Ethan Allen(US:ETD)2020-10-29 20:20PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for Q1 FY2021, detailing financial position, performance, and cash flows Consolidated Balance Sheets The balance sheet as of September 30, 2020, shows total assets of $622.5 million, a decrease in cash due to debt repayment, and increased shareholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $61,973 | $72,276 | | Inventories, net | $127,047 | $126,101 | | Total current assets | $232,461 | $234,877 | | Total assets | $622,521 | $622,789 | | Liabilities & Equity | | | | Total current liabilities | $187,889 | $186,999 | | Total long-term debt | $0 | $50,000 | | Total liabilities | $289,590 | $294,725 | | Total shareholders' equity | $332,931 | $328,064 | Consolidated Statements of Comprehensive Income Net sales decreased 13.1% to $151.1 million for Q1 FY2021, with net income falling to $9.4 million and diluted EPS to $0.37 Q1 FY2021 Income Statement Summary (in thousands, except per share data) | Metric | Three months ended Sep 30, 2020 | Three months ended Sep 30, 2019 | | :--- | :--- | :--- | | Net sales | $151,058 | $173,921 | | Gross profit | $85,770 | $93,794 | | Operating income | $11,681 | $18,641 | | Net income | $9,353 | $14,106 | | Diluted EPS | $0.37 | $0.53 | Consolidated Statements of Cash Flows Operating cash flow significantly increased to $42.2 million in Q1 FY2021, enabling a $50.0 million debt repayment, resulting in a net cash decrease Cash Flow Summary (in thousands) | Activity | Three months ended Sep 30, 2020 | Three months ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $42,190 | $23,396 | | Net cash (used in) provided by investing activities | $(2,439) | $6,940 | | Net cash used in financing activities | $(50,148) | $(5,194) | | Net (decrease) increase in cash | $(10,303) | $25,052 | Notes to Consolidated Financial Statements These notes detail accounting policies, COVID-19 impact, revenue recognition, segment performance, debt repayment, and the company's vertically integrated business model - The company operates as a vertically integrated interior design company, manufacturer, and retailer with approximately 300 design centers globally, 144 company-operated, and 75% of products made in North America22121 - In response to COVID-19, the company repaid $50.0 million in debt, resumed production, and reinstated its quarterly dividend due to improved Q1 FY2021 business trends24 Disaggregated Net Sales by Segment (Q1 FY2021, in thousands) | Product Category | Wholesale | Retail | Total (before eliminations) | | :--- | :--- | :--- | :--- | | Upholstery | $52,735 | $57,685 | $110,420 | | Case goods | $28,739 | $32,918 | $61,657 | | Accents | $17,196 | $24,313 | $41,509 | - The company fully repaid its $50.0 million in outstanding borrowings under its revolving credit facility in September 20207377 - In Q1 FY2021, the company recorded a non-cash impairment charge of $0.6 million related to long-lived assets at a retail design center location8384 Management's Discussion and Analysis (MD&A) Management discusses Q1 FY2021 financial results, highlighting COVID-19 impact, strong e-commerce growth, improved margins, and robust liquidity with debt repayment Executive Overview Q1 FY2021 saw strong demand recovery, with retail written orders up 10.8% and e-commerce up 112%, alongside debt repayment and dividend reinstatement - Retail segment written orders increased by 10.8% over the prior year, driven by 112% growth in e-commerce business orders127 - Adjusted operating income increased 0.7% despite lower sales, attributed to strong gross margins and a 14.3% reduction in operating expenses128 - The company generated $42.2 million in cash from operations and repaid the remaining $50.0 million of debt, ending the quarter with a strong balance sheet128 Results of Operations Consolidated net sales for Q1 FY2021 decreased 13.1% to $151.1 million, but adjusted gross margin improved to 56.8% and adjusted operating income slightly increased Segment Net Sales (in millions) | Segment | Q1 FY2021 | Q1 FY2020 | % Change | | :--- | :--- | :--- | :--- | | Wholesale | $97.3 | $101.3 | (3.9%) | | Retail | $118.1 | $137.3 | (14.0%) | | Consolidated | $151.1 | $173.9 | (13.1%) | - Adjusted gross margin increased by 50 basis points year-over-year, primarily due to higher wholesale and retail gross margins149153 - Operating expenses decreased due to lower selling costs, reduced advertising spend, and lower general and administrative expenses, reflecting strong cost containment measures152 - Adjusted diluted EPS increased 2.9% to $0.36 from $0.35 a year ago, driven by improved gross margin and cost containment159 Reconciliation of Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP adjusted financial measures, detailing adjustments for operating income and diluted EPS for Q1 FY2021 and prior year Reconciliation of GAAP to Adjusted Operating Income (in thousands) | Description | Q1 FY2021 | Q1 FY2020 | | :--- | :--- | :--- | | GAAP Operating income | $11,681 | $18,641 | | Adjustments (pre-tax) | $623 | $(6,428) | | Adjusted operating income | $12,304 | $12,213 | Reconciliation of GAAP to Adjusted Diluted EPS | Description | Q1 FY2021 | Q1 FY2020 | | :--- | :--- | :--- | | GAAP Diluted EPS | $0.37 | $0.53 | | Adjusted diluted EPS | $0.36 | $0.35 | Liquidity and Capital Resources The company's liquidity is robust with $62.0 million cash, $42.2 million operating cash flow, full debt repayment, and reinstated quarterly dividend - Cash from operating activities increased 80.3% to $42.2 million in Q1 FY2021, up from $23.4 million in the prior year, driven by improved working capital171173 - The company used $50.1 million in financing activities, almost entirely for the $50.0 million repayment of borrowings under its revolving credit facility171175 - On August 4, 2020, the Board of Directors reinstated the regular quarterly cash dividend of $0.21 per share185 - Total availability under the credit facility was $104.5 million at September 30, 2020181 Quantitative and Qualitative Disclosures About Market Risk The company's market risks are minimal, with no outstanding debt reducing interest rate risk and limited, non-material foreign currency exposure - As of September 30, 2020, the company had no outstanding debt obligations, minimizing interest rate risk197 - The company is aware of the upcoming LIBOR transition, with its Credit Agreement including provisions for alternative interest rate calculations like SOFR199 - Foreign currency exchange risk is primarily limited to operations in Canada, Mexico, and Honduras, and is not expected to have a material effect on consolidated results200 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes in internal control over financial reporting - The principal executive and financial officers concluded that as of September 30, 2020, the company's disclosure controls and procedures were effective202 - No material changes in internal control over financial reporting occurred during the first fiscal quarter203 PART II - OTHER INFORMATION Legal Proceedings No material changes to legal proceedings were reported during the first three months of fiscal 2021 - No material changes to legal proceedings occurred during the first three months of fiscal 2021205 Risk Factors No material changes to the company's previously identified risk factors were reported for the quarter - No material changes to the company's risk factors were reported for the quarter208 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock during the quarter, with approximately 2.0 million shares remaining authorized under the repurchase program - There were no share repurchases during the quarter ended September 30, 2020210 - As of September 30, 2020, the company had a remaining Board authorization to repurchase 2,007,364 shares of its common stock210