MillerKnoll's Q2 2026: Contradictions Emerge on Tariff Impacts, Retail Profitability, and Order Growth

Date of Call: December 17, 2025

Financials Results

• Revenue: $955.0M, down 1.6% YOY (organic -2.5%)
• EPS: $0.43 adjusted EPS, exceeded expectations
• Gross Margin: 39%, includes approximately $1M net tariff-related costs
• Operating Margin: 9.3% reported; adjusted 9.7%, down 280 basis points YOY

Guidance:

• Q3 net sales expected $923M–$963M (midpoint +7.6% vs. prior year)
• Q3 gross margin expected 37.9%–38.9%
• Adjusted operating expense expected $300M–$310M (higher YoY due to variable selling, incentives, new store costs)
• Adjusted diluted EPS expected $0.42–$0.48
• Tariff pricing/mitigation actions expected to fully offset tariff impacts in 2H
• Incremental operating expense for new stores ~$5M–$6M in Q3 (similar expected in Q4); plan to open 14–16 stores FY

Business Commentary:

* Strong Earnings and Revenue Performance: - MillerKnoll reported adjusted earnings per share of $0.43, exceeding expectations, and consolidated net sales for the quarter were $955 million, down 1.6% year-over-year on a reported basis and 2.5% lower organically. - The strong earnings were driven by disciplined execution across core growth levers, including expanding the total footprint, delivering innovative new products, and deepening customer engagement globally.

• Order Growth Across Segments:
• Orders for the quarter grew to $973 million, up 5.5% as reported and 4.5% higher on an organic basis.

• This growth was consistent across all three months of the quarter and even in the early weeks of the new quarter, indicating strong demand momentum across each segment.

• Contract Business Recovery:

• Orders in the North America Contract segment rose to $507 million, up 4.8% from the prior year.

• Recovery in the contract business was driven by the return to office trend, which is positively impacting demand for commercial real estate, design services, and contract furniture, particularly in healthcare and resilient sectors like healthcare.

• Global Retail Segment Growth:

• Global Retail segment net sales were $276 million, up 4.7% on a reported basis and 3.4% organically, with orders improving to $304 million, up 6% year-over-year.

• The growth was attributed to strategic levers like new store openings, expanded product assortment, e-commerce acceleration, and increased brand awareness.

• Tariff Cost Management:

• MillerKnoll reported a strong consolidated gross margin of 39%, despite approximately $1 million in net tariff-related costs.
• The company expects proactive tariff mitigation actions to fully offset tariff costs in the second half of the fiscal year, supporting both gross margin and earnings per share resilience.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly stated the quarter 'exceeded expectations' and highlighted 'another strong quarter,' with orders up (~$973M, +5.5% reported) and 'gross margin was a strong 39%.' CFO noted solid cash flow ($65M) and liquidity ($548M) and confidence in tariff mitigation and margin resilience, supporting a positive tone.

Q&A:

• Question from Reuben Garner (The Benchmark Company, LLC): 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: Channel and product mix, strong pricing realization and tariff mitigation drove better-than-expected gross margin; higher OpEx was from variable selling costs tied to sales timing and FX.

• Question from Reuben Garner (The Benchmark Company, LLC): In the press release, you talked about the 12-day holiday period growth and later-quarter strength. On the contract side in the Americas, how did orders ebb and flow through the quarter—were they softer during shutdown periods and stronger later; any internal pipeline data points?
  Response: Orders were consistent across the three months (organic +4.5% for the quarter), with mid-single-digit order levels continuing into early Q3 and sequential improvement as tariff uncertainty eased.

• Question from Reuben Garner (The Benchmark Company, LLC): Any specific geographies or industries showing particular strength or change? And on AI—are customers changing office design or employment plans because of AI?
  Response: Geographic pickup in Bay Area, Southern California and sustained strength in Northeast; active industries include energy, professional services and legal while public sector is softer; AI impact is early—minimal today but expected to drive future workspace/productivity changes.

• Question from Phillip Blee (William Blair & Company L.L.C.): Can you talk about expectations for the contract business in Q3—drivers between price vs. volume, whether prior-quarter pull-forward remains, and whether volume trends could improve in 2H?
  Response: Order momentum mid-single-digits; pull-forward cleared—year-to-date normalized sales up ~4% in NA contract; long-run growth comprises roughly even mix of ~2–3% price and volume.

• Question from Phillip Blee (William Blair & Company L.L.C.): On retail acceleration during the peak holiday week—what drove consumer response given a promotional environment and how durable is that growth post-holiday?
  Response: Growth driven by rising brand awareness, new store openings and assortment expansion; promotions and marketing were flat vs. prior year, supporting durability as new customers and higher AOV stick.

• Question from Gregory Burns (Sidoti & Company, LLC): With assortment growth, are you seeing bigger order sizes, more net new customers, or more engagement from existing customers?
  Response: Average order value is up beyond modest pricing increases (net pricing ~2.5%); assortment expansion (+22% collections) and greater design-services penetration are increasing AOV and new-customer demand.

• Question from Gregory Burns (Sidoti & Company, LLC): Roadmap to doubling store count—will you stay at ~14–16 stores/year and how should we think about margin profile and leverage from these investments?
  Response: Plan to open ~14–16 stores/year with leases already signed; expect seasonal pacing with back half stronger and new stores becoming accretive starting late FY (Q4) and into next fiscal year as investments abate.

• Question from Douglas Lane (Water Tower Research LLC): What are the two or three key macro trends driving the recent improvement given mixed macro commentary—back-to-office or other factors?
  Response: Primary driver is return-to-office, especially demand for Class A space; faster decision velocity and increased project wins globally are boosting contract demand.

• Question from Douglas Lane (Water Tower Research LLC): With consolidation in the industry, how are you reacting after digesting it for six months?
  Response: Consolidation reduces industry capacity (ultimately positive), but integrations can be distracting; MillerKnoll intends to be on the front foot to capture opportunities.

• Question from Douglas Lane (Water Tower Research LLC): On capital allocation, is there a target leverage ratio around the current ~2.87x net debt/EBITDA and how do capex and buybacks fit in?
  Response: Priority is fund growth investments and debt reduction; midterm leverage target ~2.0x–2.5x; thereafter maintain dividend and opportunistic repurchases to offset dilution.

Contradiction Point 1

Impact of Tariffs and Surcharges on Contract Business

It involves the impact of tariffs and surcharges on the contract business, which affects pricing strategies and cost management.

What factors impacted Q2 gross margin, revenue, and OpEx compared to prior expectations? - Reuben Garner(The Benchmark Company, LLC, Research Division)

2026Q2: Gross margin was better due to channel and product mix, as well as successful pricing realization. - Kevin Veltman(CFO)

How have tariffs impacted the business, and how is progress on mitigating them? - Douglas Lane(Water Tower Research LLC)

2026Q1: Tariffs had a net impact of $8 million in Q1. Mitigation efforts include surcharges and price increases. - Kevin Veltman(CFO)

Contradiction Point 2

Retail Profitability Pressures

It highlights changing perspectives on the retail profitability pressures, which are crucial for financial planning and investor expectations.

What are your expectations for Q3 contract business, including the pull-forward effect and price vs. volume dynamics? - Phillip Blee(William Blair & Company L.L.C., Research Division)

2026Q2: New store expenses are the primary factor impacting retail profitability. - Kevin Veltman(CFO)

Could you clarify the factors contributing to retail profitability pressures, specifically freight, new stores, and tariffs, and how new store expenses will evolve this year? - Reuben Garner(The Benchmark Company, LLC, Research Division)

2026Q1: New store expenses are the primary factor impacting retail profitability, with Q1 being the lowest seasonal point. - Kevin Veltman(CFO)

Contradiction Point 3

Pull-Forward Impact on Orders

It involves the impact of pull-forward effects on orders, which directly affects revenue forecasts and order trends, crucial for investor expectations.

What are your expectations for contract business in Q3, including pull-forward impact and key drivers like price vs. volume? - Phillip Blee(William Blair & Company L.L.C., Research Division)

2026Q2: North America contract orders were up consistently, with no pull-forward impact remaining. - Kevin Veltman(CFO)

Can you clarify the pull-forward effect from pricing actions and the order outlook for the early current quarter? What is your confidence in aggressive retail expansion and the store maturity timeline? - Gregory John Burns(Sidoti & Company)

2025Q4: Pull-forward effect led to mid-single-digit order growth. - Andrea R. Owen(CEO)

Contradiction Point 4

Contract Order Growth

It involves the growth expectations and performance trends in the contract segment, which is crucial for understanding the company's operational and financial health.

What are your expectations for the contract business in Q3, considering factors such as pull-forward effects and price versus volume dynamics? - Phillip Blee(William Blair & Company L.L.C., Research Division)

2026Q2: North America contract orders were up consistently, with no pull-forward impact remaining. - Kevin Veltman(CFO)

What changes are you observing in pipeline metrics and mockups for the North American contract segment? - Gregory Burns(Sidoti & Co.)

2025Q3: We expect order growth, especially in North America, to continue to accelerate in the second half of the year. - Andrea Owen(CEO)

Contradiction Point 5

Retail Demand and Customer Segment Dynamics

It concerns the drivers of retail growth and customer segment dynamics, which are key factors in assessing the health and sustainability of the retail segment.

What drives retail growth and customer segment dynamics? - Gregory Burns(Sidoti & Company, LLC)

2026Q2: Growth is driven by expanding assortment, design services, store expansion, and increased brand awareness. Average order value is up, with a mix of new and existing customers, showing strong demand. - Andrea Owen(CEO)

Did you see demand pull-forward in retail? Is the environment more promotional? - Brian Gordon(Water Tower Research)

2025Q4: Retail saw growth with pricing offsets and no significant pull-forward. Holly Hunt had some surcharge-related pull-forward. Promotional environment is stable, with pricing increases and discounts balanced. - Debbie F. Propst(President, Global Retail)