MillerKnoll Reports Q1 2027 Results: Full Earnings Call Transcript

MillerKnoll (NASDAQ: MLKN ) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below. This content is powered APIs. 42, excluding tariff refunds.

The company is focusing on operational discipline, cost management, and capital allocation to support growth and debt reduction, despite challenges in North America contract and global retail segments. 012 billion. Full Transcript OPERATOR (Operator) Good morning and welcome to MillerKnoll's Quarterly Earnings Conference Call. As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Wendy Watson, Vice President of Investor Relations. Wendy Watson, Vice President of Investor Relations Good morning and welcome to our first quarter fiscal 2027 conference call. On with me are Jeff Stutz, MillerKnoll's Interim Chief Executive Officer, and Kevin Veltman, Chief Financial Officer. Joining them for the Q and A session are John Michael, President of North America Contract, and Debbie Probst, President of Global Retail.

com. A replay of this call will be available on our website within 24 hours. Before I turn the call over to Jeff, please remember our safe harbor disclosure regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors which may cause the actual results to be different than those expressed or implied.

Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release. The forward-looking statements are made as of today's date and, except as may be required by law, we assume no obligation to update or supplement these statements. We also refer to certain non-GAAP financial metrics and our press release includes the relevant non-GAAP reconciliations. With that, I'll turn it over to Jeff.

Jeffrey Stutz, Interim Chief Executive Officer Thanks, Wendy. Good morning and welcome, everyone. Before Kevin reviews our financial results and outlook, I'd like to update you on the priorities we outlined last quarter and our commitment to driving improved performance and disciplined execution across the organization. Overall, we delivered solid margin performance, earnings, and cash generation despite revenue headwinds.

4% year over year, primarily reflecting softer than anticipated revenue in our North America contract and global retail segments. 42, above our guidance range and reflecting disciplined execution and cost management. Demand conditions varied across our business. Orders were particularly strong in international contract and continued to grow in global retail, while North America contract orders were softer than we anticipated.

At the same time, several of our internal demand indicators and customer verticals remained quite constructive. We're encouraged by the progress our teams are making against this backdrop and by the actions underway to strengthen MillerKnoll's performance. As I previewed on our last earnings call, we are focused on three key areas. First, we are elevating the level of operational discipline we bring to setting priorities and running the business by concentrating our resources on the initiatives where we believe we can create the greatest value for the organization and for our stakeholders.

Last quarter I said this is about focusing on those efforts that will help us grow the top line and improve profitability. And across the company, our teams have sharpened their priorities and aligned resources behind the opportunities that can have the greatest impact. Let me put a finer point on that. In North America contract, we are concentrating our selling resources on winning global and national account opportunities and leveraging the strength of our brands and our credibility with A and D and commercial real estate specifiers.

In international contract, new products are gaining traction in the marketplace. Notably, our recently introduced Concert line by Knoll is driving early wins in the private office category, which is an area of our business previously underpenetrated in Europe. We are also targeting efforts aimed at training dealers and expanding distribution coverage in the Asia Pacific region where we see premium growth opportunities.

And in global retail, we're executing our store growth strategy and applying our learnings, such as an increased emphasis on our smaller format Herman Miller stores, while continuing to optimize our marketing investments to build awareness and customer acquisition. Second, we're maintaining rigorous cost discipline and aligning expenses with revenue levels. In the near term, we're making more deliberate decisions about where we deploy capital and resources while reducing expenses where we can. Our first quarter earnings performance, excluding net tariff refunds, demonstrates early progress toward this goal.

Third, we're sharpening our focus on capital allocation, cash flow, and balance sheet strength to support debt reduction during FY27 while preserving our capacity to invest in growth. By bringing greater discipline to capital deployment, we're building upon our business's proven cash generation capabilities. Next, I'll offer some segment highlights for the quarter. In North America contract, first quarter sales declined year over year, due in part to the timing of orders pulled forward late in fiscal 2025 that benefited sales in the first quarter of fiscal 2026.

Still, first quarter orders were softer than we expected, with trends varied across sectors. We had continued strength in insurance, financial, and business services. Conversely, order patterns were soft in relation to last year within the health care sector and with federal, state, and local government customers. S.

and Canada. We manufacture in both countries and our supply chain touches both countries. We're being proactive on both sides of the border and working closely with suppliers, customers, and our own production teams to manage the flow of product and make adjustments where we can. -Canada tariff actions and, based on that assessment, we have made an approximate 7 cent per share impact from costs related to these new tariffs.

Given this backdrop, we are managing expenses and production levels carefully while prioritizing investment in our most important growth initiatives. Tariff refunds were also beneficial to help mitigate these pressures to our full year outlook, and Kevin will cover those details shortly. Over the last several months I've spent considerable time with the North America contract team, meeting with dealers and customers, and one message has come through very clearly. Strong partnerships are a competitive advantage in this business and our brands benefit from deeply credible key target markets alongside differentiated product offerings.

Our dealers and customers tell us they need two things from us. First, we need to continue to simplify the process of doing business with us and second, we need to maintain and expand our leadership in product innovation. We're delivering on these needs by improving responsiveness, service levels, and operational execution while also accelerating our new product innovation clock speed. We continue to be optimistic in this business.

Despite the demand softness we saw this past quarter, which varied by sector, our internal forward demand indicators continue to point to healthy conditions across North America. Project funnel and funnel additions were up year over year along with particularly notable growth in awarded contracts. S. continues to show strength, with the latest four-quarter net absorption in Class A buildings improving to the highest total since mid-2020.

All of this suggests the order softness we experienced in the first quarter represents a timing issue rather than a structural slowdown in general business conditions. Turning to international contract, we remain encouraged by the opportunities in this business. Although sales declined year over year reflecting difficult comparisons in several markets, orders increased across most regions. Activity was particularly strong in Asia, the Middle East, and portions of Europe.

In Latin America, we saw healthy demand from financial services and private office customers along with strength in healthcare and technology. We remain focused on expanding and strengthening our international dealer network, increasing engagement, and improving alignment as we continue building our international business. During the quarter, our Asia Pacific team hosted dealers representing more than 20 countries at an event in Jakarta, Indonesia. Key leaders from across MillerKnoll participated, helping us strengthen relationships in the region and position us for further growth.

Within the global retail segment, we delivered another quarter of sales and order growth together with meaningful year over year operating margin improvement, even after excluding the net benefit from tariff refunds. While June and July had softer than expected sales and orders, performance strengthened significantly across channels and geographies in the month of August. 5%, and this represents our eighth consecutive quarter of North America retail order growth, a key indicator of our ability to effectively navigate a challenging industry environment while advancing our long-term strategy.

During the quarter, we opened a DWR store in Raleigh, North Carolina, and Herman Miller stores in Columbus, Ohio; St. Louis, Missouri; and San Antonio, Texas. Looking ahead, we expect to open five to seven new stores during the second quarter and continue to plan for approximately 14 to 18 new store openings throughout FY27. Beyond expanding our physical footprint, the retail team is developing new ways to engage customers and build awareness of our brands.

These initiatives are designed to reach more consumers across our target markets and included a DWR Furnished Home on Shelter Island, sponsorship of the summer celebration of the iconic Glass House, and increased storytelling on social media with design partners. So with those brief opening comments, I'll now hand the call over to Kevin, who will provide additional details on segment financial performance and our outlook for FY27. Kevin Veltman, Chief Financial Officer Thanks Jeff and good morning everyone. I'll start with an overview of our first quarter results and segment detail, followed by our outlook for the second quarter and full fiscal year.

3% lower organically. 5% on an organic basis. 1% from a year ago. 8%.

S. government related to previously expensed tariffs contributed 180 basis points to the year-over-year increase. Excluding this benefit, adjusted gross margin improved 150 basis points over last year, primarily reflecting pricing realization partially offset by inflationary cost pressure, including variable incentive impacts. 11 of adjusted diluted earnings per share.

Our quarterly supplemental slide deck posted on our Investor Relations website provides further detail of the dollar and margin impacts by segment. 45 in the prior quarter. 42. This reflects price realization and improved cost management, partially offset by lower sales volume and inflation pressure.

Turning to cash flow and capital allocation, we generated $49 million in cash from operations during the quarter and invested $33 million in capital expenditures. We ended the quarter with $580 million of available liquidity. 75 times as defined by our lending agreement. 75 cents per share payable on October 15th to shareholders of record on August 29th of 2026 at an annual indicated dividend of 75 cents per share.

7% based on yesterday's closing stock price. With that, I will move to our performance by segment in the first quarter. 2% lower organically, primarily due to a challenging prior-year sales comparison associated with the order pull-forward in the fourth quarter of fiscal 25 that we have discussed in prior quarters. 6% organically from the prior year despite a favorable orders comparison.

As a reminder, we estimate that $55 to $60 million of orders were pulled forward from Q1 FY26 to Q4 FY25 related to tariff pricing actions. 7%, down 70 basis points year over year. The decline primarily related to deleverage on lower sales and inflationary cost pressure, partially offset by pricing realization and the net benefit from tariff refunds. 2% organically year over year.

9% organically, which included a notable project win in South Korea. 6%, down 390 basis points compared to prior year. The decline primarily reflected deleverage on lower sales, showroom investments and timing of sales events, as well as higher incentive compensation. 8% organically.

9%. 7% organically. 5% reflecting continued market share growth. 1% in the quarter and adjusted operating margin was 7%, up 580 basis points year over year.

The improvement included a 410 basis point net benefit from tariff refunds. The improvement also reflected pricing realization and cost savings, partially offset by planned investments in new store openings. Excluding the net tariff benefit, adjusted operating margin improved 170 basis points year over year as our priority to expand operating margins for this segment gains traction. Now let's turn to our Q2 and fiscal 27 full-year outlooks, which include our most up-to-date estimates on inflation, tariffs and related mitigation efforts.

012 billion. At the midpoint, this represents a year-over-year increase of approximately 4%. 3% and adjusted operating expenses of $321 million to $331 million. 49.

S. and Canada tariff actions. 03 billion, reflecting 3% growth year over year at the midpoint. 15.

S. and Canada tariff actions. As I mentioned last quarter in fiscal 27, from an operating expense perspective, our guidance continues to assume an estimated incremental new store expense of approximately $6 million per quarter on a year-over-year comparison. For all other details related to our outlook, please refer to our first quarter results press release.

With that, I will turn the call back over to Jeff. Jeffrey Stutz, Interim Chief Executive Officer Thanks for that, Kevin. Before we begin Q&A, I want to thank our teams around the world for their continued focus and commitment to delivering for our customers. We're making progress against our priorities to strengthen the business and we remain focused on improving our operating performance, creating long-term value for our shareholders and serving our customers.

So with those as opening remarks, we'll now open the call for your questions. OPERATOR (Operator) Thank you.