MillerKnoll's Tariff Truce: A Clear Path to Furniture Sector Leadership?

The U.S. furniture industry has spent years navigating a labyrinth of tariffs, trade wars, and supply chain disruptions. Now, as a temporary truce with China lowers punitive duties and strategic pricing adjustments take hold, MillerKnoll (MLKN) stands at a pivotal moment—one that could redefine its trajectory in a post-tariff era. For investors, the question is clear: Is this a fleeting reprieve or the dawn of a sustainable rebound?

The Tariff Landscape: A Delicate Balance

The furniture sector has long been a casualty of U.S. trade policy. As of June 2025, the 90-day suspension of China's 145% tariff—reducing it to 30%—provides critical breathing room. Meanwhile, the looming 50% EU tariff threat and ongoing 10% baseline tariffs on most imports create a volatile backdrop. For MillerKnoll, which sources 17–19% of its goods from overseas, these shifts are existential.

The ripple effects of tariffs have been severe. In fiscal 2025, MillerKnoll reported a net loss of $36.9 million, with an eye-popping 257.6% effective tax rate in Q4 due to tariff-related charges. Yet, adjusted earnings per share (EPS) of $0.60—excluding one-time tariff impacts—hint at underlying resilience. The company's ability to offset costs through a 4.5% price increase in June 2025 underscores its pricing power in a sector where differentiation matters.

The Rebound Play: Mitigation, Margins, and Momentum

MillerKnoll's strategy hinges on three pillars: price discipline, supply chain agility, and retail expansion. The June price hike, while framed as a response to tariffs, also addresses rising steel costs and inflation—a dual-pronged approach that positions the company to outpace competitors. CFO Jeff Stutz's guidance suggests these measures will fully offset tariff impacts by late 2026, a timeline investors should monitor closely.

The company's Q2 2025 results revealed early signs of progress. Despite a 6.5% dip in international orders due to macroeconomic headwinds, North American contract sales rose 5.9%, driven by price-driven demand and a “pull-forward” effect from customers stockpiling ahead of surcharges. Meanwhile, the opening of four new stores—including a Chicago flagship combining Herman Miller and Knoll—signals a bet on premium retail experiences, a move that could command higher margins in a commoditized market.

Growth Catalysts: Beyond the Tariff Cloud

The real opportunity lies in MillerKnoll's ability to capitalize on structural shifts in the industry. Vietnam's rise as a furniture hub—its U.S. exports nearly doubling since 2018—provides a lower-cost alternative to China. By diversifying sourcing and leveraging its brand equity in high-margin segments (e.g., office and luxury residential furniture), MillerKnoll could insulate itself from future tariff shocks.

The company's 2026 outlook also includes a two-quarter recovery window, with tariff-related earnings drag narrowing to $5–7 million by Q4 2025. If realized, this would free up cash flow for initiatives like digital tools for interior designers or partnerships with commercial real estate firms—a smart play in a post-pandemic era where hybrid workspaces dominate.

Risks on the Horizon

No rebound is without pitfalls. The China tariff truce expires in August 2025, and a return to 145% duties would erase all progress. Additionally, global steel prices—already up 15% year-to-date—could squeeze margins further. Rival Steelcase, which faces similar tariff-related costs, has seen its stock underperform, a reminder of industry-wide fragility.

The Investment Case: A Buy on Dip or Wait for Clarity?

MillerKnoll's shares trade at 13.2x trailing 12-month adjusted EPS, a discount to its five-year average of 16x. While valuation is reasonable, investors must weigh near-term risks against long-term potential. The stock's 20% decline since early 2024 reflects tariff fears, creating a buying opportunity if the truce holds and price hikes stick.

Recommendation:
- Buy: For investors with a 12–18 month horizon, MillerKnoll offers asymmetric upside if its mitigation strategies succeed and tariffs stabilize.
- Hold: For shorter-term investors, wait until Q4 2025 results confirm margin recovery.
- Avoid: If trade tensions escalate, the stock could underperform until 2027.

Final Thoughts

MillerKnoll's journey through the tariff storm is far from over, but its proactive measures—pricing power, retail expansion, and supply chain diversification—suggest it's better positioned than peers to capitalize on post-tariff calm. In an industry where cost discipline and design leadership are paramount, this could be the start of a long-overdue comeback.

For now, the truce is a lifeline—but the furniture sector's next chapter will be written by those who turn temporary respite into lasting advantage.