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Ethan Allen CEO on positive outlook: 'we're going upwards'

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Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland speak with Ethan Allen Interiors CEO, President, and Chairman, Faros Kathwari, about the company’s latest earnings and outlook.

Video Transcript

BRIAN SOZZI: The furniture buying move during the pandemic rages on as people look to upgrade their surroundings, seeing as they are now home 24/7. One company benefiting from that tailwind is furniture maker Ethan Allen. The company's longtime CEO, Farooq Kathwari, joins us now.

Farooq, good to speak with you again. It's been a while. Good to-- good to see you here. One-- so you're just coming off your earnings report, and one number that stood out to me, your retail segment written orders were up 44.9%. Is that a-- is that just a fair way to look at what's happening in your business right now? Is that how much it's growing?

FAROOQ KATHWARI: Well, there are a couple of factors. First of all, certainly as you mentioned, there is the tremendous amount of interest in the home. And in our case, because we are a well-known brand. We have over 1,000 interior designers that are providing service, and they are today using personal service combined with technology. And I say that because that is important.

And certainly, our business has done extremely well. It continues to grow. As we mentioned in our press release, we have also continued the growth in January. Certainly, these are very, very high numbers, but I would say that whether we can maintain 40%, 50% growth, I do not know. But certainly we are going upwards, and I think we have-- you know, we have a positive outlook.

JULIE HYMAN: Farooq, it's Julie here. You know, I've been furniture shopping, full disclosure, during this time, and what has struck me is how many choices there now. There are a lot of furniture startups out there that have blossomed in the past few years. Then there's-- that's not even to talk about Wayfair, et cetera. How are you thinking about competition right now at Ethan Allen, and about sort of moving the brand forward to maybe a new audience amidst a very competitive field?

FAROOQ KATHWARI: Yes, it's a very, very good question. We are one of the very few companies that's vertically integrated, from the concept of ideas to design. We make 75% of our products in our workshops in North America. Now, that was a tough decision to do. A few years back, people said, why don't you just take everything offshore? It'll be easier, most likely higher margins. But I said no, we want to control our destiny. And out of the 75%, 70% is custom. We make the product when we get the order. So I think that the opportunities today for a company like that are great.

Having said this, you're right. There are a lot of companies that have come up. Many online, some in retail. The impact of globalization, commoditization has made all products, whether it's in furniture or clothing or whatever, much more available. Good products, lower prices. So we have had to differentiate by even going above the average in terms of quality and also maintaining great service.

Now, what we also did, which is the question you just asked, we decided that we didn't have to give very special offerings. Like for instance, last month, and even this month, too, we're offering up to 25% savings. We've offered free in-home delivery. We've offered interest-free 48 months. Now, we didn't have to, but I said, no, we should do this to attract new people. And that's what we are getting. So we are starting to get lots of new people because we wanted to have them come in and see what we have, see the-- see our offerings, and go from a looker to a client. And that's what's taking place, Julie.

MYLES UDLAND: And, you know, Farooq, you guys certainly talked about this a lot on the call and in the release, about the demand curve. And Brian asked about the sales growth. I'm curious, on the design side, if customer preferences have started to change on what people want to see in their home, and if that's different now that they're home all the time, or has there not quite been enough time, really, for the design itself to shift, given it's only been about nine months since we were all stuck at home?

FAROOQ KATHWARI: I think the trend was already taking place, which is people want products that are good design. I would say even classics, classics in the sense that you can today have classics with the more formal, you can have classics that are more country, coastal, you can have classics that have more modern attitudes. But they have to be livable. That's where the big change is. And when you take a look at how people are living, how kids run around today, that, you know, 30 years back, that was not the case.

So today, the products have to be of great design, great quality, but livable. And that's what our focus has been, and that's what people want. Now, the difference-- we believe our difference is that not only do we provide that great variety of style, from the, what we say, classics, we say country, coastal, and we say modern, but what we also do is we have very strict guidelines on quality. And that's the differentiating factor.

BRIAN SOZZI: Farooq, are the tariffs from the prior administration, are they still weighing on your business and the furniture industry more broadly?

FAROOQ KATHWARI: They are because, as I said, that we make 75% of our products in North America. So we are less impacted, but the 25% we do get products from offshore are impacted. The other major issue, really, that is facing everybody-- to us a little bit less, but still we are faced with-- is the issue of service. Those folks who are getting products from offshore, we have first problems of manufacturing, and then there is a major problem of getting shipments, containers.

You have to pay a premium. In fact, right now, it's almost you have to bid, a bidding war going on to get space in containers. So if you are in the business of getting your products from offshore, I'm sure that the delays once these folks who are-- sold their products that they have in stock, on the floors, the new products are taking a lot of time. I would think anywhere from four to six months. In our case, we have been impacted, but still we are shipping within six to eight weeks most of our custom products.

And so I think that people are going to evaluate. People are going to evaluate where the sourcing should be. We have maintained and grown, and I have very much-- you know, I believe that we had to be ready. So we have-- we have invested so that we could double our volume. If we didn't do that, you know, it takes you four years, five years to get ready. So we are ready. Now we've got to get more people, we're training them, technology. So I think that-- and I think a number of our competitors are also looking at back to North America.

BRIAN SOZZI: You know, really, you know, the current administration has a big-- a large focus on buying America, buy America first. Has that made you rethink how you build in America? Now, you have six US plants. I mean, do you want to open another one, especially given where demand is now?

FAROOQ KATHWARI: Well, we don't have to open. We already have. We've already invested. Like for instance, we have close to-- just in North America, close to 2 million square feet of manufacturing. So it is not the space. We have the space. What we now need is, of course, more trained personnel, people, and we also need a lot of technology. So today, technology is a tremendously major factor. And that's what we are doing.

And we, for instance, have a contract with the United States State Department, where because of the fact we make products in facilities that are acceptable to the government, we in the last few years have been shipping our products to every American diplomat all over the world. It's because of the ability that we are able to control our destiny. Not easy. Two, three years back, it didn't look like an advantage. But today, it's an advantage.

BRIAN SOZZI: All right, we'll leave it there. Ethan Allen CEO Farooq Kathwari, always good to see you. Stay safe, and we'll talk to you soon.

FAROOQ KATHWARI: OK, Brian. Not so long time.

BRIAN SOZZI: Not so long.

FAROOQ KATHWARI: We should talk again soon. All right, good to see you.

BRIAN SOZZI: Absolutely.

FAROOQ KATHWARI: But you haven't changed. You still look very young. How you do--

[INTERPOSING VOICES]

BRIAN SOZZI: It's not all makeup, and I still have my hair. So things are going well.

FAROOQ KATHWARI: Good to see you again.

BRIAN SOZZI: Stay safe. You, too.