Q4 2023 MillerKnoll Inc Earnings Call
Good evening and welcome to Miller Knowles fourth quarter earnings Conference call. As a reminder, this call is being recorded I would now like to introduce your host for today's conference Vice President of Investor Relations Corolla Michelini.
Good evening and welcome to Illinois was fourth quarter of fiscal 2020 conference call I am joined by Andi, Owen Chief Executive Officer, and Jeff Stutz, Chief Financial Officer also available during the Q&A session is John Michael precedent Omega contract.
Before I turn the call over to Andy. Please remember our safe Harbor regarding forward looking information during the call management may discuss information that is forward looking and involves known and unknown risks uncertainties and other factors, which may cause the actual results to be different than those expressed or implied.
Good.
He said evaluating the forward looking information in the context of these factors, which are detailed in today's press release.
Our forward looking statements as of today, and we assume no obligation to update or supplement. These statements. We may also refer to certain non-GAAP financial metrics, which are reconciled and described in our press release posted on our Investor Relations website at <unk> Dot com.
With that I will turn the call over to Andy.
Thanks, Caroline and good evening, everyone and thank you so much for joining our call our fourth quarter results demonstrate the power of our business model and the ability of our team to seize opportunities and innovate in an uncertain macroeconomic environment.
By leveraging our diverse channels geographies and brands, we can actually live customers around the globe delivering innovative design, while improving our margin performance and strengthening our balance sheet.
As we've shared in recent quarters. The environment is still challenging customers are being cautious and deliberate about their spending.
Continue to see demand softness or off our channel. There is strong performance worth noting in several areas of our business and our pattern of orders have started to improve.
Highlight that supervise a closer look at our financials from my seat and when I highlight that we have done a lot of work to future proof our business. We were early movers in our industry combining the two best collection of brands in our space to form an unrivaled portfolio of products market reach and innovation.
That's fun, we've worked to streamline our global operations network across Miller at all moving production and capability efficiently and creating centers of excellence along with investing in E Commerce and retail I believe will drive future growth opportunities.
We've prioritized our strong partnership with our dealer network in North America, and that alignment is resulting in positive traction quarter over quarter.
We're arming our dealers with the tools they need to sell or collected from developing another no contract ecommerce site to more dynamic tools that allow customers and specifier is too many vision and specify our solutions.
Additionally, as we continue to expand our presence globally with her mother Knoll dealer network, we're taking a collective of friends into high growth regions, such as India, The Middle East Southeast Asia and China.
This allows us to leverage our capacity to develop expand and to find solutions that meet the demand of our clients foremost Andrew.
New.
Well I have no crystal ball I believe at Fisher economic outlook will gradually improve as time progresses, our efforts to future proof plan ahead.
All of our business and its acceptance up tomorrow will serve us well.
He was recently in Chicago for defined as our largest state by presentation of our brands to our contract market audience.
And the response to our product launches and showroom with overwhelmingly positive having had the opportunity to connect with many of our customers in person I've come across some key findings.
First well the unpredictability surrounding the return to office persist in North America, we're starting to observe an inflection point.
But in order for companies to achieve it if I were a success and the return to office strategy is crucial to construct a workplace that revolves around collaboration wellness productivity and flexibility.
Like Herman Miller's need pasture, I'm, sorry, as well as the novel height adjustable passport with table and seem to be introduced for matching chairs are perfect. Examples of new innovative designs that will help our clients rebuilt their spaces with flexibility and productivity.
I found are an industry leader in workplace to buying we're also expanding our solutions and should be resilient vertical, including health care and the public sector.
And the health care sector, specifically, we've been active for over 50 years. However, as another no our scale enables us to bring a fully realized spaces to life at a faster pace.
During the nine days, we offered customers a distinctive show wouldnt experience that highlighted some every health care solution.
When do you think what level of engagement and excitement generated by the space underscores our leadership and momentum we felt in this vertical.
For higher education in the public sector, a combined Miller Knoll portfolio presents a comprehensive range of solutions and services, giving us a unique advantage in delivering larger scale projects for our customers.
We're experiencing positive traction in this space as well.
As an organization with over a century of success navigating through varying economic conditions, we have confidence in the long term health of our industry and the advantages of our business model.
We will continue to balance our approach for the long term using a playbook that has served us well through multiple cycles.
Our focus on our customers.
It'll be thoughtfully prudently managing our costs.
Well the mine our teams and talent to our strongest competitive advantages.
Well deliver innovation.
And best for long term growth opportunities.
In the near term, we'll continue to prioritize operating efficiently focusing on free cash flow and assuring her spending aligns with sales and order levels.
But I want to thank you for your continued partnership with US on this path I'll now turn the call over to Jeff for a deeper look at the financials.
Thanks, Andy and good evening, everyone. It's good to be with you.
I'll start by providing an overview of our performance in the fourth quarter and some full year highlights followed by some insight into our outlook and targets for both the first quarter and the full fiscal year.
For the fourth quarter, we generated adjusted earnings of 41 per share slightly above the midpoint of our guidance.
Overall stronger than expected net sales and gross margin helped alleviate certain cost pressures stemming from increased marketing product development and variable expenses.
At the consolidated level net sales in the fourth quarter were $957 million slightly above the midpoint of our guidance driven by strong performance in the Americas contract settlements.
Additionally, supply chain enhancements improved production reliability and better inventory management facility facilitating faster order fulfillment across all segments.
This allowed us to ship more of our backlog than we initially anticipated coming into the period.
We're pleased to report another quarter of improvement in gross margin performance. Our consolidated adjusted adjusted gross margin was 37% at the high end of our guide.
This result was 220 basis points higher year over year, and 130 basis points higher on a sequential quarter basis, mainly driven by the realization of price increases and benefits from integration related synergies.
Our consolidated adjusted operating margin was five 9% for the quarter.
Turning to cash flows and the balance sheet. This quarter, we generated approximately $93 million in cash flow from operations driven by sales and a meaningful reduction in working capital primarily attributed to our inventory management efforts.
Consequently, we paid out $48 $4 million of debt.
We finished the fourth quarter with a net debt to EBITDA ratio of two five times, putting us comfortably under the maximum limit defined in our lender agreements.
New orders at the consolidated level totaled $922 million in the fourth quarter, reflecting an organic decrease of seven 8% from the same quarter last year and a sequential increase of four 2% when compared to the third quarter.
And while the absolute level of new orders were lower than last year. The rate of decrease improved this quarter, providing evidence that we're moving to a point of demand stabilization in the business.
And I'll take a moment to summarize our fourth quarter operating performance by segment.
Within our Americas contract segment net sales for the quarter were $474 million down 11, 8% organically year over year, while new orders came to $454 million, reflecting an organic decrease of eight 2% eight 2% year over year.
Clearly the general economic uncertainty has weighed on this segment sales and order rates.
Still our team feels very optimistic for the medium to long term, which is supported by various indicators.
These include year over year growth in order rates observed thus far in the first quarter and robust project funnel activity.
I'll also highlight that despite the macro challenges this quarter, we achieved an adjusted operating margin in excess of 10% in this segment, which is up both sequentially and year over year, driven by continued price cost benefit and savings from integration related synergies.
As it pertains to global retail net sales for the quarter were 245 million.
Down 12, 1% organically year over year, while new orders came to $228 million, which reflects an organic decrease of 14, 2%.
The North American housing market slowdown and reduced spending on discretionary goods continued to affect demand levels for this segment.
Response, we're focusing heavily on effective inventory management and product mix optimization to drive operational efficiencies.
Additionally, we are enhancing brand awareness, while also prioritizing investments in our most established channels and brands in order to better leverage our scale.
Turning to our international contract and specialty segment.
Net sales for the quarter totaled $237 million down 12, 3% organically year over year, while new orders came to $240 million, reflecting slight year over year organic growth.
Make no mistake, we are very optimistic about the growth potential in this segment.
We've witnessed strong demand from India, Korea, and the Middle East and we're beginning to see improved demand in China.
And we're also encouraged by the scale and reach that we are achieving with our global dealership network to date International contract distribution has transitioned more than 80 legacy Herman Miller dealers into full line Miller Knoll dealers.
In the year ahead, the team plans to keep this momentum going by phasing in an additional 60 full line dealers.
For the full fiscal year net sales at the consolidated level totaled $4 1 billion and.
And adjusted earnings totaled $1 $8 85 per share.
Throughout this year, we've made remarkable progress in achieving our target synergies related to the knoll integration.
And this synergy capture has been critical to our ability to deliver margin improvements, especially given the impact of elevated input cost and constrained production volumes.
This has been a complex journey journey enabled by the talent and dedication of our team members around the world, we're better because of this work and I'm grateful for their efforts.
I'll conclude my prepared remarks with a few comments on our outlook for fiscal 2024.
As we are all aware the COVID-19 pandemic introduced unprecedented dynamics into our business, which resulted in abnormal trends over the past couple of years.
As we begin the new fiscal year, we anticipate certain shifts in sales and earnings patterns in comparison to previous periods.
Consequently, we recognized the significance of providing improved visibility for both the upcoming quarter and the entire fiscal year.
Overall, we expect slightly lower year over year consolidated net sales in fiscal 2024.
As it pertains to the quarterly cadence of sales and earnings and giving consideration to factors such as recent order trend historical seasonality.
<unk> did benefit from price increases.
The current funnel of project opportunities and our beginning backlog.
We expect operating earnings to be back half weighted in fiscal 2024.
We do maintain a cautious near term outlook due to macroeconomic dynamics.
However, I will also highlight several indicators that make us feel optimistic about the upcoming year.
In this regard the following points are worth noting.
Order trends in the first five weeks of the new year have shown improvement both at the consolidated level and then the Americas contract segment.
Our prior year comparisons are easing and the sequential and year over year trends in the project funnel are encouraging.
Second various indicators such as consumer sentiment the architectural billings index and new home sales, although still relatively low are showing signs of improvement.
And third.
We're well positioned in several key international markets, where we expect supportive GDP growth bolstered by an increasing number of full line Miller Knoll dealers.
Taking all these factors into consideration, we expect to generate adjusted earnings in the range of $1 70, and $2 per share for the full fiscal year 2024.
Now as it relates to the first quarter, let me elaborate on a few factors impacting our guidance.
First the sluggish order rates over the past two quarters have resulted in a reduction in the consolidated order backlog.
In effect, we don't have the same running start that we had heading into Q1 of last year.
Second it's important to remember that the first quarter of last year fiscal 2023 included 14 weeks of operations versus the standard 13 week calendar.
That extra week added an estimated $77 million to consolidated net sales last year.
And lastly, as we enter the new fiscal year, our first quarter expense run rate will reflect on target incentive bonus expenses as well as a partial quarter of higher employee salaries and wages.
Taking these factors into consideration, we expect net sales for the first quarter to be in the range of $880 million and $920 million.
Operating expenses in the range of 288 million to $298 million and adjusted earnings per share to be between 18 and 24 says.
Okay with that overview of the numbers I will now turn the call back to the operator and we'll take your questions.
Thank you have you would like to ask a question on the phone lines today. It is star one on your telephone and if you find your question has been answered and you would like to remove yourself from the queue at star one again.
We will take our first question from Greg Burns with Sidoti.
Yes, so I just wanted to I guess touch on the guide for the year. So.
As we think about the.
Cadence of revenue.
And earnings what is driving the stronger back half on the earnings side and how should we think about I guess maybe.
The split of revenue percentage wise.
Split of earnings maybe percentage wise first half second half can you just give us a little.
More color on the expected cadence for the year.
Yeah, Greg This is Jeff good to be with you.
Let me start and then Andy and John you might want to lean in if you have a perspective here, but let me let me start with a few of them.
I kind of talked on some of these but a few.
Factors that give us.
Growing confidence that the that we're gonna see improved top line as we move through the through the year. So we talked about already the fact that were in the first five weeks of the quarter. We've seen a notable improvement in order entry levels in the Americas contract segment in particular.
We've already been been seeing several quarters of relatively strong performance internationally and I mentioned that in my prepared remarks that we expect the international dealer network to expand in this next year.
Gain further traction, but the specific things I point to are the trends that we're seeing in funnel opportunities continue to be encouraging we're seeing growth in the funnel year over year.
I've mentioned the order trends.
We do it when you look at some of the leading indicators I think are important to us to maybe reiterate consumer confidence levels. The Abi has turned into expansion territory again that tends to be an indicator.
Nine or so months into the future based on history.
And we're starting to see home sales begin to show some signs of life. So those are more forward indicators that I would reiterate.
The other thing I would say is the bulk of the integrate we're not done with the integration, but we're but the bulk of the heavy lifting is is largely behind us and that's important because the the focus of the sales team and our dealer network they've already got many months behind them now getting up to speed on all the learning that it takes to sell the full offer and so while we still.
Expect that to ramp we've come a long way and we expect to see that flywheel begin to spend a little faster.
The other thing I would say Greg is on there on the earnings front.
We do expect further pricing benefit we've got a good track record now of showing pricing.
Pricing benefit layering in quarter after quarter, we expect that to continue we still have price increases that we've that we've put in place that we expect to ramp up and realized throughout fiscal 'twenty, four which lends itself to back half earnings and as volume levels pick up so will the leverage benefit against fixed over.
<unk> costs. So those are the major factors I'm not I'm going to fall short of giving you a quarter by quarter view will just simply tell you that all of those factors collectively give us some confidence that we can hit that full year number and I'll pause there and see and if you want to add anything yes, Joe you hit on most of it I think I would add Greg is probably as we look at return to office, particularly in North America, where it had been.
Then more sluggish than I think we would have hoped as an industry. We're definitely starting to see people moving to decisions were starting to see more people having people come back together all of our research would indicate that this is the way that we needed to be for me. So I think we're optimistic about that as well just touched on the funnel, but I will say the funnel is better than it's been in 10 years, which I think is a really encouraging sign for us.
Yeah.
Perfect. Thanks.
And then.
Lastly on the retail side of the business how do you.
Looking at operating that business now and the current demand environment I know you've been investing there but.
But it was about breakeven this quarter so.
Ed.
Is it are the things you can do to optimize that business optimize spend.
You know how how do you view the demand environment, there and how that impacts how you run that business.
Yeah, I mean, I think if you look at all of our competitors there are Greg and kind of across the industry. The residential home furnishings industry. We expect will probably be softer for the next couple of quarters. We're encouraged by new home sales going up we're encouraged by the real estate market rebounding, a little bit, but we still think it'll take some time to work through it. So we're really simplifying we're focusing our effort.
Somebody told me bar brand, we're focusing our efforts on Herman Miller at Knoll, and where we've seen some real struggles. This past year has been working here inventory not just in inventory in North America, but many of our wholesalers internationally, whether that be with hey, when snow around the world have really been sitting on piles of inventory and as these people are working through that inventory weeks specialty.
He further profitability, but really we're addressing that through simplification and continuing to focus on building the categories, where we are not necessarily maximize right. Now so we expect to see a slow climb as demand improves over the year, but we're being very very prudent in how we invest further in that business right now until the customer comes back full force I will.
However, we've invested quite a bit and quite successfully in building our brands.
And where we have invested there from a marketing perspective, it's paid off.
Alright, great. Thank you.
Yeah.
We'll take our next question from Budd <unk> with water Tower research.
Good afternoon, and thank you for taking my questions I hope everybody is doing okay. There.
I'm about to say that.
Thank you.
Jeff you talked a little bit about that sales for the year I know, we're starting off with a a really low backlog compared to where it's been in the excessive backlogs.
Largely clear where do you think orders will come in for the year and what do you think the backlog will look like for the year.
Well, we didn't in fact, we essentially didn't provide a specific guide.
The prepared remarks kind of outlined the level of detail. We're willing to go to from a revenue standpoint, which is simply to say that looked at that softer running start with the lower backlog in <unk> and I will like now specifically backlog being down about 25% year over year heading into fiscal 2024 means that we're likely to see slightly lower.
Revenue I would expect qualitatively orders in total for the year to be higher than FY2023 because we do expect that to accelerate as we move.
Through the balance of year, so, but I'm not going to provide any more detail than that but.
So if orders are higher year over year that would imply that the backlog goes up at the end of the year.
If you if you were able to meet your plan or at least you think will drive correctly.
Have you thought you got it we expect to build backlog throughout the 24.
Oh, Okay and looking at the guide for Q1 can you maybe give us some help on where the GAAP guidance is we've got some impairment and restructuring.
Effective this quarter and I'm going to ask you a little bit about if you can give us some color on those programs I know that no.
<unk> was impaired, but the restructuring specifically, but where would the where do you think that the.
Yep.
<unk> comes in.
Mike quick pencil work and it could be very flawed says around 20.
Is that reasonable.
Well, so our our our EPS guide is at the midpoint 21, but I want to make sure I understand your question are you talking about GAAP EPS, yeah, Yeah, I'm trying to get.
What's in the adjustments going in going forward.
Well frankly, Budd part part of the reason we are guiding to an adjusted number is the timing of some of the adjustments related to restructure restructuring past restructuring and.
And integration costs, they tend to be a little lumpy in there and theyre not terribly easy to predict with the level of precision, but what I would tell you is we have acted amortization cost.
Related to the Knoll acquisition that has been a consistent adjustment item in the fourth quarter that was $6 million I would expect that to be a.
Comparable in Q1, so that's thereabout six pennies of earnings that would be that would reduce that adjusted earnings number and then we will then we will have some integration costs that are a little tougher to predict. So that's that's why we fell short of giving you the number but for sure you're going to see that that amortization charge come.
Through on a GAAP basis.
Just one thing and I don't know if this is.
One of them or not but as Jeff pointed out in his prepared remarks that the bulk of our integration activities and costs to achieve are behind us. We would expect those adjustments to gradually continue to increase over time.
Alright, thank you.
I know that that $6 million, how long how long do you think that actually I think I think it was still we still have a number of years before that.
Right.
Yeah, that's yeah long, that's a long term asset that will amortize over a long period of time, but yes.
What do you think it's confusing me and Andy you May you may have given as part of the answer to that is the the retail gross margin really has been quite volatile.
At least quarterly.
Maybe daily or weekly to to you as well and is that basically inventory reduces that embarked down issue or is there something in the original mark warn that that's an issue in the retail.
Gross margin.
Yeah, but I would.
The two factors that I would point to that.
Plagued us quite a bit throughout fiscal 'twenty, three and frankly that we expect will improve moving forward are the first one the andi alluded to is inventory related we had you'll remember early in the year, we had demurrage and storage fees that.
That we were that we were feeling in the fourth quarter. We also had some inventory related charges that are that were.
Recognized in the period that reduced margin.
In addition to that though the other big category I'd point to is freight and distribution costs, mainly outbound freight parcel delivery to customers those rates have been elevated and.
I have continued to pressure margins and I know the team has.
A number of strategies that they're working on to defray those including some.
Some potential.
Price decisions that they have to make.
But I would say from a discounting perspective, we're not seeing pricing pressure, we're not downgrading are marching in and discounting a ton and that has not been a problem in that margin perspective.
And what about geographically because we have some we have dws domestically, but we've got pay and mucho jumbo overseas strokes.
Which the geographical disparity of gross margin at retail.
I would say that the international retail business has matured primarily wholesale are the most challenged from a topline and bottom line perspective is most of those wholesalers.
Ton of inventory.
Just on the supply chain challenges that everyone's faced and when the war on Ukraine started I think everyone bought up and then demand dropped so we're seeing a lot of pressure, but that's wholesalers now the good news is we're starting to see them work through that inventory and demand is coming back, but that's really pressured our European businesses.
And that does flow through the retail sac right.
That's good.
Yeah. It did it used to which makes it a little confusing now, but yes. It does now as part of a global retail number.
Okay Alrighty and.
Yeah.
The last question have you got inventory overall, where you wanted what's the target inventory for the for the end of the year or during the year, how much excess inventory will be carrying now if any.
I think Budd, we've got inventory that we've come a long way, we inventory came down significantly in the corner that unlocked some working capital cash flow I think the team feels pretty good with inventory levels.
Albeit we'll have seasonal changes in inventory levels as we move it towards like for example in the retail space. The holiday period, there will be some some stocking related to that but I think by and large we're where we need to be yeah, where are we need to be internally that it's really just our wholesale partners in working through their inventory.
That is their inventory you you've already turned title to that so you're just waiting yeah. That's not that's exactly not our inventory, but does affect their ability to buy from us.
Got you and lastly, Jeff Capex for the year did you give a number.
We do that given everybody a happy to we spent $83 million in capex in FY2023.
And what do you think in <unk> and 'twenty four.
We're going to do our level best to try to keep that as flat to that number as we can.
As I sit here today I'd give you a range on the Europe of 80 to 100.
Thank you very much.
Good luck on the on the near term and in the full year.
Thank you bye bye take care.
Okay.
We will take our next question from Reuben Garner with benchmark.
Thanks, Good evening everybody.
He will then Jeff any quantification you could give us on the growth in orders and the robust.
Funnel and pipeline that you talked about in the early part of this.
Fiscal year.
Jeremy we would happy to I'll, let me start with.
The the order pacing through the quarter and.
Maybe what I'll start with as you know because we made a point in the prepared remarks to highlight the fact that that in the first five weeks of the quarter, we've seen some nice improve.
Improvement in order entry levels. So maybe to begin just to reiterate in the Americas contract segment order order entry levels on an organic basis were down 8% year over year in the fourth quarter.
In the first five weeks of Q1, we've actually moved to positive growth.
<unk>, 5%.
Activity to share with you, but we've got a full five weeks and so we're very encouraged by that the only other thing I would say on order trends is that at the consolidated level.
We saw we saw improvement as we moved through modest improvement as we moved through the quarter, we were still negative year on year, but that was beginning to show signs of.
Easing as well so let me let me pause there John maybe you can speak to the funnel sure.
Thanks, Jeff Ruben just to maybe add some color commentary to to the progress we've seen in the funnel and in the order rate.
Point to a couple of things.
At the start of the calendar year, we put together a plan to compete and win in a recessionary environment and really in terms of deployment of sales resources and the value proposition that we bring to customers I think we really fine tune that.
And those strategies are beginning to pay off and we're seeing that in order rate.
Other thing I would say is we just passed the one year anniversary of what we originally call. It cross sell which was when we had legacy knoll dealers beginning to sell Herman Miller product and vice versa, and anecdotally I was with a group of dealers last night.
And the comment was made that they are so much more confident and feel so much more ready.
With the full collective of brands today versus a year ago that it's it's it's really noticeable and their confidence in the market is improving and I think that drives order rates as well.
Great that's helpful.
And then.
If we could switch back to the guidance for this year.
At our highest level, Jeff can you help us with what the price versus volume.
Assumptions are.
I recognize that you kind of give a general view of the topline maybe the better way to ask how much pricing.
Just from a carryover perspective from things you've already announced that you have.
That will benefit FY 'twenty four.
Yeah, maybe it's easier for me to just.
Take the ladder Rubin.
So as you know how pricing flows through and over what period of time it tends to take in this industry. So maybe just a reminder that it was last October we did oh.
It was a tailored price increase but think of it as an average of about an 8% price increase in the Americas contract business in and when the contract elements of our business. So that is still layering in.
It takes the better part of a year to get the full impact of that so we still and that that has contributed meaningfully to the sequential margin improvements that we've been seeing since then.
And then in addition, we just put in place a price increase that averages 3% when I say just beginning of July .
So those factors collectively will.
Our fully expected to.
Provide margin support as we move through the year.
The harder one to quantify so I'll just again speak qualitatively about it is the volume impact because you are right to highlight that that.
That's where my earlier comment about leverage comes in.
As volume levels improve we're very sensitive our factories.
Particularly in North America, but really around the world are sensitive to.
Volume increased levels and so as those.
Order levels ramp as we expect that they will that two will support margin performance, but that's probably the best I can offer you right now.
Alright, and well move onto our next.
Are you still with us.
Ben has dropped.
Okay got it either didn't like it.
Alright, and we'll move onto our next question from Alex Fuhrman with Craig Hallum Capital Group.
Hey, guys. Thanks for taking my question, Andy I wanted to ask about the retail business, how does that factor into the guidance for the upcoming year, obviously been bid up against them incredibly tough comparisons is the consumer they're starting to come back.
Little bit whats your expectation there for.
The rest of this year as it relates to your guidance for this year.
Yeah, I think it's a great question listen I think as I said earlier, we think these first couple of quarters, we're going to continue to see softer demand as we turn into calendar year 'twenty. Four we expect that we will start to see the consumer come back. We are encouraged by home sales when people move that makes a big difference for US we can get people who have adapted to interest rates.
It's where they sit today it makes a difference in what they're purchasing the great news is our a M D. As we look at what the quality of the consumer that we're looking at hasn't really changed and we're very optimistic about that we're not having to discount or inventory levels are where we want them to be so right. Now we're really just focusing on those important brands to last I was kind of tough.
Three focusing on categories that we don't currently maximize and sort of kind of looking to reduce our investment in this business, while we wait for the consumer to come back I think they are there, but I think right now they're still spending on travel they're still spending on other experiences and we expect that will change as the year goes on.
Yeah, Okay. All right. This is Jeff.
Yeah.
One more bit of color and I didn't mention this in my prepared remarks, but I think it warrants mentioning the other thing that I think effects.
Cadence of performance through the year is bear in mind, our fiscal quarter. One is the seasonal low watermark for the retail business, So and that's just seasonality and where promotional events are scheduled consumer behaviors in the summer months all play into that so we do expect improved performance just based on seasonal.
Trends as we move into Q2 and beyond.
Okay that that's really helpful. And then just thinking about the you know some of the some of the comments about the consumer are you seeing anything differently.
You know in the U S versus abroad, and then all of your brands are certainly premium, but you know some of them are kind of mega premium price points or are you seeing any sort of a difference in demand based on the prices in your portfolio.
Yeah.
Yeah. Its difference in demand really kind of goes back to what I was saying earlier I think we're seeing a little softer demand internationally with our wholesale partners I really believe that has to do with inventory buildup I don't necessarily think that has to do with price points in that product as it is.
We're not having to discount and that to US is a really important piece of this puzzle.
The quality of the consumer is they're taking a little bit longer for people to pull the trigger on purchases.
But the quality of the consumer is definitely there.
Yeah.
That's really helpful. Thank you guys very much.
Thank you.
All right and we will take follow up question from Reuben Garner with benchmark company.
Youre back sorry, guys, Yes, I got dropped as soon as I finish.
Looking at it and I came back and I did that drop because I didn't like the answer I just didn't hear it.
So.
Yes.
Yeah, I'll have to get that one in the transcript, but I do have one more I want to ask about so the turn in orders and the robust pipeline I mean, you could see it.
The show at Neocon. It was definitely it seems more upbeat I'm just curious about your conversations with customers specifically on the North American contract Todd.
Do you think it's just the macro.
Uncertainty that's holding business loved at this point or is there still some angst about what the future of the office is going to look like kind of a longer term with the return to office trends.
Okay, I mean, I think that.
Sure.
I think the future of the office in and how it plays in.
Work is something that is still evolving and I think it's going to continue to evolve.
But I think I think more times than not as Andy mentioned earlier, there is an inflection point that we are feeling where companies.
See the benefit of having their people together see the benefit of providing opportunities for connection for belonging for wellbeing to address things like stress and burnout and the right environment helps with that.
So I think that Theres still some hesitation.
But definitely companies are moving towards really really working hard and asking us for the health and how do I get how do we get our people back. The other thing we've seen happen is hybrid work is changing in and of itself. It was six to 12 months ago pretty loose in terms of.
How companies approached hybrid work.
It is becoming much more structured.
Still offering employees flexibility, but putting some guardrails around time in the office et cetera, and I think those are all positive trends that will bode well for us as as the year goes on.
Great and I said, just one more but I'm going to sneak another one in a quick one.
Here, you say inventory had normalized then was that a comment specific to the.
International wholesale and.
Retail or consumer business or was that a broad based comment.
For melanoma.
No room and I'm glad you asked for clarification so the.
Comment on it was more related to our own inventory levels that we have and are either either in work in progress waiting to be recognized as revenue on the contract business or in the retail business that we actually have in our own warehouse and storage facilities. Those are the levels of inventory that have become more normal.
Life, we're no longer we don't we no longer have that.
The buildup of our glut of inventory that we had early earlier in fiscal 'twenty, three I think Andy's comments.
There is still elevated inventory held by wholesale partners that is affecting the business, but that's not our inventory if that makes sense Rubin.
Yeah, I agree I mean, just one more thing to add to that that we can't forget throughout the integration process is that as we integrate with knoll and Miller had a much more robust and efficient operating management system at our plants and as we've gone through our Knoll operations. We have also reduced inventory pretty substantially I think then.
<unk> Toyota production system that we call MK PFS across those plants. So that is also reduced inventory on the contract side and that has been worked it's taken us the better part of the last 12 to 24 months and we're seeing that efficient and effective inventory management really start to come to show up across the entire business.
Great. Thanks, again, guys and sorry about the drop call there Ah Congrats and good luck on Europe .
The new year.
Awesome.
Alright, there are no further questions, we turn the floor back to CEO Andi Owen for closing remarks.
Thanks again, everyone for joining us on the call. We really appreciate your continued support at Miller Knoll, and we are looking forward to updating you on our next quarterly call have a great night.
And that does conclude todays presentation. Thank you for your participation and you may now disconnect.
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Yeah.
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