MillerKnoll, Inc. (MLKN) Earnings

Management highlights

### Interim CEO Priorities - Three core focus areas for fiscal 2027: elevate operating discipline for priority-setting, implement enterprise-wide cost discipline, and strengthen the balance sheet via debt reduction and improved cash flow - No business reinvention is required; the strategy focuses on reinvigorating existing core capabilities and sharpening execution across all segments ### North America Contract Updates - Delivered solid sales growth with expanding gross and adjusted operating margins, driven by volume leverage and successful price capture - Class A office space demand continues to outperform broader market trends, aligned with the segment's positioning in high-quality workspaces - The company is consolidating its Muskegon, Michigan manufacturing facility into other existing sites, and will continue evaluating capacity utilization across operations to improve overall efficiency ### International Contract Updates - Global geopolitical uncertainty (driven largely by the Middle East conflict) suppressed overall order activity, but strong order growth was recorded in key Asian markets and Central/Eastern Europe - The Middle East itself performed better than expected, with order levels matching typical historical quarterly rates, enabled by alternative shipping routes that reduced disruption - The segment has clear long-term profit growth potential, supported by expanded dealer partnerships (nine new dealers added in fiscal 2026) across high-potential markets ### Global Retail Updates - Continued planned new store expansion: 8 new Herman Miller stores opened in fiscal 2026, with 9-11 planned for fiscal 2027; these stores reach productivity quickly, generate payback in under three years, and act as lead generators for the contract business - 7 new Design Within Reach (DWR) stores opened in fiscal 2026, with 5-7 planned openings for fiscal 2027 at a measured pace to incorporate location and operational learnings - The premium Holly Hunt brand faced challenges in fiscal 2026 from lagging demand and operational inefficiencies; the company has implemented restructuring to align costs with current demand, strengthened commercial leadership, and is course-correcting product development to revitalize performance - Marketing efficiency has improved sequentially, with marketing spend as a percentage of orders down 40 basis points year-over-year ### Balance Sheet & Capital Allocation - Full fiscal 2026 generated $200 million in operating cash flow, with $122 million spent on capital expenditures, $41 million in debt reduction, and $67 million returned to shareholders (dividends + share repurchases) - Ended the quarter with $572 million in total liquidity and a net debt-to-EBITDA ratio of 2.8x, aligned with lending covenants; the long-term target is to reach 2.0x-2.5x net debt-to-EBITDA

Guidance

• First Quarter Fiscal 2027: Net sales expected between $928 million and $968 million; gross margin expected between 38.7% and 39.7%; adjusted EPS expected between 33 cents and 39 cents per share. This guidance accounts for normal summer seasonality in retail and the lap of the prior year's order pull-ahead that shifted sales into Q1 fiscal 2026. • Full Fiscal Year 2027: Net sales expected between $3.93 billion and $4.13 billion, representing 5% year-over-year growth at the midpoint; adjusted EPS expected between $1.85 and $2.15, representing 7.5% growth at the midpoint. Management expects 40% of full-year EPS to be generated in the first half, and 60% in the second half. • Global Retail: Management expects year-over-year operating margin expansion in each of the four quarters of fiscal 2027, driven by store scale, improved marketing efficiency, and pricing discipline. • Incremental costs: Guidance assumes $6 million in incremental year-over-year new store opening expense per quarter, and $25 million in incremental full-year costs from a return to a normalized incentive compensation program. • Capital allocation priorities remain: reinvest in high-return growth opportunities, reduce leverage to the 2.0x-2.5x target range, maintain the current dividend, and be opportunistic on share repurchases.

Segment performance

For the fourth quarter ended May 30, 2026: 1. North America Contract: Net sales of $530 million, up 6.9% year-over-year (6.7% organic growth). This segment accounted for 53% of total consolidated net sales for the quarter. Orders were $511 million, down 10% year-over-year, but essentially flat after adjusting for the prior year's $55-$60 million order pull-ahead. Adjusted operating margin was 10.4%, expanding 40 basis points year-over-year. 2. International Contract: Net sales of $179 million, down 3.8% year-over-year (5.8% organic decline). This segment accounted for 17.9% of total consolidated net sales for the quarter. Orders were $173 million, down 8.7% reported (10.6% organic) year-over-year. Adjusted operating margin was 8.2%, down 470 basis points year-over-year. 3. Global Retail: Net sales of $295 million, up 5.5% year-over-year (4.5% organic growth). This segment accounted for 29.5% of total consolidated net sales for the quarter. Segment comparable sales increased 3.6% overall, and 4.2% in North America. Orders were $288 million, up 2.8% reported (2% organic) year-over-year, with 8.7% order growth in North America. Adjusted operating margin was 5.4%, down 110 basis points year-over-year. Full fiscal year 2026 consolidated net sales totaled $3.8 billion, with adjusted full-year EPS of $1.86.

Risks & headwinds

• Global macroeconomic and geopolitical uncertainty, particularly the derivative impact of the Middle East conflict on energy inflation and consumer/business demand across Western Europe, the UK, and Ireland, has suppressed order activity in the international contract segment. • The Holly Hunt premium retail brand has faced sustained underperformance from lagging demand, historical underinvestment in product development, and operational inefficiencies, requiring costly restructuring. • Inflationary cost pressures (including persistent sticky prices for inputs like diesel) continue to pressure margins, requiring ongoing pricing actions to maintain price-cost balance. • Higher-than-expected order volatility from year-over-year comparisons distorted by the 2025 Q4 order pull-ahead ahead of price increases and tariffs creates forecasting uncertainty. • Leverage is currently above the company's medium-term target range, requiring sustained debt reduction that could limit near-term shareholder returns.

Analyst Q&A

• Q: Analyst Greg Burns asked for segment-level growth details to contextualize the full-year 2027 guidance, and asked about the unwinding of prior Middle East order and shipment delays, as well as an update on the ongoing Holly Hunt restructuring. /

  A: Management declined to provide full segment-level guidance, but confirmed full-year growth will be driven primarily by retail, and explicitly highlighted that management expects year-over-year operating margin expansion for global retail in all four quarters of 2027. Management added that Middle East order levels were near typical historical rates and better than expected in Q4, but the conflict's largest impact was energy-driven demand suppression across Western Europe and the UK. For Holly Hunt, challenges are rooted in costs, leadership gaps, and past underinvestment in product development; current restructuring includes right-sizing costs, aligning operations to leverage scale across the broader MillerKnoll portfolio, and course-correcting creative and product strategy.

• Q: Analyst Philip Bleat asked what demand and share gain levers the company is using on the contract side amid ongoing macro choppiness, and what the demand elasticity profile looks like after several years of industry price increases. /

  A: For contract, the primary lever is solving evolving customer needs, including helping businesses redesign spaces to attract and retain talent, accommodate increasing in-office work, and adapt to AI-driven shifts in work patterns, supported by the company's broad brand portfolio and workplace strategy expertise. Internationally, expanding the dealer network is a core growth lever. On pricing, the company has successfully passed through cost increases in contract, and for retail, an 8% Q4 price increase was well absorbed by consumers, with low demand elasticity for iconic core products that allowed the company to reduce discounting even after the increase.

• Q: Analyst Ruben Garner asked for near-term trends in North America contract after adjusting for the order pull-ahead distortion, and asked for an update on recent pricing actions. /

  A: Management noted that leading indicators (project funnel growth, value of won projects, mock-up activity) showed sequential and year-over-year improvement, and average weekly order rates increased each month during Q4. Dealer sentiment and Class A office lease absorption are also supportive. On pricing, the company completed a scheduled list price increase for North America in April, has an inflation surcharge active starting June 2024, and plans a September 2024 list price increase for international operations. Price-cost balance has been slightly favorable through the end of Q4, with pricing actions to offset tariffs and inflation continuing to layer into results through the first half of fiscal 2027.

• Q: Analyst Doug Lane asked about capital allocation priorities, given the small uptick in the net debt-to-EBITDA ratio in Q4, and the company's target of reducing leverage. /

  A: Management explained the small uptick was just a timing-related blip in the bank's net debt calculation, not a material change in the company's debt position. The long-term trajectory of reducing leverage to the 2.0x-2.5x target range remains unchanged. Capital allocation priorities are unchanged: first invest in high-return growth opportunities, then pay down debt to hit the leverage target, maintain the current dividend, and pursue opportunistic share repurchases when leverage and cash flow allow.