Ethan Allen Interiors Inc. (“Ethan Allen” or the “Company”) (NYSE:
ETH) provided several updates on its business and reported
financial results for its fiscal third quarter ended March 31,
2020.
BUSINESS UPDATE
Farooq Kathwari, Ethan Allen’s Chairman,
President and CEO commented, “It has been now almost eight weeks
since the Company temporarily closed the Company-operated retail
design centers and some of its North American manufacturing
operations. I am pleased and proud of the work and attitude of our
associates throughout our vertical enterprise during this
unprecedented crisis.”
“As we mentioned in our April 22, 2020 press
release, our fiscal third quarter results were negatively impacted
as a result of the lower order backlog entering the quarter from
our transition to a membership model combined with disruptions due
to COVID-19. While our third quarter revenues of $150 million were
lower than forecasted, we saw strong growth in orders for the first
two months of our fiscal third quarter, until the significant
disruption in March. In April, with almost all our design centers
closed, we were still able to generate about 35% of written orders
compared to April 2019. This was due to our interior design
associates working remotely utilizing technology we deployed over
the last few years, including the Ethan Allen inHome augmented
reality app, 3D room planner tool, Live Chat on ethanallen.com and
communications tools including Skype and FaceTime,” Mr. Kathwari
continued. “We are excited that our design centers are reopening in
many markets around the country and we have begun a phased recall
of some of our furloughed associates. We are also pleased that we
have restarted most of our manufacturing in North America – again
phasing in associates and keeping the safety of our teams uppermost
in our decisions.”
Mr. Kathwari further stated, “Our vertical
integration provides us strong gross margins and operating
leverage. During the third quarter ended March 31, 2020, we
returned value to stockholders through regular quarterly dividends
of $5.5 million and share repurchases of $14 million representing
3.8% of our outstanding shares. In view of the COVID-19 challenges,
the Company has decided to temporarily suspend its regular cash
dividends and the share repurchase program. We also took other
steps to conserve cash including the furlough of approximately 70%
of the global workforce, reductions in salaries and elimination of
all non-essential operating expenses.”
“Crisis creates opportunity. We are reviewing
every aspect of our vertically integrated operations and are
confident we will come out stronger. At March 31, 2020 we had cash
of $117 million, which included $100 million drawn from our
revolving credit facility. We believe our liquidity will be
sufficient to fund our operations for at least the next twelve
months,” Mr. Kathwari concluded.
FISCAL 2020 THIRD QUARTER
HIGHLIGHTS*
- Consolidated net sales of $149.8 million compared with $177.8
million.
- Consolidated gross margin of 56.1% compared with 55.3%.
Adjusted gross margin of 56.0%.
- Diluted earnings per share (“EPS”) of ($0.01). Adjusted EPS of
$0.02 compared with $0.31.
- Cash on hand of $116.9 million as of March 31, 2020 and
long-term debt of $100 million.
- Generated $15.3 million of cash from operating activities
compared with $12.8 million.
- Paid regular quarterly cash dividend of $5.5 million.
- Share repurchases of $14.3 million, representing 992,636 shares
or 3.8% of outstanding shares.
- The Company performed an interim quantitative impairment
assessment of goodwill and other intangible assets and concluded
there was no impairment as of March 31, 2020.
* See reconciliation of U.S. GAAP to adjusted
key financial measures in the back of this press release.
Comparisons are to the third quarter of fiscal 2019.
COVID-19 UPDATE
The Company has taken decisive actions to manage
liquidity and costs through the challenging economic environment
caused by COVID-19. The pandemic and ensuing government
restrictions resulted in temporary closing of the Company’s North
American design centers and manufacturing since March 19. The
Company implemented its action plan in response to the COVID-19
pandemic. Measures taken included, among other things, the
continued temporary closure of the Company’s design centers and
most of its manufacturing facilities, the furlough of approximately
70% of the global workforce, the decision by the Company’s CEO to
temporarily forego his salary through June 30, 2020, a temporary up
to 40% reduction in salaries for all senior management and up to
20% for other salaried employees through June 30, 2020, a temporary
reduction of 50% in cash compensation of the Company’s directors,
the elimination of all non-essential operating expenses, a delay of
capital expenditures, the temporary halt of the share repurchase
program and a temporary suspension of the quarterly dividend. These
actions are expected to result in reduced cash spending versus
plan.
The Company began reopening design centers in a
number of U.S. states since May 1, 2020 and began resuming
production in some of its North American manufacturing plants in a
limited capacity to work through existing backlog and to be in a
position to service expected demand as the economy begins to reopen
for business. As of May 11, 2020, Ethan Allen has reopened either
fully or partially approximately 60% of its Company-operated retail
design centers. Additional design centers are expected to reopen in
the coming weeks when permitted based on applicable state and local
guidelines. The Company’s distribution centers are open and making
home deliveries.
KEY FINANCIAL MEASURES*
(Condensed and
Unaudited) |
(In thousands,
except per share data) |
|
Three months ended |
Nine months ended |
|
March 31, |
March 31, |
|
|
2020 |
|
|
2019 |
|
% Change |
|
2020 |
|
|
2019 |
|
% Change |
Net sales |
$ |
149,774 |
|
$ |
177,829 |
|
(15.8 |
%) |
$ |
498,269 |
|
$ |
562,766 |
|
(11.5 |
%) |
|
|
|
|
|
|
|
GAAP gross profit |
$ |
83,949 |
|
$ |
98,394 |
|
(14.7 |
%) |
$ |
275,264 |
|
$ |
308,704 |
|
(10.8 |
%) |
Adjusted gross profit * |
$ |
83,944 |
|
$ |
98,394 |
|
(14.7 |
%) |
$ |
279,788 |
|
$ |
308,704 |
|
(9.4 |
%) |
GAAP gross margin |
|
56.1 |
% |
|
55.3 |
% |
|
|
55.2 |
% |
|
54.9 |
% |
|
Adjusted gross margin * |
|
56.0 |
% |
|
55.3 |
% |
|
|
56.2 |
% |
|
54.9 |
% |
|
|
|
|
|
|
|
|
GAAP operating income (loss) |
$ |
(754 |
) |
$ |
10,669 |
|
(107.1 |
%) |
$ |
27,091 |
|
$ |
38,596 |
|
(29.8 |
%) |
Adjusted operating income * |
$ |
353 |
|
$ |
10,960 |
|
(96.8 |
%) |
$ |
22,054 |
|
$ |
39,184 |
|
(43.7 |
%) |
GAAP operating margin |
|
(0.5 |
%) |
|
6.0 |
% |
|
|
5.4 |
% |
|
6.9 |
% |
|
Adjusted operating margin * |
|
0.2 |
% |
|
6.2 |
% |
|
|
4.4 |
% |
|
7.0 |
% |
|
|
|
|
|
|
|
|
GAAP diluted EPS |
$ |
(0.01 |
) |
$ |
0.30 |
|
(103.3 |
%) |
$ |
0.80 |
|
$ |
1.08 |
|
(25.9 |
%) |
Adjusted diluted EPS * |
$ |
0.02 |
|
$ |
0.31 |
|
(93.5 |
%) |
$ |
0.65 |
|
$ |
1.10 |
|
(40.9 |
%) |
|
|
|
|
|
|
|
Cash flows from operating
activities |
$ |
15,296 |
|
$ |
12,832 |
|
19.2 |
% |
$ |
38,684 |
|
$ |
44,307 |
|
(12.7 |
%) |
* See reconciliation of U.S. GAAP to adjusted
key financial measures in the back of this press release
FISCAL 2020 THIRD QUARTER FINANCIAL
RESULTS
Consolidated
Net sales were $149.8 million,
a decrease of 15.8% or $28.1 million compared to the same prior
year period. Net sales were negatively impacted as a result of the
lower order backlog entering the quarter from the transition to a
membership model combined with disruptions in March 2020 from the
closing of the Company’s design centers and manufacturing plants
due to COVID-19. International sales decreased 33.6% primarily due
to lower sales to China and in Canada.
Gross profit was $83.9 million
compared with $98.4 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 an improved
retail gross margin. Retail sales, as a percentage of total
consolidated sales, was 77.2% in the current year third quarter,
down from 78.1% a year ago, which negatively impacted consolidated
gross profit. Consolidated gross margin for the quarter improved to
56.1%, up from 55.3% in the prior year, primarily due to retail
gross margin expanding 130 basis points from improved retail price
optimization.
Operating expenses decreased
3.4% to $84.7 million compared with the prior year period primarily
due to lower retail selling costs and lower general and
administrative costs partially offset by higher television and
radio advertising costs. Retail selling expenses were down due to
warehouse and delivery expenses decreasing from a 16.7% reduction
in retail net sales and a decrease in designer selling expenses.
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 loss of $0.8 million
compared with operating income of $10.7 million for the prior year
third quarter. Adjusted operating income, which excludes
restructuring and impairment charges, was $0.4 million. The
decrease was driven by the 15.8% decline in consolidated net sales,
which negatively impacted gross profit by 14.7% combined with a
decrease in the retail/wholesale product mix and higher selling
costs from television and radio advertising spend. These decreases
were partially offset by improved expense management and gross
margin improvement, which rose 80 basis points year over year.
Income tax benefit on the
operating loss was $0.3 million in the current year third quarter
compared with income tax expense of $2.6 million a year ago. The
effective rate was 58.8% in the current year third quarter compared
with 24.8% last year.
Diluted EPS was ($0.01)
compared with $0.30 in the prior year comparable period. Adjusted
diluted EPS was $0.02 compared with $0.31 in the prior year. This
decrease was primarily from net sales being negatively impacted as
a result of the COVID-19 pandemic combined with lower backlog
entering the quarter from the Company’s transition from a
promotional to membership model.
Wholesale Segment
Net sales decreased 14.1% to
$93.1 million primarily due to a 24.5% decrease in sales to the
Company’s North American retail network and a 36.3% decrease in
international sales. Wholesale net sales were significantly
impacted in the quarter due to the transition to a membership model
and COVID-19. Prior to March 2020, wholesale net sales were
improving sequentially each month as customer demand increased.
Partially offsetting these declines was growth in contract sales,
which grew 24.2%. 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 21.9% compared with the same quarter last year. Orders
from the Company’s North American retail network declined 32.0%
while wholesale orders from China declined 25.7% from a year ago
mainly due to local quarantines in place for most of the fiscal
third quarter. The closing of the Company’s retail design centers
and manufacturing operations during March 2020 negatively impacted
results, as evidenced by a 37.3% decrease in March 2020 wholesale
orders compared to a year ago. Increasing concern about the economy
and rising unemployment softened customer demand as the volume of
new orders was significantly lower in March 2020.
Operating income was $8.9
million compared with $13.0 million in the prior year period,
primarily due to the $15.2 million decrease in wholesale net sales
partially offset by lower general and administrative expenses.
Retail Segment
Net sales from Company-operated
design centers decreased by $23.2 million, or 16.7%, to $115.7
million. There was a 16.3% decrease in net sales in the United
States, while net sales from Canadian design centers decreased
29.7%. These decreases were primarily due to the transition to the
membership model and COVID-19. There were 144 Company-operated
design centers at the end of the third quarter of fiscal 2020,
compared to 143 in the prior year period as the Company continues
to relocate and open new locations while closing older
locations.
Operating loss was $8.8 million
compared with an operating loss of $1.7 million for the prior year
period. Operating margin decreased 640 basis points due to the
$23.2 million reduction in net sales partially offset by improved
gross margin and a 3.1% decrease in operating expenses from lower
depreciation, selling, occupancy and regional management costs.
FISCAL 2020 YEAR-TO-DATE FINANCIAL RESULTS
Consolidated
Net sales were $498.3 million,
a decrease of 11.5% compared with the same prior year period. Net
sales decreased by 14.3% within the wholesale segment and by 11.4%
in the retail segment. There was a $12.8 million decrease in
international sales primarily related to lower sales to China and
in Canada. Net sales to China were 47.3% lower in the current year
compared with the same period last fiscal year as China was
significantly impacted by COVID-19. The transition to a membership
model, COVID-19 and softer order trends from consumers also
negatively impacted fiscal 2020 net sales.
Gross profit decreased 10.8% to
$275.3 million compared with the prior year period due to declines
within both the wholesale and retail segments. Retail sales, as a
percentage of total consolidated sales, were 78.7% in both periods
presented. Wholesale and retail gross profit were both negatively
impacted by lower sales volumes partially offset by higher adjusted
gross margins. Fiscal 2020 adjusted gross margin improved to 56.2%,
up from 54.9% in the prior year primarily due to improved retail
price optimization and increased wholesale contract business.
Restructuring charges negatively impacted fiscal 2020 consolidated
gross margin by 100 basis points.
Operating expenses increased to
$248.2 million compared with $270.1 million in the prior year
period. The 8.1% decrease was due to lower retail selling costs, a
reduction in general and administrative expenses and a gain of
$11.5 million from the sale of the Passaic property during fiscal
2020 partially offset by higher wholesale advertising costs. Retail
selling expenses were lower due to reduced volume of shipments.
General and administrative expenses decreased 6.1% due to lower
wholesale compensation costs coupled with lower depreciation,
occupancy costs and regional management charges within the retail
segment.
Operating income totaled $27.1
million compared with $38.6 million for the prior year period.
Adjusted operating income in fiscal 2020 was $22.1 million, a
decrease of 43.7% compared to last year. The decrease in adjusted
operating income was driven by the 11.5% decline in consolidated
net sales combined with higher selling costs from television and
radio advertising spend.
Income tax expense was $6.4
million for the first nine months of fiscal 2020 compared with $9.7
million a year ago. The fiscal 2020 effective rate decreased to
23.4% compared with 25.0% in the prior year.
Diluted EPS was $0.80 compared
with $1.08 in the prior year period. Restructuring and impairment
charges partially offset by the gain on the sale of the Passaic
property reduced diluted EPS by $0.15. Adjusted diluted EPS of
$0.65 in the current year represents a decrease of 40.9% over the
prior year.
Balance Sheet and Cash Flow
Total cash and cash equivalents
was $116.9 million at March 31, 2020 compared with $20.8 million at
June 30, 2019. Total cash increased during fiscal 2020 due to
borrowings on the Company’s revolving credit facility of $100.0
million, net cash provided by operating activities of $38.7 million
and proceeds from the sale of the Company’s Passaic property of
$11.7 million, partially offset by $24.3 million in share
repurchases, $16.2 million in dividend payments and $12.5 million
of capital expenditures.
Inventories of $138.8 million
decreased $23.6 million from the balance of $162.4 million at June
30, 2019. Wholesale finished goods levels decreased $16.0 million
primarily from the first quarter non-cash write-down and disposal
of certain slow moving and discontinued inventory items. Retail
inventory levels decreased $3.8 million as the Company further
improved its efforts to minimize inventory carrying costs.
Goodwill is evaluated for
impairment on an annual basis during the fourth quarter of each
fiscal year, and between annual tests whenever events or
circumstances indicate that the carrying value of the goodwill may
exceed its fair value. The Company determined that it was
appropriate to perform an interim impairment test as of
March 31, 2020 due to the significant adverse changes in the
business climate from the COVID-19 health crisis, as evidenced by
the sudden and dramatic decline in the financial markets, including
its stock price, the closing of retail and manufacturing businesses
combined with weakened operating results. The Company
concluded there was no impairment of goodwill on its wholesale
reporting unit’s books as of March 31, 2020.
Debt outstanding was $100.0
million at March 31, 2020 as the Company drew down on its existing
credit facility during March 2020. The debt bears a weighted
average interest rate 2.45% and the principal balance is payable on
the maturity date of December 21, 2023. The Company elected to draw
down on the facility to increase its cash position as a
precautionary measure and to preserve financial flexibility in
consideration of the disruption and uncertainty surrounding the
ongoing COVID-19 pandemic.
Capital expenditures were $12.5
million, an increase of $5.5 million compared to the $7.0 million
spent a year ago. In fiscal 2020, approximately 57% 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 43% was primarily capital
expenditures incurred in connection with the previously announced
optimization project. As previously announced on April 1, 2020, the
Company has stopped all discretionary capex spending.
Cash Dividends paid during
fiscal 2020 totaled $16.2 million, a decrease of $25.7 million over
a year ago due to the special dividend of $26.7 million paid in
January 2019. On January 29, 2020, the Company’s Board of Directors
approved a regular quarterly dividend of $0.21 per share. The cash
dividend of $5.3 million was paid on April 23, 2020, to common
stockholders of record at the close of business on April 9, 2020.
The Company’s regular quarterly cash dividend was temporarily
suspended as of April 28, 2020, due to the COVID-19 impact.
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, May 11, 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 ID:
6853339
For those unable to listen live, an archived
recording of the call will be made available on the Company’s
website referenced above for at least 60 days.
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,”
“COVID-19 impact,” variations of such words, and similar
expressions and the negatives of such forward-looking words are
intended to identify such forward-looking statements. 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 risk factors and uncertainties including, but not limited to the
following: volatile retail environment and changing economic
conditions may further adversely affect consumer demand and
spending; global and local economic
uncertainty may materially adversely affect our
manufacturing operations or sources of merchandise
and international operations; disruptions of our supply chain;
changes in United States 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; our ability to maintain and enhance
our brand;
our number of manufacturing and logistics
sites may increase our 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; our 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 our business and that of certain
independent retailers; disruptions in both our 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 our profitability; access to consumer credit could be
interrupted as a result of conditions outside of our control; our
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; our operations present hazards and risks which may not be
fully covered by insurance; possible failure to protect our
intellectual property; failure to successfully transition from a
promotional to a membership model; potential risks and
uncertainties relating to the duration, severity and geographic
spread of the COVID-19 pandemic and its impact on our business,
supplies, customers, employees and supply chains; actions that may
be taken by governmental authorities to contain the COVID-19
pandemic or to mitigate its impact; the potential negative impact
of COVID-19 on the global economy, consumer demand and the supply
chain; the impact of COVID-19 upon our ability to reopen design
centers and resume manufacturing operations and the resulting
effects upon our financial condition, results of operations and
liquidity; and other factors disclosed in Part I, Item 1A.
Risk Factors in our 2019 Annual Report on Form 10-K.
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. |
|
|
|
|
Selected
Financial Data |
|
|
|
|
(Unaudited) |
|
|
|
|
($ in millions,
except per share data) |
|
|
|
|
|
|
|
Selected Consolidated Financial
Data |
|
|
|
Three months endedMarch 31, |
Nine months endedMarch 31, |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Net sales |
$ |
149.8 |
|
$ |
177.8 |
|
$ |
498.3 |
|
$ |
562.8 |
|
Gross margin |
|
56.1 |
% |
|
55.3 |
% |
|
55.2 |
% |
|
54.9 |
% |
Adjusted gross margin * |
|
56.0 |
% |
|
55.3 |
% |
|
56.2 |
% |
|
54.9 |
% |
Operating income (loss) |
$ |
(0.8 |
) |
$ |
10.7 |
|
$ |
27.1 |
|
$ |
38.6 |
|
Adjusted operating income * |
$ |
0.4 |
|
$ |
11.0 |
|
$ |
22.1 |
|
$ |
39.2 |
|
Operating margin |
|
(0.5 |
%) |
|
6.0 |
% |
|
5.4 |
% |
|
6.9 |
% |
Adjusted operating margin * |
|
0.2 |
% |
|
6.2 |
% |
|
4.4 |
% |
|
7.0 |
% |
Net income (loss) |
$ |
(0.2 |
) |
$ |
8.0 |
|
$ |
21.0 |
|
$ |
29.0 |
|
Adjusted net income * |
$ |
0.6 |
|
$ |
8.2 |
|
$ |
17.2 |
|
$ |
29.5 |
|
Effective tax rate |
|
58.8 |
% |
|
24.8 |
% |
|
23.4 |
% |
|
25.0 |
% |
Diluted EPS |
$ |
(0.01 |
) |
$ |
0.30 |
|
$ |
0.80 |
|
$ |
1.08 |
|
Adjusted diluted EPS * |
$ |
0.02 |
|
$ |
0.31 |
|
$ |
0.65 |
|
$ |
1.10 |
|
Cash flows from operating
activities |
$ |
15.3 |
|
$ |
12.8 |
|
$ |
38.7 |
|
$ |
44.3 |
|
Capital expenditures |
$ |
4.5 |
|
$ |
2.0 |
|
$ |
12.5 |
|
$ |
7.0 |
|
Cash dividends paid |
$ |
5.5 |
|
$ |
31.8 |
|
$ |
16.2 |
|
$ |
41.9 |
|
Repurchases of common stock |
$ |
16.2 |
|
$ |
0.0 |
|
$ |
24.3 |
|
$ |
0.0 |
|
|
|
|
|
|
Selected Financial
Data by Segment |
|
|
|
|
|
Three months endedMarch 31, |
Nine months endedMarch 31, |
Retail |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Net sales |
$ |
115.7 |
|
$ |
138.9 |
|
$ |
392.1 |
|
$ |
442.7 |
|
Gross margin |
|
47.1 |
% |
|
45.8 |
% |
|
47.0 |
% |
|
45.2 |
% |
Operating margin |
|
(7.6 |
%) |
|
(1.2 |
%) |
|
(1.9 |
%) |
|
0.0 |
% |
Adjusted operating margin * |
|
(7.1 |
%) |
|
(1.0 |
%) |
|
(1.7 |
%) |
|
0.1 |
% |
|
|
|
|
|
Wholesale |
|
|
|
|
Net sales |
$ |
93.1 |
|
$ |
108.4 |
|
$ |
286.4 |
|
$ |
334.1 |
|
Gross margin |
|
32.6 |
% |
|
32.7 |
% |
|
30.7 |
% |
|
31.8 |
% |
Adjusted gross margin * |
|
32.6 |
% |
|
32.7 |
% |
|
32.3 |
% |
|
31.8 |
% |
Operating margin |
|
9.6 |
% |
|
12.0 |
% |
|
11.0 |
% |
|
10.8 |
% |
Adjusted operating margin * |
|
10.2 |
% |
|
12.1 |
% |
|
9.0 |
% |
|
10.9 |
% |
|
|
|
|
|
* 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 March 31, |
Nine months ended March 31, |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Net sales |
$ |
149,774 |
|
$ |
177,829 |
|
$ |
498,269 |
|
$ |
562,766 |
|
Cost of sales |
|
65,825 |
|
|
79,435 |
|
|
223,005 |
|
|
254,062 |
|
Gross profit |
|
83,949 |
|
|
98,394 |
|
|
275,264 |
|
|
308,704 |
|
Selling, general and administrative expenses |
|
83,841 |
|
|
87,504 |
|
|
258,346 |
|
|
269,824 |
|
Restructuring and impairment charges, net of gains |
|
862 |
|
|
221 |
|
|
(10,173 |
) |
|
284 |
|
Operating income (loss) |
|
(754 |
) |
|
10,669 |
|
|
27,091 |
|
|
38,596 |
|
Interest income, net of interest (expense) |
|
213 |
|
|
(62 |
) |
|
295 |
|
|
63 |
|
Income (loss) before income taxes |
|
(541 |
) |
|
10,607 |
|
|
27,386 |
|
|
38,659 |
|
Income tax expense (benefit) |
|
(318 |
) |
|
2,629 |
|
|
6,417 |
|
|
9,651 |
|
Net income (loss) |
$ |
(223 |
) |
$ |
7,978 |
|
$ |
20,969 |
|
$ |
29,008 |
|
|
|
|
|
|
Per share data |
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
Net income (loss) per diluted share |
$ |
(0.01 |
) |
$ |
0.30 |
|
$ |
0.80 |
|
$ |
1.08 |
|
Diluted weighted average common shares |
|
25,703 |
|
|
26,751 |
|
|
26,362 |
|
|
26,749 |
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
Net income (loss) |
$ |
(223 |
) |
$ |
7,978 |
|
$ |
20,969 |
|
$ |
29,008 |
|
Other comprehensive income (loss), net of tax |
|
|
|
|
Foreign currency translation adjustments |
|
(3,841 |
) |
|
303 |
|
|
(3,567 |
) |
|
355 |
|
Other |
|
(15 |
) |
|
(20 |
) |
|
(41 |
) |
|
(65 |
) |
Other comprehensive income (loss), net of tax |
|
(3,856 |
) |
|
283 |
|
|
(3,608 |
) |
|
290 |
|
Comprehensive income (loss) |
$ |
(4,079 |
) |
$ |
8,261 |
|
$ |
17,361 |
|
$ |
29,298 |
|
Ethan Allen Interiors
Inc. |
|
|
Condensed Consolidated
Balance Sheets |
|
|
(Unaudited) |
|
|
(In thousands) |
|
|
|
March 31, |
June 30, |
ASSETS |
|
2020 |
|
2019 |
Current assets: |
|
|
Cash and cash
equivalents |
$ |
116,868 |
$ |
20,824 |
Accounts receivable,
net |
|
10,482 |
|
14,247 |
Inventories, net |
|
138,774 |
|
162,389 |
Prepaid expenses and other
current assets |
|
21,204 |
|
18,830 |
Total current assets |
|
287,328 |
|
216,290 |
|
|
|
Property, plant and equipment,
net |
|
242,490 |
|
245,246 |
Goodwill |
|
25,388 |
|
25,388 |
Intangible assets |
|
19,740 |
|
19,740 |
Operating lease right-of-use
assets |
|
124,636 |
|
0 |
Deferred income taxes |
|
2,044 |
|
2,108 |
Other assets |
|
1,478 |
|
1,579 |
Total ASSETS |
$ |
703,104 |
$ |
510,351 |
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY |
|
|
Current liabilities: |
|
|
Accounts payable and
accrued expenses |
$ |
30,997 |
$ |
34,166 |
Customer deposits and
deferred revenue |
|
52,410 |
|
56,714 |
Accrued compensation and
benefits |
|
20,065 |
|
22,646 |
Short-term debt |
|
- |
|
550 |
Current operating lease
liabilities |
|
34,005 |
|
0 |
Other current
liabilities |
|
9,386 |
|
8,750 |
Total current
liabilities |
|
146,863 |
|
122,826 |
|
|
|
Long-term debt |
|
100,000 |
|
516 |
Operating lease liabilities,
long-term |
|
112,515 |
|
0 |
Deferred income taxes |
|
1,534 |
|
1,069 |
Other long-term liabilities |
|
2,946 |
|
22,011 |
Total LIABILITIES |
$ |
363,858 |
$ |
146,422 |
|
|
|
Shareholders’ equity: |
|
|
Ethan Allen Interiors Inc. shareholders’ equity |
$ |
339,224 |
$ |
363,866 |
Noncontrolling interests |
|
22 |
|
63 |
Total shareholders’ equity |
$ |
339,246 |
$ |
363,929 |
Total LIABILITIES AND
SHAREHOLDERS’ EQUITY |
$ |
703,104 |
$ |
510,351 |
Ethan Allen Interiors
Inc. |
|
|
|
Design Center
Activity |
|
|
|
(Unaudited) |
|
|
|
|
|
Company |
|
Retail Design Center location
activity |
Independent |
Operated |
Total |
Balance at December 31, 2019 |
158 |
|
144 |
|
302 |
|
New locations |
2 |
|
1 |
|
3 |
|
Closures |
(1 |
) |
(1 |
) |
(2 |
) |
Transfers |
0 |
|
0 |
|
0 |
|
Balance at March 31, 2020 |
159 |
|
144 |
|
303 |
|
Relocations (included
within new locations and closures) |
0 |
|
1 |
|
1 |
|
|
|
|
|
U.S. |
36 |
|
138 |
|
174 |
|
International |
123 |
|
6 |
|
129 |
|
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 pressrelease to the
most directly comparable U.S. GAAP financial measures.
(Unaudited) |
|
|
|
|
|
|
|
(In thousands, except
per share data) |
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
March 31, |
|
|
March 31, |
|
|
2020 |
2019 |
% Change |
|
2020 |
2019 |
% Change |
Consolidated Adjusted
Gross Profit / Gross Margin |
|
|
|
|
|
|
GAAP Gross profit |
$83,949 |
$98,394 |
(14.7%) |
|
$275,264 |
$308,704 |
(10.8%) |
Adjustments (pre-tax) * |
(5) |
- |
|
|
4,524 |
- |
|
Adjusted gross profit * |
$83,944 |
$98,394 |
(14.7%) |
|
$279,788 |
$308,704 |
(9.4%) |
Adjusted gross margin * |
56.0% |
55.3% |
|
|
56.2% |
54.9% |
|
|
|
|
|
|
|
|
|
Consolidated
Adjusted Operating Income / Operating Margin |
|
|
|
|
|
|
|
GAAP Operating income (loss) |
($754) |
$10,669 |
(107.1%) |
|
$27,091 |
$38,596 |
(29.8%) |
Adjustments (pre-tax) * |
1,107 |
291 |
|
|
(5,037) |
588 |
|
Adjusted operating income * |
$353 |
$10,960 |
(96.8%) |
|
$22,054 |
$39,184 |
(43.7%) |
|
|
|
|
|
|
|
|
Consolidated Net sales |
$149,774 |
$177,829 |
(15.8%) |
|
$498,269 |
$562,766 |
(11.5%) |
GAAP Operating margin |
(0.5%) |
6.0% |
|
|
5.4% |
6.9% |
|
Adjusted operating margin * |
0.2% |
6.2% |
|
|
4.4% |
7.0% |
|
|
|
|
|
|
|
|
|
Consolidated
Adjusted Net Income / Adjusted Diluted EPS |
|
|
|
|
|
|
|
GAAP Net income (loss) |
($223) |
$7,978 |
(102.8%) |
|
$20,969 |
$29,008 |
(27.7%) |
Adjustments, net of tax * |
836 |
220 |
|
|
(3,803) |
444 |
|
Adjusted net income |
$613 |
$8,198 |
(92.5%) |
|
$17,166 |
$29,452 |
(41.7%) |
Diluted weighted
average common shares |
25,703 |
26,751 |
|
|
26,362 |
26,749 |
|
GAAP Diluted EPS |
($0.01) |
$0.30 |
(103.3%) |
|
$0.80 |
$1.08 |
(25.9%) |
Adjusted diluted EPS * |
$0.02 |
$0.31 |
(93.5%) |
|
$0.65 |
$1.10 |
(40.9%) |
|
|
|
|
|
|
|
|
Wholesale Adjusted
Operating Income / Operating Margin |
|
|
|
|
|
|
|
Wholesale GAAP operating income
(loss) |
$8,936 |
$13,045 |
(31.5%) |
|
$31,594 |
$36,181 |
(12.7%) |
Adjustments (pre-tax) * |
601 |
70 |
|
|
(5,691) |
144 |
|
Adjusted wholesale operating income * |
$9,537 |
$13,115 |
(27.3%) |
|
$25,903 |
$36,325 |
(28.7%) |
|
|
|
|
|
|
|
|
Wholesale net sales |
$93,139 |
$108,367 |
(14.1%) |
|
$286,357 |
$334,097 |
(14.3%) |
Wholesale GAAP operating
margin |
9.6% |
12.0% |
|
|
11.0% |
10.8% |
|
Adjusted wholesale operating margin * |
10.2% |
12.1% |
|
|
9.0% |
10.9% |
|
|
|
|
|
|
|
|
|
Retail Adjusted
Operating Income / Operating Margin |
|
|
|
|
|
|
|
Retail GAAP operating
income (loss) |
($8,772) |
($1,669) |
(425.6%) |
|
($7,343) |
$83 |
nm |
Adjustments (pre-tax) * |
506 |
221 |
|
|
654 |
444 |
|
Adjusted retail operating income (loss) * |
($8,266) |
($1,448) |
(470.9%) |
|
($6,689) |
$527 |
nm |
|
|
|
|
|
|
|
|
Retail net sales |
$115,698 |
$138,947 |
(16.7%) |
|
$392,065 |
$442,669 |
(11.4%) |
Retail GAAP operating margin |
(7.6%) |
(1.2%) |
|
|
(1.9%) |
0.0% |
|
Adjusted retail operating margin * |
(7.1%) |
(1.0%) |
|
|
(1.7%) |
0.1% |
|
* 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 |
Nine months ended |
(In thousands) |
March 31, |
March 31, |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Inventory write-downs
(wholesale) |
$ |
- |
|
$ |
- |
|
$ |
3,208 |
|
$ |
- |
|
Manufacturing overhead costs
and other (wholesale) |
|
(5 |
) |
|
- |
|
|
1,316 |
|
|
- |
|
Adjustments to gross profit |
$ |
(5 |
) |
$ |
- |
|
$ |
4,524 |
|
$ |
- |
|
|
|
|
|
|
Inventory write-downs
(wholesale) |
$ |
- |
|
$ |
- |
|
$ |
3,208 |
|
$ |
- |
|
Optimization of manufacturing
and logistics (wholesale) |
|
363 |
|
|
- |
|
|
2,147 |
|
|
- |
|
Gain on sale of Passaic, New
Jersey property (wholesale) |
|
- |
|
|
- |
|
|
(11,497 |
) |
|
- |
|
Severance and other
professional fees incurred (wholesale) |
|
238 |
|
|
70 |
|
|
451 |
|
|
144 |
|
Retail acquisition costs and
other charges (retail) |
|
- |
|
|
- |
|
|
139 |
|
|
160 |
|
Impairment of long-lived
assets and lease exit costs (retail) |
|
506 |
|
|
221 |
|
|
515 |
|
|
284 |
|
Adjustments to operating income |
$ |
1,107 |
|
$ |
291 |
|
$ |
(5,037 |
) |
$ |
588 |
|
Adjustments to income before income taxes |
$ |
1,107 |
|
$ |
291 |
|
$ |
(5,037 |
) |
$ |
588 |
|
Related income tax effects
(1) |
|
(271 |
) |
|
(71 |
) |
|
1,234 |
|
|
(144 |
) |
Adjustments to net income |
$ |
836 |
|
$ |
220 |
|
$ |
(3,803 |
) |
$ |
444 |
|
(1) Calculated using a tax rate of 24.5% in
all periods presented.
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