Ethan Allen, Albany, N.Y.
DANBURY, Conn. – Vertically integrated manufacturer and retailer Ethan Allen reported a 2.4% increase in net sales to $178.8 million for its fiscal 2021 second quarter ended Dec. 31.
That increase didn’t reflect the pace of business. Like most of the industry, Ethan Allen is struggling to turn written orders into sales even as the company ramps up production to meeting new demand and catch up with its existing backlog after last year’s temporary plant closures. Given the production cycle from written order to delivery, that low single-digit second-quarter sales uptick compared with 44.9% growth in retail written orders and 28.1% growth in wholesale written orders.
Ethan Allen more than doubled its bottom-line performance, with fiscal 2021 second-quarter net income of $16.9 million compared with $7.1 million for the same prior-year period.
Operating income of $22.6 million compared with $9.2 million in the prior year period. The 2.4% net sales increase of $4.3 million coupled with disciplined cost and expense controls, including strong cost containment measures and expense management, drove operating income growth. Operating with headcount down 19.2% year-over-year also helped improve consolidated operating income and margin.
Ethan Allen increased wholesale segment sales 10.5% to $101.6 million in its second quarter, primarily due to a 19.7% increase in sales to company-operated design centers combined with 33.3% growth in sales to its North American retail network. Those increases were partially offset by a 33.4% decline in contract business sales, including the GSA contract, and a 15.4% decrease in sales to its international retail network primarily as a result of COVID-19 related economic disruptions.
Retail segment net sales at 144 company-operated design centers increased 4.1% to $144.8 million, including a 3.7% increase in the United States and 15.4% at Canadian design centers. Since all design centers have re-opened, whether in-person, by appointment only or virtually, the company has continued to experience strong order trends driven by increased demand for products in the home furnishings category.
In addition, Ethan Allen’s second-quarter e-commerce business grew 115% year over year, as online traffic continues to increase.
The retail segment also achieved profitability, with second-quarter operating income of $9.9 million, or 6.8% of sales, compared with a loss of $0.1 million, or 0.1% of sales, for the prior year period. The retail operating margin increased 690 basis points primarily due to the 4.1% increase in net sales and an 11.9% decrease in operating expenses from lower selling, administrative, occupancy and regional management costs. The decreases within retail operating expenses were due to strong cost control measures implemented, including a 42.2% reduction in retail headcount from a year ago.
Ethan Allen Chairman, President and CEO Farooq Kathwari noted in an earnings release that the company performed very well during the second quarter despite an unsettled business environment and the ongoing pandemic. He anticipates continued demand from consumers’ increased focus on the home.
“Our fundamentals continue to be strong, with written orders and backlogs from both operating segments reporting double-digit growth,” Kathwari said. “We ended the quarter with a strong balance sheet, including cash on hand of $80 million and no outstanding debt, and a major increase in earnings per share through disciplined cost and expense controls. We are also pleased that our January retail written orders continue the upward trend.”
He added the company will continue to focus on prudent expense management and providing a safe environment for employees and customers. Kathwari also put a time frame on getting lead times back to more normal levels.
“Due to the impact of COVID-19 and its effects on production capacity and our supply chain, we believe it will take the March and June quarters to catch up to the increase in customer demand,” he said.
Through fiscal 2021’s first half, Ethan Allen’s consolidated net sales of $329.9 million were 5.3% below the prior year’s first two quarters.
Year-to-date net income of $26.2 million was up 23.6% compared with the first half of Ethan Allen’s 2020 fiscal year.
Click here for Ethan Allen’s entire second-quarter earnings release.