Ethan Allen(US:ETD)2024-01-23 16:00PART I - FINANCIAL INFORMATION Item 1. Financial Statements The financial statements show decreased assets, sales, and net income, with positive but reduced operating cash flow Consolidated Balance Sheets Total assets and liabilities declined, primarily from reductions in current assets and customer deposits, while equity remained stable Consolidated Balance Sheet Summary (in thousands) | Account | Dec 31, 2023 (Unaudited) | June 30, 2023 | | :--- | :--- | :--- | | Total current assets | $325,959 | $359,453 | | TOTAL ASSETS | $722,175 | $745,453 | | Total current liabilities | $140,930 | $163,097 | | TOTAL LIABILITIES | $249,285 | $274,447 | | TOTAL SHAREHOLDERS' EQUITY | $472,890 | $471,006 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $722,175 | $745,453 | Consolidated Statements of Comprehensive Income Both quarterly and six-month results show significant declines in net sales, net income, and diluted EPS year-over-year Quarterly Income Statement Highlights (in thousands, except per share data) | Metric | Q2 FY2024 (ended Dec 31, 2023) | Q2 FY2023 (ended Dec 31, 2022) | % Change | | :--- | :--- | :--- | :--- | | Net sales | $167,276 | $203,161 | -17.7% | | Gross profit | $100,636 | $124,020 | -18.9% | | Operating income | $21,688 | $37,069 | -41.5% | | Net income | $17,411 | $28,166 | -38.2% | | Diluted EPS | $0.68 | $1.10 | -38.2% | Six-Month Income Statement Highlights (in thousands, except per share data) | Metric | Six Months ended Dec 31, 2023 | Six Months ended Dec 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $331,168 | $417,691 | -20.7% | | Gross profit | $200,777 | $253,636 | -20.8% | | Operating income | $40,039 | $76,719 | -47.8% | | Net income | $32,350 | $58,046 | -44.3% | | Diluted EPS | $1.26 | $2.27 | -44.5% | Consolidated Statements of Cash Flows Operating cash flow decreased due to lower net income, while financing cash usage increased from higher dividend payments Six-Month Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months ended Dec 31, 2023 | Six Months ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $30,290 | $40,939 | | Net cash used in investing activities | ($4,371) | ($43,817) | | Net cash used in financing activities | ($33,159) | ($21,872) | | Net decrease in cash | ($7,184) | ($24,878) | Notes to the Consolidated Financial Statements Notes detail revenue disaggregation, segment performance, and a $2.3 million net loss from a Vermont facility flood - The company operates 141 retail design centers and ten manufacturing facilities in North America21 - In July 2023, the company's Orleans, Vermont manufacturing facility sustained damage from flooding, resulting in a net loss of $2.3 million after insurance and grant proceeds81 Disaggregated Net Sales by Product Category - Q2 FY2024 (in thousands) | Product Category | Q2 FY2024 | Q2 FY2023 | | :--- | :--- | :--- | | Upholstery | $80,329 | $97,633 | | Case goods | $47,117 | $60,735 | | Accents | $32,885 | $37,395 | | Other | $6,945 | $7,398 | | Total | $167,276 | $203,161 | Segment Operating Income (in thousands) | Segment | Q2 FY2024 | Q2 FY2023 | | :--- | :--- | :--- | | Wholesale segment | $10,823 | $14,569 | | Retail segment | $6,962 | $18,080 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 17.7% sales decline amid a challenging economy but highlights a strong, debt-free balance sheet Executive Overview The company faced macroeconomic pressures causing a 9.4% drop in retail written orders but maintained a strong balance sheet with no debt - The company's business model focuses on relevant products, professional interior design services, and leveraging vertical integration126 - Demand remained challenging in Q2 FY2024, with retail written orders down 9.4% year-over-year due to a slower economy and reduced consumer spending131 - Despite lower sales, the company ended the quarter with a strong balance sheet, including $167.8 million in cash and investments with no outstanding debt131 Results of Operations Q2 FY2024 results show significant declines in sales, gross margin, and operating income across both wholesale and retail segments - Wholesale written orders were down 10.9% for the quarter, and retail written orders decreased 9.4%, reflecting a broader market softening145150 - Consolidated gross margin decreased by 80 basis points to 60.2%, primarily due to deleveraging from lower unit volume155 - SG&A expenses decreased by $8.0 million, but as a percentage of sales, they increased to 47.3% from 42.9% due to the significant drop in sales volume157 Net Sales Performance (in thousands) | Segment | Q2 FY2024 | Q2 FY2023 | % Change | | :--- | :--- | :--- | :--- | | Consolidated net sales | $167,276 | $203,161 | (17.7%) | | Wholesale net sales | $90,627 | $106,247 | (14.7%) | | Retail net sales | $139,197 | $171,763 | (19.0%) | Reconciliation of Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP measures, adjusting for items like restructuring charges and asset sale gains GAAP to Non-GAAP Reconciliation - Q2 FY2024 (in thousands, except per share) | Metric | GAAP | Adjustments | Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Operating income | $21,688 | ($235) | $21,453 | | Operating margin | 13.0% | | 12.8% | | Net income | $17,411 | ($176) | $17,235 | | Diluted EPS | $0.68 | | $0.67 | Liquidity and Capital Resources The company maintains a strong liquidity position with $288.7 million available and no debt, despite increased dividend payments - The company paid total cash dividends of $31.1 million in the first six months of fiscal 2024, including a special dividend of $0.50 per share207 - No shares were repurchased during the first six months of fiscal 2024, with 2,007,364 shares remaining under authorization209 Available Liquidity (in thousands) | Component | Dec 31, 2023 | June 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $55,051 | $62,130 | | Investments (Current & Non-current) | $112,743 | $110,577 | | Availability under credit facility | $120,952 | $120,952 | | Total Available Liquidity | $288,746 | $293,659 | Quantitative and Qualitative Disclosures About Market Risk The company's market risk from interest rates, foreign currency, and raw material costs is not expected to be material - The company had no fixed or variable rate borrowings outstanding at December 31, 2023, minimizing interest rate risk221 - Foreign currency exchange risk is primarily limited to operations in Canada, Mexico, and Honduras and is not expected to have a material effect223 - The company is exposed to market risk from raw material and transportation costs but believes it can mitigate impacts through pricing and efficiencies228 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Management, including the CEO and CFO, concluded that as of December 31, 2023, the company's disclosure controls and procedures are effective231 - No material changes to the company's internal control over financial reporting occurred during the second quarter of fiscal 2024232 PART II - OTHER INFORMATION Legal Proceedings There have been no material changes to legal proceedings as disclosed in the 2023 Annual Report - No material changes to legal proceedings were reported for the first six months of fiscal 2024234 Risk Factors There have been no material changes to risk factors previously disclosed in the 2023 Annual Report - No material changes to risk factors were reported for the first six months of fiscal 2024235 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common stock during the quarter, with over 2 million shares remaining under authorization - No shares were repurchased during the second quarter of fiscal 2024237 - As of December 31, 2023, the remaining Board authorization allows for the repurchase of 2,007,364 shares237 Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the quarter - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading plan during the quarter240 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL documents