UPDATE: Ethan Allen posts $3.3 million quarterly loss

Sales decline 24.4% in period ended Dec. 31

Tom Russell -- Furniture Today, January 28, 2010

DANBURY, Conn. - Ethan Allen's sales fell 24.4% and the retailer and manufacturer posted a $3.3 million loss in its fiscal second quarter ended Dec. 31, resulting in large part from consolidation and restructuring initiatives in its case goods and upholstery plants.

Sales for the quarter were $143.3 million. Net sales for retail operations were down 27.2% to $107.1 million, while wholesale net sales fell 22.3% to $84.5 million.

The loss of $3.3 million or 12 cents per share compared with net income of $5.5 million or 19 cents per share in the same period a year earlier. That included $3.9 million in transition costs and $800,000 in restructuring and impairment charges.

For the six months ended Dec. 31, sales fell 29.3% to $279.5 million. Retail sales were down 30.6% to $210.3 million, while wholesale volume declined 28% to $165.8 million.

For the six months, the company reported a loss of $16.9 million or 58 cents per share, compared with net income of $12.9 million or 45 cents per diluted share in 2008. The loss includes $12.4 million in transition costs and $1.6 million in restructuring and impairment charges.

Company Chairman, President and CEO Farooq Kathwari said the challenges of the past year have helped the company strengthen many elements of its vertical operations.

"The consolidation and restructuring initiatives did result in lower delivered sales in the December quarter while increasing our backlogs," he said. "Our plants, retail and logistics have absorbed most of the operational changes and transition costs during the last six months. This includes the training of 274 new upholstery associates and the conversion of our case goods products to custom. We expect to significantly lower these costs in the third and fourth quarters of this fiscal year."

He said the company has strong marketing initiatives in place and added that while it remains cautious, it also plans to increase production at its domestic plants.

In a conference call, he said that margins in case goods production should improve as the transformation to a custom approach - with customers choosing each piece's design features - is completed. About 50% of the production is custom now and by May it will rise to 100%, he said.

Kathwari said he also expects upholstery margins to improve, now that the company has consolidated two plants in California into one in North Carolina. The company also has ramped up its upholstery operations in Mexico.

"That transition did have an effect on production, costs and shipments in the second quarter," he said. "As we move forward, these transition costs will be reduced."

He also said the company has been investing in technology and advertising, including TV and direct mail, to help market the brand to consumers. Such initiatives have begun to pay off as business has started to improve, he said.

"This time last year we saw the impact of the recession on our business," Kathwari said. "(Now) we are seeing steady progress. There is not a rush of business coming it, but there has been steady business since last June."