10-Q: MillerKnoll Reports Modest Sales Growth in Second Quarter, Navigates Mixed Market Conditions

MillerKnoll saw a 2.2% increase in net sales in the second quarter of fiscal year 2025, marking the first period of year-over-year sales growth in two years, while also managing various economic pressures and integration activities.

Summary

• MillerKnoll's net sales for the second quarter of fiscal year 2025 reached $970.4 million, a 2.2% increase compared to the same period last year, representing the first year-over-year sales growth in two years.
• The company's orders decreased by 2.3% to $921.9 million in the second quarter.
• On an organic basis, excluding currency translation and the closure of the HAY eCommerce channel in North America, net sales increased by 2.4% to $968.1 million, and orders decreased by 1.9% to $921.5 million.
• Gross margin for the quarter was 38.8%, a slight decrease of 40 basis points year-over-year, primarily due to unfavorable channel and product mix.
• Operating expenses increased by 0.9% to $314.5 million, driven by higher marketing spend, variable expenses, and compensation costs.
• Diluted earnings per share were $0.49, compared to $0.45 in the prior year, while adjusted diluted earnings per share was $0.55, a 6.8% decrease year-over-year.
• The Americas Contract segment saw a 5.9% increase in net sales and a 4.4% increase in orders.
• The International Contract & Specialty segment experienced a 2.1% increase in net sales but a 6.5% decrease in orders.
• The Global Retail segment's net sales decreased by 5.3%, and orders decreased by 9.6%, impacted by a shift in the timing of the cyber week holiday promotion period.
• The company completed the termination of the Knoll subsidiary's defined-benefit pension plan, resulting in a $1.5 million gain.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the return to sales growth, but tempered by the decrease in adjusted earnings per share and mixed performance across segments. The company is navigating a challenging economic environment and integration activities.

Positives

• The company achieved its first year-over-year sales growth in two years.
• The Americas Contract segment showed strong growth in both sales and orders.
• The company completed the termination of the Knoll subsidiary's defined-benefit pension plan, resulting in a gain.
• The company has a well-positioned balance sheet and liquidity profile with access to credit facilities and cash.

Negatives

• Gross margin decreased slightly by 40 basis points due to unfavorable channel and product mix.
• Adjusted diluted earnings per share decreased by 6.8% year-over-year.
• The Global Retail segment experienced a decrease in sales and orders.
• The International Contract & Specialty segment saw a decrease in orders.

Risks

• The company is facing broad-based macroeconomic pressures across most market segments.
• The Global Retail segment is experiencing challenges due to shifts in promotional timing.
• The company is exposed to foreign currency exchange rate fluctuations.
• The company is managing integration costs related to the Knoll acquisition.

Future Outlook

The company expects full-year capital purchases to be between $100 million and $125 million. The company believes cash on hand, cash generated from operations, and borrowing capacity will provide adequate liquidity to fund near term and foreseeable future business operations, capital needs, upcoming debt maturities, future dividends and share repurchases, subject to financing availability in the marketplace.

Management Comments

• MillerKnoll finished the second quarter of fiscal year 2025 in line with our expectations.
• Although most of our market segments continue to experience broad-based macroeconomic pressures, several areas of our business are showing signs of growth and the business has maintained the gross margin improvement that occurred in fiscal year 2024.

Industry Context

The report indicates that MillerKnoll is navigating a challenging economic environment, similar to other companies in the furniture and interior design industry. The company's focus on integration and cost management reflects a broader trend in the industry to optimize operations and improve profitability.

Comparison to Industry Standards

• While MillerKnoll experienced a modest sales increase, other companies in the furniture sector may be facing similar or different growth trajectories depending on their specific market focus and geographic exposure.
• Companies like Herman Miller (now part of MillerKnoll) and Steelcase are often compared in the contract furniture market, and their performance can serve as a benchmark for MillerKnoll's results.
• The shift in the cyber week holiday promotion period impacting Global Retail sales is a factor that other retailers may also be experiencing, highlighting the importance of promotional timing in the current market.
• The company's focus on cost synergies and integration is a common strategy in the industry following mergers and acquisitions, and the success of these efforts will be a key factor in MillerKnoll's future performance.

Stakeholder Impact

• Shareholders may be cautiously optimistic due to the return to sales growth, but concerned about the decrease in adjusted earnings per share.
• Employees may be affected by ongoing integration and restructuring activities.
• Customers may experience changes in product availability and pricing due to the company's integration and cost management efforts.
• Suppliers may be impacted by changes in the company's supply chain and payment terms.

Next Steps

• The company plans to continue its integration efforts and focus on cost management.
• The company will monitor market conditions and adjust its strategies as needed.
• The company will continue to execute its share repurchase program.

Key Dates

Keywords

MillerKnoll, financial results, sales growth, earnings, furniture, contract, retail, integration, pension plan, restructuring