"We continue to be optimistic for the year ahead based on momentum we're seeing in several of our businesses, along with leading indicators which vary by segment, strengthening our overall demand picture." - Andi Owen
MillerKnoll Inc (MLKN) QQ2 2025 Earnings Analysis: Resilient Q2 2025 with Americas Contract Growth, Margin Resilience, and Strategic International Expansion
Executive Summary
MillerKnoll reported a solid QQ2 2025 (quarter ended November 30, 2024) with consolidated net sales of $970.4 million, up 2.2% year over year and 2.4% on an organic basis. Gross margin stood at 38.84%, and operating margin was 6.44%, reflecting modest margin pressure from mix but resilient profitability amid mixed demand. Net income of $34.1 million and diluted EPS of $1.43–$1.44 complemented by EBITDA of $101 million. Segment performance was uneven: Americas Contract delivered robust growth (net sales $504 million, +6.2% organic; operating margin 9.4% reported, 10.2% adjusted), International Contract & Specialty remained margin‑rich (9.7% reported, 10.5% adjusted) despite softer orders (down 6.5% year over year), and Retail faced a modest top‑line and margin drag (net sales $220 million, −5.3% YoY; operating margin 4.0% reported, 4.2% adjusted) driven by seasonality and promotional timing. Management offered cautious optimism for the second half, citing improving leading indicators in Americas Contract, ongoing strong international funnel, and early December improvements in Retail orders. Full-year adjusted EPS guidance was narrowed to $2.11–$2.17, with Q3 net sales guidance of $903–$943 million and adjusted diluted EPS of $0.41–$0.47. Management also highlighted a number of strategic initiatives and sustainability actions, including PFAS reductions, London flagship expansion, a Belgium textiles Fulfillment Center, and upcoming product introductions and new studios (Palm Springs, Las Vegas, Fairfax). The company emphasizes a regionally focused supply chain to mitigate tariff risk and anticipates a favorable secondary impact from anticipated tax policy incentives. Overall, the investment case rests on improving demand momentum in H2, a diversified multi-channel business, strong cash generation, and meaningful international growth opportunities.
Key Performance Indicators
Revenue
970.40M
QoQ: 12.64% | YoY:2.20%
Gross Profit
377.00M
38.85% margin
QoQ: 12.10% | YoY:1.34%
Operating Income
62.50M
QoQ: 311.18% | YoY:3.48%
Net Income
34.10M
QoQ: 2 941.67% | YoY:1.79%
EPS
1.44
QoQ: 8 521.05% | YoY:220.00%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $970.4 million in Q2 FY2025, +2.2% YoY; organic growth +2.4%.
Gross margin: 38.84% (down slightly year over year due to mix).
Net income: $34.1 million; net income margin 3.51%; Earnings per share (diluted): $1.43; basic $1.44; weighted avg shares ~69.0–70.0 million.
Financial Highlights
- Revenue: $970.4 million in Q2 FY2025, +2.2% YoY; organic growth +2.4%.
- Gross margin: 38.84% (down slightly year over year due to mix).
- Operating income: $62.5 million; operating margin 6.44%.
- EBITDA: $101.0 million; EBITDA margin 10.4%.
- Net income: $34.1 million; net income margin 3.51%; Earnings per share (diluted): $1.43; basic $1.44; weighted avg shares ~69.0–70.0 million.
- Orders: Consolidated orders $922 million, down 2.3% reported; down 1.9% organic; Q2 was affected by the Thanksgiving–cyber promo timing shift, with promotional activity split between Q2 and Q3.
- Segment highlights:
• Americas Contract: Net sales $504 million, +6.2% organically; orders $457 million, +4.9% organic; margin 9.4% reported, adj 10.2%
• International Contract & Specialty: Net sales $246 million, +2.1%; orders $219 million, −6.5% YoY; margin 9.7% reported, adj 10.5%
• Retail: Net sales $220 million, −5.3% YoY; orders $246 million, −9.6% YoY; margin 4.0% reported, adj 4.2%
- Cash flow and liquidity: Operating cash flow $55.3 million; free cash flow $33.0 million; cash at period end $221.1 million; net debt to EBITDA 2.94x; current ratio 1.60x; quick ratio 0.99x; cash balance fully supports ongoing capital allocation.
- Capital allocation: Share repurchases of ~1.0 million shares for $23 million in Q2; six-month total cash returns to shareholders approx. $93 million via dividends and buybacks.
- Guidance and outlook: Q3 net sales guided to $903–$943 million; adjusted diluted EPS guidance $0.41–$0.47; full-year adjusted EPS guidance narrowed to $2.11–$2.17, reflecting anticipated Q3 softness and promotional timing shifts.
- Strategic actions and sustainability: London flagship opened; Belgium Fulfillment Center enabling textiles in Europe; DWR Studios in Palm Springs and Las Vegas; Herman Miller store in Fairfax; Spring 2025 product launches up more than 100% versus Spring 2024; PFAS elimination target (NA by May 2025, global by May 2027).
- Tariff strategy: Playbook includes alternate sourcing, pre-punding of components, potential pricing actions, duty drawback, exclusions, and transfer pricing strategies; China and Canada are the principal exposure points (Canada via Toronto manufacturing for wood case goods post-Knoll acquisition).
- Management tone: While macro conditions remain mixed, leadership emphasizes improving demand indicators and a diversified, brand‑led strategy to sustain momentum through H2 2025.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
970.40M
2.20%
12.64%
Gross Profit
377.00M
1.34%
12.10%
Operating Income
62.50M
3.48%
311.18%
Net Income
34.10M
1.79%
2 941.67%
EPS
1.44
220.00%
8 521.05%
Key Financial Ratios
currentRatio
1.6
grossProfitMargin
38.9%
operatingProfitMargin
6.44%
netProfitMargin
3.51%
returnOnAssets
0.85%
returnOnEquity
2.6%
debtEquityRatio
1.4
operatingCashFlowPerShare
$0.8
freeCashFlowPerShare
$0.48
dividendPayoutRatio
38.7%
priceToBookRatio
1.33
priceEarningsRatio
12.77
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key insights from management calls by themes:
- Strategy and growth trajectory: "We continue to be optimistic for the year ahead based on momentum we're seeing in several of our businesses, along with leading indicators which vary by segment, strengthening our overall demand picture." (Andi Owen)
- Segment momentum and mix: "Americas Contract continues to be a key growth driver... sales and orders up year-over-year in the second quarter, our third consecutive period of order growth" (Andi Owen).
- International expansion and brand leadership: "We opened our MillerKnoll flagship in London... more than doubled client appointments versus the prior year" and "new Fulfillment Center in Belgium... offer our full complement of textiles in Europe" (Andi Owen).
- Financial results and guidance: "Consolidated net sales for the second quarter were $970 million, representing a 2.2% increase year-over-year" and "we narrowed our full year adjusted earnings per share range to between $2.11 and $2.17" (Jeff Stutz).
- Q3 guidance and timing shift: "For the third quarter specifically, we expect net sales to range between $903 million and $943 million. Adjusted diluted earnings are expected to range between $0.41 and $0.47 per share... shift in the holiday promotional period for Retail" (Jeff Stutz).
- Dealer and demand indicators: "dealer funnel additions… up over 64% this quarter over the same time last year. Mockup activity up almost 30%." (John Michael).
- Marketing effectiveness and Retail momentum: "Return on ad spend for the quarter was up 5% to last year, while cost to acquire customers was up 15% because of the election noise... average order values 10% above last year" (Debbie Propst).
- Sustainability and PFAS: "elimination of added PFAS from our North American product portfolio by May of 2025, and globally by May of 2027" (Andi Owen).
We continue to be optimistic for the year ahead based on momentum we're seeing in several of our businesses, along with leading indicators which vary by segment, strengthening our overall demand picture.
— Andi Owen
For the third quarter specifically, we expect net sales to range between $903 million and $943 million. Adjusted diluted earnings are expected to range between $0.41 and $0.47 per share. Our Q3 guidance takes the third quarter's typical seasonal slowdown into consideration, along with the shift in the holiday promotional period for our Retail business, which we estimate shifted approximately $12 million in net sales, and $27 million in orders from our fiscal second quarter into the third quarter.
— Jeff Stutz
Forward Guidance
Investment outlook is anchored on the expectation of improved demand in the second half of fiscal 2025, aided by a stronger Americas Contract pipeline, ongoing International expansion, and a higher base of new product introductions. The company narrowed FY2025 adjusted EPS to $2.11–$2.17 and provided Q3 guidance of $0.41–$0.47 per share on revenue of $903–$943 million, which implies modest leverage recovery should top-line trends improve. Management cites leading indicators—Architecture Billings Index, dealer sentiment, and luxury home sales—pointing to an improving demand environment, particularly in the Americas Contract and Retail channels.
Key risks include tariff impacts (with a detailed playbook to mitigate exposure via alternative sourcing, pre-punding, pricing flexibility, duty drawback, and transfer pricing), macroeconomic uncertainty in Europe, and potential variability in project-based International contracting. Quantitatively, sensitivity to top-line lift is expected to drive margin expansion through operating leverage as volumes rise; however, near-term Q3 margins face modest compression due to mix and seasonal timing shifts in Retail promotions. Investors should monitor: (1) progression of orders in the Americas Contract funnel and the rate of new product introductions; (2) International order activity and dealer network expansion in Europe and APAC; (3) tariff policy details and the effectiveness of mitigation actions; (4) PFAS transition progress and its impact on cost structure; and (5) quarterly cadence of cash flow generation, debt levels, and capital returns.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MLKN Focus
38.85%
6.44%
2.60%
12.77%
LZB
44.30%
7.44%
2.97%
13.64%
MBC
33.50%
11.80%
3.60%
10.11%
BSET
52.50%
-3.53%
-4.19%
-4.57%
AMWD
18.90%
9.42%
3.03%
12.55%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
MillerKnoll presents a measured but constructive investment case in a diversified, brand-led furnishings platform with meaningful exposure to resilient contract channels and a strategically expanding international footprint. The QQ2 2025 results demonstrate healthy revenue scale ($970.4m) and solid profitability (gross margin 38.8%, adj operating margins in core segments). The Americas Contract engine is a key growth driver, supported by robust funnel metrics (12-month funnel +64% YoY; mockups +30%), while international expansion and flagship initiatives are expected to unlock incremental margin and cross-brand synergies over time. The company’s guidance reflects prudent conservatism given seasonality, yet signals upside potential from stronger top-line momentum in the back half of fiscal 2025, especially if Retail promotional activities and demand recover more quickly than anticipated.
Key catalysts include: (1) execution of international dealer network expansion and European textile capabilities; (2) integration benefits from Knoll acquisition driving cross-brand sales; (3) PFAS sustainability leadership and potential cost savings; (4) potential uplift from tax policy provisions (bonus depreciation) boosting free cash flow; and (5) continued deleveraging and operating leverage as volumes improve. Valuation remains reasonable given the current earnings power and cash generation; however, execution risk around tariffs, macro floor, and project-based international demand remains the primary sensitivity. Investors should monitor: quarterly progression of Q3 and H2 demand, tariff policy details and mitigation effectiveness, and the progression of the London flagship and other store openings which could provide incremental revenue and margin diversification over the next 12–24 months.
Key Investment Factors
Growth Potential
- Strong growth in Americas Contract with 3 consecutive quarters of order growth; execution of new sourcing strategies and price actions to sustain margin expansion.
- International expansion via dealer network and flagship openings (London), plus Europe textile capabilities, enabling cross-brand textiles across European markets.
- Product and service diversification through expanded product launches (Spring 2025 up >100% vs Spring 2024) and Design with Impact programs; higher average order values (AOV up ~10% in Retail).
- PFAS sustainability initiatives and potential tax incentives (bonus depreciation) that could boost free cash flow in the near term.
Profitability Risk
- Tariff and geopolitical exposure with China and Canada as primary regions; ongoing supply chain risk and potential input cost volatility.
- Retail seasonality and promotional timing shifts can cause quarter-to-quarter volatility in reported revenue and gross margin mix.
- Dependency on project-based International demand which can be lumpier and more exposed to macro cycles.
- Integration risks from Knoll acquisition and alignment of dealer network across multiple regions.
Financial Position
- Solid liquidity with cash at period end of $221.1 million; net debt to EBITDA of 2.94x; current ratio 1.60x; quick ratio 0.99x; debt balance of approximately $1.84 billion.
- Operating cash flow of $55.3 million and free cash flow of $33.0 million; disciplined capital allocation including $23 million in share buybacks and $93 million returned to shareholders in six months via dividends and buybacks.
- Moderate leverage with EV/EBITDA multiple around the mid-30s among peers; solid gross margins (~38.8%) and leverage on fixed overheads contributing to adjusted margin improvements in key segments.
SWOT Analysis
Strengths
Diversified, global brand portfolio (MillerKnoll, Knoll, Herman Miller, DWR) supports broad market coverage across commercial, residential, and healthcare segments.
Americas Contract growth accelerates, with a third consecutive YoY order increase and robust funnel indicators.
Strong balance sheet relative to peers with solid cash generation and moderate leverage (net debt to EBITDA ~2.94x).
Strategic international expansion (London flagship, Belgium textiles fulfillment, expanded dealer network) enhances cross-brand reach and margin opportunities.
Sustainability initiatives (PFAS reductions) align with regulatory trends and customer demand.
Weaknesses
Retail segment remains sensitive to promotional timing and seasonality, causing short-term margin pressure (Retail adj margin ~4.2%).
International segment margins can be volatile due to project‑based demand and macroeconomic/political headwinds in Europe and APAC.
Near-term exposure to tariffs and geopolitical risk requires active hedging and supply-chain adaptation; tariff risk remains substantial without clarity on policy.
Opportunities
Accelerating growth from Design Within Reach studios and new stores (Palm Springs, Las Vegas, Fairfax) to expand brick-and-mortar reach.
Europe textiles availability and cross-brand textile integration improving mix and margin potential across brands.
Higher utilization of textiles and sustainable product lines to capture premium pricing and customer loyalty.
Capitalize on tax policy incentives (bonus depreciation) to boost free cash flow in 2025–2026.
Increase dealer/distributor partnerships to accelerate international penetration and project-based wins.
Threats
Tariff developments (China, Canada) and potential cost pass-through pressures; exposure mitigated but ongoing.
Macro headwinds in European markets and global construction cycles affecting project timing and order visibility.
Competitive pressure from peers in the furnishings/office furniture sector and evolving work-environment trends (hybrid/remote) altering demand profiles.
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