Q4 2020 Ethan Allen Interiors Inc Earnings Call

That answer session will follow the formal presentation. As a reminder, this conference is being recorded its still my pleasure to trigger covert combat Mcnulty Vice President Finance. Please go ahead Sir.

Thank you Kevin Good afternoon, and welcome to Ethan Allen's conference call for fiscal fourth quarter ended June Thirtyth 2020.

Conference call is being recorded webcast live on Ethan Allen Dot Com, where are you will find a copy of our press release, which contains reconciliations of non-GAAP financial information referred to in the release and on this call. A replay of today's call will also be made available via phone and on our website. After our prepared remarks, well open the cost to question.

As a reminder, our comments today will include forward looking statement there are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our FCC filings for a complete review those risks.

Company assumes no obligation to update or revise any forward looking matters discussed during this call joining me on the call today is our chairman and CEO fruit category.

Our Chief Financial Officer, Corey Whitely, I'm pleased to now turn the call over to fruit category.

[music].

Thank you Matt.

And thank you all participating in our fourth quarter in fiscal year, ending June 30, trendy Benji called.

As we all know.

The last few months I've been very challenging.

The <unk> 19, according to a recent economic study has wiped out.

Five years Nami growth.

We are pleased I'm gratified that'd be had been able to generate business.

By major closure of our retail network for most part of the full squad.

We've been able to determine Jane business due to a number of factors including a.

Strong talent and I'll, let degree integrated structure.

The trust in our brand rig quality value and service.

Combining personal service somebody interior designers and combined with technology.

Adding technology for lighting directional wells a major focus the last few yes.

Maintaining strong marketing initiatives during the quarter unfair advertising safety and social responsibility.

Due to many initiatives, we were able to generate up falls, the do 14 million cash during the fourth quarter.

We also decided to pay back 50 million all the hundred million dollars, we have drawn probably in line of credit for precautionary purposes.

We had especially pleased that all written orders for the three months ending June was strong then called most of the time period, most about design centers what closed.

Our wholesale orders as compared to previous yeah, well for April 35% made 70%, you, 117% and July hundred and 3%.

These numbers all sort of flat doubling of sales online during the quarter ended June thirtyth from previous years quarter.

We are pleased.

Today the board reinstated.

The quarterly dividends up 21 Centsper share.

And after Corey provides financial overview I'd be happy to give more.

Details some more information.

The open find your comments and questions. So Corey.

Thank you for Oak.

The cobot 19 crisis challenged our operations during the fourth quarter mass Roque mentioned, our teams did well and preserve veering through these challenges.

Our primary focus was operating in a safe manner for our associates and our clients as our design centers began to reopen we implemented the CDC guidelines for operating businesses safely. We established logistics for the supply of hand, sanitizer unrelated dispensers disinfectant cleaning supplies mass and mitral gloves and we increase.

The cleaning frequency of our design centers another facilities for the safety of our associates and our design centers, we require all associates and clients to wear masks.

So far we've been fortunate with very few cases, a cobot 19 throughout our enterprise.

As we previously announced on March 19th we temporarily closed all our company operated design centers in the U.S. in Canada due to covert 19, and the various governmental stay at home orders.

Each of our North American manufacturing operations were also impacted with governmental orders requiring temporary shutdowns for various periods during April may and June.

Our logistics operations, while continuing to operate throughout the quarter, we're operating in a limited fashion.

Actually with restrictions on our in home White glove deliveries.

As a result, our consolidated net sales for the quarter of a 91 point Sixmillion, we're about half of the prior year.

Net sales of under an 83.9 million for the quarter.

[noise] hotels, like 51 point Sixmillion compared with 107.5 million in the prior year quarter, primarily due to lower sales toward North American retail network and shutdowns that manufacturing related to the Kobin 19 crisis.

Retail segment net sales were 70.7 million compared with 147.2 million in the prior period.

144 company operated North American design centers in both the current and prior year periods.

Cobot 19 related manufacturing shutdowns and logistics disruption negatively impacted the net sales.

As and the consolidated adjusted gross margin, which decreased to 53.3%.

For the full fiscal year gross margin on adjusted basis was 55.7 per cent compared to 55.1% in the prior year.

As we announced on April 1st we took many steps into our cobot 19 action plan, including the furlough approximately 70% of our global work force.

Vision by our CEO and forget for go his salary through June Thirtyth, 2020, and the salary reduction of up to 40% for all senior management and up to 20% for other salaried employees through June Thirtyth.

Our board of directors reduce their cap cash compensation by 50% to June Thirtyth.

And then we eliminated all are non essential operating expenses.

Oh shade with our land or stories, you rent deferrals or abatements, where at least design centers, we delayed non essential capital expenditures and took other steps to reduce cash disbursements.

With these expense controls our adjusted operating expenses for the fourth quarter, which included 5.3 million of advertising costs decreased 38.2% from the prior year to 53.7 million.

We incurred some incremental costs associated with the additional supplies and cleaning regimes based on the CDC safe business protocols. These costs, which were less than 1 million are reflected within our fourth quarter SGN a expenses.

Impacted primarily by lower net sales and a decline in wholesale gross margin.

Operating loss for the force fourth quarter was 5 million.

For the full year adjusted operating income was 17.1 million.

Adjustments to GAAP operating income for the quarter totaled 7.5 million, primarily represented restructuring and asset impairment charges during the quarter of which 4.7 million were noncash charges.

Adjusted EPS for the quarter was a loss of 15 cents compared with adjusted earnings of 46 cents in the prior year fourth quarter.

For the full fiscal year, adjusted EPS was 52 cents compared with $1.56 last year.

A key element of our Corbett 19 action plan was to reduce expenses and conserve cash we were pleased to have generated cash from operating activities of 14 million during the quarter in 15 minutes of 53 million for the full fiscal year.

For precautionary purposes, we do 100 million from our credit facility in March and by June Thirtyth, We paid 50 million well still ending the quarter with total cash is 72.3 million.

Okay, we carefully managed or inventories and ended the fiscal 2020 year with 126.1 million of inventory compared with 162.4 billion a year ago.

We believe the fundamentals of the company remains strong with orders improving sequentially each month and as our business has started to rebound. We're pleased to have called back 56% of our furloughed workers as of June Thirtyth.

With that I will turn the call back over to for it.

Yeah. Thank you Corey.

Oh.

While many external challenges.

We were pleased with the results of good color.

No again many unknowns.

We still believe that we are positioned relative growth.

The main areas of focus I'd say, just some of them earlier, one is maintaining a strong talent in our vertically integrated structure.

I would teams really have done a great job and end the call joining the amount of changes we have to me and the way they did it while still maintaining business in fact, increasing business in June and July from the previous yet.

Good day, combining technology with personal service will help us increased productivity as we as we saw in the fourth quarter.

Our ability to service our clients is critical.

With 75% about products made in our North American looks up we have the ability to a this offline well and increased efficiency.

In manufacturing and logistics.

I'll now like like others. We have you have taken we have you had to get back into manufacturing you'll have to make sure that we're also able to get some supplies of raw materials on the timely basis, but off production is increasing and we didn't greaves backlogs, we have an opportunity in the next few months to service this backlog.

Now any she didn't initiatives to strengthening expanded design center network is extremely important.

Currently we have 200 design centers in North America, and order 100 internationally.

We're also planning to launch a campaign to attract retail entrepreneur was going on that's work.

In many markets that you're not currently Brett.

Our government and contract business remains promising.

And we look forward to continued growth.

Enhancing on marketing and product development programs is critical.

I'll focus remains on three important attitudes in all product programs that we define that lasik Smith, among prospective country coastal and <unk>.

Our recent introduction of custom bedroom maiden on North American facilities, and this month, introducing a program called the farmhouse inside called it is extremely well received bike lights.

We have maintained strong marketing various meetings mediums, including national and regional television.

Direct mail digital mediums and grassroots at the retail level.

Finally focus always remains on managing our business for safety and social responsibility and that is the focus all across the enterprise with this like the open plenty questions or comments.

Thank you will now begin ducking. Your question answer session, if you'd like to be placed in the question Q. Please press star one under telephone keypad confirmation tone will indicate your line is in the question Q You Me press star to if he'd like Trubridge question from the Q for participants using speaker equipment, and maybe necessary to pick up ahead.

Before pressing star one one woman peacefully poll for questions.

The question today is coming from Bobby Griffin from Raymond James Your line is that lives.

Yeah, no Bobby upward.

Oh, Okay sustained say Oh, thank you for taking my questions.

Well you don't want basketball workers is the cost base you know a lot of a lot of cuts during the quarter to conserve cash as you've seen demand return here in June and July what what's coming back in terms of cost is it all coming back or is there some that are going to be kind of permanent cost reductions.

Oh, that's a good question Bobby because.

Crisis does create an opportunity to rethink.

Our enterprise rethink how we can operate and we have been able to upgrade.

In doing the lost.

Like a three month this last quarter.

Oh, yeah, the retail up.

Approximately.

You know.

Net People's lives doing more business now this is somewhat perhaps there's some pent up demand, but I think most topic just due to the fact that we brought into basketball best people.

And the claims that came in well motivated.

They were interested in buying so the basketball design center interacted with them I'm in person in person as well as online. So I think going forward, but in the retail network, we believe that weekend.

Due substantially hey business I'm much more business with approximately 30% less associates.

Now the manufacturing we have brought that most of the people because of the fact is much more focus on thought it's made in North America just good nears. So our operations in North America in Mexico, Honduras, Vermont is almost close to what we had previously.

Other areas I think again, we are learning how technology is going to help us I think we're going to operate with approximately 20% to 30% less associates and be able to do more business.

Okay. That's very helpful and I guess secondly for me I know this time of the year against you and poor in no time to your for the State Department contract as the fiscal year ends for the government can you maybe talk about what you're seeing from from that side of the business as as things have returned a little bit more tilted towards normal.

Yes, It's a you said August and September is out there to two important months and.

The government fiscal year end stemmed the tide, yet so we expect strong business. The the next two months and that's what has been indicated.

And we believe that will take place.

Okay. Thanks, I appreciate you answered my questions best of luck in the next four.

Thank you Bobby.

Thank you and that's question today is coming from Brad Thomas from Keybanc capital markets. Your line is not a lot.

Yes, Hello, Brian.

Good afternoon, Frederic I cannot right actually my question are you doing.

We're all good well and good and I hope you have to Brad.

Yes.

Thank you I first [laughter] be around a recent trends that you know the press release talks about wholesale orders versus prior year.

And you have indicated yeah.

And the July is that I know you ever here I was little bit about a their retail side of things and then staying in recent months ourselves.

[laughter] Grad you know the retail represents.

Very very vast majority in fact almost to the significant majority of our business. So these numbers that you see out a direct result of what is happening at region.

Got it 70 directly from it would've been fair to say that the retail.

I've heard some sort of track.

Pattern that you outlined in the press yet it's about it's Brad I'll say.

Opposed to not do not understand but pretty close because our retail business is the.

Is the most is most you know it's not it's <unk>.

This state gene goes to one Matt quoting correct me goes to the 80, 590% up a little business.

Yeah, Yeah. So directionally there there are almost no step and stuff.

[noise] yeah, Okay great.

And.

You really isn't that could you talk about where the backlog is today with the timing is that's a fellow orders and any nuances that we should keep in mind is we think about modeling sales in this current quarter at the demand starts to come back here.

Well you know grad, we've already done the he'd be surprising have too many years includes or something but a lot of business, we were able to generate in.

In this last quarter, even in July and lock the like what the strong do like that our teams did exceedingly well to do more business. This july than dogs, we like now having said this said they also said part of it perhaps is pent up demand, but if it is due to the fact that we also gave me know pretty good decent saving so out.

Climbs I would say that we are.

I would say they are using that technology. We are cautiously optimistic that we continue to maintain this now having said this we also have to keep in mind, all the external factors, especially cold but.

The last job, even though our business held up in many of the states where the call called would has gone up like say, Florida, and Texas and and George again.

And then Carolinas, we have to just be cautious about that others don't external factors, but we were able to do well despite all of that and especially in some of you and even the new England.

Manhattan has still been so and I think that just about getting it.

Started.

But other than that have you had some challenges in Seattle that people have been very careful but the rest of the country in many many parts of the country I think they've been very fortunate that dog designers and not have done well claims that costed US yeah, and then let them come into their homes also to do How's falls.

Ah, but now Blink your other question, we do have a backlog we're now in the process topics, a increasing our capacity some of that it impacted with some raw material.

Challenges in issues, which is all departments old, but overall I think we'll be able to meet this expanded business I'd be able to see if this quarter and some in the falling gold.

That's very helpful scope I can squeeze one last one [laughter], yeah, clearly that the backdrop from Covidien has excel expressed marketshare on did you see.

I'd be a business Oracle I can you talk little about what opportunities you're seeing too.

Yeah, I'll see if any.

[laughter] site, how do you may make [laughter], Matt how are you don't do not sort of parse out here.

No no Brad I wasn't completely able to understand maybe Corey appeal heard it's completely because Brad you know there I am shall we had a big stone our internet is out electricity was out and a big here under the AD or treat fell right in front Fortunately.

Just had about house, so I'm a little bit impacted by that's all happened. This afternoon. Accordingly, if you heard that Ah question could you. Please respond yeah I think Brad you did break up a little bit I think you are really kind of questioning just our online presence and how we're going to focus and continue to grow that more so.

Even then but it has been.

As Rick mentioned, you know, we more than doubled the business online we neo even in July it was.

Over 100% of what it was the prior year. So we are seeing a strong growth there, but at the same time, just doing even more in driving business into our design centers.

The right when the.

Okay. So started and we had to shut down many of our design centers do these government regulations, we added I make an appointment feature to our website. It's on the home pages on every designers portfolio page on or find a store page and find that make an appointment really took off exponentially throughout the quarter.

People could do two things that could make a virtual appointment with one of our design consultants or they can make a private in store appointment with one of our design consultants in those areas, where we could do that safely.

And that a really.

With a great feature people really like that and we're continuing to see a great. You said that the tool even today, where people to do have the ability to go out and shot much more freely and then of course the like chat is also a great generator of sales and then of course as we've said before as you know when they work with the design around like chat.

And the designer usually works those sales through their local design center in process is it to the design centers point of sale system and they don't really reflect as web sales. So that the website does very well at driving business presenting the brand and and yes. You know we did more than doubled to sales online and we'll continue to see that grow because there was a great opportunity for them.

That a as we go forward, but it does need to connect the personal service of our designers with the customers.

Yeah, Hi, Brad I'd also mention into what's not in last few years focused a lot and adding technology.

The personal service somebody just doesn't help the train get knowledgeable about it and it's amazing how much a business they've been able to do by utilizing technology and doing booking all side not in the design centers in completing projects and I think that has really been very beneficial and as he will fall, but it's going to yet.

Again on Onstream Bobby's question did also been good luck efficiencies. We had had so we have to do become more efficient. We've also had a lot of technology and I'm anything.

And that has also helped US how did you all good and making a broad it's not only better but also more efficiently.

Very helpful. Thank you so much fruit. Thank you Corey and sorry, if that's me with the bad connection I can hear your bus Rondell. Thanks again for you on yeah, Yeah Yeah.

Thanks.

Thank you. My next question today is coming from Cristina Fernandez from Telsey Advisory Group. Your line is not a life.

Good afternoon, Hi, I'm just follow up on Brad's question about the backlog.

Can you help us understand how much of the me June orders were already delivered in the quarter, just Wanna get better sensitive.

How that's going to flow through and what is the time delayed today between when the time in order its place versus when this deliberate to the customer and how does that change you know compared to like prior to when coal bed.

Let's see early this year.

Yeah, you know I would.

I would just.

What I would mention it does that.

Two elements to it the retail backlog.

As has increased by about 30%.

And this last quarter.

I just didn't good but they need to now make this product.

And the data.

Why did the retail has increased a 30% I think that you will also take a look at it that the other.

All right Rob or.

Our total I'm, sorry, I would also backlog increased by 37%.

Oh, hi, 80% very important and that is something that you're going to be delivering in the next.

This quarter as some into faltering gold.

And can you talk about all the time to delivery like how long, it's taking deliveries to be made some wonderful tumor places an order.

Well, yeah, well this it varies because of the fact that.

We have for instance, if its custom called it's like friends and all our upholstery today is.

It's always been custom.

It is.

Now taking anywhere from I would say close <unk> eight to 10 weeks you have a quick ship Alan quick ship ought to the poultry, which is now coming out little bit.

Yeah, we used to deliver it within 30 days knowledge about 45 days.

As far as I would probably shotguns and many of the ones that are in stock. They are being delivered Oh, obviously right today. The bonds that are being made custom in our wouldn't manufacturing is approximately taking also about six to eight weeks.

Yes.

Okay. That's helpful. And then any color you can share about traffic and ticket trends I mean any shifts.

Genius, you're seeing the types of products customers are buying over the last couple of months that she's seen demand pick up.

Oh, yes, I would say that our traffic.

It is most likely approx I'm talking to all nationally down about 30% well up business, it's higher than last year, it's much more qualified crap.

That does they will definitely important.

I think that that qualified traffic is critical and people are coming you know more knowledge, but what motivates us they've done that they've done their book and Oh I'm sorry. It's next question was.

Oh that she had products. It's just any change you know yachts of what concerns.

Yeah, you know it's interesting that obviously.

Not that companies are selling a lot of mattress has been doing some but not.

In a major metros business I'll give you an increasing that what you're seeing is that people are living today, they want especially from us.

For projects that is great design classes, but lever so all the condensate.

Design.

ER coastal design are doing well, but so is our what we call. The classics because our classics has also been modified to be more live up so I think that's what our whole outliers, but in addition to that because you know we introduced loosely they saw the more <unk> part of our modeling perspective, we are clean.

James.

Hi, Thanks.

Yeah country.

And coastal unfunded <unk>, London, Lucy has done extremely well too.

So now.

It has also been a demand or not and that doesn't have doubled but all goes to elaborate smaller portion of our business, which is going to increase our home office.

I'm not being extremely strong in that developing more products, but that also been strong overall.

That's helpful and one last question.

Though.

Employees you brought back the 56% you don't seem to have all been low relative to all the stores being open in manufacturing being back up is that a function of operating before wed less employee said. She said you can operate them, but 30% less associates or are you, having some trouble bringing.

Some of those employees back.

Well there is some people not just have decided to stay at home, but no. The majority of the people want to come back you have not had any major issues. It's just a question about retail teams on making the determination of outside how many people they should be because what's happening is just because the more qualified people are doing more business.

And you're going to watch very carefully how many people will be bringing we have also modified our OS.

I have given a fair amount I'll leave it to some degree all due out of reach as leaders around the country to determine whether they're going to be opened on Sundays, rather they should be open on Mondays, what all should they be looking on how much of their time should be spending on appointments and that's what they're doing yeah looking less odds any time bid appointments.

And that and it's working very well, we're watching it very carefully and as we go forward, we'll make adjustments, but the model is that which is what I really wanted all the time. He called me design centers, we'd professionals today, yeah, much more really a design centers ever be an odd designers are working with clients and working.

With online they're working interest in their homes. They come they make appointments. So we are going to less people continue to do a lot more business and that that we'd be a new bought.

Thank you and best of luck this quarter.

Thank you Christine.

Thank you we reach of our question answer session. How that's for the fall back over pretty further closing comments to prove.

Areva. Thank you very much and thank you for all lobbying on the call that these are challenging times of Lucky up these but the results that we have had what are people have done that's been really somewhat amazing.

We continue to we have reduced yep yep. Good positive cash we've gone will watch very carefully our inventories <unk> did you substantially.

We are going to make sure that we focus on marketing because we did we maintained a strong marketing presence of about 5% Oh sale during this period.

And just last quarter, and you're going to and our plans are to continue to be aggressive in marketing. So again, thanks very much any further questions. Please contact me. It you can talk to match all Corey thanks very much.

Thank you, but the today's teleconference. You may disconnect. Your lines. This time and have a wonderful day, we thank you for your participation.