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MillerKnoll (MLKN)

Consumer Discretionary

Two Rivers Analytics

This furniture manufacturer faces weakening end markets, high debt levels (post Knoll acquisition) and excess inventory. Price increases have masked declining volumes. MLKN’s sales have fallen ~40% in past downturns, yet current forecasts expect a mere 12% peak to trough drop. Eric Fernandez believes a min. 25% decline is more realistic. Furthermore, the secular trends working against office leasing will dampen a sales recovery. Eric expects EBITDA margins to also come under pressure (fell from 15% to 9% in both previous downturns). However, the financial leverage today is much worse than before. That will have a disproportion impact on EPS and net cash flows after interest.

Edition: 161

- 26 May, 2023