8-K: MillerKnoll Reports Improved Margins and Order Growth in Fiscal 2024 Fourth Quarter

MillerKnoll's fourth quarter results show improved gross margins and order growth, driven by strategic initiatives and cost synergies.

Summary

• MillerKnoll reported its financial results for the fourth quarter and full fiscal year 2024, which ended on June 1, 2024.
• Fourth quarter orders increased by 1.1% on a reported basis and 2.9% organically year-over-year.
• Gross margin improved significantly, with a 250 basis point increase in the fourth quarter and a 410 basis point increase for the full year.
• The company achieved its $160 million annualized run-rate cost synergy target related to the Knoll integration.
• Full year GAAP diluted earnings per share improved by 101.8%, while adjusted diluted earnings per share increased by 12.4% compared to the prior year.
• Net sales for the fourth quarter were $888.9 million, a decrease of 7.1% year-over-year, but orders reached $933.0 million.
• The company's liquidity position included $552.7 million in cash and available credit as of June 1, 2024.
• MillerKnoll repurchased approximately 1.4 million shares for $37.3 million during the quarter.
• The net debt-to-EBITDA ratio was 2.63x at the end of the fourth quarter.
• For fiscal year 2024, net sales were $3.6 billion, a decrease of 11.2% year-over-year, but gross and operating margins improved.
• The company expects net sales to be above fiscal year 2024 and adjusted diluted earnings per share to be in the range of $2.10 to $2.30 for fiscal year 2025.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong improvements in margins and earnings, although sales are down. The company's strategic initiatives and cost synergies are paying off, but there are still challenges in the retail sector and some risks to consider.

Positives

• Order growth returned in the Americas Contract segment, indicating improving demand.
• The company successfully drove margin expansion through price and channel optimization, cost synergies, and reduced freight costs.
• Operating expenses decreased due to lower variable selling expenses and synergy savings.
• The company is investing in showrooms, digital platforms, and tools to support its contract business.
• The company is optimizing its product assortment and testing new store formats to improve the retail business.
• The International Contract and Specialty segment showed strong performance in several regions, including India, the Middle East, China, and Korea.
• The Global Retail segment improved operational efficiencies in North American distribution centers.
• The company generated $78.4 million of cash flow from operations during the fourth quarter.
• The company is optimistic about fiscal year 2025 due to increased activity in the contract space and easing trends in home sales.

Negatives

• Net sales decreased by 7.1% in the fourth quarter and 11.2% for the full year.
• The Americas Contract segment experienced a 12.2% decrease in net sales for the quarter.
• The Global Retail segment saw a 7.2% decrease in net sales for the quarter.
• The company recorded special charges of $22.1 million associated with restructuring measures.
• The company recognized non-cash, pre-tax charges of $16.8 million related to the impairment of the Knoll and Muuto trade names.
• The International Contract and Specialty segment experienced lower demand patterns in the Specialty businesses.
• The company's retail business continues to navigate tough conditions in the short-term.

Risks

• The company faces risks related to general economic conditions and government policies.
• The company is exposed to risks related to public health crises.
• The company has risks related to the debt incurred in connection with the Knoll acquisition.
• The company faces risks related to the integration of Knoll's operations.
• The company is exposed to risks related to the availability and pricing of raw materials.
• The company faces risks related to the financial strength of its dealers and customers.
• The company is exposed to risks related to the success of newly introduced products.
• The company faces risks related to the pace and level of government procurement.
• The company is exposed to risks related to pending litigation or governmental audits or investigations.

Future Outlook

The company expects net sales to be above fiscal year 2024 and adjusted diluted earnings per share to be in the range of $2.10 to $2.30 for fiscal year 2025. For the first quarter of fiscal year 2025, the company expects net sales of $872.0 million to $912.0 million and adjusted diluted earnings to be between $0.38 to $0.44 per share.

Management Comments

• MillerKnoll finished fiscal year 2024 strong with significant year-over-year earnings per share growth in the fourth quarter.
• The improving internal demand indicators were validated in the fourth quarter by a return to year-over-year order growth within the America's Contract segment.
• There is accelerated activity in our contract business.
• While our retail business and the industry continue to navigate tough conditions in the short-term, we are making investments for long-term growth.
• We are optimistic about fiscal year 2025 as there is increased activity and interest in the contract space.

Industry Context

The results reflect a mixed environment with strong performance in the contract segment and challenges in the retail sector. The company's focus on cost synergies and strategic investments aligns with industry trends of consolidation and efficiency improvements. The positive outlook for fiscal year 2025 suggests a potential recovery in demand.

Comparison to Industry Standards

• MillerKnoll's gross margin improvement of 410 basis points for the full year is a strong result compared to industry averages, which typically see smaller gains.
• Companies like Herman Miller (now part of MillerKnoll) and Steelcase are key competitors in the contract furniture market, and MillerKnoll's order growth in this segment is a positive sign.
• The retail segment's challenges are consistent with broader trends in the home furnishings industry, where companies like Wayfair and Williams-Sonoma have also faced headwinds.
• The achieved cost synergies of $160 million are significant and demonstrate successful integration efforts, which is a key focus for companies after mergers and acquisitions.
• The adjusted diluted EPS growth of 12.4% for the full year is a solid performance, especially considering the challenging economic environment.

Stakeholder Impact

• Shareholders will benefit from the improved earnings per share and margin expansion.
• Employees may be impacted by restructuring measures, including workforce reductions.
• Customers will benefit from new product launches and enhanced store and online experiences.
• Suppliers may be impacted by changes in sourcing and production strategies.
• Creditors will be reassured by the company's improved financial performance and liquidity position.

Next Steps

• The company will continue to invest in showrooms, digital platforms, and tools to support its contract business.
• The company will continue to optimize its product assortment and test new store formats to improve the retail business.
• The company will open newly enhanced MillerKnoll spaces in London, New York and Los Angeles later in the year.

Key Dates

Keywords

MillerKnoll, financial results, earnings, gross margin, order growth, synergies, restructuring, retail, contract, Knoll, integration