MillerKnoll's Q2 2026: Contradictions Emerge on Contract Orders, Tariff Mitigation, AI Demand Impact, Industry Consolidation, and Order Behavior

Date of Call: December 18, 2025

Financials Results

• Revenue: $955M, down 1.6% YOY (down 2.5% organically)
• EPS: $0.43 adjusted diluted EPS (no YOY comparison provided)
• Gross Margin: 39%, includes approximately $1M in net tariff-related costs

Guidance:

• Net sales for Q3 expected to be $923M to $963M (midpoint ~+7.6% YOY)
• Gross margin expected between 37.9% and 38.9%
• Adjusted operating expense expected $300M to $310M, higher Y/Y driven by variable selling/incentives and new store costs
• Adjusted diluted EPS expected $0.42 to $0.48
• Incremental operating expense of ~$5M–$6M in Q3 for new stores, with a similar range expected in Q4
• Proactive pricing and tariff mitigation expected to fully offset tariff impacts in H2

Business Commentary:

* Strong Financial Performance: - MillerKnoll reported adjusted earnings per share of $0.43, exceeding expectations, with consolidated net sales at $955 million, down 1.6% year-over-year but up 4% year-over-year for the first half of the fiscal year. - The growth was supported by disciplined execution across core growth levers, including expanding the total footprint and delivering innovative new products.

• Global Retail Segment Growth:
• Global Retail sales increased by 4.7% on a reported basis and 3.4% organically, with orders up 6% year-over-year.

• This growth was driven by new store openings, expanded product assortment, e-commerce acceleration, and increased brand awareness.

• Order Momentum and Contract Business:

• Orders grew to $973 million, up 5.5% as reported and 4.5% higher on an organic basis, with North America Contract orders up 4.8%.

• Order momentum was supported by the return to office trend, positive demand for commercial real estate, and design services, and a focus on healthcare solutions.

• Tariff Mitigation and Gross Margin Improvement:

• Second quarter consolidated gross margin was a strong 39%, with net tariff-related costs offset by proactive mitigation actions.

• This improvement was achieved by effective pricing and surcharge strategies to manage tariff costs and maintain gross margin resilience.

• Capital Allocation and Financial Flexibility:

• The company generated $65 million in operating cash flow and ended the second quarter with $548 million in liquidity, maintaining a net debt-to-EBITDA ratio of 2.87x.
• Strong capital allocation focused on disciplined debt repayment and investments in growth, leveraging scale and optimizing production capabilities across facilities.

Sentiment Analysis:

Overall Tone: Positive

• "delivered another strong quarter, exceeding expectations"; orders grew to $973M, up 5.5% as reported; "adjusted earnings per share of $0.43 exceeded expectations"; guidance shows revenue and EPS growth at midpoint, and management cites improving order momentum and confidence in tariff mitigation.

Q&A:

• Question from Reuben Garner (Benchmark): Maybe just to start, Kevin, the second quarter that you just reported, gross margin came in above what was expected. Revenue came in at the high end and OpEx was a little higher. Was that mix of business? Or can you talk about what drove kind of the puts and takes relative to what you were expecting a few months ago?
  Response: Margin beat driven primarily by channel and product mix plus pricing realization and tariff mitigation; higher OpEx due to variable selling costs, timing effects and FX.

• Question from Reuben Garner (Benchmark): On the contract side, specifically in the Americas, can you talk about how orders ebbed and flowed through the quarter — were they softer during the shutdown period and more recent strength in pipeline?
  Response: Orders were consistent across all three months, organically up ~4.5% in Q2 and running at mid-single-digit levels into early Q3.

• Question from Reuben Garner (Benchmark): From customers, how might AI impact employment or office design going forward — are you seeing changes in workspace needs?
  Response: Too early to quantify; expect long-term productivity and workplace changes, but minimal current impact on actual workspace footprints.

• Question from Phillip Blee (William Blair): Can you talk about expectations for the contract business in Q3 — drivers between price versus volume, whether pull-forward is fully through, and near-term volume trends?
  Response: Expect mid-single-digit order growth; pull-ahead activity is largely behind us; observed growth is roughly balanced between price and volume (2–3% pricing pass-through).

• Question from Phillip Blee (William Blair): Retail acceleration — what drove the strong holiday performance and how durable is that growth as you exit the period?
  Response: Retail strength driven by increased brand awareness, new store openings and assortment expansion; promotions and marketing were flat year-over-year, indicating durable demand.

• Question from Gregory Burns (Sidoti & Company): With assortment growth, are you seeing bigger order sizes, more net customers, or more engagement from existing customers?
  Response: Average order value rose year-over-year, driven by assortment expansion and higher penetration of in-store design services; net pricing up about 2.5%.

• Question from Gregory Burns (Sidoti & Company): Road map to doubling store count — will you maintain ~14–16 stores per year and how should we think about margin profile and leverage from those investments?
  Response: Plan to open 14–16 stores annually; seasonality causes back half to look stronger and new stores should begin contributing accretive operating income by early next fiscal year.

• Question from Douglas Lane (Water Tower Research): What are the key macro trends driving the improvement — is it return-to-office or other factors?
  Response: Primary driver is return-to-office, especially demand in Class A spaces with faster decision velocity; international dealer expansion and resilient retail consumers also contributing.

• Question from Douglas Lane (Water Tower Research): How are you thinking about industry consolidation and your response after digesting recent deals?
  Response: Consolidation is ultimately positive for the industry; MillerKnoll intends to be proactive in capitalizing on opportunities while managing integration distractions.

• Question from Douglas Lane (Water Tower Research): Is there a target leverage ratio and how are you prioritizing capex and buybacks?
  Response: Priority is funding growth investments then paying down debt toward a mid-term net-debt/EBITDA target of ~2.0–2.5x; thereafter maintain dividend and opportunistic repurchases to offset dilution.

Contradiction Point 1

Contract Order Trends

It involves differing perspectives on the trends in contract orders, which directly impact the company's sales and revenue projections.

What drove the Q2 gross margin above expectations, and how did contract orders perform during the quarter? - Reuben Garner(Benchmark)

20251218-2026 Q2: Orders were consistently up organically by 4.5% across all three months of the quarter. - Kevin Veltman(CFO)

Can you detail the volume and pricing contributions to growth in the Americas and discuss the future outlook for the trend? - Reuben Garner(The Benchmark Company, LLC, Research Division)

2026Q1: Volume was a key driver for growth, with some softness in demand expected due to pull-forward activity. - Kevin Veltman(CFO)

Contradiction Point 2

Tariff Mitigation and Impact

It involves differing assessments of the tariff situation and mitigation efforts, which can affect financial forecasts and operational strategies.

What drove the Q2 gross margin above expectations, and how did contract orders perform during the quarter? - Reuben Garner(Benchmark)

20251218-2026 Q2: Mitigation efforts have been underway with pricing measures. The net tariff impact is expected to decrease in Q2 and be offset in the second half of the year if current tariffs remain. - Kevin Veltman(CFO)

What impact have tariffs had on the business and what mitigation efforts are in place? - Douglas Lane(Water Tower Research LLC)

2026Q1: Mitigation efforts have been underway with pricing measures. The net tariff impact is expected to decrease in Q2 and be offset in the second half of the year if current tariffs remain. - Kevin Veltman(CFO)

Contradiction Point 3

AI's Impact on Demand

It involves differing perspectives on the immediate impact of AI on workspace demand, which could influence strategic decisions and investor expectations.

Which geographies or customer types in the Americas contract business showed notable strength or changes? How does AI impact demand? - Reuben Garner(Benchmark)

20251218-2026 Q2: AI's impact is not yet significant, but it is expected to lead to productivity gains and changes in workspace design over time. - John Michael(CFO)

Are there specific geographies, customer types, or industries showing notable strength or changes? Could you share your thoughts on how AI may or may not impact demand in the contract space moving forward? - Reuben Garner(The Benchmark Company, LLC, Research Division)

2026Q2: AI is broad and transformative, but its impact on workspaces is currently minor, with productivity gains expected in the future. - Andrea Owen(CEO)

Contradiction Point 4

Industry Consolidation Impact

It involves the company's stance on industry consolidation, which affects strategic positioning and potential market opportunities.

How is the company addressing industry consolidation, and what are its capital allocation priorities? - Douglas Lane (Water Tower Research)

20251218-2026 Q2: Consolidation is positive for the industry, and MillerKnoll plans to be proactive post-integration. - Andrea Owen(CEO)

What was the breakdown between transactional and larger project growth in North American Contract? Was there significant demand pull-forward in retail, and is the environment more promotional? - Brian Gordon (Water Tower Research LLC)

2025Q4: We don't think that there's a formalized plan or strategy around that right now. - Andrea Owen(CEO)

Contradiction Point 5

Contract Order Behavior

It involves the company's reported contract order behavior, which affects revenue expectations and operational planning.

What factors contributed to the higher-than-expected gross margin in Q2, and how did contract orders perform during the quarter? - Reuben Garner (Benchmark)

20251218-2026 Q2: Orders were consistently up organically by 4.5% across all three months of the quarter. - Kevin Veltman(CFO)

How are orders affected by the pricing actions and what is the pull-forward effect since the quarter ended? - Gregory John Burns (Sidoti & Company, LLC)

2025Q4: Orders were down mid-single digits for the quarter, but we expect that as we move forward into the future, we will see a continued growth in 2026. - Andrea Owen(CEO)