MILLERKNOLL, INC. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Americas Contract: Sales and orders up year-over-year in the second quarter, third consecutive period of order growth; leading indicators like project funnel additions, customer mockup requests, and pricing activity up year-over-year.
• International and Specialty: Strong order growth in Middle East and parts of Asia; opened MillerKnoll flagship in London with more than doubled client appointments vs. prior year; new Fulfillment Center in Belgium allows offering full textiles complement in Europe.
• Retail: Mid-single-digit year-over-year increase in orders during Black Friday cyber period; strength of concierge design services, new product launches performing above expectations; plan to open Design Within Reach Studios in Palm Springs, California, and Las Vegas, Nevada, and a Herman Miller store in Fairfax, Virginia; expanded product assortment in spring 2025 with new product launches up over 100% vs. spring 2024.
• Supply Chain and Tariffs: Monitoring tariff proposals, considering options like alternative sources of supply, advanced purchasing of imported goods, and possible price adjustments.
• Sustainability: Announced elimination of added PFAS from North American product portfolio by May 2025 and globally by May 2027; Herman Miller launched refreshed Mirra 2 Chair with more recycled content and lower carbon footprint.
• Research and Insights: Global Research and Insights team evaluating ways to create spaces supporting relationship-based work through Design with Impact programs.

Segment Performance

• Americas Contract: Net sales for the quarter were $504 million, up 6.2% organically from the same quarter a year ago. Orders of $457 million in the quarter were up 4.9% over last year on an organic basis. Second quarter operating margin was 9.4% (reported) compared to 7.4% in the prior year, and on an adjusted basis, operating margin was 10.2%.
• International and Specialty: Net sales in the second quarter were $246 million, up 2.1% on a reported basis and up just over 1% on an organic basis year-over-year. Orders during the quarter were $219 million, a year-over-year decrease of 6.5% on a reported basis and down just over 7% organically. Operating margin in the International and Specialty segment was 9.7% on a reported basis compared to 9.9% last year, and adjusted operating margin was 10.5% (down 80 basis points year-over-year).
• Retail: Net sales in the second quarter were $220 million, a reported decrease of 5.3% and down 4% on an organic basis compared to the same quarter last year. New orders in the quarter were $246 million, down 9.6% to last year on a reported basis and down 8.4% organically. Operating margin in the Retail segment was 4% in the second quarter compared to 6.3% a year ago, and on an adjusted basis, operating margin was 4.2%.

Guidance

• Consolidated net sales for the second quarter were $970 million, a 2.2% increase year-over-year on a reported basis and a 2.4% organic increase. Second quarter consolidated orders of $922 million were down 2.3% as reported and 1.9% lower on an organic basis.
• Full year adjusted earnings per share range narrowed to between $2.11 and $2.17. Q3 net sales expected to range between $903 million and $943 million, and adjusted diluted earnings expected to range between $0.41 and $0.47 per share. Expect improved demand in most markets in the second half of the fiscal year, impacted by seasonal softness and holiday timing shift.

Risks

• Tariffs: Potential impact on profitability; considering actions like identifying alternative sources of supply, advanced purchasing, price adjustments, duty drawback, exclusions, and transfer pricing to mitigate tariff-driven cost increases.

Question and Answer

• Q: Tariff exposure and impact on business.

A: Jeff Stutz mentioned identifying alternative sources, advanced purchasing, potential pricing actions, duty drawback, exclusions, and transfer pricing; Canada and China are key regions with exposure.

• Q: Slower order development in Americas.

A: Andi Owen and John Michael noted pre-election slowdown, post-election pickup, and book-to-ship remaining steady.

• Q: International demand dynamics and integration.

A: Andi Owen discussed increasing dealer distribution, project-based business nature being lumpier; Jeff Stutz agreed with assessment.

• Q: Retail feedback and future trends.

A: John Michael talked about dealer sentiment and leading indicators; Jeff Stutz on margin expectations tied to top-line revenue.

• Q: Work-from-home trends and large orders.

A: John Michael and Jeff Stutz discussed returning to office and continued growth in larger projects above $5 million.

• Q: Retail orders and turning corner.

A: Debbie Propst spoke about successful promotional execution, newness, marketing, and selling initiatives driving momentum.