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Ethan Allen Interiors (ETD)

Participants
Corey Whitely EVP, Administration and CFO
Farooq Kathwari Chairman and CEO
Matt McNulty VP, Finance
Bobby Griffin Raymond James
Sanjay Bhatt Stony Point Capital
John Baugh Stifel
Cristina Fernández Telsey Advisory Group
Andrew Efimoff KeyBanc Capital Market
Call transcript
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Operator

Good afternoon and welcome to the Ethan Allen's Fiscal 2020 Second 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

Jeff. you, Thank welcome fiscal and Allen's call conference Good quarter to ended our second December 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

Investor CEO, promoted McNulty, we and role. serving Corporate Farooq also Kathwari; Relations on Joining the in Vice After the opening to as of then follow new for me up details Matt some involved on and the have our who Kathwari before our with comments remarks, results. and call I telephone had recently Controller be Farooq his closing Farooq of CEO, his Chairman is Finance. together questions. provide President financial will President provides in opening been will and will Chairman Vice Matt Matt our me. some lines with

With that, here's Farooq Kathwari.

Farooq Kathwari

Thank you, Corey, in call. and for conference all thank you this participating

responsibility says that pleased he hard. also and is more very making on McNulty on I'm Matt mentioned, Corey As going and to working contributions taking he's keep good

continued this we As Program, introduction strengthen the our of we to marketing, program. continue and the release, of press our including Member mentioned in enhancing

of program. quarter profitability due and were our sales impacted to the second introduction this Our in

low the continued primarily due see of second backlogs third quarter the will impact our quarter. We at end in to

positively quarter impacting We third order and fourth in our sales fourth profitability. growth quarter, and expect stronger

and share that dividends, strong value repurchases. return leverage dividends are through periodic allow to quarterly shareholders vertical provide structure to operating unique continues us cash We pleased our to to

shares. purchase During the to XXX,XXX million board this After authorized representing $X.X dividends. second million X our further up X.X% We in quarter, cash the we paid repurchased outstanding shares. shares of repurchases

company paying and for generated flow, stock, expenditures. in since we public, cash $XXX our refocusing taking Just $XXX cash million million $XXX our million in of dividends information strong investing capital the have

After grow I financial provides and Corey a overview, discuss will initiatives brief Corey? our to profits. sales

Corey Whitely

Thank you, Farooq.

quarter. fiscal quarter were the During to impacted XXXX, million $XXX.X consolidated were due negatively Member the international trade primarily challenging $XXX.X to of the Allen transition along with sales the year uncertainty second million, Ethan and sales Net net net our in consolidated the was economic compared surrounding sales prior in in lower sales, disputes related and Program, which with economy. global the due decrease to China international to the Canada to

headwinds the expect and the around concerns China continued there emerging sales we decreased coronavirus. Net XX.X%, to with

we had we profitability to stated, expected implementation negatively the as impact to model. previously year and Member of was sales the As initial the Program membership during Ethan our the transition Allen

quarter similar ending expect results XX, sales for third March in net profitability this quarter second Our and we a XXXX. the reflected and impact

we net $XX.X XXX to quarter. year, the grew higher the to $XXX.X experienced compared segment relocating sales, continued which legacy growth XX.X% opening due were older primarily year Wholesale sales our in GSA the and There in in in with prior hospitality centers contract North locations. this compared design company closing new sales million, retail period The million were on centers to sales. American prior footprint, XXX as reposition and year contract design continue has

design quarter. XX.X%. International XXX Retail There in $XXX.X quarter compared to the prior operated sales wholesale last in the the the with prior declined compared centers Our fiscal end million total quarter compared year wholesale with orders orders period. of million, company the were same second at decreased XX.X% quarter, net year second segment year. $XXX.X were in XXX the

which excludes sales XX.X% as XX.X%, restructuring XX.X% year total adjusted in percentage from in gross consolidated Our $X.X activities quarter. a consolidated with million was our margin, of the compared initiatives. optimization net was reflecting prior second Retail sales improvement

the Adjusted operating excludes EPS our with million which in the $X.X million operating income the rate XX.X% in The adjusted restructuring $X.XX quarter, income, was tax $X.XX compared to effective in prior ago. margin to XX.X% compared year year, with of X.X% was a year. $X.X prior adjusted an X.X% compared for of

balance and Cash the to year. million with ended debt. we in $XX.X compared million, Turning $XXX.X the sheet, the million no of $XXX prior to quarter inventory of

during dividends shares. January Also, million quarterly Directors the on outstanding of As repurchased as the X.X% company's repurchase million, $X.X shares XX, regular Farooq authorization mentioned, announced of of increased Board X the the shares. quarter, XXX,XXX we share we to representing paid

over With Farooq back that, I’ll to call turn the

Farooq Kathwari

Thank Corey. you,

enhanced our centers, to design continue and projection in retail logistics product integrated strengthening We investments strengthen our of our and in vertically technology. by structure network, continued marketing, offerings, manufacturing our

was X, a month and Finance Whitely. be strong promoted key developing he'll reporting Chief made and areas Hutton to have major and a good joined McNulty Officer on January Marketing as Corey of financial include Our after heard accounting the three challenge, we entrepreneurial continues In in progress. you leaders strengthening Matt a focus a and retail Vice arrangement. focus Rodney consultancy with to background strong President corporate,

The Membership have a to and member practical had second did our and area marketing. all customers purchase program. launched enhanced This to for the our Program In which our was become traffic purposes, the is sales. October we products, marketing impact month,

a made have we now, change. of As

program, our XX-month The also our enhance financing. savings all time. continue in-home will We benefits including XX% special our that from delivery free best that on members of at everyday effect to and have savings products in secure purchase products price, non-members can expanded so

North network service in in We manufacturing our We facilities. logistics the an have to increasing mediums. growth. America of television, is logistics our year. our consolidating our About expanded are position North American advertising in started initiatives and unique digital to service, and also On radio, in completed and products presence include last marketing excellent XX% our manufacturing and our our made

been next on our has And this implement major all is to enterprise. new this in social be our maintain focus to technologies a focus The major responsibility in important a always And finally, continues areas focus of leadership technology. to very area.

for this, are comments With or we questions. ready any

Corey Whitely

ahead and go to Jeff, questions. people ask instructions give the for

Operator

now line [Operator Griffin, Bobby Instructions] We is Sir from have Griffin. one question your open.

Bobby Griffin

if sales you just happened of little much How the during little to first bit react we a attribute consumers want I to Membership question, the the are new How to environment? more would as quarter? Program? see us you you learnings a And us then frame of see to to what program what like better can took bit you did program, the the starting help up My understand help can, just business, quarter? decline versus of get the place sales anything the as do of the people what during the that progression overall exactly of get more to the kind used seen

Farooq Kathwari

having work that interior clients say have might sense and worry to that on. a I we where this that Bobby decided is to about about constant this introduced designers the working good for of had - service to that X,XXX because without we question, have, to We provide we we structure them is are program the something constantly you it sales. makes their their

So certain we that will decided benefits. give Program Member the

savings of price, home for and benefits interior delivery, interior it. The special best service, all design things special designers complimentary complimentary everyday love financing, great in our

Our clients love it.

end to that number However, urgency, have not one. used whereby create create that did that's we was the did of an issue it sales and that month urgency,

the that become member Program everybody advantage we was thing way in all take the benefits. of the Member practical a was that second The had introduced purposes, to to

we're made time, have program implemented just also can based are now living As We at of savings room on some right a whatever our that things upon running a that February, savings changes. products. non-members special the special purchase now we

what Now and is, the impact traffic we it, will it people in sales. that that did because our impact started traffic will way and coming enhance do

all think sense curve, factors, of urgency, that having contributed the So addition I the to in to addition sales. in learning to lower those not

have steps. we So taken some now

First is people learning. are

Our designers it. love

homes. they to do real have have the But for people sales Our their customers in. come wait want members. customers in to great world, want don't do new it because till sales, love to that not They wait to - are

to And believe it. So going improve seeing that benefits I Bobby the steps start taken while that membership program. we maintaining to we're have of

Bobby Griffin

for Okay, non-members, the you it steps tell? early or seen still on benefits anything traffic I results have guess that, quickly add yet two follow-ups you in took some to the is to when real too the

Farooq Kathwari

quarter are are basically reflected marketing. and started It early think marketing month, - our to in is second way because I members. just the get too we See we that was it also this

all Now others expand to members but get also to who in. come our reflects marketing it

some we have So changes, made is XXXX. hindsight always

Bobby Griffin

the still even than the program work price then members the price, time? though the Okay. going at is And now absolute would the that special still get better savings is on lowest way the

Farooq Kathwari

because a them, is get for will it savings. they Yes, special

home get to price get complimentary delivery continue important the delivery. They'll to home are in addition best get. In in will that, complimentary those two plus benefits, they will because they

Bobby Griffin

Okay, and then I lastly… guess

Farooq Kathwari

everybody the service. financing design Plus home delivery. also free everybody interior get and else complimentary in will service, will not design our complimentary But get

Bobby Griffin

number in of what or And continuing you sense or program you then seeing help to them disclose month-over-month, I from adoption going a whether guess lastly the an terms grow total of - anything how of a - get can us not to is members standpoint? kind see you're

Farooq Kathwari

business our is all members. now Bobby,

we them great fact non-members that non-members, The are it for costs a a most and have have delivery, we that furniture. is $XXX first. in it become they but free if for have benefit members, will become and reason will come delivery, So member in about of done, members, expand to what of get now our but $XXX a for this them it they remains they got just with increase buying also the a to

Bobby Griffin

queue. anything that I also you I'll for buzz time me from thank in Okay, for And in. now. have That's makes back jump the for if you and the the I’ll Thank questions. answering back sense. it

Farooq Kathwari

Bobby. right All

Operator

the of from now Bhatt question Sir, of your Next Capital. is line Sanjay Point line Stony open.

Sanjay Bhatt

you in on how out consumer cautious retail membership specifically headwind. think business by Just help the impacted the you called model quarter model both much was membership since in understand to drill us transition again. of shift the in I some and membership model Can the the

the that will one, great. us So I could if you two help guess bifurcate be

year offer call et the another cetera. around X% some the And the I to changes last full clearly, the guys maybe think a suggested way, net the revenue previously making membership from non-members, you're savings and ask X% on for headwind you but members program, to

that kind X% of your is X% about still mathematically? to So, we number should how think or that belief

Corey Whitely

to just the piece membership for that that fee. X% to the clarify Yes, was X% deferred on revenue the of the on

Farooq Kathwari

Yes go you Corey Sanjay, total X% on was let that. not will me it to discuss explain to sales. because Corey is - it X% that

good one, also the Your in for I else. question China. instance, the external to XX% which is would decline was economy is due were issues in that of on taking in the what's and of everything a the was to our perhaps, place to unfortunately membership say in factors membership sales some impact and in the program. place the world terms due There due taking

at would implemented of impacted of due have great. States, we say the in impact do the especially our XX% has we on is fact which - West the it some because course, I United in program the customers Chinese States to that the business, United plus That was Coast. membership lot a least But international

I As said, it. designers our love

started XX% best was Recession, It no used Sanjay Great give the to a price, being saving, before saving, XX% have you membership then a and like without just then everyday to a an with we people Great we saving first Recession, on it without members. on. like But was XX% sales. and the And then perspective that program, with

the the and end end So of savings, it. secondly, close did giving while quarter impact urgency had we fact And the great is membership important. used get generally of I we're people to not the believe of very for the month to but to was that very, have because people

love we a So clients believe in also urgency team made changes reasons, have we practical process. All But it. to people me learning and make it's they they our we members Their sure again, we the again, and create and why tell love it. bring that's again have. for

Sanjay Bhatt

remember I makes Thanks. and the sense. that's Right, revenue, that helpful, deferred

Operator

Next Baugh your of question Stifel. Sir, of from open. John the is line line now

John Baugh

point I the just change the versus clarification wanted a of the members. non-members for on

wouldn't XX% give the your like or of time running, still sort XX%, sale of that and all a of a is different you’re XX% member, that going some XX%, off members? that take across get been are they're access have the savings they before So XX%, not depending - to to XX% on or board they product you there at a gotten type here is because the or for

Farooq Kathwari

me membership the I go just back a program. bit All right understand, let John before little

the from we had say every XX%. and Before anywhere those every some from membership even month, range savings program, savings XX%, XX%, quarter,

So to gave and we in free those everybody we once while, also a give savings delivery. would

So when XX% we membership program prices. said savings a going retail are get from members started, our the to

we would added them which not be interior the service The XX members will have And utilized non-members. also get what they prices. also will delivery savings is will for month was be plan. by financing call our but have members, that complimentary only everyday - get We a our best now and done also we design and also

you'll Like meant members. was did in we now have for starting marketing which see our - if only our a have February, just savings, for announced you we in special December, those instance by But really and - the be members savings are products members a savings can get living our everything. special rooms. XX% XX% savings because will have see on on That we all utilized -

Non-members XX% on now they also And get get get non-members delivery. XX%. sorry - savings a of Members everything. free will members savings savings also I’m on XX% will the get of while will room benefit living will get the

our expands more What to people. it that's that member made. a was had - - they What it that we have in. is felt we people found to reach So come John become does change the to

traffic. And coming on that sort - into of restricted had impact people it an

believe changed very it our I has well have it marketing of by been it. care and We taking now is our received and teams,

chances I traffic most to members, they they've come both to these don't what in program website of to got that's design said, are does. come The centers. are we our as going will increase to become our folks So, and on And in. and first but this

John Baugh

off non-members and XX% the getting you rooms room, back. And on had correct? run members course XX% when savings special So to they're in this were on you that when the of additional getting case XX% off nothing run a living Is savings. they're And everything. of say now decide now XX% getting living percent

Farooq Kathwari

rooms XX% else additional not the additional anything they're get No to they’ll not get XX%, members will will what get get going XX% they XX%. on living the and

John Baugh

Okay XX% on everything else.

Okay.

Farooq Kathwari

Yes.

John Baugh

And paying the on non-member price is full everything special? except the

Farooq Kathwari

Yes. right. That's

John Baugh

it on what's of and update from again to sourcing. bringing maybe China whether you're you As you and/or there? relates fear and disruptions percentage not going general in rough or product us supply from Asia your in Could there on

Farooq Kathwari

of represents vast furniture of majority XX% they John furniture, to in approximately North is our our business. facilities, our our XX% now of because American and other what come Accents this made stage at

we of anyway, our as you had China We from Indonesia, as and China. didn't X% sell have in the our Now we moved such already production. other furniture XX% coming business is much or know of to countries most

we a very good So perspective sourcing, are shape. from of in our very,

taking lighting place come this Now, how they're far - there in this we've China, But disruptions so might some not unfortunate that's it's from that are seen possible and a handle situation that of upon And depending accessories. some be there issue problem. they products China. like they're

that our sell we've more and in been been than shipping we buy. main issue China products the ship we So has fact -

tariffs the most impacted So by locations. by XX%. we fact we that impacted were of And now of first the the are

are partner locations is them XXX there Our now. of closed most

close down, visit to I XX%. our already So think is

to go the China. and degree the some going tariffs it's already down in to economy but we're XX% of to softening down due further, So

John Baugh

be been so pretty, That was now to be that. of the on small. follow-up going what's magnitude question It's for my down must pretty a while remaining

Farooq Kathwari

down what quarter. still this it more previous somewhat I close not fact less is in the It's it was it to smaller. Yes, was is quarter pretty think or from

So GSA, also good Corey we the contract. and - we do very made the the good inroads news business in have government is some as with said,

for been has So good us. that has that

John Baugh

you thinking marketing your calendar or ads of either - maybe And been Allen of should What XXXX. from marketing word sales in then the you be of percentage revenue? up? dollars in either Ethan gross expect more And we of use what gross I'm the dollars would as enhanced Okay. down, programs flat, year-over-year or terms percent dollars know, a

Farooq Kathwari

Well, spent our which represented In we represented you you which spent million know if a X.X% of $X.X X.X% at quarter, this second look quarter John the last the year, of sales. sales. million, take same we in $X.X

that quarter about is we $X.X Last that that looking the million, third in we're we're spent next our X.X%. now. represented at, year Now which in quarter

I between of course $X is million $X.X think sales. we're quarter, the million going to impacted again in spend with our overall to and percentage anywhere third

So our percentage because up sales. gone has lower of

I would would So, good X.X% say utilizing around approximately John be that a number.

John Baugh

sort of what dollar just December but and exactly And don't helpful, since through quarters, June sort sales - that’s of to do. to we we go as stick and going very then are know

you Although exceed add just you hope spend don't quarter XXXX see June match you what gross of better dollars up quarters kind on likely or you will calendar to know? would marketing in XXXX you when in did be or four indicated you

Farooq Kathwari

and we’ll we and close think most close to to $XX this last most I Well spent probably probably million year year. that spend

Operator

Telsey the from of Fernández line Advisory Cristina Ma'am, Group. now is line of your question Next open.

Cristina Fernández

follow impact SG&A Member on its having up Program line the I the on understand wanted the to and also items.

of was the and marketing. impact members? I the of this rest XXX about to free points Member due the call How mostly basis it's the seems was Program the up to deleverage last the on delivery assume comments much your XXX of it - I and of XXX the quarter, from it So that of guess

Farooq Kathwari

Corey?

Corey Whitely

that Yes, the being where go than we in we that. of were them and most down we do year. when deleveraging increase, about The was, when sales but X that structured reverse more vertically really is million last company sales really sales of the a reduction advertising benefit was get

impact the on biggest was probably it was the that Otherwise, fairly So controlled. was side. SG&A sales, well it to relative

Farooq Kathwari

if I'll again million our in last a mean, our $XXX had will you sales, - that you last look of - question you course if at million. see give which were Cristina which $XX - with - million this take now and a million you our million $XX We the quarter $XXX quarter. this our at year $XX it's and But we Yes, last of had compare versus year is $XX selling, million overall total year. I versus year, expenses

So, were sales, total, - higher, a lower expenses total our of did expenses we obviously as as sales. our reduce while of percentage because

dollars $XX million from total again a it percentage versus million XX.X% $XX year, of XX% to Our as because sales. went last was

Cristina Fernández

to changes sales I being additional on better some wanted making drive December the I or quarter be little what guess quarter, quarter. follow-up you're outlook? we impact bit that although your a third are saw the this I And of to discounts Wouldn't just in commentary the in you contemplating able next then like guess this - what that an Corey, to about similar

Corey Whitely

of enhanced order an marketing growth our Well, plans opportunity to we place. do stronger have have in our a that we as see result

the between from to expect it the our benefit little fourth it ordering stronger fourth beginning this quarter lag Therefore of However, a and out. delivering is orders time third then quarter. see there and we bit in a sales

Farooq Kathwari

lower quarter that's our second lower in because said backlogs third sales the of quarter. - are with I Corey think we entering Yes, as

we do a become very we backlogs don't of deliver as fast. we have Now efficient, lot

- we changes the in all third we improvements will this have with in which fourth and then our we doing expect made So in quarter the we marketing are orders, all have the that to the reflect quarter, expect deliveries quarter. more

but So backlogs because the going obviously on of lower shipments, lower see quarter. this the be entering quarter order positive, the side side to we is delivery

Cristina Fernández

selling we of then of And new in next - bigger season? remind quarters the geared as spring summer towards us up coming different Can products couple you have lastly topic. you a the that

Farooq Kathwari

Yes, very now. right it's going that we're important a initiative

Corey we we of like be Manhattan. people to In talk fact in a Then - - but earlier to to come. probably is Manhattan investor we I will meeting do can May will most I mean in early more think going have it all little bit you in an

making and of the in projection improvements centers the products. are of also more our process We the in design

with And contemporary you a As has know, to that to those it. product of, are focus - product degree. categories products be been some because some modern marketing want There casual customers you strong might us have we perspective back. going very products we to we're say including strengthening that too much on classic

for with second us important country, call category we modern again The is what but a perspective.

introduced that, products call in also they days, see today more in to are the a introduced them olden category going you're classics with first classics. the formal, you'll see So we perspective. In livable that's products modern but and

the we version which program the of is which you’re what at including And in surprised products, the is new is upholstery. Lucy great be going called model, our have third pleasantly to

In in next fact be we'll month it. going starting to be center design and our marketing starting it's

to of quarter. this country marketing, in quarter, and and these more classics with lot that a So starting and categories next we're perspective going also perspective, with is some doing the then our modern a be modern modern three products some the

Operator

of from now of question line Bradley Thomas Sir, Instructions] [Operator is KeyBanc open. Capital Next the your Market. line

Andrew Efimoff

business. the This contract contract quarter if wonder on about the State how could contract side for how the is you us Department thinking Andrew performed of the of the Brad. business forward? I on and a tell side had are going question you I the during

Farooq Kathwari

Yes a or said, as had Corey Corey, substantial right. increase XX% we

Corey Whitely

Right.

Farooq Kathwari

in in other the Department good State we've where few been the Margaritaville also number We're in with a places. discussed think quarter, also of one furnished better Group, during hotels. we Houston. with have Then We're partnership had we furnishing I Orlando. the XX% doing of business Or gotten a doing one we margins. and in We business it,

more program with We contract. the also business some continue and do Disney to

growing that's spot. is a that bright So

Andrew Efimoff

promotions And often you membership sense run a you up the to to promotions addition Could doing on follow trying us then in going are plan forward? I to additional model. you give wanted these the for how

Farooq Kathwari

going see the which it to most continue certainly our savings and addition how will time this that I have for we those I some of monthly. plan have non-members to them have in members, savings at can the become use We're special will to most come - members, will but to likely works, we in programs and believe believe

Operator

Instructions] no [Operator further are questions There at this time. Please continue.

Farooq Kathwari

very comments, Well to to any Corey And much. us are know team thank be you to if Matt questions, and you. please and talk let going ready

So take care.

Operator

That concludes today's everyone participating. conference. you for Thank

You may now disconnect.