MillerKnoll's Strategic Expansion Amid Tariff Challenges: A Resilient Play for 2026

MillerKnoll's Q4 2024 results reveal a company navigating near-term turbulence with a disciplined focus on long-term resilience. Despite a 7.1% quarterly revenue decline, the firm's margin expansion, robust order backlog, and strategic investments in retail and product innovation position it to capitalize on improving market conditions once tariff-related headwinds ease. Here's why investors should view current volatility as a buying opportunity.

Margin Pressures: Temporary, Not Terminal

The company's Q4 earnings underscored the dual-edged impact of tariffs. While gross margins improved to 39.6% year-over-year—driven by price optimization and cost synergies—the CFO noted tariffs reduced pre-tax earnings by $9–$11 million in Q4 2025. These costs, combined with order pull-forward dynamics (a $55–$60 million Q4 sales boost from customers rushing to avoid price hikes), created near-term volatility. However, management expects tariff impacts to be fully offset by 2026 through list price increases and operational efficiencies.

Backlog Growth: A Leading Indicator of Future Strength

The company's sequential 6.9% improvement in consolidated order backlog in Q4 2024 is a critical signal. The Americas Contract segment, which had been a weak spot, saw orders jump 14.3% sequentially and 5.7% year-over-year, driven by showroom relocations and new product launches like the Cove Collection. International Contract orders stabilized in key markets like India and China, while Global Retail orders showed organic resilience. With trade show traffic (e.g., NeoCon) nearing pre-pandemic levels, demand visibility is improving.

Retail Expansion: Betting on Long-Term Returns

Despite Q4's 7.2% retail sales decline, MillerKnoll is doubling down on physical stores. Plans to open 10–15 new U.S. locations in 2025–2026—despite pre-opening costs—reflect confidence in the segment's mid-teens margin potential. The firm's densification strategy (reducing square footage while boosting product variety) and design services aim to reduce returns and enhance customer stickiness. Meanwhile, experiments like the San Francisco Design Within Reach studio (a hybrid contract/retail space) signal innovation in format testing.

Valuation: Discounted for a Reason—And an Opportunity

At a current P/E of ~12x (versus peers at ~18x), MillerKnoll's shares reflect investor skepticism around margin sustainability and macro uncertainty. Yet the firm's $553 million cash balance, disciplined capital allocation (e.g., $37 million in Q4 buybacks), and $160 million annualized cost synergies from the Knoll integration provide a cushion. With 2025 sales expected to exceed 2.5% growth over 2024 levels and 2026 margin normalization in sight, the stock could rebound sharply as tariff pressures fade.

Investment Thesis: Buy the Dip, Target 2026

MillerKnoll is a classic “value in volatility” play. Near-term challenges—tariff costs, order pull-forward dips, and retail headwinds—are priced into the stock. Meanwhile, its improving backlog, disciplined cost structure, and strategic retail bets create a clear path to outperforming peers once macro conditions stabilize. Investors should consider accumulating shares at current levels, with a target price of $30–$35 by mid-2026 (implying a 25–40% upside from recent $22 levels), as margin recovery and backlog conversion take hold.

In conclusion, MillerKnoll's balance of resilience and ambition makes it a compelling bet for those willing to look past short-term turbulence. The company's strategic moves today are laying the groundwork for a stronger 2026—a year when margin normalization and demand recovery could finally align.