Herman Miller, Inc. (now MillerKnoll) — Form 10-K Summary
Reporting period: Fiscal year ended May 29, 2021 (52 weeks), including fourth-quarter results. The request labels the period “2020 Q4,” but this filing reports fiscal 2021; it is not a standalone Q4 filing. The company’s legal name in the filing is Herman Miller, Inc.
Business context
The company designs, manufactures and sells furniture and related services for office, healthcare, education and residential settings through contract dealers, direct sales, retail studios, eCommerce and other channels. Its reportable segments were North America Contract, International Contract and Retail. About 63% of fiscal 2021 sales were made to or through independent dealers.
Financial performance
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Net sales | $2,465.1 million | $2,486.6 million |
| Gross margin | $949.2 million; 38.5% | $910.7 million; 36.6% |
| Operating earnings (loss) | $230.6 million; 9.4% of sales | $(38.4) million |
| Net earnings (loss) attributable to Herman Miller | $173.1 million | $(9.1) million |
| Diluted EPS | $2.92 | $(0.15) |
| Cash from operating activities | $332.3 million | $221.8 million |
| Capital expenditures | $59.8 million | $69.0 million |
Organic net sales, a non-GAAP measure excluding acquisitions and currency effects, declined 5.7% to $2,345.3 million. Adjusted diluted EPS was $3.05 versus $2.61 in fiscal 2020. Fiscal 2020 included $205.4 million of impairment charges and a $36.2 million gain on consolidation of equity-method investments, making reported-year comparisons unusually affected by special items.
Fiscal 2021 fourth-quarter net sales were $621.5 million, gross margin was $224.0 million, net earnings attributable to Herman Miller were $7.4 million, and diluted EPS was $0.12. In Q4 fiscal 2020, sales were $475.7 million and the company recorded a net loss attributable to Herman Miller of $173.7 million, including substantial impairment charges.
Segments and material changes
- North America Contract: Sales fell 25.3% to $1,194.0 million; operating earnings declined to $74.1 million from $130.9 million. COVID-related demand pressure was the primary factor.
- International Contract: Sales rose 33.1% to $669.0 million, including HAY and naughtone acquisitions; organic sales grew 11.8%. Operating earnings increased to $93.0 million from $18.2 million.
- Retail: Sales increased 56.1% to $602.1 million, largely on stronger home-furnishings demand. Operating earnings were $117.2 million versus a loss of $148.3 million, with the prior-year result burdened by $139.0 million of impairment charges.
Overall sales declined 0.9%. Higher Retail and International sales, acquisitions and currency effects were more than offset by an approximately $425 million reduction in North America Contract sales. Gross margin improved on favorable channel and product mix, pricing and profit-improvement efforts, partly offset by lower production leverage and rising commodity costs.
Cash, debt and liquidity
At May 29, 2021, cash and cash equivalents were $396.4 million, short-term investments were $7.7 million, working capital was $390.7 million and the current ratio was 1.8. Long-term debt was $274.9 million; total debt including current obligations and supplier financing was $277.1 million. The company had $265.2 million available under its $500 million revolving credit facility and reported compliance with its debt covenants. Cash used in financing activities was $347.7 million, principally reflecting repayment of revolving-credit borrowings and $50 million of notes.
Outlook, acquisition and risks
- The company expected fiscal 2022 capital spending of $140–$150 million, including investment in facilities and equipment and the inclusion of Knoll. It also had $46.5 million of outstanding capital-purchase commitments at year-end. No specific revenue or earnings guidance was provided.
- Knoll acquisition: the approximately $1.8 billion cash-and-stock transaction closed July 19, 2021, after fiscal year-end. The filing reported long-term debt of approximately $1.3 billion as of July 27, 2021, after the acquisition and related financing. New facilities included a $725 million revolver and term loans of $400 million and $625 million; the company also repaid $64 million of private-placement notes.
- Management described ongoing COVID-19 effects, especially on contract demand, alongside strength in work-from-home-related Retail demand. It anticipated that a planned fiscal 2022 first-quarter price increase and cost-reduction efforts would help address steel-cost pressures.
- Key risks include integrating Knoll and realizing expected benefits, materially higher post-acquisition debt and interest expense, leverage covenant compliance, uncertain office-furniture demand, commodity and supply-chain costs, tariffs, foreign-exchange movements, dealer and customer credit exposure, and impairment risk. The company’s HAY trade name had only a modest estimated fair-value cushion over carrying value in its impairment analysis.
- Management said pending ordinary-course litigation was not expected to materially affect the company. Maximum exposure was approximately $6.3 million for performance bonds and $9.8 million for standby letters of credit; no related liability was recorded.
Most important facts for investors to verify
- How post-acquisition sales, margins, cash generation and integration costs compare with management’s expectations, separating organic growth from acquired growth.
- Actual post-Knoll debt, interest expense, leverage and covenant headroom, and the pace of debt repayment.
- Whether North America Contract demand recovers and whether Retail’s pandemic-era demand remains durable.
- Whether pricing and sourcing actions offset steel and other input-cost inflation without damaging demand or margins.
- The assumptions supporting HAY’s trade-name valuation, goodwill balances and any future impairment charges.