MillerKnoll, Inc. Reports First Quarter Fiscal 2023 Results
- Strong sales growth of 37% over the prior year, up 12% organically
- Ended the quarter with a robust backlog of $868.6 million
- Continued progress with the integration of Knoll
$80 million of run-rate cost synergies captured to date
On track to deliver $120 million of run-rate cost synergies within three years of the Knoll acquisition
To our shareholders:
Following a strong first year as MillerKnoll, we entered fiscal year 2023 well positioned to leverage our unique combination of business channels. During the first quarter, we launched our MillerKnoll sales organization and dealer network in North America, introduced more than a dozen new products at the company’s first Design Days and continued to capture synergies through our integration work. We have built a solid foundation to meet the needs of our global customers and compete in a challenging environment.
One of MillerKnoll’s competitive advantages is our broad collective of complementary design brands that are brought to market through a combination of contract and retail channels. We stand to benefit from our unique and diverse business model that has shown resiliency throughout a variety of headwinds.
We are seeing some degree of uncertainty today in the end markets that we serve. As the first quarter progressed, we began to experience economic softening in various regions in which we operate. Our first quarter financial results reflect how strong performance in different segments of our business helps to mitigate softness in others, and how our global reach and operations continue to provide opportunities for growth and some insulation from regional downturns.
MillerKnoll Consolidated Results
Effective May 29, 2022, we changed our reporting segments in accordance with changes in our organizational structure. The reportable segments now consist of three segments: Americas Contract (“Americas”), International Contract & Specialty (“International & Specialty”), and Global Retail (“Retail”).
The first quarter of fiscal year 2023 included 14 weeks of operations as compared to the first quarter of fiscal year 2022, which was a standard 13-week period. The additional week is required periodically to more closely align the company’s fiscal year with the calendar months. This is a factor that should be considered when comparing the company’s first quarter financial results to the prior year period.
First quarter consolidated net sales were $1.08 billion, reflecting an increase of 36.6% on a reported basis and 12.3% organically compared to the prior year. Orders in the quarter of $1.01 billion were 10.5% higher on a reported basis and decreased 11.0% organically year-over-year.
Gross margin in the first quarter of 34.5% was 70 basis points lower than the same quarter last year on a reported basis and down 150 basis points on an adjusted basis. The variance was primarily due to higher commodity costs and other inflationary pressures, partially offset by the benefit from recently implemented price increases.
Consolidated operating expenses for the quarter were $321.3 million, compared to $330.3 million in the prior year. Consolidated adjusted operating expenses of $309.7 million, were up $74.5 million from last year, primarily due to the acquisition of Knoll and an extra operating week in the first quarter of fiscal 2023 compared to the year-ago quarter. These factors were partially offset by the progress in cost-saving initiatives.
Operating margin for the quarter was 4.7% compared to an operating loss of 6.7% for the year-ago quarter. On an adjusted basis, which excludes acquisition and integration-related charges, consolidated operating margin was 5.8% compared to 6.2% in the prior year.
We reported diluted earnings per share of $0.34 for the quarter, compared to a diluted loss per share of $0.92 for the same period last year. Adjusted diluted earnings per share was $0.44 for the first quarter, compared to $0.50 for the same period last year.
At the end of the first quarter, our liquidity position reflected cash on hand and availability on our revolving credit facility totaling $402.4 million.
Outlook
We expect sales in the second quarter of fiscal year 2023 to range between $1,027 million and $1,067 million. The mid-point of this range implies a revenue increase of 2.0% compared to the same quarter last fiscal year on a reported basis and 5% on an organic basis. We anticipate earnings per share to be between $0.39 and $0.45 for the quarter.
Given the current macroeconomic backdrop, we are proactively taking additional steps to improve our near-term profit and cash flow outlook. These include offering a voluntary retirement window, further optimizing our organizational structure, reductions in program spending, and rationalizing capital expenditures. As a result of these planned actions, we expect to realize annualized expense reductions of approximately $30 million to $35 million. These savings should begin gaining traction during the third quarter and be more fully realized in the fourth quarter.
Solving Customer Needs Across the Globe Through Strong Brands and Complementary Channels
For the first quarter, the Americas Contract segment posted net sales totaling $537.4 million, up 40.9% compared to the year-ago quarter on a reported basis and up 14.7% organically. New orders in the quarter totaled $511.3 million, an increase of 3.2% from the same quarter last year on a reported basis and down 17.2% organically. The decline in orders year-over-year reflects the impact of pandemic-driven pent-up demand during the first quarter of fiscal 2022, which created a more challenging comparison. This was compounded by events in the first quarter of fiscal 2023, including customers piloting smaller orders, delays in projects due to understaffed dealer design groups, and customers’ concerns about the potential for a global recession.
We have taken proactive steps to mitigate the factors affecting our results. Our recent price increases helped improve the gross margin performance of the segment, and we anticipate taking additional action in the near-term to further offset the impact of general inflationary pressures. We expect to gain traction as the price increases taken earlier this year are realized and a planned price increase in October begins to impact results.
The International Contract and Specialty segment delivered double-digit sales growth this quarter compared to the year-ago quarter. Net sales in the first quarter totaled $272.5 million, an increase of 63.1% from the year-ago period on a reported basis and up 30.0% organically. New orders in this segment totaled $252.4 million, representing a year-over-year increase of 30.8% on a reported basis and up 0.8% organically. From a market demand perspective, we saw strong order growth in India, South Korea and the Middle East, partially offset by softer demand in China and Central and Eastern Europe.
An important advantage of our business is that we have a global presence and the ability to take brands into new markets. Following the successful launch of our MillerKnoll dealer network in the United States, we are applying learnings and building the international MillerKnoll contract dealer network. Our international dealer cross-sell pilot now includes 41 dealers from 17 countries on three continents. We plan to expand our pilot to India, the Middle East, and Africa later this year.
Net sales in the first quarter for our Global Retail segment totaled $268.9 million, an improvement of 11.4% over the same quarter last year on a reported basis and down 3.7% organically. New orders in the quarter totaled $249.4 million, up 9.3% compared to the same period last year on a reported basis and down 7.7% organically. While the Global Retail segment continues to generate significantly higher profitability than prior to the pandemic, we are seeing softness in demand compared to last year as consumers shift their spending toward experiences. To manage the business through this environment and mitigate pressures, we are making investments in areas where we see the potential for value creation, including systems, tools, and capabilities, while carefully managing our overall cost structure. In addition, we are implementing targeted price increases and diligently monitoring their impact.
Our goal is to pace our capital spending appropriately to mitigate the impact of shifting consumer spending patterns without losing the momentum and market share we have gained. With this in mind, we are prudently spending on stores more gradually and closing underperforming stores. During the quarter, we opened six stores in New York, Los Angeles, Denver, and West Palm Beach in the United States, and Copenhagen, Denmark, and Nagoya, Japan.
We are also expanding our reach outside of our brick-and-mortar locations by prioritizing eCommerce to further build our business. On August 10, 2022, we launched our online Design Within Reach Trade Program, making it easier for interior designers and other trade members to access their discount and place orders. The majority of new members are new-to-file trade accounts. We are encouraged by the number of new members that have joined this program since its launch and believe it will yield incremental business.
Continued Progress Integrating the Knoll Acquisition
We have made great strides on the integration and continued progress toward our goal of delivering $120 million in cost synergies by the end of the third year following the close of the acquisition, having captured $80 million in run rate cost synergies at the end of the first quarter. We achieved significant savings through in-depth analysis of our cost structure and focusing on opportunities in areas such as procurement, logistics, technology, and manufacturing.
Driving Growth Through Product Innovation, Inclusive Design and Sustainability
During the first quarter, we launched a dozen new products across the collective of brands at the first MillerKnoll Design Days, including our Newson and Zeph task chairs at Knoll and Herman Miller, respectively, an innovative standing desk at Geiger, and ancillary lounge and outdoor furniture at Muuto.
In September, the company had several additional launches. Knoll introduced Inlet, a moveable screen that supports flexible workspaces with privacy and workspace delineation. Herman Miller launched a new version of the Eames Shell Chair with recycled materials and a Herman Miller X Hay collaboration, showing how the company can leverage design expertise across its portfolio of brands.
As we continue to grow and expand as a company, we can have a greater impact on the communities where we live and work. With that in mind, we recently launched the MillerKnoll Foundation by bringing together the legacy foundations of Herman Miller and Knoll. The MillerKnoll Foundation has three overarching philanthropic goals: engaging underrepresented youth in art and design, advancing equity in MillerKnoll’s communities worldwide and doing more for our planet. In the months and years to come we expect to see this foundation make meaningful impacts locally, nationally, and globally.
We march into fiscal 2023 with pragmatism around short-term market shifts and optimism for our long-term growth prospects. We will continue to focus on what we can control and manage the business diligently. We have a capable and experienced management team to guide the business forward. Our team is committed to executing against the company’s five strategic priorities: bringing MillerKnoll to life, building a customer-centric ecosystem that is digitally enabled, accelerating profitable growth, attracting, retaining and developing world-class talent, and reinforcing our commitment to our People, our Planet, and our Communities.
Thank you for your continued support of our company. We look forward to continuing this journey with you.
Andi Owen
President and Chief Executive Officer
Jeff Stutz
Chief Financial Officer
The full text of MillerKnoll’s 1Q23 earnings release, including all tables, and a replay of the company’s Sep. 28 conference call webcast may be accessed at www.millerknoll.com/investor-relations
About MillerKnoll
MillerKnoll is a collective of dynamic brands that comes together to design the world we live in. MillerKnoll brand portfolio includes Herman Miller, Knoll, Colebrook Bosson Saunders, DatesWeiser, Design Within Reach, Edelman Leather, Fully, Geiger, HAY, Holly Hunt, KnollTextiles, Maars Living Walls, Maharam, Muuto, naughtone, and Spinneybeck|FilzFelt. MillerKnoll is an unparalleled platform that redefines modern for the 21st century by building a more sustainable, equitable and beautiful future for all.
