MillerKnoll, Inc.

Good evening, and welcome to our fourth quarter fiscal 2025 conference call. On with me are Andy Owen, Chief Executive Officer, and Jeff Stetz, Chief Financial Officer. Joining them for the Q&A session are John Michael, President of North America Contract, and Debbie Probst, President of Global Retail. We issued our earnings press release for the quarter ended May 31st, 2025, after market closed today, and it is available on our Investor Relations website, A replay of this call will be available on our website within 24 hours. Before I turn the call over to Andy, please remember our safe harbor disclosure 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 that 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 also refer to certain non-GAAP financial metrics, and our press release includes the relevant non-GAAP reconciliations. With that, I'll turn the call over to Andy.

Thanks, Wendy. Good evening, everyone, and thank you so much for joining us tonight. We are very pleased with our strong finish to fiscal 2025, with our Q4 results significantly exceeding our expectations. Jeff will share the details of our financial performance with you, but I want to briefly recap a few highlights from the past year that underscore our design leadership, speak to our opportunities ahead, and then discuss what we are currently seeing in our markets. First, I want to thank our teams across Miller Knoll for our accomplishments over the past year. In our contract businesses, we made incredible progress, and we have multiple opportunities to grow our market share, both in North America and internationally. We opened new flagship locations in London and New York that include both contract showrooms and retail stores, and have meaningfully elevated how we present the collective strength of our brands and products to customers. With these new locations, we've improved the quality of our customer interactions, and have seen a significant increase in customer visits, positioning us to capitalize on our product and brand leadership as trends improve in our markets. We've spent the past year reimagining what our newest flagship in Chicago's Fulton market could be. We debuted this new comprehensive design center earlier this month at Design Days 2025, a marquee event for the contract furniture industry. With two buildings at 1100 and 1144 West Fulton, We brought our collective closer together, making it easier for customers to see what's possible in spaces that reflect the ways people work, gather, heal, and create. Our new space highlights the unique strengths of the Herman Miller and Knoll brands, while also featuring our Herman Miller floor and Miller Knoll floor designed to showcase the power of our combined portfolio and real-world solutions through planned and purposeful designs. The space also features an expanded healthcare showroom, Hayes' first North American showroom, new Knot One and Mudo spaces, as well as enhanced Herman Miller, Knoll, Geiger Datesweizer, and Maharam showrooms. Like our London and New York locations, our Chicago showrooms include DWR and Herman Miller retail stores. Design Days highlighted the accomplishments of our design, creative, and product teams over the past year. At this year's events, we introduced over 30 new products across our brands. It was an incredibly successful event for Miller & Noll, with booked appointments of 11% year over year. As a pioneering tenant of Fulton Market and the founder of Design Days, we are thrilled that more and more customers, dealers, and A&D partners are coming to this event. In our contract product portfolio, we are investing in targeted R&D and innovation. Four years into the combination of Herman Miller & Noll, We've had time to strategically review our unmatched product portfolio, understand where there is differentiation, and identify where we have opportunities to add innovative new products or enhance product lines. One of our latest innovations is Null Dividend Skyline, which we just introduced at Design Days. It offers a refined, flexible, and holistically integrated system that reimagines the open-plan workplace for today's dynamic and compact office environment. It features a new planning typology and a contemporized material palette, empowering architects and designers to deliver a total interior. There are also recession-resilient verticals that we will continue to go after with targeted R&D and product investment. For example, backed by research and real-world insights, Herman Miller's new Gemma Healthcare Seating Family is thoughtfully designed to support the diverse needs of patients, families, and caregivers. With a range of options, including a recliner, a sleep chair, and a sleep sofa, GEMMA combines intuitive functionality with a warm, modern aesthetic that enhances any care environment. Each piece is easy to use, requiring simple movements to adjust, allowing users to focus on care rather than furniture. Available across various room sizes and available in multiple sizes, a GEMMA recliner and its counterparts create a cohesive and comforting visual language throughout healthcare spaces. Ultimately, GEMMA helps patients, families, and caregivers feel supported and at ease, making it a smart, human-centered choice for today's healthcare environment. In higher education, Muto and Hayes' extensive assortment of ancillary and hospitality solutions can assist colleges and universities as they build out lounge areas, meeting spaces, and cafeterias for their growing populations. We also see exciting opportunities with Herman Miller Gaming in the higher education space. For example, we recently collaborated with the university on a state-of-the-art e-sports arena. Turning now to our accomplishments and growth opportunities in our global retail business, in fiscal 2025, we opened four beautiful new stores, including a DWR studio in Palm Springs that opened in concert with Modernism Week, a DWR in Paramus, New Jersey, and a Herman Miller store in Fairfax, Virginia, and one also in Coral Gables, Florida. In fiscal 2026, We expect to open an additional 10 to 15 new stores in the U.S. as we continue our journey to more than double our DWR and Herman Miller store footprint over the next several years. Earlier this month, as I mentioned, we opened an expanded DWR store and a new Herman Miller store and our Chicago Fulton Market flagship. In the next few months, we plan to open DWR stores in Sarasota, Florida and Las Vegas and a Herman Miller store in Philadelphia. We will follow this in the second quarter with a DWR store opening in Salt Lake City and Herman Miller store openings in Nashville and El Segundo, California. In addition to growing our store footprint, we have several growth levers we can pull in the business over the next several years, including continuing to invest in product assortment expansion, increasing our e-commerce penetration, and expanding our brand awareness. These levers will allow us to drive revenue growth, and also expand our brand awareness through targeted marketing and investments for new product launches and activities and events designed to introduce our brand to new customers. Additionally, each time we open a new store, we see a compelling halo effect of e-commerce growth and increased brand awareness in these new geographies. During fiscal 2025, we meaningfully expanded our retail product assortment with new product launches increasing over 50% compared to the prior year. Going forward, we have opportunities to grow the breadth and depth of our product assortment in several key areas of the home. And finally, an accomplishment in the past year that is very personal to me is our new Millennial Archives space at our Michigan headquarters, showcasing over 100 years of design history. The new space has been well-received by dealers, customers, and design partners. It's grounded in the belief that we must celebrate our iconic design heritage and learn from our legacy as we continue to innovate for the future. We were excited to have the archives opening featured in a CBS Saturday morning segment on June 7th. Now I'll turn to what we're seeing in our markets. In both our North America and international contract markets, we are cautiously optimistic while navigating what continues to be a very dynamic macroeconomic environment. Prior to tariffs being reimposed in January, we had seen three consecutive quarters of order growth in the North American contract segment. While the onset of tariffs interrupted this trend in the third quarter, we were pleased to see a return to order growth in the fourth quarter, which Jeff will detail shortly. In our international markets, we were especially pleased to see strength and increased activity in Europe and the UK. We are well positioned with our flagship showrooms in the heart of London's Clerkenwell Design District. Thousands of customers, A&D partners, dealers, commercial real estate professionals, and project influencers came to our showroom over the three days of Clover Mall Design Week in May. There's also tremendous opportunity to grow Knoll internationally through their private office and elevated conference room solutions. Beyond our internal growth opportunities, we are also encouraged by several external factors that we expect to work in our favor in our contract businesses. More companies are now working in the office and focused on how to attract associates through upgraded spaces and elevated experiences that support being together. A recent study among Fortune 100 companies showed that days in the office have increased 68% since 2022. Office leasing activity is rising, and rent has fully recovered for Class A space. Since December 2024, BISMA industry orders have consistently trended up on a year-over-year basis. Our internal indicators also give us reason to be optimistic. We are seeing the ingredients for a return to growth in contract, and we are well-tuned to take advantage as the industry recovers We have compelling competitive advantages, including an unmatched suite of products and a formidable distribution channel with world-class dealers who are well-versed in the entire Miller & Knoll product collective. In a retail business, while we are similarly cautiously optimistic about the macroeconomic environment, as I have described, we have several levers we are willing to pull growth now and that will put us in a position of strength when the housing market begins to recover. At the same time we're investing for growth across our businesses, we will continue to balance our approach for the long term. We are well positioned with cash flow and balance sheet strength to capitalize on opportunities. We will focus on our customers, we will prudently manage our costs, and we will consistently deliver innovation, and we will invest for profitable growth. To close, I'm so proud of our entire team for all their hard work and dedication in fiscal year 2025, and for the strong finish to the year. We are excited to see what we can accomplish together in fiscal 2026. I'll now hand it over to Jeff to discuss our results in more detail and share our perspective on fiscal 2026.

Thanks, Andy, and good evening, everyone. I'll start with an overview of our performance in the fourth quarter and some full year highlights, followed by our outlook and targets for the first quarter, including our most up-to-date view on tariffs. In the fourth quarter, we generated adjusted earnings of $0.60 per share, significantly outperforming the midpoint of our guidance, driven by better than expected sales and strong gross margin performance that benefited from leverage on our sales growth. Consolidated net sales in the fourth quarter were $962 million, well above the midpoint of our guidance. Relative to the same quarter last year, net sales were up 8.2% on a reported basis and up 7.8% organically, driven by relative strength in all segments of the business. In North America contract, we saw both strong orders and sales, which was partially enhanced by pull-forward activity ahead of our recently announced tariff surcharge and list price increase. New orders at the consolidated level in the fourth quarter were $1.04 billion, up 11.1% as reported and 10.7% higher on an organic basis. Our consolidated backlog increased by $78 million to $761 million. from improved demand in the quarter. We were very pleased with our consolidated gross margin of 39.2% in the fourth quarter. While down slightly to last year, gross margin was up 130 basis points sequentially. Gross margin included a drag of approximately $7 million from tariff-related impacts to cost of goods sold, an amount right in line with the estimate we provided in our fourth quarter earnings guidance back in March. Given the volume of orders pulled forward ahead of our price surcharge and the normal time it takes to begin benefiting from list price changes in our contract businesses, we expect margins to be negatively impacted in the near term by tariffs currently in place, but remain confident our pricing actions will offset these later in the fiscal 2026. Turning to cash flow in the balance sheet, we generated $71 million in cash flow from operations in the fourth quarter. driven by our strong sales and earnings performance, and we reduced our long-term debt by $5 million. We ended the quarter with $576 million of liquidity, and in April, we amended our revolving credit facility and term loan A to extend their maturities to 2030. We finished the quarter with a net debt-to-EBITDA ratio of 2.88 turns, an amount comfortably under the maximum limit defined in our lending agreements. With that, I'll now move to our performance by segment in the fourth quarter. Within our North America contract segment, net sales for the quarter were $496 million, up just under 13% from the same quarter a year ago. New orders in the period were $568 million, reflecting growth of almost 16% over last year. We estimate new orders in the fourth quarter benefited from between $55 million and $60 million in demand pull forward in advance of implementing our tariff-related surcharge on April 21st and our price increase on June 2nd. Importantly, we believe these price actions have created a sense of urgency in the customers of our North America contract business, and our internal demand indicators in the quarter reflected this customer activity. Fourth quarter operating margin in the North America contract segment was 7.7% compared to break-even performance in the prior year. Adjusted operating margin improved 90 basis points in the quarter to 10%, primarily due to benefit of fixed expense leverage from higher net sales and favorable product mix, partially offset by the tariff-related cost increases. In the international contract segment, net sales for the quarter improved to $186 million, up 6.9% on a reported basis and up 5.5% on an organic basis year over year. New orders during the quarter were $190 million, an increase of 3.6% on a reported basis and a 2.1% organic increase compared to the prior year. We were very pleased with the widespread sales and order growth in the quarter, with particular strength in our European markets. Our Latin America region also delivered strong sales growth in the quarter. In contrast to the North American segment, we do not believe our international contract business experienced any meaningful order pull ahead activity related to our previously announced list price increase. Reported operating margin for the international segment in the fourth quarter was 11.7% compared to 10.9% in the prior year. On an adjusted basis, segment operating margin was 12.9%, down 230 basis points, primarily from regional and product mix of sales and higher variable incentive compensation in the quarter versus last year. Turning to our global retail segment, net sales in the fourth quarter were $280 million, up 2.2% on a reported basis and up 1.4% organically. New orders in the quarter improved to $280 million, up 7.5% to last year on a reported basis and up 6.7% on an organic basis compared to the prior year. Operating margin in the retail segment was 5.3% in the quarter compared to 6% last year, On an adjusted basis, the operating margin was 6.5% this quarter, 210 basis points lower than in the prior year, primarily from new store opening costs, lower sales in the international regions, unfavorable product mix, and higher variable incentive compensation. We opened two new stores in the fourth quarter, a DWR in Paramus, New Jersey, and a new Herman Miller store in Coral Gables, Florida. And as Andy highlighted in her prepared comments, we have exciting plans to grow this segment further in the coming quarters through additional new store openings and expansion of our product assortment. For the full fiscal year, on a consolidated basis, net sales were $3.67 billion and adjusted earnings per share were $1.95. During fiscal 2025, we paid approximately $52 million in dividends, returned approximately $85 million to our shareholders in the form of share repurchases, and reduced our total outstanding debt by $10.8 million. Capital expenditures for the full year were $107.6 million. In fiscal 2026, we expect capital expenditures to range between $120 and $130 million. And as I mentioned, we closed fiscal 2025 with a strong balance sheet, including $576 million of available liquidity. Against the dynamic macroeconomic conditions we faced in 2025, I'm really proud of the efforts of our teams across Miller Knoll to continue to deliver the best products and experiences in our industry, allowing us to finish the year with strength. Now let's turn to fiscal 2026 and our Q1 guidance and outlook, which is informed by our most up-to-date information on tariffs and related mitigation efforts. Our outlook reflects the normal seasonality we experience in the global retail segment, as consumers shift spending to experiences and travel in the summer months. Given what remains a rather volatile environment with respect to tariff policies and geopolitical issues around the world, we are limiting our guidance this quarter to the first quarter only. We do, however, remain committed to being transparent and resuming our full-year outlook for sales and earnings as visibility improves. Taking this into consideration, in the first quarter of fiscal 2026, we expect net sales to range between $899 million and $939 million, up 6.7% versus the prior year at the midpoint of $919 million. Gross margin is expected to range from 37.1% to 38.1%. Adjusted operating expenses is expected to range from $290 million to $300 million, and adjusted diluted earnings per share are expected to range between 32 cents and 38 cents. The gross margin and EPS outlook includes our estimate of net tariffs currently in place. In total, we expect tariff-related costs to reduce Q1 earnings by between $9 million and $11 million before tax or between $0.09 and $0.11 per share after tax. To give some further context, currently approximately 17% to 19% of our consolidated cost of goods sold is imported into the U.S. from other countries. We expect the impact from the tariff-related costs to decrease over time as our pricing actions layer into the results. Further, we believe our collective mitigation actions to fully offset these costs as we move into the second half of the fiscal year. Another factor to keep in mind that is included in our expectations for operating expense and EPS are the costs associated with planned new store openings in our global retail segment. Given the time it takes to prepare a new store for daily operation, we normally begin to incur occupancy and other pre-opening expenses one to two quarters before the first products are sold in the store. As Andy mentioned, we're opening three new stores this quarter. We estimate approximately $4 million to $7 million in operating expenses tied to these new locations in the first quarter. Further, we would expect to incur similar expenses in each quarter this year consistent with our planned new store openings. For all other details related to our outlook, please refer to our press release. And with that overview of the performance and outlook, I'll now turn the call over to the operator, and we'll take your questions.