MillerKnoll, Inc. Reports Second Quarter Fiscal 2024 Results
MillerKnoll Inc. (NASDAQ: MLKN) today reported results for the second quarter of fiscal year 2024 which ended December 2, 2023.
Business Highlights
- Fiscal 2024 full year adjusted earnings guidance increased to a range of $2.00 to $2.16 per share.
- Consolidated Gross margin improved 470 basis points over the prior year, with expansion reported in all three segments.
- Significant overall profit growth. US GAAP and Adjusted EPS growth of 114.3% and 28.3% respectively year-over-year.
To our shareholders:
We are pleased to announce another quarter of strong financial performance, marked by a 28.3% year-over-year increase in adjusted earnings per share despite lower sales. Our teams achieved these results by focusing on what they can control, including the ongoing improvement in gross margins, which exceeded last year’s levels across all three segments of our business. This success was driven by our strategic inventory management and pricing initiatives, product and regional mix optimization, moderating input costs and the ongoing benefit of acquisition-related synergies, which include efficiency enhancements in operations and logistics. Additionally, we are diligently managing our operating expenses, providing a valuable offset to the existing demand pressures.
Business confidence has rebounded from recent lows, yet challenges to demand persist due to the elevated cost of capital and geopolitical concerns. Despite these hurdles, our business exhibits encouraging signs, as reflected in heightened project funnel activity, improving order comparisons and strong seasonal demand within the Retail segment.
We remain confident in the strategic advantages of diversifying our business, pursuing international expansion, making technology investments to enhance the customer and dealer experience, streamlining processes and continuing to deliver innovative solutions.
Second Quarter Fiscal 2024 Consolidated Results
Consolidated net sales for the second quarter were $949.5 million, reflecting a decrease of 11.0% on a reported basis and a decrease of 10.1% organically compared to the same period last year. The overall year-over-year organic decline in net sales was driven by lower beginning backlog, partially offset by faster fulfillment patterns. Orders in the quarter of $944.0 million were 6.8% lower on a reported basis and 6.0% lower organically compared to the prior year. Although our order intake for the full quarter was lower year-over-year, it improved sequentially as we progressed through the period.
Gross margin in the quarter was 39.2%, which is 470 basis points higher than the same period last year. The year-over-year increase in gross margin was mainly driven by strategic inventory management, moderating input costs, the realization of price optimization strategies, and benefits from our ongoing synergy efforts. This is the fourth consecutive quarter of consolidated year-over-year adjusted gross margin expansion.
Consolidated operating expenses for the quarter were $311.6 million, compared to $328.9 million in the prior year. Consolidated adjusted operating expenses were $296.9 million, down $7.0 million year-over-year, primarily driven by the continued focus on cost optimization and synergy capture.
Operating margin for the quarter was 6.4% compared to 3.6% in the same quarter last year. On an adjusted basis, consolidated operating margin for the quarter was 7.9% , a record high level since the acquisition of Knoll, Inc.
Reported diluted earnings per share were $0.45 for the quarter, compared to $0.21 for the same period last year. Adjusted diluted earnings per share were $0.59 for the quarter, compared to $0.46 for the same period last year, up 28.3% year-over-year despite a 10.1% decline in organic net sales.
As of December 2, 2023, our liquidity position reflected cash on hand and availability on our revolving credit facility totaling $583.1 million. During the second quarter, the business generated $82.4 million of cash flow from operations and we reduced our total outstanding debt by $18.9 million as part of our capital deployment priority of maintaining a strong balance sheet. We also repurchased approximately 1.4 million shares for a total cash outlay of $27.9 million. We ended the second 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 $20.4 million, $41.3 million, $46.2 million and $276.3 million respectively.
As of the end of the second quarter, we have achieved $147 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 expecting total run-rate cost synergies of $160 million per year by July 2024, which is the third year anniversary of the Knoll, Inc. acquisition.
Second Quarter Fiscal 2024 Results by Segment
Americas Contract
For the second quarter, the Americas Contract segment posted net sales totaling $476.1 million, down 10.1% year-over-year on a reported basis and down 10.3% organically. New orders in the quarter totaled $437.4 million, down 7.7% year-over-year on a reported basis and down 8.1% organically. As the quarter progressed, order growth trends improved and the segment showed year-over-year growth in November, benefiting from increased project funnel activity, project mock-ups, and pricing requests. Increased adoption of digital tools and enhanced cross-sell expertise by our dealer network also support the positive outlook. Furthermore, the launch of the new MillerKnoll B2B eCommerce platform in November is a significant milestone, reflecting the Company’s commitment to technological innovation.
Adjusted operating margin for this segment was 9.4%, 130 basis points higher year-over-year. The year-over-year expansion of gross and adjusted operating margins continues to reflect positive price/cost dynamics and benefits from synergy capture, contributing to the overall resilience and operational success of the segment.
International Contract and Specialty
The International Contract and Specialty segment delivered net sales in the second quarter of $241.2 million, down 8.9% on a reported basis and down 10.4% organically on a year-over-year basis. New orders totaled $233.9 million, representing a year-over-year decrease of 3.2% on a reported basis and down 5.1% organically. Despite persistent demand weakness in Europe and China due to high interest rates and macroeconomic challenges, we maintain an optimistic outlook driven by a robust forward-looking pipeline of projects and continued strength in India, South Korea, and the Middle East. The transition of Herman Miller dealers to MillerKnoll dealers continues during FY24, with more than 30% of the network already selling the MillerKnoll product portfolio, and more planned in the months ahead. Demand for products within our specialty businesses grew during the quarter with particular strength at Holly Hunt.
Adjusted operating margin for this segment was 11.3%, 80 basis points lower year-over-year driven by lower sales. Despite this, we have expanded gross margins both sequentially and year-over-year, due to strategic pricing optimization, favorable regional and product mix and proactive restructuring efforts that have enhanced manufacturing efficiency.
Global Retail
Net sales in the second quarter for our Global Retail segment totaled $232.2 million, a decline of 14.7% over the same quarter last year on a reported basis and down 9.4% organically mainly driven by soft housing-related demand conditions. New orders in the quarter totaled $272.7 million, down 8.4% compared to the same period last year on a reported basis and down 3.0% organically. While organic demand was down this quarter compared to the prior year, it did improve relative to the 6.4% organic decrease we reported in the first quarter of this fiscal year. Our agile and strategic promotional tactics and targeted marketing enabled us to drive year-over-year organic order growth in November, a key month in the Retail calendar. We remain committed to enhancing our in-store experiences, brand awareness, digital platforms, technology infrastructure and marketing to inspire and elevate the overall customer experience, drive brand loyalty and foster engagement.
Adjusted operating margin for this segment was 7.1%, 570 basis points higher year-over-year, driven by strategic inventory and shipping management, favorable product mix, and effective discretionary promotional activity which drove demand towards our highest margin brands and collections. The Company’s design and manufacturing capabilities also play a crucial role, producing proprietary and iconic products at scale.
Third Quarter and Fiscal 2024 Outlook
While economic uncertainty persists in parts of our business, we maintain a generally optimistic outlook driven by the margin improvements that we are driving across each of our business segments and early signs of demand stabilization across North America. For full year fiscal 2024, we are increasing our guidance and expect to generate adjusted diluted earnings in the range of $2.00 and $2.16 per share.
As it relates to the third quarter of fiscal year 2024, we expect net sales to range between $890 million to $930 million and adjusted diluted earnings to be between $0.40 to $0.48 per share. Consolidated orders through the first two weeks of the third quarter of fiscal 2024 grew 4% organically compared to the prior year. Our revenue guidance considers this as well as the size and scheduling of the beginning backlog. It also takes into consideration the relative seasonal decrease that we normally experience from the second to the third quarter which is characterized by lower demand and shipping activity in the contract segments during the holiday season.
Andi Owen
President and Chief Executive Officer
Jeff Stutz
Chief Financial Officer
The full text of MillerKnoll’s 2Q24 earnings release, including all tables, and a replay of the company’s Dec. 20 conference call webcast, including presentation slides, 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, 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.
