ETH - Earnings call transcript Q4 2019 | Ethan Allen Interiors Inc.

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Operator

Good afternoon and welcome to the Ethan Allen Fiscal 2019 Fourth Quarter Analyst Conference Call. [Operator Instructions] Thank you. It is now my pleasure to introduce your host, Corey Whitely, Executive Vice President, Administration and Chief Financial Officer. Thank you.

You may begin.

Corey Whitely

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

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

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

is Kathwari. With that, here Farooq

Farooq Kathwari

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

For sales we XXXX China international including a factors, number particularly and lower were impacted and Canada challenged and of quarter, increase the of being imposition fiscal while China, profitability. to tariffs. were with to able markets, Orders to fourth sales the by

substantially to than China products we shipping them. more unique from in We are purchase

the inventory with sales held the of in impacted Our our China year going higher levels fiscal softening also sales then were to there. into China by and retailer

increase Ethan programs marketing recent the actions to throughout by retailer Allen our taking encouraged are to is We China. relating

impacted of our tariffs During and on the negatively sales year, in Canada profitability. imposition also the

started in the end the grow. tariffs, of With Canada business has our to

margins despite year, XX.X%. XX.X% from gross to the able During adjusted lower sales, improve were our to we fiscal

in respectively, dividends paid and flow, Our adjusted million increased the year, fiscal a out to allowing for us have during generate X% per the share cash and helped $XX XX.X% which increase. XX.X% year quarter earnings the strong

XX.X%, resulting at of the from During our stronger backlog orders the year, a end in government contract year. contract increased order the U.S. the

the disruptions. consumer quarter ending negatively international we the Our June In see retail and impacted in XX, returning. were July, to due domestic stronger sales in XXXX confidence fourth U.S.

will discuss discuss our technology the We integrated our have that overview were which are profitability. is positioned Corey technology various of our at provided well continued will a and in After brief manufacturing fall. detail initiative discuss to in and grow generation. press strengthening transformation relevant our provides this of of a I particular, including relevant, In personal We investment talent, increase believe increase and our continued more and sales, initiatives our and product financials cash to network, vertically service developing a improve levels. to retail having in release, I marketing planned retail also efficiencies place, enterprise, in great the strong our to logistics sales differentiation offerings for and efficient network combining all continue of profitability we in

Corey Whitely

Farooq. you, Thank

our on announced and operations. optimize logistics plans our previously update an to First, manufacturing

foot announced a case moving our square Carolina. closing and facility and Carolina Passaic, New plants plans Carolina to our Vermont manufacturing goods our goods North other with distribution adding and XXXX, manufacturing operations upholstery addition initiatives, North in to April to operations and had our plants, improve a including distribution number During to case integrated an we to of converting vertically the consolidating center plant operations XX,XXX those further North state-of-the-art Jersey

severance, the inventory adjusted costs. consisted connection $X.X charges company fourth other been These restructuring, the quarter This during $X.X with actions, made these employee of We implementing $X.X with quarter. related totaling from write-offs these the and million million impairment progress million. other have in great manufacturing our variances and pre-tax during million have in million excluded recorded non-cash charges results. initiatives $X.X And associated $X.X in one-time in asset of impairments, and

continue our the profit changes beginning we we $X point to optimization plans, XXXX improvement to benefit margin. and during XXX million a the of provide opportunity $X gross these for XXX expect these completion by execute to after basis XXXX, As fiscal million initiatives, on gross fiscal in to to then to provide the opportunity

June year $XXX.X and Now, of XXXX. the the results financial sales decreased on to ended net Consolidated XX, fourth the year for quarter million for X.X%.

overall to domestic prior the a prior sales, X.X%, our to consolidated year. and X.X% increase decreased been inventories $XXX in above been tariffs impact decline excess related Had trade the XX.X%, $XX.X million, within of China the retail X.X%, segment. have resulting the and sales in Canada extraordinary sales built disputes up. China to China. retail in our decreased had due million they Sales while our just even a some Wholesale decreased to sales Our would increased with sales due primarily sales

grew contract. in $XX.X due positive the to from wholesale lower Our the million, more sales were lower to decreases due North government reflecting by partially sales GSA sales $XX.X fourth business, quarter. network gains American were retail to a retail environment, million challenging year in the during fewer These our contract which especially by higher our by sales fiscal offset locations and primarily

disputes international economic and year China consolidated tariffs during $XX.X primarily caused fiscal both a trade the as the uncertainty the of decreased Canada. in sales and Total by retaliatory million, result

that tax on pleased Canadian import are the recently May. in products upholstery ended We

has started marketing. retailer We are increase now seeing Canada our modest improvement to China in and in

For by and the $XX.X from were weaker Gross environment. were year-over-year lower impacted retail weak of million the fiscal significantly margin increased million and to which consolidated sales, to increased margin for the adjusted $XXX.X XX.X% fourth gross XX.X%. international year sales quarter, XX.X%

margin fourth the reflected to of gross portion higher retail sales sales. For our the XX.X% of adjusted quarter, consolidated

XX%. XXXX, we to margin fiscal gross to XX% For range expect our between

million of prior logistics year. include charges. of $XXX.X which fiscal million XX.X% expenses to and million of XXXX of fiscal other the the which restructuring year include quarter during in sales $X.X XX. for retail charge fourth at for space impairment in compared assets on the charge plan consist This manufacturing that million non-recurring a a sales primarily compared $XX.X $XX.X at These impairment occurred lease charges to and the million of our optimization of our design our contractual centers Operating of June impairment $X.X as in charges and and exited million charges The held to non-cash that in obligation of at both Fiscal million of occurred the restructuring segment, we remaining prior expenses within $X.X XX.X% and non-recurring million charges retail million retail quarter occurred long-life representing the $X.X fourth $XXX.X related of $X.X the year. charges year.

earnings the in adjusted Adjusted per year year, X.X% Diluted to and growth. compared and X.X% prior operating these prior income, margin the for $X.XX $X.XX $X.XX compared year for X.X% which compared to $X.XX with operating the prior and the excludes was year. full adjusted to of in in cost share margin increased improved of to the charges gross year XX.X% the EPS increased contributed advertising lower

quarter. EPS adjusted year was For year prior fourth in quarter, $X.XX to the the $X.XX compared

Cuts to compared XX.X% for from the rate the the The law Tax Jobs in effective XX.X% and changes year the primarily tax tax prior fiscal income Act. was due to year

to XXXX for fiscal be some tax the XX.X% expect We fiscal fluctuation rate with year. the throughout

dividends to structure off shareholders was which XX.X% vertical prior $XX to strong Our leverage of us returned during the a year. paid XXXX fiscal provides cash. cash in million operating operating enabling an $XX.X generate of million, increase Most of from

were million the to expenditures this compared capital $XX.X million last $X.X year. year Our

expect XX,XXX expenditures capital Maiden, square approximately capital million North foot fiscal $XX the upholstery We million includes investment $X for expansion of to XXXX, million Carolina of manufacturing. of for $XX which our

million $XXX.X to balance of the quarter Turning to that, and with Farooq. cash back of With turn inventory outstanding. ended no I we debt will the the million, over call bank $XX.X sheet,

Farooq Kathwari

Thank you, Corey.

the including selling. including the loss of a also online globalization, large know, major in been commodity with been faced industries The by due consolidation As retail and and faced years, family impacted areas, in technology. home and and many challenges furnishings many operations opportunities have manufacturing, all you last of impact the challenge sellers, business changes has retail exiting industry during U.S. with XX many commoditization the to

and Our sales have strategy to has us profitability. positioned opportunity continue well and grow to believe provides we an strong

our main North Maiden, our locations in to manufacturing product producing producing and with two concentrated we United distribution XX the Our by a upholstery. of in are manufacturing our case in in Today strengthen new making XX we centers. national with enterprise. manufacturing of areas focus our vertically X had In facilities. maintained technology, back, unique, aided plants States major two manufacturing years major and the U.S. logistics, goods in is XX% and base, about still have Vermont, integrated plants had Carolina strong we

To us and efficient plant a maintain to control control continent. the believe in operate North Central North manufacturing also balance Honduras. of our outsourcing, for zone American better we jobs one American it manufacturing campus in better cost in in us and Mexico large provides We as established provides structure and and

opportunity all structure us U.S. and government, markets manufacturing over provide international state world. to department export serve the the unique and also families to other also including internationally the Our China

centers focused major company contract distribution and are with we the more retail addition, service delivery throughout delivered In centers three glove providing excellent and service. white service build hospitality cost XX starting America, North one to business. operates Today,

concept retail environment. Ethan stores. Allen gallery freestanding reflect to square continues of to introduced XXXXs, the change the XX,XXX about Our In foot network changing the

XXX independent these almost about locations, years, grew the by all Over to operated families.

families the American division. today, decided operated And many of a XXX of operate As retail with retired, are company ourselves. design the North we centers them to XXX

We design backgrounds have and designers. strong service with interior about of XXX about interior structure X,XXX retail and a leaders

a retail We nature fiscal and introduction more interior our retail undergoing strong With pleased of the Vice technology, designers added four the are Presidents. XXXX, major during of change. is that professional we

that square are to feet. under locations developing We are square X,XXX on now even and XX,XXX X,XXX locations feet focused retail

Arbor, important Currently, Superior, Francisco, in Tyson’s in San of Iowa; of new are location, White is Mateo, Mirage, we XXXX, design which great prominent New new Rancho is the and in also design middle opening Denver, is and in Virginia; fiscal Westchester we center Michigan; relocated California; During the opening which relocated Pennsylvania; the that’s Corner, a also which centers California feet Plains, Cincinnati; square experimental Colorado. in Colorado, in in and an San New Coralville, in of Mall design Houston, Oxnard, York process Lancaster, Albany, August. York; centers X,XXX Ann Angeles, Texas Los in California;

augmented strategy. our design in chatting and interior reality service our of app, interior our key tools customization are online and with technology and are with over our high-definition technology centers, our Today, planning XXX utilizing visualization our product touch-screen website. Combining personal XD to room our tools, is designers designers

We focus have continued and to a our introduce quality on relevant expanding with and programs product value. maintaining reach

we our transitional classic providing collection, designs expanded XXXX, a livable, fiscal line our made a casual, as focus which continues of Relaxed as Modern product our well During attitude. mixed on reintroduced and garden with modern materials home design

strengthen a a major marketing local We mediums. utilizing our the continue social national, marketing program. plan In regional October, campaign, and introducing levels, loyalty and introduce at digital new we to print, to

will as move additional provide We along. details we

this, I any for comments. to would open John? with questions Now, like or

Operator

line [Operator Capital. coming Brad of KeyBanc the Instructions] from First from question Thomas

open. is now line Your

Farooq Kathwari

Brad. hello Yes,

Brad Thomas

are how the Yes, you fiscal Corey. about you wanted if to question hi, I maybe afternoon, about a with like quarter, that I right, as Farooq, about X% start which we doing have are was right about saw trends China? and of trends I looks good China, have this done in been that said starting with I the part new wholesale year. it feeling math guess a the in just and believe last of there how quarter. your the you in better we are math start segment than would feeling afternoon. double-decline the, guess quarter down the Good you

Farooq Kathwari

the are math. Matt Corey Well, checking and

quarter higher starting did now they in we it, top that fact degree that been this and combined Let a softened China. the with created to to the just China this of a happening that economy, fourth in the a felt softer tariffs the used inventory in I is up with great challenge the like been what’s in me On has in a and couple major the also cities, from somewhat are not way. and it programs that both in introducing a weeks, an China. couple perspective team marketing of and They in a major referred five business major are China. going our event somewhat impediment to really inventory in members Allen tariffs of Ethan also the in last of in business having it started to has fact quarter consumers that say

ready So the back. these last held – in now factors in they are as reengage while it marketing all well to year, external

Brad Thomas

Got it.

Farooq. Okay. That’s helpful,

And I know trying China an Is guess, or so math. the bad sense a had I’m for little this don’t quarter? to you’ve a if here. quarter check approaching last is it Corey, I get a inflection guess, getting to chance less I point worse than

Corey Whitely

Yes.

this China, standpoint, So mentioned million press from release, the quarter, down about in as in a was decrease we the $XX sales.

that quarter It this quarter really hadn’t the tariffs earlier larger in these that’s last point they were time. was at their So disputes. in a shipments against up – become in year because trade effective that

I million it we’ll what we forward. go quarter But this at think So as had we progresses it that bigger decrease was how seen. $XX see a than

Farooq Kathwari

is the reasons is numbers, Brad, had one tell shipments major the our I down China, if – fact to you sales down. really, the to sales because were our this China we were of quarter

maybe of the and can up it some with to So Brad. give numbers you come

Brad Thomas

for lot guess, you market U.S. calendar in the of as difficult consumer health industry I half it’s year for just are calendar the competitors. a the half it. a feeling That’s this year? the of guess, of been furniture thank you, about the of and commentary seen how U.S. numbers and a for the outlook the second helpful and follow-up, we’ve I industry the first thanks

Farooq Kathwari

retail would are now a more have we I seen say manner in in – I months is that from X what I’m the going Brad. our than question. last network. forward This Good moving Yes, so. positive or getting

back. market, come lot of more Our were people and The there are especially, stock in negative last fights troubles, people quarter, with a with and the our that feelings confident. international in they does somewhat case, And held May more hold June, June, feeling when and back, back.

what So are they we that that lost hearing May opportunity an appears that think us now back. in regaining I retail coming – and is quarter, have our back, it held and from June. of we this I’m people And we what to

Brad Thomas

you so Thank helpful. That’s it. Got much.

Farooq Kathwari

Brad. Thanks

Operator

Thank you.

Cristina of Advisory question Next Telsey from is coming line from Fernández Group.

Farooq Kathwari

Cristina. Hello

Cristina Fernández

good Hi, afternoon.

the looks So guess, and then May follow the can like about up the what those from Is in it And I it where broad-based? Is U.S. I more your sort weaker? a focused so on question can been guys commentary that wanted environment. on housing June. the seeing? from you seeing comment started promotional, industry. some and about quarter what you Brad’s bit in more aspects you to competitors? you maybe and the with I – been on of better little talk are markets Because April has have of It of mean, decelerated you’re

Farooq Kathwari

felt, it said in looked that, consumer and good. think Cristina, in People were as attitude have programs. somehow we we rightly they I having started terms saw And April, that you confident. May the to that external came – now We strong No, in we factors back. – was in as had June. very they were – people could in, it surprised – it this, said were hold we Then

while in we We And you giving all you have been mind, we of still been have as our increase have gross are somewhat promotions of have yet, been margins. aggressive able – in and that, the – marketing said. right, terms done our to keep have we

has a So factor. sort of positive been that

people marketing, We good of still we – – strong to from values said, Corey healthy project, strong in as as in gross will continue margins. maintaining to and, giving able be

Cristina Fernández

fiscal campaign marketing like increased about perhaps is spend And weren’t a about fall, program. national major loyalty on mean, the you didn’t think the in this what how in ‘XX? you’ve marketing, year received up following mean, as I aspects, a marketing, year, from what this you when last well. different some past the how of would be run we I – should the different spoke And in TV, time?

Farooq Kathwari

to to what’s best to worry should our question. the on to buy when price have going the interior having to having rather very But what’s go well design. Recession, Great than And on sale That we did good design are about want impacted. we interior Cristina, Great because we worked worked go everybody business the had they be products able everyday Recession, a not it’s hard that going of got and best sale. after customer price. Yes, because in the before means very that everyday

Our sales were XX%. down

started at XX% So we discount. a

more gone it’s know, to or XX%, sometimes. XX% up you as Now discount

is we we more amount at are – credible marketing, offering people opportunity. do yet going are we fair what going a looking pricing, are but creating to So of to a

instance, financing, right Bank, new in program financing very For – TD done for which with are well. instance, done that offering a we have through we XX-month now July, a has

So program. we financing have a good

than the it, national what the previous in last to we did, the or in – television be in and our a have You hear mediums on or X to in whether more the than on even print, bottom is it’s line marketing, more go both we X regional. even will somewhat going that say, expand in the about be months. we – will – perhaps, and the different digital It but message of terms year be going

So all we’re looking things. at of those

that credibility, what when and more our an of and the opportunity will with customers want, people for they giving also to opportunity giving designers work savings want. see creating So an they

the we’ll elements, are information more next give the few weeks. and in So those main

Cristina Fernández

the that next And could the to year? go about sales think percentage right X%, of X% above you is Or marketing?

Farooq Kathwari

in we a I X went X over little X%. last quarters, No, year, would or that say

we that’s are see you’re X% us. doing. what to and X% good number a of going thinking between And what for is is So

Cristina Fernández

one then And I question. have last

So bright as you for the sales that and fiscal has year that other been but area, [indiscernible] – contract things spot, working what about doing you’re business well. including incremental Can these are provide ‘XX? a in can products other talk you any orders or on

Farooq Kathwari

below in on is they contract, this It competitor I is the know, very, area, was bankruptcy. very year, discussed bidding first government think at have last And a a – this first, we what Yes, It’s competitive you contract, had did being really almost X-year a compete, margin. was in basically The have it. as but but a a low not still important they stage, good was area. in normalized a – year. products this bright did more did at and also that – we we did a a operating margin. But position cost. That a cost others can they who very then of prices, is make – they and went and there much competitor at were are liquidated and we then very compete, they are

been that that and as year, So grown has continue to this have And very mentioned, growth. important. substantially we Corey we see

In Margaritaville That the in furnishing a that, last the addition with villas and started increasing. Orlando. as hotel we is Group also to program you year, know, in

Disney. We contract is in process very the cases that – the and like contract, are another just in hotels some – of and we adding Margaritaville other I – specialized to

cases. Disney We certain have a contract with in

the of All are believe things in important. next going to I grow. year, they those are And

Cristina Fernández

Thank you this and luck good quarter.

Farooq Kathwari

much. very Thanks

Operator

Griffin line question from Instructions] Raymond Bobby Next James. comes [Operator of from

open. now line is Your

Bobby Griffin

Good afternoon Farooq.

Farooq Kathwari

Bobby. Hi,

Bobby Griffin

from the product products with admittedly, talk Any share? more bit about my I we a new taking appreciate performance in full then a can surprised Relaxed expecting Did launch the the was guys just it wanted and given little May retail with you? you And June? are Modern. how introductions soft I in Hey, ship was Farooq, were as First, a to shipping. learning’s question early launch were a you I little

can maybe there connect us U.S. dots you for on So the the retail performance.

Farooq Kathwari

was Bobby, well received. Modern, Relaxed Yes.

overall However, started tough. environment in that marketing quarter, as fourth our did we we find was

centers. our it I is – Now in design

design design not, most modern are projecting attitudes because which is is that should send you but we We It a sent is probably is classic similar. he somewhat you. has If you it Corey with it current, a well mail very perspective, it a have – direct consumer if have, strongly. and are in received

amount like our our product We from get X,XXX feedback think our a they critics They and are well it. I So well lines interior biggest positioned. tremendous of are designers. received,

we And also, year, see So think, XX% I continue are to we year introduction our X And have as absorb also that us see have that done we introduced strengthen program next now forward, to also well Artisan has last to we of have we that with or early the is to continuing to done all offerings. will sometime last because offerings. changed you’re because in you Bobby, going Plus we’d be next going our spring of move that further do well. there. over X our years,

Bobby Griffin

made Okay. include the some pushes course, of stuff on would, the marketing you dollars we spent in some that some loyalty that And so collection? higher then marketing, fall. increased collection, reference the expect about and That should Relaxed Modern

Farooq Kathwari

part of Yes, because going to is is of be what program. be total course, our going to

mediums, So are you’re we as it’s as in to our see total on direct going to and going – it not we sell presenting we know, such. digital are program just website. our are our it, Allen don’t in Ethan – presenting We mail, you collections we

board. of that. across the Relaxed, And be should important this So Modern, part an

Bobby Griffin

question not that a to basis? flat get, there’s kind probably more line revenue maintain of out of you then contract on grow government have where just of you on growth is and the have the everything, can incremental contract to is it and contract, year share for about next Cristina’s to And the up or in lastly the there room kind think you it’s yearly the most a Okay. the you follow fiscal but

Farooq Kathwari

good Well, a question. it’s

sense the so of getting just and – which of now did increased busiest disruptions high XX%. created XX%, it in period, we created a lot of a our at August the we’re that last actually, of actually create we fourth lot lower a by in backlogs, orders lot for and September, increased, issues us got shift retail, quarter. we the ends have, to By what year, because margins, year, September which We have fiscal then the government in last is orders year

So of of any lot are backlogs we government This had a because backlog, seeing sales contract. was We you’re manageable. reasons lower of year, have issues. one our don’t the year, last this year, lot fortunately,

think So we also – were this is last I have from that the military. get contract, we we actually, able U.S. also increasing, now to orders which – year,

for a And so we instance, for fairly South the military in Korea. large furnished complex

So that America business and is the economic in is of North either growing, and but part is of in made it’s of our in the the our all good program is facilities. this part in news – made line that product facilities all –

very with but as also, are well program military the the how world because, American – furnish certainly, all expanding it much, service think we Department know, I know we and to we and the well. of it, increasingly all to now we’re this that diplomats going the and State So over don’t have you positioned government opportunity as we

Bobby Griffin

I appreciate Best questions. Okay, going forward. my answering your luck of time in

Farooq Kathwari

Bobby, there? Budd is How Budd doing? is

Bobby Griffin

make doing Budd’s now, doing he’s him. right doing but tell listening Budd’s He’s I well. well. well. sure I’ll

Farooq Kathwari

with the him the marked hundredth and I – I call You I have I taken, have there and thing he that conference in he beginning, too, think should was today tell me. consecutive one

hundredth if listening, So yesterday. call. conference It’s All like Budd, right, he’s consecutive Bobby. it’s

Bobby Griffin

look We right? another to forward more, XXX

Farooq Kathwari

started. getting yes. It’s just Exactly,

Bobby Griffin

care. take Farooq you Thank Absolutely.

Operator

are at Please questions further this continue. Instructions] there Presenters, time. [Operator no

Farooq Kathwari

much. thank very and Alright, John you

know know. that all I Corey is comments, very you. touch let with much But us any please For again. thanks, And in of questions,

Operator

today’s This concludes call. conference

You may now disconnect.

Ethan Allen Interiors (ETD) 1 Aug 192019 Q4 Earnings call transcript