Q1 2021 Ethan Allen Interiors Inc Earnings Call
Off
Dead dead dead dead.
Yes.
Greetings and welcome to the Ethan Allen fiscal 2021 first quarter analyst conference call at this time. All participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator or technical assistance during the conference, please press * 0 and your telephone keypad as a reminder. This conference is being recorded. It is now my pleasure to introduce your host Matt McNulty VP of Finance. Thank you. Mr. McNulty. You may be good.
Thank you, Victor. Good afternoon and welcome to Ethan Allen's conference call for our fiscal first quarter ended September 30th, 2020. This conference call is being recorded and webcast live on Long Island where you'll 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. We will open the call to questions as a reminder. Our comments today will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially, please refer to our SEC filings for a complete review of those wrists the company assumes no obligation to update or revise any forward-looking matters discussed direct call joining me today on the call is our chairman and CEO fruit kathwari and our Chief Financial Officer Corey white lie. I'm pleased to now turn the call over to fruit kathwari.
Yeah, thank you Matt. And thank you all for participating in our call as we advise in our press release. We are making very good progress in growing a sales profits and strengthening our balance sheet a few important highlights and I believe in this new world. We have to compare our results to last year and also with the covered impact in the last six months.
Sales of $151 for the quarter ended September thirtieth increase 65% from a delivered sales in the fourth quarter and the June 13th 2020 same or lower by 13.1% from September 30th, 2019.
We're in business at retail division increased 79% from fourth quarter ended June thirtieth, twenty twenty and also increased 10.8% from September 30th, 2019, We are pleased that we are positioning. Well after major major challenges faced to do to COVID-19 in the quarters ended March Thirty One, 2020 and June 30th, 2028. We have strong backlogs as follows for a retail division backlog as September 30th, 2020 increased 43% from June 30th, 2028 and increased 39% from 9:30 2019.
We also improved our gross margins that September Thirty gross margins of 56.8% increase from 56.3% from September 30th, 2019 and 53.3% from June 30th 2020.
The gross margin of 56.8% was achieved despite our manufacturing operating at below Optimum levels during the quarter.
I would adjust it operating income margin of eight 1% at 9:30 2020 compares to a negative gross margin of 5.4% at June Thirty twenty 25% in previous year quarter ended 9:30 2019 and also impacted by the the lower Russian in our manufacturing jobs.
We have continued to focus on strengthening our balance sheet with paying down 50 million of debt and at 9:30 twenty twenty thousand cash of 1662 million and get free now after Cory provides a brief overview of our financials. I will provide some information on our initiative to grow our sales and profits Corey. Thank you for during the first quarter of fiscal 2021. Our teams remain focused on serving our clients and keeping our workplaces safe are fundamentals continue to be strong with retail written orders and backlogs Reporting double-digit growth compared to the prior-year both within our Design Center Thursday and from e-commerce production levels throughout our manufacturing increased steadily during the quarter and are getting back to pre COVID-19 pandemic levels, which we expect will reduce wage.
The high-end delivered order backlogs and reduced delivery lead times in the near-term.
Consolidated net sales for the quarter were 151 Point 1 million compared with 173.9 million the prior year quarter while net sales decreased Ridge is accelerated during the quarter retail segment written orders were up 10.8% over the prior-year including 26.5% growth in August and June point eight percent growth in September. Our e-commerce orders reflected one hundred and 12% growth for the quarter compared to the prior-year quarter as we have continued to focus on refining my experience for our clients as fruit mentioned. We continue to see very strong retail written or two trends for October with month-to-date orders up over 50% the prior year average wholesale segment orders while benefiting from the strong retail growth were negatively impacted for the quarter by the timing of GSA and other government orders do to COVID-19 off.
Disruptions they had to delay.
Issuance of new orders the delayed orders are expected to be issued in the coming months the excluding GFA and other government orders wholesale segment orders increased 9.2% for the quarter.
All right, Jason, gross margin increased fifty basis points to 56.8% primarily due to expansion within the wholesale gross margin partially offset by a decrease in the sales mix and lower back during production from COVID-19 related disruptions.
Adjusted operating margin which excludes the impact of pre-tax charges from restructuring initiatives asset impairments and other corporate actions increased to eight point one thousand compared to 7% a year ago primarily due to strong gross margins and Cost Containment resulting in a 14.3% reduction in adjusted operating expenses adjusted operating expenses for the corridor lower due to reductions and selling expenses and reduce compensation expense as we are operating more efficiently with 23% less headaches as compared to September 2019 adjusted diluted EPS was $0.36 compared with 35% in the prior year first quarter our gaap EPS wage thirty-seven cents compared to $0.53 in the prior-year quarter as you may recall, they asked U are gappy PS results, which you want included a one-time net pre-tax gain for Thursday.
9 million or 18 cents per share from the sale of our Passaic New Jersey property that of restructuring activities.
As of September 30th 2020 our balance sheet remains strong with cash and cash equivalents of sixty-two million in inventory of $127 million during the first three months of fiscal 2021. We generated 42.2 million of cash from operating activities and Improvement. And we paid the remaining $50 million in outstanding debt using available cash on hand off with that. I'll turn the call back over to Brooke.
Yeah. Thank you calling.
Our Focus remains on the following important initiatives to grow our sales and profits and to have a strong balance sheet.
Number one is to continue focus on strengthening our talent. We have a strong team managing or vertically integrated Enterprise during the last year. We have strengthened our retail marketing and product development teams. Second is focused on service. It's critical our advantage of making about 75% of our furniture in our North American facilities provides a competitive Advantage, especially during these challenging times.
We are adding to plant capacity and investing in technology.
As we indicated we expect to catch up on most of our backlog by end of this quarter and some early early next quarter.
We have been paying strong marketing initiatives including television Direct Mail digital and print we have also introduced digital magazines in categories such as mattresses bout door lighting and drugs and have seen an increase in business in these categories.
We plan to continue our strong Marketing in the next three quarters of this fiscal year force is combining personal service with technology is a strong competitive advantage of our investments are providing tools such as augmented reality 3D folklore planner web is making it possible to have our interior designers in interact with clients off even during the pandemic.
Number V operating our business with high standards of safety protocols following CDC guidelines for safe store manufacturing and Logistics operations for end for our customers and our staff is important and and right and and an important focus and finally as advised in a prep, please we are very pleased to have continued strong business increasing by 50% month-to-date in October.
written orders compared to October 2019
This is a result of strong product programs personal services and Technology also to some degree was helped that last year written was impacted by the introduction of the member.
We look forward to continue our progress and remain cautiously optimistic with this and and and now happy to open for any comments.
Ladies and gentlemen, we will now have our question answer session. If you would like to ask a question, please press star one on your telephone keypad a confirmation tone will indicate that your life the question queue for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star Keys. One moment, please while now pull for questions.
Our first question comes from Brad Thomas with keybanc capital markets. Please proceed with your question by Farooq is a good afternoon. Thanks for taking my question. I wanted to talk a little bit more about you know, working through the strong backlog and strong written orders that you've generated. Could you help us think about your ability to convert these orders into Gap reported revenues in this upcoming quarter and and how we should try to triangulate the strong written Trends to revenues going forward here.
just grad of course that is
is a critically important our
Manufacturing is almost close to operating at the pre covered levels. Now having said this we still have the issue relating to some raw materials from Fabrics, but we are catching up and I believe that as I said, if I today just had to do an estimate I would say that the backlog perhaps sixty 70% of that we will be able to produce or even more of that this quarter and some of it in the next quarter. Now the other another issue that we have is that we also have to
see customers ability to take products
We have products are we are getting them into our service centers all across the country. And now we are working to see that the customers take them in because you know, as you know their issues on that side too, but I would say that that most of it but December and some by January and February.
That's that's helpful for and did you talk a little bit about the competitive and promotional landscape? I think broadly what we're seeing out of the industry is is because of the strong demand because it's an inventory in availability that many many in the industry of your competitors are dialing back on the promotion. Can you talk about your ability to get stronger margins in in this quarter ahead of us here?
Yes abroad you know the this an important question?
No, you know almost I would say close to eighty percent of what we sells custom. That's a big difference. So we don't we don't have a lot of faith in Mentor right now in this. People have a hurry they will sitting in their homes, they want products and they wanted tomorrow. So now we can do some of that but we cannot compete with folks who got lots of inventories on hand and they sell it right from the warehouses. So that has been an impact we've seen many many people who are more of a commodity business or people who have an ability to have had inventories. They have sold, but now what I hear is that they're also running they're running out of it and now they're waiting for our containers coming from overseas in our case. We have the ability as I said 70% plus is made in our own workshops. We have had to get it back up because at the covered in the
We had to close all our plans. We were asked to close on our plans and unlike a typical retailer. They don't have the overhead of plants.
We have a positive because when it's all operating we get the benefit of margins we get the benefit of service but on the other hand when there are times where we are not able to produce at a level of that will maintain the right kind of margins. It has an impact on the market and that you can see right now that our margins when our plants are operating at full capacity. Our retail is operating a higher volumes unrestricted operating. We have a great opportunity as we have done in the past years of operating at margins. So our Focus right now good news is that we are our manufacturing is operating. We do have the opportunity of fulfilling this backlog. So that will have an opportunity that has a good opportunity of continue to increase our cash and and margins
very helpful fruit
Thank you so much and good luck here. Thanks.
Thank you. All right. Next question comes from Bobby Griffin with Raymond James. Please proceed with your question afternoon. Hope you're doing well. So, I guess the first thing first question I want to ask is maybe on October Trend understanding that the prior-year comparisons a little a little different with the membership model, but you just talk about October in reference to maybe September which would help with think about the strength of the business. Did did you see the business and orders get stronger in September? I mean October versus September sequential that way it takes the weird comparison out of out of the equation.
Yes, you know Bobby. I mean I actually have this included October Only Yesterday talking to Cory and I said, you know, we got to let people know that this question is going to come up. How are you doing in October? And initially we were going to say we are doing well, but they're starting up this 50% increase the big increase and it is reflective to two factors and you know at home which is the impact of the cobit impact. I'm not covered under the membership impact last year and the increase business this year when if I would have to say and you gave this is just sort of distributable. I would say most likely 30% of the store and these are my my estimates not quarries and and Matt's I will save about 30% of the 50% is due to the current and 20% are so due to the fact the last year we were impacted by membership.
Okay, that's very helpful. I appreciate that. Did you did you change the marketing message at all or any anything interesting in October September August or is just the customer coming back with money?
Regent no actually number of factors, which is that right from June onwards, you know, keep in mind that in March quarter after June we were we're closed almost all our Design Center home. So it was actually in September and even October we bringing people back in we still haven't brought in all the people that we need to bring in. So it is a factor of wage not only marketing. Yes, we maintain strong marketing. We have maintained very strong Direct Mail. We have maintained digital advertising back from time to time with the television off. But what also is a factor is that we have now bringing more people in operating in our design centers. Keep in mind for instance, you know, we have a different business model in a typical retail where people come in and see and buy it are designers operated from homes. In fact in many design centers still in many cities like for instance, you know.
In Chicago and bigger cities where the coverage situation was greater. We were not operating 7 days a week, but now starting in in October and then it finally in November. I think almost all our design centers will be operating 7 days a week, which they have not been so in October increased more people with maintain a marketing and we added that I didn't more days of sales all of those things. Okay.
okay, and
Then prove I mean, I understand they still early kind of just build up and recovery, but clearly you guys are operating the business with you know, less headcount and and less sg&a dollars, you know from a big Delta vs last year. I mean how much of that do you think you're going to be able to maintain going forward? Um, do you still have to bring some more sg&a cost back on? How how do we think about that? Um, yeah for two thousand next year next fiscal year.
you know we are going to
our Manufacturing
most of the folks are back in our manufacturing. It is really in the retail at this stage. We are still operating with less people and I would I would say that as we move forward with would that uh, if you if you take a look at for instance, as of now, our total headcount is done approximately if you take a look at prior, I'm talking about at the end of September compared to last year. We're down 23% in total headcount. And a lot of it is still at retail or manufacturing is more or less caught up back to where we were down. In fact, we're going to increase it because it's all this new business coming in. We are looking to see how we can we're adding more people in Vermont and you know what there's a little bit of shortage of people there with adding more people in North Carolina. We're adding more people in in Mexico and Honduras. So at this stage is 23% if I were to say that an end of the day, it also depends on business, you know, the business continues
Increase we will operate with what we had last year, but we have no business but right now is 23% and I would say that by the end of this quarter most likely it may be down 15% or so or 10:00. I mean between ten and 15% based on Business by the end of this quarter compared to the previous year.
Okay, it's very helpful. I appreciate the details best of luck in the quarter.
Thank you. Next question comes from Christina Fernandez with Kelsey. Please proceed with your question. I good afternoon. I work in Corey. I wanted to follow up on Brad's question about converting the backlog to sales. So if you can convert sixty to seventy percent of the backlog to sales rep that implied that you can that sales can be up in the December quarter year of a year, or should we still think about, you know, being limited by capacity am still having a year-over-year decline.
Yeah, I think that as I mentioned the fact is the question about the consumers also taking in the products because I took two somewhat different than all the other products that they are buying and going into a large furniture store that they start they take it and thereby it's in our case of ordered it. It's all custom and it's interesting that you know gaze across the board. There are people who want it for yesterday. There are folks who want to wait but I would say this that perhaps Corey you may also time it in here with respective. Is this that for the next for this quarter coming up chances are we'll be we should be pretty close to to what we did last year, but it would still be, you know, be somewhat of a struggle to make sure that all this product is delivered but that is our objective Corey. What do you say? Yeah, I agree fruit and looking at it, you know, obviously, you know, there's some unknowns out.
But our manufacturing is getting back wrapped up. And what where we were last year for this course.
Where do we do? You know like they will meet or just you know, somewhat exceed that a little bit.
Okay. Yeah, that's really helpful. And then going back to the October Trend which was very strong. Can you remind us would be October or fax number with last year? I don't think I have that and then the trends you're seeing in October. Are you seeing better traffic to the design centers or is it fake conversion or e-commerce? How are you? I guess what ifs different or how you getting to that accelerated number? Like what business Trends? Are you seeing their different life? I don't think we give any monthly or the numbers. So let's hold that off as a minute Matt and call you will look at that. But as far as the trends are suggesting that
People that are coming in there's less traffic. Traffic is lower than last year for us, but it's more qualified and when they come in they are they've already done their homework, which is very good. There are designers are very productive working with them and are they mentioned also with all the technology tool that we have designers are making appointments wage. Yeah. He was originally show them all the their their designs and plans and it's amazing how much how much of work they're doing today by combining personal service and technology. So yes, our traffic is still lower but more qualified.
Has it picked up from like August and September or is it the year of a year is still pretty similar decline?
Your compared last year. Well, just just for the past couple of months. It's got it. Okay. And then one last question, are you over the past couple of months? Are you seeing any meaningful differences between performance by market or for example between some of your suburban stores or design center of an urban centers? Like we continue to hear, you know, New York's very weak or their markets, you know, broadly speaking across retail any chance you can share that would be helpful.
Yeah, you know, it's really it's it's an interesting thing because I've been of course I've watched very very carefully, like for instance with any sort of some degree varied month to month, you know few months back or even up to last month. We saw that that Florida was doing extremely well this little bit of a challenge now, we have a flaw in in Florida with again. It also reflects the question of covered of how far where it is and what stage it is that we have we have our issues. For instance. When you go to walk the West Coast Seattle had been impacted but more by this call between San Francisco and all that area has been affected by wildfires. So awful lot of other factors are the other than the coverage and I would say like losers our business in in New Jersey is very good. Long Island is is very strong and and dead.
Connecticut is very strong lot of Manhattan is somewhat weaker from last year. I mean still holding up.
But is Riga and of course, we know the factors lot of people are moving to suburbs and so our business Connecticut our business in New Jersey is Long Island's very good and that also reflects what's taking place? Cuz our business in Washington area is very good. So I would say that in most areas we are doing well. In fact, you know, we've done extremely well in Ohio and well in I would say that in North Carolina South Carolina great results, and it also reflects off so I would say that
That I would not say the some areas are doing better than others. It's interesting in some areas. Like you got to be specific like Manhattan is a tough tough situation. San Francisco has been more difficult Seattle has been difficult, but other areas have been doing well.
Okay, that's helpful. It seems pretty broad-based. Those are all my questions. Thanks and good luck this quarter.
Hi, Christina. Thank you.
Thank you.
There are no further questions at this time. I'd like to turn the floor back over to mr. Kathwari for any closing remarks.
Thank you for all of you participating and listening and we are really gratified with the work that our Associates have done on the very very trying circumstances. It's great to see wage increase in our business increase and and the focus of people in terms of sprinkling of our balance sheets watching every expense and building all these backlogs. And as as I said, we are vertically integrated company and good news is when everything is working. It helps every element of our business, and we're looking forward to that. So thanks very much for participating in this call.
Ladies and gentlemen, this concludes today's Web Conference. You may now disconnect your lines at this time. Thank you for your participation and have a great day.