Q1 2025 MillerKnoll Inc Earnings Call
Speaker Change: Ladies and gentlemen, good evening and welcome to Miller Knowles Quarterly earnings conference call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Chief Financial Officer, Jeff Fedett.
Operator: 's Quarterly earnings conference call. As a reminder, this call is being recorded.
Jeff Stutz: I would now like to introduce your host for today's conference, Chief Financial Officer Jeff Stutz. Good evening, and welcome to our first quarter of fiscal 2025 conference call. I'm joined today by Andy Owlent, our Chief Executive Officer. Also available during the Q&A session, are John Michael, President of the America's Contract segment, and Debbie Propst, President of our Global Retail segment.
Speaker Change: Good evening and welcome to our first quarter fiscal 2025 conference call. I'm joined today by Andy Owen, our chief executive officer.
Speaker Change: Also available during the Q&A session, our John Michael, President of the America's Contract segment and Debbie Proost, President of our Global Retail segment.
Jeff Stutz: Before I turn the call over to Andy, please remember our safe harbor regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors which are detailed in today's earnings press release. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements.
Speaker Change: Before I turn the call over to Andy, please remember our safe harbor regarding Ford-looking information.
Speaker Change: During the call management made its gut information that it's forward-looking and involves known and unknown risks, uncertainties and other factors which may cause the actual results to be different than those expressed or implied.
Speaker Change: Please evaluate the forward-looking information in the context of these factors which are detailed in today's earnings press release.
Speaker Change: The four-looking statements are as of today and we assume no obligation to update or supplement these statements. We may also refer to certain non-gap financial metrics which are reconciled and described in our press release that is posted on our investor relations website at millernol.com.
Jeff Stutz: We may also refer to certain non-GAAP financial metrics which are reconciled and described in our press release that is posted on our Investor Relations website at MillerKnoll.com.
Andrea Owen: With that, it is my pleasure to turn the call over to Andy. Thanks, Jas, and good evening, everyone. Thank you so much for joining us tonight.
Speaker Change: With that, it is my pleasure to turn the call over to Andy.
Andy Owen: Thanks Jeff and good evening everyone. Thank you so much for joining us tonight.
Andrea Owen: Before we get into our Q1 results, I wanted to take a moment to remember by Vougatch, but served as a research analyst covering our company for many, many years. And while we will miss the deep knowledge and insight that he brought to the contract industry, we will also miss the energy and enthusiasm that he brought to everything he did. Bud was a great man. Our deepest condolence has gone to his family.
Andy Owen: Before we get into our Q1 results, I wanted to take a moment to remember that I do get.
Speaker Change: But served as a research analyst covering our company for many, many years. And while we will miss a deep knowledge and insight that he brought to the contract industry, we will also miss the energy and enthusiasm that he brought to everything he did. But it was a great man.
Speaker Change: Our deepest condolences God has family.
Andrea Owen: And with that being said, Bud would probably say, "let's get back to earnings." MillerKnoll entered fiscal year 2025 with momentum. I'm happy to say that again, orders are up year-over-year and demand is improving. First quarter order growth was largely driven by the America's contract segment, or orders gained momentum throughout the quarter. Importantly, customers are placing large orders in the indicators that we discussed last quarter, such as project tunnel additions, customer mockup requests, and new contract activations continue to be up year-over-year, all of which underscore an improving demand picture. Orders also grew in our international and specialty segment, largely driven by Asia where we saw large orders from both global accounts and local technology companies.
Speaker Change: I'm about being said, but would probably say, let's get back to earnings.
Speaker Change: Millenol Interdifiscal Year 2025 with Momantum.
Speaker Change: I'm happy to say that, again, orders our up year over year, and demand is improving.
Speaker Change: First quarter order growth was largely driven by the America's contract segment or orders gain momentum throughout the quarter. Importantly, customers are placing large orders in the indicators that we discussed last quarter, such as project tunnel additions, customer vodka per class.
Speaker Change: A new contract activations continue to be up year over year, all of which underscore an improving demand picture.
Speaker Change: Orders also grew in our international and specialty segment, the large sugar band by Asia where we start large orders from both global accounts and local technology companies.
Andrea Owen: While this is encouraging, customers have also increased the time between their order entry and requested shipment times. This is pushed revenue into subsequent quarters, and we are carefully managing operating expenses to align with sales levels.
Speaker Change: While this is encouraging, customers have also increased the time between their order, entry, and requested shipment times.
Speaker Change: This is Tushtrovany with Disseptsequent Courters, and we are carefully mentioning operating expenses to align with sale levels.
Andrea Owen: Across the company where focused on growth, this quarter we launched several initiatives to support our contract business, meet our clients' evolving needs, and set a separate success as demand trends accelerate. Our insights team launched new research behind the importance of relationship-based work. It's part of our design with impact platform that helps customers read behind their workspace and create environment that support well-being, community, and productivity. We also bring our research to life within our own space. This quarter we introduced two new MillerKnoll flagship locations in London and New York that include both contract showrooms and retail stores, as well as working space for our associates.
Speaker Change: Across the company, we're focused on growth. This quarter, we launched several initiatives to support our contract business, meet our clients of all the needs, and set us up for success as demand trends accelerate.
Speaker Change: Our insights team launch new research behind the importance of relationship-based work. It's part of our design with impact platform that helps customers read the time they work space and create environments that support well-being, community and productivity.
Speaker Change: We also bring our research to life within our own space. This quarter, we introduced two new Miller-Nol's flagship locations in London and New York that includes both contract showrooms and retail stores, as well as working space for our associates.
Andrea Owen: MillerKnoll London is the first MillerKnoll destination outside of the United States and marks just one step we're taking to offer an enhanced experience to our customers across the United Kingdom and Europe. MillerKnoll, New York, is our largest flagship with 11 floors and 77,000 square feet. Located in the heart of the Grammarcy Design District, it features dedicated space for a gnome, Herman Miller, Guy Grady Twizer, Mahero, and Motel. We also continue to deliver unique solutions for our customers through our product selection, and the first quarter we launched dozens of new products across the collective and introduced new sustainable materials including a bamboo-based leather alternative, eelgrass, and biopure foam, all reinforcing our commitment to design a better world.
Speaker Change: Miller, London is the first Miller Mill Destination outside of the United States, and Mark's just one step we're taking to offer an enhanced experience to our customers across the United Kingdom and Europe.
Speaker Change: Miller, New York, is a largest flagship with 114 and 77,000 square feet.
Speaker Change: Located in the heart of the Grammarcy Design District, it features dedicated space for a long, Herman Miller, Guy Grady, Fyzer, Maharam, and Motel.
Speaker Change: We also continue to deliver unique solutions for our customers through a product selection. And the first quarter we launched dozens of new products across the collective, and introduced new sustainable materials including a bamboo-based, leather alternatives.
Speaker Change: You grasp and buy off your phone. All reinforcing our commitment to design a better world.
Andrea Owen: In addition, our work in healthcare design was recently recognized in Fast Company's Innovation by Design Awards. For a partnership on sensory seating with Jefferson House, Hanukman Central, and Philadelphia.
Speaker Change: In addition, our work in healthcare design was recently recognized in fast companies' innovation by design awards.
Speaker Change: For partnership on sensory seating with Jefferson Tows, on Equipment Center in Philadelphia.
Andrea Owen: Turning to our retail segment, we focus on capturing demand as summer is typically softer for the industry, as consumers shift more of their spend to travel. By capitalizing on the strong operational foundation that the team has built, we delivered orders faster and helped sales flap to last year in a difficult environment. At the same time, we continue to execute against our growth initiatives, including product assortment expansion, design services, and more targeted customer engagement throughout their purchase journey. In North America, we estimate that our retail business outperformed year-on-year retail industry comparisons by approximately six points during the order.
Speaker Change: Turning to our retail segment, we focus on capturing demand, as summer is typically softer for the industry as consumers shift more of their spend to travel.
Speaker Change: by Captain Leiving on the strong operational foundation that the team has built. We delivered orders faster and help sales flat to last year in a difficult environment.
Speaker Change: At the same time, we continue to execute against remote initiatives, including product-to-servant expansion, design services, and more targeting customer engagement throughout their purchase journey.
Speaker Change: and North America. We asked you a interview that our retail business outperformed, year on your retail industry comparison by approximately 6.3 in the order.
Andrea Owen: We are confident in the strong growth potential for our retail segment and optimistic that, in the near future, real estate and housing market rebounds will fuel demand. We've made designs in reach the destination to shop our brands in North America by offering a larger null assortment as well as hay and mootow. This strategy is gaining traction during the quarter, which are higher sales for these brands in North America. The enterprise between online and store experience is key. We know that many of our customers start online and then work with associates and stores utilizing their design services.
Speaker Change: We are confident in the strong risk potential for our retail segment and optimistic that in the near future real estate and housing market rebounds will fuel demand.
Speaker Change: We've made designs in reach the destination to shop our brands in North America by offering a larger, no-less sortment, as well as hey and mootel. This strategy is gaining traction during the quarter which are higher sales for these brands in North America.
Speaker Change: The answer to the slide between online and historic experience is key. We know that many of our customers start online, and then work with associates and stores utilizing their design services.
Andrea Owen: Our retail growth plans include store expansion within North America. Work is underway now to begin opening several new stores in the second half of fiscal year 2025, with plans for more stores in fiscal year 2026. Now that interest rates have dropped slightly, we anticipate that customers and trade partners will start placing the orders they've paused. We've invested marketing to capture their attention and to support the upcoming cyber and holiday season. We believe our first quarter financial results demonstrate the advantage provided by our collectives as brands, diverse business channels, and global footprint and have positioned us to see these opportunities as trends improve.
Speaker Change: Our retail growth plans include storage expansion within North America.
Speaker Change: Work is underway now to begin opening several new stores in the second half of his glier 2025. With plans for more stores in his glier 2022.
Speaker Change: Now that interest rates have dropped slightly, we anticipate that customers and trade partners will start placing the orders they've paused. We've invested marketing to capture their attention and to support the upcoming cyber and holiday season.
Speaker Change: We believe our first quarter financial results demonstrate the advantage provided by our collectives as brands, diverse business channels and global footprint, and have positioned us to see that opportunity since trends improve.
Andrea Owen: Across the company, we focus on growth and positioning ourselves for the future. Our most important asset is our team. And we continue to strengthen our associate experience. I'm pleased to share that Milanoel has been certified of the 2024 U.S. Great Place Tour. In addition, we added new talent to our Board of Directors. Following your retirement of two board members last year, we recruited and recently announced three new directors. We're excited to welcome John Mehta, Tina Edminson, and Jeannie Gay for being expertise in technology, architecture, design, and hospitality. Their dynamic perspectives will benefit our board and our management team, as we partner together to drive long-term success.
Speaker Change: Across the company, we focus on growth and positioning ourselves for the future. Our most important asset is our team. And we continue to strengthen our associated experience. I'm pleased to share that Melanol has been certified as a 2024 U.S. great place to work.
Speaker Change: In addition, we've added new talent to our Board of Directors.
Speaker Change: Following the retirement of two board members last year, we recruited and recently announced three new directors.
Speaker Change: We're excited to welcome John Meda, Tina Edmondson, and Gene E. Gay for being expertise in technology, architecture, design and hospitality.
Speaker Change: Their dynamic perspectives will benefit our board and our management team, as we partner together to drive long-term success.
Andrea Owen: With that, I'll close by saying I'm optimistic about the year ahead. Our hard work and focus are building momentum in our business.
Speaker Change: With that, I'll close by saying I'm optimistic about the year ahead. A hard work in focus or building momentum in our business. I'll turn it back to Jeff for a closer look at our financials.
Jeff Stutz: I'll turn it back to Jeff for a closer look at our financials.
Jeff Stutz: Thank you, Annie. I will start by providing an overview of our performance in the first quarter, followed by a few insights into our outlook and targets for both the second quarter and full fiscal year. As Annie mentioned, we are encouraged to see a continued improvement in demand trends across the contract elements of our business, consolidated orders of 936 million in the first quarter. We're up 2.4% year over year on a reported basis, and up 3.5% on an organic basis. This improved demand picture fueled an increase in our consolidated backlog, which ended the period at $758 million, up 9.2% from a year ago, and positive 10.9% from the start of fiscal 2025.
Jeff Fedett: Thank you, Annie.
Jeff Fedett: I will start by providing an overview of a performance in the first quarter followed by a few insights into our outlook and targets for both the second quarter and full fiscal year.
Jeff Fedett: As I mentioned, we are encouraged to see a continued improvement in demand trends across the contract elements of our business.
Jeff Fedett: Consolated orders of 936 million in the first quarter were up 2.4% year over year on a reported basis and up 3.5% on an organic basis.
Jeff Fedett: This improved demand picture fueled an increase in our consolidated backlog, which ended the period of $750-$58 million, up 9.2% from a year ago, and positive 10.9% from the start of fiscal 2025.
Jeff Stutz: Consolidated net sales for the first quarter were 862 million, reflecting a decrease of 6.1% year over year on a reported basis, and a decrease of 5.3% organically compared to the same period last year. It's important to point out that while order entry levels have improved, as Annie mentioned, the average time from order entry to customer requested ship date has increased relative to more normalized historic trends; this limited our ability to build and ship products within the quarter. Consequently, a higher percentage of orders remained in the backlog as a quarter end than we were expecting coming into the period.
Jeff Fedett: Consolidated net sales for the first quarter, where 862 million, reflecting a decrease of 6.1% year over year on a reported basis, and a decrease of 5.3% organically compared to the same period last year.
Jeff Fedett: It's important to point out that while order entry levels have improved, as Andy mentioned the average time from order entry to customer request and ship date has increased.
Speaker Change: Relative to more normalized historic trends, this limited our ability to build and ship products within the quarter.
Speaker Change: COTSA QUENTLY, a higher percentage of orders remain in the backlog as a porter end and we were expecting coming into the period.
Jeff Stutz: Our consolidated gross margin was 39%, which was essentially flat to the prior year. Incremental net pricing benefit, favorable product and channel mix, and improved shipping and logistic efficiencies all contributed to margin expansion compared to last year, but were offset by a loss of manufacturing leverage from lower production and sales levels. Turning to cash flows in the balance sheet, this quarter we generated $21 million in cash flow from operations. We repurchased approximately 1.5 million shares for a total cash outlay of approximately $44 million, and we ended the first quarter with a net debt to EBIT ratio, as defined by our lending agreement, of 2.84 turns.
Speaker Change: Our consolidated gross margin was 39%.
Speaker Change: which is essentially flat to the prior year.
Speaker Change: incremental net pricing benefit, favorable product and channel mix and improved shipping and logistics efficiencies, all contributed to margin expansion compared to last year, but were offset by a loss of manufacturing leverage from lower production and sales levels.
Speaker Change: Turning to cash flows in the balance sheet, this corner we generated 21 million dollars in cash flow from operations.
Speaker Change: We repurchased approximately 1.5 million shares for a total cash outlay of approximately $44 million. And we ended the first quarter with a net debt to EBITDA ratio and defined by our lending agreement of 2.84 turns.
Jeff Stutz: With that, I'll take a moment to summarize our first quarter performance by segment. Within our America contract segment, net sales for the quarter were $455 million, representing an organic decrease of 7% from the same quarter a year ago. New orders in the period total just under $513 million, which was up 5.7 million, 5.7% over last year organically, and sequentially up 6.8% from the prior quarter. During the first quarter, orders peaked in the month of August, and funnel additions, special pricing requests, and customer mockup activity all remained well ahead of the prior year, giving us increased confidence as we move through the second quarter.
Speaker Change: With that, I'll take a moment to summarize our first quarter performance by segment.
Speaker Change: Within our America's contract segment, net sales for the quarter were 455 million, representing an organic decrease of 7% from the same quarter a year ago.
Speaker Change: New Warders in the period total just under 513 million, which was up 5.7 million, 5.7% over last year organically and sequentially up 6.8% from the prior quarter.
Speaker Change: During the first quarter, orders peaked in the month of August, and funnel additions, special pricing requests, and customer mock-up activity all remain well ahead of the prior year, giving us increased confidence as we move through the second quarter.
Jeff Stutz: The operating margin for the America's contract segment in the quarter was 3.8%, compared to 8.4% in the prior year. On an adjusted basis, operating margin was 9.5% in the quarter, which is down 110 basis points compared to the same quarter last year as the results of the loss of volume leverage on fixed operating costs. Within the international contract and specialty segment, that sales in the first quarter of 214 million were down 6.5% on a reported basis and down 6.3% organically year over year. Orders during the quarter total 234 million, resulting in a year-over-year increase of 2.7% on a reported basis and up 3.1% organically, with Asia Pacific, the Middle East, and parts of continental Europe leading the segment in terms of growth.
Speaker Change: The operating version for the America's contract segment in the quarter was 3.8% compared to 8.4% in the prior year.
Speaker Change: On an adjusted basis, operating margin was 9.5% in the quarter, which is down 110 basis points compared to the same quarter last year as results of the loss of volume leverage on fixed operating costs.
Speaker Change: With an international contract and specialty segment, that sales in the first quarter of 214 billion, we're down 6.5% on a reported basis, and down 6.3% organically, year over year.
Speaker Change: Order is during the quarter total 234 million, resulting in a year-over-year increase of 2.7% on a reported basis, and up 3.1% organically, with Asia-Pacific, the Middle East, and parts of continental Europe leading the segment in terms of growth.
Jeff Stutz: Segment operating margins in the quarter total 4.4% compared to 5%. The operating margin for the quarter was 7.9%, which is up 140 basis points year over year, driven by benefits of past actions to reduce operating costs.
Speaker Change: segment operating margins in the quarter total 4.4% compared to 5% in the prior year. But on an adjusted basis operating margin for the quarter was 7.9% which is up 140 mAh, driven by benefits of past actions to reduce operating costs.
Jeff Stutz: Turning to our retail segment, we reported net sales in the quarter of 193 million. Relative to the same period last year, this represents a reported decrease of 2.8% that was essentially flat performance on an organic basis. New orders in the period of 189 million were down 4.7% last year on a reported basis and down 1.6% organically compared to last year. As we outlined in the earnings release, the retail team is driving operational improvements that are having a real near-term impact on margins and which set us up for growth and improved profitability as demand levels improve.
Speaker Change: Turning to our retail segment, we reported that sales in the quarter of a hundred and ninety-three million.
Speaker Change: Relative to the same period last year, this represents a reported decrease of 2.8% and was essentially flat performance on an organic basis.
Speaker Change: New Wars in the period of 189 million, we're down 4.7% last year out of a reported basis, and down 1.6% organically compared to last year.
Speaker Change: As we outline in the earnings release, the retail team is driving operational improvements that are having a real near-term impact on margins and which set us up for growth and improved profitability's demand levels improved.
Jeff Stutz: However, our first quarter results reflect a tepid demand environment for the retail furnishing space, anchored by elevated interest rates and sluggish housing data. Still, we are enthusiastic that we have the right team in place making the right set of forward investments in anticipation of improved market conditions. And in the meantime, we're encouraged by what our relative overperformance against the broader industry trends in North America suggests about our ability to gain more share in the future. The retail segment operating margin totaled 2.3% in the first quarter compared to 1.1% a year ago, and on an adjusted basis, operating margin for the quarter was 2.8%, which was 120 basis points higher than the prior year, driven by operational efficiencies.
Speaker Change: However, our first quarter results reflect a tepid demand environment for the retail furnishing space, anchored by elevated interest rates in sluggish housing data.
Speaker Change: Still, we aren't enthusiastic that we have the right team in place, making the right set of forward investments in anticipation of improved market conditions. And in the meantime, we're encouraged by what our relative overperformance against the broader industry trends in North America, to suggest about our ability to gain more share in the future.
Speaker Change: The retail segment operating margin total 2.3% in the first quarter compared to 1.1% a year ago.
Speaker Change: and on an adjusted basis operating margin for the quarter was 2.8% which was 120 basis points higher than the prior year driven by operational efficiencies.
Jeff Stutz: Now let's turn to our outlook and guidance for the upcoming period. We're maintaining our full-year adjusted earnings guidance of $2.20 per share, which equates to the midpoint of the range we provided in June. This is supported by the positive trends we're seeing in global contract demand, our increased backlog position, and expected macroeconomic improvements in the back half of this fiscal year. As it relates to the second quarter of fiscal 2025, we expect net sales to range between $950 million and $990 million. Adjusted deluded earnings in the second quarter are expected to range between $0.51 and $0.57 per share.
Speaker Change: Now let's turn to our outlook and guidance for the upcoming period.
Speaker Change: We're maintaining our full year adjusted earnings guidance of $2.20 per share, which equates to the midpoint of the range we provided in June.
Speaker Change: This is supported by the positive trends we're seeing in global contract demand, our increased backlog position, and expected macroeconomic improvements in the back half of this fiscal year.
Speaker Change: As it relates to the second quarter of fiscal 2025, we expect net sales to range between 950 million and 990 million dollars.
Speaker Change: adjusted deluded earnings in the second order expected to range between 51 cents and 57 cents per share.
Jeff Stutz: This guidance takes into consideration a shift in the holiday cyber promotional period for our retail business. Last year, the full promotional period fell in the second quarter, while this year it will be split between the second and third quarter.
Speaker Change: This guidance takes into consideration a shift in the holiday cyber promotional period for our retail business.
Speaker Change: Last year, the full promotional period fell in the second quarter, while this year it will be split between the second and third quarters.
Jeff Stutz: Burns. So relative to last year's revenue facing, we estimate this shift in timing will move between 17 million and 23 million dollars of revenue from the second quarter into the third quarter of this fiscal year. This is an important factor to consider when comparing quarterly sales and earnings estimates to our performance in last fiscal year.
Speaker Change: So relative to last year's revenue tasting, we estimate this shift in timing will move between 17 million and 23 million dollars of revenue from the second quarter into the third quarter of this fiscal year.
Speaker Change: This is an important factor to consider when comparing quarterly sales and earnings estimates to a performance in last fiscal year.
Operator: Okay, with that overview of the numbers, I'll turn the call over to the operator, and we'll take your questions. Thank you.
Speaker Change: Okay, with that overview of the numbers, now turn the call over to the operator and we'll take your questions.
Operator: And we'll now begin the question-and-answer session. If you've dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please stick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Thank you. And we'll now begin the question and answer session. If you've dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw your questions, simply press star 1 a second time.
Speaker Change: If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Gregory Burns: Again, it is star one to ask a question, and your first question comes from the line of Greg Burns with Sidoti. Your line is open.
Speaker Change: Again, you just start one to ask a question, and your first question comes from the line of Greg Burns with Sidote, your line is open.
Jeff Stutz: Good afternoon. Just a couple in terms of the guidance. So looking at the two queue guidance, it looks like the implied here is that operating margins are going to be down from a year ago. But you know, revenue, I think you're guiding to a little bit ahead of consensus.
Speaker Change: Gratuline.
Greg Burns: Just a couple in terms of the guidance so
Speaker Change: Looking at the two cue guidance, it looks like the implied here is that
Greg Burns: Operating margins are going to be down from a year ago, but you know, revenue, I think you're guiding to a little bit of head of consensus. I think it's some of the lag here with the order pacing, you know, should think some revenue out, but
Jeff Stutz: I think it's some of the lag here with the order pacing, you know, shifting some revenue out. But, you know, I just want to get a little bit more color on your view on margins for the second half. What's driving maybe the softer than what I was looking for, or maybe the street was looking for in terms of margins in the second quarter. Yeah, great. Good to be with you tonight. This is Jeff. I'll start a couple of couple thoughts for you. First of all, from a gross gross margin guidance perspective, we certainly expect, given the ramp up and order activity in the contract elements of our business, we're expecting to see improvements in labor and overhead efficiency and leverage.
Speaker Change: I just want to get a little bit more color on your view on margins for the second half, what's driving maybe the softer than what I was looking for, or maybe the street was looking for in terms of margin to the second quarter.
Speaker Change: Yeah, great. Good to be with you tonight. This is Jeff Austard, a couple of thoughts for you. First of all, from a gross, gross, and guidance perspective.
Speaker Change: We certainly expect, given the ramp up and order activity in the contract elements of our business, we're expecting to see improvements in labor and overhead efficiency and leverage. So that's factored into our guide.
Jeff Stutz: So that's factored into our guide. The flip side, though, is that that's being offset by a shift in business and product mix in the business. That's really keeping a lid on our gross margin performance as we move from queue one into queue two. So that's one factor. And that's just really the result of we're rotating a bit out of the higher margin, higher gross margin retail sales as we move into queue two, as well as some of the specialty brands. And then when you look from an op-ex perspective, that shift in cyber timing, cyber promotional timing that I mentioned, we have this kind of strange deal this quarter where we're front-loading some of the marketing spend that is going to support that, but we're not going to get all the revenue associated with it in the quarter.
Speaker Change: The flip side, though, is that's being offset by a shift in business and product mix. And that's really keeping a lid on our gross margin performance as we move from Q1 into Q2. So that's one factor, and that's just...
Speaker Change: The really the result of where we're rotating a bit out of the higher margin, higher gross margin, retail sales, as we move into Q2, as well as some of the specialty brands. And then when you look from an apex perspective that shift in cyber timing, cyber promotional timing that I mentioned.
Speaker Change: We have this kind of strange deal this quarter where we're front-end loading some of the marketing spend that is going to support that, but we're not going to get all the revenue associated with it in the quarter. So the combination of those two factors I think is what accounts for what you're pointing out.
Jeff Stutz: So the combination of those two factors, I think it is what accounts for what you're pointing out. I think that bulk of that really sits in the cyber shift more than anything else.
Speaker Change: I think that bulk of that really sits in the cyber shifts more than anything else.
Gregory Burns: Okay, great. Thanks for that color.
Debbie Propst: Then on the on the retail side. RH had, I guess, some think, in front of maybe positive commentary in terms of the man momentum. Are you seeing anything in the retail market that would give you any kind of positive outlook in terms of coming quarters, maybe demand picking up? Thanks for the question, Greg. This is Debbie. We're feeling optimistic about the look for retail, as it pertains to our demand trend. We think that half-point cut yesterday is really going to help stimulate a little bit more confidence in the consumer that we approach on a daily basis.
Speaker Change: Okay, great, thanks for that color, um, then um...
Speaker Change: on the retail side.
Speaker Change: I guess I think right on the maybe positive commentary in terms of the man momentum, are you seeing anything in the retail market that would give you any kind of positive outlook in terms of coming quarters, maybe demand picking up.
Speaker Change: Thanks for the question, Greg. This is Debbie. We're feeling optimistic about the look for retail as a bit of a detergent. We think that half-point cut yesterday is really going to help stimulate a little bit more confidence.
Speaker Change: and the consumer that we approach on a daily basis.
Debbie Propst: We believe that the marketing economics that we saw in Q1 are evident in the fact that our order trend will improve. So our orders in Q1 and from an organic perspective were done 1.6. Our marketing spend was done a little bit, and so we like the relationship between those two as we move into Q2, and then we're seasonally suitable time for us to be spending and advertising. We'll be reintroducing more traditional awareness campaigns to take advantage of that cyber timing. So we're really pleased with our outlook in terms of where we think this business will trend.
Speaker Change: We believe that the marketing economics that we saw in Q1
Speaker Change: are evidence in the fact that our order trend will improve, so our order is into one from an organic perspective, we're then 1.6.
Speaker Change: Our marketing spend was done at 11, and so we like the relationship between those two as we move into Q2 and have more seasonally suitable time for us to be spending and advertising. We'll be reintroducing more traditional awareness campaigns to take advantage of that cyber timings.
Speaker Change: and so we're really pleased with our outlook in terms of where we think this business will trend. And then at the end of the year, so there's a housing market, we'll listen up, and then the consumer confidence should start to rebound.
Debbie Propst: And then that the indicators are there that the housing market will listen up and then the consumer confidence should start to re-bend.
Alex Fuhrman: And your next question comes from the line of Alex Furman with Craig Halem Capital Group. Your line is open. Hey guys, thanks a lot for taking my question. You know, it was curious why you're starting to see customers asking for delivery further away from the order date. You know, is that something you see as an ongoing trend that could potentially cause revenue to lag order growth over the next couple of quarters or years? Or is that really more of a one-time thing that's impacting this year? I'm doing a hit that.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Alex Ferman with Craig Howlem Capital Group. Your line is open.
Speaker Change: Thanks a lot for taking my question. It was curious why you're starting to see customers asking for delivery further away from the order date. Is that something you see as an ongoing trend that could potentially cause revenue to lag order growth over the next couple quarters or years or is that really more of a one-time thing to impact this year?
John Michael: Sure, I'd be happy to take that. Thanks Alex, this is John. I think there's a couple factors. Number one, we've seen a lot more, or a significant increase in larger projects in the last quarter. I think if you look at projects, we had over $5 million; it was up over 40% for the quarter. And those projects typically are a little more complex because of their size and just by the very nature, have longer lead times and cycles. So I think that's part of it. The other thing I would say is I think our clients are becoming accustomed to just taking longer to get their construction projects done.
Speaker Change: Do you want to take that? Sure, I'd be happy to take that. Thanks Alex, this is John. I think there's a couple factors. Number one, we've seen a lot more or a significant increase in larger projects in the last quarter.
John: I think if you look at projects we had over $5 million, it was up over 40% for the quarter and those projects typically are a little more complex because of their size and just by the very nature have longer lead times and cycles. So I think that's part of it. The other thing I would say is...
John: I think our clients are becoming accustomed to just taking longer to get their construction projects done. So they're moving a little faster, they're trying to get orders in a bit earlier to make sure that their delivery times are met.
John Michael: So they're moving a little faster. They're trying to get orders in a bit earlier to make sure that their delivery times are met.
Jeff Stutz: Yeah, Alex, this is Jeff. I might just tag on just to give a little perspective on trends over time. All of what John just described is certainly true for the Americas. The larger project size, as I would say, is also being seen in the international contract part of our business, and it's driving the same phenomena. And this isn't necessarily new. It's just kind of ongoing. And I think it's a little more extended this quarter than we have been seeing. But if you go back in time, we'd be typically pre-COVID. Our backlog tended to account for somewhere between seven to eight weeks of revenue.
John: Now this is Jeff, I might just take on just to give a little perspective on trends over time.
Speaker Change: All of what John just described is certainly true for the America, the larger project size, as I would say, is also being seen in the international contract part of our business and it's driving the same phenomenon. And this isn't necessarily new, it's just kind of ongoing and I think it's a little more extended this quarter than we have been seeing. But if you go back in time, we typically pre-COVID our backlog tended to account for somewhere.
Speaker Change: between the seven to eight weeks.
Jeff Stutz: And since COVID, during pre-COVID or just after COVID, it's spiked way up. And then, since then, it's kind of settled down into the 10 to 12-week range. And there's been hovering. So it's certainly not a new trend. I suspect it's just changing customer behavior, as John just described. And we'll see where it goes from here. And I think just to add on to that one more data point, Alex, with this quarter, we saw our orders weighted heavily more in July and August. And so, as you saw that trend spike throughout the quarter, we just produced less in the quarter.
Speaker Change: of Revenue, and since COVID, during pre-code or just after COVID, it spiked way up and then since then, it's kind of settled down into the 10-12-week range, and there's been hovering, so it's certainly not a new trend.
Speaker Change: and I suspect it's just changing a customer behavior as John is described and we'll see where it goes from here.
Speaker Change: And I think just to add on to that one more data point, Alex, with this quarter, we saw our orders we had heavily more in July and August, and so, as you saw that trend spike throughout the quarter, we just produced less in the quarter. So, it's sort of a collaboration of all of those things.
Alex Fuhrman: So it was sort of a conglomeration of all of those things. Okay, that's really helpful. Thank you all for that detail.
Alex Ferman: Okay, that's really helpful. Thank you all for that detail and then here nice to see order growth from North America contract.
John Michael: And then, dear, nice to see Order Growth for North America contract leading the Order Growth for you this quarter. Curious if there's any particular industry groups that have been driving that, you know, is nice to see a headline this week about Amazon having their employees back in the office five days a week next year. Curious if you're, if you're seeing more, you know, companies kind of going down that room driving more, more large project. I think certainly most of the conversations we're having with clients, the majority are looking for ways to continue to get people back in the office.
Speaker Change: Leading the ordered roast for you.
Speaker Change: This quarter, curious that there's any particular industry groups that have been driving that. It was nice to see a headline this week about Amazon having their employees back in the office five days a week. Next, you're curious if you're seeing more companies kind of going down that room and driving more large projects.
Speaker Change: I think certainly most of the conversations we're having with clients, the majority are looking for ways to continue to get people back in the office. They understand the power of connection and culture and well-being.
John Michael: They understand the power of connection and culture and well-being and all that goes with being together, being together in the space. I think we've seen a lot of really good activity in financial services, banking, pharma, pharma, public sector healthcare. Excuse me, those segments you would expect to do well and have been doing well. We've actually seen some uptick in the technology sector. In fact, our Northern California region was one of the strongest performing regions in this past quarter. So pretty widespread in terms of, in terms of where the business is coming from.
Speaker Change: and all that goes with being together, being together in the space.
Speaker Change: I think we've seen a lot of really good activity in financial services.
Speaker Change: Banking Farmer, Public Spectre Healthcare, excuse me, those segments you would expect to do well and have been doing well.
Speaker Change: We've actually seen some up-tick in the technology sector. In fact, our Northern California region was one of the strongest performing regions in this past quarter. So pretty widespread in terms of where the business is coming from.
Jeff Stutz: And, and, and Alex, this is Jeff. I might tag on to that and say we're super encouraged to see that activity pick up in the Americas, but I'd also point out we had to order growth for the International and Specialty segment. And what's really encouraging about that is we're beginning to see larger projects break loose, which is encouraging. We're, we're building client relationships with the Noel brand, particularly in the legal and business services sector in Europe, which is great. We're growing our regional account. These are accounts that are headquartered in, in the apnea region and, and seeing some large project opportunities break loose there.
Speaker Change: and Alex, this is Jeff, I might tag on to that and say we're super encouraged to see that activity pick up in the Americas, but I'd also point out we had ordered growth for the international and specialty segment and what's really encouraging about that is we're beginning to see larger projects break loose, which is encouraging. We're building client relationships with a null brand, particularly in the legal and business services sector in Europe, which is great. We're growing our regional account, these are accounts that are headquartered in the apnea region and seeing some large project opportunities break loose there and also some key technology sector wins in India.
Jeff Stutz: And also some, some key technology sector wins in India, as well as healthcare in the Middle East. So there's a number of, of sectors internationally that we're, that we're seeing some real positive momentum. Okay, that's, that's really helpful.
Speaker Change: as well as healthcare in the middle east. So there's a number of sectors internationally that we're seeing some real positive momentum.
Ruben Gardner: Thank you all very much.
Alex Ferman: Okay, that's really helpful. Thank you all very much.
Jeff Stutz: And your next question comes from the line of Ruben Gardner with the Benchmark Company. Your line is open. Thank you. Good morning, everybody. Good evening, good evening, everybody. Excuse me. I guess to start on the margin side, seems that things have kind of leveled off here as your business is kind of stabilizing. I wanted to kind of look longer term at where you think things can go. I think you've been kind of in the 38 and a half, the 39 and a half range, the last five or six quarters now. I'm curious where you think that that can go longer term.
Speaker Change: And your next question comes from the line of Rubin Gardner with the benchmark company, your line is open.
Rubin Gardner: Thank you, good morning everybody. Good evening everybody. Excuse me. I guess to start on the margin side, seems that things have kind of leveled off here as your business is kind of stabilizing. I wanted to kind of look longer term at where you think.
Rubin Gardner: Things can go. I think you've been kind of in the 38 and a half, 39 and a half range, but that's five or six quarters now. Carrie's where you think that that can go longer term and, you know, how much volume is kind of, or how much that is dependent on volume versus maybe things that you have within your control still.
Jeff Stutz: And, you know, how much volume is kind of, or how much that is dependent on volume versus maybe think that you have within your control still. Yeah, Ruben, this is Jeff.
Jeff Stutz: I'll, I'll, I'll share with a similar comment as I did last quarter, which is, you know, I think you're right that we're, we're at a point where we think we're seeing gross margins across the group somewhat stabilized. But for a given level of volume, I think the next leg up for us is, as we see economic conditions improve, we have a real opportunity to leverage overhead costs across our manufacturing footprint globally, as well as in the retail business across the SG&A costs in that business. That's going to be what our next opportunity is. I mean, there's some pricing, incremental pricing of benefit, but we're kind of returned to what are more normalized annual pricing increases.
Rubin Gardner: Good evening, this is Jeff. I'll share with a similar comment as I did last quarter, which is
Speaker Change: I think you're right that we're at a point where we think we're seeing gross margins across the group. Someone stabilized, but for a given level of volume, I think the next leg up for us is we see economic conditions improve. We have a real opportunity to leverage overhead costs across.
Speaker Change: are manufacturing footprint globally.
Speaker Change: as well as in the retail business across the SG&A cost and that business. That's going to be what our next opportunity is. I mean, there's some price, the incremental pricing benefit, but we're kind of returned to what our more normalized annual pricing increases.
Jeff Stutz: So, the next leg up is in leverage, and we expect to see that as we move into the back half of the year. I won't, I won't quantify for you a gross margin estimate for the back half, but we do have expectations that will be up from current levels.
Speaker Change: So the next leg up is in leverage and we expect to see that as we move into the back cap of the year. I won't quantify for you a gross margin estimate for the back cap, but we do have expectations that will be up from current levels.
John Michael: And I would say long-term too, Ruben, just to add, everything Jeff said as well. As we are long-term growth plans for retail start to kick in, obviously that business is at a higher margin, so we'll see that start to flow through and continue to stabilize. And I'll set as these larger projects that come in that tend to be a little bit lower margins. I think that will be a helpful balance in the future.
Speaker Change: and I would say long-term to your room and just to add it, I, everything just said as well. As we are long-term growth plans for retail start to kick in, obviously that business set a higher margin, so we'll see that start to flow through and continue to stabilize. And I'll set as these larger projects that come in that tend to be in a little bit lower margins. I think that will be a helpful balance in the future.
Jeff Stutz: Jeff, you mentioned that the full year guidance, I think you said it's contemplated in like an improving macro backdrop in the second half of the year. I was wondering if you could elaborate on that. Is that across all of your businesses that kind of geared more towards maybe retail and the impact that race can have there just any color would be helpful? I think it's geared towards all of our businesses, Reuben. I think it's certainly think there's a level of certainty with what happened yesterday with the Fed in the US. I think the indicators that we've seen in the business are coming to fruition.
Speaker Change: and then Jeff, you mentioned that the full year guide, I think you said it contemplated and improving.
Speaker Change: Macro backdrop in the second half of the year. I was wondering if you could elaborate on that, is that across all of your businesses that kind of geared more towards maybe retail and the impact that race can have there just any color would be helpful.
Speaker Change: I think it's geared towards all of our businesses, really, but I certainly think there's a level of certainty with what happened yesterday with the Fed in the U.S., I think the indicators that we've seen in the business are coming to your fruition, I think we've been talking to you guys about these indicators for two or three quarters now and we're starting to see consistent orders above last year. I certainly think as it comes to mortgage rates and the resale market starting to open up in the U.S., that will boost the retail business. I think we've been looking at some people sitting on the sidelines that we think we'll start to come and play and move. So I think it will benefit the entire business, but the indicators for us.
Jeff Stutz: I think we've been talking to you guys about these indicators for two or three quarters now, and we're starting to see consistent orders above last year. I certainly think as it comes to mortgage rates and the retail market starting to opening up open up in the US that will buoy the retail business. I think we've had some people sitting on the sidelines that we think will start to come and play and move. So I think it will benefit the entire business. But the indicators for us continue to be moving in a very consistent fashion forward.
Ruben Gardner: Great, thank you, and good luck on through the end of the year. Thank you, Reuben.
Speaker Change: Great, thank you and good luck on the end of the year.
Raven: Thank you, Raven.
Brian Gordon: And your next question comes from the line of Brian Gordon with Water Tower Research. Your line is open. Hey, good afternoon, everyone. Last quarter, you guys noted that the worked integrate Noel and some of the other brands into the international dealer network in particular was continuing. And I was just hoping you could give us an update on where you are with this process and maybe what is left to do there?
Speaker Change: And your next question comes from the line of Brian Gordon with Water Tower Research. Your line is open.
Brian Gordon: Hey, good afternoon everyone. Last quarter you guys noted that the work can integrate Nolan some of the other brands into the International Dealer Network in particular was continuing. And I was just hoping you give us an update on where you are with this process and maybe what does left to do there.
Jeff Stutz: Hey, Brian, good to talk to you. This is Jeff. Yeah, quick update on that. As of the end of Q1, we have integrated the Miller Noel combined dealer network across 60, about 60% of the international network. And the intent and goal is to, by end of this fiscal year, be through the entire network. So progress continues. They're making good strides. And as I said in my earlier comment mentioned, we're starting to see some real opportunities with the Noel brand through that combined network. That's great. That's good to hear.
Brian Gordon: Hey Brian, good to talk to you. This is Jeff. Yeah, um...
Jeff: Quick update on that. As of the end of Q1, we have integrated the millernole combined dealer network across 60, about 60% of the international network. The intent and goal is to fight by end of this fiscal year, be through the entire network.
Speaker Change: So, progress continues, they're making good strides and as I said in my earlier comment mentioned, we're starting to see some real opportunities with the Noel brand through that to my network.
Andrea Owen: The second question, maybe a bit of a bigger picture kind of question. Just kind of wondering what you guys have been hearing from your customers and your dealers about back to work in hybrid trends and maybe where the expectation is the market is going to settle on this. And then the follow-up to that would be how you guys are feeling about your product portfolio for hybrid and collaboration and those kinds of things. That's a great question. You know, I think we're hearing a lot less about the return to office laundry and a lot more about people making decisions to be together versus apart and to support limited hybrid in many occasions.
Speaker Change: That's great. That's good to hear. A second question, kind of maybe a bit of a bigger picture kind of question. I'm just kind of wondering what you guys have been hearing from your customers and your dealers about back to work in hybrid trends and maybe where the expectation is the market is going to settle on this.
Speaker Change: and then the follow-up to that would be how you guys are feeling about, you know, your product portfolio for, you know, hybrid and collaboration and those kinds of things.
Speaker Change: This is a great question, you know, I think we're hearing a lot less about
Speaker Change: The return to office, laundry, and a lot more about people making decisions to be together versus a part and to support limited hybrid in many occasions. So I think the Amazon announcement was great news to us, but I think it has become less of an issue and more of a push too.
John Michael: So I think the Amazon announcement was great news to us, but I think it has become less of an issue and more of a push to being together more frequently. And John, I'm sure you would add something from that from the US as far as what you're hearing from customers and dealers. Very similar Andy in terms of everyone really realizing the benefit of being back, being back, being together in the office. And I think the second part of the question, we feel really good about the product portfolio and all the brands in the collective. And our ability to meet the changing needs of the workplace right as this whole post-COVID work environment continues to evolve.
Speaker Change: being together more frequently and John, I'm sure you would add something from that from the US as far as what you're hearing from customers in the US. It's very similar and in terms of...
John: Everyone really realizing the benefit of being back, being back, being together and in office, and I think the second part of the question we feel really good about the product portfolio.
Speaker Change: and all the brands in the collective and in our ability to meet the changing needs.
Speaker Change: of the workplace, as this whole post-COVID work environment continues to evolve.
Andrea Owen: I think one of the rich things about the last few years was our research and insights team has been able to study some very complex problems. And I think we've been able to use many of those insights to really help innovation and develop our product development and feel really strongly about that. Great. Thank you very much for the additional detail.
Speaker Change: I think one of the rich things about the last few years was our research and insights team is being able to study some very complex problems and I think we've been able to use many of those insights to really help innovation and develop our product to determine and thoroughly strongly about that.
Speaker Change: Great, thank you very much for the additional detail.
Andrea Owen: Thank you, and there are no further questions, so I will now turn the floor back to President and CEO Andy Owen for any closing remarks. Thanks again, everyone, for joining us on the call, and we appreciate your continued support at MillerKnoll. We are looking forward to updating you on our next quarterly call.
Speaker Change: Thank you.
Speaker Change: and there are no further questions so I will now turn the floor back to President and CEO Andy Owen for any closing remarks.
Andy Owen: Thanks again everyone for joining us on the call and we appreciate your continued support and Miller Knowl and we're looking forward to updating you on our next quarterly call. Have a lovely evening.
Andrea Owen: Have a lovely evening, and ladies and gentlemen, this concludes today's call, and we thank you for your participation.
Operator: You may now disconnect.
Operator: Please wait; the conference will begin shortly.
