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WTR Furnishings Symposium: Snapback or the Start of a Real Recovery? · WTR Small-Cap Spotlight

• 0:02
  SPEAKER_06: Hello, everyone, and welcome to another edition of the WTR Symposium series.
• 0:06
  SPEAKER_06: I'm Sean Sieverson, founding partner and CEO of Watertower Research.
• 0:10
  SPEAKER_06: Joining me today is my research colleague, Doug Lane, managing director and senior consumer analyst.
• 0:16
  SPEAKER_06: And we have a very interesting topic today.
• 0:18
  SPEAKER_06: We're going to be talking about uh will the snapback become an industry recovery?
• 0:23
  SPEAKER_06: A critical topic, inflection point focus, great topic to be discussing.
• 0:28
  SPEAKER_06: Um, over the past several months, uh Doug has been writing about what he calls the snapback across small cap consumer companies.
• 0:35
  SPEAKER_06: And more recently, we've begun to see some encouraging signs, specifically within furnishings, and that raises a bigger question of are we simply seeing a few company-specific rebounds, or could the industry itself be entering the early stages of a cover recovery?
• 0:50
  SPEAKER_06: So great topics.
• 0:51
  SPEAKER_06: And today we're going to test that idea by asking three management teams the exact same question.
• 0:57
  SPEAKER_06: Um, so Doug, for you, let's first uh let's start with the snapback.
• 1:01
  SPEAKER_06: What is it?
• 1:01
  SPEAKER_06: Why has it become such an important theme for uh for investors this year?
• 1:06
  SPEAKER_04: Well, yeah, in in the consumer world, the snapback describes what happens after expectations have become extremely depressed, which they have been in recent months and quarters.
• 1:16
  SPEAKER_04: Many of these companies have struggled really over the past couple of years as higher interest rates weakened housing demand, tariffs-pressured margins, earnings estimates have been revised steadily lower.
• 1:26
  SPEAKER_04: So by the time companies reported earnings, expectations have become so pessimistic that even modest operational improvement could produce a significant upside to reported results.
• 1:36
  SPEAKER_04: So initially it's all here and there, they're kind of one-off events.
• 1:40
  SPEAKER_04: However, recently we've noticed something changing.
• 1:43
  SPEAKER_04: And we're wondering if it's time to start looking beyond individual quarters and companies and towards the next phase of a cycle.
• 1:50
  SPEAKER_04: The question now is whether we're simply watching isolated companies recover or whether we're beginning to see the early stages of a broader furnishings recovery.
• 1:59
  SPEAKER_06: And that's what caught our attention because over the last several weeks we've seen three very different companies report results that seem to all point in the same direction.
• 2:07
  SPEAKER_06: Uh walk us through what you identify as standing out.
• 2:10
  SPEAKER_04: Sure, Sean.
• 2:11
  SPEAKER_04: Um, let's start with Bassett Furniture.
• 2:13
  SPEAKER_04: Um, it's Memorial Day promotion generated 4% traffic growth and 14% growth in written sales.
• 2:19
  SPEAKER_04: The positive traffic comparison stands out because improving customer traffic has been one of the industry's most elusive metrics during the prolonged housing downturn that we've been experiencing post-pandemic.
• 2:30
  SPEAKER_04: Next up, we have Culp.
• 2:31
  SPEAKER_04: Its betting fabrics business delivered 12.5% year-over-year sales growth during the fourth quarter, while gross profit increased 38% sequentially.
• 2:40
  SPEAKER_04: So after a multi-year restructuring effort that has generated more than 20 million of annualized cost savings, we're beginning to see improving demand combined with a much leaner cost structure.
• 2:50
  SPEAKER_04: And then thirdly, we have Miller Knoll that reported North America contract sales, that's their biggest business.
• 2:57
  SPEAKER_04: Uh, they were up 20% on a two-year stack.
• 2:59
  SPEAKER_04: So they had a good quarter on top of a good quarter last year.
• 3:02
  SPEAKER_04: Uh, because office furniture is typically one of the last furnishings categories to recover, that strength could be an early signal that the industry's recent snapback is broadening now into more durable recovery.
• 3:13
  SPEAKER_04: So taken individually, none of these results proves the industry has turned, but taken together, they suggest that something broader may be developing.
• 3:21
  SPEAKER_04: Three companies, they're very different parts of the furnishing world, and they're beginning to report improving fundamentals at roughly the same time.
• 3:27
  SPEAKER_04: So that's why we thought this symposium was worth having this week.
• 3:31
  SPEAKER_06: So with all that in context, are we ready to call an industry recovery?
• 3:35
  SPEAKER_04: Well, not yet.
• 3:36
  SPEAKER_04: I mean, let's see what they have to say, but I'd I describe us as cautiously optimistic at this point.
• 3:41
  SPEAKER_04: Uh the encouraging part is that most companies have already done the hard work.
• 3:44
  SPEAKER_04: They've reduced costs, simplified operations, diversified sourcing, and adjusted to a much different tariff environment that existed two or three years ago.
• 3:52
  SPEAKER_04: As demand improves, many of these businesses should have considerably more operating leverage than I think investors appreciate.
• 3:59
  SPEAKER_04: The missing ingredient at this point is confirmation that demand is strengthening across the industry rather than just a handful of companies.
• 4:06
  SPEAKER_04: So, you know, housing turnover is still historically low, commercial office investment is still recovering, and consumer spending on larger discretionary purchases remains spotty and uneven.
• 4:17
  SPEAKER_04: So that's why I think today's discussion is going to be valuable as we dig a little bit deeper into what's going on here.
• 4:23
  SPEAKER_04: So also by asking the management teams the same questions, we can compare what they're saying across residential furnishing, bedding, office furnishings.
• 4:31
  SPEAKER_04: And then if the answers begin pointing in the same directions, then I think that would be a meaningful signal for investors.
• 4:37
  SPEAKER_06: Very well said, Doug.
• 4:39
  SPEAKER_06: Um let's let's introduce today's participants.
• 4:41
  SPEAKER_04: Uh sure.
• 4:42
  SPEAKER_04: We're fortunate to have management teams representing three different areas of the furnishings industry.
• 4:47
  SPEAKER_04: From Bassett Furniture, we're joined by President and Chief Executive Officer Rob Spillman.
• 4:52
  SPEAKER_04: Bassett gives us an excellent window into retail furniture demand, consumer traffic, promotional effectiveness, and the health of the U.S.
• 4:59
  SPEAKER_04: housing market.
• 5:00
  SPEAKER_04: From Kulp Inc., we're joined by CEO Iv Culp and Chief Operating Officer Mary Beth Huntsberger.
• 5:05
  SPEAKER_04: Kulp supplies many of the industry's leading bedding and upholstery manufacturers, providing a unique perspective on production trends, sourcing raw materials, and order activity across the broader furnishing supply chain.
• 5:17
  SPEAKER_04: And then from Miller and Ole, we kind of get two windows into the market.
• 5:21
  SPEAKER_04: We have president of global retail, Debbie Proost, and the chief financial officer, Kevin Beltman.
• 5:26
  SPEAKER_04: Um, Debbie runs the retail business.
• 5:28
  SPEAKER_04: It's been doing consistently well at Miller Knoll, uh, so we get insight there, but then also Kevin can give us some more insight into what's going on in the contract business, particularly in North America, which has been uh performing well.
• 5:42
  SPEAKER_04: As always, all water tower research content is freely available on our website at watertowerresearch.com, and it can also be found through Bloomberg and Factset for those who subscribe.
• 5:53
  SPEAKER_06: Great, Doug.
• 5:54
  SPEAKER_06: I think we're ready to go.
• 5:55
  SPEAKER_06: Let's hear what our guests have to say today.
• 5:57
  SPEAKER_06: Sounds good.
• 5:58
  SPEAKER_06: Up first, we're pleased to have the CEO of Bassett Furniture, Rob Spillman.
• 6:02
  SPEAKER_06: Rob, welcome to our symposium.
• 6:04
  SPEAKER_06: Thank you, Sean.
• 6:05
  SPEAKER_06: Good to be here today.
• 6:07
  SPEAKER_06: Thanks for joining us.
• 6:08
  SPEAKER_06: And before I turn it over to Doug, just wanted to get started.
• 6:11
  SPEAKER_06: Uh, for investors that might be new to the industry and to the company, can you give a brief overview to give them some positioning on Bassett and uh and what to where you're where you're taking things?
• 6:23
  SPEAKER_06: Sure.
• 6:24
  SPEAKER_03: We uh well we're not new to the furniture industry.
• 6:27
  SPEAKER_03: Um we uh are going to celebrate our 125th year next year.
• 6:33
  SPEAKER_03: Uh I'm currently here in world headquarters in Bassett, Virginia, where it all started.
• 6:38
  SPEAKER_03: And uh a lot of things have happened uh uh over the years, but uh primarily we are a manufacturer of furniture.
• 6:47
  SPEAKER_03: We basically do all the categories for the um for the home.
• 6:53
  SPEAKER_03: We do bedroom and dining room and uh living room upholstered furniture, chairs, ottomans, all these kind of things.
• 7:03
  SPEAKER_03: Uh home office, you name it.
• 7:06
  SPEAKER_03: Uh some of some of it, actually 75% of it, um, is manufactured in the U.S.
• 7:14
  SPEAKER_03: And that is both wood and upholstery.
• 7:16
  SPEAKER_03: And we also source from um primarily Asia, Asia, a little bit from Mexico, but uh, and mostly things that we can't do here, although we do do some starting price point things over here, but we also do mixed media like stone and uh metal work and and that kind of thing over there.
• 7:36
  SPEAKER_03: And so we sell this um primarily through a network of retail locations.
• 7:45
  SPEAKER_03: Uh we have about 87 of those, and um 57 of them are owned by the company, and the rest are licensed stores that uh carry only Bassett products.
• 8:01
  SPEAKER_03: And that that's roughly 60% of our business, and then the other 40% is what we call the open market, and we have 30 sales reps that uh cover the US territories and sell independent retailers and interior designers.
• 8:20
  SPEAKER_03: We also back in 2017 um acquired Lane Venture, which is our outdoor furniture uh division, and we have another sales force of that.
• 8:32
  SPEAKER_03: And uh we we have a plant in Alabama that makes uh aluminum outdoor furniture, and we also bring in wicker antique furniture from um overseas.
• 8:45
  SPEAKER_03: So that's that's kind of us in a nutshell.
• 8:49
  SPEAKER_06: Great.
• 8:50
  SPEAKER_06: Thanks for that overview, Rob.
• 8:51
  SPEAKER_06: Very helpful.
• 8:52
  SPEAKER_06: Doug, I'll turn it over to you to uh begin the questions.
• 8:55
  SPEAKER_04: Great, thanks, Sean, and hi Rob.
• 8:57
  SPEAKER_04: Hey Doug.
• 8:59
  SPEAKER_04: Over the past 60 to 90 days, have you seen any change in cut customer demand that makes you more optimistic than you were maybe a quarter ago?
• 9:08
  SPEAKER_03: Well, I Doug, I am by nature optimistic.
• 9:12
  SPEAKER_03: I would say these last three years of tepid demand have tempered that optimism post-COVID uh a bit.
• 9:19
  SPEAKER_03: Uh however, we have seen uh since really the beginning of April a uh market pickup in uh our stores, and that's where we we can really best judge what's going on with the consumer.
• 9:34
  SPEAKER_03: So um things have been better.
• 9:38
  SPEAKER_03: We reported uh our second quarter at the beginning of the month, and we were up and written uh nine and a half percent, which is which is a nice number, uh particularly with what we've been dealing with in recent quarters.
• 9:54
  SPEAKER_03: Um so yes, we um we're seeing that.
• 10:00
  SPEAKER_03: And I would say I'm guardedly optimistic.
• 10:05
  SPEAKER_03: I can't say that we're in the midst of a return a turnaround or a recovery, but things are better.
• 10:14
  SPEAKER_04: Yeah, it sounds like it.
• 10:15
  SPEAKER_04: Um where in particular do you think you're seeing the early signs of a recovery?
• 10:20
  SPEAKER_04: And then where in your portfolio is demand still challenged?
• 10:26
  SPEAKER_03: Well, of course, we're a product-driven company, and so when you talk about what's up and what's down, I think we have to point to our upholstered furniture and our motion furniture that all of which we make uh referring to the domestically produced product.
• 10:46
  SPEAKER_03: We do uh a tremendous business in sectionals and that uh dominate the great rooms as we call them, the big uh open floor plan spaces out there.
• 10:58
  SPEAKER_03: So so that part of our business has uh been particularly strong the last uh over this period I've been talking about the last 90 days or so.
• 11:10
  SPEAKER_03: And and the stores are are uh outperforming our uh uh general wholesale business.
• 11:17
  SPEAKER_03: Now that you know the the wholesale business actually grew a little as I'm talking about outside of the stores, grew a little bit in the quarter, but not as much as the stores.
• 11:29
  SPEAKER_03: So um, so I would say that's that's where it's coming from.
• 11:34
  SPEAKER_04: Okay, fair enough.
• 11:36
  SPEAKER_04: Um, and you mentioned you did have a good quarter that you just reported, but um may maybe we'll see we'll we'll go the other way here and say where in the quarter does something fall short of your own expectations?
• 11:47
  SPEAKER_04: Is this something on the demand side that didn't come through, or is there something more company specific?
• 11:52
  SPEAKER_04: So what was the um one or two things in the quarter that didn't live up to expectations?
• 11:57
  SPEAKER_03: Well, I would say a spotty spotty performance in the again, the open market.
• 12:06
  SPEAKER_03: Some some of our accounts that uh you know have been have been still good accounts, but have not uh generated the the orders for us that uh we'd like to see.
• 12:20
  SPEAKER_03: So uh and um and conversely we've had some that have have really uh exceeded expectations.
• 12:27
  SPEAKER_03: So in general, I'd say spotty open market performance.
• 12:32
  SPEAKER_03: Um and then the the wood products um have not grown as much as our upholstery in the last 90 days.
• 12:44
  SPEAKER_04: Okay, fair enough.
• 12:46
  SPEAKER_04: Um you like everybody in the industry has been going through restructuring, taking costs out.
• 12:53
  SPEAKER_04: Um so where are we on the restructuring?
• 12:55
  SPEAKER_04: How much operating leverage exists now if demand does recover?
• 12:59
  SPEAKER_04: And how how much of that is going to be offset by this the continued volatile tariff environment where um things constantly seem to be moving?
• 13:10
  SPEAKER_03: Well, uh let me say at this at this juncture, we really don't consider tariffs to be a factor in the equation.
• 13:21
  SPEAKER_03: Uh now this time last year it was very much a factor, and we we had to deal with the stop and go strategy that uh the government employed, and it was quite confusing and disruptive.
• 13:34
  SPEAKER_03: However, it's I I would say that's kind of settled down and been baked into the operating uh paradigm for not only us but for the industry.
• 13:44
  SPEAKER_03: So that's hopefully behind us, but who knows what'll what'll come next.
• 13:48
  SPEAKER_03: But that's it's okay right now.
• 13:51
  SPEAKER_03: As far as the way we look at um operating leverage that's that you ask about, um on the wholesale side, we think that every incremental sales dollar brings us about 15 to 20 percent to the bottom line.
• 14:10
  SPEAKER_03: And on the retail side, uh about 25 to 30 percent.
• 14:16
  SPEAKER_03: So I I hope that answers your question.
• 14:19
  SPEAKER_03: That's that's kind of where we how we look at um um leverage.
• 14:26
  SPEAKER_03: And then also I I gotta mention you've mentioned the restructuring, and you know, I I kind of think we're in perennial restructuring nowadays.
• 14:36
  SPEAKER_03: We we we've got to uh watch our costs and keep challenging costs.
• 14:42
  SPEAKER_03: And we we have said earlier this year that we were going to take another million and a half to two million dollars out of the cost structure, and and that's ongoing, and we're doing that, and we think we're we're starting to see that uh quarter over quarter.
• 14:59
  SPEAKER_04: No, that's very helpful.
• 15:00
  SPEAKER_04: That is what I was looking for.
• 15:01
  SPEAKER_04: The uh the incremental margin on the incremental uh dollar of sale as we climb back out of this trough.
• 15:08
  SPEAKER_04: Um, you know, depending upon how much we can recover, that could be pretty meaningful leverage, um, not just a one-shot deal, but over time as as we get back to um moving towards hopefully an upcycle sooner rather than later, right?
• 15:22
  SPEAKER_04: Right.
• 15:23
  SPEAKER_04: So, what are you watching most closely as evidence that industry is moving from just a snapback, just one or two good data points, um, you know, margin beat, or maybe you had a good retail quarter to where you think that we're going to be in the middle of a true recovery?
• 15:38
  SPEAKER_03: Well, I mean, look, it's it's pretty obvious we look at at written sales, but but as you you uh peel down a couple layers, and what's really driving it, um conversion.
• 15:55
  SPEAKER_03: So uh at the store level, uh, you know, we look we we have what we call our performance index, and that's that's the sales volume, the store volume uh divided by the traffic.
• 16:08
  SPEAKER_03: So how much do we get out of every up that comes into the store?
• 16:13
  SPEAKER_03: And um that was up um about almost 10% in the uh in the quarter.
• 16:22
  SPEAKER_03: So uh with you know, our traffic has been declining for some time.
• 16:27
  SPEAKER_03: Uh not unique to Vess, it's to the whole industry is uh the the internet's been responsible for part of that.
• 16:34
  SPEAKER_03: And in recent quarters, probably the uh just weak demand.
• 16:38
  SPEAKER_03: But we're getting more out of the traffic that's coming into the store, about 10% more than we did last year.
• 16:47
  SPEAKER_03: And and and on on basically the same uh traffic, we wrote about 3.7 million more dollars.
• 16:56
  SPEAKER_03: So uh and part of that is uh the size of the tickets.
• 17:02
  SPEAKER_03: Um our our tickets are up, and uh we're just really working with our folks.
• 17:09
  SPEAKER_03: I mean, we've got to do it.
• 17:10
  SPEAKER_03: He if if if traffic declines, you know, over time, you you've got to harvest more out of the traffic that does come in.
• 17:18
  SPEAKER_03: Um and when I go back to the word conversion, I I would uh similarly uh uh the web.
• 17:28
  SPEAKER_03: Um our web traffic has not grown uh dramatically.
• 17:34
  SPEAKER_03: However, we are converting more of the web traffic, and um our web sales were up 40 percent in the quarter.
• 17:43
  SPEAKER_03: Uh so still a pretty small part of our business overall, but it's growing, and and we've had seven out of the last eight quarters have increased by more than twenty percent.
• 17:54
  SPEAKER_03: So uh conversion is what we uh focus on.
• 18:01
  SPEAKER_04: Oh, that makes sense.
• 18:03
  SPEAKER_04: Um uh pretty traditional retail metrics, right?
• 18:08
  SPEAKER_04: Same store sales, just what you would expect.
• 18:11
  SPEAKER_04: So let me ask you, Rob, if housing activity and consumer confidence gradually improve over the next 12 months, where do you think Bassett is best positioned to gain market share?
• 18:23
  SPEAKER_03: Well, that's that that's interesting.
• 18:25
  SPEAKER_03: I mean, if I think about that question, I I really look at our soup to nuts model, okay, and go back to that leverage that you that we're talking about.
• 18:35
  SPEAKER_03: We've got a we've got nice stores, we've got good people, we have uh five factories uh domestically, and every one of those uh entities can generate more volume with the existing footprint.
• 18:53
  SPEAKER_03: So if we um get more business, we're going to perform at a higher level financially.
• 19:02
  SPEAKER_03: And and so I I I and look, I our model has uh slimmed down uh over the uh last few years, and we have fewer manufacturing facilities.
• 19:15
  SPEAKER_03: We don't have uh a lot more stores than we did.
• 19:17
  SPEAKER_03: We have a couple more, but that's really what we focus on is getting more through the existing real estate.
• 19:24
  SPEAKER_03: Now, in addition to that, of course, we we look at new markets and uh we just opened a store in in Cincinnati and that's off to a good start.
• 19:34
  SPEAKER_03: We really weren't selling very much furniture in Cincinnati, to be honest with you, before this.
• 19:39
  SPEAKER_03: And uh we now have uh five stores in Florida.
• 19:43
  SPEAKER_03: We're about to add Orlando to the mix.
• 19:46
  SPEAKER_03: We had a couple small accounts, but this Orlando store will do considerably more than we've been doing.
• 19:53
  SPEAKER_03: So and that and that goes right through our existing manufacturing.
• 19:57
  SPEAKER_03: So that's uh that's what I'm talking about.
• 20:00
  SPEAKER_03: And then and then, of course, the e-commerce.
• 20:03
  SPEAKER_03: Um we we we're very excited about the momentum that uh we're producing in in that that segment.
• 20:14
  SPEAKER_04: Fair enough.
• 20:15
  SPEAKER_04: Rob, I appreciate you joining us.
• 20:17
  SPEAKER_04: I see we're coming up on time here.
• 20:19
  SPEAKER_04: So um thanks again, and I'll throw it back to Sean to introduce the next company.
• 20:23
  SPEAKER_06: Thank you, Doug.
• 20:25
  SPEAKER_06: Pleasure.
• 20:26
  SPEAKER_06: All right.
• 20:27
  SPEAKER_06: Well, next up uh is Culp.
• 20:29
  SPEAKER_06: We are joined today by CEO Iv Culp and Mary Beth Huntsberger.
• 20:33
  SPEAKER_06: Uh welcome and thanks for joining us today.
• 20:36
  SPEAKER_05: Thank you, Sean.
• 20:37
  SPEAKER_05: Thank you.
• 20:38
  SPEAKER_05: Welcome.
• 20:39
  SPEAKER_06: So I'm gonna start with uh with the first question and then I'll hand it over to Doug.
• 20:44
  SPEAKER_06: So um, you know, from just from a general overview standpoint, if investors aren't familiar with uh with the company, can you give a brief description overview?
• 20:53
  SPEAKER_05: Yeah, sure.
• 20:54
  SPEAKER_05: Thank you, Sean.
• 20:54
  SPEAKER_05: And we really appreciate the opportunity to uh speak to everyone and thanks for inviting us to be part of the symposium.
• 21:00
  SPEAKER_05: Uh it helps, and uh we're glad to be glad to join you.
• 21:03
  SPEAKER_06: Exciting times.
• 21:05
  SPEAKER_06: Story changing, yeah.
• 21:06
  SPEAKER_05: Tumultuous times for sure.
• 21:08
  SPEAKER_05: A lot of excitement as well.
• 21:09
  SPEAKER_06: That's right.
• 21:10
  SPEAKER_06: That's right.
• 21:11
  SPEAKER_05: Yeah.
• 21:11
  SPEAKER_05: Uh well, Culp Incorporated is a company that's we just had our we're 53 years old now, 54 years old.
• 21:19
  SPEAKER_05: Um, company founded by my grandfather.
• 21:22
  SPEAKER_05: Today we're a public company, and we're just really proud of the way we operate with a family culture and the way we try to do things culturally, but also trying to be very professional as a public company and very global scale the way we source and service our markets.
• 21:39
  SPEAKER_05: We primarily target two segments, the furniture industry and the bedding industry.
• 21:44
  SPEAKER_05: We make fabrics and also cut and sew kits and just try to provide a lot of value to our customers.
• 21:49
  SPEAKER_05: And again, think about our business on a global scale and try to de-risk wherever we can the supply chain and be very first and foremost with product and innovation.
• 21:59
  SPEAKER_05: So So really love the way we're approaching the business today.
• 22:03
  SPEAKER_05: Certainly been a challenging stretch, but we're excited about where we're going.
• 22:07
  SPEAKER_06: Great.
• 22:07
  SPEAKER_06: Thanks for that overview, Ivan.
• 22:08
  SPEAKER_06: I'll turn it over to Doug for the first question.
• 22:11
  SPEAKER_04: Yeah, thanks, Sean.
• 22:13
  SPEAKER_04: Welcome, Iv and Mary Beth.
• 22:16
  SPEAKER_04: You know, over the last 60 to 90 days, have you seen any change in customer demand that makes you more optimistic than you were one quarter ago?
• 22:26
  SPEAKER_05: Doug, thank you.
• 22:27
  SPEAKER_05: I'll take that first one and appreciate you uh organizing this again.
• 22:30
  SPEAKER_05: We're grateful to be part of this uh symposium.
• 22:32
  SPEAKER_05: And I'd say yes, uh, we are certainly encouraged to show both sequential and year-over-year consolidated growth in our most recent quarter.
• 22:41
  SPEAKER_05: Uh and really what's neat is both mattress fabrics and upholstery fabric saw growth.
• 22:46
  SPEAKER_05: Impressively, our mattress fabrics business grew over 12% in both comparisons.
• 22:51
  SPEAKER_05: So we're seeing steady increases with mattress fabrics and especially with cut-and-sewn mattress covers.
• 22:57
  SPEAKER_05: And we like that because covers afford us a somewhat greater share of the overall cost of a bedding unit.
• 23:04
  SPEAKER_05: And they're also a positive value add service to our customers.
• 23:07
  SPEAKER_05: So we're encouraged by that business.
• 23:11
  SPEAKER_05: I think it's also important that I should note that this performance in betting and also on upholstery is in the face of really continuing pressured macro conditions.
• 23:20
  SPEAKER_05: Some have called the current period the most extended demand trough for betting units in the last 30 years.
• 23:26
  SPEAKER_05: And we're in the fourth or maybe fifth year of declining macro trends.
• 23:30
  SPEAKER_05: And so these headlines, or maybe we should call them headwinds, have not been in our favor with housing shortages, affordability challenges, tariff uncertainty, geopolitical issues, and rising inflation.
• 23:43
  SPEAKER_05: It just feels like the deck's kind of been heavily stacked in the wrong direction for some time now.
• 23:48
  SPEAKER_05: Um but I'm proud, even in the face of that, we have persevered through all of it and found a way to stabilize our business and begin to grow.
• 23:57
  SPEAKER_05: We focus on what we can't control.
• 23:58
  SPEAKER_05: We've streamlined our business for success through restructuring and realignment.
• 24:03
  SPEAKER_05: And we've never lost sight of the importance of innovation and product design.
• 24:07
  SPEAKER_05: It's hard to say if business is beginning to pick up, to your question, if that growth is due to us just gaining more share, uh, or if it's just general better business, but we believe it's a combination of both dynamics.
• 24:18
  SPEAKER_05: So I know for sure that we're strengthening our leadership position in both our target markets and any demand upcycle will be welcomed and should be very impactful to Culp.
• 24:29
  SPEAKER_04: That's helpful.
• 24:29
  SPEAKER_04: Thanks, Iv.
• 24:30
  SPEAKER_04: And and and um, you know, you mentioned both sides of the house are performing well, but maybe can we get a little dig a little bit deeper?
• 24:37
  SPEAKER_04: Where in particular are you seeing signs of recovery or at least hints of recovery?
• 24:42
  SPEAKER_04: And where in particular do you still see challenges um across your business lines?
• 24:48
  SPEAKER_05: Yeah, Doug, we we are definitely seeing more rebound in our in the bedding segment.
• 24:53
  SPEAKER_05: And generally speaking, and you know this well, Doug, um the mattress industry is less directly impacted by housing than upholstery is.
• 25:02
  SPEAKER_05: So while betting purchases certainly align to housing, they certainly matter, they have a more defined replacement cycle because the need for better sleep often influences a purchasing decision, even in a difficult housing market.
• 25:15
  SPEAKER_05: Without any doubt, though, a slow housing market affects our business overall because naturally our products go into homes.
• 25:23
  SPEAKER_05: I will qualify that the most impactful housing trend probably is sales of existing homes.
• 25:29
  SPEAKER_05: New housing starts matter, certainly, but we really just need people to be moving and organically upgrading their furnishings.
• 25:36
  SPEAKER_05: So, really, all that to summarize, our upholstery business continues to lag a little more from a macroeconomic standpoint as compared to betting.
• 25:44
  SPEAKER_05: But in both cases, we're developing new products, targeting new and existing customers, and we're growing our business in the face of all that.
• 25:52
  SPEAKER_05: Uh I believe we're gaining share and we're benefiting from our strategic and restructured model in both segments.
• 25:58
  SPEAKER_05: We're just seeing betting products ramp up a little earlier in the recovery.
• 26:04
  SPEAKER_04: I mentioned the the quarter that you just reported where you had the 12.5% growth in the betting.
• 26:10
  SPEAKER_04: Um it was a good quarter, but you know, where in the quarter did things fall short?
• 26:15
  SPEAKER_04: And was it on the demand side, or is there something company operationally that fell short, or where did you see signs that um things came up a little bit below where you expected?
• 26:26
  SPEAKER_05: Yeah, we all we you're smart to think about that, Doctor.
• 26:29
  SPEAKER_05: We always want to target the things that aren't going as well, and that's a good question.
• 26:33
  SPEAKER_05: And I I don't want to be so repetitive, but our weaker segment from a top-line perspective has been upholstery fabrics.
• 26:40
  SPEAKER_05: But there are also positive signs there, and we did post strong margins in that segment.
• 26:45
  SPEAKER_05: So it's a solidly profitable business, and we're continuing to stay ahead of style and innovation trends and win placements.
• 26:52
  SPEAKER_05: Uh we're also re-emphasizing our strong performance fabric options, led by our premier performance brand, Live Smart.
• 27:00
  SPEAKER_05: And as that industry rebounds, there is solid upside potential for upholstery.
• 27:05
  SPEAKER_05: But Doug, to get a little more granular to your exact question, our upholstery business is made up of three main market verticals residential fabrics, commercial fabrics, and then hospitality fabrics, which also include window treatments.
• 27:19
  SPEAKER_05: So within that hospitality vertical, we target hotels, timeshares, and vacation clubs.
• 27:25
  SPEAKER_05: And with some strain on consumer travel and leisure from the macroeconomic stress, that business is under some pressure.
• 27:32
  SPEAKER_05: We like the potential for that market, and we've already consolidated our window treatment production within our mega plant in Stokesdale, which we talked about, and that's all driven to reduce operational costs.
• 27:44
  SPEAKER_05: And we will keep monitoring that business and consumer spend on travel and leisure and just realign it as necessary.
• 27:51
  SPEAKER_05: So I do want investors to hear from me clearly that we're excited about the upholstery segment, equally as we are mattress fabrics.
• 27:59
  SPEAKER_05: But there are definitely more challenges on the top line in that market, and we're addressing it aggressively.
• 28:04
  SPEAKER_04: So it really is demand.
• 28:06
  SPEAKER_04: On the cost side, you've taken a lot of actions, uh,$20 million plus in annual cost savings over the last couple of years.
• 28:13
  SPEAKER_04: So what does that mean for the operating leverage picture with demand if it does recover or when it does recover?
• 28:19
  SPEAKER_04: How much of that leverage is available to you?
• 28:21
  SPEAKER_04: And how much do you think will be offset by still additional tariffs that might come down the pike?
• 28:26
  SPEAKER_05: Yeah, I hate to hear that word tariff, Doug, but I'll um I'm gonna pivot that question to Mary Beth Huntsberger, who's on the call with me today.
• 28:33
  SPEAKER_05: And Mary Beth's our chief operating officer and really just doing a fantastic job.
• 28:38
  SPEAKER_05: And she has led a lot of that restructuring to generate that leverage.
• 28:43
  SPEAKER_05: So I'm gonna let her take that one, Doug.
• 28:45
  SPEAKER_05: Okay.
• 28:46
  SPEAKER_01: Hi, Doug.
• 28:47
  SPEAKER_01: Good to see you today.
• 28:48
  SPEAKER_01: Thanks, Give.
• 28:49
  SPEAKER_01: Um, yeah, this is a good question.
• 28:50
  SPEAKER_01: So, kind of two parts.
• 28:52
  SPEAKER_01: You know, let's talk about leverage and then let's talk about tariffs.
• 28:55
  SPEAKER_01: Um, when we think about leverage, we have completed a variety of restructuring and integration activities over a really difficult two years.
• 29:04
  SPEAKER_01: Um, the tally of that savings and efficiency benefit is currently around$22.5 million, um, which is detailed in our investor deck, but I can say ensured that the majority of those reductions were in fixed operational costs and SGNA.
• 29:22
  SPEAKER_01: And um it we made those adjustments to our platform so that we can perform now, but we were also very careful about the reductions we made to preserve core competencies to ensure we could ramp back up quickly in the future with limited additional costs.
• 29:39
  SPEAKER_01: So we feel very good about that 22.5 million we've taken out of the business and our ability to continue to operate really well without that cost.
• 29:49
  SPEAKER_01: Um, and so what that puts our focus on is um our mega plant, as Ib alluded to, in Stokesdale, North Carolina, and that houses knit production, knit finishing, window treatment production, a consolidated distribution center, and really, in my opinion, some of the most experienced operational leaders in the industry.
• 30:11
  SPEAKER_01: Um we have virtually unlimited capacity outside of Stokesdale throughout our global supply partner network.
• 30:19
  SPEAKER_01: So we're poised now for an industry recovery and won't need to add much in the way of additional costs when that happens, which is great.
• 30:28
  SPEAKER_01: And then the second part of your question, tariffs, um they've certainly been punitive to our industry uh and many others.
• 30:35
  SPEAKER_01: And we do have an inflection point coming up here soon, around July 24th, with some uncertainty about the go-forward tariff rates.
• 30:42
  SPEAKER_01: But with what we know today, uh we believe we're priced correctly for this environment.
• 30:48
  SPEAKER_01: And we have, as mentioned, global options to help our customers offset the worst of the tariffs if they come.
• 30:56
  SPEAKER_01: And we'll continue to rely on that balance of US and global supply and that flexibility as we see what comes next.
• 31:06
  SPEAKER_04: Well, that makes sense.
• 31:06
  SPEAKER_04: Thanks for that, Mary Beth.
• 31:07
  SPEAKER_04: I appreciate the colors.
• 31:08
  SPEAKER_04: So it sounds like um cost-wise, you're like where you are, and you're really looking for demand um to firm here.
• 31:16
  SPEAKER_04: So, you know, if uh as I mentioned, you had a good fourth quarter and um the stock reacted favorably uh on the news.
• 31:24
  SPEAKER_04: But um and and and the the sales number was good embedding, but is this just really a single data point, or what are you looking for to give us confidence that this is more than just a one-quarter data point, that there's really something happening out there that is starting to show improvement industry-wide?
• 31:43
  SPEAKER_05: Yeah, um from a great question.
• 31:45
  SPEAKER_05: And you you're speaking, I think, from a just from a map, what trend from a macro standpoint might might give us confidence.
• 31:53
  SPEAKER_05: And I it's so hard to predict macro trends and what will really lead to you know a true recovery, but let's let's think about it two ways.
• 32:01
  SPEAKER_05: Uh, first, let's focus on cult and the spirit I mentioned about controlling what we can control.
• 32:06
  SPEAKER_05: Uh I'm confident we position ourselves very well for the current industry environment.
• 32:12
  SPEAKER_05: And importantly, we believe we're in an ideal position to capitalize on any industry recovery.
• 32:17
  SPEAKER_05: You heard from Mary Beth, and she did she's just done so much work, her team.
• 32:22
  SPEAKER_05: We've taken major steps to restructure our operating platform and the cost levels.
• 32:27
  SPEAKER_05: And we're being aggressive with product development, supply chain flexibility, and customer service.
• 32:32
  SPEAKER_05: We believe we're growing our share and we're moving toward profitability in this current environment.
• 32:39
  SPEAKER_05: We're also confident that our model and supply chain will allow us to service customers without any delay when placements take hold and increase along with that rising tide.
• 32:49
  SPEAKER_05: That would just be tremendous, as she touched on.
• 32:51
  SPEAKER_05: But from a macro perspective, I guess we'll most closely watch trends and affordability and especially housing.
• 32:59
  SPEAKER_05: We really believe there's a natural replacement cycle that is due, certainly in betting.
• 33:04
  SPEAKER_05: So when consumers begin to feel more confident, andor we start to see housing activity, that will be a great signal to us that both betting and upholstery have a chance to pick up uh within our business.
• 33:18
  SPEAKER_04: So if housing activity does pick up and consumer confidence improves over the next 12 months, where do you think you could you you're best positioned to gain market share?
• 33:27
  SPEAKER_04: I mean, you mentioned you're you're gaining market share now, but um, will that be the same dynamic in an upcycle or will the dynamic change?
• 33:35
  SPEAKER_05: Yeah, yeah, Doug, again, really good question.
• 33:37
  SPEAKER_05: I'm gonna let Mary Beth take that one because she's been she's closest to seeing where that leverage will hit based on the work we've done.
• 33:46
  SPEAKER_05: So I'll um Mary Beth, if you take that one.
• 33:49
  SPEAKER_01: Sure.
• 33:49
  SPEAKER_01: Well, first of all, let's hope that happens.
• 33:51
  SPEAKER_01: I love that we're putting out there that um if we saw this gradually improving market in the next 12 months, what what would where would we be positioned?
• 33:59
  SPEAKER_01: Um, I think if we consider the design and innovation perspective that we have at Culp, we're really ready with unique offerings for all the segments that we service.
• 34:09
  SPEAKER_01: So that's bedding, upholstery, window treatments.
• 34:12
  SPEAKER_01: Um, so product-wise, we're ready.
• 34:15
  SPEAKER_01: And I really believe we can capture share in all of these categories.
• 34:19
  SPEAKER_01: And we've spent the last two years improving operational excellence to be able to deliver these quality products on time when that demand returns.
• 34:29
  SPEAKER_01: So our design and innovation is there, and our capacity is there.
• 34:32
  SPEAKER_01: You know, our stove sale facility can certainly operate at a much higher capacity, and our global supply chain offers options and capacity beyond that.
• 34:42
  SPEAKER_01: So, in short, we're ready.
• 34:44
  SPEAKER_01: We're ready to see that happen.
• 34:46
  SPEAKER_04: It sounds like it.
• 34:48
  SPEAKER_04: Um, so I see that we're uh coming up on time here.
• 34:52
  SPEAKER_04: So, Iv and Mary Beth, thank you very much for your thoughts today.
• 34:56
  SPEAKER_04: Um, and Sean, I'll throw it back to you to introduce the next speakers.
• 35:00
  SPEAKER_06: And for our last presenter today, we're pleased to have Miller Knoll with us.
• 35:04
  SPEAKER_06: And from the company, we have Debbie Probst, the president of Global Retail and his CFO Kevin Veltman.
• 35:11
  SPEAKER_06: Welcome, Debbie and Kevin.
• 35:13
  SPEAKER_06: Great to be with you.
• 35:15
  SPEAKER_06: Thank you for having us.
• 35:16
  SPEAKER_06: So before I begin, I just wanted uh to, before Doug begins, I wanted to ask a general question for investors who aren't familiar with Miller Knoll.
• 35:25
  SPEAKER_06: Can you give the the quick flyby on the company and the strategy and positioning?
• 35:30
  SPEAKER_06: Because I expect a lot of new investors to be looking at the sector at this point at Miller Knoll.
• 35:35
  SPEAKER_02: Yeah, this is Kevin.
• 35:36
  SPEAKER_02: Happy to share a brief overview.
• 35:38
  SPEAKER_02: So Miller Knoll is a collective of 14 iconic brands, and we sell um our products through three segments: a North America contract and an international contract segment that focus on office furnishings projects to customers within those regions.
• 35:56
  SPEAKER_02: And then we have a global retail business as well.
• 35:59
  SPEAKER_02: And throughout it all, our our focus is selling our innovative designs, and we we've we've led historically over the years.
• 36:06
  SPEAKER_02: Our business has been in the industry for over 100 years.
• 36:10
  SPEAKER_02: Last year we did 3.8 billion in revenue.
• 36:13
  SPEAKER_02: Um, we have over 90 retail stores.
• 36:16
  SPEAKER_02: We we sell through over 600 dealers for the office furniture side in over 110 countries and have over 10,000 associates supporting us in that journey.
• 36:27
  SPEAKER_02: So we are excited to be with you today.
• 36:31
  SPEAKER_06: Great.
• 36:31
  SPEAKER_06: Thanks for that, Kevin.
• 36:32
  SPEAKER_06: Thanks for that overview.
• 36:33
  SPEAKER_06: Doug, I'll turn it over to you to start the questions.
• 36:36
  SPEAKER_04: Yeah, thanks, Sean.
• 36:37
  SPEAKER_04: Um hi Kevin, hi Debbie.
• 36:39
  SPEAKER_04: Welcome to um our symposium.
• 36:43
  SPEAKER_04: Um over the past 60 to 90 days, have you seen any change in customer demand that makes you more optimistic than you were maybe a quarter ago?
• 36:54
  SPEAKER_02: Yeah, Doug, I'll I'll lead us off.
• 36:56
  SPEAKER_02: Uh thanks for having us today, and we appreciate the opportunity to share Miller Noel's perspective.
• 37:01
  SPEAKER_02: Um, given Debbie as our president of our global retail segment is with us, she's gonna share some retail perspective, um, and then I will cover our contract businesses as well.
• 37:13
  SPEAKER_02: So let me turn it over to Debbie to start.
• 37:16
  SPEAKER_00: Thanks, Kevin, and hi Doug.
• 37:18
  SPEAKER_00: So we've been pretty optimistic in our retail business for a while now and remain optimistic.
• 37:24
  SPEAKER_00: And as you know, we've now seen orders and sales growth in the global retail segment for the past six consecutive quarters.
• 37:31
  SPEAKER_00: And that's with particular strength in our North America business.
• 37:35
  SPEAKER_00: And in that particular region, we're outpacing census data as well as most of our peers.
• 37:41
  SPEAKER_00: The demand trends that we're seeing tell us that we have the right products and the right demographic in what has been a pretty anemic at best industry for the past few years.
• 37:52
  SPEAKER_00: And we're also growing our store footprint in North America.
• 37:55
  SPEAKER_00: We added 15 new stores in fiscal 26 across the DWR and Harman Miller banners.
• 38:02
  SPEAKER_00: And we expect to add another 14 to 18 in fiscal 2027.
• 38:06
  SPEAKER_00: And so not only do the new stores drive order and revenue growth, but each new opening increases our brand awareness and our e-commerce sales, where we get Halo from that channel.
• 38:17
  SPEAKER_00: Our Harman Miller store growth is also a nice brand awareness driver for overall contract business as well.
• 38:23
  SPEAKER_00: So all of this together together gives us really ample optimism in the markets we operate retail in.
• 38:29
  SPEAKER_00: Kevin, over to you on the contract piece.
• 38:31
  SPEAKER_02: Yeah, a similar story in North America contract, uh fairly positive environment.
• 38:37
  SPEAKER_02: We saw sales growth of 5% in our most recently completed fiscal year for North America contract, which we just reported on in June.
• 38:47
  SPEAKER_02: Um, important to note that volume in the contract industry in North America remains an estimated 30 to 40% below pre-pandemic volume levels.
• 38:57
  SPEAKER_02: So we also believe there's quite a bit of pent-up demand opportunity in this part of our business.
• 39:02
  SPEAKER_02: Um, and so we're optimistic about this over the medium term.
• 39:05
  SPEAKER_02: A few things we've been seeing some recent strength on.
• 39:09
  SPEAKER_02: Class A leasing has been positive, which is a good fit for the type of uh furnishings we sell.
• 39:14
  SPEAKER_02: Um, net absorption in the rolling four quarters just reached its highest level since the pandemic.
• 39:21
  SPEAKER_02: And then return to office, there continues to be more momentum across businesses looking to bring their folks together more frequently.
• 39:29
  SPEAKER_02: Our internal metrics, sales funnel and mock-up activity were also positive in the last quarter.
• 39:35
  SPEAKER_02: Um, and we saw broad-based strength across industry sectors.
• 39:39
  SPEAKER_02: Um, some of our larger ones, business services, insurance and financial technology, oil and gas and healthcare were all showing growth.
• 39:49
  SPEAKER_02: And then if I move to our international contract segment, um, we serve multiple geographies here: um, Europe, UK, Asia Pacific, the Middle East, and Latin America.
• 40:01
  SPEAKER_02: And what happens when you have a diverse set of markets?
• 40:04
  SPEAKER_02: Um, it can be inherently more uneven in short bursts.
• 40:07
  SPEAKER_02: And this can include some very large projects, whether they're in the current year or the prior year that impact your year-over-year comparisons.
• 40:15
  SPEAKER_02: And so, for example, in fiscal 25, so two fiscal years ago, we had some significant projects in the Middle East and South Korea that created some tough comparisons last year in those parts of the world.
• 40:28
  SPEAKER_02: However, when you look past maybe some of the uneven order patterns in the longer run, we see a lot of opportunity here.
• 40:35
  SPEAKER_02: We're continuing to expand our dealer network.
• 40:38
  SPEAKER_02: We're expanding share of wallet with existing dealers.
• 40:42
  SPEAKER_02: Important point is that we're underpenetrated internationally relative to a more mature business in North America.
• 40:49
  SPEAKER_02: And so we see particular opportunity to expand share in higher growth regions like Asia Pacific and the Middle East.
• 40:59
  SPEAKER_04: Where are you seeing the earliest signs of recovery?
• 41:02
  SPEAKER_04: And where do you see demand still being the most challenged?
• 41:06
  SPEAKER_00: Well, we've been very pleased with the demand in our retail business in North America for the past six quarters.
• 41:11
  SPEAKER_00: And we play at the premium part of the home furnishings market.
• 41:14
  SPEAKER_00: And so our customer is less impacted by the current macroeconomic conditions and spends a larger share of wallet on home furniture.
• 41:22
  SPEAKER_00: So while we've seen more strength for a longer period of time in North America than we have internationally in retail, we are seeing solid demand in our international retail business too, which is predominantly a wholesale business.
• 41:34
  SPEAKER_00: Where we've been more challenged is our Holly Hunt business, which is our ultra premium to the trade brand.
• 41:40
  SPEAKER_00: But we're focused on a number of areas to improve performance of that business, such as ensuring we have a strong newness pipeline.
• 41:48
  SPEAKER_00: And we believe the Holly Hunt brand overall tremendously supports the residential trade and we'll move it in the right direction.
• 41:57
  SPEAKER_02: And then, Doug, on the contract side, our demand challenges tend to be a little bit more geographic or industry specific, but often tied to the project nature of the business.
• 42:08
  SPEAKER_02: Overall, we would point to that pent-up demand opportunity that we see over the mid to longer term.
• 42:15
  SPEAKER_02: Internationally, where we've seen the most caution geographically has been Europe recently, tied to the conflict in the Middle East.
• 42:23
  SPEAKER_02: Well, I would say the Middle East itself has held up better than we expected.
• 42:28
  SPEAKER_02: Um and then a couple markets where we've seen particularly strong activity are some of those growth markets in Asia Pacific, China, and India specifically.
• 42:41
  SPEAKER_04: Okay, now you mentioned you recently reported some good numbers in the May quarter, but um you know it's still a mixed bag out there.
• 42:49
  SPEAKER_04: So where would you point to uh as areas that actually fell short of your expectations?
• 42:54
  SPEAKER_04: And this was on the demand side, it was an execution issue.
• 42:58
  SPEAKER_04: Um maybe you could explore that a little bit for us.
• 43:01
  SPEAKER_00: As I just mentioned, our Holly Hunt business fell short of our expectations in orders and also earnings in fiscal 26.
• 43:09
  SPEAKER_00: And as I indicated, we have a number of initiatives to continue to be enthusiastic about that brand.
• 43:14
  SPEAKER_00: Certainly, I feel like some of our um internal processes around product development and the talent we had leading that business needed transition, and we've taken those actions.
• 43:25
  SPEAKER_04: Okay, and on the uh contract side, Kevin?
• 43:28
  SPEAKER_02: Yeah, contract side, um, really it's the orders in Western and Southern Europe that were short of our expectations last quarter, and again, impacted by the sentiment that connected to the conflict in the Middle East, where the economic and the economic landscape more broadly has been more challenging in that region.
• 43:47
  SPEAKER_02: So that's, I'd say, the one pocket that we saw being more challenged last quarter.
• 43:53
  SPEAKER_04: And would you say the geopolitics is more impacting demand and sentiment, or is there logistical issues with being To navigate through that part of the world.
• 44:02
  SPEAKER_02: Yeah, more tied to the sentiment side of it than the logistical challenges.
• 44:06
  SPEAKER_02: We we were actually um pleased during the quarter.
• 44:09
  SPEAKER_02: Some of the not that there were no blips in logistics, but that probably went a little better than we expected it would go last quarter.
• 44:17
  SPEAKER_04: Okay, that's helpful.
• 44:19
  SPEAKER_04: And then you, like everybody else in the industry, through this down cycle that you talked about, have going through restructuring and taking cost actions over the past several years.
• 44:28
  SPEAKER_04: So talk a little bit about operating leverage opportunities here, particularly if if on the on the contract side that that that lost demand does start to come back and we start to see a cyclical move up here.
• 44:40
  SPEAKER_04: How much operating leverage is there available?
• 44:42
  SPEAKER_04: Maybe we'll start on the contract side and then go to Debbie.
• 44:47
  SPEAKER_02: Yeah, so from our perspective, um, when I think about operating leverage, I have I think of it as the capacity that we have to support potential for higher demand.
• 44:57
  SPEAKER_02: And one thing we're very proud of is our over 30 years of lien with our Miller-Noll performance system, which we have embedded throughout our global manufacturing operations.
• 45:08
  SPEAKER_02: And what that gives us is the ability to flex production.
• 45:11
  SPEAKER_02: And really, this covers all of our segments.
• 45:13
  SPEAKER_02: So whether it's retail or North America or international contracts, since we produce a lot of our products for each of those channels, it gives us the flexibility to meet the demand that we see.
• 45:26
  SPEAKER_02: In the core North America and international contract businesses, um, at an operating margin level, we'd expect to see, and it can move around somewhat unevenly depending on what's going on, but you'd expect kind of 20% operating income contribution margins in both of those segments with increased volume.
• 45:46
  SPEAKER_02: And then with the retail business, maybe to cover that one for Debbie, we see potential as we build out our own stores.
• 45:54
  SPEAKER_02: We've been successful with our own brands that we manufacture.
• 45:58
  SPEAKER_02: One thing we called out in our most recent release is we expect for this upcoming fiscal year operating margin expansion in our retail business as our growth initiatives around new stores and assortment gain traction and we're able to leverage our fixed costs.
• 46:14
  SPEAKER_04: That makes sense.
• 46:15
  SPEAKER_04: So what are you watching on the top line?
• 46:18
  SPEAKER_04: Or maybe just from a macro standpoint, what are you watching most closely as evidence that the industry is moving from just having a good quarter, maybe one or two numbers are heading in the right direction, to really being at the beginning of a true recovery?
• 46:31
  SPEAKER_00: You know, Doug, I actually think di a bit differently about this.
• 46:34
  SPEAKER_00: And I'm focused really on what we can control regardless of what we're dealing with and the broader economic backdrop.
• 46:41
  SPEAKER_00: We just have such an abundant white space to grow our store presence and our product assortment that we believe that we'll continue to grow and take share regardless.
• 46:50
  SPEAKER_00: And as I mentioned earlier, we have meaningfully outperformed the census data and peers for several quarters.
• 46:56
  SPEAKER_00: That said, by design, we play in the more durable part of the market.
• 47:01
  SPEAKER_00: So our consumers' balance sheet remains in good shape.
• 47:04
  SPEAKER_00: Consumer confidence readings are better among the higher income cohort.
• 47:09
  SPEAKER_00: And the luxury home sales have been a little bit better more recently as well.
• 47:14
  SPEAKER_02: And then, Doug, on contract, um, I mentioned earlier class A leasing and net absorption.
• 47:19
  SPEAKER_02: We've also seen positive dealer confidence measures, and our internal metrics have been solid as well.
• 47:26
  SPEAKER_02: Um, architectural billings index is one that is typically an expansionary category when it's above 50.
• 47:35
  SPEAKER_02: Um, we've been following that closely because it usually translates into demand activity nine to 12 months out if there's activity from architects on billings um projects.
• 47:47
  SPEAKER_02: ABI has been hovering in the mid to high 40s for the past few months, and so that's one we we keep an eye on from a demand perspective as well.
• 47:56
  SPEAKER_04: Okay, that's helpful.
• 47:57
  SPEAKER_04: And I know Debbie, you mentioned the the strength of the retail business over the past several quarters and uh you know, with mid-single digit kind of growth, you're clearly gaining market shares.
• 48:06
  SPEAKER_04: And maybe I'll just focus this question for Kevin on contract.
• 48:10
  SPEAKER_04: If we do start to see a meaningful recovery and an upcycle begin to hit, where do you think uh Miller Knoll is best positioned to gain market share?
• 48:20
  SPEAKER_02: So we we believe uh we have a strong leading business in North America contract that generates great cash flow.
• 48:27
  SPEAKER_02: And if we can capture some of that pent-up demand, there would be some nice flow through there.
• 48:32
  SPEAKER_02: We have a number of initiatives that we can help believe help with market share as well.
• 48:37
  SPEAKER_02: But international in particular, I would call out it's a smaller business for us.
• 48:42
  SPEAKER_02: We have the manufacturing footprint in Asia and in Europe, and we believe we're underpenetrated there.
• 48:50
  SPEAKER_02: So we can gain share of wallet with the dealers that we already work with, but also we can continue to expand the dealer network in some of those faster growing markets that we talked about.
• 49:01
  SPEAKER_02: And so we lead with seeding, but we, as you know, in North America sell a full portfolio and we sell those other product lines abroad as well, but we see continued opportunity to both lead with our strong seeding portfolio, but also sell our full portfolio across many of those markets.
• 49:18
  SPEAKER_04: Okay, and and and Debbie, maybe I'll ask it this way: since you have been gaining share and you've been uh executing quite well on the retail side, does your playbook change if we start to hidden upcycle in in the home furnishings business?
• 49:31
  SPEAKER_00: Well, I like to tell the team we've sort of been pulling back the catapult while the macroeconomic conditions haven't necessarily been favorable.
• 49:38
  SPEAKER_00: So I look forward to some nice momentum beyond what we're already driving if if the conditions change.
• 49:45
  SPEAKER_00: And I think one thing that I would like to do as we start to see improvement in the macroeconomic conditions is pull back on discounting and drive more margin leverage.
• 49:54
  SPEAKER_04: That's helpful.
• 49:55
  SPEAKER_04: Okay, Kevin, Debbie, thank you so much for coming up on time.
• 49:58
  SPEAKER_04: So I think we'll leave it there.
• 50:00
  SPEAKER_04: Uh so I'll throw it back to Sean to uh conclude our symposium.
• 50:04
  SPEAKER_06: So that'll wrap up today's uh WTR furnishing symposium.
• 50:08
  SPEAKER_06: Will the snapback become an industry recovery?
• 50:11
  SPEAKER_06: Uh great content today, very interesting answers.
• 50:14
  SPEAKER_06: I'd like to thank the management teams from Bassett Furniture, Culp, and Miller Knoll for participating.
• 50:20
  SPEAKER_06: And also, of course, thanks to my equity research colleague Doug Lane for co-hosting the symposiums.
• 50:26
  SPEAKER_06: Um, you know, one thing before we go, Doug, uh, what's your bottom line?
• 50:29
  SPEAKER_06: Is the snapback becoming uh an industry recovery based on what you heard today?
• 50:34
  SPEAKER_04: Well, I think we're kind of in a position where we're seeing it happen in real time.
• 50:37
  SPEAKER_04: It's not really confirmed yet, but I think what we heard today reinforces that the cost side of the story is largely done.
• 50:44
  SPEAKER_04: These companies are leaner than they've been in years.
• 50:46
  SPEAKER_04: And so the swing factor now is demand, housing turnover, office utilization, the consumer's willingness to spend on big ticket items again.
• 50:53
  SPEAKER_04: Three good data points is encouraging, but we'll need to see it broaden across more names and more quarters before we really call this an industry-ride recovery rather than a one-off snapback.
• 51:04
  SPEAKER_06: So that's great, Doug.
• 51:05
  SPEAKER_06: Fair enough.
• 51:06
  SPEAKER_06: We'll keep tracking it and thanks for that.
• 51:08
  SPEAKER_06: Um, and as a special thanks to our producer and editor of the symposium, my WTR colleague Krista Fitzpatrick.
• 51:15
  SPEAKER_06: Um, as a reminder, you can access all of WTR research on our website at www.watertowerresearch.com or of course across the research aggregators as well, where all our content is open access.
• 51:26
  SPEAKER_06: So I encourage you to take a look at Doug and our coverage across uh the consumer sector and others as well.
• 51:31
  SPEAKER_06: So thank you everyone for listening today.
• 51:33
  SPEAKER_06: Don't forget to subscribe as well as visiting our website, as I mentioned, and keep up the speed on the company's small cap written research, reports, podcasts, fireside chats, and conference schedules.
• 51:45
  SPEAKER_06: We'll see you next time with another WTR Symposium series podcast.
• 51:48
  SPEAKER_06: Thanks, everyone.