Wholesale net sales for each of the last three fiscal years, allocated by product line, were as follows:

The wholesale segment, principally involved in the development of the Ethan Allen brand, encompasses all aspects of design, manufacture, sourcing, sale, and distribution of our broad range of home furnishings and accents. Wholesale revenue is generated upon the wholesale sale and shipment of our products to our network of independently operated design centers and Company operated design centers (see Company operated retail comments below) through its national distribution center and one other smaller fulfillment center.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

During the past year, independent retailers opened 15 new design centers and closed 16, two of which were relocations. We continue to promote the growth and expansion of our independent retailers through ongoing support in the areas of market analysis, site selection, and business development. As in the past, our independent retailers are required to enter into license agreements with us, which (i) authorize the use of certain Ethan Allen trademarks and (ii) require adherence to certain standards of operation, including a requirement to fulfill related warranty service agreements. We are not subject to any territorial or exclusive retailer agreements in North America. The wholesale segment also develops and implements related marketing and brand awareness programs.

Wholesale profitability includes (i) the wholesale gross margin, which represents the difference between the wholesale net sales price and the cost associated with manufacturing and/or sourcing the related product, and (ii) other operating costs associated with wholesale segment activities.

Approximately 75% of the products sold by the Company are manufactured in its North American plants. During fiscal 2016, the Company’s case goods manufacturing footprint increased 59,000 square feet, further increasing throughput in our Honduras facility. In our upholstery plants in Maiden, North Carolina we expanded production capacity and built a new R&D facility. A 300,000 square foot expansion is underway at our upholstery plant in Mexico which we anticipate completing during fiscal 2017. We operate four case good plants (two in Vermont including one sawmill, one in North Carolina, and one in Honduras), four upholstery plants (three at our North Carolina campus, and one in Mexico) and one home accent plant in New Jersey. We also source selected case goods, upholstery, and home accent items from third-party suppliers domestically and abroad.

As of June 30, 2016, our wholesale backlog was $40.3 million (as compared to $63.7 million as of June 30, 2015) which is anticipated to be serviced in the first quarter of fiscal 2017. This backlog fluctuates based on the timing of net orders booked, manufacturing schedules and efficiency, the timing of sourced product receipts, the timing and volume of wholesale shipments, and the timing of various promotional events. Because orders may be rescheduled and/or canceled and the sourcing timing may change, the measure of backlog at a point in time is not necessarily indicative of future sales performance.

For the twelve months ended June 30, 2016, net orders booked at the wholesale level, which includes orders generated by independently operated and Company operated design centers, totaled $470.7 million as compared to $487.4 million for the twelve months ended June 30, 2015. In any given period, net orders booked may be impacted by the timing of floor sample orders received in connection with new product introductions. New product offerings may be made available to the retail network at any time during the year, including in connection with our periodic retailer conferences.

Retail Segment Overview:

Retail net sales for each of the last three fiscal years are summarized below (in millions):

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Retail net sales for each of the last three fiscal years, allocated by product line, were as follows:

The retail segment sells home furnishings and accents to consumers through a network of Company operated design centers. The Company also offers access to its products to qualified independent interior designers through our interior design affiliate (“IDA”) program. Retail revenue is generated upon the retail sale and delivery of our products to our retail customers through our network of service centers. Retail profitability reflects (i) the retail gross margin, which represents the difference between the retail net sales price and the cost of goods, purchased primarily from the wholesale segment, and (ii) other operating costs associated with retail segment activities.

We measure the performance of our design centers based on net sales and written orders booked on a comparable period basis. Comparable design centers are those which have been operating for at least 15 months. During the first three months of operations of newly opened (including relocated) design centers, written orders are booked but minimal net sales are achieved through the delivery of products. Design centers we acquire from independent retailers are included in comparable design center sales in their 13th full month of Ethan Allen-owned operations. The frequency of our promotional events as well as the timing of the end of those events can also affect the comparability of orders booked during a given period.

We pursue further expansion of the Company operated retail business by adding interior design professionals and expanding the IDA program, opening new design centers, relocating existing design centers and, when appropriate, acquiring design centers from independent retailers. During fiscal 2016 our reach was expanded further through our launch of our gift registry, and through establishing licensing arrangements with Disney Consumer Products, an affiliate program with the Army and Air Force Exchange Service and marketing agreements with several leading national real estate brokerages. During fiscal 2016, we opened ten new design centers, six of which were relocations. The geographic distribution of retail design center locations is included under Item 2 of Part I of this Annual Report.

Products

Our strategy has been to position Ethan Allen as a preferred brand offering complimentary design service together with products of superior style, quality and value to provide consumers with a comprehensive, one-stop shopping solution for their home furnishing and interior design needs. In carrying out our strategy, we continue to expand our reach to a broader consumer base through a diverse selection of attractively priced products, designed to complement one another, reflecting current fashion trends in home decorating. During fiscal 2016, the Company continued to strengthen its product offerings by introducing new products to retail consumers in case goods, upholstery, and home accents, by introducing a very large collection of new products and existing products in new finishes under the umbrella of “Romantic Classics”, “Casual Classics”, and the expansion of our custom quick-ship program. Much of our furniture is built by hand, one piece at a time, in our North American workshops. Most frames are hand-assembled and stitching is guided by hand. We select international partners who are as committed to quality as we are. All case good frames are made with premium lumber and veneers. We use best-in-class construction techniques, including mortise and tenon joinery and four-corner glued dovetail joinery on drawers. We combine technology with personal service and maintain an up-to-date broad range of styles and custom options in keeping with today’s home decorating trends. These factors continue to define Ethan Allen, positioning us as a leader in home fashion.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

The interior of our design centers, which were substantially refreshed during the past two fiscal years, are organized to facilitate display of our product offerings, both in room settings that project the category lifestyle and by product grouping to facilitate comparisons of the styles and tastes of our clients. To further enhance the experience, technology is used to expand the range of products viewed by including content from our website in applications used on large touch-screen flat panel displays.

We continuously monitor changes in home fashion trends through attendance at international industry events and fashion shows, internal market research, and regular communication with our retailers and design center design consultants who provide valuable input on consumer trends. We believe that the observations and input gathered enable us to incorporate appropriate style details into our products to react quickly to changing consumer tastes.

Product

The majority of the products we sell are built by artisans in our North American plants. Most upholstery frames are hand-assembled and stitching is guided by hand. We select international partners who are as committed to quality and social responsibility as we are. All case goods frames are made with premium lumber and veneers. We use best-in-class construction techniques, including mortise and tenon joinery and four-corner glued dovetail joinery on drawers. We combine technology with personal service and maintain an up-to-date broad range of styles and custom options in keeping with today’s home decorating trends. These factors continue to define Ethan Allen, positioning us as a fashion leader in the home furnishing industry.

The interior of our design centers, which have been substantially refreshed during the past three fiscal years, are organized to facilitate display of our product offerings, both in room settings that project the category lifestyle and by product grouping to facilitate comparisons of the styles and tastes of our customers. To further enhance the experience, technology is used to expand the range of products viewed by including content from our website and 3-D digital images in applications used on large touch-screen flat panel displays.

Product Development and Sourcing Activities

Using a combination of on staffemployees and outsourced product designers, we design the majority of the products we sell; allsell. All of whichour products are branded Ethan Allen.Allen branded. This important facet of our vertically integrated business enables us to control the design specifications and establish consistent levels of quality across the products inall our own North American plants. To capitalize on this vertical integration, between the fall of 2014 and the spring of 2016, the Company undertook a significant redesign of products. Much of the product design took advantage of the Company’s custom manufacturing capabilities in its North American plants, where we manufacture and / or assemble approximately 75% of the products we sell, making us one of the largest manufacturers of home furnishings in theprograms. In addition to our four United States. Our mainStates manufacturing facilities, are located in the Northeast and Southeast regions of the United States supported bywe have an upholstery plantmanufacturing facility in Mexico and a case goods plantmanufacturing facility in Honduras. Our plantsApproximately 75% of our products are located near sources of raw materials and skilled artisans.manufactured or assembled in these North American facilities. We source approximatelyselectively outsource the remaining 25% of theour products, we sellprimarily from third-party suppliers, most of which are located outside the United States, primarily in Asia. We carefully select our sourcing partners and require them to provide products according tostrict compliance with our specifications and quality standards. We believe that strategic investments in our manufacturing facilities balanced with outsourcing from foreign and domestic suppliers willwould enable us to accommodate any significant future sales growth and allow us to maintain an appropriate degree of control over cost, quality and service to our customers.

We are focused on environmental and social responsibility and incorporating uniform environment, health and safety programs into our manufacturing standards. Our “green” initiatives include but are not limited to the use of responsibly harvested Appalachian woods, water based finishes and measuring our carbon footprint, greenhouse gases and recycled materials from our operations. We have implemented the Enhancing Furniture’s Environmental Culture (EFEC) environmental management system sponsored by the American Home Furnishing Alliance (AHFA) at all of our domestic manufacturing, distribution and service center facilities, and have begun to expand these effort to our retail design centers. Our domestic manufacturing, distribution and service centers have also achieved Sustainable by Design (SBD) registration under the EFEC program. Our Silao Mexico facility has also been audited and registered under the AHFA's EFEC program. SBD provides a framework for home furnishings companies to create and maintain a corporate culture of conservation and environmental stewardship by integrating socio-economic policies and sustainable business practices into their manufacturing operations and sourcing strategies.

Raw Materials and Other Suppliers

The most important raw materials we use in furniture manufacturing are lumber, veneers, plywood, hardware, glue, finishing materials, glass, laminates, steel, fabrics, foam, and filling material. The various types of wood used in our products include cherry, ash, oak, maple, prima vera, African mahogany, birch, rubber wood and poplar.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Fabrics and other raw materials are purchased both domestically and outside the United States.States . We have no significant long-term supply contracts, and have sufficient alternate sources of supply to prevent disruption in supplying our operations. We maintain a number of sources for our raw materials, which we believe contribute to our ability to obtain competitive pricing. Lumber prices and availability fluctuate over time based on factors such as weather and demand. The cost of some of our raw materials such as foam and shipping costs are dependent on petroleum cost. Higher material prices, cost of petroleum, and costs of sourced products could have an adverse effect on margins.

Appropriate amounts of lumber and fabric inventory are typically stocked to maintain adequate production levels. We believe that our sources of supply for these materials are sufficient and that we are not dependent on any one supplier.

We enter into standard purchase agreements with certain foreign and domestic suppliers to source selected case goods, upholstery, and home accent items.products. The terms of these arrangements are customary for the industry and do not contain any long-term contractual obligations on our behalf. We believe we maintain good relationships with our suppliers.

Segments

We have strategically aligned our business into two reportable segments: Wholesale and Retail. These two segments represent strategic business areas of our vertically integrated enterprise that operate separately and provide their own distinctive services. This vertical structure enables us to offer our complete line of home furnishings and accents while controlling quality and cost. We evaluate performance of the respective segments based upon net sales and operating income. Inter-segment transactions result, primarily, from the wholesale sale of inventory to the retail segment, including the related profit margin. Financial information, including sales, operating income and long-lived assets related to our segments are disclosed in Note 19, Segment Information, of the notes to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K.

As of June 30, 2019, the Company operated 144 design centers (our retail segment) and our independent retailers operated 158 design centers. Our wholesale segment net sales include sales to our retail segment, which are eliminated in consolidation, sales to our independent retailers and unaffiliated third parties.

The following charts depict net sales related to our reportable segments.

We believe that the demand for furniture generally reflects sensitivity to overall economic conditions, including consumer confidence, housing market conditions and unemployment rates. For both our segments, the second and fourth quarters are historically the seasonally highest-volume sales quarters. However, during fiscal 2019, we experienced our largest sales volume quarter for our wholesale business during the first quarter while our retail segment had its highest sales volume during the second quarter. We believe this fiscal 2019 experience was not an indicator that our seasonal trends are changing.

Retail Segment

The retail segment, which accounted for 79% of net sales during fiscal 2019, sells home furnishings and accents to consumers through a network of Company operated design centers. Retail revenue is generated upon the retail sale and delivery of our products to our retail customers through our network of service centers. Retail profitability reflects (i) the retail gross margin, which represents the difference between the retail net sales price and the cost of goods, purchased primarily from the wholesale segment, and (ii) other operating costs associated with retail segment activities.

We measure the performance of our design centers based on net sales and written orders booked on a comparable period basis. Comparable design centers are those which have been operating for at least 15 months, including relocated design centers provided the original and relocated design center location had been operating for at least 15 months on a combined basis. During the first three months of operations of newly opened design centers, written orders are booked but minimal net sales are achieved through the delivery of products. Design centers we acquire from independent retailers are included in comparable design center sales in their 13^th full month of Ethan Allen-owned operations. The frequency of our promotional events as well as the timing of the end of those events can also affect the comparability of orders booked during a given period. Due to the nature of the business in which the retail segment operates, there are no customer concentration risks.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

The retail segment’s product line revenue, expressed as a percentage of net sales, is comprised of approximately 48% in upholstered products, 30% case goods and the remaining 22% in home accents and other.

During fiscal 2019, we acquired two new design centers in the United States from independent retailers and closed six locations, which is net of three relocations. The geographic distribution of retail design center locations is disclosed under Item 2, Properties, contained in Part I of this Annual Report on Form 10-K.

Wholesale Segment

The wholesale segment, which accounted for 21% of net sales during fiscal 2019, is principally involved in the development of the Ethan Allen brand and encompasses all aspects of design, manufacture, sourcing, marketing, sale and distribution of our broad range of home furnishings and accents. Wholesale revenue is generated upon the sale and shipment of our products to our retail network of independently operated design centers, Company operated design centers and other contract customers. Sales to ten of our largest customers accounted for 21% of revenues within our wholesale segment during fiscal 2019.

Within the wholesale segment, we maintain revenue information according to each respective product line (i.e. case goods, upholstery, and home accents). Case goods include items such as beds, dressers, armoires, tables, chairs, buffets, entertainment units, home office furniture, and wooden accents. Upholstery items include sleepers, recliners and other motion furniture, chairs, ottomans, custom pillows, sofas, loveseats, cut fabrics and leather. Skilled artisans cut, sew and upholster custom-designed upholstery items which are available in a variety of frame, fabric and trim options. Home accent items include window treatments and drapery hardware, wall decor, florals, lighting, clocks, mattresses, bedspreads, throws, pillows, decorative accents, area rugs, wall coverings and home and garden furnishings.

Wholesale profitability includes (i) the wholesale gross margin, which represents the difference between the wholesale net sales price and the cost associated with manufacturing and/or sourcing the related product, and (ii) other operating costs associated with wholesale segment activities.

The wholesale segment’s product line revenue, expressed as a percentage of net sales, is comprised of approximately 50% in upholstered products, 33% case goods and the remaining 17% in home accents and other.

As of June 30, 2019, our wholesale backlog was $46.4 million (as compared to $56.5 million as of June 30, 2018) which is anticipated to be serviced in the first quarter of fiscal 2020. Our backlog was down 18.0% as our manufacturing operations returned to normal throughput as compared to the prior year’s longer production lead-times primarily related to the GSA contract startup. Our wholesale backlog fluctuates based on the timing of net orders booked, manufacturing schedules and efficiency, the timing of sourced product receipts, the timing and volume of wholesale shipments, and the timing of various promotional events. Because orders may be rescheduled and/or canceled and the sourcing timing may change, the measure of backlog at a point in time is not necessarily indicative of future sales performance.

Our independent retailers are required to enter into license agreements with us, which (i) authorize the use of certain Ethan Allen trademarks and (ii) require adherence to certain standards of operation, including a requirement to fulfill related warranty service agreements. We are not subject to any territorial or exclusive retailer agreements in North America.

The geographic distribution of manufacturing and distribution locations is disclosed under Item 2, Properties, contained in Part I of this Annual Report on Form 10-K.

Talent

Since our founding, we have built a collaborative culture that recognizes and rewards innovation and offers employees a variety of opportunities and experiences. Our employees are critical to our success and are one of the main reasons we continue to execute at a high level. We believe our continued focus on making employee engagement a top priority will help us provide high quality products and services to our customers.

At June 30, 2019 our employee count totaled 4,700, a decrease from 5,200 a year ago, which reflects the impact of restructuring actions taken to further optimize our manufacturing and logistics operations. The majority of our employees are employed on a full time basis and we believe we maintain good relationships with our employees. None of our employees are represented by unions or collective bargaining agreements.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Customer Service Offerings

We offer numerous customer service programs, each of which has been developed and introduced to consumers in an effort to make their shopping experience easier and more enjoyable.

Gift Card. This program allows customers to purchase and redeem gift cards through our website or at any participating retail design center, which can be used for any of our products or services.

Ethan Allen Consumer Credit. The Ethan Allen Platinum consumer credit program offers customers a menu of custom financing options. Financing offered through this program is administered by a third-party financial institution and is granted to our customers on a non-recourse basis to the Company. Customers may apply for an Ethan Allen Platinum card at any participating design center or online at ethanallen.com.

Marketing

Rooted in the five pillars of our brand – diversity of style, quality and craftsmanship, sustainability, complimentary design service, and premier in-home delivery – Ethan Allen’s marketing programs are designed to drive traffic to our retail network of approximately 300 design centers as well as to our e-commerce and social sites.

Our marketing approach begins with a customer experience that exemplifies the Ethan Allen difference. Through interactions in the design center, monitoring and response to online reviews and social channels, and surveys, we work to incorporate the voices of our customers into every decision we make. By deploying customer relationship management tools, we are further segmenting our target markets, creating a more personalized shopping experience and developing more personalized content than ever before.

Our new Ethan Allen Platinum consumer credit program, designed to make the Ethan Allen brand accessible to everyone, had a successful national launch and should continue to attract both new prospects and returning customers.

Through both paid and owned channels, we continue to position Ethan Allen as an aspirational yet approachable brand. We deliver these messages in a variety of ways – locally, nationally, and globally – to connect and engage with our target audience and drive sales. Direct mail continues to be a critical marketing medium for us. Our magazine, distributed to almost 22 million households, enables customers and prospects to immerse themselves in inspirational photos of our products; it is also a frequent starting point for conversations with our designers. We strive to be present at natural connection points with customers, using targeted direct mail pieces like our new mover's brochure. Along with our magazine, each direct mail piece is distributed to a targeted marketing segment based on data collected internally and through independent market research.

In addition to newspapers and shelter magazines, local efforts complement and strengthen our national marketing strategy with many markets increasing their reach through targeted broadcast, streaming radio, local digital and robust social initiatives.

As online shopping takes on increasing importance, we have continued to improve both user experience and conversion optimization on ethanallen.com and ethanallen.ca. We invest in both paid and organic search engine marketing, and we work to improve the local search rankings of each design center location. We have also continued to improve our programs for collecting user-generated content, both from customers and designers, which showcases the way our customers are living with Ethan Allen. Our new EA InHome^TM mobile app, which utilizes augmented reality, gives customers the ability to preview products in their space before they make a purchase; our 3-D room planner, available in design centers, offers an even more immersive experience and helps move customers toward conversion.

Significant growth in our organic social following, including a 25% increase in Instagram followers during the 2018 calendar year, and paid social campaigns help bring awareness of the Ethan Allen brand to every demographic. We utilize these channels to build a sense of community, and by extension brand loyalty, among our current and prospective customers.

Competition

We believe the home furnishings industry competes primarily on the basis of product styling and quality, personal service, prompt delivery, product availability and price. We further believe that we effectively compete on the basis of each of these factors and that, more specifically under our vertical structure, our complimentary interior design service, direct manufacturing, white glove delivery service, product presentations, and website create a competitive advantage, further supporting our mission of providing consumers with a complete home decorating and design solution. We also believe that we differentiate ourselves further with the quality of our interior design service through our intensive training and the caliber of our design consultants. Our objective is to continue to develop and strengthen our retail network by (i) expanding the Company operated retail business through the repositioning and opening of new design centers, (ii) obtaining and retaining independent retailers, encouraging such retailers to expand their business through the opening or relocation of new design centers with the objective of increasing the volume of their sales, (iii) further expanding our sales network through our independent design associates and realtor referral programs, and (iv) further expanding our ecommerce.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

At Ethan Allen, our internet strategy is to drive traffic into our design centers by combining technology with excellent personal service. Though our customers have the opportunity to buy our products online, we take the process further. With so much of our product customizable, we encourage our website customers to get personal help from our interior design professionals either in person or by chatting online with one of our qualified design consultants. This complimentary direct contact with one of our knowledgeable interior designers creates a competitive advantage through our excellent personal service. This enhances the online experience and regularly leads to internet customers becoming customers of our network of interior design centers.

Retail Design Centers

We continue to strengthen the Ethen Allen brand with many initiatives, including the opening of new design centers and relocating or consolidating certain existing design and service centers, regularly updating presentations and floor plans, and strengthening of the qualifications of our designers through training and certification.

Ethan Allen design centers are typically located in busy retail settings as freestanding destinations or as part of town centers, lifestyle centers, suburban strip malls or shopping malls, depending upon the real estate opportunities in a particular market. Our 144 Company operated retail design centers average approximately 15,300 square feet in size with 63% of them ranging between 10,000 and 20,000 square feet, while 21% being less than 10,000 square feet and the remaining 16% being greater than 20,000 square feet. During the past 10 years, 37% of our design centers are new or have been relocated.

Combining technology with personal service in our design centers has allowed us to reduce the size of our design centers. In the past five years, we have either opened or relocated a total of 24 new design centers that have an average size of approximately 9,000 square feet. These smaller footprint design centers reflect our direction as we move forward in repositioning our retail design centers. These new and relocated design centers also reflect our shift from destination and shopping mall locations to lifestyle centers that better project our brand and offer increased traffic opportunities.

We strive to maintain consistency of presentation throughout our retail design centers through a comprehensive set of standards and display planning assistance. These interior display design standards enable each design center to present a high quality image by using focused lifestyle settings and select product category groupings to display our products and information to facilitate design solutions and to educate consumers. We also create a consistent brand projection through our exterior facades and signage.

Distribution and Logistics

We distribute our products through threefour distribution centers, owned by the Company, strategically located in New Jersey,North Carolina, Oklahoma, and Virginia. These distribution centers provide efficient cross-dock operations to receive and ship product from our manufacturing facilities and third-party suppliers to our retail network of Company and independently operated retail service centers. Retail service centers prepare products for delivery into clients’customers’ homes. At June 30, 2016, the2019, our Company operated retail design centers were supported by 13 Company operated retail service centers and 14 service centers operated by third parties.

While we manufacture to custom order the majority of our products, we also stock selectedcertain case goods, upholstery and home accents to provide for quick delivery of in-stock items and to allow for more efficient production runs. Wholesale shipmentsWe utilize independent carriers to ship our own fleet of trucks and trailers or are subcontracted with independent carriers. Our fleet of trucks are financed under capital lease agreements with remaining terms ranging from less than two to over three years, and all of our trailers are owned.products.

Our practice has been to sell our products at the same delivered cost to all Company and independently operated design centers in North America,throughout the United States, regardless of their shipping point. This policy creates pricing credibility with our wholesale customers while providing our retail networksegment the opportunity to achieve more consistent margins by removing fluctuations attributable to the cost of shipping. Further, this policy eliminates the need for our independent retailers to carry significant amounts of inventory in their own warehouses. As a result, we obtain more accurate consumer product demand information.

Marketing Programs

Our marketing and advertising strategies are developed to drive traffic into our network of design centers and to ethanallen.com. We believe these strategies give Ethan Allen a strong competitive advantage in the home furnishings industry. We create and coordinate print, digital and television campaigns nationally, as well as assist in international and local marketing and promotional efforts. The Company’s network of approximately 300 retail design centers, along with the over 6,000 independent members of the Interior Design Affiliate program, benefit from these marketing efforts, and we believe these efforts position us to consistently fulfill our brand promise as America's Classic Design Brand.

Our team of advertising specialists creates consistent, clear messages that Ethan Allen is a leader in home fashion, designer services and classic style, with everything for the well designed home. We use several forms of media to communicate our message, including social media, digital advertising, television (national and local), direct mail, newspapers and national shelter magazines. These messages are also conveyed on our website at ethanallen.com. A strong email marketing program delivers promotional messages, inspiration, design ideas and product brochures to a growing database of clients.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Our national television, social media, online and print advertising campaigns are designed to leverage our strong brand equity, finding creative and compelling ways to remind consumers of our tremendous range of products, services, special programs, and custom options. Coordinated local digital, television and print advertising also serve to support our national programs.

The Ethan Allen direct mail magazine, which emphasizes the eclectic mix of our wide breadth of products and services, is a key marketing tool. We publish these magazines and sell them to Company and independently operated design centers that use demographic information collected internally and through independent market research to target potential clients. Given the importance of this advertising medium, direct mail marketing lists are continually refined to target those consumers who are most likely to purchase, and improve the return on direct mail expenditures. Approximately 23 million copies of our direct mail magazine were distributed to consumers during fiscal 2016.

At ethanallen.com we provide our clients and our associates with the tools they need to shop, design and buy. The website features inspiring photography, engaging video content, and all our latest news and promotional information. This year we launched an enhanced user experience and streamlined the path to purchase by updating the designs to our category pages, product types, and checkout.

Ethan Allen also has local websites in various international regions to support our international licensees. These websites, some in local languages, provide a regionalized presentation of the brand while also linking to our main website.

We launched an online specialty store in partnership with the Army and Air Force Exchange Service. The specialty online store accessible through shopmyexchange.com is an Exchange members-only website. The Army and Air Force Exchange Service is dedicated to ensuring active and retired soldiers, airmen, and their families have access to U.S. goods and services, wherever they serve or live. 

To enhance the Ethan Allen client experience, our design centers have interactive touchscreens, where users can browse our full product catalog, check out hundreds of fully designed rooms, print product descriptions, learn about promotions, and much more. Our design consultants utilize customized tablets so they can be more productive in our design centers and in our clients’ homes.

Our social media platforms offer fans and followers inspirational images, trend information, and design ideas, as well as tips for how to bring distinctive Ethan Allen style to their homes. We have a robust and loyal following on Facebook, Pinterest, Instagram, Twitter, Google+, YouTube, LinkedIn and Houzz. Our products are available to buy on Pinterest where we were one of the first brands to launch with Pinterest’s buyable pins program.

Our new mover and marketing program with major realtors brings Ethan Allen into targeted homes at the moment homeowners are most likely in the market for new furnishings. This program educates qualified consumers about our services and product offerings and is an extension of our designers’ grassroots marketing efforts.

We also have a robust and informative extranet available to our retailers and design professionals. It is the primary source of communication in and among members of our retail network. It provides information about every aspect of the retail business at Ethan Allen, including advertising materials, prototype floor plan displays, and extensive product details.

Retail Design Center Network

Ethan Allen design centers are typically located in busy retail settings as freestanding destinations or as part of suburban strip malls or shopping malls, depending upon the real estate opportunities in a particular market. Our design centers average approximately 16,000 square feet in size with 75% between 15,000 and 25,000 square feet and 20% less than 15,000 square feet and 5% greater than 25,000 square feet.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Combining technology with personal service in our design centers has allowed us to reduce the size of our design centers. At June 30, 2016 we operated 19 design centers that have opened in the past three years, and these average 8,700 square feet. These smaller footprint design centers reflect our direction as we move forward in repositioning our retail design center network. These new and relocated design centers also reflect our shift from destination and shopping mall locations to lifestyle centers that better project our brand and offer increased traffic opportunities. 

We maintain consistency of presentation throughout the retail design center network through a comprehensive set of standards and display planning assistance. These interior display design standards assist each design center in presenting a high quality image by using focused lifestyle settings and select product category groupings to display our products and information to facilitate design solutions and to educate consumers. We also create a consistent brand projection through our exterior facades and signage. The establishment of these standards has helped position Ethan Allen as a leader in home furnishings retailing.

We continue to strengthen the retail network with many initiatives, including the opening of new and relocating design centers in desirable locations, updating presentations and floor plans, strengthening of the professionalism of our designers through training and certification, and the consolidation of certain design centers and service centers.

People

At June 30, 2016, the Company , through its subsidiaries, had approximately 5,200 employees (“associates”), none of whom are represented by unions. We believe we maintain good relationships with our employees.

The retail network, which includes both Company subsidiaries and independently operated design centers, is staffed with a sales force of interior design consultants and service professionals who provide customers with complimentary home decorating and interior design solutions. Our interior design associates receive specialty training with respect to the distinctive design and quality features inherent in each of our products and programs. This enables them to more effectively communicate the elements of style and value that serve to differentiate us from our competition. As such, we believe our design consultants, and the complimentary service they provide, create a distinct competitive advantage over other home furnishing retailers. We continue to strengthen the level of service, professionalism, interior design competence, efficiency, and effectiveness of retail design center associates. The Company’s interior design affiliate program adds further strength and breadth to our interior design reach. We believe that this program augments the design center design staff to reach more clients and improve market penetration.

We recognize the importance of our retail design center network to our long-term success. Accordingly, we believe we (i) have established a strong management team within Company operated design centers and (ii) continue to work closely with our independent retailers in order to assist them. With this in mind, we make our services available to every design center, whether independently operated or Company operated, in support of their marketing efforts, including coordinated advertising, merchandising and display programs, and by providing extensive training seminars and educational materials. We believe that the development of design consultants, service and delivery personnel, and independent retailers is important for the growth of our business. As a result, we have committed to make available comprehensive retail training programs intended to increase the customer service capabilities of each individual.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Customer Service OfferingsEnvironmental Sustainability and Social Responsibility

We offer numerous customer servicecontinue to be focused on environmental and social responsibility while incorporating uniform social, environmental, health and safety programs each of which has been developed and introduced to consumers in an effort to make their shopping experience easier and more enjoyable.into our global manufacturing standards.

Gift Card

This program allows customersOur environmental (green) initiatives include but are not limited to purchasethe use of responsibly harvested Appalachian woods, and redeem gift cards throughwater-based finishes and measuring our website orcarbon footprint, greenhouse gases and recycled materials from our operations. We have eliminated the use of heavy metals and hydrochlorofluorocarbons in all packaging. Our mattresses and custom upholstery use foam made without harmful chemicals and substances. We have implemented the Enhancing Furniture’s Environmental Culture (“EFEC”) environmental management system sponsored by the American Home Furnishing Alliance (“AHFA”) at any participatingall our domestic manufacturing, distribution and service center facilities, and have expanded these efforts to our retail design center,centers, which can be usedhave now been registered in EFEC. Our Mexico and Honduras facilities are also registered under the AHFA's EFEC program. Our United States manufacturing, distribution and service centers have also achieved Sustainable by Design (“SBD”) registration status under the EFEC program. SBD provides a framework for anyhome furnishings companies to create and maintain a corporate culture of our products or services.

Ethan Allen Consumer Credit Programsconservation and environmental stewardship by integrating socio-economic policies and sustainable business practices into their manufacturing operations and sourcing strategies.

The Company requires its sourcing facilities that manufacture Ethan Allen Platinumbranded products to implement a labor compliance program offers consumers (clients)and meet or exceed the standards established for preventing child labor, involuntary labor, coercion and harassment, discrimination, and restrictions to freedom of association. These facilities are also required to provide a menu of custom financing options. Financing offered through this program is administered by a third-party financial institutionsafe and is grantedhealthy environment in all workspaces, compliance with all local wage and hour laws and regulations, compliance with all applicable environmental laws and regulations, and are required to our customers on a non-recourse basis to the Company. Clients may apply for anauthorize Ethan Allen Platinum card at any participating design center or on-line at ethanallen.com.

Competition

The domestic and global home furnishings industry faces numerous challenges, which include an influx of low-priced products from overseas. As a result, there is a high degree of competitionits designated agents (including third-party auditing companies) to engage in our markets. We differentiate ourselves as a preferred brand by adheringmonitoring activities to a business strategy focused on providing (i) high-quality, well designed and often custom, handmade products at good value, (ii) a comprehensive complement of home furnishing design solutions, including our complimentary design service, and (iii) excellence in customer service. We consider our vertical integration a significant competitive advantage in the current environment as it allows us to design, manufacture and source, distribute, market, and sell our products through one of the industry’s largest single-source retail networks.

The internet also provides a highly competitive medium for the sale of a significant amount of home furnishings each year, and we believe it is becoming increasingly important. Although much of that product is sold through commodity oriented, low priced and low service retailers, we believe consumers are spending more time window shopping on the internet and are thus better informed when they do visit our brick and mortar facilities. At Ethan Allen, the ultimate goal of our internet strategy is to drive traffic into our network of design centers by combining technology with excellent personal service. At ethanallen.com, customers have the opportunity to buy our products online but we take the process further. With so much of our product offering being custom, we encourage our website customers to get help from our network of interior design professionals. This complimentary interior design support creates a competitive advantage through our excellent personal service. This enhances the online experience and regularly leads to internet customers becoming clients of our network of interior design centers.

Industry globalization has provided us an opportunity to adhere to a blended sourcing strategy, establishing relationships with certain manufacturers, both domestically and outside the United States, to source selected case goods, upholstery, and home accent items. We intend to continue to balance our own North American production with opportunities to source from foreign and domestic manufacturers, as appropriate, in order to maintain our competitive advantage.confirm compliance.

We believe the home furnishings industry competes primarily on the basiswork to ensure our products are safe in our customers’ homes through responsible use of product stylingchemicals and quality, personal service, prompt delivery, product availability and price. We further believe that we effectively compete on the basis of each of these factors and that, more specifically, our direct manufacturing product presentations, website, and complimentary design service create a distinct competitive advantage, further supporting our mission of providing consumers with a complete home decorating and design solution. We also believe that we differentiate ourselves further with the quality of our design service through our intensive training. Our objective is to continue to develop and strengthen our retail network by (i) expanding the Company operated retail business through the repositioning of and opening of new design centers, and (ii) obtaining and retaining independent retailers, encouraging such retailers to expand their business through the opening or relocation of new design centers with the objective of increasing the volume of their sales (iii) further expanding our sales network through our IDA and realtor referral programs and (iv) further expanding our ecommerce.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIESsubstances.

TrademarksIntellectual Property

We currently hold, or have registration applications pending for, numerous trademarks, service marks and copyrights for the Ethan Allen name, logos and designs in a broad range of classes for both products and services in the United States and in many foreign countries. In addition, we have registered, or have applications pending for certain of our slogans utilized in connection with promoting brand awareness, retail sales and other services and certain collection names. We view such trademarks and service marks as valuable assets and have an ongoing program to diligently monitor and defend, through appropriate action, against their unauthorized use.

Executive OfficersGovernment Regulation

The Company is subject to reporting requirements, disclosure obligations and other recordkeeping requirements of the Registrant
Securities and Exchange Commission (“SEC”) and the various local authorities that regulate each location in which we operate. 

Set forth

Corporate Contact Information

Ethan Allen’s principal executive office is in Danbury, Connecticut.

Available Information

Information contained in our Investor Relations section of our website at ethanallen.com/investors is not part of this Annual Report on Form 10-K. Information that we furnish or file with the tableSEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. Our SEC filings, including exhibits filed therewith, are available on the SEC’s website at sec.gov.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Information about our Executive Officers

Listed below is a listare the name, age, and current position for each of our executive officers together with certain biographical information, including their ages as of the date of this Report:Annual Report on Form 10-K. If they have not held the positions for at least five years, their former positions during that period are listed.

* Mr. Kathwariis the only one of our executive officers who operates under a written employment agreement.

Additional Information

Additional information with respect to the Company’s business is included in the following pages and is incorporated herein by reference:

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

ItemITEM 1A. Risk FactorsRISK FACTORS

The following information describes certain significant risks could materially and uncertainties inherent inadversely affect our business, financial condition, cash flows, results of operations and the trading price of our common stock could decline. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Investors should be carefully considered, along withalso refer to the other information contained elsewhereset forth in this Annual Report on Form 10-K, including Management’s Discussion and in other filings, whenAnalysis of Financial Condition and Results of Operations and our financial statements including the related notes. Investors should carefully consider all risks, including those disclosed, before making an investment decision with respect to us. If one or more of these risks actually occurs,decision.

A volatile retail environment and changing economic conditions may further adversely affect consumer demand and spending.

General economic factors that are beyond the Company’s control could impact our forecasts and actual performance. These factors include housing markets, recession, inflation, deflation, consumer credit availability, consumer debt levels, fuel and energy costs, interest rates, tax rates and policy, unemployment trends, the impact on our business, including our financial condition, results of operations,natural disasters, civil disturbances and cash flowsterrorist activities, foreign currency exchange rate fluctuations, conditions affecting the retail environment for products sold by the Company and other matters that influence consumer spending. Changes in the economic climate could be adverse.adversely affect the Company’s performance.

AnHistorically, the home furnishings industry has been subject to cyclical variations in the general economy and to uncertainty regarding future economic downturn may materiallyprospects. Should the current economic recovery falter or the current recovery in housing starts to stall, consumer confidence and demand for home furnishings could deteriorate, which could adversely affect our business.business through its impact on the performance of our Company-owned design centers, as well as on our independent licensees and the ability of a number of them to meet their obligations to us.

Our business and results of operations are affected by international, national and regional economic conditions. Regional economic conditions in the United States and in other regions of the world where we have a concentration of design centers such as Canada or China, may have a greater impact on the Company greater compared to economic conditions in other parts of the world where we have lesser concentration of design centers. The United States and many other international economies experienced a major recession, which reduced the available market size for our industry from historic peak levels. While we have recalibrated the footprint of our vertically integrated enterprise to be profitable with lower revenues than achieved at our historic peak, anAn economic downturn of significance or extended duration couldadverselycould adversely affect consumer demand and discretionary spending habits and, as a result, our businessperformance,business performance, profitability, and cash flows. Our international net sales accounted for 6.8% of our consolidated net sales during fiscal 2019.

GlAccess to consumer credit could be interrupted and reduce sales and profitability.obal andlocal economic uncertaintymaymaterially adverselyaffect our manufacturing operations or sourcesof merchandise and international operations.

Our ability toThe current economic challenges in China, including global economic ramifications of the softening of the Chinese economy and trade agreement negotiations, may continue to access consumer credit for our clients could be negatively affected by conditions outside our control. If capital market conditions were to worsen meaningfully, there is a risk that our business partner that issues our private label credit card program may not be able to fulfill its obligations under that agreement. In addition, further tightening of credit markets may restrict the ability and willingness of customers to make purchases.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

We may be unable to obtain sufficient external funding to finance our operations and growth.

Historically, we have relied upon our cash from operations to fund our debt service, operations and growth. As we operate and expand our business, we may relyput pressure on external funding sources, including the proceeds from the issuance of additional debt or use of the $115 million revolving bank line of credit under our existing $150 million credit facility. The credit facility bears interest at a floating rate and there is a risk that the rate will increase and as we are not hedging our interest rate for the credit facility, our debt service costs could increase. Any unexpected reduction in cash flow from operations could increase our external funding requirements to levels above those currently available. There can be no assurance that we will not experience unexpected cash flow shortfalls in the future or that any increase in external funding required by such shortfalls will be available on acceptable terms or at all.

Operating losses could reduce our liquidity and impact our dividend policy.

Historically, we have relied on our cash from operations or debt issuances to fund our operations and the payment of cash dividends. If the Company’s financial performance were to deteriorate resulting in financial losses we may not be able to fund a shortfall from operations and would require external funding. Some financing instruments used by the Company historically may not be available to the Company in the future. We cannot assure that additional sources of financing would be available to the Company on commercially favorable terms should the Company's capital requirements exceed cash available from operations and existing cash and cash equivalents. In such circumstances, the Company may reduce its quarterly dividends.

Additional impairment charges could reduce our profitability.

We have significant long-lived tangible and intangible assets recorded on our balance sheets. If our operating results decline, we may incur impairment charges in the future, which could have a material impact on our financial results. We evaluate the recoverability of the carrying amount of our long-lived tangible and intangible assets on an ongoing basis. There can be no assurance that the outcome of such future reviews will not result in substantial impairment charges. Impairment assessment inherently involves judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs or other factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we use in testing for impairment are reasonable, significant changes in any of our assumptions could produce a significantly different result.

We face changes in global and local economic conditions that may adversely affect consumer demand and spending, our manufacturing operations or sources of merchandise and international operations.

Historically, the home furnishings industry has been subject to cyclical variations in the general economy and to uncertainty regarding futureconditions. This economic prospects. Such uncertainty, as well as other variations in global economic conditions such as rising fuel costs, wage and benefit inflation, and currency fluctuations, and increasing interest rates, may continue to cause inconsistent and unpredictable consumer spending habits, while increasing our own input costs. These risks as well as industrial accidents or work stoppages,resulting from global and local economic uncertainty could also severely disrupt our manufacturing operations, which could have a material adverse effectaffect on our financial performance.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

We import a portion of our merchandise from foreign countries and operate manufacturing plants in Mexico and Honduras and operate retail design centers in Canada. As a result, our ability to obtain adequate supplies or to control our costs may be adversely affected by events affecting international commerce and businesses located outside the United States, including natural disasters, changes in international trade including tariffs, central bank actions, changes in the relationship of the U.S.United States dollar versus other currencies, labor availability and cost, and other governmental policies of the U.S.United States and the countries from which we import our merchandise or in which we operate facilities. The inability

Disruptions of our supply chain could have a material adverse affect on our operating and financial results.

Disruption of the Company’s supply chain capabilities due to import products from certaintrade restrictions, political instability, weather, natural disaster, terrorism, product recalls, labor supply or stoppages, the financial and/or operational instability of key suppliers and carriers, or other reasons could impair the Company’s ability to distribute its products. To the extent we are unable to mitigate the likelihood or potential impact of such events, there could be a material adverse affect on our operating and financial results.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Changes in United Statestrade and tax policy could materially adversely affect our business and results of operations.

Changes in the political environment in the United States may require us to modify our current business practices. Because we manufacture components and finished goods in Mexico and Honduras and purchase components and finished goods manufactured in foreign countries, including China, we are subject to risks relating to increased tariffs on United States imports, changes in the North American Free Trade Agreement, and other changes affecting imports. Recently, the United States administration considered enacting certain tariffs on many items sourced from China, including certain furniture, accessories, furniture parts, and raw materials that are imported into the United States and used in our domestic operations. We may not be able to fully or substantially mitigate the impositionimpact of such tariffs, pass price increases on to our customers, or secure adequate alternative sources of products or materials. The tariffs, along with any additional tariffs or retaliatory trade restrictions implemented by other countries, could negatively impact customer sales, including potential delays in product received from our vendors, our cost of goods sold and results of operations.

Approximately 25% of our merchandise is sourced from outside of the United States. The United States government is considering proposals for substantial changes to its trade and tax policies, which could include import restrictions, increased import tariffs, changes to or withdrawal from existing trade agreements, and border-adjustment taxes among other possible measures. Material changes in these policies could increase our tax obligations or require us to increase prices to customers, which would likely adversely affect sales. Any significant tariffschange in United States policy related to imported merchandise could have a material adverse effectaffect on our results of operations.business and financial results.

CompetitCompetition ionfromoverseas manufacturers manufacturersand domestic retailersmay adversely affect materially affectour business, operating results business,operating resultsor financial condition.condition.

Our wholesale business segment is involved in the development of our brand, which encompasses the design, manufacture, sourcing, sales and distribution of our home furnishings products, and competes with other U.S.United States and foreign manufacturers. Our retail network sells home furnishings to consumers through a network of independently operated and Company operated design centers, and competes against a diverse group of retailers ranging from specialty stores to traditional furniture and department stores, any of which may operate locally, regionally, and nationally or globally, as well as over the internet. We also compete with these and other retailers for appropriate retail locations as well as for qualified design consultants and management personnel. Such competition could adversely affect our future financial performance.

Industry globalization has led to increased competitive pressures brought about by the increasing volume of imported finished goods and components, particularly for case good products, and the development of manufacturing capabilities in other countries, specifically within Asia. The increase in overseas production capacity has created over-capacityover‐capacity for many manufacturers, including us, which has led to industry-wideindustry‐wide plant consolidation. In addition, because many foreign manufacturers are able to maintain substantially lower production costs, including the cost of labor and overhead, imported product may be capable of being sold at a lower price to consumers, which, in turn, could lead to some measure of further industry-wideindustry‐wide price deflation.

We cannot provide assurance that we will be able to establish or maintain relationships with sufficient or appropriate manufacturers, whether foreign or domestic, to supply us with selected case goods, upholstery and home accent items to enable us to maintain our competitive advantage. In addition, the emergence of foreign manufacturers has served to broaden the competitive landscape. Some of these competitors produce furniture types not manufactured by us and may have greater financial resources available to them or lower costs of operating. This competition could materially adversely affect our future financial performance.

FailureFailure to successfully anticipate successfullyanticipateor respond respondtochangesinconsumertastesandtrendsin consumer tastes and trends in a timely manner timelymannercould adverselymaterially adversely impact our business, operating resultsour business,operating results andfinancial condition.condition.

Sales of our products are dependent upon consumer acceptance of our product designs, styles, quality and price. We continuously monitor changes in home design trends through attendance at international industry events and fashion shows, internal marketing research, and regular communication with our retailers and design consultants who provide valuable input on consumer tendencies. However, as with all retailers, our business is susceptible to changes in consumer tastes and trends. Such tastes and trends can change rapidly and any delay or failure to anticipate or respond to changing consumer tastes and trends in a timely manner could materially adversely impact our business, operating results and financial condition.

Inability to maintainandenhanceourbrand may materially adversely impactourbusiness.

Maintaining and enhancing our brand is critical to our ability to expand our base of customers and may require us to make substantial investments. Our advertising campaign utilizes television, direct mail, digital, newspapers, magazines and radio to maintain and enhance our existing brand equity. We cannot provide assurance that our marketing, advertising and other efforts to promote and maintain awareness of our brand will not require us to incur substantial costs. If these efforts are unsuccessful or we incur substantial costs in connection with these efforts, our business, operating results and financial condition could be materially adversely affected.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Ournumber of manufacturing ofmanufacturingandlogistics sitesmayincrease ourexposure to businessdisruptionsand logistics sites may increase our exposure to business disruptions and could result could resultin higher transportation costs.transportationcosts.

We have a limited number of manufacturing sites in our case goodgoods and upholstery operations and consolidated our distribution network into fewer centers for both wholesale and retail segments, and operate a single home accents plant.segments. Our upholstery operations consist of threetwo upholstery plants at our North Carolina campus and one plant in Mexico. The Company operates threetwo manufacturing plants (North Carolina, Vermont,(Vermont and Honduras) and one sawmill in support of our case goods operations. Our plants require various raw materials and commodities such as logs and lumber for our case good plants and foam, springs and engineered hardwood board for our upholstery plants. As a result of the consolidation of our manufacturing operations into fewer facilities, if any of our manufacturing or logistics sites experience significant business interruption, our ability to manufacture products or deliver our products in a timely manner would likely be impacted. While we have long-standinglong‐standing relationships with multiple outside suppliers of our raw materials and commodities, there can be no assurance of their ability to fulfill our supply needs on a timely basis. The consolidation to fewer locations has resulted in longer distances for delivery and could result in higher costs to transport products if fuel costs increase significantly.

Fluctuationsintheprice,availabilityandqualityofrawmaterialscouldresultinincreasedcostsorcauseproductiondelays which mightresult ina decline in sales, either of which couldmaterially adverselyimpact our earnings.

We use various types of wood, foam, fibers, fabrics, leathers, and other raw materials in manufacturing our furniture. Certain of our raw materials, including fabrics, are purchased domestically as well as outside North America. Fluctuations in the price, availability and quality of raw materials could result in increased costs or a delay in manufacturing our products, which in turn could result in a delay in delivering products to our customers. For example, lumber prices fluctuate over time based on factors such as weather and demand, which, in turn, impact availability. Production delays or upward trends in raw material prices could result in lower sales or margins, thereby materially adversely impacting our earnings.

In addition, certain suppliers may require extensive advance notice of our requirements in order to produce products in the quantities we desire. This long lead time may require us to place orders far in advance of the time when certain products will be offered for sale, thereby exposing us to risks relating to shifts in consumer demand and trends, and any significant downturn in the United States economy.

Our current and former manufacturing former manufacturingand retailretail operations and andproducts are subject aresubjectto increasingly stringent environmental,increasinglystringent environmental, health and safety requirements.and safety requirements.

We use and generate hazardous substances in our manufacturing and retail operations. In addition, both the manufacturing properties on which we currently operate and those on which we have ceased operations are and have been used for industrial purposes. Our manufacturing operations and, to a lesser extent, our retail operations involve risk of personal injury or death. We are subject to increasingly stringent environmental, health and safety laws and regulations relating to our products, current and former properties and our current operations. These laws and regulations provide for substantial fines and criminal sanctions for violations and sometimes require product recalls and/or redesign, the installation of costly pollution control or safety equipment, or costly changes in operations to limit pollution or decrease the likelihood of injuries. In addition, we may become subject to potentially material liabilities for the investigation and cleanup of contaminated properties and to claims alleging personal injury or property damage resulting from exposure to or releases of hazardous substances or personal injury because of an unsafe workplace.

In addition, noncompliance with, or stricter enforcement of, existing laws and regulations, adoption of more stringent new laws and regulations, discovery of previously unknown contamination or imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could be material.

We Fluctuationsoperate in the price, availabilityhighly competitive retail business where the use of emerging technologies as well as unanticipated changes in the pricing and qualityother practices of raw materials could result in increased costs or cause production delays which might result in a decline in sales, either of which couldcompetitors may adversely impact affect our earnings. performance.

The retail business is highly competitive. We use various types of wood, foam, fibers, fabrics, leathers,compete for customers, employees, locations, merchandise, technology, services and other raw materialsimportant aspects of the business with many other local, regional and national retailers. Those competitors range from specialty retailers to department stores and discounters as well as online and multichannel retailers. Specifically, rapidly evolving technologies are altering the manner in manufacturing our furniture. Certain of our raw materials, including fabrics, are purchased domesticallywhich the Company and outside North America. Fluctuationsits competitors communicate and transact with customers. Our strategy designed to adapt to these changes, in the price, availabilitycontext of competitors’ actions, customers adoption of new technology, and quality of raw materials could resultrelated changes in increased costscustomer behavior, presents a specific risk in the event we are unable to successfully execute our plans or a delay in manufacturing our products, which in turn could result in a delay in delivering products to our customers. For example, lumber prices fluctuateadjust them over time based on factorsif needed. Further, unanticipated changes in pricing and other practices of competitors, including promotional activity, such as weatherthresholds for free shipping and demand, which in turn, impact availability. Production delays or upward trends in raw material prices could result in lower sales or margins, therebyrapid price fluctuation enabled by technology, may adversely impactingaffect our earnings.

In addition, certain suppliers may require extensive advance notice of our requirements in order to produce products in the quantities we desire. This long lead time may require us to place orders far in advance of the time when certain products will be offered for sale, thereby exposing us to risks relating to shifts in consumer demand and trends, and any significant downturn in the U.S. economy.performance.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

We rely extensively on information technology systems to process transactions, summarize results, and manage our business and that of certain independent retailers. Disruptions in both our primary and back-up systems could adversely affect our business and operating results.

Our primary and back-up information technology systems are subject to damage or interruption from power outages, computer and telecommunications failures, viruses, phishing attempts, cyber-attacks, malware and ransomware attacks, security breaches, natural disasters, and errors by employees. Though losses arising from some of these issues would be covered by insurance, interruptions of our critical business information technology systems or failure of our back-up systems could result in longer production times or negatively impact customers resulting in damage to our reputation and a reduction in sales. If our critical information technology systems or back-up systems were damaged or ceased to function properly, we might have to make a significant investment to repair or replace them.

Product recalls or product safety concernscould materially adversely affect our sales and operating results.

If the Company's merchandise offerings do not meet applicable safety standards or consumers' expectations regarding safety, the Company could experience decreased sales, increased costs and/or be exposed to legal and reputational risk. Events that give rise to actual, potential or perceived product safety concerns could expose the Company to government enforcement action and/or private litigation. Reputational damage caused by real or perceived product safety concerns or product recalls could negatively affect the Company's business and results of operations.

Successful cyber-attacks and the failure to maintain adequate cyber-security systems and procedures could harmmaterially our operations.

In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyberattacks targeting businesses such as ours. Cyber-attacks are becoming more sophisticated and frequent, and in some cases have caused significant harm. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. We dependoperate many aspects of our business including financial reporting, and customer relationship management through server and web‐based technologies, and store various types of data on such servers or with third‐parties who in turn store it on servers and in the “cloud.” Any disruption to the internet or to the Company's or its service providers' global technology infrastructure, including malware, insecure coding, “Acts of God,” attempts to penetrate networks, data theft or loss and human error, could have adverse affects on the Company's operations. A cyber-attack of our systems or networks that impairs our information technology systems could disrupt our business operations and result in loss of service to customers. The risk of cyberattacks to our Company also includes attempted breaches of contractors, business partners, vendors and other third parties. We have a comprehensive cybersecurity program designed to protect and preserve the integrity of our information technology systems. We have experienced and expect to continue to experience actual or attempted cyber-attacks of our IT systems or networks; however, none of these actual or attempted cyber-attacks had a material impact on our operations or financial condition.

While we devote significant resources to network security, data encryption and other security measures to protect our systems and data, including our own proprietary information and the confidential and personally identifiable information of our customers, employees, and business partners, these measures cannot provide absolute security. The costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful, resulting potentially in the theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations. Moreover, if a computer security breach or cyber-attack affects our systems or results in the unauthorized release of proprietary or personally identifiable information, our reputation could be materially damaged, our customer confidence could be diminished, and our operations, including technical support for our devices, could be impaired. We would also be exposed to a risk of loss or litigation and potential liability, which could have a material adverse affect on our business, results of operations and financial condition.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Loss, corruption and misappropriation of data and information relating to customers could materially adversely affect our operations.

We have access to sensitive customer information in the ordinary course of business. If a significant data breach occurred, our reputation may be adversely affected, customer confidence may be diminished, or we may be subject to legal claims, or legal proceedings, including regulatory investigations and actions, may have a negative impact on our reputation, may lead to regulatory enforcement actions against us, and may materially adversely affect our business, operating results and financial condition. The loss, disclosure or misappropriation of our business information may materially adversely affect our business, operating results and financial condition. Further, legislative or regulatory action in these areas is evolving, and we may be unable to adapt our IT systems or to manage the IT systems of third parties to accommodate these changes. Finally, if a significant data breach occurred, our reputation could be materially and adversely affected, and confidence among our customers may be diminished.

Our business is dependent on certain key personnel; if we lose key personnel and couldor are unable to hire additional qualified personnel, our business may be affected by the loss of their services.harmed.

The success of our business depends upon the servicesour ability to retain continued service of certain senior executives, and in particular, the services of M. Farooq Kathwari,key personnel, particularly our Chairman of the Board, President and Chief Executive Officer, who isM. Farooq Kathwari, and to attract and retain additional qualified key personnel in the only one of our senior executives who operates under a written employment agreement. Thefuture. We face risks related to loss of any such person or otherkey personnel and we also face risks related to any changes that may occur in key senior leadership executive positions. Any disruption in the services of our key personnel could have a material adverse effect onmake it more difficult to successfully operate our business and achieve our business goals and could adversely affect our results of operations.  

Our business is sensitive to increasing labor costs, competitive labor markets,operation and financial condition. These changes could also increase the volatility of our continued ability to retain high-quality personnel and risks of work stoppages.stock price.

The market for qualified employees and personnel in the retail and manufacturing industries is highly competitive. Our success depends upon our ability to attract, retain and motivate qualified artisans, professional and clerical associatesemployees and upon the continued contributions of these individuals. We cannot provide assurance that we will be successful in attracting and retaining qualified personnel. A shortage of qualified personnel may require us to enhance our wage and benefits package in order to compete effectively in the hiring and retention of qualified employees. Our labor and benefit costs may continue to increase and such increases may not be recovered. This could have a material adverse effectaffect on our business, operating results and financial condition.

Our success depends upon our brand, marketing and advertising efforts and pricing strategies. IfIn addition, as previously announced in April 2019, we are not ablecurrently executing plans to maintain and enhancefurther improve our brand, or if we are not successful in these other efforts,vertically integrated operations with a number of initiatives. As a result of the ongoing evolution of our business, we frequently implement changes to our organizational design in order to more closely align our management structure with the needs of the business. In connection with such changes to our retail and wholesale structure, we also implement changes in personnel and reductions in force as a result of which we may incur severance costs and other reorganization charges and expenses. Changes in our organizational structure may also have an adverse impact on our ability to retain qualified personnel.

Our total assets include substantial amounts of long-lived assets, principally property and equipment. Changes to estimates or projections used to assess the fair value of these assets, financial results that are lower than current estimates at certain design center locations or determinations to close underperforming locations may cause us to incur future impairment charges, negatively affecting its financial results.

We make certain accounting estimates and projections with regard to individual design center operations as well as overall Company performance in connection with our impairment analysis for long-lived assets in accordance with applicable accounting guidance. An impairment charge may be required if the impairment analysis indicates that the carrying value of an asset exceeds the sum of the expected undiscounted cash flows of the asset. The projection of future cash flows used in this analysis requires the use of judgment and a number of estimates and projections of future operating results. If actual results differ from Company estimates, additional charges for asset impairments may be required in the future. If impairment charges are significant, our financial results could be adversely affected.

Maintaining and enhancing our brand is critical to our ability to expand our base of customers and may require us to make substantial investments. Our advertising campaign utilizes television, direct mail, newspapers, magazines and radio to maintain and enhance our existing brand equity. We cannot provide assurance that our marketing, advertising and other efforts to promote and maintain awareness of our brand will not require us to incur substantial costs. If these efforts are unsuccessful or we incur substantial costs in connection with these efforts, our business, operating results and financial condition could be adverselynegatively affected.

WeAccess toconsumer credit could be interrupted as a result of conditions outside of our control, which could reduce sales andprofitability.

Our ability to continue to access consumer credit for our customers could be negatively affected by conditions outside our control. If capital market conditions have a material negative change, there is a risk that our business partner that issues our private label credit card program may not be able to maintain our current designfulfill its obligations under that agreement. In addition, the tightening of credit markets may restrict the ability and willingness of customers to make purchases.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Wemaynotbeabletomaintainourcurrentdesigncenterlocationsatcurrentcosts.Wemayalsofailtosuccessfullyselect and secure design center locations at current costs. We may also fail to successfully select and secure design center locations.locations.

Our design centers are typically located in busy urban settings as freestanding destinations or as part of suburban strip malls or shopping malls, depending upon the real estate opportunities in a particular market. Our business competes with other retailers and as a result, our success may be affected by our ability to renew current design center leases and to select and secure appropriate retail locations for existing and future design centers.

Our business may be materially Ouradversely affected by changes to fiscal and tax policies.

In the ordinary course of business, we are subject to tax examinations by various governmental tax authorities. The global and diverse nature of our business means that there could be additional examinations by governmental tax authorities and the resolution of ongoing and other probable audits, which could impose a future risk to the results of operations for any quarter are not necessarily indicative of our results of operations for a full year.business.

SalesOn December 22, 2017, the United States Tax Cuts and Jobs Act, (the “Act”) was signed into law. The Act enacted broad changes to the existing United States Internal Revenue code, including reducing the federal corporate income tax rate from 35% to 21%, among many other complex provisions. Guidance issued by the SEC provided a measurement period of furnitureone year from the enactment date to finalize the accounting for effects of the Act. In fiscal 2018, we made a provisional estimate of the effects of the Act on our existing deferred tax balances. In fiscal 2019 the measurement period ended, and no material adjustments were made to our provisional estimate of the impacts of the Act. The U.S. Treasury Department, the Internal Revenue Service and other home furnishing products fluctuatestandard-setting bodies could interpret or issue guidance on how provisions of the Act will be applied or otherwise administered that is different from quarter to quarter due to such factors as changes in global and regional economic conditions, changes in competitive conditions, changes in production schedulesour interpretation. Finally, foreign governments may enact tax laws in response to seasonalthe Act that could result in further changes in energy coststo global taxation and weather conditions, changes in consumer order patterns,materially affect our financial position and the timing of various promotional events. From time to time, we have experienced, and may continue to experience, volatility with respect to demand for our home furnishing products. Accordingly, results of operations. The uncertainty surrounding the effect of the reforms on our financial results and business could also weaken confidence among investors in our financial condition.  This could, in turn, have a materially adverse affect on the price of our common stock.

Our operations present hazards and risks which may not be fully covered by insurance, if insured.

The scope and nature of our operations present a variety of operational hazards and risks that must be managed through continual oversight and control. As protection against hazards and risks, we maintain insurance against many, but not all, potential losses or liabilities arising from such risks. Uninsured losses and liabilities from operating risks could reduce the funds available to us for any quarter are not necessarily indicative ofcapital and investment spending and could have a material adverse impact on the results of operations for a full year.operations.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Failure to protect our intellectual property could materially adversely affect us.

We believe that our copyrights, trademarks, service marks, trade secrets, and all of our other intellectual property are important to our success. We rely on patent, trademark, copyright and trade secret laws, and confidentiality and restricted use agreements, to protect our intellectual property and may seek licenses to intellectual property of others. Some of our intellectual property is not covered by any patent, trademark, or copyright or any applications for the same. We cannot provide assurance that agreements designed to protect our intellectual property will not be breached, that we will have adequate remedies for any such breach, or that the efforts we take to protect our proprietary rights will be sufficient or effective. Any significant impairment of our intellectual property rights or failure to obtain licenses of intellectual property from third parties could harm our business or our ability to compete. Moreover, we cannot provide assurance that the use of our technology or proprietary know-how“know‐how” or information does not infringe the intellectual property rights of others. If we have to litigate to protect or defend any of our rights, such litigation could result in significant expense.

The Company relies heavily on information and technology to operate its business, and any disruption to its technology infrastructure (including cyber attacks) or the internet could harm the Company's operations.

We operate many aspects of our business including financial reporting, and customer relationship management through server and web-based technologies, and store various types of data on such servers or with third-parties who in turn store it on servers and in the “cloud”. Any disruption to the internet or to the Company's or its service providers' global technology infrastructure, including malware, insecure coding, “Acts of God,” attempts to penetrate networks, data theft or loss and human error, could have adverse affects on the Company's operations.A cyber attack of our systems or networks that impairs our information technology systems could disrupt our business operations and result in loss of service to customers. We have a comprehensive cybersecurity program designed to protect and preserve the integrity of our information technology systems. We have experienced and expect to continue to experience actual or attempted cyber attacks of our IT systems or networks; however, none of these actual or attempted cyber attacks has had a material impact on our operations or financial condition. Additionally, we have access to sensitive customer information in the ordinary course of business. If a significant data breach occurred, our reputation may be adversely affected, customer confidence may be diminished, or we may be subject to legal claims, any of which may contribute to the loss of customers and have a material adverse impact on our business.While we have invested and continue to invest in information technology risk management, cybersecurity and disaster recovery plans, these measures cannot fully insulate the Company from technology disruptions or data theft or loss and the resulting adverse effect on the Company's operations and financial results.

We could incur substantial costs due to compliance with conflict mineral regulations, which may materially adversely affect our business, operating results, and financial condition.

The SEC has adopted rules regarding disclosure of the use of tantalum, tin, tungsten, and gold (commonly referred to as conflict minerals), which are mined from the Democratic Republic of the Congo and surrounding countries. This requirement could affect the sourcing of materials used in some of our products as well as the companies we use to manufacture our products. If our products are found to contain conflict minerals sourced from the Democratic Republic of the Congo or surrounding countries, the Company would take actions such as changing materials or designs to reduce the possibility that the purchase of conflict minerals may fund armed groups in the region. These actions could add engineering and other costs to the manufacture of our products.

We expect to incur costs to continue to upgrade our process to discover the origin of the tantalum, tin, tungsten, and gold used in our products, and to audit our conflict minerals disclosures. Our reputation and consequently our financial condition may also suffer if we have included conflict minerals originating in the Democratic Republic of the Congo or surrounding countries in our products, and those conflict minerals funded armed groups in the region.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

ItemITEM 1B. Unresolved Staff CommentsUNRESOLVED STAFF COMMENTS

None.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

ItemITEM 2.     PropertiesPROPERTIES

OurEthan Allen’s 144,000 sq. ft.square foot corporate headquarters building, located in Danbury, Connecticut, and adjacent Ethan Allen Hotel and Conference Center, containing approximately 200 guestrooms, areis owned by the Company. The hotel is used primarily for functions and accommodations for the general public as well as in connection with Ethan Allen functions and training programs.

We operate ninesix manufacturing facilities located in the U.S.,United States, Mexico and Honduras. All of theseThese facilities are owned by the Company and include fourthree case goodgoods plants (including one sawmill) totaling 1,789,0001,300,000 square feet fourand three upholstery furniture plants totaling 947,000 square feet, and one home accent plant of 177,000 square feet. Our wholesale division also owns and operates three national distribution and fulfillment centers, one of which shares a facility with our manufacturing, which are a combined 1,001,0001,170,000 square feet. Two of our case goods manufacturing facilities are located in Vermont one is in North Carolina and one is in Honduras. We have threetwo upholstery manufacturing facilities at our North Carolina campus and one in Mexico. Our home accents plant is located in New Jersey,wholesale division also owns and ouroperates four national distribution and fulfillment centers, which are a combined 1,428,000 square feet. Our distribution facilities are located in New Jersey,North Carolina, Oklahoma, and Virginia .Virginia.

We own three and lease ten10 retail service centers, totaling 732,000approximately 770,000 square feet. Our retail service centers are located throughout the United States and Canada and serve to support our various retail sales districts.design centers.

As of June 30, 2019 there were 144 Company operated retail design centers totaling 2,210,000 square feet, and averaging approximately 15,300 square feet in size per location. Of the 144 Company operated retail design centers, 50 of the properties are owned and 94 are leased. We own one and lease six additional retail properties, of which we sublease three to independent Ethan Allen retailers and four to unaffiliated third parties.

The location activity and geographic distribution of our retail design center network as offor fiscal years ended June 30 2016 isare as follows:

Of the 143 Company operated retail design centers, 66 of the properties are owned and 77 of the properties are leased from independent third parties. Of the 66 owned design centers, 17 are subject to land leases. We own six additional retail properties, two of which are leased to independent Ethan Allen retailers, and four of which are leased to unaffiliated third parties. See Note 7 to the Consolidated Financial Statements included under Item 8 of this Annual Report for more information with respect to our operating lease obligations.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

We believe that all of our properties are well maintained and in good condition. We have additional capacity at each facility as we estimate that our manufacturing plants are currently operating at approximately 66%50% of capacity based on their current shifts and staffing. We believeIn an effort to further improve and optimize our manufacturing and logistics operations, we have additional capacity at selected facilities,are currently executing the following plans, which we could utilizeexpect to be completed during fiscal 2020: (i) convert our Old Fort, North Carolina plant into a state-of-the-art distribution center to support our national distribution structure and growing United States government General Services Administration (“GSA”) contract business; (ii) consolidate United States case goods manufacturing to Vermont; (iii) expand our Maiden, North Carolina campus with minimal additional capital expenditures.the addition of 80,000 square feet; and (iv) move the distribution operations from our Passaic, New Jersey facility to our operations in North Carolina and outsource the art framing operations.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

ItemITEM 3.     Legal Proceedings LEGAL PROCEEDINGS

InFrom time to time, we are subject to legal proceedings, claims and litigation arising in the ordinary course of business. Based on currently available information, we do not believe that the ultimate outcome of these unresolved matters against Ethan Allen, individually or in the aggregate, will have a material adverse affect on our business, weconsolidated financial position, our annual results of operations or our annual cash flows. However, these matters are partysubject to variousinherent uncertainties and our view of these matters may change in the future. For additional information regarding legal proceedingsmatters, refer to Note 20, Commitments and claims which we believe are incidental toContingencies, of the operation of our business. Other than as described under Note 13notes to our consolidated financial statements included in Part II,under Item 8 of this Annual Report on Form 10-K, we believe the ultimate outcome of these proceedings to which we are currently a party will not have a material adverse effect on our business, financial position, results of operations or cash flows.10-K.

Regulations issued under the Clean Air Act Amendments of 1990 required the industry to reformulate certain furniture finishes or institute process changes to reduce emissions of volatile organic compounds. Compliance with many of these requirements has been facilitated through the introduction of high solids coating technology and alternative formulations. In addition, we have instituted a variety of technical and procedural controls, including reformulation of finishing materials to reduce toxicity, implementation of high velocity low pressure spray systems, development of storm water protection plans and controls, and further development of related inspection/audit teams, all of which have served to reduce emissions per unit of production. We remain committed to implementing new waste minimization programs and/or enhancing existing programs with the objective of (i) reducing the total volume of waste, (ii) limiting the liability associated with waste disposal, and (iii) continuously improving environmental and job safety programs on the factory floor which serve to minimize emissions and safety risks for employees. In order toTo reduce the use of hazardous materials in the manufacturing process, we will continue to evaluate the most appropriate, cost-effective control technologies for finishing operations and production methods. We believe that our facilities are in material compliance with all such applicable laws and regulations. Our currently anticipated capital expenditures for environmental control facility matters are not material.

ItemITEM 4.     Mine Safety DisclosuresMINE SAFETY DISCLOSURES

Not applicableapplicable.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

PART II

ItemITEM 5.     Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Our

Market Information. Ethan Allen common stock is traded on the New York Stock Exchange (“NYSE”) under ticker symbol "ETH"“ETH”. The following table sets forth, for each quarterly period during the past two fiscal years, (i) the intraday high and low sales prices of our common stock as reported on the NYSE and (ii) the dividends per share declared by us: