MillerKnoll (MLKN) Q2 2026: Retail Orders Jump 6% as Store Expansion Accelerates Brand Reach

2025-12-17 | By EarningsIQ Research

MillerKnoll’s Q2 results highlight a decisive retail-led acceleration, with order growth outpacing sales as new stores and assortment expansion fuel customer engagement. Contract business order momentum and disciplined tariff mitigation signal improving demand visibility and margin resilience into the back half. Management’s tone and forward guidance reflect confidence in capturing share through operational leverage and continued investment, even as macro and segmental risks persist.

Summary

• Retail-Led Growth Outpaces Contract: Store openings and assortment expansion drove higher average order value and new customer acquisition.
• Margin Resilience Amid Tariffs: Proactive pricing and sourcing strategies offset tariff headwinds, supporting gross margin durability.
• Order Momentum Signals Share Gains: Consistent order growth across segments underpins management’s optimistic outlook for the second half.

Performance Analysis

MillerKnoll delivered a mixed but strategically positive Q2, with consolidated net sales of $955 million, down 1.6% YoY, but with orders up 5.5% as reported. This divergence reflects the timing impact of prior contract pull-forwards and a normalization of demand patterns. Retail stood out as the growth engine, with global retail sales up 4.7% and orders up 6%, while North America retail orders surged 8% and comparable sales matched that pace, all achieved with flat promotional and marketing spend. The contract business, which provides furniture and design solutions for commercial clients, saw North America contract orders up 4.8% and international contract orders up 6.6%, signaling a return-to-office tailwind and improved dealer sentiment.

Gross margin reached a robust 39% despite $1 million in net tariff costs, as channel and product mix, along with disciplined price realization, offset cost pressures. Operating expenses rose, driven by variable selling costs tied to over-delivery and incremental investments in new stores. Cash flow remained healthy, with $65 million in operating cash flow and net debt to EBITDA at 2.87 times, supporting ongoing investment and capital allocation flexibility.

• Retail Order Value Climbs: Average order value rose beyond price increases, driven by assortment expansion and higher design service penetration.
• Store Expansion Investment: Four new stores opened in Q2, with a full-year target of 14 to 16, temporarily pressuring retail margins but setting up future leverage.
• Contract Orders Normalize: After prior pull-forwards, contract segment orders stabilized in the mid-single-digit growth range, with healthcare and premium office segments leading.

Overall, MillerKnoll’s performance reflects a business in strategic transition—balancing near-term investment drag with building momentum in its core growth levers.

Executive Commentary

Strategic Positioning

1. Retail Expansion as the Primary Growth Lever

MillerKnoll’s retail strategy centers on new store openings, broader product assortment, and digital engagement, aiming to double the DWR, Design Within Reach, and Herman Miller store footprint over several years. With 70% of North America retail cost of goods sourced domestically, the company is less exposed to tariff risk, enabling more modest price increases and supporting higher average order values. The 22% YoY increase in product collections and a focus on design services are driving both new customer growth and deeper wallet share among existing clients.

2. Contract Momentum Driven by Return-to-Office and Sector Mix

The contract segment is benefiting from the return-to-office trend, with order growth led by healthcare, energy, professional services, and legal sectors, while public sector and financial services lag. Premium office space demand (“Class A”) is accelerating, aligning well with MillerKnoll’s brand positioning. Internationally, showroom investments in markets like Shanghai are expanding reach and capturing new project wins in resilient global sectors.

3. Margin Management and Tariff Mitigation

Gross margin resilience is underpinned by proactive pricing, U.S.-centric sourcing, and tariff mitigation strategies, enabling the company to absorb cost headwinds and maintain profitability. Management expects these actions to fully offset tariff impacts in the second half, supporting earnings consistency even as new store investments temporarily weigh on retail margins.

4. Operational Efficiency and Facility Consolidation

The announced consolidation of the Michigan manufacturing facility, with production shifting to other plants, is expected to yield $10 million in annual run-rate savings by fiscal 2028. This reflects a broader focus on leveraging scale and optimizing production to drive operational efficiency across the platform.

5. Capital Allocation and Balance Sheet Discipline

Management is prioritizing growth investments and debt reduction, targeting a mid-term net debt to EBITDA ratio of 2 to 2.5 times. Dividend maintenance and periodic share repurchases are positioned as secondary to funding expansion and deleveraging, reflecting a balanced approach to capital allocation in a still-uncertain macro environment.

Key Considerations

MillerKnoll’s Q2 underscores a business at an operational inflection, with retail and contract order momentum offering a foundation for accelerated growth, but with investment and macro risks still present.

Key Considerations:

• Retail Store Buildout Cycle: The company is midway through a multi-year plan to double its U.S. retail footprint, with 14 to 16 new stores targeted annually. Near-term margin dilution is expected to reverse as new stores mature and contribute to operating income, with leverage anticipated by Q4 and into next fiscal year.
• Assortment and Service Expansion: A 22% increase in collections and greater penetration of design services are fueling higher average order values and new customer growth, supporting the retail flywheel.
• Contract Demand Visibility: Order growth in healthcare and premium office segments, along with bullish signals from commercial real estate brokers and design firms, suggest continued demand resilience, especially in Class A office projects.
• Tariff and FX Cost Management: With 70% domestic sourcing in North America retail and active pricing strategies, MillerKnoll is less exposed to tariff volatility than peers, supporting margin stability.
• Operational Efficiency Initiatives: Facility consolidation and production optimization are expected to drive long-term cost savings, supporting future margin expansion.

Risks

Retail expansion brings execution risk, with new store ramp-up periods and associated costs temporarily pressuring margins. Macro uncertainty, especially in public sector and financial services contract demand, could limit order growth if economic conditions deteriorate. Tariff and FX volatility, while currently mitigated, remain ongoing risks, and the competitive retail landscape could prompt higher promotional activity or marketing spend.

Forward Outlook

For Q3, MillerKnoll guided to:

• Net sales between $923 million and $963 million, up 7.6% YoY at midpoint
• Gross margin of 37.9% to 38.9%
• Adjusted diluted EPS of $0.42 to $0.48

For full-year fiscal 2026, management maintained its strategy and investment cadence, citing:

• 14 to 16 new U.S. retail store openings
• Tariff mitigation efforts expected to fully offset cost impacts in H2

Management highlighted that order momentum remains consistent into early Q3 and expects retail margin pressure to ease as new stores mature, with leverage benefits materializing in Q4 and next fiscal year.

Takeaways

MillerKnoll’s Q2 signals a business building operational leverage and brand reach, with retail and contract order growth underpinning a confident outlook. Margin management and tariff mitigation provide downside protection, while disciplined capital allocation supports ongoing investment.

• Retail Momentum: Store expansion and assortment growth are driving higher order values and new customer acquisition, positioning retail as a durable growth engine.
• Contract Resilience: Return-to-office trends and sector mix are fueling stable mid-single-digit contract order growth, with healthcare and premium office segments leading.
• Path to Margin Leverage: Short-term investment drag from new stores is expected to reverse as locations mature and operational efficiency initiatives deliver cost savings.

Conclusion

MillerKnoll’s Q2 2026 results reflect a company executing on a multi-pronged growth strategy, with retail and contract segments both contributing to order momentum and future margin leverage. While investment and macro risks persist, management’s discipline and operational focus position the business for continued share gains and improved profitability into the back half and beyond.

Industry Read-Through

MillerKnoll’s retail-led order growth and successful tariff mitigation offer a clear read-through for the broader contract furniture and home furnishings sector: U.S.-centric sourcing and disciplined pricing can offset cost volatility, while physical retail expansion, if paired with brand-building and assortment breadth, can drive new customer acquisition and higher order values. The return-to-office trend is translating into real contract demand, especially for premium office and healthcare environments, suggesting that well-positioned brands with strong dealer networks and showroom presence are best placed to capture share. The ongoing shift toward operational efficiency and facility consolidation is likely to be a recurring theme as industry players seek margin resilience amid an uncertain macro backdrop.

MLKN Consumer Discretionary Furniture Retail Expansion Contract Furniture Tariffs Omnichannel Design Services