Yahoo Finance MillerKnoll, Inc. (NASDAQ:MLKN) Q4 2024 Earnings Call Transcript
MillerKnoll, Inc. (NASDAQ:MLKN) Q4 2024 Earnings Call Transcript June 26, 2024
MillerKnoll, Inc. beats earnings expectations. Reported EPS is $0.67, expectations were $0.53.
Operator: Good evening and welcome to MillerKnoll’s Quarterly Earnings Conference Call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Chief Financial Officer, Jeff Stutz. Please go ahead.
Jeff Stutz: Thank you. Good evening And welcome to our fourth quarter fiscal 2024 conference call. I'm joined by Andi Owen, Chief Executive Officer. Also available during the Q&A session are John Michael, President of Americas Contract, and Debbie Propst, President of Global Retail. 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 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 as of today and we assume no obligation to update or supplement these statements. We may also refer to certain non-GAAP financial metrics which are reconciled and described in our press release posted on our Investor Relations website at millerknoll.com. And with that, it's my pleasure to turn the call over to Andi.
Andi Owen: Thanks, Jeff, and thanks, everyone, for joining us tonight. MillerKnoll wrapped up fiscal year 2024 with strong finish. Throughout the year, we anticipated business improvement in the back half, and we shared the actions we took to align our operating costs with the economic environment, to boost demand across contract and retail, and to future-proof our business. I'm proud to report that by leveraging the scale of our collective of brands and our diversified business channels and global operations, our teams delivered significant earnings per share and margin growth in the fourth quarter. In addition, we delivered consolidated organic order growth of 2.9% for the quarter. Right now, the demand environment for contract and key markets are heading in a positive direction, and we've put ourselves in a strong position to benefit from this shift.
We've adjusted our business to remain agile and productive, and we see healthy levels of activity across our business as a result. We're optimistic that a strong quarter and an improving market will contribute to our momentum for the upcoming year. I'd like to share a few highlights about the work underway and then Jeff will provide a closer look at our financials and our outlook. We kicked off fiscal year 2025 with several events around the globe this month, including Design Days in NeoCon in Chicago and 3daysofdesign in Copenhagen. At our Fulton Market Chicago showrooms, design enthusiasts were thrilled to experience our second nature of sustainability and test lab exhibits. Both immersive experiences underscored our design DNA, our commitment to sustainability, and the rigorous process that we put our products through to ensure both innovation and quality are always present.
In Copenhagen, our flagship HAY House was packed with customers shopping new collaborations, including a fun partnership with Japanese sportswear brand ASICS. And we hosted several events at Muuto showroom showcasing the brand's approach to creating intentional spaces, both indoors and outdoors. Traffic at NeoCon is back, close to pre-COVID levels, and appointments at our showrooms during Design Days were up year-over-year. More importantly, conversations with customers have shifted. They've moved from the theoretical return to office ideas to specific project needs. And with that, we believe there is opportunity. We're well positioned through our Design with Impact programs to solve these needs. In the year ahead we'll invest in MillerKnoll showrooms, digital platforms and enhanced tools to fuel our contract business and support our MillerKnoll dealers.
We're finding new ways to bring our collective of brands together in both our dealer showrooms and our own showrooms. This fall, we'll open newly enhanced MillerKnoll spaces in London, New York, and Los Angeles, that spotlight our leadership in design and sustainability. We're also ramping up product launches to deliver unique solutions for our customers. This month, we launched over 30 new products at Design Days, capturing industry awards for Knoll’s Tugendhat and Morrison Hannah chairs, Knoll's Cove Collection for private offices, and NaughtOne’s Percy chair. In addition, Herman Miller refreshed the versatile Vantum gaming chair with ergonomic enhancements and showcased the new Mirra 2 task chair with a lower carbon footprint. And at 3daysofdesign, Muuto introduced a new outdoor collection, Settle, and HAY introduced new ancillary seatings, bar stools, coffee table, cabinets, and lighting.
Our international contract business is a growth vehicle, and we continue transitioning legacy Herman Miller and Knoll dealers to full MillerKnoll dealers. This quarter, we transitioned 19 dealers in 17 countries and 19 cities. In addition, as we look at the full year, we added 29 new dealers in three countries and 13 new cities to expand our international distribution footprint. With close to 150 international MillerKnoll dealers onboarded, we've closed out the fiscal year ahead of schedule, allowing us to be even more responsive and aligned with our customers and clients. Through our dealer showrooms, we're expanding our physical presence in high performing regions. This quarter, dealers opened MillerKnoll showrooms in India, Singapore, and Indonesia.
Turning to retail, we delivered organic order growth of 1% year-over-year despite the tough macroeconomic conditions our industry still faces. We're continuing to do the work to drive orders in the short term while optimizing our retail engine for significant long-term sales growth. We maintain a strong focus on inventory management and optimizing our product assortment by continuing to complementary, I'm sorry, continuing to expand our complementary assortment. And to capture more sales and productivity with less foot traffic, we're densifying our store space to show more of our collection. We saw huge margin improvements due to these efforts. Our adjusted gross margin in our retail business were up 640 basis points on a year-over-year basis.
We also continue to provide tools that help our retail customers build beautiful spaces and drive larger orders with fewer returns. New configurator tools on site and design services make it easier and more rewarding to place orders at Design Within Reach and Herman Miller stores. As we look to the future, we will invest in new stores, applying the format and experiences we tested at our newest Design Within Reach stores, such as San Francisco. In addition, negative trends in home sales are beginning to ease a bit. The National Association of REALTORS reported that year-over-year declines in existing home sales are beginning to flatten. We believe there is pent-up retail demand and we are prepared to harness it. Finally, sustainability, along with innovation, is an important consideration for our customers and associates around the globe.
Our work builds on a legacy of sustainable design and business practices that we have nurtured for decades. Today, it extends across our collective and encompasses hundreds of projects big and small. As I mentioned, we showcased our sustainability efforts through an exhibit at Design Days in Chicago. We shared many of the things we're acting on, now, from incorporating more biobased materials in our products, like eelgrass, to using more recycled content and embracing circular design. During the quarter, we were also recognized for our efforts to Gold Medal rating from EcoVadis, putting us in the top 5% of companies rated by EcoVadis in the past 12 months. We also received the 2024 SEAL Sustainable Innovation Award for our work leveraging ocean-bound plastics to reduce waste and single-use plastics.
All of this to say, we're optimistic and focused on growth in the year ahead. With that, I will turn it back to Jeff for a closer look at our financials.
Jeff Stutz: Thanks, Andi. I'll start by providing an overview of our performance in the fourth quarter and some full year highlights, followed by a few insights into our outlook and targets for both the first quarter and full fiscal year. For the fourth quarter, we generated adjusted diluted earnings of $0.67 per share, well above the midpoint of our guidance, driven by strong gross margin performance as well as favorable tax benefits. At the consolidated level, net sales in the fourth quarter totaled $889 million, representing an organic decrease of 5.2% from the same quarter a year ago. New orders at the consolidated level totaled $933 million in the fourth quarter, reflecting organic growth of approximately 3% from the same quarter last year.
The improving demand indicators that we've been monitoring throughout the year were validated this quarter by a return to year-over-year order growth in the America's Contract segment. This improved demand picture helped drive a sequential increase of $44 million in the consolidated order backlog, which ended the period at $684 million. Our performance at the gross margin line was a clear highlight in the numbers. On a consolidated basis, gross margin in the quarter of 39.6% improved on a year-over-year and sequential quarter basis by 250 basis points and 100 basis points respectively. These improvements were driven by price realization and benefits from inventory management, product mix and channel performance. Our consolidated adjusted operating margin was 8.3% for the period, which is up 240 basis points year-over-year.
Turning to cash flows and the balance sheet, this quarter we generated approximately $78 million in cash flow from operations, driven by several factors including a meaningful reduction in working capital primarily attributed to our inventory management efforts. We finished the fourth quarter with a net debt to EBITDA ratio of 2.63 times, putting us comfortably under the maximum limit defined in our lender agreements. With that, I'll now take a moment to summarize our fourth quarter performance by segment. Within our America's Contract segment, net sales for the quarter of $417 million were down 12.2% on a reported basis, while new orders of $480 million were up 5.7% on a reported basis from the previous year and increased sequentially 14.3% from the third quarter of this year.
During the fourth quarter, orders improved steadily each month and funnel additions and contract activations remained positive, giving us increased confidence as we begin the new fiscal year. Fourth quarter adjusted operating margin in the Americas segment was 7.3%, which is down 280 basis points from the same quarter last year, as a result of lower sales volume and the resulting impact on leverage of fixed overhead costs. Turning to our International Contract and Specialty segment, net sales for the quarter totaled $245 million, up 3.8% organically year-over-year, while new orders totaled $239 million, and were essentially flat with last year. We remain very optimistic about the growth potential in this segment, which for most of this past year, led our business in terms of new order growth.
This past quarter, we benefited from strong demand patterns in Korea, India, China, and the Middle East. We also saw signs of improving demand in parts of Europe this quarter. Our international team is making great progress improving and expanding our MillerKnoll distribution footprint. To date, over half of the global network is now able to sell the MillerKnoll Collective, and we expect to transition 100% by the end of fiscal 2025. Moving to our Global Retail segment, net sales in the fourth quarter were $227 million, representing a decline of 7.2% year-over-year on a reported basis, and up slightly on an organic basis. New orders in the quarter were $214 million, down 6% compared to the same period last year on a reported basis, and up just under 1% on an organic basis.
This organic demand growth stands out favorably relative to the broader retail furnishings industry data. Our formula, which combines a strong digital presence with excellent in-store experiences, is supporting above-industry growth. And importantly, we have a lot of runway for further investment and growth in new markets in North America and longer term internationally. The North American housing market slowdown and reduced spending on discretionary goods continue to affect demand levels in this segment. In response, we are focusing heavily on effective inventory management and product mix optimization to drive operational efficiency. These efforts have helped us realize substantially improved gross margins compared to year-ago levels, despite the challenging demand conditions.
Additionally, we're enhancing brand awareness while also prioritizing investments in our most established channels and brands in order to better leverage our scale. For the full fiscal year, net sales were $3.6 billion and adjusted earnings totaled $2.08 per share. We made remarkable progress this past year achieving our stated goals with respect to acquisition cost synergies and as of year-end have achieved annualized run rate savings of $160 million, an amount well above our originally stated target. And importantly, these cost savings played an important role in helping us deliver significantly improved earnings throughout the year. Let me conclude my prepared remarks with a few comments on our outlook for fiscal 2025. Overall we are optimistic as we enter the new year, given the multitude of data points suggesting activity and interest in the contract elements of our business is ramping.
Traffic at recent trade shows around the globe, including the US, Italy, and Copenhagen has improved and is close to pre-COVID levels as Andi mentioned. In addition, we are bullish on the growth prospect of our retail segment, which we believe will benefit from eventual improvements in the housing market, coupled with our planned investments in new stores and assortment expansion. We believe these factors point to an active year ahead. And accordingly, for fiscal 2025, we expect net sales to be above fiscal year 2024, and adjusted earnings per share to be in the range of $2.10 to $2.30 per share. As we look to the first quarter, I want to remind everyone of the seasonality of our retail business. We tend to see lighter demand in the summer months as consumers shift spending toward experiences in vacation.
Taking that into consideration, we expect net sales for the first quarter to be between $872 million and $912 million, and adjusted earnings per share to be between $0.38 and $0.44. Okay, with that overview of the numbers, I'll now turn the call over to the operator. We'll be happy to take your questions.
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