by Companies maintain a strong balance sheet, and each has a strong and loyal following in designer-driven business
HIGH POINT — The conference calls of two major retailers revealed some common themes, not the least of which is the anticipation that things will improve once we get past this week’s election. Of course, housing was another area the two companies anticipate will improve as well with related interest rate decreases as we approach the new year.
The two retailers are Havertys and Ethan Allen, which released their latest quarterly results at the tail end of the High Point Market last week. Havertys’ third quarter and Ethan Allen’s first quarter for fiscal 2025 ended on Sept 30. Havertys reported a 20.2% drop in sales compared with the same period last year, while Ethan Allen had a 5.8% sales decline.
As expected, both companies also referenced the impacts of hurricanes Helene and Milton with Havertys reporting minimal damage to its stores in Florida, Georgia and the Carolinas, as well as minimal damage to its Florida warehouse. With Hurricane Helene, it had 11 stores in six markets that were closed from one to four days during the quarter with its Asheville store in Western North Carolina being closed for 19 days.
With Hurricane Milton, it had 20 stores in five markets impacted with most being reopened in two to five days and three stores closed seven to 10 days.
Ethan Allen, meanwhile, suffered $300,000 in inventory damage combined with work stoppage and repair costs at its Old Fort, North Carolina, distribution center from Hurricane Helene. This, combined with the disruption from the East Coast port strike, impacted net sales by about $2 million.
Despite these challenges, the companies each had relatively positive news to report relating to their respective businesses. For instance, both remain profitable, with Ethan Allen reporting net income of $4.9 million and $121.2 million in cash and cash equivalents with no funded debt, while Ethan Allen reported net income of $14.9 million along with $186.4 million in cash and no debt outstanding.
The companies also continue to make investments in the business, with Ethan Allen reporting capital expenditures of $3.6 million, which includes the expansion of its manufacturing operations in Mexico, a key part of its North American manufacturing, which along with operations in the U.S., produces about 75% of its furniture.
“This is a great differentiator and has provided more design options to our interior designers and clients and also increased productivity and lowered inventory,” said Farooq Kathwari, chairman, president and chief executive officer.
The company also said the capital expenditures included additional investments in technology and retail design center relocations and improvements.
On a related note, the company said that the redesigned design centers represent about 25% less floor display space, making them more efficient, while also implementing the use of technology to aid designers and their clients.
“This has enabled great productivity, with less headcount,” Kathwari noted. “Strong interior design associates, coupled with technology, as I have said, is a game changer.”
Ethan Allen Chief Financial Officer Matt McNulty added that while the housing market has not yet rebounded, the retailer has seen an increase in the average ticket price, higher designer home calls, along with more qualified traffic and “a strong month of September for incoming contract orders.” He also noted that the company’s wholesale backlog of $63.9 million was down 15.2% from last year, but also up $10.4 million since June 30, due to the timing of incoming contract orders. In addition, he said, the company generated $15.1 million in cash from operating activities and reduced its inventory levels by 4.3%.
“In summary, our vertically integrated business produced a double-digit operating margin during a period marked by industrywide headwinds,” McNulty noted. “We achieved these positive results and generated $15.1 million in operating cash flow while protecting our margins through disciplined investment and solid execution. We ended the quarter with a robust balance sheet and look forward to continuing our progress.”
Havertys also had various positive developments to report, not the least of which is the expansion of its retail footprint that included the opening of its Pembroke Pines store near North Miami.
“We are pleased with the store traffic, which is on par with our other recent openings in South Haven Mississippi, and Destin, Florida, earlier this year,” said company Chairman and CEO Clarence Smith, adding that the company expects to open three additional stores this year in St. Petersburg, Florida, and Greenwood, Indiana, just south of Indianapolis.
It also is expanding in the Houston area with a store in The Woodlands area outside Houston in December. Over time, the company could have as many as five stores in the market, Smith said, in answer to a question from Christina Fernandez of Telsey Advisory Group.
“Houston, the seventh largest market in the country, is our top priority for the next two years,” Smith said, adding, “It is the largest market in our distribution footprint where we don’t have any stores. … We’re committed to having a significant position in the greater Houston market. The Houston stores will provide additional operating leverage and can be served by an expanding distribution center in Dallas.”
And as with Ethan Allen, the retailer also has a strong designer business, which grew to more than 19% during the quarter as a percentage of its overall business, noted Steve Burdette, president.
“Our design and sales teams remain focused on increasing the number of customers participating in design, which continues to grow at a double-digit pace,” he said, adding that overall traffic has improved, with the consumer being more deliberate in their purchases, which “has caused our closing rates to remain below our levels of last year.”
That said, the average ticket during the quarter rose 3% to nearly $3,500, while the average designer business ticket was $7,300 during the quarter, up 5%.
“Our special-order business continues to grow to 36% of our upholstery business, which is up 10% from last year,” he said, adding that the décor and upholstery categories are the best performing businesses driven by the design trade, while bedding continues to perform within company averages and bedroom and dining slightly below company averages.
Inventories also fell to $88.7 million, down $5.3 million from December and $13.6 million from the third quarter of 2023.
“While we continue to experience a difficult sales environment, we have all the reasons to remain optimistic about Havertys’ future,” Burdette said.
