MillerKnoll Inc. (NASDAQ: MLKN) today reported results for the first quarter of fiscal year 2025, which ended August 31, 2024.
Financial Highlights
- Orders in the first quarter were up 2.4% on a reported basis and up 3.5% organically from the prior year, led by Americas Contract growth of 5.2%.
- Ending backlog of $758.0 million increased 9.2% from last year and 10.9% from the start of fiscal 2025.
- Gross margin in the Global Retail segment improved by 160 basis points due to continued benefits from operational improvements.
To our shareholders:
MillerKnoll finished the first quarter with momentum and order growth. Demand is improving and our Contract business is seeing the return of larger projects in the Americas and Asia. Customers are also requesting shipment dates on new orders further into the future, on average, compared to previous years. As a result, our teams around the globe continue to control what they can by managing operating expenses to align with sales levels while advancing initiatives aimed at positioning the business for further growth as demand trends accelerate.
While demand trends in our Retail segment continue to reflect the impact of a tepid housing market, the investments we have made in platform operational capabilities are not only driving significant margin improvements, but also position us to support profitable growth plans as the macro-economic backdrop improves. We believe our first quarter financial results demonstrate the advantage of our collective of brands, diverse business channels and global footprint.
First Quarter Fiscal 2025 Consolidated Results
Consolidated net sales for the first quarter were $861.5 million, reflecting a decrease of 6.1% year-over- year and a decrease of 5.3% organically compared to the same period last year. Orders in the quarter of $935.9 million were up 2.4% as reported and 3.5% on an organic basis.
Gross margin in the quarter was 39.0%, which is flat with the same quarter last year despite the lower revenue level.
Consolidated operating expenses for the quarter were $321.1 million, compared to $317.8 million in the prior year. Consolidated adjusted operating expenses were $286.9 million, a decrease of $15.8 million year-over-year, driven by variability on lower net sales and the impact of cost synergies achieved through the acquisition of Knoll.
Operating margin for the quarter was 1.8% compared to 4.4% in the same quarter last year. On an adjusted basis, consolidated operating margin for the quarter was 5.8% compared to 6.0% in the same quarter last year.
We reported a diluted loss per share of $0.02 for the quarter, compared to diluted earnings per share of $0.22 for the same period last year. Adjusted diluted earnings per share were $0.36 for the quarter compared to $0.37 for the same period last year.
As of August 31, 2024, our liquidity position reflected cash on hand and availability on our revolving credit facility totaling $488.4 million. During the first quarter, the business generated $21.1 million of cash flow from operations. We repurchased approximately 1.5 million shares for a total cash outlay of $43.7 million. We ended the first quarter with a net debt-to-EBITDA ratio, as defined by our lending agreement, of 2.84x. Our scheduled debt maturities (which exclude the maturity of the revolver) for the remainder of fiscal year 2025, and for fiscal years 2026 and 2027 are $34.5 million, $46.8 million and $276.4 million respectively.
First Quarter Fiscal 2025 Results by Segment
Americas Contract
For the first quarter, Americas Contract net sales of $454.6 million were down 7.3% on a reported basis and down 7.0% organically compared to the same period last year. New orders totaled $512.7 million and were up 5.2% from the previous year and increased sequentially by 6.8% from the fourth quarter of fiscal 2024. Orders gained momentum throughout the quarter, with the highest levels in August. Leading indicators, such as project funnel additions, customer mock-up requests and new contract activations were up year-over-year and underscore an improving demand picture.
Operating margin in the quarter was 3.8% compared to operating margin of 8.4% in the prior year. On an adjusted basis, operating margin was 9.5% in the quarter, which is down 110 basis points compared to the same quarter last year primarily due to the loss of leverage of fixed costs on lower sales volume.
International Contract and Specialty
International Contract and Specialty segment net sales in the first quarter of $213.5 million were down 6.5% on a reported basis and down 6.3% on an organic basis year-over-year. Orders during the quarter totaled $234.1 million, resulting in a year-over-year increase of 2.7% on a reported basis and 3.1% organically, with the APMEA region leading in order growth.
Operating margin for the first quarter was 4.4% compared to 5.0% in the prior year. On an adjusted basis, operating margin for the quarter was 7.9%, up 140 basis points year-over-year, driven by previous cost reduction initiatives.
Global Retail
For the first quarter, our Global Retail segment sales totaled $193.4 million. This represents a year-over-year decline of 2.8% on a reported basis, and was essentially flat on an organic basis. Orders in the quarter totaled $189.1 million, down 4.7% compared to the same period last year on a reported basis and down 1.6% on an organic basis.
While soft conditions exist within the housing market, we remain focused on driving operational improvements. These efforts helped drive a year-over-year gross margin improvement of 160 basis points. Operating margin for the first quarter was 2.3% compared to 1.1% in the prior year. On an adjusted basis, operating margin for the quarter was 2.8%, which was 120 basis points higher than the prior year, driven by operational efficiencies.
In addition, we continue to execute programs to drive growth as macro-economic conditions improve. In North America, we estimate that we outperformed year-on-year retail industry comparisons by approximately 6 points during the quarter.(2) We expect to gain momentum fueled by a focus on product assortment expansion, design services and investment behind new store openings in the back-half of fiscal year 2025 and beyond.
Additional Highlights from Q1
Building engaging showroom experiences remains a priority for MillerKnoll. During the first quarter, we held successful client engagement events in our Chicago showrooms during Design Days. We continue to enhance our showrooms to feature the full breadth of our collective of brands and recently opened new MillerKnoll showrooms in London and New York.
We also demonstrated our ongoing commitment to designing for the future with new sustainable solutions, including the Eames Lounge Chair and Ottoman in a bamboo-based leather alternative. We also continued to deliver for our teams, offering programs to support associates, and earning a Great Place to Work® certification and “Best Place to Work for Disability Inclusion” status in the 2024 Disability Equality Index by Disability:IN®.
In support of our long-term growth plans, we evaluated the composition of our board of directors given the retirement of two directors since 2022. During the first quarter, we recruited three new members with expertise in technology, architecture, design and hospitality to augment the expertise of our current board.
(2) Estimate based on a comparison of MillerKnoll North American Retail sales trends to a composite data set comprised of information from the National Retail Federation, the U.S. Census Bureau, and two national U.S. commercial banks for the months of June, July and August 2024.
Second Quarter and Fiscal 2025 Outlook
We are maintaining our full year adjusted earnings guidance of $2.20 per share, which equates to the mid-point range we provided in June. This is supported by the positive trends we are seeing in global contract demand, our increased backlog position and expected macro-economic improvements in the back half of this fiscal year.
As it relates to the second quarter of fiscal year 2025, we expect net sales to range between $950 million to $990 million. Adjusted diluted earnings in the second quarter are expected between $0.51 – $0.57 per share.
This guidance takes into consideration a shift in the holiday/cyber promotional period for our retail business. Last year the full promotional period fell in the second quarter, while this year it will be split between the second and third quarters. Relative to last year’s revenue pacing, we estimate this shift in timing will move between $17 million and $23 million of net sales from the second quarter into the third quarter of this fiscal year. This is an important factor to consider when comparing quarterly sales and earnings estimates to our performance last fiscal year.
The full text of MillerKnoll’s 1Q25 earnings release, including all tables, and additional links to materials supporting the release, including an archived replay of the company’s Sep. 19 conference call and webcast, are available at https://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, Geiger, HAY, Holly Hunt, Knoll Textiles, 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.
