Q4 2021 Herman Miller Inc Earnings Call

Good morning, and welcome to the Harman Herman Miller's fourth quarter earnings Conference call. As a reminder of this call's being recorded I would now like to introduce your host for today's conference, Kevin Veltman, Vice President of Investor Relations and Trust server.

Good morning.

Joining me today and in the fourth quarter earnings call on Andi, Owen President and Chief Executive Officer, Jeff Stutz, Chief Financial Officer, John Michael President of North American contract Debbie probes President of Herman Miller retail and Jeremy Hocking President of international contract.

We have posted yesterday's press release on our Investor Relations website at Herman Miller and background wherever in the figures are presented on the non-GAAP basis, we've reconciled the GAAP and non-GAAP amounts within the press release.

Before I turn it over to Andy for a brief review of the quarter I would like to 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 we make today are based on assumptions as of the date and we undertake no obligation to update these statements as a result of the new information or future events at the conclusion of our prepared remarks, we will have the Q&A session. Today's call is scheduled.

For 60 minutes with that I will turn the call over to Andy and.

And Kevin Good morning, everyone. Thank you for joining us today.

In addition to the announcement of our planned acquisition of and the whole during the quarter, our fourth quarter results reflected the continued rebound from the pandemic and highlight the resilience and diversity of our business on a consolidate.

Consolidated sales for the quarter revenue, 31% compared to last year and the orders were up 29 per cent compared to the prior year sales.

And orders also increased sequentially from third quarter levels highlight and the increased levels of activity that we're seeing and the markets that we serve.

Our retail business delivered another quarter of it.

Record breaking performance and that's part of retail.

And he and history.

But for the retail segment ramp of 106% over last year and orders without the 81% segment operating margin of 19, 2% for the quarter reflect the strong profitability levels.

We continue to see growing demand beyond the from office and Dws contract category. Excluding net your category fourth quarter order growth was up 96% of the last year.

The contract business is also feeling the positive impact of recovery from the pandemic as customers began accelerating their plans to make sure and chios and especially in the second half of this quarter.

Thanks for the North American contract segment increased sequentially by 21% from Q3.

Flat compared to prior year.

Leading indicators around the project and final marker and comparable countries from him and he's also been supported and external measures for just the architectural billings and adjusted and agencies have been trending positive.

We continue to see rising demand.

International contract segment as well with what is that 55 per cent compared to last year.

Diluted earnings per share on a GAAP basis for the quarter were 12, while the.

Adjusted EPS, which excluded the impact of acquisition related costs restructuring and other special charges totaled 66 cents.

This is an increase of over 400% from adjusted earnings per share and the same quarter last year.

Adjusted operating margins of 7% for 370 basis points over the same quarter last year.

Sales levels and year over year gross margin improvement.

For the near term challenges and higher commodity costs drove the profitability of equipment during the quarter.

Looking ahead as the pandemic continues to subside, we are reestablishing quarterly sales and earnings guidance.

We expect sales and the first quarter of 640 to 670 million and earnings per share of between 52 and 58%.

Just a reminder of our outlook does not include any impact from the pending acquisition of <unk>.

We've navigated the challenges of the past year exceptionally low accelerating our on transformation and further strengthening our leadership position across every segment of our business.

We're entering this new era, and our industry and of addition of incredible strength.

Continent, and our ability to continue to grow the business and.

Great.

Oh the dose.

Our differentiated capabilities enable us to chair of the contract and consumer out each and every day and everywhere they want and give it and for that and we will continue to differentiate ourselves for the customer and digital.

On the first approach and everything we can.

And the future, we're very pleased with the profit you're making towards finalizing and I agree that's required at all and we expect the deal will close and 1 week of the scheduled July 13th shareholder meeting assuming of course, we repeat the Herman Miller.

And I'll share 2 of crippled.

After the deal.

And anticipation of deal close our integration planning teams and preparing our gateway and readiness plan the timing of organizational structure and operating profit growth and creating detailed synergy plans for and respected area.

On the screen the basket the companies together as the United and cleaner on the combined organization.

We expect the integration process of the seamless for all of our stakeholders.

As the preeminent leader and modern design and the combined Herman Miller and all will be at the forefront of transforming our industry. During this period of the unprecedented disruption.

Well the place to serve our customers everywhere, but the broad portfolio of brands and products and advanced technologies and digital capability and a deep bench of talent together will continue to drive sustainable design and innovation for the years to come.

I have to pay the none of this would be possible without the incredible people, who make up the 119 of the and I'm. So grateful for their efforts this past year.

Close of the huge thank you 2 of our teams around the world, who continue to power our transformation and who helped make the 2021.1 of them.

Despite the many obstacles.

The very bright future and it's an exciting time to be part of the organization without I'll turn it over to the operator.

Yes.

Ladies and gentlemen.

If you would like to ask the question. Please press pause for the number 1 on your telephone keypad.

Your first question comes from the line of Greg Burns with Sidoti and company. Your line is open.

Good morning relative to the the guidance for the first quarter.

Revenue was strong a little bit better than we were looking for but.

The S was a little bit light. So can you just walk us through.

And your outlook for margins for the first quarter, what kind of driving that that EPS that you're looking for.

Yeah, Hi, good morning, Greg This is Jeff I'll start and.

Others can join in and if they have some additional color. They Wanna add maybe the first thing that I would say is just to level set and I and Greg and I think you made reference to this and your note that you published this morning, but I think it's important that everyone understand our fourth quarter earnings per share reflects a lower than normal effective tax rates. So let me start with our.

Our adjusted effective tax rate for the fourth quarter.

Was just under 12% and it was lower.

As a result of some favorable items that were all good news.

And we will generate favorable cash flow for the business, but lower and lower that rate from typical levels. Our normalized tax rate you can think of as being somewhere between 21 and 23% as you probably know Greg and so what were those favorable items, we had about $4 million of favorable tax items of 2 million of which came from the utilization.

And the NOL as well as we sold off some some state tax credits that we were we were able to find a buyer for which was of great benefit to US and then we had true ups that made up the about another 2 million. So there was about $4 million of favorability in the tax rate. If you normalize for that in the fourth quarter, and then you'd see sequential improvement.

Going from Q4 for Q1 and earnings per share, which is what you would expect because our guide for revenue was higher in Q1.

So so I just wanted to make sure we level set with the effective right now to your question within the guide you look at the the drivers of gross margin. It's no. It's no secret.

And the impact of of inflationary pressures and the business we.

We expect commodity pressures sequentially from Q4 into Q1.

We will drive an estimated $4 million of increased cost that will pressure gross margins and now we're doing everything that we can and are and there are things. We can do we can put a larger than normal price increase and effect.

Effective the beginning of June but as you know it takes time for that to layer itself into the results on the contract business. So we.

We will start to feel the benefits of that as we move through the the first half of the fiscal year. We're also feeling it on in the area of direct labor cost.

Like so many companies are and we expect.

That that's going to drive an estimated $1 million of sequential increase costs. So those are 2 inflationary pressures that we're going to feel the impact of and are in our Q1 gross margin now we will will offset some of that not all of it but some of it.

And then you also have it's probably worth highlighting as that North American contract business begins to pick up steam in terms of revenue you have.

The channel mix basically difference and the business from where we've been right. So as the contract business continues to grow you'll see a blend of higher blend of contract gross margins, which are structurally lower than you see in the in the retail business. So that's just the mix issue as much of anything and then lastly, and I'll pause and make sure that I'm getting to you.

Question.

And the in the area of operating expenses, you've got higher sequential revenue in Q1 and with that you've got variability on the and the operating expenses that come with that as well as some additional investments that we're making and the area of it and digital which isn't new news. These are initiatives that we've been talking about that are going to cause operating expenses to be up of.

Little bit sequentially from Q from Q4, so hopefully that gives you the kind of the major pieces that speak to the earnings per share trend.

Yeah, No no that was perfect and then in terms of the the the price increases that June is that your second for this year of your first and you know what's your view on where we are in terms of the need for maybe additional price increases.

Yeah, that's our first 1 and this calendar year Greg.

You know, we're certainly we are keeping very very tight watch on the commodity trends and you know we will we will not hesitate to take additional action. If we think that's needed.

And so doing it like we always have.

Everything we can to reduce costs by working with our suppliers by looking at things like value add value value engineering within the manufacturing plant. So those are all standard fare here at Herman Miller and our teams are doing a great job leaning into those however, the the ramp up and costs are real and they are upon us and we're looking.

And closely at it and if we have to we will we will certainly consider and additional price increase and not all of the John Michael If you have anything that you'd add there from from the North American contract side of this because so much of these these commodity costs are impacting the contract business. So feel free to add any other commentary.

I think you've covered it well, Jeff obviously, where we're feeling the pressure, but so are our competitor competitors as well from the commodity perspective, and it kind of goes with sort of the general inflationary trend across our economy right now.

Okay, and then lastly in terms of.

The order patterns and.

On the North American contract business, I guess for starting to see some green shoots pop up here and pointing to kind of a recovery and that market, but can you just give.

Give us some insight into maybe how the order patterns of trended as we move into the the first quarter here and the first couple of weeks.

John you want to take that 1 for North America.

Sure I'd be happy to as Andy mentioned in her opening comments from the year over year perspective in Q4, we saw a significant strengthening in the second half of the quarter as.

And as opposed to the first half of the quarter and from Q3 to Q4.

And again significant increase.

The increase as well, 21% sequentially from Q3 to queue for a starting Q1 a year.

Year over year comps were up just the tick under 30%.

From the year over year basis. So we're seeing we're seeing strengthening really.

Across the board and I think you know 1 other thing of note is many of the largest markets in North America.

From Boston, and New York City, The Bay area of Chicago, Toronto are markets that are slower to open up then.

And then the number of of other markets across North America that are already open and so we're encouraged to see the strength that we're seeing already and I think as some of these larger metro areas begin to open up even more in late summer and fall that should continue to have a positive impact.

Yeah, and Greg This is Jeff I might just add 1.1 of their bid for you just yet.

To give you a sense for pacing through through the quarter at the consolidated group level of orders averaged in the months of March and April combined about $48 million of week, we saw a nice improvement in the month of May they jumped up to $60 million and in the first 3 weeks of the new quarter, they've maintained at that $60 million level. So so we've seen a nice.

The acceleration I think it just speaks to the fact that you know it.

As of late in the quarter that we saw the pickup but the good news is it's continued through the early part of the first quarter and as John mentioned.

There's a lot of signs out there that give us reason for increased optimism going forward, yeah, and I would add we're seeing the same and the international markets as well. So that's another good point, yes.

Okay, great. Thank you.

Your next question comes from Steven Ramsey with Thompson Group. Your line is open.

Hi, good morning.

And then sure my day.

Hi, Yes, I'm curious you.

You know I guess of couple of questions thinking about supply chain challenges I guess, just the Q2 sales guide.

Reflect the challenges I guess of holding back the ability to deliver demand in a timely manner or in another way to ask it is demand exceeding sales currently.

Steven This is Jeff. So you referenced Q2, you mean Q1 guide just to just to clarify.

And so clearly there is some simple and I'll, let debbie and others might have some color there that are of real specific to their business. What I can tell you is that on the edges, where we are feeling some of the impacts of things like container container shortages and container delays. We've tried to do everything we can and we're mad.

<unk>, it quite quite well to date by adding selectively adding inventory.

And doing some expedited freight, which obviously comes out of cost, but we're trying to average.

And we can't imagine and I think we're doing an okay job. So there's nothing there that is.

Is is terribly alarming right now, but it's something we're watching and Theres a lot of news these days on that.

Some additional challenges.

Around availability of some inputs like Glu, we had talked about foam earlier and the year.

On the other additives and the manufacturing process that.

We're working through those again nothing Super significant I think our biggest challenge right now is the labor.

From a manufacturing standpoint and.

Thats occurring and this is mainly a U S based issue, although without exclusively in the U S. But it's principally a U S contract. So so as it stands right now we know there are some extended lead times that we're seeing and pockets and I don't know Debbie on the retail business. If you want to add any additional thoughts here, but we're managing it.

Managing it as best we can but it's top of mind for sure and and you know there are issues on the edges.

Absolutely and retail in particular, our sales of the percent of the math in Q4 was about 19, 1% that's actually pretty typical for what we would expect and Q4 given that we have 1 of our largest promotional events of the year at the end of May and so we typically expect to see.

And those products ship in June and July and for looking into June we'll see that the pin number is closer to even which is what we would expect coming out of that lack of promotional period at the end of the quarter I'd say the place where our supply chain initiatives are really impacting us and our product lead times, which affects our conversion rate. So.

Certainly as we bring customers into the funnel and we leave on the table and the customers don't convert because of longer lead times of normal and we believe that had a fairly significant impact and in Q4 of course, the very happy with the performance of our sales growth and order growth and Q4, but there is some missed opportunity because of things of our lead times.

Say as I look across the competitive set and I feel like we've seen and a relatively strong position, especially given the amount of our overall operating that we manufacture ourselves centers, so domestically and that's been the real benefit for fleets.

And the capacity such that and some places where our in stock rates are not quite where I'd like them to the outdoor in particular has been impacted and and I've just said and we're working very diligently to continue to mitigate the supply chain challenges, but they are very well.

Helpful color the Cup.

Other questions on retail.

Maybe just start with on and on margins the self help story.

The meeting strong demand and clearly they are bearing fruit and I know self help never ends, but you've come off this low base sustainably how much further is left on the big improvements you can make in retail and and as you open up new stores, how much are the new store openings.

Reducing near term margins.

And what was the Great news is a set of new stores that we've been opening has been performing well above our operating income targets. We're exceptionally pleased with the performance and have a real life plan and the pace is about the same rate as what you've seen from us and in terms of store openings over the last 6 months and so those store.

They are adding to our operating income rates on our margin rate and <unk>.

And what will become a meaningful way as that fleet growth in terms of the.

The current sort of a mix.

The mix of margin improvement and that we're seeing within Q4 year over year the the.

The biggest element of margin improvement come from department mix and and so we're monitoring closely as we see sort of shifting relationships between the workspace and our non workspace categories within retail however, given the.

Absolutely and sales and workspace demand increased 4% and Q4 over Q3, the the total base increased and then within our non workspace categories were actually seeing accelerated growth there of our fees and what we're seeing and work space. So that's indicative of.

And and improving overall opportunity and our decorative furnishings category and.

And that is an area, where I believe we have the opportunity to increase the amount of exclusivity and our assortment and they might of private label and development, where theyre and rich margin opportunity.

Yeah, just just the other thing and thank you Debbie.

We really arent the infancy of every residential retail growth spurt.

And with the IV and the team have been doing has been really sort of building the business model for the future of so that we can gain market share on the RTW outcomes that our Herman Miller brand new adds to our concept and you have to remember and see that hanging on.

And just the beginning to get off the ground from the retail.

So it is high and low hanging fruit and the operational processes and the discipline and the assortment opportunities that Debbie had any business are just the beginning to equal so as we increase our market share on the residential part of it.

We see a long runway of opportunity and all of the brands that we have on our direct to consumer on.

Yes.

Thank you for that and then on.

On the retail margin moving from you know.

The the high teens low twenty's percent.

The range and the last few quarters.

Can you may be bridge.

That to the to the low teens targets you have over the long term trying to get a sense of how much of the elevated sales and drop through and.

If there is impact the impact of reduced expenses coming in and that segment alone.

Well, Steve and I view this as an investment year for our retail and <unk>.

Organization, you know, we have seen tremendous growth over the last 12 months and and.

That is on and infrastructure that was developed to support a very analog sure and models. So this is the year that we will build the building out the infrastructure to support.

And multi brand omni channel business.

That is focused on both customer acquisition and the LTV growth and so what that looks like is the build out of the omni channel pillar of planning and allocation system and art of management system refresh and all of these things are critical for scaling the business on on the vision that I I've been pursuing along with my team.

For the last 12 months and as Andy said, what the at the infancy of executing that vision. These infrastructure investments are critical to allow us to continue to growth.

Yeah.

Great Great and then and then last 1 for me as you think about the office look and feel post pandemic, what you see and order in your order books and backlogs and conversations does that look much different than the pre pandemic office.

Yeah.

And the price at around I know, John you're nodding. Your head do you want to act and you want to step into that 1.

Sure I'd be happy to Andy. Thank you Stephen So just a couple of anecdotes that some color too.

To your question, we had and the last couple of weeks around table.

With the number of A&D from principals.

Talking a bit about pre pandemic for assist post pandemic.

The and engagements that they're having and they all share that pre pandemic conversations were about cost per square foot.

And Densification and those types of topics that have now switched to how do we attract and retain employees how do we facilitate collaboration and connection.

Across our employee base.

So so totally different set of criteria. If you will that people are thinking about in terms of what they want their space to do for them.

And that obviously drives some change and modification in terms of.

On the specification and and the product solution set that we provide for for individual projects and clients. So we're seeing that shift and and quite frankly, we're encouraged by it because of those types of conversations about using space strategically as an asset to improve business results is is what we talk.

About and what we do well and and what our product support. So we're definitely I think seeing the market conversation kind of move right into some areas, where we're we've got a lot of helped the provides.

Thanks for taking this is Jeremy let me just add some highlights from some of the international perspective, I'd say a couple of things here..1 is some of them said well some large users of talking about the need for less office space going forward because more people are working from home and but what we.

We've been finding is that maybe the 90% of space that will be less.

Most of all of it it may not be quite fit for purpose. So all of it needs to be dealt with and we are well placed with all of the investments, we've made and and research and insight for hospitals.

Conversations with customers around the world and there's another piece of it I think the interesting developments in recent years as we've acquired the more companies and as we're on the brink of acquiring another large 1 we bring more global industrial design talent into the stable.

And these are people, who are well versed in the needs of global market and bringing to market products like OE, 1 which was just launched to rave reviews.

This industrial designs on.

Tremendous credentials and.

And we're excited about the and pump that all of them as we preview of that product line because it looks just like it was designed for the stone, which it was and.

And that comes to market now and.

So we think.

Extremely well placed to take advantage of.

And the conversations on customers are having is the scramble and these coming months to returns on.

Great. Thank you.

Your next question comes from Reuben Garner with.

With the benchmark company your line is open.

Thank you good morning, everybody.

The first question and apologies. If this was the I thought it had some connection issues at the end of the greg's questions, but the can you just comment on the recent.

Order trends it sounds like it got better as the quarter progressed I mean, even in the June what can what can you tell us about where orders are whether it's year over year or maybe even relative to the pre pandemic.

Levels in North American contract specifically.

Yeah, Reuben we did touch on that briefly but I'm happy to just recap it because I think it's and it really an important point.

To emphasize so so order trends, let me let me start first just talking about sequential order trends from the fourth from the third quarter to the fourth quarter and.

And in total we saw orders at the consolidated level of grow 23% sequentially and what was kind of fascinating is the across each of the 3 business segments. It was quite consistent sequential order growth for North American contract business was 21, 22%.

Retail was up I think 26% sequentially and the international business was up 23%. So those are all very similar percentage changes all positive sequentially and I think very reflective of of that growing momentum that we're seeing and then and then when you look at intra quarter order pacing.

The comment earlier, but I'll just repeat it so order.

In dollar terms of the average orders were $48 million per week in the months of March and April combined that increased in May. So we saw a nice acceleration to $60 million and in the in the first 3 weeks of June and fiscal June it's maintained at about that $60 million level. So.

That's a good sign.

Out of zone.

And it bumped up in May and fell off a cliff and the early part of the of the quarter and is.

And he said at the beginning of the call. There was a lot of external fact, and I know you're aware of this but theres a lot of external factors that that continued to point of reasons for continued optimism and and.

And ongoing growth moving forward. So hopefully that gives you. Some some color that's helpful for your question and.

It does what the Jeff what would the run rates have been you know and in this time and 2019 relative to the $60 million of we are we 20 per cent all still are we.

<unk>.

Any rough.

Estimates out of them.

Speaking of retail well just pulling the contract numbers and retail in particular are really focused on our performance to a loss last year of 2019 and.

Given that we're now comping on a quarter, where we had and stores closed and our search and our ecommerce channel.

But our R&R growth and Q4 was up 73% for 2019.

And so we feel very positive about that and you watch our mark and the and the overall retail business.

Yeah, and then Ruben and on a consolidated level just in total for the business. If you look at the orders were for the full quarter now on comparing Q4, just completed to Q4.2019, so pre pandemic fourth quarter.

They were down I think 7% organically in total so still down but here's the encouraging part and the month of May the orders were up 6% at the consolidated level versus pre pandemic. So.

At this early at this early phase of a recovery that was a very encouraging metric to see the total orders for the entire group up.

2 to may of of that 2019 year.

It is perfect that's perfect and then on the price cost just a follow up so I think you said there was $4 million.

The incremental cost pressure sequentially.

From Q4 to your Q1 guide and then of millions of direct labor did I hear that right.

That is correct yep, okay, and and so the follow up question to that is maybe in terms of price cost how much price cost pressure did you have in Q4, what does that look like in Q1, and I know, you're just starting to kind of.

Layer on a price increase and when do we see that price cost pressure on a year over year basis basis dissipate will it be as soon as Q2 or will you not the quite caught up yet.

Yes, it's funny.

We had commodity pressures.

I just wanted to be clear on reference points here. So if you look Q4.

And just completed fiscal 'twenty, 1 versus the prior year fourth quarter and commodities accounted for about 50 basis points of gross margin decline.

So Kevin keep me honest here in dollar terms 3 million of about 3 GAAP year over year that was coming in and and and really no price increase to speak of to help offset that of Ruben now moving forward. We do have a price increase effective June 1.

You referenced the $4 million expected additional pressure.

We have got a lot of history to look back 2 to see how this plays out obviously, there's lots of parts to this equation, including what happens to commodity prices from here forward because if they continue escalating that's a very different answer, but we should start to see the effects of that price increase late layer and we won't get much benefit in Q1, we should definitely start.

And to feel the effects of it as we move into Q2 and then.

And our hope and belief is we'll start to see some of these commodity pressures and begin to abate in the.

And the back half of the calendar year.

The pure speculation at this point, that's our belief, but even if it doesn't that price increase will continue to escalate and benefit our results as we move into the latter part of FY 'twenty 2.

Okay, and and I think a couple of your competitors have a couple of price increases out there can you comment on maybe what the level of your 1 increases as you mentioned and I think it was larger than usual is your 1 increase sort of and the ballpark of what the others are out with 2 increases and and that's the right way to look at it.

Yeah. We were we are price increase continuing and 5% and then as we look forward I know you guys may or may not remember that we revamped our can process around price increases the we're able to take on much more quickly if we need to and as Jeff alluded to earlier, we're going with the 5% because we're we're believing that the commodity pressures going on.

And he's asked later on in the year, if we have to follow that with the another b well, but we feel good about what we've done so far to offset.

And as you go out and retailers and the win and that's really just for the contract business.

Understood and and last 1 for me if I could squeeze 1 more and is just the Debbie a follow up and I don't know if the question's for Debbie or Jeff for whoever but the the retail margin this year.

Close to 20% for the year and that bridge to getting to the low teens I understood. So if low teens is low teens the target for your 2000 and.

And your fiscal 'twenty, 2 and and you know the difference between where you are today and there is as you're investing in the business, but after 'twenty 2 it.

Assuming those investments you know go away or is there anything stopping the margins from going back towards the level that you've done over the last year, what I guess the are there any other elements. Besides of the investments that youre going to make this year to grow the business that take you from 20% for the low teens.

And so what I had laid and already really on FY 'twenty to investment plan and and beyond FY 'twenty..2 we will start to expect to see margin rates begin to the old again.

And.

There's obviously the investments we're making in growth.

Which I feel very bullish about it we will be continuing to invest and digital this year and.

With the relaunch of our of the hate website and the U S and the launch of our European Hey, direct to consumer website experience the b.

Getting this next calendar year and.

The amount of assortment perspective, we're continuing to drive newness on a on a monthly basis and that had a significant impact from the last fiscal year.

And in fact, our assortment and newness between.

All of the various categories and decorative furnishings and gaming drove $87 million of the incremental volume and the till the ear and so as we continue to expand and units will be watching the impact on margin mix very carefully and as I said.

Private label and development is an important part of that need of strategy. So that we're protecting those margins longer term.

And then we continue to have really positive result.

And our marketing strategy and as we've adjusted and both our marketing and channel mix and the quality of our content and so on marketing spend as a percent of sales what kind of below 5% of Q4, and that's worth of 7.5% same period last year.

And our cost to acquire customers.

And then below $50 sorry phase.

The 90.

For FY 'twenty so.

We continue to enhance our data capabilities and our CRM capabilities and we should see continued growth and the LTV of our of our customer base as well as continuing to drive down on customer acquisition.

And so just to recap, it's an investment year and.

And we anticipate and will go from high teens and this is the need and earning your point of that to mid teens not low teens.

But we also anticipate that getting back at the high teens and beyond will be it.

GAAP net profitability as we move out of this year for sure.

Great. Thank you guys. So much of its very helpful and and good luck going forward.

And thanks Robyn.

Your next question comes from the line of Alex Fuhrman with Craig Hallum Capital. Your line is open.

Great. Thanks, very much for taking my question I would love to get a little bit more color on where you started to see the demand coming back in North America have there been any big variation.

In terms of regions of the country or industry groups and then in particular I'd be curious to see.

Just recently I guess, the only a couple of months ago, 1 Herman Miller professional would be curious as to the kind of what youre seeing from small and medium sized businesses and and if that could be.

And the growth vertical and a big part of your business and sort of the post COVID-19 economy.

Yeah, Yeah, I think I think it absolutely well, Jeff did you want to add to that.

I was going to suggest I can I can speak of.

A few details on H M professional but I don't know.

And Andy or John if you want to talk a little bit about what we're seeing regionally in North America.

Sure I'd be happy to Jeff.

Hi, Alex I think from a regional perspective.

Clearly south and Midwest.

And do have bounced back a bit more quickly in terms of their economies opening up which obviously drives demand.

As I mentioned it earlier.

Earlier in the call I also think of number of the largest markets in North America from of contract perspective.

Chicago, New York City, the Bay area Toronto.

<unk> had been a bit slower.

To to recover we're starting to see that activity and those markets now.

And believe that will bode well for continued demand increase in.

And the fall.

Yeah.

Yes, and then Alex and by the way it's good.

Oh I'm sorry, Jeremy go ahead.

And.

Well, it's the biggest tonight.

Customers.

Operating.

Sorry is that all for AC.

And.

And globally.

Maybe the middle class and 1 cost of a lovely and North America.

And in fact, all vary and global market is going to give you a couple of examples and Inc.

And we recently landed a $6 million of all of that for.

1 of the Big Tech companies and for another 1.

And.

Okay.

Okay.

Sorry can you hear me now yeah.

So we also landed and $8 million.

Order and Tokyo, Japan.

A west Coast based company adjusted in recent weeks, So I think I always like to think about us.

Globally, not just regionally north American because many of these clients for global clients of ours.

No that's great and Alex This is Jeff it's Greg it's great to have you on the call. So welcome.

And I might just tag on.

A couple of metrics on Herman Miller professional which we're very excited about now it's early days right. We're 2 months in.

As of the end of the quarter.

But early signs of really good and we have fairly high confidence that this is in effect the incremental 2.2.

And what would what would be our typical book of business and I think it really gets to that small and medium sized business question that you're asking.

Early early metrics are encouraging we had 700 almost 770, new customer registrations, just and the first couple of months.

The over 500 projects created now of the dollar the average order value of these is pretty small which by the way you would expect it to be.

Because of the the nature of the customers that are that are registering for on the site, but we've got a great digital team that is kind of sitting behind this and helping supported and a terrific group of dealers that are also supporting this as well so anyway, we're very encouraged and.

And we expect big things from this going forward.

That's terrific. Thank you all very much.

Okay.

And your next.

Last question comes from Ruby Young with parent Burke Your line is open.

Hey, good morning, guys. Thanks for taking my questions.

Could you just talk a little bit about some of the spending patterns have been seeing in retail. So I guess, specifically are you know what I'm, saying kind of the average spend per customer starting to increase as work from home starts to become more permanent for some workers.

And so and as our channel makes the shifted quite a bit we're seeing movement and our average order values and average order value is much higher and our studio channels and then for the E. Comm channel, it's a little bit lower so on average order value is up and Q4 year over year and we'll continue to monitor.

Could that actually have channel mix shift.

Got it and then.

But to kind of.

Your brick and mortar it seems like store traffic is getting stronger and Jane and drive sales.

Can you just discuss some of the maybe new customer acquisition rates, you're seeing from your physical stores and.

Given the continued success there.

And what is your plan and looked like the open more for the upcoming fiscal year.

And we've been happy with the new customer acquisition and we're seeing some of the stores are about half of the volume that we're doing because of the new stores, particularly under the Herman Miller brand and new customers.

And both of our repeat customer and on new customer segments increased year over year, our customer acquisition for the full year and total across our whole business was off of 136% to the prior year.

So the new stores are an important part of.

Our awareness strategy and we know that the category of ergonomic seating in particular or the category that customers need a lot of help with for a lot of them.

Our residential customers, it's the first time purchase and.

And so that extraordinary store experience is crucial and given where the operating margin the actualizing at a much higher rate than what we modeled which we feel bullish about the physical retail growth strategy and we believe that the positioning of the Herman Miller of seeking store and.

And at positioning the product of that performance and health and wellness to as proving them to engage in your customer and.

And beyond our customers I, just thinks about it and our economic office chair of the piece of furniture for sits on until the believes that there's plenty of longevity and and this model will be on the short term pandemic me.

Hey, Debbie do you want to touch a little bit on the recent openings with HAE and and that kind of demographic that that high.

Touching from a customer standpoint.

Absolutely so within Q4, we opened and are.

Seeking store on Greenwich Avenue and.

And that disconnect of kit and then we opened.

Hilton market, which is a multi brand retail experience.

And cliffs, Hey design within reach and Herman Miller.

And then we also opened within the quarter and Ah ha.

Hate location, and Berkeley, California and.

The new small format design within reach and location and South Hampton and so all of the locations, we opened within the quarter of performing well above our modeling expectations. He in particular and it's the first location and North America, where I'd say were appropriately engaging with the right demographic and.

And and we believe that we now have a line of sight of Hey, physical retail model that will perform and where we need it to and the small format design within reach and South Hampton.

And as long as a much lower investment way for us to get into the secondary market and that particular location of coupled with the design within reach within Filton market is the.

The first expression of our assortment expansion strategy, which covers a broader range of modern style that has been curating for the particular market that were presenting to them.

So we feel very we feel very positive about the brick and mortar opportunity across all 3 of these retail brands.

I think the way that Debbie and then Graham and the teams have managed our investments and our digital capabilities, coupled with brick and mortar expansion and and prudent and thoughtful way will really enable us to reach of variety of customers more efficiently and we have been able to do before and so we're very excited about that.

Got it Super helpful. And then last 1 from me is just on the backlog so and obviously the increased a bit since last quarter, but can you just break down what's driving most of your backlog is currently and how much of the possibly being built up from the delay of mint and shipments and deliveries.

Yes. This is Jeff.

You broke up a little bit there with the question, but I think I think the question.

In essence is.

And the schedule of the backlog and correct me, if I'm wrong on that and.

And we can we can speak to it but I would tell you is that the backlog and this is I think and encouraging sign of you know as order momentum has begun to pick up and it happened later in the quarter.

We are seeing some projects, particularly in the North American contract side that are scheduled and pushed out beyond Q1, which I think and forms part of the reason why orders. The orders were as strong as they were in Q excuse me and Q4.

And the revenue guide might be a little lower than it normally looks in relation to the order rates and it's because of that backlog has.

A few more projects the normal that our data beyond the first quarter, so a little bit of a timing issue there.

So let me pause there and make sure that that's the essence of your question of if there was something a little deeper.

No that's perfect.

Great.

Great. Thanks, so much cash sufficient.

Thank you.

Alright, I'm showing no further questions at this time I would now like to turn the conference back to Andi Owen.

Thanks, operator, and thanks, everyone really appreciate you joining us today. We appreciate your continued interest and Herman Miller and we're looking forward to updating you again next quarter, the well everyone I.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day give me all of the disconnect.

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