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What changed in ETHAN ALLEN INTERIORS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ETHAN ALLEN INTERIORS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+377 added−550 removedSource: 10-K (2023-08-24) vs 10-K (2022-08-29)

Top changes in ETHAN ALLEN INTERIORS INC's 2023 10-K

377 paragraphs added · 550 removed · 272 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

56 edited+15 added−119 removed21 unchanged
Biggest changeAt Ethan Allen, we work every day to capitalize on the talents of women, promoting them to leadership positions in both our retail network and in our corporate management. Approximately 72% of management in our retail network and 25% of manufacturing and distribution leadership are women. At our Corporate headquarters, 47% of leadership are women. 13 ETHAN ALLEN INTERIORS INC.
Biggest changeEthan Allen provides multiple avenues through which to report inappropriate behavior, including a confidential whistleblower hotline. Aligning with our purpose and values, we work every day to capitalize on the talents of women, promoting them to leadership positions in both our retail network and in our corporate management.
Large, high-resolution screens bring digital design plans to life, so clients can preview an incredibly realistic version of their designed space before placing an order. Customers are also able to view hundreds of fabrics, leathers, finishes, and other customized options on site; from room plan to furniture details, the experience is personalized.
The large, high-resolution screens bring digital design plans to life, so clients can preview an incredibly realistic version of their designed space before placing an order. Customers are also able to view hundreds of fabrics, leathers, finishes, and other customized options on site; from room plan to furniture details, the experience is personalized.
Intellectual Property We currently hold, or have registration applications pending for, 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.
AND SUBSIDIARIES Intellectual Property We currently hold, or have registration applications pending for, 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.
ITEM 1. BUSINESS Overview Founded in 1932 and incorporated in Delaware in 1989, Ethan Allen Interiors Inc., through its wholly-owned subsidiary, Ethan Allen Global, Inc., and Ethan Allen Global, Inc.’s subsidiaries (collectively, “we,” “us,” “our,” “Ethan Allen” or the “Company”), is a leading interior design company, manufacturer and retailer in the home furnishings marketplace.
ITEM 1. BUSINESS Overview Ethan Allen Interiors Inc., through its wholly-owned subsidiary, Ethan Allen Global, Inc., and Ethan Allen Global, Inc.’s subsidiaries (collectively, “we,” “us,” “our,” “Ethan Allen” or the “Company”), is a Delaware corporation and a leading interior design company, manufacturer and retailer in the home furnishings marketplace.
Additional Information Additional information with respect to the Company’s business is included in the following pages and is incorporated herein by reference: Page Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 Quantitative and Qualitative Disclosures about Market Risk 46 Note 1 to Consolidated Financial Statements entitled Organization and Nature of Business 56 Note 19 to Consolidated Financial Statements entitled Segment Information 78
Additional Information Additional information with respect to the Company’s business is included in the following pages and is incorporated herein by reference: Page Management’s Discussion and Analysis of Financial Condition and Results of Operations 21 Quantitative and Qualitative Disclosures about Market Risk 35 Note 1 to Consolidated Financial Statements entitled Organization and Nature of Business 46 Note 19 to Consolidated Financial Statements entitled Segment Information 67
We further believe that we are well-positioned to compete on the basis of each of these factors and that, more specifically under our vertical integration structure, our complimentary interior design service, direct manufacturing, a logistics network including white glove delivery service and relevant product offerings create a competitive advantage, further supporting our mission of providing customers with a complete home decorating and design solution.
We further believe that we are well-positioned to compete on the basis of each of these factors and that, more specifically under our vertical integration structure, our complimentary interior design service, direct manufacturing, a logistics network including white glove delivery service and relevant product offerings create a competitive advantage, further supporting our mission of providing customers with a one-stop shopping design and furnishing solution.
We provide complimentary interior design service to our clients and sell a full range of home furnishing products through a retail network of design centers located throughout the United States and abroad as well as online at ethanallen.com.
Our strong network of entrepreneurial leaders and interior designers provide complimentary interior design service to our clients and sell a full range of home furnishing products through a retail network of design centers located throughout the United States and abroad as well as online at ethanallen.com.
By adopting a fresh, ever-evolving creative approach, increasingly driven by digital strategies, we continue to broaden our reach and enhance desirability and visibility. Our combination of creative and analytics-driven strategies enables us to drive both new and repeat client traffic, to our design centers worldwide and to our website at ethanallen.com.
By adopting a fresh, ever-evolving creative approach, using digital marketing to drive traffic to our retail locations, we continue to broaden our reach and enhance desirability and visibility. Our combination of creative and analytics-driven strategies enables us to secure both new and repeat client traffic, to our design centers worldwide and to our website at ethanallen.com.
We typically shut down our domestic plants for one week at the beginning of each fiscal year to perform routine maintenance. For both our segments, historically, including in fiscal year 2022, no one particular fiscal quarter contributes more than 27% of annual sales volume, thus limiting our exposure to seasonality.
We typically shut down our domestic plants for one week at the beginning of each fiscal year to perform routine maintenance. For both our segments, historically, including in fiscal 2023, no one particular fiscal quarter contributed more than 28% of annual sales volume, thus limiting our exposure to seasonality.
EA inHome ® , our augmented reality mobile app, empowers clients to preview Ethan Allen products in their homes, at scale, in a variety of fabrics and finishes. With the 3D Room Planner, our clients and designers generate both 2D floor plans and immersive, incredibly realistic 3D walk-throughs of the designs they create.
We continue to leverage EA inHome®, an augmented reality mobile app, which empowers clients to preview Ethan Allen products in their homes, at scale, in a variety of fabrics and finishes. With the 3D Room Planner, our designers generate both 2D floor plans and immersive 4K, realistic 3D walk-throughs of the interior designs they create.
Raw Materials and Supply Chain The principal raw materials we use in manufacturing are lumber, logs, veneers, plywood, hardware, glue, finishing materials, glass, steel, fabrics, leather, frames, 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.
AND SUBSIDIARIES Raw Materials and Supply Chain The principal raw materials we use in manufacturing are lumber, logs, veneers, plywood, hardware, glue, finishing materials, glass, steel, fabrics, leather, frames, foam and filling material. The various types of wood used in our products include soft maple, wormy maple, red oak, prima vera, birch, rubber wood and cherry.
Diversity and Inclusion Diversity and inclusion are two of our core values, as we recognize that our employees’ unique backgrounds, experiences and perspectives enable us to create and deliver the best-quality product and provide outstanding service to meet the needs of our customer base.
Diversity, Equity and Inclusion Diversity, Equity and inclusion (“DEI”) are a part of our core values, as we recognize that our employees’ unique backgrounds, experiences and perspectives enable us to create and deliver the best-quality product and provide outstanding service to meet the needs of our customer base and the communities we serve.
Our wholesale backlog consists of written orders received from our retail network of independently operated design centers, Company-operated design centers, and contract business customers that have not yet been delivered. Our retail backlog is undelivered written orders associated with end retail customers. Stock replenishment orders not associated with a specific end customer are excluded from backlog.
Our wholesale backlog consists of written orders received from our retail network of independently operated design centers, Company-operated design centers, and contract business customers that have not yet been delivered. Our retail backlog is undelivered written orders associated with end retail customers.
We work to ensure our products are safe in our customers’ homes through responsible use of chemicals and manufacturing substances.
We work to ensure our products are safe in our customers’ homes through responsible use of chemicals and manufacturing substances. 9 ETHAN ALLEN INTERIORS INC.
Using our fully integrated customer relationship management system, we create personalized customer journeys, targeted communications, and retargeting campaigns. Our creative messaging is relevant and aspirational and conveyed through a variety of media, including digital marketing that includes social media and email marketing campaigns, direct mail, and local TV.
Using our customer relationship management system, we work toward creating personalized customer journeys and targeted communications. Our creative messaging is relevant and aspirational and conveyed through a variety of media, including digital marketing that includes social media and email marketing campaigns, plus direct mail and TV.
We view such trademarks, logos, service marks and domain names as valuable assets and have an ongoing program to diligently monitor and defend, through appropriate action, against their unauthorized use. In connection with our on-going maintenance of our intellectual property. The Company routinely reviews the necessity for renewal as registrations expire.
We view such trademarks, logos, service marks and domain names as valuable assets and have an ongoing program to diligently monitor and defend, through appropriate action, against their unauthorized use. The Company routinely reviews the necessity for renewal as registrations expire.
As we celebrate 90 years of innovation, we continue to be known for the quality and craftsmanship of our products as well as for the exceptional personal service from design to delivery, and for our commitment to social responsibility and sustainable operations.
We are known for the quality and craftsmanship of our products as well as for the exceptional personal service from design to delivery, and for our commitment to social responsibility and sustainable operations.
Ethan Allen has a distinct vision of American style that we believe differentiates us from our competitors.
Ethan Allen has a distinct vision of American style, rooted in the kind of substance that we believe differentiates us from our competitors.
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.
Intersegment 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.
Community Giving Throughout our history, philanthropy has been a core value to Ethan Allen. We strive to develop exceptional programs based on partnerships where employees feel a sense of connection and pride in their communities and our mission is to enhance the quality of life in the communities in which we work and live.
We strive to develop exceptional programs based on partnerships where employees feel a sense of connection and pride in their communities and our mission is to enhance the quality of life in the communities in which we work and live.
We also believe that we differentiate ourselves further with the quality of our interior design service through our extensive training programs and the caliber of our interior design professionals. 14 ETHAN ALLEN INTERIORS INC.
We also believe that we differentiate ourselves further with the quality of our interior design service through our extensive training programs, the caliber of our interior design professionals, and our investments in technology.
These raw materials used for manufacturing are for cover (primarily fabrics and leather), polyester batting and polyurethane foam for cushioning and padding, lumber and plywood for frames, steel for motion mechanisms and various other metal components for fabrication of product. 8 ETHAN ALLEN INTERIORS INC.
These raw materials used for manufacturing are for cover (primarily fabrics and leather), polyester batting and polyurethane foam for cushioning and padding, lumber and plywood for frames, steel for motion mechanisms and various other metal components for fabrication of product. Our raw materials are purchased both domestically and outside the United States.
Since our retail locations and manufacturing facilities reopened by the first quarter of fiscal 2021, we have experienced heightened demand and in response, we took several actions to increase our production capacity throughout the last two fiscal years. As a result of these actions, our segments both experienced their largest fiscal 2022 sales volume during the fourth quarter.
In response, we took several actions to increase our production capacity throughout the last two fiscal years and as a result, our segments both experienced their largest sales volume in the fourth quarter of fiscal 2022.
Marketing Celebrating 90 years of innovation, Ethan Allen’s marketing emphasizes our core brand values of quality and craftsmanship, combining personal service with technology, and a commitment to social responsibility. We amplify those values through our dynamic brand story told under the lifestyle of classics with a modern prospective.
Marketing Ethan Allen’s marketing emphasizes our core brand values of quality and craftsmanship, combining personal service with technology, and a commitment to social responsibility. We amplify those values through our dynamic brand story built around a core projection and philosophy: Classics with a Modern Perspective .
We have no significant long-term supply contracts and believe we have sufficient alternate sources of supply to prevent significant long-term disruption in supplying our operations, despite the availability pressures of raw materials due to COVID-19, as described further below. Appropriate amounts of lumber and fabric inventory are typically stocked to maintain adequate production levels.
We have no significant long-term supply contracts and believe we have sufficient alternate sources of supply to prevent significant long-term disruption to our operations. Appropriate amounts of lumber and fabric inventory are typically stocked to maintain adequate production levels.
Our strategy emphasizes the aim to position Ethan Allen as a preferred brand offering complimentary design service together with products of superior style, quality and value to provide customers with a comprehensive, one-stop shopping solution for their home furnishing and interior design needs.
We aim to position Ethan Allen as a premier interior design destination and a preferred brand offering products of superior style, quality, and value to customers with a comprehensive solution for their home furnishing and interior design needs.
Approximately 75% of our products are manufactured in our North American manufacturing plants and we also partner with various suppliers located in Europe, Asia, and other countries to produce products that support our business.
Approximately 75% of our products are manufactured in our North American manufacturing plants and we also partner with various suppliers located in Europe, Asia, and other countries to produce products that support our business. Business Strategy We strive to deliver value to our shareholders through the execution of our strategic initiatives focused on the concept of constant reinvention.
As of June 30, 2022, the Company operates 141 retail design centers with 137 located in the United States and four in Canada. Our independently-operated design centers are located in the United States, Asia, the Middle East and Europe.
Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations. As of June 30, 2023, the Company operates 139 retail design centers with 135 located in the United States and four in Canada. Our independently-operated design centers are located in the United States, Asia, the Middle East and Europe.
Additionally, grassroots marketing is a critical initiative that is driven by our local design center teams. Taken together, these strategies help ensure that we are continuing to add to our client base while maintaining our existing relationships. 9 ETHAN ALLEN INTERIORS INC.
Additionally, grassroots marketing is a critical initiative that is driven by our local design center teams. Taken together, these strategies help ensure that we are continuing to add to our client base while maintaining our existing relationships. E-Commerce We consider our website an extension of our retail design centers and not a separate segment of our business.
During the last two fiscal years, our sales volume and production schedules did not follow the aforementioned typical trends due to the impact of COVID-19.
During the last three fiscal years, our sales volume and production schedules did not follow the aforementioned typical trends due to the impact of COVID-19. As a result of the heightened demand during the COVID-19 pandemic, a significant backlog was built in the prior years.
We enter into standard purchase agreements with foreign and domestic suppliers to source selected products. The terms of these arrangements are customary for the industry and do not contain any long-term contractual obligations on our behalf. We select international partners who are as committed to quality and social responsibility as we are.
This manufacturing structure leaves us with limited exposure to any one particular country on the 25% of product we import. We enter into standard purchase agreements with foreign and domestic suppliers to source selected products. The terms of these arrangements are customary for the industry and do not contain any long-term contractual obligations on our behalf.
These types of actions helped Ethan Allen’s upholstery workshop in Mexico be named “Empresa Socialmente Responsible” (meaning “Socially Responsible Company,” which is based on norms of conduct on social and environmental issues) by the Mexican Center for Corporate Philanthropy and the Alliance for Corporate Social Responsibility.
During fiscal 2023, and for the fourth year in a row, Ethan Allen’s upholstery workshop in Mexico was awarded the prestigious designation “Empresa Socialmente Responsable” (meaning “Socially Responsible Company,” which is based on standards of conduct on social and environmental issues) by the Mexican Center for Corporate Philanthropy and the Alliance for Corporate Social Responsibility.
We selectively outsource the remaining 25% of our products, primarily from Asia. We carefully select our sourcing partners and require strict compliance with our specifications, quality and social responsibility standards.
We selectively outsource the remaining 25% of our products, primarily from Asia. Our sourcing partners are chosen with the utmost care, and we insist on unwavering adherence to our quality standards, specifications, and social responsibility.
This important facet of our vertically integrated business enables us to control the design specifications and establish consistent levels of quality across all our product programs. In addition to our seven United States manufacturing facilities, we have two upholstery manufacturing plants in Mexico and a case goods manufacturing facility in Honduras.
Our vertically integrated approach empowers us to seamlessly introduce new products, oversee design specifications, and uphold consistent levels of excellence across all product lines. Alongside our seven manufacturing facilities in the United States, we possess two upholstery manufacturing plants in Mexico and a case goods manufacturing facility in Honduras.
Our diversity and inclusion initiatives include developing impactful practices to advance our Company’s diversity and inclusion, supporting diversity awareness across our organization, maintaining an inclusive environment free from discrimination of any kind, including sexual or other discriminatory harassment, and continuing to offer our employees multiple avenues through which to report inappropriate behavior, including our confidential whistleblower hotline.
Our DEI initiatives include developing impactful practices to advance our Company’s DEI policies, supporting diversity awareness across our organization, maintaining an inclusive environment free from discrimination or harassment of any kind, and continuing to offer our employees equal employment opportunities based solely on merit and qualifications.
Corporate Contact Information Ethan Allen’s principal executive office is in Danbury, Connecticut. ● Mailing address of the Company’s headquarters: 25 Lake Avenue Ext., Danbury, Connecticut 06811-5286 ● Telephone number: +1 (203) 743-8000 ● Website address: ethanallen.com 15 ETHAN ALLEN INTERIORS INC.
Corporate Contact Information Founded in 1932, Ethan Allen Interiors Inc. is a Delaware corporation with its principal executive office located in Danbury, Connecticut. ● Mailing address of the Company’s headquarters: 25 Lake Avenue Ext., Danbury, Connecticut 06811-5286 ● Telephone number: +1 (203) 743-8000 ● Website address: ethanallen.com ● Incorporated in Delaware in 1989 Available Information Information contained in our Investor Relations section of our website at https://ir.ethanallen.com is not part of this Annual Report on Form 10-K.
Clients can access our home furnishings while either co-browsing live with an Ethan Allen interior designer or browsing on their own, at their own pace.
In addition, our virtual design center showcases the timeless aesthetic of Ethan Allen’s vast product portfolio while fostering collaboration between our interior designers and our customers. Clients can access our home furnishings while either co-browsing live with an Ethan Allen interior designer or browsing on their own, at their own pace.
With so much of our product customizable, we encourage our customers to get personal help from our interior design professionals either in person or by chatting online.
With so much of our product customizable, we encourage our customers to get personal help from our interior design professionals either in person or by chatting online. All of these technologies have been pivotal to our ability to service clients and provide even more ways for us to collaborate and create a timely and exceptional experience.
We believe our employees have an entrepreneurial spirit, a passion for style, a drive for excellence, outstanding communication skills and create a culture that embraces creativity, integrity, diversity, innovation and inclusion of people from all backgrounds. Our continued focus on making employee engagement a top priority will help us provide high quality products and services to our customers.
We believe our employees have an entrepreneurial spirit, a passion for style, a drive for excellence, and endless creativity that has fostered a culture that embraces integrity, diversity, innovation and inclusion of people from all backgrounds.
We operate our business with an entrepreneurial attitude, staying focused on long-term growth, and treating our associates, vendors, and customers with dignity and justice, which we believe is critical to remaining both profitable and relevant amidst the constant changes taking place in the world. Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations.
We operate our business with an entrepreneurial attitude, staying focused on long-term growth, and treating our employees, vendors, and customers with dignity and respect, which we believe are important amidst the constant changes taking place in the world.
In managing our business, we focus on a number of key human capital measures and objectives, which are rooted in our core values and include the following items: Culture and Values Since our founding, we have aimed to build a collaborative culture that emphasizes treating people with dignity and respect while offering employees a variety of opportunities and experiences.
Culture and Values Our employees are vital to our success and are one of the main reasons we continue to execute at a high level. Since our founding, we have aimed to build a collaborative culture that emphasizes treating people with dignity and respect while offering employees a variety of opportunities and experiences.
We believe that our sources of supply for these materials are sufficient and that we are not dependent on any one supplier. If any of these suppliers experience financial or other difficulties, we believe we have alternative sources of supply to prevent temporary disruptions in our manufacturing process.
We believe that our sources of supply for these materials are sufficient and that we are not dependent on any one supplier. We have been able to minimize our exposure to any one particular country or manufacturing location through our vertical integration.
This vertical structure enables us to offer our complete line of home furnishings and accents while better controlling quality and cost. We evaluate performance of the respective segments based upon net sales and operating income. Intersegment transactions result, primarily, from the wholesale sale of inventory to the retail segment, including the related profit margin.
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 better controlling quality and cost. We evaluate performance of the respective segments based upon net sales and operating income.
At June 30, 2022, our Company-operated retail design centers were supported by 17 Company-operated retail home delivery centers and 10 home delivery centers operated by third parties. The majority of our products are manufactured on a custom made-to-order basis.
At June 30, 2023, our Company-operated retail design centers were supported by 17 Company-operated retail home delivery centers and 9 home delivery centers operated by third parties. We utilize independent carriers to ship our products.
In addition to our COVID-19 protections, which are discussed within the Impact of COVID-19 on our Business section further above, we have partnered with local communities in some of our North American manufacturing workshops to provide transportation to and from work and offer daily low-cost meals.
We have safety programs in place for our employees to receive the proper training and education to ensure they are able to work in a safe environment each day. In addition, we have partnered with local communities in some of our North American manufacturing workshops to provide transportation to and from work and offer daily low-cost meals.
Our environmental (green) initiatives include, but are not limited to the use of responsibly harvested Appalachian woods, and water-based finishes and measuring our carbon 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 continue to be focused on environmental and social responsibility while incorporating uniform social, environmental, health and safety programs into our global manufacturing standards. Our environmental (green) initiatives include but are not limited to the use of responsibly harvested Appalachian woods, and water-based finishes and measuring our carbon footprint, greenhouse gases and recycled materials from our operations.
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 compete with numerous individual retail home furnishing stores as well as national and regional chains.
We compete with numerous individual retail home furnishing stores as well as national and regional chains.
We believe that our strategic investments in our manufacturing facilities balanced with outsourcing from foreign and domestic suppliers will 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 believe our strategic investments in manufacturing facilities and the judicious outsourcing from foreign and domestic suppliers position us to accommodate future growth while retaining control over costs, quality, and customer service. 5 ETHAN ALLEN INTERIORS INC.
As we head into fiscal 2023, we will continue to evaluate the use of interest-free financing options and their related costs, given the recent rise in interest rates. Competition The home furnishings industry is a highly fragmented and competitive business. There has been growth from internet only retailers and those with a brick-and-mortar presence.
Competition The home furnishings industry is a highly fragmented and competitive business. There has been growth from internet only retailers and those with a brick-and-mortar presence. 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 believe this complimentary direct contact with one of our interior design professionals, whether remotely or in-person, 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.
We believe this complimentary direct contact with one of our interior design professionals, whether remotely or in-person, creates a competitive advantage through our excellent personal service. In addition, recent improvements to our ethanallen.com website include improved on-site search capabilities, expanded live chat services, online appointment booking capability, and product listing and display page enhancements. 6 ETHAN ALLEN INTERIORS INC.
We use select suppliers primarily to leverage our buying power, to control quality and product flow, and because their capabilities align with our product design needs. If any of these suppliers experience financial or other difficulties, we believe we have alternative sources of supply to prevent temporary disruptions in our imported product flow.
If any of these suppliers experience financial or other difficulties, we believe we have alternative sources of supply to prevent temporary disruptions in our imported product flow. The prices paid for these imported products began to decrease in fiscal 2023 as our supply chain constraints relaxed and demand across the industry decreased, which helped lower costs.
Increased manufacturing productivity and related shipments of products combined with the pace of written orders slowing led to improved delivery times and a reduction in wholesale backlog during fiscal 2022. Our wholesale backlog was $102.4 million as of June 30, 2022, down 14.7% from a year ago, but up 120.8% from June 30, 2019.
We ended the fiscal 2023 year with wholesale backlog of $74.0 million, down 27.7% from a year ago as we were able to reduce the number of weeks of backlog. Manufacturing productivity and related shipments outpaced incoming written orders which helped reduce backlog and improve our delivery times during fiscal 2023.
Product We design and build the majority of the products we sell through the craftmanship of artisans in our North American plants. All of our products are Ethan Allen branded. Most upholstery frames are hand-assembled and stitching is guided by hand. All case goods frames are made with premium lumber and veneers.
Product By harnessing the expertise of skilled artisans within our North American facilities, we design and build 75% of the items we offer. Every product bears the distinctive quality of the Ethan Allen brand. Meticulous hand-guided stitching, dress our upholstery frames, and our case goods furniture crafted from premium lumber and veneers, individually finished and customized.
AND SUBSIDIARIES For further discussion on the material increase in backlog, refer to the Impact of COVID-1 9 on our Business section further above. Distribution and Logistics We distribute our products through three national distribution centers, owned by the Company, strategically located in North Carolina and Virginia.
However, our wholesale backlog remains approximately 60% higher than pre-pandemic levels and our teams are effectively managing the business to work through this order backlog and to service our customers. 7 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Distribution and Logistics We distribute our products through three national distribution centers, owned by the Company, strategically located in North Carolina and Virginia.
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.
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. Our United States manufacturing, distribution and home delivery centers strive to create and maintain a culture of conservation and environmental stewardship by integrating socio-economic policies and sustainable business practices into their operations.
During fiscal 2022, we opened new design centers in Westport, CT and Walnut Creek, CA, which both project the variety of our styles of classic design with a modern perspective and empowers clients to work with its professional interior designers at fully equipped workstations, viewing both before-and-after photos and 3D floor plans of single rooms or even entire homes.
The design center showcases our talented interior designers, with freestanding workstations equipped with large touch-screen flat panel displays where clients can view both before-and-after photos and 3D floor plans of single rooms or even entire homes.
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Our employees, which we refer to as associates, are dedicated to helping each customer create a place that they will love to come home to everyday.
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Our commitment to using top-tier construction techniques is evident, including using mortise and tenon joinery and four-corner glued dovetail joinery for drawers. These elements are the bedrock of Ethan Allen's identity, solidifying our role as a premier influencer of quality and style in home furnishings.
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During fiscal 2022, we reaffirmed our commitment to maintain and grow our North American workshops, where our customization capabilities help create relevant and quality products and have proven to provide us with a strategic and a branding advantage. Business Strategy We strive to deliver value to our shareholders over the long term through executing on our strategic initiatives.
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AND SUBSIDIARIES Projection Our design centers have evolved into an interior design destination, with technology-driven projections and dedicated workstations that foster collaboration between designers and clients. Each workstation highlights the breadth of selection within a home furnishings category, including available custom fabrics, leathers, finishes, and options, where relevant.
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Our competitive advantages arise from: ● offering a wide array of custom made-to-order products across upholstery, case goods, and accent product categories; ● complimentary design service of our interior design professionals combined with technology; ● our North American manufacturing workshops providing customization capabilities and high-quality products of the finest craftsmanship; ● our strong retail network, both of Company-operated locations and independent licensees; ● our logistics network of national distribution centers and retail home delivery centers providing white-glove home delivery service; and ● our continued ability to leverage our vertically integrated structure.
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Clients can also use touchscreens located throughout the store to perform product research at their own pace. Upon entering our design centers clients can immediately view our design studio.
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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.
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During fiscal 2023, we relocated two design centers, Skokie, Illinois and San Jose, California, both of which project the variety of our styles, under the umbrella of Classics with a Modern Perspective , in a bright, open, modern layout that follows our best and most current interior design concepts.
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We continuously monitor changes in home fashion trends through industry events and fashion shows, internal market research, and regular communication with our retailers and design center design professionals who provide valuable input on consumer trends.
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We plan to further expand our retail design center footprint in fiscal 2024 through the addition of new design centers located in The Villages, Florida, Manhattan, New York and Avon, Ohio. Technology Our unique combination of personal service and technology enhances the customers’ Ethan Allen experience including the use of virtual design appointment capabilities at ethanallen.com.
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We believe that the observations and input gathered enable us to incorporate appropriate style details into our products to react quickly to changing customer tastes. 5 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Our strong network of North American interior design professionals continues to create design solutions that best satisfy our customers’ needs.
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We believe we maintain good relationships with our suppliers. During fiscal 2023, we began to see more price stabilization within our raw materials as we sourced from multiple different suppliers, modified our production to include alternatives, saw inflationary cost pressures decrease and benefited from more raw material availability within the industry.
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We believe changes in consumer spending and new habits being formed as a result of the global coronavirus (“COVID-19”) pandemic has created opportunities for our brand. We continue to generate business through our retail design center network and by interacting virtually with our customers through ethanallen.com. Our unique combination of personal service and technology enhances the customers’ Ethan Allen experience.
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Lumber prices and availability can also fluctuate over time based on various factors, including supply and demand and new home construction. Segments We have strategically aligned our business into two reportable segments: wholesale and retail. Our operating segments are aligned with how the Company, including our chief executive officer (defined as our chief operating decision maker), manages the business.
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By investing in digital design technologies, we have expanded our virtual design appointment capabilities. Most recently, in June 2022, we debuted a state-of-the-art immersive Virtual Design Center, which showcases the timeless aesthetic of Ethan Allen’s vast product portfolio while fostering collaboration between our interior designers and our customers.
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During fiscal 2023, our wholesale and retail business sales volumes began trending to more historical levels; therefore, we anticipate the typical seasonal trends will return to normal in fiscal 2024. Backlog We define backlog as any written order received that has not yet been delivered.
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In addition to the Virtual Design Center, we continue to leverage EA inHome®, an augmented reality mobile app, which empowers clients to preview Ethan Allen products in their homes, at scale, in a variety of fabrics and finishes.
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Human Capital Management We operate our business with an entrepreneurial attitude, staying focused on long-term growth, and treating our employees, vendors, and customers with dignity and respect. At June 30, 2023, our employee count totaled 3,748, with 2,674 employees in our wholesale segment and 1,074 in our retail segment.
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With the 3D Room Planner, our designers generate both 2D floor plans and immersive, realistic 3D walk-throughs of the interior designs they create. All of these technologies have been pivotal to our ability to service clients and provide even more ways for us to collaborate and create a timely and exceptional experience.
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The majority of our employees are employed on a full-time basis and none of our employees are represented by unions or collective bargaining agreements. In managing our business, we focus on a number of key human capital objectives, which are rooted in our core values and include the following.
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This complimentary direct contact with one of our knowledgeable interior design professionals, whether remotely or in-person, creates a competitive advantage as well as enhances the online experience and regularly leads to internet customers becoming customers.
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We are proud to support the advancement of women in the workplace with 70% of our retail division leaders and 65% of our Company-wide leaders women. Health and Safety Ethan Allen is committed to protecting the health and safety of our employees.
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Impact of COVID-19 on our Business The COVID-19 pandemic continues to disrupt several segments of the economy and has caused, and continues to cause, impact to our business.
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This commitment and focus enables us to continuously run our business operations without sacrificing the safety of our employees and customers. 8 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES A Culture of Social Responsibility Throughout our history, philanthropy has been a core value to Ethan Allen.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeCompetition in the residential home furnishings industry is based on quality, style of products, perceived value, price, service to the customer, promotional activities, and advertising. The highly competitive nature of the industry means we are constantly subject to the risk of losing market share, which would likely decrease our future sales, earnings and liquidity.
Biggest changeThe highly competitive nature of the industry means we are constantly subject to the risk of losing market share, which would likely decrease our future sales, earnings and liquidity. A significant shift in consumer preference toward purchasing products online could have a materially adverse impact on our sales and operating margin.
AND SUBSIDIARIES Changes in United States trade 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.
AND SUBSIDIARIES Changes in the United States trade 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.
We are attempting to meet consumers where they prefer to shop by expanding our online capabilities and improving the user experience at ethanallen.com as well as at our new Virtual Design Center to drive more sales. Rapidly evolving technologies are altering the manner in which the Company and its competitors communicate and transact with customers.
We are attempting to meet consumers where they prefer to shop by expanding our online capabilities and improving the user experience at ethanallen.com as well as at our Virtual Design Center to drive more sales. Rapidly evolving technologies are altering the manner in which the Company and its competitors communicate and transact with customers.
AND SUBSIDIARIES 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.
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.
We could also incur additional costs and require additional resources to implement various ESG practices to make progress against our public goals and to monitor and track our performance with respect to such goals. The standards for tracking and reporting on ESG matters are relatively new, have not been formalized and continue to evolve.
We could also incur additional costs and require additional resources to implement various ESG practices to make progress against our goals and to monitor and track performance with respect to such goals. The standards for tracking and reporting on ESG matters are relatively new, have not been formalized and continue to evolve.
The extent of these costs and risks is difficult to predict and will depend in large part on the extent of new regulations and the ways in which those regulations are enforced. We operate and have manufacturing facilities in multiple regions across the globe, and the impact of additional regulations in this area is likely to vary by region.
The extent of these costs and risks is difficult to predict and will depend in large part on the extent of new regulations and the ways in which those regulations are enforced. We operate manufacturing facilities in multiple regions across the globe, and the impact of additional regulations in this area is likely to vary by region.
Should we have to close or otherwise abandon one of these leased locations, we could incur additional impairment charges if rental market conditions do not support a fair value for the right of use asset in excess of its carrying value.
Should we have to close or abandon one of these leased locations, we could incur additional impairment charges if rental market conditions do not support a fair value for the right of use asset in excess of its carrying value.
A prolonged shortage or inability to retain qualified labor could decrease our ability to effectively produce and meet customer demand and efficiently operate our distribution facilities, which could negatively impact our business and have a material adverse effect on our results of operations.
A prolonged shortage or inability to retain qualified labor could decrease our ability to effectively produce and meet customer demand and efficiently operate our facilities, which could negatively impact our business and have a material adverse effect on our results of operations.
We may not be able to fully or substantially mitigate the impact of tariffs, pass price increases on to our customers, or secure adequate alternative sources of products or materials.
We may not be able to substantially mitigate the impact of tariffs, pass price increases on to our customers, or secure adequate alternative sources of products or materials.
Human Capital Risk Our business is dependent on certain key personnel; if we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed. The success of our business depends upon our ability to retain continued service of certain key personnel, particularly our Chairman of the Board, President and Chief Executive Officer, M.
Human Capital Risk Our business is dependent on certain key personnel; if we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed. The success of our business depends upon our ability to retain continued service of certain key personnel, including our Chairman of the Board, President and Chief Executive Officer, M.
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.
Though losses arising from some of these issues may 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.
AND SUBSIDIARIES Our goals and future disclosures related to Environmental, Social and Governance ( “ ESG ” ) matters may expose us to numerous risks, including risks to our reputation and stock price. There has been an increased focus on our ESG practices within the general markets. We plan to establish goals and other objectives related to ESG matters.
AND SUBSIDIARIES Our goals and future disclosures related to Environmental, Social and Governance ( “ ESG ” ) matters may expose us to numerous risks, including risks to our reputation and stock price. There has been an increased focus on ESG practices within the general markets. We plan to establish goals and objectives related to such ESG matters.
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.
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 our financial results.
Supply Chain Risks Disruptions of our supply chain could have a material adverse effect on our operating and financial results.
Supply Chain Risks Disruptions of our supply chain and supply chain management could have a material adverse effect on our operating and financial results.
Successful cyber-attacks and the failure to maintain adequate cyber-security systems and procedures could materially harm our operations.
AND SUBSIDIARIES Successful cyber-attacks and the failure to maintain adequate cyber-security systems and procedures could materially harm our operations.
Because we manufacture components and finished goods in Mexico and Honduras and purchase components and finished goods manufactured in foreign countries, we are subject to risks relating to increased tariffs on United States imports, and other changes affecting imports.
We are subject to risks relating to increased tariffs on imports, and other changes affecting imports because we manufacture components and finished goods in Mexico and Honduras and purchase components and finished goods manufactured in foreign countries.
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, severe weather, natural disasters, and errors by employees.
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, severe weather, natural disasters, and errors by employees or third-party contractors.
Investors should also refer to the other information set forth in this Annual Report on Form 10-K, including Management ’ s Discussion and Analysis 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.
Investors should also refer to the other information set forth in this Annual Report on Form 10-K, including Management ’ s Discussion and Analysis 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. 10 ETHAN ALLEN INTERIORS INC.
Cyber-attacks designed to gain access to and extract sensitive information or otherwise affect or compromise the confidentially, integrity, and availability of information, including phishing attempts, denial of service attacks, and malware or ransomware incidents, have occurred over the last several years at a number of major U.S. companies and have resulted in, among other things, the unauthorized release of confidential information, material business disruptions, and negative brand and reputational impacts.
Cyber-attacks designed to gain access to and extract sensitive information or otherwise affect or compromise the confidentially, integrity, and availability of information, including phishing attempts, denial of service attacks, and malware or ransomware incidents, have occurred over the last several years at a number of major global companies and have resulted in, among other things, the unauthorized release of confidential information, system failures including material business disruptions, and negative brand and reputational impacts.
We believe it is likely that the increased focus by the U.S. and other governmental authorities on climate change and other environmental matters will lead to enhanced regulation in these areas, which could also result in increased compliance costs and subject us to additional potential liabilities.
We believe it is likely that the increased focus by the United States and other governmental authorities on climate change and other environmental matters will lead to enhanced regulation in these areas, which could also result in increased compliance costs and subject us to additional potential liabilities.
If our suppliers or service providers were to experience a system disruption, attack or security breach that impacts a critical function, it could result in disruptions in our supply chain, the loss of sales and customers, potential liability for damages to our customers, reputational damage and incremental costs, which could adversely affect our business, results of operations and profitability.
If our suppliers or service providers were to experience a system disruption, attack or security breach that impacts a critical function, it could result in disruptions in our supply chain, the loss of sales and customers, potential liability for damages to our customers, reputational damage and incremental costs, which could adversely affect our business, results of operations and profitability. 14 ETHAN ALLEN INTERIORS INC.
Should current economic conditions weaken, the current rate of housing starts further decline, or rising inflation persist, consumer confidence and demand for home furnishings could deteriorate which could adversely affect our business through its impact on the performance of our Company-operated design centers, as well as on our independent licensees and the ability of a number of them to meet their obligations to us. 19 ETHAN ALLEN INTERIORS INC.
Should current economic conditions weaken, the current rate of housing starts further decline, or elevated inflation persist, consumer confidence and demand for home furnishings could deteriorate which could adversely affect our business through its impact on the performance of our Company-operated design centers, as well as on our independent licensees and the ability of a number of them to meet their obligations to us.
Disruption of the Company’s supply chain capabilities due to trade restrictions, political instability, severe weather, natural disasters, public health crises such as the ongoing COVID-19 pandemic, terrorism, product recalls, global unrest, war, 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.
Disruption of the Company’s supply chain capabilities due to trade restrictions, political instability, severe weather, natural disasters, public health crises, terrorism, product recalls, global unrest, war, 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.
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 negatively affected. Access to consumer credit could be interrupted as a result of conditions outside of our control, which could reduce sales and profitability.
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 negatively affected. 16 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Access to consumer credit could be interrupted as a result of conditions outside of our control, which could reduce sales and profitability.
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‐wide price deflation. 21 ETHAN ALLEN INTERIORS INC.
In addition, because many foreign manufacturers are able to maintain 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‐wide price deflation.
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.
In addition, 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.
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, public health crises such as the ongoing COVID-19 pandemic, changes in international trade including tariffs, central bank actions, changes in the relationship of the United States dollar versus other currencies, labor availability and cost, and other governmental policies of the United States and the countries from which we import our merchandise or in which we operate facilities. 24 ETHAN ALLEN INTERIORS INC.
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, public health crises, changes in international trade including tariffs, central bank actions, changes in the relationship of the U.S. dollar versus other currencies, labor availability and cost, and other domestic governmental policies and the countries from which we import our merchandise or in which we operate facilities. 15 ETHAN ALLEN INTERIORS INC.
Additionally, we rely on third-party service providers to execute certain business processes and maintain certain information technology systems and infrastructure, and we supply such third-party providers with the personal information required for those services. 23 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Cyber-attacks are becoming more sophisticated and frequent, and in some cases have caused significant harm.
Additionally, we rely on third-party service providers to execute certain business processes and maintain certain information technology systems and infrastructure, and we supply such third-party providers with the personal information required for those services. Cyber-attacks are becoming more sophisticated, and in some cases have caused significant harm.
We may not be able to maintain our current design center locations at current costs. We may also fail to successfully select and secure design center 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.
We may also fail to successfully select and secure design center 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.
We also compete with these and other retailers for retail locations as well as for qualified design professionals and management personnel. Such competition could adversely affect our future financial performance.
We also compete with these and other retailers for retail locations as well as for qualified design professionals and management personnel. Such competition could adversely affect our future financial performance. 12 ETHAN ALLEN INTERIORS INC.
It is possible the costs we incur to comply with any such new regulations and implement our own sustainability goals could be material. 22 ETHAN ALLEN INTERIORS INC.
It is possible the costs we incur to comply with any such new regulations and implementation of our own sustainability goals could be material. 13 ETHAN ALLEN INTERIORS INC.
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.
We operate many aspects of our business 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.
We have potential exposure to market risk related to conditions in the commercial real estate market. As of June 30, 2022, there were 141 Company-operated retail design centers averaging approximately 14,500 square feet in size per location. Of the 141 Company-operated retail design centers, 49 of the properties are owned and 92 are leased.
AND SUBSIDIARIES We have potential exposure to market risk related to conditions in the commercial real estate market. As of June 30, 2023, there were 139 Company-operated retail design centers averaging approximately 14,100 square feet in size per location. Of the 139 Company-operated retail design centers, 49 of the properties are owned and 90 are leased.
If our ESG practices do not meet evolving standards or our goals, then our reputation, our ability to attract or retain employees and our competitiveness, including as an investment and business partner, could be negatively impacted.
If our ESG practices do not meet evolving standards or our goals, then our reputation, our ability to attract or retain employees and our competitiveness, could be negatively impacted.
Factors influencing consumer spending include general economic conditions, consumer disposable income, fuel prices, recession and fears of recession, unemployment, war and fears of war, inclement weather, availability of consumer credit, consumer debt levels, conditions in the housing market, increased interest rates, sales tax rates and rate increases, inflation, civil disturbances and terrorist activities, foreign currency exchange rate fluctuations, consumer confidence in future economic and political conditions, natural disasters, and consumer perceptions of personal well‑being and security, including health epidemics or pandemics, such as the COVID-19 pandemic.
Factors influencing consumer spending include general economic and financial market conditions, consumer disposable income, fuel prices, recession and fears of recession, United States government default or shutdown or the risk of such default or shutdown, unemployment, war and fears of war, availability of consumer credit, consumer debt levels, conditions in the housing market, increased interest rates, sales tax rates and rate increases, inflation, civil disturbances and terrorist activities, consumer confidence in future economic and political conditions, natural disasters and inclement weather and consumer perceptions of personal well‑being and security, including health epidemics or pandemics.
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 effect on our business, operating results and financial condition.
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. This could have a material adverse effect on our business, operating results and financial condition. Labor challenges could have a material adverse effect on our business and results of operations.
We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased design center locations and warehouse and distribution facilities. At June 30, 2022, the unamortized balance of such right-of-use assets totaled $100.8 million.
We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased design center locations and retail service centers. At June 30, 2023, the unamortized balance of such right-of-use assets totaled $115.9 million.
Outside suppliers that we rely on have also experienced similar labor challenges. The future success of our operations depends on our ability, and the ability of third parties on which we rely, to identify, recruit, develop and retain qualified and talented individuals in order to supply and deliver our products.
The future success of our operations depends on our ability, and the ability of third parties on which we rely, to identify, recruit, develop and retain qualified and talented individuals in order to supply and deliver our products.
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.
If a significant data breach occurred, the loss, disclosure or misappropriation of our business information may adversely affect our reputation, customer confidence may be diminished, or we may be subject to legal claims, or legal proceedings, including regulatory investigations and actions, which may lead to regulatory enforcement actions against us, and may materially adversely affect our business, operating results and financial condition.
To the extent we are unable to mitigate the likelihood or potential impact of such events, there could be a material adverse effect on our operating and financial results. Supply chain management disruption has had, and could continue to have, a material adverse effect on our results of operations.
To the extent we are unable to mitigate the likelihood or potential impact of such events, there could be a material adverse effect on our operating and financial results.
Higher wages to attract new and retain existing employees, as well as higher costs to purchase raw materials or services from such third parties, could also negatively impact our results of operations. 25 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Financial Risks Our total assets include substantial amounts of long-lived assets.
Higher wages to attract new and retain existing employees, as well as higher costs to purchase services from third parties, could negatively impact our results of operations. Financial Risks Our total assets include substantial amounts of long-lived assets.
AND SUBSIDIARIES Fluctuations in the price, availability and quality of raw materials have resulted in increased costs and caused production delays which, if continued, could result in a decline in sales, either of which could materially adversely impact our earnings.
Fluctuations in the price, availability and quality of raw materials and imported finished goods could result in increased costs and cause production delays which could result in a decline in sales, either of which could materially adversely impact our earnings.
Further, unanticipated changes in pricing and other practices of competitors, including promotional activity, such as thresholds for free shipping and rapid price fluctuation enabled by technology, may adversely affect our performance.
Further, unanticipated changes in pricing and other practices of competitors, including promotional activity, such as thresholds for free shipping and rapid price fluctuation enabled by technology, may adversely affect our performance. Risks Related to our Brand and Product Offerings Inability to maintain and enhance our brand may materially adversely impact our business.
In our current operating environment, due in part to COVID-19 and general macroeconomic factors, we continue to experience various labor challenges, including, for example significant competition for skilled manufacturing and production employees; pressure to increase wages as a result of inflationary pressures, and at times, a shortage of qualified full-time labor in certain geographies, particularly at our distribution facilities.
In our current operating environment, due in part to macroeconomic factors, we continue to experience various labor challenges, including, for example significant competition for skilled manufacturing and production employees; pressure to increase wages as a result of inflationary pressures, and at times, a shortage of qualified full-time labor. Outside suppliers that we rely on have also experienced similar labor challenges.
To the extent that we experience incremental costs in any of these areas, we may increase our selling prices to offset the impact. However, increases in selling prices may not fully mitigate the impact of raw material cost increases which would adversely impact operating income.
Elevated ocean freight container rates may be impacted by container supply and elevated demand. To the extent that we experience incremental costs in any of these areas, we may increase our selling prices to offset the impact. However, increases in selling prices may not fully mitigate the impact of the cost increases which would adversely impact operating income.
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 has created over‐capacity for many manufacturers, including us, which has led to industry‐wide plant consolidation.
AND SUBSIDIARIES 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.
Economic uncertainty, as well as other variations in global economic conditions such as fuel costs, wage and benefit inflation, and currency fluctuations, may cause inconsistent and unpredictable consumer spending habits, while increasing our own input costs.
Legal and Regulatory Risks Global and local economic uncertainty may materially adversely affect our manufacturing operations or sources of merchandise and international operations. Economic uncertainty, as well as other variations in global economic conditions such as fuel costs, wage and benefit inflation, and currency fluctuations, may cause inconsistent and unpredictable consumer spending habits, while increasing our own input costs.
Further, although we continue to implement strong physical and cyber-security measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyber-attacks and other disruptions due to the fact that a significant portion of our employees work remotely as a result of the ongoing COVID-19 pandemic, and we cannot be certain that our mitigation efforts will be effective.
Although we continue to implement strong physical and cybersecurity measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyberattacks and other disruptions due to the fact that certain employees work remotely and we cannot guarantee that our mitigation efforts will be effective.
Despite widespread recognition of the cyber-attack threat and improved data protection methods, cyber-attacks on organizations continue to be sophisticated, persistent, and ever-changing, making it difficult to prevent and detect these attacks. Similar to many other retailers, we receive and store certain personal information about our employees and vendors.
Despite widespread recognition of the cyber-attack threat and improved data protection methods, cyber-attacks on organizations continue to be sophisticated, persistent, and ever-changing, making it difficult to prevent and detect these attacks.
The residential home furnishings industry is highly competitive and fragmented. We currently compete with many other manufacturers and retailers, including online retailers, some of which offer widely advertised products, and others, several of which are large retail dealers offering their own store-branded products.
We currently compete with many other manufacturers and retailers, including online retailers, some of which offer widely advertised products, and others, several of which are large retail dealers offering their own store-branded products. Competition in the residential home furnishings industry is based on quality, style of products, perceived value, price, service to the customer, promotional activities, and advertising.
The Company operates two manufacturing plants in Vermont and Honduras and one sawmill, one rough mill and one kiln dry lumberyard in support of our case goods operations.
We have a limited number of manufacturing sites in our case goods and upholstery operations. Our upholstery operations consist of three upholstery plants in North Carolina and two plants in Mexico. The Company operates two manufacturing plants in Vermont and Honduras and one sawmill, one rough mill and one kiln dry lumberyard in support of our case goods operations.
Manufacturing Risks Competition from overseas manufacturers and domestic retailers may materially adversely affect our business, operating results or financial 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 United States and foreign manufacturers.
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 United States and foreign manufacturers.
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.
We expect to continue to experience attempted cyber-attacks of our IT systems or networks; however, none of the attempted cyber-attacks had a material impact on our operations or financial condition.
During fiscal 2023, we plan to open or relocate several design centers within the United States. 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 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. 11 ETHAN ALLEN INTERIORS INC.
Furthermore, transportation delays, increases on shipping containers, more extensive travel restrictions, closures or disruptions of businesses and facilities or social, economic, political or labor instability in the affected areas, may impact our or our suppliers’ operations. 20 ETHAN ALLEN INTERIORS INC.
While the pandemic-era disruptions have diminished, further transportation delays, increases on shipping containers, more extensive travel restrictions, closures or disruptions of businesses and facilities or social, economic, political or labor instability in the affected areas, could impact either our or our suppliers’ operations and have a material adverse effect on our consolidated results of operations.
We would also be exposed to a risk of loss or litigation and potential liability, which could have a material adverse effect on our business, results of operations and financial condition. Loss, corruption and misappropriation of data and information relating to customers could materially adversely affect our operations.
We would also be exposed to a risk of loss or litigation and potential liability, which could have a material adverse effect on our business, results of operations and financial condition. Where necessary and applicable, we have enabled certain employees to arrange for a hybrid work approach.
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 professionals who provide valuable input on consumer tendencies.
We continuously monitor changes in home design trends through attendance at trade shows, industry events, fashion shows, internal and external marketing research, and regular communication with our retailers and design professionals who provide valuable input on consumer tendencies. However, as with many retailers, our business is susceptible to changes in consumer tastes and trends.
In addition, the tightening of credit markets may restrict the ability and willingness of customers to make purchases. General Risk Factors 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.
These events could also make any necessary debt or equity financing more difficult and costly. General Risk Factors 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.
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.
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 and operating results. We may not be able to maintain our current design center locations at current costs.
As a result of the consolidation of our manufacturing operations into fewer facilities, if any of our manufacturing sites experience significant business interruption, our ability to manufacture or deliver our products in a timely manner would likely be impacted.
If any of our manufacturing sites experience significant business interruption, our ability to manufacture or deliver our products in a timely manner would likely be impacted. Fewer locations have resulted in longer distances for delivery and could result in higher costs to transport products if fuel costs increase significantly.
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. Failure to successfully anticipate or respond to changes in consumer tastes and trends in a timely manner could materially adversely impact our business, operating results and financial condition.
Failure to successfully anticipate or respond to changes in consumer tastes and trends in a timely manner could materially adversely impact our business, operating results and financial condition. Sales of our products are dependent upon consumer acceptance of our product designs, styles, quality and price.
Historically, the home furnishings industry has been subject to cyclical variations in the general economy and to uncertainty regarding future economic prospects.
AND SUBSIDIARIES Home Furnishings Industry Risks Declines in certain economic conditions, which impact consumer confidence and consumer spending, could negatively impact our sales, results of operations and liquidity. Historically, the home furnishings industry has been subject to cyclical variations in the general economy and to uncertainty regarding future economic prospects.
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.
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.
Uninsured losses and liabilities from operating risks could reduce the funds available to us for capital and investment spending and could have a material adverse impact on the results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
We may incur costs in repairing any damage beyond our applicable insurance coverage. Uninsured losses and liabilities from operating risks could reduce the funds available to us for capital and investment spending and could have a material adverse impact on the results of operations. 17 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Economic downturns and prolonged negative conditions in the economy could affect consumer spending habits by decreasing the overall demand for discretionary items, including home furnishings. Consumer purchases of discretionary items, including our products, generally decline during periods when disposable income is limited, unemployment rates increase or there is uncertainty about future economic prospects.
Our principal products are consumer goods that may be considered postponable purchases. Economic downturns and prolonged negative conditions in the economy could affect consumer spending habits by decreasing the overall demand for discretionary items, including home furnishings.
We have access to sensitive customer information in the ordinary course of business.
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.
AND SUBSIDIARIES Risks Related to our Brand and Product Offerings Inability to maintain and enhance our brand may materially adversely impact our business. Maintaining and enhancing our brand is critical to our ability to expand our base of customers and may require us to make substantial investments.
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 campaigns utilize direct mail, digital, newspapers, magazines, television, and radio to maintain and enhance our existing brand equity.
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.
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.
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. Environmental, Health and Safety Risks Our current and former manufacturing and retail operations and products are subject to increasingly stringent environmental, health and safety requirements.
Environmental, Health and Safety Risks Our current and former manufacturing and retail operations and products are subject to increasingly stringent environmental, health and safety requirements. We use and generate hazardous substances in our manufacturing operations.
These global supply chain challenges could continue and in turn materially adversely impact our manufacturing production and fulfillment of backlog. While we strive to maintain a number of sources for our raw materials, the impact of COVID-19 on raw materials and increased demand on our supply chain, has created additional pricing and availability pressures.
While we strive to maintain a number of sources for our raw materials, decreased availability on raw materials and increased demand on our supply chain, may create additional pricing and availability pressures. Imported finished goods represent approximately 25% of our consolidated sales. The prices paid for these imported products include inbound freight.
During fiscal 2022, certain raw material prices, such as finishing material and plywood, significantly increased and in some instances, limited our production due to sourcing delays. Continued high raw material prices and costs of sourced products could have an adverse effect on our future margins.
Although we have instituted measures to ensure our supply chain remains open to us, continued high raw material prices and costs of sourced products could have an adverse effect on our future margins.
Consumer spending could remain depressed for an extended time and improvement in our sales could lag behind a general economic recovery as consumers may postpone the purchase of relatively higher-cost discretionary items. Other financial or operational difficulties due to competition may result in a decrease in our sales, earnings, and liquidity.
Other financial or operational difficulties due to competition may result in a decrease in our sales, earnings and liquidity. The residential home furnishings industry is highly competitive and fragmented.
In manufacturing furniture, we use various types of logs, lumber, fabrics, plywood, frames, leathers, finishing materials, foam, steel and other raw materials. Although we have instituted measures to ensure our supply chain remains open to us, we experienced raw material supply chain challenges related to suppliers negatively impacted by COVID-19 shutdowns and shipping delays.
In manufacturing furniture, we use various types of logs, lumber, fabrics, plywood, frames, leathers, finishing materials, foam, steel and other raw materials. 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.
Removed
Risks Related to the COVID-19 Pandemic The global COVID-19 pandemic has, and could continue to have, a material adverse effect on our business and results of operations.
Added
During the COVID-19 pandemic, supply chain challenges were faced by the entire home furnishings industry, including the Company, as a result of labor shortages, supply chain disruptions, and ocean freight capacity issues which resulted in unprecedented increases in material and freight costs, as well as significant unavailability or delay of raw materials or finished goods.
Removed
The ongoing global COVID-19 pandemic has impacted the world economy, increased volatility within the financial markets, disrupted international trade, increased labor wage rates and significantly impacted global supply chains, all of which have affected and continue to affect the home furnishings industry and the Company’s business.
Added
Furthermore, supply chain disruptions could materially adversely impact our manufacturing production and fulfillment of backlog. Manufacturing Risks Competition from overseas manufacturers and domestic retailers may materially adversely affect our business, operating results or financial condition.
Removed
In our action plan in response to COVID-19 that we announced on April 1, 2020, we took immediate action and made a number of adjustments to our business operations, but not limited to, temporarily closing our design centers and manufacturing plants, reducing our employee headcount, and curtailing certain operating expenses.
Added
In addition, the tightening of credit markets as well as increased borrowing rates may restrict the ability and willingness of customers to make purchases. We are subject to risks associated with self-insurance related to health benefits. We are self-insured for our health benefits and maintain per employee stop loss coverage; however, we retain the insurable risk at an aggregate level.
Removed
Our approach to the COVID-19 pandemic continues to evolve as business trends have substantially improved as consumers have allocated more discretionary spending to home furnishings. We reopened all of our retail design centers and resumed our North American manufacturing. Temporary salary reductions were lifted, headcount increased and our Board of Directors reinstated the regular quarterly cash dividend.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+2 added−6 removed1 unchanged
Biggest changeThe location activity and geographic distribution of our retail network for fiscal years ended June 30, 2022 and 2021, respectively, are as follows: Fiscal 2022 Fiscal 2021 Independent Company- Independent Company- retailers operated Total retailers operated Total Retail Design Center activity: Balance at July 1 161 141 302 160 144 304 New locations 7 2 9 18 3 21 Closures (13 ) (2 ) (15 ) (17 ) (6 ) (23 ) Transfers - - - - - - Balance at June 30 155 141 296 161 141 302 Relocations (in new and closures) - 1 1 - 2 2 Retail Design Center geographic locations: United States 33 137 170 34 136 170 Canada - 4 4 - 5 5 China 105 - 105 109 - 109 Other Asia 11 - 11 11 - 11 Europe 1 - 1 1 - 1 Middle East 5 - 5 6 - 6 Total 155 141 296 161 141 302 We believe that all our properties are well maintained, in good condition, are being used productively and are adequate to meet our requirements for the foreseeable future.
Biggest changeThe following table sets forth the size of our properties, including both owned and leased locations: Properties Owned or Leased Square Footage (in thousands) Corporate Headquarters 144 Case Goods manufacturing facilities 1,305 Upholstery manufacturing facilities 1,308 Distribution centers 1,175 Retail 2,774 Total Property 6,706 Design center activity and geographic distribution of our retail network for fiscal years ended June 30, 2023 and 2022, respectively, are as follows: Fiscal 2023 Fiscal 2022 Independent Company- Independent Company- retailers operated Total retailers operated Total Retail Design Center activity: Balance at July 1 155 141 296 161 141 302 New locations 2 2 4 7 2 9 Closures (4 ) (4 ) (8 ) (13 ) (2 ) (15 ) Transfers - - - - - - Balance at June 30 153 139 292 155 141 296 Relocations (in new and closures) 1 2 3 - 1 1 Retail Design Center geographic locations: United States 33 135 168 33 137 170 Canada - 4 4 - 4 4 China 105 - 105 105 - 105 Other Asia 10 - 10 11 - 11 Europe 1 - 1 1 - 1 Middle East 4 - 4 5 - 5 Total 153 139 292 155 141 296 For additional information regarding leases for our properties, see Note 6, Leases , of the notes to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K. 18 ETHAN ALLEN INTERIORS INC.
As of June 30, 2022, there were 141 Company-operated retail design centers totaling 2,043,000 square feet and averaging approximately 14,500 square feet in size per location. Of the 141 Company-operated retail design centers, 49 of the properties are owned and 92 are leased. We also own three and lease 14 retail home delivery centers, totaling approximately 885,000 square feet.
There are 139 Company-operated retail design centers located in the United States and Canada, averaging approximately 14,100 square feet in size per location, of which 49 of the properties are owned and 90 are leased. We also own 3 and lease 14 retail home delivery centers.
Removed
ITEM 2. PROPERTIES Ethan Allen’s 144,000 square foot corporate headquarters building, located at 25 Lake Avenue Ext. in Danbury, Connecticut, is owned by the Company. Wholesale Segment. As of June 30, 2022, we operate ten manufacturing facilities located in the United States, Mexico and Honduras.
Added
ITEM 2. PROPERTIES Ethan Allen’s corporate headquarters is located at 25 Lake Avenue Ext. in Danbury, Connecticut. We believe that all our properties are well maintained, in good condition, are being used productively and are adequate to meet our requirements for the foreseeable future.
Removed
These facilities are owned by the Company and include five case goods plants (including one sawmill, one rough mill and one kiln dry lumberyard) totaling 1,306,000 square feet and five upholstery plants totaling 1,308,000 square feet. Three of our case goods manufacturing facilities are located in Vermont, one is in Honduras and one is in North Carolina.
Added
As of June 30, 2023, we own and operate 10 manufacturing facilities located in the United States, Mexico and Honduras and three national distribution and fulfillment centers in the United States.
Removed
We have three upholstery manufacturing facilities in North Carolina and two in Mexico. Our wholesale segment also owns and operates three national distribution and fulfillment centers, which are a combined 1,175,000 square feet. Our distribution facilities are located in North Carolina and Virginia. 26 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Retail Segment.
Removed
During fiscal 2022, we further strengthened our vertically integrated enterprise and increased the number of our manufacturing facilities in North Carolina through the purchase of certain property, plant and equipment of Dimension Wood Products, Inc.
Removed
Founded in 1981 and located in Claremont, North Carolina, Dimension Wood Products, Inc. is a manufacturer of wood frames and machined parts used in upholstery manufacturing and will help us to further increase our control over raw materials, purchased parts, and labor costs while maintaining our high-quality standards.
Removed
For additional information regarding leases for our properties, see Note 6, Leases , of the notes to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

5 edited+0 added−1 removed0 unchanged
Biggest changeFarooq Kathwari*, age 78 ● Chairman of the Board, President and Chief Executive Officer since 1988 Ashley Fothergill, age 52 ● Senior Vice President, Merchandising since March 2022 ● Vice President, Accents Merchandising since October 2021 ● Joined the Company in March 2020 as Senior Director, Accents ● Prior to joining Ethan Allen, he was Creative Director at Hudson Valley Lighting from 2018 to 2020 ● Previously held senior product design and merchandising roles in a number of leading enterprises including Vice President of Design for Ralph Lauren Home, Director of Product Development for Williams-Sonoma and President at Gracious Home Amy Franks, age 48 ● Executive Vice President, Retail Network and Business Development since December 2021 ● Senior Vice President, Retail since March 2021 ● Joined the Company as Vice President, Retail in January 2021 ● Previously held senior retail leadership position at Bassett Furniture Industries, Inc. from 2019 to 2021 ● Prior to joining Bassett in 2019, she was Vice President, Retail at Ethan Allen since 2013 Eric D.
Biggest changeFarooq Kathwari*, age 79 ● Chairman of the Board, President and Chief Executive Officer since 1988 Amy Franks, age 49 ● Executive Vice President, Retail Network and Business Development since December 2021 ● Senior Vice President, Retail since March 2021 ● Previously held senior retail leadership position at Bassett Furniture Industries, Inc. from 2019 to 2021 ● Prior to joining Bassett in 2019, she was Vice President, Retail at Ethan Allen since 2013 ● Joined Ethan Allen in 1996 Matthew J.
McNulty, age 43 ● Senior Vice President, Chief Financial Officer and Treasurer since December 2021 ● Vice President, Finance and Treasurer from February 2020 to December 2021 ● Joined the Company in February 2019 as Vice President, Corporate Controller ● Prior to joining Ethan Allen, he was Senior Vice President, Controller and Principal Accounting Officer of FactSet Research Systems from 2005 to 2019 * Mr.
McNulty, age 44 ● Senior Vice President, Chief Financial Officer and Treasurer since December 2021 ● Vice President, Finance and Treasurer from February 2020 to December 2021 ● Joined the Company in February 2019 as Vice President, Corporate Controller ● Prior to joining Ethan Allen, he was Senior Vice President, Controller and Principal Accounting Officer of FactSet Research Systems Inc. from 2005 to 2019 * Mr.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 27 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES INFORMATION ABOUT EXECUTIVE OFFICERS Listed below are the names, ages and current positions of our executive officers and, if they had not held those position for the past five years, their former positions during that period with Ethan Allen or other companies.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. INFORMATION ABOUT EXECUTIVE OFFICERS Listed below are the names, ages and current positions of our executive officers and, if they had not held those positions for the past five years, their former positions during that period with Ethan Allen or other companies.
This information is presented as of August 29, 2022, the date of this Annual Report on Form 10-K. M.
This information is presented as of August 24, 2023, the date of this Annual Report on Form 10-K. M.
Kathwari is the only one of our executive officers who operates under a written employment agreement. 28 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES PART II
Kathwari is the sole executive officer of the Company who operates under a written employment agreement. 19 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES PART II
Removed
Koster, age 75 ● Vice President, General Counsel and Secretary since April 2013 ● Private practice prior to joining the Company in April 2013 Matthew J.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+1 added−2 removed5 unchanged
Biggest changeIn addition to the special cash dividend of $0.75 per share paid during August 2021, we paid four regular quarterly cash dividends during fiscal 2022. Total cash dividends paid to shareholders in fiscal 2022 was $1.90 per share and totaled $48.3 million.
Biggest changeIn August 2022 we paid a special cash dividend of $0.50 per share. In April 2023, our Board of Directors increased the regular quarterly cash dividend by 12.5% to $0.36 per share. In addition to the special cash dividend of $0.50 per share, we paid four regular quarterly cash dividends during fiscal 2023.
At June 30, 2022, we had a remaining Board authorization to repurchase 2,007,364 shares of our common stock pursuant to the Share Repurchase Program. In the future we may from time to time make repurchases in the open market and through privately negotiated transactions, subject to market conditions, including pursuant to our previously announced Share Repurchase Program.
At June 30, 2023, we had a remaining Board authorization to repurchase 2,007,364 shares of our common stock pursuant to the Share Repurchase Program. In the future we may from time to time make repurchases in the open market and through privately negotiated transactions, subject to market conditions, including pursuant to our previously announced Share Repurchase Program.
The annual changes for the five-year period shown in the graph below are based on the assumption that $100 had been invested in our common stock, the S&P 500 ® Index and the Dow Jones U.S. Furnishings Index on June 30, 2017.
The annual changes for the five-year period shown in the graph below are based on the assumption that $100 had been invested in our common stock, the S&P 500® Index and the Dow Jones U.S. Furnishings Index on June 30, 2018.
The total cumulative dollar returns shown on the graph represent the value that such investments would have had on June 30, 2022. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.
The total cumulative dollar returns shown on the graph represent the value that such investments would have had on June 30, 2023. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.
AND SUBSIDIARIES (b) Recent Sales of Unregistered Securities There were no sales of unregistered equity securities during fiscal 2022. (c) Purchases of Equity Securities by the Issuer We did not repurchase any shares of our outstanding common stock during the fourth quarter of fiscal 2022 under the Share Repurchase Program.
AND SUBSIDIARIES (b) Recent Sales of Unregistered Securities There were no sales of unregistered equity securities during fiscal 2023. (c) Purchases of Equity Securities by the Issuer We did not repurchase any shares of our outstanding common stock during the fourth quarter of fiscal 2023 under our existing Share Repurchase Program.
Furnishings Index $ 100.00 $ 81.44 $ 72.97 $ 66.29 $ 108.14 $ 77.30 *This performance graph shall not be deemed “ soliciting material ” or to be “ filed ” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Ethan Allen under the Securities Act of 1933, as amended, or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. 29 ETHAN ALLEN INTERIORS INC.
Furnishings Index $ 100.00 $ 89.61 $ 81.39 $ 132.79 $ 94.91 $ 92.25 *This performance graph shall not be deemed “ soliciting material ” or to be “ filed ” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Ethan Allen under the Securities Act of 1933, as amended, or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. 20 ETHAN ALLEN INTERIORS INC.
However, because many of our shares of common stock are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders. Dividends. In August 2021 we paid a special cash dividend of $0.75 per share.
As of August 17, 2023, there were 273 shareholders of record of our common stock. However, because many of our shares of common stock are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders. Dividends.
Company/Index/Market 2017 2018 2019 2020 2021 2022 Ethan Allen Interiors Inc. $ 100.00 $ 75.85 $ 65.20 $ 36.63 $ 85.45 $ 62.57 S&P 500 Index $ 100.00 $ 112.17 $ 121.39 $ 127.93 $ 177.33 $ 156.20 Dow Jones U.S.
Company/Index/Market 2018 2019 2020 2021 2022 2023 Ethan Allen Interiors Inc. $ 100.00 $ 85.96 $ 48.29 $ 112.65 $ 82.49 $ 115.43 S&P 500 Index $ 100.00 $ 108.22 $ 114.05 $ 158.09 $ 139.25 $ 163.72 Dow Jones U.S.
Removed
As of August 19, 2022, there were 279 shareholders of record of our common stock, including Cede & Co., the nominee of the Depository Trust Company.
Added
Total cash dividends paid to shareholders in fiscal 2023 were $1.82 per share and totaled $46.4 million.
Removed
In November 2021, the Board of Directors increased the regular quarterly cash dividend of $0.25 by 16% to $0.29 per share and in April 2022 the dividend was increased again by 10% to $0.32 per share.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

109 edited+77 added−84 removed34 unchanged
Biggest changeFiscal 2022 Fiscal 2021 Independent Company- Independent Company- retailers operated Total retailers operated Total Retail Design Center activity: Balance at July 1 161 141 302 160 144 304 New locations 7 2 9 18 3 21 Closures (13 ) (2 ) (15 ) (17 ) (6 ) (23 ) Transfers - - - - - - Balance at June 30 155 141 296 161 141 302 Relocations (in new and closures) - 1 1 - 2 2 Retail Design Center Geographic locations: United States 33 137 170 34 136 170 Canada - 4 4 - 5 5 China 105 - 105 109 - 109 Other Asia 11 - 11 11 - 11 Europe 1 - 1 1 - 1 Middle East 5 - 5 6 - 6 Total 155 141 296 161 141 302 Results of Operations For an understanding of the significant factors that influenced our financial performance in fiscal 2022 compared with fiscal 2021, the following discussion should be read in conjunction with the consolidated financial statements and related notes presented under Item 8 in this Annual Report on Form 10-K.
Biggest changeResults of Operations For an understanding of the significant factors that influenced our financial performance in fiscal 2023 compared with fiscal 2022, the following discussion should be read in conjunction with the consolidated financial statements and related notes presented under Item 8 in this Annual Report on Form 10-K.
Inventories (finished goods, work in process and raw materials) are stated at the lower of cost, determined on a first-in, first-out basis, and net realizable value. Cost is determined based solely on those charges incurred in the acquisition and production of the related inventory (i.e. material, labor and manufacturing overhead costs).
Inventories Inventories (finished goods, work in process and raw materials) are stated at the lower of cost, determined on a first-in, first-out basis, and net realizable value. Cost is determined based solely on those charges incurred in the acquisition and production of the related inventory (i.e. material, labor and manufacturing overhead costs).
AND SUBSIDIARIES To evaluate goodwill in a quantitative impairment test, the fair value of the reporting units is estimated using a combination of Market and Income approaches. The Market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business).
To evaluate goodwill in a quantitative impairment test, the fair value of the reporting units is estimated using a combination of Market and Income approaches. The Market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business).
Qualitative factors reviewed included a review for significant adverse changes in customer demand or business climate that could affect the value of the asset, a product recall or an adverse action or assessment by a regulator. Inventories.
Qualitative factors reviewed included a review for significant adverse changes in customer demand or business climate that could affect the value of the asset, a product recall or an adverse action or assessment by a regulator.
Significant multi-year contracts were extended in fiscal 2022 and include telecom services for our retail design centers, Microsoft Office software, our retail accounting and order entry system, web and e-commerce marketing tool software and technology used to create our 3D room planner and augmented reality.
Significant multi-year contracts were extended in fiscal 2022 and include telecommunication services for our retail design centers, Microsoft Office® software, our retail accounting and order entry system, web and e-commerce marketing tool software and technology used to create our 3D room planner and augmented reality.
We performed our annual indefinite-lived intangible asset impairment test during the fourth quarter of fiscal 2022 utilizing a qualitative analysis and concluded it was more likely than not the fair value of our trade name was greater than its carrying value and no impairment charge was required.
We performed our annual indefinite-lived intangible asset impairment test during the fourth quarter of fiscal 2023 utilizing a qualitative analysis and concluded it was more likely than not the fair value of our trade name was greater than its carrying value and no impairment charge was required.
As of June 30, 2022, we were not subject to the fixed-charge coverage ratio requirement, had no borrowings outstanding under the Facility, were in compliance with all other covenants and had borrowing availability of $121.0 million of the $125.0 million credit commitment.
As of June 30, 2023, we were not subject to the fixed-charge coverage ratio requirement, had no borrowings outstanding under the Facility, were in compliance with all other covenants, and had borrowing availability of $121.0 million of the $125.0 million credit commitment.
We provide complimentary interior design service to our clients and sell a full range of home furnishing products through a retail network of design centers located throughout the United States and abroad as well as online at ethanallen.com. Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations.
We provide complimentary interior design service to our clients and sell a full range of home furnishings through a retail network of design centers located throughout the United States and abroad as well as online at ethanallen.com. Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations.
In performing the qualitative assessment, we considered such factors as macro-economic conditions, industry and market conditions in which we operate including the competitive environment and any significant changes in demand. We also considered our stock price both in absolute terms and in relation to peer companies. Other Indefinite-Lived Intangible Assets.
In performing the qualitative assessment, we considered such factors as macroeconomic conditions, industry and market conditions in which we operate including the competitive environment and any significant changes in demand. We also considered our stock price both in absolute terms and in relation to peer companies. Other Indefinite-Lived Intangible Assets.
The Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2022 utilizing a qualitative analysis and concluded it was more likely than not the fair value of our wholesale reporting unit was greater than its respective carrying value and no impairment charge was required.
AND SUBSIDIARIES The Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2023 utilizing a qualitative analysis and concluded it was more likely than not the fair value of our wholesale reporting unit was greater than its respective carrying value and no impairment charge was required.
The decrease in purchase orders was primarily due to lower open import vendor purchase orders as lead times have decreased from improved import product receipts combined with a reduction in upholstery purchase orders due to timing of inventory receipts, the stabilization of inventory levels and the slowing of written order trends, which has caused us to reduce our purchase order quantities to prevent excess inventory. ● Long-term Debt.
The decrease in purchase orders was primarily due to lower open import vendor purchase orders as lead times have decreased from improved import product receipts combined with the stabilization of inventory levels and the slowing of written order trends, which has caused us to reduce our purchase order quantities to prevent excess inventory. ● Long-term Debt.
Refer to Results of Operations under Item 7, Management ’ s Discussion and Analysis of Financial Condition and Results of Operations , contained in Part II of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed with the SEC on August 19, 2021, for an analysis of the fiscal year 2021 results as compared to fiscal year 2020.
Refer to Results of Operations under Item 7, Management ’ s Discussion and Analysis of Financial Condition and Results of Operations , contained in Part II of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on August 29, 2022, for an analysis of the fiscal year 2022 results as compared to fiscal year 2021.
Estimating the fair value of reporting units and indefinite lived intangible assets involves the use of significant assumptions, estimates and judgments with respect to a number of factors, including sales, gross margin, general and administrative expenses, capital expenditures, EBITDA and cash flows, the selection of an appropriate discount rate, as well as market values and multiples of earnings and revenue of comparable public companies. 43 ETHAN ALLEN INTERIORS INC.
Estimating the fair value of reporting units and indefinite lived intangible assets involves the use of significant assumptions, estimates and judgments with respect to a number of factors, including sales, gross margin, general and administrative expenses, capital expenditures, EBITDA and cash flows, the selection of an appropriate discount rate, as well as market values and multiples of earnings and revenue of comparable public companies.
AND SUBSIDIARIES Regulation G Reconciliations of Non-GAAP Financial Measures To supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures, including adjusted gross profit and margin, adjusted operating income and margin, adjusted wholesale operating income and margin, adjusted retail operating income and margin, adjusted net income and adjusted diluted earnings per share.
Regulation G Reconciliations of Non-GAAP Financial Measures To supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures, including adjusted operating income and margin, adjusted wholesale operating income and margin, adjusted retail operating income and margin, adjusted net income and adjusted diluted earnings per share.
For retail design center level long-lived assets, expected cash flows are determined based on our estimate of future net sales, margin rates and expenses over the remaining expected terms of the leases. Goodwill and Indefinite-Lived Intangible Assets.
For retail design center level long-lived assets, expected cash flows are determined based on our estimate of future net sales, margin rates and expenses over the remaining expected terms of the leases.
Fluctuations in our operating results, levels of inventory on hand, operating lease commitments, the degree of success of our accounts receivable collection efforts, the timing of tax and other payments, the rate of written orders and net sales, levels of customer deposits on hand, as well as necessary capital expenditures to support growth of our operations will impact our liquidity and cash flows in future periods.
Material Cash Requirements from Contractual Obligations Fluctuations in our operating results, levels of inventory on hand, operating lease commitments, the degree of success of our accounts receivable collection efforts, the timing of tax and other payments, the rate of written orders and net sales, levels of customer deposits on hand, as well as necessary capital expenditures to support growth of our operations will impact our liquidity and cash flows in future periods.
We do, in the normal course of business, regularly initiate purchase orders for the procurement of (i) selected finished goods sourced from third-party suppliers, (ii) lumber, fabric, leather and other raw materials used in production, and (iii) certain outsourced services. All purchase orders are based on current needs and are fulfilled by suppliers within short time periods.
We do, in the normal course of business, regularly initiate purchase orders for the procurement of selected finished goods sourced from third-party suppliers, lumber, fabric, leather and other raw materials used in our manufacturing production, and certain outsourced services. All purchase orders are based on current needs and are fulfilled by suppliers within short time periods.
The recoverability of our retail design centers’ long-lived assets is evaluated for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset or asset group.
Impairment of Long-Lived Assets, including the Assessment of the Carrying Value of Retail Design Center Long-lived Assets The recoverability of our retail design centers’ long-lived assets is evaluated for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset or asset group.
For a discussion of our liquidity and capital resources as of and our cash flow activities for the fiscal year ended June 30, 2021 and 2020, see Item 7, Management ’ s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed with the SEC on August 19, 2021.
For a discussion of our liquidity and capital resources and our cash flow activities for the fiscal year ended June 30, 2022 and 2021, see Item 7, Management ’ s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on August 29, 2022.
We enter into operating leases in the normal course of business. Most lease arrangements provide us with the option to renew the leases at defined terms. During fiscal 2022, we entered into four new leases and modified 21 other leases in the form of a renewal or extension to the existing leased space.
We enter into operating leases in the normal course of business and most provide us with the option to renew the lease at defined terms. During fiscal 2023, we entered into four new leases and modified 22 other existing operating leases in the form of a renewal or extension to the existing leased space.
Other Arrangements We do not utilize or employ any other arrangements in operating our business. As such, we do not maintain any (i) retained or contingent interests, (ii) derivative instruments or (iii) variable interests which could serve as a source of potential risk to our future liquidity, capital resources and results of operations.
Other Arrangements We do not utilize or employ any other arrangements in operating our business. As such, we do not maintain any retained or contingent interests, derivative instruments or variable interests which could serve as a source of potential risk to our future liquidity, capital resources and results of operations. Product Warranties .
The long-term terminal growth rate assumptions reflect our current long-term view of the market in which we compete. Discount rates use the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors.
The long-term terminal growth rate assumptions reflect our current long-term view of the market in which we compete. Discount rates use the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors. 33 ETHAN ALLEN INTERIORS INC.
For more information on our operating leases, see Note 6, Leases , in the notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. ● Open Purchase Orders.
For more information on our operating leases, see Note 6, Leases , in the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. ● Financing Leases.
The timing and amount of any future share repurchases in the open market and through privately negotiated transactions will be determined by the Company’s officers at their discretion and based on a number of factors, including an evaluation of market and economic conditions while also maintaining financial flexibility. Material Cash Requirements from Contractual Obligations.
The timing and amount of any future share repurchases in the open market and through privately negotiated transactions will be determined by the Company’s officers at their discretion and based on a number of factors, including an evaluation of market and economic conditions while also maintaining financial flexibility.
In the Market approach, the “Guideline Company” method is used, which focuses on comparing the Company’s risk profile and growth prospects to reasonably similar publicly traded companies. Key assumptions used for the Guideline Company method include multiples for revenues, EBITDA and operating cash flows, as well as consideration of control premiums.
In the Market approach, the method focuses on comparing the Company’s risk profile and growth prospects to reasonably similar publicly traded companies. Key assumptions used include multiples for revenues, EBITDA and operating cash flows, as well as consideration of control premiums.
As of June 30, 2022, the Company operates 141 retail design centers; 137 located in the United States and four in Canada. Our independently operated design centers are located in the United States, Asia, the Middle East and Europe.
As of June 30, 2023, the Company operates 139 retail design centers, 135 located in the United States and four in Canada. Our independently operated design centers are located in the United States, Asia, the Middle East and Europe.
We review the carrying value of our goodwill and other intangible assets with indefinite lives at least annually, during the fourth quarter, or more frequently if an event occurs or circumstances change, for possible impairment. Goodwill. For impairment testing, goodwill has been assigned to our wholesale reporting unit.
Goodwill and Indefinite-Lived Intangible Assets We review the carrying value of our goodwill and other intangible assets with indefinite lives at least annually, during the fourth quarter, or more frequently if an event occurs or circumstances change, for possible impairment.
Except for operating leases, there were no other material changes, outside of the ordinary course of business, in our contractual obligations during the fiscal year. 41 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Our material cash requirements for our contractual obligations as of June 30, 2022 were as follows: ● Operating Leases.
Except for operating leases, there were no other material changes, outside of the ordinary course of business, in our contractual obligations during the fiscal year. Our material cash requirements for our contractual obligations as of June 30, 2023 were as follows: ● Operating Leases.
We had purchase obligations, defined as agreements that are enforceable and legally binding that specify all significant terms, including fixed or minimum quantities to be purchased, of $40.8 million at June 30, 2022, down from $50.2 million a year ago.
We had purchase obligations, defined as agreements that are enforceable and legally binding that specify all significant terms, including fixed or minimum quantities to be purchased, of $29.2 million as of June 30, 2023, down from $40.8 million in the prior year period.
Letters of Credit. At June 30, 2022 and 2021, there was $4.0 million and $5.0 million, respectively, of standby letters of credit outstanding under the Facility. Uses of Liquidity Capital Expenditures. Capital expenditures in fiscal 2022 totaled $13.4 million, up $1.4 million compared with the prior year period.
Letters of Credit . At both June 30, 2023 and 2022 there were $4.0 million of standby letters of credit outstanding under the Facility. Uses of Liquidity Capital Expenditures. Capital expenditures in fiscal 2023 totaled $13.9 million compared with $13.4 million in the prior year period.
Fiscal Year Ended June 30, 2022 % of Sales % Chg 2021 % of Sales % Chg 2020 % of Sales % Chg Net sales $ 817.8 100.0 % 19.4 % $ 685.2 100.0 % 16.2 % $ 589.8 100.0 % (21.0 %) Gross profit $ 484.7 59.3 % 23.3 % $ 393.1 57.4 % 21.7 % $ 323.1 54.8 % (21.1 %) Adjusted gross profit (1) $ 484.7 59.3 % 23.1 % $ 393.7 57.5 % 19.8 % $ 328.6 55.7 % (20.2 %) Operating income $ 138.3 16.9 % 78.9 % $ 77.3 11.3 % 427.8 % $ 14.6 2.5 % (56.9 %) Adjusted operating income (1) $ 134.2 16.4 % 67.1 % $ 80.3 11.7 % 370.6 % $ 17.1 2.9 % (69.0 %) Net income $ 103.3 12.6 % 72.1 % $ 60.0 8.8 % 574.2 % $ 8.9 1.5 % (65.4 %) Adjusted net income (1) $ 100.3 12.3 % 67.0 % $ 60.1 8.8 % 344.5 % $ 13.5 2.3 % (67.5 %) Diluted EPS $ 4.05 70.9 % $ 2.37 597.1 % $ 0.34 (64.6 %) Adjusted diluted EPS (1) $ 3.93 65.8 % $ 2.37 355.8 % $ 0.52 (66.7 %) Cash flow from operating activities $ 69.4 (46.6 %) $ 129.9 146.5 % $ 52.7 (4.6 %) Return on equity 26.4 % 17.7 % 3.9 % Wholesale written orders (0.5 %) 31.7 % (17.9 %) Retail written orders (4.6 %) 47.7 % (18.4 %) (1) Refer to the Regulation G Reconciliation of Non-GAAP Financial Measures section within this MD&A for the reconciliation of U.S. generally accepted accounting principles (“GAAP”) to adjusted key financial metrics. 32 ETHAN ALLEN INTERIORS INC.
Fiscal Year Ended June 30, 2023 % of Sales % Chg 2022 % of Sales % Chg 2021 % of Sales % Chg Net sales $ 791.4 100.0 % (3.2 %) $ 817.8 100.0 % 19.4 % $ 685.2 100.0 % 16.2 % Gross profit $ 480.4 60.7 % (0.9 %) $ 484.7 59.3 % 23.3 % $ 393.1 57.4 % 21.7 % Operating income $ 137.2 17.3 % (0.8 %) $ 138.3 16.9 % 78.9 % $ 77.3 11.3 % 427.8 % Adjusted operating income (1) $ 133.5 16.9 % (0.5 %) $ 134.2 16.4 % 67.1 % $ 80.3 11.7 % 370.6 % Net income $ 105.8 13.4 % 2.4 % $ 103.3 12.6 % 72.1 % $ 60.0 8.8 % 574.2 % Adjusted net income (1) $ 103.1 13.0 % 2.8 % $ 100.3 12.3 % 67.0 % $ 60.1 8.8 % 344.5 % Diluted EPS $ 4.13 2.0 % $ 4.05 70.9 % $ 2.37 597.1 % Adjusted diluted EPS (1) $ 4.03 2.5 % $ 3.93 65.8 % $ 2.37 355.8 % Cash flow from operating activities $ 100.7 45.1 % $ 69.4 (46.6 %) $ 129.9 146.5 % Return on equity 23.5 % 26.4 % 17.7 % Wholesale written orders (9.0 %) (0.5 %) 31.7 % Retail written orders (12.3 %) (4.6 %) 47.7 % (1) Refer to the Regulation G Reconciliation of Non-GAAP Financial Measures section within this MD&A for the reconciliation of GAAP to adjusted key financial metrics.
We make frequent comparisons throughout the year of actual experience to our assumptions to reduce the likelihood of significant adjustments and will record adjustments when differences are known. The following critical accounting estimates affect our consolidated financial statements. Impairment of Long-Lived Assets, including the Assessment of the Carrying Value of Retail Design Center Long-lived Assets.
We make frequent comparisons throughout the year of actual experience to our assumptions to reduce the likelihood of significant adjustments and will record adjustments when differences are known. The following critical accounting estimates affect our consolidated financial statements.
Our strategy emphasizes the aim to position Ethan Allen as a preferred brand offering complimentary design service together with products of superior style, quality and value to provide customers with a comprehensive, one-stop shopping solution for their home furnishing and interior design needs.
We aim to position Ethan Allen as a premier interior design destination and a preferred brand offering products of superior style, quality, and value to customers with a comprehensive, one-stop shopping solution for their home furnishing and interior design needs.
In some cases, these principles require management to make difficult and subjective judgments regarding uncertainties and, as a result, such estimates and assumptions may significantly impact our financial results and disclosures.
AND SUBSIDIARIES Critical Accounting Estimates We prepare our consolidated financial statements in conformity with GAAP. In some cases, these principles require management to make difficult and subjective judgments regarding uncertainties and, as a result, such estimates and assumptions may significantly impact our financial results and disclosures.
We present restricted cash as a component of total cash and cash equivalents as presented on our consolidated statement of cash flows and within Other Assets on our consolidated balance sheet. As of June 30, 2022, we held $1.0 million of restricted cash related to an Ethan Allen insurance captive.
AND SUBSIDIARIES Restricted Cash We present restricted cash as a component of total cash and cash equivalents on our consolidated statements of cash flows and within Other Assets on our consolidated balance sheets. At June 30, 2023 and 2022, we held $0.5 million and $1.0 million, respectively, of restricted cash related to the Ethan Allen insurance captive.
At June 30, 2022, our open purchase orders with respect to such goods and services totaled $40.8 million and are to be paid in less than one year.
At June 30, 2023, our open purchase orders with respect to such goods and services of $29.2 million are expected to be paid in less than one year.
We are a global luxury home fashion brand that is vertically integrated from product design through home delivery, which offers our customers stylish product offerings, artisanal quality and personalized service.
We are a global luxury home fashion brand that is vertically integrated from product design through home delivery, which offers our customers stylish product offerings, artisanal quality and personalized service. We are known for the quality and craftsmanship of our products as well as for the exceptional personal service from design to delivery.
On January 26, 2022, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent and syndication agent and Capital One, National Association, as documentation agent. The Credit Agreement amended and restated the Second Amended and Restated Credit Agreement, dated as of December 21, 2018, as amended.
Capital Resources, including Material Cash Requirements Sources of Liquidity Capital Needs. On January 26, 2022, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent and syndication agent and Capital One, National Association, as documentation agent.
Recent Accounting Pronouncements See Note 3, Summary of Significant Accounting Policies , in the notes to our consolidated financial statements included under Part II, Item 8, for a full description of recent accounting pronouncements, including the expected dates of adoption, which we include here by reference. 45 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Recent Accounting Pronouncements See Note 3, Summary of Significant Accounting Policies , in the notes to our consolidated financial statements included under Part II, Item 8, for a full description of recent accounting pronouncements, including the expected dates of adoption.
Further discussion of our contractual obligations associated with long-term debt can be found in Note 11, Credit Agreement , in the notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. ● Other Purchase Obligations.
We had no outstanding borrowings under our revolving credit facility at June 30, 2023 or 2022. Further discussion of our contractual obligations associated with long-term debt can be found in Note 11, Credit Agreement , to the consolidated financial statements included under Item 8 of this Annual Report on Form 10-K. ● Other Purchase Obligations.
Although the final outcome of these legal and environmental matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations. Critical Accounting Estimates We prepare our consolidated financial statements in conformity with GAAP.
Although the final outcome of these legal and environmental matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations. 32 ETHAN ALLEN INTERIORS INC.
As of June 30, 2022, we had total contractual obligations of $193.2 million, a decrease from $203.9 million a year ago due to operating lease payments of $33.6 million during fiscal 2022 partially offset by $18.7 million in operating lease liabilities from new leases and modifications to existing leases entered into throughout fiscal 2022.
As of June 30, 2023, we had total contractual obligations of $199.1 million, an increase from $193.2 million a year ago due to $40.2 million in operating lease liabilities from new leases and modifications to existing leases entered into throughout fiscal 2023 partially offset by operating lease payments of $31.0 million during fiscal 2023.
Our consolidated effective tax rate was 25.2% compared with 21.5% in the prior year. Our effective tax rate of 25.2% varies from the 21% federal statutory rate primarily due to state taxes.
Our consolidated effective tax rate was 25.0% compared with 25.2% in the prior year. Our effective tax rate of 25.0% varies from the 21% federal statutory rate primarily due to state taxes. Net Income Net income for fiscal 2023 increased by $2.5 million or 2.4% compared with the prior year period.
Our operating lease obligations decreased from $143.6 million last year to $131.6 million at June 30, 2022 due to monthly lease payments made to landlords and the exiting of certain retail leased spaces in the past 12 months partially offset by new leases and modifications to existing leases entered into throughout the fiscal 2022 year.
Our undiscounted future minimum operating lease payments as of June 30, 2023 was $152.4 million, an increase from $131.6 million in the prior year period due to new leases and modifications to existing leases entered into throughout the fiscal 2023 year partially offset by monthly lease payments made to landlords and the exiting of certain retail leased spaces in the past 12 months.
The following table illustrates the main components of our cash flows for each of the last three fiscal years (in millions): Fiscal Year Ended June 30, 2022 2021 2020 Operating activities Net income $ 103.3 $ 60.0 $ 8.9 Non-cash operating lease cost 30.3 29.9 32.0 Other non-cash items, including depreciation and amortization 12.4 23.6 22.6 Restructuring payments (1.6 ) (2.8 ) (9.1 ) Changes in working capital (75.0 ) 19.2 (1.7 ) Total provided by operating activities $ 69.4 $ 129.9 $ 52.7 Investing activities Capital expenditures $ (13.4 ) $ (12.0 ) $ (15.7 ) Acquisitions, net of cash acquired and other - - (1.3 ) Proceeds from sales of property, plant and equipment 10.6 4.9 12.4 Purchases of investments, net of sales (11.2 ) - - Total used in investing activities $ (14.0 ) $ (7.1 ) $ (4.6 ) Financing activities Borrowings from revolving credit facility $ - $ - $ 100.0 Payments on borrowings - (50.0 ) (50.0 ) Repurchases of common stock - - (24.3 ) Taxes paid related to net share settlement of equity awards (0.8 ) (0.1 ) - Dividend payments (48.3 ) (43.3 ) (21.5 ) Proceeds from employee stock plans 1.1 3.0 0.1 Payments for debt issuance costs (0.5 ) - - Payments on financing leases (0.5 ) (0.6 ) (0.6 ) Total (used in) provided by financing activities $ (49.0 ) $ (91.0 ) $ 3.7 Cash Provided by (Used in) Operating Activities.
(in millions) Fiscal Year Ended June 30, 2023 2022 2021 Operating activities Net income $ 105.8 $ 103.3 $ 60.0 Non-cash operating lease cost 30.2 30.3 29.9 Restructuring and other impairment charges, net of gains (3.7 ) (4.4 ) 3.1 Restructuring payments (1.0 ) (1.6 ) (2.8 ) Depreciation and amortization and other non-cash items 16.2 16.9 20.6 Changes in operating assets and liabilities (46.8 ) (75.1 ) 19.1 Total provided by operating activities $ 100.7 $ 69.4 $ 129.9 Investing activities Capital expenditures $ (13.9 ) $ (13.4 ) $ (12.0 ) Proceeds from sales of property, plant and equipment 9.9 10.6 4.9 Purchases of investments, net of sales (97.5 ) (11.2 ) - Total used in investing activities $ (101.5 ) $ (14.0 ) $ (7.1 ) Financing activities Payments on borrowings $ - $ - $ (50.0 ) Taxes paid related to net share settlement of equity awards (0.8 ) (0.8 ) (0.1 ) Dividend payments (46.4 ) (48.3 ) (43.3 ) Proceeds from employee stock plans 0.1 1.1 3.0 Payments for debt issuance costs - (0.5 ) - Payments on financing leases and other (0.5 ) (0.5 ) (0.6 ) Total used in financing activities $ (47.6 ) $ (49.0 ) $ (91.0 ) Cash Provided by (Used in) Operating Activities.
The liability associated with an unrecognized tax benefit is classified as a long-term liability except for the amount for which a cash payment is expected to be made or tax positions settled within one year. Business Insurance Reserves.
The liability associated with an unrecognized tax benefit is classified as a long-term liability except for the amount for which a cash payment is expected to be made or tax positions settled within one year. Business Insurance Reserves We have insurance programs in place for workers’ compensation and health care under certain employee benefit plans provided by the Company.
We have a strong history of returning capital to shareholders and continued this practice during fiscal 2022 as the following actions were taken pertaining to dividends. ● On August 3, 2021, our Board declared a $0.75 per share special cash dividend in addition to our regular quarterly cash dividend of $0.25 per share, which was paid to shareholders on August 31, 2021 ● On November 30, 2021, our Board increased our regular quarterly cash dividend by 16% to $0.29 per share; the dividend was paid on January 5, 2022 ● On January 25, 2022, our Board declared a regular quarterly cash dividend of $0.29 per share, which was paid on February 8, 2022 ● On April 26, 2022, our Board increased our regular quarterly cash dividend by 10% to $0.32 per share; the dividend was paid on May 25, 2022 For the full fiscal 2022 year, we paid a total of $1.90 per share in cash dividends for an aggregate total of $48.3 million.
We have a strong history of returning capital to shareholders and continued this practice during fiscal 2023 as the following actions were taken pertaining to dividends. ● On August 3, 2022, our Board declared a $0.50 per share special cash dividend in addition to our regular quarterly cash dividend of $0.32 per share, which was paid to shareholders on August 30, 2022 ● On November 9, 2022, our Board declared a regular quarterly cash dividend of $0.32 per share, which was paid on January 4, 2023 ● On January 24, 2023, our Board declared a regular quarterly cash dividend of $0.32 per share, which was paid on February 7, 2023 ● On April 26, 2023, our Board increased our regular quarterly cash dividend by 12.5% to $0.36 per share, which was paid on May 25, 2023 30 ETHAN ALLEN INTERIORS INC.
We have not made any material changes to our assumptions included in the calculations of the lower of cost or net realizable value reserves during the periods presented. 44 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES At June 30, 2022 and 2021, our inventory reserves totaled $2.1 million and $2.8 million, respectively.
We have not made any material changes to our assumptions included in the calculations of the lower of cost or net realizable value reserves during the periods presented. At June 30, 2023 and 2022, our inventory reserves totaled $1.9 million and $2.1 million, respectively. Income Taxes We are subject to income taxes in the United States and other foreign jurisdictions.
These laws can be complicated and are difficult to apply to any business, including ours. The tax laws also require us to allocate our taxable income to many jurisdictions based on subjective allocation methodologies and information collection processes. We use the asset and liability method to account for income taxes.
The tax laws also require us to allocate our taxable income to many jurisdictions based on subjective allocation methodologies and information collection processes. 34 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES We use the asset and liability method to account for income taxes.
We adjust insurance reserves, as needed, in the event that future loss experience differs from historical loss patterns. Significant Accounting Policies See Note 3, Summary of Significant Accounting Policies , in the notes to our consolidated financial statements included under Part II, Item 8, for a full description of our significant accounting policies.
Significant Accounting Policies See Note 3, Summary of Significant Accounting Policies , in the notes to our consolidated financial statements included under Part II, Item 8, for a full description of our significant accounting policies.
The MD&A is based upon, and should be read in conjunction with, our Consolidated Financial Statements and related Notes included under Item 8 of this Annual Report on Form 10-K.
The MD&A is based upon, and should be read in conjunction with, our Consolidated Financial Statements and related Notes included under Item 8 of this Annual Report on Form 10-K. Executive Overview Who We Are . Founded in 1932, Ethan Allen is a leading interior design company, manufacturer and retailer in the home furnishings marketplace.
The remaining 8% was for Corporate infrastructure, operations and IT system development to further enhance existing workflows. We have no material contractual commitments outstanding for future capital expenditures and anticipate that cash from operations will be sufficient to fund future capital expenditures.
We have no material contractual commitments outstanding for future capital expenditures and anticipate that cash from operations will be sufficient to fund future capital expenditures.
Restructuring and other impairment charges, net of gains was a gain of $4.5 million compared to a charge of $2.4 million in the prior year. The current year gain of $4.5 million primarily related to the sale of three properties for a pre-tax gain of $5.4 million partially offset by severance and other lease exit costs.
The prior year gain of $4.5 million primarily related to the sale of three properties for a pre-tax gain of $5.4 million partially offset by $0.9 million in severance and other lease exit costs. 25 ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARIES Operating income was $138.3 million compared with $77.3 million in the prior year. Adjusted operating income, which excludes restructuring and other charges, was $134.2 million, or 16.4% of net sales in fiscal 2022, up from $80.3 million, or 11.7% of net sales in the prior year.
Adjusted operating income, which excludes restructuring and other charges, net of gains, was $133.5 million, or 16.9% of net sales compared with $134.2 million, or 16.4% of net sales in the prior year period.
Availability under the Facility fluctuates according to a borrowing base calculated on eligible accounts receivable and inventory, net of customer deposits and reserves. The Facility includes covenants that apply under certain circumstances, including a fixed-charge coverage ratio requirement that applies when excess availability under the credit line is less than certain thresholds.
The Facility includes covenants that apply under certain circumstances, including a fixed-charge coverage ratio requirement that applies when excess availability under the credit line is less than certain thresholds.
Other purchase commitments for services such as telecommunication, computer-related software, royalties, web development, insurance and other maintenance contracts was $19.7 million as of June 30, 2022, up from $8.8 million, primarily due to timing of contract signing and extensions.
Other purchase commitments for services such as telecommunication, computer-related software, web development, financial and accounting software services, insurance and other maintenance contracts was $16.9 million as of June 30, 2023, down from $19.7 million in the prior year period, primarily due to timing of contract signing and extensions combined with use of other more-cost effective services.
Our sales to international independent licensees represented 2.6% of total wholesale net sales in 2022 compared to 4.3% in the prior year period. We track and disclose wholesale written orders, which represent orders booked through all of our channels. Written orders help show the current pace or trend of customer transactions.
Our international net sales were down 38.4% compared to the prior year period due to a reduction in net sales to China. Sales to international independent retailers represented 1.8% of total wholesale net sales compared to 2.6% in the prior year period. We track and disclose wholesale written orders, which represent orders booked through all of our channels.
Our sources of liquidity include cash and cash equivalents, short-term investments, cash from operations and amounts available under our credit facility. We believe these sources remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, invest in capital expenditures and fulfill other cash requirements for day-to-day operations, including fiscal 2023 contractual obligations.
We believe these sources remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, invest in capital expenditures and fulfill other cash requirements for day-to-day operations and contractual obligations. We continue to monitor our liquidity closely during this continued period of economic uncertainty and volatility.
(in thousands) Fiscal year Ended June 30, 2022 2021 % Change Selling, General & Administrative (“SG&A”) expenses $ 350,917 $ 313,411 12.0 % Restructuring and other impairment charges, net of gains $ (4,461 ) $ 2,411 n/a Consolidated operating income $ 138,250 $ 77,285 78.9 % Consolidated operating margin 16.9 % 11.3 % Wholesale operating income $ 63,930 $ 52,281 22.3 % Retail operating income $ 80,496 $ 28,824 179.3 % SG&A expenses increased to $350.9 million, or 42.9% of net sales, compared with $313.4 million, or 45.7% of net sales in the prior year period.
SG&A Expenses (in thousands) Fiscal Year Ended June 30, 2023 2022 % Change Selling, general and administrative (“SG&A”) expenses $ 346,894 $ 350,917 (1.1 %) Restructuring and other impairment charges, net of gains $ (3,720 ) $ (4,461 ) (16.6 %) Consolidated operating income $ 137,196 $ 138,250 (0.8 %) Consolidated operating margin 17.3 % 16.9 % Wholesale operating income $ 68,792 $ 63,930 7.6 % Retail operating income $ 67,256 $ 80,496 (16.4 %) SG&A expenses for fiscal 2023 decreased $4.0 million or 1.1% compared to the prior year period due to decreased selling expenses of 1.0% combined with a 1.4% decrease in general and administrative expenses.
In making judgments about realizing the value of our deferred tax assets, we consider historic and projected future operating results, the eligible carry-forward period, tax law changes and other relevant considerations. The Company evaluates, on a quarterly basis, uncertain tax positions taken or expected to be taken on tax returns for recognition, measurement, presentation, and disclosure in its financial statements.
In making judgments about realizing the value of our deferred tax assets, we consider historic and projected future operating results, the eligible carry-forward period, tax law changes and other relevant considerations.
We also contract with various suppliers located in Europe, Asia and other various countries to produce products that support our business. Business Model. Ethan Allen has a distinct vision of American style, rooted in the kind of substance that we believe differentiates us from our competitors.
Ethan Allen has a distinct vision of American style, rooted in the kind of substance that we believe differentiates us from our competitors.
Our credit agreement also includes covenants that includes limitations on our ability to pay dividends. Share Repurchase Program. There were no share repurchases under our existing multi-year share repurchase program (the “Share Repurchase Program”) during fiscal 2022 or 2021.
Our credit agreement also includes covenants that includes limitations on our ability to pay dividends. Share Repurchase Program. There were no share repurchases under our existing multi-year share repurchase program during fiscal 2023 or 2022. At June 30, 2023, we had a remaining Board authorization to repurchase 2,007,364 shares of our common stock pursuant to our share repurchase program.
Written orders are intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP. Wholesale orders were down 0.5% in fiscal 2022 compared with fiscal year 2021, but up 7.6% compared to fiscal 2019.
Written orders help show the current pace or trend of customer transactions. Written orders are intended only as supplemental information and are not a substitute for net sales presented in accordance with GAAP. Wholesale written orders were down 9.0% in fiscal 2023 compared to the prior year period.
During fiscal 2022, we invested a net $11.2 million in municipal bonds, commercial paper and certificates of deposit with maturities of one year or less. These short-term investments are reported within Investments in our consolidated balance sheet as of June 30, 2022.
We also liquidated our previously held investments in municipal bonds, commercial paper and certificates of deposit during the first quarter of fiscal 2023, which had totaled $11.2 million as of June 30, 2022. Our short-term investments are reported within Investments in our consolidated balance sheets as of June 30, 2023 and 2022.
The Credit Agreement provides for a $125 million revolving credit facility (the “Facility”), subject to borrowing base availability, with a maturity date of January 26, 2027. The Credit Agreement also provides us with an option to increase the size of the Facility up to an additional amount of $60 million.
The Credit Agreement amended and restated the Second Amended and Restated Credit Agreement, dated as of December 21, 2018, as amended. The Credit Agreement provides for a $125 million revolving credit facility (the “Facility”), subject to borrowing base availability, with a maturity date of January 26, 2027.
Although we believe that the insurance reserves are adequate, the reserve estimates are based on historical experience, which may not be indicative of current and future losses. In addition, the actuarial calculations used to estimate insurance reserves are based on numerous assumptions, some of which are subjective.
In addition, the actuarial calculations used to estimate insurance reserves are based on numerous assumptions, some of which are subjective. We adjust insurance reserves, as needed, in the event that future loss experience differs from historical loss patterns.
Fiscal 2022 cash used in investing activities was $14.0 million, an increase from $7.1 million last year due to $11.2 million of net purchases of investments (net of proceeds from sales of investments) combined with a $1.4 million increase in capital expenditures partially offset by proceeds received from the sale of properties.
Cash used in investing activities was $101.5 million during fiscal 2023, an increase from $14.0 million in the prior year period due to $97.5 million of net purchases of investments (net of proceeds from sales of investments) and capital expenditures of $13.9 million, partially offset by $8.1 in proceeds received from the sale-leaseback transaction completed in August 2022 as well as the sale of a property for $1.8 million in April 2023.
As of June 30, 2022 and 2021, we had liabilities of $2.0 million related to health care coverage. We also carry workers’ compensation insurance subject to a deductible amount for which the Company is responsible on each claim.
We also carry workers’ compensation insurance subject to a deductible amount for which the Company is responsible on each claim. As of June 30, 2023, we had accrued liabilities of $4.2 million related to workers’ compensation claims, primarily for claims that do not meet the per-incident deductible, compared to $3.8 million in the prior year period.
Retail restructuring and impairment charges increased retail operating income by $1.3 million during fiscal 2022 compared to a reduction of $2.5 million a year ago.
Restructuring and other charges, net of gains, increased retail operating income by $3.9 million during fiscal 2023 compared to a $1.3 million increase in the prior year period.
AND SUBSIDIARIES * Adjustments to reported GAAP financial measures including gross profit and margin, operating income and margin, net income, and diluted EPS have been adjusted by the following: (in thousands) Fiscal Year Ended June 30, 2022 2021 Inventory reserves and write-downs (wholesale) $ - $ 585 Optimization of manufacturing and logistics (wholesale) - 54 Adjustments to gross profit $ - $ 639 Inventory reserves and write-downs (wholesale) $ - $ 585 Optimization of manufacturing and logistics (wholesale) - 356 Gain on sale of property, plant and equipment (wholesale) (3,913 ) - Gain on sale of property, plant and equipment (retail) (1,518 ) (473 ) Severance and other charges (wholesale) 727 (389 ) Severance and other charges (retail) 243 811 Impairment of long-lived assets and lease exit costs (retail) 451 2,160 Adjustments to operating income $ (4,010 ) $ 3,050 Adjustments to income before income taxes $ (4,010 ) $ 3,050 Related income tax effects on non-recurring items (1) 1,007 (747 ) Income tax benefit from valuation allowance change - (2,249 ) Adjustments to net income $ (3,003 ) $ 54 (1) Calculated using a tax rate of 25.1% in current fiscal year and 24.5% in prior fiscal year Liquidity We are committed to maintaining a strong balance sheet in order to weather difficult industry conditions, to allow us to take advantage of opportunities and to execute our long-term strategic initiatives.
AND SUBSIDIARIES * Adjustments to reported GAAP financial measures including operating income and margin, net income, and diluted EPS have been adjusted by the following: (in thousands) Fiscal Year Ended June 30, 2023 2022 Gain on sale-leaseback transaction (retail) $ (4,222 ) $ - Gain on sale of property, plant and equipment (wholesale) - (3,913 ) Gain on sale of property, plant and equipment (retail) (311 ) (1,518 ) Severance and other charges (wholesale) 169 727 Severance and other charges (retail) 644 243 Disposal of long-lived assets and lease exit costs (retail) 38 451 Adjustments to operating income $ (3,682 ) $ (4,010 ) Related income tax effects on non-recurring items (1) 932 1,007 Adjustments to net income $ (2,750 ) $ (3,003 ) (1) Calculated using a rate of 25.3% in current year and 25.1% in prior year.
Included in our cash and cash equivalents at June 30, 2022, is $8.1 million held by foreign subsidiaries, a portion of which we have determined to be indefinitely reinvested. Summary of Cash Flows At June 30, 2022, we held cash and cash equivalents of $109.9 million compared with $104.6 million a year ago.
Summary of Cash Flows At June 30, 2023, we held cash and cash equivalents of $62.1 million compared with $109.9 million at June 30, 2022. Cash and cash equivalents aggregated to 8.3% of our total assets at June 30, 2023, compared with 15.3% a year ago.
Consolidated gross margin was 59.3% compared with 57.4% a year ago due to a change in the sales mix, a favorable product mix, product pricing actions and higher manufacturing productivity partially offset by higher wholesale input costs.
Consolidated gross margin was 60.7% compared with 59.3% in the prior year period due to favorable product mix and lower input costs including reduced inbound freight and raw material costs partially offset by a change in sales mix and lower delivered unit volume.
(in thousands, except per share data) Fiscal Year Ended June 30, 2022 2021 % Change Consolidated Adjusted Gross Profit / Gross Margin GAAP Gross profit $ 484,706 $ 393,107 23.3 % Adjustments (pre-tax) * - 639 Adjusted gross profit * $ 484,706 $ 393,746 23.1 % Adjusted gross margin * 59.3 % 57.5 % Adjusted Operating Income / Operating Margin GAAP Operating income $ 138,250 $ 77,285 78.9 % Adjustments (pre-tax) * (4,010 ) 3,050 Adjusted operating income * $ 134,240 $ 80,335 67.1 % Consolidated Net sales $ 817,762 $ 685,169 19.4 % GAAP Operating margin 16.9 % 11.3 % Adjusted operating margin * 16.4 % 11.7 % Consolidated Adjusted Net Income / Adjusted Diluted EPS GAAP Net income $ 103,280 $ 60,005 72.1 % Adjustments, net of tax * (3,003 ) 54 Adjusted net income $ 100,277 $ 60,059 67.0 % Diluted weighted average common shares 25,522 25,352 GAAP Diluted EPS $ 4.05 $ 2.37 70.9 % Adjusted diluted EPS * $ 3.93 $ 2.37 65.8 % Wholesale Adjusted Operating Income / Adjusted Operating Margin Wholesale GAAP operating income $ 63,930 $ 52,281 22.3 % Adjustments (pre-tax) * (3,183 ) 552 Adjusted wholesale operating income * $ 60,747 $ 52,833 15.0 % Wholesale net sales $ 483,842 $ 413,076 17.1 % Wholesale GAAP operating margin 13.2 % 12.7 % Adjusted wholesale operating margin * 12.6 % 12.8 % Retail Adjusted Operating Income / Adjusted Operating Margin Retail GAAP operating income $ 80,496 $ 28,824 179.3 % Adjustments (pre-tax) * (827 ) 2,498 Adjusted retail operating income * $ 79,669 $ 31,322 154.4 % Retail net sales $ 689,884 $ 554,971 24.3 % Retail GAAP operating margin 11.7 % 5.2 % Adjusted retail operating margin * 11.5 % 5.6 % 37 ETHAN ALLEN INTERIORS INC.
(in thousands, except per share amounts) Fiscal Year Ended June 30, 2023 2022 % Change Consolidated Adjusted Operating Income / Operating Margin GAAP Operating income $ 137,196 $ 138,250 (0.8% ) Adjustments (pre-tax) * (3,682 ) (4,010 ) Adjusted operating income * $ 133,514 $ 134,240 (0.5% ) Consolidated Net sales $ 791,382 $ 817,762 (3.2% ) GAAP Operating margin 17.3 % 16.91 % Adjusted operating margin * 16.9 % 16.42 % Consolidated Adjusted Net Income / Adjusted Diluted EPS GAAP Net income $ 105,807 $ 103,280 2.4 % Adjustments, net of tax * (2,750 ) (3,003 ) Adjusted net income $ 103,057 $ 100,277 2.8 % Diluted weighted average common shares 25,604 25,522 GAAP Diluted EPS $ 4.13 $ 4.05 2.0 % Adjusted diluted EPS * $ 4.03 $ 3.93 2.5 % Wholesale Adjusted Operating Income / Adjusted Operating Margin Wholesale GAAP operating income $ 68,792 $ 63,930 7.6 % Adjustments (pre-tax) * 190 (3,183 ) Adjusted wholesale operating income * $ 68,982 $ 60,747 13.6 % Wholesale net sales $ 449,591 $ 483,842 (7.1% ) Wholesale GAAP operating margin 15.3 % 13.2 % Adjusted wholesale operating margin * 15.3 % 12.6 % Retail Adjusted Operating Income / Adjusted Operating Margin Retail GAAP operating income $ 67,256 $ 80,496 (16.4% ) Adjustments (pre-tax) * (3,872 ) (827 ) Adjusted retail operating income * $ 63,384 $ 79,669 (20.4% ) Retail net sales $ 662,555 $ 689,884 (4.0% ) Retail GAAP operating margin 10.2 % 11.7 % Adjusted retail operating margin * 9.6 % 11.5 % 27 ETHAN ALLEN INTERIORS INC.
We have insurance programs in place to cover workers’ compensation and health care benefits under certain employee benefit plans provided by the Company. The insurance programs, which are funded through self-insured retention, are subject to various stop-loss limitations. We accrue estimated losses using actuarial models and assumptions based on historical loss experience.
The insurance programs, which are funded through self-insured retention, are subject to various stop-loss limitations. We accrue estimated losses using actuarial models and assumptions based on historical loss experience. As of June 30, 2023, we had a liability of $2.4 million related to health care coverage compared to $2.0 million in the prior year period.
Our products, including our case goods, upholstery and home accents, generally carry explicit product warranties and are provided based on terms that are generally accepted in the industry. All our domestic independent retailers are required to enter into and perform in accordance with the terms and conditions of a warranty service agreement.
As of June 30, 2023 and 2022, our product warranty liability totaled $1.3 million and $1.2 million, respectively. Our products, including our case goods, upholstery and home accents, generally carry explicit product warranties and are provided based on terms that are generally accepted in the industry.
While our retail segment written orders were down 4.6% compared to a strong fiscal 2021, retail orders were up 14.9% compared to fiscal 2019 (prior to the start of the COVID-19 pandemic). Wholesale segment written orders were lower by 0.5% compared to fiscal year 2021, but up 7.6% compared with fiscal 2019.
While our retail segment written orders were down 12.3% compared to fiscal 2022, retail orders were up 0.8% compared to fiscal 2019 which was prior to the COVID-19 pandemic and more reflective of historical levels. Wholesale segment written orders were lower by 9.0% compared to last year, and down 2.1% when compared to fiscal 2019.
SG&A expenses, when expressed as a percentage of sales, decreased 280 basis points in fiscal 2022, compared with the prior year, primarily due to higher sales volume relative to fixed costs.
When expressed as a percentage of sales, SG&A expenses were 43.8% of net sales, a 90-basis point increase compared with the prior year, primarily due to decreased operating leverage driven by the lower sales volume relative to fixed costs. The 1.0% decrease in selling expenses was from lower selling costs associated with the 3.2% decrease in sales volume.
Fiscal 2022 cash generated from operations totaled $69.4 million, a decrease from $129.9 million in the prior year primarily due to an increase in working capital partially offset by higher net income generated during the period.
We generated $100.7 million in cash from operating activities, an increase from $69.4 million in the prior year period primarily due to a reduction in inventory carrying levels and accounts receivable combined with higher net income partially offset by a decline in customer deposits.
(in thousands, except per share data) Fiscal Year Ended June 30, 2022 2021 % Change Income tax expense $ 34,841 $ 16,406 112.4 % Effective tax rate 25.2 % 21.5 % Net income $ 103,280 $ 60,005 72.1 % Diluted EPS $ 4.05 $ 2.37 70.9 % Income tax expense was $34.8 million compared with $16.4 million in the prior year primarily due to the $61.7 million increase in income before income taxes and the prior year reversal of a valuation allowance.
Income Tax Expense (in thousands) Fiscal Year Ended June 30, 2023 2022 % Change Income tax expense $ 35,218 $ 34,841 1.1 % Effective tax rate 25.0 % 25.2 % Net income $ 105,807 $ 103,280 2.4 % Diluted EPS $ 4.13 $ 4.05 2.0 % Income tax expense for fiscal 2023 was $35.2 million compared with $34.8 million in the prior year period.
Subsequently, the regular quarterly dividend was increased for a second time, this time by 10% to $0.32 per share and paid on May 25, 2022. There were no repurchases of common stock in either fiscal 2022 or 2021. Restricted Cash.
The Board increased the regular quarterly cash dividend to $0.36 per share on April 25, 2023, which was paid on May 25, 2023. There were no repurchases of common stock under our existing share repurchase program during fiscal 2023 or 2022. 29 ETHAN ALLEN INTERIORS INC.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

19 edited+2 added−3 removed7 unchanged
Biggest changeConversely, declines in interest rates, including the impact from lower credit spreads, could have an adverse impact on interest income for our investment portfolio. However, because of our investment policy and the short-term nature of our investments, our financial exposure to fluctuations in interest rates is expected to remain low.
Biggest changeHowever, because of our investment policy and the short-term nature of our investments, our financial exposure to fluctuations in interest rates has been low and is expected to remain low. We do not believe that the value or liquidity of our cash equivalents and investments have been materially impacted by current market events.
While we had no fixed or variable rate borrowings outstanding at June 30, 2022, we could be exposed to market risk from changes in risk-free interest rates if we incur variable rate debt in the future as interest expense will fluctuate with changes in the Secured Overnight Financing Rate (“SOFR”).
While we had no fixed or variable rate borrowings outstanding at June 30, 2023, we could be exposed to market risk from changes in risk-free interest rates if we incur variable rate debt in the future as interest expense will fluctuate with changes in the Secured Overnight Financing Rate (“SOFR”).
While it is difficult to accurately measure the impact of recent inflationary pressure, we believe any inflationary impact on our product and operating costs would be offset by our ability to increase selling prices, create operational efficiencies and seek lower cost alternatives.
While it is difficult to accurately measure the impact of inflationary pressure, we believe any inflationary impact on our product and operating costs would be offset by our ability to increase selling prices, create operational efficiencies and seek lower cost alternatives. 36 ETHAN ALLEN INTERIORS INC.
Based on our current and expected levels of exposed liabilities, we estimate that a hypothetical 100 basis point change (up or down) in interest rates based on one-month SOFR would not have a material impact on our results of operations and financial condition. Cash and Cash Equivalents and Investments.
Based on our current and expected levels of exposed liabilities, we estimate that a hypothetical 100 basis point change (up or down) in interest rates based on one-month SOFR would not have a material impact on our results of operations and financial condition. 35 ETHAN ALLEN INTERIORS INC.
Our retail segment real estate holdings could suffer significant impairment in value if we are forced to close design centers and sell or lease the related properties during periods of weakness in certain markets.
Of the 139 Company-operated retail design centers, 49 of the properties are owned and 90 are leased. Our retail real estate holdings could suffer significant impairment in value if we are forced to close design centers and sell or lease the related properties during periods of weakness in certain markets.
We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased design center locations and warehouse and distribution facilities. At June 30, 2022, the unamortized balance of such right-of-use assets totaled $100.8 million.
We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased design center and service center locations. At June 30, 2023, the unamortized balance of such right-of-use assets totaled $115.9 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we are exposed to market risks relating to fluctuations in interest rates and foreign currency exchange rates that could impact our financial position and results of operations. Interest Rate Risk Debt. Interest rate risk exists primarily through our borrowing activities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we are exposed to the following market risks, which could impact our financial position and results of operations. Interest Rate Risk Debt Interest rate risk exists primarily through our borrowing activities.
Foreign Currency Exchange Risk Foreign currency exchange risk is primarily limited to our operation of Ethan Allen operated retail design centers located in Canada and our manufacturing plants in Mexico and Honduras, as substantially all purchases of imported parts and finished goods are denominated in United States dollars.
Foreign Currency Exchange Risk Foreign currency exchange risk is primarily limited to our four Company-operated retail design centers located in Canada and our manufacturing plants in Mexico and Honduras, as substantially all purchases of imported parts and finished goods are denominated in U.S. dollars.
We monitor our interest rate and credit risks and believe the overall credit quality of our portfolio is strong. It is anticipated that the fair market value of our cash equivalents and short-term investments will continue to be immaterially affected by fluctuations in interest rates.
It is anticipated that the fair market value of our cash equivalents and short-term investments will continue to be immaterially affected by fluctuations in interest rates.
Commercial Real Estate Market Risk We have potential exposure to market risk related to conditions in the commercial real estate market. As of June 30, 2022, there were 141 Company-operated retail design centers averaging approximately 14,500 square feet in size per location. Of the 141 Company-operated retail design centers, 49 of the properties are owned and 92 are leased.
AND SUBSIDIARIES Commercial Real Estate Market Risk We have potential exposure to market risk related to conditions in the commercial real estate market. As of June 30, 2023, there were 139 Company-operated retail design centers averaging approximately 14,100 square feet in size per location.
As these tariffs and duties increase, we determine whether a price increase to our customers to offset these costs is warranted. To the extent that an increase in these costs would have a material impact on our results of operations, we believe that our competitors would experience a similar impact.
To the extent that an increase in these costs would have a material impact on our results of operations, we believe that our competitors would experience a similar impact.
Translation gains and losses that arise from translating assets, liabilities, revenues and expenses of foreign operations are recorded in accumulated other comprehensive (loss) income as a component of shareholders’ equity.
The financial statements of our foreign locations are translated into U.S. dollars using period-end rates of exchange for assets and liabilities and average rates for the period for revenues and expenses. Translation gains and losses that arise from translating assets, liabilities, revenues and expenses of foreign operations are recorded in accumulated other comprehensive loss as a component of shareholders’ equity.
Pursuant to our established investment guidelines, we try to achieve high levels of credit quality, liquidity and diversification. At any time, a sharp rise in market interest rates could have an impact on the fair value of our available-for-sale securities portfolio.
At any time, a sharp rise in market interest rates could have an impact on the fair value of our available-for-sale securities portfolio. Conversely, declines in interest rates, including the impact from lower credit spreads, could have an adverse impact on interest income for our investment portfolio.
The fair market value of our cash and cash equivalents at June 30, 2022 was $109.9 million while our short-term investments balance was $11.2 million. Our cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value.
Our cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value. Our short-term investments consist of United States Treasury Bills with maturities of one year or less and at fair value based on observable inputs.
Foreign exchange gains or losses resulting from market changes in the value of foreign currencies did not have a material impact during any of the fiscal periods presented in this Annual Report on Form 10-K.
Foreign exchange gains or losses resulting from market changes in the value of foreign currencies did not have a material impact during any of the fiscal periods presented. A hypothetical 10% weaker United States dollar against all foreign currencies as of June 30, 2023 would have had an immaterial impact on our consolidated results of operations and financial condition.
We do not believe that the value or liquidity of our cash equivalents and investments have been materially impacted by current market events. Our available-for-sale securities are held for purposes other than trading and are not leveraged as of June 30, 2022.
Our available-for-sale securities are held for purposes other than trading and are not leveraged as of June 30, 2023. We monitor our interest rate and credit risks of our cash equivalents and believe the overall credit quality of our portfolio is strong.
The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and our future financing requirements. For floating-rate obligations, interest rate changes do not affect the fair value of the underlying financial instrument but would impact future earnings and cash flows, assuming other factors are held constant.
The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and our future financing requirements.
Our investments consist of municipal bonds, commercial paper and certificates of deposit with maturities of one year or less and at fair value based on observable inputs. Our primary objective for holding available-for-sale securities is to achieve an appropriate investment return consistent with preserving principal and managing risk.
Our primary objective for holding available-for-sale securities is to achieve an appropriate investment return consistent with preserving principal and managing risk. Pursuant to our established investment guidelines, we try to achieve high levels of credit quality, liquidity and diversification.
AND SUBSIDIARIES Duties and Tariffs Market Risk We are exposed to market risk with respect to duties and tariffs assessed on raw materials, component parts, and finished goods we import into countries where we operate. Additionally, we are exposed to duties and tariffs on our finished goods that we export from our assembly plants to other countries.
We currently do not engage in any foreign currency hedging activity and we have no intention of doing so in the foreseeable future. Duties and Tariffs Market Risk We are exposed to market risk with respect to duties and tariffs assessed on raw materials, component parts, and finished goods we import.
Removed
Conversely, for fixed-rate obligations, interest rate changes affect the fair value of the underlying financial instrument but would not impact earnings or cash flows.
Added
AND SUBSIDIARIES Cash and Cash Equivalents and Investments The fair market value of our cash and cash equivalents as of June 30, 2023 was $62.1 million while our short-term investments balance was $110.6 million.
Removed
The financial statements of our foreign locations are translated into U.S. dollars using period-end rates of exchange for assets and liabilities and average rates for the period for revenues and expenses.
Added
Additionally, we are exposed to duties and tariffs on our finished goods that we export from our manufacturing plants. As these tariffs and duties increase, we determine whether a price increase to our customers to offset these costs is warranted.
Removed
A hypothetical 10% weaker United States dollar against all foreign currencies at June 30, 2022 would have had an immaterial impact on our consolidated results of operations and financial condition. We currently do not engage in any foreign currency hedging activity and we have no intention of doing so in the foreseeable future. 46 ETHAN ALLEN INTERIORS INC.

Other ETD 10-K year-over-year comparisons