MillerKnoll - Earnings Call - Q3 2025

Executive Summary

• Q3 FY2025 revenue was $876.2M, up 0.4% YoY but below Street; adjusted diluted EPS was $0.44, in line with guidance mid-point; reported diluted EPS was -$0.19 due to $130M non-cash impairments in Global Retail and trade names.
• Versus consensus, EPS modestly beat by ~$0.005 while revenue missed by ~$42.7M; management highlighted tariff uncertainty and macro headwinds, and enacted a 4.5% list price increase effective June 2 to mitigate costs.
• Segment resegmentation was introduced: North America Contract, International Contract, Global Retail; Global Retail orders rose +14.7% reported (+16.9% organic), while International softened on deleverage and North America saw lower-than-expected orders.
• Q4 FY2025 guidance: revenue $910–$950M; adjusted EPS $0.46–$0.52; includes $5–$7M pretax tariff costs ($0.05–$0.07 EPS); full-year adjusted EPS cut to $1.81–$1.87 (from $2.11–$2.17 in Q2 and $2.20 in Q1).
• Stock reaction catalysts: the revenue miss, large impairment charges, and full-year EPS guide down are likely negative; improving early Q4 orders, strong Retail momentum, and tariff mitigation actions provide partial offsets.

What Went Well and What Went Wrong

What Went Well

• Global Retail momentum: Q3 net sales +1.9% YoY; orders +14.7% reported (+16.9% organic); cyber-adjusted orders up >4% segment-wide and +14% in North America.
• Adjusted margins broadly resilient: consolidated adjusted operating margin 6.6% (vs 6.7% last year); Global Retail adjusted operating margin up 80 bps to 6.2%.
• Early Q4 order trends improving: NA Contract orders up >30% in first three weeks of March; International up ~2%; Retail up ~10% YoY in March-to-date, indicating lumpy but positive momentum.

What Went Wrong

• Revenue miss and demand softness: consolidated gross margin fell 70 bps YoY to 37.9% on unfavorable mix and lower fixed-cost leverage; North America Contract orders -1.8% and International sales -5.0% YoY.
• Large impairments: $130M non-cash impairments (Global Retail and Holly Hunt goodwill; Knoll and Muuto trade names) drove reported operating loss margin to -9.4% and diluted EPS to -$0.19.
• Guidance reduced: full-year adjusted EPS guidance lowered to $1.81–$1.87, reflecting tariff costs and macro prudence; Q3 sales came in below prior guidance range ($903–$943M).

Transcript

Operator (participant)

Good evening and welcome to MillerKnoll's quarterly earnings conference call. As a reminder, this call is being recorded. I would now like to turn or introduce you to our host for today's conference, Wendy Watson, Vice President of Investor Relations.

Wendy Watson (VP of Investor Relations)

Good evening and welcome to our Q3 fiscal 2025 conference call. On with me are Andi Owen, Chief Executive Officer, and Jeff Stutz, Chief Financial Officer. Joining them for the Q&A session are John Michael, President of North America Contract, and Debbie Propst, President of Global Retail. We issued our earnings press release for the quarter ended March 1, 2025, after market close today. Along with our earnings release, we filed an 8-K announcing a change in our segment reporting structure. The 8-K includes recast segment financials from fiscal 2023 to date, reflecting the new reportable segments. The segment change has no impact on our historical consolidated financial results. These documents are available on our Investor Relations website at millerknoll.com. Before I turn the call over to Andi, please remember our safe harbor regarding forward-looking information.

During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release. The forward-looking statements are made as of today's date and, except as may be required by law, we assume no obligation to update or supplement these statements. We will also refer to certain non-GAAP financial measures, and our press release includes the relevant non-GAAP reconciliation. A replay of this call will be available on our website within 24 hours. With that, I'll turn the call over to Andi.

Andi Owen (CEO)

Thanks, Wendy, and good evening, everyone, and thank you for joining us tonight. Our results in the Q3 of fiscal year 2025 reflect the advantages of our diverse business model. Strong performance in certain markets and channels, mitigated softness in others, and a disciplined focus on our cost structure helped us weather unpredictable and dynamic macroeconomic conditions. During the quarter, we saw a notable difference in demand in our retail businesses compared to most of our contract businesses. Leading indicators within our contract segments are mixed, and overall demand in many geographies was sluggish during the quarter amid uncertainty related to tariffs and other macroeconomic factors. Our consolidated net sales were up year-over-year, and we saw impressive order growth in global retail, particularly in North America. Earnings in the quarter met our expectations. I'm especially proud of how nimble and responsive our teams have been.

I want to thank them for driving sales and order growth in a challenging environment and for their focus on controlling our costs while preserving our growth investments. Next, before I move to segment-specific highlights from the quarter, I wanted to walk through the changes we've made to better align the business with our long-term strategies and to offer more visibility into our performance in key end markets. With the integration of Knoll largely behind us and a pivot towards driving growth, we have resegmented our operations. Our three business reporting segments are now North America Contract, International Contract, and Global Retail. We moved our textile businesses to HBF, Knoll Textiles, and Edelman, as well as spinning up Spinneybeck into our North America Contract segment. Aligning these teams allows us to report all our business-to-business sales in North America through one reporting segment.

To that end, as we continue to focus on the tremendous opportunities for growth abroad, our Latin America Contract business will now be reported within our International Contract segment. The Latin America region is very similar to our other international markets. Lastly, we're moving Holly Hunt to our global retail segment. Holly Hunt shows an important similarity with Design Within Reach because they both have close ties with the residential to the trade designers. As you may have seen in the earnings release, we're now reporting under this new segment structure, and as Wendy mentioned, concurrent with the filings in the earnings release, we also filed recast segment financials back to fiscal 2023 to assist you in understanding the new segments. Now I'll move to some highlights and trends in these new segments.

While sales were up, North American contract orders were lower than expected, marked by caution in the current environment. In international contract, we continue to see positive signs in less mature markets, and we're pleased with strong orders in APMEA, especially in the Middle East, India, and Japan, along with Mexico, Brazil, and portions of mainland Europe. We also had a few key members in key geographies and feel increasingly positive about momentum going forward. In global retail, there was much to be excited about in the Q3. Reported orders were up nearly 15%, organic orders were up 17%, and organic orders adjusted for the year-over-year timing differences in the Black Friday Cyber Monday period were up over 4%. We were particularly pleased with retail demand in North America, where cyber-adjusted orders were up 14%.

In the quarter, we saw strength in both new product introductions and with our best sellers. We are continuing to grow overall product assortment, and we're approaching new product development with an eye towards unique author design and an appreciation for style, quality, and livability. Our new product pipeline is driven by a strong combination of timeless iconic pieces and new exclusive collaborations with external designers. New product launches in Spring/Summer 2025 are up over 65% compared to Spring/Summer 2024. As we grow our product assortment, we are also growing our store footprint and brand awareness. In the quarter, we opened a new Design Within Reach Studio in Palm Springs, California, and a new Herman Miller store in Fairfax, Virginia. In Palm Springs, during Modernism Week, we hosted a series of events and brand activations.

The foot traffic during opening week was tripled back at some of our most highly visited locations. We plan to open two more stores in the Q4: a Design Within Reach Studio in Paramus, New Jersey, and a Herman Miller store in Coral Gables, Florida. Currently, we're working on over 15 exciting new locations in North America and expect to open 10-15 new locations in fiscal 2026. Just in time for Fulton Market Design Days, this June we're opening a newly repositioned Design Center location just steps away from our existing showrooms. These spaces will create a much-improved co-located flagship experience, bringing together the full breadth of our contract and retail design portfolio.

A few highlights include new Design Within Reach and Herman Miller stores, new showroom presentations from Knoll, Herman Miller, Muuto, Hay, and NaughtOne, and an urban courtyard designed by Michael Van Valkenburgh Associates. We also recently opened a MillerKnoll Archives at our space in Holland, Michigan, Design Yard location, showcasing 100-plus years of design history. Our archives are a critical resource for MillerKnoll Associates, as well as our architecture and design partners, curators, and academics. The early response to this new space has been overwhelmingly positive. We are eager and excited to continue to introduce our brands and our spaces to more customers as we expand our footprint. Now I'll shift to a supply chain update and discuss how we are navigating tariffs.

As we've seen in the past several weeks, recent tariff announcements have created uncertainty in our industries. As policies evolve, we will remain flexible and seek to adjust our approach to minimize impact to our valued customers. We're using what we've learned from earlier rounds of tariffs and the pandemic, along with our manufacturing and supply chain footprint, to manage our approach in this dynamic environment. To begin, we recently announced a 4.5% list price increase, which will become effective on June 2. In addition, we will partner with suppliers, leverage value engineering, and available flexibility within our supply chain and manufacturing footprint to offset cost impacts wherever possible. We will also consider incremental price surcharges if necessary to manage this period of volatility.

Importantly, all of this will be done with an eye toward what will be the most transparent and least disruptive for our customers and dealers. Jeff will discuss the expected impact of the tariff-related cost increases in connection with our outlook later in the call. To close, despite entering the Q4 amidst an uncertain macroeconomic environment, we remained focused on our longer-term strategies and growth levers while managing our costs and remaining as nimble as possible. We have the balance sheet strength to weather the current conditions, and that will allow us to invest in profitable growth opportunities. I'll now turn it over to Jeff to discuss our results in more detail and share our outlook for the remainder of fiscal 2025.

Jeff Stutz (CFO)

Great. Thanks, Andi. Good evening, everyone. I'll start with an overview of our Q3 performance, followed by our outlook, which, as Andi mentioned, will include our most up-to-date view on tariffs. In the Q3, we generated adjusted earnings of $0.44 per share, consistent with our midpoint of our guidance, driven by proactive cost containment measures. While extremely dynamic tariff and policy uncertainty negatively impacted sales and order pacing this quarter, like Andi, I want to thank our teams across the company for their quick and decisive actions to reduce costs. Consolidated net sales in the Q3 were $876 million, an increase over last year on a reported basis and slightly up 1.8% organically. Q3 consolidated orders of $853 million were up 2.7% as reported and 4.1% higher on an organic basis.

Our consolidated backlog in the quarter was $686 million, which is up 7.4% from a year ago. In the period, our consolidated gross margin was 37.9%, down 70 basis points to last year, primarily from unfavorable channel and product mix, as well as lower fixed cost leverage. At the consolidated level, we reported a loss per share of $0.19 for the quarter compared to diluted earnings per share of $0.30 in the prior year. This loss in the quarter included special charges related to intangible amortization, impairment, and restructuring of $140 million. Of these special charges, $130 million were related to pre-tax non-cash impairment of goodwill attributed to the Holly Hunt and Global Retail Reporting Units and indefinite live intangible assets for the Knoll and Muuto trade names. $6 million of the non-cash charges were related to our typical quarterly amortization of Knoll purchased intangibles.

The remaining $4 million of special charges related to restructuring actions taken in the quarter to better align our cost structure to the current demand environment through workforce reduction. On an adjusted basis, which excludes these items, diluted earnings per share were $0.44 in the quarter compared to $0.45 in the same period a year ago. Turning to cash flows on the balance sheet, in the Q3, we generated $62 million in cash flow from operations. We repurchased approximately 786,000 shares for $18 million, and importantly, we reduced our long-term debt by $61 million. We finished the quarter with a net debt-to-EBITDA ratio as defined by our lending agreement of 2.93, and available liquidity at quarter end was $468 million. Now, with that, I'm going to move to our performance by segment.

Within our North America Contract segment, net sales for the quarter were $468 million, up 1.4% on a reported basis and up 1.7% organically from the same quarter a year ago. New orders in the period were $434 million, reflecting a 1.8% reported decrease and a 1.5% organic decrease versus last year. Order trends during the quarter were lower than we expected, and while we saw solid year-over-year growth in December, orders declined significantly in January, concurrent with trade policy and larger macroeconomic uncertainty. Encouragingly, we did see orders improve versus the prior year in February, and this improvement has continued into March, where orders in the first three weeks are up more than 30%, highlighting the lumpy nature of projects in the contract segments of our business. Q3 operating margin in this segment was 3.6% compared to 5.5% last year.

Adjusted operating margin was 9.1% in the quarter, an 80 basis point improvement compared to the same quarter last year, primarily due to lower variable incentive compensation and focused cost control in general. In the international contract segment of the business, net sales in the Q3 were $146 million, 5% lower on a reported basis and 1.5% lower organically year-over-year. New orders in the quarter were $159 million, a 1.6% decline on a reported basis, but a 1.4% increase organically year-over-year. Here again, similar to the North America segment, order trends in the quarter were much lower than what we saw in the month of December, with global trade policy and macroeconomic challenges impacting demand significantly more than we expected. On the positive side, as Andi mentioned, order growth in the APMEA region, among others, continues to be strong.

It is worth noting that the international contract orders in the first three weeks of March have trended up 2% to last year. From an operating margin perspective in the Q3, reported operating margin was 6.8% compared to 11.4% last year, and adjusted operating margin was 9.3%, down 260 basis points, primarily from deleverage on lower revenue. Turning to the retail segment, net sales in the quarter were $263 million, up 1.9% on a reported basis and up 3.9% organically. New orders in the quarter were $260 million, which is up 14.7% to last year on a reported basis and up almost 17% organically compared to last year.

Although sales and orders in the Q3 benefited from the shift in timing of this year's holiday and cyber promotional period compared to last year, new orders were up 4% in the segment and up 14% in the North America region after adjusting for this timing difference. Furthermore, retail segment orders in the first three weeks of March are up 10% to last year. We did report a negative operating margin in the retail segment this quarter of -36% compared to positive 4.7% last year, and this loss in the current period resulted from the asset impairments I previously described. Excluding these non-cash charges, adjusted operating margin totaled 6.2% in the quarter, which is 80 basis points higher than the same quarter a year ago, driven by higher shipping revenue and increased leverage on higher sales.

Now I'll turn to our Q4 guidance and outlook, which is informed by recent order trends and our most up-to-date information on tariffs and related mitigation efforts. For the Q4 of fiscal 2025, we expect net sales to range between $910 million and $950 million, which would be up 4.6% versus last year at the midpoint of $930 million. Our gross margin is expected to range from 37.5% to 38.5%, and adjusted diluted earnings are expected to range between $0.46 and $0.52 per share. Our gross margin and EPS outlook includes our estimate of tariff-related costs in the Q4 of between $5 million and $7 million before tax and between $0.05 and $0.07 of net earnings per share. This range includes our expected exposure under all known active tariffs and is net of expected mitigation efforts in the period.

Given its fluid nature, as the tariff situation changes, we will provide further updates, of course, in future calls. For all other details related to our outlook for the remainder of fiscal 2025, please refer to our press release. With that overview of our financial performance and outlook, I'll now turn the call over to the operator, and we'll take your questions.

Operator (participant)

Thank you. Before we open the floor for questions, just a quick reminder, if you'd like to ask a question, please press Star and the number one on your telephone keypad. Again, that is Star and the number one on your telephone keypad. Our first question comes from the line of Brian Gordon from Water Tower Research. The line is open.

Brian Gordon (Senior Research Analyst)

Hey, good afternoon, everyone. I guess my first question is about the impairment charges, especially in global retail, and how we can sort of square that with the rather impressive performance, especially in North America.

Jeff Stutz (CFO)

Yeah, Brian, this is Jeff. There are a couple of things. First of all, we're required under US GAAP to do a quarterly evaluation and be on the lookout for any triggers that might signal impairment. This quarter, there were two things. First off, relative to our own internal expectations, the overall profitability of the segments had lagged expectations. That was a first signal. We also resegmented the business, as we outlined in our prepared remarks. For that reason, we ended up doing, as required, a full review and valuation, which would normally take place in the Q4 of the fiscal year, but we pulled it ahead a quarter as required under the rules. That was the driver behind it.

Brian Gordon (Senior Research Analyst)

Okay, that definitely makes sense. Just sort of like a follow-up on the new stores and new locations that you guys are thinking about in that segment. For that 10 to 15 new locations number, how even will that be across the 2026 timeframe?

Debbie Propst (President of Global Retail)

Hi there. Thanks for the question. This is Debbie. We're pacing them pretty evenly quarter by quarter. We have two additional locations, as we said, this quarter, and then we'll pace fairly evenly throughout the quarter and throughout next year.

Brian Gordon (Senior Research Analyst)

Okay, great. Thank you guys very much.

Operator (participant)

Thank you. Our next question comes from the line of Greg Burns from Sidoti & Co. The line's open.

Greg Burns (Technology and Telecommunications Analyst)

Good afternoon. Just in regards to tariffs, I know it's a fluid situation and the net impact is going to be that $5-$7 million in the Q4. Do you think you're, based on what you see now, will be able to fully offset that in future quarters?

Jeff Stutz (CFO)

Yeah, Greg, this is Jeff. I'll start, and Andi, if you want to add anything, please. Yeah, our belief would be, here's the wild card is what happens in April, right? There's a whole slew of potential tariff changes that seem to be changing a bit by the day. Our outlook, we carved all that out. That's really difficult for us to estimate right now what that's going to look like until we see some of the movement settle down. Based on what we see that's active today, yeah, our belief is that through pricing and other mitigation efforts, we can offset those.

Greg Burns (Technology and Telecommunications Analyst)

Okay, great. In terms of the revenue guidance, you're coming in with a higher backlog, I think you said plus 7%, and the order growth seems to be accelerating, at least in the first part. Maybe there's, you're not fully sure how the quarter is going to shake out, but it seems like things are building a little bit of momentum from the softness you saw this quarter. I'm just trying to square away that higher backlog plus the improved order growth versus the revenue guidance for like 4-5% growth.

Andi Owen (CEO)

I think what you're seeing there, Greg, is the lumpy nature of the business between Q3 and Q4. I think we're really excited about what we're seeing at the beginning of Q4. However, we're all reading the headlines. We all know what's happening in the world. I think as we look at Q4, we're trying to be prudent on how we think about how this could all shake out. I think what you see there is a little bit of our prudence on how we're guiding right now for the quarter. I think we're very optimistic about what we're seeing in the momentum. I think given some of the choppiness in this last quarter, what we're hoping for is stability. I think that will be welcome.

Greg Burns (Technology and Telecommunications Analyst)

Okay.

Andi Owen (CEO)

Yeah.

Greg Burns (Technology and Telecommunications Analyst)

Maybe. Oh, sorry.

Andi Owen (CEO)

Go ahead.

Greg Burns (Technology and Telecommunications Analyst)

Okay, yep. Just maybe digging into what you saw this quarter in the North American contract segment. In the last couple of quarters, you talked more positively, I think, about some of the pipeline metrics, the pipeline activity. That seemed to be a little bit more mixed this quarter. Can you just talk about maybe what you saw there, how it maybe changed this quarter, and if you're seeing any improvement in those pipeline activity metrics that you've talked about in the past, like mock-ups or anything like that?

Andi Owen (CEO)

Yeah, I think those metrics are still strong. I think it's a little bit more of a mixed bag, but we're not seeing massive changes all that. John, I'll let you go into specifics there if you want to.

Greg Burns (Technology and Telecommunications Analyst)

Sure. Thanks, Andi.

John Michael (President of North America Contract)

Yeah, I think from a leading indicators perspective, we still have quite a bit of optimism and momentum. If you look at things like our 12-month funnel, it's up 7% year-over-year. We look at awarded projects that haven't ordered yet. That's up 27% year-over-year. Contract activations, where we let pricing for projects, is up double digits as well. I think what you're seeing, and as Jeff alluded to, the nice start to Q4, it just takes a little longer for some of these leading indicators to show up in the order rate. As Andi and Jeff alluded to, it's a little bit choppier, perhaps, than we're accustomed to. Certainly, backlog, order momentum, and leading indicators are all pointing in the right direction.

Greg Burns (Technology and Telecommunications Analyst)

All right, great. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Alex Fuhrman from Craig-Hallum. The line's open.

Alex Fuhrman (Senior Research Analyst)

Terrific. Thanks for taking my question. Wanted to ask what you're seeing in terms of demand from consumers on their direct-to-consumer side of the business. I think you mentioned that orders to date in March have been up really nicely year-over-year. Is that indicative of demand remaining strong from your high-end consumer for your consumer brands, or is there maybe something about the timing of promotions that maybe would have influenced that March result?

Andi Owen (CEO)

I think so far, Alex, we're seeing a plus 10% so far this quarter for orders, which we're really encouraged about. I think we have a couple of things to unpack in our retail business. Number one, as I feel like I say always, we're a very nascent business. We have a lot of opportunity to grow in both locations and assortment. What you're beginning to see is some of the new assortment and product extensions that Debbie and her team have been putting in place for the last several years are beginning to track. We are very positive about the way that will help us kind of outperform the competition. That's one of the key indicators as well of the locations that we're opening. We see momentum in that business continuing. Debbie, what would you add?

Debbie Propst (President of Global Retail)

I'd just add, Alex, that, as you know, we shared in the remarks that our North America retail business was up 14% last quarter, adjusted for the cyber shift. That business is almost entirely direct-to-consumer, direct-to-trade, whereas our international business is more significantly wholesale. Where we are able to control all the levers to drive demand, we are outperforming versus our wholesale business, where we are dependent on the open-to-buy of third-party retailers. We are really excited that our new offerings in our assortment with 30 new collections added last quarter, our new store locations, these things are all off to a great start. Our marketing attribution capabilities are also driving progress. What's working is repeatable. As Andi said, we have a lot of market share opportunity, and our total addressable market is growing as we expand our assortment offering.

Alex Fuhrman (Senior Research Analyst)

Okay, that's really helpful. Thank you both.

Operator (participant)

Now our next question comes from the line of Reuben Garner from The Benchmark Company. The line's open.

Reuben Garner (Equity Research Analyst of Building Products and Commercial Interior Industries)

Thank you. Good evening, everybody. I guess to start on the changes in the outlook for the full year, I understand the tariffs piece. I have a question on that in a second, but the bulk of the cut seems to be outside of that. I'm trying to figure out what exactly has changed from three months ago when you gave that to make that level of adjustment on the earnings side. I understand you didn't necessarily give specific top-line guidance before, or at least I don't think you did. Maybe the outlook was much higher. Maybe walk me through the components or the pieces that have changed since you kind of last updated us.

Jeff Stutz (CFO)

Yeah, Reuben, this is Jeff. Maybe I'll confirm to start, we had not provided a top-line guide for the full year. We had been talking kind of more from a bottom-line perspective. Look, I would just double down on what Andi just highlighted, and that is we really do view our Q4 guide as being a prudent view of the next 13 weeks given what we see in the news every day. I mean, this has been a wild ride of changes related to trade policy. As you know, you have followed this space for a long time. Confidence matters, and it matters a lot in this business. That is true for both the contract side of our business with business confidence measures, but it is also true, of course, in the retail side of our business with consumer confidence.

Consumer confidence has taken a real beating here the last four months straight. We're still waiting on the next reading of CEO confidence. I think based on the headlines and all of the work internally that we've been doing to try to keep abreast of the raft of changes that are coming about potential tariffs, and I emphasize potential, every one of our customers is doing the same thing. We just viewed it as reasonable and appropriate in the current environment to be more cautious, perhaps more so than normal in the outlook. It really kind of comes down to a top-line story.

Reuben Garner (Equity Research Analyst of Building Products and Commercial Interior Industries)

Okay. I guess that's where, so it's not actually anything you're seeing in your business that's leading to this level of reduction? Because, I mean, the bulk of the tariff uncertainty has been in the last 60 days, and it sounds like your orders have accelerated over the last 60 days.

Andi Owen (CEO)

That would be correct.

Jeff Stutz (CFO)

That is true.

Andi Owen (CEO)

That is absolutely correct.

Jeff Stutz (CFO)

That is true, Reuben. I think, again, as I mentioned, I do not want to overemphasize this because we do not know where this is going to go, but there is an awful lot of kind of next wave talk about what the impact of tariffs could be. The wild card question at one level becomes, and I am not an expert in this area, by the way, so I am going to partly pretend to be one right now, but what happens with retaliatory tariff impacts and what that means for end market demand? We certainly are not trying to make a prediction of that, but we are doing the best we can with the outlook. As I just, again, would just say it is probably a bit more cautious than normal, but we felt it was prudent under the circumstances.

Andi Owen (CEO)

I think given the situation, I think the thing that I think it's important for us to keep outlining here is that our revenue is growing to last year. We are growing even with these circumstances. I think it's important to note that and not lose sight of that.

Reuben Garner (Equity Research Analyst of Building Products and Commercial Interior Industries)

Okay. On the tariff side, just given how uncertain it is, why take the approach of putting through, I think you said a price increase, a list price increase in June, just given that some of these tariffs could come and go or already coming and going? Why not use the surcharge tactic? I know you referenced you could use that, but why not lead with that?

Jeff Stutz (CFO)

The first thing I would say is the pricing, it would be wrong to think that the price increase is squarely aimed as a response to tariffs. It's in part that, but I would point out that even domestic U.S. steel prices have run up since the start of the calendar year, and it has been coincident with this tariff conversation. That has happened in the past as well. It's not just the potential cost implications of the tariffs. There are some derivative effects that seem to be having an impact on key input costs like steel. There are other cost inflationary pressures in the business as well. We felt like a base price increase was appropriate. As we mentioned on the call, we are at the ready with surcharges if needed.

Reuben Garner (Equity Research Analyst of Building Products and Commercial Interior Industries)

Okay. One more clarification for me. I do not think you give backlog specific to North America. Maybe you will with the new segmenting. You are not seeing any cancellations to date in orders. Is that correct?

Andi Owen (CEO)

No.

Jeff Stutz (CFO)

Yeah, that's correct.

Reuben Garner (Equity Research Analyst of Building Products and Commercial Interior Industries)

Okay. I said last one, I'm going to sneak one more in, actually. Oh, sorry. On the restructuring side, I feel like we didn't really hit necessarily what the goals are or the purpose of that. I understand there's some charges and workforce realignments, but it sounds like you're also adding in retail. You talked about investments last quarter in North America. Where are these cost reductions aimed? I guess, what are the ultimate savings that come from the one-time expenses?

Jeff Stutz (CFO)

Yeah, Reuben, so I'll just directly answer the question. We had $4 million, as I mentioned in the prepared comments, $4 million of restructuring-related charges. They were principally related to workforce reduction. We expect annualized savings from that on the order of $4 million. It's between $4 million and $4.5 million is our best estimate. Look, we have a long track record of when we sense that there's potential for uncertainty in the business and we're feeling the effects of that on our cost structure and on our leverage, look, we'll take action. We viewed that as, again, with the prudent outlook, we felt like it was appropriate to manage costs. It was a set of painful decisions, but certainly what we felt were right for the business, not only. Andi, if you want to add any other comments.

Andi Owen (CEO)

I think it also enables us, and this is just good hygiene, and you're always looking at these things, right, as you look at your outlook. With the uncertainty out there, I think we wanted to be, again, prudent and also to make sure that we are able to continue to invest in our growth strategies like retail, like growth in international, to continue to invest in research and development around new products. Those are the things we're really protecting here.

Reuben Garner (Equity Research Analyst of Building Products and Commercial Interior Industries)

Got it. Thank you, guys, and good luck.

Andi Owen (CEO)

Thank you.

Operator (participant)

Thank you. There are no further questions. We turn the floor back to President and CEO Andi Owen for any closing remarks.

Andi Owen (CEO)

Thanks again to everyone for joining us on the call, and we appreciate your continued support at MillerKnoll. We look forward to updating you on our next quarterly call. Have a good night.

Operator (participant)

The meeting has now concluded. Thank you all for joining. Have a pleasant day.