• Powell Slaughter

Storms disrupt Ethan Allen fiscal Q1 performance

DANBURY, Conn. – Vertically integrated home furnishings retailer and manufacturer Ethan Allen reported a 6.2% drop in fiscal first-quarter 2018 net sales to $181.3 million.

Net income of $7.4 million or 27 cents per diluted share for the three months ended Sept. 30 represented a 35.7% decrease from the comparable prior-year period's $11.5 million or 41 cents per diluted share.

First-quarter gross profit of $100.3 million was down from $108.5 million for the same quarter in the comparable three-month fiscal 2017 period, and gross margin dropped from 56.1% last year to 55.3%. Ethan Allen attributed to those declines primarily due to the hurricanes and disruptions in the manufacturing operations by first production runs. Retail sales as a percent of total consolidated sales decreased to 78.1% from 78.8% decreasing its consolidated gross margin due to mix.

Operating expenses for the first quarter fell to $88.8 million to $90.1 million, primarily due to decreased costs in the current year for marketing and a prior-year loss on the sale of real estate in the retail segment.

First-quarter net sales for Ethan Allen's retail segment fell 7% to $141.6 million from the prior-year period's $152.3 million. Comparative net sales were $138.1 million compared to $151.4 million in third-quarter 2016.

Total retail division written orders the first quarter of fiscal 2018 were up 1.7% compared with the same prior-year period, and comparable Design Center written orders were up 0.5% over the same period.

Net sales of $111.6 million in the wholesale segment were off 2.6% in first-quarter 2018 compared with the same prior-year period. The reduction in sales is primarily a reflection of the production and logistics disruptions caused by hurricanes and first production runs.

Ethan Allen Chairman and CEO Farooq Kathwari noted the increase in company-run retail orders in the first quarter despite the challenges of hurricanes during the period and first-run production of new products – and that was comparing with an 8.1% increase in the prior-year first quarter.

"Our balance sheet continues to strengthen, and we distributed $5.2 million in dividends during the quarter, an increase of 10.6% compared to the prior year quarter," he said. "Our total order backlogs increased 61.6% at wholesale and increased 11.6% for the retail division compared to June 30. The wholesale backlog increase also reflects $12.4 million of orders we have received from the U.S. Department of State, including $10.4 million during our fiscal 2018 first quarter."

Two major hurricanes, Harvey and Irma, disrupted several key markets in which the Ethan Allen operates: 15 Design Centers in Florida, including 11 company-operated locations, plus five company-operated Design Centers in the coastal Carolinas were affected by Hurricane Irma; and 11 Design Centers in Texas, with five independently operated locations in the Houston market, were impacted by Hurricane Harvey.

Those storms had Design Centers and delivery centers closed anywhere from a couple of days to more than a week, with an effect on both written orders and net delivered sales. Hurricane Harvey also disrupted the company's wholesale logistics, as the temporary shutdown of railway shipping through Houston impacted shipments from Ethan Allen's upholstery plant in Mexico, and ocean freight arrivals were delayed into the Port of Houston.

First production runs of floor samples for the new Passport collection, which is launching in November, and strong orders and first run production of products for the Department of State Worldwide Residential Furniture Program during the quarter also resulted in production and shipping delays.

Click here for the complete Ethan Allen first-quarter 2018 release.

Powell SlaughterPowell Slaughter | Senior Editor
PSlaughter@furnituretoday.com

I'm Powell Slaughter, senior editor at Furniture/Today. I returned to the publication in January 2015 after nine years of writing about furniture retail strategies and best practices at a monthly magazine focusing on home furnishings retail operations. Prior to that, I spent 10 years with F/T covering wood furniture, the last five of those as case goods editor. While I cover occasional, home entertainment and home office here, a major responsibility is expanding our attention to the logistics side of the industry. I hope my articles will encourage a dialogue with retailers, vendors, third-party logistics specialists and carriers. I’d love to hear your ideas, concerns and suggestions for smoother flow of material and goods.

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