Q3 2025 Ethan Allen Interiors Inc Earnings Call
Speaker Change: Good afternoon and welcome to the Ethan Allen Fiscal 2025 Third Quarter Analyst Conference call.
At this time, all participants are in a listen only mode [inaudible]
A question and answer session will follow the formal presentation presentation.
Speaker Change: If anyone to require operator assistance during the conference, please press star zero on your telephone
Speaker Change: 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 Treasurer. Thank you, you may begin.
Speaker Change: Thank you operator. Good afternoon and thank you for joining us today to discuss Ethan Allen's fiscal 2025 third quarter of results.
Speaker Change: With me today is Farooq Kathwari, our chairman, president and CEO . Mr. Kathwari will open and close our prepared remarks, while I will speak to our financial performance midway through. After our prepared remarks, we will then open the call for your questions.
Speaker Change: Before I begin, I'd like to remind the audience that this call is being webcast live under the news and events tab within our investor relations website. A replay of today's call will also be made available on our investor relations website.
Speaker Change: There you will find a copy of our press release which contains recommendations of non-GAAP financial measures referred to on this call and in the press release. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business.
Speaker Change: Our comments today may include forward-looking statements that are subject to risks 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.
Speaker Change: Please refer to our SEC filings for a complete review of those risks. The company assumes no obligation to update or revise any forward looking matters discussed during this call. With that, I am pleased to turn the call over to Mr. Kathwari.
Thank you, Matt.
Kathwari: Please to have this earnings call during very interesting and challenging times.
Kathwari: As mentioned in our press release, we are pleased with our results in the third quarter which produced strong margins and cash flow in a challenging economic environment.
Kathwari: First, I'd like to begin by providing perspective on our current position, including a very brief overview of our history.
Kathwari: Ethan Allen was founded 93 years ago in the Green Mountains of Vermont.
Kathwari: The company went private in 1989 with significant depth and in 1993 when public on the New York
Kathwari: Till that time, we have paid cash dividends, that is since going public in 1989, we have paid cash dividends totaling 711.3 million and repurchased 625.1 million of our common
We have improved our cash position.
Kathwari: Up to currently 183 million, compared the 26 million in March 2019, that's a COVID era.
Kathwari: Our focus on Reenvention, including utilization of technology, has helped reduce our head counts by 36% since 2019.
Kathwari: We continue to make about 75% of our furniture in our North American manufacturing and operate 189.
Design Centers Globally [inaudible]
Staffed with over 500 professional interior designers.
Kathwari: Technology has played a key role in developing efficient operations in manufacturing, retail, logistics, marketing, merchandising and other key areas.
Speaker Change: After Matt provides a brief financial overview, I will discuss in greater detail our initiatives to meet the many current challenges.
Matt Mcnulty: The site, despite operating in a challenging environment, our operations produce positive financial results which I will now discuss.
Matt Mcnulty: Our consolidated net sales were 142.7 million, reflecting lower delivered unit volume, partially offset by higher average ticket price, improved contract sales, and lower return.
Matt Mcnulty: Our wholesale segment sales were elevated due to a higher level of intercompany sales to retail, which also increased wholesale operating income. These sales are eliminated in consolidation as they reflect the transfer of new products to our retail segment.
Matt Mcnulty: Current demand levels reflect an industry face with tariffs, uncertainty in the economy, elevated interest rates, and a challenging housing market. Retail segment written orders were down 13.2% while wholesale orders decreased by 11.2%.
Matt Mcnulty: The month of January and February were more challenging due to weather, tariff on certainty and reduced traffic.
Matt Mcnulty: March saw modest demand growth, which helped improve our backlog. wholesale backlog of 54.6 million at March 31st represents the decline in the last three months as we improve customer lead times, including a reduction in the number of weeks of undelivered backlog.
Matt Mcnulty: Arkansas. Our strong, consolidated growth margin of 61.2% was driven by lower raw material and book cost, reduced headcount, a higher average ticket price, and leveraging investments in technology.
Matt Mcnulty: Our head count totaled 3,294 at March 31st, 2025, a decrease of 4.5% from a year ago as we continue to identify operational efficiencies and streamline workflows.
Matt Mcnulty: Adjusted operating margin was 8% compared to with 10% a year ago. Our positive operating margin reflects our ability to tightly manage expenses. Compared to pre-pandemic quarter and March 2019, our adjusted operating margin has improved 180 basis points.
Matt Mcnulty: Our effective tax rate of 23.4% during the quarter was down 170 basis points from a year ago due to taxes from recent audit settlements.
Matt Mcnulty: Adjust the diluted EPS with 38 cents compared with 48 cents a year ago. Fort historical context are adjusted diluted EPS in the just completed third quarter was 23% higher than in 2019.
Matt Mcnulty: Now turning to liquidity. Our prudent capital management underscores our dedication and commitment to delivering value to our shareholders.
Matt Mcnulty: We generated 10.2 million of cash from operating activities during the just completed third quarter and ended with total cash and investments of 183 million dollars and no outstanding debt. Higher levels of inventory reflect the introduction of new products and the opening of new design centers.
Matt Mcnulty: and Ward 2.0 million and included the build-out of new retail design centers and investment in manufacturing equipment and technology. New state-of-the-art design centers in Middleton, Wisconsin and Toronto, Canada were opened in the last three months that combined our interior design services with technology.
Matt Mcnulty: We also continued our practice of paying quarterly cash dividends. In January , our board declared a regular quarterly cash dividend of $0.39.
Matt Mcnulty: which was paid in February . Also, as announced earlier today, our board declared a regular quarterly cash dividend of 39 cents per share, which will be paid in May. Our current yield of 5.4% is one of the highest in the industry.
Matt Mcnulty: In summary, we are pleased with our performance during the just completed third quarter, as our associates and remain disciplined in managing expenses and executing on our strategies amidst the challenging environment. Our robust balance sheet and financial stability provide a solid foundation, positioning as well.
Mr. Kathwari: With that, I will now turn the call back over to Mr. Kathwariq.
Yeah, thanks, Matt.
Mr. Kathwari: As I mentioned, continual invention has been key to operating our enterprise for 93 years.
The reinvention includes many areas.
Mr. Kathwari: I will start with a brief overview of the current hot topic of travel. Now, tell us.
Mr. Kathwari: The good news is we are a vertically integrated enterprise that makes about 75% of our furniture in our North American workshops.
Mr. Kathwari: including approximately 40% in the United States, 25% in Mexico and 10% in Honduras.
Mr. Kathwari: Our imports from Mexico currently qualify for tax exemption under the US MCA.
Mr. Kathwari: Our primary tariff exposures are concentrated on imported accents and select a policy fabrics from East Asia.
Mr. Kathwari: Our overall exposure to China is less than 5% of total cost of goods.
Mr. Kathwari: While we acknowledge that tariffs exist, the good news is that they have a relatively smaller impact on us. However, we have taken steps to help reduce the impact from tariffs, including cost sharing with our suppliers.
Mr. Kathwari: To date, many of our supplier partners have been willing to work with us to help absorb some of the incremental tariff costs and we thank them for their partnership.
These steps...
Mr. Kathwari: To emphasize, our exposure overseas is limited as much of a production as much of a production
and now on to other key areas of focus.
First is relevant offerings.
Our focus on the classic design with modern perspective
Mr. Kathwari: and modern design with the classic perspective have been key in defining and continuing our relevancy.
Mr. Kathwari: So we are planning to introduce new products throughout the next 12 months
Markering Skate
Mr. Kathwari: Leveraging technology, we are able to develop strong marketing programs and reach a large base of current and new clients in a very efficient manner.
Mr. Kathwari: Manufacturing, combining the skills of our teams in various plants within North America have been key to attaining and retaining strong talent.
25 years back, we operated it.
Mr. Kathwari: and currently operate in four locations in North America with strong manufacturing.
Combining talent and technology is key
Mr. Kathwari: National and retail logistics provide opportunity of excellence in service, delivering our products at one cost to consumers and managing our costs.
Mr. Kathwari: And finally, our retail network of interior design centers, staffed with talented interior designers
Mr. Kathwari: Providing state of our technology has been key to service and managing costs.
Mr. Kathwari: and now we are ready to take your questions. Operator, please.
Mr. Kathwari: Thank you. We will now be conducting a question and answer session. If you would like to ask for a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Mr. Kathwari: You may press star 2 if you would like to remove your question from the queue.
Mr. Kathwari: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, while we pull for questions.
Mr. Kathwari: Yeah, hello, Brad. Hi, good afternoon. I'm good. Good afternoon, Farooq. Good afternoon, Matt.
I wanted to-
First ask about.
Carrots and sort of how it affects Ethan Allen's relatives.
Mr. Kathwari: and what's interesting is it does feel like the rest of the furniture industry has much more exposure.
Mr. Kathwari: Two countries, likely to see incremental tariffs. And so I'm wondering how you think, Farooq, about Ethan Allen's relative positioning, are you seeing pricing increases from competitors? What do you expect in terms of pricing increases from competitors, and how much you react to that?
Yes, it's a very important issue.
Mr. Kathwari: We are, as I mentioned, less impacted due to these tariffs because of the fact that most of our manufacturing version furniture is made in North America.
Mr. Kathwari: in the United States, Mexico, Honduras, where, of course, no tariffs in the United States, but in Mexico and Honduras, very little. So our impact of tariffs...
Mr. Kathwari: for about 75% of our furniture and is relatively small. Now we do have some impact due to some products like accessories and impact in some fabrics also that we get from overseas.
Mr. Kathwari: But exposure, as I mentioned, from China is relatively small, because that's where a lot of the tariffs are.
Mr. Kathwari: products coming from overseas are mostly concentrated in Indonesia, India, Vietnam, where the tariffs are somewhat limited. So I think that overall our exposure is limited and also the good news is that our partners overseas are also working very closely with us to minimize the impact.
Speaker Change: and Farooq for you all will you need to raise prices because of what you are seeing right now from a cost standpoint.
They are so far we haven't.
Speaker Change: Absolutely, and of course many of your competitors probably need to raise price more so than you so that will be interesting to watch.
Speaker Change: That's right here because a lot of them, of course, have tremendous amount of dependency on products, offshore products, imported products when we don't.
Great.
Speaker Change: I wanted to follow up on on on recent trends because this is
Speaker Change: is something that seems to be changing very quickly, curious if you could comment a bit more about how April and early May to the extent you can comment on it, have trended relative to a bit of softness that you saw in your March quarter.
Speaker Change: Yes, what we saw that in April there was, we continued.
Speaker Change: Towards the most of April , we did continue with the softness. Towards the end of April , [inaudible]
Things turned where they became somewhat less.
You know, obviously people were very concerned. They held back.
Speaker Change: and our traffic was down because people were not coming in, but the interesting thing is that the people who did come in, they made some good purchases.
Speaker Change: So, I think that at this stage, we are of course...
Speaker Change: very much cautious, but in May we are so far seeing somewhat more of a positive trend.
That's very helpful. I appreciate it Farooq. Thank you.
Thanks very much and good to talk to you.
Speaker Change: Thank you. Our next question comes from the line of Cristina Fernndez with Chelsea Advisory Group. Please proceed.
Hello, Cristina.
Hello, Farooq in that.
Speaker Change: Nice to speak to you. I have a follow-up question on the demand trend.
Speaker Change: I've wanted to see, last quarter you ran a little bit more of a promotion to drive traffic. You didn't do it this past quarter.
Speaker Change: with all the concerns that the consumers have with all the seeking face that just increasing discounts are not going to do it.
Speaker Change: What we felt was things have to become a little bit better in terms of an environment and then people will come because what we saw was that they mentioned earlier that people who came in were buying.
Speaker Change: And if people did come in, it didn't matter. So for us to increase more discounts for folks were going to come in by anyway, we didn't feel it was necessary.
Speaker Change: So we're going to maintain our offerings and the special, you might say, promotions that we do without doing anything very special.
Speaker Change: And then on the State Department contract, which has been, I think, relatively consistent for you over the past couple of years. There's a lot of changes seeming happening there in that department. Do you feel like that could have sent your contract or your ability to get orders?
on their dad, that's specific or part of the difference.
Yeah, there's a good question. So far, interestingly, until...
Speaker Change: March or so, we didn't see much. People are buying, I mean, the state department was doing their buying recently we do see that they are being more cautious.
I don't, I'm in the show of the contract.
Speaker Change: But I think that with all the changes taking place in the State Department, I think their attention is in a lot of other areas. So in the last few weeks we have seen some
Speaker Change: that was still buying and we will see how it happens, what the conditions are, and how it works out in the next few weeks and months, but so far the contract is still there, somewhat less amounts of business coming in at the stage.
. . . .
Speaker Change: Last quarter, you also talked about investing more in marketing, more brand marketing, so wanted you to get your thoughts about the increased SCNA and as far as the marketing plans to invest more.
Speaker Change: Would you wait for a better macro environment and better traffic to do that or how are you thinking about it, I guess, as she and me broadly?
Speaker Change: Yeah, it's a good question, you know, when you take a look at it, are advertising expenses for the bottom of all of our 3.4% of sales.
Speaker Change: We had less money than we were able to do because of the impact of technology. For instance, we are now sending out close to 18 million copies of our magazine.
Digital Magazines [inaudible]
and some print magazines.
Speaker Change: Every month something to think of that even five years back was impossible. You're able to develop a 36-page digital magazine
Speaker Change: Reaching more people with less cost. So I think we're going to continue to that and at this stage I don't think we're going to increase the dollar cost but I think we'll continue to increase efficiency of our marketing.
Thank you.
All right.
Well, thanks very much, and any other questions?
No, there are no further questions.
Speaker Change: Oliver, thanks very much and I'm sure that if you any other further questions and all of that, Matthew will be there to be able to answer them and if you need me I'll be happy to take care, thanks very much.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
All right. Thanks very much.
[music]