Herman Miller, Inc. (MLHR) Q1 2022 Earnings Call Transcript

Herman Miller, Inc.  (NASDAQ: MLHR) Q1 2022 earnings call dated Sep. 29, 2021

Corporate Participants:

Antonella Pilo — Vice President of Investor Relations & FP&A

Andi Owen — Chief Executive Officer

Jeff Stutz — Chief Financial Officer

John Michael — President of North America Contract and Global Operations

Kevin Veltman — Integration Lead

Debbie Propst — President of Global Retail

Chris Baldwin — Group President of MillerKnoll

Analysts:

Greg Burns — Sidoti & Company — Analyst

Rudy Yang — Berenberg Bank — Analyst

Steven Ramsey — Thompson Research Group — Analyst

Reuben Garner — Benchmark — Analyst

Alex Fuhrman — Craig-Hallum Capital Group — Analyst

Presentation:

Operator

Good evening, and welcome to Herman Miller’s First Quarter Earnings Conference Call. I would now like to introduce your host for today’s conference, Antonella Pilo, Vice President of Investor Relations and FP&A. You may begin.

Antonella Pilo — Vice President of Investor Relations & FP&A

Good evening. Joining me today on our first quarter earnings call are Andi Owen, Chief Executive Officer; Jeff Stutz, Chief Financial Officer; John Michael, President – Americas Contract; Debbie Propst, President – Global Retail; Chris Baldwin, Group President – MillerKnoll; and Kevin Veltman, Senior Vice President – Integration Lead.

We have posted the 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.

Before I turn it over to Andi for a brief overview of the quarter, 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. At the conclusion of our prepared remarks, we will have a Q&A session. Today’s call is scheduled for 60 minutes.

With that, I’ll turn the call over to Andi.

Andi Owen — Chief Executive Officer

Thanks, Antonella. And you guys clearly now that I’m in home today with my son and my family. So welcome to my world. Good evening, and thank you for joining us. This is an exciting day. We finalized our acquisition of Knoll in the first quarter. And today, we are discussing our results of MillerKnoll for the very first time. Herman Miller is doing business as MillerKnoll, and we’re seeking shareholder approval at this year’s Annual Meeting to change our name officially to MillerKnoll, Inc. So before I turn the call over to Jeff, I wanted to share a few remarks about our business overall and the progress we’re making behind the integration. Jeff will then take you through our financial results in greater detail, including changes to our reporting segments.

We started the year with positive momentum and really strong demand around the globe. Q1 orders grew across every segment of our business. This positive order demand is an indicator of the strength of our business fundamentals, as well as our strategy, and it underscores our confidence in the future. Our teams are executing and driving progress against our strategic priorities. Both our retail and contract businesses continue to grow, and we’re bringing new customers to our brands with growth initiatives by gaming, store and studio openings, and a growing digital presence around the world and across all of our segments.

As MillerKnoll, we’re now one of the largest and most influential design companies in the world, positioned to redefine modern design and transform our industry. With a broader portfolio of complementary brands, enhanced scale and capabilities and the financial strength of our diversified businesses, MillerKnoll is uniquely positioned to imagine and create beautiful design solutions that both endure and inspire. Since the early days of the integration, our global teams have demonstrated extraordinary operational discipline. They are executing well against our plans and are on track to achieve our timeline for delivering $100 million in cost synergies within two years after the close of the deal.

One of the key areas of focus for the integration is bringing our two leading contract dealer networks together in the Americas. And while there’s still a lot of work to do, we’ve made considerable progress and I wanted to share a brief update with you. In order to grow our contract business, we must enable our dealers to bring the full capabilities at MillerKnoll and our industry leading product portfolio to our customers that will create a network of MillerKnoll dealers who represent the full collective of all of our brands. This strategy benefits our dealers by giving them access to the full power of our portfolio, which was a key driver of the deal. They will have the opportunity to develop, sell more and also be better positioned to meet the specific needs of each customer.

So while this work is focused on the MillerKnoll dealer network in the Americas, the strategy also presents new opportunities for international dealers, bringing Knoll’s amazing portfolio into these markets and many cases for the first time, unleashes incredible opportunities for growth. This strategy benefits our customers as well by creating the highest performing dealer network with access to the broadest product portfolio in the industry. The MillerKnoll network will have more dealers where either network had on its own, giving our customers more choice, both in terms of products and partners. Putting a MillerKnoll dealer network is not a one-size-fits-all approach and instead requires we work market-by-market to determine the optimal footprint based on the unique dynamics of each one. These established principles will use to determine the right distribution model for each market. And we’re finalizing the optimal footprint for each of our key markets now.

At the same time, we’re developing the pilots and processes that will enable us to bring the combined MillerKnoll product portfolio to all our dealers as soon as possible. The progress [Phonetic] is proceeding as planned based on our integration timeline and will continue to be a top priority for us through the remainder of the fiscal year. As we said all along, bringing these two incredible organizations together felt like our destiny. And now that we’re on our way, we feel even more strongly that this would meant to be, watching our teams from around the world come together to identify and capture the best of each organization, while designing the path to our shared future is truly inspiring. And we know there are so much tremendous opportunity ahead of us.

And with that, I’ll turn it over to Jeff to give a bit more commentary about the results before we open it up for questions.

Jeff Stutz — Chief Financial Officer

Great. Thanks, Andi. I’ll start my seconding your comments about the integration. It has been really inspiring to watch this work unfold and our teams are exceeding our expectations. Given their efforts, we are confident in our ability to deliver on our synergy targets. As we discuss results today, a quick reminder that our reporting segments have changed now that the acquisition is complete. As MillerKnoll, we will be reporting results under four business segments: Global Retail, which reflects the legacy North America Retail segment and now includes our International Retail business; Americas Contract, which reflects the legacy North America Contract segments combined with Latin America and the Design Within Reach Contract business; International Contract, which reflects contract business outside the Americas; and Knoll as the acquired Knoll business will initially be reflected as a stand-alone segment.

Earlier today, we issued a Form 8-K that provides historical information based on these revised segment definitions to assist you in your modeling and your analysis. Now onto the numbers, consolidated net sales of $789.7 million were up 26% from the same quarter last year, which is an increase of approximately 0.4% organically. Now, keep in mind that we’re facing a challenging year-over-year comparison, due to the elevated backlogs from COVID-related manufacturing and retail studio shutdowns last year. Additionally, our ability to ship orders this quarter was impacted by the supply chain disruptions that our industry is facing. While we do expect this to moderate in time, our outlook for Q2 considers the near-term impact of these pressures.

Orders were up 65% over last year or 35% organically and as Andi mentioned, the strong demand we’re seeing across all segments. Global Retail had another strong quarter with orders up 22% over the prior year period. The Americas Contract segment saw orders increase by 43% over last year, and International orders were up 35%. Knoll’s Workplace business also saw a positive order momentum, and leading indicators in this business are consistent with what we saw in the Americas business, with the funnel of new projects up 18% and 14% respectively from last year. Knoll’s residential business also saw strong order growth in both North America and in Europe.

Adjusted gross margin in the quarter was 35.9% compared to 40% in the prior year period and was impacted by higher commodity costs and other inflationary pressures. The prior year also reflected favorable channel mix associated with retail activity, operating leverage from — working through elevated backlog, and temporary cost reductions as we address the challenges of COVID-19. To be sure, we are actively managing what we can control to address inflationary pressures going forward. We implemented a price increase this quarter and have additional increases planned for the second quarter to help offset these pressures. Adjusted operating margin was 6.2% compared to 15.3% in the prior year. Similar to net sales, operating margin last year was higher, due to shipments of elevated backlog at the beginning of the quarter, favorable channel mix and the spending reductions we put in place to navigate the pandemic,

We reported a net loss per share of $0.93 compared to diluted earnings per share of $1.24 for the same period a year ago. This includes the impact of additional shares issued in the first quarter as well as a $1.42 per share related to non-comparable items. Adjusted earnings per share was $0.49 in the first quarter compared to $1.24 last year.

Looking ahead to the second quarter, our guidance includes the full impact of Knoll for the quarter. We expect sales in the second quarter to range between $1.025 billion and $1.065 billion and adjusted earnings per share to be between $0.55 and $0.61. This guidance considers the near-term inflationary and supply chain environment that we’re currently experiencing and the actions we’re taking to help mitigate these pressures. The strong demand environment and traction from our strategic initiatives positions us well as we look forward.

So with those opening comments, I’ll turn it back over to the operator, and we’ll take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Greg Burns with Sidoti & Company. Your line is open.

Greg Burns — Sidoti & Company — Analyst

Yeah. Thanks. So just the first in terms of the inflationary pressure, what was the amount of the price/cost gap this quarter and what’s your line of sight on kind of closing that given the cadence of the price increases you’ve instituted?

Jeff Stutz — Chief Financial Officer

Hi, Greg. Good to be with you. Thanks for the question. So let me maybe take a step back and give you a sense for kind of a year-over-year impact in basis point terms because this might actually help unpack really the crux of your question. Is that helpful, if I do it that way?

Greg Burns — Sidoti & Company — Analyst

Yeah. Okay, great.

Jeff Stutz — Chief Financial Officer

Yeah. So from a — so without a doubt, the big gross margin pressure we felt came in the form of three inflationary components, commodities as kind of one basket of impacts and commodity inflation in total eroded gross margins to the tune of about 120 basis points compared to last year. The big factor there was steel, which probably doesn’t surprise you, but we saw inflation across almost every material category.

The second bucket I would point out and this is one that affected us more late in the quarter than it did early in the quarter is freight and delivery charges. We’ve been — you may hear more from us on that as we talk about the segments of the business, but in total, freight and delivery we estimate impacted us negatively by about 70 basis points year-on-year. And then, the last component is really a labor-related inflationary impact. In total, labor, in terms of direct labor as well as overhead labor, we estimate was about a 90 basis point impact. So those are the three components. Hopefully, that gives you the color you’re looking for.

Greg Burns — Sidoti & Company — Analyst

Yeah. But in terms of maybe getting back to a price/cost neutral and [Technical Issues] some of this, like what’s your [Technical Issues] on closing that gap?

Jeff Stutz — Chief Financial Officer

Yeah, okay. So here’s what I would tell you is I mentioned in my prepared remarks, we on legacy Herman Miller and Knoll, Herman Miller side of the business. Implemented a price increase back in June; the Knoll business did one, I believe, in May. And there are additional increases that have already been announced in October and November, so upcoming. And as you know, in the contract side of the business, it takes some time for those to roll and layer themselves into the gross margin. And what I would tell you is at current commodity levels, we are having conversations about whether that’s going to be enough. So I’ll leave it at that. But I would just tell you that at the current elevated levels, that’s a discussion we’re having internally. I would expect as we have seen in the past when we do these price increases, after about three months, you start seeing some incremental benefit from those increases. And again, I’m talking mainly on the contract side of the business. And our guide reflects some of that, but it really will be after the first of the calendar year that we start to feel the big impacts or the big benefits from that. Now, the retail business is different, right. We can do pricing on the retail business and that’s a little bit of more real-time. And so — and Debbie and team have looked at that and have actually implemented some of those as well.

Greg Burns — Sidoti & Company — Analyst

Okay. And then on the supply chain issues, I guess there’s a $30 million headwind this quarter. Is that what’s implied in the guidance? Are you still expecting that type of level of order delays next quarter, due to supply chain?

Jeff Stutz — Chief Financial Officer

In general terms, yes, Greg. These are not going to abate anytime soon. At least, we certainly don’t anticipate those abating in the second quarter. So I would say order of magnitude, maybe even a bit more than that because we’re going to pick up the Knoll business for an additional 6.5 weeks. So I would say that’s a fair assumption.

Greg Burns — Sidoti & Company — Analyst

Okay. And then, the demand, the order numbers were really strong. I don’t remember — I don’t know $700 million or $750 million for the core business is a record number, but I think it’s the highest I’ve seen since I’ve covered the company. So the orders are obviously very strong. Can you just talk about the cadence of the order patterns throughout the quarter, what we’ve seen kind of into the early part of this quarter? And have you seen — do you think you’ve seen any pull forward in orders given the number of price increases that you have been instituted?

Jeff Stutz — Chief Financial Officer

Okay. I’ll take — I’ll start this one and then, the business unit lead can chime in if they have some specific commentary around what they think they’re seeing in terms of pull ahead impact. I don’t anticipate that there has been much pull ahead into the first quarter. It’s a general comment. The cadence of orders, we had a pretty strong June right out of the gates. So from an organic perspective, the Americas segment started the quarter quite strong. We were positive. Maybe not surprisingly, when you see the numbers in total, we were positive across all of the business segments in every month of the quarter and strong double-digits in fact in every month of the quarter. And I would say, the good news is the quarter ended may be not quite as strong as it started in June, but it ticked up from a little bit of a long in July. So we ended the quarter with some pretty good momentum. And that’s true across each of the business segments. And I don’t know, John, if you want to give some color on your thoughts on the balance of his question.

John Michael — President of North America Contract and Global Operations

Sure, Jeff. Thank you. I would agree from a pull ahead perspective, I don’t think that we really saw any. I think in June, maybe a little bit of pent-up demand as back to work — return to work was ramping up at that point in time. And then, I think we’ve seen really through August in the first part of Q2 fairly steady cadence and order pattern so far. So that’s what we’ve seen to date.

Greg Burns — Sidoti & Company — Analyst

Okay. Great. Thank you.

Operator

Thank you. Our next question comes from the line of Rudy Yang with Berenberg. Your line is open.

Rudy Yang — Berenberg Bank — Analyst

Hey, guys. Thanks for taking my questions. So first off, you stated that you believe you will still be able to achieve $100 million those run rate cost synergies in two years with some of that coming from procurement and supply chain opportunities. I’m just curious to your thoughts on how current supply chain issues are affecting your ability to realize those synergies and why you kind of remain confident still that your timeline to realize these synergies won’t get push back at all?

Andi Owen — Chief Executive Officer

Rudy, this is Andi. It’s a great question. We’ve done a lot of very, very thorough and intense work on that. And we think a lot of its procurement and supply chain issues are a point in time, and we’re certainly not going to take one run at it. We’ve got a couple of years to get these. And we see opportunity from both scale and reach in our supply base. So the more we looked into it, the more confident we become. We do think it’s a difficult environment. And it’s a little bit of a moving target, but it doesn’t deter us from looking at the long term in a 24-month period and feeling very confident in what we can achieve there.

And I would just point to some of the price/cost questions that Greg asked and looking at the supply chain environment in general, we have a history of operational discipline and efficiency and creativity around new things, and we’ll continue to apply that in this situation. The Kevin Veltman is our Integration Lead. So, Kevin, is there anything you would add to that confidence around synergies?

Kevin Veltman — Integration Lead

I would add, Rudy, that over the — since we — really since we announced the deal, we’ve been working on integration planning. And as you might imagine, that’s going deep with each team and each business unit to really solidify those plans and think about where the levers of value capture are. And so, we feel — we affirm and feel more confident about delivering the $100 million within the two years that we’ve talked about. And the mix we expect to be actually pretty similar to what we thought initially that about 40% of it will come from cost of goods sold and 60% will come from the SG&A side.

Rudy Yang — Berenberg Bank — Analyst

That’s super helpful. And then secondly, you guys kind of started to mention a little bit about how you start to integrate the dealer channels together. I guess is there any more detail you can provide on any expected dis-synergies and how you expect to mitigate this now that you kind of put the plan into action?

Andi Owen — Chief Executive Officer

Yeah. Rudy, of course, as we did our deal model, we planned on dis-synergies. We don’t know where they’ll come from certainly at this point in the plan, but we did put a hold for those, but John Michael, since this is primarily in the Americas, do you want to elaborate a little bit on that dealer network?

John Michael — President of North America Contract and Global Operations

Sure, Andi. Thank you. I think in terms of mitigating some of the dis-synergies, a couple of things that we’ve done. Number one, we’re taking direction from both customers and influencers, as well as dealers. We surveyed more than 500 customers over the last 60 days. We’ve had in-depth conversations with specifiers. And we’ve leaned into the dealer of both Herman Miller and Knoll to make sure that we understand concerns that we’re hearing what the issues are, and we’re responding appropriately. And I think our overall attitude and mindset is we’ve got to be sure that we’re providing a value proposition to our dealer network, so that they are aligned and really leaning into the power of what Miller Knoll can be. And so, I think working together with them and working through the issues and being good listeners and then responding is key to mitigating the dis-synergies.

Rudy Yang — Berenberg Bank — Analyst

Got it. And then, last one from me, you said your net leverage ratio, including expected synergies is around 2.3 times right now. I guess, is there any change to what your target ratio is going to be and your timeline for delevering towards that?

Jeff Stutz — Chief Financial Officer

Rudy, this is Jeff. No change. Certainly, we are super-focused on managing costs given the margin pressures that we’re facing and the resulting impact on cash flow, but we’re — we continue to believe that we can delever to the target level one year forward from the close of the deal. And nothing at this point has thrown us off of that.

Rudy Yang — Berenberg Bank — Analyst

Great. Thanks so much, guys.

Jeff Stutz — Chief Financial Officer

Thank you.

Andi Owen — Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Steven Ramsey with Thompson Research. Your line is open.

Steven Ramsey — Thompson Research Group — Analyst

Good evening. I guess, I want to clarify my understanding on this, the organic growth. Can you maybe talk about the organic growth of Knoll, 12% for just Herman Miller or did that include Knoll’s organic growth? Maybe can you clarify that for me?

Andi Owen — Chief Executive Officer

Hey, Jeff, do you want to start with that one? And then, maybe we can turn it over to Chris.

Jeff Stutz — Chief Financial Officer

Yeah, I guess maybe what I want to do is make sure — so what I had alluded to earlier was order growth, Steven. Are you — is it just a revenue growth question?

Steven Ramsey — Thompson Research Group — Analyst

No, I’m sorry, that order growth, yes.

Jeff Stutz — Chief Financial Officer

So, year-over-year — again, I just want to make sure I’m answering your question. Are you — is this a year-over-year order growth question?

Steven Ramsey — Thompson Research Group — Analyst

Correct. Yes, I’m trying to get a feel for Herman Miller’s organic growth and Knoll’s organic growth.

Jeff Stutz — Chief Financial Officer

Yeah.

Andi Owen — Chief Executive Officer

Got it.

Jeff Stutz — Chief Financial Officer

Yeah. So let me — maybe I’ll take a stab at it this way. So if you look at the legacy Herman Miller side of the business, for the full quarter, order growth was on the order of 36% consolidated year-on-year with just the Herman Miller components across the three legacy segments. Knoll — bear in mind, we had Knoll for a partial quarter. So I think for the 6.5 weeks that we had consolidated Knoll into the Group, the order growth for that period of time was about 29%, but if you — on a pro forma basis, if you just look back and count the entirety of Q1 and compare that to the same period in prior year, I think the Knoll order growth was on the order of 25%. Does that help?

Steven Ramsey — Thompson Research Group — Analyst

That does. Yes. Okay. Thank you for clarifying, Jeff. And then, I wanted to think for a minute on Global Retail margins. I guess what do you think of as a fair margin level for retail with the impacts of inflation and investments going on right now? I guess, how do you see this evolving over the next 12 to 24 months as hopefully inflation moderates over that time? I guess, how long do you expect elevated levels of growth investments over that time frame and how to think about margins evolving?

Debbie Propst — President of Global Retail

Hi, Steven. Thanks for the question. This is Debbie. So our margin rate in the Global Retail business for the quarter came in at 43.7% and this is versus last year’s 47.7%. And so, the elements that were impacting that margin degradation from last year, in order of impact our product cost, which is driven by the raw material increases and labor increases that Jeff already spoke at. Shipping costs, inbound freight and category mix and the category mix was actually a marginal piece of that margin trend.

From an opex perspective, most of our increases over last year in opex are driven by variable selling increases. Occupancy is associated with new stores and comp and benefits and then as you know, we’re making multiple investments in this business and we’ll continue to do so for the next 12 to 18 months as we rectify our infrastructure to support the business model we’re running today. The infrastructure we’re running this business on was built for a very different business model, one that it was very analog and showroom driven as we’ve moved to omni-brand, omnichannel model. We need a much more robust and dynamic infrastructure to support this business in a scalable way and the way that continues to enhance our customer experience. So we’ll be continuing to make those investments over the next 12 to 18 months. And as we said in our release, we expect to see operating income in the low to mid-teens, while we’re making these investments.

Andi Owen — Chief Executive Officer

And Steven, just to add. Thank you, Debbie. In the longer run, this is a business where we see us normalizing in the mid to high-teens from an operating margin standpoint. Debbie points the investments that we’re making, we see those on a much shorter term, 12 to 18 months. And part of that is as we…

Steven Ramsey — Thompson Research Group — Analyst

Okay.

Andi Owen — Chief Executive Officer

Go ahead, continue. Sorry.

Steven Ramsey — Thompson Research Group — Analyst

No, no, I was just saying that’s very helpful. I didn’t mean to cut you off, but that’s super helpful. And that does it for me. Thank you.

Jeff Stutz — Chief Financial Officer

Thanks, Steven.

Andi Owen — Chief Executive Officer

Thank you, Steven.

Operator

Thank you. Our next question comes from the line of Reuben Garner with Benchmark. Your line is open.

Reuben Garner — Benchmark — Analyst

Thank you. Good evening everybody.

Andi Owen — Chief Executive Officer

Hi, Reuben. Are you getting any sleep? Congratulations.

Reuben Garner — Benchmark — Analyst

Thank you. I appreciate it. No, not a ton of sleep yet, but I think we’re getting there. So, just to start off, a clarification, Andi. I think you mentioned multiple choices in a single market from the dealers and how you’re going to go-to-market with Herman Miller and Knoll. Can — and maybe it’s too early to answer this. And obviously, if you haven’t communicated the strategy with the dealers, you can’t tell us yet. But what — I mean, how is this going to work? Are the Knoll dealers going to sell both Knoll and Herman Miller product now? Do they have access to everything? Is it going to be by market? How that decision is made, or is Knoll going to sell Knoll and Herman Miller is going to sell Herman Miller for a period of time? What does that look like?

Andi Owen — Chief Executive Officer

These are all excellent questions, Reuben. And the answer to all of them is yes. So we will have one dealer network and every dealer will sell all of Miller and all of Knoll. So we will be bringing them all together, so that they can basically offer our entire portfolio. Part of the work there is that we’ve taken both dealer networks and done extensive and exhaustive interviews with our customers, as John Michael spoke to earlier as well as with our dealers, look at the size of the market, determine which markets support how many dealers, which markets don’t. And we’ve been working on a market-by-market basis with a network to determine what’s the right number of dealers in every market. And that is a lengthy process, but we have to be very thoughtful and we have to have a very tailored approach to make sure that we land the right assortment. And John Michael, you’re much closer to this. So I don’t know what you would like to add.

John Michael — President of North America Contract and Global Operations

I think that was well said, Andi. I think Reuben, the — just to clarify, it’s so to reaffirm what Andi said right, one MillerKnoll network selling the full collective of brands and then, really a tailored approach by market. We — you mentioned at the start of your question, multiple dealers in a market, and both Knoll pre the deal and Herman Miller had markets with multiple dealers in them. So that’s not a new phenomenon in anyway. And we know how to navigate those situations and make sure that it’s beneficial for all the parties involved. So we’re very actively involved in going through that process right now and working on, obviously, a number of different initiatives, not only to establish the dealer footprint, but then also set up the infrastructure, so that they are all fully trained and ready and have the tools that they need to represent all the brands well in the marketplace.

Reuben Garner — Benchmark — Analyst

Okay. And so just to be clear, today, if I — if there was a company going into buy office furniture from one of your dealers, either Knoll or Herman Miller’s legacy dealers, would they be able to buy product from both the entire MillerKnoll suite of products?

John Michael — President of North America Contract and Global Operations

Not quite yet. We’re in a beta test situation right now where we’re working on the mechanics of how that will all flow. And our intent is by the middle of 2022 that all those pieces will be in place, and then, we will be able to do what you said. Each dealer will be able to represent all the brands.

Andi Owen — Chief Executive Officer

And the good news there, Reuben, and you know this, but all of our dealers sell things from multiple manufacturers today. So ordering from a variety manufacturers is not a new thing for them. Really for us to focus is on how we enable them from a back of house standpoint, how we provide them with the right training on both product portfolios, so that their dealers, salespeople and designers can get up to speed as quickly as possible. And I think I can look at my leadership team and say, this is our number one priority right now and we want to get after it as quickly as we can.

Reuben Garner — Benchmark — Analyst

Understood. Helpful. Thank you. On the supply chain, so I think back of the envelope here implies that there’s a pretty nice ramp-up in your business across MillerKnoll altogether from the current quarter to next quarter, at least on the top line. And it sounds like there’s still going to be supply chain headwinds. So can you help me understand how you go from, say, $900 million to $950 million in revenue, and maybe that’s not the right number with Knoll — a full quarter of Knoll Incorporated up to something like $100 million higher sequentially? Is it that — do you guys not have any capacity constraints on your end and it’s simply just an inability to get the materials you need on time and the trucks you need on time? And I guess, if you can’t — if it was tough to do that at $900 million of revenue, how — what has to happen for you to go to north of $1 billion?

Jeff Stutz — Chief Financial Officer

Well, Reuben, this is Jeff. Let me just make sure we’re not talking past each other on this point. Bear in mind, we had Knoll in our consolidated results for 6.5 weeks, right. So we’re moving from 6.5 weeks where we took orders on a consolidated basis of just over $900 million to a full 13 weeks of order entry on the Knoll side as well as the legacy Miller side. So the Q1 to Q2, right, is not apples-to-apples because you’re going to end up having a lot more Knoll volume just by virtue of the fact that you’ve got 6.5 more weeks of activity. So let me — I’m going to pause here and just make — yeah.

Reuben Garner — Benchmark — Analyst

Yeah, Jeff, the $900 million I was referencing, I was trying to layer in another 6.5 weeks of Knoll shipments that you might have had. I’m just guessing that if you had Knoll for the whole quarter, your revenue this quarter might have been something north of $900 million, and now you’ve got to go from $900 million of revenue over — to over $1 billion next quarter. I’m trying to see how you go from this quarter to next quarter where the incremental capacity comes from, or maybe you don’t have capacity constraints and it’s on the material side?

Jeff Stutz — Chief Financial Officer

Yeah. We have capacity constraints. Those are not immediately going away. Now they have — look, our operations teams have done great work mitigating a lot of that pressure. So they’re still dealing with them, but we are moving the needle, if you will, in terms of our ability to improve throughput. And that’s true in our domestic US operations. It’s also true internationally. One of the things I’ll point out is that we had COVID-related closures in some — a particular key market, actually in India, and that was a drag on the revenue, the throughput activity within the International Contract business and it was one of those factors that limited revenue. So there’s a number of things here. We do think we’re going to see a ramp-up in activity — in our ability to produce and ship in Q2, and that’s all reflected in the guide.

Andi Owen — Chief Executive Officer

Yeah. And also remember, Reuben, we’re going into this quarter with a really strong backlog. And I would say materially availability was really more of a constraint than labor. And we are starting to see — and I’m not going to say what our labor challenges are not there because I think they’re there macroeconomically, but we are starting to see a little bit of progress there. So if that helps to answer that.

Reuben Garner — Benchmark — Analyst

Yes, it does. And last question for me, I want to sneak one more in. The — so, correct me if I’m wrong, but I think Knoll, when it was a stand-alone was maybe, there were some footprint consolidation going on. Does the current demand environment and constraints that you’re having maybe change the outlook on any footprint consolidation and maybe I’m behind the curve and those have already been — those actions have already been made? But is it — I guess, have you rethought any of the moves that are happening either related to the integration or at either company from a stand-alone perspective?

Chris Baldwin — Group President of MillerKnoll

Hi, Reuben.

Andi Owen — Chief Executive Officer

Hi, Chris.

Chris Baldwin — Group President of MillerKnoll

Sorry, it’s Chris Baldwin. Just speak on the Knoll side, so I think part of your question is, did the consolidation already occur on the Knoll side? And the answer is yes, that already happened. So that already went down a facility, which has been great from a cost standpoint and also no impact to production capability for Matte [Phonetic], obviously, those supply chain issues notwithstanding that are more general. So that’s already taken place, and there’s no need to then put anything on hold, this is complete.

And when it comes to the integration work, like Kevin talked about that, but then that’s a fresh look that there’s really no current plans to close any facility. It’s really work around procurement and things that Kevin talked about to achieve our $100 million by two years.

Reuben Garner — Benchmark — Analyst

Great. Thanks guys. Appreciate all the help and good luck going forward.

Andi Owen — Chief Executive Officer

Thanks, Reuben.

Jeff Stutz — Chief Financial Officer

Thanks, Reuben.

Operator

Thank you. Our next question comes from the line of Alex Fuhrman with Craig-Hallum Capital. Your line is open.

Alex Fuhrman — Craig-Hallum Capital Group — Analyst

Great. Thanks very much for taking my question and congratulations on the Knoll integration here. I wanted to ask about the Retail business. Obviously, there’s been a lot of conversation on the call about your corporate business and rightfully so. But now with the new reportable segments, it looks like Global Retail is more than 25% of your sales on its way, presumably to 30%. Can you talk more about the strategy for this segment going forward? And specifically, I’m curious how your initial Herman Miller and your Seating Stores have been performing as we’ve been moving farther away from the depth of last year’s lockdowns, and if you think there’s an opportunity to continue opening new stores under the flagship brand in the years ahead?

Andi Owen — Chief Executive Officer

Yeah. Alex, now, I’m going to turn this over to Debbie, our President of Retail. But I would say our retail strategy has been bearing fruit. I think we were very thoughtful on how we thought about our direct-to-consumer business and that we knew that one of our sweet spots is our ability to deliver a healthy and ergonomic seating to a wider variety of folks. With the hybrid work environment that we see, our Herman Miller Seating Stores have been very, very successful, and we see the continuation of that growth in our Retail business. I also think that we are really just at the beginning of what our Retail business could be. Debbie is an experienced and amazing retail leader, and I think having her eyes on the business and looking at it differently from a growth perspective really will enable us to grow around the globe with the different brands that we have underneath the retail umbrella. So Debbie, let me just turn it over to you for a quick bit on the strategy.

Debbie Propst — President of Global Retail

Thanks, Andi. So I’d say our number one priority is, first and foremost, optimizing for omnichannel customer journeys, ensuring that our brands show up in a consistent way from an experience standpoint in whichever channel the customer wants to engage with us in. And in addition to that, we have strategies by brand. So we’re running a portfolio of retail brands with different growth levers within each. For example, within Design Within Reach, the primary growth lever we’ve been driving has been assortment expansion, where a non-cup unit quarter-on-quarter is driving the bulk of our growth.

Within Herman Miller, our expansion strategy has been around improving awareness of the benefits of sitting well, and we’ve been doing that through omnichannel touchpoints with the customers with our Performance Seating stores being a critical element of that. And we’ve been continually impressed by the type of four-wall profitability we’ve been seeing from those small format locations and that are obviously a substantially smaller investment to open up and get into than some of our legacy retail footprint. So we opened additional three locations within Q1. And since Q1 ended, we’ve opened two more. And so, we’re now in a total of 11 with the goal to continue to taste openings at a similar rate throughout the balance of the fiscal year.

And then, from an additional perspective, obviously, HAY is a brand that is younger and its awareness in North America, and we are focusing on assortment strategies there, so that we can be a dependable and well-readied resource for home decorating.

Chris Baldwin — Group President of MillerKnoll

That’s terrific. Thank you very much.

Andi Owen — Chief Executive Officer

Thank you.

Operator

Thank you. We have a follow-up from the line of Greg Burns. Your line is open.

Greg Burns — Sidoti & Company — Analyst

Thanks. So just to follow up on some of the commentary around seating. When we think about offices reopening and the prior growth around home office, work from home, how does that change now that offices are reopening? Are you seeing the demand levels for home office, home seating change at all? And then secondly, could you just touch on the accretion you saw from Knoll this quarter? Is that kind of what we should expect going forward? Thanks.

Andi Owen — Chief Executive Officer

Debbie, why don’t you take the first part and then Jeff, the second?

Debbie Propst — President of Global Retail

Absolutely. Well, I’m very — I’m happy to say that our workspace category in the retail channel continues to grow over last year despite double-digit comps this time last year. So it’s proving to be a pretty resilient strategy to the return to office trends that are starting to emerge. And I think one of the elements that’s driving that is the sort of pandemic positioning that this product is a wellness product and that improves your overall workplace balance and health benefits. And so, if we can position the product in that way, which is the way that this product has not traditionally been positioned in the category, that allows us to drive momentum beyond pandemic trend.

Andi Owen — Chief Executive Officer

I also think — I’m going to remember, Jeff, sorry, just before you bring in, we can’t forget our gaming business, which is also part of our Seating business, which has been phenomenally successful. And just to remind you, well, that’s the $159 billion [Phonetic] market and that we have just scratched the surface of. And I think with our innovation around that category, we will continue to see growth there. So it is a multidimensional category that is beyond just work from home. It also encompasses a variety of other uses. Jeff, sorry, to — the Knoll question?

Jeff Stutz — Chief Financial Officer

Yeah. Good commentary. So Greg, your question on the accretion. So what you can imagine, we were pleased to right out of the gates with a partial quarter to see some EPS accretion from the acquisition. What I would caution is, bear in mind, we didn’t reflect a full quarter drag of the weighted average share count. I would expect that in the coming quarters, you’re going to see the impact of the Knoll integration when you factor in, of course, the higher debt borrowing costs and share count to be close to neutral, maybe a slight drag on earnings per share in the short run. We continue to be believers that — stick with our point of view from the announcement date, which was on a cash basis, meaning adjusting for the acquisition-related amortization, we think that the deal can be accretive after one full year and on a GAAP basis after two years. So that’s my continued expectation, and I’d stick with that.

Greg Burns — Sidoti & Company — Analyst

Okay. And then, just one more in terms of kind of some of the forward-looking metrics you discussed in terms of pipeline of orders, mock-ups and things like that. It doesn’t sound like you’ve seen any slowdown due to Delta and things getting pushed out, and we’ve seen a lot of headlines of businesses pushing out the return to office plans. And — but we did — one of your other competitors didn’t have some more cautious comments around that, like they were seeing a little bit of a slowdown in some of those areas. So could you just talk to that? And just generally, have you seen any impact of COVID with the conversations you’re having with customers?

Andi Owen — Chief Executive Officer

I will let John and Chris weigh in on this. But I would say, overall, projects pushing are not an unusual thing in our business. And I think in the last couple of years, COVID has been a little bit of push and pull across the world. So we have seen some things push, but we’ve seen some things push from quarters into this quarter as well. So ultimately, the big point for us, Greg, is that we’re not seeing cancellations. And that’s really, really encouraging. And the demand is increasing because people are really thinking differently about their environment. And with vaccines and masks, I think people have a lot more confidence this year than they did last about bringing people together in different ways. So we’re encouraged. Certainly, Delta throws at a curve ball and will continue to. But cancellations are what we really look for as the canary in the coal mine, and we have not seen those. So John Michael, would you add anything to that?

John Michael — President of North America Contract and Global Operations

I would just say that in terms of clients that we were working with that were perhaps going to return in September, October, some have pushed to, say, January, and some of the January original dates have pushed, say, to March. So the pushes have been 60 to 90 days, not months and months. And the other thing that I think that’s — as the market — as customers have evolved and figured out how to navigate with COVID is if you think about this time last year, there was a lot of uncertainty, but there was uncertainty about are we going back to the office and what’s the importance of the office. And there is no uncertainty around that anymore, right. People really acknowledge, understand that collaboration and connection and culture and innovation and heads-down work all need to happen in a destination place that’s attractive to employees. And our customers understand that, and they are seeking that and we’re helping them with that. So the timing is moving around a little bit, but the demand is still there.

Greg Burns — Sidoti & Company — Analyst

Okay. Great. Thank you.

Operator

Thank you. I’m showing no further questions in the queue. I would now like to turn the call back over to Andi for closing remarks.

Andi Owen — Chief Executive Officer

Great. Thank you so much, everyone, for joining us today. We really appreciate your continued interest in MillerKnoll, and we look forward to updating you again next quarter. Hope you have a good night.

Operator

[Operator Closing Remarks]