Granted, in an environment where we're increasingly working from home, the value of office furniture probably should be in decline. That proved not to be the case at Herman Miller (NASDAQ:MLHR), where office furniture managed to keep its value, allowing the company to post better-than-expected revenue and profit alike.
Apparently, We Still Need Chairs
Herman Miller posted a surprisingly good quarter, especially given how many people are still working from home. Quarterly earnings came in at $0.89, which was well above consensus estimates that looked for the company to post $0.56.
A closer look at the numbers, however, reveals a disturbing point. The gains in revenue came despite a decline in sales. Consolidated net sales this quarter were down 7% against last year's figures, and down 15% “organically”, reports note, which leaves out things like acquisition activity and issues of foreign currency. However, the company had some bright spots therein; retail orders were up 41% against this time last year, with home offices not at all surprisingly driving gains. Home office orders were up over 270% against this time last year, and helped keep Herman Miller going. Even the international segment posted substantial gains, as international segment orders were up 40%.
The big loss, however, came from the North America contract segment, down a third against this time last year. Businesses are clearly hesitant about buying office furniture for offices that may not be allowed to reopen, let alone may find themselves tough to staff as work-from-home really took off.
The company's biggest saving grace may have been its aggressive cost-containment measures. We've seen a lot of companies manage to save otherwise dismal bottom lines by keeping costs under control, and now, we can add Herman Miller to the roster of success stories therein. The company cut $18.1 million worth of expenses out of the picture against this time last year.
Analysts Surprisingly Upbeat
For anyone who figured that the consensus rating would be at least a “hold”, you share in my surprise to discover our most recent research about the company. It's currently carrying a consensus rating of “buy”. The rating is actually unchanged from last month, and well up from what it was six months ago. Currently, the company has two “buy” ratings, unchanged from last month, and down one “hold” rating from three months ago. Six months ago, the numbers were reversed, with two “hold” ratings and one “buy” rating.
Oddly, the price target has declined but remained stable. Six months ago, the target was $47.50, and three months ago, it fell to $45, where it has remained ever since.
A Pivoting Product Line, and Philosophy
While most of Herman Miller's positive results these days can be traced back to the most stringent measures in cost containment coupled with a worldwide selling philosophy, it's clear that Herman Miller has a lot to like going forward. First, there's something to be said about the company's 3.01% dividend yield. That yield actually represents a payout ratio—dividend per share divided by earnings per share, for those not familiar—of 15.32%. Any figure below 75% is generally considered “safe”, and Herman Miller's yield appears to be one of the safest around. Considering that Herman Miller closed yesterday at $40.55 per share, a case could readily be made for picking some up specifically for dividend investors.
Beyond that, though, Herman Miller is also branching out. Sure, most of its hopes are placed on the comeback of the North American contract sector, but it's also making moves in other directions. The home office segment is doing nicely for Herman Miller, and there are even signs the company is fundamentally adjusting. Just recently, it opened several small-scale stores to let customers actually try the furniture—buying a chair sight unseen is bad practice; even with a robust return policy, have you ever tried to ship a chair?—before buying. Offering a space to come in contact with the furniture is a great move, and Herman Miller's plan to bring ergonomics consultants into play will only help as people look for the best chairs for their needs.
Expanding chair buying into a wellness tool—you spend a lot of time in that chair, so why not—is a great start to making chair buying a greater priority. With work-from-home now much less a perk and much more a necessity, augmenting that home office will be a necessity going forward. We've seen how it worked for Toll Brothers (NYSE:TOL) recently, and we're likely to see it work for Herman Miller too. All these factors add up to make Herman Miller as much worth adding to your portfolio as your home office.
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