DANBURY, Ct. – Ethan Allen’s latest conference call touched on the subject of a slowdown at retail that many in the industry are now experiencing.
During the call, Chief Financial Officer Matt McNulty said that while consolidated net sales rose 11.7% during the third fiscal quarter, retail orders were down 3% compared to the same period last year.
While this may sound daunting, it may not be as bad as we think.
McNulty quickly noted that retail orders were still up 18.2% compared to a pre-pandemic fiscal third quarter in 2019. On the wholesale side of the business, orders were down .2% compared to last year, but were up 8.4% compared to the third quarter of 2019.
In addition, while order backlogs fell during the month of May, they also were 25% higher than a year ago, McNulty noted.
“The higher level of demand that we continue to experience has also led to an increase in our backlog, despite the fact that our manufacturing production levels have returned to prepandemic levels,” he said.
This message is not unlike what Home News Now has heard from other manufacturers in and outside North Carolina in recent months. While some are somewhat concerned about a slowdown at retail, they believe that their backlogs could be a blessing in sustaining their production in the midst of a near-term drop in business.
The good news for customers still awaiting product from suppliers like Ethan Allen — which produces 75% of its products in North America — is that lead times are improving.
In the call, company President and CEO Farooq Kathwari said that orders for custom upholstery are shipping in seven to nine weeks compared to 15-17 weeks six months ago. By comparison, he said the company’s North American-made wood products are now averaging about 10-12 weeks, compared to 14-16 weeks previously.
Kathwari said that the company’s investments in its manufacturing facilities “have been key to increased production and efficiency.” This includes the company’s acquisition of a new 50,000-square-foot upholstery manufacturing operation in Clarendon, N.C. and another recent 80,000-square-foot addition to its Maiden, N.C. upholstery operations.
Combined, he said, the company now has nearly 1.3 million square feet of manufacturing in case goods and close to 1 million square feet of production space in upholstery manufacturing.
“Certainly for the next few months, we will work to continue to reduce this backlog,” he said. “We have already have reduced the timeframe, as I mentioned in terms of our deliveries, which, of course, is all a positive because of the fact we make it. So right now, our backlogs are decent and our production has also increased. So I think we will continue to improve our shipments and deliveries, and the backlog will most likely continue to go down although it is at decent levels right now.”
Later in the call, Kathwari addressed some additional questions regarding the retail slowdown and what impact that will have on the company moving forward.
“I think we can see that people are being cautious and I think that was to be expected,” he said. “But on the other hand, they are also looking much more clearly and carefully on value — value in terms of quality, in terms of pricing and in terms of service. The good news is that we are pretty much well positioned in all those areas.”
He added that while business will slow down compared to the levels over the past year, “I think we will continue to maintain our momentum as we move forward.”
The question many have is how much and how long of a slowdown retailers including Ethan Allen will experience in the coming weeks and months. Some of that will depend on ongoing inflationary pressures — including still high container and transportation costs — which also came up in the discussion.
“As we move forward, we will continue to look at our pricing to see what increases we may have to take,” Kathwari said, noting that the company recently has taken price increases averaging between 10% and 15%, with an additional 5% to 10% possibly in the next six months.
“We are being very cautious,” he added. “We also have been able to offer people special savings and we will continue to do that. We’ll continue to make sure we are competitive and will keep that in our perspective, that the consumer is not going to continue to keep on just paying higher prices.”
“I think that one has to be careful and concerned about what kind of price increases our consumers will accept.”