Herman Miller, Inc. — Form 10-Q Summary
Business context and period: The filing is for the three months ended August 29, 2020 (the first quarter of fiscal 2021), filed by Herman Miller, Inc. The company designs, manufactures and sells furnishings and accessories through contract, retail and other channels. Results reflect disruption from COVID-19 and the consolidation of HAY and naughtone.
Financial performance
| Metric | Quarter ended Aug. 29, 2020 | Prior-year quarter |
|---|---|---|
| Net sales | $626.8 million | $670.9 million |
| Gross margin | $250.0 million; 39.9% | $246.1 million; 36.7% |
| Operating earnings | $95.4 million; 15.2% of sales | $60.1 million; 9.0% of sales |
| Net earnings attributable to Herman Miller | $73.0 million | $48.2 million |
| Diluted EPS | $1.24 | $0.81 |
| Operating cash flow | $115.9 million | $54.7 million |
Orders fell 17.8% to $556.0 million; backlog was $400.0 million, essentially unchanged year over year. Organic sales declined 13.3%, excluding acquisitions and currency effects. Sales declined 6.6% as reported, with lower North America Contract volumes partly offset by acquisitions and Retail growth. Segment sales were $338.8 million in North America Contract, $153.7 million in International Contract and $134.3 million in Retail. Retail benefited from e-commerce and home-office demand.
Balance sheet, cash flow and liquidity
At August 29, 2020, cash and cash equivalents were $296.6 million and short-term investments were $7.0 million. Total debt was $327.3 million, including $225.0 million drawn on the revolving credit facility; long-term debt was $274.9 million. Total reported liquidity was $569.3 million, including $265.7 million of available revolver capacity. The company reported gross debt to EBITDA of 1.1x, below its 3.5x covenant maximum.
Cash declined $157.4 million during the quarter, primarily reflecting $265.0 million of revolver repayments. The company had drawn that amount in March as a precaution related to COVID-19 and repaid it in June. Investing cash outflow was $5.1 million, including $11.3 million of capital expenditures; full-year capital spending was expected to be $50–$60 million.
Material changes, outlook and risks
- Gross margin increased 3.2 percentage points, supported by channel and product mix, pricing, cost improvements, and lower freight and warehousing costs. Operating expenses fell 16.9%, mainly due to lower compensation, marketing, selling and travel costs.
- Management said COVID-19 adversely affected demand, particularly in Contract, and that the pandemic’s duration, supply-chain effects and future demand could not be estimated reliably. Most manufacturing facilities were operating near normal capacity; retail locations were open in varying capacities.
- The May 2020 restructuring eliminated about 400 positions and was expected to reduce annualized expenses by approximately $40 million. The company had recorded $17.0 million of related charges to date. Compensation reductions were ended, while retirement-plan contributions remained suspended and operating expenses remained tightly controlled.
- The board approved restoring a quarterly dividend of $0.1875 per share after quarter-end. The filing specified payment on January 15, 2021 to shareholders of record November 28, 2020.
- Management cited trade-policy and Brexit uncertainty, tariffs, economic conditions, customer capital-spending decisions, competition, input costs, currency movements and public-health risks. It stated that pricing and sourcing initiatives had offset then-current China tariffs.
- Fiscal 2020 goodwill and trade-name impairments were significant unusual items. No interim impairment indicators were identified in this quarter; management noted International reporting-unit fair value exceeded carrying value by 17%, leaving potential impairment exposure if results weaken. Legal proceedings were described as ordinary-course matters not expected to have a material adverse effect. Performance bonds had $4.6 million maximum exposure and standby letters of credit $9.3 million; no related liability was recorded.
Key facts for investors to verify
- Whether Contract demand and orders recover, especially in North America, and whether the Retail home-office and e-commerce gains persist.
- How much of reported sales and profit reflects HAY and naughtone acquisitions versus organic performance; adjusted EPS was $1.24 versus $0.84 in the prior-year quarter.
- Whether the planned $40 million annualized restructuring savings are achieved and whether suspended retirement contributions or other temporary cost actions resume.
- Cash, debt, revolver availability and covenant headroom as conditions evolve; the quarter’s liquidity includes undrawn credit capacity.
- Progress on the $50–$60 million full-year capital-spending plan and the restored dividend, alongside continuing COVID-19, impairment and market risks.