Q3 2020 Earnings Call
Thursday
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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
good evening. Everyone joining me today on our third quarter earnings collar and eoin our president and chief executive officer. Just that's our Chief Financial Officer and Greg bylsma our president of North America in global operations. We have posted today's press release on our investor relations website at Herman Miller. Some of the figures that will cover today are presented on a non-gaap basis. We reconciled the wage Gap 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 would 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.
That's a 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 Andy 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 Corona virus outbreak has spread across the globe with that in mind. I'll be in our remarks Thursday 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 turned over to Jeff and Kevin for further information on our final cry files math and 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. I'm moving to a 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 Birth.
Miller is to keep our employees and communities safe and healthy and we're taking every precaution to do so as the manage our business through this fluid situation. We're focused on the factors. That way we can control we're monitoring our Global footprint around the clock and have developed detailed contingency plans given the outbreak again in China and our third quarter results were most impacted in Asia, but let me provide some background on our footprint there to the asia-pacific region, which is served on manufacturing operations in dongguan China Infiniti India represent. Approximately 60% of our Consolidated sales across the globe 10 to 11% of our good souls are sourced from China at the number of new cases in this region of the world decline are down wrong manufacture operation 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're proactively leveraging our team's efforts and China Club.
I'm not learning to our
Parts to mitigate our exposure in North America and Europe against this backdrop the demand picture with mixed during the quarter sales in the. Were 8% higher than last year as a consolidation of the home. Okay, and not one Brands contributed to report a growth on an organic basis sales or slightly below the same quarter last year our North America and Retail businesses delivered modest organic sales growth. Well shipments from our China facilities were unfavorably impacted by the broad-based government mandated shut down following the virus outbreak reported order levels of quarter were 6% higher than last year's 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 be generating the quarter. We continue to drive year-over-year of gross margin improvement in our business favorable price realization lower commodity costs and our profitability Improvement efforts with a primary drivers of gross margin 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 her name on a gaap basis for $0.64 while adjusted EPS which excluded the impact of restructuring and other special charges total $0.74 and a quarter this reflected an increase of 16% over the same quarter last year.
In addition to delivering on our earnings come in for the quarter. We drove positive momentum toward our strategic priorities. Let me share some of the highlights first on the Innovation front page. We've leveraged our leadership and high-performance eating by establishing recent Partnerships with the 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 Esports Arena and highlight have our deep knowledge and research can be applied to new audiences and rapidly growing money 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 you page designs for dwr have been completed as part of our plans to relaunch dwr.com and the first quarter of next year. We also launched a number of e-commerce improvements on our Platforms in North America Jersey.
Including chat and video functionalities communicate with our customer care teams and a next-generation financing option which we've deployed on Herman Miller. And hey these new design a functionality upgrades well as often and 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. Join us in January to leave 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 departments that will drive top and bottom line growth for the retail business with her deep background in global retail brands or exciting to have her on board and expect Debbie to join us on an upcoming call to share more about her progress. I'd also like to call at one highlight from the quarter of one of the pillars for accelerating profitable growth in our retail business is joining with leading designers to watch higher-margin exclusive designs through our partnership with egg Collective a firm led by thoughts toward winning female designers. The unused sofa is already our top-selling Silverline since its launch in a second quarter of this year. And finally, I'm pleased to report that our North American profitability Improvement in wages continue to deliver benefits rev online. We finish the quarter at a run rate of 44 million dollars of benefits of quarter, which means we exceeded our goal of twenty to forty million dollars in savings that we in establishing.
This work two years ago.
It's on 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 goes for having 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 a term demand navigating the coronavirus situation will require flexibility resilience and ability to balance our long-term objectives 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.
Thanks, Andy. 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 organisation with an operations some of the actions. We have taken include increasing the frequency and scope of our facility cleaning staggering break periods and increase in the time between shifts for manufacturing teams and changing the structure of our work to allow for social distancing Network cells.
Additionally, we are providing Health guidance to help our employees stay well and understand the symptoms to look for and if they are not feeling well increase in to stay home removing barriers, they may face and making a choice.
And then he mentioned we felt the initial impact of the corner of our situation this past quarter in the asia-pacific region driven by government-mandated delays returning from the Chinese New Year our factories. And that's one reason we're closed for an additional full week which caused a delay in shipment switch reduce that sales in the. By an estimated six million dollars for the international business segment as workers have been returned over the past few weeks our manufacturing operations. And those are our key suppliers in the region are nearing full capacity and we are working to catch up on the Miss production or manufacturing facility in India has not been able to help me they portion of the customer demand in the region.
S Corona virus has spread across a 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 and suppliers is 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 implemented with that background on our response. I'll know turn the call over to Jeff to cover our financial details from the third quarter.
Thanks, Greg and good evening, everyone.
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 back of $652 or 6% ahead of last year on a reported basis and 1% below the prior-year on an organic basis.
Within a North American contract segment sales were $413 in the quarter representing an increase of four percent from last year on a gaap basis and inorganic Improvement of nearly 3% off.
New Order
A 406 million and a 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 in third-quarter new orders of $159 million or 26% above the same quarter life reflect the impact of our recent acquisitions of hay and not one.
Collectively the consolidation of these entities contribute approximately fifty million dollars of net sales to our results in the quarter an organic basis, which excludes the impact of these Acquisitions net sales and orders page International segment decreased 10% and 7% respectively from the third quarter of last year.
The unfavorable impact from the mandated Factory shut down at our facilities in dongguan China reduced the international growth rate by approximately five percentage points in the quarter in addition to this pressure on a national business face 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% off a two-year basis organic sales growth has averaged 8.5%
even a difficult comparison organic or declines were fairly broad-based except for higher-order levels in Japan and Mainland Europe during the.
A retail business segment reported sales in the quarter of $96 which were flat compared to the same quarter last year new orders for the period of $86 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 was shifted this year off to resolve our third quarter included six fewer days than it did a year ago.
We estimate this quarter would have been approximately 1% lower than the same quarter last year.
Consolidated gross margin in the quarter was 36.5% and include certain adjustments related to the initial purchase accounting of hey, excluding these items adjusted gross margin of 36.5% 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 compared to 173 million in the same quarter a year ago, the current quarter included five million dollars of special charges primarily related to take action expenses and purchase accounting adjustments associated with hay and not one by comparison. We recorded special charges totalling point five million dollars in the third quarter of last fiscal year across some of these items the year-over-year increase in operating expenses of twelve million dollars resulted mainly from the impact of consolidating. Hey and not one.
In the third quarter total, 3.5 million dollars and related to actions associated with our profit Improvement initiatives.
On a gaap basis, we reported operating earnings of $50 this quarter compared to operating earnings of $48 in the year-ago. Excluding restructuring and other special charges adjusted operating earnings. This quarter was $60 or 9% of sales and by comparison, we reported adjusted operating income of $49 or 7.9% of sales in the third quarter of last year off the effective tax rate. The third quarter was 22.4%
And earnings in the third quarter totaled $38 / $60.04 per share on a diluted basis compared to $39 or $0.66 per share in the same quarter last year off 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 a cash flow and balance sheet.
Thanks, Jeff. We ended the quarter with total cash and cash equivalents of $111, which was $66 lower than the cash on hand last quarter primarily relates to the $79 billion dollar investment in hey at the beginning of the quarter cash flows from operations in the third quarter were $49 reflecting an increase of 26% over the same quarter of last month 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 in the quarter cash dividends paid in the quarter where twelve million dollars while shares repurchase totaled $18 for the quarter. We remain in compliance with all debt covenants. And as of quarter-end are gross debt to ebitda ratio was approximately 9 to 1 the available capacity on our bank credit facility stood at $266 at the end of the quarter.
Given our current cash balance. I'm doing cash flow from operations and total borrowing capacity. We remain well-positioned to whether 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. Okay, thank you. Kevin mentioned the rapidly changing situation surrounding Global mitigation efforts around covet 19 make it seem 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 all share.
To begin we enter the fourth quarter with a Consolidated backlog of 411 million dollars, 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 recording.
To provide a sense of current activity levels through the first two weeks of the fourth quarter are Consolidated sales were up approximately 6% from last year while new orders were down closer to 3%
We have received minimal request from customers and dealers to adjust the timing of scheduled shipment both in the US and abroad though. We would expect this to increase. However, we had not 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'll now turn the call back over to the operator and we'll take your questions. Thank you. As a reminder to ask a question. You will need to press star one on a telephone to withdraw your question. Press the pound key. Please stand by while we compiled the queue and a roster. Our first question comes from Ruben Gardner with a benchmark company your line is open Monday.
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 decremental margins? Uh, I guess just on the core business before any actions you take if we were to enter a period of softening softening volume growth. Yeah, I'll take a stab and I think I'd emphasize. This is I don't know that we've seen a environment like this. But what we do have is a lot of experience dealing with with recessionary periods going back in our history. So we do we do know a thing or two about how to Thursday our way into it down. So based on hit let me start with now you you emphasize before actions that ski, you know our business we've always said in in in short bursts dead.
Kind of lever up and lever down on on incremental Revenue changes in in in in small time increments somewhere between you know, twenty and thirty percent at a country in a in a cup of margarine perspective, maybe even a little higher in in in short bursts of time but we've had in the last twenty years to significant downturns both time taking, you know, bold action or around cost reductions and we've built the cost structure as a business. That is naturally it's variable as we can make it and so that that level of deleveraging is not what we experienced in the last couple of downturns. So I'll go back to the last recession. It's probably my best reference point. I'm not suggesting that if things are going to play out the exact same way, but it's probably the best reference I can give you and is it general rule with a 10% movement in Revenue? We we saw operating margins moved somewhere between $175 and $200 a month.
Points so, you know as a general rule, so if it moves 10% if it 20% if it would be kind of two times that and so on.
Thanks, Jeff. That's very helpful. And then so you've got a lot of profit Improvement initiatives going on right now is are there any risks or at this point that you can't see that that those I have to be put off just given this is an environment that we've never dealt with before. I mean, I'm assuming there there could be some interruptions. What how do we think about a savings that your anticipated to get this year? Uh-huh, you know in an environment when you might have temporary closures.
You know.
I think we've been this is Andy. I I think we've built a lot of muscle around optimization efficiencies by by going through this process and I would anticipate we we continue to do that. If anything I think what we've learned and go through this process will help us if we end up saving downturn and how we prepare for that. What would you add and and this is Jeff brueggeman, you know, I think I think as you look at the individual actions we've taken in by the way Greg with us. And today on the call is he was front and center on a lot of the work here in in North America. He might add some thoughts to the one thing. I would say in in to be balanced about this is you know in past downturns what what you feel like when volume levels drop off, you know, the the impact around price discounting has been a factor historically now that we certainly have not seen that um, we had good margin flow through this last month as we have for for the entire past 12 months. So I make no predictions, but that is the one thing that we've done a lot of work around price increases and so forth and we'll have to see how that plays out Dragon log.
Oh, I would just maybe add onto and he's coming about the muscle. Well, it started out as a project. It turned into the way we were 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've been doing profit Improvement wise.
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 where the post intakes and you guys have a they have a strong balance sheet. How do you think about assuming you continue to generate positive cash flow through this. How do you think about uses a cash, you know versus filling up on the balance sheet. Thanks guys congrats on the quarter. Yeah. Thanks Ruben. I'll give you I'll give you a few thoughts on this so.
So as you can imagine and I don't know what 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 off in the early part of a of a recessionary. Historically we tend to see a fair amount of cash inflow you just given the nature of how our life terms are structured as a business. So we do have at least a couple of data points historically to to kind of build that isn't as an expectation. But in in fact it down. We're looking at everything from how do we pull? You know, potentially pull back on near-term Capital spending, but of course balancing the need to be funded 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 a long ways down the path towards so that we're going to suck.
Protect and and try to you know, tighten our belt where we can we got lots of of scenario modeling that is currently happening and we've got a good amount of cash on the balance sheet. I haven't mentioned it is prepared to mark that I think it's it's worth pointing out. You know, we do have a little over $110 worth of cash on hand. We've got lots of borrowing capacity on our our our line of credit which we upsized a year ago. Are there about a year ago? We've got a fairly low leverage ratio. It's just under one turn and a net debt position of a hundred sixty four million dollars. So we feel as well positioned to go into a a challenging. As we probably ever have and I is a evidence of that I point maybe to the last as we entered the credit crisis. We had a leverage ratio that was over one. It was about one point three ex going into the downturn and we had a significantly underfunded u s pension plan and we managed our wage.
Do that and that leverage ratio never got above 3.
So you get no one's predicting. You're certainly 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 to manage our way through it and protect critical Investments that we need to come out on the other side.
Thank you, as a reminder to ask a question. You would need to press star one on your telephone. Our next question comes from Greg Brannen with the company. Your line is now open.
I guess what's a little different this time around is the retail operation maybe talk about you know how that business.
Performs the recession the history of that impact this is off a little bit difficult to answer. I can give you some perspective and it's it's it's it's historically-based and so I qualify it with that. We can say that our retail business given the price points that our business uh-uh 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 that 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 it, you know clearly it was still down but it moderate wage.
The overall had we had we owned it. Then it would have moderated the overall decline that we felt as Consolidated group. That's about all I can offer you again. All of what I described on this phone planning. You can be sure we are including our retail segment in that work as well. And there's folks that are heavily focused on that right now and I don't know if if you didn't and and I would just need to look at the assortment additions that Debbie and her team are making uh, the addition of hay and the price point there the fact that we have an online presence that we didn't have money in the last recession. I think those things are things and certainly the way we've updated in our looking at our our digital platform the way we've introduced ways for customers to have virtual appointment of hers is in person appointments. I think those things kind of an excuse me to be a little bit better position than perhaps to burn. The last downturn having said that I know this is an unprecedented time, but that would that would be my dead.
Okay, and are all your stores currently open? Have you have you posed any yes, let me get that back and talk a little bit about the selling process that dwr wage is really not like the typical retail stores and most of our sales are driven by client telling and relationship selling through our account Executives and a good portion of that is trade interior designers Architects Thursday. We're bringing in a lot of business or businesses much less dependent on walk-in traffic. So obviously we're we've had issues where governments have mandated shut down such as in the Bay Area in 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 will see a drop in sales but we don't anticipate we'll see a drop has others ma'am.
And have actually closed doors that don't have the same selling model as we do now from a perspective because it's much more transaction-based. We have close those doors, but we have so few of them right now that we don't expect.
a Major Impact from that
Okay, great. Thanks and then give some color on I guess what you're seeing early in the quarter and it seems like in the first couple of weeks. There was a really long too much of a change, but it really I mean everything's kind of really sorry to this last week or so. Have you seen any any shift in demand wage order patterns anything, you know within the last week or is it too early to say I know you're not quantifying things with maybe just qualitatively and you see the step change month I surprisingly now and if I look at our retail business, I I think we're surprised to see what we have continued to see in the trend having said that you know anybody's gas and I think we all expect it. We will see a change but but I can send for today and tell you in the contract had the business in the retail side of the business. We have and had cancellations. We haven't seen a dramatic drop in our day-to-day dead.
So we are planning, you know, it's just mentioned earlier. We're planning for all of those things. But as of right now no.
You know, I don't know maybe the last last time around the financial crisis was there was there a lead time like what was the experience back then Thursday Thursday, this is Greg and I'll 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 them back in the late late 08 early 09 calendar time frame was a drop-off and dated what we call day-to-day business, which I'll Define is orders less than $100,000 month. Um that at the time is remember as volatility increase in the market declined that we seem to to get that pretty quick and so by kind of an October November time frame back in June.
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 the most 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 the landlord and or the the tenant so the the watch every day as we're going through this is the day-to-day and as Andy said that seems to be pretty strong still you're actually getting on some cases on the health-care side. You're getting people who are saying, can you hurry up? We we have demand that maybe we didn't have three or four weeks ago. So while that's all be 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. Um, you know, I think you're going to see you know, like like Jeff talked about the backlog the backlog is the backlog but dead.
I would imagine that you'll see.
The people who are committed will be main committed in this question is how long this goes and what happens in two people who have projects that maybe they were thinking about planning about that are farther out maybe fall or winter of twenty. Yeah, and and I would add that as well, you know with the 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. Well as they thought they might be so we have seen an increase in demand and products and related to remote working as well.
Okay, is there is there anyone else in the queue or I'll I'll keep on going go ahead.
Okay, you can go ahead Greg. All right, so maybe maybe another one about like a historical perspective this going into the this downturn wage. The industry was kind of this slow recovery. Never had this kind of frothy access. It didn't seem like maybe last time
Was that not the not the case may be a know eight or nine or even 2,000 if you have more of a overcapacity build up in the industry where you would have a speaker declined and 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? Yeah. This is this is Jeff Greg just a couple of points that I would I would make it's a little difficult for me to um, again predicting the next several months is is hard but but it's the adjustable actually, but but let me let me describe one factor that we did. We did the I would I would start by agreeing with you that that the entire recovery has been perhaps not as frothy if you use your word as as we thought we would have liked but it's been relatively steady if you've Trend in over over the ten 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
You know landlords that were desperate to to fill their spaces because there was there was a lot of capacity rent levels came down and what we found out early days and I remember being on the road Greg with you and and a lot of investor meetings that we would we would here. Yeah. We just moved out of our space across town. We moved into these offices or you know, we thought maybe from three floors down to two floors, but we got a killer deal on the space and we bought new furniture that kind of behavior drove a lot of a lot of faith in the early part of the recovery. I don't know that those same factors will will come together this time around so make no prediction, but that was one of the reasons for the big Snapback. The other thing that I should point out is the the ramp up instead government spend. I want to say, you know history for many many years Herman Miller ran somewhere between eight and ten percent of Revenue was kind of birth.
say or federal government related and then
Coming into that that part of the recovery probably because the base business dropped off that percentage of revenue for the business related to federal government has spiked and I think it got a hyper our business is 14% in the in 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 Round The Fed government, uh, comment is is probably worth noting not only because you know those projects tend to stick around even if the you know oftentimes even if the broader economy softened, so I'll stop talking. I'll stop blabbing.
All right. Thanks. Okay. Thank you. All right. Next question comes from Steven Ramsey with Thompson research online is not open on a good afternoon. Good evening. I think about North America sales and orders up a slight off your I know down in order to actually but the order level of four hundred million really isn't that bad considering the uncertainty out there? I mean this is this surprise you or is there it's going on the kind of that are that are working? Well, it just surprising given the uncertainty out there.
Greg you want to take down one? You know, I would say that the quarter performance actually, is it really a surprise? It was actually kind of a when when I met my team, do you kind of roll up the forecast? Um, we 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 suck us to 2 and in 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 you you excuse you watch the news you watch the news too much and you expect things to happen more quickly than than they have but I would say that I'm pleased and and with the word performance so far this quarter, but I think that I look to the team I like to the the folks that run sales not only at the top and in the region and that I don't think we've ever had a strong a team as we have right now and I think that yep.
Under a leader who has a plan and a in a process and I think that's make a difference for us.
Great and the thinking about know quarterly guidance, I guess just given the visibility from the backlogs impact for the first half of order and minimal order insulation. What is making you hold off exactly on the guidance? It's that there is less visibility Beyond thought maybe the six weeks or any any other specific factors.
well
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 and Europe. And and I think we'll learn a lot in the next couple of weeks. But I I think it's really anyone's guess to know what could happen, you know will be flattened. The car won't be flat in the curve and I think um, it just puts you in a really difficult position Jeff. But yeah, no, I think it is just it's just it's unprecedented uncertainty around, you know, and Greg describe you see that day-to-day business change and and you know, it can happen quickly. And with with what seems to be this escalating situation hour-by-hour almost over the past several days. We just thought it was it was more transparent than just simply tell you that that here's the data that we see but we just don't feel comfortable making making, you know a a guided range at Birth.
Point I'm great and and I guess does the recent, you know bring in hey and and then off 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 you know, I mean just any factors kind of thinking long-term on retail profit margins.
Steven this is Jeff. I guess I guess given how I want to be careful how I answered this because because we don't know the extent to which this going to impact us. I would say we yes, we believe there's likely a delay in what we described simply because you know, we expect some dislocation in our faith in our industry across many Industries at least in the short run around the world since our since our Revenue exposure is 100% to planet Earth. We we expect we expect that's going to end I am not trying to be flippant but it's it's just that scale of uncertainty. So it's likely we will feel some delay. We hope that we're wrong and and you know, I've heard a lot of commentary is a young sure you have around the potential for a quick snap back unless 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 dead.
Likely some some delay, I think long-term and anti-police. I mean, we we are bullish on the long-term strategy and I think Andy has highlighted some some of the most exciting parts of the business that we're working on right now that we're 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 us so much stronger to compete but once they're in place and and you know, 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.
excellent
Thank you. Thank you.
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Andy Cohen for closing remarks. Thank you guys for joining us off 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 and keeping your communities safe and staying healthy. Thanks a lot. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may not disconnect.
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