MillerKnoll, Inc. Reports Third Quarter Fiscal 2024 Results
MillerKnoll Inc. (NASDAQ: MLKN) today reported results for the third quarter of fiscal year 2024, which ended March 2, 2024.
Business Highlights
- Consolidated Gross margin improved 450 basis points over the prior year, with expansion reported in all three segments.
- Continued actions focused on streamlining and reducing the operating cost structure and enhancing operating efficiencies while driving long-term top line growth and margin improvement.
- $153 million of run-rate cost synergies related to the Knoll integration captured to date.
To our shareholders:
Our teams continue to make great progress towards improving our profitability metrics with this quarter’s Gross margins surpassing last year’s levels across the three business segments despite volume declines. While the latter is driven by the current macro environment, we are building a fundamentally stronger company, protecting our profitability and enhancing our operational efficiency.
Overall demand patterns across much of our business have continued to be sluggish, driven by elevated interest rates in major markets around the world, ongoing geopolitical concerns, and a lagging housing market in the U.S. Nonetheless, our optimism remains buoyed by a range of internal and external indicators which suggest that with more stable economic conditions, growth will resume in a meaningful way. In the near-term, we remain focused on adjusting and optimizing our cost structure while protecting investments that will better position us to thrive as market conditions improve. To this end, subsequent to the end of this quarter, we implemented restructuring measures aimed at streamlining our selling, general, and administrative structure to better align with current market conditions and potential opportunities. These measures included a workforce reduction and showroom consolidations, among other initiatives.
Third Quarter Fiscal 2024 Consolidated Results
Consolidated net sales for the third quarter were $872.3 million, reflecting a decrease of 11.4% on a reported basis and a decrease of 10.1% organically compared to the same period last year. Orders in the quarter of $830.3 million were 6.2% lower on a reported basis and 4.7% lower organically compared to the prior year.
Gross margin in the quarter was 38.6%, which is 450 basis points higher than the same period last year. The main drivers of the year-over-year increase in Gross margin were the realization of price optimization strategies; improved freight, distribution and inventory management; an impairment charge recorded in the prior year; and benefits from our ongoing synergy efforts. This is the fifth consecutive quarter of consolidated year-over-year adjusted Gross margin expansion.
Consolidated operating expenses for the quarter were $294.2 million, compared to $314.4 million in the prior year. Consolidated adjusted operating expenses were $278.9 million, compared to $277.6 million in the prior year.
Operating margin for the quarter was 4.9% compared to 2.2% in the same quarter last year. On an adjusted basis, consolidated operating margin for the quarter was 6.7%. In the third quarter of last year, adjusted operating margin totaled 7.5%.
Reported diluted earnings per share were $0.30 for the quarter, compared to $0.01 for the same period last year. Adjusted diluted earnings per share this quarter totaled $0.45, compared to $0.54 for the same period last year.
As of March 2, 2024, our liquidity position reflected cash on hand and availability on our revolving credit facility totaling $558 million. During the third quarter, the business generated $60.6 million of cash flow from operations. We repurchased approximately 1.5 million shares for a total cash outlay of $40.0 million. We ended the third quarter with a net debt-to-EBITDA ratio, as defined by our lending agreement, of 2.65x. 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 $11.0 million, $41.3 million, $46.2 million and $276.3 million respectively.
As of the end of the third quarter, we have achieved $153 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.
Third Quarter Fiscal 2024 Results by Segment
Americas Contract
For the third quarter, the Americas Contract segment posted net sales totaling $441.1 million, down 9.0% year-over-year on a reported basis and down 9.2% organically. New orders in the quarter totaled $420.1 million, down 9.0% year-over-year on a reported basis and down 9.4% organically. With minimal improvement in the economic landscape, demand continued to be softer than expected. Although we remain confident that such an improvement is on the horizon, the persistence of inflationary pressures and high interest rates continues to weigh on both business and consumer sentiment. Still, key forward-looking indicators, including customer inquiries, project mock-up requests, and the overall volume of project opportunities give us confidence that demand will improve as we move through the calendar year.
Adjusted operating margin for the Americas Contract segment was 8.1%, 70 basis points lower year-over-year. The main driver of this variance was lower year-over-year sales, which were partially offset by Gross margin expansion resulting from favorable price/cost dynamics, moderating input costs and the realization of synergy benefits.
International Contract and Specialty
The International Contract and Specialty segment delivered net sales in the third quarter of $217.3 million, down 10.4% on a reported basis and down 10.6% organically on a year-over-year basis. New orders totaled $227.6 million, representing a year-over-year increase of 8.3% and 7.9% on a reported and organic basis, respectively. Month to month demand patterns remain inconsistent but grew in both December and February driven by mainland Europe along with South Korea, India, China, Australia and the Middle East. The transition from Herman Miller to full-line MillerKnoll dealers continues to gain traction. Currently over 40% of the international network is offering the MillerKnoll product portfolio with a steady cadence of more transitions planned in the coming months.
Adjusted operating margin for this segment was 10.4%, 110 basis points lower year-over-year driven by lower sales. In spite of this, we continue to expand Gross margins due to favorable regional and product mix, improved freight and distribution management and proactive restructuring initiatives taken earlier in the year that have enhanced year-over-year manufacturing efficiency.
Global Retail
Net sales in the third quarter for our Global Retail segment totaled $213.9 million, a decline of 17.0% over the same quarter last year on a reported basis and down 11.3% organically mainly driven by soft housing-related demand. New orders in the quarter totaled $182.6 million, down 14.6% compared to the same period last year on a reported basis and down 7.1% organically. Despite facing challenges from macro-economic conditions, we are steadfast in enriching our in-store experiences, growing the product assortment and boosting brand awareness. This strategic approach aims to cultivate brand loyalty and stimulate greater engagement, mitigating the impact of external economic factors on organic demand.
Adjusted operating margin for this segment was 5.6%, 10 basis points higher year-over-year, despite the decrease in net sales. The main drivers of the margin expansion were improved operational and delivery efficiencies, and favorable product mix.
Fourth Quarter and Fiscal 2024 Outlook
Given the demand patterns we experienced in the third quarter and what remains a generally tepid near-term macro-economic backdrop, we expect net sales in the fourth quarter of fiscal 2024 to range between $880 million and $920 million. Adjusted diluted earnings per share for the period are expected to be between $0.49 and $0.57. The mid-point of this earnings range implies year-over-year growth of approximately 29% from the adjusted diluted earnings per share we reported in the fourth quarter of last fiscal year. Based on this forecast, we expect full year adjusted diluted earnings per share of between $1.90 and $1.98.
Andi Owen
President and Chief Executive Officer
Jeff Stutz
Chief Financial Officer
The full text of MillerKnoll’s 3Q24 earnings release, including all tables, and a replay of the company’s Mar. 27 conference call, including additional links to materials supporting the release, 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, 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.
