Yahoo Finance Ethan Allen Interiors Inc. (NYSE:ETD) Q2 2024 Earnings Call Transcript
Ethan Allen Interiors Inc. (NYSE:ETD) Q2 2024 Earnings Call Transcript January 24, 2024
Ethan Allen Interiors Inc. misses on earnings expectations. Reported EPS is $0.679 EPS, expectations were $0.76. ETD isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon. And welcome to the Ethan Allen Fiscal 2024 Second Quarter Analyst Conference Call. [Operator Instructions] Please note this conference is being recorded. It is now my pleasure to introduce you to your host, Matt McNulty, Senior Vice President, Chief Financial Officer and Treasurer. Thank you. You may begin.
Matt McNulty: Thank you, Alisa. Good afternoon. And thank you for joining us today to discuss Ethan Allen’s fiscal 2024 second quarter results. With me today is Farooq Kathwari, our Chairman, President and CEO. Mr. Kathwari will open and close our prepared remarks, while I will speak to our financial performance midway through. After our prepared remarks, we will then open the call for your questions. Before we begin, I’d like to remind the audience that this call is being transcribed and webcast live under the News and Events tab on the Investor Relations page of our website. There, you will find a copy of our press release, which contains reconciliations of non-GAAP financial measures referred to on this call and in this press release.
A replay of today’s call will also be made available on our Investor Relations website. Our comments today may include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. The most significant risk factors that could affect our future results are described in our annual report on Form 10-K. Please refer to our SEC filings for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. With that, I am pleased to now turn the call over to Mr. Kathwari.
Farooq Kathwari: Thanks, Matt, and good to have you all joined. We are pleased to review our second quarter results and our initiatives to continue to strengthen our enterprise and our strong financial results. We are very well positioned, and after Matt provides a brief overview of our financial results for the second quarter ended December 31, 2023, I will review our initiatives and focus to continue to strengthen our enterprise and maintain strong financial performance. Matt?
Matt McNulty: Thank you, Mr. Kathwari. As a reminder, we present our financial results on both a GAAP and non-GAAP basis. Non-GAAP results exclude restructuring initiatives, impairments, and other corporate actions. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business. Our financial results in the just-completed second quarter are highlighted by strong margins, lower sales, and a robust balance sheet. Despite operating in a softening economy, our operations produced positive financial results, which I will now discuss. Our consolidated net sales totaled $167.3 million, reflecting lower delivered unit volume, reduced manufacturing from lower backlogs, and a strong prior year comparable.
Written order trends in the quarter were impacted by continued softening of the home furnishings market, reduced design center traffic, and - strong prior year demand. Wholesale segment written orders decreased 10.9%, compared to last year, while Retail segment written orders were down 9.4%. We ended the quarter with wholesale backlog of $54.9 million, which is near pre-pandemic levels. We improved customer lead times and reduced the number of weeks of backlog, bringing it more current. Helping to reduce lead times within case goods with increased production in Vermont as we recover from significant flooding that occurred in July 2023. Our Vermont wood furniture plant has resumed operations and operated at approximately 75% capacity during the just completed quarter.
Consolidated gross margin was 60.2% our 11th consecutive quarter, that consolidated gross margin exceeded 58%. Our current quarter consolidated gross margin was impacted by deleveraging from lower unit volumes, combined with a change in the sales and product mix, partially offset by lower input costs and headcount. Adjusted operating margin of 12.8% reflects lower sales, gross margin erosion, and incremental costs from our design center refresh and grand reopenings. These costs were partially offset by lower headcount and our ability to maintain a disciplined approach to cost savings and expense control. Our SG&A expenses decreased 9.1% and equaled 47.3% of net sales, up from 42.9% last year due to fixed cost deleveraging. On a sequential basis, our adjusted operating margin improved 70 basis points, as we increased sales by 2.1% while reducing SG&A expenses by 1.4%.
And when compared to our pre-pandemic 2018 second quarter, our operating margin has improved even more, up 460 basis points. Adjusted diluted EPS was $0.67. Our effective tax rate for the quarter was 25.5%, comparable to 25.7% a year ago. Now turning to our liquidity. We ended the quarter with a robust balance sheet, including cash and investments of $167.8 million and no outstanding debt. We generated $13.6 million of cash from operating activities during the quarter, driven by strong profits, improved cash collections, and lower inventory levels. In November 2023, we paid a regular quarterly cash dividend of $9.2 million, or $0.36 per share. Also, as just announced yesterday, our Board of Directors declared a regular quarterly cash dividend of $0.36 per share, which will be paid in February.
We are also pleased to pay cash dividends while maintaining a strong cash position. In summary, our vertically integrated enterprise was able to produce a double-digit operating margin during this post-pandemic period marked by industry-wide softening demand. Our business model generated strong positive cash flow and protected our operating margin as we remain committed to disciplined investments and strong expense management. With that, I will now turn the call back over to Mr. Kathwari.
Farooq Kathwari: Well, thank you, Matt. As we mentioned in our press release, we are now entering the post-pandemic period. The pandemic period, defined as fiscal years 2021 through 2023, reflected strong consumer focus on home, high demand, and major increase in sales. We had record high backlogs, which are now returning to pre-pandemic levels. For the second quarter ended December 31, 2023, gross margins increased to 60.2%, compared to 55.2% for the quarter ending December 31, 2018. That is a pre-pandemic period. Cash and investments of $167.8 million increased from $38.8 million five years ago. During this period, we have returned $137.9 million to shareholders in the form of cash dividends, an increase of $41.4 million or 42.9% during the three-year period leading up to the pandemic.
Our inventory was reduced 11.5% and headcount reduced 31.1% from the pre-pandemic levels of December 2018. Now going forward, we are well positioned. We continue to strengthen our offerings. And now that our supply chain has improved, we plan to start introducing new products. Our retail network continues to be strengthened. The repositioning of our design centers throughout North America has been a major undertaking and has placed us strongly. The interior design destination focus, is very important to position us for growth. We have also reduced the space of our interior design centers, which reflected selling of large amounts of floor samples. This resulted in lower customer orders, which is a core of our North American manufacturing, reflected in lower production.
We have completed most of the repositioning of our design centers. Our marketing has been greatly enhanced. While major reduction of costs, advertising expenses equal to 2% of net sales as, compared to 4% prior to the pandemic. Despite lowered delivered sales, maintained gross margin of 60.2% and an operating margin of 12.8%. We have strengthened our talent in many areas of our vertically integrated enterprise. While the post pandemic period has seen consumer focus on other areas, such as traveling, we believe that now consumers have again started to focus on their homes, which gives us an opportunity to continue our progress. We are positioned well and remain cautiously optimistic. And very happy to open for any questions or comments.
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