One of the targeted investments Herman Miller plans to make to achieve the goal that President and CEO Brian Walker outlined in a recent conference call is developing a new distribution channel and sales structure "to better enable us to serve small business customers," a market segment that large office furniture makers have had difficulty penetrating in the past.
"We've been testing a model for reaching this segment for the past few years and have gained confidence that it can be a source of future growth," said Walker, noting that efforts put in place in fiscal year 2013 should begin paying off in the following fiscal year.
"Next year, we think we can grow that segment. My guess is we won't see a big move in terms of the revenue line until we get probably out to fiscal 2014 as we get some of those capabilities fully in place," he said. "So we'll start next year. We are having to front-end load some of the investments, really getting ready for 2014."
The 2013 fiscal year "will be an investment year for us," Walker said. The broader corporate goal is to lift the Zeeland-based Herman Miller to $2.2 billion in global sales by the end of the 2015 fiscal year, which will require a compounded annual growth rate of 8 percent.
The three-year growth target does not include potential acquisitions and presumes normal economic activity, Walker said.
"If we were to see some form of economic recession or crisis, the targets would remain the same but it may take longer to achieve them," he said.
To prepare for the growth push, Herman Miller plans to significantly increase capital spending this year to $50 million to $60 million, Treasurer Jeff Stutz said. The company spent $29 million on capital expenditures in the recently completed FY 2012.
During the year, Herman Miller recorded sales of $1.72 billion, a 4.2 percent increase over FY 2011. The company last exceeded $2 billion in sales more than a decade ago, prior to two U.S. recessions and harsh industry downturns.
Beyond better targeting of small and mid-sized businesses, Herman Miller is planning an array of new product launches in the spring and summer of 2013 — including "creating the office landscape of the future," Walker said — and will increase production capability and growth in emerging markets and consolidate facilities in the United Kingdom and China.
"In the long term, we expect these investments will enable us to grow and increase our operating leverage," Walker said.
Walker discussed the growth strategy during a conference call with brokerage analysts to review quarterly results.
Herman Miller reported sales for its fourth quarter of $420.7 million, down 4.7 percent from the $441.5 million in the same period a year earlier. Quarterly net income totaled $11.9 million, or 20 cents per share, which compares to $17.1 million, or 30 cents per share, in the fourth quarter of FY 2011.
Soft sales to the federal government and in health care were largely offset by growth in emerging markets and "strong demand" among North American contract customers that grew 15 percent, Walker said.
Herman Miller projects sales of $440 million to $460 million for the present first quarter of FY 2013, which would compare to $458.1 million reported for the same period a year ago.
The outlook reflects how the office furniture industry continues to hold its own despite lingering economic uncertainty.
Grand Rapids-based Steelcase Inc., after reporting a 5.6-percent sales increase for the first quarter of the 2013 fiscal year, expects growth of 2 percent to 5.5 percent for the second quarter to $715 million to $740 million. Steelcase reported sales of $701 million for the same period a year ago.
Steelcase posted global sales of $675.2 million for its first quarter that ended May 25, versus quarterly sales of $639.4 million a year earlier. Sales in Steelcase's Americas division that covers North America and Latin America grew 16.2 percent to $474.6 million.
CEO Jim Hackett called the March-to-May period a "solid quarter overall with excellent results, (and) really extraordinary results in the Americas" when compared to the current industry forecast of 3.4 percent shipment growth in North America in 2012 and 6.7 percent in 2013.