by DANBURY, Conn. — Like others in the industry, Ethan Allen is facing tough economic times as evidenced by its latest financial results.
For its third fiscal quarter ended March 31, the company reported a 5.7% decrease in consolidated net sales, which fell to $186.3 million from $197.7 million for the same period last year.
Meanwhile, its net income was down 7.2% to $22 million, or 87 cents per share, compared to $23.7 million, or 97 cents per share, for the same period last year.
That said, the company said it was pleased overall with its strong financial performance for the quarter as compared to strong results for the previous period.
This was communicated during the company’s recent conference call with financial analysts where it focused on the positives, including its performance related to pre-pandemic norms versus the breakneck pace of business when demand was at historical highs,
For example, Matt McNulty, senior vice president and chief financial officer, noted that sales in fiscal 2022 set a new record pace that made for a difficult comparison to this year’s results. However, compared to the third quarter of fiscal 2019, which he described as more reflective of historical norms, consolidated sales were up 4.8%. And while wholesale sales were down 5.9% from that same pre-pandemic period, retail sales, which represent a majority of its business, were up 3.6% compared to the third quarter of fiscal 2019.
The company also reported that it lowered its backlog to $73.3 million, which it said was down 42.2.% from a year ago and down 30% in number of weeks.
And while the backlog was still 30% higher than pre-pandemic levels, the company said its consolidated gross margin was 59.9%, which it said was the eighth consecutive quarter that it exceeded 58%. Meanwhile, its adjusted operating margin was 15.2%, which McNulty said was down from 15.8% from last year because of lower consolidated net sales, a gross margin reduction and higher retail delivery costs.
It also reported cash and investments of $156.2 million and no outstanding debt as it generated $33.4 million in cash from operating activities during the quarter.
The company also appears to be taking an aggressive stance moving forward that will help it navigate an ongoing economic malaise that could creep further into Ethan Allen’s upper price points.
In his comments during the call, Chairman, President and CEO Farooq Kathwari noted that the company recently introduced its interior design initiative through the opening of its Danbury Design Center, which he said “reflected our strengthened offerings and projection of designs with a modern perspective.”
He added that the “projection and new offerings were well received and our plan is to have this projection reflected in over 172 design centers across North America during the next nine months … creating excitement within our interior design teams and also for our clients.”
In particular, he noted, this update in the mix of product and designs will help drive traffic to the design centers during a period of slow demand. The company also is renewing its focus on product development that had slowed during periods of high backlogs.
“We decided to hold introductions until most of the backlogs are delivered and we were in a better position to service our clients,” he said. “We started to introduce some products during the past year or two but now we have continued to invest in strong product introductions.”
He added that the company’s investments in manufacturing, notably its domestic manufacturing that produces some 75% of its product line, are further supporting its new product mix.
The company, he said, is also operating leaner with lower operating expenses thanks to the lowering of freight costs and reduction in its overall headcount by 12% across its retail and manufacturing platforms since fiscal 2019.
Obviously, those types of reductions in headcount bear some risk as the company seeks to improve service levels to consumers and interior design clients.
Yet it also should continue to help the bottom line in the coming months and quarters.
For now, though, it appears the company is positioning itself for continued growth during and after the slowdown that’s now affecting the industry at large.
