Ethan Allen Interiors Inc. (“Ethan Allen” or the “Company”) (NYSE:
ETH) provided several updates on its business and reported
financial results for its fiscal year and fourth quarter ended June
30, 2020.
BUSINESS UPDATE
The Company’s fourth quarter of fiscal 2020 saw
unprecedented disruption around the world as a result of the rapid
spread of COVID-19.
Farooq Kathwari, Ethan Allen’s Chairman,
President and CEO commented, “We are very gratified with the work
and focus of our teams during this unprecedented crisis due to
COVID-19. The foremost focus has been operating safely for our
associates and clients. We have had to make many hard decisions
including the furlough of approximately 70% of our global
workforce. Fortunately, we have been able to bring many associates
back with 56% of them having already returned to work.”
Mr. Kathwari continued, “Our action plan and the
key steps taken helped us end with a strong cash position, which
included generating $14 million in cash from operating activities
over the last three months. For precautionary purposes, we drew
$100 million from our credit facility in March 2020 and by June 30,
2020 had repaid $50 million, maintaining total cash of $72.3
million at June 30, 2020.”
“We are pleased with our written orders during
the period considering almost all our design centers closed in
mid-March and remained closed for the majority of the fourth
quarter. Our advantage of combining the skilled personal service of
our interior design associates with technology resulted in total
wholesale orders, as a percentage of the previous year orders, as
follows: April 35%, May 70% and June 117%. For the full quarter
ending June 30, 2020, wholesale orders were 70% of the prior year.
We are pleased that in July we continued with strong orders,
reaching 103% of the strong prior year July. This was accomplished
despite resurging challenges of COVID-19 in many parts of the
country. As we move forward, we will continue to focus on our
advantages, including a strong retail network, our vertical
structure whereby 75% of products are made in our North American
workshops and increasing the use of technology in all aspects of
our enterprise, while also maintaining our focus on strong
governance and social responsibility,” Mr. Kathwari further
stated.
“We are also very pleased that our Board of
Directors reinstated the regular quarterly cash dividend and
declared a regular quarterly cash dividend of $0.21 per share,
which will be payable to shareholders of record as of Thursday,
October 8, 2020, and paid on Thursday, October 22, 2020. We are
cautiously optimistic to grow our sales and profits,” Mr. Kathwari
concluded.
The Company previously announced its COVID-19
action plan on April 1, 2020, which included, among other things,
the temporary closure of design centers and manufacturing
facilities, the furlough of 70% of its global workforce, the
decision by the Company’s CEO to temporarily forego his salary
through June 30, 2020, a temporary reduction in salaries of up to
40% for all senior management and up to 20% for other salaried
employees through June 30, 2020, a temporary reduction of 50% in
the cash compensation of the Company’s directors through June 30,
2020, the elimination of all non-essential operating expenses, a
delay of capital expenditures and the temporary suspension of the
regular quarterly dividend and share repurchase program.
The Company gradually began reopening its design
centers beginning in May and as of June 30, 2020, has reopened all
of its Company-operated retail design centers, including 14% open
by appointment only. The Company resumed production in its North
American manufacturing plants during the second half of the
quarter, some in a limited capacity, and expects to work through
existing order backlog and ramp up to full production by the end of
August. The Company’s distribution centers are fully open and
making home deliveries. The Company restored the temporary salary
reductions on June 30, 2020 as planned and has reinstated the
regular quarterly dividend.
FISCAL 2020 FOURTH QUARTER
HIGHLIGHTS*
- Consolidated net sales of $91.6 million compared with $183.9
million.
- Consolidated gross margin of 52.3% compared with 54.8%.
Adjusted gross margin of 53.3% compared with 55.9%.
- Diluted earnings (loss) per share (“EPS”) of ($0.48). Adjusted
EPS of ($0.15) compared with $0.46.
- Cash on hand of $72.3 million as of June 30, 2020 and long-term
debt of $50.0 million.
- Cash provided by operating activities up 28.1% to $14.0
million.
- Repaid $50.0 million of the Company’s outstanding debt from
available cash on hand.
- The Company’s Board of Directors reinstated the regular quarter
cash dividend on August 4, 2020 and declared a regular quarterly
cash dividend of $0.21 per share, payable in October 2020.
FULL FISCAL YEAR 2020
HIGHLIGHTS*
- Consolidated net sales of $589.8 million compared with $746.7
million.
- Consolidated gross margin of 54.8% compared with 54.8%.
Adjusted gross margin of 55.7% compared with 55.1%.
- Diluted EPS of $0.34. Adjusted EPS of $0.52 compared with
$1.56.
- Generated $52.7 million of cash from operating activities
compared with $55.2 million last year.
- Paid cash dividends of $21.5 million.
- Share repurchases of $24.3 million, representing 5.8% of
outstanding shares. During the third quarter, the Company’s Board
of Directors increased the share repurchase authorization to three
million shares.
* See reconciliation of U.S. GAAP to adjusted
key financial measures in the back of this press release.
Comparisons are to the fourth quarter and full fiscal 2019
year.
KEY FINANCIAL MEASURES*
(Condensed and
Unaudited) |
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(In thousands, except
per share data) |
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Three months
ended |
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Twelve months
ended |
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|
June 30, |
|
June 30, |
|
|
|
|
2020 |
|
|
2019 |
% Change |
|
2020 |
2019 |
|
% Change |
|
Net sales |
$ |
91,568 |
|
$ |
183,918 |
|
(50.2 |
%) |
$ |
589,837 |
|
$ |
746,684 |
|
(21.0 |
%) |
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|
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|
GAAP gross profit |
$ |
47,868 |
|
$ |
100,787 |
|
(52.5 |
%) |
$ |
323,132 |
|
$ |
409,491 |
|
(21.1 |
%) |
|
Adjusted gross profit * |
$ |
48,767 |
|
$ |
102,781 |
|
(52.6 |
%) |
$ |
328,555 |
|
$ |
411,485 |
|
(20.2 |
%) |
|
GAAP gross margin |
|
52.3 |
% |
|
54.8 |
% |
|
|
54.8 |
% |
|
54.8 |
% |
|
|
Adjusted gross margin * |
|
53.3 |
% |
|
55.9 |
% |
|
|
55.7 |
% |
|
55.1 |
% |
|
|
|
|
|
|
|
|
|
GAAP operating income (loss) |
$ |
(12,447 |
) |
$ |
(4,649 |
) |
(167.7 |
%) |
$ |
14,644 |
|
$ |
33,947 |
|
(56.9 |
%) |
|
Adjusted operating income * |
$ |
(4,982 |
) |
$ |
15,867 |
|
(131.4 |
%) |
$ |
17,072 |
|
$ |
55,051 |
|
(69.0 |
%) |
|
GAAP operating margin |
|
(13.6 |
%) |
|
(2.5 |
%) |
|
|
2.5 |
% |
|
4.5 |
% |
|
|
Adjusted operating margin * |
|
(5.4 |
%) |
|
8.6 |
% |
|
|
2.9 |
% |
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
GAAP diluted EPS |
$ |
(0.48 |
) |
$ |
(0.12 |
) |
(300.0 |
%) |
$ |
0.34 |
|
$ |
0.96 |
|
(64.6 |
%) |
|
Adjusted diluted EPS * |
$ |
(0.15 |
) |
$ |
0.46 |
|
(132.6 |
%) |
$ |
0.52 |
|
$ |
1.56 |
|
(66.7 |
%) |
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities |
$ |
14,012 |
$ |
10,940 |
28.1 |
% |
$ |
52,696 |
|
$ |
55,247 |
|
(4.6 |
%) |
|
* See reconciliation of U.S. GAAP to adjusted
key financial measures in the back of this press release
FISCAL 2020 FOURTH QUARTER FINANCIAL
RESULTS
Consolidated
Net sales were $91.6 million, a
decrease of 50.2% or $92.4 million compared to the same prior year
period. Net sales were negatively impacted as a result of
disruptions from the COVID-19 pandemic, which included the closing
of the Company’s design centers and manufacturing plants for most
of the first two months of the fiscal fourth quarter as well as
lower order backlog entering the quarter.
Gross profit was $47.9 million
compared with $100.8 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, were 77.2% in the current year fourth quarter,
down from 80.0% a year ago, which negatively impacted consolidated
gross profit. Consolidated adjusted gross margin for the quarter
decreased to 53.3%, down from 55.9% in the prior year, due to the
wholesale adjusted gross margin decreasing 260 basis points
combined with product mix partially offset by the retail gross
margin expanding 60 basis points from improved retail price
optimization.
Operating expenses decreased
42.8% to $60.3 million compared with the prior year period
primarily due to lower retail selling costs, reduced advertising
and lower general and administrative costs. Retail selling expenses
were down due to warehouse and delivery expenses decreasing from a
51.9% reduction in retail net sales and a decrease in designer
selling expenses. General and administrative expenses decreased
primarily due to lower wholesale compensation, freight and plant
operating costs coupled with lower administrative, occupancy and
regional management charges within the retail segment. Included in
fiscal 2020 operating expenses were $7.2 million in restructuring
and impairment charges compared to $18.4 million in the year ago
fourth quarter.
Operating loss was $12.4
million compared with an operating loss of $4.6 million a year ago.
Adjusted operating loss was $5.0 million or -5.4% of net sales
compared with operating income of $15.9 million or 8.6% of net
sales for the same prior year period. The decrease was driven
by the 50.2% decline in consolidated net sales, a decrease in
product mix and lower gross margins from manufacturing plant
shutdowns during the current quarter. These decreases were
partially offset by improved expense management, with operating
expenses decreasing 42.8% year over year as a result of the
Company’s COVID-19 action plan implemented at the beginning of the
quarter.
Income tax benefit on the
operating loss was $1.1 million in the current year fourth quarter
compared with an income tax benefit of $1.5 million a year ago. The
effective rate was 8.5% in the current year fourth quarter compared
with 31.0% last year. The Company recorded a valuation allowance
during the fourth quarter of fiscal 2020 in the amount of $2.5
million on the deferred tax assets related to state NOL
carryforwards.
Diluted EPS was ($0.48)
compared with ($0.12) in the prior year comparable period. Adjusted
diluted EPS was ($0.15) compared with $0.46 in the prior year. This
decrease was primarily from net sales being negatively impacted as
a result of the COVID-19 pandemic partially offset by expense
management.
Wholesale Segment
Net sales decreased 52.0% to
$51.6 million primarily due to a 52.5% decrease in sales to the
Company’s North American retail network and a 41.7% decrease in
international sales. Wholesale net sales were significantly
impacted in the quarter due to COVID-19 disruptions, including its
contract sales, which decreased 11.5%. Prior to March 2020,
wholesale net sales were improving sequentially each month as
customer demand increased. COVID-19 ongoing concerns made it
difficult to quickly return to desired staffing levels,
particularly in the manufacturing plants, which kept production and
net shipments below last year’s rate, resulting in higher ending
backlog at the end of the quarter.
Wholesale orders booked, which
represents orders booked through all of the Company’s channels,
were down 30% compared with the same quarter last year. The closing
of the Company’s retail design centers and manufacturing operations
for the majority of the first two months of the fourth quarter
negatively impacted orders. While wholesale orders decreased 30%
from a year ago, the Company realized sequential improvement in
orders each month during the quarter, with June orders increasing
by 17% year over year.
Operating income was $1.5
million compared with $6.3 million in the prior year period,
primarily due to the 52.0% decrease in wholesale net sales
partially offset by general and administrative expense reductions
of 51.2% from plant closings and actions taken to control and
minimize expenditures in the quarter.
Retail Segment
Net sales from Company-operated
design centers decreased by $76.4 million, or 51.9%, to $70.7
million. There was a 52.0% decrease in net sales in the United
States, while net sales from Canadian design centers decreased
51.2%. These decreases were primarily due to the temporary closing
of the Company’s North American design centers during the first two
months of the fourth quarter due to COVID-19, lower starting
backlog at the beginning of the quarter and a decrease in written
orders. Retail backlogs grew significantly during the quarter and
the Company is focused on its short-term ability to return its
wholesale production and shipping to the levels that are necessary
to properly service its customers. There were 144 Company-operated
design centers at the end of the fourth quarter of fiscal 2020,
consistent with a year ago, as the Company continues to relocate
and open new locations while closing older locations.
Operating loss was $14.1
million compared with an operating loss of $10.6 million for the
prior year period. Adjusted operating loss was $6.5 million
compared with operating income of $1.6 million a year ago. Adjusted
operating margin decreased to -9.2% from 1.1% due to the $76.4
million reduction in net sales partially offset by a 60 basis point
improvement in gross margin and a 39.9% decrease in operating
expenses from lower selling, administrative, occupancy and regional
management costs. Retail restructuring and impairment charges in
the current year fourth quarter were $7.2 million compared to $12.1
million a year ago.
FISCAL YEAR 2020 FINANCIAL RESULTS
Consolidated
Net sales were $589.8 million,
a decrease of 21.0% compared with the same prior year period. Net
sales decreased by 23.5% within the wholesale segment and by 21.5%
in the retail segment. International sales decreased $17.0 million
primarily related to lower sales to China and in Canada.
Consolidated net sales were 21.0% lower in the current year due to
the introduction of the membership model, the disruptions in the
market caused by the COVID-19 pandemic and softer order trends from
consumers. Partially offsetting these declines was growth in
contract sales, which grew 31.6%. The year over year increase in
contract sales was attributable to continued growth in sales from
the GSA contract.
Gross profit decreased 21.1% to
$323.1 million compared with the prior year period due to sales
declines within both the wholesale and retail segments. Retail
sales, as a percentage of total consolidated sales, were 78.5% in
the current year and 79.0% in the prior year. Wholesale gross
profit was negatively impacted by lower sales volumes combined with
a reduction in gross margin due to plant shutdowns from COVID-19.
Retail gross profit was lower due to a 21.5% reduction in net
shipments partially offset by a higher gross margin. Fiscal 2020
adjusted gross margin was 55.7% compared with 55.1% a year ago.
This increase was primarily due to improved retail price
optimization and increased wholesale contract business.
Restructuring charges negatively impacted the fiscal 2020
consolidated gross margin by 90 basis points compared with 30 basis
points a year ago.
Operating expenses decreased to
$308.5 million compared with $375.5 million in the prior year
period. The 17.9% decrease was due to lower 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. Excluding restructuring and impairment charges from both
periods, operating expenses were down 12.6%. Retail selling
expenses were lower due to reduced volume of shipments, less
designer selling expenses and lower compensation due to headcount
reductions. Wholesale selling costs were down due to a reduction in
advertising spend and lower compensation costs. General and
administrative expenses decreased due to lower compensation costs
coupled with lower depreciation, occupancy costs and regional
management charges.
Operating income totaled $14.6
million compared with $33.9 million for the prior year period.
Adjusted operating income in fiscal 2020 was $17.1 million compared
with $55.1 million last year. The decrease in adjusted operating
income was driven by the $156.8 decline in consolidated net sales
partially offset by a higher adjusted gross margin and a 12.6%
decrease in adjusted operating expenses.
Income tax expense was $5.3
million for fiscal 2020 compared with $8.2 million a year ago. The
fiscal 2020 effective rate increased to 37.3% compared with 24.1%
in the prior year primarily due to a valuation allowance on
deferred tax assets related to state NOL carryforwards.
Diluted EPS was $0.34 compared
with $0.96 in the prior year period. Adjusted diluted EPS of $0.52
in the current year represents a decrease of 66.7% over the prior
year.
Balance Sheet and Cash Flow
Total cash and cash equivalents
was $72.3 million at June 30, 2020 compared with $20.8 million at
June 30, 2019. Total cash increased during fiscal 2020 due to net
borrowings on the Company’s revolving credit facility of $50.0
million, net cash provided by operating activities of $52.7 million
and net proceeds from the sale of the Company’s Passaic property of
$11.7 million, partially offset by $24.3 million in share
repurchases, $21.5 million in dividend payments and $15.7 million
of capital expenditures. Cash provided by operating activities was
positively impacted by the deferral and abatement of $2.7 million
in retail design center rent during the fourth quarter of fiscal
2020.
Inventories of $126.1 million
decreased $36.3 million compared with $162.4 million at June 30,
2019. Wholesale finished goods levels decreased $21.0 million
primarily from the concerted effort to reduce and maintain lower
inventory levels and the non-cash write-down and disposal of
certain slow moving and discontinued inventory items. Retail
inventory levels decreased $7.1 million as the Company further
improved its efforts to minimize inventory carrying costs combined
with the sale of additional floor items during the just completed
fourth quarter.
Debt outstanding was $50.0
million at June 30, 2020 as the Company drew down $100.0 million on
its existing credit facility during March 2020 and subsequently
repaid $50.0 million in June using available cash on hand. The
outstanding debt at June 30, 2020 bears a weighted average interest
rate 1.7% and the principal balance is payable on the maturity date
of December 21, 2023.
Capital expenditures were $15.7
million, an increase of $6.6 million compared with $9.1 million
spent a year ago. In fiscal 2020, approximately 53% 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 47% was capital
expenditures incurred in connection with the previously announced
optimization project as well as investments in additional
technology to improve existing workflows.
Cash dividends paid during
fiscal 2020 totaled $21.5 million, a decrease of $25.5 million over
a year ago due to the special dividend of $26.7 million paid in
January 2019. The Company had suspended its regular quarterly cash
dividend as of April 28, 2020, due to the COVID-19 impact. However,
on August 4, 2020, the Company’s Board of Directors reinstated the
regular quarterly cash dividend.
RETAIL SEGMENT RESTRUCTURING AND
IMPAIRMENT CHARGES
During the fourth quarter of fiscal 2020 the
Company recorded $7.2 million of restructuring and impairment
charges within the retail segment. Approximately $4.8 million was a
non-cash impairment charge for long-lived assets held at a number
of retail design centers. The remaining $2.4 million represented
remaining contractual obligations under leased space that was
exited during the fiscal 2020 fourth quarter.
DIVIDEND DECLARED
On August 4, 2020, the Company announced that
its Board of Directors had declared a regular quarterly cash
dividend of $0.21 per share, which will be payable to
shareholders of record as of October 8, 2020 and will be paid
on October 22, 2020. The Company’s Board of Directors met with
management to review the effects of the COVID-19 pandemic on the
business and determined that it was appropriate to return capital
to shareholders in the form of a quarterly cash dividend equal to
the pre-COVID-19 level of $0.21 per share. The Company will
continue to monitor the pace of business as it relates to future
dividends.
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, August 4, 2020 at 5:00 PM (Eastern Time) to discuss its
results. The analyst conference call will be webcast live from the
Company’s Investor Relations website at https://ir.ethanallen.com.
The following information is provided for those who would like to
participate:
- U.S. Participants:
877-705-2976
- International Participants: 201-689-8798
- Meeting Number:
13707073
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 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
manufacturing operations or sources of merchandise
and international operations; disruptions of 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; 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; 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; 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 its 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 the Company’s ability to reopen
design centers and resume manufacturing operations and the
resulting effects upon its financial condition, results of
operations and liquidity; and other factors disclosed in Part I,
Item 1A. Risk Factors in the Company’s 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. |
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Selected
Financial Data |
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(Unaudited) |
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($ in millions,
except per share data) |
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|
|
Selected Consolidated Financial
Data |
|
|
|
Three months endedJune 30, |
Twelve months endedJune 30, |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Net sales |
$ |
91.6 |
|
$ |
183.9 |
|
$ |
589.8 |
|
$ |
746.7 |
|
Gross margin |
|
52.3 |
% |
|
54.8 |
% |
|
54.8 |
% |
|
54.8 |
% |
Adjusted gross margin * |
|
53.3 |
% |
|
55.9 |
% |
|
55.7 |
% |
|
55.1 |
% |
Operating income (loss) |
$ |
(12.4 |
) |
$ |
(4.6 |
) |
$ |
14.6 |
|
$ |
33.9 |
|
Adjusted operating income (loss)
* |
$ |
(5.0 |
) |
$ |
15.9 |
|
$ |
17.1 |
|
$ |
55.1 |
|
Operating margin |
|
(13.6 |
%) |
|
(2.5 |
%) |
|
2.5 |
% |
|
4.5 |
% |
Adjusted operating margin * |
|
(5.4 |
%) |
|
8.6 |
% |
|
2.9 |
% |
|
7.4 |
% |
Net income (loss) |
$ |
(12.1 |
) |
$ |
(3.3 |
) |
$ |
8.9 |
|
$ |
25.7 |
|
Adjusted net income (loss) * |
$ |
(3.7 |
) |
$ |
12.2 |
|
$ |
13.5 |
|
$ |
41.6 |
|
Effective tax rate |
|
8.5 |
% |
|
31.0 |
% |
|
37.3 |
% |
|
24.1 |
% |
Diluted EPS |
$ |
(0.48 |
) |
$ |
(0.12 |
) |
$ |
0.34 |
|
$ |
0.96 |
|
Adjusted diluted EPS * |
$ |
(0.15 |
) |
$ |
0.46 |
|
$ |
0.52 |
|
$ |
1.56 |
|
Cash flows from operating
activities |
$ |
14.0 |
|
$ |
10.9 |
|
$ |
52.7 |
|
$ |
55.2 |
|
Capital expenditures |
$ |
3.3 |
|
$ |
2.1 |
|
$ |
15.7 |
|
$ |
9.1 |
|
Cash dividends paid |
$ |
5.3 |
|
$ |
5.1 |
|
$ |
21.5 |
|
$ |
47.0 |
|
Repurchases of common stock |
$ |
0.0 |
|
$ |
0.0 |
|
$ |
24.3 |
|
$ |
0.0 |
|
|
|
|
|
|
Selected Financial
Data by Segment |
|
|
|
|
|
Three months endedJune 30, |
Twelve months endedJune 30, |
Retail |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Net sales |
$ |
70.7 |
|
$ |
147.2 |
|
$ |
462.8 |
|
$ |
589.8 |
|
Gross margin |
|
46.6 |
% |
|
46.0 |
% |
|
47.0 |
% |
|
45.4 |
% |
Operating margin |
|
(19.9 |
%) |
|
(7.2 |
%) |
|
(4.6 |
%) |
|
(1.8 |
%) |
Adjusted operating margin * |
|
(9.2 |
%) |
|
(1.1 |
%) |
|
(2.9 |
%) |
|
0.4 |
% |
|
|
|
|
|
Wholesale |
|
|
|
|
Net sales |
$ |
51.6 |
|
$ |
107.5 |
|
$ |
337.9 |
|
$ |
441.6 |
|
Gross margin |
|
28.6 |
% |
|
31.1 |
% |
|
30.4 |
% |
|
31.7 |
% |
Adjusted gross margin * |
|
30.4 |
% |
|
33.0 |
% |
|
32.0 |
% |
|
32.1 |
% |
Operating margin |
|
2.9 |
% |
|
5.9 |
% |
|
9.8 |
% |
|
9.6 |
% |
Adjusted operating margin * |
|
2.7 |
% |
|
13.6 |
% |
|
8.1 |
% |
|
11.5 |
% |
|
|
|
|
|
* 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
(Loss) |
|
|
(Unaudited) |
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
Three months ended June 30, |
Twelve months ended June 30, |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Net sales |
$ |
91,568 |
|
$ |
183,918 |
|
$ |
589,837 |
|
$ |
746,684 |
|
Cost of sales |
|
43,700 |
|
|
83,131 |
|
|
266,705 |
|
|
337,193 |
|
Gross profit |
|
47,868 |
|
|
100,787 |
|
|
323,132 |
|
|
409,491 |
|
Selling, general and administrative expenses |
53,161 |
|
|
87,056 |
|
|
311,507 |
|
|
356,880 |
|
Restructuring and impairment charges, net of gains
|
7,154 |
|
|
18,380 |
|
|
(3,019 |
) |
|
18,664 |
|
Operating income (loss) |
|
(12,447 |
) |
|
(4,649 |
) |
|
14,644 |
|
|
33,947 |
|
Interest income, net of interest (expense) |
|
(750 |
) |
|
(150 |
) |
|
(455 |
) |
|
(87 |
) |
Income (loss) before income taxes |
|
(13,197 |
) |
|
(4,799 |
) |
|
14,189 |
|
|
33,860 |
|
Income tax expense (benefit) |
|
(1,128 |
) |
|
(1,489 |
) |
|
5,289 |
|
|
8,162 |
|
Net income (loss) |
$ |
(12,069 |
) |
$ |
(3,310 |
) |
$ |
8,900 |
|
$ |
25,698 |
|
|
|
|
|
|
Per share data |
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
Net income (loss) per diluted share |
$ |
(0.48 |
) |
$ |
(0.12 |
) |
$ |
0.34 |
|
$ |
0.96 |
|
Diluted weighted average common shares |
25,179 |
|
|
26,758 |
|
|
26,069 |
|
|
26,751 |
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
Net income (loss) |
$ |
(12,069 |
) |
$ |
(3,310 |
) |
$ |
8,900 |
|
$ |
25,698 |
|
Other comprehensive income (loss), net of tax |
|
|
|
|
Foreign currency translation adjustments |
777 |
|
|
165 |
|
|
(2,790 |
) |
|
520 |
|
Other |
|
(23 |
) |
|
(11 |
) |
|
(64 |
) |
|
(76 |
) |
Other comprehensive income (loss), net of tax |
|
754 |
|
|
154 |
|
|
(2,854 |
) |
|
444 |
|
Comprehensive income (loss) |
$ |
(11,315 |
) |
$ |
(3,156 |
) |
$ |
6,046 |
|
$ |
26,142 |
|
Ethan Allen Interiors
Inc. |
|
|
Condensed Consolidated
Balance Sheets |
|
|
(Unaudited) |
|
|
(In thousands) |
|
|
|
June 30, |
June 30, |
ASSETS |
|
2020 |
|
|
2019 |
Current assets: |
|
|
Cash and cash
equivalents |
$ |
72,276 |
|
$ |
20,824 |
Accounts receivable,
net |
|
8,092 |
|
|
14,247 |
Inventories, net |
|
126,101 |
|
|
162,389 |
Prepaid expenses and other
current assets |
|
23,483 |
|
|
18,830 |
Total current assets |
|
229,952 |
|
|
216,290 |
|
|
|
Property, plant and equipment,
net |
|
236,678 |
|
|
245,246 |
Goodwill |
|
25,388 |
|
|
25,388 |
Intangible assets |
|
19,740 |
|
|
19,740 |
Operating lease right-of-use
assets |
|
109,342 |
|
|
0 |
Deferred income taxes |
|
137 |
|
|
2,108 |
Other assets |
|
1,552 |
|
|
1,579 |
Total ASSETS |
$ |
622,789 |
|
$ |
510,351 |
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY |
|
|
Current liabilities: |
|
|
Accounts payable and
accrued expenses |
$ |
25,595 |
|
$ |
34,166 |
Customer deposits and
deferred revenue |
|
64,031 |
|
|
56,714 |
Accrued compensation and
benefits |
|
18,278 |
|
|
22,646 |
Short-term debt |
|
0 |
|
|
550 |
Current operating lease
liabilities |
|
27,366 |
|
|
0 |
Other current
liabilities |
|
3,708 |
|
|
8,750 |
Total current
liabilities |
|
138,978 |
|
|
122,826 |
|
|
|
Long-term debt |
|
50,000 |
|
|
516 |
Operating lease liabilities,
long-term |
|
102,111 |
|
|
0 |
Deferred income taxes |
|
1,074 |
|
|
1,069 |
Other long-term liabilities |
|
2,562 |
|
|
22,011 |
Total LIABILITIES |
$ |
294,725 |
|
$ |
146,422 |
|
|
|
Shareholders’ equity: |
|
|
Ethan Allen Interiors Inc. shareholders’ equity |
$ |
328,065 |
|
$ |
363,866 |
Noncontrolling interests |
|
(1 |
) |
|
63 |
Total shareholders’ equity |
$ |
328,064 |
|
$ |
363,929 |
Total LIABILITIES AND
SHAREHOLDERS’ EQUITY |
$ |
622,789 |
|
$ |
510,351 |
Ethan Allen Interiors
Inc. |
|
|
|
Design Center
Activity |
|
|
|
(Unaudited) |
|
|
|
|
Independent |
Company- |
|
Retail Design Center
activity |
Retailers |
Operated |
Total |
Balance at March 31, 2020 |
159 |
|
144 |
|
303 |
|
New locations |
2 |
|
3 |
|
5 |
|
Closures |
(1 |
) |
(3 |
) |
(4 |
) |
Transfers |
0 |
|
0 |
|
0 |
|
Balance at June 30, 2020 |
160 |
|
144 |
|
304 |
|
Relocations (in new
and closures) |
0 |
|
2 |
|
2 |
|
|
|
|
|
U.S. |
35 |
|
138 |
|
173 |
|
International |
125 |
|
6 |
|
131 |
|
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 |
|
|
Twelve months ended |
|
|
June 30, |
|
|
June 30, |
|
|
2020 |
2019 |
% Change |
|
2020 |
2019 |
% Change |
Consolidated
Adjusted Gross Profit / Gross Margin |
|
|
|
|
|
|
GAAP Gross profit |
$47,868 |
$100,787 |
(52.5%) |
|
$323,132 |
$409,491 |
(21.1%) |
Adjustments (pre-tax) * |
899 |
1,994 |
|
|
5,423 |
1,994 |
|
Adjusted gross profit * |
$48,767 |
$102,781 |
(52.6%) |
|
$328,555 |
$411,485 |
(20.2%) |
Adjusted gross margin * |
53.3% |
55.9% |
|
|
55.7% |
55.1% |
|
|
|
|
|
|
|
|
|
Consolidated
Adjusted Operating Income / Operating Margin |
|
|
|
|
|
|
|
GAAP Operating income (loss) |
($12,447) |
($4,649) |
(167.7%) |
|
$14,644 |
$33,947 |
(56.9%) |
Adjustments (pre-tax) * |
7,465 |
20,516 |
|
|
2,428 |
21,104 |
|
Adjusted operating income * |
($4,982) |
$15,867 |
(131.4%) |
|
$17,072 |
$55,051 |
(69.0%) |
|
|
|
|
|
|
|
|
Consolidated Net sales |
$91,568 |
$183,918 |
(50.2%) |
|
$589,837 |
$746,684 |
(21.0%) |
GAAP Operating margin |
(13.6%) |
(2.5%) |
|
|
2.5% |
4.5% |
|
Adjusted operating margin * |
(5.4%) |
8.6% |
|
|
2.9% |
7.4% |
|
|
|
|
|
|
|
|
|
Consolidated
Adjusted Net Income / Adjusted Diluted EPS |
|
|
|
|
|
|
|
GAAP Net income (loss) |
($12,069) |
($3,310) |
(264.6%) |
|
$8,900 |
$25,698 |
(65.4%) |
Adjustments, net of tax * |
8,415 |
15,490 |
|
|
4,612 |
15,934 |
|
Adjusted net income |
($3,654) |
$12,180 |
(130.0%) |
|
$13,512 |
$41,632 |
(67.5%) |
Diluted weighted
average common shares |
25,179 |
26,758 |
|
|
26,069 |
26,751 |
|
GAAP Diluted EPS |
($0.48) |
($0.12) |
(300.0%) |
|
$0.34 |
$0.96 |
(64.6%) |
Adjusted diluted EPS * |
($0.15) |
$0.46 |
(132.6%) |
|
$0.52 |
$1.56 |
(66.7%) |
|
|
|
|
|
|
|
|
Wholesale Adjusted
Operating Income / Operating Margin |
|
|
|
|
|
|
|
Wholesale GAAP
operating income (loss) |
$1,512 |
$6,300 |
(76.0%) |
|
$33,106 |
$42,481 |
(22.1%) |
Adjustments (pre-tax) * |
(103) |
8,354 |
|
|
(5,794) |
8,498 |
|
Adjusted wholesale operating income * |
$1,409 |
$14,654 |
(90.4%) |
|
$27,312 |
$50,979 |
(46.4%) |
|
|
|
|
|
|
|
|
Wholesale net sales |
$51,591 |
$107,454 |
(52.0%) |
|
$337,948 |
$441,551 |
(23.5%) |
Wholesale GAAP operating
margin |
2.9% |
5.9% |
|
|
9.8% |
9.6% |
|
Adjusted wholesale operating margin * |
2.7% |
13.6% |
|
|
8.1% |
11.5% |
|
|
|
|
|
|
|
|
|
Retail Adjusted
Operating Income / Operating Margin |
|
|
|
|
|
|
|
Retail GAAP operating
income (loss) |
($14,071) |
($10,612) |
(32.6%) |
|
($21,414) |
($10,529) |
(103.4%) |
Adjustments (pre-tax) * |
7,568 |
12,162 |
|
|
8,222 |
12,606 |
|
Adjusted retail operating income (loss) * |
($6,503) |
$1,550 |
nm |
|
($13,192) |
$2,077 |
nm |
|
|
|
|
|
|
|
|
Retail net sales |
$70,735 |
$147,160 |
(51.9%) |
|
$462,800 |
$589,829 |
(21.5%) |
Retail GAAP operating margin |
(19.9%) |
(7.2%) |
|
|
(4.6%) |
(1.8%) |
|
Adjusted retail operating margin * |
(9.2%) |
1.1% |
|
|
(2.9%) |
0.4% |
|
* 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 |
Twelve months ended |
(In thousands) |
June 30, |
June 30, |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Inventory
write-downs and additional reserves (wholesale) |
$ |
899 |
|
$ |
- |
|
$ |
4,107 |
|
$ |
- |
|
Manufacturing overhead costs
and other (wholesale) |
|
- |
|
|
1,994 |
|
|
1,316 |
|
|
1,994 |
|
Adjustments to gross profit |
$ |
899 |
|
$ |
1,994 |
|
$ |
5,423 |
|
$ |
1,994 |
|
|
|
|
|
|
Inventory
write-downs and additional reserves (wholesale) |
$ |
899 |
|
$ |
- |
|
$ |
4,107 |
|
$ |
|
|
Optimization of
manufacturing and logistics (wholesale) |
- |
|
|
8,324 |
|
|
2,147 |
|
|
8,324 |
|
Gain on sale of Passaic, New
Jersey property (wholesale) |
|
- |
|
|
- |
|
|
(11,497 |
) |
|
- |
|
Employee retention
credit (wholesale) |
(1,177 |
) |
|
- |
|
|
(1,177 |
) |
|
- |
|
Severance and
other professional fees (wholesale) |
175 |
|
|
30 |
|
|
626 |
|
|
174 |
|
Retail acquisition costs,
severance and other charges (retail) |
|
414 |
|
|
112 |
|
|
553 |
|
|
556 |
|
Impairment of
long-lived assets and lease exit costs (retail) |
7,154 |
|
|
12,050 |
|
|
7,669 |
|
|
12,050 |
|
Adjustments to operating income |
$ |
7,465 |
|
$ |
20,516 |
|
$ |
2,428 |
|
$ |
21,104 |
|
Adjustments to income before income taxes |
$ |
7,789 |
|
$ |
20,516 |
|
$ |
2,752 |
|
$ |
21,104 |
|
Related income tax effects on
non-recurring items (1) |
|
(1,908 |
) |
|
(5,026 |
) |
|
(674 |
) |
|
(5,170 |
) |
Income tax expense from
valuation allowance |
|
2,534 |
|
|
- |
|
|
2,534 |
|
|
- |
|
Adjustments to net income |
$ |
8,415 |
|
$ |
15,490 |
|
$ |
4,612 |
|
$ |
15,934 |
|
(1) Calculated using a tax rate of 24.5% in
all periods presented.
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