Company conference call highlights strength of retail segment, plus some of its core focus moving forward
DANBURY, Conn. — At a time when many businesses are struggling under the weight of still high inventories and inflationary pressures that are resulting in tepid retail sales, Ethan Allen showed remarkable resiliency during its first fiscal quarter ended Sept. 30.
As we previously reported, the company’s consolidated sales were up nearly 18% during the quarter and net income was up 48%.
Insights shared during the company’s conference call shed light on the reasons behind its success while also acknowledging challenges and opportunities moving forward.
During the call, Matt McNulty, chief financial officer and senior vice president, said that the increase was due to a strong order backlog combined with improved manufacturing production and efficiency, along with higher receipt of offshore products.
“Previous constraints, including Covid-related shutdowns, labor disruptions, supply chain challenges, shipping delays and raw material availability have eased in recent quarters, which helped us reduce the time to convert written orders to delivered shipments,” he said, adding that its manufacturing productivity increased starting about two quarters ago, which led to an uptick in imports and raw materials and a higher volume of shipping container receipts.
This helped the company achieve retail sales growth of 18.5%, which also boosted its retail sales mix from 85% of consolidated sales to 85.6% in the first quarter. This in turn also improved its adjusted consolidated operating margin, which rose from 15.2% last year to 17.6% in the first fiscal quarter.
He added that the company’s wholesale backlog remains robust at $106 million, which was down 24.4% from a year ago, but still up just over 62% from September 2019.
“In the near term, our teams are effectively managing the business to work through this high order backlog and to service our clients.”
This obviously is key to a business that in the words of Chairman, President and Chief Executive Officer Farooq Kathwari is “transitioning from a furniture store to an interior design destination.”
While designers plan ahead for various projects, they too must meet deadlines in servicing clients that can be both demanding and impatient when it comes to their homes.
In his remarks, Kathwari said the focus of the business moving forward is centered on three key areas, including 1) transitioning to an interior design destination that is focused on recruiting and retaining qualified and motivated interior design talent; 2) repositioning of the company’s design centers to more relevant geographic areas in the marketplace; and 3) strengthening the company’s core product offerings.
Product, in particular, remains perhaps the most important part of the strategy moving forward.
“While during the pandemic, we had to slow down on our new product offerings, we are now in a position to accelerate and introduce new products,” Kathwari said, adding that the company has also invested in its digital marketing initiatives “which has expanded our reach and has been very cost effective.”
“This past quarter we increased our advertising spend including on national television,” he added. “We will continue to strategically invest in marketing and utilize new digital mediums available to us today. Investing in technology will continue to be a priority.”
Another factor helping propel some of these initiatives? The company maintains a strong cash position, with $142.4 million in cash and investments at the end of the quarter. How the company spends this cash moving forward both on digital assets and other areas of the business will be worth watching as it seeks to look to maintain its competitive position in the marketplace.