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Performance was driven by disciplined execution and the strength of the North American Contract segment as a revenue generation engine, despite adverse weather and global uncertainty.
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North American contract growth is supported by improving benchmarks in Class A leasing trends and office returns, with order growth across all industry sectors.
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The Global Retail segment achieved comparable sales growth of 5.5% through four strategic levers: store expansion, product variety, e-commerce, and brand awareness.
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The performance of the International Contract depends on the regional sequence where the strength of markets such as India, China, and the UK mitigates the softness of others.
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Management maintains a competitive advantage with the MillerKnoll Performance Program (MKPS), a 30-year partnership with Toyota that ensures manufacturing efficiency and quality.
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The Company has been able to effectively offset tax costs through the informed navigation of policy changes and expects to continue this reduction for the remainder of the financial year.
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Q4 guidance includes an estimated $8 to $9 million from the Middle East war, primarily due to shipping disruptions and higher shipping costs.
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The company plans to open 14 to 15 new stores in fiscal year 2026, implementing a long-term strategy to double the DWR and Herman Miller store space.
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Management expects to ship only a modest amount of approximately $12 million in Middle East-related orders in the fourth quarter due to continued regional instability.
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The strategic investment in the creation of new products for the workplace and healthcare is timed for the upcoming Design Day trade show in early June.
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Capital allocation priorities remain focused on reducing the total debt to EBITDA ratio to a target range of 2.0x to 2.5x while maintaining equity commitments.
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Bad weather in January resulted in store closures and reduced store traffic, which accounted for a large portion of the top line miss compared to internal guidance.
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The Middle East conflict is expected to affect Q4 EPS by $0.09 to $0.10, driven by both lost sales and petroleum-related input costs.
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Sales margins were depressed by last year’s lack of inventory turnover and targeted promotional actions used to offset weather-related traffic declines.
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Management is monitoring potential cost increases in plastics and foam due to oil market volatility, although no immediate pivots are needed.
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Management noted that while they have not seen a rise in commodity prices so far, they expect a potential increase in fuel-related products such as plastics and foam.
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Surcharges are considered a ‘tool in the toolbox’ to adjust for rapid cost changes, although Retail allows for faster price fluctuations than the Contract segment.
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The tech sector is still very active, especially in the Bay Area and Austin, with AI-driven growth outpacing layoffs in other small tech sectors.
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Federal government business is expected to be ‘difficult’ as funding is diverted to international disputes, although long-term infrastructure projects continue.
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Adjusting for last year’s ‘pull forward’ orders caused by price hike announcements, underlying order growth is estimated at around 2% year-on-year.
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The International and Trade segments show growth in the first weeks of the current quarter despite the noise of increased demand driven by the surcharge.
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