Executives at MillerKnoll Inc. and Steelcase Inc. expect that their sales will ease slightly in the months ahead.
Both companies project small declines for their present three-month periods compared to a year ago, as clients continue to defer projects or delay bringing workers back to the office. The projections come even as many clients continue to plan to renovate their workspaces to accommodate hybrid work models that took hold in the pandemic.
“To be sure, this is a disruptive period. Traditional office usage and layouts are not as they once were, and new opportunities exist to help our customers design more hybrid, collaborative work environments,” MillerKnoll President and CEO Andi Owen said in a Wednesday afternoon conference call with brokerage analysts to discuss quarterly results.
“Our contract clients continue to engage us in conversations around re-imagining their workspace, both to enhance their employee experience and to create multi-use spaces,” Owen said. “Because of this, the volume of customer discussions remains very high and the funnel of potential project opportunities is profound, albeit somewhat uncertain in terms of timing.”
MillerKnoll’s retail segment also is “preparing for a near-term slowdown in our demand environment” because of higher interest rates that have slowed home purchases, although “this won’t jeopardize our long-term growth strategies,” Owen said.
MillerKnoll (Nasdaq: MLKN) recorded $987.4 million in sales for the third quarter of its 2023 fiscal year, a 4.4-percent decline from a year earlier. Zeeland-based MillerKnoll had $1.1 million in net income, or 7 cents per share, for the three-month period that ended March 4.
Nine-month sales totaled $3.13 billion, a 10-percent increase from the first three months of the prior fiscal year, with $46 million in net income, or 56 cents per share.
In the current fourth quarter, MillerKnoll expects sales to decline to $930 million to $970 million from the $1.1 billion recorded for the same period a year ago, with diluted earnings per share of 37 cents to 43 cents.
“During the past few months, general economic uncertainty, and the impact of rising interest rates, have weighed on business and consumer sentiment levels,” said CFO Jeff Stutz. “The result has been slowing demand patterns and further delays in customer return-to-office timelines.”
Orders for the quarter were down from a “remarkably strong” rate a year earlier, making for difficult year-to-year comparisons, but did improve in February, Stutz said. In the early weeks of the present quarter, “generally, that’s been continued,” he said.
Meanwhile, Grand Rapids-based Steelcase (NYSE: SCS) experienced softer orders rates with an 8-percent quarterly decline, including a 19-percent slide in February, compared to the prior year amid overall strong results, CFO David Sylvester said. Order rates globally for the first few weeks in March were flat and grew 4 percent in Steelcase’s Americas division, Sylvester said.
In the present first quarter of the 2024 fiscal year, Steelcase expects $710 million to $735 million in revenues, which equates to a “moderate” 1-percent to 4-percent decline from a year ago, with 1 cent to 5 cents adjusted earnings per share, Sylvester said.
“As we look to the full fiscal year of 2024, we are approaching the demand environment with cautious optimism,” Sylvester said in a Thursday morning conference call with brokerage analysts. “More large corporations in the U.S. are requiring their employees to return to their offices for a minimum number of days, and project-opportunity creation in the Americas has grown compared to the prior year in eight of the last nine months. However, we are beginning the year with a backlog that is 14-percent lower on a consolidated basis than the prior year and the overall macroeconomic and geopolitical environment remains relatively unstable.”
Growth from education and health care clients and small to mid-sized corporate customers should partly offset a decline in sales to large corporate customers that is expected to improve over the year, Sylvester said. Price increases over the last two years and cost-cutting in the latter half of the 2023 fiscal year should also benefit revenues, he said.
Steelcase on Wednesday reported $3.2 billion in sales for the 2023 fiscal year that ended Feb. 24, a 17-percent increase from the prior 12-month period that was aided by price increases. Annual net income totaled $35.3 million, or 30 cents per share.
The “strong growth” came despite navigating “a very challenging environment during fiscal 2023 (that was) fraught with additional inflation and supply chain disruptions,” Sylvester said. As well, Steelcase noted a “continued hesitancy by our largest corporate customers to mandate a more significant presence in their offices,” although “the tide is turning” in early 2023, he said.
Sales for Steelcase’s fourth quarter alone grew at a slower 6-percent rate to $801.7 million with $15.7 million in net income, or 13 cents per share. Backlogged customer orders for the quarter declined 14 percent from a year earlier to $690 million.
The quarterly results were stronger than Steelcase expected when executives last provided guidance back in December. The performance was helped by price increases during the year that offset what President and CEO Sara Armbruster called “extraordinary inflationary pressures and supply chain challenges.” Steelcase also benefited in the quarter from higher fulfillment rates, and stronger order rates from prior periods, Armbruster said.
More deals ahead?
Armbruster told investors that Steelcase remains open to additional acquisitions to grow. The company in October 2021 bought longtime collaborative design partner Viccarbe Habitat S.L., a Spain-based company that designs contemporary furniture for hospitality, education and corporate clients, for $35 million.
“We continue to look (for) opportunities to drive our strategy forward,” Armbruster said. “We remain pretty active in keeping our eyes open and asking those questions in terms of what might make sense for our strategy and what might be the right next move.”
Three weeks ago, competitors HNI Corp. (NYSE: HNI), based in Muscatine, Iowa, and Jasper, Ind.-based Kimball International Inc. (Nasdaq: KBAL) announced a $485 million merger that could close by midyear. The combined company would have $3.1 billion in pro-forma revenue.
The HNI-Kimball deal comes nearly two years after the merger of Herman Miller Inc. and Knoll Inc. that created the largest office furniture maker in MillerKnoll.