Ethan Allen(ETD) - 2026 Q2 - Quarterly Report

Financial Performance - Consolidated net sales for the fiscal 2026 second quarter were $149.9 million, a 4.7% decrease from the prior year quarter, primarily due to fewer contract sales[132] - Adjusted operating margin decreased to 9.0% from 11.5% a year ago, driven by fewer contract sales and increased promotional activity[132] - Consolidated net sales decreased by $7.3 million or 4.7% for the three months ended December 31, 2025, compared to the prior year period, driven by fewer contract sales and lower delivered unit volume[140] - Wholesale net sales decreased by $7.7 million or 8.9% for the same period, primarily due to lower contract sales, including shipments to the U.S. government[141] - Retail net sales increased by $0.1 million or 0.1% for the three months ended December 31, 2025, supported by higher starting retail backlog and incremental designer floor sample sales[143] - Consolidated gross profit decreased by $3.6 million for the three months ended December 31, 2025, attributed to lower net sales and increased promotional activity[146] - Consolidated operating income decreased by $3.9 million or 21.6% for the three months ended December 31, 2025, with an operating margin of 9.5% compared to 11.5% in the prior year[156] - Net income for the three months ended December 31, 2025, was $11.7 million, down 21.7% from $15.0 million in the prior year[163] - Adjusted net income for the same period was $11.2 million, a decrease of 25.5% compared to $15.0 million a year ago[168] - Diluted EPS for the three months ended December 31, 2025, was $0.46, down 22.0% from $0.59 in the same period last year[164] Operational Metrics - Gross profit margin was 60.9%, reflecting a change in sales mix and selective price increases, compared to 60.3% in the prior year[135] - The company ended the quarter with 187 retail design centers, including 142 company-operated and 45 independently owned locations[132] - Employee count as of December 31, 2025, was 3,149, with a reduction of 5.1% in the last 12 months[131] - The company operates 11 manufacturing facilities, with approximately 75% of furniture manufactured in North America[129] - Retail written orders declined by 17.9%, while wholesale orders decreased by 19.3% compared to the previous year[135] - SG&A expenses increased by 1.5% for the three months ended December 31, 2025, with a percentage of sales rising to 51.9% from 48.8% in the prior year[149] - Retail operating income fell to $3.7 million for the three months ended December 31, 2025, down 43.9% from the prior year, with a margin of 2.8%[158] Cash and Liquidity - Cash, cash equivalents, and investments totaled $179.3 million at December 31, 2025, with no outstanding debt[132] - Total available liquidity as of December 31, 2025, was $300.5 million, down from $317.1 million at June 30, 2025[172] - Working capital increased to $176.2 million at December 31, 2025, compared to $157.1 million at June 30, 2025[172] - The company reported a current ratio of 2.3 at December 31, 2025, up from 2.0 at June 30, 2025[172] - Cash provided by operating activities was $15.0 million for the first six months of fiscal 2026, down from $26.7 million in the prior year, primarily due to lower net income and changes in working capital[178] - Capital expenditures for the first six months of fiscal 2026 were $5.3 million, a decrease from $7.4 million in the prior year, focused on new retail design centers and technology investments[186] - Total dividends paid during the first six months of fiscal 2026 amounted to $26.3 million, down from $30.1 million a year ago, with a special dividend reduced from $0.40 to $0.25 per share[180] - Cash used in financing activities was $28.4 million in the current year, compared to $32.5 million in the previous year, reflecting a decrease in dividend payments[180] Strategic Initiatives - The company aims to leverage its vertical integration and invest in new technologies to enhance operational efficiencies and maintain competitive advantages[130] - The company plans to open new design centers in Rancho Cucamonga, California, Aventura, Florida, and Vancouver, British Columbia, during 2026[145] - The company anticipates total capital expenditures to rebuild the structure damaged by the Beecher Falls fire to be between $2.5 million and $3.5 million, with $0.7 million incurred by December 31, 2025[187] Market and Economic Conditions - The company is exposed to a 25% tariff on upholstered wood products imported from Mexico due to recent tariffs effective October 2025[205] - Retail selling prices were increased in Q2 of fiscal 2026 to offset the impact of additional tariffs on raw materials and finished goods[206] - The company is exposed to market risks from changes in raw material costs, particularly wood, fabric, and foam products[207] - Inflationary impacts on product and operating costs are expected to be partially offset by the ability to increase retail selling prices[208] - The company does not engage in foreign currency hedging and does not expect material impacts from foreign currency exchange risks[204] - Approximately 75% of the furniture sold is manufactured in North America, providing a strategic advantage to mitigate tariff impacts[206]