Herman Miller Inc., reported Wednesday consolidated net sales for the third quarter of $590.5 million, down by 11% compared to last year and down 13% organically, which excludes the impact of foreign currency translation. Miller’s Retail and International segments delivered a better performance, which helped offset continued pressures on the North America Contract segment as a result of COVID-19. Orders in the quarter of $566.1 million were down 13% compared to the prior year on a reported basis and down 14% organically.
Herman Miller’s North America Contract business continued to be impacted by the pandemic with sales and orders down 35% and 38% compared to last year, respectively. The company believes, however, that there are positive signs emerging – vaccination efforts are progressing, infection and hospitalization rates have dropped dramatically in recent weeks, customers are actively preparing to return to their offices, CEO sentiment measures are improving, and new project inquiries at architecture and design firms reflect a positive trend over the last six months. In fact, Miller says it had an improved pace of new projects being added to their sales funnel with 28% sequential improvement from the second quarter and their pipeline data indicates that the back half of calendar 2021 is when many customers are anticipating these new projects will translate into orders associated with returning to their offices.
Their International business delivered growth in what remains a challenging demand environment in several key geographies around the world. Net sales were 6% above last year on a reported basis and up 1% on an organic basis. Orders were flat on a reported basis, while down 5% on an organic basis. Regional order growth in mainland Europe was led by the continued strength of the HAY brand, while China and Japan also contributed to quarterly growth. Order demand levels in Mexico and the Middle East were lower than last year.
Momentum continued to accelerate in their Retail businesses, with sales and order growth rates of 63% and 81% over last year respectively. Both sales and orders exceeded the year-over-year growth rates in the prior quarter. Growth was broad-based across their Design Within Reach, HAY, and Herman Miller retail brands. While the company has certainly benefited from the surge in demand for home offices generated by the pandemic, with order growth in the category exceeding 326%, the growth they’re experiencing in this segment extended across all of the retail categories. In fact, excluding the home office category and DWR Contract, Retail orders grew by 59% over last year.
Operating margin for the quarter was 9.3% compared to 7.6% last year. On an adjusted basis, consolidated operating margin of 9.4% was 40 basis points higher than last year. These results were driven by a combination of gross margin expansion and “our continued focus on managing operating expenses.”
Gross margin of 39.1% was 260 basis points higher than last year, reflecting strong channel and product mix. The Retail segment delivered another quarter of strong profitability with an operating margin of 20.1%. Operating expenses at the consolidated level, excluding restructuring expenses, were down $13.9 million from last year due to the combination of structural and temporary cost reductions the company put in place to weather demand pressures from COVID-19.
Miller delivered earnings per share of $0.70 on a reported basis and $0.65 on an adjusted basis for the quarter, a year- over-year increase of 9.4% on a reported basis and a 12.2% decrease on an adjusted basis.
Outlook
“While we are encouraged by positive signs in each of our businesses, the overall global demand environment and potential pace of recovery remains uncertain. From a demand perspective, our contract sales funnel is pointing to increased demand in the back half of calendar 2021. From a cost perspective, like other industries, we are experiencing commodity pressures, especially associated with steel prices. We are also reinstating our employer retirement contributions, which we temporarily suspended for the first three quarters of fiscal 2021. Our ongoing cost reduction initiatives and a planned price increase will help offset these pressures over time.
“We are ready to capitalize on the increased demand expected as the global contract market begins to recover. We believe that recovery, along with our expectation for sustained momentum in our Retail business and our global, multi- channel distribution model, puts us in a strong position to drive growth in our business as we reach the other side of the global pandemic.”