MillerKnoll, Inc. Reports Fourth Quarter and Fiscal 2023 Results

MillerKnoll Inc. (NASDAQ: MLKN) today reported results for the fourth quarter and full year fiscal 2023 which ended June 3, 2023.

Business Highlights

  • Fourth quarter reported gross margin expansion of 230 basis points over the prior year.
  • Full year margin expansion despite a challenging macroeconomic environment.
  • $131 million¬†of run-rate cost synergies related to the Knoll integration captured to date.
  • Generated¬†$93 million¬†of cash flow from operations and repaid almost¬†$50 million¬†of debt, helping to further strengthen the balance sheet.

To our shareholders:

The current macroeconomic environment ‚ÄĒ which includes higher interest rates, complications from a regional banking crisis and relatively low CEO and consumer confidence levels ‚ÄĒ continues to pose challenges for our industry. These factors are expected to persist, posing difficulties particularly for the luxury housing market and discretionary spending on goods. However we maintain an optimistic outlook based upon improving trends in margin performance and underlying demand indicators.

Our teams around the globe recognize the importance of focusing on what we can control in this environment. We are committed to the continued diversification of our business, expanding our scale and reach internationally, and investing in our industry-leading position in resilient markets such as the healthcare and the public sector. We are leveraging technology to enhance the overall customer experience, streamline processes, and provide innovative solutions. Additionally, we are intensifying our collaboration with our dealers, ensuring seamless communication and efficient operations. Finally, we are building on our strategic partnerships with the architecture and design community, fostering inroads and collaborations that enable us to stay at the forefront of industry trends and deliver exceptional products and services.

All these initiatives enable us to effectively navigate the dynamic landscape and better serve our customers.

Fourth Quarter and Fiscal 2023 Consolidated Results

Consolidated net sales for the fourth quarter were $956.7 million, reflecting a decrease of 13.1% on a reported basis and a decrease of 12.0% organically compared to the same period last year. Orders in the quarter of $922.4 million were 9.0% lower on a reported basis and 7.8% lower organically year-over-year. This decline is an improvement compared to the 17.6% organic decline posted in the third quarter as we are lapping record post pandemic activity from fiscal year 2022 while also sequentially increasing orders quarter-over-quarter.

Gross margin in the quarter was 37.1% as reported and 37.0% on an adjusted basis, which is 230 basis points and 220 basis points higher than the same time last year, respectively. The year-over-year increase in both reported and adjusted gross margin was mainly driven by the realization of price optimization strategies and benefits from integration synergies.

Consolidated operating expenses for the quarter were $343.1 million, compared to $325.5 million in the prior year. Consolidated adjusted operating expenses were $297.6 million, down $13.8 million year-over-year, primarily due to a reduction in variable expenses, including certain forms of employee compensation and benefits, and the continued focus on cost optimization and synergy capture.

During the fourth quarter, the company recorded special charges associated with recent restructuring actions and ongoing acquisition integration activities. In addition, the company recognized a non-cash, pre-tax charge of¬†$19.7 million¬†related to the impairment of the Knoll trade name. This charge was determined based on the company’s annual impairment review process.

Operating margin for the quarter was 1.2% compared to 5.2% in the same quarter last year. On an adjusted basis, consolidated operating margin was 5.9% compared to 6.5% in the same quarter last year.

Reported earnings per share were break-even for the quarter, compared to $0.28 for the same period last year. Adjusted earnings per share were $0.41 for the quarter, compared to $0.58 for the same period last year.

As of June 3, 2023, our liquidity position reflected cash on hand and availability on our revolving credit facility totaling $507.7 million. During the fourth quarter, the business generated $92.5 million of cash flow from operations and repaid $48.4 million of debt as part of our capital deployment priority of maintaining a strong balance sheet. We ended the fourth 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 fiscal year 2024, 2025, 2026 and 2027 are $33.3 million, $41.3 million, $46.2 million and $276.3, million respectively.

As of the end of the fourth quarter, we have captured $131 million in run rate synergies following the close of the Knoll acquisition in the first quarter of fiscal 2022. We continue to make further progress towards our updated target of $145 million in synergies by the end of the third year following the acquisition.

For the full fiscal year 2023, net sales were $4.1 billion, reflecting a year-over-year increase of 3.6%. On an organic basis, net sales increased by 0.4% year-over-year.

During this period, gross margin and operating margin both improved year-over-year. Reported and adjusted gross margin increased 70 and 80 basis points respectively and reported and adjusted operating margin increased 200 and 60 basis points respectively year-over-year.

Diluted earnings per share for the full year totaled $0.55, compared to diluted loss per share of $0.37 in fiscal 2022. On an adjusted basis, diluted earnings per share for the full year totaled $1.85 compared to $1.92 in fiscal 2022.

Fourth Quarter and Fiscal 2023 Results by Segment

Americas Contract 

For the fourth quarter, the Americas Contract segment posted net sales totaling $474.4 million, down 12.0% year-over-year on a reported basis and down 11.8% organically. New orders in the quarter totaled $454.3 million, a decrease of 8.2% from the same quarter last year on a reported and organic basis. This year-over-year decrease in orders represents a relative improvement from the decrease reported in the third quarter of this fiscal year. The Company is optimistic about the general improvement in the funnel of project activity, including particular strength in the healthcare and public sectors.

Adjusted operating margin for this segment was 10.1%, 770 basis points higher than the same quarter last year, driven by improvements from net pricing realization and incremental benefits achieved from integration-related synergies.

For the full fiscal year, net sales increased 5.0% and organic sales increased 0.3% year-over-year. Adjusted operating margin increased 620 basis points year-over-year, primarily driven by pricing optimization and benefits from synergies.

International Contract and Specialty 

The International Contract and Specialty segment delivered net sales in the fourth quarter of $237.4 million, down 13.1% on a reported basis and down 12.3% organically on a year-over-year basis. New orders totaled $239.8 million, representing a year-over-year decrease of 0.9% on a reported basis and up 0.1% organically. Similar to the Americas Contract segment, the year-over-year decrease in orders improved relative to the level experienced last quarter. This is driven by continued robust demand in India, Korea, and the Middle East and easing prior-year comparisons as we anniversary record fiscal year 2022 post pandemic activity. In addition, this past quarter saw an improvement in demand levels in China.

Adjusted operating margin for the quarter was 9.3%. Since the integration started, the Company successfully transitioned more than 80 legacy Herman Miller dealers into full-line MillerKnoll dealers. Looking forward to the year ahead, we plan to transition an additional 60 international Herman Miller dealers as we further build the scale and reach of our global network. We remain confident that further expansion of our contract capabilities will result in significant value.

For the full fiscal year, net sales increased 9.6% and organic sales increased 7.0% year-over-year. Adjusted operating margin increased 50 basis points year-over-year, primarily driven by pricing optimization strategies and product mix.

Global Retail

Net sales in the fourth quarter for our Global Retail segment totaled $244.9 million, a decline of 15.0% over the same quarter last year on a reported basis and down 12.1% organically. New orders in the quarter totaled $228.3 million, down 17.4% compared to the same period last year on a reported basis and down 14.2% organically.

Adjusted operating margin declined year-over-year due to a combination of lower volume, product mix and increased freight expenses. The slowdown in the North American housing market continues to impact order levels for this segment. In response, we are placing significant emphasis on effective inventory management and product mix optimization. Furthermore, we are refining our approach to our go-to-market channels. This includes initiatives to increase brand awareness, recapture wholesale business and rationalize capital allocation towards our most mature channels effectively leveraging our scale.

For the full fiscal year, net sales decreased 4.1% and organic sales decreased 5.1% year-over-year. Adjusted operating margin was lower year-over-year, primarily driven by a combination of lower volume, mix of product, and increased freight expenses.

First Quarter and Fiscal 2024 Outlook

The COVID-19 pandemic introduced unprecedented dynamics, leading to abnormal trends over the past couple of years. Looking ahead, the company anticipates changes in the sales and earnings patterns in fiscal year 2024 compared to previous years. For this reason, the company is providing enhanced guidance this quarter, which includes an earnings outlook for the full fiscal year.

Overall, we remain cautious on our near-term outlook due to broader macroeconomic concerns. Moreover, factors such as the size of our beginning backlog, recent order trends, the current funnel of project opportunities, normal seasonality and the unrealized benefit of previous price increases are expected to influence the cadence of sales and earnings this year. Accordingly, for fiscal year 2024 we expect net sales to be slightly lower on a year-over-year basis and earnings to be back-half weighted. For full year fiscal 2024, we expect to generate adjusted diluted earnings in the range of $1.70 and $2.00 per share.

As it relates to the first quarter of fiscal year 2024, we expect net sales to range between $880 million to $920 million and adjusted diluted earnings to be between $0.18 to $0.24 per share.

When analyzing this quarterly guidance, it is important to consider the following factors:

  • Beginning backlog:¬†We entered fiscal year 2024 with a consolidated backlog of¬†$698 million. This is 25% lower than it was at the start of fiscal 2023.
  • Recent order trends:¬†New orders of¬†$922 million¬†in Q4FY23 were approximately 9% lower than the same quarter last year.
  • Extra week in FY23:¬†the first quarter of fiscal year 2023 included 14 weeks of operations. The first quarter of fiscal 2024 will include a standard 13-week schedule. This extra week in the prior year accounted for an estimated¬†$77 million¬†of net sales.

Andi Owen
President and Chief Executive Officer

Jeff Stutz
Chief Financial Officer

The full text of MillerKnoll’s 4Q23 earnings release, including all tables, and a replay of the company’s July 12 conference call webcast may be accessed 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 Leather, 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.