MillerKnoll, Inc. ((MLKN)) has held its Q3 earnings call. Read on for the main highlights of the call.
MillerKnoll, Inc. recently held its earnings call, which presented a mixed sentiment. The company showcased robust growth in retail orders and international markets, yet faced challenges due to a significant net loss from impairment charges and uncertainties stemming from tariffs. While the expansion of retail locations and an increased product assortment are promising, the contract segments and macroeconomic uncertainties pose ongoing challenges.
Impressive Retail Order Growth
MillerKnoll reported a remarkable increase in global retail orders, which rose nearly 15%. Organic orders saw an even more impressive 17% growth, with cyber-adjusted orders in North America up by 14%. This growth highlights the company’s strong performance in retail demand, particularly during key shopping periods like Black Friday and Cyber Monday.
Expansion in Retail Locations
The company is expanding its retail footprint with the opening of a new Design Within Reach studio in Palm Springs and a Herman Miller store in Fairfax. Plans are underway to open two additional stores in the fourth quarter and 10-15 new locations in fiscal 2026, signaling a strategic push to enhance their retail presence.
Order Growth in International Markets
MillerKnoll has seen positive order growth in less mature international markets, particularly in regions such as the Middle East, India, Japan, Mexico, Brazil, and parts of mainland Europe. This international expansion is a key driver of the company’s overall growth strategy.
Increased Product Assortment
The company is set to launch new products for the spring-summer 2025 season, with offerings up over 65% compared to the previous year. This increase in product assortment is aimed at capturing more market share and meeting diverse consumer needs.
Solid Cash Flow and Debt Reduction
MillerKnoll generated $62 million in cash flow from operations and repurchased approximately 786,000 shares. Additionally, the company reduced its long-term debt by $61 million, demonstrating a commitment to financial stability and shareholder value.
Net Loss and Impairment Charges
The company reported a net loss per share of $0.19, a significant drop from last year’s earnings of $0.30 per share. This loss includes $140 million in special charges related to intangible amortization, impairment, and restructuring, highlighting the financial challenges faced during the period.
Softness in North America Contract Segment
The North American contract segment experienced lower-than-expected orders, reflecting caution in the current economic environment. This softness indicates potential challenges in maintaining growth in this segment.
Challenges from Tariffs
Recent tariff announcements have created uncertainty, impacting sales and order pacing. The company anticipates tariff-related costs between $5 million and $7 million pre-tax in the fourth quarter, which could affect future financial performance.
Decline in International Contract Sales
International contract sales declined by 5% on a reported basis and 1.5% organically year over year. This decline suggests challenges in maintaining growth momentum in international contract markets.
Negative Operating Margin in Retail Segment
The retail segment reported a negative operating margin of 36%, a stark contrast to the positive 4.7% margin last year. This decline is attributed to asset impairments, underscoring the financial pressures within the retail segment.
Forward-Looking Guidance
Looking ahead, MillerKnoll reported consolidated net sales of $876 million for the third quarter of fiscal 2025, with a gross margin of 37.9%. Adjusted earnings per share were $0.44, aligning with their guidance midpoint. Despite a 1.8% decrease in new orders in the North America Contract segment, the company remains optimistic with a 1.4% organic increase in international contract orders. A 4.5% list price increase effective June 2nd is expected to help navigate tariff-related uncertainties, with anticipated costs of $5 million to $7 million in the fourth quarter. The company remains committed to growth investments and maintaining balance sheet strength.
In conclusion, MillerKnoll’s earnings call reflects a company navigating through both opportunities and challenges. While retail and international markets show promising growth, the impact of tariffs and contract segment softness pose significant hurdles. The company’s strategic expansion and product diversification efforts are positive signs, yet financial pressures from impairment charges and negative operating margins in retail require careful management. Investors will be keenly watching how MillerKnoll addresses these challenges in the coming quarters.