MillerKnoll, Inc.

Q2 2022 Earnings Conference Call

1/4/2022

spk_0: good evening and welcome to the miller know second quarter earnings conference call as a reminder that call is being recorded i would now like to introduce your hosts were today a conference and penelope low vice president of investor relations and s p n n good evening thank you for joining our call we approach the departure week on our about to release his website and herman miller dot com grab rarely figures are presented on a non gaap the that we have reconciled the gap and non gaap announced within the french really i would like to remind everyone that the car will include forward looking statements for informational factors that could cause actual results to differ materially from the forward looking statements please refer to the earnings press release as well as our and
spk_1: annual and quarterly as if he bought violent and it forward looking statements that we make today are based on assumptions as of the seat and we undertake no obligation to of these statements as a result of new information or feature a bath at the conclusion of are prepared remarks we will have a two and a fashion parades called scheduled for sixty minutes like that of turn the call over to you
spk_0: thanks centinela hi everyone and happy new year joining me today are just stuck there cfl john michael our president of the american contract organization that the probed our president of global retail crystal that our group president the know all and kevin men are senior vice president and are integration lead i prefer or me to the second quarter demonstrates the power of miller know and the strength of both our strategy and a business fundamental and bringing together the best from animal miller know we've created a stronger and more resilient organization built for long term success third quarter with a positive momentum and continue to see strong demand around the globe order level to up and all for the porting segments again that quarter both our retail and our contract businesses continued to grow and we're bringing new custom it's were brands with growth and just like gaming storing to deal opening and the next
spk_1: landing ecommerce presence as it relates to this last point of past quarter we launched new herman miller ecommerce sites in france and germany and both have exceeded our early expectations for sale of and order activity
spk_0: we leverage learning from a previous web at launch said to create an exceptional online shopping experience for consumers and both countries and will continue to benefit from are growing digital presence around the world as we move forward
spk_1: that said we're facing many the same challenges as the rest of the industry including inflationary pressures supply chain challenges and labor shortages
spk_0: we benefit from the increase sided and reach of are large organization and we're leveraging a global distribution production design and feel capabilities to combat all of these pressure with wind and leave leaned into the expertise and partnerships that exist across a collective of plan to build image where decisions of select high demand products and increase or shipping capacity
spk_2: i'm making progress and her integration journey and we remain focused on unleashing the power of all a lot of friends at the close to the second quarter lead implements and forty three million dollars and run weight savings and we remain confident that we will go with a low cost energy target of one hundred million dollars within two years of clothing
spk_0: in fact other teams completed integration planning we've identified additional it's synergy opportunity that we now expect to increase when weight savings to one hundred and twenty million dollars by the end of your three this meaningful progress along with a robust integration that mouth gets have confidence that we will achieve our plans cost synergies even with
spk_2: the inflationary and supply chain pressures that were contending with every day
spk_0: we've achieved something important and symbolic milestones in the quarter we finalize the company name change and are officially operating at miller know we're also trading a dry new tactic for mlk and be completed the important work to get on your mother know organizational structure which involved selecting talent and educating the team into a new operating model declined to catch
spk_2: after efficiencies across the organization or also strengthening be unique position of each of our individual brown one of the most compelling reasons recreating millan all of our combined portfolio and distribution what what network lower know what have the largest the most capable dealer network in the world of customers will have more choice in terms of both product and partners and are dealers will have access to no comprehensive through of products and services in the industry enabling them to sell more and better with the needs of the customer pretty you know when i'll do a network is our top priority and the oh well on our way we have no one no dealer pilots and process and both texas and arizona and ah youth what we're learning with pilots to inform had planned operation hiding the phone network which is on track to occur by mid calendar year twenty twenty two
spk_0: or the world continues to wait and see the full impact of the on a cranberry and faking you various feel like than a normal to have a research and customer feedback tells us that executives across a variety of industries still have a strong desire to bring your team back together the sharing what's more most employees like the flexibility and the option to return to the office of well to put the thing moffat they left and twenty twenty employers recognize their workplaces need to be rematch and and we designed to meet the changed expectations of the post pandemic flip flops millennial is the leader and providing adaptable solution to create innovative productive environments for the workplace is in the homes of our clients we have the inside the products the surfaces and the tools to help our customers create high performing space is at fault for the in advance
spk_2: three continuing to collaborate with experts from around the world to make both returning to the workplace and working from home healthier and more productive and were using our own first hand experiences with hybrid workplaces than a global impact partnerships to inform the future of work
spk_0: as it is a strong were powered by the preeminent portfolio of brandon industry and we are built for growth and we're confident that there is tremendous opportunity a husband or know and all of our stakeholders the with that alternate over to just to cover a bit more about other thoughts before we have cut out for your question
spk_3: thank you very good evening everyone
spk_4: during the second quarter lead role role the every day with it every region of the business that we were able to leverage the breadth and depth of your organization to go that some of the macro economic pressures new the record even with those feelings will still work with have heard about the future including or ability to deliver on the closet genes associated with and all and position resulted in net sales of just under one point zero three billion love sixty four percent of the with or davis and eleven percent were generally it will last year our ability to shipbuilders discord quarter was impacted by the supply chains his roaches that our industry faces
spk_3: which we estimate adversely impacted their sales by approximately fifty million dollars a work
spk_4: it was not father of one point one six billion dollars worth eighty four percent higher the last year in an organic davis was of seven hundred ninety six million dollars reflected sequential approval of six percent compared to the first quarter and up twenty six percent over the prior year as mentioned earlier the strong demand with feet across all reporting segments they reveal had another stronghold would always have almost twenty one percent over the prior year and sales go for broccoli eighteen percent
spk_3: the american consulate said it's so strong demand and all regions and sectors with no didn't let them in the middle in southern regions of the us that failed in this segment increase over them while he was approved twenty nine percent a year earlier basis
spk_4: the north exit reported similar growth rates with you're on your sales and was everything spike five percent and thirty percent respectively dave the no workplace and residential category to triple digit growth record the international contract segment also so slow was it has sailed across all regions plans with all of duty percent in sales of twenty three percent of the same quarter last year demand in europe including your kids especially strong with orders in europe of thirty two percent over last year adjusted gross margin with thirty bill point eight percent of their the thirty nine percent last year to what we reported to let cool you have your margin decline is driven by intact arriving tomorrow because good deal in other inflationary pressures the categories of labor the transportation in response to these margin pressures we've been aggressive replacing having implemented or announced multiple times red list prices since may that we have realized some of this benefit to days the infected thus far been limited it will take time layer into a results this has been contemplating your out for the third quarter now with that said you should know that these increases are ultimately geared to offset the cost pressures that were seated brought the disease in the meantime were carefully managing that we can control and prostitute as we work to mitigate in deputy level economic pressures just that are pretty marginal a second order for the consolidated is as was five point nine percent covered eleven point seven percent in the prior year and it's worth highlighting that our global retail business has continued to deliver thousand profit italy despite the underlying cause sales and it's have you have your comparisons that thing is failing in addition to all the a twenty percent the that a reporter just awkward emerges of eleven point three percent the score we've avoided consolidated net loss for sure five cents isn't the just the basic studies that will charge is associated with the integration of know for sure the second world war fifty one sense so don't read opening comments will not turn the color the operator the take your question
spk_0: thank you to ask a question you will meet the press dar one on your telephone we get that you please limit yourself to one question in one follow up question you may then returned to the que will withdraw your question press the pound key please stand by while we compile the q and a roster every question will come from stephen ramsey with thompson research group please go ahead
spk_5: i believe they will be due to start with on organic orders oh how much of this is placing driven and how much of it is volume it and how do you expect that to play out in the next several quarters against guess what i'm getting added
spk_4: if jeff you been here a little bit more on the pricing commentary of how that flows through our reported results
spk_3: love goodies doing here for the end of year on yeah let me let me i'll start with limited that it was a trend to the quarters that big the crux of your question is
spk_4: in have we've been meaningful pull ahead order activity in advance of the with it increases and and you know what was really encouraging for off as as he looked across each of the three month of a quarter order pacing was actually remarkably consistent and so from from my perspective when ill for the for the increase that we had died in the october november i bring there was not a meaningful at him back from that increase our intro recorder orders for example the americas where you're okay with that we start off of twenty two percent we were we were kind of admit i'm thirty percent growth in october and in a in high twenty and your close to thirty percent in november for a total bar increase in the quarter of twenty nine percent on the other know this was even more consistent than that close to thirty percent almost on the nose in each other up on the the quarter international similar retail had some movement in the quarter that he can speak to that if if if you if you'd like to go further but it had more to do with the timing of them the promote promotional event this year versus last year if you adjust for that
spk_3: here to retail order activity was quite consistent so what i would tell you even is that the the price increases in in our early in the that in the summer months and then again in in october november time bring didn't seem to have much impact know what i will also mention is that the in crete that we're we have planned for january every time frame we did start to see some of that pull ahead in
spk_6: in the last couple of weeks a but it's not out align with historical levels
spk_3: i'm let me pod their that helpful on the on the or trends
spk_5: yes yes that is and then was trying to get a sense for in that orders dollar number ah how much that is his pricing driven and and kind of try to get a sense for in the next couple of quarters if the price increases you have successfully implemented start to
spk_7: impact result
spk_4: yeah this is the this is the that that the challenge and again we gotta talk about it than to pieces we have the the the the the positive side of it in the retail business we fully expect expected will benefit from price actions much sooner than the contract and that and we talk with you in the past right it's the different animal in the retail business the contract signed that sounds that we have and listen i think pretty consistent from what were your across the the industry is it would work were some let the victim of the good news in terms of the the salad the man or it demanded outpaced our ability to produce and shit like that a margin that like that a wide gap that that the backlog we have i'm going gonna take a look time to work through it and that backlog currently as it exists today had i would say a mix of the lamp to price increases in it obviously none of the increase or that they will go up into effect this month and in february of the punchline of it
spk_3: even is it's gonna take that we thank you know a good part of that second half of it's fiscal year to work our way through that and they're in in fact that is just not a tremendous amount uprising benefit in that back on there are some and it will ramp up as we move through que three in insecure for for to the the later part you for but really it'll be an early early the
spk_4: of the next fiscal year where we really start that see that the benefits of that flow through retail the bit different i think your expectations that the retail side of the business are going to be gross margin improvement ah steadily increased and we moved through the back half of the fiscal year i think and rough numbers gross margins for that business were or maybe just under forty four percent does this quarter our expectations as we can move that be know as much as couple hundred basis points and over the over the spread of the next six months and then improve it from there in the in n y twenty three
spk_5: okay yes that's very helpful and and then on that orders and shipments gap it is the growth rate of orders you know even beyond the quarter is it still exceeding shipments and to add onto that is the rate of shipments are going to increase at a faster pace than orders in in the next in in few three or is it a little bit beyond that that this piece of shit mets can accelerate and and reduce that back on
spk_4: i'll give you a give you my thoughts on it and then create than and john please feel free to turn to chime in if you have have you done and done the i assume that again the rebuilding of did the the little bit different i think stephen from my perspective on first of all we've not been a meaningful change in in in in demand since the end of the quarter so that the pod that erected somebody that we thought some i lamented with with what we believed to be thoughtful ad of or activity in december that would be ahead of that january price increase so that the the momentum continue that it's been remarkable when you consider the effect of co that in and some other disruption that that seems to be creating socially around around the world yep yep demand has been really really strong and it's pretty broad based on the your question about will will orders will revenue in in order to converge i mean you know i we don't know that of course of i think our expectations is based on conversations with customers the we're hearing from design from folks are busy and would be a lot of companies are still
spk_3: ill kind of formulating their plan for returned office ah as we move into even even mid calendar twenty two by the guards that patients right now are for continued momentum on on the order of the challenge for us is throughput ah
spk_4: much of it labour driven and we're doing a whole raft of things as you would hope the try to improve our ability to ship more arm it's gonna take a little time to the do that but that up that really among our chief focus of the as i'm in the been in the leadership team right now john in and chris it abby feel free to add
spk_8: ah thanks chef i this a john i think i think he said well jeff i think our expectation in terms of order pacing are based on some the leading indicators that we see is we we expect the order pacing the continue on a on a pretty robust pace and i think tier point from a production perspective we have the capacity from reproductions perspective ted to match from ah from a revenue and an order perspective that is jeff said there's a number of factors impacting our ability right now whether that's impact of coven supply chain issues etc etc but as those hopefully smooth out over time i think we'd expect production then and then revenue and orders third to be more closely matched
spk_9: no the the only thing that is chris know i to add ah even is that are our for much of up
spk_7: i'm an international business ah i'm it is increasing and and so we aren't we are shipping out more than we did sequentially ah and and the good news and also the challenge is that the orders are kid cudi increase or even faster rate so we'll keep the production ah output
spk_9: growing and it may maybe that and the future will be at the same rate ah as the orders by the in the near term all the supply chain challenges are here it's clear that will be slightly constraints
spk_1: and then on the okay i'll say that the business and hour backlog a historically high and largely to and longer lead paint than expected on fart party and bank credit and and to fail to the percent of demand and key taylor the eighty four percent like fact that and prayers
spk_10: and keep her yeah i have seen some improvement there and that ratio in december at it
spk_4: great that's helpful that's helpful in one more quickly maybe to add onto a residential with the strong results they're kicking you kind of ballpark or quantified know residential in relation to herman miller residential and if the trends are as good their and end
spk_5: if the factors that may cause many gap between the two
spk_9: yeah that that all out of this is chris ah i'll take that one or the the trends are just as good in fact the transfer non residential business are are quite strong arm as you could expect with the power of now miller all and ah dwr and and he car amherst saw are clearly dot dot former herman miller residential business businesses larger than not and and former no business by ah the no business on the residential side is increasing dramatically
spk_11: great thank you
spk_0: thank you and next question will come from within garner with defense my company place by hand
spk_5: they can even of money and ruben ruben ah
spk_4: maybe let's start with the guidance so can can just can you walk us through the bridge from what you just reported in earnings to the guidance for que three it looks like a similar top line number i think the public at this correctly and so on some soup once
spk_12: or margin pressure their makes the narrower the price costs situation getting worse for gets better if he just kind of go through the put the takes
spk_3: yeah great question river of and let me start or start with there's there's some commentary i think both and in gross margin and operating expenses that stand out here that at night they are worth highlighting
spk_4: a by the way all of it all of it commentary on our outlook and in this is true while we're not guiding for the full back half of the year you're one of the i i mentioned one of the potential benefits of having a strong backlog and in a kind of a strange benefit of have some of the production throughput issued we're having it that it does by it for half the little bit of time does it if if we can see some odd input cause come back in line or in favor and now we don't expect that in a meaningful way around the steal from there are all kinds of other cost pressures that were fading yeah we we may actually be able to benefit from africa because we move into queue for but that set that aside for a minute are guidance for the for the third quarter to from a gross margin damn point where got in a we we got to raise a thirty three due to thirty four do it at the at the midpoint of at your at ah really thirty three seven so that the deep that the that the sequential decrease of the from what we just reported that the couple large factors that are that are are impacting if they're really commodity than free ah and labour the that the same the same major driver the
spk_3: that we thank you to we we're expecting continued pressure become and commodities front are we estimate about sixty basis of basis points from commodity that principally steel prices were still believe it or not working our way into the elevated awful market price of steel and without making predictions i would tell you that if still prices
spk_4: we're to stabilize where they are now we're at it as we work through que three were kind of fully baked into the into the market prices deal for that would be a benefit for that we move forward beyond que three of my there are sixty basis points you don't frighten transportation and labor account for we estimate about another thirty basis points of pressure and then that really tell the story there are some other moving parts we think mix might be a bit adverse just pure product mix across the business but we think that pricing benefit from our read the price increases will help off that that for those kind of neutralize one another but doesn't those of them major moving parts in our assumption around gross margin at the me
spk_13: good point of the range that were guiding
spk_3: and then operating expenses you'll see that weren't were guiding an uptick i hear again at the midpoint of that range is that that for for for narrative purposes were movie or that puts that about three hundred ten million dollars there's really kind of for main categories the of of of of moving parts their the first one is really a bit of a phenomenon related to que three and in in often the early part of keyboards really more of a timing issue with are some of our calendar your benefit programs the accounting for those programs tensed up to the front and low some of those are calendar your basement and the front loaded with of cloth associate with those with those benefit programs things like vacation across and and health savings account program to be more specific so that accounts for maybe a upwards to five million dollars of a sequential increase the the benefit there is you know that tends to even out as we move through the course of the of the calendar year so we should see the opposite effect of that and we move toward back at the counter twenty two and instead of of incentive bonus plans are weeks back my get a attack higher in the third in not third quarter and we move toward measuring ourselves to give the back half targets are that would established investments in we detail digital art program marketing ah dollars with that the increase the bit to help continue to drive momentum and order activity and then did laugh when i mentioned here in our guy we're gonna do everything we can manage this one but there's the make incremental selling related expenses including any that are are off
spk_4: factor in that as well and offsetting all of those those items which if you were they all the what i did that call that twenty million dollars and an estimate we we expect to layer in incremental synergies related to the integration work that we're doing so the net change their at the midpoint about sixty million dollars
spk_12: had perfect and and github quickly clarification their the i'm on the synergy are are those selling up on
spk_14: all in the know
spk_4: quote unquote segment or they spread out over the different businesses how that being recognized as are
spk_12: i've laid out as you recognize them
spk_15: a room and this is kevin not the synergy they're coming really across the pats across all the businesses as we've looked at how do we will bring miller and all together and so you see some of the benefits from synergies hitting each of the segment
spk_12: i've got ah i'm next question for me and on ah
spk_5: the international profitability tin can you talk about the different for you guys in your international business i assume that a lot of the inflationary pressures that they're facing or that you're facing in the americas are similar ah i'm you know inputs are are i i assume the old
spk_7: as an as an example elevated in europe is well how how you're able to maintain the margins over there are more to differences in the business models anything else that you can that
spk_6: yeah currently i on and then in a it and then he'd chime in the oh my yeah yeah rubin in of the one thing i always that this is actually of the were super proud of him in the international business has been a our of a shining star in our in our business for ah
spk_4: several years now and and it's really showing up in a big way the last couple of course there are some differences and i think cripple probably of activities in a little further but in terms of the cost pressures an inflationary pressures and supply chain pressured that we're feeling in north america visa be outside of north america you're one of the to do it we we in fact really
spk_3: aren't feeling the same magnitude of commodity pressures internationally we're seeing in north america and then you add to that the fact that the labour constraints that we're feeling in our production i have to fill it is in north america are not nearly as significant in in our in our international operation and then crypt before be the laughing up
spk_4: day is you know we tended to have a fairly favorable overall product mix with our international contract didn't as detailed of a bit more towards eating which is a good thing in our business and in iowa tax eating it is a high margin product and for many many years that with that always been true for the international business but for so many years we didn't have the kind the base level of volume pushing through those factory to really be able to leverage those overhead costs and in recent years we've seen a real change the vines have grown those those are our operations teams of them brilliant work they're they're much more efficient now and that translating that the better profitability driscoll admitting whatever you'd like
spk_9: that's hard to add much to that just does become france and the only thing that i might add note that that sales than a quarter for sack saw because we are able to get ah have a better labor position internationally were able to get increase from put through the three so we also ribbons for tat that are there i mean to feel feel is there i feel angry scots you know anything like that by i will be able to grow ah
spk_16: which which helped
spk_7: a cabinet meeting or more and if i can got ya
spk_12: after
spk_5: the ah but back to the americans that the pricing at the backlog situation i think you mentioned profitability in the backlog being on a my constrained there a point where maybe you don't take as many orders ah because you're not able to keep up and the prophet of
spk_17: ality isn't as attractive as as normal or you view it as a longer term positive third just take anything that you can at this point how do you guys
spk_4: the way that yeah let john think the add any any insight he had been close to the that to the customer sided thing that i have a what i will tell you is that it with this lamp with with our most recent praising the that as i mentioned am i prepared a marketing super important that that that you all you know at least there are on the same page with
spk_18: with without that we've geared these price increases
spk_3: with the idea that commodity
spk_4: ah up input costs labor costs wow wow they likely are going to remain elevated that they stabilize but that did not that if they did not assume that they come back down now that could happen in some cases and in in that case we we think we benefit from that believe hear these price increases such that there are that it to
spk_13: ultimately offset what is currently a very elevated caught in environment so or that we take from here forward will ah largely be reflective of of the series the price increases that we put in place and we actually go quite good about about taking that business
spk_4: john plea that at whatever you are here
spk_8: hi rubin it's shall michael i would just add add to i just said i think in not in the short run as we're waiting for the price increase impact to begin the layer and to new orders ya the the other way we address those challenges as through our discounting methodology and just making sure that from ah from a day they discounting perspective looking at accounts and project etc that were being ah
spk_4: or been smart about our discounting methodology and making sure that discounting methodology will obviously overtime begin to regulate demand and such a way that it matches our ability to produce
spk_12: so i think it's just one more lover ah that that we pulled to try tryin to try and balance out those two
spk_0: right thanks guys
spk_19: funkier i next question will come from bob targets with water tower me that's great great her
spk_20: ah good afternoon i'm happy new year to everybody
spk_19: ali but reach hook
spk_12: the hedger a look forward to or
spk_19: a year where the pandemic flow receipts into the background cook we all or get there ah
spk_12: for forgive me your far from going on the yacht the or cost issue i'm i was trying to make sure i understand how to walk from on the margin profile we had let's just say in america which i think was down on seven hundred basis points i think we're showing the all
spk_6: in kinda gross margin what what's the walked be get you to from thirty five six to twenty eight percent how much of that is cost and how much of it or other things
spk_3: well but this is jeff i'm the the at the concert let me let me first thought that the consolidate a level in my gabby i would be the the the category the of commodities freight and labour are most acute in our north american manufacturing operations and so it the cuts out a level the it includes you from a year ago tell tell the kids you we were just reporting with two hundred forty days or the commodity pressure year on year we had ninety days is quite the free transportation pressure we had a roughly ninety basis points of labor and overhead pressure of mixed accounted for another cool cause the for
spk_4: fifty basis point and and on that point in particular i would remind you that we were we benefit last year with tremendous a task cd mix but again the retail side of the business of that one is a little less tied to that that the americas segment and then we've got some but not not a terribly meaningful amount of price benefit that helps offset that the to about thirty
spk_12: with point though but my i get the best way i can answer the question in in quite a and quantify terms that the talk about consolidated but what i was it emphasizes commodities if it's two hundred forty basis points ethical touted level if more than that it it it at the that the americas segment level in the same would be true for free the labour are at our i totally agree
spk_4: yeah i just started trying to reconcile that to the sixty basis points and i think it was thirty thirty thirty for free labor and transportation that i heard a few minutes ago and well as the yeah and that that's by the way but just of so the word we're we're not talking past each other
spk_3: i was just giving you the walking for q two year over year
spk_4: the my earlier comments were at work with with respect to our guidance going forward
spk_12: into que three and that will get that that that the that makes sense the right so in other words we we think we're going to get another sixty basis points of pressure from commodity the as we move from que to into que three and that that the can thought and level but like on that equal still need for your or incremental to the to force it would be who is it that it it's incremental yeah another sixty basis points over and above what we felt in quito i for the next day i would be dragged get your three hundred basis points in the third quarter that's where i'm from that's what i'm trying to walk through yeah okay at the you tube that's great that's very hateful and i do helpful
spk_19: and i do understand that the americas is significant ours is meaningfully more than the pressure elsewhere
spk_3: and how about an hour or that is to the fact that i'm from from i follow up with a blissful make from will talk about the backlog and it looked at me like orders outstrip them up revenues sales by one hundred and thirty three million dollars for that's just added have a backup right at that those get the battle
spk_19: that's correct yeah backlog into the corner at nine sixty seven and you're you're absolutely right the change from from beginning a quarter was about that hundred thirty million
spk_4: okay so the beginning back what was nine sixty seven
spk_21: and and ending but any back on the night sixty seven okay and that one hundred and thirty million dollars hard work began okay for a grand that's right and appreciate that and i'm obviously best of luck and best wishes to everybody going forward
spk_0: you use lava thanks
spk_22: when fan thank thank you i next question will come from frank burns with authority thirty and company please go ahead
spk_9: then i phone the fall against again on that the price cause gap you're saying is a really big quantify like what it was in color what you expected be next quarter and
spk_6: over what timeframe given the price increases that your layering in when you expect that be completely offset
spk_23: yeah gregg a good evening i'm
spk_4: i'm a minute i wouldn't let me take it take a stab at your question i've been i think this is what you're at neiman the and i'm just gonna get recap a couple the number that i just mentioned in terms of of basis point impact on gross margin from from your ago levels we had about thirty basis points of improvement do the net price benefit
spk_22: yet we saw a pretty meaningful decline in overall growth margin performance and so that thirty basis points was not enough to offset all those other pressures that i mentioned commodities frayed labor and so for the that is that helpful
spk_24: yeah i guess i mean i'm just kind of wonder what's the path like is the expected gross margins in the third quarter to be the low and them given the price increases the very thing else the is constant so we see your animal that he sequential increasing gross margins of the next he put few quarters like her out but when we get back
spk_3: the nickel
spk_4: yeah no i think i that that that that second part your question at the end of the gray one in in our day
spk_3: if you if you allow us to just assume for a minute that we don't see further degradation in in in the cost environment which are already pretty it at a fairly elevated level then i think it would be fair to what to expect are improving mars and profile moving out of que three and a queue for and beyond certainly we expect that in retail and is no way
spk_4: in to believe that if we if we improve our ability to to ship more more product worked through the backlog we should we should feel even more in benefit ah of flow through night if it's not gonna be a rapid improvement we don't expect but you should see improvement i think you know if you want to think of it in terms of prepared panda
spk_3: comic margin perfectly the levels are vs where we are today you'd probably argue on a on a pro forma dated for the consolidated business a more a more
spk_4: accurate pre pandemic gross margin level would be somewhere around thirty seven percent ah that kind of going back to apply nineteen he don't we fully expect that with the pricing that we've done weekend we can work our way back there and and in fact it won't be into the early part of f y twenty three likely but we think law
spk_22: a one in the queue to of next year we should be able to get there and arguably better than that given the performance of retail and ah anne frank of the the the underlying cause performance and the and the synergy work that we're doing
spk_9: and he is talk about how you had dealer you are you purchase it is because still come off pretty mean flee from the pain
spk_4: i'm
spk_3: from one i'm tracking so he thought about how that has the benefit might go through like the five my yeah month out like how of that work yeah we'd be generally speaking greg we don't really only heads with with like derivative type hedging steel steel prices but what we do is we buy on a lag to the market and and because we buy the amount of the a we get a bit of a discount off of the published i'm market price of steel and so on your right i still have come down off of the high i think the latest they don't exactly called me on this but it's something just north of two thousand and alley the time for for our for steal it was it hi i'm kevin you might have the number twenty one or twenty one hundred plus so that come down a little bit but but what we do is we buy on a leg though tends to be about up
spk_6: about three months about nineteen ninety days and as a result you we kind of in a period of inflation
spk_9: we we lag into that over the course of many months and then as prices go to come back down the opposite happens it takes take a little while longer to to work to stabilize and and and then start to realize the benefits of a of a declining still market that i mentioned earlier i think it if you assume for a minute still stayed roughly where that to pay
spk_22: we should ah we should kind of level out or if you will peak in into three and then from there we should start to see some relief from still prices okay and nods differently in terms of the the dealer the network integration
spk_9: talk about what what's involved in the
spk_8: the pilot program you have going on in texas and arizona that you're allowing them to sell before hot of that was all the brand what what is involved in those that are a thing in the early benefits from from those i'm sure i'll take that one this is john michael i think we've we've seen a number of benefits ah before i get to that though in terms of what's involved it's really working through the the readiness and training of both the miller nail millan all sales organization as well as the day
spk_4: or sales organization so that the legacy know dealers are trained up on the herman miller products and and how to go to market and position the products and and conversely how the legacy herman miller dealers are trained up on the know products and and how to go to market and really what's the what's the compelling value proposition in for the market for customers for influencers et cetera of this amazing collective and portfolio that we have right now i'm we've learned a lot in not in both instances in terms of what works and what we need to improve upon in terms of training the sellers to get them ready and also really making sure the support staff that supports them interior designers project managers et cetera and
spk_22: are up to speed as well so i think it's it's really informed
spk_0: i'm a lot of the work that we're doing for a broader a readiness and roll out over the next several months and and were looking forward to it now know the dealers are ready for it
spk_4: okay great thank you
spk_25: encore i'm not question will come from alex salmond with track how often are going on
spk_1: great thanks very much for taking my question i look like retail continued to show a really strong growth is not a little bit more about what been driving back row with ah eternity ecommerce and your stores than and how long do you think back road can continue into twenty twenty two you and beyond
spk_10: hi for forgetting and crafting and and were really pleased that he continued growth we're feeding our retail man and a predominant on driver of growth of continued apartment expansion and were thing pro growth across both that a brick and mortar and commerce channel and across all of our brad
spk_26: an apartment expansion being the predominant growth leave our they feel like that will continue to be on a scale bow opportunity for are coupled with optimizing from the other investments that were making and are bit less i'm like that and and press f he last summer the marketing investment for making on the iran
spk_25: and have or even customer data and sick the driver of marketing performance and and an ongoing investments in the overall infrastructure temperate customer service so we will continue to outlook what retail growing at an double digit of them are excited and confident about that
spk_1: in iraq
spk_5: ah thank you thank you very much for that ah and it's a quick follow up it by if i could and how much of that double digit growth as you look or to affected come from ecommerce birthdays i continued brick and mortar growth and and presumably opening more stores over the next year
spk_10: apple will continue to open star that about that the pacing that we have been opening thought i'm in we opened that additional taste or than key table up and free market free and and that that confidence that we have from the store performance as a often them and remains very strong and and these stories a job thanks for the herman miller brander are really proving to be a strong point of customer acquisition file allowing us to engage with with a new audience as the result of some of the adjacent we have with the stores are engaging with customers hit care about exit go well being and or overall physical performance and other customers that we believe we can continue to engage in
spk_27: beyond the pandemic trans am fully will continue to invest in your stored up and are based business remains very strong and we had double digit am can't growth as well as double digit total growth and so that improvements that were making on our site experience and our marketing optimization
spk_0: and our partner a diving the based business as well
spk_28: great that really helpful thank you very much
spk_29: no thank here or next question will come from rudy gang with bearing for me so i have
spk_28: hey guys are happy new year on there that you take my question i to ah
spk_15: so i guess a fun run rate synergies year now expecting hundred twenty million after year three is that more because of greater success the genius i expected in recognizing the synergy this quarter world where they're separate opportunity if you uncovered and i guess
spk_13: if that's the case could you provide more color on what is now expected that helped drive that additional twenty nine
spk_9: yeah rudy this is kevin not so as the teams have been working through the integration planning our original targets were for the hundred million by the end of two years after close he and as we talked in the past a lot of those savings were coming from or structure in procurement types the savings as the team's dogs
spk_28: yeah they started to look deeper in the other categories like manufacturing or logistics arm some other procurement opera opportunities that may be have a little longer lead time and so i'm as we looked at it we identified we actually see one hundred and twenty million of opportunity but the incremental twenty million dollars is some of those law
spk_30: unger lead time opportunities in the manufacturing areas or supply team types of various ah but if it was a grounds up review by the teams looking at not just what could they do within two years but where there are opportunities and if given a little more time that we could get after as well
spk_28: got it he said that and then suddenly it's as clear cut go look at more color on retell order patterns i guess i'm just curious as to how the in terms of product next have changed as hybrid working has emerged over the last
spk_1: a year are you seen customers that now except the rally of like from her mind as a result they're kind of pulling the trigger on was such a products such as eating photography is a higher margin product for you guys were i swear him other alternative home office products starting to i guess now become more popular amateur fill in the retail business we have seen a decline and our overall performance the perfect to our total fitness year over year however that i and more than offset by our gaming business and which is within a seething category of that is targeting at a different audience
spk_10: am however were really pleased with the growth that were thing and other and some of our other categories are dominant way and upholstery seating and dining and outdoor where we have very high penetration the of a private label products within those categories to and they're far in a great opportunity than term them market enhancement look in her cat
spk_28: agree that we continue to look like are starting capabilities and fell at despite the fact that we have a slight decline and and super pharmacy thing and we are at very confident and the growth that were thing and a director category which are double digit growth not break the crop up proper category exception of of rocks
spk_0: and may percent growth
spk_2: great that they're super helpful appreciate that i guess
spk_0: thank you i'm selling no further questions in the queue at this time i would now like the time the call back open a management funny closing remarks
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