Ethan Allen(US:ETD)2020-02-05 02:39Financial Data and Key Metrics Changes - Consolidated net sales for Q2 2020 were $174.6 million, down from $197.2 million in the prior year quarter, primarily due to the transition to the Ethan Allen Member Program and decreased international sales, particularly in China and Canada [10][11] - Adjusted operating income was $9.5 million with an adjusted operating margin of 5.4%, compared to 8.3% in the prior year [15] - Adjusted EPS decreased to $0.27 from $0.46 a year ago [15] - Consolidated adjusted gross margin was 56.1%, reflecting improvement from optimization initiatives [14] Business Line Data and Key Metrics Changes - Wholesale segment net sales decreased to $91.9 million from $107.7 million in the prior year quarter, with total wholesale orders down 21.8% [12][13] - Retail segment net sales were $139.1 million, down from $158.5 million in the prior year quarter [13] - Contract sales grew 66.9%, driven by higher sales in GSA contracts and hospitality [12] Market Data and Key Metrics Changes - Net sales to China decreased by 45.1%, with expectations of continued headwinds due to concerns around the coronavirus [11] - International wholesale orders declined by 53.6% [13] Company Strategy and Development Direction - The company is focusing on strengthening its vertically integrated structure, enhancing marketing efforts, and investing in technology [17][21] - The introduction of the Member Program is aimed at providing benefits to customers, although it initially impacted sales and traffic [19][26] - The company plans to expand its marketing to include non-members, aiming to increase traffic and sales [26][46] Management's Comments on Operating Environment and Future Outlook - Management expects stronger order growth in Q3 and Q4, positively impacting sales and profitability [7][63] - The transition to the Member Program is seen as a learning process, with adjustments being made to improve customer engagement and sales [27][40] - Management anticipates that the changes made will enhance traffic and sales moving forward [46][47] Other Important Information - The company paid $5.6 million in cash dividends and repurchased 546,000 shares, representing 2.1% of outstanding shares [8][16] - Marketing expenses for Q2 2020 were $8.5 million, representing 4.8% of sales, an increase from 3.8% in the prior year [55] Q&A Session Summary Question: Consumer reaction to the Membership Program and sales decline attribution - Management indicated that 90% of the sales decline was attributed to the Membership Program, with adjustments being made to improve customer traffic and sales [36][40] Question: Impact of Membership Program on retail business - Management clarified that the Membership Program significantly impacted sales, with ongoing adjustments to attract non-members [34][36] Question: Changes in marketing strategy and spending - Management plans to maintain marketing spending around $30 million for the year, with a focus on enhancing customer engagement through promotions [55][57] Question: Performance of the contract side of the business - The State Department contract saw a substantial increase of 50% during the quarter, indicating growth in the contract segment [72]