Earnings call transcript: Ethan Allen Q4 2025 earnings miss forecasts

Ethan Allen Interiors Inc. reported its fourth-quarter fiscal 2025 earnings, revealing a notable shortfall in both earnings per share (EPS) and revenue compared to forecasts. The company’s EPS came in at $0.49, significantly below the anticipated $0.72, marking a surprise of -31.94%. Revenue also fell short, reaching $160.4 million against a forecast of $169.2 million, resulting in a revenue surprise of -5.2%. Despite these misses, the company’s stock showed resilience, with a slight after-hours uptick of 0.39%, closing at $29.22. According to InvestingPro data, the company maintains strong financial health with an overall score of "GOOD," supported by impressive gross profit margins of nearly 61% and a robust dividend yield of 6.71%.

Key Takeaways

• Ethan Allen’s Q4 EPS and revenue both missed forecasts significantly.
• The company’s stock price increased slightly in after-hours trading.
• The firm maintains a strong cash position with no outstanding debt.
• A strategic focus on custom-made products and digital marketing is evident.
• The home furnishings market faces ongoing challenges.

Company Performance

Ethan Allen’s overall performance in Q4 2025 highlighted challenges within the home furnishings industry. Despite a strategic shift towards custom-made products and digital marketing, the company reported a decline in wholesale orders by 6.8%, while retail orders saw a modest increase of 1.6%. The firm’s vertically integrated model, with 70% of furniture manufactured in North America, positions it well against tariff impacts, yet it faces broader market pressures.

Financial Highlights

• Revenue: $160.4 million (Q4), $614.6 million (full year)
• Earnings per share: $0.49 (Q4), $2.04 (full year)
• Gross margin: 59.9% (Q4), 60.5% (full year)
• Operating margin: 9.7% (Q4), 10.2% (full year)
• Cash and investments: $106.2 million
• Operating cash flow: $61.7 million

Earnings vs. Forecast

Ethan Allen’s Q4 EPS of $0.49 fell short of the $0.72 forecast, marking a negative surprise of 31.94%. The revenue also missed expectations, coming in at $160.4 million against a projected $169.2 million, a 5.2% shortfall. This performance deviates from previous quarters where the company had typically met or exceeded market expectations.

Market Reaction

Despite the earnings miss, Ethan Allen’s stock rose by 0.39% in after-hours trading, closing at $29.22. This movement suggests investor confidence in the company’s long-term strategy, even amid short-term challenges. The stock remains within its 52-week range of $24.55 to $35.14, reflecting moderate volatility in response to earnings. InvestingPro’s Fair Value analysis indicates that Ethan Allen is currently slightly undervalued, with a current ratio of 2.29 demonstrating strong liquidity. Discover more undervalued opportunities at Investing.com’s Most Undervalued Stocks.

Outlook & Guidance

Ethan Allen remains focused on key strategic areas, including talent acquisition, enhanced marketing efforts, service improvements, technological advancements, and social responsibility. The company plans to sustain its strong cash position, leveraging its vertically integrated model for future growth despite economic uncertainties.

Executive Commentary

CEO Farooq Kevwari emphasized the company’s robust structure, stating, "We are gratified at the hard work of our team and our unique vertically integrated structure." He also highlighted the importance of customization, noting, "Close to 80% of our products are custom." Kevwari reassured stakeholders of the company’s resilience, saying, "We have been able to maintain strong margins... despite loss of turmoil in the industry and in fact in the economy."

Risks and Challenges

• Continued industry challenges impacting wholesale orders.
• Economic uncertainty affecting consumer spending on home furnishings.
• Potential operational disruptions from reduced manufacturing and logistics locations.
• Increased competition from both domestic and international players.
• Maintaining profitability amidst increased marketing expenditures.

Q&A

During the earnings call, analysts queried the minimal tariff impact due to domestic manufacturing, which the company confirmed as a strategic advantage. Discussions also included cost reductions achieved through technology and operational efficiency, and the significance of customization and digital marketing in driving future growth.

Full transcript - Ethan Allen Interiors Inc (ETD) Q4 2025:

Conference Operator: Good afternoon, welcome to the Ethan Allen Fiscal twenty twenty five Fourth Quarter Analysis Conference Call Analyst Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. It is now my pleasure to introduce your host, Mac McNulty, Senior Vice President, Chief Financial Officer and Treasurer.

Thank you. You may begin.

Mac McNulty, Senior Vice President, Chief Financial Officer and Treasurer, Ethan Allen: Thank you, operator. Good afternoon and thank you for joining us today to discuss Ethan Allen’s fiscal twenty twenty five full year and fourth quarter results. With me today is Farooq Kevwari, our Chairman, President and CEO. Mr. Kefwari will open and close our prepared remarks, while I will speak to our financial performance midway through.

After our prepared remarks, we will then open the call up for your questions. Before we begin, I’d like to remind the audience that this call is being webcast live under the News and Events tab within our Investor Relations website. A replay and transcript of today’s call will also be made available on our Investor Relations website. There you’ll find a copy of today’s press release, which contains reconciliations of non GAAP financial measures referred to on this call and in the press release. Our comments today may include forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially.

The most significant risk factors that could affect our future results are described in our most recent annual report on Form 10 ks. Please refer to our SEC filings for a complete review of those risks. The company assumes no obligation to update or revise any forward looking matters discussed during this call. With that, I’m pleased to now turn the call over to Mr. Kethwaris.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Thank you, Matt. We are gratified at the hard work of our team and our unique vertically integrated structure, which continues to enable us to have strong results and position us for growth. After Matt provides a brief overview of our fourth quarter and fiscal twenty twenty five financial results, I will discuss our initiatives to continue to position us for growth and strong financials. Matt?

Mac McNulty, Senior Vice President, Chief Financial Officer and Treasurer, Ethan Allen: Thank you, Mr. Kefwari. Our financial performance during fiscal twenty twenty five was highlighted by strong margins, positive operating cash flow and a robust balance sheet. Despite operating in a challenging environment, our operations produced positive financial results, which I will now discuss. Our fiscal twenty twenty five consolidated net sales were $614,600,000 which included fourth quarter sales of 160,400,000.0 Our sales reflect higher average ticket prices and fewer returns offset by lower delivered unit volume, reduced backlog, less traffic and fewer contract sales.

As noted in our earnings release, the home furnishings industry has been challenged. However, overall demand patterns began to show signs of improvement during the just completed fourth quarter as retail written orders rose by 1.6 driven by the strength of new product introductions, promotional levels, elevated clearance and the pause of additional tariffs. Wholesale orders decreased by 6.8% during the quarter as the segment was impacted by our contract business. We ended the fiscal year with wholesale backlog of $48,900,000 reflecting historical norms. A lower volume of contract orders combined with improved customer lead times helped to reduce our backlog.

For the full year, our consolidated gross margin was 60.5% comparable to 60.8% last year. In the just completed fourth quarter, our consolidated gross margin was 59.9%, which was impacted by fewer delivered orders, higher clearance sales, increased promotional activity and lower manufacturing production, partially offset by a change in sales mix, lower raw material input costs, reduced headcount and a higher average ticket price. Our headcount totaled 3,211 at fiscal year end, a decrease of 5.7% from a year ago as we continue to identify operational efficiencies and streamline workflows. For the full year, our adjusted operating margin was 10.2%, while our fourth quarter operating margin was 9.7%. These strong operating margins reflect our ability to tightly manage expenses while increasing advertising spend.

Compared to our pre pandemic twenty nineteen fourth quarter, adjusted operating margin has improved 110 basis points. On a full year basis, adjusted EPS was $2.04 Our fourth quarter adjusted EPS was $0.49 Our effective tax rate was 25.2% for the full year and 26.4% for the quarter, which varies from the 21% federal statutory rate due to tax state taxes and recording of valuation allowance on retail deferred tax assets. Now turning to our liquidity. We ended the year with a robust balance sheet including cash and investments of $106,200,000 and no outstanding debt. We generated $24,800,000 in operating cash flow during the quarter, which brought our full year total to $61,700,000 We also reduced our inventory levels as clearance sales helped to offset new product introductions.

Capital expenditures were $11,300,000 including 1,900,000 during the just completed fourth quarter as we invested capital into manufacturing, retail and technology. We are confident in the investments we are making for the future, but recognize the need cognizant of the uncertain economic environment. We continued our practice of paying quarterly cash dividends. In May, our Board declared a regular quarterly cash dividend of $0.39 per share, which was subsequently paid and brought our total annual dividend paid to $50,100,000 Also as announced earlier today, our Board declared a special cash dividend of $0.25 per share in addition to a regular quarterly cash dividend of $0.39 per share, both of which will be paid in August. This recent action marks the fifth consecutive year we have paid a special cash dividend.

In summary, our vertically integrated business delivered positive fiscal twenty twenty five results. We are confident in the strength of our business model as Ethan Allen has successfully navigated challenging times to serve our clients and deliver value to our shareholders throughout its ninety three year history. Looking ahead, we remain focused on executing our strategic initiatives in the face of ongoing macro uncertainty. Our robust balance sheet and financial stability provide a solid foundation and positions us well as we head into fiscal twenty twenty six. With that, I will now turn the call back over to Mr.

Kevoy.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Thank you, Matt. As we have conveyed, the focus of our enterprise continues to strengthen the five key areas of talent, marketing, service, technology and social responsibility. Great talent. We are gratified to have a strong talent in our vertically integrated enterprise. We continue to make about 75% of our furniture in our North American workshops located in Vermont, North Carolina, Central Mexico and Honduras.

Keep in mind, about twenty years back, we had 18 manufacturing locations. Also, our unique logistics operations delivers what we call white glove delivery at one cost to our clients in North America. This is unique. In National Logistics, we have replaced 10 national locations to two locations. And in retail, replaced about 100 warehouses to about 20.

In our retail network, about 75% of our about 160 retail leaders have been either relocated I mean, retail locations have either been relocated or made smaller due to the impact of technology, customization and especially a strong interior design professional network. Technology continues to play a central role in all our operations from manufacturing, logistics and especially marketing. For example, about fifteen years back, we spent major dollars in national television and today has been replaced mostly by digital and print magazines, including forwarding about 10,000,036 page digital magazines every two weeks. We have also continued to strengthen our product programs and introducing new products on a planned basis. Financially, we have maintained strong results.

As Matt mentioned. We have maintained margins, gross margins of 59559.9% for the quarter and 60.5% for the year. Our operating margins are 9.7% for the quarter and 10.2%. This is despite loss of turmoil in the industry and in fact in the economy. We’ve also been able to maintain strong cash.

We ended the cash with $196,000,000 and no debt. And as Matt said, we continue to also give out very strong cash dividends. With this, I’m very happy to open up for any questions or comments.

Conference Operator: Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Brad Thomas with KeyBanc Capital Markets Inc. Please proceed with your question.

Brad Thomas, Analyst, KeyBanc Capital Markets Inc.: Hello, Brad. Good afternoon, Farooq. Afternoon to you. Good afternoon, Matt. Good, Brandon.

How are you? How are you doing?

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Good. Thank you.

Brad Thomas, Analyst, KeyBanc Capital Markets Inc.: I’m doing well. Thanks. I’m doing well. My first question was just going to be around industry trends and what you were seeing. And I was wondering if you could give us some more color about what you saw through the quarter.

It did seem like you had a nice acceleration in your orders from what you had seen in 1Q to what you’ve seen in 2Q. I was just wondering if you could talk a little bit more about what you’re seeing out there and what you’re hearing from your customers.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Yes. As I had mentioned, these are challenging times, all so much uncertainties with what’s happening with the economy, international conflicts, tariffs and everything else. But I think that having said all of those things, as Matt had also mentioned, we were very pleased that our written orders for the quarter were up 1.6% despite all these challenges. So I think our people did a good job increasing our written orders in our retail division in a very tough environment.

Brad Thomas, Analyst, KeyBanc Capital Markets Inc.: That’s great. And I was wondering if you could help us think about how tariffs have been affecting your business. I know that you are so important as a U. S. Manufacturer, but if you could talk about how, if at all, that’s affecting your business directly and how you think it maybe is affecting the competitive landscape in terms of price increases that you may have maybe have seen from the competition?

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Yes. This has been a really, really interesting environment to operate. Fortunately, Brad, we up close to 70% of our furniture or more is made in our North American operations, in Vermont, in Carolinas, in Mexico, Honduras. Obviously, there are no tariffs in The United States. And also because of the North America trade treaty, we are not impacted with tariffs in Mexico.

There are smaller tariffs in Honduras. So then about 30% of the products in furniture is coming from overseas, in places like Indonesia mostly in terms of furniture, some from Vietnam. And I think between the two countries, that’s most likely some impact there. Our accessory products do come from all over the world. And there, of course, we have been impacted.

But overall, because of the nature of our operations, our impact of this whole issue of tariffs has been very limited on us.

Brad Thomas, Analyst, KeyBanc Capital Markets Inc.: That’s great. And then you all have done a lot to control costs in this difficult environment, Farooq. I was wondering if you could help us think about the operating costs of the business and are there incremental areas where you think there’s particular efficiencies and costs to go after? Or do you feel like this is a good level to hold at as we cross our fingers that we get a recovery on the horizon here?

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: No, I think that is a very, very important issue. It’s a question about, as I mentioned in that technology and of course, our vertical integration has been very, very important in managing our costs. Think of the first thing is, we have, as I said, from 2019, we have reduced about 35% of our headcount. We reduced our headcount last in the last fiscal year about 5% or 6%. And this is all due to the fact of retaining very strong talent and technology making it happen.

So from that point of view, we have today think of this, it was almost impossible to think that we have close to 30% to 35% less headcount today than we had in 2019. And a lot of this is due to the technology. Now this also has an implication in our marketing. Think of this, Brad, we used to spend close to $30,000,000 in distributing our magazines, print magazines. Today, all of it is done digitally, and we do most of our advertising again for digital medium, no print mediums.

It’s amazing what is done in terms of our expenditures. So our while we’re able to maintain our margins, gross margin, especially because of our unique structure of manufacturing in North America and then strong partners overseas as well. We have been able to continue to reduce our operating expenses, and that has helped us maintain strong stronger, I would say, gross margins and operating margins and especially good cash flow.

Brad Thomas, Analyst, KeyBanc Capital Markets Inc.: That’s very helpful. Thanks so much Farooq. I appreciate it.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Thanks very much, Brad.

Conference Operator: Thank you. Our next question comes from the line of Cristina Fernandez with Telsey Advisory Group. Please proceed with your question.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Hello, Kristina. How are you?

Cristina Fernandez, Analyst, Telsey Advisory Group: Afternoon. Parikh. Hi, Matt. I had a follow-up question on the trends and also related to gross margin. On the prepared remarks, you talked about some clearance activity and promotions in the quarter.

Can you expand on how you’re using promotions to drive sales? Were they incremental year over year? And what’s your approach for the remainder of the year?

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Yes. As I said, fortunately, we did not have much of excess inventory to sell. That is because of that, we’ve been able to maintain think of this, our gross margins for the quarter were at 60% and there was 60.8% in the previous year. So we’ve been able to maintain strong gross margins. So our clearance and everything has been relatively small because of the fact close to 80% of our products are custom.

Keep in mind, only fifteen years back, 80% of our products were sold from stock. The customization is tremendously important. That also has the implication of our national distribution. When I mentioned we had many, many, I don’t eight or 10 major national distribution centers as against one major one now, it is because going from about 70%, 80% inventories to 80% custom has also resulted in the reduction of normal inventory, but all the space that we required to stock it and to ship it.

Cristina Fernandez, Analyst, Telsey Advisory Group: And then my second question is regarding price increases. You took some earlier in the year. Are you seeing any impact on unit sales? And with the tariffs increasing for some countries like Vietnam, do you plan to have to make more price increases over the next six to twelve months?

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Yes, we are watching it carefully. We have been able to maintain our pricing, very small increase, not much, only again, because of the fact of close to 80% is made right here in North America. If that was not the case, where some of our products are made in countries like Indonesia, now we are watching the issue of tariffs as you know, Leonidas yesterday, the tariffs. And so we’ll watch that to see the impact of it. Our partners have also helped.

When these kind of things happen, they also contribute towards a reduction of the costs or the impact of the tariffs is less. But overall, no, I think considering the fact that even though our volume was down, we were able to maintain strong margins again because of the efficiency of our operations.

Cristina Fernandez, Analyst, Telsey Advisory Group: And my last question, following up on Brad’s question about trends for the quarter. When you look at the increase in retail orders, the 1.6, what do you attribute that? Was that better customer traffic as the quarter progressed, some of the new introductions? More details there would be helpful. Thanks.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Yes, it was a combination of factors. One was the fact that as the quarter progressed, we saw more consumer positive attitudes. I think that helped. I think we have a very, very strong network of associates. They also maintain a very strong relationship with our clients.

That also helped. And I think that we’ve gone through, as you know, it’s been somewhat of a challenging environment for our industry and for most companies. The reason we have been able to do well is because of our structure, our vertical integration and the fact which has been tremendously important is combining great personal service and technology. In fact, we slightly increased our marketing expenditures. Matt, we went from what, to 3.2% or what is it?

Mac McNulty, Senior Vice President, Chief Financial Officer and Treasurer, Ethan Allen: 3.4%.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: 3.4% from?

Mac McNulty, Senior Vice President, Chief Financial Officer and Treasurer, Ethan Allen: From a year ago, 2.8%.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: We went from 2.8% and we still are relatively small and lot of it is we did it to increase our communications, especially our digital mediums, especially digital mediums. So it’s not a big huge amount. Look here, we used to spend 5%, 67% of our sales on advertising. Now we went to 3.4% and what it did was interestingly, it helped us bring in traffic and sales.

Cristina Fernandez, Analyst, Telsey Advisory Group: Thank you.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: All right. Well, thanks very much. Any other questions or comments?

Conference Operator: It appears we may have reached the end of the question and answer session. Therefore, I’ll turn it back over to you Farooq for closing.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: Thank you very much. Again, I want to thank all of our team members for doing really an amazing job in tough conditions. It also fortunately, our positioning is such that it gives us our vertical integration, maintaining 80% manufacturing and having our design centers. Keep in mind also we relocated many of our design centers. We repositioned our design centers, reduced our size by 30% or so or more in the last two, three years.

So our design centers have been renovated, They have been relocated wherever we needed to be. And we also opened up a few we opened up where did we open up? We opened up four or five new locations in this last year and we have a few more coming up. Many of them are relocations and we’ll continue to do that. And again, thanks for everybody and thanks to support of our team and the work that they do and look forward to continuing our progress.

And thanks again.

Conference Operator: Thank you. This concludes today’s conference. You may disconnect your line at this time. Thank you for your participation.

Farooq Kevwari, Chairman, President and CEO, Ethan Allen: All right. Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.