MillerKnoll, Inc. Reports First Quarter Fiscal 2024 Results

MillerKnoll Inc.  (NASDAQ: MLKN) today reported results for the first quarter of fiscal year 2024 which ended September 2, 2023.

Business Highlights

  • Full year adjusted earnings guidance increased to a range of $1.85 to $2.15 per share.
  • Gross margin improved 450 basis points on a consolidated basis over the prior year, with expansion reported in all three segments.
  • Significant profit improvement in the Americas Contract segment which delivered reported and adjusted year-over-year operating margin expansion of 460 and 570 basis points respectively.
  • Organic order growth of 2.1% for the Americas Contract segment over the prior year.

To our shareholders:

Our teams around the world delivered great results for the first quarter of the new fiscal year. We exceeded our July earnings guidance for the quarter through a combination of strong sales, on the high end of our guidance, and gross margin expansion in each of our business segments. We are off to a very good start to our new fiscal year and are encouraged by the momentum from our ongoing integration efforts and the broader implementation of the MillerKnoll strategic vision.

Having said this, as a global enterprise we are currently facing challenges arising from specific macroeconomic factors impacting certain sectors of our business. While the specter of economic recession in North America appears to be fading, the housing market remains under pressure. Additionally, we are facing difficult macroeconomic conditions in both China and Europe. However, we believe our first-quarter financial results demonstrate the power of our diversified business model in leveraging areas of strength as an offset to regional challenges.

First Quarter Fiscal 2024 Consolidated Results

The first quarter of the prior year, fiscal year 2023, included 14 weeks of operations as compared to the first quarter of fiscal year 2024, which has a standard 13-week period. The additional week is required periodically to align the company’s fiscal year more closely with the calendar months. This difference should be considered when comparing the company’s first quarter financial results to the prior year period and is also the main variance between reported and organic calculations for the quarter.

Consolidated net sales for the first quarter were $917.7 million, reflecting a decrease of 14.9% on a reported basis and a decrease of 6.9% organically compared to the same period last year. Orders in the quarter of $913.7 million were 9.8% lower on a reported basis and 1.3% lower organically year-over-year. The relative decline in organic orders is, however, an improvement compared to the 7.8% year-over year organic decline posted in the fourth quarter of fiscal year 2023.

Gross margin in the quarter was 39.0%, which is 450 basis points higher than the same time last year. The year-over-year increase in gross margin was mainly driven by the realization of price optimization strategies, moderating input costs and benefit from our ongoing integration efforts. This is the third consecutive quarter of consolidated year-over-year adjusted gross margin expansion.

Consolidated operating expenses for the quarter were $317.8 million, compared to $321.3 million in the prior year. Consolidated adjusted operating expenses were $302.7 million, down $7.0 million year-over-year, primarily driven by a high comparable due to an extra operating week in fiscal year 2023 plus the continued focus on cost optimization and synergy capture which were partially offset by an increase in variable compensation.

Operating margin for the quarter was 4.4% compared to 4.7% in the same quarter last year. On an adjusted basis, consolidated operating margin was 6.0% compared to 5.8% in the same quarter last year.

Reported earnings per share were $0.22 for the quarter, compared to $0.34 for the same period last year. Adjusted earnings per share were $0.37 for the quarter, compared to $0.44 for the same period last year. As a reminder, the first quarter of last fiscal year included an extra week of operations, which accounted for an estimated $77 million of net sales.

As of September 2, 2023, our liquidity position reflected cash on hand and availability on our revolving credit facility totaling $561.3 million. During the first quarter, the business generated $130.9 million of cash flow from operations and we repaid $66.0 million of debt as part of our capital deployment priority of maintaining a strong balance sheet. We also took the opportunity to repurchase approximately 1.7 million shares for a total cash outlay of $31.7 million. We ended the first quarter with a net debt-to-EBITDA ratio, as defined by our lending agreement, of 2.5x. Our scheduled debt maturities (which exclude the maturity of the revolver) for the remainder of fiscal year 2024, and for fiscal years 2025, 2026 and 2027 are $26.8 million, $41.3 million, $46.2 million and $276.3, million respectively.

As of the end of the first quarter, we have achieved $142 million in run-rate cost synergies resulting from the acquisition of Knoll, Inc in the first quarter of fiscal 2022.  We continue to make meaningful progress on our integration plans, and we now expect total run-rate cost synergies to equal $160 million per year by the end of the third year following the acquisition.

First Quarter Fiscal 2024 Results by Segment

Americas Contract

For the first quarter, the Americas Contract segment posted net sales totaling $490.4 million, down 8.7% year-over-year on a reported basis and down 1.7% organically. New orders in the quarter totaled $487.3 million, down 4.7% year-over-year on a reported basis and up 2.1% organically. This year-over-year growth in organic orders also represents a sequential improvement when compared to the fourth quarter of fiscal year 2023. While month-to-month demand patterns in this segment of our business remain somewhat inconsistent, the general trend over the past three quarters has been positive, and we remain confident that improving macro-economic conditions will enhance growth opportunities in the near-term. Our strategic focus on bringing MillerKnoll to life by delivering on our synergy commitments and successfully executing our integration plans, coupled with the intensification of our reach in resilient verticals and an increasing shift from North American companies towards return-to-office practices, is yielding positive results.

Adjusted operating margin for this segment was 10.6%, 570 basis points higher than the same quarter last year, driven by improvements from net pricing realization and incremental benefits achieved from integration-related synergies.

International Contract and Specialty

The International Contract and Specialty segment delivered net sales in the first quarter of $228.3 million, down 16.2% on a reported basis and down 10.9% organically on a year-over-year basis. New orders totaled $227.9 million, representing a year-over-year decrease of 9.7% on a reported basis and down 3.6% organically. During the quarter, lower than expected demand from China and Europe was partially offset by growth in the Middle East. Despite some market headwinds, our efforts to expand our MillerKnoll dealer network in the international markets continues to gain traction. Within the Specialty portion of this segment, while Holly Hunt and our textile brands experienced lower demand, Spinneybeck Filzfelt delivered order growth for the quarter. Looking ahead, we continue to see many opportunities to introduce these design-focused brands to new markets.

Adjusted operating margin within this segment was 6.5% in the first quarter, down year-over-year driven by lower volume partially offset by price optimization, synergy benefits and geographic sales mix.

Global Retail

Net sales in the first quarter for our Global Retail segment totaled $199.0 million, a decline of 26.0% over the same quarter last year on a reported basis and down 13.6% organically. New orders in the quarter totaled $198.5 million, down 20.4% compared to the same period last year on a reported basis and down 6.4% organically.

Adjusted operating margin was 1.6%, down year-over-year mainly due to a combination of lower volume and product mix. The slowdown in the North American housing market and the rise in interest rates in Europe continue to have an impact on the demand for the retail segment when compared to last year. However, order trends in the North American market outperformed other regions during the quarter, driven by direct-to-consumer channels. We are allocating resources to enhance our digital platforms and technology infrastructure, with the aim of elevating the overall customer experience and satisfaction levels, while also intensifying our efforts to bolster brand awareness. Also, during the first quarter, we opened a Design Within Reach store in Ardmore, Pennsylvania, which has shown promising early results, including strong foot traffic and order intake.

Second Quarter and Fiscal 2024 Outlook

While economic uncertainty persists in parts of our business, we maintain a generally optimistic outlook. For full year fiscal 2024, we are increasing our guidance and expect to generate adjusted diluted earnings in the range of $1.85 and $2.15 per share.

As it relates to the second quarter of fiscal year 2024, we expect net sales to range between $950 million to $990 million and adjusted diluted earnings to be between $0.52 to $0.58 per share. This guidance takes into consideration the relative seasonal increase that we normally experience from the first to the second quarter.

Andi Owen
President and Chief Executive Officer

Jeff Stutz
Chief Financial Officer

The full text of MillerKnoll’s 1Q24 earnings release, including all tables, may be accessed here. A replay of the company’s Sep. 26 earnings call webcast and PDF of its 1Q24 investor presentation  may be accessed here.

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, Geiger, HAY, Holly Hunt, Knoll Textiles, 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.