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Ethan Allen Reports Strong Fiscal 2023 First Quarter Results

Ethan Allen Interiors Inc.
Ethan Allen Interiors Inc.

DANBURY, CT, Oct. 26, 2022 (GLOBE NEWSWIRE) -- Ethan Allen Interiors Inc. (“Ethan Allen” or the “Company”) (NYSE: ETD) today reported its financial and business results for its fiscal 2023 first quarter ended September 30, 2022.

Farooq Kathwari, Ethan Allen’s Chairman, President and CEO commented, “We are pleased with our fiscal 2023 first quarter results. Our sales increased 17.7% to $214.5 million and our diluted earnings per share increased by 48.1% to $1.17. We are also pleased to generate strong operating cash flow of $38.4 million during the quarter and returned $20.9 million to shareholders through cash dividends. We benefited from efficiencies throughout our vertically integrated structure and a higher backlog of orders.”

Mr. Kathwari continued, “Moving forward we are well-positioned to manage the challenging trends within the global economy. As we celebrate 90 years of innovation, our focus is on the continued strengthening of our vertically integrated structure. This includes our interior design network with major advancements in technology, accelerating introductions of relevant offerings, expanding our marketing and continuing to invest in our North American manufacturing and logistics. About 75% of our products are made in our North American workshops.”

FISCAL 2023 FIRST QUARTER HIGHLIGHTS*

  • Consolidated net sales growth of 17.7% to $214.5 million

    • Retail net sales of $183.7 million increased 18.5%

    • Wholesale net sales of $114.7 million increased 4.8%

  • Written order trends

    • Retail segment written orders increased 7.4% compared with the pre-pandemic first quarter of fiscal 2020; down 8.6% compared with the first quarter of fiscal 2022

    • Wholesale segment written orders were 0.1% lower than the first quarter of fiscal 2020; declined 7.2% from a year ago

  • Consolidated gross margin increased to 60.4%, up from 59.9% a year ago due to a change in sales mix with the Retail segment becoming a larger portion, a favorable product mix, product pricing actions taken and higher manufacturing productivity and efficiency

  • Operating margin of 18.5%; adjusted operating margin of 17.6% compared with 15.2% last year due to strong net sales growth, retail and wholesale gross margin expansion and controlling costs by leveraging cost reductions partially offset by higher delivery, freight and marketing costs; selling, general and administrative expenses decreased from 44.7% of net sales to 42.9%, reflecting the Company’s operating leverage

  • Diluted EPS of $1.17 compared with $0.79; adjusted diluted EPS of $1.11 increased 38.8%

  • Generated $38.4 million of cash from operating activities; cash and short-term investments totaled $142.4 million with no debt outstanding

  • Paid special cash dividends and regular quarterly cash dividends totaling $20.9 million

  • Ended the quarter with $167.7 million in inventory, down $8.8 million from June 30, 2022

* See reconciliation of U.S. GAAP to adjusted key financial measures in the back of this press release. Comparisons are to the first quarter of fiscal 2022.

KEY FINANCIAL MEASURES*

(Unaudited)

(In thousands, except per share data)

 

                      Three months ended

 

 

September 30,

 

 

 

 

 

2022

 

 

2021

 

% Change

 

 

 

Net sales

$

214,530

 

$

182,327

 

17.7

%

 

 

 

Gross profit

$

129,616

 

$

109,192

 

18.7

%

 

 

 

Gross margin

 

60.4

%

 

59.9

%

 

 

 

 

GAAP operating income

$

39,650

 

$

27,360

 

44.9

%

 

 

 

Adjusted operating income*

$

37,692

 

$

27,728

 

35.9

%

 

 

 

GAAP operating margin

 

18.5

%

 

15.0

%

 

 

 

 

Adjusted operating margin*

 

17.6

%

 

15.2

%

 

 

 

 

GAAP net income

$

29,880

 

$

20,153

 

48.3

%

 

 

 

Adjusted net income*

$

28,417

 

$

20,429

 

39.1

%

 

 

 

Effective tax rate

 

25.3

%

 

26.3

%

 

 

 

 

GAAP diluted EPS

$

1.17

 

$

0.79

 

48.1

%

 

 

 

Adjusted diluted EPS*

$

1.11

 

$

0.80

 

38.8

%

 

 

 

Cash flows from operating activities

$

38,422

 

$

16,989

 

126.2

%

 

 

 

* See reconciliation of U.S. GAAP to adjusted key financial measures in the back of this press release

BALANCE SHEET and CASH FLOW

Cash and short-term investments totaled $142.4 million at September 30, 2022, compared with $121.1 million at June 30, 2022. The increase of $21.3 million during the quarter was primarily due to $38.4 million in cash generated from operating activities and $8.1 million in proceeds received from a sale-leaseback transaction completed in August 2022 partially offset by $20.9 million in cash dividends paid and capital expenditures of $3.2 million as the Company continues to return capital to shareholders and reinvest back into the business.

Cash from operating activities totaled $38.4 million, an increase from $17.0 million in the prior year period due to an improvement in working capital and higher net income. The increase in working capital was primarily from a reduction in customer deposits as net shipments outpaced written orders and improved collections on accounts receivable partially offset by a reduction in inventory levels.

Cash dividends paid were $20.9 million, which included a special cash dividend of $12.7 million, or $0.50 per share. Ethan Allen has a long history of returning capital to shareholders and is pleased to have paid the special cash dividend in August 2022, which highlights the Company’s strong balance sheet and operating results.

Inventories, net decreased to $167.7 million at September 30, 2022, compared with $176.5 million at June 30, 2022, as the Company restores its operating inventory levels to more historical norms as backlog declines.

Customer deposits from written orders decreased $12.2 million during the quarter and totaled $108.9 million at September 30, 2022. Increased manufacturing capacity and related deliveries combined with the pace of written orders led to the reduction in customer deposits.

No debt outstanding at September 30, 2022.

CONFERENCE CALL

Ethan Allen will host an analyst conference call today, October 26, 2022, at 5:00 PM (Eastern Time) to discuss its results. The analyst conference call will be webcast live from the Company’s Investor Relations website at https://ir.ethanallen.com.

The following information is provided for those who would like to participate in the conference call:

  • U.S. Participants:                 877-705-2976

  • International Participants:         201-689-8798

  • Meeting Number:                13732728

For those unable to listen live, an archived recording of the call will be made available on the Company’s website referenced above for up to six months.

ABOUT ETHAN ALLEN

Ethan Allen Interiors Inc. (NYSE: ETD) is a leading interior design company, manufacturer and retailer in the home furnishings marketplace. The Company is a global luxury home fashion brand that is vertically integrated from product design through home delivery, which offers its customers stylish product offerings, artisanal quality, and personalized service. The Company provides complimentary interior design service to its clients and sells a full range of home furnishings through a retail network of design centers located throughout the United States and abroad as well as online at ethanallen.com. Ethan Allen owns and operates ten manufacturing facilities located in the United States, Mexico and Honduras, including one sawmill, one rough mill and a lumberyard. Approximately 75% of its products are manufactured or assembled in these North American facilities.

For more information on Ethan Allen's products and services, visit www.ethanallen.com.

Investor / Media Contact:

Matt McNulty
Senior Vice President, Chief Financial Officer and Treasurer
IR@ethanallen.com

ABOUT NON-GAAP FINANCIAL MEASURES

This press release is intended to supplement, rather than to supersede, the Company's consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (“GAAP”). In this press release the Company has included financial measures that are derived from the consolidated financial statements but are not presented in accordance with GAAP. The Company uses non-GAAP financial measures, including adjusted operating income and margin, adjusted net income, and adjusted diluted EPS (collectively “non-GAAP financial measures”). The Company computes these non-GAAP financial measures by adjusting the comparable GAAP measure to remove the impact of certain charges and gains and the related tax effect of these adjustments. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, or superior to, the financial performance measures prepared in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and to evaluate period-to-period comparisons. The Company believes that they provide useful information about operating results, enhance the overall understanding of past financial performance and prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. A reconciliation of these non-GAAP financial measures to the most directly comparable financial measure reported in accordance with GAAP is provided at the end of this press release.

FORWARD-LOOKING STATEMENTS

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Generally, forward-looking statements represent management’s beliefs and assumptions concerning current expectations, projections or trends relating to results of operations, financial results, financial condition, strategic objectives and plans, expenses, dividends, share repurchases, liquidity, use of cash and cash requirements, investments, future economic performance, business and industry and the effect of the COVID-19 pandemic on the business operations and financial results. Such forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These forward-looking statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “continue,” “may,” “will,” “short-term,” “target,” “outlook,” “forecast,” “future,” “strategy,” “opportunity,” “would,” “guidance,” “non-recurring,” “one-time,” “unusual,” “should,” “likely,” “COVID-19 impact,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. The Company derives many of its forward-looking statements from operating budgets and forecasts, which are based upon many detailed assumptions. While the Company believes that its assumptions are reasonable, it cautions that it is very difficult to predict the impact of known factors and it is impossible for the Company to anticipate all factors that could affect actual results and matters that are identified as “short term,” “non-recurring,” “unusual,” “one-time,” or other words and terms of similar meaning may in fact recur in one or more future financial reporting periods.

Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that are expected. Actual results could differ materially from those anticipated in the forward-looking statements due to a number of risks and uncertainties including, but not limited to, the risks and uncertainties disclosed in Part I, Item 1A. Risk Factors, in the Company’s 2022 Annual Report on Form 10-K and other factors identified in its reports filed with the Securities and Exchange Commission (the “SEC”), available on the SEC's website at www.sec.gov.

All forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements, as well as other cautionary statements. A reader should evaluate all forward-looking statements made in this press release in the context of these risks and uncertainties. Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Many of these factors are beyond the Company’s ability to control or predict. The Company is including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. The forward-looking statements included in this press release are made only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.

Ethan Allen Interiors Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands, except per share data)

 

Three months ended September 30,

 

 

 

2022

 

 

2021

 

 

Net sales

$

214,530

 

$

182,327

 

 

Cost of sales

 

84,914

 

 

73,135

 

 

Gross profit

 

129,616

 

 

109,192

 

 

Selling, general and administrative expenses

 

91,962

 

 

81,577

 

 

Restructuring and other impairment charges, net of gains

 

(1,996

)

 

255

 

 

Operating income

 

39,650

 

 

27,360

 

 

Interest expense and other financing costs
Interest and other income, net

 

55
396

 

 

48
28

 

 

Income before income taxes

 

39,991

 

 

27,340

 

 

Income tax expense

 

10,111

 

 

7,187

 

 

Net income

$

29,880

 

$

20,153

 

 

 

 

 

 

 

Per share data

 

 

 

 

Diluted earnings per common share:

 

 

 

 

Net income per diluted share

$

1.17

 

$

0.79

 

 

Diluted weighted average common shares

 

25,560

 

 

25,451

 

 

 

 

 

 

 


Ethan Allen Interiors Inc.

 

 

Condensed Consolidated Balance Sheets

 

 

(Unaudited)

 

 

(In thousands)

 

 

 

September 30,

June 30,

ASSETS

 

2022

 

 

2022

 

Current assets:

 

 

Cash and cash equivalents

$

92,878

 

$

109,919

 

Investments

 

49,566

 

 

11,199

 

Accounts receivable, net

 

8,607

 

 

17,019

 

Inventories, net

 

167,656

 

 

176,504

 

Prepaid expenses and other current assets

 

32,987

 

 

32,108

 

Total current assets

 

351,694

 

 

346,749

 

 

 

 

Property, plant and equipment, net

 

221,779

 

 

223,530

 

Goodwill

 

25,388

 

 

25,388

 

Intangible assets

 

19,740

 

 

19,740

 

Operating lease right-of-use assets

 

99,500

 

 

100,782

 

Deferred income taxes

 

1,019

 

 

820

 

Other assets

 

2,729

 

 

2,886

 

Total ASSETS

$

721,849

 

$

719,895

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Accounts payable and accrued expenses

$

36,744

 

$

37,370

 

Customer deposits

 

108,888

 

 

121,080

 

Accrued compensation and benefits

 

19,955

 

 

22,700

 

Current operating lease liabilities

 

24,972

 

 

25,705

 

Other current liabilities

 

17,731

 

 

8,788

 

Total current liabilities

 

208,290

 

 

215,643

 

 

 

 

Operating lease liabilities, long-term

 

88,776

 

 

89,506

 

Deferred income taxes

 

3,769

 

 

4,418

 

Other long-term liabilities

 

5,275

 

 

3,005

 

Total LIABILITIES

$

306,110

 

$

312,572

 

 

 

 

Shareholders’ equity:

 

 

Ethan Allen Interiors Inc. shareholders’ equity

$

415,772

 

$

407,349

 

Noncontrolling interests

 

(33

)

 

(26

)

Total shareholders’ equity

$

415,739

 

$

407,323

 

Total LIABILITIES AND SHAREHOLDERS’ EQUITY

$

721,849

 

$

719,895

 


Reconciliation of Non-GAAP Financial Measures

To supplement the financial measures prepared in accordance with GAAP, the Company uses non-GAAP financial measures, including adjusted operating income and margin, adjusted net income and adjusted diluted earnings per share. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in tables below.

These non-GAAP measures are derived from the consolidated financial statements but are not presented in accordance with GAAP. The Company believes these non-GAAP measures provide a meaningful comparison of its results to others in its industry and prior year results. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, its financial performance measures prepared in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than the Company does, limiting the usefulness of those measures for comparative purposes.

Despite the limitations of these non-GAAP financial measures, the Company believes these adjusted financial measures and the information they provide are useful in viewing its performance using the same tools that management uses to assess progress in achieving its goals. Adjusted measures may also facilitate comparisons to historical performance.

The following tables below provide a reconciliation of non-GAAP financial measures used in this release to the most directly comparable GAAP financial measures.

(Unaudited)

(In thousands, except per share data)

Three months ended

 

 

 

 

 

September 30,

 

 

 

 

 

 

2022

 

 

2021

 

% Change

 

 

 

 

Consolidated Adjusted Operating Income / Operating Margin

GAAP Operating income

$

39,650

 

$

27,360

 

44.9

%

 

 

 

 

Adjustments (pre-tax)*

 

(1,958

)

 

368

 

 

 

 

 

 

Adjusted operating income*

$

37,692

 

$

27,728

 

35.9

%

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Net sales

$

214,530

 

$

182,327

 

17.7

%

 

 

 

 

GAAP Operating margin

 

18.5

%

 

15.0

%

 

 

 

 

 

Adjusted operating margin*

 

17.6

%

 

15.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Adjusted Net Income / Adjusted Diluted EPS

GAAP Net income

$

29,880

 

$

20,153

 

48.3

%

 

 

 

 

Adjustments, net of tax*

 

(1,463

)

 

276

 

 

 

 

 

 

Adjusted net income

$

28,417

 

$

20,429

 

39.1

%

 

 

 

 

Diluted weighted average common shares

 

25,560

 

 

25,451

 

 

 

 

 

 

GAAP Diluted EPS

$

1.17

 

$

0.79

 

48.1

%

 

 

 

 

Adjusted diluted EPS*

$

1.11

 

$

0.80

 

38.8

%

 

 

 

 



* Adjustments to reported GAAP financial measures including operating income and margin, net income and diluted EPS have been adjusted by the following:

 

 

 

 

 

(Unaudited)

Three months ended

 

(In thousands)

September 30,

 

 

 

2022

 

 

2021

 

 

 

Gain on sale-leaseback transaction

$

(2,257

)

$

-

 

 

 

Severance, lease exit costs and other charges

 

299

 

 

368

 

 

 

Adjustments to operating income

$

(1,958

)

$

368

 

 

 

Adjustments to income before income taxes

$

(1,958

)

$

368

 

 

 

Related income tax effects on non-recurring items(1)

 

495

 

 

(92

)

 

 

Adjustments to net income

$

(1,463

)

$

276

 

 

 

(1)   Calculated using the marginal tax rate for each period presented.