MillerKnoll (MLKN) Avoids The Market Sell-Off, Springing To Life On Upbeat Q2 Results
3:37 pm Thursday, December 22nd, 2022
Office furniture manufacturer MillerKnoll (MLKN) is springing to life today after surpassing analysts’ earnings and sales expectations in Q2 (Nov). The company’s upbeat results follow rival Steelcase (SCS), which topped bottom-line estimates in NovQ, but missed sales forecasts earlier this week. MLKN also guided Q3 (Feb) numbers in line with consensus.
MLKN’s ability to succeed during an unfavorable environment can be attributed to its strategic emphasis on diversifying its business model over the past few years. This includes expanding its global retail operations to over $1.0 bln in annual revenue and merging Herman Miller and Knoll, creating additional opportunities to bring its portfolios to new geographies.
Geographic diversification was critical to MLKN’s 4.0% sales growth yr/yr in Q2 to $1.07 bln, as different regions are in varying phases of return to the office. As a result of workers returning to the office quicker in many areas relative to the Americas, revs grew 7.2% yr/yr in MLKN’s second-largest International Contract and Specialty segment. Adjusted operating margins also expanded, gaining 180 bps yr/yr.
Margins were also negatively impacted by elevated inventory-related costs, although this was expected.
Looking ahead, MLKN predicts sales to decline 2.9% yr/yr at the midpoint of its guidance of $0.98-1.02 bln in Q3. However, MLKN’s forecast closely mirrors SCS’s FebQ sales guidance, which called for just under flat growth yr/yr. Analysts also expected SCS’s FebQ revs to be much higher. MLKN is also proactively taking the appropriate steps to improve its near-term profitability, including optimizing its organizational structure and reducing spending, culminating in around $30-35 mln of annualized expense reductions beginning in Q3.
Overall, MLKN’s Q2 numbers stacked up well against SCS. Management’s confidence in successfully navigating the current environment was also encouraging, noting that it will remain flexible and nimble. These positive developments may be what the stock needs to reverse its long downward trend.
