Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ethan Allen Interiors Inc (ETD, Financial) reported strong gross margins of 60.8% for the fiscal year 2024.
- The company ended the fiscal year with a robust cash position of $195.8 million and no outstanding debt.
- Adjusted operating margin for the fourth quarter improved to 13.1%, reflecting strong expense management.
- The company declared a special cash dividend of $0.40 per share in addition to the regular quarterly cash dividend.
- Ethan Allen Interiors Inc (ETD) was named America's Premium Retailer by Newsweek for the second time.
Negative Points
- Fiscal 2024 consolidated net sales totaled $646.2 million, reflecting a reduction in net sales compared to the prior year.
- Retail segment orders for the quarter were down 1.3%, indicating a decline in demand.
- Adjusted operating margin for the fiscal year was 12.1%, down from 16.9% last year.
- SG&A expenses increased as a percentage of net sales, rising to 47.7% from 45.1% last year due to lower sales volume relative to fixed costs.
- International sales were significantly impacted during the COVID period, with some regions experiencing a decline of up to 30%.
Q & A Highlights
Q: Could you talk about the cadence of written orders during the quarter and any comments on how July is trending so far?
A: Business was consistent throughout the quarter with a slight increase towards the end, particularly around Memorial Day. The improvement was driven by the efforts of our interior designers and social media engagement. (Farooq Kathwari, CEO; Matthew McNulty, CFO)
Q: What levers do you have left to control costs if demand remains challenged?
A: Continuous reinvention and technology adoption are key. We have reduced headcount significantly while increasing efficiency through technology in retail, manufacturing, and logistics. The focus is on having a mindset of constant improvement and leveraging technology with strong talent. (Farooq Kathwari, CEO)
Q: Can you share more on the improvement in written orders and factors like traffic, conversion, or financing?
A: Written orders were down only 1.3% despite economic and political challenges. This resilience is due to our strong retail business and the efforts of our interior designers. We expect to maintain this performance going forward. (Farooq Kathwari, CEO; Matthew McNulty, CFO)
Q: Do you think overall furniture demand is improving, or is it specific to Ethan Allen?
A: Our focus on one brand, quality, and vertical integration has helped us maintain profitability. Our interior design network and manufacturing capabilities in North America differentiate us. Companies with similar strengths are likely to do well. (Farooq Kathwari, CEO)
Q: What are your strategic plans for fiscal year 2025, particularly regarding showrooms and marketing?
A: We plan to open three to five new design centers, focusing on improving existing ones and reducing their size for efficiency. Marketing expenditures will remain around 3% of sales, leveraging technology for innovative marketing. (Farooq Kathwari, CEO)
Q: Can you expand on the State Department contract and its progress?
A: The conflict in the Middle East impacted the State Department's focus, but we are now seeing good orders and expect strong business with them in the fiscal year. (Farooq Kathwari, CEO)
Q: How do retail and wholesale sales parse out between domestic and international markets?
A: International sales were more impacted during COVID but are now recovering. Wholesale sales were down 20% due to delays in State Department orders, while retail sales were down 7%. We expect improvement in wholesale sales as State Department business picks up. (Farooq Kathwari, CEO; Matthew McNulty, CFO)
Q: Can you provide details on the $34 million in investments included in cash and investments?
A: The $34 million is primarily invested in U.S. Treasuries, contributing to our robust cash position of nearly $200 million. (Matthew McNulty, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
