Q4 2023 Ethan Allen Interiors Inc Earnings Call
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Good afternoon, and welcome to the Ethan Allen fiscal 2023 fourth quarter.
Alice Conference call a question and answer session will follow the prepared remarks spending much require operator assistance. Please press start and you're on your telephone keypad. Please.
Please note. This conference is being recorded it is now my pleasure to introduce your house, Dorothy Senior Vice President Senior Vice President and Chief Financial Officer and Treasurer. Thank you you may begin.
Thank you Darren good afternoon, and thank you for joining us today to discuss Ethan Allen physical 20th 23, and fourth quarter results with me today is proof category are chairman President and C. E O. Mr Katz, where I will open and close our prepared remarks, while I will speak to our financial performance midway through after our prepared remarks.
Open a copy of your questions before we begin I'd like to remind the audience that this call is being recorded and tracked and webcast live under the news and events tab on the Investor Relations page of our Ethan Allen Dotcom.
There you will find a copy of my press release, which contains reconciliations of non-GAAP financial measures referred to in this release and on this call.
A replay of today's call will also be made available via phone and on our web site. Our comments. Today may include forward looking statements that are subject to risks and uncertainties that could cause the actual results to differ materially. Please refer to her S. C. C filing for a complete review of those risks the company assumes no obligation to update our a I N.
He felt were looking matters discussed during this call with that I'm pleased to now turn the call over to Mister Caspar.
Thanks, Matt.
Thank you for participating in our physical 2023, and fall quarter financial and operating results.
As we reported we had strong financial results for all physically and fourth quarter ended June 30 1923.
Well, yeah sales of 791.4 million gross margin of 60, 60.7%.
Just stood operating income of 133.5 million, which is 16.9% of sales.
And adjusted earnings per share of $4.03 compared to $3.93 and the previous yet.
Our fiscal fourth quarter was also strong with adjusted operating income of 30.6 million.
Foreign operating margin of 16.3%.
We have continued to generate strong cash and as of June 30, 2023 had cash and investments of hundred 72.7 million and no debt.
We are also pleased that yesterday or vote brewed a regular quarterly cash dividend of 36.
Since bush, yeah, and especially cash dividends are 50 cents per share.
Both Babble August 31st.
As expected.
The focus in very high demand of consumers on the home during the COVID-19 pandemic has has moderated.
We are well positioned to continue progress.
After a mad provides a brief overview of a financial results I will provide an overview of how focused to continue a strong operating.
And financial results Matt.
Thank you Mr Cats right as a reminder, we present our financial results on both a gap in non-GAAP basis. non-GAAP results include restructuring initiatives impairment and other corporate action and our further details in our press release, we believe the non-GAAP presentation better reflect underlying operating friends and performance of the business or financial results for the fiscal two.
[noise] twenty-three full year in fourth quarter ended June 30th are highlighted by strong gross an operating margin improving lead times from decreasing backlog disciplined cost and expense controls.
Strong operating cash flow and a robust balance sheet as.
We operate in a post COVID-19 era, our operations pretty strong financial results, which I will now discuss our fiscal 20 twenty-three consolidated net sales of 791.4 million.
Were lower than last year by 3.2 per cent or fourth quarter consolidated net sales total of $187.4 million a decrease of 18.4% due to lower it delivered unit volume from softening order demand and reduce manufacturing production from lower backlog.
Sales in the fourth quarter, a year ago said, a near record pace, leading to a difficult comparison compared to the fourth quarter of fiscal 2019, which is pre pandemic and more reflective of historical norms, Arkansas. They didn't net sales were up 1.9 per cent.
Wholesale segment written orders during the physical twenty-three or nine per cent lower compared to last year, but only 2.1 per cent lower than physical 2019 for the quarter or wholesale orders were down 14.7 per cent to last year and were 2.5 per cent lower than our pre pandemic fourth quarter of 2019.
Retail segment orders were at 12.3 per cent lower than physical 20th twenty-three when compared to last year and down 12.5% for the quarter, primarily due to a strong prior year comparable and a reduction of consumer focus on the hall when.
When compared to 2019 retail orders for the full year were up 0.8%, while our quarterly orders were down 1.2 per cent.
We ended the fiscal 2023 year with wholesale backlog of $74 million down 27.7% from a year ago as we were able to reduce the number of weeks a backlog. However, our wholesale back like still remains higher than pre pandemic levels and our teams are effectively managing the business to work through this order backlog in the service of our customers.
For the full physical 2023 year, Arkansas dated gross margin was 60.7 per cent.
108, 40 basis point improvement over last year and they just completed fourthquarter consolidated gross margin was 61.5 per cent or ninth consecutive quarter at that consolidated gross margin exceeded 58% when compared to last year or quarterly court consolidated gross margin was up 330 basis points.
[noise] favorable sales mix disc.
[noise] supplant promotional activity and lower input costs, including reduced inbound freight and raw material costs, partially offset by lower delivered unit fine <unk>.
Retail sales, which carries a higher gross margin increased to 83.4% a fourth quarter consolidated tail up from 82.1% last year.
For the 20th twenty-three fiscal year, Alright, just it operating margin was 16.9% a 50 basis point improvement over last year as we carefully managed to expenses and a declining net sales environment.
Fourth quarter adjusted operating income and.
March almost 16.3 per cent down from 18.5 per cent last year due to lower consolidated net sales higher retail delivery and health insurance costs, and new product display merchandising and sample costs, partially offset by gross margin expansion and our ability to maintain a disciplined approach to cost savings and expensive.
Patrol R.
S G and a expenses decreased 7.6 per cent and equals 45.1% of net sales, which is an increase from 39.8 per cent last year due to a fixed cost deleveraging on lower sales.
On a full year basis, adjusted diluted EPS rose 2.5 per cent to $4.03 for the fourth quarter are adjusted diluted EPS with 96 cents compared to one dollar and 25 cents last year are effective tax rate was 25 per cent for the full year and 23.6 per cent for the fourth quarter, which bear.
He's from the 21 per cent federal statutory rape, primarily due to state taxes.
Now turning to our liquidity and capital resources, we ended our fiscal year with a strong balance sheet, including cash and investments of 172.7 million as of June 30th and no outstanding debt, we generated 26.3 million of cash from operating activities during the quarter, bringing our total fiscal year amount up to 100 point.
7 million or 45.1% increase over last year. This growth was driven by strong profit performance and a reduction in inventory carrying levels and accounts receivable, partially offset by declining customer deposits.
Our inventory levels decreased 27.3 million since the start of the fiscal year as we restore our operating inventory levels to more historical norms as backlog decreases while also ensuring appropriate amount of inventory are on hand to service our customers.
Capital expenditures were 13.9 $9 for the year, including 3.2 million during the fourth quarter as we continue to invest capital in manufacturing retail technology and infrastructure.
We also continued our practice of returning capital to shareholders in the form of cash dividend and April are aboard increase the regular quarterly cash dividend by 12.5% to 36 cents per share which was subsequently paid in may and brought our fiscal 20 twenty-three dividends paid totaled to $46.4 million also as dressing.
Now it's in our earnings release are aboard declared a special cash dividend of 50 cents per share. In addition to our regular accordingly cash dividend of 36 cents per share both of which will be paid on August 31st we.
We have paid a special cash dividend each of the past three years and I've paid an annual cash dividend every year since 1996.
In summary, or vertically integrated business deliberate strong physical 20 twenty-three operating results during a period marked by industry wide softer demand and challenging headwinds we achieve these positive results and generate a strong cash flows protecting.
Protecting our margin gains through disciplined investments and solid execution.
As we move into physical 2024, we must continue to carefully manage our expense structure, while investing in growth initiatives that we believe will further our business with that I will turn the call back over to Mister Cathcart.
Thank you Matt.
As I mentioned we.
And Ah industry greatly benefited from the consumer focus on the home during the COVID-19 pandemic and as expected cause you move focus is now on many other areas as well.
As we noted in our press release, we are very well positioned.
During the last three years, we have greatly strengthen our enterprise in several important areas.
Building the following.
Strengthening talent.
So we have a song talent in our various areas from product development marketing manufacturing logistics retail technology and operations.
Our product offerings and marketing have been enhanced.
All our product programs under the umbrella of classics with a modern perspective.
Are being introduced to our network.
Our marketing has been greatly expanded especially utilizing digital mediums.
Repositioning of a retail network, we are in the process of launching our refreshed rejection.
Under the umbrella of interior design destination.
Our plan is to complete the launch in our 175, North American design centers during the next six months.
This provides us a great opportunity to reach out lines and it also strong motivation for our interior design team.
As you know.
We have the largest interior design design network.
We are pleased and honored that last week and Ah.
Study by Newsweek, we were named one of America's Top 10 retail is including recognition as number one retailer in the premium furniture category.
[noise] continued to strengthening of manufacturing and logistics.
We have continued to invest in our lives 10, North American manufacturing operations.
Which produce about 75% of our products, where 75% of them cost.
Our national and regional logistics continue to be enhanced.
We provide.
Excellent and consistent service at one delivered price for our customers throughout North America.
[noise] technology, our focus and continued investments in technology have been a game changer, both in providing excellent interior design service.
The technology.
And in the efficiency of our manufacturing and logistics operations.
And finally, we remain focused on being socially responsible as it is an important part of our business.
Culture and to the communities in which we serve an operation.
As you mentioned in a press release.
We remain cautiously optimistic.
All right. We are now pleased to open this call for any questions and comments.
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One moment, please while we poll for your questions.
Our first questions come from the line of Brad Thomas with Keybanc Capital markets. Please proceed with your questions.
Hello grabbed his issue.
It is may here, yes, hi, good afternoon. Good afternoon, Matt how are you all good good. Good ahead go Hey, you and Brad over some time.
And you are doing well.
I'm I'm, I'm doing well and and until then I have another.
Conflict here during this call today, so good good to hear Ya live cricket.
Well <unk>. Thanks for all the Ah the prepared commentary I was I was wondering we could talk a little bit about you know the the the cadence of the business you know from from a written perspective, you know with a little bit of a slowdown from what you posted in the March corner I was wondering if you talk about.
Some of the dynamics behind that you know did you changed all have promotional where you where does is it getting more competitive you know get the consumer seemed to just just pause and how you're thinking about the cadence of orders as we as we look forward here.
Yes.
As we mentioned that.
We were operating in the last two years at a very very high levels of August coming in consumer interest was tremendously great and now it is coming back to some watch you know you might say normal which is is.
Ah Ah Ah.
That also mentioned, we look at our physical 2019 at the base yeah.
Prior to the Covid and.
Based on that on that we are still holding up pretty good or bad clubs is still higher than what we had in 2019 and.
With a positive thing has been that we had been able also to become more efficient.
At all levels.
And but it's just the the role of technology has just been amazing of deficiency. It is brought in and the productivity. It has brought in both at a manufacturing and at a retail levels today.
We have most likely when you go back to 2019, we have many much less many less interior designers doing more business because of the fact of technology.
Similarly manufacturing.
You know 25 30 years back with heavy manufacturing gods.
Today, we have 10.
And they're operating extremely as well.
Efficiently and effectively because of a combination of you know obviously good talent, but also technology. So I would say that all our business is obviously moderated but as you can see despite the fact that he had lower sales last fiscal year, our gross margins in.
Brewed in our operating income also improved so we can we can we will continue to see us operate more efficiently and effectively bought or the gross margin level.
And the operating income level.
And that's a great segue to my my follow up question. There. The gross margin. Obviously, you know very strong and if some of that is a function of channel mix in one way or the sales come from but but how how are you all thinking about you know the puts.
Takes on gross margin as we think about the next year.
Mmm I think that the.
You know obviously the gross margin.
Is impacted by the amount of production and sales you know we are we run.
We had a vertically integrated company.
The manufacturing and obviously manufacturing benefits with higher volumes and on the other hand at lower volumes.
Manufacturing does have a negative impact on gross margins.
So those are the issues from the from the perspective of gross margins, having said all of those things I think that more or less where we all we all all we expect to remain that's.
That's what I expectation is to remain that level would be because of the efficiencies that we have religion.
Yeah.
Gotcha I appreciate it thanks, so much for it.
Alright, thanks, very much good to good to hear your voice.
Oh Dear.
You know I did it as other folks don't completely noise, but I think you were there 30 years back when they when we took this republic correct.
Not quite that far going through the financial crisis, but not quite that far yet Oh, Okay, you sound young alright.
That's right [laughter]. Thanks for all that Darrell. Please go ahead.
Thank you ever next questions come from the line of Cristina Fernandez with tells the Advisory Group. Please proceed with your questions. Yeah, Hello, how are Ya hi, I'm doing good good afternoon.
Wanted to follow up on <unk> question of Ram Demesne can you comment on.
I guess, how bullets. How are these trends are you seeing like similar trends from week to week or month <unk> in the market and it was also curious what your seed and take kid versus traffic or it's ticket.
You know outpatient drastic.
Yeah. It's a good question you know there's an interesting.
Time, we are living in that this past this summer.
We have seen the impact of people going on vacations, not staying at home quite different than a year back. So I think it would be seen the I think if you look at it we have seen more of an impact this summer of people.
Doing other things and also the fact remains that and a lot of people did buy our products for their home. So I would say that Ah our perspective is that as this summer.
Time and that people will we expect people to go back to the normal levels of coming into all of our design centers, perhaps not as high as we saw in the last three years, but I would say that our expectation is.
We should do better.
And traffic than we did in the pre Covid area.
And then I had another question on the <unk>.
Also on the girl Smart <unk>, how much of the benefit are you seeing from input cause whether it's transportation fade and raw materials.
<unk> a year.
Yes, I mean, the other gross margins and operating.
Gyms are both too too important areas, which are impacted both by the impact of freight coming at.
All of our.
And also the delivery of our products keep in mind as I mentioned that we deliver our projects at one price.
Out you know.
States and also throughout Canada. So.
In the last three years, the transportation costs of delivery in the United States was extremely high.
The the cost of delivery of a container, let us say from Indonesia, or East Asia to the United States had gone from 3000 to $30000 has come back the other course in the United States.
Also very high at the retail level because of the domestic transportation or the cost of sending that.
You know a trailer from east to the west.
Had tripled.
Coming back to the normal level.
Question I think the we are having a positive impact on our margins both of the retail.
And at the manufacturing level due to reduction of costs also.
Are we are a manufacturer.
Lumber costs have gone up very very high.
Then I'll come back to the pre COVID-19 levels. So on one hand, we are going to be impacted with the impact of somewhat Lola deliveries, but on the other hand, we are benefiting from the the older.
The lowering of the cost of raw materials off right.
Both to our manufacturing and to a retail because as you bought bought Lauderbaugh afraid goes into our operating expenses. Some it goes to our cost of goods that bullshit that goes into manufacturing site.
That's helpful color. Thank you and then the the last question I had was phoned up on the stove. The freshest Oh, how many have you done so far I know you did the Danbury store at your headquarters in.
Adults that have been completed.
How how are they performing relative to the to the rest of the scene and and the ones that have not been in touch.
Yes, it's a very very very very important and good question.
Yeah, I believe you came to the Danbury design Center you saw it.
We are in the process right now we have not completed.
And he has yet completely but they're all in the process of getting completed.
I would say this process of getting them completed because it needed products. It needed all show the work in each of the design centers needed painting, some electrical work and all those kinds of things that is being done right now at this phase we are in the process of updating the interiors and in.
Some cases exteriors of our design centers and starting in about I would say four to six weeks. They will start getting products, which is being made and getting ready. So as I said within three to four months. Most of the design centers would have received that brought it and I looked.
It is which is something that you know we.
We couldn't have said that five years back that the interior projections that you saw in Danbury is the rejection that'd be going to have nationally in 175 design centers.
The other reason that we're able to do it today is that.
Acknowledging his date a tremendously important role.
In the past where to have the product and the design center I'll just stole for people to see it today.
Our digital technology and virtual.
Ah reality, our designers can develop and they do develop a designs for the consumer with all kinds of colors and design and products that is a game changer. So to answer your question I think you'll start seeing it in the next.
Two to three months to process will start and our objective is most of it will be completed in about six months.
Okay. Thank you.
Alright, thanks, very much and any other questions or comments.
Thank you I I see no further questions in the queue and the call back over to <unk> category for any closing comments.
Thank you and thank you everybody for being on the call that the.
We these are interesting times and the good news is that we are we have very very well positioned and we look forward to continuing progress and growth. So thank you very much for participating in this call.
Thank you that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.