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Furniture maker MillerKnoll (MLKN -12%) topples over today after delivering a few discouraging numbers in Q1 (Aug), including a top and bottom-line miss and mixed Q2 (Nov) guidance. As interest rates fall following a 50 bp cut from the Federal Reserve on Wednesday, investors anticipate that companies operating in highly discretionary fields, like MLKN, will benefit. As such, while the market may have been willing to shrug off downbeat Q1 results, it does not accept near-term earnings guidance falling short of expectations. Meanwhile, shares of MLKN held up relatively well despite its counterpart Steelcase (SCS) registering a lukewarm AugQ report and issuing bearish NovQ revenue guidance earlier this week. The amalgamation of these factors set MLKN up for a steep pullback, with shares sinking to 2024 lows.

• In Q1, adjusted EPS inched a penny lower yr/yr to $0.36, falling short of consensus for the first time since 2021. Revenue remained stuck in reverse for the seventh straight quarter, dropping by 6.1% yr/yr to $861.5 mln.
• Driving MLKN's top-line miss was a similar problem SCS encountered. The average time from order entry to customer-requested ship date is widening. As we mentioned in our analysis on SCS yesterday, delays are not as troubling as cancellations. However, they inject increased uncertainty. Delays limit MLKN's ability to build and ship products within the quarter, causing a higher percentage of orders to remain in its backlog.
• On a positive note, new orders climbed by 2.4% yr/yr to $935.9 mln. In MLKN's largest Americas Contract segment, new orders climbed 5.2% higher, gaining momentum throughout the quarter, with August touting the highest levels. International Contract and Specialty new orders enjoyed a 2.7% bump higher. Global Retail lagged, with new orders sliding by 4.7%, reflecting particular weakness across the housing market.
  • MLKN's retail operations are a key differentiator compared to its rivals, and this may have been why the market was not too quick to push the stock lower yesterday despite SCS's concerning guidance. The reason is that the Fed's 50 bp cut is expected to lift the housing market, eventually spurring increased order trends.
• Nevertheless, due to timing issues, MLKN's guidance was mixed. The company expects adjusted EPS of $0.51-0.57 in Q2, missing analyst expectations. However, MLKN guided to $950-990 mln in sales next quarter, nicely exceeding consensus. Margins are an underlying factor in the uneven outlook. MLKN commented that a shift in the business and product mix offsets labor and overhead efficiency improvements, keeping a lid on margin performance moving into Q2.
  • However, MLKN left its FY25 (May) adjusted EPS outlook of $2.20 unchanged, pointing to uplifting trends in global contract demand alongside an anticipated boost from lower interest rates.

There were bright spots from Q1, primarily revolving around an easing monetary policy. Also, as more companies ask workers to return to the office, MLKN stands to benefit significantly. However, customers requesting delayed delivery, which has a lagging effect on revenue, is producing nervousness among investors today. HNI (HNI) could encounter a similar development when it reports SepQ results next month.