Ethan Allen Reports Fiscal 2024 Second Quarter Results Highlighted by Strong Margins and Robust Balance Sheet; Lower Sales Reflect Post Pandemic Economy
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Insights
Examining the financial results of Ethan Allen Interiors Inc., a few key metrics stand out. The increase in gross margin to 60.2% from 55.2% is significant, indicating an improved profitability per unit sold. This could suggest a successful management of cost of goods sold or an ability to increase prices without a commensurate rise in costs. The growth in cash and investments to $167.8 million from $38.8 million over five years reflects a solid liquidity position, which is crucial for weathering economic downturns and can provide the company with the flexibility to invest in growth or return capital to shareholders.
Moreover, the reduction of inventory levels by 11.5% and headcount by 31.1% suggests a strategic shift towards lean operations. While this could lead to cost savings and efficiency gains, it is important to monitor how these reductions impact the company's ability to meet customer demand and maintain service quality. The return of $137.9 million to shareholders in the form of cash dividends indicates a shareholder-friendly capital allocation policy, which can be attractive to investors seeking income. However, it is essential to balance shareholder returns with the need to invest in the business for long-term growth.
From a market perspective, Ethan Allen's focus on repositioning its design centers as the Interior Design Destination and investing in North American manufacturing and logistics suggests a strategic move to differentiate itself in the competitive home furnishing market. This rebranding and investment could enhance customer experience and loyalty, potentially translating into a competitive advantage. However, it's important to consider the broader industry trends, such as the shift towards online shopping and the demand for sustainable and customizable furniture options, to fully assess the long-term viability of these investments.
In light of the reported lower sales, it's crucial to analyze the underlying causes. Is this a reflection of a saturated market, a shift in consumer spending habits post-pandemic, or perhaps a lag in adapting to digital sales channels? These factors will determine the effectiveness of Ethan Allen's current strategies and its ability to sustain growth in a post-pandemic economy.
From an economic standpoint, the reduction in sales reported by Ethan Allen may signal a normalization of the market following the heightened demand during the pandemic when consumers focused heavily on home improvements. The return to pre-pandemic levels in backlogs could indicate that the surge in home furnishing demand is tapering off as the economy opens up and consumer spending diversifies into other sectors. Furthermore, the company's robust balance sheet positions it well to navigate potential macroeconomic headwinds, such as rising interest rates or a slowdown in consumer spending.
The strategic initiatives undertaken during the pandemic, such as enhancing technology and social responsibility, are aligned with broader economic shifts towards digital transformation and corporate sustainability. These initiatives could resonate with the growing consumer base that values corporate ethics and digital convenience, potentially fostering customer loyalty and driving long-term growth.
DANBURY, CT, Jan. 24, 2024 (GLOBE NEWSWIRE) -- Ethan Allen Interiors Inc. (“Ethan Allen” or the “Company”) (NYSE: ETD), a leading interior design destination, today reported its financial and operating results for the fiscal 2024 second quarter ended December 31, 2023.
Farooq Kathwari, Ethan Allen’s Chairman, President and CEO commented, “We are pleased to report our financial and operating results for the fiscal 2024 second quarter ended December 31, 2023, marked by lower sales, strong gross and operating margins and a robust balance sheet. The pandemic period, defined by us as fiscal years 2021 through 2023, had strong consumer focus on the home, high demand and major increases in sales. We had record high backlogs, which are now returning to pre-pandemic levels. During this pandemic period, we undertook many important initiatives within our vertically integrated enterprise, including strengthening our Talent, Marketing, Service, Technology and Social Responsibility.”
“Compared to our second quarter ended December 31, 2018, each of these important areas contributed to the strengthening of our enterprise. Gross margin increased to
“During the last decade, our focus on developing a strong interior design-based enterprise and utilizing technology was a great advantage. We have continued to strengthen our enterprise with this focus and last fiscal year started repositioning our 173 design centers throughout North America as the Interior Design Destination. We also continued to invest in our North American manufacturing and logistics. About
FISCAL 2024 SECOND QUARTER HIGHLIGHTS*
- Consolidated net sales of
$167.3 million decreased17.7% - Retail net sales of
$139.2 million were lower by19.0% - Wholesale net sales of
$90.6 million were lower by14.7%
- Retail net sales of
- Written order trends
- Retail segment written orders decreased
9.4% - Wholesale segment written orders decreased
10.9%
- Retail segment written orders decreased
- Consolidated gross margin of
60.2% was 80 basis points lower than last year due to deleveraging from lower unit volumes combined with changes in both sales and product mix partially offset by lower input costs including reduced inbound freight, raw material costs and headcount - Operating margin of
13.0% ; adjusted operating margin of12.8% compared with18.1% last year due to fixed cost deleveraging from lower consolidated net sales, gross margin erosion, incremental costs from new design centers and expenses incurred with the launch of the Interior Design Destination initiative partially offset by lower headcount, reduced variable expenses including lower delivery and commissions and the ability to maintain a disciplined approach to cost savings and expense control - Advertising expenses were equal to
2.0% of net sales in both the current and prior year period; promotional activity remained disciplined - Diluted EPS of
$0.68 compared with$1.10 ; adjusted diluted EPS of$0.67 ; reported diluted EPS for the second quarter ending December 31, 2018 (pre-pandemic) was$0.45 - Generated
$13.6 million of cash from operating activities compared with$2.5 million a year ago - Paid regular quarterly cash dividend of
$0.36 per share totaling$9.2 million - Ended the quarter with
$167.8 million in cash and investments with no debt outstanding - Reduced inventory carrying levels to
$140.9 million at December 31, 2023, down11.8% from a year ago - Celebrated the launch of Ethan Allen’s next reinvention as the Interior Design Destination with several design center grand reopenings during the quarter; images from each celebration are featured at www.ethanallen.com/grandreopenings
- Ethan Allen held its 2023 Virtual Convention in December, which celebrated over 91 years of innovation by highlighting the Company’s strategic repositioning as the Interior Design Destination across its vertically integrated enterprise, its history in classic style with a modern perspective, the service of its manufacturing and logistics operations and the strengthening of the Company’s retail network
* See reconciliation of GAAP to adjusted key financial measures in the back of this press release. Comparisons are to the second quarter of fiscal 2023.
KEY FINANCIAL MEASURES*
| (Unaudited) | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Three months ended | Six months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||
| Net sales | $ | 167,276 | $ | 203,161 | (17.7 | %) | $ | 331,168 | $ | 417,691 | (20.7 | %) | ||||
| Gross profit | $ | 100,636 | $ | 124,020 | (18.9 | %) | $ | 200,777 | $ | 253,636 | (20.8 | %) | ||||
| Gross margin | 60.2 | % | 61.0 | % | 60.6 | % | 60.7 | % | ||||||||
| GAAP operating income | $ | 21,688 | $ | 37,069 | (41.5 | %) | $ | 40,039 | $ | 76,719 | (47.8 | %) | ||||
| Adjusted operating income* | $ | 21,453 | $ | 36,873 | (41.8 | %) | $ | 41,296 | $ | 74,565 | (44.6 | %) | ||||
| GAAP operating margin | 13.0 | % | 18.2 | % | 12.1 | % | 18.4 | % | ||||||||
| Adjusted operating margin* | 12.8 | % | 18.1 | % | 12.5 | % | 17.9 | % | ||||||||
| GAAP net income | $ | 17,411 | $ | 28,166 | (38.2 | %) | $ | 32,350 | $ | 58,046 | (44.3 | %) | ||||
| Adjusted net income* | $ | 17,235 | $ | 28,020 | (38.5 | %) | $ | 33,289 | $ | 56,437 | (41.0 | %) | ||||
| Effective tax rate | 25.5 | % | 25.7 | % | 25.5 | % | 25.5 | % | ||||||||
| GAAP diluted EPS | $ | 0.68 | $ | 1.10 | (38.2 | %) | $ | 1.26 | $ | 2.27 | (44.5 | %) | ||||
| Adjusted diluted EPS* | $ | 0.67 | $ | 1.10 | (39.1 | %) | $ | 1.30 | $ | 2.21 | (41.2 | %) | ||||
| Cash flows from operating activities | $ | 13,590 | $ | 2,517 | 439.9 | % | $ | 30,290 | $ | 40,939 | (26.0 | %) | ||||
* See reconciliation of GAAP to adjusted key financial measures in the back of this press release
BALANCE SHEET and CASH FLOW
Cash and investments totaled
Cash dividends paid were
Cash from operating activities totaled
Inventories, net totaled
Customer deposits from undelivered written orders totaled
No debt outstanding at December 31, 2023.
DIVIDENDS
On October 24, 2023, the Company’s Board of Directors declared a regular quarterly cash dividend of
CONFERENCE CALL
Ethan Allen will host a conference call with investors and analysts today, January 24, 2024, at 5:00 PM (Eastern Time) to discuss these results. The conference call will be webcast live from the Company’s Investor Relations website at https://ir.ethanallen.com.
The following information is provided for those who would like to participate in the conference call:
- U.S. Participants: 877-705-2976
- International Participants: 201-689-8798
- Meeting Number: 13742675
For those unable to listen live, an archived recording of the call will be made available on the Company’s website referenced above for up to six months.
ABOUT ETHAN ALLEN
Ethan Allen (NYSE:ETD), recently named America’s #1 Premium Furniture Retailer and among America’s Top 10 Retailers by Newsweek, is a leading interior design destination combining state-of-the-art technology with personal service. Our design centers, which represent a mix of independent licensees and Company-owned and operated locations, offer complimentary interior design service and sell a full range of home furnishings, including custom furniture and artisan-crafted accents for every room in the home. Vertically integrated from product design through logistics, we manufacture about
Investor Relations Contact:
Matt McNulty
Senior Vice President, Chief Financial Officer and Treasurer
IR@ethanallen.com
ABOUT NON-GAAP FINANCIAL MEASURES
This press release is intended to supplement, rather than to supersede, the Company's consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (“GAAP”). In this press release the Company has included financial measures that are derived from the consolidated financial statements but are not presented in accordance with GAAP. The Company uses non-GAAP financial measures, including adjusted operating income and margin, adjusted net income and adjusted diluted EPS (collectively “non-GAAP financial measures”). The Company computes these non-GAAP financial measures by adjusting the comparable GAAP measure to remove the impact of certain charges and gains and the related tax effect of these adjustments. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, or superior to, the financial performance measures prepared in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and to evaluate period-to-period comparisons. The Company believes that they provide useful information about operating results, enhance the overall understanding of past financial performance and prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. A reconciliation of these non-GAAP financial measures to the most directly comparable financial measure reported in accordance with GAAP is provided at the end of this press release.
FORWARD-LOOKING STATEMENTS
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Generally, forward-looking statements represent management’s beliefs and assumptions concerning current expectations, projections or trends relating to results of operations, financial results, financial condition, strategic initiatives, expenses, dividends, share repurchases, liquidity, use of cash and cash requirements, investments, future economic indicators, business conditions and industry performance. Such forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These forward-looking statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “continue,” “may,” “will,” “short-term,” “target,” “outlook,” “forecast,” “future,” “strategy,” “opportunity,” “would,” “guidance,” “non-recurring,” “one-time,” “unusual,” “should,” “likely,” “pandemic,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. The Company derives many of its forward-looking statements from operating budgets and forecasts, which are based upon detailed assumptions. While the Company believes that its assumptions are reasonable, it cautions that it is difficult to predict the impact of known factors and it is impossible for the Company to anticipate all factors that could affect actual results and matters that are identified as “short-term,” “non-recurring,” “unusual,” “one-time,” or other words and terms of similar meaning may in fact recur in one or more future financial reporting periods.
Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that are expected. Actual results could differ materially from those anticipated in the forward-looking statements due to a number of risks and uncertainties including, but not limited to, the risks and uncertainties disclosed in Part I, Item 1A. Risk Factors, in the Company’s 2023 Annual Report on Form 10-K and other factors identified in its reports filed with the Securities and Exchange Commission (the “SEC”), available on the SEC's website at www.sec.gov.
All forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements, as well as other cautionary statements. A reader should evaluate all forward-looking statements made in this press release in the context of these risks and uncertainties. Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Many of these factors are beyond the Company’s ability to control or predict. The Company is including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. The forward-looking statements included in this press release are made only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.
| Ethan Allen Interiors Inc. | |||||||||||
| Condensed Consolidated Statements of Comprehensive Income | |||||||||||
| (Unaudited) | |||||||||||
| (In thousands, except per share data) | |||||||||||
| Three months ended December 31, | Six months ended December 31, | ||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||
| Net sales | $ | 167,276 | $ | 203,161 | $ | 331,168 | $ | 417,691 | |||
| Cost of sales | 66,640 | 79,141 | 130,391 | 164,055 | |||||||
| Gross profit | 100,636 | 124,020 | 200,777 | 253,636 | |||||||
| Selling, general and administrative expenses | 79,183 | 87,147 | 159,481 | 179,109 | |||||||
| Restructuring and other charges, net of gains | (235 | ) | (196 | ) | 1,257 | (2,192 | ) | ||||
| Operating income | 21,688 | 37,069 | 40,039 | 76,719 | |||||||
| Interest and other income, net | 1,667 | 851 | 3,391 | 1,192 | |||||||
| Income before income taxes | 23,355 | 37,920 | 43,430 | 77,911 | |||||||
| Income tax expense | 5,944 | 9,754 | 11,080 | 19,865 | |||||||
| Net income | $ | 17,411 | $ | 28,166 | $ | 32,350 | $ | 58,046 | |||
| Net income per diluted share | $ | 0.68 | $ | 1.10 | $ | 1.26 | $ | 2.27 | |||
| Diluted weighted average common shares | 25,630 | 25,582 | 25,624 | 25,571 | |||||||
| Ethan Allen Interiors Inc. | ||||||
| Condensed Consolidated Balance Sheets | ||||||
| (Unaudited) | ||||||
| (In thousands) | ||||||
| December 31, | June 30, | |||||
| ASSETS | 2023 | 2023 | ||||
| Current assets | ||||||
| Cash and cash equivalents | $ | 55,051 | $ | 62,130 | ||
| Investments | 97,679 | 110,577 | ||||
| Accounts receivable, net | 6,831 | 11,577 | ||||
| Inventories, net | 140,939 | 149,195 | ||||
| Prepaid expenses and other current assets | 25,459 | 25,974 | ||||
| Total current assets | 325,959 | 359,453 | ||||
| Property, plant and equipment, net | 219,492 | 222,167 | ||||
| Goodwill | 25,388 | 25,388 | ||||
| Intangible assets | 19,740 | 19,740 | ||||
| Operating lease right-of-use assets | 113,699 | 115,861 | ||||
| Deferred income taxes | 832 | 640 | ||||
| Other assets | 17,065 | 2,204 | ||||
| Total ASSETS | $ | 722,175 | $ | 745,453 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued expenses | $ | 24,069 | $ | 28,565 | ||
| Customer deposits | 63,098 | 77,765 | ||||
| Accrued compensation and benefits | 21,253 | 23,534 | ||||
| Current operating lease liabilities | 26,649 | 26,045 | ||||
| Other current liabilities | 5,861 | 7,188 | ||||
| Total current liabilities | 140,930 | 163,097 | ||||
| Operating lease liabilities, long-term | 101,314 | 104,301 | ||||
| Deferred income taxes | 2,991 | 3,056 | ||||
| Other long-term liabilities | 4,050 | 3,993 | ||||
| Total LIABILITIES | $ | 249,285 | $ | 274,447 | ||
| Shareholders’ equity | ||||||
| Ethan Allen Interiors Inc. shareholders’ equity | $ | 472,926 | $ | 471,028 | ||
| Noncontrolling interests | (36 | ) | (22 | ) | ||
| Total shareholders’ equity | $ | 472,890 | $ | 471,006 | ||
| Total LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 722,175 | $ | 745,453 | ||
Reconciliation of Non-GAAP Financial Measures
To supplement the financial measures prepared in accordance with GAAP, the Company uses non-GAAP financial measures, including adjusted operating income and margin, adjusted net income and adjusted diluted EPS. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in tables below.
These non-GAAP measures are derived from the consolidated financial statements but are not presented in accordance with GAAP. The Company believes these non-GAAP measures provide a meaningful comparison of its results to others in its industry and prior year results. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, its financial performance measures prepared in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than the Company does, limiting the usefulness of those measures for comparative purposes. Despite the limitations of these non-GAAP financial measures, the Company believes these adjusted financial measures and the information they provide are useful in viewing its performance using the same tools that management uses to assess progress in achieving its goals. Adjusted measures may also facilitate comparisons to historical performance.
The following tables provide a reconciliation of non-GAAP financial measures used in this release to the most directly comparable GAAP financial measures.
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| (In thousands, except per share data) | Three months ended | Six months ended | ||||||||||||||||
| December 31, | December 31, | |||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||
| Consolidated Adjusted Operating Income / Operating Margin | ||||||||||||||||||
| GAAP Operating income | $ | 21,688 | $ | 37,069 | (41.5 | %) | $ | 40,039 | $ | 76,719 | (47.8 | %) | ||||||
| Adjustments (pre-tax)* | (235 | ) | (196 | ) | 1,257 | (2,154 | ) | |||||||||||
| Adjusted operating income* | $ | 21,453 | $ | 36,873 | (41.8 | %) | $ | 41,296 | $ | 74,565 | (44.6 | %) | ||||||
| Consolidated Net sales | $ | 167,276 | $ | 203,161 | (17.7 | %) | $ | 331,168 | $ | 417,691 | (20.7 | %) | ||||||
| GAAP Operating margin | 13.0 | % | 18.2 | % | 12.1 | % | 18.4 | % | ||||||||||
| Adjusted operating margin* | 12.8 | % | 18.1 | % | 12.5 | % | 17.9 | % | ||||||||||
| Consolidated Adjusted Net Income / Adjusted Diluted EPS | ||||||||||||||||||
| GAAP Net income | $ | 17,411 | $ | 28,166 | (38.2 | %) | $ | 32,350 | $ | 58,046 | (44.3 | %) | ||||||
| Adjustments, net of tax* | (176 | ) | (146 | ) | 939 | (1,609 | ) | |||||||||||
| Adjusted net income | $ | 17,235 | $ | 28,020 | (38.5 | %) | $ | 33,289 | $ | 56,437 | (41.0 | %) | ||||||
| Diluted weighted average common shares | 25,630 | 25,582 | 25,624 | 25,571 | ||||||||||||||
| GAAP Diluted EPS | $ | 0.68 | $ | 1.10 | (38.2 | %) | $ | 1.26 | $ | 2.27 | (44.5 | %) | ||||||
| Adjusted diluted EPS* | $ | 0.67 | $ | 1.10 | (39.1 | %) | $ | 1.30 | $ | 2.21 | (41.2 | %) | ||||||
* Adjustments to reported GAAP financial measures including operating income and margin, net income and diluted EPS have been adjusted by the following: | ||||||||||||
| (Unaudited) | Three months ended | Six months ended | ||||||||||
| (In thousands) | December 31, | December 31, | ||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Orleans, Vermont flood | $ | 250 | $ | - | $ | 2,346 | $ | - | ||||
| Gain on sale-leaseback transaction | (655 | ) | (654 | ) | (1,310 | ) | (2,911 | ) | ||||
| Severance and other charges | 170 | 458 | 221 | 757 | ||||||||
| Adjustments to operating income | $ | (235 | ) | $ | (196 | ) | $ | 1,257 | $ | (2,154 | ) | |
| Related income tax effects on non-recurring items(1) | 59 | 50 | (318 | ) | 545 | |||||||
| Adjustments to net income | $ | (176 | ) | $ | (146 | ) | $ | 939 | $ | (1,609 | ) | |
(1) Calculated using the marginal tax rate for each period presented
FAQ
What are Ethan Allen Interiors Inc.'s financial and operating results for the fiscal 2024 second quarter?
What were the company's initiatives during the pandemic period?
How has the company's gross margin changed compared to the quarter ending December 31, 2018?
What is the total cash and investments of the company?
How much has the company returned to shareholders in cash dividends during the pandemic period?
