Executive Summary / Key Takeaways

• Design-Led Transformation: MillerKnoll (NASDAQ:MLKN) is leveraging its century-long design heritage and a collective of iconic brands to redefine modern furnishings for diverse environments, strategically expanding its global footprint and product portfolio through acquisitions like Knoll.
• Strategic Growth & Operational Discipline: The company is driving growth through a re-segmented business model, focusing on expanding its retail presence with plans for 10-15 new stores in fiscal 2026, investing in product innovation, and enhancing its global showroom network to capture evolving market demand.
• Improving Contract Momentum: Despite recent macroeconomic caution, MLKN's North America and International Contract segments are showing improving order trends, fueled by larger project wins and positive leading indicators, with management cautiously optimistic for a return to growth.
• Near-Term Headwinds, Long-Term Confidence: While anticipating near-term margin pressure from tariffs in Q1 and Q2 fiscal 2026 (estimated $9M-$11M pre-tax impact in Q1), management is confident that pricing actions and mitigation strategies will offset these costs by the second half of fiscal 2026.
• Solid Financial Foundation: MLKN maintains a strong liquidity position of $576 million and a healthy net debt-to-EBITDA ratio of 2.88x, enabling strategic capital expenditures (FY26 CapEx: $120M-$130M) and a focus on debt reduction.

A Legacy of Design, Reimagined for the Future

MillerKnoll, Inc., originally established in 1905 as Herman Miller, Inc., has cultivated a century-long legacy rooted in design leadership and innovation in interior furnishings. The company built its reputation on pioneering ergonomic seating and furniture systems, exemplified by iconic products like the Aeron and Eames chairs. This heritage laid the foundation for a unique multi-channel distribution model, encompassing independent dealers, direct sales, retail stores, and e-commerce platforms.

A pivotal moment in the company's evolution was the July 2021 acquisition of Knoll, Inc., which significantly expanded its brand collective and product portfolio. This strategic move, followed by the company's rebranding to MillerKnoll in November 2021, aimed to harness the full potential of the combined entity, driving growth across all business segments. The culmination of Herman Miller and Knoll has allowed for a strategic review of an unmatched product portfolio, identifying opportunities for innovative new products and enhanced lines.

MillerKnoll's core differentiated technology lies in its deep-seated design leadership and customer-centered technological solutions. The company invests significantly in research and development, spending $60.7 million in fiscal 2025, to understand and address customer needs. This includes proprietary sales tools, interior design and product specification software, and integrated order entry and manufacturing scheduling systems. For instance, the newly introduced Knoll Dividends Skyline offers a refined, flexible, and holistically integrated system that reimagines the open-plan workplace, empowering architects and designers to deliver a total interior. Similarly, Herman Miller's Gemma Healthcare Seating Family is thoughtfully designed to support the diverse needs of patients, families, and caregivers, combining intuitive functionality with a warm, modern aesthetic. These innovations enhance the reliability, speed, and efficiency of customer operations and differentiate MillerKnoll's offerings in the market.

The company's commitment extends to sustainability, a critical technological and operational differentiator. MillerKnoll announced the elimination of added PFAS from its North American product portfolio by May 2025 and globally by May 2027, aiming to surpass minimum safety standards. The refreshed Mirra 2 Chair, made with more recycled content and a lower carbon footprint, exemplifies this focus. These initiatives not only align with increasing corporate social responsibility expectations but also contribute to a competitive moat by appealing to eco-conscious customers and potentially reducing long-term material costs.

Competitive Landscape and Strategic Positioning

MillerKnoll operates in a highly competitive global furnishings market, competing on design, product and service quality, speed of delivery, and pricing. Key direct competitors include Steelcase (SCS), HNI Corporation (HNI), and Ethan Allen Interiors (ETD). MillerKnoll's competitive advantages stem from its strong brand collective, extensive retail network, and proprietary design and manufacturing technologies.

Compared to Steelcase, MillerKnoll leads in innovation speed, with faster product development cycles. Its integrated retail and e-commerce ecosystem drives higher customer loyalty in retail segments, contrasting with Steelcase's more B2B contract-focused approach. However, Steelcase often achieves lower operating costs per unit due to its larger scale and optimized supply chain, which can allow for price undercutting in shared markets. MillerKnoll's gross profit margin of 38.76% for the trailing twelve months (TTM) is higher than Steelcase's 33% but lower than Ethan Allen's 61%, reflecting its diverse product mix across contract and retail.

Against HNI Corporation, MillerKnoll's R&D investment (2-3% of revenue) drives faster innovation and superior product performance, such as ergonomic chairs with enhanced adjustability and lower failure rates. HNI, however, emphasizes cost leadership, resulting in lower production costs per unit. While MillerKnoll's TTM operating profit margin of 1.38% trails HNI's 8%, its focus on premium design and sustainability appeals to a different customer segment.

In the residential and retail furnishings space, MillerKnoll's global retail presence, with 70 studios and plans for significant expansion, competes directly with Ethan Allen Interiors. While Ethan Allen excels in residential luxury with higher pricing power and gross margins (61% TTM), MillerKnoll offers a broader segment coverage, including contract furnishings, and integrates sustainable technology. MillerKnoll's TTM Return on Capital Employed (ROIC) of 2% is notably lower than Steelcase's 10%, HNI's 15%, and Ethan Allen's 13%, indicating less efficient capital use, partly due to recent investments in retail expansion and acquisitions.

MillerKnoll's overall market positioning is that of a mid-tier innovator with strong growth potential, particularly in premium and mixed-use segments. Its diverse business channels and global collective of brands are a strong competitive advantage, enabling it to gain market share, as evidenced by its North America retail business outperforming industry comparisons by approximately 6 points in Q1 fiscal 2025. However, higher operating costs and supply chain dependencies remain vulnerabilities that management actively addresses through cost management and diversification.

Financial Performance and Operational Momentum

MillerKnoll concluded fiscal year 2025 with a strong performance, particularly in the fourth quarter, where consolidated net sales rose 8.2% on a reported basis and 7.8% organically to $962 million, significantly exceeding expectations. This growth was underpinned by a robust 11.1% reported (10.7% organic) increase in consolidated new orders, leading to a $78 million increase in backlog to $761 million. For the full fiscal year 2025, net sales reached $3.67 billion, a 1.1% increase from the prior year, with adjusted diluted earnings per share of $1.95.

The North America Contract segment was a key driver, with net sales up 2.2% (2.4% organic) and new orders growing nearly 16% in Q4, even after accounting for an estimated $55 million to $60 million in demand pull-forward due to upcoming price adjustments. This segment's adjusted operating margin improved to 10% in Q4, benefiting from fixed expense leverage on higher sales. The International Contract segment also demonstrated widespread sales and order growth, particularly in Europe and Latin America, with adjusted operating earnings of $73.5 million for the full year.

The Global Retail segment, while experiencing a reported net sales decrease of 1.5% (0.3% organic) for the full year, showed promising order growth of 6.7% organically in Q4. This segment's adjusted operating margin was 5.0% for the full year, impacted by new store opening costs and unfavorable product mix. The company incurred significant non-cash intangible impairment charges totaling $130 million in fiscal 2025, primarily affecting the Global Retail and Holly Hunt reporting units, driven by revised sales projections and increased discount rates.

Operationally, the company has observed an increase in the average time from order entry to customer-requested ship date, attributed to larger, more complex projects and clients adapting to longer construction timelines. Despite this, there have been no significant order cancellations, indicating solid underlying demand. MillerKnoll's gross margin for fiscal 2025 was 38.8%, a slight decline from 39.1% in fiscal 2024, primarily due to increased material costs, including tariffs, and unfavorable channel mix, partially offset by effective pricing strategies.

Outlook and Strategic Investments

MillerKnoll's outlook for fiscal 2026 reflects a blend of cautious optimism and continued strategic investment. For the first quarter of fiscal 2026, the company anticipates net sales between $899 million and $939 million, representing a 6.7% increase at the midpoint compared to the prior year. Adjusted diluted earnings per share are projected to be between $0.32 and $0.38.

A key factor influencing the near-term outlook is the impact of tariffs. Management expects tariff-related costs to reduce Q1 fiscal 2026 earnings by $9 million to $11 million before tax. However, the company is confident that its comprehensive mitigation actions, including recent list price increases and potential surcharges, will fully offset these costs by the second half of fiscal 2026. This strategy is informed by past experience with tariffs and a rationalized global manufacturing footprint that has reduced exposure to certain regions.

Strategic capital expenditures are planned to be between $120 million and $130 million in fiscal 2026, primarily focused on enhancing manufacturing capabilities, showrooms, and retail stores, as well as advancing sustainability goals. The Global Retail segment is poised for aggressive expansion, with plans to open an additional 10 to 15 new stores in the U.S. in fiscal 2026, aiming to more than double its footprint over the next several years. These new stores are expected to become profitable within their first year, generating a "compelling halo effect" of e-commerce growth and increased brand awareness.

The company maintains a strong liquidity position, ending Q4 fiscal 2025 with $576 million in available liquidity. Debt management remains a priority, with the net debt-to-EBITDA ratio at a comfortable 2.88x. Recent refinancing of its revolving credit facility and Term Loan A, extending maturities to 2030, further strengthens its financial flexibility. While opportunistic with share repurchases in fiscal 2025, the focus for fiscal 2026 shifts towards debt reduction and funding growth-oriented capital expenditures.

Conclusion

MillerKnoll is undergoing a significant transformation, leveraging its deep design heritage and expanded brand collective to capitalize on evolving market dynamics. The company's strategic re-segmentation, aggressive retail expansion, and continuous investment in product innovation and customer-centric technologies position it for long-term growth. Despite macroeconomic headwinds and near-term tariff-related pressures, MillerKnoll's management has demonstrated a disciplined approach to cost management and a clear roadmap for offsetting these challenges.

The company's strong liquidity and prudent financial management provide the necessary foundation to execute its strategic initiatives, including doubling its retail footprint and enhancing its global showroom network. As the contract market continues its recovery, driven by the return-to-office trend and increased large-project activity, MillerKnoll's unmatched product portfolio and formidable distribution network stand to benefit. For investors, MillerKnoll represents an opportunity to participate in a design-led company that is strategically investing for profitable growth, with a clear vision for leveraging its collective strengths and technological leadership to capture market share in a dynamic industry.