MillerKnoll(MLKN) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted earnings per share for Q2 2026 were $0.43, exceeding expectations, reflecting stronger-than-expected sales and gross margin performance [10] - Consolidated net sales for the quarter were $955 million, down 1.6% year over year, with a 2.5% organic decline [10] - Consolidated net sales for the first half of the fiscal year reached $1.9 billion, up 4% year over year [10] - Orders for the quarter grew to $973 million, up 5.5% as reported and 4.5% higher on an organic basis [10] - Second quarter consolidated gross margin was 39%, including approximately $1 million in net tariff-related costs [11] Business Line Data and Key Metrics Changes - North America contract segment net sales were $509 million, down 3.1% year over year, while orders increased to $507 million, up 4.8% [12] - International contract segment net sales were $171 million, down 6.3% on a reported basis, with orders rising to $162 million, up 6.6% [13] - Global retail segment net sales were $276 million, up 4.7% on a reported basis, with orders improving to $304 million, up 6% year over year [13] Market Data and Key Metrics Changes - North America retail orders increased 8%, with comparable sales growth also up 8% [4] - During the holiday cyber promotional period, orders rose 12% compared to the same period last year [5] - Total healthcare orders were up 5% year to date, indicating strong demand in resilient sectors [7] Company Strategy and Development Direction - The company aims to double its DWR and Herman Miller store footprint over the next several years, anticipating the opening of 14-16 new stores in the US for the full fiscal year [5] - The strategy focuses on expanding retail footprint, delivering innovative products, and deepening customer engagement globally [4] - The company is optimistic about growth through enhanced innovation initiatives and expanding dealer networks [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in an improving demand environment and the ability to execute growth strategies [10] - The return-to-office trend is positively impacting demand for commercial real estate and contract furniture [6] - Management remains optimistic based on execution and accomplishments in the first half of the fiscal year, with encouraging signals for continued growth [8] Other Important Information - The company generated $65 million in operating cash flow and ended the quarter with $548 million in liquidity [11] - The net debt-to-EBITDA ratio was 2.87 times, reflecting a disciplined approach to capital allocation [11] - The company announced the consolidation of its Muskegon facility, expected to deliver $10 million in annual run rate savings by fiscal 2028 [11] Q&A Session Summary Question: Can you discuss the drivers behind the better-than-expected gross margin and operating expenses? - Management indicated that the better gross margin was due to channel and product mix, along with effective pricing realization and tariff mitigation efforts [18] Question: How did order rates fluctuate during the quarter, particularly in the Americas contract segment? - Orders were consistent across all three months of the quarter, with mid-single-digit growth observed [20] Question: What specific geographies or industries are showing strength in the contract business? - Strength was noted in the Bay Area, Southern California, and the Northeast Coast, with active demand in energy, professional services, and legal sectors [22] Question: What are the expectations for the contract business in the third quarter? - Orders in North America contract were up about 5% on an organic basis, with expectations for continued mid-single-digit growth [30] Question: How is the retail growth being driven, and what are the dynamics within customer segments? - The growth is attributed to increased brand awareness, new store openings, and a 22% year-on-year increase in product assortment [42][43] Question: What is the roadmap for doubling the store count, and what is the expected margin profile? - The company plans to open 14-16 stores annually, with expectations for improved operating income as new stores begin to contribute revenue [45][47] Question: What macro trends are contributing to the improved order momentum? - The return to office trend is driving demand, with organizations becoming more serious about workspace decisions [54]