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01/10 18:21
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents mixed signals: while there are positive developments like order growth and retail expansion, challenges such as declining margins, revenue expectations, and tariff impacts offset these gains. The Q&A reveals cautious optimism but lacks concrete guidance, especially regarding AI's impact. Given the company's mid-sized market cap, the stock is likely to experience a neutral reaction, with minor fluctuations expected as investors weigh the positive growth strategies against financial uncertainties and mixed performance across segments.
Adjusted Earnings Per Share (EPS) $0.43, exceeded expectations due to stronger-than-expected sales and gross margin.
Consolidated Net Sales $955 million, down 1.6% year-over-year on a reported basis and 2.5% lower organically. The decline was expected due to $55 million to $60 million in pull-ahead activity in North America contract that shifted sales into the first quarter.
First Half Consolidated Net Sales $1.9 billion, up 4% year-over-year, demonstrating the strength of the business.
Orders for the Quarter $973 million, up 5.5% as reported and 4.5% higher on an organic basis, reflecting improving demand and effective growth strategy execution.
Consolidated Gross Margin 39%, includes approximately $1 million in net tariff-related costs. Proactive mitigation actions are expected to offset tariff costs in the second half of the fiscal year.
Operating Cash Flow $65 million, contributing to a liquidity position of $548 million.
Net Debt-to-EBITDA Ratio 2.87x, comfortably below lending covenant limits, reflecting disciplined capital allocation and financial flexibility.
North America Contract Segment Net Sales $509 million, down 3.1% year-over-year due to the prior quarter's tariff-related pull forward. First half segment sales were up 4.1%.
North America Contract Segment Orders $507 million, up 4.8% from the prior year.
North America Contract Segment Adjusted Operating Margin 9.7%, down 50 basis points year-over-year, primarily due to deleverage on lower sales.
International Contract Segment Net Sales $171 million, down 6.3% on a reported basis and 9.2% organically year-over-year.
International Contract Segment Orders $162 million, up 6.6% year-over-year on a reported basis and 3.4% organically, driven by strength in Europe, the U.K., China, and India, partially offset by lower orders in Korea and the Middle East.
International Contract Segment Adjusted Operating Margin 9.7%, down 280 basis points year-over-year, primarily due to deleverage on lower sales and regional and product mix.
Global Retail Segment Net Sales $276 million, up 4.7% on a reported basis and 3.4% organically.
Global Retail Segment Orders $304 million, up 6% year-over-year on a reported basis and 4.5% organically.
Global Retail Segment Adjusted Operating Margin 2.1%, down 170 basis points year-over-year, primarily due to costs related to new stores, net tariff costs, and foreign currency impact.
Knoll Dividends Skyline launch: Met with strong enthusiasm from customers in the A&D community, resulting in several large project awards ahead of the official order entry date in January 2026.
Global Retail Segment Expansion: Second quarter orders increased 6% year-over-year, with sales up 5% and comparable sales growth of 3.5%. Opened 4 new locations in Q2 and relocated 2 stores. Anticipates opening 14 to 16 new stores in the U.S. for the fiscal year.
International Market Growth: Introduced the MillerKnoll showroom in Shanghai to engage A&D, global accounts, and key partners in Mainland China. Observed growth opportunities in Europe, the U.K., China, and India.
Supply Chain Strength: Approximately 70% of North America retail cost of goods sourced from the U.S., reducing tariff risk exposure.
Facility Consolidation: Consolidation of the Mesquegan, Michigan facility with production transitioning to other plants, expected to deliver $10 million in annual run rate savings by fiscal 2028.
Retail Growth Strategy: Focused on new store openings, expanded product assortment, e-commerce acceleration, and increased brand awareness to double DWR and Herman Miller store footprint over the next several years.
Healthcare Sector Focus: Winning projects globally in healthcare, with total healthcare orders up 5% year-to-date.
Tariff-related costs: The company incurred approximately $1 million in net tariff-related costs in Q2. While proactive mitigation actions are expected to offset these costs in the second half of the fiscal year, tariffs remain a potential risk to gross margin and earnings resilience.
Lower sales in North America Contract segment: Net sales in the North America Contract segment were down 3.1% year-over-year, primarily due to the pull-forward of sales into the first quarter. This decline impacted operating margins, which were down 50 basis points year-over-year.
International Contract segment sales decline: Net sales in the International Contract segment were down 6.3% on a reported basis and 9.2% organically year-over-year. This decline was attributed to deleverage on lower sales and unfavorable regional and product mix.
Costs related to new store openings: The company incurred higher costs related to new store openings in the Global Retail segment, which contributed to a 170 basis point decline in adjusted operating margin year-over-year.
Foreign currency impact: Foreign currency fluctuations negatively impacted the Global Retail segment's operating margin.
Seasonal softness in contract businesses: The company anticipates typical seasonal softness in its contract businesses as the calendar year ends, which could impact Q3 performance.
Economic uncertainties in specific regions: Lower orders were reported in Korea and the Middle East, indicating potential economic or market challenges in these regions.
Retail Store Expansion: The company plans to open 14 to 16 new stores in the U.S. during the full fiscal year, advancing its strategy to double the DWR and Herman Miller store footprint over the next several years.
Q3 Financial Guidance: Net sales are expected to range between $923 million and $963 million, representing a 7.6% increase versus prior year at the midpoint. Gross margin is projected between 37.9% and 38.9%. Adjusted diluted earnings are expected to range between $0.42 and $0.48 per share.
Tariff Mitigation: Proactive pricing and tariff mitigation actions are expected to fully offset tariff impacts to gross margin and EPS in the second half of the fiscal year.
Healthcare Sector Growth: The company anticipates continued growth in the healthcare sector, with total healthcare orders up 5% year-to-date.
International Market Expansion: The company is enhancing its global showroom footprint, including the recent introduction of the MillerKnoll showroom in Shanghai, to capture growth opportunities in international markets such as China, Europe, the U.K., and India.
Operational Efficiency: The consolidation of the Mesquegan, Michigan facility is expected to deliver $10 million in annual run rate savings by fiscal 2028.
The selected topic was not discussed during the call.
The earnings call presents mixed signals: while there are positive developments like order growth and retail expansion, challenges such as declining margins, revenue expectations, and tariff impacts offset these gains. The Q&A reveals cautious optimism but lacks concrete guidance, especially regarding AI's impact. Given the company's mid-sized market cap, the stock is likely to experience a neutral reaction, with minor fluctuations expected as investors weigh the positive growth strategies against financial uncertainties and mixed performance across segments.
The company's strong financial performance, including a 10.9% increase in net sales and a 25% rise in EPS, is a positive indicator. Despite some challenges like tariffs and new store costs, management's effective pricing actions and optimistic guidance for reduced impacts in the future are promising. The absence of increased discounting and stable demand further supports a positive sentiment. Although the lack of full-year guidance introduces some uncertainty, the overall outlook, including market expansion and strategic growth initiatives, suggests a positive stock price movement in the near term.
The earnings call reflects a negative sentiment due to a reported loss per share, significant operational margin declines, and a negative operating margin in the Retail segment. Despite some positive aspects like increased sales and share repurchases, the Q&A revealed management's cautious outlook and avoidance of direct answers regarding future earnings and tariff impacts. The company's financial performance risks and operational challenges, combined with a cautious revenue guidance, suggest a negative stock price movement in the short term.
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