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MillerKnoll (MLKN) has been weak since reporting Q2 (Nov) earnings last week. This report, along with weak results from peer Steelcase (SCS), have dampened our hopes of a near term recovery in the office furniture space. There has been a push by employers to get workers back into the office, but these reports signal that the near term outlook appears cloudy.

• MillerKnoll reported upside results for Q2. Revenue rose just 2.2% yr/yr to $970.4 mln, but that was better than expected. The main problem was pretty large downside adjusted EPS guidance for Q3 (Feb) although the revenue outlook was in-line. MLKN also lowered FY25 adjusted EPS guidance to $2.11-2.17. While orders are trending nicely ahead of last year, MLKN said they have recovered at a slower pace than expected at this point in the year.
• On the positive side, new product launches are performing above expectations and MLKN is seeing a very positive response to its promotions. Its Americas Contract segment continues to be a key growth driver with Q2 sales up 6.2% yr/yr organically to $504 mln. While new AC segment orders of $457 mln were lower than expected, they were up 4.9% on an organic basis. Order growth trends improved as the quarter progressed.
• Within the International and Specialty segment, sales grew 2.1% to $246 mln. MLKN continues to see strong order growth in the Middle East and parts of Asia. MLKN is seeing excitement build for its brands internationally. It recently opened its MillerKnoll flagship in London and it opened a new fulfillment center in Belgium. Turning to its Retail segment, sales declined 5.3% and -4% on an organic basis to $220 mln.
• MLKN also said it's paying very close attention to tariff proposals. It noted that it has managed through similar tariff policy changes in the past and is looking to mitigate if needed. This could include identifying alternative sources of supply, options for advanced purchasing and possible future price adjustments. On the other hand, the possible extension of the 2017 tax cuts could have a positive impact and in particular the reinstatement of bonus depreciation.

Q2 marked the second consecutive quarter where the stock has gapped lower on earnings. MillerKnoll concedes that macroeconomic improvement is progressing more slowly than expected, however, it is encouraged by many trends and is building momentum for 2HFY25. With that said, rates have been creeping back up in recent weeks, that could be a headwind heading into calendar 2025. It is likely just a matter of time before this industry turns around but it will take some time.