Ethan Allen Interiors (ETD)

Corey Whitely EVP, Administration and CFO
Farooq Kathwari Chairman and CEO
Matt McNulty VP, Corporate Controller
Andrew Efimoff KeyBanc
Cristina Fernández Telsey Advisory Group
Call transcript
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Good afternoon and welcome to the Ethan Allen Fiscal 2020 First Quarter Analyst Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Corey Whitely, Executive Vice President, Administration and Chief Financial Officer. Thank you.

You may begin.

Corey Whitely

Mary. you, Thank welcome fiscal and Allen's call conference Good quarter to ended our first September for afternoon Ethan XX, XXXX. is will call. copy to in This ethanallen.com including reconciliations which call being release information webcast details and conference referred non-GAAP live contains where supporting you our and also of a the of find press release, recorded on on this

differ to cause today those reminder, include no forward-looking complete to subject our actual during revise are or could that comments a will to forward-looking Please obligation our risks a risks. to uncertainties this matters As that and for assumes refer SEC discussed materially. results statements call. any update The filings company of review

CEO, McNulty. Vice Corporate details results. his with closing up Farooq the then Kathwari; Joining on telephone our the After opening before follow provide financial opening further me Farooq on and Controller, for remarks, President, and call Kathwari questions. Matt some and lines the Chairman is CEO, Chairman will provides comments will I our Farooq some our

With here's Kathwari. Farooq that,

Farooq Kathwari

you, Corey. Thank Yes.

press our our opportunity further in The quarter manner. meaningful grow and margins, earnings XXXX. had to September we flow provides for reported As first earnings and ending are opportunity a in challenge sales, XX, strong which grow cash release, our to

while maintaining focus on our We have and continued technology responsibility. to strengthen our talent, also manufacturing, and good marketing, retail network, logistics, offerings, social governance

has growth cycle Recession we recall interior in vicious as vertically-integrated had leading which everyday our XXXXs, structure well to of a unique Great sales our during us started enterprise. price may our as helped the The design As many leverage you model, migrated impacted industry. best to which an and

our back everyday offering quality, we have and past retail service of revert the clients best made six with the major price. our to the During value decision to network best discussions had and months,

free members-only to centers, enrolled glove shipping service Those in During design Ethan options. the Allen Program. complimentary finance Member design special October, we received access home launched delivery, special this pricing, who and and U.S. major initiative, our white

Program designers, to Member operations operating and our enable our clients, efficiently opportunity margins. an sales of American vertically-integrated interior North to and The our approximately operate with will improve X,XXX more benefit our team

design is The enhanced second American campaign Campaign move and utilizing strong Program brand we being continue designed fiscal launched our Member identity. with marketing to digital our new amplify a as American with the XXXX mail, and quarter We during We Home direct plan to heritage through the advertising Make under mediums. our year our television further

a convention and with look This They customer evening, farmhouse first style. take brand get U.S. start we for introductions at a a at our Spring XXXX internationally. the upcoming management and including our designers upholstery an annual our will younger on aimed our interior and XXX from modern

As earlier, have sales our opportunity and differentiate, I profitability. we service to increase stated an and provide base

And with this, it Corey. to turn I'll back

Corey Whitely

Thank Farooq. you,

facility, processing facility continued campus. Carolina lumber convert During quarter the our announced a the Fort, Passaic, the North XXXX, to made at and previously of New project manufacturing optimization operations Carolina our into center consolidate distribution company with the expanding in Jersey facility first its North fiscal Old and

is recorded the and the million. as connection company In totaling other first initiatives, pretax these quarter with charge restructuring X.X

and the plans, wholesale The Passaic, quarter gains its As on XX.X recognized Jersey party. a sale. this the of been adjusted our from gain company's sale have to part New one-time optimization of third completed million results. charges an These excluded of segment company independent the pretax the during property

in and primarily in related net with were trade to international Canada XXX.X due surrounding were sales Net disputes quarter the consolidated and uncertainty XXX.X decrease is for sales compared Now the economy. challenging which impacted the XX, financial sales, XXXX. first million a quarter. lower prior net economic results for global September in ended a to million by quarter China year to our international sales Consolidated

sales Net company's makes XXX sales a design year. period retail lower China, North million compared year design sales to XXX million relocate to net we fiscal China sales decline where compared prior in year $XXX.X were to and to network. year net centers XX.X% were consolidate this lower prior of $XXX.X the primarily them compared quarter in same the with with There quarter. as a due sense. segment Wholesale American the The the American were continue centers it to North and last in

XX.X% primarily in contract from which sales higher the growth to sales GSA year-over-year, contract. strong experienced due company grew The

China XX.X% same wholesale impact due first our wholesale our the of total the orders imposition by mainly decreased While business orders of our wholesale increased the quarter X.X% excluding orders, Including China total the from to with decreased quarter, declined X.X%. fiscal orders tariffs in year. compared China China last

quarter. strong As contract contract GSA driven the expected, our business had another by

through our reporting reporting on change channels provide more booked wholesale our retail only previous focused on of our and of company all the written view than division We format that business believe orders new holistic the approach a orders.

softer sales Retail centers resulted was XX.X% prior the quarter a Canadian Centers. first restructuring our decrease million in the trends compared $XXX.X activities XX.X%. operated $XXX.X with company There year period. million quarter. than which in end excludes in in X.X% less sales year There Canada XXX the U.S. a margin the in prior were gross segment design two net order decrease in while was the Adjusted of XXX net sales at Design were at net in

XX.X% XX.X% XX.X% quarter, or to favorably XX% for margin last and On year X% in X.X% of an prior year. X.X% a compared period. consolidated the excludes higher gross prior first margin margin. gains adjusted which consolidated total Adjusted a was operating a impacted Retail income with charges million year which GAAP gross net sales consolidated was $XX.X basis, compared the the to restructuring than for year quarter operating was as with percentage prior sales in the compared of

in for the depreciation contributed quarter lower the year. decrease margin, tax to adjusted costs XX.X% to XX.X% a was $X.XX. income gross wholesale prior increased effective adjusted compared and EPS to The rate growth, in the distribution X.X% expense improved And

Turning of to of cash $XX.X quarter the outstanding. bank no debt we ended sheet, million and with inventory the $XXX.X balance million

press financing our Looking Ethan also in will members complimentary ahead, service, XX% program October the membership new member Allen $XXX, we glove delivery. and as in-home everyday for US, of we launched In savings design members Ethan in during options. free of to special have release, Allen mentioned white on the access purchases, an will annual costs shipping receive

over deferred our recognize the the former membership will membership period. replace the treat were on fees and as the deferral membership first recognized X% sales revenue of delivery a X% fee fees we will Since upon headwind the delivery, which until year We fees membership in-home anniversary the $XXX to membership XX-month during fees net these ratably create program. the we expect to

turn will call to I that With the Farooq. over back

Farooq Kathwari

Corey. Yes thank you,

As maintain positioned the earnings I well grow continue flow. strong and topline, is we said cash we earlier, are to focus while and the to

we pleased made and progress team. So great am I a and with have a the have that so opportunity great we far,

would up So like comments. that, for or questions I it any open to with


KeyBanc. from first question Bradley from the Thomas is Your Instructions] of line [Operator

Your line open. is

Andrew Efimoff

month orders get Good sense new business program see period trying did at afternoon, of this you you the a for - as program? Brad. which as customers as urgency model or the membership any this usual rolled how was would October Farooq to the Andrew We're look first of When and Corey. it's a is you on characterize under revenue lack might of membership from new out. This as in result affect

Farooq Kathwari

good No, Andrew that's a question.

a is mentioned monthly of crazy there way in creating as I for earlier resulted - Our sales. sales us

the or were we got rushing business So, three is made people in about end made. of the also period. It not rush last days two XX% very where of days, the and some mistakes - was were that and being It month efficient. was hour in our

So, days normally but did what flowed because did end November of we first that - month, come we did the the much business happening. not three there is is two through news business so into and end we well the or did get October see not that after at XX% the was it that or good of the

not What and good in course take although the over mistakes, business a was - is next days October, look seen have is at we of need and November going much months lower. three to - we to is we What not October cancellations three are the December. here what that

they Our it. like used end team behind but it. are obviously members They they nervous are the very, excited, of month to we're slightly this

because As I ready sure this making all risk. going something were said team months six over they're our the I also taking the members is country for that spent earlier,

interior have X,XXX We designers.

coming which depend retail, We revenues. have upon management from earnings their in

starting just it so our So, are that that I’m also convention like and we’re annual having they positive pleased happen coincidentally today.

that XXX our have to a members team lot we I of So, a here, discussions, think have we have look we at. take and

We taking monthly are compensation whole at previously. than the we a even metrics a for as look rather the quarter total did

So very positive us. change and this for is change a a

Andrew Efimoff

as program? related some expect you a sales the you of stable of program, share efficiencies as would trends the the then, result more you And review membership the to become benefits to could as see

Farooq Kathwari

are business to A our month, made days going very in of margins absolutely the of the to also hard from working three and we from they that, after next of is make become us we Yes, week manufacturing have the on the sides. XX we’ll and XX% products. our in both two, rushing when of efficient get of North last end the month, the sell over help are come manufacturing, the improving folks an This the - products are the opportunity to retail, before is products American XX% disruptive. days it

Andrew Efimoff

don't over you've events you the messaging We of Black just a was this retailer do Friday. And promotions what of season, then wondering around you implementing to for run now holiday generally from like the but model? year's that all you question holiday of as over holiday membership I years, on And last strictly switched sort think a plan me. guys number

Corey Whitely

we are price. XX% elements. but offer offering offer States, delivery savings offer the important months then We is that in white United those anywhere everyday of United messaging very offer simple financing. also The very glove the charge our XX in we great mean best from at and products. very, everyday I home no great We States service;

something of that fact the to thinking month used are do the will a company different consumers Now later.

they wait. So

to get the to got we advertise the to confidence. message we We've it's to - a we say able discipline got are get to it. We've stick to got it. that have by strength of and that message got so the Now strongly,

message, the or are own companies our going that is, this message. If Green advertising the to Friday, whatever, are waited. to a increase they something, I've but got to something associates believe, you together wait, going we believe know get do, a Friday it's to do are Nope, whether this our customers Black believe, they is we best they going

We just our advertising. increased

to going been X.X% are we don't talking very going this quarter spend to are most know last X.X% probably go seen spent have and I well quarter, to the from that we we can on our second just campaign, this money you X.X% so We new I'm not advertising to had more that received. quarter. if or it


question Your Cristina the from Telsey of is Advisory next from Fernández Group. line

open. line is Your

Cristina Fernández

the I also on up member wanted to program. follow

program of first You think profile commented operating quarters sort over expenses the couple what out? about year, the would the the next and on be sales the we margin should as margin but the like how of gross rolls impact on

Corey Whitely

Yes, good good of this a all and carefully. it's of very a watching - we course question

to now there'll Approximately be and charges factor One now That's sales, our factors. but past. is out that in as our X% or and be delivery we had important. our taken delivery overall, what of the mentioned, our sales. of top Corey from line better so a free margins gross were somewhat part added are were than number should As making is we that that the

our So could positively sales membership marketing. be be impacted also Then it's possible will by program. it impacted that by the

we positively be impacted. believe margins gross Our will

our in Of as operating same course, efficiencies in mentioned due in increase the of long is sales remain more the just manner. or to efficiency more manufacturing, efficient I what - as our with a

that has keep also made in in we us mind the Plus changes more terms of we becoming with that helped efficient. made, consolidations

That We average persons. help our consolidate margins. you to know, by operations, over the headcount have which XXX manufacturing us as you approximately, reduced XX% will in to also had

Cristina Fernández

a little expect better? the seems pressure like or same should it if change operating So near-term or not margin a we the anything bit could assuming sales lot it be of better the are on a

Corey Whitely

I to as timing a the that opportunity be impacted and from believe possible margins. - our impacted charges. it's sales the It's Because us that overall, will gross for of is I quarter-to-quarter. our those also possible maintain X% that - said But because there because be Yes. operating the timing are is will margins that delivery

Cristina Fernández

the wanted into orders, then this ask I do how on understand wholesale retail - to And in disclosure us the about can orders metric? help new your factor you

Corey Whitely

it sorry, I’m say again.

Cristina Fernández

You sort the order disclosed metric in or orders. of or are not? retail haven’t wholesale what retail metric used orders total how mean is I guess previously versus this of I including

Farooq Kathwari

all retailers. to I our have the retail growing America, from business we North wholesale. understand. It independent a division. have In independent Usually The our our what have contract we own happen No, business. retail you we retailers know the also is wholesale receives and our as receives business and from business wholesale - orders internationally orders

these the upon various of receives how business gone that wholesale becoming is So, all the business all the and and here, down. will - a depend instance much for receives wholesale these The has government China channels. orders main And - is important. wholesale business from business our

U.S. would be So, to that not if retail had. we at measured take the opportunities only measurement look right a we, instance, for our the

wholesale all the benefiting it not business different end So, on our or up based channels these all opportunity has the business business to wholesale going benefiting and gets.

Cristina Fernández

last one - Thank start one, is guess your a will some and seeing in trend China what win view on And the improvement you. we there. I latest

Farooq Kathwari


have the had, a measured the seen quarter, last have into we - reduction, year. fairly unfortunately, reductions - that’s major had second and we because now a had coming is have we over somewhat We our we worst reduction

stability. So year, have compared I we, to is last to think going

something increasing do some terms we trends. in of Now improvement it’s see business, in

partner campaign. a major Our China in is also marketing in

about the they talk which still positively Chinese that could there, may it the fact However, economy the something is tariffs the soft, impact are us. potentially about do

I stage, may going what say, into don’t some from got our have I second we major but gains, So we - the would year. say decline us in did at that a this fiscal the think we of quarter let


[Operator the Instructions] There over further questions phone. are no

continue. You may

Farooq Kathwari

Any Thanks Very dialogue. everybody to continuing our well, very discussions, you questions, forward and know. let much. Thanks, look thank very please much. us


gentlemen, and this Ladies concludes Thank call. you for participating. this conference

You may now disconnect.