Commercial Interiors Dealer Survey: September 2021

For important disclosures, see 4

Home & Office Construction

October 7, 2021

Commercial Interiors Dealer Survey: September 2021

► In September, our Commercial Interiors Dealer Optimism Confidence (DOC) Index tallied its ninth consecutive month above 50 (DOC and its underlying components are formed into diffusion indices, where a score of 50 indicates no change from the prior month, a score >50 indicates an improvement, and a score of <50 indicates a decrease from the prior month). September’s reading of 58.4 was largely consistent with the reading in the prior month and still indicates strengthening confidence in the market. The recovery remains broad-based, with all survey regions recording an eighth consecutive month above our baseline. Not surprisingly, the integration of MillerKnoll’s distribution was brought up again in commentary, while supply chain disruptions and elongated lead times were the most commonly cited headwind facing the industry. This survey is applicable to trends for Herman Miller (MLHR), HNI Corp. (HNI), and Steelcase (SCS).

► Survey goal and timing. The goal of the survey is to offer investors, manufacturers, and dealers a more real-time view of the marketplace. We intend to continue publishing the survey on the fifth business day of each month.

► Key takeaways from September’s Survey of Commercial & Institutional Furniture Dealers (SCIFD):

DOC continues to show sequential improvement (Figures 1-4). The headline Dealer Optimism Confidence print (Figure 1) – which incorporates current demand (Figure 2), economic conditions (Figure 3), and future demand expectations (Figure 4)—again remains above our ‘baseline’ of 50 in June with a reading of 58.4, a slight decline from August’s 58.5.

Business tied to new construction remains largely unchanged, while cancellations remain in flux (Figures 5-6). Respondents indicated business tied to new construction was largely unchanged (>60%), while the level of cancellations continued to improve — with ~80% of those surveyed indicating cancellations have either lessened or remained flat.

COVID-19 driven projects still relatively small but the best since February (Figures 7-8). While just 29% of respondents indicated >25% of demand came from COVID-related projects, this accounts for the highest level since Feb-21. Top areas of discussion with clients include workplace density, supporting work collaboration, and working from home. Notably, the additions of screens and barriers has regained momentum.

COVID-19’s Long-term business impact (Figure 9) still mixed. August saw little change in the long-term outlook to the business from COVID-19, with consensus still split on the overall headwind/benefit from COVID’s societal shift.

Biggest opportunities/headwinds (Figure 10). Roughly 23% of comments we received were viewed as “positive”, ~58% were viewed as “negative”, and ~19% were viewed as “NA/Neutral”. Leading ‘buzzwords’ included: supply chain/lead times (the most cited topic once again, with most “negatively” impacting their business), employment issues, and new projects/opportunities (predominantly relating to healthcare and education sectors). Notable “other” commentary included references to industry consolidation, market structure, and material inflation.

Reuben Garner, CFA (703) 472-7473 [email protected]


October 7, 2021

Dealer Optimism Composite (DOC) Index

Figure 1: Dealer optimism tallied its ninth month above our index baseline with a reading of 58.4.

32.5

41.3

52.1

42.944.6

51.2

47.5

47.2

50.8

56.4

61.5

67.0

71.8

70.7

68.6

65.4

58.558.4

0

10

20

30

40

50

60

70

80

Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21

Northeast Southeast Midwest Southwest West Canada All NA Dealers

Index Baseline: a score of 50 indicates no change from prior

month; <50 indicates a decrease; >50 indicates an increase.

Source: The Benchmark Company, LLC


October 7, 2021

Current Demand Conditions

Figure 2: How Would You Rate Your Current Demand Conditions Versus One Month Ago?

18.1

34.0

50.9

43.543.9

48.848.1

44.646.9

44.3

56.0

60.5

69.4 67.7

65.1

60.658.1

56.0

-

10

20

30

40

50

60

70

80

90

100

0%

10%

20%

30%

40%

50%

60%

70%

80%

Substantially Worse Moderately Worse Same

Moderately Better Substantially Better Current Demand Index


month; <50 indicates a decrease; >50 indicates

an increase.



October 7, 2021

Current Economic Conditions

Figure 3: How Would You Rate Your Current Demand Conditions Versus One Month Ago?

11.7

29.7

51.5

39.2

45.8

51.9

44.2

42.9

47.3

45.7

54.6

62.5

66.765.1

65.1

55.352.3

52.5

-

10

20

30

40

50

60

70

80

90

100

0%

10%

20%

30%

40%

50%

60%

70%

80%


Moderately Better Substantially Better Economic Conditions Index


month; <50 indicates a decrease; >50 indicates an

increase.



October 7, 2021

Future Demand Conditions

Figure 4: How Would You Rate Your Expectations for Demand Trends in Six Months?

50.0 50.953.0

44.4

44.3

51.948.8

50.7

54.5

67.967.7

72.5

75.6 75.072.1

72.9

61.862.6

-

10

20

30

40

50

60

70

80

90

100

0%

10%

20%

30%

40%

50%

60%

70%

80%


Moderately Better Substantially Better Demand Expectations Index


month; <50 indicates a decrease; >50 indicates an increase.



October 7, 2021

Business Tied to New Construction

Figure 5: Relative to Three Months Ago, How Much of Your Business Would You Estimate is Tied to the Construction of a New Building?

0%

10%

20%

30%

40%

50%

60%

70%

80%

Substantially Less Moderately Less Same Moderately More Substantially More



October 7, 2021

Current Project Cancellations

Figure 6: To What Degree Have You Experienced Customer Project Cancellations Over the Past Month Versus Typical?

0%

10%

20%

30%

40%

50%

60%

70%

Substantially Less Moderately Less The Same Moderately More Substantially More



October 7, 2021

COVID-Related Office Modification Projects

Figure 7: How Much of Your Demand Over the Past Month Do You Estimate Has Been Related to Customers Modifying Their Office Due to Pandemic Related Concerns?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Less than 25% 25%-50% 51%-75% More than 75%



October 7, 2021

Pandemic-Related Discussion with Clients

Figure 8: Which of the Following Are You Currently Discussing with Your Customers as it Pertains to Pandemic Related Concerns?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

The density of people in the workspace The addition of screens or barriers

Shift work (or adjusted hours) for office employees Cleaning protocols

Working from home Supporting collaboration with more remote participants

Other

Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21



October 7, 2021

Long-Term Pandemic Impact on Business

Figure 9: Over the Next 1-3 years, I Believe the Impact of the Coronavirus Pandemic Will Result in…

0%

10%

20%

30%

40%

50%

60%

70%

80%

Substantially Less Business For Me Moderately Less Business For Me No Change In My Business

Moderately More Business For Me Substantially More Business For Me



October 7, 2021

Headwinds/Opportunities Outside of Coronavirus

Figure 10: Outside of the Coronavirus, what are the Biggest Headwinds/Opportunities for Your Business?

50%

95%

12%

8%

23%

25%

9%

54%

2%

19%

25%

5%

79%

38%

98%

58%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Return to Office (11%)

New Projects/Opportunities (14%)

Employment (22%)

Other (25%)

Supply Chain/Lead Times (28%)

Total Responses

Positive Neutral Negative



October 7, 2021

Geographical Mix of Respondents

Figure 11: Where is your business located?

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Northeast Southeast Midwest Southwest West Eastern Canada Western Canada



October 7, 2021

Geographical Mix of Respondents

Figure 12: Regional definitions.


Home & Office Construction October 7, 2021

Important Disclosures Analyst Certification

The Benchmark Company , LLC (“Benchmark”) analyst(s) whose name(s) appears on the front page of this research report certifies that the recommendations and opinions expressed herein accurately reflect the research analyst's personal views about any and all of the subject securities or issues discussed herein. Furthermore, no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst(s) in this research report.

Equity Research Ratings System

Firm-Wide Stock Ratings Distribution

As of September 30, 2021

All Covered Companies

Investment Banking Clients

Buy 252 84% 75 25% Hold 44 15% 1 0% Sell 3 1% 0 0%

Company Ratings

Buy: Stock is expected to outperform the analyst’s defined Sector/Industry Index* over the following 6 to 12 months.

Hold: Stock is expected to perform in-line with the analyst’s defined Sector/Industry Index* over the following 6 to 12 months.

Sell: Stock is expected to underperform the analyst’s defined Sector/Industry Index* over the following 6 to 12 months.

Industry Ratings

Overweight: Analyst’s defined Sector/Industry Index* is expected to outperform the S&P 500 over the following 6 to 12 months.

Market Weight: Analyst’s defined Sector/Industry Index* is expected to perform in-line with the S&P 500 over the following 6 to 12 months.

Underweight: Analyst’s defined Sector/Industry Index* is expected to underperform the S&P 500 over the following 6 to 12 months.

Benchmark Disclosures as of October 7, 2021

Company Disclosure

Herman Miller, Inc.

HNI Corporation

Steelcase, Inc.

Research Disclosure Legend

1. In the past 12 months, Benchmark and its affiliates have received compensation for investment banking services from the subject company.

2. In the past 12 months, Benchmark and its affiliates have managed or co-managed a public offering of securities for the subject company.

3. Benchmark and its affiliates expect to receive or intend to seek compensation for investment banking services from the subject company in the next three months.

4. The research analyst, a member of the research analyst’s household, any associate of the research analyst, or any individual directly involved in the preparation of this report has a long position in the shares or derivatives of the subject company.

5. The research analyst, a member of the research analyst’s household, any associate of the research analyst, or any individual directly involved in preparation of this report has a short position in the shares or derivatives of this subject company.

6. A member of the research analyst’s household serves as an officer, director or advisory board member of the subject company.

7. As of the month end immediately preceding the date of publication of this report, or the prior month end if publication is within 10 days following a month end, Benchmark and its affiliates, in the aggregate, beneficially owned 1% or more of any class of equity securities of the subject company.

8. A partner, director, officer, employee or agent of Benchmark, or a member of his/her household, is an officer, director or advisor, board member of the subject company and/or one of its subsidiaries.

9. Benchmark makes a market in the securities of the subject company.

10. In the past 12 months, Benchmark, its partners, affiliates, officers or

directors, or any analyst involved in the preparation of this report,

has provided non-investment banking securities-related services to the subject company for remuneration.

11. In the past 12 months, Benchmark, its partners, affiliates, officers or

directors, or any analyst involved in the preparation of this report,

has provided non-securities related services to the subject company for remuneration.


Investment Risk

We believe the principal risks to investing in HMI include further economic or geopolitical shocks that would negatively affect factors such as corporate profit growth, consumer and/or business confidence, employment growth, nonresidential and/or residential construction and business spending. Risk factors specific to our earnings forecast and potential valuation multiples include the following rising raw material costs and/ or the inability to pass through pricing could negatively impact the company’s margins. In addition, foreign exchange rates moving against the Company (e.g., a strengthening US dollar) could negatively impact top line results. An increasing labor cost environment could also hurt margins. Also, innovation is a large component of MLHR's growth profile and if new products are not well received by the market, the Firm could struggle to grow at its targeted growth rate.

We believe the principal risks to investing in SCS include further economic or geopolitical shocks that would negatively affect factors such as corporate profit growth, business confidence, employment growth, nonresidential construction, and business spending, among others. Risk factors specific to our earnings forecast, and potential valuation multiples include the following: rising raw material costs and/or the inability to passthrough price increases could negatively impact the company's margins, changing foreign exchange rates (e.g., a strengthening US dollar)could negatively impact the company's results, rising labor cost environments, in our view, could also negatively impact margins, and lastly, a muted acceptance of the company's new products in both core and new vertical markets could result in the company growing at a slower rate than expected.

There are several risks associated with investing in HNI. Any macro weakness, including construction spending, corporate profit and/or corporate capital spending softness, single-family housing softness, lower energy prices and warmer temperatures could cause results to fall short of our expectations. Other risk factors specific to our earnings forecast, and potential valuation multiples include the following: rising raw material costs and/or the inability to passthrough price increases could negatively impact the company's margins, rising labor cost environments, in our view, could also negatively impact margins.

Valuation Methodology

Our $55 price target for MLHR assumes the current multiple expands of just below 10x holds constant in twelve months.

With numbers adjusted (we believe) for steel inflation and delayed recovery in orders (vs. pre-F4Q report), SCS trades at~11x FFQ EV/EBITDA. Our price target allows this multiple to compress to ~10x our FY23 EBITDA estimate. The current Quintuple is actually a couple turns below where Steelcase traded in the early days of the previous recovery (mid-2009).

Our $49 price target for HNI assumes the current EV/EBITDA multiple moves to 9x, although at this point in the cycle, we could see it receiving a multiple in the low-double-digits

Price Charts

Benchmark’s disclosure price charts are updated within the first fifteen days of each new calendar quarter per FINRA regulations. Price charts for companies initiated upon in the current quarter, and rating and target price changes occurring in the current quarter, will not be displayed until the following quarter. Additional information on recommended securities is available on request.

General Disclosures

This publication does not constitute an offer or solicitation of any transaction in any securities referred to herein. Ratings that use the “Speculative” risk qualifier are considered higher-risk. Any recommendation contained herein may not be suitable for all investors.

The Benchmark Company, LLC makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when information in this report changes apart from when we intend to discontinue research coverage of a subject company.


Although the information contained in the subject report has been obtained from sources we believe to be reliable, its accuracy and completeness cannot be guaranteed.

This publication and any recommendation contained herein speak only as of the date hereof and are subject to change without notice. The Benchmark Company, LLC and its affiliated companies and employees shall have no obligation to update or amend any information herein.

This publication is being furnished to you for informational purposes only and on the condition that it will not form a primary basis for any investment decision. Each investor must make its own determination of the appropriateness of an investment in any securities referred to herein based on the legal, tax and accounting considerations applicable to such investor and its own investment strategy. By virtue of this publication, none of The Benchmark Company, LLC or any of its employees shall be responsible for any investment decision.

This report may discuss numerous securities, some of which may not be qualified for sale in certain states and may therefore not be offered to investors in such states.

The “Recent Price” stated on the cover page reflects the nearest closing price prior to the date of publication.

For additional disclosure information regarding the companies in this report, please contact The Benchmark Company, LLC, 150 East 58th Street, New York, NY 10155, 212-312-6770.

The Benchmark Company, LLC is not in any way affiliated with or endorsed by the Menlo Park, California venture capital firm Benchmark Capital.

This report may not be reproduced, distributed, or published without the prior consent of The Benchmark Company, LLC. Copyright © 2021. All rights reserved by The Benchmark Company, LLC.

Commercial Interiors Dealer Survey: September 2021

Documents

Transcript of Commercial Interiors Dealer Survey: September 2021