Herman Miller presented improving results Monday for their fourth quarter. However, Contract Sales in North America have not rebounded and in fact declined further, down 4.2% year over year.
Below is Miller’s letter to shareholders:
Consolidated net sales for the quarter of $621.5 million were up by 30.6% compared to last year and up 27.9% organically, which excludes the impact of foreign currency translation. Orders in the quarter of $689.4 million were up 28.8% compared to the prior year on a reported basis and up 26.0% organically. Additional perspective on the sales and order trends for each of our business segments follows:
Retail Segment
Our Retail business continued its impressive growth trajectory with sales and orders up 106.1% and 81.0% over last year, respectively. We saw year-over-year growth in every product category in the quarter.North America Contract Segment
With many companies beginning to return to their offices, activity levels are increasing across North America. This resulted in sequential demand improvements in the quarter, with order levels up 21.2% compared to last quarter. Compared to the fourth quarter of last fiscal year, sales were down by 4.2%, while orders were flat.International Contract Segment
With the impact of the pandemic moderating in many parts of the world, we continue to benefit from increased activity in many international regions. Our International business delivered year-over-year growth in both sales and orders. On a reported basis, sales were up 58.2%, while orders increased by 55.2% compared to the prior year. On an organic basis, adjusted for the impact of foreign currency translation, sales increased by 48.4% and orders were 45.4% higher than last year.
Operating margin for the quarter was 1.5% compared to (44.4)% last year. On an adjusted basis, which excludes special charges totaling $22.1 million primarily associated with the retroactive payment of employee benefits that were reinstated related to the first three quarters of the fiscal year, $11.0 million of acquisition-related expenses, and $1.2 million of restructuring charges, consolidated operating margin of 7.0% was 370 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. The Retail segment delivered another quarter of strong profitability with a segment operating margin of 19.2%.
Gross margin of 36.0% was 110 basis points higher than last year, reflecting strong channel and product mix. Reported consolidated operating expenses for the quarter were $214.8 million, compared to $377.2 million in the prior year. Consolidated operating expenses of $190.9 million, excluding special charges, acquisition-related costs, impairment, and restructuring expenses, were up $41.5 million from last year primarily due to temporary cost reductions we put in place to weather demand pressures from the onset of COVID-19 and higher variable selling expenses.
Diluted earnings per share in the fourth quarter totaled $0.12 on a reported basis, compared to a loss of $2.95 last year. On an adjusted basis, diluted earnings per share totaled $0.56 for the quarter, compared to $0.11 in the prior year.
For the full fiscal year, net sales were $2.47 billion, reflecting a year-over-year decrease of 0.9%. On an organic basis, net sales decreased by 5.7% compared to last fiscal year. Diluted earnings per share for the full year totaled $2.92 compared to a loss per share of $0.15 last year. On an adjusted basis, diluted earnings per share totaled $3.33 in fiscal 2021 compared to $2.61 in fiscal 2020, behind the strength of improved gross margins and well-managed operating expenses.
Our liquidity position also remains strong, with cash on hand and availability on our revolving credit facility totaling $661.6 million at the end of the quarter. Cash flow from operations during the quarter totaled $72.2 million. Our gross-debt to EBITDA ratio was 0.9x at quarter-end. With cash on hand of $396.4 million and gross debt of $277.10 million, our balance sheet reflected a net cash position at the end of the quarter.
Herman Miller Retail Continues to Drive Growth
Herman Miller Retail delivered another quarter of record-breaking performance, with our highest ever monthly sales in May and the best quarterly sales performance in company history. Sales for home office and workplace-related products remained strong this quarter, increasing by 213% over last year. This quarter also reflected continued momentum across categories beyond home office and DWR Contract, with order growth of 96% over last year when those categories are excluded.
We continue to benefit from our omni-channel direct-to-consumer approach, which drives growth through our digital channels, where sales were up 158% from last year, and our retail stores, where comparable brand sales increased by 73% over the prior year. Brick and mortar store traffic was especially strong in the second half of the quarter, with most of our stores and studios globally now reporting in-store traffic at, or above, pre-pandemic levels. We opened our HAY Berkeley store in California in April to high customer interest, where initial traffic levels have been consistently comparable to those for the brand’s flagship “HAY House” in Copenhagen, Denmark. Other recently opened stores, including Fulton Market in Chicago, our DWR store in Southampton, NY, and our newest Herman Miller seating store in Greenwich, CT, are also performing above our expectations.
The continued out-performance of our stores around the world is a testament to the vision of our Retail leadership team and their deep understanding of the needs of our customers. For example, we know a segment of our Retail customers are intentional shoppers who prefer to experience these types of highly-considered purchases before buying and they value the in-person support provided by our dedicated performance specialists.
At the same time, we have not wavered in our commitment to our digital-first strategy and continue to grow our eCommerce business. Our new Herman Miller online store launched in late May with a variety of features built to make our customers’ journey smoother and easier. These changes include a fresh new design, AI-driven product recommendations, customer-centric website navigation, and enhanced storytelling content for products, designers, and the brand. HAY’s redesigned website will launch this fall and will be followed by redesigned Herman Miller sites in Europe and Asia and a new HAY Europe site in 2022.
In addition to our efforts to meet our customers everywhere, we are launching a steady drumbeat of new products designed to capture new customers and inspire returning customers. Year-to-date, we have introduced more than 17,000 new product SKUs across Herman Miller, DWR, and HAY, with a special focus on Upholstery, Outdoor, Gaming, Accessories, and Art. Many of those new SKUs can be optimized across two or three of our retail banners. In the fourth quarter, we added over 4,600 new SKUs, including a Black Edition of the Embody Gaming Chair launched as part of our strategy to respond quickly to player feedback – in this case for more color options, which was made available through our Herman Miller and DWR channels. Perhaps most notably, we reissued the Wilkes Modular Sofa Group (fondly known as the "Chiclet" chair), through our Herman Miller and DWR channels, receiving strong media coverage which helped drive early order numbers for this modern design icon.
Research and customer insights are integral to our problem-solving design approach, but until now we have primarily focused our research on the workplace. We know post-pandemic life is bringing a broad range of societal shifts and new opportunities to improve spaces everywhere. Both consumers and organizations are rethinking the evolving role of the home in work and everyday life. To capitalize on this rare opportunity, we recently launched the most comprehensive research study on home life in Herman Miller’s history. Our customers around the world are providing us with a deeper understanding of their homes through digital-first research tools. The trove of data we’re collecting will fuel insights that expand our understanding of the retail and residential market, drive product innovation, and enable new ways of connecting with consumers to generate revenue opportunities within our Retail segment.
We have a wide range of investments planned for Retail over the next twelve months and remain very optimistic about the future, especially with the powerful combination of Herman Miller and Knoll for consumers. We continue to expect the Retail segment will deliver double digit revenue growth and operating margins in the low teens moving forward.
Leading the Way into the New World of Work
The long-awaited “return to the office” is upon us. Around the world, customers are activating their plans to bring their people back to the office – in many cases on accelerated timelines given the access to vaccines and loosening restrictions. We know the C-suite is paying more attention than ever before to their workplace and how it can shape culture and increase productivity. They are looking to us to help them define the new world of work for their companies. Our decades of research around the future of work continue to position us at the front of this workplace transformation and our thought leadership position on the future of work has never been a more valuable differentiator than it is today.
Just as recovery patterns have varied by region, we are seeing regional differences in how our customers are returning to their workspaces. Our International business, specifically the Asia-Pacific and EMEA regions, have benefited from an early recovery and return to the office, as evidenced by 39% and 69% year-over-year sales growth this quarter, respectively.
We began to see wide-spread activity increases across the US in the second half of the fourth quarter. This spike in activity is being felt across the commercial real estate and interior design industries. According to the VTS Office Demand Index, national demand for office space jumped 28% in March from the prior month and is now just 9% below pre-pandemic levels1. Cushman & Wakefield recently reported that 26% of office workers in major cities were back in the office as of April 2021, up from a low of 15% occupancy in February2. The AIA architectural billings index also has increased every month since December 2020.
Our internal data mirrors these macro-indicators. After strong sequential improvement last quarter, our funnel activity was up another 8% over Q3, mock-up activity was up 159% over last year, and proposal center activity was back to pre-pandemic activity levels.
Early in the quarter, we introduced the OE1 Workplace Collection, a dynamic and flexible collection of mobile tables, movable walls, height adjustable workstations, and storage trolleys that empowers individuals to design the environment they need based on the work they are doing in the moment. Our research over the last year has only intensified our belief in the relevance of this product line, with workers demanding even more variety, choice, and control as they return to the office. The early response to OE1 has been extraordinarily positive, as executives and facility managers alike immediately see the benefits of a furniture solution that can adapt quickly to ensure the workplace remains productive, relevant, and desirable.
In addition to product innovation, we remain focused on digital innovation. In April we launched Herman Miller Professional, a new eCommerce experience built for small to mid-size businesses. In the first six weeks, we saw more than 500 new projects created on the platform. We are reaching new customers who aren’t currently ordering through our retail or dealer channels, and those who register are responding positively to our unique custom quoting process and business pricing.
As part of our strategy to generate new insights and build relationships that will help grow our core Contract business, we recently joined the Future Forum in founding partnership with Slack, FORTUNE, Boston Consulting Group, and Management Leadership for Tomorrow. Future Forum is helping executives at leading companies deliver on the transformation needed to thrive in the post-pandemic world through data, dialogue, and actionable insight. Our participation affords direct collaboration with Fortune 500 executives and further amplifies our credibility beyond the furniture industry.
Knoll Update
In April, we announced that we entered into a definitive agreement with Knoll, under which Herman Miller will acquire Knoll in a cash and stock transaction valued at $1.8 billion. The transaction, which was approved by the Boards of Directors of both companies, is expected to close within one week from the date of the shareholder special meetings on July 13, 2021, pending Herman Miller and Knoll shareholder approvals and satisfaction of customary closing conditions. On June 2, 2021, the statutory waiting period for the proposed transaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired.
This combination brings together two pioneering and iconic brands to create the preeminent leader in modern design, transforming our industry during a period of unprecedented disruption. With a broader portfolio, global footprint, and advanced digital capabilities, our combined company will be poised to meet our customers everywhere life happens.
Together, we will have increased reach and the ability to better serve our global customer bases through our well-established distribution channels across the contract furnishings sector, residential trade segment, and retail audience. We will scale our investments in new and expanded digital capabilities to further accelerate our digital and technology transformation. Combining with Knoll will also create exciting new career opportunities for our people around the world, furthering our commitment to becoming a world-class global employer.
In anticipation of deal close, we are advancing robust integration planning efforts. In addition to establishing an integration management office, we have identified the commercial, manufacturing/operations, and functional integration planning teams that will be responsible for ensuring Day One readiness, designing organizational structures and operating processes, and creating detailed synergy plans for their respective areas. Until the transaction closes, Herman Miller and Knoll remain separate, independent companies. Post-close, these teams will be responsible for the implementation of these work plans.
Our goal is to bring the best of both companies together as we unite to create our new combined organization. With that guiding principle, teams at Herman Miller and Knoll are working closely to ensure the integration will be a seamless process for our people, our partners, and our customers.
Outlook
As the pandemic subsides, we have increasing clarity relative to business expectations moving forward. As a result, we are reestablishing the practice of providing quarterly sales and earnings guidance. We expect sales in the first quarter of fiscal 2022 to range between $640 million and $670 million. The mid-point of this range implies revenue growth of 4.5% compared to the same quarter last year. We anticipate adjusted earnings per share to be between $0.52 and $0.58. As the company cannot predict some elements that are included in reported GAAP results, Herman Miller provides certain guidance on a non-GAAP basis as further discussed in the non-GAAP financial measures section below. Our outlook does not include any impact related to the pending acquisition of Knoll.