MillerKnoll, Inc. (MLKN) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: strong retail orders and international growth are offset by declining margins and challenges in North America. The Q&A highlights concerns about cost pressures and market volatility, but also resilience in the premium consumer base. While guidance remains stable, the lack of clarity on cost impacts and AI's role introduces uncertainty. Given the company's market cap, the stock is likely to see a neutral reaction, with minor fluctuations as investors weigh positive growth against operational challenges.
Key Financial Performance
Adjusted Earnings Per Share (EPS) $0.43 compared to $0.44 in the same quarter last year, reflecting a slight decrease year-over-year.
Consolidated Net Sales $927 million, up 5.8% year-over-year on a reported basis and 3.8% higher organically, driven by growth in North America Contract and Global Retail segments.
Orders $932 million, up 9.2% as reported and 7.2% higher on an organic basis, driven by growth in North America Contract and Global Retail segments.
Consolidated Backlog $712 million at quarter end, up 3.7% from a year ago.
Consolidated Gross Margin 38.1%, up 20 basis points year-over-year, driven by gross margin strength in the North America Contract segment.
Cash Flow from Operations $61 million generated in the quarter.
Debt Reduction $41 million reduced, lowering the debt-to-EBITDA ratio to 2.75x, moving towards the midterm goal of 2x to 2.5x.
Liquidity $594 million at the end of the third quarter.
Quarterly Cash Dividend $0.1875 per share, with an annual indicated dividend of $0.75 per share and a yield of 3.9%.
North America Contract Net Sales $489 million, up 4.4% on a reported basis and 4.1% higher organically.
North America Contract Orders $491 million, up 13.1% on a reported basis and 12.8% organically from prior year.
North America Contract Adjusted Operating Margin 9.8%, up 70 basis points year-over-year, primarily from gross margin expansion, driven by leverage on higher sales and operating efficiency.
International Contract Net Sales $157 million, up 7.8% on a reported basis and 1.9% organically.
International Contract Orders $160 million, up 0.7% versus prior year on a reported basis and down 4.3% organically, driven primarily by lower orders in Latin America and the Middle East, partially offset by strength in Asia Pacific.
International Contract Adjusted Operating Margin 8.2%, down 110 basis points compared to prior year, primarily related to regional and product sales mix in the quarter as well as foreign currency impact.
Global Retail Net Sales $281 million, up 7.1% on a reported basis and 4.4% organically.
Global Retail Orders $280 million, up 7.9% year-over-year on a reported basis and 5.1% on an organic basis.
Global Retail Adjusted Operating Margin 2.8%, down 340 basis points year-over-year, primarily due to a freight benefit in the prior year, targeted promotional actions to offset adverse weather, and the impact from opening new stores.
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Operating Highlights
New Product Launches: Showcasing launches for the Workspace in healthcare from Herman Miller, Knoll, Geiger, NaughtOne, HAY, Muuto, and Maharam at the upcoming industry trade show.
Herman Miller Seating Campaign: Launched the first Herman Miller seating campaign with engaging video and targeted marketing globally.
Middle East Market: The Middle East remains a long-term growth opportunity despite current disruptions due to conflict.
Global Retail Expansion: Expanded store footprint with new DWR locations in Fort Worth, Texas, Pittsburgh, Pennsylvania, and a Herman Miller store in Phoenix, Arizona. Plans to open 3-4 more locations by fiscal year-end, aiming to double the DWR Herman Miller store footprint over several years.
International Market Growth: Sales strength observed in India, China, Japan, Southern Europe, Germany, and the U.K. Focus on underpenetrated markets and expanding dealer share.
MillerKnoll Performance System (MKPS): Celebrated 30 years of MKPS, emphasizing efficient and reliable production as a competitive advantage.
Operational Efficiency in North America Contract: Gross margin expansion driven by leverage on higher sales and operational efficiency, with adjusted operating margin at 9.8%.
Retail Strategy: Focused on new store openings, expanded product assortment, e-commerce acceleration, and increased brand awareness.
Balance Sheet Strengthening: Reduced debt by $41 million, achieving a debt-to-EBITDA ratio of 2.75x, moving towards a midterm goal of 2x to 2.5x.
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Risk or Challenges
Macroeconomic and Geopolitical Uncertainty: Ongoing macroeconomic and geopolitical uncertainty, including severe weather, could impact sales and operational performance.
Middle East Conflict: The current conflict in the Middle East is causing disruptions, expected to impact fourth-quarter sales and costs, including higher logistics costs due to increased oil prices.
Adverse Weather Conditions: Severe weather in North America led to lower store traffic and closures, negatively affecting sales.
Regional and Product Sales Mix: In the International Contract segment, regional and product sales mix, along with foreign currency impacts, led to a decline in operating margins.
New Store Costs: Incremental costs associated with opening new stores are impacting operating expenses and margins in the Global Retail segment.
Logistics Costs: Higher logistics costs, particularly from increased oil prices, are expected to affect gross margins in the fourth quarter.
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Guidance & Outlook
Tariff Costs: The company expects to fully offset tariff costs for the remainder of the fiscal year, as it did in the third quarter.
Middle East Impact: The ongoing conflict in the Middle East is expected to create disruptions, impacting fourth-quarter sales and costs. The company estimates shipping only a minimal amount of approximately $12 million in Middle East-related orders in the fourth quarter.
North America Contract Segment: The company anticipates continued order growth and resiliency in demand as customers invest in their spaces. Industry benchmarks show improving trends in Class A leasing, net lease absorption, and return to office dynamics.
International Contract Segment: The company remains optimistic about growth opportunities in underpenetrated markets and plans to expand dealer share of wallet in these regions. Sales strength is noted in India, China, Japan, Southern Europe, Germany, and the U.K.
Global Retail Segment: The company plans to open 3 to 4 more locations before the end of fiscal 2026, aiming to end the year with 14 to 15 new stores in the U.S. The strategy includes doubling the DWR Herman Miller store footprint over the next several years.
Q4 Financial Guidance: Net sales are expected to range between $955 million and $995 million, with gross margin projected between 37.5% and 38.5%. Adjusted diluted earnings are expected to range between $0.49 and $0.55 per share. The direct impact of the Middle East conflict is estimated to be $8 million to $9 million in the quarter, or $0.09 to $0.10 per share.
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Shareholder Return Plan
Quarterly Cash Dividend: In January, the Board of Directors declared a quarterly cash dividend of $0.1875 per share. The dividend is payable on April 15 to shareholders of record on February 28, 2026.
Annual Indicated Dividend: The annual indicated dividend is $0.75 per share, yielding 3.9% based on the closing stock price as of the day before the announcement.
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Key Q&A
Q:How did the snowstorms and ice storms earlier in the year impact the business?
A:The severe weather led to lower traffic in retail stores, several store closures, and plant shutdowns. The North America retail business accounted for a little under half of the top-line miss relative to guidance. Contract business also saw a slowdown in showroom visits and order patterns during January.
Q:What cost pressures are being observed due to the volatile situation in the Middle East?
A:The company has seen increases in diesel and oil-related fuel costs but has not yet observed significant impacts on plastics, foam, or other petroleum-related products. They are monitoring the situation daily and have incorporated higher oil and logistics costs into their guidance. They are prepared to react with pricing and surcharges as needed.
Q:Is the company building inventories as a precaution?
A:The company is not currently building inventories but is monitoring the situation cautiously. They have dual supply arrangements for critical components, a lesson learned during COVID.
Q:How is the office environment performing amidst geopolitical uncertainties?
A:In North America, the office environment continues to show momentum with positive architectural billings, customer visits, and demand. Outside the U.S., performance varies by region, with some caution in areas affected by conflicts like Ukraine and the Middle East, but no major pullbacks in order trends.
Q:What is the impact of recent market volatility and rising gas prices on the contract and retail businesses?
A:For the contract business, the company has built in caution around oil prices and is monitoring component costs. For retail, the premium consumer base remains resilient despite rising prices and gas costs. The company is balancing pricing and demand to avoid outpricing consumers.
Q:What are the recent trends in the government segment of the contract business?
A:The federal government business is expected to be tough and down year-over-year. Some agencies have slowed down due to reallocating resources to conflicts like the one in Iran. However, there are ongoing projects that will require furniture, making the segment choppy but active.
Q:What is the $12 million figure related to shipments to the Middle East?
A:The $12 million represents the sales the company anticipates it will not be able to ship to the Middle East.
Q:What is the expected pace of store openings in the retail business for the next fiscal year?
A:The company expects a similar pace of store openings as this year, around 14 to 15 stores, with a slight potential increase. Incremental costs per quarter are expected to remain similar.
Q:What areas of the product portfolio are being expanded in the retail business?
A:The company is expanding its lifestyle category, including residential home furnishings like upholstery and bedroom storage. They are also investing in the gaming portfolio, which is showing strong traction.
Q:Why was the retail gross margin down?
A:The retail gross margin was impacted by a favorable freight true-up last year, incremental shipping costs due to free shipping promotions during weather-impacted periods, and some FX and variable incentive impacts.
Q:What is the impact of AI on the office furniture industry and the company's tech sector clients?
A:The tech sector is very active, particularly in areas like the Bay Area and Austin. AI is causing some organizations to lay off certain employees while hiring others, balancing out its impact. The company is seeing robust activity in the tech sector.
Q:What is the quarter-to-date order growth rate for retail and North American contract?
A:International and retail orders are up, while North American contract orders are down. Adjusting for last year's tariff surcharge pull-ahead impact, the growth rate is around 2% year-over-year with some normalization.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer or lacked clarity on the following: 1. The potential for elevated costs from plastics and aluminum due to the Middle East situation was acknowledged but not quantified, with vague language about monitoring and scenario planning. 2. The use of surcharges as a pricing mechanism was mentioned as a possibility but not confirmed, leaving uncertainty about the company's approach. 3. The impact of AI on the office furniture industry was discussed in general terms without specific insights or data on how it might affect the company's operations or strategy.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America contract
America traffic
American lever
Arizona location
Artisan Palm
Beautiful medium
Beauty office
China Japan
Class leasing
DWR collaboration
DWR store
Directors President
East region
Essence House
Europe Germany
Fair Essence
Fort Worth
Global Retail
Palm Springs
campaign
cash generation
commerce
dynamic
insight
launch
marketing
production
sector
term value
weather
MLKN Transcript
MillerKnoll, Inc. (MLKN) Q4 2026 Earnings Call Transcript
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MillerKnoll, Inc. (MLKN) Q3 2026 Earnings Call Transcript
Unknown3-25
The earnings call presents a mixed picture: strong retail orders and international growth are offset by declining margins and challenges in North America. The Q&A highlights concerns about cost pressures and market volatility, but also resilience in the premium consumer base. While guidance remains stable, the lack of clarity on cost impacts and AI's role introduces uncertainty. Given the company's market cap, the stock is likely to see a neutral reaction, with minor fluctuations as investors weigh positive growth against operational challenges.
MillerKnoll, Inc. (MLKN) Q2 2026 Earnings Call Transcript
Unknown12-17
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.
MillerKnoll, Inc. (MLKN) Q1 2026 Earnings Call Transcript
Positive9-23
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.
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