Ethan Allen(ETD) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section provides the unaudited consolidated financial statements for the quarter ended September 30, 2023, detailing the company's financial position and performance Consolidated Balance Sheets As of September 30, 2023, total assets slightly decreased to $739.6 million, while the company maintained a strong liquidity position with $163.2 million in cash and investments and stable liabilities Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (Unaudited) | June 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $352,798 | $359,453 | | Cash and cash equivalents | $56,888 | $62,130 | | Investments | $106,284 | $110,577 | | Total Assets | $739,563 | $745,453 | | Total Current Liabilities | $164,942 | $163,097 | | Total Liabilities | $277,007 | $274,447 | | Total Shareholders' Equity | $462,556 | $471,006 | Consolidated Statements of Comprehensive Income (Unaudited) For the three months ended September 30, 2023, the company reported a significant year-over-year decline, with net sales decreasing 23.6% to $163.9 million and net income falling 50.0% to $14.9 million Quarterly Performance Summary (in thousands, except per share data) | Metric | Q1 FY2024 (ended Sep 30, 2023) | Q1 FY2023 (ended Sep 30, 2022) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $163,892 | $214,530 | -23.6% | | Gross Profit | $100,141 | $129,616 | -22.7% | | Operating Income | $18,351 | $39,650 | -53.7% | | Net Income | $14,939 | $29,880 | -50.0% | | Diluted EPS | $0.58 | $1.17 | -50.4% | Consolidated Statements of Cash Flows (Unaudited) Net cash provided by operating activities decreased to $16.7 million, while investing activities provided $2.0 million, and financing activities used $23.8 million, primarily for dividend payments Cash Flow Summary (in thousands) | Activity | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,700 | $38,422 | | Net cash provided by (used in) investing activities | $1,989 | $(33,525) | | Net cash used in financing activities | $(23,847) | $(21,777) | | Net decrease in cash | $(5,248) | $(17,153) | Consolidated Statements of Shareholders' Equity (Unaudited) Shareholders' equity decreased from $471.0 million to $462.6 million, primarily due to $21.9 million in cash dividends, partially offset by $14.9 million in net income - Total shareholders' equity decreased by $8.4 million during the quarter, from $471.0 million to $462.6 million[18] - The primary drivers of the change in equity were net income of $14.9 million and cash dividends declared of $21.9 million[18] Notes to the Consolidated Financial Statements (Unaudited) These notes detail accounting policies, revenue recognition, segment performance, and a $2.1 million restructuring charge from a flood at the Vermont manufacturing plant - The company is a vertically integrated luxury home fashion brand, with approximately 75% of its products manufactured or assembled in its North American plants[21][22] - In July 2023, the company's Orleans, Vermont manufacturing facility sustained damage from heavy flooding, resulting in a net charge of $2.1 million after insurance recoveries and grant proceeds[83] Net Sales by Product Category (in thousands) | Product Category | Q1 FY2024 | Q1 FY2023 | | :--- | :--- | :--- | | Upholstery | $78,506 | $106,039 | | Case goods | $44,660 | $63,966 | | Accents | $34,402 | $37,070 | | Other | $6,324 | $7,455 | | Total | $163,892 | $214,530 | - For Q1 FY2024, the Wholesale segment generated $14.4 million in operating income, while the Retail segment generated $5.2 million[108] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the challenging quarter, highlighting a 23.6% decrease in consolidated net sales due to macroeconomic pressures and a flood, while emphasizing a strong balance sheet with no debt and 61.1% gross margins Executive Overview This overview summarizes the company's vertically integrated business model and the Q1 FY2024 financial impact of a Vermont flood, noting a 13.2% drop in retail orders despite a strong balance sheet with $163.2 million in cash and investments - The company's business model is centered on being a vertically integrated Interior Design Destination, with a strong manufacturing presence in North America[125] - Q1 FY2024 performance was negatively impacted by inflationary pressures, high interest rates, and a flood at the Orleans, Vermont plant, which reduced net sales by approximately $15 million[127][128] - The company ended the quarter with a strong balance sheet, holding $163.2 million in cash, cash equivalents, and investments with no debt[127] Results of Operations Consolidated net sales fell 23.6% to $163.9 million, impacted by a 27.3% drop in retail sales and a $15 million flood-related delay, while gross margin improved to 61.1%, despite operating income decreasing to $18.4 million Consolidated Net Sales (in thousands) | Segment | Q1 FY2024 | Q1 FY2023 | % Change | | :--- | :--- | :--- | :--- | | Consolidated | $163,892 | $214,530 | (23.6%) | | Wholesale | $99,430 | $114,651 | (13.3%) | | Retail | $133,601 | $183,658 | (27.3%) | - The Vermont flood caused a temporary work stoppage, lowering shipments by approximately $15 million during the quarter[138] - Wholesale written orders decreased 15.6% and retail written orders decreased 13.2% year-over-year, reflecting a market downturn in home furnishings[140][141] - SG&A expenses decreased 12.7%, but as a percentage of sales, they increased to 49.0% from 42.9% in the prior year, indicating reduced operating leverage[146] Reconciliation of Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP figures, showing Q1 FY2024 adjusted operating income of $19.8 million and adjusted diluted EPS of $0.63, primarily adjusting for a $2.1 million flood charge and a $0.7 million sale-leaseback gain Reconciliation of GAAP to Adjusted Financials (Q1 FY2024, in thousands) | Metric | GAAP | Adjustments | Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Operating Income | $18,351 | $1,492 | $19,843 | | Net Income | $14,939 | $1,115 | $16,054 | | Diluted EPS | $0.58 | $0.05 | $0.63 | - Pre-tax adjustments for the quarter included a $2.1 million charge for the Vermont flood and a $0.7 million gain on a sale-leaseback transaction[164] Liquidity and Capital Resources The company details its strong liquidity with $284.1 million available and no debt, with cash from operations at $16.7 million, primarily used for $21.9 million in dividends and $3.7 million in capital expenditures Total Available Liquidity (in thousands) | Component | Sep 30, 2023 | | :--- | :--- | | Cash and cash equivalents | $56,888 | | Short-term investments | $106,284 | | Availability under credit facility | $120,952 | | Total Available Liquidity | $284,124 | - Paid total cash dividends of $21.9 million, which included a regular quarterly dividend of $0.36 per share and a special cash dividend of $0.50 per share[178][186] - Capital expenditures totaled $3.7 million, primarily for retail design center projects and manufacturing facility upgrades[184] - No shares were repurchased under the existing share repurchase program during the quarter[188] Quantitative and Qualitative Disclosures About Market Risk This section discusses market risks including interest rates, foreign currency, and commodity prices, concluding they are not expected to materially affect consolidated results due to the company's strong financial position and operational practices - Interest Rate Risk: With no borrowings outstanding and short-term investments, the company estimates that a 100 basis point change in interest rates would not have a material impact[198] - Foreign Currency Risk: Exposure is limited to operations in Canada, Mexico, and Honduras and is not considered material; the company does not engage in currency hedging[200][202] - Commodity and Inflation Risk: The company is exposed to volatile costs for raw materials (lumber, foam) and transportation but believes it can mitigate impacts through pricing adjustments and operational efficiencies[206][207] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures are effective as of September 30, 2023[209] - There were no changes in internal control over financial reporting during the first quarter of fiscal 2024 that have materially affected, or are reasonably likely to materially affect, internal controls[210] PART II - OTHER INFORMATION Legal Proceedings The company reports no material changes to legal proceedings during the first three months of fiscal 2024 from prior disclosures - There have been no material changes during the first three months of fiscal 2024 to the matters discussed in the 2023 Annual Report on Form 10-K[213] Risk Factors The company states no material changes to its risk factors during the first three months of fiscal 2024 from prior disclosures - There have been no material changes to the company's risk factors during the first three months of fiscal 2024[214] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities and no share repurchases during the quarter, with 2,007,364 shares remaining authorized for repurchase - No shares of outstanding common stock were repurchased during the first quarter of fiscal 2024 under the existing share repurchase program[216] - As of September 30, 2023, the company had a remaining Board authorization to repurchase 2,007,364 shares of its common stock[216] Defaults Upon Senior Securities The company reports no defaults upon senior securities - The company reported 'None'[217] Mine Safety Disclosures This item is not applicable to the company - The company reported 'Not applicable'[218] Other Information The company discloses that no directors or officers adopted, modified, or terminated Rule 10b5-1 trading arrangements during the fiscal quarter - During the fiscal quarter, none of the company's directors or officers adopted, modified, or terminated a 'Rule 10b5-1 trading arrangement'[219] Exhibits This section lists exhibits filed with the Form 10-Q, including required certifications from the CEO and CFO, and Inline XBRL documents for financial data tagging - The report includes required certifications from the CEO (31.1, 32.1) and CFO (31.2, 32.2) pursuant to the Exchange Act and Sarbanes-Oxley Act[221] - Inline XBRL data files (Exhibits 101 and 104) are filed with the report[221]