Ethan Allen(ETD) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated net sales for the second quarter were $149.9 million, benefiting from a higher starting retail backlog and a higher average ticket price, but offset by fewer contract sales and lower demand [7] - Retail written orders declined by 17.9%, while wholesaler orders were down 19.3% compared to the previous year, reflecting macroeconomic challenges and a difficult prior year comparison [7] - Consolidated gross margin was 60.9%, an increase of 60 basis points from a year ago, attributed to a change in sales mix and reduced headcount [8] - Adjusted operating income was $13.5 million, with an operating margin of 9%, significantly higher than the 5.4% margin in the pre-pandemic second quarter of 2019 [8] - Adjusted diluted EPS was $0.44, with an effective tax rate of 25.3% [9] Business Line Data and Key Metrics Changes - Retail written orders showed a decline, with a notable decrease in design center traffic by 11% [7] - The wholesale backlog at the end of the quarter was $49.8 million, influenced by a lower volume of contract orders [8] Market Data and Key Metrics Changes - The company experienced a significant impact from the government shutdown, leading to lower consumer confidence and reduced traffic to design centers [4] - Positive written order growth was observed in January, indicating a potential recovery in consumer behavior [7][34] Company Strategy and Development Direction - The company aims to strengthen its vertically integrated structure, focusing on product programs, marketing, and logistics [13][16] - Approximately 75% of furniture is manufactured in North America, providing a competitive advantage and mitigating tariff exposure [12][13] - Increased advertising spend by 25%, primarily in digital media, is expected to yield future benefits despite not fully impacting the second quarter [15][36] Management's Comments on Operating Environment and Future Outlook - Management noted that the government shutdown had a major impact on orders, but there are signs of recovery as orders are beginning to come in again [21] - The company believes it can maintain strong gross margins due to improvements in talent and technology across its operations [22] - There is cautious optimism regarding consumer behavior returning to normal, with increased traffic noted in January [34] Other Important Information - The company has a robust balance sheet with total cash and investments of $179.3 million and no debt [9] - The company is exposed to tariffs on imported goods, with strategies in place to mitigate these costs through vendor cost sharing and selective price increases [11][30] Q&A Session Summary Question: Retail written orders trends during the quarter - Management acknowledged that retail written orders were impacted by difficult comparisons, with an average decrease of 18% throughout the quarter [19] Question: Improvement in contract side of the business post-government shutdown - Management reported that orders are coming in reasonably high but are lower than the previous year, with a gradual increase observed [21] Question: Sustainability of gross margins moving forward - Management expressed confidence in maintaining gross margins due to ongoing improvements in operations and technology [22] Question: Impact of tariffs and mitigation strategies - Management outlined a three-pronged approach to mitigate tariff impacts, including vendor cost sharing, sourcing diversification, and selective price increases [30][32] Question: January trends and marketing effectiveness - Management attributed improved trends in January to returning consumer confidence and effective marketing strategies [34][36]