What awaits Herman Miller (MLHR) beyond the home-office rush?

Herman Miller Inc. (NASDAQ: MLHR) is one of the few Wall Street firms that managed to take advantage of the opportunities created by the pandemic, after being hit by the crisis initially. Shares of the Michigan-based office furniture firm surged 35% in a single day last week after its latest quarterly report showed that the impact of coronavirus on the business was not as bad as expected.

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Read Herman Miller’s Q1 2021 Earnings Call Transcript

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Though the outcome was mixed, the impressive bottom-line performance, aided by effective cost management, brightened investor sentiment. Interestingly, the report came amid apprehensions that office furniture retailers were in the firing line of the pandemic, mainly due to the shift to remote work. However, the impressive performance of the company’s retail segment allayed those concerns to some extent, though it was partially offset by weakness in the other areas.

Valuation

Experts are of the view that the company’s market value would grow further in the next twelve months. And, they have given the green signal to prospective buyers. The current valuation looks favorable since the latest rally happened after a long lull that lasted for several months. Moreover, the management has resumed dividend payment, which was postponed earlier this year.

People who have switched to home-based work are upgrading their workspaces with new furniture, driving up the demand for Herman Miller’s Home Office products. In all probability, the trend is expected to continue in the foreseeable future and experts predict that the company would come out stronger from the pandemic. Being confined to their homes, people are also taking up general renovation tasks and purchasing accessories.

On Track for Goals

Meanwhile, Herman Miller executives have reaffirmed their resolve to maintain the strategic priorities intact — despite the volatile market conditions — with extra focus on ramping up the digital capabilities. They are particularly buoyed by the company’s successful entry into the gaming business, which also validates the competence of its innovation team.

Investors will be looking for cues on the firm’s financial performance in the remainder of the year. On the margin front, especially for the retail segment, recent cost-cutting measures that included layoffs should start contributing to the bottom-line. That would justify the management’s bullish outlook. Also, the emerging trend in some parts of the overseas market, like China and parts of Europe where the pandemic has subsided, looks favorable for the company in terms of order performance.

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. Andrea Owen.

President and chief executive officer of Herman Miller

Beating the Odds

Part of the optimism can be attributed to the recovery in orders in the final weeks of the August-quarter and early second quarter. Unfortunately, the market is going through a tough phase wherein uncertainty is the only certainty. Nobody knows what the future holds for the business world and how the work culture would evolve in the new normal — something that is crucial for Herman Miller’s business. But the company has what it takes to come out stronger from the “temporary” slump, thanks to the strong fundamentals.

Mixed Q1

Performance in the early months of the fiscal year reflected the company’s resilience to the COVID-induced disruption. Sales at the Home Office segment nearly quadrupled in the August-quarter, with people engaging in home renovation activities after the shelter-in-place orders came into effect. There was a marked dip in expenses, which resulted in a 53% surge in earnings to $1.24 per share. Though revenues dropped to $626.8 million, hurt by softness in non-retail orders, it was cushioned by a multi-fold growth in e-commerce sales and solid organic sales. The first-quarter numbers also exceeded the market’s projection, continuing the trend seen in the past few years.

Also read: Home Depot might repeat the strong Q2 show

The company had a rather dismal start to 2020, with the stock pulling back from the peak in the initial months when markets were battered by the virus outbreak. After last week’s post-earnings spike, the stock has maintained the uptrend so far. It closed the last session at $34.52 and traded slightly lower during Monday’s session.