Ethan Allen Interiors Inc. (“Ethan Allen” or the “Company”) (NYSE:
ETH) reported financial results for its second quarter ended
December 31, 2019.
FISCAL 2020 SECOND QUARTER HIGHLIGHTS
COMPARED WITH SECOND QUARTER FISCAL 2019*
- Consolidated net sales of $174.6 million compared with $197.2
million.
- Consolidated gross margin of 55.9% compared with 55.2%.
Adjusted gross margin of 56.1%.
- Consolidated operating margin of 5.3% compared with 8.2%.
Adjusted operating margin of 5.4%.
- Diluted earnings per share (“EPS”) of $0.27 compared with $0.45
a year ago.
- Cash of $28.3 million, up 35.9% from June 30, 2019 and no
debt.
- Paid regular quarterly cash dividend of $5.6 million.
- Repurchased 545,727 shares, representing 2.1% of the Company’s
outstanding shares.
- Increased the share repurchase authorization to 3 million
shares.
* See reconciliation of U.S. GAAP to adjusted
key financial measures in the back of this press release
Farooq Kathwari, Ethan Allen’s Chairman,
President and CEO commented, “As we mentioned in our press release
on January 13, 2020, the implementation of the Ethan Allen Member
Program was expected to impact our sales and profitability during
the initial year and, in particular, for the quarters ending
December 31, 2019 and March 31, 2020. The Ethan Allen Member
Program provides special members-only pricing, free shipping and
white glove in-home delivery, complimentary interior design
service, and in our U.S. design centers, access to special
financing options.”
“We continue to strengthen our product
offerings, projection and marketing. In January, we distributed 2.5
million copies of our direct mail magazine and launched a strong
national radio program and digital advertising. Our plans for
February and March are to continue our strong marketing in various
mediums including television, digital, radio and print,” Mr.
Kathwari continued.
“We are pleased that our unique vertical
structure continues to provide strong operating leverage to allow
us to consistently return value to our shareholders through regular
quarterly dividends, periodic special cash dividends and share
repurchases. During the second quarter we paid $5.6 million in cash
dividends and repurchased 545,727 shares, representing 2.1% of our
outstanding shares. On January 13, 2020, the Board of Directors
increased the share repurchase authorization to three million
shares and we plan to continue to strategically repurchase our
shares. We continue to strengthen our talent, marketing, retail
network, products, manufacturing, logistics and technology, while
also maintaining our focus on good governance and social
responsibility,” Mr. Kathwari concluded.
KEY FINANCIAL MEASURES*
(Condensed and
Unaudited) |
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|
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(In thousands, except
per share data) |
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Three months ended |
|
Six months ended |
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December 31, |
|
December 31, |
|
|
|
|
2019 |
|
|
2018 |
% Change |
|
2019 |
2018 |
|
% Change |
|
Net sales |
$ |
174,574 |
|
$ |
197,152 |
|
(11.5 |
%) |
$ |
348,495 |
|
$ |
384,937 |
|
(9.5 |
%) |
|
|
|
|
|
|
|
|
|
GAAP gross profit |
$ |
97,521 |
|
$ |
108,860 |
|
(10.4 |
%) |
$ |
191,315 |
|
$ |
210,310 |
|
(9.0 |
%) |
|
Adjusted gross profit * |
$ |
97,910 |
|
$ |
108,860 |
|
(10.1 |
%) |
$ |
195,844 |
|
$ |
210,310 |
|
(6.9 |
%) |
|
GAAP gross margin |
|
55.9 |
% |
|
55.2 |
% |
|
|
54.9 |
% |
|
54.6 |
% |
|
|
Adjusted gross margin * |
|
56.1 |
% |
|
55.2 |
% |
|
|
56.2 |
% |
|
54.6 |
% |
|
|
|
|
|
|
|
|
|
GAAP operating income |
$ |
9,204 |
|
$ |
16,128 |
|
(42.9 |
%) |
$ |
27,845 |
|
$ |
27,927 |
|
(0.3 |
%) |
|
Adjusted operating income * |
$ |
9,488 |
|
$ |
16,425 |
|
(42.2 |
%) |
$ |
21,701 |
|
$ |
28,224 |
|
(23.1 |
%) |
|
GAAP operating margin |
|
5.3 |
% |
|
8.2 |
% |
|
|
8.0 |
% |
|
7.3 |
% |
|
|
Adjusted operating margin * |
|
5.4 |
% |
|
8.3 |
% |
|
|
6.2 |
% |
|
7.3 |
% |
|
|
|
|
|
|
|
|
|
|
GAAP diluted EPS |
$ |
0.27 |
|
$ |
0.45 |
|
(40.0 |
%) |
$ |
0.79 |
|
$ |
0.78 |
|
1.3 |
% |
|
Adjusted diluted EPS * |
$ |
0.27 |
|
$ |
0.46 |
|
(41.3 |
%) |
$ |
0.62 |
|
$ |
0.79 |
|
(21.5 |
%) |
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities |
$ |
(8 |
) |
$ |
7,035 |
|
(100.1 |
%) |
$ |
23,388 |
|
$ |
31,475 |
|
(25.7 |
%) |
|
* See reconciliation of U.S. GAAP to adjusted
key financial measures in the back of this press release
FISCAL 2020 SECOND QUARTER FINANCIAL
RESULTS
Consolidated
Net sales were $174.6 million,
a decrease of 11.5% or $22.6 million compared to the same prior
year period. Net sales were negatively impacted as the Company
transitions from a promotional to membership model as evidenced by
a 21.8% decrease in wholesale orders, which led to lower wholesale
shipments. International sales decreased $4.2 million primarily
from lower sales to China and in Canada due to a challenging global
economy. In addition, retail consumers remained cautious with
discretionary spending.
Gross profit was $97.5 million
compared with $108.9 million in the prior year period due to lower
sales volumes in both the wholesale and retail segments combined
with a change in product mix, partially offset by improved gross
margins. Retail sales, as a percentage of total consolidated sales,
was 79.7% in the current year second quarter compared with 80.4% a
year ago, which negatively impacted consolidated gross margin.
Consolidated gross margin for the quarter improved to 55.9%, up
from 55.2% in the prior year, primarily due to retail gross margin
increasing from improved retail price optimization and wholesale
gross margin expansion due to realizing efficiencies from
previously announced restructuring initiatives.
Operating expenses decreased
4.8% to $88.3 million compared with the prior year period due to
lower retail selling costs and lower general and administrative
costs partially offset by higher television advertising costs.
Retail selling expenses decreased due to warehouse and delivery
expenses decreasing, along with other reduced variable selling
expenses, from the 12.2% reduction in retail net sales. General and
administrative expenses decreased primarily due to lower wholesale
compensation costs coupled with lower depreciation, occupancy costs
and regional management charges within the retail segment.
Operating income totaled $9.2
million compared with $16.1 million for the prior year second
quarter. The decrease was driven by the 11.5% decline in
consolidated net sales, which negatively impacted gross profit by
10.4% combined with a decrease in the retail/wholesale product mix
and higher selling costs from television advertising spend. These
decreases were partially offset by improved expense management and
a gross margin improvement, which rose 70 basis points year over
year.
Income tax expense was $2.2
million in the current year second quarter compared with $4.1
million a year ago due to the $7.0 million decrease in income
before income taxes. The effective rate in the current year second
quarter was 23.5% compared with 25.1% last year.
Diluted EPS was $0.27 compared
with $0.45 in the prior year comparable period. This decrease was
primarily from sales and operating income being negatively impacted
during the quarter as the Company transitions from a promotional to
membership model combined with retail consumers being cautious with
discretionary spending.
Wholesale Segment
Net sales decreased 14.6% to
$91.9 million primarily due to a 45.1% decrease in sales to China
and a 24.6% decline in sales to the Company’s North American retail
network. Partially offsetting these declines was growth in contract
sales, which grew 66.9%. The year over year increase in contract
sales was attributable to continued growth in sales from the GSA
contract.
Wholesale orders booked, which
represents orders booked through all of the Company’s channels,
were down 21.8% compared with the same quarter last year. Wholesale
orders from China declined 69.3% from a year ago mainly due to
global economic uncertainty. Excluding orders from China, total
wholesale orders decreased 17.9%, which was primarily the result of
the transition to the membership model.
Operating income decreased to
$5.7 million compared with $8.8 million in the prior year period
primarily due to lower net sales.
Retail Segment
Net sales from Ethan Allen
operated design centers decreased by $19.4 million, or 12.2%, to
$139.1 million. There was a 12.3% decrease in net sales in the
United States, while net sales from Canadian design centers
decreased 11.8%. These decreases were primarily due to the
transition to the membership model combined with softer order
trends as consumers have been cautious with discretionary spending.
There were 144 Company operated design centers at the end of the
second quarter of fiscal 2020, compared to 146 in the prior year
period as the Company continues to relocate and open new locations
while closing older locations.
Operating loss was $0.1 million
compared with operating income of $3.3 million for the prior year
period. Operating margin decreased 220 basis points due to the
12.2% reduction in net sales partially offset by improved gross
margin and a 4.5% decrease in operating expenses.
FISCAL 2020 YEAR-TO-DATE FINANCIAL RESULTS
Consolidated
Net sales were $348.5 million,
a decrease of 9.5% compared with the same prior year period. Net
sales decreased by 14.4% within the wholesale segment and by 9.0%
in the retail segment. There was an $8.8 million decrease in
international sales primarily related to lower sales to China and
in Canada due to a challenging global economy. Net sales to China
were 47.4% lower in the current year compared with the same period
last fiscal year. Softer order trends from consumers and the
ongoing transition from a promotional sales model to a membership
model negatively impacted fiscal 2020 net sales.
Gross profit decreased 9.0% to
$191.3 million compared with the prior year period due to declines
within both the wholesale and retail segments. Wholesale gross
profit was negatively impacted by lower sales volume. Retail sales,
as a percentage of total consolidated sales, were 79.3% in fiscal
2020 compared with 78.9% in the prior fiscal year, which mix
favorably impacted year-to-date consolidated gross margin. Adjusted
gross margin in fiscal 2020 improved to 56.2%, up from 54.6% in the
prior year. Restructuring charges negatively impacted fiscal 2020
consolidated gross margin by 130 basis points.
Operating expenses decreased to
$163.5 million compared with $182.4 million in the prior year
period. The 10.4% decrease was primarily due to a gain of $11.5
million from the sale of the Passaic property during the first
quarter of fiscal 2020. In addition to the gain on the sale,
operating expenses were down due to lower retail depreciation
expense and wholesale distribution costs partially offset by higher
selling costs from television advertising spend.
Operating income totaled $27.8
million compared with $27.9 million for the prior year period.
Adjusted operating income in the first half of fiscal 2020 was
$21.7 million, a decrease of 23.1% compared to last year. The
decrease in adjusted operating income was driven by the 9.5%
decline in consolidated net sales combined with higher selling
costs from television advertising spend.
Income tax expense was $6.7
million for the first six months of fiscal 2020 compared with $7.0
million a year ago. The fiscal 2020 effective rate was 24.1%
compared with 25.0% in the prior year.
Diluted EPS was $0.79 compared
with $0.78 in the prior year period. The gain on the sale of the
Passaic property partially offset with other fiscal 2020
restructuring activities and corporate actions increased diluted
EPS by $0.17. Adjusted diluted EPS of $0.62 in the current year
represents a decrease of 21.5% over the prior year.
Balance Sheet and Cash Flow
Total cash and cash equivalents
was $28.3 million at December 31, 2019 compared with $20.8 million
at June 30, 2019. Total cash increased $7.5 million during fiscal
2020 due to net cash provided by operating activities of $23.4
million and proceeds from the sale of the Company’s Passaic
property of $11.7 million, partially offset by $10.7 million in
dividend payments, $8.2 million in share repurchases and $8.0
million of capital expenditures. As of December 31, 2019, the
Company had no debt outstanding.
Inventories of $139.0 million
decreased $23.4 million from the balance of $162.4 million at June
30, 2019. Wholesale finished goods levels decreased $12.6 million
primarily from the first quarter non-cash write-down and disposal
of certain slow moving and discontinued inventory items. Retail
inventory levels decreased $7.0 million as the Company further
improved its efforts to minimize inventory carrying costs.
Capital expenditures were $8.0
million, an increase of $3.0 million compared to the $5.0 million
spent a year ago. In fiscal 2020, approximately 71% of the
Company’s total capital expenditures related to opening new and
relocating design centers in desirable locations, updating existing
design center presentations and floor plans and opening new home
delivery service centers. The remaining 29% was primarily capital
expenditures incurred in connection with the previously announced
optimization project as the Company converts its Old Fort, North
Carolina facility into a distribution center and expands its
existing Maiden, North Carolina manufacturing campus.
Cash Dividends paid during
fiscal 2020 totaled $10.7 million, an increase of $0.5 million over
a year ago due to the 10.5% increase in the quarterly dividend to
$0.21. On November 13, 2019, the Company’s Board of Directors
approved a regular quarterly dividend of $0.21 per share. The cash
dividend of $5.6 million was paid on January 23, 2020, to common
stockholders of record at the close of business on January 9,
2020.
ETHAN ALLEN MEMBER PROGRAM
In October 2019 the Company introduced the Ethan
Allen Member Program, an exclusive membership program providing its
customers a new way to make furnishing their home easier and more
affordable. For an annual fee of $100, the Ethan Allen Member
Program offers special members-only pricing, free shipping and
white glove in-home delivery, complimentary interior design
services, and in its United States design centers, access to
preferred financing plans. The Company believes that transitioning
its business from a promotional to a membership model will benefit
its customers, enhance the brand and enable its team of about 1,500
North American interior designers and vertically integrated
operations to operate more efficiently in order to improve
operating margins. New membership fees are recorded as deferred
revenue when collected from the customer and recognized as revenue
on a straight-line basis over the membership period of one
year.
LEASES
The Company adopted Accounting Standards Update
2016-02, Leases (Topic 842), as of July 1, 2019 using the modified
retrospective method and have not restated comparative periods.
Upon adoption, the Company recognized operating lease assets of
$129.7 million and operating lease liabilities of $149.7
million on its consolidated balance sheet. In addition, $20.0
million of deferred rent and various lease incentives, which were
reflected as other long-term liabilities as of June 30, 2019, were
reclassified as a component of the right-of-use assets upon
adoption. The Company also recognized a cumulative adjustment as of
July 1, 2019, which decreased opening retained earnings by
$1.6 million due to the impairment of certain
right-of-use assets. The adoption of the new standard did not have
a material impact on the consolidated statements of operations or
cash flows during fiscal 2020.
ANALYST CONFERENCE CALL
Ethan Allen will host an analyst conference call
today, February 4, 2020 at 5:00 PM (Eastern Time) to discuss its
financial results. The analyst conference call will be webcast live
from the “Events and Presentations” page at
http://www.ethanallen.com/investors. The following information is
provided for those who would like to participate:
- U.S. Participants:
844-822-0103
- International Participants: 614-999-9166
- Conference passcode:
3862646
An archived recording of the call will be made
available for at least 60 days on the Company’s website referenced
above.
ABOUT ETHAN ALLEN
Ethan Allen Interiors Inc. (NYSE: ETH) is a
leading interior design company and manufacturer and retailer of
quality home furnishings. The Company offers complimentary interior
design service to its clients and sells a full range of furniture
products and decorative accessories through ethanallen.com and a
network of approximately 300 design centers in the United States
and abroad. Ethan Allen owns and operates nine manufacturing
facilities including six manufacturing plants in the United States,
two manufacturing plants in Mexico and one manufacturing plant in
Honduras. Approximately 75% of its products are made in its North
American plants. For more information on Ethan Allen's products and
services, visit www.ethanallen.com.
Investor / Media Contact: Matt McNulty Vice President,
Finance 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
not prepared in accordance with GAAP. The Company uses non-GAAP
financial measures, including adjusted gross profit and margin,
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. The
presentation of these non-GAAP financial measures is not intended
to be considered in isolation or as a substitute for, or superior
to, the financial measures presented 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 the 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, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), which represent management's beliefs
and assumptions concerning future events based on information
currently available to the Company relating to its future results.
Such forward-looking statements are identified in this press
release and the related webcasts, conference calls and other
related discussions or documents incorporated herein by
reference by use of forward-looking words such as “anticipate,”
“believe,” “plan,” “estimate,” “expect,” “intend,” “will,” “may,”
“continue,” “project,” “target,” “outlook," "forecast," “guidance,"
and similar expressions and the negatives of such forward-looking
words. These forward-looking statements are subject to management
decisions and various assumptions about future events and are not
guarantees of future performance. 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 following: a volatile retail environment and
changing economic conditions may further adversely affect consumer
demand and spending; global and local economic uncertainty may
materially adversely affect manufacturing operations or sources of
merchandise and international operations; disruptions of supply
chain; changes in U.S. trade and tax policy; competition from
overseas manufacturers and domestic retailers; failure to
successfully anticipate or respond to changes in consumer tastes
and trends in a timely manner; ability to maintain and enhance the
Ethan Allen brand; the number of manufacturing and logistics sites
may increase exposure to business disruptions and could result in
higher transportation costs; fluctuations in the price,
availability and quality of raw materials could result in increased
costs or cause production delays; current and former manufacturing
and retail operations and products are subject to increasingly
stringent environment, health and safety requirements; the use of
emerging technologies as well as unanticipated changes in the
pricing and other practices of competitors; reliance on information
technology systems to process transactions, summarize results, and
manage its business and that of certain independent retailers;
disruptions in both primary and back-up systems; product recalls or
product safety concerns; successful cyber-attacks and the ability
to maintain adequate cyber-security systems and procedures; loss,
corruption and misappropriation of data and information relating to
customers; loss of key personnel; additional asset impairment
charges that could reduce profitability; access to consumer credit
could be interrupted as a result of conditions outside of the
Company’s control; its ability to locate new design center sites
and/or negotiate favorable lease terms for additional design
centers or for the expansion of existing design centers; changes to
fiscal and tax policies; its operations present hazards and risks
which may not be fully covered by insurance; possible failure to
protect its intellectual property; and failure to successfully
transition from a promotional to a membership model.
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. These forward-looking statements
speak only as of the date of this press release. Other than as
required by law, the Company undertakes no obligation to update or
revise its forward-looking statements, whether because of new
information, future events, or otherwise. Accordingly, actual
circumstances and results could differ materially from those
contemplated by the forward-looking statements.
Ethan Allen
Interiors Inc. |
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Selected
Financial Data |
|
|
|
|
(Unaudited) |
|
|
|
|
($ in millions,
except per share data) |
|
|
|
|
|
|
|
Selected Consolidated Financial
Data |
|
|
|
Three months endedDecember 31, |
Six months endedDecember 31, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Net sales |
$ |
174.6 |
|
$ |
197.2 |
|
$ |
348.5 |
|
$ |
384.9 |
|
Gross margin |
|
55.9 |
% |
|
55.2 |
% |
|
54.9 |
% |
|
54.6 |
% |
Adjusted gross margin * |
|
56.1 |
% |
|
55.2 |
% |
|
56.2 |
% |
|
54.6 |
% |
Operating income |
$ |
9.2 |
|
$ |
16.1 |
|
$ |
27.8 |
|
$ |
27.9 |
|
Adjusted operating income * |
$ |
9.5 |
|
$ |
16.4 |
|
$ |
21.7 |
|
$ |
28.2 |
|
Operating margin |
|
5.3 |
% |
|
8.2 |
% |
|
8.0 |
% |
|
7.3 |
% |
Adjusted operating margin * |
|
5.4 |
% |
|
8.3 |
% |
|
6.2 |
% |
|
7.3 |
% |
Net income |
$ |
7.1 |
|
$ |
12.2 |
|
$ |
21.2 |
|
$ |
21.0 |
|
Adjusted net income * |
$ |
7.3 |
|
$ |
12.4 |
|
$ |
16.6 |
|
$ |
21.3 |
|
Effective tax rate |
|
23.5 |
% |
|
25.1 |
% |
|
24.1 |
% |
|
25.0 |
% |
Diluted EPS |
$ |
0.27 |
|
$ |
0.45 |
|
$ |
0.79 |
|
$ |
0.78 |
|
Adjusted diluted EPS * |
$ |
0.27 |
|
$ |
0.46 |
|
$ |
0.62 |
|
$ |
0.79 |
|
Cash flows from operating
activities |
$ |
0.0 |
|
$ |
7.0 |
|
$ |
23.4 |
|
$ |
31.5 |
|
Capital expenditures |
$ |
4.6 |
|
$ |
2.2 |
|
$ |
8.0 |
|
$ |
5.0 |
|
Cash dividends paid |
$ |
5.6 |
|
$ |
5.1 |
|
$ |
10.7 |
|
$ |
10.1 |
|
Repurchases of common stock |
$ |
8.2 |
|
$ |
0.0 |
|
$ |
8.2 |
|
$ |
0.0 |
|
|
|
|
|
|
Selected Financial
Data by Segment |
|
|
|
|
|
Three months endedDecember 31, |
Six months endedDecember 31, |
Retail |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Net sales |
$ |
139.1 |
|
$ |
158.5 |
|
$ |
276.4 |
|
$ |
303.7 |
|
Gross margin |
|
47.2 |
% |
|
45.5 |
% |
|
47.0 |
% |
|
44.9 |
% |
Operating margin |
|
(0.1 |
%) |
|
2.1 |
% |
|
0.5 |
% |
|
0.6 |
% |
Adjusted operating margin * |
|
(0.1 |
%) |
|
2.2 |
% |
|
0.6 |
% |
|
0.7 |
% |
|
|
|
|
|
Wholesale |
|
|
|
|
Net sales |
$ |
91.9 |
|
$ |
107.7 |
|
$ |
193.2 |
|
$ |
225.7 |
|
Gross margin |
|
30.8 |
% |
|
30.4 |
% |
|
29.8 |
% |
|
31.4 |
% |
Adjusted gross margin * |
|
31.2 |
% |
|
30.4 |
% |
|
32.2 |
% |
|
31.4 |
% |
Operating margin |
|
6.2 |
% |
|
8.2 |
% |
|
11.7 |
% |
|
10.2 |
% |
Adjusted operating margin * |
|
6.5 |
% |
|
8.3 |
% |
|
8.5 |
% |
|
10.3 |
% |
|
|
|
|
|
* See reconciliation of U.S. GAAP to adjusted key financial
measures in the back of this press release
Ethan Allen Interiors Inc. |
|
|
Consolidated Statements of Comprehensive
Income |
|
|
(Unaudited) |
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
Three months ended December 31, |
Six months ended December 31, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Net sales |
$ |
174,574 |
|
$ |
197,152 |
|
$ |
348,495 |
|
$ |
384,937 |
|
Cost of sales |
|
77,053 |
|
|
88,292 |
|
|
157,180 |
|
|
174,627 |
|
Gross profit |
|
97,521 |
|
|
108,860 |
|
|
191,315 |
|
|
210,310 |
|
Selling, general and administrative expenses |
88,495 |
|
|
92,732 |
|
|
174,505 |
|
|
182,383 |
|
Restructuring and impairment charges (gains) |
|
(178 |
) |
|
0 |
|
|
(11,035 |
) |
|
0 |
|
Operating income |
|
9,204 |
|
|
16,128 |
|
|
27,845 |
|
|
27,927 |
|
Interest income, net of interest (expense) |
|
63 |
|
|
152 |
|
|
82 |
|
|
125 |
|
Income before income taxes |
|
9,267 |
|
|
16,280 |
|
|
27,927 |
|
|
28,052 |
|
Income tax expense |
|
2,181 |
|
|
4,090 |
|
|
6,735 |
|
|
7,022 |
|
Net income |
$ |
7,086 |
|
$ |
12,190 |
|
$ |
21,192 |
|
$ |
21,030 |
|
|
|
|
|
|
Per share data |
|
|
|
|
Basic earnings per common share: |
|
|
|
|
Net income per basic share |
$ |
0.27 |
|
$ |
0.46 |
|
$ |
0.80 |
|
$ |
0.79 |
|
Basic weighted average common shares |
26,580 |
|
|
26,574 |
|
|
26,646 |
|
|
26,556 |
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
Net income per diluted share |
$ |
0.27 |
|
$ |
0.45 |
|
$ |
0.79 |
|
$ |
0.78 |
|
Diluted weighted average common shares |
26,612 |
|
|
26,923 |
|
|
26,681 |
|
|
26,932 |
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
Net income |
$ |
7,086 |
|
$ |
12,190 |
|
$ |
21,192 |
|
$ |
21,030 |
|
Other comprehensive income (loss), net of tax |
|
|
|
|
Foreign currency translation adjustments |
773 |
|
|
(1,195 |
) |
|
274 |
|
|
52 |
|
Other |
|
(19 |
) |
|
(19 |
) |
|
(26 |
) |
|
(45 |
) |
Other comprehensive income (loss), net of tax |
|
754 |
|
|
(1,214 |
) |
|
248 |
|
|
7 |
|
Comprehensive income |
$ |
7,840 |
|
$ |
10,976 |
|
$ |
21,440 |
|
$ |
21,037 |
|
Ethan Allen Interiors
Inc. |
|
|
Condensed Consolidated
Balance Sheets |
|
|
(Unaudited) |
|
|
(In thousands) |
|
|
|
December 31, |
June 30, |
ASSETS |
|
2019 |
|
2019 |
Current assets: |
|
|
Cash and cash
equivalents |
$ |
28,306 |
$ |
20,824 |
Accounts receivable,
net |
|
13,139 |
|
14,247 |
Inventories, net |
|
138,997 |
|
162,389 |
Prepaid expenses and other
current assets |
|
18,998 |
|
18,830 |
Total current assets |
|
199,440 |
|
216,290 |
|
|
|
Property, plant and equipment,
net |
|
245,271 |
|
245,246 |
Goodwill |
|
25,388 |
|
25,388 |
Intangible assets |
|
19,740 |
|
19,740 |
Operating lease right-of-use
assets |
|
128,525 |
|
0 |
Deferred income taxes |
|
2,082 |
|
2,108 |
Other assets |
|
1,481 |
|
1,579 |
Total ASSETS |
$ |
621,927 |
$ |
510,351 |
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY |
|
|
Current liabilities: |
|
|
Accounts payable and
accrued expenses |
$ |
27,256 |
$ |
35,485 |
Customer deposits and
deferred revenue |
|
47,506 |
|
56,714 |
Accrued compensation and
benefits |
|
19,184 |
|
21,327 |
Short-term debt |
|
0 |
|
550 |
Current operating lease
liabilities |
|
32,809 |
|
0 |
Other current
liabilities |
|
10,687 |
|
8,750 |
Total current
liabilities |
|
137,442 |
|
122,826 |
|
|
|
Long-term debt |
|
0 |
|
516 |
Operating lease liabilities,
long-term |
|
117,857 |
|
0 |
Deferred income taxes |
|
648 |
|
1,069 |
Other long-term liabilities |
|
3,155 |
|
22,011 |
Total LIABILITIES |
$ |
259,102 |
$ |
146,422 |
|
|
|
Shareholders’ equity: |
|
|
Ethan Allen Interiors Inc. shareholders’ equity |
$ |
362,788 |
$ |
363,866 |
Noncontrolling interests |
|
37 |
|
63 |
Total shareholders’ equity |
$ |
362,825 |
$ |
363,929 |
Total LIABILITIES AND
SHAREHOLDERS’ EQUITY |
$ |
621,927 |
$ |
510,351 |
Ethan Allen Interiors
Inc. |
|
|
|
Design Center
Activity |
|
|
|
(Unaudited) |
|
|
|
|
|
Company |
|
Retail Design Center location
activity |
Independent |
Owned |
Total |
Balance at September 30,
2019 |
156 |
|
145 |
|
301 |
|
New locations |
6 |
|
1 |
|
7 |
|
Closures |
(4 |
) |
(2 |
) |
(6 |
) |
Transfers |
0 |
|
0 |
|
0 |
|
Balance at December 31, 2019 |
158 |
|
144 |
|
302 |
|
Relocations (included
within new locations and closures) |
1 |
|
1 |
|
2 |
|
|
|
|
|
U.S. |
36 |
|
138 |
|
174 |
|
International |
122 |
|
6 |
|
128 |
|
Reconciliation of U.S. GAAP Results to Adjusted
Financial Measures
To supplement the financial measures prepared in
accordance with generally accepted accounting principles in the
U.S., or U.S. GAAP, the Company uses non-GAAP financial measures
including adjusted gross profit and margin, adjusted operating
income, adjusted retail operating income and margin, adjusted
wholesale 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 U.S.
GAAP are shown in tables below.
These non-GAAP measures are derived from the
consolidated financial statements but are not presented in
accordance with U.S. 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 U.S. 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 U.S. 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 show a reconciliation of non-GAAP
financial measures used in this press release to the most directly
comparable U.S. GAAP financial measures.
(Unaudited) |
|
|
|
|
|
|
|
(In thousands, except
per share data) |
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
December 31, |
|
|
December 31, |
|
|
2019 |
2018 |
% Change |
|
2019 |
2018 |
% Change |
Consolidated
Adjusted Gross Profit / Gross Margin |
|
|
|
|
|
|
GAAP Gross profit |
$97,521 |
$108,860 |
(10.4%) |
|
$191,315 |
$210,310 |
(9.0%) |
Adjustments (pre-tax) * |
389 |
0 |
|
|
4,529 |
0 |
|
Adjusted gross profit * |
$97,910 |
$108,860 |
(10.1%) |
|
$195,844 |
$210,310 |
(6.9%) |
Adjusted gross margin * |
56.1% |
55.2% |
|
|
56.2% |
54.6% |
|
|
|
|
|
|
|
|
|
Consolidated
Adjusted Operating Income / Operating Margin |
|
|
|
|
|
|
|
GAAP Operating income |
$9,204 |
$16,128 |
(42.9%) |
|
$27,845 |
$27,927 |
(0.3%) |
Adjustments (pre-tax) * |
284 |
297 |
|
|
(6,144) |
297 |
|
Adjusted operating income * |
$9,488 |
$16,425 |
(42.2%) |
|
$21,701 |
$28,224 |
(23.1%) |
|
|
|
|
|
|
|
|
Consolidated Net sales |
$174,574 |
$197,152 |
(11.5%) |
|
$348,495 |
$384,937 |
(9.5%) |
GAAP Operating margin |
5.3% |
8.2% |
|
|
8.0% |
7.3% |
|
Adjusted operating margin * |
5.4% |
8.3% |
|
|
6.2% |
7.3% |
|
|
|
|
|
|
|
|
|
Consolidated
Adjusted Net Income / Adjusted Diluted EPS |
|
|
|
|
|
|
|
GAAP Net income |
$7,086 |
$12,190 |
(41.9%) |
|
$21,192 |
$21,030 |
0.8% |
Adjustments, net of tax * |
214 |
224 |
|
|
(4,639) |
224 |
|
Adjusted net income |
$7,300 |
$12,414 |
(41.2%) |
|
$16,553 |
$21,254 |
(22.1%) |
Diluted weighted average common
shares |
26,612 |
26,923 |
|
|
26,681 |
26,932 |
|
GAAP Diluted EPS |
$0.27 |
$0.45 |
(40.0%) |
|
$0.79 |
$0.78 |
1.3% |
Adjusted diluted EPS * |
$0.27 |
$0.46 |
(41.3%) |
|
$0.62 |
$0.79 |
(21.5%) |
|
|
|
|
|
|
|
|
Wholesale Adjusted
Operating Income / Operating Margin |
|
|
|
|
|
|
|
Wholesale GAAP
operating income |
$5,730 |
$8,821 |
(35.0%) |
|
$22,658 |
$23,136 |
(2.1%) |
Adjustments (pre-tax) * |
284 |
74 |
|
|
(6,292) |
74 |
|
Adjusted wholesale operating income * |
$6,014 |
$8,895 |
(32.4%) |
|
$16,366 |
$23,210 |
(29.5%) |
|
|
|
|
|
|
|
|
Wholesale net sales |
$91,889 |
$107,658 |
(14.6%) |
|
$193,218 |
$225,730 |
(14.4%) |
Wholesale GAAP operating
margin |
6.2% |
8.2% |
|
|
11.7% |
10.2% |
|
Adjusted wholesale operating margin * |
6.5% |
8.3% |
|
|
8.5% |
10.3% |
|
|
|
|
|
|
|
|
|
Retail Adjusted
Operating Income / Operating Margin |
|
|
|
|
|
|
|
Retail GAAP operating
(loss) income |
($135) |
$3,311 |
(104.1%) |
|
$1,429 |
$1,752 |
(18.4%) |
Adjustments (pre-tax) * |
0 |
223 |
|
|
148 |
223 |
|
Adjusted retail operating (loss) income * |
($135) |
$3,534 |
(103.8%) |
|
$1,577 |
$1,975 |
(20.2%) |
|
|
|
|
|
|
|
|
Retail net sales |
$139,101 |
$158,508 |
(12.2%) |
|
$276,367 |
$303,722 |
(9.0%) |
Retail GAAP operating margin |
(0.1%) |
2.1% |
|
|
0.5% |
0.6% |
|
Adjusted retail operating margin * |
(0.1%) |
2.2% |
|
|
0.6% |
0.7% |
|
* Adjustments to
reported U.S. GAAP financial measures including gross profit and
margin, operating income and margin, net income, and diluted EPS
have been adjusted by the following: |
|
|
|
|
|
(Unaudited) |
Three months ended |
Six months ended |
(In thousands) |
December 31, |
December 31, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Inventory
write-downs and manufacturing overhead costs |
|
$389 |
|
|
$0 |
|
|
$4,529 |
|
|
$0 |
|
Adjustments to gross profit |
|
$389 |
|
|
$0 |
|
|
$4,529 |
|
|
$0 |
|
|
|
|
|
|
Restructuring
charges, including inventory write-downs (wholesale) |
|
$211 |
|
|
$74 |
|
|
$4,982 |
|
|
$74 |
|
Gain on sale of Passaic, New
Jersey property (wholesale) |
|
0 |
|
|
0 |
|
|
(11,497 |
) |
|
0 |
|
Other professional fees
incurred (wholesale) |
|
73 |
|
|
0 |
|
|
223 |
|
|
0 |
|
Retail acquisition
costs and other charges (retail) |
0 |
|
|
223 |
|
|
148 |
|
|
223 |
|
Adjustments to operating income |
|
$284 |
|
|
$297 |
|
|
($6,144 |
) |
|
$297 |
|
Adjustments to income before income taxes |
|
$284 |
|
|
$297 |
|
|
($6,144 |
) |
|
$297 |
|
Related income tax effects
(1) |
|
(70 |
) |
|
(73 |
) |
|
1,505 |
|
|
(73 |
) |
Adjustments to net income |
|
$214 |
|
|
$224 |
|
|
($4,639 |
) |
|
$224 |
|
(1) Calculated using a tax rate of 24.5% in all
periods presented.
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