MillerKnoll, Inc. (NASDAQ:MLKN) has demonstrated its ability to navigate a complex business environment, delivering resilient financial performance in the face of macroeconomic headwinds. The company, formed through the transformative merger of Herman Miller and Knoll, has leveraged its diversified portfolio of iconic brands to drive growth and operational efficiency.

For the fiscal year ended June 1, 2024, MillerKnoll reported annual net income of $82.7 million and annual revenue of $3.63 billion. The company's annual operating cash flow and free cash flow both stood at $352.3 million, showcasing its ability to generate substantial cash flow to support its strategic initiatives.

In the fourth quarter of fiscal 2024, MillerKnoll delivered adjusted diluted earnings of $0.67 per share, surpassing the midpoint of its guidance. Consolidated net sales for the quarter totaled $889 million, representing an organic decrease of 5.2% from the same period a year ago. However, the company's new orders in the quarter totaled $933 million, reflecting organic growth of approximately 3% from the prior-year period.

The company's performance was underpinned by strong gross margin expansion, with consolidated gross margin in the fourth quarter reaching 39.6%, an improvement of 250 basis points year-over-year and 100 basis points sequentially. This was driven by effective price realization, inventory management, and favorable product mix and channel performance.

Segmental Performance

MillerKnoll's diversified business model is reflected in the performance of its three reportable segments: Americas Contract, International Contract & Specialty, and Global Retail.

Americas Contract

The Americas Contract segment reported net sales of $417 million in the fourth quarter, down 12.2% on a reported basis. However, new orders in the segment increased 5.7% year-over-year, and 14.3% sequentially, indicating improving demand trends. The segment's adjusted operating margin was 7.3%, down 280 basis points from the prior-year period, primarily due to the impact of lower sales volume on fixed overhead costs.

International Contract & Specialty

In the International Contract & Specialty segment, net sales for the quarter totaled $245 million, up 3.8% organically year-over-year. New orders in the segment were essentially flat with the prior year, as the company continued to make progress in expanding its MillerKnoll distribution footprint globally, with over half of the network now able to sell the MillerKnoll Collective.

Global Retail

The Global Retail segment reported net sales of $227 million in the fourth quarter, a decline of 7.2% year-over-year on a reported basis, but up slightly on an organic basis. New orders in the quarter were down 6% compared to the same period last year on a reported basis, but up just under 1% organically. The segment's focus on effective inventory management and product mix optimization has helped drive substantial gross margin improvement, with adjusted gross margins up 640 basis points year-over-year.

Outlook and Strategic Initiatives

Looking ahead, MillerKnoll is optimistic about the prospects for the business, as the company sees improving demand indicators in its contract segments and opportunities for growth in its retail operations.

For fiscal 2025, the company expects net sales to be above fiscal 2024 levels, with adjusted earnings per share in the range of $2.10 to $2.30 per share. In the first quarter of fiscal 2025, the company anticipates net sales between $872 million and $912 million, and adjusted earnings per share between $0.38 and $0.44.

To drive future growth, MillerKnoll is focused on several strategic initiatives:

1. Investing in digital platforms and tools to enhance the capabilities of its dealer network and make it easier for customers to do business with the company. 2. Expanding the global reach of the Knoll brand within the contract market, while continuing to build out its international MillerKnoll showroom presence. 3. Investing in new retail stores and assortment expansion, leveraging the strength of its Design Within Reach and Herman Miller brands. 4. Launching a robust pipeline of new product introductions across its collective of brands to meet evolving customer needs. 5. Maintaining a strong focus on sustainability, as evidenced by the company's recent recognition for its efforts in incorporating more bio-based materials and reducing waste.

Balance Sheet and Liquidity

MillerKnoll's balance sheet and liquidity position remain strong, providing the company with the financial flexibility to execute on its strategic priorities. As of the end of the fourth quarter, the company had a net debt to EBITDA ratio of 2.63 times, well within the maximum limit defined in its lender agreements.

During the fourth quarter, the company generated approximately $78 million in cash flow from operations, driven by a meaningful reduction in working capital, primarily attributed to its inventory management efforts. This robust cash flow generation, coupled with the company's access to liquidity through its credit facilities and cash on hand, positions MillerKnoll well to navigate the current business environment and invest in future growth opportunities.

Risks and Challenges

While MillerKnoll has demonstrated its resilience, the company is not immune to the broader macroeconomic challenges facing the industry. Factors such as persistent inflation, rising interest rates, and uncertainty in the housing market could continue to impact demand, particularly in the company's retail segment.

Additionally, the company's integration of the Knoll business, while progressing well, still presents execution risks that must be carefully managed. Maintaining the momentum in realizing synergies and effectively aligning the combined organization will be critical to the company's long-term success.

Conclusion

MillerKnoll has proven its ability to navigate a complex business landscape, delivering strong financial performance and positioning itself for future growth. The company's diversified business model, focus on operational efficiency, and strategic investments in its contract and retail segments provide a solid foundation for continued success. As MillerKnoll enters fiscal 2025, investors can look forward to the company's resilience and its ability to capitalize on emerging opportunities in the dynamic furniture and design industry.