Earnings Call Transcript - MLKN Q2 2021

Kevin Veltman, Vice President of Investor Relations and Treasurer

Good morning, everyone. Joining me today on our second quarter earnings call are Andi Owen, our President and Chief Executive Officer; Jeff Stutz, our Chief Financial Officer; John Michael, President of North America Contract; Debbie Propst, President of Herman Miller Retail and Ben Groom, our Chief Digital Officer. Similar to last quarter, we have changed our approach to the quarterly press release, to adapt to a shareholder letter format that replaces our prepared remarks on the conference call. We believe this approach both provides more timely information for investors and allows for more questions and dialogue on the call. We have posted yesterday's press release on our Investor Relations website at hermanmiller.com. Wherever any figures are presented on a non-GAAP basis, we have reconciled the GAAP and non-GAAP amounts within the press release as well. Before we begin today's Q&A session, I would like to remind everyone that this call will include forward-looking statements. For information on factors that could cause actual results to differ materially from these forward-looking statements, please refer to the earnings press release, as well as our annual and quarterly SEC filings. Any forward-looking statements that we make today are based on assumptions as of this date and we undertake no obligation to update these statements as a result of new information or future events. Today's call is scheduled for 60 minutes. With that, I'll turn the call back over to the operator and we'll begin to take your questions.

Operator, Operator

Thank you. Our first question comes from Greg Burns with Sidoti & Company. Your line is open. Please go ahead.

Greg Burns, Analyst

Good morning. Could you start off talking about the order trends throughout the quarter on both the contract and the retail side and maybe some insight into the first couple of weeks of this quarter? Thank you.

Jeff Stutz, CFO

Good morning, Greg. This is Jeff. Yes, I’ll tackle that a little for you. What we saw at the consolidated group level was an improvement in order trends in total as we moved towards the back half of the quarter. To give you an idea, we were down in the mid-teen percentages for September and October kind of on average, that improved down closer to around 9% in the month of November. And in the first couple of weeks of the third quarter, we trended down close to that down 9% between 9% and 10%.

Greg Burns, Analyst

Okay. And at the segment level, is there any kind of notable trends there?

Jeff Stutz, CFO

Yes.

Debbie Propst, President of Herman Miller Retail

We have some interesting order trends in retail I can discuss. This is Debbie. Good morning. In September, our order trends were plus 29; October, plus 28; and then we saw a big spike in November, plus 62. We have a cyber holiday period that will bridge Q2 and Q3, so we're coming into Q3 with really strong backlogs in retail of $70 million, well ahead of our technical backlog and saw strong orders in the first couple of weeks of Q3 pertaining to those cyber.

Greg Burns, Analyst

Okay. Great. And that, I guess, leads me to my next question. The consolidated order growth for the retail side was, I guess, up 40% the last couple of quarters. So I thought maybe the growth would be even a little bit stronger this quarter. Was there any supply constraints or pilot limitations that may have curtailed revenue a little bit? And then it sounds like as we look into the third quarter, maybe based on the backlog and the order growth, we might see revenue growth reaccelerate. If you could give us any color on that, that will be helpful?

Debbie Propst, President of Herman Miller Retail

Well, our order growth for the quarter was 41% ahead of last year for the Retail segment. We specifically feel really good about the shift in growth from October into November. November, December, and January are three months that we typically haven’t been aggressive from a marketing campaign perspective in the past. So what we're seeing as we build from September and October into that nice November growth is some of our new initiatives activating across marketing, some build in digital and also executing some of our new task seating campaigning and go-to-market strategies. We feel like the growth that we're seeing throughout the quarter is indicative of continued strength in the residential channels. And it might be helpful just to break down the segment a little bit for you, Greg. Our retail consumer, the consumer that's purchasing product for themselves grew at 84% in orders in the quarter. And our trade business, obviously, interior designers purchasing on behalf of a residential consumer grew 14% in the quarter. The trade actually rebounded this quarter versus what we saw in Q1 and the residential channel grew. So we're feeling really good about the trends we're seeing in the consumer segment and we feel like we can continue to build on. And I think that also with that you see our architectural billings start to improve as you see homebuilding and home sales start to improve, there’s a nice tie-in there too.

Jeff Stutz, CFO

Yes. And Greg, this is Jeff. Just one more bit of color for you. As you kind of look under the consolidated at the segment level from an order trend perspective, the North American contract business remained fairly consistent. When you draw a line through the quarter, we were kind of in that down 30% to down 35% range pretty consistently throughout the quarter. It got a little deeper in October and rebounded in November a bit. But I wouldn't say there was any notable change there. Clearly, we continue to see depressed order activity there still and John can speak to, there are a lot of inquiries and conversations with customers that give us hope. But the one thing I want to highlight is our international business, which, as we've said to you last quarter, is very encouraging because that, in many ways, kind of leads the leading edge of the post-virus activity. We saw a nice bump in order activities as we moved through the quarter. In fact, in November, on an organic basis, international orders were actually up about 5%, bringing the full quarter to down 2% on an organic basis for total orders. So the trends there are very, very encouraging.

Greg Burns, Analyst

Okay. Great. Can you provide some insight into the growth in the Retail segment? It appears that comparable sales for DWR are down, so where is the retail growth originating? Is it from hermanmiller.com or HAY? Also, within DWR, how does the distribution look between traditional brick-and-mortar stores and e-commerce?

Debbie Propst, President of Herman Miller Retail

Greg, we typically don't break down the brand level business performance. But certainly at the channel level, we continue to see really strong performance from our e-commerce, up 220% from last year. But we're also really pleased with the performance we saw in the quarter from our studios, our physical retail locations and orders built at 14% over last year despite the fact that traffic was down 35%. So we're seeing a slight improvement in AOB in our stores and studios and an improvement in conversion. We're still seeing that very dedicated traffic coming into the studios and stores at the end of the customer journey to validate the decision that they've made for their online research.

Greg Burns, Analyst

Okay. Great. And then lastly, I know you updated the DWR website in July. Where are you in terms of updating, I guess, the rest of your e-commerce platforms of hermanmiller.com, hay.com? And have you continued to see the benefit of those changes in the conversion rates and order numbers?

Jeff Stutz, CFO

Yes. Greg, so I'll take this. We've been really impressed with the performance of the new DWR.com since we re-released that site in July. We've seen significant conversion improvement on that site. I can tell you that compared to immediately pre-launch, we're seeing a 26% increase in conversion on that site. We're really impressed with how that site is performing. As you mentioned, we're focusing now on developing the new Herman Miller store. We're currently on track to re-release that site in Q4. So there is a lot of work going into that and then we'll turn our attention to hay.com and relaunch that in the next financial year.

Greg Burns, Analyst

Okay. Thank you.

Operator, Operator

Thank you. I'm showing no further questions. I would like to turn the conference back over to Andi Owen for any further remarks.

Andi Owen, CEO

Okay. I am sorry, guys. We had some technical difficulty, so I hope you can hear me this morning. Thanks for joining us on the call. We really appreciate your continued interest in Herman Miller, and we look forward to updating you again next quarter. On behalf of all of us at Herman Miller, I want to wish you and your families a wonderful holiday season. Thank you.

Operator, Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.