by DANBURY, Conn. — Ethan Allen reported a 2.4% drop in consolidated net sales and a 15.5% increase in net income for its fiscal 2023 second quarter ended Dec. 31, 2022.
The company’s consolidated net sales were $203.2 million for the second quarter, down from $208.1 million reported for the same period in 2021. Adjusted net income was $28 million, or $1.10 per share, compared to $24.3 million, or $.95 per share in the same period in 2021.
For the full first half, consolidated net sales rose 7%, to $417.7 million, compared to $390.4 million in the same period of 2021. Adjusted net income for the first half was $56.4 million, or $2.21 per share, up 26.3% from the $44.7 million, or $1.75 per share for 2021.
For the quarter, net retail sales fell 4.4% to $171.8 million and net wholesale sales fell 8.3% to $106.2 million.
Retail written orders were down 16.3% compared to the second fiscal quarter of 2022, but only were down 1.5% compared to the pre-pandemic second fiscal quarter of 2019. Written orders for the wholesale segment were down 20.2% from a year ago, and were down 18.6% compared to pre-pandemic levels in the second quarter of fiscal 2019.
Other highlights from the report were as follows:
+ The company ended the second quarter with $159.9 million in inventory, down $16.6 million from June 30, 2022.
+ The company generated $2.5 million of cash from operating activities.
+ Cash and investments totaled $140.4 million as of Dec. 31, compared to $121.1 million as of June 30, 2022. This was due to $40.9 million in cash generated from operating activities and $8.1 million in proceeds from a sale-leaseback transaction completed in August 2022 and primarily offset by $20.9 million in cash dividends paid and capital expenditures of $8.5 million.
+ It reported an operating margin of 18.2% and adjusted operating margin of 18.1% compared to 15.7% last year. It attributed this to the expansion of wholesale gross margin and maintaining a “disciplined approach to cost savings and expense control, partially offset by lower net sales and higher retail delivery costs.”
+ Meanwhile, adjusted selling, general and administrative expenses fell from 43.1% of net sales to 42.9% for the quarter.
+ The company also reported its consolidated gross margin increased to 61%, from 58.8% a year ago, which was due to product pricing actions taken over the past 12 months, along with “a favorable product mix, disciplined promotional activity and lower inbound freight costs.”
+ Overall advertising expenses were 2% of net sales, the same as the prior year quarter as the company continues to “utilize various advertising mediums including national television, direct mail and digital.
Farooq Kathwari, chairman, president and chief executive officer, said the company was pleased with its overall second quarter operating performance.
“Our strong delivered net sales of $203.2 million were helped by our backlog,” he said, adding, “Our gross margins increased to 61.0% and operating margins rose to 18.2%. Our adjusted diluted earnings per share of $1.10 grew by 15.8%. We continued to generate strong operating cash flow and as of Dec. 31, 2022, we had total cash and investments of $140.4 million and no debt. Our retail written orders have returned to near pre-pandemic levels. We are also pleased that yesterday we announced a regular quarterly cash dividend of $0.32 per share, payable Feb. 21, 2023.
“In November 2022 we opened a new state-of-the-art design center in Skokie, Illinois, a suburb of Chicago. This design center projection continues to position us as a leading ‘Interior Design Destination.’ Combining personal service of our talented interior designers with advanced technology is an important focus. Over the next twelve months, we plan to greatly enhance the projection of all our design centers.”
“We are well-positioned with continued strengthening of our vertically integrated structure, which includes enhancing our product offerings, continued re-positioning of our retail network as a premier ‘Interior Design Destination,’ investments in our North American manufacturing, which accounts for about 75% of our net sales, and investing in technology and logistics,” he added. “We remain cautiously optimistic.”
