Herman Miller's consolidated gross margin in the second quarter of fiscal 2016 totaled 38.7% compared to 36.4% reported in the same quarter of last fiscal year. Adjusting for $4.8 million of acquisition-related expenses in the prior year second quarter, the company’s second quarter gross margin improved by 150 basis points from the same period last year.
Herman Miller reported operating expenses in the second quarter of $168.9 million compared to operating expenses of $159.0 million in the same quarter a year ago. Operating expenses in the second quarter increased by $9.9 million, the majority of which relates to spending on new product launch and marketing initiatives, higher incentive accruals and variability from higher net sales.
Herman Miller’s effective income tax rate in the second quarter was 33.0% compared to 33.8% in the same quarter last fiscal year.
The company ended the second quarter with total cash and cash equivalents of $54.7 million. Cash flow generated from operations in the second quarter was $39.9 million compared to $38.7 million in the same quarter last fiscal year.
Jeff Stutz, Chief Financial Officer, noted, "Lower commodity costs, production volume leverage, and continued focus on operational efficiencies helped drive a 150 basis-point improvement over last year’s adjusted gross margin percentage. Currency translation headwinds continued this quarter as expected, reducing our second quarter gross margin by an estimated 60 basis-points and pressuring earnings per share relative to Q2 of last year. Despite the challenging currency environment and lower than expected operating results in our Consumer segment, we delivered consolidated earnings above the range we guided coming into the quarter.”
Segment ResultsNorth American Furniture Solutions
North American Furniture Solutions
Net sales for the second quarter of fiscal 2016 within Herman Miller’s North American reportable segment were $348.1 million, an increase of 10.4% from the same quarter last fiscal year. On an organic basis, excluding the negative impact of changes in foreign currency translation, segment sales increased 12.0% on a year-over-year basis. New orders in the second quarter totaled $349.2 million, an increase of 9.4% from the year ago period. On an organic basis, adjusting for the year-over-year impact of currency translation, segment orders in the second quarter were 10.3% higher than last year.
ELA Furniture Solutions
Net sales within the ELA segment totaled $100.7 million in the second quarter of fiscal 2016. This represents an 11.9% decrease from the same quarter of last fiscal year. New orders in this segment totaled $112.7 million in the second quarter, representing a year-over-year increase of 0.3%.On a currency-neutral basis, segment sales decreased 4.5%, while orders were 7.7% higher than the second quarter of last year led by strong demand in the Middle East, China and Mexico.
Net sales in the second quarter within Herman Miller’s Specialty segment totaled $57.7 million. This represents a 4.2% increase over sales in the same quarter last year. New orders in the quarter of $61.3 million increased 15.2% from the year ago period. Order growth was broad-based in the quarter across the three Specialty brands - Geiger, Maharam and the Herman Miller Collection.
The Consumer segment reported net sales in the quarter of $73.9 million, which were 8.1% lower than last year. Orders in the second quarter of $78.2 million were 10.3% below the prior year. The year-over-year decreases in sales and orders were driven by three primary factors: 1) continued softness within the company's legacy retail distribution channel following actions taken earlier in the calendar year to reduce the number of independent retail distributors; 2) a reduction in the number of DWR studios; and 3) sales and operational disruptions associated with the implementation of a new Enterprise Resource Planning system at Design Within Reach. The ERP implementation went live at the start of the second quarter, and despite significant disruption to the business, was largely complete and stabilized by the close of the quarter.
Third Quarter Fiscal 2016 Guidance
Looking forward, Herman Miller expects net sales in the third quarter of fiscal 2016 to be in the range of $535 million to $555 million. On an organic basis, adjusted for the impact of foreign currency translation, this forecast implies sales growth of approximately 7% at the mid-point of the range. The year-over-year negative impact of foreign currency translation on net sales is expected to be approximately $7 million. Diluted earnings per share in the quarter are expected to range between $0.37 and $0.41. This guidance includes targeted increases in promotional and marketing initiatives in the third quarter within the Consumer segment, which are expected to reduce consolidated earnings per share by approximately $0.02 in the period.
Supplemental Information and Webcast
The company has created a supplemental data report which provides additional information relevant to its quarterly results. This document can be accessed via a link on the Investors section at hermanmiller.com/Investors.
The company will host a live webcast to discuss the results of the second quarter of fiscal 2016 on Thursday, December 17, 2015, at 9:30 a.m. ET. To ensure your access to the webcast, you should allow extra time to visit the company’s website at www.hermanmiller.com to download the streaming software necessary to participate. An online archive of the presentation will be available on the website later that day.
About Herman Miller
Herman Miller is a globally recognized provider of furnishings and related technologies and services. Headquartered in West Michigan, the global company has relied on innovative design for over 100 years to solve problems for people wherever they work, live, learn, and heal. Herman Miller’s designs are part of museum collections worldwide, and the company is a past recipient of the Smithsonian Institution's Cooper Hewitt National Design Award. Known and respected for its leadership in corporate social responsibility, Herman Miller has been included in the Dow Jones Sustainability World Index for the past 12 years, and has earned the Human Rights Campaign Foundation’s top rating in its Corporate Equality Index for the past nine years. In fiscal 2015, the company generated $2.14 billion in revenue and employed over 7,000 people worldwide. Herman Miller trades on the NASDAQ Global Select Market under the symbol MLHR.
This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the office furniture industry, the economy, and the company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” likely,” “plans,” “projects,” and “should,” variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. These risks include, without limitation, the success of our growth strategy, employment and general economic conditions, the pace of economic recovery in the U.S., and in our International markets, the increase in white-collar employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers, competitive-pricing pressures, the availability and pricing of raw materials, our reliance on a limited number of suppliers, our ability to expand globally given the risks associated with regulatory and legal compliance challenges and accompanying currency fluctuations, the ability to increase prices to absorb the additional costs of raw materials, the financial strength of our dealers and the financial strength of our customers, our ability to locate new DWR studios, negotiate favorable lease terms for new and existing locations and the implementation of our studio portfolio transformation, our ability to attract and retain key executives and other qualified employees, our ability to continue to make product innovations, the success of newly-introduced products, our ability to serve all of our markets, possible acquisitions, divestitures or alliances, the pace and level of government procurement, the outcome of pending litigation or governmental audits or investigations, political risk in the markets we serve, and other risks identified in our filings with the Securities and Exchange Commission. Therefore, actual results and outcomes may materially differ from what we express or forecast. Furthermore, Herman Miller, Inc., undertakes no obligation to update, amend or clarify forward-looking statements.