Ethan Allen(ETD) - 2025 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for Q3 FY2025 reflect decreases in total assets, net income, and operating cash flow Consolidated Balance Sheets As of March 31, 2025, total assets slightly decreased to $738.7 million, with minor changes across key balance sheet items Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total Assets | $738,740 | $744,917 | | Cash and cash equivalents | $65,731 | $69,710 | | Investments, short-term | $107,202 | $91,319 | | Inventories, net | $150,384 | $142,040 | | Total Liabilities | $259,588 | $262,001 | | Customer deposits | $79,299 | $73,471 | | Total Shareholders' Equity | $479,152 | $482,916 | Consolidated Statements of Comprehensive Income For Q3 FY2025, net sales, operating income, net income, and diluted EPS all decreased year-over-year Q3 Fiscal 2025 vs Q3 Fiscal 2024 (in thousands, except per share data) | Metric | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Net sales | $142,695 | $146,421 | | Gross profit | $87,356 | $89,824 | | Operating income | $10,997 | $15,325 | | Net income | $9,605 | $12,953 | | Diluted EPS | $0.37 | $0.50 | Nine Months Ended March 31 (in thousands, except per share data) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net sales | $454,292 | $477,589 | | Operating income | $46,719 | $55,364 | | Net income | $39,328 | $45,303 | | Diluted EPS | $1.53 | $1.77 | Consolidated Statements of Cash Flows For the nine months ended March 31, 2025, operating cash flow decreased, investing activities provided cash, and financing activities used cash Cash Flow Summary - Nine Months Ended March 31 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36,879 | $53,954 | | Net cash provided by (used in) investing activities | $2,245 | $(10,081) | | Net cash used in financing activities | $(42,587) | $(42,300) | | Net (decrease) increase in cash | $(3,839) | $1,649 | Notes to the Consolidated Financial Statements Key notes detail the company's vertically integrated business model, revenue recognition, segment performance, and financial instruments - Ethan Allen is a vertically integrated interior design company, manufacturing approximately 75% of its furniture in its North American plants, operating 143 company-owned design centers and 46 independently operated locations as of March 31, 2025[20][21][22] - The company has a $125 million revolving credit facility maturing in January 2027, with an option to increase it by $60 million, and as of March 31, 2025, there were no outstanding borrowings and availability was $121.0 million[66][67] Disaggregated Net Sales by Product Category - Q3 2025 (in thousands) | Product Category | Net Sales | % of Total | | :--- | :--- | :--- | | Upholstery | $67,647 | 47.4% | | Case goods | $43,080 | 30.2% | | Accents | $27,784 | 19.5% | | Other | $4,184 | 2.9% | | Total | $142,695 | 100.0% | Segment Operating Income - Q3 (in thousands) | Segment | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Wholesale segment | $14,331 | $11,243 | | Retail segment | $659 | $2,275 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 FY2025 results, attributing sales decline to economic factors while highlighting strong gross margin and liquidity Executive Overview The executive overview highlights the company's vertically integrated model and its strong financial health despite a challenging economic environment - The company's business model focuses on vertical integration, with about 75% of furniture manufactured in North America, providing a competitive advantage in quality and service[113][114] - In Q3 FY2025, the company maintained a strong balance sheet with $183.0 million in cash, cash equivalents, and investments, and no outstanding debt, despite a challenging economic environment[118] Key Operating Metrics Key operating metrics for Q3 FY2025 show declines in net sales, adjusted diluted EPS, and written orders across both segments Key Operating Metrics - Q3 FY2025 vs Q3 FY2024 (in millions, except per share data and percentage) | Metric | Q3 2025 | Q3 2024 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $142.7M | $146.4M | (2.5%) | | Adjusted operating income | $11.3M | $14.6M | (22.1%) | | Adjusted diluted EPS | $0.38 | $0.48 | (20.8%) | | Wholesale written orders | - | - | (11.2%) | | Retail written orders | - | - | (13.0%) | Results of Operations Q3 FY2025 operating results show decreased net sales and operating income due to lower demand, despite a strong gross margin - Consolidated net sales for Q3 FY2025 decreased 2.5% to $142.7 million, attributed to lower delivered unit volume, fewer incoming written orders, and reduced designer floor sample sales[123] - Q3 consolidated gross margin remained stable at 61.2% compared to 61.3% YoY, achieved through lower raw material costs and higher ticket prices, partially offset by sales deleveraging, mix changes, and higher freight costs[129][130] - Q3 operating income decreased 28.2% to $11.0 million, with the operating margin falling to 7.7% from 10.5% YoY, driven by lower sales and a 1.3% increase in SG&A expenses[131][141] Regulation G Reconciliations of Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP financial measures for Q3 FY2025, with adjustments primarily related to restructuring charges Reconciliation of GAAP to Adjusted Metrics - Q3 FY2025 (in thousands) | Metric | GAAP | Adjustments | Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Operating income | $10,997 | $350 | $11,347 | | Net income | $9,605 | $260 | $9,865 | | Diluted EPS | $0.37 | $0.01 | $0.38 | Liquidity and Capital Resources The company maintains strong liquidity with $303.9 million available, using operating cash flow for dividends and capital expenditures Available Liquidity (in thousands) | Component | March 31, 2025 | | :--- | :--- | | Cash and cash equivalents | $65,731 | | Investments (short & long-term) | $117,243 | | Availability under credit facility | $120,952 | | Total Available Liquidity | $303,926 | - Cash from operating activities for the nine months ended March 31, 2025 was $36.9 million, a decrease from $54.0 million in the prior year, mainly due to changes in working capital and lower net income[161] - During the first nine months of fiscal 2025, the company paid $40.1 million in cash dividends and invested $9.4 million in capital expenditures, primarily for manufacturing expansion and retail design center projects[163][169][171] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks including interest rate, foreign currency, tariffs, and commodity price volatility - The company has no outstanding debt, so interest rate risk is primarily related to its cash and investment portfolio[181] - Foreign currency exchange risk is limited as most purchases are in U.S. dollars, but operations in Canada, Mexico, and Honduras create some exposure[184] - The company is exposed to risk from tariffs on imported raw materials and finished goods, which could increase costs and negatively impact margins or require price increases[187][188] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal controls - Based on an evaluation as of the end of the quarter, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[192] - No changes occurred in internal control over financial reporting during the third quarter of fiscal 2025 that have materially affected, or are reasonably likely to materially affect, these controls[193] PART II - OTHER INFORMATION Item 1. Legal Proceedings No material changes to the legal matters previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes to legal proceedings were reported for the first nine months of fiscal 2025[196] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes to risk factors were reported for the first nine months of fiscal 2025[197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares during Q3 FY2025, retaining authorization for over 2 million shares - No shares were repurchased during the third quarter of fiscal 2025[199] - The remaining authorization under the share repurchase program is for 2,007,364 shares as of March 31, 2025[199]