Q2 2025 Earnings Summary
- Strong Growth in Large Projects: MillerKnoll continues to experience the highest growth in projects over $5 million, indicating robust demand from large clients and a healthy pipeline for big-ticket contracts. This trend has continued from the previous quarter and was the highest category of growth again this quarter.
- Positive Leading Indicators and Dealer Sentiment: Leading indicators such as additions to the 12-month sales funnel are up over 64% from the same quarter last year, and mockup activity is up almost 30%, demonstrating strong future demand. Dealer sentiment is improving, and the company is hearing consistent positive feedback from the dealer network.
- Retail Segment Momentum and Marketing Effectiveness: The retail segment saw orders increase during the crucial Thanksgiving period, driven by effective promotional strategies and continued momentum from initiatives like new product launches, enhanced marketing capabilities with tools like customer data platforms, and selling initiatives increasing average order values by 10% above last year. The company expects this momentum to continue, leading to growth beyond macroeconomic trends.
- Potential exposure to new tariffs on imports from China and Canada could negatively impact profitability if tariffs are imposed or increased. Jeff Stutz noted that "the two big regions of the world would be China and Canada...those are the two areas that we will be watching most closely as we move forward."
- International orders decreased more than expected, partly due to macroeconomic and political uncertainties in Europe, leading to softness in this segment. Andrea Owen mentioned that "we're still seeing strong demand...but...everything that's going on in Europe right now, macroeconomically and politically...the business is...a little lumpier."
- The company's margins are sensitive to revenue shifts, and a slight decrease in margins is expected in Q3 due to lower revenue, which could indicate potential margin pressure if sales do not improve as expected. Jeff Stutz stated, "we are sensitive to shifts in the top line in terms of leverage...we're seeing a slight tick down in margins in Q3 because we've got lower revenue."
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Increased from $949.5M to $970.4M (+2.2%) | The modest revenue gain is attributed to balanced performance, with the Americas Contract segment contributing $504.2M, alongside steady results from International Contract & Specialty and Global Retail segments. This slight increase follows a period in Q2 2024 where revenues were slightly lower, and reflects a stabilized demand environment. |
Basic EPS | Increased from $0.45 to $0.49 (≈9% rise) | EPS improved due to operational efficiency gains and cost management, which helped overcome the modest revenue increase. The improvement in margins contrasted with previous periods where EPS growth was more subdued, reflecting the impact of focused cost discipline and favorable operational leverage. |
COGS | Increased from $536.5M to $593.4M (10.6% rise) | The absolute increase in COGS is driven by higher production costs and some loss of manufacturing leverage as lower volumes affected fixed cost absorption. Although pricing adjustments and operational efficiencies were in place, the adverse cost pressure outweighed these benefits compared to Q2 2024. |
SG&A Expenses | Increased from $262.9M to $289.9M (10.3% rise) | SG&A expenses rose due to additional integration-related costs (e.g., a $5M increase) and upward pressure on administrative costs. These higher costs partly offset the benefits from cost synergies achieved during the Knoll acquisition, contrasting with the lower expense base in Q2 2024. |
R&D Spending | Declined from $26.9M to $24.6M (8.6% decrease) | The reduction in R&D spending reflects deliberate cost-management initiatives, reducing product development expenditures compared to the prior period when higher investment was made. This adjustment signals a tighter control on expenditures while still investing in innovation. |
D&A Expenses | Decreased by 17.9% to $35.7M | The significant drop in D&A expenses is likely due to improved asset management, including a lower capital expenditure profile and the appropriate timing of depreciation of older, fully depreciated assets. This efficient handling contrasts with the previous period’s higher baseline for amortization and depreciation. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales | Q3 2025 | $950 million – $990 million | $903 million – $943 million | lowered |
Adjusted Diluted EPS | Q3 2025 | $0.51 – $0.57 per share | $0.41 – $0.47 per share | lowered |
Gross Margin | Q4 2025 | no prior guidance | “modestly better than Q2 2025” | no prior guidance |
Full-Year Adjusted EPS | FY 2025 | $2.20 per share | $2.11 – $2.17 per share | lowered |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Large Projects and High-Value Orders Growth | Q1 2025: Significant 40% increase in large projects and robust international wins. Q3 2024: Increased mock-up requests and doubling of closed won opportunities. Q4 2024: Indirect mentions via robust sales funnel activity. | Q2 2025: Continued strong performance with notable growth in large projects and orders >$5M, reinforcing ongoing momentum. | Consistent bullish sentiment. Growth in large-scale, high-value projects is present across multiple periods with the current period reaffirming robust demand. |
Margin and Profitability Trends | Q3 & Q4 2024: Strong margin expansion through operational efficiencies and improved product mix; record margins and significant operating improvements noted. Q1 2025: Some segments improved through cost management, but headwinds remained. | Q2 2025: Margins have experienced slight pressure from product and channel mix, though guidance anticipates modest improvements later in the year. | Mixed sentiment. While previous periods showed strong margin expansion and operational improvements, the current period faces temporary pressures even as long‐term improvements remain part of management’s outlook. |
Retail Segment Performance and Marketing Effectiveness | Q3 2024: Retail segment saw declines in net sales and orders countered by digital and design initiatives. Q4 2024: Strong focus on inventory management, higher average order values, and effective cost control led to improved margins. Q1 2025: Continued operational efficiencies and controlled marketing spend produced modest improvements. | Q2 2025: Net sales and new orders have declined modestly, though strategic promotions (Black Friday/Cyber) boosted orders and enhanced ad spend returns. | Slightly bearish but improving. Although retail demand remains under pressure, enhanced marketing effectiveness and targeted promotional activities are beginning to stabilize performance. |
International Business Performance and Geopolitical/Trade Risks | Q3 2024: Emphasis on diverse regional growth, strong dealer network transitions, and stable margins with limited geopolitical focus. Q4 2024: Solid growth in key regions with aggressive dealership integration and showroom expansion. Q1 2025: Continued order growth and dealer network integration; no major tariff exposures discussed. | Q2 2025: Robust regional order growth (especially in the Middle East and Asia) continues alongside proactive dealer network integration and management of tariff exposures. | Steady and cautiously optimistic. The international segment has consistently generated momentum. Although geopolitical and trade risks persist, proactive measures and network integration continue to drive growth. |
Return-to-Office and Hybrid Work Trends | Q4 2024: Marked evolution with hybrid work increasing from limited days to nearly full-time, emphasizing in-person benefits. Q1 2025: Shifting focus from the dilemma to embracing limited hybrid work with sector-specific optimism. Q3 2024: Only indirect references through evolving workplace design. | Q2 2025: Renewed emphasis on attracting employees back, highlighting the value of in-person connections and linking increased large projects to revitalizing workspaces. | Positive and evolving. Consistent focus on office and hybrid work trends is evident. The sentiment has evolved from debating the return to actively designing spaces that foster in-person collaboration, which could benefit future office-related projects. |
Order Pipeline and Leading Indicator Improvements | Q3 2024: Demonstrated improving trends with doubling of “closed won” opportunities, increased win rates, and rising customer inquiries. Q4 2024: Sequential backlog growth and continued funnel activity. Q1 2025: Solid order growth with strong markers in project funnel additions and pricing activity. | Q2 2025: Robust improvement continues with a 64% increase in funnel additions and almost 30% rise in mockup requests, indicating a healthy demand environment. | Highly bullish. Order pipeline and leading indicators have consistently improved and the strong gains in the current period reinforce a positive outlook for near-to-midterm order conversion and revenue growth. |
Supply Chain and Delivery Lead Time Challenges | Q1 2025: Noted longer lead times and increased backlog duration due to larger projects and early ordering. Q3 2024: Improvement through efficient inventory and backlog reductions in retail were highlighted. Q4 2024: No specific comments were made. | Q2 2025: Supply chain conditions remain steady with customers planning further in advance and no major changes in book-to-ship times compared to prior periods. | Stabilizing. Earlier challenges regarding extended lead times are now showing signs of stability, suggesting that supply chain management is adapting well to the new operating environment. |
Macroeconomic Uncertainty and Demand Sensitivity | Q3 2024: Faced headwinds from elevated interest rates, subdued housing, and volatile project decisions, yet exhibited signs of pent-up demand. Q4 2024: Continued challenges in retail balanced with cautious optimism for recovery. Q1 2025: Affected by interest rate and housing market issues but expected improvements later in the year. | Q2 2025: Macroeconomic uncertainty remains a factor with slower-than-expected broader recovery; however, leading indicators and strategic adjustments provide cautious optimism. | Persistent uncertainty with cautious optimism. While the broader economic environment remains challenging, the company’s proactive adjustments and improving indicators signal an eventual recovery. |
Strategic Investments in Digital Transformation and Operational Enhancements | Q3 2024: Significant focus on launching digital platforms, augmented reality tools, 3D configurators, and showroom consolidation initiatives to drive conversion and operational efficiency. Q4 2024: Continued emphasis on digital tools, enhanced dealer platforms, and operational efficiencies in retail. Q1 2025: No notable updates reported. | Q2 2025: There is no specific mention of new strategic digital transformation or operational enhancement initiatives during this period. | Marginal. Previously high priority initiatives in digital and operational enhancements are not explicitly discussed in Q2 2025, suggesting that either these efforts are now standard practice or that the emphasis has temporarily shifted to other themes. |
Restructuring and Cost-Cutting Measures | Q3 2024: Explicit actions including workforce reductions, real estate consolidation, and targeted cost savings (annualized reduction of $14–16 million) were discussed. Q4 2024: Detailed restructuring efforts yielded $160 million in annualized savings along with operational efficiencies. Q1 2025: References to careful operating expense management were made, though less explicitly on restructuring. | Q2 2025: There is no specific discussion of new restructuring or cost-cutting measures during this period. | Diminished focus. While earlier periods saw active restructuring and cost-cutting measures to adapt to economic pressures, the current period omits explicit commentary, possibly indicating a temporary de-emphasis as the company focuses on growth and order pipeline recovery. |
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Revenue and Margin Outlook
Q: What's driving the expected margin improvement in Q4?
A: We anticipate higher revenues in the fourth quarter, leading to improved margins due to better leverage on higher sales. Positive indicators, such as dealer sentiment and leading indicators, suggest an acceleration in revenue. We expect gross margins to be modestly better than the second quarter , with no significant uptick in operating expenses. -
Dealer Sentiment and Market Activity
Q: How is dealer sentiment and customer feedback shaping up?
A: Dealer sentiment continues to improve, with a fair amount of market activity. Leading indicators are pointing in the right direction, with a 64% increase in our 12-month funnel over the same time last year. Mockup activity, which happens before customers make decisions, is up almost 30%. Overall, all indicators we're tracking are healthy. -
Return to Office Trends
Q: What are customers saying about return-to-office plans?
A: Conversations with customers are robust; executives are seeking ways to attract people back to the office. They're planning spaces that facilitate in-person connections and are engaging employees in the planning process. The conversation has shifted to getting people back in the office—not if, but when and how quickly. We're encouraged by the increase in large projects, indicating that companies are revitalizing their environments. -
Growth in Large Projects
Q: How have large project orders performed this quarter?
A: The trend of growth in large projects has continued, with projects above $5 million being our highest category of growth. This indicates strong demand as customers undertake significant investments in their spaces. -
Retail Performance and Marketing Initiatives
Q: Is the uptick in retail orders during Thanksgiving sustainable?
A: We executed well during the promotional period, and combined with our initiatives, we're seeing momentum. New products continue to grow and perform better than ever. Marketing capabilities have improved, with return on ad spend up 5% over last year, despite cost to acquire customers increasing 15% due to election noise. Selling initiatives are driving average order values 10% above last year. We expect continued momentum and growth beyond macroeconomic trends. -
International Demand and Dealer Expansion
Q: What are the dynamics affecting international orders?
A: International business tends to be more project-based and thus "a little lumpier". We're still seeing strong demand and an active funnel, but there's uncertainty due to macroeconomic and political factors in Europe. We continue to increase our dealer distribution internationally, adding full-line MillerKnoll dealers, and have had great success so far. -
Tariff Exposure and Mitigation
Q: Where might you have the most exposure to tariffs?
A: Our primary exposures are to China and Canada, mainly due to the Knoll acquisition and manufacturing in Toronto for some wood case goods. We've been through this previously in 2018 and have a playbook of actions, including identifying alternative sources, buying component parts in advance, potential pricing actions, duty drawbacks, applying for exclusions, and transfer pricing strategies to limit the impact. We've rationalized our manufacturing and supply chain to mostly build for region now, reducing exposure to places like China. -
Order Development in the Americas
Q: Has there been a slowdown in order development in the Americas?
A: This last quarter was unique; we saw a slowdown pre-election but started to see things pick up post-election. Book-to-ship times haven't changed much. We don't think it's something to be concerned about or repeatable.