10-K: MillerKnoll Reports Net Loss Amidst Impairment Charges, Sales Growth in Contract Segments

MillerKnoll, Inc. reported a net loss of $36.9 million for fiscal year 2025, primarily driven by significant non-cash impairment charges, despite a slight increase in net sales and growing order backlog.

Summary

• Net sales for fiscal year 2025 increased by 1.1% to $3,669.9 million, with organic net sales growing by 1.6% compared to the prior year.
• The company reported a net loss of $36.9 million for fiscal year 2025, a significant decline from net earnings of $82.3 million in fiscal year 2024.
• Diluted loss per share was $0.54 for fiscal 2025, compared to earnings per share of $1.11 in the prior year; adjusted diluted earnings per share decreased to $1.95 from $2.08.
• Gross margin declined to 38.8% in fiscal 2025 from 39.1% in fiscal 2024, primarily due to increased material costs (including tariffs) and unfavorable channel and product mix, partially offset by effective pricing strategies.
• Operating expenses increased by 9.6% ($119.8 million) to $1,372.1 million, largely driven by $113.2 million in non-cash intangible impairment charges.
• Goodwill impairment charges totaled $92.3 million, affecting the Global Retail ($30.1 million) and Holly Hunt ($62.2 million) reporting units.
• Intangible asset impairment charges amounted to $37.7 million, related to the Knoll and Muuto trade names.
• Cash provided by operating activities decreased significantly to $209.3 million in fiscal 2025 from $352.3 million in fiscal 2024, mainly due to a net increase in working capital.
• The backlog of unfilled orders increased to $761.3 million as of May 31, 2025, up from $683.6 million at June 1, 2024.
• The company repurchased 3,291,176 shares at a cost of $84.9 million in fiscal 2025, and the Board approved an additional $200.0 million for share repurchases on July 16, 2024, leaving $181.4 million available as of May 31, 2025.

Sentiment

Score: 3

Explanation: The company reported a net loss and a significant decline in operating earnings and adjusted EPS, primarily due to substantial non-cash impairment charges. While net sales saw a slight increase and backlog grew, the overall financial performance for the fiscal year was poor, reflecting challenging macroeconomic conditions and internal restructuring impacts. The increase in backlog and strategic focus areas offer some future potential, but current results are concerning.

Positives

• Net sales increased by 1.1% to $3,669.9 million in fiscal year 2025, with organic net sales growing by 1.6%.
• North America Contract segment net sales increased by 2.2% (2.4% organic) and its operating margin improved by 60 basis points.
• International Contract segment net sales increased by 2.2% (2.7% organic) and its operating margin increased by 10 basis points.
• Net price increases contributed approximately $14 million to net sales, demonstrating pricing discipline in a competitive environment.
• The backlog of unfilled orders increased to $761.3 million as of May 31, 2025, from $683.6 million, indicating future revenue potential.
• The company maintained quarterly cash dividends of $0.75 per share in both fiscal 2025 and fiscal 2024.
• The Board of Directors approved an increase of $200.0 million to the share repurchase plan authorization on July 16, 2024, with $181.4 million remaining for future repurchases as of May 31, 2025.
• The company successfully refinanced Term Loan A, extending its maturity to April 2030 and increasing the borrowed amount to $400.0 million, improving debt structure.
• Maintains a well-positioned balance sheet and liquidity profile with $193.7 million in cash and cash equivalents and $382.2 million available under revolving lines of credit as of May 31, 2025.

Negatives

• Reported a net loss of $36.9 million for fiscal year 2025, a significant reversal from net earnings of $82.3 million in the prior year.
• Diluted loss per share was $0.54, compared to diluted earnings per share of $1.11 in fiscal 2024.
• Adjusted diluted earnings per share decreased to $1.95 in fiscal 2025 from $2.08 in fiscal 2024.
• Gross margin declined by 30 basis points to 38.8%, primarily due to increases in material costs (including tariffs) and unfavorable channel and product mix.
• Operating expenses increased substantially by 9.6% ($119.8 million), mainly driven by $113.2 million in non-cash intangible impairment charges.
• Operating earnings decreased by 69.8% to $50.5 million from $167.2 million in the prior year.
• The Global Retail segment experienced a net sales decrease of 1.5% (0.3% organic) and a significant operating margin decrease of 1,110 basis points (110 basis points adjusted), largely due to non-cash intangible asset impairment charges.
• Recognized total impairment charges of $130.0 million in fiscal 2025, including $92.3 million in goodwill impairment and $37.7 million in indefinite-lived intangible asset impairment.
• Cash provided by operating activities decreased by $143 million to $209.3 million, primarily due to a net increase in working capital.
• Research, Design and Development spending has decreased year-over-year, from $67.6 million in fiscal 2023 to $60.7 million in fiscal 2025.

Risks

• Uncertainty in implementing and managing the growth strategy, with no assurance that investments in new products and services will be commercially successful.
• Significant additional indebtedness of $1.31 billion incurred from the Knoll acquisition, increasing interest expense and reducing financial flexibility.
• Debt agreements contain covenants that restrict business activities; failure to comply could accelerate repayment obligations.
• Adverse macroeconomic factors, including higher interest rates, tepid housing demand, low CEO and consumer confidence, and geopolitical/global trade uncertainty, continue to challenge industry demand.
• Highly competitive markets in both contract furniture and home furnishings, with competitors possessing greater financial and marketing resources, potentially leading to pricing pressures.
• Exposure to risks from international operations, including tariffs, customs regulations, logistics disruptions, foreign currency fluctuations, and international tax policies.
• Potential for increased costs and supply chain disruptions due to current and future geopolitical tensions, such as the Russia-Ukraine war and Middle East conflicts.
• Risk of restricted access to capital markets during sustained economic downturns, impacting liquidity and ability to react to changing conditions.
• Changes in U.S. federal government spending or budgetary policies could adversely affect business, as government sales represent approximately 4% of total net sales.
• Disruptions in the supply of raw and component materials could negatively impact manufacturing and assembly operations.
• Increases in commodity market prices (steel, plastic, aluminum, particleboard) can negatively affect profitability, as these costs are difficult to offset with price increases due to existing contractual agreements.
• Disruptions within the independent dealer network (terminations, ownership transitions, financial difficulties) could adversely affect business and lead to losses.
• Shortage of qualified labor could negatively affect business, reduce earnings, and lead to higher wages.
• Risks associated with self-insurance for health benefits, where unforeseen or catastrophic losses in excess of insured limits could materially affect financial condition.
• Substantial goodwill and indefinite-lived intangible assets are subject to impairment charges, which could materially affect financial results if market conditions or financial performance decline.
• Long-lived assets are subject to impairment assessment, and unfavorable market conditions or financial performance could lead to impairment charges.
• Costs related to product defects (warranty, recall, liability) could increase, and current reserves may not be adequate.
• Cybersecurity threats pose risks to system integrity and confidential information, potentially leading to data loss, litigation, regulatory investigations, operational disruption, and reputational harm.
• Dependence on complex information technology systems; difficulties in maintaining or implementing new systems could cause significant losses or reputational risk.
• Consumer spending levels significantly impact demand for products within the Global Retail segment, and these factors are beyond the company's control.
• Ability to successfully implement the retail studio strategy (opening/closing stores) depends on factors beyond control, such as economic conditions, suitable locations, and landlord financial stability.
• Increased regulatory focus on climate change and environmental matters is expected to increase compliance costs and potential liabilities; failure to achieve sustainability goals could negatively affect consumer preference and lead to enforcement actions.

Future Outlook

The company anticipates that the current global macroeconomic challenges, including higher interest rates, tepid housing demand, and geopolitical uncertainties, will persist in the near term. Management is focused on prudent cost management and strategic investments to drive growth, particularly within the Global Retail segment through North American store expansion and product assortment. For the North America and International Contract segments, the strategy involves targeting economically resilient customer sectors and continued investment in product design and innovation. The company expects pricing actions and mitigation strategies to offset tariff costs over time. Capital spending for fiscal 2026 is projected to be between $120 million and $130 million, primarily for facilities and sustainability initiatives. The company believes its cash on hand, operating cash flows, and borrowing capacity will provide adequate liquidity for future operations, debt maturities, dividends, and share repurchases. Substantially all current backlog orders are expected to be fulfilled in the next fiscal year, and Pillar Two global minimum tax regulations are not expected to have a material impact on fiscal 2026 financial results.

Management Comments

• "MillerKnoll is a collective of dynamic brands that comes together to design the world we live in. From the spaces we make that help us live and work better, to how we manufacture our products, to the ways we solve challenges facing our customers and global community, design is our tool for creating positive impact. Our optimism leads us as we redefine modern for the 21st century, shaping a future that's more sustainable, caring, and beautiful for all people and our planet."
• "The current global macroeconomic environment — which reflects higher interest rates, tepid housing-related demand trends, relatively low CEO and consumer confidence levels, as well as geopolitical and global trade uncertainty — continues to pose challenges for the industry. While these factors are expected to continue in the near term, we are focused on prudent cost management and investment in targeted growth opportunities."
• "We believe that our employees are a critical success factor for our business. We strive to identify, hire, develop, motivate and retain the best employees. Our ability to attract, engage, and retain key employees has been and will remain critical to our success."
• "We believe there is opportunity for meaningful long-term growth in each of our business segments. MillerKnoll is uniquely positioned to capitalize on these opportunities given the breadth of our Contract and Global Retail businesses and product portfolios, global reach, and omni-channel distribution and fulfillment capabilities."
• "Our strategy is designed to harness the full potential of MillerKnoll while driving growth across all business segments, geographies, and customer groups and creating value for all our stakeholders."
• "We are committed to nurturing this distinct competitive advantage by fostering a culture of highly engaged associates and inspiring belief in our shared future."

Industry Context

MillerKnoll operates in the highly competitive contract furniture and retail furnishings industries, where demand is significantly influenced by macroeconomic factors such as corporate profitability, employment levels, new office construction, and office vacancy rates. The company competes with major manufacturers like Haworth, HNI Corporation, and Steelcase in the contract sector, and with national/regional retailers and online platforms such as Arhaus, Inc., Crate & Barrel Holdings, Inc., RH, Room & Board, Inc., Wayfair Inc., and Williams-Sonoma, Inc. in the home furnishings market. The company's strategy aims to capitalize on global trends including hybrid and flexible work models, increased consumer investment in home environments, a growing focus on health and well-being, and rising expectations for corporate social responsibility, positioning itself as a leader in product innovation, design excellence, and sustainability.

Comparison to Industry Standards

• The company states it is one of the largest furniture manufacturers globally, competing with manufacturers like Haworth, HNI Corporation, and Steelcase Inc., some of whom possess significantly greater financial, marketing, and other resources.
• In the home furnishings industry, the company competes with national and regional retailers, mail order catalogs, and online retailers such as Arhaus, Inc., Crate & Barrel Holdings, Inc., RH, Room & Board, Inc., Wayfair Inc., and Williams-Sonoma, Inc.
• The document does not provide specific comparable financial results or project outcomes for these competitors against which MillerKnoll's performance can be directly benchmarked.

Corporate Governance

Legal Proceedings

• The company is involved in legal proceedings and litigation arising in the ordinary course of business.
• Management believes the outcome of currently pending proceedings and litigation will not materially affect the company's consolidated operations, cash flows, or financial condition.

Stakeholder Impact

• **Shareholders:** Experienced a net loss and diluted EPS decline, negatively impacting shareholder value. However, continued quarterly dividends and an increased share repurchase authorization offer some positive returns and confidence.
• **Employees:** Subject to workforce reductions as part of restructuring activities, but the company emphasizes a commitment to employee recruitment, development, retention, competitive compensation, and fostering a culture of belonging.
• **Customers:** Face potential impacts from pricing actions and commodity cost increases. Benefit from the company's focus on enhancing customer experiences, expanding retail presence, and developing new online tools.
• **Suppliers:** The company relies on outside suppliers for raw materials and components, making them susceptible to commodity price fluctuations and trade policy changes. A supplier financing program is available.
• **Creditors:** The company carries significant long-term debt from the Knoll acquisition, subject to covenants. Refinancing of Term Loan A extends maturity, potentially easing near-term repayment pressures.

Next Steps

• Substantially all orders forming the $761.3 million backlog at May 31, 2025, are expected to be filled during the next fiscal year.
• Fund capital expenditures between $120 million and $130 million in fiscal 2026, primarily for investments in facilities (manufacturing, showrooms, retail stores) and sustainability goals.
• Continue to pay quarterly cash dividends, subject to the discretion of the Board of Directors.
• Continue share repurchases under the existing authorization, with $181.4 million remaining as of May 31, 2025.
• Implement pricing actions and other mitigation strategies to offset the net impact of tariff costs on financial results.
• Expand the North American store footprint and product assortment within the Global Retail segment.
• Target economically resilient customer sectors and continue investment in product design and innovation leadership within the North America Contract and International Contract segments.
• Expand market share in certain international geographies.
• Monitor developments related to environmental matters and respond to governmental initiatives in a timely and appropriate manner.
• Continue to build a culture of belonging by focusing on educating associates, driving a sense of belonging, and recruiting/developing diverse talent.
• Assess the impact of recently issued accounting standards (ASU 2023-09 and ASU 2024-03) on future disclosures.

Key Dates

Recommendation

Keywords

Furniture, Interior Furnishings, Office Furniture, Residential Furniture, Healthcare Furniture, Educational Furniture, Design, Manufacturing, Retail, Contract Furniture, Herman Miller, Knoll, Design Within Reach, HAY, Muuto, SEC Filing, 10-K, Financial Results, Earnings, Sales, Gross Margin, Operating Expenses, Impairment, Goodwill, Intangible Assets, Cash Flow, Debt, Share Repurchase, Corporate Governance, Risk Management, Supply Chain, Sustainability, Cybersecurity, Global Operations, North America Contract, International Contract, Global Retail