Over 151 Years of Service to the Furniture Industry

 Furniture World Logo

North American Sales For Herman Miller Increases 15.4%

Furniture World News on

Herman Miller, Inc. announced results for its first quarter ended August 28, 2010. Net sales in the quarter of $380.7 million were 17.5% higher than the prior year first quarter and up 18.4% sequentially relative to the fourth quarter of last fiscal year. Consolidated orders in the first quarter totaled $393.8 million, reflecting year-over-year and sequential-quarter increases of 22.3% and 8.0%, respectively. Diluted earnings per share in the first quarter were $0.22 compared to $0.14 in the same period last year. Excluding the per-share impact of previously announced restructuring actions, adjusted earnings per share in the first quarter were $0.23. In the first quarter of last fiscal year, Herman Miller reported adjusted earnings per share of $0.22, an amount which included $0.05 per share related to favorable adjustments to income tax reserves.

Brian Walker, Chief Executive Officer, stated, "Order rates in our business were remarkably consistent this quarter, significantly outpacing the levels we reported in both the prior year and prior quarter. We were particularly encouraged to see a notable improvement in orders within our core North American office market, which in recent quarters has lagged the other areas of our business. We made solid progress this quarter across a range of initiatives, including the launch of our Thrive ergonomic solutions portfolio, development of an upcoming e-commerce retail storefront, and the completion of our aggressive fall product launch schedule. These advances and the improvement we've seen in market demand confirm we are gaining traction as a business and are well positioned to grow share in the markets we serve."

First Quarter 2011 Financial Results

Net sales within Herman Miller's North American business segment totaled $311.1 million in the first quarter, representing an increase of 15.4% from the same period last fiscal year. The company's non-North American business segment reported sales of $58.7 million in the first quarter, an increase of 40.4% from a year ago. New orders in the first quarter within the North American segment increased 21.6% from the prior year period, whereas the company's non-North American segment reported an increase in orders of 32.5%.

Herman Miller's consolidated gross margin in the first quarter was 32.5%. This compares to 33.2% reported in the prior year first quarter and 32.8% in the fourth quarter of fiscal 2010. Despite the improvement in net sales, the decrease in gross margin percentage relative to both prior year periods was driven by comparatively higher levels of price discounting and increased commodity costs. The company also recognized expenses in the first quarter related to its EVA-based employee incentive bonus program. No such incentive bonus expenses were recognized in connection with this program during fiscal year 2010.
Operating expenses in the first quarter of $93.5 million increased $2.7 million from the same quarter last year. The expenses in the prior year included a pre-tax charge of $4.5 million associated with a debt tender offer transaction which was completed in July 2009. Excluding this charge, the year-over-year increase in operating expenses totaled $7.2 million. Approximately $3.6 million of the increase relates to incremental operating expenses from the consolidation of Colebrook Bosson Saunders (CBS) and Living Edge - a furniture dealer based in Australia. These businesses were acquired by Herman Miller during the fourth quarter of fiscal 2010. Development and marketing expenses associated with upcoming product launches, accruals for employee incentives and wage recovery benefits, and volume-related cost increases also contributed to the year-over-year growth in operating expenses. These expense increases were partially offset in the quarter by favorable adjustments related to the contingency-based components of the Nemschoff purchase price. These adjustments reduced operating expenses in the period by $5.3 million. By comparison, the company recorded $1.2 million in favorable adjustments to these purchase price liabilities in the prior year first quarter.

Herman Miller's first quarter results include pre-tax restructuring expenses totaling $0.9 million, all of which relate to previously announced actions. The company recognized pre-tax restructuring expenses of $2.6 million and $9.6 million in the first and fourth quarters of last fiscal year, respectively.

Greg Bylsma, Chief Financial Officer, stated, "Our first quarter sales were the highest we have seen in almost two years. After five consecutive quarters of year-over-year declines, we've now had three consecutive quarters of order growth. This relative strength has helped drive consistent growth in our order backlog, which increased 8.3% over the prior year and 5.5% from the end of fiscal 2010. While the increase in sales this quarter did drive improved leverage against fixed manufacturing expenses, higher discounting, incentive bonus accruals, and increased commodity prices more than offset this benefit. The majority of the incremental price discounting reflected in our results this quarter related to a few large projects as opposed to a broad-based shift in our pricing. Because of this and the other cost pressures in the quarter, we did not generate the level of earnings leverage we've historically achieved in the business. That said, we did report a 24% increase in adjusted operating earnings relative to the first quarter of last year."

Changes in currency exchange rates drove a pre-tax foreign exchange transaction loss of $0.9 million in the first quarter. This compares to a net currency-related transaction loss of $0.1 million in the year-ago period, and a $0.7 million currency gain in the fourth quarter of fiscal 2010. These gains and losses are reflected as components of "Other Expense, net" on the company's Condensed Consolidated Statements of Operations.

Herman Miller's effective income tax rate in the first quarter was 30.8%. This was below the U.S. statutory rate primarily due to tax benefits from the manufacturer's deduction under the 2004 American Jobs Creation Act. The company also recognized a foreign tax credit related to the payment of an inter-company cash dividend during the quarter. In the prior year first quarter, Herman Miller's effective tax rate was a credit of 0.7%, which was largely driven by the reductions to income tax reserves due to the closure of IRS audits. These reserve adjustments reduced income tax expenses by $2.9 million, thereby increasing diluted earnings per share by $0.05 in the prior year first quarter.

The company's cash position at the end of the first quarter was $138.8 million, up from $134.8 million at the end of fiscal 2010. Cash flow from operations in the quarter of $10 million reflected a net use of working capital in support of increased sales and production levels. In the prior year first quarter, cash flow from operations totaled $27.2 million. Capital spending in the first quarter of $5.8 million was flat with the prior year level.

Mr. Walker concluded, "Given the continued uncertainty surrounding the broader economic recovery, our visibility around long-term customer demand remains unclear. Still, there is a sense of momentum building within Herman Miller. We are encouraged by the relative strength and consistency of customer demand throughout the first quarter. This was met with solid progress in the advancement of our operational agenda, including putting the finishing touches on an exciting lineup of new products scheduled for release later this year. It was a good start to the fiscal year, and we are as confident as ever in our speed and direction as a company."

About Herman Miller: Herman Miller works for a better world around you--with inventive designs, technologies and related services that improve the human experience wherever people work, heal, learn, and live. Its curiosity, ingenuity, and design excellence create award-winning products and services, resulting in more than $1.3 billion in revenue in fiscal 2010. Innovative business practices and a commitment to social responsibility have also established Herman Miller as a recognized global company. In 2010, Herman Miller was again cited by FORTUNE as the "Most Admired" in its industry and among the "100 Best Companies to Work For" in America, while Fast Company has named Herman Miller among its 2010 "Innovation All-Stars." Herman Miller trades on the NASDAQ Global Select Market under the symbol MLHR.

Furniture World Magazine-Business solutions for furniture retailers