Banking on a recovery in business doesn’t seem to have worked out for investors in office furniture companies lately. But some small to mid-cap companies sporting dividends can still make money for investors long term by fading their exposure to business and expanding into the higher margin consumer retail space.
Betting on a consumer kicker
Knoll Inc (NYSE:KNL) is a designer, manufacturer, marketer, and seller of office furnishings, textiles, and fine leathers for business and the home in the US, Canada, and Europe. The 75 year old company, like many other companies with government clients, has been struggling with spending cuts as their 2012 Letter to Shareholders admitted but expects a better 2014 and 2015.
This small cap (market cap of $714.55 million) offers a yield of 3.20%. Knoll Inc (NYSE:KNL) is valued at a trailing earnings multiple of 16.59 and has a 23.81% return on equity. Price to sales at .84 means you are only paying 84 cents for a dollar worth of their sales and the PEG at .48 is the lowest among their competitors, Steelcase Inc. (NYSE:SCS), Herman Miller, Inc. (NASDAQ:MLHR), and HNI Corp (NYSE:HNI).
The company is expanding from a reliance on financial and government business with a flagship design store in NYC around the corner from MOMA. Partnerships with cutting edge designers David Adjaye and Rem Koohaas are also key to “expanding their reach into consumer and decorator channels around the world.”
The stock is challenged currently by those government and financial sales declines with second quarter results that can’t be slipcovered over; operating margin declined from 9.4% to 5.8% yoy, diluted EPS dropped from $0.28 to $0.17, and gross profit margin contracted from 33.7% to 32.6%. To be fair second quarter numbers were an improvement over the first quarter.
Moving into China and consumer retail
Knoll Inc (NYSE:KNL)’s most direct competitor would be Herman Miller, Inc. (NASDAQ:MLHR), a mid-to high end office furniture designer and manufacturer most famous for its iconic ergonomic Aaron chairs and sleek mid-century esthetic. The company is 98 years old but the designs look as fresh as yesterday and like Knoll many of the designs are featured in museums like MOMA.
Herman Miller, Inc. (NASDAQ:MLHR) is a bigger business than Knoll Inc (NYSE:KNL) and more global, in over 100 countries. It also offers a yield of 2.00% but has a higher earnings multiple of 21.96 but a forward P/E of 12.61. Price to sales is also fairly low at .88 but the PEG is a high 7.94.
Herman Miller, Inc. (NASDAQ:MLHR)’s fourth quarter performance, reported in June, was decidedly better than Knoll Inc (NYSE:KNL) with an increase in net sales of 9.3% from the year ago quarter and doubling diluted EPS yoy from $0.20 to $0.40. Margin contracted slightly after the company purchased Maharam Fabric Corporation to get into what CEO Brian Walker calls the, “margin-rich textiles and wall coverings categories, with further opportunities to extend Maharam’s reach into new consumer and international markets.”
Like Knoll Inc (NYSE:KNL), Herman Miller, Inc. (NASDAQ:MLHR)’s Specialty & Consumer segment performed better than the North American and Non-North American Furniture Solutions, their corporate office furniture segment, and was the star of the full year and quarter report.
| (Dollars in millions) | Three Months Ended | Fiscal Year Ended | ||
| 6/1/13 | 6/2/12 | 6/1/13(52 wks) | 6/2/12(53 wks) | |
| Net Sales: | ||||
| North American Furniture Solutions | $311.5 | $286.1 | $1,221.9 | $1,218.5 |
| Non-North American Furniture Solutions | 99.1 | 97.1 | 377.3 | 347.3 |
| Specialty and Consumer | 49.4 | 37.5 | 175.7 | 158.3 |
| Corporate | – | – | – | – |
| Total | $460.0 | $420.7 | $1,774.9 | $1,724.1 |
| Operating Earnings (Loss): | ||||
| North American Furniture Solutions | $23.9 | $23.7 | $76.6 | $96.9 |
| Non-North American Furniture Solutions | 9.0 | 8.4 | 24.7 | 32.1 |
| Specialty and Consumer | 3.3 | 3.4 | 15.4 | 15.1 |
| Corporate | (0.5) | (5.7) | (1.9) | (6.5) |
| Total | $35.7 | $29.8 | $114.8 | $137.6 |
Herman Miller also noted the effects of the sequestration on its call and guided lower.
Herman Miller, Inc. (NASDAQ:MLHR) was named to Industry Week’s 50 Best US Manufacturers ahead of some tough mega cap competition like Chevron Corporation (NYSE:CVX) and Altria Group Inc (NYSE:MO). Herman Miller actually moved up from spot 29 in 2012 to 21 in 2013. The company also won overall Best of Competition at the 2013 NeoCon, the industry’s premier trade show. For socially responsible investors the company has been named one of Fortune’s Most Admired and Best Companies to Work For and a winner of several green and human rights awards.
