Q1 2025 Ethan Allen Interiors Inc Earnings Call
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The New Year's Eve
Thank you. Thank you.
Thank you.
Good afternoon and welcome to the Eaton Allen fiscal 2025 first quarter.
and it was Connections Caller.
Speaker Change: At this time, all participants are on a listen-only note. A question and answer session will follow the former presentation.
If anyone should require a operator to please press stars you're on until I'll keep that.
Please note this conference is being recorded. It is now my pleasure to introduce your host, Matt McNulty, Senior Vice President, Chief Financial Officer and Treasure. Thank you, and may be game.
Matt Mcnulty: Thank you, Chemali.
Matt Mcnulty: Good afternoon and thank you for joining us today to discuss Ethan Allen's fiscal 2025 first quarter results. With me today, through Kevwari, our chairman, president and CEO. Mr. Kevwari will open and close our prepared remarks while I was speak to our financial performance midway through. After a prepared remarks, we will then open your call for the call for questions.
Before we begin, I'd like to remind the audience that this is called being transcribed.
Live under this news and events tab on the Investor Relations page of our website. A replay of today's call will also be made available on our Investor Relations website.
There you will find a copy of our press release, which contains reconciliation of non-gap financial measures referred to on this call and in the press release. We believe the non-gap presentation better reflects underlying operating trends and performance of the business.
Matt Mcnulty: Our comments today may include forward-looking statements that are subject to risk and uncertainties that could cause actual results to differ materially.
The most significant risk factors that could affect our future results are described in our quarterly report on Form 10Q.
Please refer to our SEC filing for a complete review of those risks.
Speaker Change: The company assumes no obligation to update or revise any forward-looking matters discussed during this call. With that, I'm pleased to now turn the call over to Mr. Kepp Ward.
Thank you, Matt.
Kepp Ward: As stated in our press release, we are pleased with our first quarter fiscal 2025 financial results.
Kepp Ward: We had sales of 154.3 million.
continued this strong gross margin of 60.8% operating income of 17.6 million with margin of 11.4%.
We also continued strong cash generation and ended the quarter with 186.4 million.
in cash and investments.
We paid $20.2 million in cash dividend during the quarter and the board approved a regular cash dividend of $39 for share, beable in November, $27.24.
After Matthew provides a brief overview of our financial results. I will review our continued focus to strengthen the five key areas.
Kepp Ward: of talent.
Marketing, Service, Technology and Social Responsibility. Matt.
Matt Mcnulty: Thank you Mr. Kepward.
Our financial results in the just-consuited first quarter were highlighted by strong margins in operating cash flow, the mid-ad challenging economic environment. Our consolidated in-net sales were 154.3 million down 5.8% compared to the last year primarily due to lower contract sales and the decline in delivered unit bond.
From a demand perspective, our retail segment orders were down 6.8 percent while host sales segment orders decrease 4.8 percent.
Lower income incoming orders reflect the soft home furnishings market. A housing market that is not yet rebounded and less contract business.
Matt Mcnulty: On a positive note, we saw an increase in average ticket price, higher designer home calls, more qualified traffic and a strong amount of September for incoming contractors.
We ended the quarter with wholesale backlog of 63.9 million. Down 15.2% from a year ago, but up 10.4 million since June 30th due to the timing of incoming contract orders.
Strongen body growth margin of 60.8% was driven by a change in the sales mix, reduced head count, selective price increases, and lower raw material input costs.
Matt Mcnulty: Adjusted operating margin with 11.5% compared with 12.1% a year ago, our double digit operating margin reflects our ability to maintain a disciplined approach to controlling operating expenses.
Comparative of Pre-Fandemic First Quarter ended September 2019. Our adjusted operating margin has improved 450 basis points due to streamlining our vertically integrated enterprise.
Now I'd like to provide an update on our distribution center located in Old Fort North Carolina, which was impacted by Hurricane Haleen in late September.
Kepp Ward: The distribution center suffered a loss of 0.3 million related to damage inventory and remediation costs as well as a temporary work stoppage and disruption in shipments.
We are thankful to report that our associates have returned to work in the Distribution Center as Resume's normal operation.
The combined impact of hurricane marine and import disruptions in advance of the temporary East Coast Port strike. Lowered our first case first quarter, Nest Sal by approximately 2 million, which we expect to catch up on during our second quarter.
A Justice Deleted EPS was just the ace dance. For historical context, a Justice Deleted EPS for the three months ended September 2019 was 35
Our effective tax rate was 25.3% for the quarter, which varies from the 21% federal statutory rate primarily due to state taxes. Now starting for liquidity.
We ended the quarter with a robust balance sheet, including cash and investments of 186.4 million and no outstanding debt. We generated 15.1 million of cash from operating activities and reduced inventory levels by 4.3%.
Kepp Ward: Capables Fendagers were 3.6 million an included expansion of our manufacturing operations in Mexico, additional investments in technology, retail designs and our relocations and improvements in remodeling costs associated with our hotel.
We also continue to practice a returning capital to shareholders in the form of cash dividends. In July, our board declared a special cash dividend of 40 cents per share in addition to a regular quarterly cash dividend of 39 cents per share. Both of which were paid on August 29th.
Kepp Ward: We have made a special cash dividend in each of the past four years, also as just announced in our earnings relief, our board declared a regular court of cash dividend of 39 cents per share, which will be paid in November.
In summary, our vertically integrated business produced the double digit operating margin during a period marked by industry-wide headlines. We achieved these positive results in generated 15.1 million operating castles while protecting our margins through disciplined investments and solid execution.
We ended the quarter with a robust balance sheet and look forward to continuing our progress. With that I will now turn the call back over to Mr. Kettler.
Mr. Kettler: Thank you.
Mr. Kettler: Thank you, Matthew.
I will briefly discuss our continued focus on the five areas. The first is talent.
Mr. Kettler: We continue to do our strong teams in our vertically integrated enterprise, which includes our retail network, manufacturing logistics, products, marketing and technology.
Mr. Kettler: In marketing and merchandising, we have accelerated introduction of new products under the umbrella of plastic design with a modern perspective.
During the last 18 months, we have completed the redesign of our design centers under the umbrella of an interior design destination with strong interior design and strong technology.
This has enabled great productivity with less headcount.
The redesigned design centers reflect about 25% less flowed space-based, making it much more efficient.
Mr. Kettler: Strong interior design associates coupled with technology is, as I have said, a game changer.
Mr. Kettler: Next we have continued to refine our North American manufacturing, which makes about 75% of our furniture and custom made on receipt of orders.
This is a great differentiator.
and has provided more design options to our interior designers and clients and also increase productivity and lowered inventory.
We have also made improvements to our national and retail logistics, enabling us to deliver our products at one price to our clients in North America.
Our marketing also benefits from technology with our advertising costs of about 2.3% of sales as compared to about 6% of sales about 7 to 80 years back.
We are pleased to continue to maintain strong cash while providing good cash dividends.
Order and its September 30th we gave cash dividend of $20.2 million.
and ending with cash of 186.4 million compared to 100 and 733.2 million at September 30, 2023.
As we move forward, we are in a good position and remain cautiously optimistic.
We are at this stage going through some uncertain political times, both domestically and internationally. And I think that after these elections are over, the chances are, it would get some most ability. With that, I'm pleased to open for any questions or comments.
Speaker Change: Thank you. We will now be conducting a question and answer session.
If you would like to ask the question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question key. You may press star two if you'd like to remove yourself from the key. But participants using speaker equipment, and maybe in that sense you can pick up the handset before pressing the star key.
One moment please while we pull for our questions.
Speaker Change: Our first question comes from the line of Taylor's liquid key bank capital markets. Please for see you with your question.
Hi there, how are you? Hey, for who come to and well, it's Taylor's that gone for Brad Thomas.
I just wanted to start maybe if we can talk about the cadence of written orders during the quarter, you know, trends were a bit softer than fiscal four Q, so maybe can you talk a little bit more about what you saw, you know, what labor day trends were like, and then I guess if you have any thoughts on, you know, how October is trending so far.
Yeah, I think that as relatively speaking, our written orders held up and there was not a major change from one to month. I think that if we take a look at the retail sales more or less.
Mr. Kettler: I would say the in terms of the somewhat lower was
Mr. Kettler: throughout the quarter of some of the main without much changes.
Mr. Kettler: Thank you.
Great. But there may be just two...
talk about some, you know, the upcoming election for you can kind of mention, I think we all kind of want that behind us. But, you know, as we look at a potential outcome here in the potential that there may be, you know, tariffs.
Speaker Change: You know, given 75% of your product is manufactured in North America, it would assume you'd be politically insulated from any potential tariffs. And that could also be a tailland for you if your competitors are impacted. So I guess as you think about that, you know, what are some of the puts in takes as you think about any tariffs?
I mean, there's a lot of talk, you know, we just have to see what happens at this stage.
75% of our products are made in North America which is Includ United States, Includes Mexico and Honduras. That's where we...
because they didn't have the North American treaty. So we are watching everything. It's a good question. We are watching all the politics going on. There are, of course, talking mostly about tariffs coming internationally from overseas.
So we don't hear much about changing the North American treaty but we're watching it carefully. And...
You know, we also somewhat even though we do pay higher freight for the 25% of the product that we don't make here. But if you were making 75 or 90% of our products overseas.
to a minute or so, we'll start with the freight race coming from overseas with the water.
and going on with the impact the source canal. Unfortunately, I impacted but not.
Only 35% 75% we have the benefit here. So we're watching it very carefully, but at this stage as you mentioned, we do have an advantage.
I understood, and then maybe if I can squeeze one last one in your fruit, maybe on a potential recovery for the industry in Ethan Allen more broadly, the fetus obviously began to cut rates, chance of tender, and in general it looks like those
Speaker Change: You know there's going to be more rates down the road. You know I'm curious what your thoughts are on the lag effect between rate cuts and the impact on your business.
You know, also kick the mind that we are now.
Over the backlogs that were created to the COVID period that benefited us in everybody else, but now this quarter to the great degree that the past quarter reflected more normal times.
Speaker Change: It is a very small little decline in our sales, which is pretty good considering the fact that we had already used up the backlogs. So we did pretty good. And I think going forward, I think that we are.
cautiously optimistic, I think we are positioned very very well in terms of our marketing, our very strong network, we have reduced our head count everywhere because, as I mentioned in my comments, combining technology.
Speaker Change: and good.
Speaker Change: First one service is P.
to our vertically integrated enterprise. It's helping our manufacturing.
and most importantly is happening our retail where our interior designers, given mine we are 30% less interior designers than we just had a few years back, doing more business, combining good interior design and technology is critical. So I think we are we are we are we are we are
Of course, it's the optimistic that with this election and all that crazy stuff going out, we should have an opportunity of consumers focusing more on their homes again.
Speaker Change: Got it. Thank you very much, I'll leave it there.
Speaker Change: Alright thanks.
Thank you. Our next question comes from the line of Christina Fernandez. Will tell us the advice you could. Please receive a short question.
Hello Christina, how are you?
Good. Thank you. Hi. I can't. Hi.
Christina Fernandez: I have a couple of questions. I wanted to follow up on the demand trends that you're seeing.
or the use of the word in the quarter. Can you talk about...
and any regional trends in specific to the states that were impacted by the storm.
How are those recovering? Are you seeing a lagging effect here as you start? It's a, you know, in October from the storms.
Speaker Change: Yes, that's the good question because we were impacted first of a first we had tremendous floods in Texas. So, especially Houston in all that area was impacted.
Now, good news is they're getting more or less to normal. Then we got impacted in the storms in Florida and that also impacted our retail to a great degree.
Christina Fernandez: Good news is, we've watched very carefully, there are more and there's back to operating at a normal level. We did have impact and that to also some degree impact is our written business in the end of September. We did, we are catching it to some degree at some walks.
It was also in fact Dr. Maw. But now we are starting to catch up. Then we got impacted our business for this major major storms in ash will we have a couple of very major operations distribution centers which Matt just referred to which was closed for some time.
and tremendous impact to our people, but good news is.
The next impact was the strike on the docks strikes.
Speaker Change: It fortunately didn't last long, but for a few days it did. It stopped a lot of business both in terms of products coming in. Then exports especially our state department business was impacted. But good news is more or less they're getting back to normal.
Thank you for the college. And then my second question was on the...
Speaker Change: Reduction in Headcount that you've done over the last year, the A-Bind person to call out on the press release. What areas have been most impacted?
Speaker Change: But where is that head count coming out soon?
Speaker Change: It is coming into measure areas. One is retail and the other is manufacturing.
and both of those have been impacted to grade degree with a combination of, again, we have very little turnover, but it did have an impact of reducing our staffs, both at retail.
Speaker Change: and add on manufacturing.
Speaker Change: and that really has been the tremendous benefit of utilizing.
Speaker Change: Technology. It also other benefit has been with this uncertainties in the workplace and everything else we have been able to acquire from talent.
Speaker Change: That's very very important.
Speaker Change: and he was able to acquire from the talent in our retail.
Speaker Change: also in our manufacturing.
Speaker Change: and but a special region. So this whole trend of what is taking place has given us an opportunity even though we have lowered our head count but we've also added people.
Speaker Change: Overall we have Lairhead Count but I...
Speaker Change: have, but we have stronger people because we've been able to attract stronger people who are attracted to us because of our programs, because of stability and some issues challenges with competition. So those are two areas, Christina.
Christina Fernandez: Thanks. And then another question I had was on the new product introduction that you've been talking about for fiscal year 25.
Are those products already in your design centers? How are they being received? If a percentage of the total have much is if new, any color or incremental color, you can get there.
and I'm a good question, you know? On one hand.
Speaker Change: We have reduced the size of our design centers.
2 years back we went from average of 15 to 18,000 square feet to under 10,000 feet. So with the major reduction in space, they're more proactive. Which means we have less row space. We haven't said this.
The products that we have introduced have been more in terms of.
Speaker Change: Options, some products are going to the floor of our design centers, but most of them are options that our designers can use with the work with the clients. And keep in mind our designings today.
Almost all of them, maybe 80-90% when they work with a client, they're using technology.
Combining personal service or interior design and technology has been a great help.
and that it also helps us in our inventory management, in these new products. In the olden days we had to have that new product in our design center, but today with the technology our designers can use that product even though it is not in the design centers.
Thank you.
The last question I had was on the, on the, on the, the transfer scene on the call side of the business you mentioned supply chain. But what are the trends in raw materials protocols or those stable or they going up going down?
There are more alerts stable, haven't gone up a gun. A little bit on the lower side because there is a lower demand of raw materials, especially from our competitors.
So with that in mind keep in mind that
Our products are made in...
We're meant they're made in Honduras but we supplied them with all the raw materials on all the wood It's applied from our sob wheels from the United States to Honduras
Today the client cannot tell the difference whether that item is made in Honduras or in Vermont. Same thing in our policy. There are made in North Carolina or Mexico.
Speaker Change: and combining this challenge that we have in obviously the cost of operating in Honduras and Mexico is lower than in the United States. But we believe combining the two is a great advantage for us, using an opportunity of stability and service.
Thank you and best of luck this quarter.
Thank you and yeah, no further questions at this time. I would like to turn this go back to sorry, cast why are we full close remarks?
Now I thank you and you know I'm looking forward to more stability in terms of the political environment and international and far more than all kinds of problems.
Good news is we are positioned well. We also made lots of progress in terms of in all areas and I said first talent we have a really strong talent.
Secondly, we have increased our marketing. That marketing has given us an opportunity to reach much more people.
Speaker Change: Ted, I'll learn.
Technology in all areas is critical and there is a retail and thought.
Speaker Change: and the ability to provide great service which we do and 15 social responsibility is strongly believing in those things so I believe we believe we're going to continue to do that and we look forward to continuing our focus on these five important areas and continue to grow our business and have.
Speaker Change: strong financial results.
Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lives at this time.
Speaker Change: Thank you. Thank you.
Thank you for watching.