MillerKnoll Navigates Tariff Headwinds with Margin Resilience and Strategic Expansion

In an era of escalating trade tensions and macroeconomic uncertainty, MillerKnoll (MLKN) has emerged as a resilient player in the furniture and design industry. Its Q4 2024 results reveal a company adept at balancing short-term pressures with long-term growth ambitions, making it a compelling investment opportunity for those willing to look past near-term volatility.

Operational Discipline Amid Turbulence
MillerKnoll's Q4 2024 performance underscores its ability to stabilize margins even as revenue faces headwinds. Gross margin expanded by 250 basis points (bps) year-over-year to 39.6%, driven by price optimization, cost synergies from its Knoll integration, and reduced freight costs. Adjusted operating margin rose to 8.3%, a 240 bps improvement from 2023, reflecting disciplined cost management. This margin resilience is critical in an environment where tariffs threaten profitability.

Backlog growth, a key demand indicator, rose 6.9% sequentially, signaling improving order flow, particularly in the Americas Contract segment. Management highlighted positive trends in trade shows like NeoCon and stabilization in luxury home sales, which bode well for 2025.

Tariff Challenges and Mitigation Strategies
Despite margin progress, tariffs remain a near-term concern. MillerKnoll estimates tariffs will reduce Q1 2025 EPS by $0.09–$0.11, with 17–19% of its U.S. COGS exposed to tariffs. However, the company has already implemented pricing actions, including surcharges and list price increases, which CEO Andi Owen states will fully offset tariff costs by late 2026.

The order pull-forward effect ahead of these price hikes added a $55–60 million sales boost in Q4, though this created a mid-single-digit dip in Q1 2025 order entry. This temporary demand volatility is a manageable trade-off for long-term margin stabilization.

Retail Expansion: A Strategic Growth Lever
MillerKnoll's retail segment, while currently pressured by new-store costs, is a key growth driver. Plans to open 10–15 new U.S. stores in 2026, including flagship locations in Chicago and New York, aim to double its DWR and Herman Miller footprint over several years. These stores are designed to create a “halo effect,” boosting e-commerce and brand awareness in underserved markets.

Despite near-term margin dilution (adjusted operating margin fell 210 bps to 6.5% in Q4), management views 2026 as an “investment year” for retail. Capital expenditures are rising to $120–$130 million to fund these initiatives, but the balance sheet remains robust. With $576 million in liquidity and a net debt/EBITDA ratio of 2.88x—below covenant limits—MillerKnoll has the financial flexibility to execute without overleveraging.

Long-Term Catalysts: Product Innovation and Market Resilience
The company's focus on recession-resistant verticals offers further upside. New healthcare seating lines (e.g., Gemma Healthcare) and education-focused products are gaining traction, while luxury home sales stabilize. Additionally, 50%+ product launches in 2025 (including high-margin brands like Muuto and HAY) signal a commitment to diversifying revenue streams.

Risk Considerations
- Tariff Delays: If price hikes are slow to take effect, margin pressures could linger.
- Retail Execution: New-store costs and macro-driven softness in housing could delay retail margin recovery.
- Debt Management: While manageable, the 2.88x debt ratio requires disciplined capital allocation.

Investment Thesis
MillerKnoll presents a compelling risk-reward profile. Near-term tariff impacts are quantifiable and temporary, while its margin resilience, robust balance sheet, and strategic retail expansion offer long-term growth. At current valuations—trading at 12x 2025E EPS—the stock appears undervalued relative to peers and its growth trajectory.

Recommendation: Buy, with a 12–18 month horizon. Investors should prioritize the company's execution on retail store openings and tariff mitigation. Monitor margin trends closely, but expect stabilization by late 2026.

In a volatile market, MillerKnoll's blend of operational rigor and strategic vision positions it to navigate near-term headwinds while capitalizing on durable demand for design-forward furniture. This is a stock for those willing to bet on disciplined execution in an uncertain world.