Herman Miller (MLHR) is trading roughly flat today after reporting 1Q18 (Aug) earnings results after the close yesterday. In case you're not familiar, Herman Miller is a Michigan-based supplier of furniture for use in various environments including office, healthcare, educational, and residential settings. The company's products are sold primarily through the following channels: Owned and independent contract furniture dealers, direct customer sales, owned and independent retailers, direct-mail catalogs, and the company's online stores.
The business is comprised of the following reportable segments:
- North American Furniture Solutions: Includes the design and manufacturing operations throughout North America;
- ELA Furniture Solutions: Includes the design and manufacturing operations throughout Europe, Middle East and Africa (EMEA), Latin America and Asia-Pacific;
- Specialty: Includes high-craft furniture products and textiles including Geiger wood products, Maharam textiles and Herman Miller Collection products;
- Consumer: Includes the operations associated with the sale of modern design furnishings and accessories to third party retail distributors, as well as direct to consumer sales through e-commerce, direct mailing catalogs and Design Within Reach (DWR) studios.
Turning to the AugQ results, non-GAAP EPS declined 5% YoY to $0.57 while revenue fell 3% YoY to $580.3 mln. Both results were generally in-line with revenue showing modest upside to market expectations. This was the case despite some operating challenges with product mix shifts and heightened warranty accruals. In terms of guidance for Q2 (Nov), MLHR expects EPS of $0.55-0.61, the mid-point of which is above market expectations. Revenue for Q2 (Nov) is expected at $590-620 mln, which is also above market expectations.
Gross margin was 37.4%, representing a 100 basis point decrease from last year. Gross margin came in near the low end of internal expectations for the quarter. This was due in part to a product mix shift that caused capacity imbalances that resulted in additional cost to serve customers, as well as lower production leverage in some operations.
MLHR says it's encouraged by the strong level of demand across much of the business. This was particularly notable within its North America and ELA segments, both of which delivered solid YoY organic order growth that was better than last year. These improvements were complemented by continued traction in the Consumer business, which posted double-digit organic sales and order growth this quarter.
In sum, despite the in-line results and decent guidance, the stock is trading roughly flat today. It might be the gross margin came in at the low end of expectations and there was some margin compression overall. With that said, the stock has been slowly and steadily climbing higher over the past year or so. Looking forward, while MLHR thinks the overall global economic picture remains positive, there will be some challenges resulting from the recent storms in Texas and the South East. Overall, the quarter was pretty uneventful.