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Ethan Allen CEO: The focus on the home in the last two years ‘was just unbelievable’

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Ethan Allen Chairman CEO & President Farooq Kathwari joins Yahoo Finance Live to discuss supply chain constraints, rising inflation, consumer spending, recessionary risks, and the outlook for growth.

Video Transcript

JULIE HYMAN: Well. Ethan Allen, we are watching those shares here today, as furniture companies are facing setbacks with supply chain constraints hitting sales. Those shares down some 21%. Rising inflation, of course, has also caused customers to press pause on spending in some cases.

Ethan Allen chairman, CEO, and president Farooq Kathwari joins us now to discuss. And he is at the New York Stock Exchange where, I believe, you rang the bell celebrating, what, 90 years of Ethan Allen, Farooq. So congratulations on that.

You, in your latest business update, which I believe was from late April, talked about slowing demand. Where are we now? How has that progressed or deteriorated since that point in time?

FAROOQ KATHWARI: Well, good to be on the program. Yes, we today participated in the opening bell of the New York Stock Exchange, celebrating 90 years of innovation. In the last time we gave information was very relative to our third quarter, which ended March 31. And we had a great, great quarter. We had 12% increase in sales, 60% increase in earnings, and a strong backlog.

But we said that the great, tremendous amount of focus on the home in the last two years, it was just unbelievable. We said that, most probably, is not going to last, which I think is natural. There's this major, major focus on the home due to the time and everybody in COVID stayed home, is diminishing, as we mentioned. But we are positioned well.

You talked about the supply chain. One of the things we are really unique is that we have maintained 75% of our manufacturing right in North America. So we have done extremely well compared to our peers who, most of their product, comes from overseas. So I think from a supply perspective, we are very well-positioned.

We are going to continue to service our clients. Now, as far as the demand is concerned, yes, as I had mentioned, after our third quarter that we do expect it to slow down, which is normal. But having said this, we are well-positioned. We're a vertically integrated company. We have about 1,500 interior designers that provide service today with technology. And personal service is the key. So I think we'll continue to make progress.

BRAD SMITH: Farooq, is that demand diminishing in line with where your target's currently are? Or is it at a faster rate?

FAROOQ KATHWARI: Well, the demand is-- I mean, this was a very tremendously unusual two years. But when you take a look at the demand relative to the base year of, let us say, 2019, I think from that period, It is increasing. But when you compare it to about a year back, yes, it is decreasing based on the fact that it was just extremely high.

JULIE HYMAN: Farooq, we mentioned that you're marking the anniversary of the company. I should mention, you've got to be one of the longest-tenured CEOs on Wall Street. I believe that you've been leading the company since 1988, if I'm not mistaken. So put this in a longer perspective for us as well, since you have been through multiple business cycles in the furniture business. How do you think this one is going to compare?

FAROOQ KATHWARI: Yes, you're right. I've had the opportunity of serving for CEO for over 36 years. And even then, before that, I was president. So I have seen a number of recessions. I've seen-- I would think that this is nothing unusual.

I think that when there is this extreme increase in demand, it is followed by things coming down. So that's what we're going to see. But I don't see us having a recession or a depression. But I think there's going to be a slowdown, which those of us who are better-positioned will do relatively better than others.

BRAD SMITH: As retailers are trying to get a better handle on inventories that they hold and what they currently have and they're trying to move through right now, have you noticed any kind of deterioration or declining in the number of orders that your company has written for some of those wholesalers?

FAROOQ KATHWARI: Well, again, I mentioned that 75% of our products are made in North America. And 75% of our products are made custom, which is very unusual for our industry or for retail. Most folks really have to buy a lot of inventory, especially if they are buying it offshore. We don't.

So 75% of our products are made when we receive an order. So we've had to build inventory, let us say, in lumber and parts and like that but nothing unusual.

BRAD SMITH: Farooq Kathwari, who is the Ethan Allen chairman and CEO and president joining us this morning live from the floor of the New York Stock Exchange Thanks so much for taking the time. Appreciate it.