Ethan Allen's sales drop 41.2% in fiscal fourth quarter

Furniture producer, retailer has loss of $16.9 million

Jay McIntosh -- Furniture Today, August 12, 2009

DANBURY, Conn. — Ethan Allen reported a sales decline of 41.2% in its fiscal fourth quarter and a loss of $16.9 million or 58 cents per share, mainly because of restructuring and impairment charges in connection with its previously announced consolidation of two case goods plants.

Sales in the quarter ended June 30 were $138.7 million, down from $235.9 million in the same period a year ago.

But Farooq Kathwari, chairman and CEO, offered a ray of hope. "While business conditions remain very difficult, the rates of decline that we experienced in the last six months were substantially reduced in July," he said, saying the  sales drop for the month was about half as much as the 30% to 40% declines seen earlier.

Retail sales at company-owned stores in the fourth quarter fell 42% to $102.3 million, with same-store delivered sales off 43.5%. Wholesale sales of $85.2 million were down 42.3%.

Earnings in the comparable quarter in 2008 were $11.1 million or 39 cents per share.

Restructuring and impairment charges amounted to $12.9 million in the latest quarter, and the company also posted a $1.5 million tax expense to record reserves on some deferred tax assets. The company also had taken $2.8 million in restructuring and impairment charges in the 2008 fiscal fourth quarter.

Excluding the charges in both quarters, the company had a loss of 23 cents per share in the latest quarter and earnings of 45 cents per share a year ago.

For the full fiscal year, sales of $674.3 million were down 31.2% from the previous year. Retail division sales fell 29.8% to $508.6 million, and wholesale sales declined 34.5% to $403.4 million.

The loss for the year was $52.7 million or $1.83 per share, including charges of $48.4 million for goodwill impairment and $18.6 million for restructuring, plus the $1.5 million tax expense. The previous year, Ethan Allen had reported earnings of $58.1 million or $1.97 per share, after a $6.8 million restructuring and impairment charge.

"Fiscal 2009, while extremely challenging, provided us the opportunity to accelerate our process of reinvention," said Kathwari.

"We focused on two major initiatives. First: to bring our expense and cost structure down. On an annualized basis we reduced about $120 million in operating expenses and about $30 million in manufacturing costs. We will see most of the reductions benefiting our fiscal 2010. Second: to implement many initiatives that will create a strong competitive difference and help grow our sales and profitability. Our move toward custom production in our case goods manufacturing and the launch of the new Interior Design Affiliate program are just the latest examples of these initiatives," he said.

He added that the company's focus has been to maintain a strong cash position. He said Ethan Allen had $53 million in cash at the end of the quarter, and $63 million now.