8-K: MillerKnoll Reports Mixed Second Quarter Results, Cites Growth in Key Segments

MillerKnoll's second quarter fiscal 2025 results show a slight increase in net sales, driven by strength in International and Americas Contract, but a decrease in adjusted earnings per share.

Summary

• MillerKnoll reported a 2.2% increase in consolidated net sales for the second quarter of fiscal year 2025, reaching $970.4 million.
• The company's gross margin was 38.8%, slightly down from 39.2% in the same quarter last year.
• Operating expenses increased to $314.5 million, compared to $311.6 million in the prior year.
• Adjusted operating expenses were $308.1 million, up $11.2 million year-over-year.
• Diluted earnings per share were $0.49, up from $0.45 in the prior year, while adjusted diluted earnings per share decreased to $0.55 from $0.59.
• The company returned approximately $93.1 million to shareholders through share repurchases and dividends in the first half of fiscal 2025.
• The Americas Contract segment saw a 5.9% increase in net sales, while the Global Retail segment experienced a 5.3% decrease.
• The company's liquidity position was $470.4 million, including cash on hand and availability on its revolving credit facility.
• MillerKnoll generated $55.3 million in cash flow from operations during the second quarter.
• The company repurchased approximately 1.0 million shares for a total cash outlay of $23.1 million.
• The net debt-to-EBITDA ratio was 2.94x at the end of the quarter.
• The company expects third quarter net sales to be between $903 million and $943 million, and full year adjusted earnings per share to be between $2.11 and $2.17.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the increase in net sales and the return of capital to shareholders, but tempered by the decrease in adjusted earnings per share and challenges in the Global Retail segment. The company's outlook is cautiously optimistic.

Positives

• Net sales saw a 2.2% increase year-over-year.
• The company maintained a solid gross margin of 38.8%.
• The Americas Contract segment experienced a 5.9% increase in net sales and 4.4% increase in orders.
• The company returned $93.1 million to shareholders through dividends and share repurchases in the first half of the fiscal year.
• The company has a strong liquidity position of $470.4 million.
• The company generated $55.3 million in cash flow from operations during the quarter.
• Global Retail orders were up mid-single-digits year-over-year during the Black Friday holiday/cyber promotional period.
• Leading indicators for the Americas Contract segment, such as overall funnel, project funnel additions, customer mock-up requests and pricing activity continue to be up year-over-year.

Negatives

• Adjusted diluted earnings per share decreased to $0.55 from $0.59 year-over-year.
• Global Retail net sales decreased by 5.3% year-over-year.
• Orders in the quarter were down 2.3% as reported and 1.9% on an organic basis compared to the prior year.
• The International Contract & Specialty segment saw a 6.5% decrease in orders on a reported basis and 7.2% on an organic basis.
• Adjusted operating margin for the company was 7.1%, compared to 7.9% in the same quarter last year.
• The Global Retail segment experienced a decrease in operating margin due to reduced leverage on seasonal marketing spend.

Risks

• The company is facing broad-based macroeconomic pressures in most market segments.
• The International Contract & Specialty segment experienced weakness in some regions and with certain clients.
• The Global Retail segment is experiencing softness in new and existing home sales.
• The company's full year guidance reflects slower than expected macroeconomic improvements and lower than expected orders in the first half of the year.
• The company's third quarter is expected to be impacted by typical seasonal softness in the Americas and International Contracts businesses and by the timing of the Chinese New Year holiday.
• The company faces risks related to the additional debt incurred in connection with the Knoll acquisition.
• The company faces risks related to the ability to successfully integrate Knoll's operations.

Future Outlook

The company expects third quarter net sales to be between $903 million and $943 million, and full year adjusted earnings per share to be between $2.11 and $2.17. The company anticipates improving demand trends in most markets, but expects the third quarter to be impacted by seasonal softness and the timing of the Chinese New Year holiday. The full year guidance reflects sales and EPS growth over fiscal 2024.

Management Comments

• We are pleased with our second quarter performance, which was in-line with our expectations and demonstrates the advantage of our collective of brands, diverse business channels and global footprint.
• We are encouraged by signs of growth in several of our businesses.
• We are also pleased with our team's ability to maintain the gross margin expansion we delivered in fiscal 2024 while strategically managing operating expenses and positioning our business segments for profitable growth.
• We are proud of our cash flow generation and ability to return capital to our shareholders while investing in profitable growth and maintaining a strong balance sheet.
• We remain confident in our global design leadership across our collective of brands and the competitive advantages our team drives by relentlessly focusing on innovative solutions, quality, and best-in-class levels of service with global scale and reach.

Industry Context

The results reflect a mixed performance in the furniture and design industry, with some segments showing growth while others face challenges. The company's focus on global design leadership and diverse business channels is aimed at navigating the current macroeconomic pressures. The shift in the holiday/cyber promotional period highlights the impact of timing on retail sales in the industry.

Comparison to Industry Standards

• MillerKnoll's 2.2% net sales growth is moderate compared to some competitors in the furniture industry, which have seen higher growth rates in certain segments.
• Companies like Herman Miller (now part of MillerKnoll) and Steelcase are often compared in the contract furniture space, and their performance in the Americas region is a key benchmark.
• The 38.8% gross margin is relatively strong, but some competitors in the luxury furniture market may have higher margins due to different product mixes and pricing strategies.
• The company's adjusted operating margin of 7.1% is within the range of industry averages, but some competitors with more efficient operations may have higher margins.
• The company's net debt-to-EBITDA ratio of 2.94x is a key metric for assessing financial health, and it is important to compare this to the leverage of other companies in the industry.
• The company's performance in the Global Retail segment is impacted by the timing of the holiday/cyber promotional period, which is a common factor for many retailers in the industry.

Stakeholder Impact

• Shareholders will see a return of capital through share repurchases and dividends.
• Employees may be impacted by restructuring and integration efforts.
• Customers will benefit from new product launches and expanded retail locations.
• Suppliers may see changes in demand based on the company's performance in different segments.
• Creditors will be interested in the company's debt levels and ability to meet its obligations.

Next Steps

• The company plans to open two new retail locations in the third quarter, a DWR Studio in Palm Springs and a Herman Miller store in Fairfax, Virginia.
• The company plans to introduce an expanded product assortment, with new product launches in Spring 2025 up over 100% compared to Spring 2024.

Key Dates

Keywords

MillerKnoll, financial results, net sales, earnings per share, gross margin, operating expenses, share repurchases, dividends, Americas Contract, Global Retail, International Contract & Specialty, orders, liquidity, debt, EBITDA, furniture, design