyst]

Yes.

[Jeff Stutz, executive]

Yes.

[Andrea Owen, executive]

Yes.

[Jeremy Hocking, executive]

So we also landed an $8 million order in Tokyo, Japan with a West Coast-based big tech company just in recent weeks. So I think I always like to think about us globally, not just regionally in North America because many of these clients are global clients of ours.

[Jeff Stutz, executive]

No. That's great. And Alex, this is Jeff. It's great to have you on the call. So welcome. And I might just tag on a couple metrics on Herman Miller Professional, which we're very excited about. Now it's early days, right? We're 2 months in as of the end of the quarter. But early signs are really good, and we have fairly high confidence that this is, in effect, incremental to what would be our typical book of business. And I think it really gets to that small and medium-sized business question that you're asking.

Early metrics are encouraging. We had 700 -- almost 770 new customer registrations just in the first couple of months, over 500 projects created. Now the dollar -- the average order value of these is pretty small, which by the way, you would expect it to be because of the nature of the customers that are registering on the site. But we've got a great digital team that is kind of sitting behind this and helping support it and a terrific group of dealers that are also supporting this as well.

So anyway, we're very encouraged, and we expect big things from this going forward.

[Operator]

And your next -- your last question comes from Rudy Yang with Berenberg.

[Chen Yang, analyst]

Could you just talk a little bit about some of the spending patterns you've been seeing in Retail? So I guess, specifically, are you noticing kind of the average spend per customer starting to increase as work from home starts to become more permanent for some workers?

[Debbie Propst, executive]

So as our channel mix has shifted quite a bit, we're seeing movement in our average order value. Average order value is much higher in our studio channels. And then over the e-comm channel, it's a little bit lower. So average order value is up in Q4 year-over-year, and we'll continue to monitor that as we have channel mix shift.

[Chen Yang, analyst]

Got it. And then back to kind of your brick-and-mortar, it seems like store traffic is getting stronger and continuing to drive sales. Can you just discuss some of the maybe new customer acquisition rates you've seen from your physical stores? And given the continued success there, what does your plan look like to open more for the upcoming fiscal year?

[Debbie Propst, executive]

Yes. We've been happy with the new customer acquisition we're seeing from those stores or about half of the volume that we're doing through those new stores, particularly under the Herman Miller brand, are new customers. And both our repeat customer and new customer segments increased year-over-year. Our customer acquisitions for the full year in total across our whole business was up 136% to the prior year.

So the new stores are an important part of our awareness strategy. We know that this category of our ergonomic seating in particular is a category that customers need a lot of help with for a lot of our residential customers as a first-time purchase.

And so that store experience is crucial. And given where the operating margins are actualizing at a much higher rate than what we modeled, we feel bullish about our physical retail growth strategy. And we believe that the positioning of these Herman Miller seating stores positioning the product as a performance in health and wellness tool is proving to engage a new customer beyond a customer that just thinks about an ergonomic office chair as the furniture to sit on. And so we believe that there is plenty of longevity in this model beyond the short-term pandemic needs.

[Andrea Owen, executive]

Debbie, do you want to touch a little bit on the recent openings with HAY and the kind of demographic that, that is touching from a customer standpoint?

[Debbie Propst, executive]

Absolutely. So within Q4, we opened a seating store on Greenwich Avenue in Greenwich, Connecticut. And then we opened Fulton Market, which is a multibrand retail experience that includes HAY, Design Within Reach and Herman Miller. And then we also opened within the quarter a HAY location in Berkeley, California and a new small format Design Within Reach location in South Hampton.

And so all of the locations we opened within the quarter are performing well above our modeling expectations. HAY, in particular, is the first location in North America where they were appropriately engaging with the right demographic. And we believe that we now have a line of sight to a HAY physical retail model that will perform where we need it to.

The small format Design Within Reach in South Hampton is a much lower investment way for us to get into secondary markets. And that particular location, coupled with a Design Within Reach within Fulton Market, is the first expression of our assortment expansion strategy, which covers a broader range of modern style that has been curated for the particular market that we're presenting it in.

So we feel very positive about the brick-and-mortar opportunities across all 3 of these Retail brands.

[Andrea Owen, executive]

I think the way that Debbie and Ben Groom and the teams have managed our investment in our digital capabilities, coupled with brick-and-mortar expansion in a prudent and thoughtful way, will really enable us to reach a variety of customers more efficiently than we've been able to do before. So we're very excited about that.

[Chen Yang, analyst]

Got it. Super helpful. And then last one from me is just on backlog. So obviously, it increased a bit since last quarter, but can you just break down what was driving most of your backlogs currently? And how much of it is possibly being built up from the delayment in shipments and deliveries?

[Jeff Stutz, executive]

Yes. This is Jeff. If I -- you broke up a little bit there with the question, but I think the question, in essence, is the schedule of the backlog. And correct me if I'm wrong on that, and we can speak to it.

What I would tell you is that the backlog -- and this is I think an encouraging sign. As order momentum has begun to pick up, it happened later in the quarter, we are seeing some projects, particularly in the North American Contracts, that are scheduled and pushed out beyond Q1, which I think informs part of the reason why orders were as strong as they were in Q4 and the revenue guide might be a little lower than it normally looks in relation to the order rates. And it's because that backlog has a few more projects than normal that are dated beyond the first quarter.

So a little bit of a timing issue there. So let me pause there and make sure that that's the essence of your question or if there was something a little deeper.

[Chen Yang, analyst]

No. No. That's perfect.

[Jeff Stutz, executive]

Great.

[Andrea Owen, executive]

Thank you.

[Operator]

I am showing no further questions at this time. I would now like to turn the conference back to Andi Owen.

[Andrea Owen, executive]

Thanks, operator. Thanks, everyone. Really appreciate you joining us today. We appreciate your continued interest in Herman Miller, and we're looking forward to updating you again next quarter. Be well, everyone. Bye.

[Operator]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.