DANBURY, Conn. — Ethan Allen Interiors Inc. reported net sales of $203.2 million for its fiscal 2023 second quarter ended Dec. 31, 2022. The company indicated sales this quarter were helped by the company’s backlog and that its focus in 2023 would be to revamp its retail locations to emphasize a more design-centric approach to product sales.
“In November 2022 we opened a new state-of-the-art design center in Skokie, Ill., a suburb of Chicago. This design center projection continues to position us as a leading Interior Design Destination,” said Farooq Kathwari, chairman, president and CEO of Ethan Allen. “Combining personal service of our talented interior designers with advanced technology is an important focus. Over the next 12 months, we plan to greatly enhance the projection of all our design centers.”
Ethan Allen’s emphasis is on refreshing its stores as interior design destinations with talented interior designers, making these locations “more fashionable and relevant,” according to Kathwari. The company plans to convert most of its 174 design centers in North America within next 12 months. The company will be reviewing the projection with its international partners as well.
Since 2019, the company has increased sales over 7% while overall headcount has gone down by approximately 24%, “a result of having better quality people and technology at our manufacturing, at our retail. So, those are the factors that have helped us become more productive,” noted Kathwari.
“We are well-positioned with continued strengthening of our vertically integrated structure, which includes enhancing our product offerings, continued re-positioning of our retail network as a premier Interior Design Destination, investments in our North American manufacturing, which accounts for about 75% of our net sales, and investing in technology and logistics. We remain cautiously optimistic,” concluded Kathwari.
The company noted that its operating margins are the result of pullbacks over the years from 30 manufacturing plants to four (Vermont, North Carolina, Mexico and Honduras) and that these facilities are producing twice as much product than the previous 30 did. In addition, Ethan Allen used to have 10 major national distribution centers, and now it has two. “However, we are watching very carefully the markets, the sales, the consumer attitudes, and so we will have to make some adjustments if sales don’t hold up,” said Kathwari.
He also mentioned that technology in the company’s design centers has helped Ethan Allen interior designers to sell a total home solution rather than selling individual pieces.
And, like other areas of the company that have become more efficient, Kathwari noted, “We have about 30% less designers than we had four or five years back, but more qualified, more talented, and in the last two, three years we have invested a great deal, and we’re going to continue to invest a great deal in providing technology to them as we have been doing in our manufacturing.”
Financial highlights include:
- .Consolidated net sales decreased 2.4% to $203.2 million
- Retail net sales of $171.8 million decreased 4.4%.
- Wholesale net sales of $106.2 million decreased 8.3%.
- Written order trends:
- Retail segment written orders decreased 1.5% compared with the pre-pandemic second quarter of fiscal 2019; down 16.3% compared with the second quarter of fiscal 2022.
- Wholesale segment written orders were 18.6% lower than the second quarter of fiscal 2019; declined 20.2% from a year ago.
- Consolidated gross margin increased to 61.0%, up from 58.8% a year ago due to product pricing actions taken over the past 12 months, a favorable product mix, disciplined promotional activity and lower inbound freight costs.
- Operating margin of 18.2%; adjusted operating margin of 18.1% compared with 15.7% last year due to wholesale gross margin expansion and maintaining a disciplined approach to cost savings and expense control partially offset by lower net sales and higher retail delivery costs; adjusted selling, general and administrative expenses decreased from 43.1% of net sales to 42.9%.
- Advertising expenses were equal to 2% of net sales, the same as in the prior year second quarter; the company continues to utilize various advertising mediums including national television, direct mail and digital.
- Ended the quarter with $159.9 million in inventory, down $16.6 million from June 30, 2022.