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Good evening, and welcome to Herman Miller's third quarter earnings conference call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kevin Veltman, Vice President of Investor Relations and Treasurer.
Good evening, everyone. Joining me today on our third quarter earnings call are Andi Owen, our President and Chief Executive Officer; Jeff Stutz, our Chief Financial Officer; and Greg Bylsma, our President of North America and Global Operations.
We have posted today's press release on our Investor Relations website at hermanmiller.com. Some of the figures that we'll cover today are presented on a non-GAAP basis. We've reconciled the GAAP and non-GAAP amounts in a supplemental file that can also be accessed on the website.
Before we begin our prepared remarks, I will remind everyone that this call will include forward-looking statements. For information on factors that could cause actual results to differ materially from these forward-looking statements, please refer to the earnings press release as well as our annual and quarterly SEC filings. Any forward-looking statements that we make today are based on assumptions as of this date, and we undertake no obligation to update these statements as a result of new information or future events.
At the conclusion of our prepared remarks, we will have a Q&A session. Today's call is scheduled for 60 minutes. With that, I'll turn the call over to Andi.
Good evening, everyone, and thank you for joining us. Since we spoke with you last quarter, uncertainty and associated market volatility have clearly accelerated as the coronavirus outbreak has spread across the globe. With that in mind, I'll begin our remarks today with our perspective on the current environment followed by an overview of our financial results for the quarter and an update on our strategic progress.
Before I turn it over to Jeff and Kevin for further information on our financial results, Greg Bylsma, who not only leads our North American contract business but also oversees our global manufacturing operations, will share more detail on how we're managing the coronavirus situation.
Moving to our perspective on the current environment. First and foremost, our hearts go out to the individuals and families around the world that have thus far been directly impacted by the coronavirus. Our top priority right now at Herman Miller is to keep our employees and communities safe and healthy, and we're taking every precaution to do so. As we manage our business through this fluid situation, we're focused on the factors that we can control. We're monitoring our global footprint around the clock and have developed detailed contingency plans.
Given the outbreak began in China and our third quarter results were most impacted in Asia Pacific, let me provide some background on our footprint there. The Asia Pacific region, which is served by manufacturing operations in Dongguan, China and Bidadi, India, represent approximately 8% of our consolidated sales. Across the globe, 10% to 11% of our goods sold are sourced from China.
As the number of new cases in this region of the world declined, our Dongguan manufacturing operations are nearly full capacity and our key players in China are producing and shipping products for all regions of the world. At the same time, we're proactively leveraging our team's efforts in China and applying that learning to our efforts to mitigate our exposure in North America and Europe.
Against this backdrop, the demand picture was mixed during the quarter. Sales in the period were 8% higher than last year as the consolidation of the HAY and naughtone brands contributed to reported growth. On an organic basis, sales were slightly below the same quarter last year. Our North America and retail businesses delivered modest organic sales growth, while shipments from our China facilities were unfavorably impacted by the broad-based government-mandated shutdown following the virus outbreak. Reported order levels this quarter were 6% higher than last year while 1% lower than last year on an organic basis.
Despite the relative softness we experienced on the top line, our teams did a great job managing costs, and we're very encouraged by the overall level of profitability we generated in the quarter. We continued to drive year-over-year gross margin improvement in our business. Favorable price realization, lower commodity costs and our profitability improvement efforts were the primary drivers of gross margin expansion over last year. As a result, we delivered another quarter of adjusted operating margin expansion with an increase of 110 basis points over the same quarter last year. Earnings per share on a GAAP basis were $0.64, while adjusted EPS, which excluded the impact of restructuring and other special charges, totaled $0.74 in the quarter. This reflected an increase of 16% over the same quarter last year.
In addition to delivering on our earnings commitment for the quarter, we drove positive momentum toward our strategic priorities. Let me share some of the highlights.
First, on the innovation front, we've leveraged our leadership in high-performance seating by establishing recent partnerships with the esports organization, Complexity Gaming; and Logitech, an industry leader in gaming gear. While these partnerships are in the early days, they represent an opportunity to bring our ergonomics expertise to the esports arena and highlight how our deep knowledge and research can be applied to new audiences in rapidly growing markets.
Creating digital solutions that are aimed at improving our customer experience is one of our top priorities. As part of that effort, we made significant progress on our journey to refresh our e-commerce platforms. New page designs for DWR.com have been completed as part of our plans to relaunch DWR.com in the first quarter of next year. We also launched a number of e-commerce improvements on our platforms in North America, including chat and video functionalities to communicate with our customer care teams and a next-generation financing option, which we've deployed on hermanmiller.com and hay.com. These new designs and functionality upgrades will result in a much-improved customer experience, which we believe will translate to higher conversion rates.
More broadly across our retail business, as we mentioned last quarter, Debbie Propst joined us in January to lead the business and she is hitting the ground running. She initially spent a lot of time listening and learning. She and her team are already developing a number of work streams around areas like brand marketing and merchandising assortments that will drive top and bottom line growth for the retail business. With her deep background in global retail brands, we're excited to have her on board and expect Debbie to join us on an upcoming call to share more about her progress.
I'd also like to call out one highlight from the quarter. One of the pillars for accelerating profitable growth in our retail business is joining with leading designers to launch higher-margin exclusive designs. Through our partnership with Egg Collective, a firm led by 3 award-winning female designers, the Emmy Sofa is already our top-selling sofa line since its launch in the second quarter of this year.
And finally, I'm pleased to report that our North American profitability improvement initiative continues to deliver benefits to our bottom line. We finished the quarter at a run rate of $44 million of benefit this quarter, which means we exceeded our goal of $20 million to $40 million in savings that we had established when we began this work 2 years ago. Our efforts around pricing analysis and strategic sourcing have been particularly meaningful to this effort, and we'll be leveraging our learnings and successes into other parts of our business.
While we remain confident in our plans for sustainable long-term growth for Herman Miller, given the rapidly changing environment surrounding coronavirus, we're not following our typical practice of providing quarterly guidance for the upcoming fourth quarter, given the difficulties of estimating near-term demand. Navigating the coronavirus situation will require flexibility, resilience and an ability to balance our long-term objectives with the challenges we face today. With that, let me turn the call over to Greg to provide an update on the impact of the coronavirus on our global operations.
Thanks, Andi. I would like to reiterate that our people and their safety and wellness are at the heart of our efforts around coronavirus. We have a significant number of initiatives in place right now across the organization. Within operations, some of the actions we have taken include increasing the frequency and scope of our facility cleaning, staggering break periods and increasing the time between shifts for manufacturing teams and changing the structure of our work to allow for social distancing in work cells. Additionally, we are providing health guidance to help our employees stay well and understand the symptoms to look for and, if they are not feeling well, encourage them to stay home, removing barriers they may face in making that choice.
As Andi mentioned, we felt the initial impact of the coronavirus situation this past quarter in the Asia Pacific region, driven by government-mandated delays returning from the Chinese New Year. Our factories in the Dongguan region were closed for an additional full week, which caused a delay in shipments, which reduced net sales in the period by an estimated $6 million for the International business segment. As workers have been returning over the past few weeks, our manufacturing operations and those of our key suppliers in the region are nearing full capacity, and we are working to catch up on the missed production. Our manufacturing facility in India has also been able to help meet a portion of the customer demand in the region.
As coronavirus has spread across our global markets, we have put in place contingency plans to ensure we support our customers, maintain the supply of critical product lines and address potential disruption at key suppliers. As this remains a fast-moving situation, we are meeting regularly to assess any new issues within our manufacturing or supply chains as well to ensure risk-mitigation plans are fully implemented.
And with that background on our response, I'll now turn the call over to Jeff to cover our financial details from the third quarter.
Thanks, Greg, and good evening, everyone. Consolidated net sales in the third quarter of $665.7 million were 8% above the same quarter last year on a reported basis and slightly below last year organically. Reported orders in the period of $652 million were 6% ahead of last year on a reported basis and 1% below the prior year on an organic basis.
Within our North American Contract segment, sales were $413 million in the quarter, representing an increase of 4% from last year on a GAAP basis and an organic improvement of nearly 3%. New orders of $406 million in the quarter were 4% higher than last year on a reported basis and up 2% organically. Order patterns in this segment reflected growth in larger project sizes, while small to medium project activity was lower. From a sector standpoint, we saw order growth in the U.S. federal government, health care and energy sectors, partially offset by lower demand in financial services.
Our International Contract segment reported a 24% increase in sales to $156 million in the third quarter. New orders of $159 million were 26% above the same quarter last year. Reported sales and orders reflect the impact of our recent step acquisitions of HAY and naughtone. Collectively, the consolidation of these entities contributed approximately $50 million of net sales to our results in the quarter. On an organic basis, which excludes the impact of these acquisitions, net sales and orders in the International segment decreased 10% and 7%, respectively, from the third quarter of last year.
The unfavorable impact from the mandated factory shutdown at our facilities in Dongguan, China reduced the International growth rate by approximately 5 percentage points in the quarter. In addition to this pressure, the International business faced particularly challenging sales growth comparisons for the quarter. In the same quarter last year, this segment of the business posted organic order growth of 24%. On a 2-year basis, organic sales growth has averaged 8.5%. Given the difficult comparison, organic order declines were fairly broad-based, except for higher order levels in Japan and Mainland Europe during the period.
Our retail business segment reported sales in the quarter of $96 million, which were flat compared to the same quarter last year. New orders for the period of $86 million were down 9% on a year-over-year basis. It's important to clarify that this comparison to last year was significantly impacted by a timing difference in our retail promotion calendar. Specifically, the timing of our Herman Miller product sale was shifted this year, and as a result, our third quarter included 6 fewer days than it did a year ago. Normalizing for this timing difference, we estimate orders this quarter would have been approximately 1% lower than the same quarter last year.
Consolidated gross margin in the quarter was 36.5% and includes certain adjustments related to the initial purchase accounting of HAY. Excluding these items, adjusted gross margin of 36.8% was 110 basis points higher than last year. Favorable price realization, lower steel costs and our ongoing profit improvement efforts all contributed to gross margin expansion.
Operating expenses in the third quarter of $189 million compared to $173 million in the same quarter a year ago. The current quarter included $5 million of special charges primarily related to transaction expenses and purchase accounting adjustments associated with HAY and naughtone. By comparison, we recorded special charges totaling $0.5 million in the third quarter of last fiscal year. Exclusive of these items, the year-over-year increase in operating expenses of $12 million resulted mainly from the impact of consolidating HAY and naughtone.
Restructuring charges in the third quarter totaled $3.5 million and related to actions associated with our profit improvement initiatives.
On a GAAP basis, we reported operating earnings of $50 million this quarter compared to operating earnings of $48 million in the year-ago period. Excluding restructuring and other special charges, adjusted operating earnings this quarter were $60 million or 9% of sales. And by comparison, we reported adjusted operating income of $49 million or 7.9% of sales in the third quarter of last year. The effective tax rate in the third quarter was 22.4%.
And finally, net earnings in the third quarter totaled $38 million or $0.64 per share on a diluted basis compared to $39 million or $0.66 per share in the same quarter last year. On an adjusted basis, earnings per share this quarter totaled $0.74 compared to an adjusted earnings of $0.64 per share last year.
With that, I'll turn the call over to Kevin, who will give us an update on our cash flow and balance sheet.
Thanks, Jeff. We ended the quarter with total cash and cash equivalents of $111 million, which was $66 million lower than the cash on hand last quarter, primarily related to the $79 million investment in HAY at the beginning of the quarter. Cash flows from operations in the third quarter were $49 million, reflecting an increase of 26% over the same quarter of last year. Lower working capital was the key driver of higher operating cash flows primarily due to decreased inventory and prepaid expense levels. Capital expenditures were $18 million in the quarter. Cash dividends paid in the quarter were $12 million, while shares repurchased totaled $18 million for the quarter.
We remain in compliance with all debt covenants, and as of quarter end, our gross debt-to-EBITDA ratio was approximately 0.9:1. The available capacity on our bank credit facility stood at $266 million at the end of the quarter. Given our current cash balance, ongoing cash flow from operations and total borrowing capacity, we remain well positioned to weather the near-term market volatility and meet the financing needs of the business moving forward.
With that, I'll turn the call back over to Jeff.
Okay. Thank you, Kevin. As Andi mentioned, the rapidly changing situation surrounding global mitigation efforts around COVID-19 make it too difficult to estimate the near-term impact on our business. As such, we're not following our typical practice of offering sales and earnings guidance for the fourth quarter. But with that being said, there are a few data points that we can share.
To begin, we entered the fourth quarter with a consolidated backlog of $411 million, which is up approximately 3% from last year. As a general rule, our backlog typically represents approximately 6 weeks of shipments as we head into a new reporting period.
To provide a sense of current activity levels, through the first 2 weeks of the fourth quarter, our consolidated sales were up approximately 6% from last year, while new orders were down closer to 3%.
To date, we have received minimal requests from customers and dealers to adjust the timing of scheduled shipments both in the U.S. and abroad, though we would expect this to increase. However, we have not, to date, experienced any meaningful order cancellations and would expect to ship the majority of our backlog within the fourth quarter. So with that additional commentary, I'll now turn the call back over to the operator, and we'll take your questions.
[Operator Instructions] Our first question comes from Reuben Garner with The Benchmark Company.
So maybe we can start. It's been a while since we've had an environment like this. Can you remind us how to think about decremental margins, I guess, just on the core business before any actions you take if we were to enter a period of softening volume growth?
Yes. Reuben, this is Jeff. I'll take a stab. And I think -- I'd emphasize this is -- I don't know if we've seen an environment like this, but what we do have is a lot of experience dealing with recessionary periods going back in our history. So we do know a thing or 2 about how to manage our way into a down period. So based on -- let me start with -- now you emphasized before actions. That's key. Our business, we've always said in short burst, kind of can lever up and lever down on incremental revenue changes in small time increments, somewhere between 20% and 30% at a -- in a contribution margin perspective, maybe even a little higher in short burst of time.
But we had, in the last 20 years, 2 significant downturns, both times taking bold action around cost reductions. And we've built a cost structure as a business that is naturally as variable as we can make it. And so that level of deleveraging is not what we experienced in the last couple of downturns. So I'll go back to the last recession is probably my best reference point. I'm not suggesting that if things are going to play out the exact same way, but it's probably the best reference I can give you. And as a general rule, with a 10% movement in revenue, we saw operating margins move somewhere between 175 and 200 basis points, so as a general rule. So if it moves 10%, if it moves 20%, it would be kind of 2x that and so on.
Jeff, that's very helpful. And then -- so you've got a lot of profit-improvement initiatives going on right now. Is -- are there any risks or at this point that you can see that those might have to be put off, just given this is an environment that we've never dealt with before? I mean I'm assuming there could be some interruptions. What -- how we think about the savings that you're anticipated to get this year in an environment when you might have temporary closures?
I think, Rueben -- this is Andi. I think we've built a lot of muscle around optimization efficiencies by going through this process, and I would anticipate we would continue to do that. If anything, I think what we've learned in going through this process will help us if we anticipate a downturn, how we prepare for that, but we'll do that.
Yes. And this is Jeff, Reuben. I think as you look at the individual actions we've taken -- by the way, Greg's with us today on the call, and he's -- he was front and center on a lot of the work here in North America. So he might add some thoughts, too. The one thing I would say, and to be balanced about this is, in past downturns, what you find when volume levels drop off, the impact around price discounting has been a factor historically. Now this -- we certainly have not seen that. We had good margin flow-through this last quarter as we have for the entire past 12 months. So I make no predictions. But that is the one thing. But we've done a lot of work around price increases and so forth. We'll have to see how that plays out. Greg, I don't know if you'd add anything.
Oh, I would just maybe add on to Andi's comment about the muscle. While it started out as a project, it turned into the way we were and the way we do things. So I don't necessarily expect to do anything that would say, "Oh, that's going to get in front of or in the way of what we've been doing profit improvement-wise."
Got it. And then last one for me, and I hate to harp on it. Just given the environment, how do we think about cash flow? What are the puts and takes? And you guys, obviously, have a strong balance sheet. How do you think about -- assuming you continue to generate positive cash flow-through this period, how do you think about uses of cash versus building it up on the balance sheet?
Yes. Thanks, Reuben. I'll give you a few thoughts on this. So as you can imagine, and I don't know that I'm going to directly get to puts and takes by category. You can imagine right now, we are actively looking at a range of scenarios. In the early part of a recessionary period historically, we tend to see a fair amount of cash inflow, just given the nature of how our terms are structured as a business.
So we do have at least a couple of data points historically to kind of build that as an expectation. But in a down period, we're looking at everything from how do we potentially pull back on near-term capital spending but, of course, balancing the need to fund the strategic investments that we've been talking about for the last year or so, which we think are super important in building some new capabilities that we're a long ways down the path towards. So that, we're going to try to protect and try to tighten our belt where we can. We've got lots of scenario modeling that is currently happening, and we've got a good amount of cash on the balance sheet. And as Kevin mentioned in his prepared remarks, I think it's worth pointing out, we do have a little over $110 million worth of cash on hand. We've got lots of borrowing capacity on our line of credit which we upsized a year ago -- or thereabouts a year ago. We've got a fairly low leverage ratio. It's just under 1 turn and a net debt position of $164 million. So we feel as well positioned to go into a challenging period as we probably ever have.
And as evidence of that, I'd point maybe to the last -- as we entered the credit crisis, we had a leverage ratio that was over 1 -- sorry, it was about 1.3x going into the downturn, and we had a significantly underfunded U.S. pension plan. And we managed our way through that, and that leverage ratio never got above 3 turns. So again, no one's predicting. You're certainly not going to get a prediction from us as to what this means in the near term, but I think we are well positioned to manage our way through it and protect the critical investments that we need to come out of on the other side.
[Operator Instructions] Our next question comes from Greg Burns with Sidoti & Company.
I guess what's a little different this time around is the retail operations. Maybe talk about how that business performs through recession, the history of that, maybe how that impacts this time around.
Greg, this is Jeff. A little bit difficult to answer. I can give you some perspective and it's historically based, and so I qualify it with that. We can say that our retail business, given the price points that our business is focused on -- now that's changed a little bit with HAY, which I think is a good thing. But given the higher price points that our products are -- tend to be at, in the last downturn, we found that, that business levered down about half as much as the contract space. So we felt that, and at least it proved out then that it was much less impacted. Clearly, it was still down, but it moderated the overall -- had we owned it then, it would have moderated the overall decline that we felt as a consolidated group. That's about all I can offer you. Again, all of what I described on the scenario planning, you can be sure we are including our retail segment in that work as well, and there's folks that are heavily focused on that right now. And I don't know if you'd add anything.
Yes. And I would add to that, Greg, as we look at the assortment additions that Debbie and her team are making, the addition of HAY and the price point there, the fact that we have an online presence that we didn't have in the last recession, I think those things are things. And certainly, the way we've updated and are looking at our digital platform, the way we've introduced ways for our customers to have virtual appointments versus in-person appointments, I think those things set us up to be in a little bit better position than perhaps we were in the last downturn. Having said that, I know it's an unprecedented time, but that would be my input.
Okay. And are all your stores currently open? Have you closed anything?
Yes. So let me take a step back and talk a little bit about the selling process at DWR because it's really not like typical retail stores. So most of our sales are driven by clienteling and relationship selling through our account executives, and a good portion of that is trade, interior designers, architects. So we're bringing in a lot of business. Our business is much less dependent on walk-in traffic. So obviously, where we've had issues, where governments have mandated shutdowns, such as in the Bay Area in California, New Jersey where we have curfews, we have shut stores. And the remainder of our stores, we've gone to a virtual appointment-only model. So essentially, while we're close to public walk-ins, our account executives are available. As I mentioned before, we have a platform where people online can actually connect with an associate in the store. So we anticipate we'll see a drop in sales, but we don't anticipate we'll see a drop as others might that have actually closed stores that don't have the same selling model as we do.
Now from a HAY perspective, because it's much more transaction-based, we have closed those stores. But we have so few of them right now that we don't expect a major impact from that.
Okay. Great. And then you gave some color on, I guess, what you're seeing early in the quarter, and it seemed like in the first couple of weeks, there was really too much of a change. But it really -- I mean everything's kind of really accelerated this last week or so. Have you seen any shift in demand order patterns? Anything just in the last week? Or is it too early to say? I know you're not quantifying things, but maybe just qualitatively, have you seen a step change in the business over the last week or so?
Surprisingly, no. And if I look at our retail business, I think we're surprised to see what we have continued to see in the trends. Having said that, it's anybody's guess, and I think we all expect that we will see a change. But I can sit here today and tell you, in the contract side of the business, the retail side of the business, we haven't had cancellations. We haven't seen a dramatic drop in our day to day. So we are planning -- as Jeff mentioned earlier, we're planning for all of those things. But as of right now, no.
I don't know, maybe the last time around the '08/'09 financial crisis, was there a lead time? Like what was the experience back then in terms of how the business got impacted by what was going on in the economy? What was -- was it like 1 or 2 quarters delay on [ that ] side or what was the experience?
Greg, this is Greg. And I'll try to -- having had that memory come back to me very -- a lot lately. Let me see if I can maybe provide some color. So the first thing that we saw back in the late '08, early '09 calendar time frame was a drop-off in -- what we call day-to-day business, which I'll define as orders less than $100,000.
That -- at the time, as you remember, as volatility increased and the market declined, that -- we seemed to get that pretty quick. And so by kind of October-November time frame back in '08, you started to see that. What you also tend to have is people who are committed to a project either through a new lease or through new construction, the most larger projects tend to stay longer because people have decided to move and they really have no choice but to complete the project both if you are just the landlord and/or the tenant. So the thing that I watch every day as we're going through this is the day to day, and as Andi said, that seems to be pretty strong still. You're actually getting -- in some cases, on the health care side, you're getting people who are saying, "Can you hurry up? We have demand that maybe we didn't have 3 or 4 weeks ago." So while that's albeit a relatively small part of the contract business, probably 15%, it is an interesting dynamic given all that's going on. So the day to day is what we watch. I think that's the big indicator. I think you're going to see, like Jeff talked about the backlog, the backlog is the backlog. But I would imagine that you'll see the people who are committed and will remain committed. And the question is how long this goes and what happens and to people who have projects that maybe they were thinking about, planning about, that are farther out, maybe fall or winter of '20.
Yes. And I would add that as well with a large number of folks that are working from home, I think we've seen a sudden realization that maybe people are not set up to work from home as well as they thought they might be. So we have seen an increase in demand and products that are related to remote working as well.
Okay. Is there anyone else in the queue? I'll hop in or I'll keep on going, if not.
Go ahead.
Go ahead.
You can go ahead, Greg, yes.
Okay. All right. So maybe another one about like a historical perspective, just going into this downturn, the industry was kind of this -- a slow recovery. You never had this kind of frothy excess. It didn't seem like, maybe last time -- was that not the case maybe in '08/'09 or even in 2000? Do you have more of a overcapacity buildup in the industry where you would have a steeper decline than maybe what you would see this time around? Like what is the overall market look like in terms of this time going in versus last time?
Yes. This is Jeff, Greg. Maybe just a couple of points that I would make. It's a little difficult for me to -- again, look, predicting the next several months is hard, but -- it's impossible actually. But let me describe one factor that we did -- I would start by agreeing with you that the entire recovery has been perhaps not as frothy, to use your word, as we would have liked. But it's been relatively steady if you trended over the 10 years or so that we've been in. But in the early part of the recovery, what we felt coming out of the credit crisis was, if you recall, landlords were desperate to fill their spaces because there was a lot of capacity. Rent levels came down. And what we found in those early days, and I remember being on the road, Greg, with you and a lot of investor meetings that we would hear, "Yes, we just moved out of our space across town. We moved into these offices. We move maybe from 3 floors down to 2 floors, but we got a killer deal on the space when we bought new furniture." That kind of behavior drove a lot of demand in the early part of the recovery. I don't know that those same factors will come together this time around. So I'll make no predictions, but that was one of the reasons for the big snapback. The other thing that I'd point out is the ramp-up of Fed government spend. I want to say for many, many years, Herman Miller ran somewhere between 8% and 10% of revenue was kind of GSA or federal government related. And then coming into that part of the recovery, probably because the base business dropped off, that percentage of revenue for the business related to federal government spiked. And I think it got as high for our businesses 14% in that -- in -- I forget the year, but it was in those early years of the recovery. So those are just a few things that we observed and saw.
The last go around -- the Fed government comment is probably worth noting only because those projects tend to stick around even if the -- oftentimes even if the broader economy softens. So I'll stop talk -- I'll stop blabbing.
Our next question comes from Steven Ramsey with Thompson Research.
Thinking about North America sales and orders up slight year-over-year. I know down -- and orders down sequentially. But the order level of $400 million really isn't that bad considering the uncertainty out there. I mean, I guess, does this surprise you? Or is there internally what's going on to kind of -- that are working well or just surprising, given the uncertainty out there?
Greg, you want to take that one?
I would say that the quarter performance actually isn't really a surprise. It was actually kind of -- when I make my team do kind of roll out the forecast, we're pretty much within a couple of million dollars. And when you look at orders, we're kind of spot on. We had a little bit of scheduling variation which tends to have us -- and causing us to predict revenue that wasn't exactly as we anticipated, but orders were almost exactly where we thought. I guess like everybody else, you watch the news. I mean we watch the news too much, and you expect things to happen more quickly than they have. But I would say that I'm pleased in -- with the order performance so far this quarter. But I think that I looked to the team, I looked to the folks that run sales, not only at the top, but in the regions, and I don't think we've ever had as strong a team as we have right now. And I think that they're coalesced under a leader who has a plan and a process, and I think that's making a difference for us.
Great. And then thinking about no quarterly guidance, I guess just given the visibility from the backlog impact for the first half of the quarter and minimal order cancellations, what is making you hold off exactly on the guidance that there is less visibility beyond maybe the 6 weeks or any other specific factors?
I think the biggest specific factor is really the unknown around how this virus will impact the U.S. and watching what's happened in China and Europe. And I think we'll learn a lot in the next couple of weeks, but I think it's really anyone's guess to know what could happen. Will we flatten the curve? Won't we flatten the curve? And I think it could push you in a really difficult position. Jeff, what would you add to that?
Yes. No, I think it's just this unprecedented uncertainty around. As Greg described, you see that day-to-day business change, and it can happen quickly. And with what seems to be this escalating situations hour by hour almost over the past several days, we just felt it was more transparent to just simply tell you that -- here's the data that we see, but we just don't feel comfortable making a guided range at this point in time.
Great. And I guess does the recent, bring in HAY and then kind of combined with the recent uncertainty, does this delay the journey to the operating margins in the retail segment that you have outlined in the past? Or I mean just any factors, kind of thinking long term on retail profit margins?
Steven, this is Jeff. I guess given -- I want to be careful how I answer this because we don't know the extent to which this is going to impact us. I would say, yes, we believe there's likely a delay in what we described simply because we expect some dislocation in our industry -- across many industries at least in the short run.
In the world.
Yes, around the world. Since our revenue exposure is 100% to planet earth, we expect that's going to -- and I'm not trying to be flippant, but it's just that scale of uncertainty. So it's likely we will feel some delay. We hope that we're wrong. And I've heard lots of commentaries, yes, I'm sure you have, around the potential for a quick snapback. Once we get to the other side of this thing and we understand just how disruptive it is. So I think the honest answer is, likely some delay. I think long term -- and Andi, please -- I mean, we are bullish on the long-term strategy. And I think Andi highlighted some of the most exciting parts of the business that we're working on right now, that we're really going to work to protect the strategic investments around, and that's building out some of these digital capabilities that we're long way down the path on. And we think those make us so much stronger to compete once they're in place. And if we can make sure those are in place on the other side of this, we're going to be very well positioned.
Thank you. I am not showing any further questions at this time. I would now like to turn the call back over to Andi Owen for closing remarks.
Thank you, guys, for joining us on the call today. We really appreciate your continued interest in Herman Miller, and we really look forward to next quarter, updating you again. And in the meantime, I hope that all of you will please join us in keeping your communities safe and staying healthy. Thanks a lot.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.