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What changed in ETHAN ALLEN INTERIORS INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ETHAN ALLEN INTERIORS INC's 2023 and 2024 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 2024 report.

+319 added−363 removedSource: 10-K (2024-08-23) vs 10-K (2023-08-24)

Top changes in ETHAN ALLEN INTERIORS INC's 2024 10-K

319 paragraphs added · 363 removed · 253 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

54 edited+23 added−22 removed16 unchanged
Biggest changeWe 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.
Biggest changeDuring fiscal 2024, new state-of-the-art design centers were opened in The Villages, FL, Avon, OH, New York, NY, Albuquerque, NM and Louisville, KY that showcase the Company’s unique vision of American style while combining complimentary interior design services with technology. We plan to further expand our retail design center footprint in fiscal 2025 through the addition of new design centers.
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.
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 and to our website at ethanallen.com.
In addition, we have registered, or have applications pending for certain of our slogans utilized in connection with promoting brand awareness, retail sales and other services and certain collection names. In addition, we have registered and maintain the internet domain name of ethanallen.com.
We also have registered, or have applications pending, for certain of our slogans utilized in connection with promoting brand awareness, retail sales and other services and certain collection names. In addition, we have registered and maintain the internet domain name of ethanallen.com.
We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled labor throughout our enterprise. Certain of the benefits we offer include access to healthcare plans, financial and physical wellness programs, paid time off, parental leave and retirement benefits, including a 401(k) plan with Company matching contributions.
We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled labor. Certain of the benefits we offer include access to healthcare plans, financial and physical wellness programs, paid time off, parental leave and retirement benefits, including a 401(k) plan with Company matching contributions.
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.
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 leading interior design company, manufacturer and retailer in the home furnishings marketplace.
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.
Our diversity initiatives include developing impactful practices to advance our Company’s diversity and inclusion 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.
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.
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 regularly reviews the necessity for renewal as registrations expire.
Our business model is to maintain continued focus on (i) providing relevant product offerings, (ii) capitalizing on the professional and personal service offered to our customers by our interior design professionals, (iii) leveraging the benefits of our vertical integration including a strong manufacturing presence in North America, (iv) regularly investing in new technologies across key aspects of our vertically integrated business, (v) maintaining a strong logistics network, (vi) communicating our messages with strong advertising and marketing campaigns, and (vii) utilizing our website, ethanallen.com, as a key marketing tool to drive traffic to our retail design centers.
Our business model is to maintain continued focus on (i) providing relevant product offerings, (ii) capitalizing on the professional and personal service offered to our clients by our interior design professionals, (iii) leveraging the benefits of our vertical integration including a strong manufacturing presence in North America, (iv) regularly investing in new technologies across all aspects of our vertically integrated business, (v) maintaining a strong logistics network, (vi) communicating our messages with strong marketing campaigns, and (vii) utilizing our website, ethanallen.com, as a key marketing tool to drive traffic to our retail design centers.
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.
We operate our business with an entrepreneurial attitude, staying focused on long-term growth, and treating our employees, vendors, and clients with dignity and respect, which we believe are important amidst the constant changes taking place in the world.
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.
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 clients with a comprehensive solution for their home furnishing and interior design needs.
These facilities are also required to provide a safe and healthy environment in all workspaces, compliance with all local wage and hour laws and regulations, compliance with all applicable environmental laws and regulations, and are required to authorize Ethan Allen or its designated agents (including third-party auditing companies) to engage in monitoring activities to confirm compliance.
These facilities are also required to provide a safe and healthy environment in all workspaces, compliance with all local wage and hour laws and regulations, compliance with all applicable environmental laws and regulations, and are required to authorize Ethan Allen or its designated agents (including third-party auditing companies) to engage in monitoring activities to confirm compliance. 9 ETHAN ALLEN INTERIORS INC.
The contents of this website section are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document the Company files with the SEC and any reference to this section of our website is intended to be inactive textual references only.
The contents of this website section are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document the Company files with the SEC and any reference to this section of our website is intended to be inactive textual references only. 10 ETHAN ALLEN INTERIORS INC.
Seasonality We believe that the demand for home furnishings generally reflects sensitivity to overall economic conditions, including consumer confidence, discretionary spending, housing starts, sales of new and existing homes, housing values, the level of mortgage refinancing, debt levels, retail trends and unemployment rates. In a typical year, we schedule production to maintain consistent manufacturing activity throughout the year whenever possible.
Seasonality We believe that the demand for home furnishings generally reflects sensitivity to overall economic conditions, including consumer confidence, discretionary spending, housing starts, sales of new and existing homes, housing values, interest and inflationary rates, the level of mortgage refinancing, retail trends and unemployment rates. In a typical year, we schedule production to maintain consistent manufacturing activity throughout the year.
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.
Culture and Values Our employees are vital to our success and are one of the main reasons we continue to perform well. 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 also own and operate ten manufacturing facilities, including four manufacturing plants, one sawmill, one rough mill and one kiln dry lumberyard in the United States, two manufacturing plants in Mexico and one manufacturing plant in Honduras.
At June 30, 2024, we own and operate ten manufacturing facilities, including four manufacturing plants, one sawmill, one rough mill and one kiln dry lumberyard in the United States, two manufacturing plants in Mexico and one manufacturing plant in Honduras.
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.
We typically shut down our domestic plants for one week at the beginning of each fiscal year to perform routine maintenance. Historically no one particular fiscal quarter contributes more than 28% of annual net sales volume, thus limiting our exposure to seasonality.
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 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.
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.
Product By harnessing the expertise of skilled artisans within our North American facilities, we manufacture 75% of the furniture we offer. Every product bears the distinctive quality of the Ethan Allen brand. Meticulously hand-guided stitching dress our upholstery frames and our case goods wood furniture is crafted from premium lumber and veneers, which are individually finished and customized.
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.
We also partner with suppliers located in Europe, Asia, and other countries to produce and import various 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.
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.
Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations. At June 30, 2024, the Company operates 142 retail design centers with 138 located in the United States and four in Canada. Our 45 independently operated design centers are located in the United States, Asia, the Middle East and Europe.
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
AND SUBSIDIARIES Additional Information Additional information with respect to the Company’s business is included within the following pages and is incorporated herein by reference: Page Management’s Discussion and Analysis of Financial Condition and Results of Operations 22 Quantitative and Qualitative Disclosures about Market Risk 35 Note 1 to Consolidated Financial Statements entitled Organization and Nature of Business 44 Note 20 to Consolidated Financial Statements entitled Segment Information 65
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.
Diversity and Inclusion Diversity and inclusion are part of our core values, as we recognize that our employees’ unique backgrounds, experiences and perspectives enable us to create and deliver high-quality products and provide outstanding service to meet the needs of our client base and the communities we serve.
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.
AND SUBSIDIARIES Human Capital Management We operate our business with an entrepreneurial attitude, staying focused on long-term growth, and treating our employees, vendors, and clients with dignity and respect. At June 30, 2024, our employee count totaled 3,404, with 2,376 employees in our wholesale segment and 1,028 in our retail segment.
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.
Taken together, these strategies help ensure that we are continuing to add to our client base while maintaining existing relationships. E-Commerce We consider our website an extension of our retail design centers and not a separate segment of our business.
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.
Retail home delivery centers prepare products for delivery into clients’ homes. At June 30, 2024, our Company-operated retail design centers were supported by 17 Company-operated retail home delivery centers and five home delivery centers operated by third parties. We utilize independent carriers to ship our products.
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 believe our employees have an entrepreneurial spirit, a passion for style, a drive for excellence, and creativity that has fostered a culture that embraces integrity, diversity, innovation and inclusion of people from all backgrounds. We continue to maintain and enforce our policy prohibiting discrimination and harassment in our workplace.
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.
Financial information, including sales, operating income and long-lived assets related to our segments are disclosed in Note 20, Segment Information, of the notes to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K.
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.
Our commitment to using leading construction techniques is evident, including using mortise and tenon joinery and four-corner glued dovetail joinery for drawers. These elements are part of Ethan Allen's identity, solidifying our reputation for quality and style in home furnishings.
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.
A Culture of Social Responsibility 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 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.
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 inventory are typically stocked to maintain adequate production levels. We believe that our sources of supply for these materials are sufficient and that we are not dependent on any one supplier.
These organizations recognize corporate policies that promote a positive social impact in Mexico and Latin America. Compensation and Other Benefits Our compensation programs are designed to attract, retain, and motivate team members to achieve strong results. We benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located.
AND SUBSIDIARIES Compensation and Other Benefits Our compensation programs are designed to attract, retain and motivate team members to achieve strong results. We benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located.
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.
During fiscal 2023, our wholesale and retail business sales volumes began trending to more historical levels and at June 30, 2024, backlogs were near pre-pandemic levels. Backlog We define backlog as any written order received that has not yet been delivered.
In coordination with national healthcare systems for our manufacturing facilities outside of the United States, we provide on-site medical clinics staffed by a doctor and a team of experienced nurses, who also provide a pharmacy to prescribe over-the-counter medications. In addition to offering onsite medical care, we partner with local physicians to provide medical care for every associate’s family members.
In coordination with national healthcare systems for our manufacturing facilities outside of the United States, we provide on-site medical clinics staffed by a doctor and a team of experienced nurses, who also provide a pharmacy to prescribe over-the-counter medications. This commitment and focus enables us to run our business operations without sacrificing the safety of our employees and customers.
Historically, the size of our backlog at a given time varies and may not be indicative of our future sales, and therefore, we do not rely entirely on backlogs to predict future sales.
Historically, the size of our backlog at a given time varies and may not be indicative of our future sales, and therefore, we do not rely entirely on backlogs to predict future sales. At June 30, 2024 our wholesale backlog was $53.5 million, down 27.7% from a year ago and nearing pre-pandemic levels.
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 classic American style with a modern perspective, which we believe differentiates us from our competitors.
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.
Our sales volume and production schedules were impacted by the pandemic and thus did not follow the aforementioned historical trends. As a result of heightened post-pandemic demand during fiscal years 2021 and 2022, significant backlog was built.
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.
Our operating segments are aligned with how the Company, including our chief executive officer (defined as our chief operating decision maker), manages the business. 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 home furnishings while better controlling quality and cost.
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.
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.
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.
We believe our strategic investments in manufacturing facilities and the sourcing from foreign and domestic suppliers positions us to accommodate future growth while retaining control over costs, quality and customer service. 5 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Projection Our design centers are interior design destinations, with technology-driven projections and dedicated workstations that foster collaboration between designers and clients.
Our practice has been to sell our products at the same delivered cost to all Company and independently operated design centers throughout the United States, regardless of their shipping point. This policy creates pricing credibility with our wholesale customers while providing our retail segment the opportunity to achieve more consistent margins by removing fluctuations attributable to the cost of shipping.
Our practice has been to sell our products at the same delivered cost to all Company and independently operated design centers throughout the United States, regardless of their shipping point.
These distribution centers provide efficient cross-dock operations to receive and ship product from our manufacturing facilities and third-party suppliers to our retail network of Company and independently operated retail home delivery centers. Retail home delivery centers prepare products for delivery into customers’ homes.
Distribution and Logistics We distribute our products through three national distribution centers, owned by the Company and strategically located in North Carolina and Virginia. These distribution centers provide efficient and effective cross-dock operations to receive and ship Ethan Allen product from our manufacturing facilities and third-party suppliers to our retail network of Company and independently operated retail home delivery centers.
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.
Corporate Contact Information Ethan Allen Interiors Inc. is a Delaware corporation with its principal executive office located in Danbury, Connecticut. ● Founded in 1932 and Incorporated in Delaware in 1989 ● 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 Information about our Executive Officers Listed below are the names, ages and positions of our current 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.
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 the home furnishings industry competes primarily on the basis of product styling and quality, personal service, prompt delivery, product availability and price.
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.
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, TV and radio. Additionally, grassroots marketing efforts led by our local design center teams further drive interest in our product offerings.
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.
With so much of our product customizable, we encourage our website customers to get personalized help from our interior design professionals either in person or by chatting online. We believe this complimentary direct contact creates a competitive advantage through our excellent personal service. 6 ETHAN ALLEN INTERIORS INC.
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.
Combining Technology with Personal Service Our unique combination of personal service and technology enhances the clients’ Ethan Allen experience, including the use of virtual design appointment capabilities at ethanallen.com. We leverage EA inHome®, an augmented reality mobile app, which empowers clients to preview Ethan Allen products in their homes, at scale, in a wide-variety of fabrics and finishes.
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.
Our vertically integrated structure, whereby we manufacture approximately 75% of the furniture we sell, leaves Ethan Allen with reduced exposure to any one particular country on the remaining 25% of products that are imported. We enter into standard purchase agreements with foreign and domestic suppliers to source selected products.
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.
We also believe that we differentiate ourselves further with the caliber of our interior design professionals, who combine personal service with technology. Sustainability Ethan Allen’s view of sustainability and protecting the environment has been a cornerstone of our mission statement.
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.
We selectively outsource the remaining 25% of our products, primarily from Asia. Our sourcing partners must adhere to our quality standards, specifications and social responsibility. 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.
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 the 3D Room Planner, our designers generate both 2D floor plans and immersive 4K, realistic 3D walk-throughs of the interior designs they create. In addition, our website offers a virtual design center, which enables clients to access our home furnishings while either co-browsing live with a designer or browsing on their own, at their own pace.
We compete with numerous individual retail home furnishing stores as well as national and regional chains.
Competition The home furnishings industry is a highly fragmented and competitive business. There has been increased competition from both internet only retailers and those with a brick-and-mortar presence. We compete with numerous individual retail home furnishing stores as well as national and regional chains.
Ethan 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.
Ethan Allen provides multiple avenues through which to report inappropriate behavior, including a confidential whistleblower hotline.
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.
This cutting-edge addition to our technology stack offers clients a real-time preview of what their custom upholstery will look like. All of these technologies have been pivotal to our ability to serve clients and provide even more ways for us to collaborate and create a timely and exceptional experience.
Most clients will use the internet for inspiration and as a start to their shopping process to view products and prices. With so much of our product customizable, we encourage our website customers to get personal help from our interior design professionals either in person or by chatting online.
Recent improvements to our ethanallen.com website include enhanced search capabilities, expanded live chat services, online appointment booking capability, and product listing and display page enhancements. Most clients will use the internet for inspiration and as a start to their shopping process to view products and prices.
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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.
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We manufacture approximately 75% of our furniture in our North American manufacturing plants and have been recognized for product quality and craftsmanship since we were founded in 1932.
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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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For the second year in a row Ethan Allen was named to Newsweek’s list of America’s Best Retailers, including the #1 retailer of Premium Furniture.
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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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The assessment and rankings were the result of an independent survey of more than 7,000 customers who have shopped at retail stores in person in the past three years and based on the likelihood of recommendation and the evaluation of products, customer service, atmosphere, accessibility and store layout.
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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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When clients enter, they see a gallery showroom with a certain number of room projections depending on the design center’s square footage. Touchscreens located throughout the sales floor enable clients to browse at their own pace or with a designer’s guidance.
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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.
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In-store presentations often take place at freestanding designer workstations that are equipped with large flat-panel touchscreen displays to share floorplans and 3D renderings. These workstations also provide space for designers to showcase samples.
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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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The overall structure of each location equips designers with the tools they need to create personalized presentations for each client, while also giving clients the sense that what they need to realize their design vision is at their fingertips.
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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.
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We ended the fiscal 2024 year with 172 retail design centers in North America, including 142 Company-operated and 30 independently owned and operated locations as well as 15 additional design centers outside North America.
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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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With so much of our product customizable, we encourage our customers to get personalized help from our interior design professionals either in person or through virtual chat. The recent implementation of a state-of-the-art fabric-to-frame configurator empowers designers to visualize nearly 1,000 fabrics and a wide range of construction options on upholstered frames.
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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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The terms of these arrangements are customary for the industry and do not contain any long-term contractual obligations on our behalf. We believe we maintain good relationships with our suppliers. Segments We have strategically aligned our business into two reportable segments: wholesale and retail.
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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.
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We evaluate the performance of our 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.
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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.
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This policy creates pricing credibility with our wholesale customers while providing our retail segment the opportunity to achieve more consistent margins by removing fluctuations attributable to the cost of shipping. 7 ETHAN ALLEN INTERIORS INC.
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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.
Added
Ethan Allen is dedicated to upholding the highest ethical standards in all aspects of our business operations. The Company’s Code of Conduct provides a clear and thorough ethics standard for all employees, officers, and directors with respect to interactions with clients, vendors, and other employees.
Removed
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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The Company participates in various surveys, which we use as benchmarking tools on corporate policies, practices and benefits, as a commitment to build a diverse and inclusive workforce mirroring the diversity of our clients and the communities we serve.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

66 edited+5 added−9 removed48 unchanged
Biggest changeWe 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.
Biggest changeOur advertising campaigns utilize direct mail, digital, newspapers, magazines, television, and radio to maintain and enhance our existing brand equity. We cannot provide assurance that our advertising and other efforts to promote and maintain awareness of our brand will not require us to incur substantial costs.
The market for qualified employees and personnel in the retail and manufacturing industries is highly competitive. Our success depends upon our ability to attract, retain and motivate qualified artisans, professional and clerical employees and upon the continued contributions of these individuals. We cannot provide assurance that we will be successful in attracting and retaining qualified personnel.
AND SUBSIDIARIES The market for qualified employees and personnel in the retail and manufacturing industries is highly competitive. Our success depends upon our ability to attract, retain and motivate qualified artisans, professional and clerical employees and upon the continued contributions of these individuals. We cannot provide assurance that we will be successful in attracting and retaining qualified personnel.
Product recalls or product safety concerns could materially adversely affect our sales and operating results. If the Company's merchandise offerings do not meet applicable safety standards or consumers' expectations regarding safety, the Company could experience decreased sales, increased costs and/or be exposed to legal and reputational risk.
AND SUBSIDIARIES Product recalls or product safety concerns could materially adversely affect our sales and operating results. If the Company's merchandise offerings do not meet applicable safety standards or consumers' expectations regarding safety, the Company could experience decreased sales, increased costs and/or be exposed to legal and reputational risk.
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.
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.
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.
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 carrying value.
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.
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.
Technology and Data Security Risks We rely extensively on information technology systems to process transactions, summarize results, and manage our business and that of certain independent retailers. Disruptions in both our primary and back-up systems could adversely affect our business and operating results.
AND SUBSIDIARIES Technology and Data Security Risks We rely extensively on information technology systems to process transactions, summarize results, and manage our business and that of certain independent retailers. Disruptions in both our primary and back-up systems could adversely affect our business and operating results.
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.
AND SUBSIDIARIES 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.
In addition, our interpretation of reporting frameworks or standards may differ from those of others and such frameworks or standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals.
In addition, our interpretation of reporting frameworks, standards or rules may differ from those of others and such frameworks, standards or rules may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals.
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.
Cyberattacks 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.
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.
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.
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.
Loss, corruption and misappropriation of data and information relating to customers could materially adversely affect our operations. We have access to customer information in the ordinary course of business.
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.
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.
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.
If our ESG practices do not meet evolving standards, then our reputation, our ability to attract or retain employees and our competitiveness, could be negatively impacted.
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.
Our primary and back-up information technology systems are subject to damage or interruption from power outages, computer and telecommunications failures, viruses, phishing attempts, cyberattacks, malware and ransomware attacks, security breaches, severe weather, natural disasters, and errors by employees or third-party contractors.
Our ability to achieve any ESG-related goal or objective is subject to numerous risks, many of which are outside of our control, including the availability and cost of low-or non-carbon-based energy sources and technologies, evolving regulatory requirements affecting ESG standards or disclosures, the availability of vendors and suppliers that can meet our sustainability, diversity and other standards, and the availability of raw materials that meet and further our sustainability goals.
Our ability to achieve any ESG-related objective is subject to numerous risks, many of which are outside of our control, including the availability and cost of low-or non-carbon-based energy sources and technologies, evolving regulatory requirements affecting ESG standards or disclosures, the availability of vendors and suppliers that can meet our sustainability, diversity and other standards, and the availability of raw materials that meet and further sustainability objectives.
We make certain accounting estimates and projections with regard to individual design center operations as well as overall Company performance in connection with our impairment analysis for long-lived assets in accordance with applicable accounting guidance.
We make certain accounting estimates and projections with regards to individual design center operations as well as overall Company performance in connection with our impairment analysis for long-lived assets in accordance with applicable accounting guidance.
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.
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 has in the past and could in the future 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.
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.
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. Cyberattacks are becoming more sophisticated, and in some cases have caused significant harm.
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.
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.
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.
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.
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.
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.
Any significant impairment of our intellectual property rights or failure to obtain licenses of intellectual property from third parties could harm our business or our ability to compete. Moreover, we cannot provide assurance that the use of our technology or proprietary “know‐how” or information does not infringe the intellectual property rights of others.
Any significant impairment of our intellectual property rights or failure to obtain licenses of intellectual property from third parties could harm our business or our ability to compete. Moreover, we cannot provide assurance that the use of our technology or proprietary know‐how or information does not infringe the intellectual property rights of others.
Moreover, if a computer security breach or cyber-attack affects our systems or results in the unauthorized release of proprietary or personally identifiable information, our reputation could be materially damaged, our customer confidence could be diminished, and our operations, including technical support for our devices, could be impaired.
If a computer security breach or cyberattack affects our systems or results in the unauthorized release of proprietary or personally identifiable information, our reputation could be materially damaged, our customer confidence could be diminished, and our operations, including technical support for our devices, could be impaired.
The costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful, resulting potentially in the theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations.
Moreover, the costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful, resulting potentially in the theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations. 15 ETHAN ALLEN INTERIORS INC.
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.
Our principal products are consumer goods that may be considered discretionary purchases. Economic downturns and prolonged negative conditions in the economy have in the past and could in the future affect consumer spending habits by decreasing the overall demand for discretionary items, including home furnishings.
We are subject to increasingly stringent environmental, health and safety laws and regulations relating to our products, current and former properties and our current operations.
We are subject to environmental, health and safety laws and regulations relating to our products, current and former properties and our current operations.
A cyber-attack of our systems or networks that impairs our information technology systems could disrupt our business operations and result in loss of service to customers. We have a comprehensive cybersecurity program designed to protect and preserve the integrity of our information technology systems.
A cyberattack 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 believe we have a comprehensive cybersecurity program designed to protect and preserve the integrity of our information technology systems.
In addition, noncompliance with, or stricter enforcement of, existing laws and regulations, adoption of more stringent new laws and regulations, discovery of previously unknown contamination or imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could be material.
In addition, noncompliance with, or stricter enforcement of, existing laws and regulations, adoption of more stringent new laws and regulations, discovery of previously unknown contamination or imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could be material. 13 ETHAN ALLEN INTERIORS INC.
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.
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.
Any disruption in the services of our key personnel could make it more difficult to successfully operate our business and achieve our business goals and could adversely affect our results of operation and financial condition. These changes could also increase the volatility of our stock price.
Any disruption in the services of our key personnel could make it more difficult to successfully operate our business and achieve our business goals and could adversely affect our results of operation and financial condition. These changes could also increase the volatility of our stock price. 16 ETHAN ALLEN INTERIORS INC.
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.
Despite widespread recognition of the cyberattack threat and improved data protection methods, cyberattacks on organizations continue to be sophisticated, persistent, and ever-changing, making it difficult to prevent and detect these attacks.
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.
We are subject to risks relating to increased tariffs on United States imports, and other changes affecting imports, as we manufacture components and finished goods in Mexico and Honduras and purchase components and finished goods manufactured in foreign countries.
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.
We are attempting to meet consumers where they prefer to shop by expanding our online capabilities and improving the user experience at ethanallen.com including our virtual design center. Evolving technologies are altering the manner in which the Company and its competitors communicate and transact with customers.
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.
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 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.
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 centers and retail service centers. At June 30, 2024, the unamortized balance of such right-of-use assets totaled $114.2 million.
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 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 shopping malls, depending upon the real estate opportunities in a particular market.
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.
We have a limited number of manufacturing sites within our case goods and upholstery operations. Our upholstery operations consist of three upholstery plants in North Carolina and two plants in Mexico. Our case goods operations is supported by two manufacturing plants in Vermont and Honduras and one sawmill, one rough mill and one kiln dry lumberyard.
Customers adoption of new technology and related changes in customer behavior, presents a specific risk in the event we are unable to successfully execute our technology plans or adjust them over time if needed.
Adoption of new technology and related changes in customer behavior present a specific risk in the event we are unable to successfully execute our technology plans or adjust them over time if needed. 11 ETHAN ALLEN INTERIORS INC.
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.
We could also incur additional costs and require additional resources to implement various ESG initiatives and to monitor and track performance with respect to such initiatives. The standards for tracking and reporting on ESG matters are relatively new and continue to evolve.
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.
While the pandemic-era disruptions have subsided, if in the future there are 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, as a result of pandemics or otherwise, it could impact either our or our suppliers’ operations and have a material adverse effect on our consolidated results of operations. 12 ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARIES Successful cyber-attacks and the failure to maintain adequate cyber-security systems and procedures could materially harm our operations.
Successful cyberattacks and the failure to maintain adequate cybersecurity systems and procedures could materially harm our operations.
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.
However, increases in selling prices may not fully mitigate the impact of the cost increases which would adversely impact operating income. 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.
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.
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.
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.
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. We have potential exposure to market risk related to conditions in the commercial real estate market.
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.
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. For example, the COVID-19 pandemic, resulted in supply chain challenges for the entire home furnishings industry, including the Company.
If we have to litigate to protect or defend any of our rights, such litigation could result in significant expense. Our operations present hazards and risks which may not be fully covered by insurance, if insured. As protection against operational hazards and risks, we maintain business insurance against many, but not all, potential losses or liabilities arising from such risks.
If we have to litigate to protect or defend any of our rights, such litigation could result in significant expense. 17 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Our operations present hazards and risks which may not be fully covered by insurance, if insured.
Collecting, measuring, and reporting ESG information and metrics can be difficult and time consuming. Our selected disclosure framework or standards may need to be changed from time to time, which may result in a lack of consistent or meaningful comparative data from period to period.
Our current selected disclosure framework or standards may need to be changed from time to time, including as a result of new rules, which may result in a lack of consistent or meaningful comparative data from period to period.
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.
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 trade shows, industry events, internal and external marketing research, and regular communication with our retailers and design professionals who provide valuable input on consumer tendencies.
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.
We would also be exposed to litigation and potential liability, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.
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.
Although we have instituted measures to ensure our supply chain remains open to us, higher raw material prices and costs of sourced products could have an adverse effect on our future margins. While we strive to maintain a number of sources for our raw materials, decreased availability on raw materials may create additional pricing and availability pressures.
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 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.
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.
However, as with many 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 and operating results.
Our failure, or perceived failure, to pursue or fulfill our goals, targets, and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also expose us to government enforcement actions and private litigation.
Our failure, or perceived failure to pursue or fulfill ESG objectives or to satisfy various reporting standards could also expose us to government enforcement actions and litigation. 14 ETHAN ALLEN INTERIORS INC.
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.
Imported finished goods represent approximately 25% of our consolidated sales. The prices paid for these imported products include inbound freight. 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.
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.
We expect to continue to experience attempted cyberattacks of our IT systems or networks, through malware, ransomware, computer viruses, phishing attempts, social engineering and other means of unauthorized access; however, none of the attempted cyberattacks has had a material impact on our operations or financial condition to date.
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.
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.
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.
Fewer locations have also resulted in longer distances for delivery and could result in higher costs to transport products if fuel costs significantly increase. Environmental, Health and Safety Risks Our current and former manufacturing and retail operations and products are subject to environmental, health and safety requirements. We use and generate hazardous substances in our manufacturing operations.
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.
In addition, the tightening of credit markets as well as increased borrowing rates has in the past and may in the future restrict the ability and willingness of customers to make purchases. We are subject to self-insurance risks.
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
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.
These goals will reflect our plans and aspirations and are not guarantees that we will be able to achieve them. Our efforts to accomplish and accurately report on these goals and objectives present numerous operational, reputational, financial, legal, and other risks, any of which could have a material negative impact, including on our reputation, stock price, and results of operation.
There has been an increased focus on ESG practices within the general markets. Our efforts to accomplish and accurately report on ESG matters present numerous operational, reputational, financial, legal, and other risks, any of which could have a material negative impact, including on our reputation, stock price and results of operation.
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.
It is possible the costs we incur to comply with any such new regulations and implementation of our own sustainability goals could be material. Our practices 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.
Farooq Kathwari, and to attract and retain additional qualified key personnel in the future. We face risks related to loss of any key personnel and we also face risks related to any changes that may occur in key senior leadership executive positions.
Farooq Kathwari, whose employment agreement was amended on July 30, 2024, extending his term for an additional two years, ending June 30, 2027. We face risks related to loss of any key personnel and we also face risks related to any changes that may occur in key senior leadership executive positions.
Therefore, unforeseen or significant losses in excess of our insured limits could have a material adverse effect on the Company’s financial condition and operating results. Recent events affecting the financial services industry could have an adverse impact on the Company's business operations, financial condition, and results of operations.
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. Therefore, unforeseen or significant losses in excess of our insured limits could have a material adverse effect on the Company’s financial condition and operating results.
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.
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.
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.
At June 30, 2024, there were 142 Company-operated retail design centers averaging approximately 13,800 square feet in size per location. Of these 142 properties, we own 49 and lease 93.
Removed
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.
Added
For example, in July 2023, our wood furniture manufacturing operations located in Orleans, Vermont sustained damage from flooding, which resulted in losses of $2.2 million, net of insurance recoveries and grant proceeds, and a temporary work stoppage for many Vermont associates and a disruption and delay of shipments.
Removed
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.
Added
In March 2024, the SEC finalized new rules that would require public companies to include extensive climate-related disclosures in their SEC filings, which the SEC voluntarily stayed in April 2024 pending completion of a judicial review that is currently pending in the U.S. Court of Appeals for the Eighth Circuit.
Removed
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.
Added
While we continue to assess the materiality of climate-related topics to our operations, we could incur substantial additional compliance costs to the extent these or similar rules are implemented and we determine such topics are material. Collecting, measuring, and reporting ESG information and metrics can be difficult and time consuming.
Removed
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.
Added
AND SUBSIDIARIES Where necessary and applicable, we have enabled certain employees to arrange for a hybrid work approach.
Removed
While we devote significant resources to network security, data encryption and other security measures to protect our systems and data, including our own proprietary information and the confidential and personally identifiable information of our customers, employees, and business partners, these measures cannot provide absolute security.
Added
As protection against operational hazards and risks, we maintain business insurance against many, but not all, potential losses or liabilities arising from such risks. We may incur costs in repairing any damage beyond our applicable insurance coverage.
Removed
Closures of certain banks in 2023 created bank-specific and broader financial institution liquidity risk and concerns. Future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access working capital needs, and create additional market and economic uncertainty.
Removed
Although the Company does not have any deposits with any of the banks that have failed, closed or been placed into receivership to date, some of our customers may have deposits with them, which may expose us to potential risks that could impact our financial position and operations.
Removed
This could include an adverse impact on the ability of our customers to pay amounts they owe to the Company. In addition, if any of our vendors have relationships with any of the banks that have been closed, it could negatively impact their ability to deliver goods and services to the Company.
Removed
More generally, these events have resulted in market disruption and volatility and could lead to greater instability in the credit and financial markets and a deterioration in confidence in economic conditions. Our operations may be adversely affected by any such economic downturn, liquidity shortages, volatile business environments, or unpredictable market conditions.

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeAND SUBSIDIARIES Design center activity and geographic distribution of our retail network for fiscal years ended June 30, 2024 and 2023, respectively, are as follows: Fiscal 2024 Fiscal 2023 Independent Company- Independent Company- retailers operated Total retailers operated Total Retail Design Center activity: Balance at July 1 48 139 187 50 141 191 New locations - 5 5 2 2 4 Closures (3 ) (2 ) (5 ) (4 ) (4 ) (8 ) Balance at June 30 45 142 187 48 139 187 Relocations (in new and closures) - 2 2 1 2 3 Retail Design Center geographic locations: United States 30 138 168 33 135 168 Canada - 4 4 - 4 4 Middle East and Asia 14 - 14 14 - 14 Europe 1 - 1 1 - 1 Total 45 142 187 48 139 187 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.
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.
At June 30, 2024, we own and operate 10 manufacturing facilities located in the United States, Mexico and Honduras and three national distribution centers in the United States.
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.
There are 142 Company-operated retail design centers located in the United States and Canada, averaging approximately 13,800 square feet in size per location, of which 49 are owned and 93 are leased with a weighted average remaining lease term of 5.6 years.
Our retail home delivery centers are located throughout the United States and Canada and serve to support our various retail design centers.
We also own three and lease 14 retail home delivery centers located throughout North America that support our various retail design centers.
Added
The 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 2,800 Total Property 6,732 19 ETHAN ALLEN INTERIORS INC.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs 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.
Biggest changeAs of August 16, 2024, there were 261 registered holders of record of our Ethan Allen common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions. Dividends.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) Market Information, Holders of Record, Dividends, Securities Authorized for Issuance and Stock Performance Graph Market Information. Ethan Allen common stock is traded on the New York Stock Exchange (the “NYSE”) under ticker symbol “ETD”.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) Market Information, Holders of Record, Dividends, Securities Authorized for Issuance and Stock Performance Graph Market Information. Ethan Allen common stock is traded on the New York Stock Exchange (the “NYSE”) under ticker symbol “ETD”. Holders of Record.
Our credit agreement also includes covenants that includes limitations on our ability to pay dividends. Securities Authorized for Issuance under Equity Compensation Plans. Refer to Part III of this Annual Report on Form 10-K. Stock Performance Graph.
Our credit agreement also includes covenants that include limitations on our ability to pay dividends. Securities Authorized for Issuance under Equity Compensation Plans. Refer to Part III of this Annual Report on Form 10-K. Stock Performance Graph.
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.
At June 30, 2024, 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, 2018.
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, 2019.
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.
(b) Recent Sales of Unregistered Securities There were no sales of unregistered equity securities during fiscal 2024. 21 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES (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 2024 under our existing Share Repurchase Program.
In 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.
In August 2023 we paid a special cash dividend of $0.50 per share. In April 2024, our Board of Directors increased the regular quarterly cash dividend by 8.3% to $0.39 per share. In addition to the special cash dividend of $0.50 per share, we paid four regular quarterly cash dividends during fiscal 2024.
There is no expiration date on the repurchase authorization.
There is no expiration date on the repurchase authorization. ITEM 6. RESERVED
Total cash dividends paid to shareholders in fiscal 2023 were $1.82 per share and totaled $46.4 million.
Total cash dividends paid to shareholders in fiscal 2024 were $1.97 per share and totaled $50.3 million.
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.
Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns. *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.
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.
The total cumulative dollar returns shown on the graph represent the value that such investments would have had on June 30, 2024.
Removed
On August 16, 2021, the Company changed its ticker symbol from “ETH” to “ETD”, using the “D” for Design, which is reflective of our focus on interior design and the personal services of our design professionals throughout our global retail network of design centers. Holders of Record.
Removed
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.

Item 7. Management's Discussion & Analysis

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

103 edited+35 added−75 removed42 unchanged
Biggest change(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.
Biggest change(in millions) Fiscal Year Ended June 30, 2024 2023 2022 Operating activities Net income $ 63.8 $ 105.8 $ 103.3 Non-cash operating lease cost 32.0 30.2 30.3 Restructuring and other charges, net of gains (0.1 ) (3.7 ) (4.4 ) Payments on restructuring and other charges, net of proceeds (1.0 ) (1.0 ) (1.6 ) Depreciation and amortization and other non-cash items 17.4 17.4 17.3 Deferred income taxes (0.2 ) (1.2 ) (0.4 ) Changes in operating assets and liabilities (31.7 ) (46.8 ) (75.1 ) Total provided by operating activities $ 80.2 $ 100.7 $ 69.4 Investing activities Capital expenditures $ (9.6 ) $ (13.9 ) $ (13.4 ) Proceeds from sales of property, plant and equipment - 9.9 10.6 Purchases of investments, net of sales (10.4 ) (97.5 ) (11.2 ) Total used in investing activities $ (20.0 ) $ (101.5 ) $ (14.0 ) Financing activities Taxes paid related to net share settlement of equity awards $ (2.1 ) $ (0.8 ) $ (0.8 ) Dividend payments (50.3 ) (46.4 ) (48.3 ) Proceeds from employee stock plans 0.5 0.1 1.1 Payments for debt issuance costs - - (0.5 ) Payments on financing leases and other (0.4 ) (0.5 ) (0.5 ) Total used in financing activities $ (52.3 ) $ (47.6 ) $ (49.0 ) Our cash and cash equivalents increased $7.6 million or 12.2% during fiscal 2024 due to net cash provided by operating activities of $80.2 million partially offset by $50.3 million in cash dividends paid, capital expenditures of $9.6 million, $10.4 million in net purchases of investments and $2.1 million in taxes paid related to net share settlement of vested RSUs and PSUs.
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.
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. Indefinite-Lived Intangible Assets.
Although we expect to continue to declare and pay comparable quarterly cash dividends for the foreseeable future, the payment of future cash dividends is within the discretion of our Board of Directors and will depend on our earnings, operations, financial condition, capital requirements and general business outlook, among other factors.
Although we expect to continue to declare and pay quarterly cash dividends for the foreseeable future, the payment of future cash dividends is within the discretion of our Board of Directors and will depend on our earnings, operations, financial condition, capital requirements and general business outlook, among other factors.
Our business model is to maintain continued focus on (i) providing relevant product offerings, (ii) capitalizing on the professional and personal service offered to our customers by our interior design professionals, (iii) leveraging the benefits of our vertical integration including a strong manufacturing presence in North America, (iv) regularly investing in new technologies across key aspects of our vertically integrated business, (v) maintaining a strong logistics network, (vi) communicating our messages with strong advertising and marketing campaigns, and (vii) utilizing our website, ethanallen.com, as a key marketing tool to drive traffic to our retail design centers.
Our business model is to maintain continued focus on (i) providing relevant product offerings, (ii) capitalizing on the professional and personal service offered to our customers by our interior design professionals, (iii) leveraging the benefits of our vertical integration including a manufacturing presence in North America, (iv) investing in new technologies across key aspects of our vertically integrated business, (v) maintaining a strong logistics network, (vi) communicating our messages with strong marketing campaigns, and (vii) utilizing our website, ethanallen.com, as a key marketing tool to drive traffic to our retail design centers.
We incurred financing costs of $0.5 million during fiscal 2022, which are being amortized as interest expense over the remaining life of the Facility using the effective interest method. See Note 11, Credit Agreement , to the consolidated financial statements included under Item 8 of this Annual Report on Form 10-K, for a further description of the Credit Agreement.
We incurred financing costs of $0.5 million during fiscal 2022, which are being amortized as interest expense over the remaining life of the Facility using the effective interest method. See Note 12, Credit Agreement , to the consolidated financial statements included under Item 8 of this Annual Report on Form 10-K, for a further description of the Credit Agreement.
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.
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 internationally as well as online at ethanallen.com. Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations.
Results 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.
Results of Operations For an understanding of the significant factors that influenced our financial performance in fiscal 2024 compared with fiscal 2023, 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.
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.
We are a global luxury home fashion brand that is vertically integrated from product design through home delivery, which offers clients 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.
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.
We performed our annual indefinite-lived intangible asset impairment test during the fourth quarter of fiscal 2024 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, 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.
As of June 30, 2024, 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.
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.
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, operating income and operating cash flows, as well as consideration of control premiums.
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.
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, operating income 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.
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.
AND SUBSIDIARIES Goodwill and Indefinite-Lived Intangible Assets We review the carrying value of our goodwill and 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.
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.
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 healthcare under certain employee benefit plans provided by the Company.
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.
Our credit agreement also includes covenants that include 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 2024 or 2023. At June 30, 2024, we had a remaining Board authorization to repurchase 2,007,364 shares of our common stock pursuant to our share repurchase program.
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 Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2024 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.
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.
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, 2023, filed with the SEC on August 24, 2023, for an analysis of the fiscal 2023 results as compared to fiscal 2022.
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.
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 material payments, the rate of written orders and net sales, levels of customer deposits on hand, as well as capital expenditures will impact our liquidity and cash flows in future periods.
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.
Letters of Credit . At both June 30, 2024 and 2023 there were $4.0 million of standby letters of credit outstanding under the Facility. Uses of Liquidity Capital Expenditures. Capital expenditures during fiscal 2024 totaled $9.6 million compared with $13.9 million in the prior year period.
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.
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.
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.
AND SUBSIDIARIES For a discussion of our liquidity and capital resources and our cash flow activities for the fiscal year ended June 30, 2023, 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, 2023, filed with the SEC on August 24, 2023.
We also own and operate ten manufacturing facilities, including four manufacturing plants, one sawmill, one rough mill and a kiln dry lumberyard in the United States, two upholstery manufacturing plants in Mexico and one case goods manufacturing plant in Honduras. Approximately 75% of our products are manufactured or assembled in the North American plants.
We also own and operate ten manufacturing facilities, including four manufacturing plants, one sawmill, one rough mill and a kiln dry lumberyard in the United States, two upholstery manufacturing plants in Mexico and one case goods manufacturing plant in Honduras. Approximately 75% of our furniture is manufactured in our North American plants.
Factors used in the valuation of intangible assets with indefinite lives include, but are not limited to, management’s plans for future operations, recent results of operations and projected future cash flows. Similar to goodwill, we may elect to perform a qualitative assessment.
Factors used in the valuation of intangible assets with indefinite lives include, but are not limited to, management’s plans for future operations, recent results of operations and projected future cash flows. 33 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Similar to goodwill, we may elect to perform a qualitative assessment.
AND SUBSIDIARIES During fiscal 2023 we paid a total of $1.82 per share in cash dividends for an aggregate total of $46.4 million. This included the special dividend paid in August 2022 totaling $12.7 million. In the prior year period, total dividends paid were $48.3 million.
AND SUBSIDIARIES During fiscal 2024 we paid a total of $1.97 per share in cash dividends for an aggregate total of $50.3 million. This included the special dividend paid in August 2023 totaling $12.7 million. In the prior year period, total dividends paid were $46.4 million.
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.
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. 32 ETHAN ALLEN INTERIORS INC.
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.
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 operating income and margin, adjusted wholesale operating income and margin, adjusted retail operating income and margin, adjusted net income and adjusted diluted EPS.
(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. 22 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Key Operating Metrics A summary of our key operating metrics is presented in the following table (in millions, except per share data).
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. Key Operating Metrics A summary of our key operating metrics is presented in the following table (in millions, except per share data).
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.
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.
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.
At June 30, 2024 and 2023, our product warranty liability totaled $1.0 million and $1.3 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.
The Company sells to the United States government both through General Services Administration (“GSA”) Multiple Award Schedule Contracts and through competitive bids. The GSA Multiple Award Schedule Contract pricing is principally based upon our commercial price list in effect when the contract is initiated.
Ethan Allen sells to the United States government both through GSA Multiple Award Schedule Contracts and through competitive bids. The GSA Multiple Award Schedule Contract pricing is principally based upon our commercial price list in effect when the contract is initiated.
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.
Impairment of Long-Lived Assets The recoverability of long-lived assets, including those held by our retail design centers, 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.
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.
Other purchase commitments for services such as telecommunication, computer-related software, web development, financial and accounting software services, insurance and other maintenance contracts was $14.9 million at June 30, 2024, down from $16.9 million in the prior year period primarily due to timing of contract signing and extensions combined with use of other more-cost effective services. 31 ETHAN ALLEN INTERIORS INC.
Adjusted retail operating income, which excludes restructuring and other charges, net of gains, was $63.4 million, or 9.6% of net sales compared with $79.7 million, or 11.5% of net sales in the prior year period.
Adjusted retail operating income, which excludes restructuring and other charges, net of gains, was $22.2 million, or 4.1% of net sales compared with $63.4 million, or 9.6% of net sales in the prior year period.
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.
Summary of Cash Flows At June 30, 2024, we held cash and cash equivalents of $69.7 million compared with $62.1 million at June 30, 2023. Cash and cash equivalents aggregated to 9.4% of our total assets at June 30, 2024, compared with 8.3% 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.
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 $30.7 million at June 30, 2024, comparable to $29.2 million in the prior year period.
Our tax provision is an estimate based on our understanding of laws in Federal, state and foreign tax jurisdictions. These laws can be complicated and are difficult to apply to any business, including ours.
Income Taxes We are subject to income taxes in the United States and other foreign jurisdictions. Our tax provision is an estimate based on our understanding of laws in Federal, state and foreign tax jurisdictions. These laws can be complicated and are difficult to apply to any business, including ours.
Our North American manufacturing and logistics operations are an integral part of an overall strategy to maximize production efficiencies and maintain this competitive advantage. 21 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Talent. As of June 30, 2023, our employee count totaled 3,748, with 2,674 employees in our wholesale segment and 1,074 in our retail segment.
Our North American manufacturing and logistics operations are an integral part of an overall strategy to maximize production efficiencies and maintain this competitive advantage. 22 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Talent. At June 30, 2024, our employee count totaled 3,404, with 2,376 employees in our wholesale segment and 1,028 in our retail segment.
We are pleased with the continued strengthening of our teams and the performance of our employee base during fiscal 2023 while at the same time being able to reduce headcount through operational efficiencies. Our employee count decreased 11.6% during fiscal 2023, with 126 fewer employees in retail and 365 fewer in wholesale. Fiscal 2023 Financial Year in Review (1) .
We are pleased with the continued strengthening of our teams and the performance of our employees during fiscal 2024 while at the same time being able to reduce headcount through operational efficiencies. Our employee count decreased 9.2% during fiscal 2024, with 46 fewer employees in retail and 298 fewer employees in wholesale. Fiscal 2024 Financial Year in Review (1) .
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.
Fiscal Year Ended June 30, 2024 % of Sales % Chg 2023 % of Sales % Chg 2022 % of Sales % Chg Net sales $ 646.2 100.0 % (18.3 %) $ 791.4 100.0 % (3.2 %) $ 817.8 100.0 % 19.4 % Gross profit $ 393.1 60.8 % (18.2 %) $ 480.4 60.7 % (0.9 %) $ 484.7 59.3 % 23.3 % Operating income $ 78.0 12.1 % (43.2 %) $ 137.2 17.3 % (0.8 %) $ 138.3 16.9 % 78.9 % Adjusted operating income (1) $ 77.9 12.1 % (41.6 %) $ 133.5 16.9 % (0.5 %) $ 134.2 16.4 % 67.1 % Net income $ 63.8 9.9 % (39.7 %) $ 105.8 13.4 % 2.4 % $ 103.3 12.6 % 72.1 % Adjusted net income (1) $ 63.8 9.9 % (38.1 %) $ 103.1 13.0 % 2.8 % $ 100.3 12.3 % 67.0 % Diluted EPS $ 2.49 (39.7 %) $ 4.13 2.0 % $ 4.05 70.9 % Adjusted diluted EPS (1) $ 2.49 (38.2 %) $ 4.03 2.5 % $ 3.93 65.8 % Cash flow from operating activities $ 80.2 (20.3 %) $ 100.7 45.1 % $ 69.4 (46.6 %) Return on equity 13.4 % 23.5 % 26.4 % Wholesale written orders (10.9 %) (9.0 %) (0.5 %) Retail written orders (8.4 %) (12.3 %) (4.6 %) (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 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 a strong history of returning capital to shareholders and continued this practice during fiscal 2024 as the following actions were taken pertaining to dividends. ● On August 1, 2023, our Board declared a $0.50 per share special cash dividend in addition to our regular quarterly cash dividend of $0.36 per share, both paid on August 31, 2023 ● On October 24, 2023, our Board declared a regular quarterly cash dividend of $0.36 per share, which was paid on November 22, 2023 ● On January 23, 2024, our Board declared a regular quarterly cash dividend of $0.36 per share, which was paid on February 22, 2024 ● On April 22, 2024, our Board increased our regular quarterly cash dividend by 8.3% to $0.39 per share, which was paid on May 23, 2024 30 ETHAN ALLEN INTERIORS INC.
Our Board increased our regular quarterly cash dividend by 12.5% and declared a special cash dividend of $0.50 per share, bringing the total amount of dividends paid to $46.4 million during fiscal 2023.
Our Board increased our regular quarterly cash dividend by 8.3% to $0.39 per share and declared a special cash dividend of $0.50 per share, bringing the total amount of dividends paid to $50.3 million during the fiscal year.
These business insurance reserves are recorded within Accrued compensation and benefits on our consolidated balance sheets. 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.
These business insurance reserves are recorded within Accrued compensation and benefits on our consolidated balance sheets. Although we believe that the reserves are adequate, the estimates are based on historical experience, which may not be indicative of current and future losses. In addition, the actuarial calculations used to estimate reserves are based on numerous assumptions, some of which are subjective.
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.
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.
Restructuring and Other Impairment Charges, Net of Gains Restructuring and other impairment charges, net of gains for fiscal 2023 was a gain of $3.7 million compared to a gain of $4.5 million in the prior year.
Restructuring and Other Charges, Net of Gains Restructuring and other charges, net of gains for fiscal 2024 was a gain of $0.1 million compared to a gain of $3.7 million in the prior year period.
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.
At June 30, 2024, the Company operates 142 retail design centers, 138 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.
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.
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.
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.
Further discussion of our contractual obligations associated with long-term debt can be found in Note 12, Credit Agreement , to the consolidated financial statements included under Item 8 of this Annual Report on Form 10-K. ● Other Purchase Obligations.
As of June 30, 2023, the Company had available liquidity of $293.7 million as summarized below (in thousands).
As of June 30, 2024, the Company had available liquidity of $316.8 million as summarized below (in thousands).
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.
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.
While we understand the challenges of a slower economy and the reduction of consumer focus on the home, we remain cautiously optimistic that our current business model, strategy, and balance sheet will enable us to fulfill our many initiatives over the next fiscal year.
While we understand the challenges of a slower economy and the reduction of consumer focus on the home, we remain cautiously optimistic that our current business model, strategy, and balance sheet has us well positioned.
Our consolidated advertising spend was equal to 2.2% of net sales, up from 1.9% in the prior year period as we increased our direct mail campaigns focusing on being the premier interior design destination with new product introductions.
Our consolidated advertising expenses were equal to 2.5% of net sales, up from 2.2% in the prior year period as we increased our direct mail campaigns focusing on being the premier interior design destination with new product introductions. General and administrative expenses decreased 0.8% during fiscal 2024 as Wholesale expenses declined 9.2% while Retail expenses grew 2.1%.
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.
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 are committed to maintaining a strong balance sheet and monitoring our liquidity closely.
Our consolidated net sales of $791.4 million declined 3.2% compared to the prior year due to lower delivered unit volumes from softening incoming order demand and reduced manufacturing production from lower backlogs.
Consolidated net sales of $646.2 million were down 18.3% compared to the prior year due to lower delivered unit volumes, reduced manufacturing from lower backlogs, softening demand and a strong prior year comparable.
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 effective tax rate of 25.3% varies from the 21% federal statutory rate primarily due to state taxes. Net Income and Diluted EPS Net income for fiscal 2024 was $63.8 million compared with $105.8 million in the prior year period.
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.
Adjusted operating income, which excludes restructuring and other charges, net of gains, was $77.9 million, or 12.1% of net sales compared with $133.5 million, or 16.9% of net sales in the prior year period. The decrease in operating income was driven by lower consolidated net sales partially offset by lower SG&A expenses.
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.
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, 2024 2023 Gain on sale-leaseback transaction (retail) $ (2,620 ) $ (4,222 ) Orleans, VT flood (wholesale) 2,243 - Gain on sale of property, plant and equipment (retail) - (311 ) Severance and other charges (wholesale) 141 169 Severance and other charges (retail) 159 644 Disposal of long-lived assets and lease exit costs (retail) - 38 Adjustments to operating income (77 ) (3,682 ) Related income tax effects on non-recurring items (1) 19 932 Adjustments to net income $ (58 ) $ (2,750 ) (1) Calculated using the marginal tax rate for each period presented Liquidity Our sources of liquidity include cash and cash equivalents, short-term and long-term investments, cash generated from operations and amounts available under our credit facility.
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.
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.
We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-downs, taking into account future demand and market conditions. Our inventory reserves contain uncertainties that require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends.
Our inventory reserves contain uncertainties that require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. We adjust our inventory reserves for net realizable value and obsolescence based on trends, aging reports, specific identification and estimates of future retail sales prices.
Adjusted wholesale operating income was $69.0 million, or 15.3% of wholesale net sales compared with $60.7 million, or 12.6% of wholesale net sales in the prior year period.
Adjusted wholesale operating income, which excludes restructuring and other charges, net of gains, was $51.1 million, or 13.8% of net sales compared with $69.0 million, or 15.3% of net sales in the prior year period.
AND SUBSIDIARIES Consolidated Gross Profit and Margin Consolidated gross profit in fiscal 2023 decreased $4.3 million or 0.9% compared with the prior year period due to sales declines within both our wholesale and retail segments, a change in the sales mix with a shift to more wholesale sales which carries lower margins, retail gross margin decline, and lower delivered unit volume.
Gross Profit and Margin Consolidated gross profit in fiscal 2024 decreased $87.3 million or 18.2% compared with the prior year period due to sales declines within both our wholesale and retail segments, including lower delivered unit volume. Wholesale gross profit decreased 19.2% due to the 17.5% decline in sales and a 70-basis point reduction in gross margin.
(in thousands) Fiscal Year Ended June 30, 2023 2022 % Change Consolidated net sales $ 791,382 $ 817,762 (3.2% ) Wholesale net sales $ 449,591 $ 483,842 (7.1% ) Retail net sales $ 662,555 $ 689,884 (4.0% ) Consolidated gross profit $ 480,370 $ 484,706 (0.9% ) Consolidated gross margin 60.7 % 59.3 % 23 ETHAN ALLEN INTERIORS INC.
(in thousands) Fiscal Year Ended June 30, 2024 2023 % Change Consolidated net sales $ 646,221 $ 791,382 (18.3% ) Wholesale net sales $ 371,087 $ 449,591 (17.5% ) Retail net sales $ 540,550 $ 662,555 (18.4% ) Consolidated gross profit $ 393,062 $ 480,370 (18.2% ) Consolidated gross margin 60.8 % 60.7 % 23 ETHAN ALLEN INTERIORS INC.
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.
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.
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.
Selling, General & Administrative ( “ SG&A ” ) Expenses (in thousands) Fiscal Year Ended June 30, 2024 2023 % Change SG&A expenses $ 315,148 $ 346,894 (9.2% ) Restructuring and other impairment charges, net of gains $ (77 ) $ (3,720 ) (97.9% ) Consolidated operating income $ 77,991 $ 137,196 (43.2% ) Consolidated operating margin 12.1 % 17.3 % Wholesale operating income $ 48,707 $ 68,792 (29.2% ) Retail operating income $ 24,704 $ 67,256 (63.3% ) SG&A expenses for fiscal 2024 decreased $31.7 million or 9.2% compared to the prior year period due to lower selling expenses from less delivered net sales and a reduction in general and administrative costs.
Adjusted net income, which removes the after-tax impact of restructuring and other charges, net of gains, was $103.1 million an increase of 2.8% compared to $100.3 million in the prior year period due to an improved consolidated gross margin and our ability to reduce SG&A expenses through cost containment measures partially offset by the decrease in net sales. 26 ETHAN ALLEN INTERIORS INC.
Adjusted net income, which removes the after-tax impact of restructuring and other charges, net of gains, was $63.8 million, a decrease of 38.1% compared to $103.1 million in the prior year period. The decrease in net income and adjusted net income was driven by the $145.2 million reduction in consolidated net sales partially offset by lower operating expenses.
(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.
(in thousands, except per share amounts) Fiscal Year Ended June 30, 2024 2023 % Change Consolidated Adjusted Operating Income / Operating Margin GAAP Operating income $ 77,991 $ 137,196 (43.2% ) Adjustments (pre-tax) * (77 ) (3,682 ) Adjusted operating income * $ 77,914 $ 133,514 (41.6% ) Consolidated Net sales $ 646,221 $ 791,382 (18.3% ) GAAP Operating margin 12.1 % 17.3 % Adjusted operating margin * 12.1 % 16.9 % Consolidated Adjusted Net Income / Adjusted Diluted EPS GAAP Net income $ 63,816 $ 105,807 (39.7% ) Adjustments, net of tax * (58 ) (2,750 ) Adjusted net income $ 63,758 $ 103,057 (38.1% ) Diluted weighted average common shares 25,644 25,604 GAAP Diluted EPS $ 2.49 $ 4.13 (39.7% ) Adjusted diluted EPS * $ 2.49 $ 4.03 (38.2% ) Wholesale Adjusted Operating Income / Adjusted Operating Margin Wholesale GAAP operating income $ 48,707 $ 68,792 (29.2% ) Adjustments (pre-tax) * 2,385 190 Adjusted wholesale operating income * $ 51,092 $ 68,982 (25.9% ) Wholesale net sales $ 371,087 $ 449,591 (17.5% ) Wholesale GAAP operating margin 13.1 % 15.3 % Adjusted wholesale operating margin * 13.8 % 15.3 % Retail Adjusted Operating Income / Adjusted Operating Margin Retail GAAP operating income $ 24,704 $ 67,256 (63.3% ) Adjustments (pre-tax) * (2,462 ) (3,872 ) Adjusted retail operating income * $ 22,242 $ 63,384 (64.9% ) Retail net sales $ 540,550 $ 662,555 (18.4% ) Retail GAAP operating margin 4.6 % 10.2 % Adjusted retail operating margin * 4.1 % 9.6 % 27 ETHAN ALLEN INTERIORS INC.
Retail sales, when expressed as a percentage of total consolidated sales, decreased to 83.7% in fiscal 2023, down from 84.4% in the prior year period, which negatively affected consolidated gross margin.
Retail sales, when expressed as a percentage of total consolidated net sales, was 83.6% in fiscal 2024, comparable to 83.7% in the prior year period, which had a neutral effect on our consolidated gross margin.
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.
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.
We have paid a special cash dividend each of the past three years and paid an annual cash dividend every year since 1996.
With our dividends, we have returned $671.2 million to shareholders since our initial public offering in 1993. We have paid a special cash dividend each of the past four years and paid an annual cash dividend every year since 1996.
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.
We adjust insurance reserves, as needed, in the event that future loss experience differs from historical loss patterns. 34 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES 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.
AND SUBSIDIARIES Consolidated Net Sales Consolidated net sales in fiscal 2023 decreased $26.4 million or 3.2% compared to the prior year period due to lower wholesale net sales of 7.1% and lower retail net sales of 4.0%.
AND SUBSIDIARIES Net Sales Consolidated net sales in fiscal 2024 decreased $145.2 million or 18.3% compared to the prior year period due to an 18.4% reduction in retail sales through our Company-operated design centers and a decline of 17.5% in wholesale net sales.
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.
The programs, which are funded through self-insured retention, are subject to stop-loss limitations. We accrue estimated losses using actuarial models and assumptions based on historical loss experience. At June 30, 2024, we recorded a liability of $1.5 million for incurred but not reported healthcare claims and $3.9 million related to workers’ compensation claims.
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.
The prior year period included $97.5 million of net purchases of investments to further enhance our returns on our cash as well as to fund future obligations. In addition, the prior year included $8.1 million 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.
Exchange Rate Changes Due to changes in exchange rates, our cash and cash equivalents were positively impacted by $0.2 million during fiscal 2023 compared with a $0.1 million negative impact in the prior year period. These changes had an immaterial impact on our cash balances held in Canada, Mexico, and Honduras.
At both June 30, 2024 and 2023, we held $0.5 million of restricted cash related to the Ethan Allen insurance captive. Exchange Rate Changes Due to changes in exchange rates, our cash and cash equivalents were negatively impacted by $0.3 million during fiscal 2024 compared with a $0.2 million positive impact in the prior year period.
Our non-U.S. subsidiaries held $3.7 million in cash and cash equivalents at June 30, 2023, which we have determined to be indefinitely reinvested. A year ago, our non-U.S. subsidiaries held $8.1 million in cash and cash equivalents, a higher amount than as of June 30, 2023 due to significant capital expenditures incurred during fiscal 2023.
At June 30, 2024, we had working capital of $179.0 million compared with $196.4 million at June 30, 2023 and a current ratio of 2.16 at June 30, 2024, comparable to 2.20 a year ago. Our non-U.S. subsidiaries held $4.3 million in cash and cash equivalents at June 30, 2024, which we have determined to be permanently reinvested.
Our short-term investments at June 30, 2023 are within United States Treasury Bills with maturities of less than one year, and to which we expect will further enhance our returns on excess cash.
In addition to cash and cash equivalents of $69.7 million, we had aggregated investments of $126.1 million at June 30, 2024 compared with $110.6 million at June 30, 2023. Our investments at June 30, 2024 are within U.S. Treasury bills and notes, which we expect will further enhance our returns on excess cash. Our U.S.
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.
Income Taxes, Net Income and Diluted Earnings per Share ( “ EPS ” ) (in thousands) Fiscal Year Ended June 30, 2024 2023 % Change Income tax expense $ 21,630 $ 35,218 (38.6% ) Effective tax rate 25.3 % 25.0 % Net income $ 63,816 $ 105,807 (39.7% ) Adjusted net income $ 63,758 $ 103,057 (38.1% ) Diluted EPS $ 2.49 $ 4.13 (39.7% ) Adjusted diluted EPS $ 2.49 $ 4.03 (38.2% ) Income Tax Expense Income tax expense was $21.6 million compared with $35.2 million in the prior year due to the $55.6 million decrease in income before income taxes as our consolidated effective tax rate was 25.3% compared with 25.0% in the prior year.
For more information on our financing 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. 31 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES ● Open Purchase Orders.
At June 30, 2024, we had operating and finance lease obligations of $151.3 million and $1.1 million, respectively, with $33.9 million and $0.4 million payable within 12 months, respectively. For more information, see Note 6, Leases , in the notes to consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. ● Open Purchase Orders.
Restructuring and other charges, net of gains, increased operating income by $3.7 million during fiscal 2023 compared to a $4.5 million increase in the prior year period. Wholesale Operating Income Wholesale operating income for fiscal 2023 increased $4.9 million or 7.6% and as a percentage of wholesale net sales was 15.3%, compared to 13.2% in the prior year period.
The decrease in adjusted wholesale operating income was driven primarily by the 17.5% decline in wholesale net sales partially offset by the 13.8% reduction in wholesale SG&A expenses. Retail operating income for fiscal 2024 was $24.7 million or 4.6% of retail net sales, compared to $67.3 million or 10.2% in the prior year period.
The effect of our contractual obligations on our liquidity and capital resources in future periods should be considered in conjunction with the factors mentioned here.
The effect of our contractual obligations on our liquidity and capital resources in future periods should be considered in conjunction with the factors mentioned here. At June 30, 2024, we had total contractual obligations of $197.9 million, comparable to $199.1 million a year ago as there were no material changes during fiscal 2024.
The current year gain of $3.7 million included $4.2 million from the sale-leaseback transaction completed in August 2022 as well as a gain of $0.3 million on the sale of a property partially offset by $0.7 million of severance and other lease exit costs.
In the prior year period, we recognized a gain of $4.2 million on the sale-leaseback transaction as well as a gain of $0.3 million on the sale of a property partially offset by severance costs of $0.7 million. 25 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES Consolidated Operating Income Consolidated operating income for fiscal 2024 decreased $59.2 million or 43.2%.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

15 edited+2 added−2 removed11 unchanged
Biggest changeForeign 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.
Biggest changeAND SUBSIDIARIES A hypothetical 10% weaker United States dollar against all foreign currencies at June 30, 2024 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.
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 we had no fixed or variable rate borrowings outstanding at June 30, 2024, 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”).
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 investments will continue to be immaterially affected by fluctuations in interest rates.
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.
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.
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.
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, 2024, the unamortized balance of such right-of-use assets totaled $114.2 million.
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.
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.
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.
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.
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.
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 at June 30, 2024. We monitor our interest rate and credit risks and believe the overall credit quality of our portfolio is strong.
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.
We believe any material inflationary impact on our product and operating costs would be partially offset by our ability to increase selling prices, create operational efficiencies and seek lower cost alternatives.
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.
Pursuant to our established investment policy 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.
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.
Commercial Real Estate Market Risk We have potential exposure to market risk related to conditions in the commercial real estate market. At June 30, 2024, there were 142 Company-operated retail design centers, of which 49 are owned and 93 leased.
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.
Cash and Cash Equivalents and Investments The fair market value of our cash and cash equivalents at June 30, 2024 was $69.7 million while our investments (both current and non-current) totaled $126.1 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.
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.
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. Additionally, we are exposed to duties and tariffs on our finished goods that we export from our manufacturing plants.
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.
Our investments consist of U.S. treasuries with maturities ranging up to two years and are reported at fair value based on observable inputs. Our primary objective for holding available-for-sale securities is to achieve appropriate investment returns consistent with preserving principal and managing risk.
However, 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.
Conversely, 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 nature of our investments, our financial exposure to fluctuations in interest rates is expected to remain low.
Removed
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.
Added
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. 35 ETHAN ALLEN INTERIORS INC.
Removed
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.
Added
During fiscal 2024, a period marked by ongoing high inflation, we have been able to reduce certain manufacturing input costs by identifying lower cost alternatives in raw materials as well as implemented operational efficiencies, including reduced headcount, which have helped to minimize the impact of high inflation.

Other ETD 10-K year-over-year comparisons