MillerKnoll (MLKN, Financial) encountered significant obstacles in Q3 (Feb), including persistent demand issues and high interest rates, which prevented the company from meeting its revenue expectations. This resulted in a pessimistic outlook for Q4 (May). To combat these challenges, MLKN is intensifying its restructuring efforts, which involve launching several programs within its Contract and Retail segments, reducing management staff, and adjusting its operating costs to better match the current economic environment.
Despite these efforts, MLKN cautioned that these measures are just initial steps towards achieving its financial targets. In the near term, the company anticipates continued subdued demand as it navigates the early stages of market recovery.
- MLKN's revenue in Q3 fell by 11.4% year-over-year to $873.2 million, missing its $890-930 million forecast, alongside a 4.7% decrease in organic new orders, mainly due to weak demand in its Americas business.
- The company responded by adjusting prices and implementing strategies to enhance customer decision-making, including merging showrooms and investing in dealer showroom upgrades, with over 40 refreshes underway in North America.
- MLKN focused on protecting its margins by improving operational efficiency and benefiting from lower input costs, which led to a 450 basis point increase in adjusted gross margins year-over-year to 38.6%, marking the fifth consecutive quarter of margin expansion. This helped MLKN achieve its Q3 adjusted EPS forecast of $0.40-0.48, with $0.45 reported for the quarter.
- Internationally, despite a 10.6% year-over-year decline in net sales to $217 million, MLKN saw a 7.9% increase in organic new orders, driven by strong performance in December and February in regions like Europe, South Korea, India, China, Australia, and the Middle East.
- However, external factors such as high capital costs and macroeconomic uncertainty are impacting MLKN's short-term financial outlook. The company expects Q4 adjusted EPS of $0.49-0.57 and revenues of $880-920 million, both significantly below consensus.
Before the release of MLKN's Q3 report, there were warning signs from its peers. Steelcase (SCS, Financial) and HNI (HNI, Financial) both missed revenue expectations in their respective quarters, although they reported solid revenue and order growth. In contrast, MLKN's performance was weaker, but the company noted positive indicators in its Americas business that could provide a stable foundation once economic conditions improve. This, along with the actions MLKN is taking, suggests it may be worth monitoring in the future.
