Ethan Allen Interiors Inc. (ETH) has long-term growth opportunities stemming from its expanded product offerings, regular product introductions, cost control efforts, increased marketing investments and other growth initiatives.
This Zacks #1 Rank (Strong Buy) interior design company looks to benefit from its Express program and strong chances for improvement in home-related spending due to the gradually-stabilizing new home market.
Fiscal First Quarter Coming Up
Ethan Allen is scheduled to report its fiscal first-quarter results on October 17. Presently, the Zacks Consensus Estimate is calling for 29 cents per share.
The company last reported on July 25. Adjusted earnings per share of 27 cents for the fiscal fourth quarter grew 29% from 21 cents a year earlier, driven by revenue growth and margin expansion. However, the result missed the Zacks Consensus Estimate.
Revenue of $185.3 million increased 4.1% year over year, driven by revenue growth in both the retail and wholesale divisions, despite macroeconomic uncertainties and increased competition. Gross margins expanded 100 basis points to 53.9% due to a better product mix, which comprised a larger percentage of higher margin retail sales. Adjusted operating margins grew 90 basis points to 7.7%.
The Zacks Consensus Estimate for fiscal 2013 stands at $1.27, reflecting a year-over-year growth rate of 35.3%. The Zacks Consensus Estimate for fiscal 2014 is $1.63, reflecting growth of 27.8%.
Ethan Allen offers a diverse selection of complementary and attractively priced products, while simultaneously refreshing its merchandises at regular intervals. In the last three quarters of fiscal 2012, it introduced a significantly higher number of new products than normal.
Moreover, Ethan Allen has introduced a new initiative, Ethan Allen Express program, which aims to expand its reach to a larger, more affluent consumer through its new products and increased spending on marketing and advertising. Sales should benefit from the expanded customer base in future quarters. The company is also redesigning its interior design regional network by building a strong team of managers and designers and opening new design centers.
Furthermore, Ethan Allen is expanding its international presence and investing in technology. The company has also taken actions to significantly reduce costs.
Overall, an Attractive Valuation
Ethan Allen currently trades at a forward P/E of 17.54x, a slight discount to the peer group average of 17.69x. On a price-to-book basis, the stock is trading in line with the peer group average. On a price-to-sales basis, the stock is trading at 0.88, a discount of 23.5% to the industry average of 1.15.
The price and consensus chart shows that the stock price line has been consistently below the earnings estimate lines, suggesting that the stock is undervalued.
Based in Danbury, CT, Ethan Allen is a leading manufacturer and retailer of stylish home furnishings, like furniture products and other decorative accessories. These products are available both at the company's online site, ethanallen.com, as well as at approximately 300 retail design centers across the U.S. and abroad. The company has a current market cap of $642.44 million.
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