Q4 2022 MillerKnoll Inc Earnings Call

ation.

Good evening and welcome to millino's fourth quarter earnings conference call. As a reminder, this call is B recorded. I would now like to introduce your host for today's conference, Kevin beldman, senyou by the President and integration lead for millino, you may begin.

Good evening. Joining me today on our fourth quarter earnings call are andioen Chief Executive Officer Jeff, that's Chief Financial Officer, and John Michael, President of the Americas contract.

We have posted the press release on our Investor Relations website at millero com.

Wherever any figures are presented on a non-GAAP basis, we have reconciled the GAAP and non-GAAP amounts within the press release.

Speaker 1: Before I turn it over to Andy for a brief overview of the quarter, I would like to remind everyone that this call will include forward-looking statements.

Speaker 1: 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.

Speaker 1: Any forward-looking statements that we 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.

Speaker 1: At the conclusion of our prepared remarks, we will have a qa session.

Today's call is scheduled for 60 minutes. With that, I'll turn the call over to Andy.

Speaker 2: Thanks Kevin. Good evening everyone and thank you so much for joining us. It has been an extraordinary year in our company's history and Jeff and I are looking forward to discussing our fourth quarter results with you.

Just over a year ago, we began the journey to become milleral, transforming our industry in creating one of the most influential design companies in the world, and we've accomplished a great deal to date. We completed the organizational global design process, introduced a unified sales team and the millinno dealer network in North America, and we've made meaningful progress toward our goal of delivering one hundred and twenty million dollars in cost synergies, having captured $66 million in run rate cost synergies at the end of our fiscal 2020 -two.

Speaker 2: We delivered strong results this past year, while simultaneously contending with a very volatile macroeconomic environment. Across our global operations, we've taken decisive actions to mitigate supply chain disruptions and inflationary pressures, while investing for the future.

Speaker 2: We remained focused on the strategic priorities that guide us as we drive meaningful growth across our global business.

Speaker 2: Our team delivered fourth quarter and fiscal year 2022 results that reflect both the strength and potential of millanol, and we're confident that our unique combination of contract and retail businesses and our collective of brands will continue to enhance our ability to compete and grow as we've move through fiscal year 23 and beyond.

Speaker 2: Jeff will take you through the details of our fourth quarter performance before I hand off to him. I wanted to comment briefly on the progress we're making in a few key areas.

Speaker 2: We achieved several critical integration milestones in the fourth quarter, most notably on June . First, we launched our North America Miller noll dealer network. Customers now have access to our full portfolio of brands through a unified dealer network, giving them more choice and creating more opportunities for our dealer partners.

Speaker 2: This has always been one of the most compelling reasons for creating Miller noull, and we've already seen our dealer partners leverage the full portfolio of our solutions, secure significant wins in several regions across North America.

Speaker 2: We're also making excellent progress building the international Miller mill contract dealer network to cross-sell the millermill collective of brands.

Speaker 2: Our international dealer cross-sell pilot now includes 32 dealers from 17 countries on three continents.

Speaker 2: We'll expand our pilot into the Middle East and Africa later on this year.

Earlier this month, we held our first annual Miller noll design days. Along with our dealers and cross-brand sales teams, we welcomed the design community and customers to a series events, exhibits and showroom tours at our approximately seven thousand square feet of showroom and retail space in Chicago.

Speaker 2: The design and innovation pipeline is robust across our collective of brands. We introduced more than a dozen new products at design days, including new task seeding solutions from both Herman Miller and LL, new Textiles from a heram andol Textiles and innovative new SI tosandust from Geiger, sofa and lounge, feedating at muto and new cafe tables and stools from not one at the same time, we've made considerable progress, building our commitment to our plate: people, planet and communities.

Speaker 2: Early in the fourth quarter of diversity and dying, collaborative launched its first formal initiative called designed byias Basin Detroit. Designed by, which created to raise awareness of design as a viable career path for underrepresented high school students and included a series of special events and speakers.

Speaker 2: We also introduced our 2030 sustainability goals in the quarter. These goals are shared across our collective brands and build upon our history of environmental stewardship. They're targeted: reducing our carbon footprint by 50%, designing outwaste and stopping the use of single use plastics, and sourcing better materials by using 50% or more recycled content and purchascing materials that are responsibly and sustainably produced.

Our teams across the globe work hard every day to have a positive impact on our communities and the planet, and these goals will push us to do even more.

Speaker 2: We are United across brands and regions and our commitment to sustainability, and I'm excited to see how we activate our plans to make a difference across the collective.

Our millermole team has delivered exceptional results this past year, even amid a challenging backdrop of macroeconomic pressures.

Speaker 2: We enter fiscal year 2023 from position of strength and with a great deal of momentum. We're focused on delivering against our strategy to stand up meillno, create a differentiated, omni-ichannel customer experience, accelerate growth across channels and geographies and use our business ultimately as a force for good. With that alterred it over to Jeff, who will discuss our results in detail before we open it up for questions.

Thanks Andy. Good evening everyone. I M certainly appreciate you joining us today.

Speaker 3: Our fourth quarter results reflect outstanding efforts of our global teams to fuel positive momentum for our business that overcome the ongoing impact of macroeconomic pressures.

Our supply chaining mitigation efforts helped return lead times and reliability to near normal levels for almost all products and geographies. Strong production levels across our global footprint helped drive the highest sales volumes of the fiscal year.

Speaker 3: Consolidated net sales in the fourth quarter of one point one billion reflect an increase of 77% on a reported basis and 23% organically over the prior year.

Speaker 3: Notably our international business saw record sales of $136 million in the quarter, an increase of 28% over last year on a reported basis and up 37% organqu.

Consolidated demand continued to exceed prior year levels, with orders of a billion dollars, up 47% over last year on a reported basis and an increase of 4% organically.

Customers are seeking premium and custom solutions that deliver the workplace experiences and amenities their employees are demanding.

And the breadth and depth of our portfolio continues to resonate.

Along those lines, brands like Holly Hunt spinybeck fill fell, geigger and our Textiles brands continued to see strong demand in the quarter.

With that, I'll turn to the retail business.

Retail coming up a very strong fiscal year 2002 where we saw record orders and sales levels.

Speaker 3: Despite the strong performance for the full year, during the fourth quarter, order levels declined by 12% compared to last year, as consumers shifted their spending to travel and other experiences and faced the uncertain economic environment.

Despite these near-term pressures, new orders for the retail segment were up 63% on a two -year stack basis compared to the fourth quarter of fiscal 2020 and.

Speaker 3: And excluding the workplace category, which creates tougher comparisons given the pandemic-driven growth. Last year, the two -year order growth for retail was 77% and.

The retail investments we're making in product assortment expansion, new stores and studios and e-commerce platforms are bring new customers to our brands and positioning us for long-term growth.

We opened eight Herman Miller stores in the fourth quarter, including three in Japan and one DWR retail studio.

Speaker 3: We have three store openings planned for the first quarter of fiscal 2020 -three and.

We also introduced a new hay website in the U's and began a series of global website launches for Herman Miller and Herman Miller gaming in native languages, to further extend our reach outside of North America.

Gross margin of 35% at the consolidated level was 160 basis points lower than the same quarter last year, primarily driven by higher commodity costs and inflationary pressures.

On a sequential basis. Consolidated gross margin improved 180 basis points as we began to see the impact of price increases flow through orders in the fourth quarter.

Speaker 3: We expect additional traction from these. Price increases will drive further margin expansion in future quarters.

Reported operating margin for the quarter was 5%, while adjusted operating margin was 6% point a half percent compared to 7% in the prior year.

Speaker 3: Consolidated operating margin improved sequentially by 230 basis points from the prior quarter.

Speaker 3: In the sequential expansion in operating margin. This quarter was driven by improved operational performance, the realization of integration savings, price increases and well-managed operating expenses.

We reported diluted earnings per share of 20 cents in the quarter.

Speaker 3: And adjusted earnings per share was 58 cents in the quarter, which compared to 59 cents a year ago. For the full fiscal year, net sales were three point nine five billion, a year-over-year increase of 60%.

On an organic basis, net sales increased by 14% compared to the prior year.

On net loss per share for the full year total 37 cents, but on an adjusted basis, earnings per sha for the full year total $1 and 92 cents, compared to diluted earnings per share of three doll and seven cents in fiscal 2021.

Speaker 3: At the end of the fourth quarter, our liquidity position reflected cash on hand and availability on our revolving credit facility toing $527 million.

We expect first quarter revenue to range between one point Bo 8000000.00112 trillion and adjusted earnings per share between 32 and 38 cents.

Speaker 3: This guidance reflects the impact of an additional week of sales based on the company's accounting calendar, which is required periodically to realign the company's fiscal periods with the calendar months.

And the guidance also considers near-term inflationary environment that we are navigating and the actions we're taking to help mitigate these pressures, as well as the expected timing of shipments from our backlog.

With a backlog that's 45% higher than last year. Organically, we enter the first quarter on a strong foundation. However, it's important to point out that we are seeing the expected timing of shipments extend firurther than normal and have reflected that in our guidance.

We have a great deal of momentum as we continue to extend the full benefit of Miller old to our customers.

Speaker 3: We're confident in our strategy and we're well equipped to navigate this period of acroeconomic uncertainty from a position of strength. Our collective of brands can meet the needs of both our contract and residential clients around the world, and we will continue to capitalize on the unique opportunities in front of us as we unlock the full potential of iller O in fiscal 2020. -three.

Speaker 3: And with those prepared remarks, we'll now turn the call over to the operator and we'll take your questions.

Thank you.

Speaker 4: Ladies and gentlemen, is reminded. To ask the question, you need to pressall in one on your telephone.

To withdraw us and press the panking again. Let's Star one to ask the question.

Our first question comes from the line of Stephen Ramsey with Thompson research group. Your line is open.

Good evening. Maybe just to clarify a couple of things. That on the supply chain seems like you talked about some normalization there but then also some lead times of shipments extending. Can you maybe reconcile those things and if that is impacting certain segments over another?

I would say in the host even- and I'll turn it back to Jeff, since you made the comment on lead times- extending supply chain volatility continues but it has improved for us. So as we've seen our only lead times internally get back to normal levels, we're certainly encouraged by that. That's not to say we aren't seeing some suppliers experiencing our own supp chain issues, but we have seen, on the whole, much improved customer experience. But on the contract and retail side justff, what would you want? Yeah, I think that's right. I think there's. You do have to draw distinction, I think stepheven, between our own manufacturing lead times to your domestically in the U's and those of our primary su suppliers, which is much improved from where it's been.

Now I will say that for certain products that are built abroad and that we import, this really affects on retail business probably a bit more acutely. Some of those are still facing extended lead times. There's still port congestion in a number of locations, whether you're coming from Asia. You've got the disruption from the war in Ukraine affecting certain supplier still in Eastern Europe , and so that's an an area where we're feeling the effects of it. But and then, in terms of the backlog, the longer dated backlog has probably much to do with anything today as customers.

Iterating on designs and really trying to be thoughtful and careful about kind of the types of designs that theywant, that they want to have, and also frankly, still a little bit of people getting in line in terms of concern around the supply chain environment.

Very helpful. That may duvetail nicely into my next question on the strong pickup of customer visits, dealer sentiment being high. What drove that stark improvement in customer visits in the quarter? Is it converting to action on the part of customers as fast as maybe precovid levels? Or do you think the process to purchase is maybe a little different right now but been normalizes over time? Just curious how kind of it's playing out right now and where you going.

You know Stephen, we've seen an uptick in customer visit. I think it's a number of things. I think the reality of getting back to collaborative work environments for the contract side of the business is starting to hit people and has been for the last several months. So we've seen a frenz of activity on the dealer side in the a and D community. So people are really getting out there in visiting and getting back together and spending time together both inside and outside of work. I will also say that those visits- and I think design days is a perfect example compared to the potentially pass NE neiconsare very intentional. People are coming to visit us with an idea for projects.

Looking at their space, revaluating their spaceithink. The Lest leaseman survey said 93% of people were looking at changing their space. So there's, but this is are much more intentional. The one cave out to that that I'll say is that people are iterating on design much more than they used to. So while our design teams are very busy- Andy firms are very busy- they're spending time trying to adapt to the hybrid environment and potentially reiterating on design a little bit more than we've seen in the past. chinaand i. you see a lot of customers. What would you add?

I think to add to that Andy, we do see to your point.

93% plus of customers have acknowledged that they have to do something in their space. I think they're finding it harder and harder to attract workers back to the office, and so perhaps some companies that previously thought they wouldn't have to do a whole lot are beginning to realize that they are going to have to take action in order to create an office place that is the destination that they, that their employees, want to come to. Tag on to the comment about design days: if you look at the number of appointments we had at design days, as well as the traffic through the showrerooms, it actually exceed precovid levels.

In terms of customer appointment scheduled and, to Andy's point, validates the fact that we didn't really have a lot of people just looking and kicking tires. We had people with real projects, that needed to make decisions, that wanted information.

Very helpful. And then last thing for me quickly: Herman Miller stores: outpacing expectations. What areas are outperforming or performing better than expectations? Why is that? And then do you expect that to continue as you open more stores this year?

Yes steevenve. I think what we're finding in the MAN Miller stores is that it's a it's an easy concept set up. It's a small square footage, it's profitable to run it, sufficient and the customers really responding to not just the work space products but the hermanmiller brand as a whole and, as you know, we have many iconic residential designs that are resonating as well. So we're seeing pretty much all the product check from workspace standpoint. We're also seeing the lifestyle product to check in the manmiller stores, So we're very excited about all aspects of its business.

It's also which is very nice these days. It's very inventory light which adds to the efficiency and productivity.

Excellent thinking any.

Thank you. Our next question comes from the line of Ruben Gardner with benchmark company. The line is open.

Thank you. Good afternoon everybody.

Oh see, ribon.

Maybe Jeff, can we hit on the price cost situation. I know you guys have had another round of inflation to deal with, heard a couple of your competitors now using surcharges is a way to kind of get through this period of maybe more temporary pressures. Have you guys- and I think, additionadditional pricing actions in addition to the surcharges? What are your thoughts there? Have you guys made in any additional announcements on the pricing side?

Thanks the question we Ve been so we've not made any additional announcements, but it the pricing, the question that is constantly being talked about, and we are. We do have plans for additional increases, So there will be more details on those forth coming. That nothing announced publicly. two -year point: yes, I mean there's an inflationary pressure from a number of areas. There's a certainly a notable area where we're seeing some relief in the market price and that's in particular in the area of steel where the market prices deel has been really since the beginning of May coming back.

In our favor a bit. So that's a positive most other areas though in fairness are seeing cost rises obviously transportation a big conversation. These days with diesel prices. So we're certainly feeling the effect of it as it relates to surcharges we 've.

We've used. We attempted to use surcharges in the past and frankly, our experience is that we just haven't had a great great deal of success with it and our belief is that this price increases on discount manage and a better way to approach it.

Ok got it and from Oh' go ahead any.

Speaker 2: Now I just just con say: one of the most important things as we look at this price cost equation to remember is, as we start to see our price increases kick in, we continue to see margin improvement quarter-over-quarter as we get the benefit from that. So we're happy to seeed that.

And so that kind of D il into my follow-up what's embedded in the guidance for next quarter from a price cost standpoint are you worked in your waves but we back to neutral edtors are still some catch-up to do and it will be the kind of the following quarters.

Yes So we've got.

Our guide, our sequential guide coming from Q4, assumed at the midpoint about 140 basis points of price increase benefit.

So pretty meaningful to Andy's point. That's now. That's not all going to flow through. If you dothe mathon that I think themidpoint of our guide is 35%. So expectation for a bit more sequential pressure from freight and transportation, just given the recent trends in diesel pricing, as I mentioned, some of the P congestion and so forth, that inbound freight for the retail business has continued to be a bit of a challenge. So we expect about 50 basis points of pressure at the mthemidpoint of the guide and then a little bit of other, not non steel but other commodities. Call it about 10 basis points with our best estimate.

And then the balance of that math would issue, to probably mix in kind of everything else, maybe another 40 basis points of margin pressure. But but the main point would be a pretty significant benefit sequentially from pricing.

'sgreat? And then one more for me. So on the integration front sounds like the progress. On the cost side, can you talk about what you're seeing so far in the early stages in terms of revenue dissynergies and then also revenue, maybe synergies that? I don't know if it's too early for that part of it, but just any color that you give on' what you're seeing, especially with some of the latest steps you've taken to integrate, to do.

Yeah rubt, this is Kevin out. I'll start with the.

So cross.-, sell. As we mentioned in the release, June first we kicked off an exercise to bring millerno dealers and put those in place in North America. So really we're just starting to kick off that exercise with a big focus on being able to transact business across all the brands across North America, and so we're in the early days of that. We've had some level of dealer flips to date, but within the expectations that we had at the at the start of when we did the modeling around the deal. Jo, I don't know if you had anything.

To that thanksgiven. I would just say, from a cross-sell perspective, were it were four weeks in at this point and we see the momentum building every week. It's something that the dealers have been waiting for for a number of months and we had a very well orchestrated ramp up to cross-sell that included dealer activation, virtual training sessions, deep dives on product and then really the culmination was design days, where the power of the millino collective of brands really came to life for our dealers and for customers and designers.

So as we look at the early, early success of cross-sell, we're really encouraged and we expect to see it accelerate in the coming weeks.

Great thanks guys, and goodbyeck phone for.

greatthanks guys, and good buck on for thanks for ven.

Thank you.

Our next question comes from the line of Bud got with watertower research. The line is open.

Thank you for taking my questions, gratulations on getting solable the first year of the integration and my busishes for best good luck. Going forward to Jeff, I'd like to ask.

I'd like to ask a few questions about the balance sheet, if I could. The inventories look like they rose pretty substantially from third quarter.

Speaker 5: Ok can you talk about the quality of the inventory? I know most of it typically would be in.

In weip, but now with retail, it's that most of that increase in retail.

No it's a great question, but I would say it's really two areas. Retail is definitely a contributor to this. We've got the deepen amount of investment and inventory for the retail business.

Particularly and I would say it's high quality in the sense that it's it's products that are not not terribly seasonally sensitive. Number one they tend to be high, high volume products. Now there's a number of. There's some investment in newness as well, because part of the strategy for the retail team is to build up new assortment, but we have no concerns the quality of the inventory. It's a retails, a component of it. The international business, though it would be another area that I D point out, and that's more a function of the order growth that that business is seem. You may recall orders in the international business. We're up something on the order of 77% last quarter.

They were up year re on year again. This quarter that our international business has been, it had a terrific year and, as a result, has seen their backlog increase and inventory levels increase very much in line with that. So I LL leave it at that. I mean, you're absolutely right, inventories are up. We're going to manage that down in the form of managing future inventory purchases to work our way through that, but there are no concerns with the ability to move it.

Speaker 5: And just make sure I understand the international. Is it the international contract to international retail bits?

There's where our exspensor- Yeah, meant international contract. Thanks for clarifying.

Right and on that, but just from a historical perspective on the retail business, debie and the team had done an excellent job managing through more aged inventory, getting the outlet businesses to a place where we're really working through anything that might be liable, and our inventory levels are actually below prepandemic levels right now. So we feel good about where we're invest in: the quality of that inventory.

Okay that's great and but the mix that we talked about Jeff, and I think you referred to 40- 40 bits of mix- that's the same issue that we had last quarter where we had such an outsized growth of seedating in retail that it's hard to compare for the next couple of quarters. That where that mix issue is coming from.

Speaker 3: Yes principally that's what I'm referring to. But it's well see, you saw the retail orders were down a bit this quarter. So as a retail which has structurally higher gross margins in the business with lower order entry levels this quarter, that just the overall business mix with retail is a contributor to that and the big driver there would be the higher margin tax seedating.

And should we expect retail volumes to stay down and that around 10% area for the next couple of quarters, until you cycle through the issue with people now going and spending more other STU other than in retail?

For the But.

Don't. We're not providing the guide anything beyond Q1, know certainly that that market factor is not something that's going to turn quickly, So that we will be dealing with that. But of course we just open eight stores. We've got three more opening up in the first quarter, So So those will be a contributor'll be, you know, small to start, but we're doing a number of things. I think debie in the retail team are. They're doing a number of things, as I mentioned, with new products to be added to the assortment, the investments in stotor And so forth. So I think those will help. But you know the market pressures right now are real and will probably be facing some of those.

You know, in the near term minimal Yeah, and I would think the one thing to to really think about with this retail business- because you know it is, it is pretty nascent of the last couple of years- you have that huge workspace blip that you have to normalize for. So I to look at two year staff comp for retail, which really really kind of gives you that underlying health of the business. And if you included it with workspace at a two year where about a 63 compposite businesses grownand about a 77% comp without workspace, So all those other categories outside of that kind of COVID-19 work from home drive are healthy. So I think we really have to look at that. So was I say total growth? We might see some of that come down with what's happening in the environment as people turned to.

Speaker 5: At this point in time, are you doing design projects in the home or is it pretty much all in-store and online?

We are doing all of the above.

And we are relaunching our trade program, we're relaunching our interior design program online, So we are doing all of the aboutve. We have a very, very strong interior design capability in our stores and we use that in a variety of ways. So for sure.

Got a couple more questions. If I could the the, the net leverage ratio for the, the debt, my calculation was just over three is that right? I mean it was down nicely from the last quarter, or have I got it wrong? And and what it's? What's the securedly first leverage ratio? Or if I got the namewr.

So B the key, the key point that I think is important to understand is that our bank covenants give us credit for the synerggy plans that we have in place. So if you be, if you, if you account for the synergies that we are targeting- we were at, I think, two point six net debt to EBITDA leverage at the end of the quarter- you might be, you might be doing it without include, without the inclusion of the targeted synergies that we have in our sites moving forward. So that could be the difference there.

No I had 12 million. That's what they give your credit flow right. That's the targeted synergies.

Speaker 5: And two million. That's the. That's what they give you creditic right. That's the targeted synergies, because are more.

No was 120, but with the net debt EBITDA for the quarter was two point six.

Yeah.

Speaker 2: Okay find that if your calculations are different.

Was certainly happy to do that and can you give us maybe the interest expense? As I know it's embedded in that other item. What was the interest expense in the quarter?

12.8 million in the corter. By the way, this is the rolling four quarter calculations. Again, that might be we we can talk more about the mechanics, but just so So you're aware that that's on a UL four quarter basis. Yes, under the quarter, that's true, okay.

Okay yes, or okay well, we certainly have to take that offline. And my last question is: I just wanted to make sure I understood the EPS add back. Are you adding back 11 cents for taxes? I didn't quite understand the language on that.

Yes So yes So, but the this has been- it's a little bit of a unique year because our effective tax rate on a GAAP basis for the quarter, for the fourth quarters, is almost 50%. That gap on on an adjusted basis it's 21 and a half, and one of the things that contributes to that difference is been on a GAAP basis on the full year and IM going to talk about for the full year. Because of all the integration related charges, we are in a net loss position.

And on a GAAP basis, in a net loss position, we end up becoming a limited on our use of certain certain certain credits, like foreign derived in tangible income, foreign tax credits in general, and so when we, when we work down to an adjusted EPS.

The assumption is that you wouldn't be limited on those, on those credits, and so you end up with a with a fairly significant tax adjustment to to work your way back down to the adjusted e PS's for the quarter. It is confusing admittedly, but you left, I think you, you left me, So it's a you make you, I think we'll do that. All lies. Thank you pretty much. Good luck, you happy, we can Act. Appreciate it. I sing eside you very much.

The assumption is that you wouldn't be limited on those, on those credits, and so you end up with a with a fairly significant tax adjustment to work your way back down to the adjusted e P's for the quarter. It is confusing admittedly, but you left, I think you, you left me, So it's a make you, I think we'll do that. All Li. Thank you pretty much. Good luck you. We can Act, appreciate it. I sing ide you very much, Yeah.

Thank you. Our next question comes from the line of Alex firmit with craham. The line is open guys. Thank, we're taking my question here. You know, first thing I wanted to ask about, I guess, is the, the retail business, and if you could talk a little bit about that. Obviously you saw tremendous growth during the coed Arab business and in your direct to consumer is that? You know that's been slowing down in recent quarters and seems like it was approximately flat year over year in the quarter you just reported. But you know, pretty impressive considering the, you know the extraordinary growth. You the experience during.

COVID-19, what should would be expecting over the next couple of quarters? Is it inevitable just that, as you laugh, that extraordinary growth we're going to see a couple of down quarters before that business starts to make new high again, or it's potentially the impact of opening a few new retail location going to going to blump the impact of those comparisons.

Yeah it's a great question, Al ex. I think we should still look to the, to the retail business, to hold steady despite the macroeconomic pressusure. I think, as I said before, we're really looking at those two years DOT com to normalize for that work space blip. I think debie and the team are really being thoughtful about the category expansion. There are several categories that we have not been in before, whether that's drugs or artwork, or even expansions of certain living living rooms or dining room products. I think there's a lot of new product extensions that we'll be adding in. There's also new capabilility. So we've been investing in technology. We've been investing new ways to track our customers. So I think many of the things that established.

Speaker 6: B B that and it's just one more if I put for the for the team on. On gross margin. Look like now: you know, with the guidance in Q1, several quarters of pretty solid improvement relative to the 33% or so gross margin rate we saw in the third quarter. I know it's, you know to have visibility- multiple quarters out and your' only guiding to the one quarter, which is that you think about. You know what you know today, given labor cost, material cost, you know what you've got in terms of already announced price increases, that that maybe you know HA or haven't been fully realized in your business we should, we think of. You know this kind of. You know, call it thirty.

This we have not realized all of the price increases that we've put in place yet. We planned for more. If we need to to offset cost increases, I think it's fair to say that's a good base to build off up. Jeff, I know you, you have something you want to add to you. No, I think that's right. The only thing I would add is we would be disappointed, very disappointed, if that didn't happen. I said last quarter and I'll say again: I think our belief is that we've got enough, enough pricing. That's been done, and again we're contemplating the need for potential more. We can get this business back to levels that were're at or above precobit.

Speaker 3: And we're nowhere near that right now, and so we should see a continuous improve in margin as we move through the balance of the yearand Y. your point is a good 1, though you know you have to make a make an assumption around economic conditions in general. Our base case is not that we're that we're going to enter into an industry-wide recession and so, as long as we can get some continuous volume growth, you we have every expectation that about margins will continue to climb, and I think the one thing we CAn't forget about to is we are integrating and we have a much larger supply base. We have the ability to leverage and integrate the supply chain, So that's an advantage that we have if we think about margin as well and just efficiencies along that way.

That's great. Thank you both very much. Thank you, Alex.

Thank you both very much. Thank you, Alex. Thank you.

ourning comes from the line of Greg Burns with' the doult in company.

Burns what' the do in company. Your line is open.

Have you. I one Hi the the retail business So I I understand e're PE against tough comps coming out of coldness.

Work from all, but we're seeing some. Some competitors talk about slowing demand and increased discounting and some other some of the factors I would indicate. You're generally seeing a slowdown in this discretionary consumer spending, with inflation how it is, or are you at all concerned with with that impacting the business going forward and do do still feel comfortable at the level of investments that you're making now, given that kind of inflationary environment that we're in?

Yes Greg, this is Jeff LA. I'll start and I'll give you listen.

Absolutely as we look at where the economy is right now and where consumers are which, when the stock markets declining historically, target customer in the retail business has been arguably sensitive to that and it has not been a great run in the stock market and obviously, with inflationary pressures, consumers are feeling the pinch there. So of course it has our attention. But I will say this, that there's a lot of white space for this business to continue to grow into. We are we've, you can very, very clearly say we've got so much opportunity to expand outside of North America and there's a number of markets inside North America.

That we don't have a presence in today's in physical terms, and so there's lots of opportunity for us, as well as- and this is probably even more important- categories that we are under penetrated in that the team has been working really hard to expand and move more significantly into, So there's lots of reasons for us to believe that we can continue to grow. I don't know that it's fair to assume that we can counter the macro, the bigger macro picture, but we feel great about where this business is positioned today versus where it's come from. From an overall earnings perspective, it's it's accretive to our consolidated operating margins today.

And we've got a terrific set of operators and we know we can weather a period of challenge here and come out stronger on the other side.

Ok are you seeing higher discounting or anything else that?

Speaker 7: Might give you concern about the margins going forward.

Not no, not from a discounting perspective. The margin pressure that we're feeling is more related to transportation, principally today, and that mix shift which we are going to anniversary that at some point here. Right, but the mix shift is gone against us here all fiscal year as, as we've been comping against what you would probably argue is the best margin mix that you you could dream up, which is a lot of high margin retail task shairs, and so mix and transportation pressures are the bigger margin pressure. It hasn't been a discounting thing, okay. And then on the.

Speaker 7: Contract side of the business. I mean it doesn't sound like there's been any kind of slowdown of demand. isn the MAN you're seeing now kind of like that pent-up?

Demand that from from COVID-19 and now that we're moving past you starting to see some of that unlock, because you know we're starting to see some of the some of the forward looking indicators like CE o confidence softening up and some other things So are prospectively like looking forward. Are you seeing any kind of forward looking indicators softening up here on the constru of? But that'.

gregy, we've lost you. John , when do you take that first part of this question? Sure, in terms of what we're seeing relative to demand, I think the CEO confidence metric that you talked about obviously is real. But if you look at some of the metrics that are more closely related to our industry, like the Architectural Billings index, that's still in a very positive place. Anecdotally, as we work with and talked to design firms, they are all very busy and looking to hire. But I do think one thing we've seen is sort of waves of demand coming out of COVID-19. If you think back to this time last yearthere was a tremendous amount of pens up demand.

After we all had our first round of vaccinationwe've now been through a year where we've had a couple ofwaves of variance, where there's been some stopping and starting. But, as I mentioned earlier, I think a number of companies that thought maybe they didn't have to do much in terms of changing their space to accommodate the new work protocols have realized that they are going to have to make some changes. So we're seeing the activity across a larger number of companies than we would typically see in a normal economic environment.

Okay So no, no Ford looking indicators that you would say anything's kind of softening on that side of the business.

None that I would point to at this point. Okay, and then in terms of the extra week on the guide, how much did that extra week had to revenue and earnings in?

For the guidance.

Greg, it's' about sesevenvent B nine well, if you just do the straight maad's about $79 million in revenue for the week. For the extra week operating expenses account for, you can estimate that to be about $24 million and from from an earnings perspective probably somewhere around 2, two to three pennies. Okay, quite great, thankyou.

greit's about seven B, nine well, if you just do the straight maad's about seventy nine million dollars in revenue for the week. For the extra week operating expenses account for, you can estimate that to be about $24 million and from A- from an earnings perspective, you know- probably somewhere around 2, two to three pennies. Okay, quite great, Thank you, Thank you.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to handy for closing remarks. Thanks to an. I thank you everybody for your interest and for your support, and we look forward to updating you again next quarter. Enjoy the weekend and M happy fourth seionally. Bye, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. I'll disconnect.

The.

The.

So.

coured. I would now like to introduce your host for today's conference, cvin beldman. senyou byice, the President, and integration league for millino, you may begin.

Good evening. Joining me today on our fourth quarter earnings call are andioen Chief Executive Officer, Jeff stut's Chief Financial Officer and John Michael, President of the Americas contract.

We have posted the press release on our Investor Relations website at millero com.

Wherever any figures are presented on a non-GAAP basis, we have reconciled the GAAP and non-GAAP amounts within the press release.

Before I turn it over to Andy for a brief overview of the quarter, I would like to remind everyone that this call will include forward-looking statements.

Speaker 1: 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 this date and we undertake no obligation to update these statements as a result of new information or future events.

Speaker 1: At the conclusion of our prepared remarks, we will have a qa session.

Today's call is scheduled for 60 minutes. With that, I'll turn the call over to Andy.

Speaker 2: Thanks Kevin. Good evening everyone and thank you so much for joining us. You know it has been an extraordinary year in our company's history and Jeff and I are looking forward to discussing our fourth quarter results with you.

Speaker 2: Just over a year ago, we began the journey to become milleral, transforming our industry in creating one of the most influential design companies in the world, and we've accomplished a great deal to date. We completed the organizational global design process, introduced the unified sales team and the millino dealer network in North America, and we've made meaningful progress toward our goal of delivering one hundred twent million dollars in cost synergies, having captured $66 million in run rate cost synergies at the end of our fiscal 2020 -two.

Speaker 2: We delivered strong results this past year, while simultaneously contending with a very volatile macroeconomic environment. Across our global operations, we've taken decisive actions to mitigate supply chain disruptions and inflationary pressures, while investing for the future.

Speaker 2: We remained focused on the strategic priorities that guide us as we drive meaningful growth across our global business.

Speaker 2: Our team delivered fourth quarter and fiscal year 2022 results that reflect both the strength and potential of millero, and we are confident that our unique combination of contract and retail businesses and our collective of brands will continue to enhance our ability to compete and grow as we've move through fiscal year 23 and beyond.

Speaker 2: Jeff will take you you the details of our fourth quarter performance before I hand off to him. I wanted to comment briefly on the progress we're making in a few key areas.

Speaker 2: We achieved several critical integration milestones in the fourth quarter, most notably on June . First, we launched our North America Miller no dealer network. Customers now have access to our full portfolio of brands through a unified dealer network, giving them more choice and creating more opportunities for our dealer partners.

Speaker 2: This has always been one of the most compelling reasons for creating Miller muill, and we've already seen our dealer partners leverage the full portfolio of our solutions to secure significant wins in several regions across North America. We're also making excellent progress building the international Miller mill contract dealer network to cross-sell the Miller millll collective of brands.

Speaker 2: Our international dealer cross-sell pilot now includes 32 dealers from 17 countries on three continents.

Speaker 2: We'll expand our pilot into the Middle East and Africa later on this year.

Earlier this month, we held our first annual Miller noill design days. Along with our dealers and cross-brand sales teams, we welcomed the design community and customers to a series of events, exhibits and showroom tours at our approximately seven thousand square feet of showroom and retail space in Chicago.

Speaker 2: The design and innovation pipeline is robust across our collective of brands. We introduced more than a dozen new products of design days, including new task feeding solutions from both Herman Miller andll, new txtiles from a heram and ol Textiles and innovative new SI toandest from Geiger, sofa and lounge feedating at muto and new cafe tables and stos from not one at the same time, we've made considerable progress building our commitment to a plt: people, planet and communities. Early in the fourth quar of diversity and dying, collaborative launched its first formal initiative called designed BU bason Detroit, designed by, which created to raise awareness of design as a viable career path for underrepresented high school students and included a series of special events and speakers.

Speaker 2: We also introduced our 2030 sustainability goals in the quarter. These goals are shared across our collective brands and build upon our history of environmental stewardship. They're targeted: reducing our carbon footprint by 50%, designing outwaste and stopping the use of single-use plastics, and sourcing better materials by using 50% or more recycled content and purchasing materials that are responsibly and sustainably produced.

Our teams across the globe work hard every day to have a positive impact on our communities and the planet, and these goals will push us to do even more.

Speaker 2: We are United across brands and regions and our commitment to sustainability, and I'm excited to see how we activate our plans to make a difference across the collective.

Speaker 2: Our millermo team has delivered exceptional results this past year, even amidst a challenging backdrop of macroeconomic pressures.

Speaker 2: We enter fiscal year 2023 from position of strength and with a great deal of momentum. We're focused on delivering against our strategy to stand up illunno, create a differentiated, omni-ichannel customer experience, accelerate growth across channels and geographies and use our business ultimately as a force for good. With that alterred it over to Jeff, who will discuss our results in detail before we open it up for questions.

Thanks Andy. Good evening everyone. I certainly appreciate you joining us today. Our fourth quarter results reflect outstanding efforts of our global teams to fuel positive momentum for our business and overcome the ongoing impact of macroeconomic pressures.

Our supply chaining mitigation efforts helped return lead times and reliability to near normal levels for almost all products and geographies. Strong production levels across our global footprint helped drive the highest sales volumes of the fiscal year.

Speaker 3: Consolidated net sales in the fourth quarter of one point one billion reflect an increase of 77% on a reported basis and 23% organically over the prior year.

Notably our international business saw record sales of $136 million in the quarter, an increase of 28% over last year, on a reported basis at up 37% organically.

Consolidated demand continued to exceed prior year levels, with orders of a billion dollars, up 47% over last year on a reported basis and an increase of 4% organically.

Customers are seeking premium and custom solutions that deliver the workplace experiences and amenities their employees are demanding.

And the breadth and depth of our portfolio continues to resonate.

Along those lines, brands like Holly Hunt spinybeck, fill cell, geigger and our Textiles brands continued to see strong demand in the quarter.

Like Holly Hunt spinnybet Phil fell, geigger and our Textiles brands continued to see strong demand in the quarter. With that, I'll turn to the retaalil business.

Retails coming up a very strong fiscal year 2002 where we saw record orders and sales levels.

Speaker 3: Despite the strong performance for the full year, during the fourth quarter order levels declined by 12% compared to last year as consumers shifted their spending to travel and other experiences and faceed the uncertain economic environment. Despite these near-term pressures, new orders for the retail segment were up 63% on a two -year stack basis compared to the fourth quarter of fiscal 2020 .

Speaker 3: And excluding the workplace category, which creates tougher comparisons given the pandemic-driven growth. Last year, the two -year order growth for retail was 77%. The retail investments we're making in product assortment expansion, new stores and studios and e-commerce platforms are bring new customers to our brands and positioning us for long-term growth. We opened eight termman Miller stores in the fourth quarter, including three in Japan and one dwwr retail studio.

Speaker 3: We have three store openings plan for the first quarter of fiscal 2023. We also introduced a new hay website in the U's and began a series of global website launches for Herman Miller and Herman Miller gaming in native languages to further extend our reach outside of North America.

Gross margin of 35% at the consolidated level was 160 basis points lower than the same quarter last year, primarily driven by higher commodity costs and inflationary pressures.

On a sequential basis. Consolidated gross margin improved 1, one hundred and eighty basis points as we began to see the impact of price increases flowwn through orders in the fourth quarter.

Speaker 3: We expect additional traction from these. Price increases will drive further margin expansion in future quarters.

Reported operating margin for the quarter was 5%, while adjusted operating margin was 6% point a half percent compared to 7% in the prior year.

Speaker 3: Consolidated operating margin improved sequentially by 230 basis points from the prior quarter.

In the sequential expansion in operating margin. This quarter was driven by improved operational performance, the realization of integration savings, price increases and well-managed operating expenses.

We reported diluted earnings per share of 20 cents in the quarter.

Speaker 3: And adjusted earnings per share was 58 cents in the quarter, which compared to 59 cents a year ago.

Speaker 3: For the full fiscal year, net sales were three point nine five billion, a year-over-year increase of 60%.

On an organic basis, net sales increased by 14% compared to the prior year. A net loss per share for the full year total 37 cents, but on an adjusted basis, earnings per sha for the full year total $1 andninety-two cents, compared to diluted earnings per share of $3 and seven cents in fiscal 2021.

Speaker 3: At the end of the fourth quarter. Our liquidity position reflected cash on hand and availability on our revolving credit facility tolling $527 million. We expect first quarter revenue to range between one point B 8000000.00112 trillion and adjusted earnings per share between 32 and 38 cents. This guidance reflects the impact of an additional week of sales based on the company's accounting calendar, which is required periodically to realign the company's fiscal periods with the calendar months.

And the guidance also considers near-term inflationary environment that we are navigating and the actions we're taking to help mitigate these pressures, as well as the expected timing of shipments from our backlog.

With a backlog that's 45% higher than last year. Organically, we enteer the first quarter on a strong foundation. However, it's important to point out that we are seeing the expected timing of shipments extend further than normal and have reflected that in our guidance.

We have a great deal of momentum as we continue to extend the full benefit of millerold to our customers.

Speaker 3: We're confident in our strategy and we're well equipped to navigate this period of macroeconomic uncertainty from a position of strength. Our collective of brands can meet the needs of both our contract and residential clients around the world, and we will continue to capitalize on the unique opportunities in front of us as we unlock the full potential of mero in fiscal 2020. -three.

Speaker 3: And with those prepared remarks, we'll now turn the call over to the operator and we'll take your questions.

Thank you, Ladies and gentlemen, is reminded. To ask the question, you would need to press all and one on your telephone.

To withdraw us tonand press the palking again. Let's Star one to ask the question.

Our first question comes from the line of Stephen Ramsey with Thompson research group. Your line is open.

Good evening. Maybe just to clarify a couple of things. That on the supply chain seems like you talked about some normalization there but then also some lead times of shipments extending. Can you maybe reconcile those things and if that is impacting certain segments over another?

I would say in the host even- and I'll turn it back to Jeff, since you made the comment on lead times- extending supply chain volatility continues but it has improved for us. So as we've seen their own lead times internally get back to normal levels, we're certainly encouraged by that. That's not to say we aren't seeing some suppliers experiencing their own supply chain issues, but we have seen, on the whole, much improved customer experience. But on the contract and retail side, just what you have Yeah, I think that's right. I think there's do have to draw distinction, I think steeven, between our own manufacturing lead times to your domestically in the U's and those of our, our primary suppliers, which is much improved from where it's been now. I will say thatit.

Speaker 3: For certain products that are built abroad and that we import. This really effects on our retail business, probably a bit more acutely. Some of those are still facing extended lead times. There's still port congestion and a number of locations. Whether you're coming from Asia, you've got the disruption from the war in Ukraine affecting certain suppliers still in Eastern Europe , and so that's an area where we're feeling the effects of it, but certain. And then in terms of the backlog, the longer dated backlog has probably much to do with anything today as customers iterating on designs and really trying to be thoughtful and careful about.

As fast as maybe pre-COVID levels, or do you think the process to purchase is maybe a little different right now? That been normalizes over time? Just curious how kind of it's playing out right now and where you see going.

You know Stephen, we've seen a an uptick in customer visit. I think it's a number of things. I think the reality of getting back to collaborative work environments for the contract side of the business is starting to hit people and has been for the last several months. So we've seen a frenzy of activity on the dealer side in the a and D community. So people are really getting out there in visiting and getting back together and spending time together both inside and outside of work. I will also say that those visits- and I think design days is a perfect example compared to the potentially pass me neicons- are very intentional. People are coming to visit us with an idea for projects.

Looking at their space, revaluating their space. I think the latest leaseman survey said 93% of people were looking at changing their space. So there's the this is- are much more intentional. The one CAE out to that that I'll say is that people are iterating on design much more than they used to. So while our design teams are very busy andd firms are very busy, they're spending time trying to adapt to the hybrid environment and potentially reiterating on design a little bit more than've seen in the past. China know, you see a lot of customers. What would you add?

I think to add to that Andy, we do see to your point. ninety-three percent plus of customers have acknowledged that they have to do something in their space. I think they're finding it harder and harder to attract workers back to the office, and so perhaps some companies that previously thought they wouldn't have to do a whole lot are beginning to realize that they are going to have to take action in order to create an office place that is a destination that their employees want to come.

To tag on to the comment about design days, if you look at the number of appointments we had at design days, as well as the traffic through the showrooms, it actually exceed pre-COVID levels in terms of customer appointments scheduled. And to Andy's point validates the fact that we didn't really have a lot of people just looking and kicking tires. We had people with real projects, that needed to make decisions, that wanted information.

Very helpful. And then last thing for me quickly: Herman Miller stores: outpacing expectations. What areas are outperforming or performing better than expectations? Why is that? And then do you expect that to continue as you open more stores this year?

Yes steeven, I think what we're finding in the MAN Miller stores is that it's A. it's an easy concept tosetup, it's a small square footage, it's profitable to run it sufficient and the customers really responding to not just the work space products but the Herman Miller brand as a whole and, as you know, we have many iconic residential designs that are resonating as well. So we're seeing pretty much all the product check from workspace standpoint. We're also seeing the lifestyle product check in manmiller stores. So we're very excited about all aspects of this business.

It's also which is very nice these days. It's for inventory light, which adds to the efficiency and productivitypects weren't pret.

Thank you. Our next question comes from the line of rubens Gardner with benchmark company. Your line is open.

Thank you. Good afternoon everybody.

Thank you. Good afternoon everybody, ribon.

Maybe Jeff, can we hit on the price cost situation. I know you guys have had another round of inflation to deal with, heard a couple of your competitors now using surcharges is a way to kind of get through this period of maybe more temporary pressures. Have you guys- and I think, additional pricing actions in addition to the surcharges? What are your thoughts there? Have you guys made any additional announcements on the pricing side? Thanks the question. So we've not made any additional announcements, but the pricing, the question thatis.

Constantly being talked about and we are we do have plans for additional increases. So there will be more details on those forthcoming but nothing annelced publicly two -your point. Yes I mean there's inflationary pressure from a number of vareas. There's a certainly a notable area where we're seeing some relief in the market price and that's in particular in the area steel where the market prices deel has been really since the beginning of May coming back in our favor a bit. So that's a positive most other areas. Though it's fairness are seeing cost rises obviously transportation the big conversation these days with diesel prices. So we're certainly feeling the effects of it as it relates to surcharges we 've.

We've usedwe've attempted to use surcharges in the past and frankly, our experience is that we just haven't had a great great deal of success with it, and our belief is that this price increases on discount management are a better way to approach it.

Ok got it and from pu, Oh'll go ahead any.

Speaker 2: Now I just just con say: one of the most important things is we look at this price cost equation. To remember is, as we start to see our price increases kick in, we continue to see margin improvement quarter-, over-quarter as we get the benefit from that. So we're happy to see that.

And so that kind of doesheil into my follow-up what's embedded in the guidance for next quarter from a price cost standpoint are you worked in your waves that we back to neutral editors or still some catch-up to do and it'will be the kind of the following quarters.

Yes So we've got our guide, our sequential guide coming from Q4, assumed at the midpoint about 140 basis points of price increase benefit.

So pretty meaningful to Andy's point. You know that's now. That's not all going to flow through. If you do the math on that, I think the midpoint of our guide is 35%. So expectation for a bit more sequential pressure from freight and transportation, just given the recent trends and diesel pricing, as I mentioned, some of the or congestion and so forth that you inbound freight for the retail business has continued to be a bit of a challenge. So we expect about 50 basis points of pressure at the M midpoint of the guide and then a little bit of other, not non steel but other commodities. Call it about 10 basis points with our best estimate, and then the balance of that math would issue to probably mix in of.

yesrut, this is Kevin. I'll start withso cross-sell. As we mentioned in the release, June first we kicked off an exercise to bring Miller no dealers and put those in place in North America. So really we're just starting to kick off that exercise with a big focus on being able to transact business across all the brands across North America, and so we're in the early days of that. We've had some level of dealer flips to date, but within the expectations that we had at the at the start of when we did the modeling around the deal. Jo, I don't know if you did anything.

I'll start with. So cross sell. As we mentioned in the release, June one we kicked off an exercise to bring millerno dealers and put those in place in North America. So really we're just starting to kick off that exercise with a big focus on being able to transact business across all the brands across North America, and so we're in the early days of that. We've had some level of dealer flips to date, but within the expectations that we had at the at the start of when we did the modeling around the deal. I don't know if you had anything to that.

Speaker 3: thanksgiven. I would just say from a cross sell perspective, were it were four weeks in at this point and we see the momentum building every week. It's something that the dealers have been waiting for for a number of months and we had a very well orchestrated ramp up to cross sell that included dealer activation, virtual training sessions, deep dives on products and then really the culmination was design days, where the power of the millino collective of brands really came to life for our dealers and for customers and designers.

So as we look at the early, early success of cross-sell, we're really encouraged and we expect to see it accelerate in the coming weeks.

As we look at the early, early success of crosssell, we're really encouraged and we expect to see it accelerate in the coming weeksgreat thanks guys, and good look going for.

Thanks dven. Thank you.

Our next question comes from the line of Bud got with watertower research. Your line is open.

Thank you for taking my questions, gratulations on getting solutable the first year of the integration and my wishes for best good luck. Going forward to Jeff, I'd like to ask.

I'd like to ask a few questions about the balance sheet, if I could. The inventories look like they rose pretty substantially from third quarter.

Speaker 5: Can you talk about the quality of the inventory? I know most of it typically would be in.

In whip. But now with retail, it's that most of that increase in retail.

Speaker 8: No it's a great question, but I would say it's really two areas. Retail is definitely a contributor to this. We've got's a decent amount of investment in inventory for the retail business.

Particularly and I would say it's high quality in the sense that it's it's products that are not not terribly seasonally sensitive. Number one they tend to be high, high volume products. Now there's a number of. There's some investment in newness as well, because part of the strategy for the retail team is to build out new assortment, but we have no concerns in the quality of the inventory. It's a retails, the component of it, the international business, though it would be another area that I D point out, and that's more a function of the order growth that that business is seem. You may recall, orders in the international business were up something on the order of 77% last quarter. They were up year on year again this quarter that our international business has been.

It had a terrific year and, as a result, has seen their backlog increase and inventory levels increase very much in line with that. So I'll leave it at that. I mean, you're absolutely right, inventories are up. We're going to manage that down in the form of managing future inventory purchases as to work our way through that. But there are no concerns with the ability to move it. And just make sure to understand the international is that the international contract, international retail it.

There's where our sen. Yeah, and that's international contract. Thanks for clarifying.

Right and that, but just just from historical perspective on the retail business, debie and the team haddone an excellent job managing through more aged inventory, getting the outlet businesses to a place where we're really working through anything that might be liable, and our inventory levels are actually below prepandemic levels right now. So we feel good about where we're invest in: the quality of that inventory.

Okay that's great and but the mix that we talked about Jeff, I think you referred to 40, 40 bits of mix. That's the same issue that we had last quarter where we had such an outsized rove growth of seedating in retail that it's hard to compare for the next couple of quarters where that mix issue is coming from. Yes, principally that's what I'm referring to, but it's well, you see, you saw the retail orders were down a bit this quarter. So as retail, which has structurally higher gross margins in the business with lower order entry levels this quarter.

That just the overall business mix with retail is a contributor to that and the big driver there would be the higher margin TX seedating. And should we expect retail volumes to stay down and that around 10% area for the next couple of quarters until you cycle through the issue with people now going to spending more other other than retail?

For the But. But I Don, 't- you know we're not providing the guide- anything beyond Q1. You know certainly that that market factor is not something that's going to turn quickly, So that you know we will be dealing with that. But of course we just openened eight stores. We've got three more of opening up in in the first quarter, So So those will be a contributor. Al be it, you know, small to start, but we're doing a number of things. I, the debie in the retail team, are. They're doing a number of things, as I mentioned, with new products to be added to the assortment. You know the investments in stores and so forth. So I think those will help. But you know the market pressures right now are real and will probably.

thatad it was. I say total growth. We might see some of that come down with what's happening in the environment, is people turn to travel and experiences, but we're going to see this business continue to grow from a category in a two year tax perspective and so I one of the things- Oh sorry, go ahave that' you know. I would just say, as we think about debie and the inistors that she has in place with the retail team, from a marketing standpoint, from a customer data standpoint, we believe that many of them will offset a good portion of these macroeconomic pressures, just because of the newness of this business, the categories that we still have to exploit.

And make sure I do understand something about the retail. Are you in the customers' home at this point in time? Are you doing design projects in the home or is it pretty much all in-store and online?

We are doing all of the above and we are relaunching our trade program. We're relaunching our interior design program online. So we are doing all of the above. We have a very, very strong interior design capability in our stores and we use that in a variety of ways. So for sure.

A couple more questions, if I could the the, the net leverage ratio for the, the debt. My calculation was just over three is that right? I mean it was down nicely from the last quarter, or have I got it wrong in? And what it? 's? What's the securedly first leverage ratio? Or, if I got the name wr.

So but does the key, the key point that I think is important to understand is that our bank covenants give us credit for the synerggy plans that we have in place. So if you'll be, if you, if you count for the synergies that we are targeting, were we were at, I think, two point six net debt to E, a leverage at the end of the quarter, you might be, you might be doing it without include, without the inclusion of the targeted synergies that we have in our size moving forward. So that could be the difference there. No, I had 12 million. That's, that's what I could, could court for right. That's the, the targeted synergies.

Does the key, the key point that I think is important to understand is that our bank covenants give us credit for the synerggy plans that we have in place. So if you be, if you, if you coun for the synergies that we are targeting, we were, we were at, I think, two point six debt to even a leverage at the end of the quar you might be. You might be doing it without include, without the inclusion of the targeted synergies that we have in our size, moving forward. So that could be the difference there. No, I had 12 million. That's the. That's what I get credit for right, that's the, the targeted synergies, which are more.

Speaker 8: That was one and 20, but but with that the net debt, that EBITDA for the quarter was 2.6. I that, if your calculations are different, was was certainly happy to do that, and can you give us maybe the interest expense, because I know it sit's embedded in that other item? What was the interest expense in the quarter?

Speaker 8: 12.8 million the arter. By the way, this is the rolling four quarter calculations. Again, that might be we can talk more about the mechanics, but just so So you're aware that that's on a UL four quarter basis. Yes, under the quarter I, that's true, okay.

Ok yes OK well, we certainly have to takeick that offline. And my last question is: I just wanted to make sure I understood the e P's add back are: are you adding back 11 cents for taxes? I didn't quite understand the language on that. Yes So yes So, but the this has been a it's a little bit of a unique year because our effective tax rate on a gap basis for the quarter, for the fourth quarters, is almost 50%. That gap, on on an adjusted basis, it's 21 and a half and one of the things that contributes to that difference.

Is then on a GAAP basis on the full year I and let's talk for the full year. Because of all the integration-related charges. We are in a net loss position and on a GAAP basis. In a net loss position we end up becoming a limited on our use of certain certain credits like foreign derived intangible income foreign tax credits in general and so when when we work down to an adjusted EPS.

The assumption is that you wouldn't be limited on those, on those credits, and so you end up with a fairly significant tax adjustment to work your way back down to the adjusted e P's for the quarter. It is confusing, admittedly. I think we'll do that all pret much good work not, we can Act. Appreciate it you very much. Yeah, Thank you. Our next question comes from the line of Alex firmit with craingham. The line is open. Thank, taking my question here. I want to ask about gu. Is the reason?

uallythe impact of opening a you new retail location you know going to going to block the impact of those comparison Yeah. It's a great question. Alex I think we should still look to the retail business to hold steady. Despite the macroeconomic pressures I think as I said before we're really looking at those two years DOT com to normalize for that work space. Blip I think debie and the team are really being thoughtful about the category expansion. There are several categories that we have not been in before whether that's drugs or artwork or even expansions of certain living living rooms or dining room products. So I think there's a lot of new product extensions that we'll be adding in there's also new capabilility. So we've been investing in technology. We've been investing new ways to track our.

On on gross margin. Look like now: you know, with the guidance in Q1, several quarters of pretty solid improvement relative to the 33% or so gross margin rate that we saw in the third quarter. I know IT-'s, you know to have visibility- multiple quarters out and your' only guiding to the one quarter. But just that, you think about you know what you know today, given labor cost, material cost, you know what you've got in terms of already announced price increases that that maybe you know HA haven't been fully realized in your business. We should we think of. You know this kind of you know, call it 35% or so.

Particular in the contract business, we have not realized all of the price increases that we've put in place yet. We planned for more. If we need to to offset cost increases, I think it's fair to say that's a good base to build off. Jeff, I know you have something you want to add to you. No, I think that's right. The only thing I would add is we would be disappointed, very disappointed, if that didn't happen. I said last quarter and I'll say it again: I think our belief is that we've got enough, enough pricing. That's been done and again we're contemplating the need for potential more. We can get this business back to levels that were' ad or above precobit.

Speaker 8: And we're nowhere near that right now, and so we should see a continuous improve in marg as we move through the balance of the yearand Y. your point is a good 1, though you know you have to make a make an assumption around economic conditions in general. Our base case is not that we're that we're going to enter into an industry wide recession and so as long as we can get some continuoused volume growth, you know we have every expectation that about margins will continue to climb, and I think the one thing we CAn't forget about to is we are integrating and we have a much larger supply base. We have the ability to leverage and integrate the supply chain, So that's an advantage that we have if we think about margin as well and just efficiencies along that way. Great, Thank you very much.

So we should see a continuous improve in marg as we move through the balance of theyear and your point is a good one though you know you have to make a make an assumption around economic conditions in general. Our base case is not that we're that we're going to enter into an industry wide recession, and so as long as we can get some continuoused volume growth, you know we have every expectation that about margins will continue to climb, and I think the one thing we CAn't forget about to is we are integrating and we have a much larger supply base. We have the ability to leverage and integrate the supply chain. So that's an advantage that we have if we think about margin as well, and just efficiencies along that way. Great, Thank you both very much Thank.

Thank you. Kind of thing comes from the line of great Burns with the company. Your line is openafter some- I CRE 1, the the retail business. So I understand you're up against tough comms coming out of COVID-19 and work from all. But we're seeing some some competitors talk about, you know, slowing demand and increased discounting and some other of the factors I would indicate. You know you're generally seeing a slowdown in the discretionary consumer spending, with inflation, how it is, or are you at all concerned with with that impacting the business going forward and do still feel comfortable at the level of investments that you're making?

Now given that kind of inflationary environment that we're in. Yes Greg, this is jela. I'll started and I'll give you listit.

Absolutely as we look at where the economy is right now and where consumers are which, when the stock markets declining historically, our target customer in the retail business has been arguably sensitive to that and it has not been a great run in the stock market and obviously, with inflationary pressures, consumers are feeling the pinch there. So of course it has our attention. But I will say this- that there's a lot of white space for this business to continue to grow into. We are we've, you can very, very clearly say we've got so much opportunity to expand outside of North America and there's a number of markets inside North America that we don't have a presence in today's, in phible terms.

And so there's lots of opportunity for us, as well as- and this is probably even more important- categories that we are underpenetrated in that the team has been working really hard to expand and move more significantly into, So there's lots of reasons for us to believe that we can continue to grow. I don't know that it's fair to assume that we can counter the macro, the bigger macro picture, but we feel great about where this business is positioned today versus where it's come from. From an overall earnings perspective, it', S it's accretive to our consolidated operating margins today.

And we've got a terrific set of operators and we know we can weather a period of challenge here and come out stronger on the other side.

Okay are you seeing higher discounting or anything else that might give you concerned about the margins going forward?

Not no, not from a discounting perspective. The margin pressure that we're feeling is more related to transportation, principally today, and that mix shift which we are going to anniversary that at some point here. Right, but the mix shift is gone against us here all fiscal year as, as we've been comping one against what you would probably argue is the best margin mix that you could dream up, which is a lot of high margin retail CASK shairs, and so mix and transportation pressures are the bigger margin pressure. It hasn't been a discounting thing.

Okay and then on the contract side of the business, I mean it doesn't sound like there's been any kind of slowdown of the MAN. Is the MAN you're seeing now kind of like that pent-up?

Demand that from from COVID-19 and now that we're moving past I you starting to see some of that unlock because you know we're starting to see some of the some of the forward looking indicators like CEO confidence softening up and some other things so perspectively like looking forward are you seeing any kind of forward looking indicators softening up here on the contract. Greg we lost you. John money when do you take that first part of this question sure in terms of what we're seeing relative to demand. I think the CEO CEO confidence metrics that you talked about obviously is is real. But if you look at some of the metrics that are more closely related.

Speaker 3: To our industry, like the Architectural Billings index, that's still in a very positive place. Anecdotally, as we work with and talk to design firms, they are all very busy and looking to hire. But I do think one thing we've seen is sort of waves of demand coming out of COVID-19. If you think back to this time last yearthere was a tremendous amount of pens up demand after we all had our first round of vaccination. We've now been through a year where we've had a couple waves of variance, where there's been some stopping and starting but, as I mentioned earlier, I think a number of companies that thought maybe they didn't have to do much in terms of changing their space to accommodate.

The new work protocols have realized that they are going to have to make some changes, So we're seeing the activity across a larger number of companies than we would typically see in a normal economic environment.

Okay So no, no Ford looking indicators that you would say anything's kind of softening on that side of the business, none that I would point to at this pointokay. And then in terms of the extra week on the guide, how much did that extra weekend to revenue and earnings in?

So the guidance Greg, it's about seventyb nine well, if you just do the straight mad's about $79 million in revenue for the week. For the extra week operating expenses account for, you can estimate that to be about $24 million and from up from an earnings perspective probably somewhere around 2, two to three penny.

Okay all great, Thank you, Thank you, Thank you.

I'm showan. No further questions in the queue. I would now like to turn the call back over to endy for closing and remarks. Thanks to Ana. I thank you everybody for your interest and for your support, and we look forward to updating you again next quarter. Enjoy the weekend and' M happy for feptctionly by everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. I will disconnect.