MillerKnoll, Inc. Q2 FY2026 earnings call

• Global Retail: Second quarter orders up 6% y/y, sales up 5%, comparable sales 3.5%. North America retail had 8% orders growth, 8% comparable sales growth during holiday period, set records, opened 4 new stores in Q2, anticipates 14-16 new stores in fiscal year. - North America Contract: Momentum builds, orders, industry benchmarks, dealer sentiment up, return to office trend positive, healthcare orders up 5% YTD, Noel Dividend Skyline launch well received. - International Contract: Enhanced global showroom footprint, introduced Miller North showroom in Shanghai. - Disciplined execution across growth levers, supply chain strength in North America retail (70% of cost of goods sourced from US). - Consolidation of Muskegon, Michigan facility expected to deliver $10M annual run rate savings by fiscal 2028.

Global Retail: Second quarter orders increased 6% year over year, with sales up 5% and comparable sales growth of 3.5%. North America retail orders were up 8%, comparable sales growth 8% during holiday period, with net sales at $276 million, up 4.7% reported and 3.4% organic. Orders improved to $304 million, up 6% reported and 4.5% organic. North America Contract: Net sales were $509 million, down 3.1% year over year. Orders increased to $507 million, up 4.8% from prior year. International Contract: Net sales were $171 million, down 6.3% on a reported basis and 9.2% on an organic basis year over year. Orders rose to $162 million, up 6.6% versus prior year on a reported basis and up 3.4% organically.

Q3 net sales expected to range between $923 million and $963 million, up 7.6% at midpoint. Gross margin projected between 37.9% and 38.9%. Adjusted expense expected to range from $300 million to $310 million higher year over year. Adjusted diluted earnings expected to range between $0.42 and $0.48 per share. Proactive pricing and tariff mitigation actions expected to fully offset tariff impacts to gross margin and EPS in second half. Estimate $5M to $6M incremental operating expense year over year for new locations in Q3 and Q4.

Mention of tariff risk, but management expects proactive mitigation actions to fully offset tariff costs in second half of fiscal year.

Q: Having the second quarter that you just reported, gross margin came in above what was expected, revenue came in at the high end and OpEx was a little higher. Was that mix of business, or can you talk about what drove kind of the puts and takes relative to what you were expecting a few months ago?

A: Yeah. So if you look at gross margin for the quarter coming in better than expected, it was a bit of channel mix and a bit of product mix. We also had some good pricing realization, particularly credit to our teams on working through the tariff mitigation as we work through both price increases and surcharges. And then operating expenses was variable selling costs, from the sales over delivery as well as the timing of some expenses, and FX was something else that played a factor.

Q: And then in the press release, you talked about kind of the order rate, the twelve-day holiday period, those growth rates are pretty strong. And later in the quarter, On the contract side, specifically in The Americas, can you talk about kinda how that ebbed and flowed or orders through the quarter? Were they a little softer, during the shutdown period and just kind of more talking points in terms of pipeline or any other data points you have internally would be helpful?

A: Yeah. So we had, from an orders perspective, really across all the businesses, with orders up organically 4.5%, in the quarter. It was consistent across all three months of the quarter So seeing a lot of consistency there and then even in the first couple weeks of the new quarter, we're in that mid-single-digit range. So it's been fairly consistent. The other thing I would call out as we look at a number of both external measures and internal measures is if you go back to the springtime, the world was at its highest point of tariff uncertainty. And so we're seeing a lot of sequential improvement and a lot of both external, whether it's leasing activity, but also some of our own internal measures that as we kind of get past that we're seeing sequential improvements as well.

Q: Can you maybe just talk about your expectations for the contract business in the third quarter a bit more? Maybe some color around key drivers between price versus volume? Whether we're fully through the prior quarter pull forward or whether or not any of that sort of still bleeding into the third quarter as well? Then obviously, it's a slow time of year for contracts seasonally, but anything to suggest volume trends shouldn't continue at current levels or potentially move up from here in second half, assuming all macro remains the same?

A: Philip? Yes. Philip, this is Kevin. I'll start. North America contract, orders in the quarter were up about 5% on an organic basis at Similar to the comments earlier, we've been seeing some pretty good, consistent encies. And so we think in that mid-single digits is kind of a nice spot that that business was in during the quarter. And seems to be running from an order level perspective as well. Year to date, the to your question on order pull ahead, we think our orders are clear of any of that activity. If you normalize our sales year to date, in North America contract, those are up about 4%. So also kind of in that mid-single-digit range.

Q: Your growth in retail is very exciting. Particularly with the insight into how North America performed during the peak holiday week. So you can maybe you talk about a bit about the acceleration there. What drove that sort of response from the consumer? The competitive environment seems particularly promotional, so did you have to lean in there? Or how do you kind of think about the durability of that kind of growth particularly as we exit the holiday season?

A: Yeah. So one thing I'll I'll I'll add and then I'm gonna have Debbie give you some of her thoughts. I think the team has done a great job building brand awareness. And since this is such a nascent business for us, I think as we have new stores and as people become more familiar with the DWR and Herman Miller brands, really helping us. I think our promotions were at the same level as they were last year, which I think is pretty phenomenal considering the results we showed. Our marketing spend was also equivalent to last year. So I think building brand awareness, opening new stores, having people be more familiar with our proposition was a winning combination for us in the cyber period. And Debbie, what would you add?

A: I would add the assortment acceleration that we've been pursuing. With our collection count up 22% year on year. Is really helping to contribute to that growth as well.

Q: Just to follow-up on the retail momentum Are you seeing with the assortment growth, are you seeing bigger bigger order order sizes, more more more net customers coming through your your retail locations in e-commerce or, you know, more engagement with existing customers higher higher order rates? Like, what what is the dynamic you're seeing within your your customer segment?

A: Thanks for the question, Greg. I'd say there's two real highlights that we're seeing. Our average order value is up year on year beyond our pricing increases net pricing increases are only about 2.5% year on year. Thanks to our sourcing strategy, proves to have, you know, 70% of our COGS in North America from North America. So we've been able to be we've been able to be more conservative in our pricing increases. But average order value up That's really being driven by the assortment expansion that we're doing as well as design services as we continue to drive up the penetration of those in stores.

Q: Just looking at the at the top line here with the the beat in the first quarter, the beat in the second quarter and the third quarters, pretty meaningfully above consensus. And your orders went from down mid-single digits to up mid-single digits sequentially. So something's getting better out there, and I don't know. What it sort of goes counter to what I'm reading anyway about the macro. So what are the two or three key macro trends that are really starting to work here? Is it back to office? Or really, what's going on?

A: I think in the contract business, globally, probably primarily in North America, but definitely globally, we are seeing return to office really taking off. I think the debate about whether to be together is is kind of over. And so we are busy at our showrooms. We're busy at our corporate headquarters. We are seeing people make decisions faster. We're seeing orders that are coming through our funnel with more velocity and less people waiting as long as they were waiting during COVID. So I think the impetus is there. Think some of the noise you see in the economy and from a macro standpoint is also driving senior leaders in organizations to get more serious about their spaces and more serious about bringing people together. And it helps us a lot especially in class A spaces. So I think we're in the right place at the right time from a standpoint. And then international, we have a ton of growth potential just in general. We aren't in as many markets as we could be. We can add dealers and still gain a lot of market share. That business tends to be a little lumpier with the size of orders so you really have to look at a six month, nine month, twelve month trend to understand the growth potential there, but at very enviable margins. And I think with retail, we're in a really good spot. We're attracting consumer right now. That is resilient and that is attracted to the proposition that we're offering. So I think we're in a really good place in both sides of our business and in all channels.

Q: Just to follow-up on the consolidation in the industry. How have you thought about or what changes are you thinking about with in reaction to the consolidation now that you've had about six months or so to digest it?

A: Listen, I think we've been down that road. We know how hard consolidations are. We think the industry the contract industry has definitely shrunk, so consolidation in the end is good for everyone. We know that consolidations and integrations can be distracting, so we plan to definitely be on the front foot now that we're on the other side of that.

Q: Can what is the is there a target for a leverage ratio here? You seem to be hovering just under three times. And is that sort of target, a soft target of where you want to be? And then how do you think about capital expenditures in share repurchases in that context?

A: Yeah. So the way we're thinking about capital allocation right now is, one, you've heard us talk about some of the growth investments that we're making sure we can fund, and so we feel well positioned with the balance sheet to fund those. Paying down debt is the second priority. Would see kind of a midterm target to get to that two to two and a half turns range from the 2.87 are now as we continue to pay that down, those would be the first two priorities and then obviously continuing to maintain dividend at periodic share repurchase to offset dilution.