MillerKnoll, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, the 13 weeks ended September 2, 2023; comparison is the 14 weeks ended September 3, 2022. MillerKnoll designs, manufactures, and sells furnishings and related services through its Americas Contract, International Contract & Specialty, and Global Retail segments.
Key financial metrics
| Metric | Q1 FY2024 | Prior-year quarter |
|---|---|---|
| Net sales | $917.7 million | $1,078.8 million |
| Gross margin | $358.1 million; 39.0% | $372.1 million; 34.5% |
| Operating earnings | $40.3 million; 4.4% margin | $50.8 million; 4.7% margin |
| Net earnings attributable to MillerKnoll | $16.7 million | $25.8 million |
| Diluted EPS | $0.22 | $0.34 |
| Operating cash flow | $130.9 million | $(64.8) million |
- Adjusted diluted EPS, a non-GAAP measure, was $0.37 versus $0.44. It excludes Knoll intangible amortization, integration and restructuring charges, and related tax effects.
- Cash and equivalents were $217.5 million at quarter-end. Total liquidity, including available revolving-credit capacity, was $561.3 million.
- Total debt was $1.350 billion, including $367.3 million drawn on the revolver; long-term debt was $1.299 billion. Revolver availability was $343.8 million. Term-loan rates were 7.1955% and 7.4455%.
- Capital expenditures were $19.9 million. The company paid $14.2 million in dividends and repurchased $32.0 million of stock during the quarter.
Changes versus the prior comparable period
- Reported sales fell 14.9%; organic sales declined 6.9%, excluding currency, the prior-year extra week, and the closure of the Fully business. Orders fell 9.8% reported and 1.3% organically. Backlog was $694.0 million versus $868.6 million.
- Management attributed much of the reported sales decline to the prior-year extra week and the Fully closure, as well as weaker volume. Price increases and favorable currency partly offset the decline.
- Gross margin improved 4.5 percentage points, primarily due to pricing, lower commodity, freight, storage and handling costs, and Knoll synergies; lower volume reduced leverage.
- Profitability diverged by segment: Americas Contract operating earnings rose to $41.4 million from $20.4 million, while International & Specialty fell to $11.4 million from $27.9 million and Retail to $2.2 million from $17.8 million.
- Operating cash flow improved largely because of reduced working capital, including lower inventory and timing of receivable collections. Cash declined $6.0 million after financing outflows, including net credit-facility repayments and share repurchases.
Outlook, management commentary, and risks
- Management reported $142 million in annualized Knoll run-rate synergies captured and expects total annual run-rate synergies of $160 million by July 2024. The Knoll integration program is expected to involve approximately $150 million of pre-tax cash costs.
- Full-year capital purchases are expected to be $80 million to $100 million, primarily for facilities and equipment. The filing provides no overall full-year revenue or EPS guidance.
- The 2024 restructuring actions are expected to reduce annual expenses by approximately $5 million to $6 million; $5.2 million of related severance costs was recorded this quarter. The 2023 restructuring plan was completed, with no further costs expected.
- Management cited economic uncertainty, challenging conditions in Europe and China, and a North American housing slowdown affecting Retail demand. Other disclosed risks include raw-material availability and pricing, dealer and customer financial strength, integration and synergy execution, and debt covenant compliance.
- Global Retail goodwill had only 1% fair-value headroom in an interim test in fiscal 2023; the company reported no impairment-triggering indicators in this quarter. Performance bonds and standby letters of credit represented maximum exposures of $9.6 million and $13.9 million, respectively, with no liabilities recorded. Management said pending ordinary-course litigation was not expected to have a material adverse effect.
Most important facts for investors to verify
- Whether order trends, backlog, and segment demand improve, particularly in International & Specialty and Global Retail; account for the prior-year extra week and Fully closure when comparing sales.
- Whether gross-margin gains persist as pricing, input costs, freight, and volume change.
- Progress toward the $160 million synergy target and the remaining integration costs and restructuring savings.
- Debt reduction, borrowing costs, covenant headroom, and liquidity, given $1.35 billion in debt and floating-rate exposure.
- Global Retail goodwill valuation assumptions and any changes in market conditions that could affect impairment risk.