Ethan Allen(ETD) - 2025 Q3 - Quarterly Results

Report Overview and CEO Commentary Q3 Fiscal 2025 Highlights and CEO Commentary Ethan Allen reported resilient Q3 FY2025 results, maintaining strong gross margin and a debt-free balance sheet despite economic headwinds - The company's vertically integrated enterprise, with about 75% of furniture manufactured in its North American facilities, is considered a key strategic advantage[2] - Management cited a challenging environment including reciprocal tariffs, economic uncertainty, elevated interest rates, and a difficult housing market impacting consumer confidence[2] - The company has significantly reduced its headcount by 35.7% since March 2019, from 5,120 to 3,294, by leveraging ongoing investments in technology[3][4] Fiscal 2025 Third Quarter Key Metrics | Metric | Q3 FY2025 | Q3 FY2024 | | :--- | :--- | :--- | | Consolidated Net Sales | $142.7 million | $146.4 million | | Consolidated Gross Margin | 61.2% | 61.3% | | Adjusted Operating Margin | 8.0% | 10.0% | | Adjusted Diluted EPS | $0.38 | $0.48 | | Cash from Operations | $10.2 million | $23.7 million | | Cash and Investments (End of Quarter) | $183.0 million | - | | Debt Outstanding | None | - | Financial Performance Key Financial Results Consolidated net sales for Q3 FY2025 decreased to $142.7 million, while gross margin remained strong at 61.2%, despite declines in net income and EPS Key Financial Measures (Three Months Ended March 31) | (In thousands, except per share data) | 2025 | 2024 | | :--- | :--- | :--- | | Net sales | $142,695 | $146,421 | | Gross profit | $87,356 | $89,824 | | Gross margin | 61.2% | 61.3% | | GAAP operating income | $10,997 | $15,325 | | Adjusted operating income | $11,347 | $14,571 | | GAAP net income | $9,605 | $12,953 | | Adjusted net income | $9,865 | $12,390 | | GAAP diluted EPS | $0.37 | $0.50 | | Adjusted diluted EPS | $0.38 | $0.48 | Key Financial Measures (Nine Months Ended March 31) | (In thousands, except per share data) | 2025 | 2024 | | :--- | :--- | :--- | | Net sales | $454,292 | $477,589 | | Gross profit | $276,062 | $290,601 | | Gross margin | 60.8% | 60.8% | | GAAP operating income | $46,719 | $55,364 | | Adjusted operating income | $47,307 | $55,867 | | GAAP net income | $39,328 | $45,303 | | Adjusted net income | $39,765 | $45,679 | | GAAP diluted EPS | $1.53 | $1.77 | | Adjusted diluted EPS | $1.55 | $1.78 | Segment Performance Demand declined across segments, with written orders falling in both wholesale and retail, while wholesale net sales increased and backlog decreased - Wholesale segment written orders declined by 11.2% and retail segment written orders decreased by 13.0% compared to the prior year quarter[5] Segment Net Sales (Q3 FY2025 vs Q3 FY2024) | Segment | Q3 FY2025 | Q3 FY2024 | | :--- | :--- | :--- | | Wholesale Net Sales | $99.0 million | $89.8 million | | Retail Net Sales | $117.6 million | $122.6 million | - Wholesale backlog was $54.6 million at March 31, 2025, a decline of $3.1 million during the quarter, which helped reduce the number of weeks of backlog[13] Balance Sheet and Cash Flow The company maintained a strong, debt-free balance sheet with $183.0 million in cash, despite a decrease in operating cash flow due to lower net income and increased inventory - Ended the quarter with $183.0 million in total cash and investments and no outstanding debt[5][9][15] - Cash from operating activities for the nine months of fiscal 2025 was $36.9 million, down from $54.0 million in the prior year period, due to lower net income and working capital changes[9][10] - Net inventories totaled $150.4 million at March 31, 2025, an increase of $8.3 million since June 30, 2024, driven by new products and new design center openings[6][12] - Customer deposits from undelivered orders increased to $79.3 million at March 31, 2025, from $73.5 million at June 30, 2024[13] Operational and Strategic Updates Business Operations and Retail Network Ethan Allen strengthened its vertically integrated operations and retail network by opening new design centers and receiving recognition for socially responsible manufacturing - The company operates 174 retail design centers in North America, consisting of 143 company-operated and 31 independently owned locations[14] - New retail design centers were opened in Middleton, Wisconsin, and Toronto, Canada during the quarter[14] - For the sixth consecutive year, the company's upholstery operations in Silao, Mexico were recognized as an environmentally and socially responsible enterprise[14] Shareholder Returns Dividends The company demonstrated commitment to shareholder returns by paying $10.0 million in Q3 dividends and declaring a new regular quarterly cash dividend of $0.39 per share - Paid cash dividends totaling $10.0 million, or $0.39 per share, during the third quarter, an 8.3% increase from the prior year's regular quarterly dividend[3][5] - On May 5, 2025, the Board declared a regular quarterly cash dividend of $0.39 per share, payable on May 29, 2025[3][15] - Total cash dividends paid during the first nine months of fiscal 2025 amounted to $40.1 million, which included a special cash dividend of $10.2 million ($0.40 per share)[11] Appendix Reconciliation of GAAP to Non-GAAP Measures This section reconciles GAAP to non-GAAP financial measures, detailing adjustments for Q3 FY2025, including severance and flood-related costs, compared to a prior year gain Reconciliation of GAAP to Adjusted Operating Income (Q3) | (In thousands) | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | GAAP Operating income | $10,997 | $15,325 | | Adjustments (pre-tax) | $350 | $(754) | | Adjusted operating income | $11,347 | $14,571 | Reconciliation of GAAP to Adjusted Net Income (Q3) | (In thousands) | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | GAAP Net income | $9,605 | $12,953 | | Adjustments, net of tax | $260 | $(563) | | Adjusted net income | $9,865 | $12,390 | - Pre-tax adjustments to operating income in Q3 2025 included $298k for severance, and $52k for the Orleans, Vermont flood. Q3 2024 adjustments included a $656k gain on a sale-leaseback transaction[29] Forward-Looking Statements This section provides cautionary language regarding forward-looking statements, noting they are subject to risks and uncertainties that may cause actual results to differ materially - Forward-looking statements represent management's beliefs and assumptions concerning current expectations and are subject to risks and uncertainties that may cause actual results to differ materially[21][22] - Readers are cautioned not to place undue reliance on these statements and are directed to the company's SEC filings for a full discussion of risk factors[22][23]