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Herman Miller Inc (NASDAQ: MLHR) Q3 2020 Earnings Call Transcript

Final Transcript

Herman Miller Inc  (NASDAQ: MLHR) Q3 2020 Earnings Conference Call

March 18, 2020

Corporate Participants:

Kevin Veltman — Vice President of Investor Relations & Treasurer

Andrea Owen — President and Chief Executive Officer

Greg Bylsma — President of North America and Global Operations

Jeff Stutz — Chief Financial Officer

Analysts:

Reuben Garner — The Benchmark Company — Analyst

Greg Burns — Sidoti — Analyst

Steven Ramsey — Thompson Research — Analyst

Presentation:

Operator

Good evening, and welcome to Herman Miller’s Third Quarter Earnings Conference Call. As a reminder, this call is being recorded. 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 & Treasurer

Good evening, everyone. Joining me today on our third quarter earnings call are Andi Owen, our President and Chief Executive Officer, Jeff Stutz, our Chief Financial Officer and Greg Bylsma, our President of North America and Global Operations.

We have posted yesterday’s press release on our Investor Relations website at hermanmiller.com. Some of the figures that we’ll cover today are presented on a non-GAAP basis. We reconciled the GAAP and non-GAAP amounts in a supplemental file that can also be accessed on the website.

Before we begin our prepared remarks, I will 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.

Andrea Owen — President and Chief Executive Officer

Good evening, everyone, and thank you for joining us. Since we spoke with you last quarter, uncertainty and associated market volatility have clearly accelerated as the coronavirus outbreak has spread across the globe. With that in mind, I’ll begin our remarks today with our perspective on the current environment, followed by an overview of our financial results for the quarter and an update on our strategic progress. Before I turn over to Jeff and Kevin for further information on our financial results, Greg Bylsma, who not only leads our North American Contract business, but also oversees our global manufacturing operations will share more details on how we’re managing the coronavirus situation.

Moving to our perspective on the current environment. First and foremost, our hearts go out to the individuals and families around the world that have thus far been directly impacted by the coronavirus. Our top priority right now at Herman Miller is to keep our employees and communities safe and healthy and we’re taking every precaution to do so. As we manage our business through this fluid situation, we’re focused on the factors that we can control. We’re monitoring our global footprint around the clock and have developed detailed contingency plan, given the outbreak began in China and our third quarter results were most impacted in Asia-Pacific, let me provide some background on our footprint there. The Asia-Pacific region, which was served by manufacturing operations in Dongguan, China; Infinity India represent approximately 8% of our consolidated sales. Across the globe, 10% to 11% of our goods sold are sourced from China. As the number of new cases in this region of the world declined, our Dongguan manufacturing operations are nearly full capacity and our key suppliers in China are producing and shipping products for all regions of the world. At the same time we are proactively leveraging our team’s efforts in China and applying that learning to our efforts to mitigate our exposure in North America and Europe.

Against this backdrop, the demand picture was mixed during the quarter. Sales in the period were 8% higher than last year as the consolidation of the HAY and naughtone brands contributed to reported growth. On an organic basis, sales were slightly below the same quarter last year. Our North America and retail businesses delivered modest organic sales growth, while shipments from our China facilities were unfavorably impacted by the broad based government mandated shutdown following the virus outbreak. Reported order levels this quarter were 6% higher than last year, while 1% lower than last year on an organic basis.

Despite the relative softness we experienced on the top line, our team did a great job managing costs and we’re very encouraged by the overall level of profitability we generated in the quarter. We continued to drive year-over-year gross margin improvement in our business. Favorable price realization, lower commodity costs, and our profitability improvement efforts was the primary drivers of gross margin expansion over last year. As a result, we delivered another quarter of adjusted operating margin expansion, with an increase of 110 basis points over the same quarter last year. Earnings per share on a GAAP basis were $0.64, while adjusted EPS, which excluded the impact of restructuring and other special charges totaled $0.74 in the quarter. This reflected an increase of 16% over the same quarter last year.

In addition to delivering on our earnings commitments for the quarter, we drove positive momentum towards our strategic priorities, let me share some of the highlights. First, on the innovation front, we’ve leveraged our leadership in high-performance seating by establishing recent partnership with Esports organization Complexity Gaming and Logitech, an industry leader in gaming gear. While these partnerships are in the early days, they represent an opportunity to bring our ergonomics expertise to the e-sports arena and highlight how our deep margin research can be applied to new audiences and rapidly growing market.

Creating digital solutions that are aimed at improving our customer experience is one of our top priorities. As part of that effort, we made significant progress on our journey to refresh our e-commerce platforms. New page design for dwr.com have been completed as part of our plan to relaunch dwr.com in the first quarter of next year. We also launched a number of e-commerce improvements on our platforms in North America, including chat and video functionalities communicate with our customer care team and a next generation financing option, which we’ve deployed on hermanmiller.com and hay.com. These new designs and functionality upgrades will result in a much improved customer experience, which we believe will translate to higher conversion rates.

More broadly across our retail business, as we mentioned last quarter, Debbie Propst joined us in January to lead the business and she’s hitting the ground running. She initially spent a lot of time listening and learning. She and her team are already developing a number of work streams around areas like brand marketing and merchandising assortments that will drive top and bottom line growth for the retail business. With her deep background in global retail brands, we’re excited to have her on board and expect Debbie to join us on an upcoming call to share more about our progress.

I’d also call out one highlight in the quarter. One of the pillars for accelerating profitable growth in our retail business is joining with leading designers to launch higher margin exclusive designs. Through our partnership with AG Collective [Phonetic], a firm led by three award winning female designers, the Eames sofa is already our top selling sofa lines since its launch in the second quarter of this year.

And finally, I’m pleased to report that our North American profitability improvement initiative continues to deliver benefits to our bottom line. We finished the quarter at a run rate of $44 million of benefit this quarter, which means it exceeded our goal of $20 million to $40 million in savings that we had established when we began this work. two years ago. Our efforts around pricing analysis and strategic sourcing have been particularly meaningful to this effort, and we’ll be leveraging our learnings and successes into other parts of our business.

While we remain confident in our plans for sustainable long-term growth for Herman Miller, given the rapidly changing environment surrounding coronavirus, we’re not following our typical practice of providing quarterly guidance for the upcoming fourth quarter given the difficulties at estimating near-term demand. Navigating the coronavirus situation will require flexibility, resilience and ability to balance our long-term objective with the challenges we face today.

With that, let me turn the call over to Greg to provide an update on the impact of the coronavirus on our global operation.

Greg Bylsma — President of North America and Global Operations

Thanks, Andi. I would like to reiterate that our people and their safety and wellness are at the heart of our efforts around coronavirus. We have a significant number of initiatives in place right now across the organization. Within operations, some of the actions we have taken include increasing the frequency and scope of our facility cleaning, staggering break periods and increasing the time between shifts for manufacturing teams and changing the structure of our work to offer social distancing in work cells. Additionally, we are providing health guidance to help our employees, stay well, and understand the symptoms to look forward and if they are not feeling well, encourage them to stay home, removing barriers they may face in making that choice.

As Andi mentioned, we felt the initial impact of the coronavirus situation this past quarter in the Asia-Pacific region driven by government mandated delays returning from the Chinese New Year. Our factories in the Dongguan region were closed for an additional full week, which caused a delay in shipments, which reduced net sales in the period by an estimated $6 million for the International business segment. As workers have been returning over the past few weeks, our manufacturing operations and those of our key suppliers in the region are nearing full capacity and we are working to catch up on the missed production. Our manufacturing facility in India has also been able to help meet a portion of the customer demand in the region.

As coronavirus has spread across global markets, we have put in place contingency plans to ensure we support our customers, maintain the supply of critical product lines and address potential disruption at key suppliers. As this remains a fast moving situation, we are meeting regularly to assess any new issues within our manufacturing or supply chains as well to ensure risk mitigation plans are fully implemented.

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With that background on our response, I’ll now turn the call over to Jeff to cover our financial details from the third quarter.

Jeff Stutz — Chief Financial Officer

Thanks Greg and good evening everyone. Consolidated net sales in the third quarter of $665.7 million, were 8% above the same quarter last year on a reported basis and slightly below last year organically. Reported orders in the period $652 million, were 6% ahead of last year on a reported basis and 1% below the prior year on an organic basis.

Within our North American Contract segment, sales were $413 million in the quarter, representing an increase of 4% from last year on a GAAP basis and an organic improvement of nearly 3%. New orders of $406 million in the quarter were 4% higher than last year on a reported basis and up 2% organically. Order patterns in this segment reflected growth in larger project sizes while small to medium project activity was lower. From a sector standpoint, we saw order growth in the US federal government, healthcare and energy sectors, partially offset by lower demand in financial services.

Our International Contract segment reported a 24% increase in sales to $156 million in the third quarter. New orders of $159 million or 26% above the same quarter last year. Reported sales and orders reflect the impact of our recent step acquisitions of HAY and naughtone. Collectively, the consolidation of these entities contributed approximately $50 million of net sales to our results in the quarter. On an organic basis, which excludes the impact of these acquisitions, net sales and orders in the International segment decreased 10% and 7% respectively from the third quarter of last year. The unfavorable impact from the mandated factory shutdown at our facilities in Dongguan, China reduced the International growth rate by approximately five percentage points in the quarter. In addition to this pressure, the International business faced particularly challenging sales growth comparisons for the quarter. In the same quarter last year, this segment of the business posted organic order growth of 24%, on a two year basis, organic sales growth has averaged 8.5%. Given the difficult comparison, organic order declines were fairly broad based except for higher order levels in Japan and mainland Europe during the period.

Our retail business segment reported sales in the quarter of $96 million, which were flat compared to the same quarter last year. New orders for the period of $86 million, were down 9% on a year-over-year basis. It’s important to clarify that this comparison to last year was significantly impacted by a timing difference in our retail promotion calendar. Specifically, the timing of our Herman Miller product sale were shifted this year. And as a result our third quarter included six fewer days than it did a year ago. Normalizing for this timing difference, we estimate orders this quarter would have been approximately 1% lower than the same quarter last year.

Consolidated gross margin in the quarter was 36.5% and includes certain adjustments related to the initial purchase accounting of HAY. Excluding these items, adjusted gross margin of 36.8% was 110 basis points higher than last year. Favorable price realization lower steel costs and our ongoing profit improvement efforts, all contributed to gross margin expansion. Operating expenses in the third quarter of $189 million compared to $173 million in the same quarter a year ago. The current quarter included $5 million of special charges, primarily related to transaction expenses and purchase accounting adjustments associated with HAY and naughtone. By comparison, we recorded special charges totaling $0.5 million in the third quarter of last fiscal year. Exclusive of these items, the year-over-year increase in operating expenses of $12 million resulted mainly from the impact of consolidating HAY and naughtone.

Restructuring charges in the third quarter totaled $3.5 million and related to actions associated with our profit improvement initiatives. On a GAAP basis, we reported operating earnings of $50 million this quarter, compared to operating earnings of $48 million in the year ago period. Excluding restructuring and other special charges, adjusted operating earnings this quarter were $60 million or 9% of sale. And by comparison we reported adjusted operating income of $49 million or 7.9% of sales in the third quarter of last year. The effective tax rate in third quarter was 22.4%.

And finally, net earnings in the third quarter totaled $38 million or $0.64 per share on a diluted basis compared to $39 million or $0.66 per share in the same quarter last year. On an adjusted basis, earnings per share this quarter totaled $0.74 compared to an adjusted earnings of $0.64 per share last year.

With that, I’ll turn the call over to Kevin, who will give us an update on our cash flow and balance sheet.

Kevin Veltman — Vice President of Investor Relations & Treasurer

Thanks, Jeff. We ended the quarter with total cash and cash equivalents of $111 million, which was $66 million lower than the cash on hand last quarter, primarily related to the $79 million investment in HAY at the beginning of the quarter. Cash flows from operations in the third quarter were $49 million, reflecting an increase of 26% over the same quarter of last year. Lower working capital was the key driver of higher operating cash flows, primarily due to decreased inventory and prepaid expense levels. Capital expenditures were $18 million in the quarter. Cash dividends paid in the quarter were $12 million, while shares repurchased totaled of $18 million for the quarter.

We remain in compliance with all debt covenants and as of quarter end, our gross debt to EBITDA ratio was approximately 0.9 to 1. The available capacity on our bank credit facility stood at $266 million at the end of the quarter. Given our current cash balance, ongoing cash flow from operations and total borrowing capacity, we remain well positioned to weather the near-term market volatility and meet the financing needs of the business moving forward.

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

Jeff Stutz — Chief Financial Officer

Okay, thank you, Kevin. As Andi mentioned the rapidly changing situation surrounding global mitigation efforts around COVID-19 make it too difficult to estimate the near term impact on our business. As such, we’re not following our typical practice of offering sales and earnings guidance for the fourth quarter. But with that being said, there are a few data points that we can share. To begin, we enter the fourth quarter with a consolidated backlog of $411 million, which is up approximately 3% from last year. As a general rule, our backlog typically represents approximately six weeks of shipment as we head into a new reporting period.

To provide a sense of current activity levels through the first two weeks of the fourth quarter, our consolidated sales were up approximately 6% from last year, while new orders were down closer to 3%. To date we have received minimal requests from customers and dealers to adjust the timing of scheduled shipments, both in the US and abroad, though we would expect this to increase. However, we have not to date experienced any meaningful order cancellations and would expect to ship the majority of our backlog within the fourth quarter.

So with that additional commentary, I will now turn the call back over to the operator and we’ll take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Reuben Garner with The Benchmark Company. Your line is now open.

Reuben Garner — The Benchmark Company — Analyst

Thank you. Good afternoon, everybody. So maybe we can start, it’s been a while since we’ve had an environment like this. Can you — can you remind us how — how to think about detrimental margins, I guess just on the core business before any actions you take, if we were to enter a period of softening — softening volume growth?

Jeff Stutz — Chief Financial Officer

Yeah. Reuben, this is Jeff. I’ll take a stab. And I think I’d emphasize this — I don’t know if we’ve seen an environment like this, but what we do have is a lot of experience dealing with recessionary periods going back in our history. So we do — we do know a thing or two about how to manage our way into a down period. So based on — let me start with now you emphasized before actions, that’s key. Our business, we’ve always said in short burst kind of can lever up and lever down on incremental revenue changes in small time increments somewhere between 20% and 30% in a contribution margin perspective, maybe even a little higher in short burst of time, but we had in the last 20 years two significant downturns, both times taking bold action around cost reduction and we’ve built a cost structure as a business that is naturally as variable as we can make it. And so that level of — of deleveraging is not what we experienced in the last couple of downturns.

So I’ll go back to the last recession as probably my best reference point, I’m not suggesting that things are going to play out the exact same way, but it’s probably the best reference I can give you and as a general rule, with a 10% movement in revenue, we saw operating margins move somewhere between 175 basis points and 200 basis points. So — as a general rule, so if it moves 10%, if it moves 20% it would be kind of two times that and so on.

Reuben Garner — The Benchmark Company — Analyst

Thanks. That’s very helpful. And then, so you got a lot of profit improvement initiatives going on right now, are there any risks or at this point that you can see that those have to be put off, just given this is an environment that we never dealt with before. I mean, I’m assuming there could be some interruptions, what — how do we think about the savings that you are anticipated to get this year in an environment when you might have temporary closures?

Andrea Owen — President and Chief Executive Officer

You know, I think we’ve been at, this is Andi, I think we’ve built a lot of muscle around optimization efficiencies by going through this process and I would anticipate we would continue to do that if anything, I think what we’ve learned in going through this process will help us if we anticipate a downturn and how we prepare for that.

Jeff Stutz — Chief Financial Officer

Yeah, and this is Jeff, Reuben. I think as you look at the individual actions we’ve taken, by the way Greg is with us and he is sitting on the call and he — he was front and center on a lot of the work here in North America. So he might add some thoughts too. The one thing I would say to be balanced about this is, you know in past downturns, what you find when volume levels drop off the impact around price discounting has been a factor historically, now that we certainly have not seen that. We had good margin flow through this last quarter as we have for the entire past 12 months. So I make no predictions, but that is the one thing, but we’ve done a lot of work around price increases and so forth. We’ll have to see how that plays out. Greg, I don’t know if you want to add anything.

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Greg Bylsma — President of North America and Global Operations

I would just maybe add on to Andi’s comment about the muscle. While it started out as a project, it turned into the way we work and the way we do things. So I don’t necessarily expect to do anything that would say oh, that’s going to get in front of or in the way of what we have been doing profit improvement wise.

Reuben Garner — The Benchmark Company — Analyst

Got it. And then last one for me, and I hate to harp on it, just given the — given the environment, how do we think about cash flow, what are the puts and takes and you guys obviously have a strong balance sheet, how do you think about, assuming you continue to generate positive cash flow through this period, how do you think about uses of cash versus building it up on the balance sheet? Thanks, guys. And congrats on the quarter.

Jeff Stutz — Chief Financial Officer

Yeah, thanks Reuben. I’ll give you — I’ll give you a few thoughts on this. So as you can imagine, and I don’t know that I’m going to directly get to puts and takes by category, you can imagine right now, we are actively looking at a range of scenarios. In the early part of our recessionary period historically, we tend to see a fair amount of cash inflow. Just given the nature of how — how our terms are structured as a business.

So we do — we have at least a couple of data points historically to kind of build that as an expectation. But in a down period, we’re looking at everything from how do we — potentially pull back on near-term capital spending but of course balancing the need to fund the strategic investments that we’ve been talking about for the last year or so, which we think are super important in building some new capabilities that were long ways down the path towards. So that we’re going to try to protect and try to tighten our belt where we can, we got lots of scenario modeling that is currently happening and we’ve got a good amount of cash on the balance sheet.

And as Kevin mentioned in his prepared remarks, I think it’s worth pointing out, we do have a little over $110 million of the cash on hand, we’ve got lots of borrowing capacity on our line of credit, which we upsized a year ago or thereabouts a year ago. We’ve got a fairly low leverage ratio, it’s just under one turn and a net debt position of $164 million. So we feel, is well positioned to go into a challenging period as we probably ever have and as evidence of that I’d point maybe to the last, as we entered the credit crisis, we had a leverage ratio that was over one turn, it was about 1.3 times going into the downturn and we had a significantly underfunded US pension plan. And we managed our way through that and that leverage ratio never got above three turns. So yet no one is predicting, you certainly are not going to get a prediction from us as to what this means in the near term, but I think we are well positioned to manage our way through it and protect the critical investments that we need to come out on the other side.

Operator

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

Greg Burns — Sidoti — Analyst

Yes, I guess what’s a little different this time around is the retail operations. Maybe talk about how that business performs through recession — the history that it [Indecipherable] maybe how that impacts given this time around?

Jeff Stutz — Chief Financial Officer

Greg, this is Jeff. You know a little bit difficult to answer, I can give you some perspective and it is historically based and so I qualify it with that. We can say that our retail business, given the price points that our business is focused on, now that’s changed a little bit with HAY, which I think is a good thing, but given the higher price points that our products are tend to — tend to be at. In the last downturn, we found that business levered down about half as much as the contract space. So we felt that and at least it proved out then that it was much less impacted. Clearly it was still down, but it moderate the overall — had we owned it then, it would have moderated the overall decline that we felt as a consolidated group. That’s about all I can offer you. Again all of what I described on the scenario planning, you can be sure we are including our retail segment in that work as well. And there is folks that are heavily focused on that right now. And I don’t know if you’d add anything.

Andrea Owen — President and Chief Executive Officer

I would add to that Greg, as we look at the assortment additions that Debbie and her team are making, the addition of HAY and the price point there, the fact that we have an online presence that we didn’t have in the last recession, I think those things are things and certainly the way we’ve updated and are looking at our digital platform, the way — we have introduced ways for our customers to have virtual appointments versus in person appointment, I think those things kind of had, excuse me, a little bit better position than perhaps we were on our last downturn. But having said that, I know this an unprecedented time but that would be my input.

Greg Burns — Sidoti — Analyst

Okay. And are all your stores currently open? Have you — have you closed any?

Andrea Owen — President and Chief Executive Officer

Yeah, so let me just get back and talk a little bit about the selling process at DWR because it’s really not like typical retail stores. Most of our sales are driven by client selling and relationship selling through our account executives and a good portion of that is trade, interior designers, architects. So we’re bringing in a lot of business, the business is much less dependent on walk-in traffic. So obviously, where we’ve had issues, where governments have mandated shutdowns, which is in the Bay Area and California, New Jersey where we have curfews. We have — we have shut stores and the remainder of our stores, we’ve gone to a virtual appointment only model. So essentially, while we’re closed to public walk-ins, our account executives are available. As I mentioned before, we have a platform where people online can actually connect with an associate in the store. So we anticipate we’ll see a drop in sales, but we don’t anticipate we’ll see a drop has others might that have actually closed stores that don’t have the same selling model as we do.

Now from a HAY perspective, because it’s much more transaction-based. We have closed those stores but we have so few of them right now but we don’t expect a major impact from that.

Greg Burns — Sidoti — Analyst

Okay, great, thanks. And then, you gave some color on, I guess what you’re seeing early in the quarter and it seemed like in the first couple of weeks, there isn’t really too much of a change. But it really, I mean, everything is kind of really accelerated this last week or so have you seen any, any shift in demand, order patterns, anything in the last week or is it too early to say. I know you’re not quantifying things, but maybe just qualitatively and have you seen a step change in the business over the last week or so?

Andrea Owen — President and Chief Executive Officer

Surprisingly, if I look at our retail business I think we’re surprised to see what we have continued to see in the trend. Having said that, it is anybody’s guess and I think we all expect that we will see a change, but I can say for today and tell you in the contracts side of the business and the retail side of the business, we haven’t had cancellations, we haven’t has seen a dramatic drop in our day to day. So we are planning, as Jeff mentioned earlier, we are planning for all those things, but as of right now no.

Greg Burns — Sidoti — Analyst

I don’t know maybe the last lesson around the ’08, ’09 financial crisis. Was there — was there a lead time like — what was the experience back then in terms of how the business got impacted by what was going on in the economy? What was it like one or two quarters [Indecipherable]?

Greg Bylsma — President of North America and Global Operations

Greg, this is Greg and I will try to — having had that memory come back to be very a lot lately let me see if I can maybe provide some color. So the first thing that we saw back in the late ’08 early ’09 calendar time frame was a drop off in day, what we call day-to-day business which I’ll define as orders less than $100,000 that at the time, as you remember, as volatility increased and the market declined that we seem to — to get that pretty quick and so by kind of October, November timeframe back in ’08 you started to see that, what you also tend to have is people who are committed to a project either through a new lease or through new construction. Those larger projects tend to stay longer because people have decided to move and they really have no choice but to complete the project, both if you are just the landlord and/or the tenant.

So the thing that I watch every day as we’re going through this is the day to day. And as Andi said, that seems to be pretty strong still, you’re actually getting on some cases on the healthcare side, you’re getting people who are saying can you hurry up we have demand that maybe we didn’t have 3 weeks or 4 weeks ago. So while that’s albeit a relatively small part of the contract business probably 15%, it is an interesting dynamic given all that’s going on. So the day to day is what we watch. I think that’s the big indicator. I think you’re going to see — like Jeff talked about the backlog, the backlog is the backlog, but I would imagine that you’ll see, the people who are committed, will remain committed and question is how long this goes and what happens to people who have projects that maybe they were thinking about planning about that are farther out maybe fall or winter of ’20.

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Andrea Owen — President and Chief Executive Officer

Yeah and I would add that as well. You know with a large number of folks that are working from home. I think we’ve seen a sudden realization that maybe people are not set up to work from home as well as they thought they might be. So we have seen an increase in demand and products that related to remote working as well.

Greg Burns — Sidoti — Analyst

Okay. Is there anyone else in the queue? I’ll hop in or I’ll keep on going if –.

Jeff Stutz — Chief Financial Officer

Go ahead.

Andrea Owen — President and Chief Executive Officer

You can go ahead Greg. Yeah.

Greg Burns — Sidoti — Analyst

All right. So maybe, maybe another one about like a historical perspective. This going into this downturn — the industry was kind of this a slow recovery, you never had this kind of frothy excess, it didn’t seem like maybe last time was that not the case may be in ’08, ’09 or even in 2000, but you have more of a over capacity build up in the industry where you would have a steeper decline than maybe what you would see this time around? Like, what is the overall market look like in terms of — this time going in versus last time?

Jeff Stutz — Chief Financial Officer

Yeah, this is Jeff, Greg. Maybe just a couple of points that I would make. It is a little difficult for me to again, predicting the next several months is hard, it’s impossible actually, but let me — let me describe one factor that we did. I would start by agreeing with you that the entire recovery has been perhaps not as frothy to use your word as we would, we would have liked but it’s been relatively steady if you trended over the 10 years or so that we’ve been in, but in the early part of the recovery what we felt coming out of the credit crisis was if you recall, landlords were desperate to fill their space because there was a lot of capacity, rent levels came down and what we found in those early days and I remember being on the road Greg with you and a lot of Investor meeting that we would hear, yeah we just moved out of our space across town. We moved into these offices. We move maybe from three floors down to two floors, but, we got a killer deal in the space and we bought new furniture.

That kind of behavior drove a lot of — a lot of demand in the early part of the recovery. I don’t know that those same factors will come together this time around. So I make no prediction, but that was one of the reasons for the big snap back. The other thing that I’d point out is the ramp up, it is that government spend. I want to say for many, many years Herman Miller ran somewhere between 8% and 10% of revenue was kind of GSA or federal government related. And then coming into that part of the recovery probably because the base business dropped off, that percentage of revenue for the business related to federal government spiked and I think got as high for our business is 14% in that, and I forget the year, but it was in those early years of the recovery. So those are just a few things that we observed and saw. The last go around the Fed government comment is probably worth noting only because those projects tend to stick around even if often times even if the broader economy softens. So I’ll stop talk, I’ll stop blabbing.

Greg Burns — Sidoti — Analyst

All right, thanks.

Andrea Owen — President and Chief Executive Officer

Thanks Greg.

Operator

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

Steven Ramsey — Thompson Research — Analyst

Good afternoon, good evening. I think about North America sales and orders up a slight year-over-year. I know down and orders is down sequentially [Phonetic], but the order level of $400 million really isn’t that bad, considering the uncertainty out there. I mean I guess does this surprise you or is there in terms of what’s going on to kind of — that are working well, it is just surprising given the uncertainty out there?

Jeff Stutz — Chief Financial Officer

Greg, do you want to take that one?

Greg Bylsma — President of North America and Global Operations

I would say that the quarter performance actually, is it really a surprise? It was actually kind of — when I make my team do you kind of roll up the forecast, we’re pretty much within a couple of million dollars and when you look at orders we’re kind of spot on. We had a little bit of scheduling variation, which tends to have us to and causing us to predict revenue that wasn’t exactly as we anticipated but orders were almost exactly where we thought. I guess like everybody else you — you watch the news, maybe you watch the news too much and you expect things to happen more quickly than they have. But I would say that I’m pleased and with the order performance so far this quarter. But I think that, I look to the team, I look to the folks that run sales not only at the top, but in the regions and I don’t think we’ve ever had a stronger team as we have right now and I think that they are [Indecipherable] under a leader who has a plan and a process and I think that’s making a difference for us.

Steven Ramsey — Thompson Research — Analyst

Great. And then thinking about no quarterly guidance. I guess just given the visibility from the backlog impact through the first half of the quarter and minimal order cancellations, what is making you hold off exactly on the guidance that there is less visibility beyond may be the six week or any other specific factors?

Andrea Owen — President and Chief Executive Officer

I think the biggest specific factor is really the unknown around how this virus will impact the US. And watching what’s happened in China, in Europe and I think we will learn a lot in the next couple of weeks, but I think it’s really anyone’s guess to know what could happen, will we flatten the curve? Won’t we flatten the curve, and I think it just push you in a really difficult position. Jeff, what –?

Jeff Stutz — Chief Financial Officer

Yes, No, I think it is just — it’s just as unprecedented uncertainty around — as Greg described you see that day-to-day business change and it can happen quickly and with what seems to be this escalating situation hour by hour almost over the past several days. We just felt it was, it was more transparent but just simply tell you that, here’s the data that we see. But we just don’t feel comfortable making a guided range at this point in time.

Steven Ramsey — Thompson Research — Analyst

Great. And I guess does the reset bring in HAY and then kind of combined with the recent uncertainty you know, does this delay the journey to the operating margins in the retail segment that you have outlined in the past or I mean, just any factors kind of thinking long-term on retail profit margin?

Jeff Stutz — Chief Financial Officer

Steven, this is Jeff. I guess I guess given — I want to be careful how I answer this because it will — because we don’t know the extent to which this is going to impact us, I would say, yes, we believe there is likely a delay in what we described simply because we expect some dislocation in our industry across many industries at least in the short run. Since our since our revenue exposure is 100% of planet Earth, we expect, we expect that’s going to — and I certainly not trying to be flipping, but it’s just that scale of uncertainty. So it’s likely we will feel some delay, we hope that we’re wrong. And I heard lots of commentary as you I’m sure you have around the potential for a quick-snap back once we get to the other side of this thing and we understand it, just how, how disruptive it is. So I think the honest answer is likely some delay.

I think long term, and Andi I mean we are bullish on the long-term strategy and I think Andi highlighted some of the most exciting parts of the business that we’re going to, right now that we’re really going to work to protect the strategic investments around and that’s building out some of these digital capabilities that we’re long way down the path on and we think those make it so much stronger to compete once they are in place. And if we can, if we can make sure those are in place on the other side of this, we’re going to be very well positioned.

Steven Ramsey — Thompson Research — Analyst

Excellent. Thank you.

Andrea Owen — President and Chief Executive Officer

Thank you.

Operator

Thank you. I’m not showing any further questions at this time. I would now like to turn the call back over to Andi Owen for closing remarks.

Andrea Owen — President and Chief Executive Officer

Thank you guys for joining us on the call today. We really appreciate your continued interest in Herman Miller and we really look forward to next quarter updating you again. And in the meantime, I hope that all of you will please join us in keeping your communities safe and staying healthy. Thanks a lot.

Operator

[Operator Closing Remarks]

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