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Investing.com -- S&P Global Ratings has revised the outlook of U.S.-based furniture manufacturer MillerKnoll (NASDAQ:MLKN) Inc. to negative from stable due to elevated leverage. The ratings agency affirmed the ’BB’ issuer credit rating and ’BB+’ issue-level ratings on the company’s senior secured debt, with the recovery rating remaining at ’2’, indicating an expected recovery of 70%-90% (roughly 75%) in case of a payment default.
MillerKnoll reported weaker-than-anticipated results for the third quarter of fiscal 2025 and reduced its outlook for the remainder of the fiscal year. This decision follows the recent changes in U.S. trade policy, which have contributed to increased uncertainty and weaker industry conditions and order trends. S&P Global Ratings expects the company’s adjusted leverage to remain high in the 3x area in fiscal years 2025 and 2026, due to higher tariff-related costs and potential pressure on the top-line as businesses and consumers reduce spending.
The negative outlook reflects the possibility of a lower rating within the next year if the company’s operating performance is believed to deteriorate, leading to adjusted debt to EBITDA sustained above 4x.
The ratings affirmation reflects the expectation that operating conditions will not worsen to recessionary levels and that MillerKnoll will be able to manage near-term economic volatility and increased tariff-related costs through pricing actions and expense reduction measures. The company’s reported revenue and S&P Global Ratings-adjusted EBITDA for the nine months ended March 1, 2025, were largely flat compared to the same period in 2024 at about $2.7 billion and $350 million, respectively.
MillerKnoll’s retail business, which reported solid order growth in the third quarter, could potentially offset its contract furniture segment exposure. The company plans to expand its retail footprint, opening about 10 to 15 new stores in fiscal 2026, with additional stores planned to open in 2027 and 2028.
However, MillerKnoll’s retail business remains susceptible to high mortgage rates and weaker discretionary consumer spending. The company faces primary tariff exposure on steel and aluminum, as well as components and finished products imported from Europe and Canada.
S&P Global Ratings now forecasts MillerKnoll’s credit metrics to remain elevated for its rating level, at about 3.9x at the end of fiscal 2025 and fiscal 2026. This is compared to the previous expectation of 3.5 and 3.4x, respectively.
The company has an adequate liquidity profile to withstand potential weak operating conditions in the short to medium term. MillerKnoll refinanced its bank credit facilities, consisting of a $725 million revolver and a $400 million term loan A facility, in April 2025. The maturities were extended to April 2030. The company has about $221 million of cash and about $327 million of availability on the revolver, which along with projected positive free operating cash flow under the base case, will be sufficient to fund a temporary downturn scenario.
The negative outlook reflects the potential for a lower rating within the next year if the company’s operating performance is believed to weaken, resulting in adjusted debt to EBITDA sustained above 4x. The rating could be lowered if the company adopts more aggressive financial policies by executing large share repurchases or acquisitions. Conversely, the outlook could be revised to stable if MillerKnoll can sustain leverage comfortably below 4x, generate positive FOCF, and stabilize volumes.
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