Executive Summary / Key Takeaways

• Design Heritage Meets Modern Growth: MillerKnoll ($MLKN) is leveraging its century-long legacy of iconic design and the strategic 2021 Knoll acquisition to drive growth across its North America Contract, International Contract, and Global Retail segments, focusing on innovative product creation and market expansion.
• Strong Q1 FY26 Performance with Strategic Headwinds: The company delivered robust Q1 FY26 results, with consolidated net sales up 10.9% and adjusted diluted EPS increasing 25% year-over-year. However, profitability was impacted by new retail store opening costs and tariff-related expenses, which are expected to persist through the first half of fiscal year 2026.
• Retail Expansion as a Key Growth Lever: MillerKnoll is aggressively expanding its Global Retail footprint, planning 12 to 15 new U.S. stores in FY26. This initiative, coupled with a significant increase in new product launches, is designed to capture market share and drive long-term revenue and e-commerce growth, despite near-term margin pressures from upfront investment.
• Contract Business Momentum and Macroeconomic Resilience: The North America Contract segment shows building momentum, with strong underlying demand indicators and a shift to more certain, shorter-term orders. While international markets are recovering slower, the company's diverse channels and global scale provide a competitive advantage against macroeconomic uncertainties and evolving trade policies.
• Prudent Financial Management Amidst Volatility: MillerKnoll maintains a strong balance sheet and liquidity, with a net debt to EBITDA ratio of 2.92 turns. Management is focused on debt reduction and strategic capital expenditures, while actively implementing mitigation strategies to offset tariff impacts by the second half of FY26.

A Legacy of Design and Strategic Evolution

MillerKnoll, Inc. ($MLKN), a global leader in interior furnishings, stands on a foundation built over a century of design research and exploration. Originally Herman Miller, Inc., the company's transformation into MillerKnoll in November 2021 followed the pivotal acquisition of Knoll in July 2021. This strategic move was not merely an expansion but a deliberate effort to integrate two design powerhouses, creating a collective of globally recognized brands that now includes Herman Miller, Knoll, Design Within Reach (DWR), HAY, Muuto, and many others. This integration has allowed MillerKnoll to present a unified, unmatched product portfolio to a broader audience, spanning residential, office, healthcare, and educational settings worldwide.

The company's strategy is deeply rooted in accelerating product creation and innovation, ensuring consistent execution, and maintaining prudent cost management, all while investing for profitable growth. This approach is particularly evident in its response to evolving market dynamics, such as the increasing recognition among companies of the benefits of bringing employees back to the office. This trend is driving a refresh of workspaces, with office leasing activity for Class A spaces showing robust growth in many markets. For instance, Manhattan leasing activity in August was well above its ten-year monthly average. MillerKnoll is strategically positioned to capitalize on this resurgence, offering state-of-the-art solutions that cater to modern work environments.

Technological Edge: Crafting the Future of Furnishings

MillerKnoll's competitive advantage is significantly bolstered by its proprietary design technology and relentless focus on innovation. The company's core technological differentiation lies in its deep understanding of ergonomics and human-centered design, translating into products that offer tangible benefits in user comfort, productivity, and adaptability. This is exemplified by iconic products like the Aeron chair, which has now been adapted into an electrostatic discharge (ESD) version for specialized environments such as data centers and clean rooms. This specific adaptation demonstrates MillerKnoll's ability to extend its proven ergonomic principles into niche, high-demand sectors, offering a solution that enhances efficiency and functionality in technologically sensitive spaces.

The company's commitment to R&D and new product development is a critical driver of its long-term growth. At Design Days 2025, MillerKnoll introduced over 30 new products, including the Knoll Dividends Skyline, a refined, flexible, and holistically integrated system designed to reimagine open-plan workplaces for dynamic and compact office environments. This system's focus on planning typologies and a contemporized material palette empowers architects and designers to deliver comprehensive interior solutions. Similarly, Herman Miller's new Gemma Healthcare Seating Family, backed by extensive research, is thoughtfully designed to support the diverse needs of patients, families, and caregivers, combining intuitive functionality with a warm aesthetic. These innovations are not just about new aesthetics; they aim to provide significantly higher efficiency in user experience and adaptability for modern offices and specialized environments.

The impact of these technological advancements on MillerKnoll's financial performance and market positioning is substantial. New product launches in spring-summer 2025 were up over 65% compared to the prior year, contributing to new product order growth exceeding 20% in Q1 FY26. This influx of newness directly correlates with overall growth and, importantly, drives demand from customers who are new to MillerKnoll, fostering new customer acquisition and building long-term customer lifetime value. Furthermore, initiatives like the refreshed Mirra 2 Chair, made with more recycled content and a lower carbon footprint, underscore a commitment to sustainability that resonates with environmentally conscious clients, potentially leading to higher average selling prices (ASPs) and stronger margins through premium positioning.

Competitive Landscape: A Collective Against Formidable Rivals

MillerKnoll operates in a competitive landscape with direct rivals such as Steelcase (SCS), HNI Corporation (HNI), and Virco Manufacturing (VIRC), alongside a myriad of indirect competitors. MillerKnoll's strategy of offering a "collective of brands" provides a distinct competitive advantage, allowing it to cater to a wide spectrum of customer needs, from high-end contract solutions to accessible retail offerings. This broad portfolio, coupled with its global scale and reach, positions MillerKnoll as a design leader.

Compared to Steelcase, MillerKnoll's emphasis on iconic, design-driven ergonomic solutions and its integrated furniture ecosystems may offer a qualitative edge in brand loyalty and premium market positioning. While Steelcase is strong in operational scale for high-volume commercial projects, MillerKnoll's focus on innovation and aesthetic integration for hybrid workspaces allows it to capture market share in design-led segments. Against HNI Corporation, which focuses on cost-effective, utilitarian solutions, MillerKnoll's premium, design-focused offerings provide significantly greater efficiency in user experience and adaptability for modern offices. MillerKnoll's strong brand heritage and e-commerce capabilities also differentiate it from Virco Manufacturing, which specializes in durable, affordable furniture for educational and institutional settings. While Virco might lead in cost efficiency for large-scale, budget-sensitive contracts, MillerKnoll's products offer superior design flexibility and ergonomics.

The industry is also influenced by indirect competitors, including technology firms offering virtual collaboration tools that could reduce demand for physical office furniture, and retailers like IKEA that target residential and budget office segments. However, MillerKnoll's strategic investments in physical retail expansion and product assortment aim to counter these pressures. The company's focus on sustainability, such as the elimination of added PFAS from its North American product portfolio by May 2025, further differentiates it in a market increasingly valuing environmentally responsible products. Barriers to entry in this industry, such as established brand loyalty and high R&D requirements, help MillerKnoll defend its market position.

Financial Performance: A Story of Resilience and Strategic Investment

MillerKnoll's financial performance in the first quarter of fiscal year 2026 demonstrates resilience and the initial returns on its strategic investments, even amidst a dynamic macroeconomic environment. Consolidated net sales for Q1 FY26 reached $955.7 million, marking a robust 10.9% increase (10% organically) compared to the prior year. This growth was broad-based, with all segments contributing positively. Adjusted diluted earnings per share saw a significant 25% increase to $0.45, up from $0.36 in the prior year quarter.

However, the quarter also reflected strategic investments and external pressures. Consolidated gross margin was 38.5%, a slight decrease of 50 basis points year-over-year, primarily due to an estimated $8 million in net tariff-related costs. Operating expenses decreased by $6.5 million, or 2%, largely driven by a $27.8 million reduction in integration charges related to the Knoll acquisition, which is now largely complete. This benefit was partially offset by increased variable sales expenses, compensation and benefit costs, and the costs associated with opening new retail stores.

Segment-wise, North America Contract net sales grew 12.1% to $533.9 million, with adjusted operating margin improving by 200 basis points to 11.4%. This was driven by higher sales volumes and fixed expense leverage, though partially offset by tariffs. International Contract net sales increased 14.4% (11.3% organically) to $167.5 million, but adjusted operating margin declined 60 basis points to 8.5% due to regional and product mix. Global Retail net sales rose 6.4% (4.9% organically) to $254.3 million. However, its adjusted operating margin fell 190 basis points to 1.2%, primarily due to new store opening costs, increased freight, and higher net tariff impacts. Management noted that Q1 is seasonally the lowest volume quarter for retail, and new store expenses are expected to impact margins through the first three quarters of the fiscal year.

From a liquidity perspective, MillerKnoll ended Q1 FY26 with $480.5 million in total liquidity, comprising cash and cash equivalents and available credit. Net cash provided by operating activities was $9.4 million, a decrease from $21.1 million in the prior year, mainly due to an increase in working capital. Cash used in investing activities increased to $30.5 million due to higher capital expenditures.

The company's net debt to EBITDA ratio stood at a manageable 2.92 turns, comfortably within its lending agreements. MillerKnoll also refinanced its Term Loan B, extending its maturity to February 2032, incurring a $7.8 million non-cash debt extinguishment charge. The company plans full-year capital expenditures of $120 million to $130 million for FY26, primarily for facilities and retail expansion.

Outlook and Guidance: Charting a Path Through Uncertainty

MillerKnoll's outlook for the second quarter of fiscal year 2026 reflects a prudent approach in a volatile macroeconomic environment, while maintaining confidence in its long-term growth trajectory. For Q2 FY26, the company anticipates net sales to range between $926 million and $966 million, representing a 2.5% decrease versus the prior year at the midpoint of $946 million. This guidance normalizes for an estimated $55 million to $60 million in order pull-forward into Q4 FY25 in the North America Contract business, which occurred ahead of tariff surcharges and price increases. When normalizing for this, sales for the first half of fiscal 2026 are expected to be up approximately 3.8% at the midpoint.

Gross margin for Q2 FY26 is projected to be between 37.6% and 38.6%. The company expects net tariff-related impacts to reduce gross margin by $2 million to $4 million before tax, or $0.02 to $0.04 per share after tax, in Q2 FY26. However, management is confident that collective mitigation actions, including pricing adjustments and supply chain optimizations, will fully offset these costs by the second half of the fiscal year. Adjusted operating expenses are guided to be between $300 million and $310 million, with adjusted diluted earnings per share expected to range from $0.38 to $0.44.

A significant factor in the retail segment's near-term profitability is the aggressive new store opening strategy. MillerKnoll plans to open 12 to 15 new U.S. stores in FY26, with an estimated $4 million to $5 million in incremental operating expenses tied to these new locations in Q2 FY26, and similar costs expected in subsequent quarters. While these investments will pressure retail margins in the short term, the new stores are anticipated to become accretive to both the top and bottom lines by the end of Q4 FY26 or Q1 FY27. The company's long-term goal for the Global Retail segment's operating income is in the mid-teens.

Risks and Challenges: Navigating Headwinds

Despite a positive outlook, MillerKnoll faces several pertinent risks. Changes to U.S. and international trade policies, particularly new or increased tariffs, pose a continuous challenge, impacting both the cost and availability of materials and demand for products. The company's exposure to China and Canada, particularly through the Knoll acquisition's manufacturing in Toronto, remains a key area of focus. Macroeconomic conditions, including heightened inflation, interest rate uncertainty, and geopolitical tensions, could also affect consumer spending and business confidence.

Furthermore, risks related to the additional debt incurred for the Knoll acquisition, including increased interest expense and compliance with debt covenants, require careful management. Foreign currency exchange rate fluctuations also impact production costs and profit margins, particularly for international sales. MillerKnoll's strategy to mitigate these risks includes a "playbook" of actions such as identifying alternative supply sources, advanced purchasing of components, and potential future price adjustments. The company's prudent cost management, including restructuring actions in Q3 FY25 that yielded approximately $4 million in annualized savings, aims to protect investments in growth strategies.

Conclusion

MillerKnoll is a company in a dynamic phase, strategically leveraging its rich design heritage and the transformative Knoll acquisition to drive future growth. The strong Q1 FY26 performance, particularly in North America Contract and the promising trajectory of Global Retail, underscores the efficacy of its design-led innovation and strategic expansion initiatives. While near-term profitability is impacted by essential investments in retail footprint expansion and the complexities of evolving tariff policies, management's clear guidance and proactive mitigation strategies provide a credible path to offsetting these headwinds by the second half of fiscal year 2026. The company's robust balance sheet and commitment to debt reduction further strengthen its position. Investors should recognize MillerKnoll's competitive differentiation through its iconic brands and technological leadership in ergonomic and adaptable furnishings, which are well-aligned with the accelerating return-to-office trend and growing demand for high-quality residential design. The ongoing execution of its retail growth strategy and the effective management of macroeconomic and trade policy uncertainties will be critical determinants of its continued success and long-term value creation.