Ethan Allen sees consumers ‘returning to the home’

Latest conference call identifies steps company is making to improve business prospects

DANBURY, Conn. — Coming out of a challenging winter that also impacted the sales of other public companies, Ethan Allen execs presented a glimmer of hope during the company’s latest third fiscal quarter 2024 conference call highlighting its prospects in the coming months.

Farooq Kathwari

Pleased overall with its “financial performance and continuing strength of our enterprise,” Chairman, President and CEO Farooq Kathwari said, “We are also seeing incremental consumer interest for returning back to the home after being previously diverted to other areas such as travel.”

Matt McNulty, chief financial officer, senior vice president and treasurer, echoed these comments, noting, “We remain cautiously optimistic as the strength and stability of our balance sheet has positioned us to maximize our vertically integrated structure in anticipation of a better macroeconomic and home furnishings environment. We are building a fundamentally stronger company, protecting our profitability and enhancing our operational efficiency.”

Supporting this is a balance sheet of cash and investments totaling $181.1 million and no outstanding debt. In addition, McNulty said that the company generated $23.7 million in cash from operating activities during the quarter ended March 31 related to what he described as improvements in net income and working capital.

And despite a 21.4% drop in sales for the period ended March 31, the company remains profitable with nearly $13 million in net income during the quarter, although this is down from the $22.4 million reported the same period last year.

It also reported an operating margin of 10%,  that while lower than the 15.2% the same period last year, is higher than the 6.2% pre-pandemic. Consolidated gross margin for the quarter was 61.3%, which McNulty said was the 12th consecutive quarter that the company has reported gross margins higher than 58%.  

Contributing to this success is the fact that the company is a much leaner operation than it was pre-pandemic, with 3,448 workers, down 9.6% from a year ago and nearly 33% less than the 5,120 it employed as of March 31, 2019.

Yet while cutting costs is one way toward profitability, it isn’t always a guarantee for long-term growth. Which is why Ethan Allen’s success moving forward will depend largely on regaining the same sales it believes are returning to the industry in the near future.

Here are several takeaways from the call on how the company is looking to rebuild the business in both sales and profitability:

+ Kathwari said that its merchandising efforts are focused on strengthening its mix of products and “introducing them to our network and consumers in a very planned manner.” On that note, he added, look for some aggressive introductions in the next six months. Some of its inspiration will come from fashion and furniture products seen during the spring show in Milan. “Our focus has to be products that differentiate us. That will be our focus.”

+ The company has also sharpened the focus of its 175 Design Centers in North America, not only from a product standpoint, but also in terms of square footage allotted. For example, Kathwari noted that the company’s plan is to have these be a maximum of 12,000 square feet, down from 20,000 square feet previously. He said the additional space is being used for a floor sample area where designers can buy product off the floor for their clients. While some of this product is being sold at lower margins, it also is generating extra cash by reducing some inventory.

+ Repeating a subject that comes up in just about every call, the company said that 75% of its products continue to be made in North America. This has helped it remain insulated from freight rate increases resulting from international conflicts. The impact of higher freight rates, Kathwari noted, has primarily been on the products it imports, including accents and some furniture.

+ Technology, including the use of digital assets, remains at the forefront of its initiatives from both a marketing and design perspective.  For example, the company employs 3D room planners that customers can use themselves or with a designer. In similar fashion, the Ethan Allen inHome interior design app allows customers to put 3D images of its furniture and accessories in any space. Marketing materials, such as its recently released StyleBook, are also available digitally and in print, Kathwari noted.

+ While the company has reduced its headcount in both retail and manufacturing, it has increased its marketing spend to about 3.4% of sales versus 2.2% of sales last year, McNulty noted. Even with the reduction in sales year over year, this represents more dollars being spent on marketing.

Such efforts to reach the consumer, including new product, digital design assets and marketing initiatives, could be instrumental in getting consumers in the door. With those assets in hand, it will be worth watching to see if Ethan Allen’s predictions about consumers returning to the home come true moving forward, not just for the company, but the entire industry.

Thomas Russell

Home News Now Editor-in-Chief Thomas Russell has covered the furniture industry for 25 years at various daily and weekly consumer and trade publications. He can be reached at and at 336-508-4616.

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