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MI

MILLERKNOLL, INC. (MLKN)·Q3 2025 Earnings Summary

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) .

Financial Results

Consolidated Performance vs prior periods and YoY

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$872.3 $861.5 $970.4 $876.2
Gross Margin (%)38.6% 39.0% 38.8% 37.9%
Operating Margin (%) (reported)4.9% 1.8% 6.4% -9.4%
Adjusted Operating Margin (%)6.7% 5.8% 7.1% 6.6%
Diluted EPS ($) (reported)$0.30 ($0.02) $0.49 ($0.19)
Adjusted Diluted EPS ($)$0.45 $0.36 $0.55 $0.44

Commentary:

  • Sequential: Q3 revenue declined vs Q2 due to contract seasonality and macro/tariff uncertainty; adjusted margin held roughly flat YoY; reported margins/EPS reflect impairment charges .
  • YoY: revenue +0.4%, gross margin -70 bps, adjusted operating margin -10 bps; Retail outperformed while International deleveraged .

Street Consensus vs Actual (Q3 FY2025)

MetricConsensusActual
Revenue ($USD)$918.875M*$876.2M
Primary EPS ($)$0.435*$0.44

Consensus values marked with * were retrieved from S&P Global.

Segment Breakdown (Recast segments)

SegmentQ1 2025 Net Sales ($M)Q2 2025 Net Sales ($M)Q3 2025 Net Sales ($M)Q1 2025 Adj. Op. MarginQ2 2025 Adj. Op. MarginQ3 2025 Adj. Op. Margin
North America Contract$476.2 $524.7 $468.2 9.4% 10.2% 9.1%
International Contract$146.4 $182.4 $145.5 9.1% 12.5% 9.3%
Global Retail$238.9 $263.3 $262.5 3.1% 3.8% 6.2%

KPIs and Balance Sheet/Cash

KPIQ1 2025Q2 2025Q3 2025
Orders ($USD Millions)$935.9 $921.9 $853.1
Backlog ($USD Millions)$758.0 $709.4 $686.4
Liquidity (Cash + Revolver) ($USD Millions)$488.4 $470.4 $468.2
Cash from Operations ($USD Millions)$21.1 $55.3 $62.1
Net debt / Adjusted bank covenant EBITDA (x)2.84x 2.94x 2.93x
Share Repurchases (shares / $USD)1.5M / $43.7M 1.0M / $23.1M ~0.8M / $17.9M
Special Charges ($USD Millions)——$140.2 (incl. $130.0 impairment)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesQ3 FY2025$903–$943M Actual $876.2M Underperformed
Adjusted EPS - DilutedQ3 FY2025$0.41–$0.47 Actual $0.44 Met midpoint
Net SalesQ4 FY2025N/A$910–$950M New
Gross Margin %Q4 FY2025N/A37.5%–38.5% New
Adjusted OpEx ($M)Q4 FY2025N/A$287–$297 New
Interest & other ($M)Q4 FY2025N/A$16–$17 New
Adjusted Tax Rate %Q4 FY2025N/A21.5%–23.5% New
Adjusted EPS - DilutedQ4 FY2025N/A$0.46–$0.52 New
Tariff ImpactQ4 FY2025N/A$5–$7M pretax; $0.05–$0.07 EPS New
Adjusted EPS - DilutedFull Year FY2025$2.20 (Q1) $2.11–$2.17 (Q2) ; $1.81–$1.87 (Q3) Lowered twice
Net SalesFull Year FY2025N/A$3,618–$3,658M New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Tariffs/MacroMonitoring proposals; mitigation options incl. alternative sourcing, advance buys, pricing; exposure mainly China & Canada (Knoll Toronto) 4.5% list price increase effective June 2; Q4 tariff cost estimate $5–$7M pretax, $0.05–$0.07 EPS; cautious guide Rising uncertainty; proactive mitigation
Supply Chain“2018 playbook” ready; duty drawback/exclusions considered Flexible sourcing and pricing surcharges as needed; leverage manufacturing footprint Preparedness reiterated
Segment StructureLegacy segments (Americas/International & Specialty/Retail) Resegmented to North America Contract, International Contract, Global Retail; recast historical data provided Improved visibility
Retail Product & StoresNew product launches; spring 2025 launches 100%+ YoY; store openings planned (Palm Springs, Fairfax) Orders +14.7%; launch pipeline up 65% YoY; additional stores (Paramus, Coral Gables) and 10–15 FY2026 openings Momentum strengthening
Regional TrendsAPMEA strength; larger projects in Americas/International APMEA strong; NA Contract showing lumpy but improving orders; March-to-date up across segments Mixed but improving
Impairment/Non-GAAPNone reported Q1/Q2$130M non-cash impairments; Q3 adjusted margins stable YoY One-off charge
Sustainability/ESG & AINot emphasizedNew sustainability strategy; SBTi validation; plan to leverage AI to optimize logistics Increased commitments

Management Commentary

  • “Earnings in the quarter met our expectations… we took proactive steps to improve our near-term profitability… while preserving our investments in growth.” — Andrea Owen (CEO) .
  • “Third quarter consolidated orders… up 2.7% as reported and 4.1% organically… gross margin 37.9%, down 70 bps, primarily from unfavorable channel and product mix and lower fixed cost leverage.” — Jeff Stutz (CFO) .
  • “We recently announced a 4.5% list price increase effective June 2… and will also consider incremental price surcharges if necessary to manage this period of volatility.” — Andrea Owen (CEO) .
  • “Our belief is that through pricing and other mitigation efforts, we can offset [active] tariffs.” — Jeff Stutz (CFO) .

Q&A Highlights

  • Impairments: Management performed an accelerated impairment review due to lagging profitability and resegmentation; resulted in goodwill and trade name write-downs despite strong Retail orders .
  • Tariff offsets: Management expects to offset current tariff impacts via pricing and mitigation; wildcard remains potential April changes and retaliatory impacts .
  • Orders/backlog: NA Contract orders improved in February and early March (>30% YoY in first 3 weeks); International +2%; Retail +10% March-to-date; no notable cancellations .
  • Restructuring: ~$4M Q3 restructuring charges linked to workforce reduction; expected annualized savings ~$4–$4.5M .
  • Pricing approach: Base price increase (incl. steel inflation) plus readiness for surcharges; balancing transparency and customer impact .

Estimates Context

  • Q3 EPS modestly beat consensus ($0.44 vs $0.435*), aided by disciplined cost controls; revenue missed ($876.2M vs $918.9M*), reflecting softer contract demand and mix .
  • With full-year adjusted EPS cut to $1.81–$1.87, Street models likely need downward revisions for FY2025 and recalibration of gross margin assumptions for Q4 (including tariff cost headwinds) .
    Consensus values marked with * were retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term: Revenue miss and significant impairment charges are likely to pressure shares; watch tariff developments and pricing actions into Q4 (explicit $5–$7M pretax impact, $0.05–$0.07 EPS) .
  • Margin quality: Adjusted operating margin held at 6.6% despite headwinds; ongoing cost discipline (restructuring savings ~$4–$4.5M annualized) supports Q4 EPS range .
  • Demand trajectory: Early Q4 order strength across segments (NA >30%, Intl ~2%, Retail ~10%) suggests improving backlog conversion; however lumpy project timing persists .
  • Retail as growth lever: Strong order momentum and store expansion plan (10–15 new locations in FY2026) with rising adjusted margins position Retail as a medium-term driver .
  • Segment clarity: New segment reporting improves transparency; monitor International deleverage and NA order normalization under the recast structure .
  • ESG/operations: New sustainability strategy and SBTi validation, including AI-enabled logistics optimization, may enhance brand and operational efficiency over time .
  • Positioning: Consider cautious stance near-term given guidance cut, while watching for confirmation of Q4 revenue and margin leverage to validate the improving order narrative .