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Herman Miller Inc. (MLHR) Q1 2021 Earnings Call Transcript

Herman Miller Inc. (NASDAQ: MLHR) Q1 2021 Earnings Conference Call
Sep. 17, 2020

Corporate Participants:

Kevin Veltman — Vice President of Investor Relations and Treasurer

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

Andrea Owen — President and Chief Executive Officer

John Michael — President of North America Contract

Debbie Propst — President of Consumer Retail

Analysts:

Greg Burns — Sidoti & Company — Analyst

Steven Ramsey — Thompson Research — Analyst

Reuben Garner — Benchmark — Analyst

Presentation:

Operator

Good morning, and welcome to Herman Miller’s First Quarter Earnings Conference Call. [Operator Instructions]

I would now like to introduce your host for today’s conference, Kevin Veltman, Vice President of Investor Relations and Treasurer.

Kevin Veltman — Vice President of Investor Relations and Treasurer

Good morning, everyone. Joining me today on our first 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; and Debbie Propst, President of Herman Miller Retail.

As you may have noticed in our press release that was posted yesterday, we have changed our approach to the quarterly press release to adapt 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 more time for questions and dialog 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.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Greg Burns with Sidoti & Company.

Greg Burns — Sidoti & Company — Analyst

Good morning. Thanks for taking the questions. So I guess start-off on the strong margins to get a sense of how sustainable they are across the different segments of the business. I know you have taken some temporary cost actions at the beginning of the pandemic. So I was just wondering if some of that starts to unwind or come back into the P&L just — can you just give a sense of relative to where we were this quarter, maybe how we should think about margins and some of the temporary items that you’re avoiding going forward. Thanks.

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

Yeah, Greg. This is Jeff. I maybe start off here. So you’re right. We certainly did as reflected in our results for the quarter and last quarter for that matter, take some fairly aggressive actions to pull back on costs. Some of those things are more structural, some of them are intentionally temporary. And in fact, earlier in the quarter I’m sure you saw — we announced, we did return some of the cost reductions that were put in place in the form of temporary wage reductions. So those have been brought back.

If you think about kind of the — at the headline level, the kind of actions that we’ve taken to reduce costs, we had some workforce reduction actions that we took that equate to somewhere between $35 million and $39 million annually. We had some employee benefit programs that were temporarily reduced, that’s probably on the order of $24 million, $25 million annually. That’s still in place by the way, that would be exclusive of the wage rollbacks. And then we pulled back in areas like travel and expenses and so forth, which naturally is occurring because of some of the restraints that we’re feeling around COVID. So you’re looking at somewhere between $85 million and $90 million per year in current expense reductions.

As we roll forward, we have to make a determination when the right time is to bring some of those benefit programs back, that’s under evaluation right now. So we’re not yet ready to make that call, but that’s something that we’re evaluating clearly with good results for the first quarter, but I’m sure we’ll get into this further on the call, but we’ve got some order pressures that we’re feeling and so we’re still expecting that there’s going to be some pressure that we’re up against. So those cost reductions are under evaluation. We do have — in addition to those by the way, there’s some discretionary and variable type expenses that occur naturally in the business with lower revenue levels.

I would say, moving forward, somewhat offsetting those and it’s certainly not offsetting all of those reductions or not even close, but we are going to be making some incremental investments in some of the digital program we mentioned in the shareholder letter, some of the progress we’ve made, there is more to do in that area and we’re not going to pull back on that. We think the time is right to make those investments. So we’re going to see some ramp-up in digital spending.

We’ve got Debbie on the call here representing the retail business, and I’m sure she will have an opportunity to talk a little bit about some of the programs that are in place there and some of the marketing programs and so forth that we’re going to be picking up some spend on as well. So, I think, I would frame it as, those are the structural cost reductions that we’ve made. If you look at margin performance by segment, clearly, the headline for the quarter here was the retail business, which benefited tremendously from a variety of mixed factors that were in our favor.

Some of those, we expect to be durable here at least as we move forward into the upcoming quarter, probably offset a little bit by some of the spend initiatives that I mentioned. So really good margin performance there. I think we expect elevated margin performance in that segment, perhaps not to the same exact level as we move ahead, but nonetheless pretty strong. And I’d say for the contract elements of our business, those businesses while, in particularly in North America, and John Michael again is on the call and he can speak to this, we’re feeling some real order pressure, but the teams across the Board have done a great job, pulling in the reins on spending, particularly in some of those discretionary areas to help offset, and the segment delivered really strong operating performance as a result of it.

And I’d say the same thing for International, so we feel pretty good certainly about the Q1 performance and expectations here as we move forward at least in the near term is that we’re going to be able to at least hold on to some of the benefit, albeit perhaps a bit lower top line performance.

Andrea Owen — President and Chief Executive Officer

Yeah, I think Greg what I would add to that, this is Andi, by the way is I think the last six months have been a testament to the strength of this team to adapt to changing circumstances and keep an eye on the bottom line. And like every other company in the world, we’ve learned a lot about ways we can operate differently, in places where we can do things virtually. So I think we expect to see a good portion of that carry through to Jeff’s point, with the investments that we have been making in digital and we have been making in infrastructure, continuing along the way.

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

Yeah. And Greg, sorry, this is Jeff again. I might just add, I think if you think about the business in the more medium term, we still are believers that deleverage, if we feel pressure on the top line, deleverage is probably in the range of 25% to 30%. I would say that based on the recent performance, that’s probably at the lower end of that range, but that’s kind of how to maybe think about it at a high level.

Greg Burns — Sidoti & Company — Analyst

Okay. Okay. And then looking at the kind of the relative strength in International, where is that coming from? Is that on the back of — the backlog coming into the quarter or are you seeing businesses there start opening up and as they do bring the employees back, they’re forced or they’re incentivized to start making buying decisions to adjust their offices. I’m just trying to get a feel for, kind of what’s driving that relative strength, International and maybe is that something we might see in North America as we start to open up here?

Andrea Owen — President and Chief Executive Officer

Yeah, you know, it’s a great question, Greg. I think, International sort of gives us hope if we look at what’s happening in North America right now. But I would say, a big portion of what’s happening there is the kind of curve that many of the countries and the rest of the world are on related to COVID. So if we think about the APAC region, China is in many ways, up and running in a very, very normal way. We look at our businesses there, people are walking around without masks, people are back in the office. So we are really seeing that part of the world kind of coming back up to normal.

Even in parts of Europe, particularly around Denmark and places like that, we have seen life return to the new normal. So, we are optimistic that as we continue to down this curve in COVID, we’ll see those things start to happen. And also don’t forget, with the acquisition of naughtone and HAY, we’re seeing a really nice uptick in both of those businesses. That’s supporting the International business as well. So a strong indicator, we think of what’s coming in the US hopefully, if we get this under control, but that business is very good than very healthy. Jeff, would you add anything to it?

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

No. I think that’s good. I think just regionally, Andi, you alluded to China, you alluded to parts of Continental Europe, I would also add, Japan and the Middle East…

Andrea Owen — President and Chief Executive Officer

Yeah.

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

Were two really strong performers for the business this quarter. So that would, I think it bears mentioning.

Greg Burns — Sidoti & Company — Analyst

Okay. And then lastly, can you just talk about order trends throughout the quarter. And I think in the press release you mentioned some pretty good moderation and the declines in the first couple of weeks of the second quarter. So can you just give a little bit more detail, is that specific to maybe retail or is it across the Board? Can you just give us a little bit more color on the order trends?

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

Yeah. Greg, this is Jeff, maybe just a little bit and I’d ask John and Debbie, feel free to chime in and add color here. It’s a headline level to consolidated level, just to give you an idea, we were down in total, these are organic numbers by the way, Greg. We were down about 35% organically in the month of June by itself. That improved, we were trending closer to down 20% organically by the time we closed the quarter, and I would say through kind of the back half of the quarter. And in the first couple of weeks of the second quarter, organically, on the order of that down 20% still, so more consistently and then just to frame that for you with acquisitions were down closer to 10% in the first couple of weeks of the quarter.

Andrea Owen — President and Chief Executive Officer

John Michael or Debbie, would you — John Michael, you want to weigh in on North America Contract?

John Michael — President of North America Contract

Sure, Andi. Thanks. Good morning, Greg. I would say, we definitely saw strengthening in order trends in the back half of Q1 and into Q2. Another relevant data point, if we look at the opportunity funnel going forward, it is not down nearly as much as the order trend is, and I think that’s indicative of the fact that our clients are still trying to figure out what’s next in terms of the future of the office, we’re obviously in conversation with them on that. But there is a bit of a pause as people are trying to figure out what the right — the right next moves are relative to the workplace.

Andrea Owen — President and Chief Executive Officer

Yeah, I think that’s a great point, John, because I think what we’re seeing, which we’ve mentioned to all of you guys before is, we’re not seeing many cancellations, so we are seeing people kind of push things down the road a little bit. So we think as things start to turn around, we’ll start to see some of that funnel become more operational, which we’re starting to see in Q2. Debbie, would you add any point of view on retail?

Debbie Propst — President of Consumer Retail

Absolutely. So in the retail segment, we saw June orders at plus 17% to OI [Phonetic] and then July and August were both within 1 point or 2 point of plus 50% to OI, so we’ve definitely seen order trends pick-up. A couple of dynamics there to consider. The first is that in June, our East Coast brick-and-mortar locations were still closed for the majority of that month. And then secondly, in July, we launched our new dwr.com website, which has had significant conversion improvement and with our mixed contribution of the e-com sitting at double OI, that improvement of conversion has been significant for us. So our conversion rate of that new dwr.com website is a 26% increase. And versus our previous website experience, and there are some really exciting metrics that indicate advanced performance throughout the whole customer journey online.

Greg Burns — Sidoti & Company — Analyst

Okay, great. Thank you. I’ll hop back in the queue.

Andrea Owen — President and Chief Executive Officer

Thanks, Greg.

Operator

Our next question comes from Steven Ramsey with Thompson Research.

Steven Ramsey — Thompson Research — Analyst

Good morning, everyone.

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

Hey, Steven.

Andrea Owen — President and Chief Executive Officer

Good morning, Steven.

Steven Ramsey — Thompson Research — Analyst

I guess, I’ll start with, continuing on retail, maybe can you — can you start with the brick-and-mortar side, you said demand was up 4%, the traffic levels down. Does that mean sales, up 4%? And then maybe can you go deeper into kind of what’s driving that figure? I mean, is it bigger purchases? Is it bigger — higher ticket items or is it customers buying more smaller items? Just any color?

Debbie Propst — President of Consumer Retail

Absolutely. This is Debbie. I can take that question. So we are seeing traffic rates at about down 50% to 55% to last year in our brick-and-mortar locations, but we are obviously seeing the performance of those locations in sales at plus 4% to last year. So what we’re seeing is a higher intent customer, actually coming to the physical location at a different point in their customer journey versus what we typically see. So usually, the store interaction or studio interaction is during the consideration phase when the customer is still browsing and collecting ideas.

And then what we’re seeing is the customer coming to the store or studio at the end of their journey ready to transact once they try [Phonetic] and touched and felt the product. And so, we’re seeing higher intent that’s driving higher conversion in the traffic that is coming through the door. And we’re also seeing higher order value as well, as customers are spending more on upgrading their home, and obviously our homes have more pressure on them than they ever had before. We have to make spaces, work harder within the home, people are looking for multi-use decorating tactics and so we’re really able to help with that and drive up order value through our store channels as a result.

Steven Ramsey — Thompson Research — Analyst

Great color. I guess on the web growth for retail. I guess, with the strong growth and then orders being up so strong as well in the quarter. Two questions, I guess, are you able to ship and deliver products in a timely manner? And then second — how much of that order reflects a build-up of just demand not being able to ship as timely as maybe “normal times”. And the strong order patterns up 40% in Q1, does that indicate sales trending at similar levels on a year-over-year basis to Q1?

Debbie Propst — President of Consumer Retail

So we’re going into Q2 with pretty normal backlog, coming out of Q1, there are a little bit of the June sales volume, where obviously orders that we collect data it April and May didn’t shipped, but our orders and sales levels are very close to each other throughout the course of Q1 in totality. So I feel really good about the order trends that we’re seeing.

Steven Ramsey — Thompson Research — Analyst

Great. So there is no reason that Q2 sales, there’s no puts and takes that would take Q2 sales much, much lower necessarily than what orders would indicate?

Debbie Propst — President of Consumer Retail

Yeah. We got a slight bump coming into June from orders that we took in April, May, but we are expecting similar order rates as that we’re seeing in July and August carry forward into Q2.

Steven Ramsey — Thompson Research — Analyst

Great. And then last one for me, kind of switching to North America Contract, in discussions with companies and clients, what are they saying about the future of the office compared to some of the theories and ideas that brokers and others have discussed as well as office furniture companies have discussed on what the office of the future looks like, do any orders that you have now reflect kind of the new world of offices?

John Michael — President of North America Contract

Hi, Steven. This is…

Andrea Owen — President and Chief Executive Officer

Actually, you go ahead, John, and I’ll add when you’re done. Go ahead.

John Michael — President of North America Contract

Okay. Thanks, Andi. Hi, Steven. I would say, we’re definitely seeing customers make that transition in the new thinking about the future of the workplace. And I think our point of view and what we see in client conversations is, the work model is going to be much more distributed. I mean pre-COVID, 14% of employers said that their employees could work effectively remotely, a similar survey done in June of this year, that number was 42%.

So we’ve seen the migration to a more distributed work model, but we — I think, the pandemic has definitely accelerated that and I think we’re going to be in a mode where the workplace including the office is going to be more on-demand — more of an on-demand resource that supports different types of work and adds value and the offices really shines in the areas of building culture and community, enhancing individual focus, and supporting intensive teamwork and collaboration. And we’re starting to see the shift in terms of layout and design that supports those primary functions. What would you add to that Andi?

Andrea Owen — President and Chief Executive Officer

Yeah. And I would say Steven, this has represented a real opportunity for us and one we’re excited about, because the distribution of the workforce has been happening for a very long time prior to COVID. But given the multi-channel distribution model we have, given our strength in residential furnishing and given the fact that we are here to help people sort of revamp the spaces they do have that are office-oriented as well as support the workers that are working from home and now schooling from home. We think we’re even more set up for a distributed workforce of the future than we ever have been before. So I definitely think that the companies we’re talking to and the customers we’re working with are on a continuum, everywhere from — we’re coming back to normal as soon as we can back to the office, just like we used to, all the way to a larger portion of our folks are going to be working from home, but we’re supporting every customer in a different way along that journey. So it’s been a really interesting time for the Company and a full of opportunities for our business model.

Steven Ramsey — Thompson Research — Analyst

Great. Thanks for the color.

Andrea Owen — President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Reuben Garner with Benchmark.

Reuben Garner — Benchmark — Analyst

Thank you. Good morning, everybody.

Andrea Owen — President and Chief Executive Officer

Hi, Reuben.

Debbie Propst — President of Consumer Retail

Reuben, good morning.

Reuben Garner — Benchmark — Analyst

So, I had some technical difficulties and missed most of Greg’s questions, I caught the tail-end, so sorry if I repeat anything, but I want to start with the backlog, I think you said it was flat year-over-year in the release. It doesn’t sound like any of that is driven by what’s going on in retail, so I guess number 1, is that correct? And number 2, if it is, does that mean, I mean — obviously in the prior crisis, there has been a big decline in backlog, that’s been kind of simultaneous with the order jobs, I mean does that give you guys increased confidence that maybe things might come back quicker this time around than they have in prior recessions? I’m specifically talking about North America.

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

Hey, Reuben, this is Jeff. Good morning.

Reuben Garner — Benchmark — Analyst

Good morning.

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

And that’s not a repeat question for the record. So, yeah…

Reuben Garner — Benchmark — Analyst

One for one.

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

Let me give you a little color on the backlog. So specific to the North American Contract business, backlog for that segment is down about 20%, okay, rough numbers. Retail as you said, as Debbie said, it’s — I don’t know if you heard that comment, which she said it’s a fairly normal backlog coming out of the first quarter. So no big surprises there, actually in pretty good shape.

In the International, backlog is actually up, it’s up about 13% and that’s organic, okay. So just to kind of give you a little color by segment. I would say generally speaking, while there’s still a lot of uncertainty and I don’t want to paint the picture otherwise, I mean, obviously, with the NAC business, we’re seeing some order pressure and with backlog being down, there’s still a lot of uncertainty, but I would tell you, just given the circumstances of what’s driving the pressure, virus related, it feels episodic. I think we do have a bit more confidence that, if we can get some help from science around this, I think we can get back on our feet a little quicker. So I think that’s our working assumption here. Now let’s not to say we’re out of the woods by any stretch, right.

So and the other thing I would say about International is we were really pleased, no question, that business has performed very, very well. As Andi said, a little further ahead, perhaps on the recovery curve. The one thing I would point out though is with International, in this segment of our business, that tends to be a bit longer-dated in the backlog, just nature of the business. You’ve got projects that have longer shipping distances, it tends to be a bit more project-driven in general. So I just would caution some of the assumptions around translating that backlog into shipments, it tends to be a little longer-dated in general terms than we see in North America.

Reuben Garner — Benchmark — Analyst

Okay. That was helpful. And then just a follow-up to that, you gave kind of — or I think Debbie gave a retail breakdown of what kind of order trends you saw throughout the quarter. Can you do the same thing for organically in the international business and then in North America, what was the progression like I know you mentioned, it was modestly better in the second half, can you kind of break down what that look like for us?

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

Yeah, happy to. This is Jeff again Reuben. I’ll start with — you have to take them in the order as you’ve mentioned them. International business, we kind of started — started the quarter with organic order rates down about 20%, just a little north of 20% decrease year-over-year, that improved markedly as we move through the quarter, we ended as you saw the reported number or the organic number that we reported, down about 10% in total. And in the first couple of weeks of the new quarter thus far down about 5%.

So we’ve seen an improvement there. Hope to hold on to that, obviously. And then in the North American Contract side, we — June was not great, right. We started off in a bit of a whole, we were down close to 50% in order entry levels, that improved meaningfully as we closed the quarter, I think the month of August was closer to just below 40% declines year-over-year. And in the first couple of weeks of the new quarter down around 30%, so still down meaningfully year-over-year, but we like the trend.

Reuben Garner — Benchmark — Analyst

Yes. Thanks, Jeff. That sounds good. It sounds like I’m two for two. Let’s — here is where I think I might be replicating to that, caught of the tail-end of the responses to Greg. I want to hit on the sustainability of margins, and you mentioned in the release that 25% to 30% decremental. I guess, my question is, given that everything — how everything has progressed, and I think mix and channel mix and product mix has a lot to do with your margin profile today. Is it fair to take kind of where we are in Q1 and apply a decremental margin maybe sequentially rather than looking at it on a year-over-year basis? I mean clearly the first quarter versus a year ago, the decremental margin did not come into the picture, help us go from 15% to at the ink [Phonetic] level to the next couple of few quarters?

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

Yeah. Reuben, that was — I’d say you’re three for three somewhat here. Maybe a follow-tip on that with that last question. So maybe stepping back for a minute, you followed us long enough to know, I mean, our overall margin performance in this business is never a straight walk, right. So we always try to make the point that period-to-period changes, you’ve got everything from in periods where we’re over-performing, you’ve got factors like bonus, expenses that ramp-up from one period to the next, that can drive changes and so.

This is not normal times. Clearly, we’re coming out of our first quarter, we had very favorable mix factors, we can certainly get into that a little further for you if you’d like, but what I would tell you is, we continue to be believers that probably the lower end of that range is reasonable. I would say, it doesn’t seem unreasonable that you could look at that on a sequential basis. I guess I have to step back and dig into that math myself a little bit, but I don’t think that sounds unreasonable.

Certainly Q1, because of the significant pullback in costs that we pursued, we saw — we kind of bucked that typical expectation on deleverage, right. We saw lower revenue and higher operating profit, that’s not the — that necessarily the expectation of the business going forward, because as I said, I think, you may be missed it. We’ve pulled back in a number of structural areas cost-wise, some of those are temporary initiatives. And so we’re — we have a few of those under evaluation is for when the time is right to bring some of those things back, things like temporary benefit reductions, we haven’t made that decision fully yet, but it’s in front of us.

Travel & Entertainment, right. T&E, as we start to loosen up a little bit and get people moving around the world a bit, we’re going to see cost elevate related to that. We brought back the temporary pullback in wages earlier in the quarter that we’ve announced. And so we’ve already pulled some of those costs back, there’s more in front of us. And then, the other thing I would say is, one of the things that Andi has been — Andi you can speak to this, but say, from my perspective, it has been really, I think, passionate about is really ring-fencing some of these digital initiatives that we have in the business and protecting those and leaning forward into those investments as opposed to pulling back.

So there’s areas of the business that we are definitely want to be on our front foot, and some of those investments are slated for the upcoming quarters. And so we’re going to see a ramp-up in digital spending in a few areas of the business that I think all some told [Phonetic] kind of give us a sense that, that 25% to 30% deleverage is reasonable, but I would say based on the recent performance probably toward the lower end of that range.

Reuben Garner — Benchmark — Analyst

Okay. And is there anybody in the queue behind me, I do have one more. But I don’t want to be — I don’t want to be selfish here.

Andrea Owen — President and Chief Executive Officer

Go ahead. It’s — we’ll be fine.

Reuben Garner — Benchmark — Analyst

Okay. All right. I’ll sneak one more and then, so I guess kind of on that note, Jeff, the e-commerce, how much does — so in the retail business, specifically, I mean, does the e-commerce boost, and it sounds like that drove a lot of the growth in the quarter and slightly going to continue. I mean, how much of the margin pickup that you’ve got is from selling through that channel, where you don’t have the brick-and-mortar and I know you’re probably selling more of the home-office through that e-commerce channel right now. But how much — I guess how do we think about long term what retail margins could look like in the e-commerce shift, if it’s more of a permanent shift or a permanent, positive for the Company. Is it possible that your margin targets or maybe get changed for the longer term?

Debbie Propst — President of Consumer Retail

So, Reuben, this is Debbie. There are really three dynamics at play that are impacting margin performance in retail right now, one of those is category mix. We did see a big shift into our workspace category, which is predominantly a curation of products that we manufacture vertically. We also saw an audience mix shift, and so we saw a shift from our retail contract business, and our retail trade businesses into the residential consumer. So residential consumer to trade penetrations, this time last year were about 70%-30% and this year we’re serving 83% to residential consumers directly versus 17% to trade, and so that’s important to note because, despite the fact that we were slightly more promotional than last year, our trade channel has a higher discounting rate.

So we were able to save on discounting as we drove the residential channel directly. And then the last element is channel mix. So obviously with us shifting more volume through our web, we saw significant improvement in margin. And that’s really because of the category mix that we’re seeing in web, but also because we don’t have such a high commission structure associated with web sales. We do incent as of this quarter our studio staff with the web sales they help drive, but obviously the commissioned structure of sales driven in studios is higher. So some of these things are dynamics that we can actively maintain as we go through the rest of the year, but we do expect to see margins normalize a little bit through the course of the year.

Andrea Owen — President and Chief Executive Officer

And I would…

Reuben Garner — Benchmark — Analyst

Got it. Great. Thank you, guys and congrats — sorry, go ahead, Andi.

Andrea Owen — President and Chief Executive Officer

No. I would just add to that, that we’ve spent a lot of time building a really strong leadership team in the retail business and building strength, there’s been a ton of opportunity and we’ve had calls in the past where retail has not been a strength for us. And I think one of you said in your notes, it’s gone from lagger to leader and I think we all agree with that. So when Debbie said, we see margins normalizing. I think we see margins normalizing to what is the new normal in retail, because of the opportunity that’s ahead of us.

So we think that this is going to be a bright spot going forward, certainly, these benefited from mix into task seating, but there have been a lot of other categories in the retail business that have performed extremely well given the focus on the distributed workforce. So we’re very optimistic about this business in the future and the team.

Debbie Propst — President of Consumer Retail

We are, and we have some tremendous levers for growth in front of us. We talked a little bit about the investment in digital [Technical Issues] performance we’re seeing of our new dwr.com website. And we have new Herman Miller and our new HAY website underway. But beyond just the digital opportunity, we have a huge assortment opportunity, as this business was previously being run as a pretty — what to call analog business, was about what we could showcase in a typical studio, or sort of catalog and as we’re moving to more of an omnichannel approach to assortment curation that gives us a tremendous amount of growth potential.

Our audience management opportunity is also huge, we have been using a last-touch attribution model and we’re moving to a multi-touch attribution models, so we really understand the role that each marketing channel plays in the customer journey, but in the meantime, we’ve been making some shifts in the way that we think about our marketing spend across channels and are seeing record return on ad spend [Phonetic] performing.

We have opportunities in our planning and inventory in terms of enhancing inventory turns and reducing liquidation, and we’re working on the launch of a new retail concept, which we just spoke briefly about in our shareholder letter last night, that’s really focused on our performance seating and work-from-home retail assortments and those stores really offer the customers, the opportunity to explore the breadth of our performance category, and also really understand how that performance category can improve their personal performance and drive wellness throughout the course of their life.

We have opportunities in our fulfillment channels and with our warehousing as we grow the business. And then lastly with ongoing cost savings as we continue to strive towards the One Herman Miller approach to how we run this retail segment.

Reuben Garner — Benchmark — Analyst

Great. Thanks again, guys for all the detail. Congrats on an impressive quarter and good luck navigating through the rest of the year, and hopefully, everybody stay safe.

Jeffrey Stutz — Executive Vice President and Chief Financial Officer

You too, Reuben. Thank you.

Andrea Owen — President and Chief Executive Officer

Thank you.

Operator

And I’m not showing any further questions at this time, I’d like to turn the call back over to Andi.

Andrea Owen — President and Chief Executive Officer

Thank you so much to you all. Just to remind you, we are big believers in our strategy. We really think it reinforces our purpose of design for the good of humankind, and we believe that we will not only weather the near-term disruption from COVID, but we will emerge stronger on the other side. So thank you for joining us on the call today and we appreciate your continued interest in Herman Miller, and we really look forward to updating you again next quarter. Take care and stay safe.

Operator

[Operator Closing Remarks]

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