Company Overview
MillerKnoll, Inc. (MLKN) is a global leader in design, research, and innovation, driven by a mission to create a better world. Formed through the merger of iconic brands like Herman Miller and Knoll, the company has over a century of design heritage and a strong commitment to sustainability, empowering its people, and positively impacting communities.
History and Evolution
The company's roots can be traced back to 1905 when it was founded as the Michigan Star Furniture Company in Zeeland, Michigan. Initially focused on producing well-crafted wood furniture for the residential market, the company quickly gained a reputation for quality. In 1923, the company was renamed Herman Miller, after its founder. Over the following decades, Herman Miller expanded its product offerings and entered the commercial office furniture market, becoming known for innovative and ergonomic workplace seating and systems furniture. Key milestones included the introduction of the iconic Aeron chair in 1994 and the acquisition of Geiger International in 1998 to strengthen its commercial furniture portfolio.
In 2001, Herman Miller acquired Knoll, Inc., a leading designer and manufacturer of modern furniture, textiles, leathers, and accessories. This acquisition significantly expanded Herman Miller's product breadth, customer reach, and global presence. The integration of the two companies was a major undertaking, but Herman Miller successfully leveraged the complementary strengths of the brands. In 2021, Herman Miller and Knoll combined to form MillerKnoll, Inc., uniting two design-driven industry leaders and creating a collective of dynamic brands that designs the world we live in.
Business Segments
Today, MillerKnoll operates through three key segments: Americas Contract, International Contract Specialty, and Global Retail. The Americas Contract segment focuses on providing office, healthcare, and educational furniture solutions across North and South America, while the International Contract Specialty segment serves customers in Europe, the Middle East, Africa, and Asia-Pacific. The Global Retail segment, which includes the iconic Design Within Reach brand, caters to consumers seeking modern, high-quality furnishings for their homes.
In the first quarter of fiscal 2025, the Americas Contract segment reported net sales of $454.60 million, a decrease of 7.3% compared to the prior year period, primarily due to decreased sales volumes. The segment's gross margin was 33.9%, down 170 basis points from the prior year period, driven by loss of leverage on fixed costs due to reduced production volumes and increased commodity and product distribution costs, partially offset by the impact of price increases and realization of acquisition synergies. Operating earnings for the segment were $17.10 million, a decrease of 58.7% compared to the prior year.
The International Contract Specialty segment had net sales of $213.50 million in the first quarter of fiscal 2025, a decrease of 6.5% compared to the prior year period, primarily due to decreased sales volumes and incremental promotional discounting, partially offset by favorable foreign currency impacts. The segment's gross margin was 44.5%, up 210 basis points from the prior year period, driven by favorable product mix. Operating earnings for the segment were $9.30 million, a decrease of 18.4% compared to the prior year.
The Global Retail segment reported net sales of $193.40 million in the first quarter of fiscal 2025, a decrease of 2.8% compared to the prior year period, primarily due to the closure of the HAY eCommerce channel in North America and incremental discounting, partially offset by increased sales volumes. The segment's gross margin was 45.0%, up 160 basis points from the prior year period, driven by reduced product distribution and inventory costs and operational efficiencies. Operating earnings for the segment were $4.50 million, an increase of 104.5% compared to the prior year.
Financials
MillerKnoll's financial performance has been solid, with the company reporting $3.63 billion in annual revenue and $82.3 million in net income for the fiscal year ended June 1, 2024. The company's operating cash flow for fiscal year 2024 was $352.3 million, with free cash flow of $273.9 million. The company's strong balance sheet, with a net-debt-to-EBITDA ratio of 2.84 as of the end of the first quarter of fiscal 2025, provides financial flexibility to navigate market conditions and pursue strategic initiatives.
For the first quarter of fiscal 2025, MillerKnoll reported revenue of $861.5 million, a 6.1% decrease compared to the same period in the previous year. The company reported a net loss of $1.2 million for the quarter. Operating cash flow for the quarter was $21.1 million, while free cash flow was negative $1.5 million. The decrease in revenue was primarily driven by lower sales volumes in the Americas Contract and International Contract Specialty segments, partially offset by price increases.
MillerKnoll's financial position remains stable, with a debt-to-equity ratio of 1.03 and cash holdings of $209.7 million as of the end of the first quarter of fiscal 2025. The company has an available credit line of $278.7 million, providing additional liquidity if needed. The current ratio stands at 1.59, while the quick ratio is 0.93, indicating the company's ability to meet its short-term obligations.
Sustainability Commitment
One of the key drivers of MillerKnoll's success has been its unwavering commitment to sustainability. The company has set ambitious goals to reduce its environmental impact, including achieving carbon neutrality by 2030 and ensuring that 100% of its products are designed for the circular economy by 2025. These efforts have been recognized, with MillerKnoll being named to the Dow Jones Sustainability Index for the past five consecutive years.
Growth Strategy
The company's growth strategy focuses on leveraging its diverse portfolio of brands, expanding its global footprint, and investing in cutting-edge product innovation. In the first quarter of fiscal 2025, MillerKnoll reported a 2.4% year-over-year increase in orders, led by a 5.2% organic growth in the Americas Contract segment. The company's backlog also grew by 9.2% compared to the same period last year, reaching $758.0 million and indicating a strong pipeline of future business.
Challenges and Adaptation
However, the company is not without its challenges. The ongoing COVID-19 pandemic has had a significant impact on the office furniture industry, with many companies reevaluating their real estate needs and work-from-home policies. Additionally, inflationary pressures and supply chain disruptions have presented obstacles for MillerKnoll and its peers.
To address these challenges, MillerKnoll has taken a proactive approach, focusing on cost management, operational efficiency, and the continued integration of the Knoll business. The company has also been closely monitoring market trends and adapting its product portfolio to meet the evolving needs of its customers, such as the rising demand for hybrid work solutions and home office furnishings.
Future Outlook
Despite the headwinds, MillerKnoll remains optimistic about the future. The company's strong brand reputation, innovative product pipeline, and commitment to sustainability position it well to capitalize on the long-term shifts in the workplace and residential design landscapes. As the global economy continues to recover, MillerKnoll is poised to leverage its collective of dynamic brands and deliver sustainable value for its shareholders.
For the full fiscal year 2025, MillerKnoll is maintaining its adjusted earnings guidance of $2.20 per share, which is the midpoint of the range provided in June. For the second quarter of fiscal 2025, the company expects net sales to range between $950 million and $990 million, with adjusted diluted earnings expected to range between $0.51 and $0.57 per share. The guidance for Q2 FY2025 takes into consideration a shift in the timing of the holiday/cyber promotional period for the retail business, with some revenue moving from Q2 to Q3.
MillerKnoll cited positive trends in global contract demand, increased backlog position, and expected macroeconomic improvements in the back half of the fiscal year as supporting their full-year adjusted earnings guidance. The company emphasized that the shift in timing of the holiday/cyber promotional period is an important factor to consider when comparing quarterly sales and earnings estimates to the prior fiscal year.