Herman Miller FY 2Q16 Earnings Call Notes

Brian Walker

Information on the North America consumer is somewhat mixed

“As you know information on the North America consumer is somewhat mixed, as with the contract market some geographic areas are being impacted by the dislocations in the energy complex and the exceptionally strong dollar has reduced some of the appetite for vacation home buyers from some parts of the globe, while these factors are concerning, we believe strong employment, expanding wages and lower interest rates show to go well for investors in housing and furniture.”

There are more projects on the mid and smaller side, not a lot on the large

“Well first of all from everything we can read from dealer, sales people and those kind of things and looking at project activity. We feel pretty good about where that is, activity levels have remained strong and we think we are in a pretty good spot competitively. I’d say if there is anything that you will hear out there certainly the size of projects continues to be on mid to smaller size there is not as many very-very large things out there at least that we can see. ”

ERP conversions are always difficult

‘ERP conversions are always difficult is the best way to describe it so one of the reasons we talked about it on the first quarter call is to how we’re going to go through this. We like always you believe you’ve done everything that you can to prepare, I’ll say as these things go it was actually a pretty good one, but it still had more disruptive impact particularly at the sales level of what was going on to the sales team.”

Jeff Stutz

Commodity prices have been a big benefit for us

“clearly we have benefited from commodities we mentioned that in the prepared remarks. Commodity pricing has been a big benefit for us, I mean, that’s not unique to Herman Miller of course but that’s been very helpful as you know as we’ve talked in the past steel and steel component parts are big driver in our overall cost of goods sold and those levels are at levels that we haven’t seen since the early 2000s, right, so that’s been a big help now intertwined in that a bit that is the currency drag that we have been feeling and of course we feel that as an North American segment in our Canadian business.”

Herman Miller FY4Q15 Earnings Call Notes

Initiatives to reignite North American growth are progressing

” the initiatives we outlined last quarter reignite the growth of our North American segment are progressing at an impressive pace and while it is unlikely these actions impacted our fourth quarter sales in a significant manner, we are pleased by the positive feedback from our dealers and among our sales teams.’

Purchased design within reach

“Today, Design Within Reach has a total of 35 studies and outlets, more fewer than we began with, but has increased its retail square footage by 11%.

Going forward, we’ll be aggressive at our studio conversion plans with six additional locations anticipated for fiscal 2016. The second value driver we outlined was our intent to increase Design Within Reach has made some exclusive product designs including Herman Miller brand products.”

$169m in FCF

“We generated $169 million in cash flow from operations and achieved a return on invested capital of 20% for the full year. We also made significant progress paying down the debt we incurred to fund the Design Within Reach acquisition. ”

Expect continued currency headwinds in FY 16

“Considering current exchange rate forecast, we expect these year-on-year headwinds to continue with the most significant impacts expected in the first half of the fiscal year and extending into the earlier part of Q3. We estimate that full year impact on sales will range between $25 million and $30 million with a corresponding impact on EPS of between $0.10 and $0.12 per share relative to the fiscal 2015 comparison.”

See aggressive competition

“while our gross margins over the past several quarters reflect a generally stable discounting environment, we continue to see aggressive competitive pricing within key markets and certain product categories and project sizes. While pricing is only one aspect of our overall value proposition, this is an area we are watching closely as we move forward.’

We think Restoration Hardware’s modern entry helps people see the market that we’re the leader in

“we think it’s probably, it’s nothing else but the validation of our strategy and the belief that modern as a category within residential is growing. And one that we say, more folks validating that in fact and talking more about modernism and the attraction to it, we think does nothing but actually, probably expands the consumers’ knowledge of that segment and as they expand the knowledge teams, we believe we are world’s leader in authentic modern, we believe that that move simply helps us – they’ll help us see the market that we believe we are the leader in.”

We don’t need to respond directly to RH

we don’t believe we have any need to do any direct response to them other than the things that we already have planned for Design Within Reach in terms of expanding our offer, expanding the number of studios that we have, implementing the large studio model which enables people to envision better their places. Those things that we have planned will continue to be on our agenda regardless of what Restoration Hardware or anyone else does.”

Pricing pressures are greatest in areas of the business where it’s difficult to differentiate

“he greatest pressures are in those areas of the business where we start before, where it’s getting increasingly difficult to differentiate. So you’ve got ongoing pressure around some of the benching type applications. Case goods remains an area where it’s highly competitive and other areas like, even just simple product categories like tables, so those are been the ones I’d point to”