Press release·05/07/2024 22:30:28

Overview

Ethan Allen is a furniture retailer that sells home furnishings. In the first quarter of 2024, the company’s sales and profits declined significantly compared to the same period last year due to lower consumer spending.

Sales Down 18%, Comp Sales Down 18.5%

Total sales for Q1 2024 decreased by $40.8 million or 18.1% compared to Q1 2023. Comparable store sales, which measures sales at existing stores, decreased by 18.5% or $41.4 million.

• The decline was driven by high inflation, economic uncertainty, and falling home sales impacting consumer discretionary spending on furniture
• After strong COVID-driven sales gains that pulled forward demand, the market is normalizing
• Written sales and written comparable sales were also down 12.6% and 13.0% respectively

Gross Margin Up Slightly

Gross margin increased from 59.1% to 60.3% in Q1 2024 over Q1 2023. This was mainly due to favorable product mix.

• Full year 2024 gross margin estimate increased 50 basis points to 60-60.5% based on current trends
• Margin fluctuates quarter to quarter based on promotions

Expenses Down Due to Lower Sales

SG&A expenses were 59.4% of sales in Q1 2024 compared to 52.7% in Q1 2023, as expenses did not decrease in line with sales.

• In dollars, SG&A decreased by $9 million or 7.6%
• Variable expenses were down due to lower sales-driven costs
• Fixed and discretionary expenses decreased mainly in advertising, warehouse and admin costs

Maintains Strong Financial Position

Despite sales declines, Ethan Allen maintains a strong financial position due to:

• $111.8 million in cash and cash equivalents
• $80 million in availability on $80 million credit facility
• Ability to obtain other financing if needed
• Cash flow from operations and capital expenditures are funded

Financial Performance

Ethan Allen’s first quarter 2024 financial performance reflects slowing sales and consumer demand in the furniture industry.

Revenue Declines

• Total Q1 2024 revenue declined 18.1% year-over-year
• Comp sales declined 18.5%, indicating lower spending at existing stores
• Written sales down 12.6% and written comp sales down 13.0%, signaling future delivery declines

Profitability Impacted by Lower Sales

• Gross margin increased 120 basis points to 60.3% due to favorable mix
• SG&A expenses were 59.4% of sales with fixed costs spread over lower sales volume
• Advertising, warehouse and admin costs were lower year-over-year

Maintains Strong Liquidity Position

• $111.8 million in cash and cash equivalents provides stability
• $80 million in borrowing capacity available
• Cash flow from operations continues, though lower than last year
• Capital expenditures will be funded through cash and credit facility

Strengths and Weaknesses

Key Strengths

• Strong brand recognition and reputation for style and quality
• Large distribution network and manufacturing capability
• Growing use of free in-home design service, driving 33% of sales
• Healthy liquidity position and cash flow

Key Weaknesses

• Exposure to discretionary consumer spending impacts sales
• Written sales indicate lower future delivery volumes
• Higher levels of promotions may impact margins
• New store openings increase costs and risk

Future Outlook

Near-term conditions in the housing and retail markets indicate ongoing consumer weakness. However, Ethan Allen plans to open several new stores by the end of 2024.

• Housing market weakness expected to continue
• Forecast for retail markets uncertain
• Planning to increase net selling space by 3.4% with new stores
• Continued strong liquidity provides stability

The company’s long-term brand strength, manufacturing and distribution scale, and interior design capability should position it well when conditions improve. Controlling costs and inventory will also be key.