MillerKnoll's 2026 Q1 Earnings Call: Contradictions Emerge on Tariff Impacts, Pricing Strategy, and International Recovery

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 23, 2025

Financials Results

• Revenue: $956M, up 10.9% YOY (up 10% organically)
• EPS: $0.45 adjusted EPS, up 25% YOY
• Gross Margin: 38.5%; includes ~${8}M net tariff-related impact; margins expected pressured in 1H with pricing offsets in 2H

Guidance:

• Q2 FY26 net sales expected at $926M–$966M (down ~2.5% YOY at $946M midpoint).
• Q2 gross margin expected at 37.6%–38.6%.
• Q2 adjusted operating expense expected at $300M–$310M.
• Q2 adjusted diluted EPS expected at $0.38–$0.44.
• Net tariff headwind in Q2 to reduce gross margin by $2M–$4M pre-tax (~$0.02–$0.04 EPS); pricing actions expected to fully offset in 2H FY26.
• 1H FY26 sales expected up ~3.8% at midpoint (normalizing Q4 pull-forward).
• Retail preopening/new-store costs incremental ~$4M–$5M in Q2; similar incremental expense each quarter this year.

Business Commentary:

* Strong Financial Performance: - MillerKnoll reported consolidated net sales of $956 million for Q1 2026, up 10.9% on a reported basis and up 10% organically, with adjusted EPS increasing by 25%. - The growth was driven by strong sales execution, improving market conditions, and progress on strategic growth initiatives.

• Contract Business Momentum:
• In the North America Contract segment, net sales were $534 million, up 12% from the same quarter a year ago.

• The growth was attributed to increasing demand for bringing employees together, robust office leasing activity, and healthier dealer confidence.

• Product Innovation and Retail Expansion:

• The Global Retail segment experienced net sales of $254 million, up 6.4% reported and 4.9% organically.

• Growth was supported by the expansion of product assortment, e-commerce growth, increased brand awareness, and new store openings.

• Tariff Management and Cost Mitigation:

• MillerKnoll managed a net tariff-related impact of $8 million in Q1, expecting the impact to reduce in Q2 and offset in the second half of the fiscal year.
• Pricing adjustments and cost reductions were implemented to mitigate the impacts of current tariffs.

Sentiment Analysis:

• Management said results “significantly exceeded our expectations,” with net sales up 10.9% YOY and adjusted EPS up 25%. They cited “growth momentum” in Contract, a YOY increase in the 12‑month funnel in both North America and International, and strong early-Q2 orders (up ~6% in first three weeks). Tariff headwinds are being mitigated, with pricing expected to offset in 2H.

Q&A:

• Question from Reuben Garner (The Benchmark Company): Normalizing for the pull-forward, how should we think about North America Contract growth, price vs. volume mix, and current demand trends?
  Response: Normalized NAC growth is ~3.3% across Q4+Q1, driven mainly by volume; funnel and early Q2 order trends are positive (orders up ~6% first three weeks).

• Question from Reuben Garner (The Benchmark Company): Has discounting increased to win projects?
  Response: Discounting remains stable; no increase.

• Question from Reuben Garner (The Benchmark Company): Break down retail margin pressures (new stores, freight, tariffs) and how they trend through the year.
  Response: Most margin pressure is from new-store costs; tariffs and freight also weigh. New-store drag hits Q1–Q3 and moderates as stores ramp, turning accretive by late Q4/Q1 next year.

• Question from Reuben Garner (The Benchmark Company): Are new-store impacts in gross margin or operating margin?
  Response: New-store costs sit in operating expense; gross margin pressure reflects tariffs, freight, and some FX.

• Question from Gregory Burns (Sidoti & Company): How does recent industry consolidation affect your strategy, and is M&A on the table?
  Response: Consolidation is constructive and presents opportunities; MillerKnoll is differentiated and remains opportunistic on M&A.

• Question from Gregory Burns (Sidoti & Company): Outlook for retail outside North America?
  Response: International DTC is growing; wholesale lags due to constrained partner open-to-buy, with green shoots in HAY/Muuto and early progress in Knoll/Herman Miller.

• Question from Douglas Lane (Water Tower Research): The $8M net tariff impact—how much mitigation is embedded and what’s the trajectory?
  Response: The $8M is net after surcharge/price actions; expect $2–$4M net headwind in Q2, with mitigation fully offsetting in 2H under current tariffs.

• Question from Douglas Lane (Water Tower Research): Are order/sales patterns normalizing post buy-ahead, and should we model higher operating margins this year?
  Response: Ordering has normalized; 1H sales up ~3.8% at the midpoint. No full-year margin outlook given limited visibility; guiding quarter by quarter.