Earnings Call Transcript - MLKN Q4 2023

Carola Mengolini, Vice President of Investor Relations

Good evening, and welcome to MillerKnoll's fourth quarter fiscal 2023 conference call. I am joined by Andi Owen, Chief Executive Officer; and Jeff Stutz, Chief Financial Officer. Also available during the Q&A session is John Michael, President of Americas Contract. Before I turn the call over to Andi, please remember our safe harbor 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 from those expressed or implied. 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 as of today, and we assume no obligation to update or supplement these statements. We may also refer to certain non-GAAP financial metrics which are reconciled and described in our press release posted on our Investor Relations website at millerknoll.com. With that, I will turn the call over to Andi.

Andi Owen, CEO

Thanks, Carola. Good evening, everyone, and thank you so much for joining our call. Our fourth quarter results demonstrate the power of our business model and the ability of our team to seize opportunities and innovate in an uncertain macroeconomic environment. By leveraging our diverse channels, geographies and brands, we connected with customers around the globe, delivering innovative design, while improving our margin performance and strengthening our balance sheet. As we've shared in recent quarters, the environment is still challenging. Customers are staying cautious and deliberate about their spending. We continue to see demand softness across our channels but there are strong performances worth noting in several areas of our business and our pattern of orders has started to improve. Jeff will highlight as he provides a closer look at our financials. From my seat, I want to highlight that we have done a lot of work to future-proof our business. We were early movers in our industry, combining the two best collections of brands in our space to form an unrivaled portfolio of products, market reach and innovation. Since then, we've worked to streamline our global operations network across MillerKnoll, moving production and capability efficiently and creating centers of excellence, along with investing in e-commerce and retail as we know these will drive future growth opportunities. We prioritized our strong partnership with our dealer network in North America, and that alignment is resulting in positive traction quarter-over-quarter. We're arming our dealers with the tools they need to sell our collective. From developing a MillerKnoll contract e-commerce site to more dynamic tools that allow customers and specifiers to envision and specify our solutions. Additionally, as we continue to expand our presence globally with our MillerKnoll dealer network, we're taking our collection of brands into high-growth regions such as India, the Middle East, Southeast Asia, and China. This allows us to leverage our capacity to develop, expand and design solutions that meet the demand of our clients effectively. While I have no crystal ball, I believe that this year's economic outlook will gradually improve as time progresses. Our efforts to future-proof, plan ahead and model our business with the successes of tomorrow will serve us well. I was recently in Chicago for Design Days, our largest statewide presentation of our brands to our contract market audience, and the response to our product launches and showrooms was overwhelmingly positive. Having had the opportunity to connect with many of our customers in person, I've come across some key findings. First, while the unpredictability surrounding the return to office persists in North America, we're starting to observe an inflection point; and second, in order for companies to achieve the desired success in their return to office strategy, it is crucial to construct a workplace that revolves around collaboration, wellness, productivity and flexibility. Products like Herman Miller and Naoto Asari, as well as the movable height-adjustable work table, and they seem to introduce four nesting chairs, are perfect examples of new innovative designs that will help our clients rebuild their spaces with flexibility and productivity. And while we're an industry leader in workplace design, we're also expanding our solutions into resilient verticals, including healthcare and the public sector. In the healthcare sector specifically, we've been active for over 50 years. However, as MillerKnoll, our scale enables us to bring fully realized spaces to life at a faster pace. During Design Days, we offered customers a distinctive showroom experience that highlights some of our healthcare solutions. The engagement and excitement generated by this space underscores the leadership and momentum we've built in this vertical. For higher education and public sector, our combined MillerKnoll portfolio presents a comprehensive range of solutions and services, giving us the unique advantage of delivering larger-scale projects to our customers. We're experiencing positive traction in this space as well. As an organization with over a century of success, navigating through varying economic conditions, we have confidence in the long-term health of our industry and the advantages of our business model. We will continue to balance our approach for the long term, using a playbook that has served us well through multiple cycles. We'll focus on our customers. We'll be thoughtfully prudent in managing our costs. We'll align our teams and talent to our strongest competitive advantages, deliver innovation, and invest for long-term growth opportunities. In the near term, we'll continue to prioritize operating efficiently, focusing on free cash flow and ensuring our spending aligns with sales and order levels. With that, I want to thank you for your continued partnership with us on this path. And I'll now turn the call over to Jeff for a deeper look at the financials.

Jeff Stutz, CFO

Thanks, Andi. Good evening, everyone. It's good to be with you. I'll start by providing an overview of our performance in the fourth quarter and some full-year highlights, followed by some insights into our outlook and targets for both the first quarter and the full fiscal year. For the fourth quarter, we generated adjusted earnings of $0.41 per share, slightly above the midpoint of our guidance. Overall, stronger than expected net sales and gross margin helped to alleviate certain cost pressures stemming from increased marketing, product development and variable expenses. At the consolidated level, net sales in the fourth quarter were $957 million, slightly above the midpoint of our guidance, driven by strong performance in the Americas Contract segment. Additionally, supply chain enhancements, improved production reliability and better inventory management facilitated faster order fulfillment across all segments. This allowed us to shift more of our backlog than we initially anticipated coming into the period. We're pleased to report another quarter of improvement in gross margin performance. Our consolidated adjusted gross margin was 37% at the high end of our guidance. This result was 220 basis points higher year-over-year and 130 basis points higher on a sequential-quarter basis, mainly driven by the realization of price increases and benefits from integration-related synergies. Our consolidated adjusted operating margin was 5.9% for the quarter. Turning to cash flows and the balance sheet. This quarter, we generated approximately $93 million in cash flow from operations, driven by sales and a meaningful reduction in working capital, primarily attributed to our inventory management efforts. Consequently, we paid off $48.4 million of debt. We finished the fourth quarter with a net debt-to-EBITDA ratio of 2.5 times, putting us comfortably under the maximum limit defined in our lender agreements. New orders at the consolidated level totaled $922 million in the fourth quarter, reflecting an organic decrease of 7.8% from the same quarter last year and a sequential increase of 4.2% when compared to the third quarter. And while the absolute level of new orders was lower than last year, the rate of decrease improved this quarter, providing evidence that we're moving to a point of demand stabilization in the business. I'll take a moment to summarize our fourth quarter operating performance by segment. Within our Americas Contract segment, net sales for the quarter were $474 million, down 11.8% organically year-over-year, while new orders came to $454 million, reflecting an organic decrease of 8.2% year-over-year. Clearly, the general economic uncertainty has weighed on this segment's sales and order rates. Still, our team feels very optimistic for the medium to long-term, which is supported by various indicators. These include year-over-year growth in order rates observed thus far in the first quarter and robust project funnel activity. I'll also highlight that despite the macro challenges, this quarter we achieved an adjusted operating margin in excess of 10% in this segment, which is up both sequentially and year-over-year, driven by continued price cost benefits and savings from integration-related synergies. As it pertains to Global Retail, net sales for the quarter were $245 million, down 12.1% organically year-over-year, while new orders came to $228 million, which reflects an organic decrease of 14.2%. The North American housing market slowdown and reduced spending on discretionary goods continue to affect demand levels for this segment. In response, we are focusing heavily on effective inventory management and product mix optimization to drive operational efficiencies. Additionally, we are enhancing brand awareness while also prioritizing investments in our most established channels and brands in order to better leverage our scale. Turning to our International Contract and Specialty segment, net sales for the quarter totaled $237 million, down 12.3% organically year-over-year, while new orders came to $240 million, reflecting slight year-over-year organic growth. Make no mistake, we are very optimistic about the growth potential in this segment. We've witnessed strong demand from India, Korea and the Middle East, and we're beginning to see improved demand in China. We're also encouraged by the scale and reach that we are achieving with our global dealership network. To date, International Contract distribution has transitioned more than 80 legacy Herman Miller dealers into full-line MillerKnoll dealers. In the year ahead, the team plans to keep this momentum going by phasing in an additional 60 full-line dealers. For the full fiscal year, net sales at the consolidated level totaled $4.1 billion and adjusted earnings totaled $1.85 per share. Throughout this year, we've made remarkable progress in achieving our target synergies related to the Knoll integration, and this synergy capture has been critical to our ability to deliver margin improvements, especially given the impact of elevated input costs and constrained production volumes. This has been a complex journey enabled by the talent and dedication of our team members around the world. We're better because of this work and I'm grateful for their efforts. I'll conclude my prepared remarks with a few comments on our outlook for fiscal 2024. As we are all aware, the COVID-19 pandemic introduced unprecedented dynamics into our business, which resulted in abnormal trends over the past couple of years. As we begin the new fiscal year, we anticipate certain shifts in sales and earnings patterns in comparison to previous periods. Consequently, we recognized the significance of providing improved visibility for both the upcoming quarter and the entire fiscal year. Overall, we expect slightly lower year-over-year consolidated net sales in fiscal 2024. As it pertains to the quarterly cadence of sales and earnings, and giving consideration to factors such as recent order trends, historical seasonality, expected benefits from price increases, the current funnel of project opportunities and our beginning backlog, we expect operating earnings to be back-half weighted in fiscal 2024. We do maintain a cautious near-term outlook due to macroeconomic dynamics. However, I will also highlight several indicators that make us feel optimistic about the upcoming year. In this regard, the following points are worth noting. Order trends in the first five weeks of the new year have shown improvement, both at the consolidated level and in the Americas Contract segment. Our prior-year comparisons are easing and the sequential and year-over-year trends in the project funnel are encouraging. Second, various indicators such as consumer sentiment, the Architectural Billings Index, and new home sales, although still relatively low, are showing signs of improvement. And third, we're well positioned in several key international markets where we expect supportive GDP growth bolstered by an increasing number of full-line MillerKnoll dealers. Taking all these factors into consideration, we expect to generate adjusted earnings in the range of $1.70 and $2.00 per share for the full fiscal year 2024. As it relates to the first quarter, let me elaborate on a few factors impacting our guidance. First, the sluggish order rates over the past two quarters have resulted in a reduction in the consolidated order backlog. In effect, we don't have the same running start that we had heading into Q1 of last year. Second, it's important to remember that the first quarter of last fiscal year included 14 weeks of operations versus the standard 13-week calendar. That extra week added an estimated $77 million to consolidated net sales last year. And lastly, as we enter the new fiscal year, our first quarter expense run rate will reflect on-target incentive bonus expenses as well as a partial quarter of higher employee salaries and wages. Taking these factors into consideration, we expect net sales for the first quarter to be in the range of $880 million and $920 million, operating expenses in the range of $288 million to $298 million, and adjusted earnings per share to be between $0.18 and $0.24. Okay. With that overview of the numbers, I'll now turn the call back to the operator and we'll take your questions.

Greg Burns, Analyst

Good afternoon. So I just wanted to touch on the guidance for the year. As we think about the cadence of revenue and earnings, what was driving the stronger back half on the earnings side? How should we think about the split of revenue percentage-wise, or split of earnings perhaps percentage-wise first half, second half? Can you just give us a little more color on the expected cadence for the year?

Jeff Stutz, CFO

Yeah, Greg, this is Jeff. It's good to be with you. I'll begin, and Andi and John may want to chime in if they have anything to add. I want to highlight a few factors that are increasing our confidence in improved revenue as the year progresses. In the first few weeks of the quarter, we’ve observed a significant boost in order entries, particularly in the Americas Contract segment. We’ve also noted a sustained strong performance internationally and expect our international dealer network to grow and gain more traction in the coming year. Specifically, I’ve seen encouraging trends in our funnel opportunities, with year-over-year growth. Regarding order trends and other key indicators, consumer confidence levels are showing positive signs, with the ABI back in expansion territory, which historically indicates future growth about nine months ahead. Additionally, home sales are starting to improve, offering further positive indicators. It’s also important to note that while we’re not completely finished with the integration, most of the heavy lifting is done, allowing our sales team and dealer network to focus on becoming proficient in selling our full offerings. We anticipate continued ramp-up, and we expect the sales momentum to pick up. On the earnings side, we foresee continued pricing advantages, as our track record demonstrates consistent pricing benefits quarter after quarter. We expect price increases implemented earlier to materialize throughout fiscal 2024, positively impacting earnings in the latter half of the year. As volume increases, we should also see enhanced leverage against fixed overhead costs. These factors combined make us confident in achieving our full-year targets. I’ll pause here to see if Andi would like to add anything.

Andi Owen, CEO

Yeah. Jeff, if you hit on most of it. The thing I would add, Greg, is probably as we look at return to office, particularly in North America, where it has been more sluggish than I think we would have hoped as an industry, we're definitely starting to see people moving to decisions. We're starting to see more people having people come back together. All of our research would indicate that this is the way that we need to be moving, so I think we're optimistic about that as well. Jeff touched on the funnel, but I will say this is better than it's been in two years, which I think is a really encouraging sign for us.

Greg Burns, Analyst

Thank you. Lastly, regarding the retail aspect of the business, how do you assess operating in the current demand environment? I understand you've been making investments there, but it was roughly at breakeven this quarter. Are there ways to enhance that business and manage spending? What is your perspective on the demand environment and its influence on how you operate that business?

Andi Owen, CEO

Yes. I mean, I think if you look at all our competitors there, Greg, and across the industry, the residential home furnishings industry, we expect will probably be softer for the next couple of quarters. We are encouraged by new home sales going up. We are encouraged by the real estate market rebounding a little bit, but we still think it will take some time to work through. So we're really simplifying. We're focusing our efforts on the DWR brand. We're focusing our efforts on Herman Miller and Knoll. And where we've seen some real struggle this past year has been working through inventory, and not just an inventory in North America, but many of our wholesalers internationally, whether that be with HAY, or with Knoll around the world have really been sitting on piles of inventory. And as these people are working through that inventory, we expect we will see further profitability. But really we're addressing that through simplification and continuing to focus on building the categories where we are not necessarily maximized right now. So we expect to see a slow climb as demand improves over the year, but we're being very, very prudent in how we invest further in that business right now until the customer comes back full force. I will say, however, that we've invested quite a bit and quite successfully in building our brands and where we have invested from a marketing perspective which has paid off.

Budd Bugatch, Analyst

Good afternoon, and thank you for taking my questions. I hope everybody is doing okay there.

Jeff Stutz, CFO

Hi, Budd.

Andi Owen, CEO

Hey, Budd.

Budd Bugatch, Analyst

Thank you. And Jeff you talked a little bit about net sales for the year. I know we're starting off with a really low backlog compared to where it's been and the excessive backlog has been largely cleared. Where do you think orders will come in for the year? And what do you think the ending backlog will look like for the year?

Jeff Stutz, CFO

We didn't provide a specific guide, but our prepared remarks outlined the level of detail we are willing to share regarding revenue. The softer start and a backlog down about 25% year-over-year as we head into fiscal 2024 indicate that we are likely to see slightly lower revenue. However, I expect total orders for the year to be higher than in fiscal year 2023, as we anticipate acceleration throughout the year. But I won't provide any more detail than that, Budd.

Andi Owen, CEO

That's correct. That's correct, Budd.

Jeff Stutz, CFO

You got it. We expect to build a backlog throughout 2024.

Budd Bugatch, Analyst

Okay. And looking at the guide for Q1, can you kind of maybe give us some help on where the GAAP guidance is? We've got some impairment and restructuring that affected this quarter and I'm going to ask a little bit about if you can give us some color on those programs. I know that no trade name was impaired, but the restructuring specifically. But where do you think the GAAP EPS comes in? My quick pencil work and it could be very slow. It says around $0.20. Is that reasonable?

Jeff Stutz, CFO

Well, our EPS guidance is at the midpoint $0.21, but I want to make sure I understand your question. Are you talking about GAAP EPS?

Budd Bugatch, Analyst

GAAP. Yes, I'm trying to figure out what's in the adjustments going forward.

Jeff Stutz, CFO

Well, frankly, part of the reason we're guiding to an adjusted number is the timing of some of the adjustments related to restructuring, past restructuring and integration costs. They tend to be a little lumpy and they're not terribly easy to predict with the level of precision. But what I would tell you is, we have amortization costs related to the Knoll acquisition that has been a consistent adjustment item in the fourth quarter, that was $6 million. I would expect that to be comparable in Q1. So that's there about $0.06 of earnings that would reduce that adjusted earnings number. And then we will have some integration costs that are a little tougher to predict. So that's why we fell short of giving you the number. But for sure, you're going to see that amortization charge come through on a GAAP basis.

Andi Owen, CEO

And Budd, just one thing, I don't know if this is really ahead or not, but as Jeff pointed out in his prepared remarks, the bulk of our integration activities and costs to achieve are behind us. We would expect those adjustments to gradually continue to decrease over time.

Budd Bugatch, Analyst

Thank you. Yes, I know that, that $6 million, how long do you think that— I think we still have a number of years before that leaves, right?

Andi Owen, CEO

Yes.

Jeff Stutz, CFO

Yes. That's a long-term asset that will amortize over a long period of time, Budd.

Budd Bugatch, Analyst

Okay. One thing confuses me. And Andi you may have given as part of the answer to that is the retail gross margin really has been quite volatile at least quarterly, and I imagine maybe daily or weekly to you as well. Is that basically inventory reduced? Is that a markdown issue? Or is there something in the original mark on that's an issue in the retail gross margin?

Jeff Stutz, CFO

Yes. There are two main factors that have significantly impacted us throughout fiscal 2023, and we believe will improve going forward. The first is related to inventory. Earlier in the year, we faced demurrage and storage fees in the fourth quarter, and we also recognized some inventory-related charges that affected our margins. The second major factor is freight and distribution costs, especially the cost of outbound freight delivery to customers. These rates have remained high and have continued to affect our margins. The team is exploring various strategies to mitigate these costs, including potential price adjustments.

Andi Owen, CEO

And Budd, I would say from a discounting perspective, we're not seeing pricing pressure. We're not degrading our margin and discounting a ton. That has not been our problem from a margin perspective.

Budd Bugatch, Analyst

What is the geographical disparity of gross margin at retail considering that we have DWR in the domestic market and HAY and Muuto internationally?

Andi Owen, CEO

I would say that the international retail businesses, which are primarily wholesale, are the most challenged from a top line and bottom line perspective as most of those wholesalers bought a ton of inventory and based on the supply chain challenges that everyone faced. And when the war in Ukraine started, I think everyone bought up and then demand dropped. So we're seeing a lot of pressure with those wholesalers. Now the good news is we're starting to see them work through that inventory and demand is coming back, but that's really pressured our European businesses.

Budd Bugatch, Analyst

And that does flow through the retail segment, right?

Andi Owen, CEO

Yes, yes. Absolutely, yes. It didn't used to, which makes it a little bit confusing now, but yes, it does now as part of the global retail member.

Budd Bugatch, Analyst

Okay, all right. And the last question. Have you got inventory overall? Where you want it? What's the target inventory for the end of the year or during the year? How much excess inventory are we carrying now if any?

Jeff Stutz, CFO

I think, Budd, we've got inventory that we've come a long way. Inventory came down significantly in the quarter. That unlocks some working capital cash flow. I think the team feels pretty good with inventory levels, albeit we'll have seasonal changes in inventory levels as we move in towards like, for example, in the retail space, the holiday period, there will be some stocking related to that. But I think by and large, we are where we need to be.

Andi Owen, CEO

Yeah. Where we need to be internally, Budd, it's really just our wholesale partners working through their inventory.

Budd Bugatch, Analyst

And that is their inventory. You've already turned a title to that so you're just waiting.

Andi Owen, CEO

Yeah. That's exactly. Not our inventory, but it does affect their ability to buy from us.

Budd Bugatch, Analyst

Got you. And lastly, Jeff, CapEx for the year, did you give a number?

Jeff Stutz, CFO

We did not give a number, but I'm happy to. We spent $83 million in CapEx in fiscal year 2023.

Budd Bugatch, Analyst

And what do you think in 2024?

Jeff Stutz, CFO

We're going to do our level best to try to keep that flat to that number as we can. But as I sit here today, I give you a range on the year of $80 million to $100 million.

Budd Bugatch, Analyst

Thanks, Jeff. Thank you very much. Good luck on the near term and the full year. Thank you.

Jeff Stutz, CFO

Thank you, Budd.

Andi Owen, CEO

Thanks, Budd. Take care.

Reuben Garner, Analyst

Thanks. Good evening, everybody.

Andi Owen, CEO

Hi, Reuben.

Reuben Garner, Analyst

Jeff, any quantification you could give us on the growth in orders and the robust funnel and pipeline that you talked about in the early part of this fiscal year?

Jeff Stutz, CFO

Sure, Reuben, I'm happy to. I'll start by discussing the order pacing throughout the quarter. In the first five weeks of the quarter, we observed an improvement in order entry levels. To reiterate, in the Americas Contract segment, order entry levels were down 8% year-over-year in the fourth quarter. However, in the first five weeks of Q1, we have seen positive growth of about 5%. Since our conference call is taking place later than usual, we have more than the usual couple of weeks' activity to share, and we're quite encouraged by this progress. At a consolidated level, we experienced modest improvement as the quarter progressed. While we were still negative year-over-year, there were signs that this trend was starting to ease. I’ll pause there and turn it over to John to discuss the funnel.

John Michael, President of Americas Contract

Sure. Thanks, Jeff. Reuben, just to maybe add some color commentary to the progress we've seen in the funnel and in the order rate, I'd point to a couple of things. At the start of the calendar year, we put together a plan to compete and win in a recessionary environment, and really in terms of deployment of sales resources and the value proposition that we bring to customers, I think we've really fine-tuned that and those strategies are beginning to pay off and we're seeing that in order rate. The other thing I would say is, we just passed the one-year anniversary of what we originally called cross-sell which was when we had legacy Knoll dealers beginning to sell Herman Miller products and vice versa. And anecdotally, I was with a group of dealers last night and the comment was made that they are so much more confident and feel so much more ready with the full collective of brands today versus a year ago that it's really noticeable. Their confidence in the market is improving and I think that drives order rates as well.

Reuben Garner, Analyst

Great. That's helpful. And then if we could switch back to the guidance for this year, at a high level, Jeff, can you help us with what the price versus volume assumptions are? I recognize that you kind of gave a general view of the top line. Maybe a better way to ask it is, how much pricing just from a carryover perspective from things you've already announced that have that will benefit FY 2024?

Jeff Stutz, CFO

Yes. I’ll start with the pricing aspect. As you know, the pricing adjustments in this industry take some time to materialize. We implemented a tailored price increase last October, which averaged about 8% in our Americas Contract business and other contract elements. It typically takes nearly a year to realize the full effects of such increases. This has significantly contributed to the sequential margin improvements we've noticed since then. Additionally, we recently introduced a new price increase averaging 3% at the beginning of July. Together, these factors are expected to support our margins as we progress through the year. Regarding volume, which is harder to quantify, it plays a critical role as well. Our manufacturing facilities, especially in North America but globally as well, are very responsive to changes in volume. As we expect order levels to rise, this should also help enhance our margin performance, but that’s about all I can share at this moment.

Andi Owen, CEO

Reuben?

Operator, Operator

All right. And we'll move on to our next question from Alex Fuhrman with Craig-Hallum Capital Group.

Alex Fuhrman, Analyst

Hey, guys, thanks for taking my question. Andi, I wanted to ask about the retail business. How does that factor into the guidance for the upcoming year? And obviously, I have been up against incredibly tough comparisons. Is the consumer there starting to come back a little bit? What's your expectation there for the rest of this year as it relates to your guidance for this year?

Andi Owen, CEO

It's a great question. As I mentioned earlier, we expect to see softer demand in these first couple of orders. However, as we move into calendar year '24, we anticipate that consumer activity will begin to pick up. We’re encouraged by home sales since people moving significantly impacts our business. As consumers adjust to the current interest rates, it influences their purchasing decisions. The positive news is that our average order value, when we analyze the quality of consumers, remains stable. So, we are very optimistic about that. We aren't needing to discount, and our inventory levels are where we want them. Currently, we are focusing on our key brands and categories that we haven't fully optimized, while slightly reducing our investment in areas until consumer spending picks up. I believe consumers are still engaged, but at the moment, they are prioritizing travel and other experiences, and we expect this to shift as the year progresses.

Jeff Stutz, CFO

Alex, this is Jeff. Just one more bit of color, and I didn't mention this in my prepared remarks, but I think it warrants the mentioning. The other thing that I think affects the cadence of performance through the year is, bear in mind, our fiscal quarter one is the seasonal long watermark for the retail business. That just seasonality and where promotional events are scheduled, consumer behaviors in the summer months all play into that. So we do expect improved performance just based on seasonal trends as we move into Q2 and beyond.

Alex Fuhrman, Analyst

Okay. That's really helpful. And then just thinking about some of those comments about the consumer. Are you seeing anything differently in the US versus abroad? And then all of your brands are certainly premium, but some of them are kind of mega premium price points. Are you seeing any sort of a difference in demand based on the prices in your portfolio?

Andi Owen, CEO

I would say a difference in demand really kind of goes back to what I was saying earlier. I think we're seeing a little softer demand internationally with our wholesale partners. I really believe that has to do with inventory buildups, I don't necessarily think that has to do with price points in the product. As I said, we're not having to discount. And that to us is a really important piece of this puzzle. And the quality of the consumer is there. It's taking a little bit longer for people to pull the trigger and purchases, but the quality of the consumer is definitely there.

Alex Fuhrman, Analyst

That's really helpful. Thank you, guys, very much.

Andi Owen, CEO

Thank you.

Reuben Garner, Analyst

Thanks. Sorry, guys. Yes, I got dropped just as I finished asking and then I came back into the tail and I did not drop because I didn't like the answer. I just didn't hear it.

Jeff Stutz, CFO

Okay, got it.

Andi Owen, CEO

Thanks again, everyone, for joining us on the call. We really appreciate your continued support of MillerKnoll, and we are looking forward to updating you on our next quarterly call. Have a great night.

Operator, Operator

And that does conclude today's presentation. Thank you for your participation, and you may now disconnect.