MillerKnoll(MLKN) - 2026 Q1 - Quarterly Report

Part I — Financial Information This section presents MillerKnoll's unaudited condensed consolidated financial statements and detailed notes for Q1 FY26 and Q1 FY25 Item 1 Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, offering a snapshot of interim financial performance and position Condensed Consolidated Statements of Comprehensive Income (Loss) This statement details MillerKnoll's revenues, expenses, and net earnings (loss) for the three months ended August 30, 2025, and August 31, 2024 Financial Performance (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | YoY Change | | :------------------------------------------ | :-------------- | :-------------- | :--------- | | Net sales | $955.7M | $861.5M | +10.9% | | Gross margin | $368.1M | $336.3M | +9.5% | | Operating earnings | $53.5M | $15.2M | +252.0% | | Net earnings (loss) attributable to MillerKnoll, Inc. | $20.2M | $(1.2)M | N/A | | Earnings (loss) per share - diluted | $0.29 | $(0.02) | N/A | Condensed Consolidated Balance Sheets This statement presents MillerKnoll's assets, liabilities, and equity as of August 30, 2025, and May 31, 2025 Financial Position (As of) | Metric | August 30, 2025 | May 31, 2025 | Change | | :------------------------------------------ | :-------------- | :-------------- | :----- | | Cash and cash equivalents | $167.2M | $193.7M | -13.7% | | Total current assets | $1,089.8M | $1,108.7M | -1.7% | | Total Assets | $3,941.0M | $3,950.2M | -0.2% | | Total current liabilities | $652.0M | $703.8M | -7.4% | | Long-term debt | $1,327.5M | $1,310.6M | +1.3% | | Total Liabilities | $2,578.6M | $2,615.1M | -1.4% | | Total Stockholders' Equity | $1,299.5M | $1,275.8M | +1.9% | Condensed Consolidated Statements of Cash Flows This statement summarizes MillerKnoll's cash inflows and outflows from operating, investing, and financing activities for Q1 FY26 and Q1 FY25 Cash Flow Summary (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | Change | | :------------------------------------------ | :-------------- | :-------------- | :----- | | Net Cash Provided by Operating Activities | $9.4M | $21.1M | -55.5% | | Net Cash Used in Investing Activities | $(30.5)M | $(22.3)M | +36.8% | | Net Cash Used in Financing Activities | $(9.2)M | $(20.3)M | -54.7% | | Net Decrease in Cash and Cash Equivalents | $(26.5)M | $(20.7)M | +28.0% | | Cash and Cash Equivalents, End of Period | $167.2M | $209.7M | -20.3% | Condensed Consolidated Statements of Stockholders' Equity This statement details changes in MillerKnoll's stockholders' equity, including net earnings, other comprehensive income, and dividends, for Q1 FY26 and Q1 FY25 Stockholders' Equity Changes (Three Months Ended August 30, 2025) | Metric | May 31, 2025 Balance | Net Earnings | Other Comprehensive Loss | Stock-Based Comp. | Repurchase/Withholding | Dividends Declared | August 30, 2025 Balance | | :-------------------------------- | :------------------ | :----------- | :----------------------- | :------------------ | :---------------------- | :----------------- | :---------------------- | | Total Stockholders' Equity | $1,275.8M | $20.2M | $12.7M | $9.3M | $(7.2)M | $(13.1)M | $1,299.5M | Stockholders' Equity Changes (Three Months Ended August 31, 2024) | Metric | June 1, 2024 Balance | Net (Loss) | Other Comprehensive Income | Stock-Based Comp. | Repurchase/Withholding | Dividends Declared | August 31, 2024 Balance | | :-------------------------------- | :----------------- | :--------- | :----------------------- | :------------------ | :---------------------- | :----------------- | :---------------------- | | Total Stockholders' Equity | $1,385.1M | $(1.2)M | $(5.8)M | $9.1M | $(44.0)M | $(13.2)M | $1,332.5M | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering key accounting policies and financial line items Note 1 - Description of Business and Basis of Presentation MillerKnoll designs and distributes interior furnishings globally through diverse channels, with financial statements prepared under U.S. GAAP - MillerKnoll researches, designs, manufactures, and distributes interior furnishings for residential, office, healthcare, and educational settings globally[12] - The company operates a collective of globally recognized design brands including Herman Miller®, Knoll®, Design Within Reach®, HAY®, and Muuto®[13] - Products are sold through independent contract furniture dealers, direct customer sales, owned and independent retailers, direct-mail catalogs, and eCommerce platforms[12] Note 2 - Recently Issued Accounting Standards The company adopted ASU 2023-07, modifying disclosures without material financial impact, and anticipates similar effects from future ASU adoptions - ASU 2023-07 (Segment Reporting) was adopted for fiscal year ended May 31, 2025, retrospectively, modifying disclosures but not materially affecting financial position, results, or cash flows[20] - ASU 2023-09 (Income Taxes) will be effective for annual periods beginning after December 15, 2024, and is expected to modify disclosures without material financial impact[21] - ASU 2024-03 (Expense Disaggregation) will be effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, with no expected material financial impact[22] Note 3 - Revenue from Contracts with Customers Revenue is disaggregated by product type and segment, with total net sales increasing to $955.7 million in Q1 FY26 Revenue by Product Type and Segment (Three Months Ended August 30, 2025 vs August 31, 2024) | Category | Aug 30, 2025 (Millions) | Aug 31, 2024 (Millions) | YoY Change | | :-------------------- | :---------------------- | :---------------------- | :--------- | | North America Contract: | | | | | Workplace | $327.1M | $279.0M | +17.2% | | Performance Seating | $103.4M | $94.0M | +10.0% | | Lifestyle | $56.1M | $55.6M | +0.9% | | Other | $47.3M | $47.6M | -0.6% | | Total North America Contract | $533.9M | $476.2M | +12.1% | | International Contract: | | | | | Workplace | $44.5M | $35.0M | +27.1% | | Performance Seating | $73.1M | $67.4M | +8.5% | | Lifestyle | $41.9M | $38.9M | +7.7% | | Other | $8.0M | $5.1M | +56.9% | | Total International Contract | $167.5M | $146.4M | +14.4% | | Global Retail: | | | | | Workplace | $2.0M | $2.6M | -23.1% | | Performance Seating | $45.6M | $43.8M | +4.1% | | Lifestyle | $206.1M | $192.2M | +7.2% | | Other | $0.6M | $0.3M | +100.0% | | Total Global Retail | $254.3M | $238.9M | +6.4% | | Total MillerKnoll, Inc. | $955.7M | $861.5M | +10.9% | Net Sales by Geographic Area (Three Months Ended August 30, 2025 vs August 31, 2024) | Geographic Area | Aug 30, 2025 (Millions) | Aug 31, 2024 (Millions) | YoY Change | | :-------------- | :---------------------- | :---------------------- | :--------- | | United States | $694.4M | $618.2M | +12.3% | | International | $261.3M | $243.3M | +7.4% | | Total | $955.7M | $861.5M | +10.9% | - The company recognized net sales of $64.6 million (FY26 Q1) and $72.8 million (FY25 Q1) related to customer deposits from prior periods[31] Note 4 - Inventories Inventories, primarily valued by FIFO, increased to $465.8 million as of August 30, 2025, driven by finished goods and WIP Inventory Composition (In millions) | Category | August 30, 2025 | May 31, 2025 | Change | | :-------------------------- | :-------------- | :-------------- | :----- | | Finished goods and work in process | $346.7M | $329.5M | +5.2% | | Raw materials | $119.1M | $118.0M | +0.9% | | Total | $465.8M | $447.5M | +4.1% | Note 5 - Goodwill and Indefinite-Lived Intangibles Goodwill increased to $1,161.9 million due to currency adjustments, with Q3 FY25 impairment charges for goodwill and intangibles Goodwill Carrying Amount by Segment (In millions) | Segment | May 31, 2025 | Foreign Currency Translation Adjustments | August 30, 2025 | | :-------------------- | :------------- | :------------------------------------- | :-------------- | | North America Contract | $590.8M | $3.2M | $594.0M | | International Contract | $159.1M | $2.0M | $161.1M | | Global Retail | $402.5M | $4.3M | $406.8M | | Total | $1,152.4M | $9.5M | $1,161.9M | - Goodwill impairment charges of $30.1 million (Global Retail) and $62.2 million (Holly Hunt) were recognized in Q3 FY25 due to reduced sales/profitability projections and increased discount rates[38] - Indefinite-lived intangible assets increased to $435.7 million as of August 30, 2025, with $37.7 million in non-cash impairment charges related to Knoll and Muuto trade names recognized in Q3 FY25[34][45] Note 6 - Earnings Per Share Diluted EPS for Q1 FY26 was $0.29, a significant improvement from a $0.02 loss per share in the prior year EPS Calculation (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | | :---------------------------------------------------------------- | :-------------- | :-------------- | | Numerator for basic and diluted EPS, Net earnings (loss) attributable to MillerKnoll, Inc. (in millions) | $20.2M | $(1.2)M | | Weighted-average common shares outstanding - basic | 68,519,141 | 70,206,373 | | Potentially dilutive shares resulting from stock plans | 675,365 | — | | Weighted-average common shares outstanding - diluted | 69,194,506 | 70,206,373 | | Earnings (loss) per share attributable to MillerKnoll, Inc. - diluted | $0.29 | $(0.02) | Note 7 - Stock-Based Compensation Stock-based compensation expense was $9.3 million in Q1 FY26, slightly up from $9.1 million in the prior year Stock-Based Compensation Expense (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | | :-------------------------- | :-------------- | :-------------- | | Stock-based compensation expense | $9.3M | $9.1M | | Related income tax effect | $2.3M | $2.2M | Note 8 - Income Taxes The effective tax rate was 26.5% in Q1 FY26, a significant decrease from 66.2% in the prior year, driven by pre-tax income Effective Tax Rates (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | | :------------------ | :-------------- | :-------------- | | Effective tax rate | 26.5% | 66.2% | - The year-over-year change in the effective tax rate resulted from the current quarter reflecting pre-tax income along with unfavorable discrete impacts from stock compensation vesting, compared to the prior year's pre-tax loss with favorable discrete impacts[51][52] Note 9 - Fair Value Measurements Financial instruments are recorded at fair value, with long-term debt at $1,340.9 million; foreign currency and interest rate risks are hedged Long-Term Debt Fair Value (In millions) | Metric | August 30, 2025 | May 31, 2025 | | :------------- | :-------------- | :-------------- | | Carrying value | $1,352.7M | $1,337.0M | | Fair value | $1,340.9M | $1,330.7M | Financial Assets and Liabilities Measured at Fair Value (August 30, 2025, In millions) | Category | NAV | Level 1 | Level 2 | | :-------------------------------- | :---- | :------ | :------ | | Money market funds | $2.2M | — | — | | Foreign currency forward contracts (assets) | — | — | $1.0M | | Deferred compensation plan | — | $24.5M | — | | Foreign currency forward contracts (liabilities) | — | — | $0.4M | - The company uses interest rate swap agreements with a total notional amount of $950.0 million to convert variable interest rates to fixed rates, designated as cash flow hedges[65][71] Note 10 - Commitments and Contingencies The company maintains a $69.8 million warranty reserve and has performance bonds and letters of credit with no material expected impact Warranty Reserve (In millions) | Metric | August 30, 2025 | August 31, 2024 | | :-------------------------- | :-------------- | :-------------- | | Accrual Balance — beginning | $69.7M | $70.4M | | Accrual for warranty matters | $7.2M | $4.8M | | Settlements and adjustments | $(7.1)M | $(5.5)M | | Accrual Balance — ending | $69.8M | $69.7M | - Maximum financial exposure related to performance bonds was approximately $11.7 million as of August 30, 2025, with no history of claims[76] - Maximum financial exposure from standby letters of credit was approximately $12.0 million as of August 30, 2025, with no history of claims[77] Note 11 - Short-Term Borrowings and Long-Term Debt Total debt increased to $1,352.7 million; credit agreements were amended, extending maturities and resulting in a $7.8 million debt extinguishment loss Debt Composition (In millions) | Debt Type | August 30, 2025 | May 31, 2025 | Change | | :------------------------------------------ | :-------------- | :-------------- | :----- | | Syndicated revolving line of credit | $399.7M | $330.8M | +20.8% | | Term Loan A, 6.0660%, due April 2030 | $400.0M | $400.0M | 0.0% | | Term Loan B, 6.5660%, due August 2032 | $550.0M | $603.1M | -8.7% | | Total debt | $1,352.7M | $1,337.0M | +1.2% | - In April 2025, the company amended its credit agreement, extending the Revolver and Term Loan A maturity to April 2030 and increasing Term Loan A to $400.0 million[81] - In August 2025, Term Loan B maturity was extended to August 2032, and the amount borrowed was reduced to $550.0 million, resulting in a $7.8 million debt extinguishment loss[82] Note 12 - Accumulated Other Comprehensive Loss Accumulated other comprehensive loss improved to $(69.3) million, driven by positive foreign currency translation and interest rate swap reclassifications Changes in Accumulated Other Comprehensive Loss (In millions) | Component | May 31, 2025 Balance | Net Current Period OCI (Loss) | August 30, 2025 Balance | | :-------------------------------- | :------------------- | :-------------------------- | :-------------------- | | Cumulative Translation Adjustments | $(70.6)M | $18.4M | $(52.2)M | | Pension and Other Post Retirement Benefit Plans | $(30.9)M | $0.1M | $(30.8)M | | Interest Rate Swap Agreement | $19.5M | $(5.8)M | $13.7M | | Total Accumulated Other Comprehensive Loss | $(82.0)M | $12.7M | $(69.3)M | Note 13 - Operating Segments MillerKnoll reorganized into three segments; North America Contract, International Contract, and Global Retail, with performance assessed by Adjusted Operating Earnings - Effective March 1, 2025, the company reorganized into three reportable segments: North America Contract, International Contract, and Global Retail[87] - The Chief Executive Officer (CODM) uses Adjusted Operating Earnings (Loss) as the key metric to measure segment profit or loss and evaluate performance[93] Net Sales by Segment (Three Months Ended August 30, 2025 vs August 31, 2024) | Segment | Aug 30, 2025 (Millions) | Aug 31, 2024 (Millions) | YoY Change | | :-------------------- | :---------------------- | :---------------------- | :--------- | | North America Contract | $533.9M | $476.2M | +12.1% | | International Contract | $167.5M | $146.4M | +14.4% | | Global Retail | $254.3M | $238.9M | +6.4% | | Total | $955.7M | $861.5M | +10.9% | Note 14 - Restructuring and Integration Expense The company incurred $0.5 million in Q1 FY26 restructuring charges; Knoll Integration is complete, with prior year charges of $28.3 million - No costs were incurred for the Knoll Integration in Q1 FY26; $28.3 million was incurred in Q1 FY25, primarily for asset impairment and facility consolidation. The integration plan is complete[103][104] - The company incurred $0.5 million in restructuring charges for the 2026 restructuring plan in Q1 FY26, related to facilities consolidation and accelerated depreciation[106] Restructuring Cost Reserve (2025 Plan, In millions) | Metric | May 31, 2025 | Amounts Paid | August 30, 2025 | | :-------------------------- | :----------- | :----------- | :-------------- | | Severance and Employee Related | $7.0M | $(4.9)M | $2.1M | Note 15 - Variable Interest Entities The company holds $12.9 million in notes receivable from variable interest entities, with no primary beneficiary status due to dealer control - The carrying value of notes receivable with independently owned dealers (variable interest entities) was $12.9 million as of August 30, 2025, representing the company's maximum exposure to loss[113] - The company is not deemed the primary beneficiary for these variable interest entities, as the independent dealers control the activities that most significantly impact their economic performance[113] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses MillerKnoll's financial performance, condition, and cash flows for Q1 FY26, including non-GAAP reconciliations and segment analysis Business Overview MillerKnoll designs and distributes furnishings globally; Q1 FY26 saw 10.9% net sales growth but a 5.4% decrease in orders - The company researches, designs, manufactures, sells, and distributes interior furnishings for residential, office, healthcare, and educational settings globally[115] - Products are sold through independent contract office furniture dealers, direct customer sales, owned and independent retailers, and eCommerce platforms[115] Q1 FY26 Performance Summary (Three Months Ended August 30, 2025) | Metric | Value (Millions) | YoY Change | Organic YoY Change | | :---------------- | :--------------- | :--------- | :----------------- | | Net sales | $955.7M | +10.9% | +10.0% | | Orders | $885.4M | -5.4% | -6.2% | Reconciliation of Non-GAAP Financial Measures This section reconciles non-GAAP measures like Adjusted EPS and Organic Growth to GAAP, excluding specific items for comparative performance - Non-GAAP measures include Adjusted Earnings per Share and Organic Growth (Decline), which are used to provide financial information on a more comparative basis[119][120][121] - Adjusted EPS excludes amortization of Knoll purchased intangibles, integration charges, restructuring expenses, Knoll pension plan termination charges, debt extinguishment charges, and related tax effects[120][123] Adjusted Diluted EPS (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | | :------------------------------------------ | :-------------- | :-------------- | | Earnings (loss) per share - diluted | $0.29 | $(0.02) | | Add: Amortization of Knoll purchased intangibles | $0.09 | $0.08 | | Add: Integration charges | — | $0.40 | | Add: Restructuring charges | $0.01 | — | | Add: Debt extinguishment charges | $0.11 | — | | Add: Knoll pension plan termination charges | — | $0.01 | | Tax impact on adjustments | $(0.05) | $(0.11) | | Adjusted earnings per share - diluted | $0.45 | $0.36 | Key Highlights Q1 FY26 highlights include 10.9% net sales growth to $955.7 million, 252.0% operating earnings increase, and diluted EPS of $0.29 Financial Highlights (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | % Change | | :------------------------------------------ | :-------------- | :-------------- | :------- | | Net sales | $955.7M | $861.5M | 10.9% | | Gross margin | $368.1M | $336.3M | 9.5% | | Operating earnings | $53.5M | $15.2M | 252.0% | | Net earnings (loss) attributable to MillerKnoll, Inc. | $20.2M | $(1.2)M | N/A | | Earnings (loss) per share - basic | $0.29 | $(0.02) | N/A | | Orders | $885.4M | $935.9M | (5.4)% | | Backlog | $690.9M | $758.0M | (8.9)% | Key Ratios (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | | :------------------------------------------ | :-------------- | :-------------- | | Gross margin % | 38.5% | 39.0% | | Operating earnings % | 5.6% | 1.8% | | Net earnings (loss) attributable to MillerKnoll, Inc. % | 2.1% | (0.1)% | Net Sales Net sales increased by $94.2 million (10.9%) in Q1 FY26, driven by higher volumes, favorable currency, and price increases - Net sales increased by $94.2 million or 10.9% in the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025[130] - The increase was primarily driven by higher sales volumes in North America Contract (approx. $54 million), International Contract (approx. $21 million), and Global Retail (approx. $9 million)[130] - Favorable foreign currency translation increased net sales by approximately $8 million, and price increases (net of discounting) positively impacted net sales by approximately $2 million[130] Gross Margin Gross margin decreased by 50 basis points to 38.5% in Q1 FY26, primarily due to increased net tariff-related costs - Gross margin was 38.5% in Q1 FY26, a decrease of 50 basis points from 39.0% in Q1 FY25[130] - The year-over-year change was primarily driven by tariff-related costs (net of pricing actions), which adversely impacted gross margin by approximately 110 basis points[130] - These impacts were partially offset by favorable leverage on fixed costs due to higher sales volumes[130] Operating Expenses Operating expenses decreased by $6.5 million (2.0%) in Q1 FY26, mainly due to reduced integration charges, partially offset by higher compensation and selling costs - Operating expenses decreased by $6.5 million or 2.0% in Q1 FY26 compared to the prior year period[134] - The decrease was primarily driven by a reduction in acquisition-related integration charges, totaling approximately $28 million[136] - This benefit was partially offset by increased fixed and variable compensation costs (approx. $9 million), variable selling costs (approx. $8 million), incremental costs for retail store expansion ($3 million), and unfavorable foreign currency translation (approx. $2 million)[136] Other Income/Expense Net Other expense increased by $7.9 million to $24.8 million in Q1 FY26, primarily due to a $7.8 million debt extinguishment loss - Net Other expense was $24.8 million in Q1 FY26, an increase of $7.9 million compared to the prior year period[134] - The change was primarily driven by a $7.8 million loss on extinguishment of debt incurred in connection with the refinancing of term loan debt[134] Income Taxes The effective tax rate was 26.5% in Q1 FY26, a significant change from 66.2% in Q1 FY25, driven by pre-tax income - The effective tax rate was 26.5% for the three months ended August 30, 2025, compared to 66.2% for the same period in the prior year[51][117] - The change resulted primarily from the current quarter reflecting pre-tax income along with unfavorable discrete impacts from stock compensation, versus the prior year's pre-tax loss with favorable discrete impacts[51][52] Operating Segment Results MillerKnoll operates three segments; North America Contract showed strong growth, while Global Retail faced profitability challenges despite sales growth - Effective March 1, 2025, the company implemented an organizational change resulting in three reportable segments: North America Contract, International Contract, and Global Retail[138] - North America Contract represented 56% of net sales and 85% of operating earnings in Q1 FY26[144][146] - Global Retail represented 27% of net sales but only 2% of operating earnings in Q1 FY26, indicating profitability challenges despite sales growth[144][146] North America Contract This segment's net sales increased 12.1% and operating earnings increased 253.4% in Q1 FY26, driven by higher volumes and reduced integration charges North America Contract Segment Performance (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | Change | | :---------------- | :-------------- | :-------------- | :----- | | Net sales | $533.9M | $476.2M | +$57.7M | | Gross margin | $196.0M | $171.7M | +$24.3M | | Gross margin % | 36.7% | 36.1% | +0.6% | | Operating earnings | $56.9M | $16.1M | +$40.8M | | Operating earnings % | 10.7% | 3.4% | +7.3% | - Net sales increased 12.1% (reported and organic) driven by higher sales volumes (approx. $54 million) and price increases (approx. $4 million)[148][149] - Operating earnings increased 253.4% due to increased gross margin from higher sales volumes and a 60 basis point increase in gross margin percentage, along with a $16.5 million decrease in operating expenses, primarily from reduced integration charges[148][149] International Contract This segment's net sales increased 14.4% and operating earnings increased 42.1% in Q1 FY26, driven by higher volumes and favorable currency International Contract Segment Performance (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | Change | | :---------------- | :-------------- | :-------------- | :----- | | Net sales | $167.5M | $146.4M | +$21.1M | | Gross margin | $59.2M | $53.9M | +$5.3M | | Gross margin % | 35.3% | 36.8% | (1.5)% | | Operating earnings | $13.5M | $9.5M | +$4.0M | | Operating earnings % | 8.1% | 6.5% | +1.6% | - Net sales increased 14.4% (11.3% organic) driven by higher sales volumes (approx. $21 million) and favorable foreign currency translation (approx. $5 million), partially offset by incremental discounting (approx. $5 million)[150][152] - Operating earnings increased 42.1% due to increased gross margin from higher sales volumes, despite a 150 basis point decline in gross margin percentage, and a $1.3 million increase in operating expenses[150][152] Global Retail This segment's net sales increased 6.4%, but operating earnings decreased 73.6% in Q1 FY26 due to lower gross margin and higher expenses Global Retail Segment Performance (Three Months Ended) | Metric | August 30, 2025 | August 31, 2024 | Change | | :---------------- | :-------------- | :-------------- | :----- | | Net sales | $254.3M | $238.9M | +$15.4M | | Gross margin | $112.9M | $110.7M | +$2.2M | | Gross margin % | 44.4% | 46.3% | (1.9)% | | Operating earnings | $1.4M | $5.3M | $(3.9)M | | Operating earnings % | 0.6% | 2.2% | (1.6)% | - Net sales increased 6.4% (4.9% organic) driven by higher sales volumes (approx. $9 million), favorable foreign currency translation (approx. $3 million), and price increases (approx. $3 million)[153][156] - Operating earnings decreased 73.6% due to a 190 basis point decline in gross margin percentage (impacted by increased freight costs, tariffs, and unfavorable currency) and a $6.1 million increase in operating expenses (from higher compensation and retail store expansion)[153][156] Corporate Corporate unallocated expenses increased to $18.3 million in Q1 FY26, primarily due to higher fixed and variable compensation costs - Corporate unallocated expenses totaled $18.3 million for Q1 FY26, an increase of $2.6 million from Q1 FY25, primarily due to higher fixed and variable compensation expense[153] Liquidity and Capital Resources The company's cash and cash equivalents decreased by $26.5 million to $167.2 million at the end of Q1 FY26, with changes in operating, investing, and financing cash flows Net Change in Cash and Cash Equivalents (In millions) | Metric | August 30, 2025 | August 31, 2024 | | :------------------------------------------ | :-------------- | :-------------- | | Operating activities | $9.4M | $21.1M | | Investing activities | $(30.5)M | $(22.3)M | | Financing activities | $(9.2)M | $(20.3)M | | Net change in Cash and cash equivalents | $(26.5)M | $(20.7)M | Cash Flows - Operating Activities Net cash provided by operating activities decreased to $9.4 million in Q1 FY26, primarily due to a net increase in working capital - Net cash provided by operating activities decreased to $9.4 million in Q1 FY26 from $21.1 million in Q1 FY25[157] - The decrease was primarily due to a net increase in working capital, influenced by fluctuations in inventory levels, timing of receivables collection, and changes in accruals related to variable compensation[157][163] Cash Flows - Investing Activities Cash used in investing activities increased to $30.5 million in Q1 FY26, primarily driven by higher capital expenditures - Cash used in investing activities increased to $30.5 million in Q1 FY26 from $22.3 million in Q1 FY25, primarily driven by higher capital expenditures[158][159] - The company expects full-year capital purchases for fiscal 2026 to be between $120 million and $130 million, mainly for facilities, equipment, and sustainability goals[159] Cash Flows - Financing Activities Cash used in financing activities decreased to $9.2 million in Q1 FY26, due to fewer share repurchases and higher net borrowings - Cash used in financing activities decreased to $9.2 million in Q1 FY26 from $20.3 million in Q1 FY25[160] - This decrease was primarily due to fewer share repurchases ($7.2 million vs. $43.7 million) and higher net borrowings on the credit agreement ($68.9 million vs. $43.1 million)[164] - These positive impacts were partially offset by a net cash outflow of $58.7 million from the refinancing of Term Loan B[164] Sources of Liquidity Total liquidity was $480.5 million as of August 30, 2025, comprising cash and available credit, deemed adequate for future operations Total Liquidity (In millions) | Metric | August 30, 2025 | May 31, 2025 | | :------------------------------------------ | :-------------- | :-------------- | | Cash and cash equivalents | $167.2M | $193.7M | | Availability under syndicated revolving line of credit | $313.3M | $382.2M | | Total liquidity | $480.5M | $575.9M | - The company had $158.6 million of cash and cash equivalents held outside the United States at the end of Q1 FY26[162] - Management believes current liquidity sources (cash on hand, operating cash flows, borrowing capacity) are adequate to fund near-term and foreseeable future business operations, capital needs, debt maturities, dividends, and share repurchases[168] - The company intends to repatriate $137.3 million of undistributed foreign earnings, with a $3.5 million deferred tax liability for foreign withholding taxes[167] Contractual Obligations There have been no material changes in the company's contractual obligations since the May 31, 2025, Annual Report on Form 10-K - There have been no material changes in contractual obligations since the Company's Annual Report on Form 10-K for the year ended May 31, 2025[169] Guarantees The company's guarantees have not materially changed from those disclosed in Note 10 of the Condensed Consolidated Financial Statements - Refer to Note 10 to the Condensed Consolidated Financial Statements for information on guarantees[170] Variable Interest Entities The company's variable interest entities disclosures have not materially changed from those disclosed in Note 15 of the Condensed Consolidated Financial Statements - Refer to Note 15 to the Condensed Consolidated Financial Statements for information on variable interest entities[171] Contingencies The company's contingencies have not materially changed from those disclosed in Note 10 of the Condensed Consolidated Financial Statements - Refer to Note 10 to the Condensed Consolidated Financial Statements for information on contingencies[172] Critical Accounting Policies The company's critical accounting policies remain consistent with those outlined in its Annual Report on Form 10-K for the year ended May 31, 2025 - A summary of significant accounting policies requiring estimates and judgments is provided in the Company's Annual Report on Form 10-K for the year ended May 31, 2025[173] New Accounting Standards The company's new accounting standards disclosures are consistent with those provided in Note 2 of the Condensed Consolidated Financial Statements - Refer to Note 2 to the Condensed Consolidated Financial Statements for information on new accounting standards[174] Cautionary Note Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially - The report includes forward-looking statements that involve certain risks and uncertainties beyond the company's control[175] - Key risks include changes to U.S. and international trade policies (tariffs), challenges in implementing growth strategy, consumer spending levels, global and national economic conditions (inflation, interest rates, geopolitical tensions), cybersecurity threats, and public health crises[180] - Additional risks relate to debt incurred from the Knoll acquisition, availability and pricing of raw materials, financial strength of dealers and customers, government procurement, and outcomes of legal proceedings[180] Item 3 Quantitative and Qualitative Disclosures about Market Risk The nature of market risks from interest rates and commodity prices has not materially changed since the last annual report; foreign exchange risk is mitigated by forward contracts - The nature of market risks from interest rates and commodity prices has not materially changed during the first three months of fiscal 2026[177] - The company is exposed to foreign exchange risk due to sales and production in various foreign currencies[178] - Foreign currency forward contracts are utilized to offset risks associated with foreign currency exposures and mitigate volatility[179] Foreign Exchange Risk The company is exposed to foreign exchange risk from international operations, using forward contracts to offset currency exposures - The company's production costs and profit margins are affected by currency exchange rates between countries where sales occur and where products are sourced or manufactured[178] - Principal foreign currencies include the British pound sterling, Euro, Canadian dollar, Japanese yen, Mexican peso, Hong Kong dollar, Chinese renminbi, and Danish krone[179] - Foreign currency forward contracts, generally settling within 30 days, are used to offset foreign currency exposures and are not designated as hedging instruments[179] Item 4 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, evaluated and concluded that the company's disclosure controls and procedures were effective as of August 30, 2025[181] - There were no changes in the company's internal control over financial reporting during the quarterly period ended August 30, 2025, that materially affected or are reasonably likely to materially affect it[182] Evaluation of Disclosure Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of August 30, 2025 - The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of August 30, 2025[181] Changes in Internal Control Over Financial Reporting No material changes occurred in the company's internal control over financial reporting during the quarter ended August 30, 2025 - There were no changes in the Company's internal control over financial reporting during the quarterly period ended August 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[182] Part II — Other Information This section covers legal proceedings, risk factors, unregistered sales of equity securities, and exhibits, noting no material changes in legal or risk items since the last annual report Item 1 Legal Proceedings There have been no material changes in the company's legal proceedings from those reported in its Annual Report on Form 10-K for the year ended May 31, 2025 - There have been no material changes in the Company's legal proceedings from those set forth in the Company's Annual Report on Form 10-K for the year ended May 31, 2025[183] Item 1A Risk Factors There have been no material changes in the company's risk factors from those reported in its Annual Report on Form 10-K for the year ended May 31, 2025 - There have been no material changes in the Company's risk factors from those set forth in the Company's Annual Report on Form 10-K for the year ended May 31, 2025[184] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds The company's share repurchase plan was increased by $200 million, with $174.2 million remaining available as of August 30, 2025 - The Board of Directors approved an increase of $200 million to the existing share repurchase plan on July 16, 2024[185] - The approximate dollar value of shares available for purchase under the plan was $174.2 million as of August 30, 2025[185] Share Repurchase Activity (Quarter Ended August 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------- | :----------------------------- | :--------------------------- | | 6/1/2025 - 6/28/2025 | — | $— | | 6/29/2025 - 7/26/2025 | 235,056 | $19.50 | | 7/27/2025 - 8/30/2025 | 142,939 | $18.21 | | Total | 377,995 | | Issuer Purchases of Equity Securities The company repurchased 377,995 shares for $7.2 million in Q1 FY26, primarily for tax withholding on restricted stock vesting - The Company has a share repurchase plan authorized for $250.0 million, with an additional $200 million approved on July 16, 2024[185] - As of August 30, 2025, approximately $174.2 million was available for purchase under the plan[185] - During the quarter, 377,995 shares were repurchased at a cost of $7.2 million, primarily to satisfy tax withholding obligations upon the vesting of restricted stock[187] Item 5 Other Information No director or officer adopted or terminated a Rule 10b5-1 or Non-Rule 10b5-1 Trading Arrangement during the reporting period - No director or officer of the Company adopted or terminated a "Rule 10b5-1 Trading Arrangement" or "Non-Rule 10b5-1 Trading Arrangement" during the period covered by this Quarterly Report on Form 10-Q[191] Item 6 Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreement amendments, CEO/CFO certifications, and XBRL taxonomy documents - Exhibits include Amendment No. 4 to Credit Agreement, dated August 7, 2025[193] - Certificates of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 are filed[193] - XBRL Taxonomy Extension Schema, Calculation Linkbase, Label Linkbase, Presentation Linkbase, and Definition Linkbase Documents are included[193] Signatures The report was signed on September 29, 2025, by Andrea R. Owen, President and CEO, and Kevin J. Veltman, Interim CFO - The report was signed on September 29, 2025[194] - Signatories include Andrea R. Owen, President and Chief Executive Officer, and Kevin J. Veltman, Interim Chief Financial Officer[194]