MillerKnoll, Inc. Reports Fourth Quarter Fiscal 2022 Results
- Strong sales growth of 77% over the prior year, up 23% organically
- Sequential operating margin improvement of 230 basis points
- Continued progress with the integration of Knoll
- 66 million of run-rate cost synergies captured to date
- Company remains confident in ability to deliver $120 million of run-rate cost synergies within three years of closing
- Formal launch of the contract dealer network in North America positions MillerKnoll (NASDAQ: MLKN) for future growth
To our shareholders:
In July 2021, we brought Herman Miller and Knoll together, creating one of the most influential design companies in the world. In the year since, we have made tremendous progress standing up our new company and beginning an integration journey aimed at combining the best aspects of both organizations. To date, we have completed the global organizational design, launched an industry-leading sales team and independent dealer network, and made meaningful progress toward our goal of delivering $120 million in run-rate cost synergies.
Our team delivered fourth quarter and fiscal year 2022 results that reflect both the strength and potential of MillerKnoll. Throughout the last year, our company contended with a volatile environment that continues and across our global operations we took decisive actions to mitigate supply chain disruptions and inflationary pressures. We remain confident that as a preeminent leader in design, our unique combination of contract and retail businesses and collective of brands enhances our ability to compete and grow in a new era of living and working.
MillerKnoll Consolidated Results
Fourth quarter consolidated net sales were $1.10 billion, reflecting an increase of 77.1% on a reported basis and 23.4% organically compared to prior year. Orders in the quarter of $1.01 billion were 47.0% higher on a reported basis and increased 4.4% organically over the prior year.
Gross margin in the fourth quarter of 34.8% was 160 basis points lower than the same quarter last year, driven primarily by higher commodity costs and other inflationary pressures. On a sequential basis, consolidated gross margin improved 180 basis points as a result of recent price increases. These price increases are expected to help drive further margin expansion in future quarters.
Consolidated operating expenses for the quarter were $325.5 million, compared to $214.8 million in the prior year. Consolidated adjusted operating expenses of $311.4 million, were up $120.5 million from last year, primarily due to the inclusion of $100.1 million of Knoll adjusted operating expenses and additional variable selling expenses.
Operating margin for the quarter was 5.2% compared to 1.8% during the prior year. On an adjusted basis, which excludes acquisition and integration-related charges, consolidated operating margin was 6.5% compared to 7.3% in the prior year. Consolidated operating margin improved sequentially by 230 basis points from the prior quarter.
The sequential expansion in operating margin this quarter was driven by improved operational performance, including the ongoing realization of integration savings, the realization of price increases we implemented earlier this fiscal year, and well-managed operating expenses.
We reported diluted earnings per share of $0.28 for the quarter. Adjusted earnings per share was $0.58 in the quarter, compared to $0.59 in the prior year.
For the full fiscal year, net sales were $3.95 billion, reflecting a year-over-year increase of 60.1%. On an organic basis, net sales increased by 13.6% compared to the prior year. Net loss per share for the full year totaled $0.37, compared to diluted earnings per share of $2.94 in fiscal 2021. On an adjusted basis, diluted earnings per share for the full year totaled $1.92 compared to diluted earnings per share of $3.07 in fiscal 2021.
At the end of the fourth quarter, our liquidity position reflected cash on hand and availability on our revolving credit facility totaling $526.9 million. In the fourth quarter of fiscal 2020, we temporarily suspended open market share repurchase activity as part of managing cash flows associated with uncertainty caused by the pandemic. Going forward, we are re-establishing our open market share repurchase program under our existing share repurchase authorization and may repurchase shares from time to time based on management’s evaluation of market conditions, share price and other factors.
Continued organic growth in consolidated sales and orders
As mitigation efforts around the challenging supply chain environment have taken hold, lead times and reliability have returned to normal levels for almost all products and geographies. Strong production levels across our global footprint during the quarter drove the highest sales volume of the fiscal year. The International Contract business delivered record sales of $135.8 million in the quarter, an increase of 28.1% over the prior year on a reported basis and up 36.8% organically. Americas Contract sales were up 33.9% over the prior year, while Knoll sales were up 23.6% on a pro forma basis. While Retail sales were essentially flat compared to the prior year on a reported basis and up 1.8% organically, when compared to the same period in fiscal 2020, sales were up 112.0%.
Consolidated demand continued to exceed prior year levels, with orders of $1.0 billion up 47.0% over prior year on a reported basis and up 4.4% organically. Order growth in the Americas Contract segment was 12.3% compared to the prior year, while International orders were 1.6% higher on a reported basis and reflected organic growth of 7.5%. Knoll orders decreased by 2.9% on a pro forma basis. Retail orders were 12.0% lower than the prior year on a reported basis and down 10.2% organically.
Our Global Retail business was challenged by continued economic uncertainty and a shift in consumer spending to travel and other experiential categories. Despite these near-term pressures, new orders for the Retail segment were up 63.0% on a two-year stacked basis compared to the fourth quarter of fiscal year 2020. Excluding the workspace category, the two-year order growth for Retail was 76.9%. Even more importantly, we continue to see long-term potential for the retail businesses for several reasons. Herman Miller stores continue to outpace our expectations, and new product expansions at Design Within Reach and HAY, such as outdoor collections, and gaming chairs at Herman Miller continue to do well. We are making strategic investments in new Herman Miller stores, global eCommerce platforms, expanded product assortments and technology systems that will position the business for further growth in the future.
The future of the workplace remains a top priority for our Contract customers around the world. Even amidst broader economic uncertainty, employers recognize they must develop and implement workplace strategies to support new ways of working and shifting employee preferences. According to the most recent Leesman’s Executive Survey, 93% of executives say they are planning changes to their office spaces, with some planning full scale renovations and many others making incremental improvements.
Our customers continue to turn to us for guidance navigating their own plans, especially as it relates to enabling hybrid work models that deliver the flexibility employees are demanding while also supporting the collaborative in-person work experience necessary to cultivate and enable company culture. The breadth of our portfolio enables us to solve for a wide variety of workplace scenarios. Our unique value proposition is resonating, and customers are engaging. Customer visits in the fourth quarter were double that of the third quarter. Our dealers continue to report a positive view of in-market activity.
Finally, on a consolidated basis, we closed the fiscal year with a consolidated backlog of $932.5 million, reflecting an increase of 108.7% on a reported basis and up 45.3% organically, creating a strong foundation entering fiscal year 2023.
Integration progresses with milestone achievements in the fourth quarter
June 1, 2022 marked a critical milestone in our integration journey, as we launched our MillerKnoll sales and dealer network in North America. Quickly following, we held our first MillerKnoll Design Days in Chicago with product launches across our collective of brands and events throughout 70,000 square feet of showroom and retail space. Customers now have access to our full portfolio of brands through a unified dealer network in North America, giving them more choice and creating more opportunities for our dealer partners.
We are also making excellent progress in building our International MillerKnoll Contract dealer network to cross-sell the MillerKnoll collective of brands. Our International MillerKnoll dealer cross-sell pilot now includes 32 dealers from 17 countries on three continents, with dealers in the queue for pilots to launch in the Middle East and Africa later this calendar year.
Core to MillerKnoll is our commitment to our people, our planet, and our communities; and in the fourth quarter, we introduced our 2030 sustainability goals. These goals are shared across our collective of brands and are targeted at reducing our carbon footprint, designing out waste, and sourcing more sustainable materials.
We began our integration journey by developing a strategic plan that has served us well over the past year. We are on track and delivering well against our milestones. At quarter-end, we had achieved run-rate cost synergies of $66 million and remain confident we will deliver on our target of $120 million within three years of closing.
Designing for the future and expanding our reach
Our design and innovation pipeline is robust with more than a dozen new products launching across our collective of brands at Design Days, including new task seating from both Herman Miller and Knoll, new textiles from Maharam and Knoll Textiles and a new Sit-to-Stand desk from Geiger. There is incredible opportunity to build upon our legacy of design in every region and channel we operate.
To unlock the full potential of our Retail business, we have made some considerable progress capitalizing our digital platforms and expanding our reach. In the fourth quarter, we introduced a new HAY website in the U.S. and began a series of global website launches for Herman Miller and Herman Miller Gaming in native languages to further our reach outside of North America.
In addition, we are dramatically improving our data platforms and analytics capabilities, continuing to expand our assortment and increasing the Herman Miller store footprint, all of which allow us to reach a broader range of customers. We opened eight Herman Miller stores in the fourth quarter, including three in Japan, and one DWR retail studio. We have three additional store openings planned for the first quarter of fiscal 2023. Much of our customer data and assortment expansion work occurred in the fourth quarter, and we expect to realize the benefits of these efforts as we move through fiscal 2023.
We expect sales in the first quarter of fiscal year 2023 to range between $1,080 million and $1,120 million. It is important to note that the first quarter revenue estimate includes the impact of an additional week of sales based on the company’s accounting calendar, which periodically is required to re-align the company’s fiscal periods with the calendar months. The mid-point of this range implies a revenue increase of 39% compared to the same quarter last fiscal year on a reported basis and 11% on an organic basis, excluding the impact of the extra week, Knoll acquisition and foreign currency translation. We anticipate earnings per share to be between $0.32 and $0.38 for the quarter.
Realizing the full potential of MillerKnoll
Our fourth quarter was the culmination of a year’s worth of thoughtful planning and extraordinary execution by our teams around the world. It serves as a testimonial to the agility and flexibility of our diversified business, enabling us to pivot toward emerging opportunities while overcoming macro-economic challenges where they exist.
We are MillerKnoll, a collective of dynamic brands committed to design, and as we continue to design our future, we are leveraging our comprehensive product portfolio, scaled global footprint and dealer network, and advanced digital capabilities to transform our industry and reimagine modern for the 21st century. Thank you for continuing on this journey with us.
President and Chief Executive Officer
Chief Financial Officer
The full text of MillerKnoll’s 4Q22 earnings release, including all tables, and an archived replay of the company’s Jun. 29 live question and answer webcast may be accessed at www.millerknoll.com/investor-relations.
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.