Q3 2026 MillerKnoll Inc Earnings Call

March 25, 2026

Speaker #2: Please go ahead. Good evening, and welcome to our third quarter fiscal 2026 conference call. On with me are Andy Owen, Chief Executive Officer, and Kevin Veltman, Chief Financial Officer.

Wendy Watson: Good evening, and welcome to our Q3 fiscal 2026 conference call. With me are Andi Owen, Chief Executive Officer, and Kevin Veltman, Chief Financial Officer. Joining them for the Q&A session are John Michael, President of North America Contract, and Debbie Propst, President of Global Retail. We issued our earnings press release for the quarter ended 28 February 2026 after market close today, and it is available on our investor relations website at millerknoll.com. A replay of this call will be available on our website within 24 hours. Before I turn the call over to Andi, please remember our safe harbor disclosure 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.

Speaker #2: Joining them for the Q&A session are John Michael, President of North America Contract, and Debbie Probst, President of Global Retail. We issued our earnings press release for the quarter ended February 28, 2026, after market closed today.

Speaker #2: And it is available on our investor relations website at millernoll.com. A replay of this call will be available on our website within 24 hours.

Speaker #2: Before I turn the call over to Andy, please remember our safe harbor disclosure regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks and uncertainties and other factors which may cause the actual results to be different than those expressed or implied.

Speaker #2: Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release. The forward-looking statements are made as of today's date and, except as may be required by law, we assume no obligation to update or supplement these statements.

Wendy Watson: Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release. The forward-looking statements are made as of today's date, and except as may be required by law, we assume no obligation to update or supplement these statements. We also refer to certain non-GAAP financial metrics, and our press release includes the relevant non-GAAP reconciliations. With that, I'll turn the call over to Andi.

Speaker #2: We also refer to certain non-GAAP financial metrics, and our press release includes the relevant non-GAAP reconciliations. With that, I'll turn the call over to Andy.

Speaker #3: Thanks, Wendy. Good evening, everyone, and thank you for joining us. I want to begin our call by expressing my appreciation to our 10,000 associates across the globe for their hard work in delivering our third-quarter results.

Andrea Owen: Thanks, Wendy. Good evening, everyone, and thank you for joining us. I want to begin our call by expressing my appreciation to our 10,000 associates across the globe for their hard work in delivering our Q3 results. Our team's dedication and focus on our strategy to drive long-term value delivered another solid quarter with continued sales and order growth, and disciplined execution. Despite ongoing macroeconomic and geopolitical uncertainty, as well as the impact of severe weather during the quarter, we were able to deliver quarterly results within our expectations, and we continue to be optimistic about the impact that our strategic initiatives can deliver. Before I move to segment-specific highlights from the quarter, I want to congratulate the operations team on the 30th anniversary of MKPS, our MillerKnoll Performance System used across our manufacturing footprint.

Andi Owen: Thanks, Wendy. Good evening, everyone, and thank you for joining us. I want to begin our call by expressing my appreciation to our 10,000 associates across the globe for their hard work in delivering our Q3 results. Our team's dedication and focus on our strategy to drive long-term value delivered another solid quarter with continued sales and order growth, and disciplined execution. Despite ongoing macroeconomic and geopolitical uncertainty, as well as the impact of severe weather during the quarter, we were able to deliver quarterly results within our expectations, and we continue to be optimistic about the impact that our strategic initiatives can deliver. Before I move to segment-specific highlights from the quarter, I want to congratulate the operations team on the 30th anniversary of MKPS, our MillerKnoll Performance System used across our manufacturing footprint.

Speaker #3: Our team's dedication and focus on our strategy to drive long-term value delivered another solid quarter with continued sales and order growth and discipline execution.

Speaker #3: Despite ongoing macroeconomic and geopolitical uncertainty, as well as the impact of severe weather during the quarter, we were able to deliver quarterly results within our expectations, and we continue to be optimistic about the impact that our strategic initiatives can deliver.

Speaker #3: Before I move to segment-specific highlights from the quarter, I want to congratulate the operations team on the 30th anniversary of MKPS, our MillerKnoll Performance System used across our manufacturing footprint.

Speaker #3: We have successfully worked with Toyota for 30 years and remain a model for efficient and reliable production. MKPS is a significant competitive advantage for MILLERKNOLL and enables us to produce all of our products efficiently and at the highest quality.

Andrea Owen: We have successfully worked with Toyota for 30 years and remain a model for efficient and reliable production. MKPS is a significant competitive advantage for MillerKnoll and enables us to produce all of our products efficiently and at the highest quality. Let's move to the current macro environment. From a tariff perspective, we don't expect the most recent developments to result in any meaningful changes to our approach, and we expect to continue to fully offset tariff costs for the remainder of this fiscal year as we did in Q3. Recognizing that things can develop quickly, however, we are very experienced in navigating tariff changes and continue to monitor both policy and rates closely. With respect to the Middle East, this region remains an important long-term growth opportunity for our International Contract business.

Andi Owen: We have successfully worked with Toyota for 30 years and remain a model for efficient and reliable production. MKPS is a significant competitive advantage for MillerKnoll and enables us to produce all of our products efficiently and at the highest quality. Let's move to the current macro environment. From a tariff perspective, we don't expect the most recent developments to result in any meaningful changes to our approach, and we expect to continue to fully offset tariff costs for the remainder of this fiscal year as we did in Q3. Recognizing that things can develop quickly, however, we are very experienced in navigating tariff changes and continue to monitor both policy and rates closely. With respect to the Middle East, this region remains an important long-term growth opportunity for our International Contract business.

Speaker #3: So let's move to the current macro environment. From a tariff perspective, we don't expect the most recent developments to result in any meaningful changes to our approach and we expect to continue to fully offset tariff costs for the remainder of this fiscal year as we did in the third quarter.

Speaker #3: Recognizing that things can develop quickly, however, we are very experienced in navigating tariff changes and continue to monitor both policy and rates closely. With respect to the Middle East, this region remains an important long-term growth opportunity for our international contract business.

Speaker #3: In the near term, the current conflict is creating disruption. And we do expect some impact to fourth quarter sales and costs. Kevin will provide additional detail on this later in the call.

Andrea Owen: In the near term, the current conflict is creating disruption, and we do expect some impact to Q4 sales and costs. Kevin will provide additional detail on this later in the call. Moving to some highlights and trends in our segments. In North America Contract, the power of this business as a cash generation engine was on display this quarter with gross margin and operating income strength building as sales continued to grow year over year. Industry benchmarks continue to show improving trends in Class A leasing, net lease absorption, and return to office. When looking at dynamics by industry sector, we saw order growth in most sectors and are pleased with the resiliency of demand as our customers continue to invest in their spaces and earn commute.

Andi Owen: In the near term, the current conflict is creating disruption, and we do expect some impact to Q4 sales and costs. Kevin will provide additional detail on this later in the call. Moving to some highlights and trends in our segments. In North America Contract, the power of this business as a cash generation engine was on display this quarter with gross margin and operating income strength building as sales continued to grow year over year. Industry benchmarks continue to show improving trends in Class A leasing, net lease absorption, and return to office. When looking at dynamics by industry sector, we saw order growth in most sectors and are pleased with the resiliency of demand as our customers continue to invest in their spaces and earn commute.

Speaker #3: Moving to some highlights and trends in our segments. In North America Contract, the power of this business as a cash generation engine was on display this quarter with gross margin and operating income strength building as sales continued to grow year over year.

Speaker #3: Industry benchmarks continue to show improving trends in Class A leasing, net lease absorption, and return to office. When looking at dynamics by industry sector, we saw order growth in most sectors and are pleased with the resiliency of demand as our customers continue to invest in their spaces and earn commute.

Speaker #3: With Design Days, our largest industry trade show coming up in early June, we are looking forward to showcasing launches for the workspace and healthcare, from Herman Miller, Knoll, Geiger, naughtone, HAY, Muuto, and Maharam.

Andrea Owen: With Design Day as our largest industry trade show coming up in early June, we are looking forward to showcasing launches for the workspace and healthcare from Herman Miller, Knoll, Geiger, NaughtOne, HAY, Muuto, and Maharam. Our marketing, product, insights, and North America Contract teams are in full preparation mode, and we are looking forward to welcoming our customers and our dealers to Fulton Market. In International Contract, we're advantaged with the most desired product portfolio and continue to be bullish about our ongoing opportunities in faster-growing, under-penetrated markets, as well as expanding our dealer share wallet across these markets while generating enviable margins. As we've discussed in previous calls, another strength in our international business is our diverse regional footprint and localized production, where strong performance in certain regions can mitigate softness in others.

Andi Owen: With Design Day as our largest industry trade show coming up in early June, we are looking forward to showcasing launches for the workspace and healthcare from Herman Miller, Knoll, Geiger, NaughtOne, HAY, Muuto, and Maharam. Our marketing, product, insights, and North America Contract teams are in full preparation mode, and we are looking forward to welcoming our customers and our dealers to Fulton Market. In International Contract, we're advantaged with the most desired product portfolio and continue to be bullish about our ongoing opportunities in faster-growing, under-penetrated markets, as well as expanding our dealer share wallet across these markets while generating enviable margins. As we've discussed in previous calls, another strength in our international business is our diverse regional footprint and localized production, where strong performance in certain regions can mitigate softness in others.

Speaker #3: Our marketing, product, insights, and North America contract teams are in full preparation mode and we are looking forward to welcoming our customers and our dealers to Fulton Market.

Speaker #3: In international contract, we're advantaged with the most desired product portfolio and continue to be bullish about our ongoing opportunities in faster-growing, under-penetrated markets as well as expanding our dealership wallet across these markets while generating enviable margins.

Speaker #3: As you've discussed in previous calls and other strength of our international business is our diverse regional footprint and localized production. We're strong performance in certain regions can mitigate softness in others.

Speaker #3: With these varied regional dynamics, we can sometimes see quarter-over-quarter choppiness, and our team is both deliberate and nimble on where and how to target growth.

Andrea Owen: With these varied regional dynamics, we can sometimes see quarter-over-quarter choppiness, and our team is both deliberate and nimble on where and how to target growth. In particular this quarter, we saw sales strength in India, China, Japan, Southern Europe, Germany, and the UK. In Global Retail, we continue to grow and take market share in the approximately $150 billion global premium home furnishings market. In Q3, segment comparable sales increased 5.5%, and in the North America region, we had comparable sales growth of 3.9%. Our comp sales include both sales through e-commerce as well as stores that have been open for 13 months. While adverse weather conditions across North America during the quarter resulted in lower traffic than normal as well as store closures, we were pleased to deliver a comparable sales growth despite these headwinds.

Andi Owen: With these varied regional dynamics, we can sometimes see quarter-over-quarter choppiness, and our team is both deliberate and nimble on where and how to target growth. In particular this quarter, we saw sales strength in India, China, Japan, Southern Europe, Germany, and the UK. In Global Retail, we continue to grow and take market share in the approximately $150 billion global premium home furnishings market. In Q3, segment comparable sales increased 5.5%, and in the North America region, we had comparable sales growth of 3.9%. Our comp sales include both sales through e-commerce as well as stores that have been open for 13 months. While adverse weather conditions across North America during the quarter resulted in lower traffic than normal as well as store closures, we were pleased to deliver a comparable sales growth despite these headwinds.

Speaker #3: In particular, this quarter, we saw sales strength in India, China, Japan, Southern Europe, Germany, and the UK. In global retail, we continue to grow and take market share in the approximately $150 billion global premium home furnishings market.

Speaker #3: In the third quarter, segment comparable sales increased 5.5%, and in the North America region, we had comparable sales growth of 3.9%. Our comp sales include both sales through e-commerce as well as stores that have been open for 13 months.

Speaker #3: While adverse weather conditions across North America during the quarter, resulted in lower traffic than normal, as well as store closures, we were pleased to deliver a comparable sales growth despite these headwinds.

Speaker #3: We continue to expand our store footprint in the third quarter, opening new DWR locations in Fort Worth, Texas, and Pittsburgh, Pennsylvania, and a Herman Miller store in Phoenix, Arizona.

Andrea Owen: We continued to expand our store footprint in Q3, opening new DWR locations in Fort Worth, Texas, and Pittsburgh, Pennsylvania, and a Herman Miller store in Phoenix, Arizona. We plan to open 3 to 4 more locations before the end of fiscal 2026, ending the year with 14 to 15 new stores in the US, executing on our strategy to approximately double our DWR and Herman Miller store footprint over the next several years. As a reminder, our North American retail growth is being driven by 4 strategic levers. New store openings, expanded product assortment, e-commerce acceleration, and increased brand awareness. During the quarter, we executed several high-impact brand campaigns designed to attract new customers and drive store traffic across our Design Within Reach and Herman Miller banners.

Andi Owen: We continued to expand our store footprint in Q3, opening new DWR locations in Fort Worth, Texas, and Pittsburgh, Pennsylvania, and a Herman Miller store in Phoenix, Arizona. We plan to open 3 to 4 more locations before the end of fiscal 2026, ending the year with 14 to 15 new stores in the US, executing on our strategy to approximately double our DWR and Herman Miller store footprint over the next several years. As a reminder, our North American retail growth is being driven by 4 strategic levers. New store openings, expanded product assortment, e-commerce acceleration, and increased brand awareness. During the quarter, we executed several high-impact brand campaigns designed to attract new customers and drive store traffic across our Design Within Reach and Herman Miller banners.

Speaker #3: We plan to open three to four more locations before the end of fiscal 2026, ending the year with 14 to 15 new stores in the US, executing on our strategy to approximately double our DWR, Herman Miller store footprint over the next several years.

Speaker #3: As a reminder, our North American retail growth is being driven by four strategic levers: new store openings, expanded product assortment, e-commerce acceleration, and increased brand awareness.

Speaker #3: During the quarter, we executed several high-impact brand campaigns designed to attract new customers and drive store traffic across our design within reach and Herman Miller banners.

Speaker #3: We launched our very first Herman Miller seating campaign with engaging video and targeted marketing in key regions around the world. During Modernism Week in Palm Springs, where our recently opened DWR store continues to perform well, we held an exhibition of modern seating from the MillerKnoll archives in partnership with the Palm Springs Art Museum, connecting us more deeply with the Palm Springs community and reinforcing our leadership in modern design.

Andrea Owen: We launched our very first Herman Miller seating campaign with engaging video and targeted marketing in key regions around the world. During Modernism Week in Palm Springs, where our recently opened DWR store continues to perform well, we held an exhibition of modern seating from the MillerKnoll Archives in partnership with the Palm Springs Art Museum, connecting us more deeply with the Palm Springs community and reinforcing our leadership in modern design. Just in the past few weeks, DWR unveiled a collaboration with Tracee Ellis Ross. Our designers worked directly with Tracee to transform her Pattern Beauty offices. The collaboration was covered in Vanity Fair, Forbes, Essence, and House Beautiful, and has generated more than 200 million media impressions. In summary, I'm proud of our solid performance in Q3 and continue to be optimistic about both our contract and retail businesses.

Andi Owen: We launched our very first Herman Miller seating campaign with engaging video and targeted marketing in key regions around the world. During Modernism Week in Palm Springs, where our recently opened DWR store continues to perform well, we held an exhibition of modern seating from the MillerKnoll Archives in partnership with the Palm Springs Art Museum, connecting us more deeply with the Palm Springs community and reinforcing our leadership in modern design. Just in the past few weeks, DWR unveiled a collaboration with Tracee Ellis Ross. Our designers worked directly with Tracee to transform her Pattern Beauty offices. The collaboration was covered in Vanity Fair, Forbes, Essence, and House Beautiful, and has generated more than 200 million media impressions. In summary, I'm proud of our solid performance in Q3 and continue to be optimistic about both our contract and retail businesses.

Speaker #3: And just in the past few weeks, DWR unveiled a collaboration with Tracee Ellis Ross. Our designers worked directly with Tracee to transform her Pattern Beauty offices.

Speaker #3: The collaboration was covered in Vanity Fair, Forbes, Essence, and House Beautiful, and has generated more than 200 million media impressions. In summary, I'm proud of our solid performance in the third quarter and continue to be optimistic about both our contract and retail businesses.

Speaker #3: Regardless of the macroeconomic and geopolitical landscapes, our team will continue to execute on our targeted initiatives, new product launches, and growing retail footprint. As Kevin will discuss, we made meaningful progress strengthening our balance sheet during the quarter, and we remain well positioned for profitable growth.

Andrea Owen: Regardless of the macroeconomic and geopolitical landscapes, our team will continue to execute on our targeted initiatives, new product launches, and growing retail footprint. As Kevin will discuss, we made meaningful progress strengthening our balance sheet during the quarter, and we remain well positioned for profitable growth. We are focused on creating long-term value across our powerful collective of brands through our balanced strategy of sustained revenue growth, margin expansion, cash generation, and shareholder returns. Finally, I want to welcome Claire Spofford to our board of directors. Claire most recently served as President and Chief Executive Officer of J.Crew, and she brings a powerful combination of consumer insight, retail strategy, and governance experience that will enhance our board as we continue to grow our global collective of brands and drive long-term value creation.

Andi Owen: Regardless of the macroeconomic and geopolitical landscapes, our team will continue to execute on our targeted initiatives, new product launches, and growing retail footprint. As Kevin will discuss, we made meaningful progress strengthening our balance sheet during the quarter, and we remain well positioned for profitable growth. We are focused on creating long-term value across our powerful collective of brands through our balanced strategy of sustained revenue growth, margin expansion, cash generation, and shareholder returns. Finally, I want to welcome Claire Spofford to our board of directors. Claire most recently served as President and Chief Executive Officer of J.Crew, and she brings a powerful combination of consumer insight, retail strategy, and governance experience that will enhance our board as we continue to grow our global collective of brands and drive long-term value creation.

Speaker #3: We are focused on creating long-term value across our powerful collective of brands through our balanced strategy of sustained revenue growth, margin expansion, cash generation, and shareholder returns.

Speaker #3: Finally, I want to welcome Claire Spofford to our board of directors. Claire most recently served as president and chief executive officer of Jejo, and she brings a powerful combination of consumer insight, retail strategy, and governance experience that will enhance our board as we continue to grow our global collective of brands and drive long-term value creation.

Speaker #3: With that, Kevin will discuss our financial results in more detail and share our outlook for the fiscal fourth quarter.

Andrea Owen: With that, Kevin will discuss our financial results in more detail and share our outlook for the fiscal Q4.

Andi Owen: With that, Kevin will discuss our financial results in more detail and share our outlook for the fiscal Q4.

Speaker #2: Thanks, Andy, and good evening, everyone. I will begin with a summary of our third quarter results and then discuss our outlook. In the third quarter, we generated adjusted earnings per share of $0.43, compared to $0.44 in the same quarter last year.

Kevin Veltman: Thanks, Andi, and good evening, everyone. I will begin with a summary of our Q3 results and then discuss our outlook. In the Q3, we generated adjusted earnings per share of $0.43 compared to $0.44 in the same quarter last year. Consolidated net sales for the quarter were $927 million, up 5.8% year-over-year on a reported basis and 3.8% higher organically. Orders for the quarter grew to $932 million, up 9.2% as reported and 7.2% higher on an organic basis, driven by growth in our North America Contract and Global Retail segments. Our consolidated backlog was $712 million at quarter end, up 3.7% from a year ago.

Speaker #2: Consolidated net sales for the quarter were $927 million, up 5.8% year over year on a reported basis and 3.8% higher organically. Orders for the quarter grew to $932 million, up 9.2% as reported and 7.2% higher on an organic basis, driven by growth in our North America Contract and Global Retail segments.

Speaker #2: Our consolidated backlog was $712 million at quarter end, up 3.7% from a year ago. Third quarter consolidated gross margin increased 20 basis points to 38.1%, driven by gross margin strength in our North America Contract segment.

Kevin Veltman: Q3 consolidated gross margin increased 20 basis points to 38.1%, driven by gross margin strength in our North America Contract segment. Turning to cash flows in the balance sheet. We generated $61 million in cash flow from operations in the quarter and reduced our debt by $41 million, lowering our debt to EBITDA ratio to 2.75 times as defined by our lending agreement. This moved us meaningfully towards our midterm goal of a net debt to EBITDA ratio in the range of 2 to 2.5 times. We also finished Q3 with $594 million in liquidity. In January, our board of directors declared a quarterly cash dividend of $0.1875 per share. The dividend is payable on 15 April 2026 to shareholders of record on 28 February 2026.

Speaker #2: Turning to cash flows in the balance sheet, we generated $61 million in cash flow from operations in the quarter and reduced our debt by $41 million, lowering our debt to EBITDA ratio to 2.75 times as defined by our lending agreement.

Speaker #2: This moved us meaningfully towards our midterm goal of a net debt to EBITDA ratio in the range of 2 to 2.5 times.

Speaker #2: We also finished the third quarter with $594 million in liquidity. In January, our board of directors declared a quarterly cash dividend of 18.75 cents per share.

Speaker #2: The dividend is payable on April 15 to shareholders of record on February 28, 2026. At an annual indicated dividend of $0.75 per share, the yield is 3.9% based on yesterday's closing stock price.

Kevin Veltman: At an annual indicated dividend of $0.75 per share, the yield is 3.9% based on yesterday's closing stock price. Our capital allocation priorities continue to balance our investments in growth with improving our debt to EBITDA ratio, retaining our commitment to our dividend, and maintaining a strong balance sheet. With that, I will move to the Q3 performance by segment. Net sales in the North America Contract segment were $489 million, up 4.4% on a reported basis and 4.1% higher organically. Orders increased to $491 million, up 13.1% on a reported basis and up 12.8% organically from prior year.

Speaker #2: Our capital allocation priorities continue to balance our investments in growth with improving our debt-to-EBITDA ratio, retaining our commitment to our dividend, and maintaining a strong balance sheet.

Speaker #2: With that, I will move to the third quarter performance by segment. Net sales in the North America contract segment were $489 million, up 4.4% on a reported basis and 4.1% higher organically.

Speaker #2: Orders increased to $491 million, up 13.1% on a reported basis and up 12.8% organically from the prior year. Operating margin was 8.6%, and adjusted operating margin was a strong 9.8%, up 70 basis points year over year, primarily from gross margin expansion driven by leverage on higher sales and operating efficiency.

Kevin Veltman: Operating margin was 8.6%, and adjusted operating margin was a strong 9.8%, up 70 basis points year over year, primarily from gross margin expansion driven by leverage on higher sales and operating efficiency. International Contract segment's net sales were $157 million, up 7.8% on a reported basis and up 1.9% organically. Orders were $160 million, up 0.7% versus prior year on a reported basis, and down 4.3% organically, driven primarily by lower orders in Latin America and the Middle East, partially offset by strength in Asia Pacific.

Speaker #2: International Contract segment net sales were $157 million, up 7.8% on a reported basis and up 1.9% organically. Orders were $160 million, up 0.7% versus the prior year on a reported basis and down 4.3% organically, driven primarily by lower orders in Latin America and the Middle East, partially offset by strength in Asia Pacific.

Speaker #2: Third quarter reported operating margin was 7.7%, with adjusted operating margin of 8.2%, down 110 basis points compared to the prior year, primarily related to regional and product sales mix in the quarter, as well as foreign currency impact.

Kevin Veltman: Q3 reported operating margin was 7.7%, with adjusted operating margin of 8.2%, down 110 basis points compared to prior year, primarily related to regional and product sales mix in the quarter, as well as foreign currency impact. In the Global Retail segment, net sales were $281 million, up 7.1% on a reported basis and up 4.4% organically. Orders improved to $280 million, up 7.9% year over year on a reported basis, and up 5.1% on an organic basis. Operating margin was 2.2% in the quarter.

Speaker #2: In the global retail segment, net sales were $281 million, up 7.1% on a reported basis and up 4.4% organically. Orders improved to $280 million, up 7.9% year over year on a reported basis and up 5.1% on an organic basis.

Speaker #2: Operating margin was 2.2% in the quarter. On an adjusted basis, operating margin was 2.8%, down 340 basis points year over year, primarily due to a freight benefit in the prior year, targeted promotional actions to offset adverse weather in the quarter, and the impact from opening new stores.

Kevin Veltman: On an adjusted basis, operating margin was 2.8%, down 340 basis points year over year, primarily due to a freight benefit in the prior year, targeted promotional actions to offset adverse weather in the quarter, and the impact from opening new stores. As Andi mentioned, we opened 3 new stores in Q3. We expect to open 3 to 4 additional stores in Q4 and anticipate opening a total of 14 to 15 new stores in the full fiscal year. Turning to our Q4 guidance, this outlook incorporates our current best estimates for items that we believe will impact our Q4 sales and earnings from the conflict in the Middle East.

Speaker #2: As Andy mentioned, we opened three new stores in the third quarter. We expect to open three to four additional stores in the fourth quarter and anticipate opening a total of 14 to 15 new stores in the full fiscal year.

Speaker #2: Turning to our Q4 guidance, this outlook incorporates our current best estimates for items that we believe will impact our fourth quarter sales and earnings from the conflict in the Middle East.

Speaker #2: In the fourth quarter, we expect net sales to range between $955 million and $995 million, up 1.4% versus prior year at the midpoint of $975 million.

Kevin Veltman: In Q4, we expect net sales to range between $955 million and $995 million, up 1.4% versus prior year at the midpoint of $975 million. This includes an expectation that we will ship only a minimal amount of approximately $12 million in Middle East related orders in Q4. Gross margin is projected to be between 37.5% and 38.5% and includes higher expected logistics costs from higher oil prices related to the conflict in the Middle East. Adjusted operating expense is expected to range between $311.5 million and $321.5 million, higher year-over-year, primarily due to increased compensation, variable selling expense, new store costs, and the impact of foreign exchange.

Speaker #2: This includes an expectation that we will ship only a minimal amount of approximately $12 million in Middle East related orders in the fourth quarter.

Speaker #2: Gross margin is projected to be between 37.5% and 38.5%, and includes higher expected logistics costs from higher oil prices related to the conflict in the Middle East.

Speaker #2: Adjusted operating expense is expected to range between $311.5 million to $321.5 million, higher year over year primarily due to increased compensation, variable selling expense, new store costs, and the impact of foreign exchange.

Speaker #2: Adjusted diluted earnings are expected to range between $0.49 and $0.55 per share. This includes our current estimate that the direct impact of the Middle East conflict will be $8 million to $9 million in the quarter, or $0.09 to $0.10 per share.

Kevin Veltman: Adjusted diluted earnings are expected to range between 49 cents and 55 cents per share. This includes our current estimate that the direct impact of the Middle East conflict will be $8 million to $9 million in the quarter, or 9 to 10 cents per share. Included in our expectations for operating expense and EPS are approximately $3.5 million to $4.5 million in incremental year over year operating expense for new store locations in Global Retail. These investments are aligned with our strategy to expand our retail footprint and drive long-term profitable growth. For further details related to our outlook, please refer to our press release. With that overview, I'll turn the call over to the operator. As always, we welcome your questions and look forward to discussing our progress, outlook, and strategic priorities.

Speaker #2: Included in our expectations for operating expense and EPS are approximately 3 and a half million to 4 and a half million in incremental year over year operating expense for new store locations and global retail.

Speaker #2: These investments are aligned with our strategy to expand our retail footprint and drive long-term profitable growth. For further details related to our outlook, please refer to our press release.

Speaker #2: With that overview, I'll turn the call over to the operator. As always, we welcome your questions and look forward to discussing our progress, outlook, and strategic priorities.

Speaker #1: Jordan?

Andrea Owen: Jordan?

Andi Owen: Jordan?

Speaker #3: If you would like to ask a question at this time, your first question comes from Doug Lane from Water Tower Research. Your line is live.

Operator: If you would like to ask a question at this time. Your first question comes from Doug Lane from Water Tower Research. Your line is live.

Speaker #4: Yes, hi. Good evening, everybody. Just want to clarify, or maybe you could put some color on how the snowstorms and ice storms and all that weather we had earlier in the year impacted your business—maybe the contract versus the retail.

Doug Lane: Yes. Hi. Good evening, everybody. Just wanna clarify, or maybe you could put some color on how the snowstorms and ice storms and all that weather we had earlier in the year impacted your business. Maybe, you know, do the contract versus the retail.

Speaker #1: Yeah, Doug, let me give you kind of a high-level—this is Andy, by the way. We definitely saw lower traffic than normal across our retail stores.

Andrea Owen: Yeah, Doug, let me give you a kind of a high level. This is Andi, by the way. You know, we definitely saw lower traffic than normal across our retail stores. We had quite a few closures during that frigid weather period. We had several plants that were also closed during that frigid weather period. For us, we would say that the impact ranged. Kevin, you would probably give a yeah. When we look at relative to our guidance, would obviously did not incorporate the severe weather. Most of it was in our retail business, which was when we look at where our miss was relative to guide on the top line, a little under half of it was related to our North America retail business.

Andi Owen: Yeah, Doug, let me give you a kind of a high level. This is Andi, by the way. You know, we definitely saw lower traffic than normal across our retail stores. We had quite a few closures during that frigid weather period. We had several plants that were also closed during that frigid weather period. For us, we would say that the impact ranged. Kevin, you would probably give a

Speaker #1: We had quite a few closures during that frigid weather period. We had several plants that were also closed during that frigid weather period. So for us, we would say that the impact ranged. Kevin, you would probably give a...

Speaker #5: Yeah, when we look at it relative to our guidance, it obviously did not incorporate the severe weather. Most of it was in our retail business, which was, when we look at where our miss was relative to guide on the top line, a little under half of it was related to our North America retail business.

Kevin Veltman: yeah. When we look at relative to our guidance, would obviously did not incorporate the severe weather. Most of it was in our retail business, which was when we look at where our miss was relative to guide on the top line, a little under half of it was related to our North America retail business.

Speaker #1: And I would say, just from a contract perspective, when you look at order patterns in the quarter, we certainly saw a slowdown in showroom visits and visits to kind of our corporate headquarters during that month of January.

Andrea Owen: I would say just from a contract perspective, when you look at order patterns in the quarter, we certainly saw a slowdown in showroom visits and visits to kind of our corporate headquarters during that month of January. The order patterns reflected that weather trend a little bit, but primarily in retail is where we saw the biggest impact, Doug.

Andi Owen: I would say just from a contract perspective, when you look at order patterns in the quarter, we certainly saw a slowdown in showroom visits and visits to kind of our corporate headquarters during that month of January. The order patterns reflected that weather trend a little bit, but primarily in retail is where we saw the biggest impact, Doug.

Speaker #1: So the order patterns reflected that weather trend a little bit. But primarily in retail is where we saw the biggest impact, Doug.

Speaker #4: Okay, that makes sense. And then, I get that it's a volatile situation in the Middle East, and I can see the demand being impacted.

Doug Lane: Okay. That makes sense. You know, I get that it's a volatile situation in the Middle East, and there's, you know, I can see the demand being impacted. That's pretty obvious. I'm wondering, throughout the P&L, where else you're seeing potential cost pressures. Have you seen any movement on, you know, plastics or aluminum or some of these, you know, commodities that go through that part of the world? Has it begun to be impacted yet? I know it'll take a while to work through your inventories, but what are you seeing and what are you doing about the potential for elevated costs coming through?

Speaker #4: That's pretty obvious. But I'm wondering, throughout the P&L, where else you're seeing potential cost pressures? Have you seen any movement on plastics or aluminum, or some of these commodities that go through that part of the world?

Speaker #4: Has it begun to be impacted yet? I know it'll take a while to work through your inventories, but what are you seeing, and what are you doing about the potential for elevated costs coming through?

Speaker #1: Yeah, we're looking at a variety of things, Doug. Obviously, we haven't seen much except for an increase in diesel and things that are really impacting oil-related fuel so far.

Andrea Owen: Yeah. You know, we're looking at a variety of things, Doug. Obviously, you know, we haven't seen much except for increase in diesel and things that are really impacting oil-related fuel so far. We anticipate we'll see increase in cost of plastics, foam, all the things where you see petroleum-related products. We haven't seen it yet. This was a really hard quarter to take a look at because the situation is obviously very chaotic and moving every day. What we've tried to layer into this guide is what we know today, which is higher oil costs, potentially higher logistics costs, shipping containers. We've really looked at that across all of our businesses, as well as our inability to ship orders we have directly into the Middle East.

Andi Owen: Yeah. You know, we're looking at a variety of things, Doug. Obviously, you know, we haven't seen much except for increase in diesel and things that are really impacting oil-related fuel so far. We anticipate we'll see increase in cost of plastics, foam, all the things where you see petroleum-related products. We haven't seen it yet. This was a really hard quarter to take a look at because the situation is obviously very chaotic and moving every day. What we've tried to layer into this guide is what we know today, which is higher oil costs, potentially higher logistics costs, shipping containers. We've really looked at that across all of our businesses, as well as our inability to ship orders we have directly into the Middle East.

Speaker #1: But we anticipate we'll see an increase in the cost of plastics, foam, all the things where you see petroleum-related products. We haven't seen it yet.

Speaker #1: This was a really hard quarter to take a look at, because the situation is obviously very chaotic and moving every day. So, what we've tried to layer into this guide is what we know today.

Speaker #1: Which is higher oil costs, potentially higher logistics costs, shipping containers, and we’ve really looked at that across all of our businesses, as well as our inability to ship orders we have directly into the Middle East.

Speaker #1: As we've done in the past with tariffs and the kind of changing environment around tariffs, we'll watch the situation closely. And we'll continue to react as we can with pricing and surcharges as needed, as we see other situations continue to develop.

Andrea Owen: As we've done in the past with tariffs and the kind of changing environment around tariffs, we'll watch the situation closely, and we'll continue to react as we can with pricing and surcharges as needed, as we see other situations continue to develop. We're looking at it, every day and scenario planning as the situation changes. Kevin, what would you add?

Andi Owen: As we've done in the past with tariffs and the kind of changing environment around tariffs, we'll watch the situation closely, and we'll continue to react as we can with pricing and surcharges as needed, as we see other situations continue to develop. We're looking at it, every day and scenario planning as the situation changes. Kevin, what would you add?

Speaker #1: But we're looking at it every day in scenario planning as the situation changes. Kevin, what would you add?

Speaker #5: You covered it very well.

Kevin Veltman: You covered it very well.

Kevin Veltman: You covered it very well.Okay.

Speaker #1: Okay.

Speaker #4: Are you starting to build inventories just out of precaution, or is it just too early to make any of those judgments?

Andrea Owen: Okay.

Doug Lane: Are you starting to build inventories just out of precaution, or is it just too early to make any of those judgments?

Andrea Owen: You know, we're looking. We have dual supply in a variety of places for most of our really important components. We learned that lesson in COVID. We're looking at that right now. We don't see a lot of areas where we're going to need to take supply or inventory yet. We're being very cautious as we look at that, so far, not yet.

Andi Owen: You know, we're looking. We have dual supply in a variety of places for most of our really important components. We learned that lesson in COVID. We're looking at that right now. We don't see a lot of areas where we're going to need to take supply or inventory yet. We're being very cautious as we look at that, so far, not yet.

Speaker #1: We're looking at—we have dual supply in a variety of places for most of our really important components. We learned that lesson in COVID.

Speaker #1: So we're looking at that right now. We don't see a lot of areas where we're going to need to take supply or inventory yet.

Speaker #1: And we're being very cautious as we look at that, but so far, not yet.

Speaker #4: Okay, that's helpful. And just one last thing, if you could characterize the office environment. I mean, the tone has been fairly positive from a macro standpoint.

Doug Lane: Okay. That's helpful. Just one last thing, if you could, you know, characterize the office environment. I mean, the tone has been fairly positive from a macro standpoint. Again, I don't know if you're seeing anything shift here with all the geopolitics, or do you just see the underlying business continuing to firm as it has for the past several quarters?

Speaker #4: And again, I don't know if you're seeing anything shift here with all the geopolitics, or do you just see the underlying business continuing to firm as it has for the past several quarters?

Andrea Owen: You know, as it always is, Doug, it's a different story depending on what region of the world you're in. You know, I've been on a plane a lot in the last couple of months. I would say in North America, and certainly John Michael can add color to this, we continue to see momentum. We continue to see architectural billings moving in the right direction. We continue to see lots of customer visits and demand and orders, and we're very pleased about that. I would say when you step out of the US, it really varies by region. I think we're seeing a little bit of price sensitivity. We're seeing a little bit of different reaction in different parts of the world.

Andi Owen: You know, as it always is, Doug, it's a different story depending on what region of the world you're in. You know, I've been on a plane a lot in the last couple of months. I would say in North America, and certainly John Michael can add color to this, we continue to see momentum. We continue to see architectural billings moving in the right direction. We continue to see lots of customer visits and demand and orders, and we're very pleased about that. I would say when you step out of the US, it really varies by region. I think we're seeing a little bit of price sensitivity. We're seeing a little bit of different reaction in different parts of the world.

Speaker #1: As it always is, Doug, it's a different story depending on what region of the world you're in. I've been on a plane a lot in the last couple of months, I would say, in North America, and certainly John Michael cannot color to this.

Speaker #1: We continue to see momentum. We continue to see architectural buildings moving in the right direction. We continue to see lots of customer visits, demand, and orders.

Speaker #1: And we're very pleased about that. I would say when you step out of the US, it really varies by region. I think we're seeing a little bit of price sensitivity.

Speaker #1: We're seeing a little bit of different reaction in different parts of the world. We're not seeing major pullbacks anywhere, but I think in places that are touched more closely—whether it's the conflict in Ukraine or whether the latest conflict in the Middle East—we're certainly seeing a little bit more caution, but not necessarily reflected in order trends that have changed.

Andrea Owen: We're not seeing major pullbacks anywhere, but I think in places that are touched more closely, whether it's the conflict in Ukraine or whether the latest conflict in the Middle East, we're certainly seeing a little bit more caution, but not necessarily reflected in order trends that have changed.

Andi Owen: We're not seeing major pullbacks anywhere, but I think in places that are touched more closely, whether it's the conflict in Ukraine or whether the latest conflict in the Middle East, we're certainly seeing a little bit more caution, but not necessarily reflected in order trends that have changed.

Speaker #4: Okay. Fair enough. Thanks, Andy.

Doug Lane: Okay. Fair enough. Thanks, Andi.

Speaker #1: Thank you.

Andrea Owen: Thank you.

Andi Owen: Thank you.

Speaker #3: Your next question comes from the line of Philip Blee from William Blair. Your line is live.

Operator: Your next question comes from the line of Philip Bligh from William Blair. Your line is live.

Speaker #6: Good evening. This is Olivia Widdeon for Philip. So, can you talk a little bit about the volatility, if any, that you have seen from the recent war, market volatility, and rise in gas prices?

Olivia Widian: Good evening. This is Olivia Widian for Philip. Can you talk a little bit about the volatility, if any, that you have seen from the recent war, market volatility, and rise in gas prices? Do you have any concerns that the uncertainty could cause a bigger pullback or deferral in the contract business that could be prolonged? What kind of impact does the market volatility have on your traffic or conversion in the retail segment?

Speaker #6: Do you have any concerns that the uncertainty could cause a bigger pullback or deferral in the contract business that could be prolonged? And then, what kind of impact does the market volatility have on your traffic or conversion in the retail segment?

Speaker #1: Okay, those are great questions. I would say from the contract perspective, like I was telling Doug, I think we have built in some caution around oil prices and how that might impact trucking expense and diesel, certainly in shipping containers, Olivia.

Andrea Owen: Okay. Those are great questions. I would say from a contract perspective, like I was telling Doug, I think we have built in some caution around oil prices and how that might impact trucking expense and diesel, certainly, and shipping containers, Olivia. We're looking at that for the contract business. We will continue to monitor component costs and costs that go into the products that we make. We haven't seen any movement yet, but we anticipate we will if this is prolonged. From a retail standpoint, you know, whenever you have a consumer that has seen prices rise that could potentially see inflation go up, and also is paying more at the gas pump, we watch that carefully.

Andi Owen: Okay. Those are great questions. I would say from a contract perspective, like I was telling Doug, I think we have built in some caution around oil prices and how that might impact trucking expense and diesel, certainly, and shipping containers, Olivia. We're looking at that for the contract business. We will continue to monitor component costs and costs that go into the products that we make. We haven't seen any movement yet, but we anticipate we will if this is prolonged. From a retail standpoint, you know, whenever you have a consumer that has seen prices rise that could potentially see inflation go up, and also is paying more at the gas pump, we watch that carefully.

Speaker #1: So we're looking at that for the contract business. But we will continue to monitor component costs and costs that go into the products that we make.

Speaker #1: We haven't seen any movement yet, but we anticipate we will if this is prolonged. And then, from a retail standpoint, whenever you have a consumer that has seen prices rise, that could potentially see inflation go up, and also is paying more at the gas pump, we watch that carefully.

Speaker #1: So far, we have a consumer that tends to be premium and tends to be rather unaffected by many of these changes. So, we have a resilient consumer that continues to come back and continues to buy.

Andrea Owen: So far, we have a consumer that tends to be premium and tends to be rather unaffected by many of these changes. We have a resilient consumer that continues to come back and continues to buy from us, but we're still making sure that we are balancing our price and our demand, so that we're not beginning to kind of outprice the demand levers that we have in the business. Debbie, would you add anything from a retail perspective or John in contract?

Andi Owen: So far, we have a consumer that tends to be premium and tends to be rather unaffected by many of these changes. We have a resilient consumer that continues to come back and continues to buy from us, but we're still making sure that we are balancing our price and our demand, so that we're not beginning to kind of outprice the demand levers that we have in the business. Debbie, would you add anything from a retail perspective or John in contract?

Speaker #1: From us, but we're still making sure that we are balancing our price and our demand so that we're not beginning to kind of outprice the demand levers that we have in the business.

Speaker #1: Debbie, would you add anything from a retail perspective, or John, in contract?

Speaker #2: I would just add, in Retail, that I think we're well placed to continue to navigate macroeconomic conditions that are unfavorable, as we have been.

Debbie Propst: I would just add in retail that I think we're well-placed to continue to navigate macroeconomic conditions that are unfavorable as we have been. We're well-placed to do that because we have demand levers and initiatives that we're deploying, such as assortment growth, which drove the majority of our comp demand growth in the quarter, such as our new stores, our e-commerce acceleration, and our marketing funnel mix investments. We continue to be optimistic that we can bend macroeconomic trend curves.

Speaker #2: And we're well-placed to do that because we have demand levers and initiatives that we're deploying, such as assortment growth, which drove the majority of our comp demand growth in the quarter.

Speaker #2: Such as our new stores, our e-commerce acceleration, and our marketing funnel mix investments. So we continue to be optimistic that we can bend macroeconomic trend curves.

Andrea Owen: Great.

Andi Owen: Great.

Speaker #5: And I would say from a I would say from a contract perspective, customers have become accustomed to the uncertainty. And the geopolitical risk. So whereas maybe uncertainty a couple of years ago would have they would have put the brakes on, they're proceeding cautiously.

John Michael: I would say from a contract perspective, customers have become accustomed to the uncertainty and the geopolitical risk. Whereas maybe uncertainty a couple of years ago would have put the brakes on, they're proceeding cautiously. It may be slowing down timelines a bit, but activity still seems to be pretty robust.

Speaker #5: So, it maybe is slowing down timelines a bit, but activity still seems to be pretty robust.

Speaker #6: Okay, great. Thank you for all that detail. And then, in the contract business—I know government isn’t a huge contributor, but still a decent chunk of the North America business.

Olivia Widian: Okay, great. Thank you for all that detail. In the contract business, I know government isn't a huge contributor, but still a decent chunk of the North America business. Could you talk about recent trends here and how the partial shutdown could potentially impact spend there?

Speaker #6: So, could you talk about recent trends here, and how the partial shutdown could potentially impact spend there?

Speaker #1: Yeah, John, you want to take that one?

Andrea Owen: Yeah. John, you wanna take that one?

Andi Owen: Yeah. John, you wanna take that one?

Speaker #5: Sure. I think we came into this year expecting that the federal government business would be rather tough and would be down a bit year over year.

John Michael: Sure. I think we, you know, we came into this year expecting that the federal government business would be rather tough and would be down a bit year-over-year. I think we still saw there were sort of a number of agencies that still had a lot of activity. I think once the war started in Iran, we saw that sort of slow down because a lot of the agencies that were getting funded were now involved in supporting that conflict. I think, you know, it's had an impact. On the other hand, there are a number of projects coming out of the grounds for the federal government, you know, buildings that need to be filled with furniture.

Speaker #5: I think the we still saw there were sort of a number of agencies that were still had a lot of activity. I think once the war started in Iran, we saw that sort of slow down because a lot of the a lot of the agencies that were getting funded were now involved in supporting that conflict.

Speaker #5: So I think it's had an impact. On the other hand, there are a number of projects coming out of the ground for the federal government—buildings that are going to need to be filled with furniture.

Speaker #5: So it’ll be rather choppy with the federal government for the next several months, probably. But there’s still activity there.

John Michael: It'll be rather choppy with the federal government for the next several months, probably, but there's still activity there.

Speaker #6: Okay, I see. Thank you. That's helpful.

Olivia Widian: Okay, I see. Thank you. That's helpful.

Speaker #1: Thanks, William.

Andrea Owen: Thanks, Olivia Widian.

Andi Owen: Thanks, Olivia Widian.

Speaker #3: Your next question comes from the line of Ruben Garner from The Benchmark Company. Your line is live.

Operator: Your next question comes from the line of Reuben Garner from The Benchmark Company. Your line is live.

Speaker #1: Hi, Ruben.

Andrea Owen: Hi, Reuben.

Andi Owen: Hi, Reuben.

Reuben Garner: Thanks. Good evening, guys. Maybe to start, just a clarification, Kevin, the $8 to 9 million or 9 to 10 cents of earnings drag, is that, is there something specific about the Q4 or how quickly this evolved that's kinda making the earnings impact a little bigger in the near term? Or if this drags out more, is that kinda 10 cents a quarter the right way to think about it on an ongoing basis?

Speaker #4: Good evening, guys.

Speaker #7: Hello. Maybe to start, just a clarification. Kevin, the 8 to 9 million dollars or 9 to 10 cents of earnings drag, is that is there something specific about the fourth quarter or how quickly this evolved that's kind of making the earnings impact a little bigger in the near term?

Speaker #7: Or if this were dragged out, is that kind of 10 cents a quarter the right way to think about it on an ongoing basis?

Speaker #5: So, the sales that we don't expect to be able to ship in the quarter is pretty close to what our run rate has been—that $12 million that I mentioned.

Kevin Veltman: The sales that we don't expect to be able to ship in the quarter is pretty close to what our run rate has been, that $12 million that I mentioned. The cost side, that's the piece where initially you're seeing it in diesel prices and things of that nature. Some other elements of cost, if this becomes a prolonged situation, would not have fully flowed through yet, right? Think container rates or foam, resin-type costs. Not a huge impact of that. Mostly it's logistics-related things that are reflected in what we see as the Q4 exposure.

Speaker #5: The cost side—that's the piece where initially you're seeing it in diesel prices and things of that nature. But some other elements of cost, if this becomes a prolonged situation, would not have fully flowed through yet, right?

Speaker #5: I think container rates or foam resin-type costs, so not a huge impact from that. Mostly, it's logistics-related things that are reflected in what we see as the fourth quarter exposure.

Speaker #1: But I would say, just like tariffs—just like tariffs, Ruben—when these things come up quickly, it's harder for us to cover them in that immediate quarter.

Andrea Owen: I would say just like tariffs, Reuben, when these things come up quickly, it's harder for us to cover them in that immediate quarter. We just, by the nature of a contract business, we're not able to get that pull-through. You'll see it sort of gradually come through as we see what happens with costs.

Andi Owen: I would say just like tariffs, Reuben, when these things come up quickly, it's harder for us to cover them in that immediate quarter. We just, by the nature of a contract business, we're not able to get that pull-through. You'll see it sort of gradually come through as we see what happens with costs.

Speaker #1: We just, by the nature of the contract business, we're not able to get that pull-through. So you'll see it sort of gradually come through as we see what happens with costs.

Speaker #5: Which gives us time to think about the different pricing levers that we have as well.

Kevin Veltman: Which gives us time to think about the different pricing models that we have as well.

Speaker #1: Exactly.

Andrea Owen: Exactly.

Andi Owen: Exactly.

Speaker #4: Great. And is this an opportunity to use surcharges in a way, given the abrupt nature of it and how it could very well be temporary?

Reuben Garner: Great. Is this, you know, an opportunity to use surcharges in a way, given the abrupt nature of it and how it could very well be temporary, or do you not see a path to use that mechanism this go around?

Speaker #4: Or do you not see a path to use that mechanism to go around?

Kevin Veltman: It's a tool we have in the toolbox, and it's definitely one we'll consider, but there's a number of other levers that we could look at as well. As you know, our two segments operate on a little different cadence from a pricing perspective. Retail is one where we can react without needing to think about surcharges.

Speaker #5: Toolbox. And it's definitely one we'll consider. But there are a number of other levers that we could look at as well. And as you know, our two segments operate on a little different cadence from a pricing perspective.

Speaker #5: So retail is one where we can react without needing to think about surcharges.

Speaker #4: Got it. And then, there's a lot of discussion in the market about AI and its implications on various industries. I think office furniture is one that's been topical of late.

Reuben Garner: Got it. Then a lot of discussion in the market about AI and its implications on various industries. I think office furniture is one that's been topical of late. Just curious, I know you guys have had some insights in the past, you know, from your own board even, how you're thinking about that. What are you seeing today from your technology clients from an order perspective? Are they building out their offices in a bigger way? Any insights into kinda sector-specific growth within contract would be helpful.

Speaker #4: Just curious, I know you guys have had some insights in the past from your own board even—how you're thinking about that. What are you seeing today from your technology clients from an order perspective?

Speaker #4: Are they building out their offices in a bigger way? Any insights into kind of sector-specific growth within contract would be helpful.

John Michael: Hi, Reuben. It's John. Yeah. The tech sector's very active right now, particularly in the Bay Area. As you might imagine, we've seen a significant uptick in activity in that area. I think, you know, the other sort of tech-focused areas around the country, whether that be Austin or other areas like that, the activity's really robust.

Speaker #5: Hi, Ruben. It's John. Yeah, the tech sector is very active right now. Particularly in the Bay Area, as you might imagine, we've seen a significant uptick in activity.

Speaker #5: And that area, and I think the other sort of tech-focused areas around the country, whether that be Austin or other areas like that, the activity is really robust.

Speaker #1: And I think, Ruben, just like any other sort of technological step change, we're seeing some organizations that are talking about laying off certain types of employees, and others that are adding on just as many of other types of skill sets.

Andrea Owen: I think, Reuben, just like any other sort of technological step change, we're seeing, you know, some organizations that are talking about, you know, laying off certain types of employees and others that are adding on just as many of other types of skill sets. We're really seeing it kind of balance out as AI impacts different parts of the economy and of businesses. So far, we're seeing quite a robust tech business.

Andi Owen: I think, Reuben, just like any other sort of technological step change, we're seeing, you know, some organizations that are talking about, you know, laying off certain types of employees and others that are adding on just as many of other types of skill sets. We're really seeing it kind of balance out as AI impacts different parts of the economy and of businesses. So far, we're seeing quite a robust tech business.

Speaker #1: So we're really seeing it kind of balance out as AI impacts different parts of the economy and of businesses. But so far, we're seeing quite a robust tech business.

Kevin Veltman: Ruben, one other item I would call out as we just look at some of the different sectors in Q3. You know, general business services, insurance, and financial are big categories of activity, and both of those were showing nice activity in Q3.

Speaker #5: Ruben, one other item I would call out is, if we just look at some of the different sectors in the third quarter, general business services and insurance and financial are big categories of activity in the quarter.

Speaker #4: Great, very helpful. And then, last one for me—I don't know if you gave it, or if I missed it, I apologize. But quarter-to-date order growth rate for Retail and North American Contract, do you have those numbers, or did you already share them?

Reuben Garner: Great. Very helpful. Last one for me. I don't know if you gave it, if I missed it. I apologize, but quarter to date order growth rate for retail and North America Contract. Do you have those numbers, or did you already share them?

Speaker #5: Yeah. So let me unpack that with you, and you'll recall this from discussions last year in the fourth quarter. At this time last year, we were starting to see some of the order pull-ahead related to the tariff surcharges and price increases we were putting in place.

Kevin Veltman: Yeah. Let me unpack that with you. You'll recall this from discussions last year in the Q4. At this time last year, we were starting to see some of the order pull ahead related to the tariff surcharges and price increases we were putting in place. Our comps are a little bit tricky early in the quarter. If you look at International and Retail, which did not have the surcharge scenario pushing through, those are both up here through the first few weeks of the quarter. NAC is down, but if you adjust for the estimate of the pull ahead impact, it's more flattish. Kind of if you take that noise out, around 2% year-over-year growth at this point with some normalization.

Speaker #5: And so, our comps are a little bit tricky early in the quarter. But if you look at International and Retail, which did not have the surcharge scenario pushing through, those are both up here through the first few weeks of the quarter.

Speaker #5: NAC is down. But if you adjust for the estimate of the pull-ahead impact, it's more flattish. And so kind of if you take that noise out, around 2% year-over-year growth at this point.

Speaker #5: With some normalization.

Speaker #4: Great. Thank you, guys, for the color, and good luck going forward.

Reuben Garner: Great. Thank you guys for the coverage. Good luck going forward.

Speaker #5: Thanks, Ruben.

Kevin Veltman: Thanks, Reuben.

Speaker #6: Your final question comes from the line of Greg Burns from Sidonia and Company. Your line is live.

Operator: Your final question comes from the line of Greg Burns from Sidoti & Company. Your line is live.

Speaker #8: Good afternoon. I just wanted to clarify—the $12 million shipped to the Middle East, was that what you are going to be able to ship, or what you're not going to be able to ship?

Greg Burns: Afternoon. I just wanted to clarify, the $12 million shipped to the Middle East, was that what you are going to be able to ship or what you're not going to be able to ship?

Speaker #1: That's what we anticipate we will not be able to ship.

Andrea Owen: That's what we anticipate we will not be able to ship.

Andi Owen: That's what we anticipate we will not be able to ship.

Speaker #8: Not be able. Okay. Perfect. Okay. And then in the retail business, I know we're not into fiscal '27 yet, but would you expect the pace of store openings to remain about the same next year?

Greg Burns: Okay, perfect. Okay. In the retail business, I know we're not into fiscal 2027 yet, but would you expect the pace of store openings to remain about the same next year? Do you expect to continue at the current pace? And would that mean that the incremental cost per quarter will kind of remain the same into next year?

Speaker #8: Do you expect to continue at the current pace? And would that mean that the incremental cost per quarter will kind of remain the same into next year?

Speaker #5: Yeah, we're expecting next year's store openings to be in a similar zone to the '14 to '15 this year, maybe a touch higher, based on our plans.

Kevin Veltman: Yeah. We're expecting next year's store openings to be in a similar zone to the 14 to 15 this year, maybe a touch higher based on our plans. I think that would be a good modeling assumption to assume you continue to have somewhat similar year-over-year OPEX growth, that kind of $3.5 to 4.5 million that we had mentioned.

Speaker #5: And so I think that would be a good modeling assumption to assume you continue to have somewhat similar year over year OPEX growth that kind of three and a half to four and a half million that we had mentioned.

Speaker #8: Okay. And then, in terms of product assortment, can you just talk about maybe some of where you're adding to your product portfolio, and maybe what areas are still opportunities for you to round out?

Greg Burns: Okay. In terms of product assortment, can you just talk about maybe where you're adding to your product portfolio and maybe what areas are still opportunities for you to round out?

Speaker #1: Yeah, Debbie, I'll let you take that one and give some specifics.

Andrea Owen: Yeah. Debbie, I'll let you take that one and give some specifics.

Andi Owen: Yeah. Debbie, I'll let you take that one and give some specifics.

Speaker #2: Absolutely. So from a retail perspective, we continue to grow what we call the lifestyle category, which is really our residential home furnishings. We've made significant progress in areas of upholstery and bedroom storage, but we still have a lot more latitude in those areas.

Debbie Propst: Absolutely. From a retail perspective, we continue to grow what we call the lifestyle category, which is really our residential home furnishings. We've made significant progress in areas of upholstery, bedroom storage, but we still have a lot more latitude in those areas. We're also continuing to invest in our gaming portfolio, which is continuing to show major traction. All of our categories were positive to last year in Q3. But the biggest opportunity areas continue to be bedding and the home furnishings areas of the home.

Speaker #2: We're also continuing to invest in our gaming portfolio, which is continuing to show major traction. All of our categories were positive to last year.

Speaker #2: In Q3. But the biggest opportunity areas continue to be rounding out the home furnishings areas of the home.

Speaker #8: Okay. And why was the retail gross margin down?

Greg Burns: Why was the retail gross margin down?

Speaker #2: Our gross margin was impacted versus last year by a couple of things, predominantly that we had a favorable freight true-up last year—just over a couple of million dollars.

Debbie Propst: Our gross margin was impacted vis-a-vis last year by a couple of things. Predominantly, that we had a favorable freight true-up last year of just over $2 million. We had some incremental shipping and revenue costs in Q3 as we pushed into some free shipping promos to try and adjust the trends during the time that we had a weather impact. Those are the largest areas. We also had a little bit of FX impact and variable incentive impacts at OI line as well.

Speaker #2: And then we had some incremental ship revenue costs in Q3, as we pushed into some free shipping promos to try and adjust the trends during the time that we had weather impact.

Speaker #2: So those are the largest areas. But we also had a little bit of OI impact. Sorry. A little bit of FX impact and variable incentive impacts at OI line as well.

Speaker #8: Okay. All right. Great. Thank you.

Greg Burns: Okay. All right, great. Thank you.

Speaker #6: There are no further questions. We'll now turn the floor back to President and CEO Andy Owen for any closing remarks.

Andrea Owen: Thanks, guys.

Andi Owen: Thanks, guys.

Operator: There are no further questions. We'll now turn the floor back to President and CEO Andi Owen for any closing remarks.

Speaker #1: Thanks, everyone, for joining us on the call tonight. We really appreciate your support, and we look forward to updating you again next quarter. Have a nice night.

Andrea Owen: Thanks, everyone, for joining us on the call tonight. We really appreciate your support, and we look forward to updating you again next quarter. Have a nice night.

Andi Owen: Thanks, everyone, for joining us on the call tonight. We really appreciate your support, and we look forward to updating you again next quarter. Have a nice night.

Operator: This concludes today's meeting. You may now disconnect.

Q3 2026 MillerKnoll Inc Earnings Call

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