Raising 3Q Estimate; Seeing Strength in Retail
Following a strong margin performance in 2Q, we are raising our 3QFY24 EPS estimate to $0.43, just below the midpoint of guidance, from $0.38. The increase is the result of higher margin assumptions on a lower revenue forecast. We are also reviewing and lowering our revenue assumptions for the remainder of FY24 and FY25. Results showed new orders in the contract/commercial businesses below our prior assumptions, and we have reduced those expectations going forward. Results in the Retail segment stood out in the quarter. Gross margin expanded 850 bps versus the prior year, a quarter handicapped by pandemic-related inventory and shipping costs. Management called out November Retail sales results. Improved execution and marketing through the Thanksgiving cyber shopping period generated a November sales record. Sharper marketing, merchandising, and inventory management should generate better top-line results in the Retail segment. The Americas and International contract/commercial businesses delivered notable gross margin improvement. Americas gross margin expanded ~390 bps versus last year, and International expanded ~280 bps. The quarter also showed strong cash generation. MillerKnoll was able to buy back shares, pay down debt, and reduce net debt/EBITDA to 2.5x. A summary of the results and a complete model are presented below.Herman Miller researches, designs, manufactures, and distributes interior furnishings for use in various environments including office, healthcare, educational, and residential settings and provides related services. The company's segments include: North America Contract, which designs, manufactures, and sells furniture and textile products for work-related settings throughout the U.S. and Canada; International Contract, which designs, manufactures and sells furniture products in the Europe, Middle East and Africa, Latin America and Asia-Pacific geographic regions; and Retail, which sells furnishings and accessories to third party retail distributors and direct to consumer sales.
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