Ethan Allen Interiors
Annual Report 2006

Plain-text annual report

the new(cid:2) L (cid:2)uxury E T H A N A L L E N I N T E R I O R S I N C . A N N U A L R E P O R T 2 0 0 6 a n n u a l r e p o r t 2006 ©2006 Ethan Allen Global, Inc. financial highlights(cid:2) $1,066.4 $949.0 $955.1 $907.3 $892.3 Amounts in thousands, except per share data. Fiscal Years ended June 30 Statement of Operations Data Net sales Gross profit Operating income (a) Net income (a) 2006 1,066,390 540,982 142,672 85,682 2005 2004 949,012 461,054 128,978 79,338 955,107 461,035 126,404 79,478 Per Share Data Net income per diluted share (a) Diluted weighted average common shares outstanding Balance Sheet Data Working capital Current ratio Total assets Total debt, including capital lease obligations Shareholders’ equity Debt as % of equity (a) Includes the effects of pre-tax restruc- turing and impairment charges totaling $4.2 million and $12.5 million in fiscal years 2006 and 2004 respectively. 2.51 2.19 2.08 34,086 36,193 38,295 278,038 2.91 812,241 202,787 417,442 48.6% 130,423 1.97 628,386 12,510 434,068 2.9% 161,772 2.18 658,367 9,221 456,140 2.0% $2.51 $2.19 $2.08 $1.93 $2.05 $85.7 $79.3 $79.5 $81.9 $74.6 2005 2006 Net Income Per Diluted Share 2004 2002 2003 2005 2006 Net Income (in millions) 2004 2003 2002 2005 2006 Net Sales (in millions) 2004 2003 2002 Dear Fellow shareholders I am pleased to report performance was strong and, more important, we continued to take steps to positively differentiate Ethan Allen. that in Fiscal 2006, our financial We achieved record sales of $1.1 billion and a strong net income of $85.7 million in a challenging year for the retail industry, especially the home furnishings segment. These strong results were due to the many changes we have brought about during the last several years. At Ethan Allen, our mission is simple: While life can be overwhelming, decorating solutions should not be. As we approach our 75th birthday, our reach to consumers continues to expand. We make it easier for our clients to decorate their homes and create the lifestyles they want. This fiscal year, we focused on improving the professionalism of the design consultants in our retail network. The work of over 3,000 design consultants was further strengthened by promoting more than 200 of our qualified design consultants to the position of project manager; these project managers provide another level of service to our clients and guid- ance to our design consultants. We have brought on 1,000 new design consultants during the past year, as well, and we feel that this will continue to differentiate us in providing solutions and service to our clients. In Fiscal 2006, we expanded our training and solutions programs for the design consultants and the management teams in our Design Centers. (You will notice that we now refer to our stores as Design Centers, to better reflect our current strategies.) We also continued to strengthen the diversity of our products and programs. Our focus continues to be the development of stylish, high-quality products at good value. We introduced two new product collections—Maison by Ethan Allen, embodying the attitudes of French Country; and American Classics, reflecting eighteenth century English- influenced designs. Our retail network was further strengthened by the opening of twelve new Design Centers in the U.S. and four new international locations. Our goal has been to relocate to prime, high-traffic locations. The U.S. Design Centers were opened in important markets, including Chicago, Phoenix, Philadelphia, Los Angeles, and Nashville. The implementation of our “Mission Possible” initiative took place this fiscal year as well. I am pleased to say that we have substantially reduced the delivery times of our products to our customers. By June 2006, we were shipping to our retail network, on the average, 80% of our products within 30 days, cutting our delivery time by about 30% from the previous fiscal year. Precision targeting has made our marketing stronger and more efficient. By zeroing in on specific demographics, our direct mail magazine now reaches more than six million well-qualified customers per quarter, and our marketing message reflects the inspirational/aspirational appeal of Ethan Allen. In support of this direct mail initiative, we have also expanded our television presence by increasing the number of on-air weeks for our national campaign. At Ethan Allen we continue to strengthen the basics: motivated and knowledgeable associates; stylish and high-quality products; one-stop decorating solutions; a national network of more than 300 Design Centers; and a vertically integrated operating structure that takes our programs and products from their conception to their final delivery to the customer. We look forward to maintaining our competitive edge and to further evolving the way we do business to ensure the best possible return— clients for life. Farooq Kathwari Chairman of the Board, President and CEO, Ethan Allen Interiors Inc. excellence in service the new luxury Today’s clients have more shopping choices than ever before, challenging retailers to become more inventive in the way they do business. At Ethan Allen, we provide much more than just furniture. Our stores offer an individual approach to design, and the luxury of superior service that clients crave. Our more than 3,000 design consultants forge important relationships with their clients, so this year we have been especially focused on ensuring the strength and commitment of those relationships. The more expertise our associates have, the better experience our clients will have. We began by creating teams led by Senior Project Managers and Project Managers. With these team leaders as partners, our design con- sultants are able to focus on the design process and on providing the personal service for which we are known. These teams have increased productivity among our design consultants and overall, we’ve seen a twelve percent increase in sales—a notable accomplishment during such challenging economic times. Then, we established new recruiting standards for our design consult- ants. In addition to having a committee oversee this process, our President and CEO, Farooq Kathwari, personally reviews all resumes. Potential candidates must possess a strong background in design, and to ensure that they are knowledgeable about Ethan Allen product and programs, we have created an extensive training program for them to participate in once they are hired. These new initiatives have proven successful—our employee turnover has been reduced and the new hires “hit the ground running” with strong sales. However, our free design service is just one example of our commit- ment to providing exceptional service. Our in-house customer service department handles any post-delivery issues and our complimentary white glove delivery service inspects and preps each piece of furniture, delivers it to the client’s home, and places it in the room. These services which we provide with no charge to our clients, give us a competitive advantage in the marketplace. Giving clients what they want in a way that makes the shopping experience special and rewarding, and then ensuring their satisfaction, is simply smart business sense. Our new project management teams have helped the retail division increase sales by 12% When clients shop with us, they get a wide array of choices, including the hundreds of fabrics we offer. This ability to customize a look is what helps to differentiate Ethan Allen in the marketplace. this fiscal year saw the birth of two exciting new collections, american classics by ethan allen and maison by ethan allen (shown here). new to market enhancing our e≈ciency and eΩectiveness This year we continued to strengthen our New Classics business, having redefined our casual side last year. Since 2002, more than 70% of our home furnishings are new. Our two latest collections, Maison by Ethan Allen and American Classics by Ethan Allen, reflect our commitment to providing designs that appeal to a broad demographic. The popular European country look can be found in the charming silhouettes of Maison by Ethan Allen. American Classics by Ethan Allen pays homage to the rich history of American furniture design. The latter is a cross-generation collection, with appeal ranging from baby boomers to young clients seeking to make their first serious furniture purchase. Both collections have coordi- nating upholstery and accent designs. In an effort to better serve our clients and increase the efficiency of our manufacturing and distribution system, we instituted a 30-day “Mission: Possible” shipping initiative this year. The implementation of this plan was greatly aided by our vertical infrastructure: we oversee all aspects of our business from concept through delivery, and we are able to monitor costs and inventory levels more closely. In the past, lead times for delivery could be as much as twelve weeks. By the close of this fiscal year, we were shipping 85% of our case goods, 75% of our upholstery, and 88% of our accents within 30 days. We currently manufacture and/or assemble approximately 60% of our home furnishings domestically. We have maintained a strategic balance between United States manufac- turing and foreign outsourcing through carefully selected vendors, and we continue to invest in technology at all levels of our infrastructure to improve our business and efficiency. More than 70%of our home furnishings are new within the last few years. our new voice precision marketing at its best At Ethan Allen we embrace change. As we continue our evolution from a furniture retailer to an “interior design center,” we reach out to more consumers to convey our simple yet powerful message: Ethan Allen is a shopping experience like no other. Ethan Allen is an authority on style and we always strive to inspire our clients. This year, we developed a new, three-tiered campaign that expresses Ethan Allen’s unique position as an aspirational yet attainable brand. Our new magazine more effectively reflects our leadership in the home fashion business and the tremendous value we offer. Published quarterly, it reaches approximately six million consumers and is our most visually evocative direct mail piece to date. In an effort to further improve our return on investment, our magazine mailings are based on a database analysis of which consumers are most likely to purchase our brand and of those who did make purchases following receipt of previ- ous magazines. Our email newsletter, Ethan Allen Inside Style, keeps subscribers aware of current style trends and what’s new with the brand, and offers myriad design and decorating tips. Our new national television campaign, “Inspired by Summer...Designed By Ethan Allen,” mirrors the magazine and first aired during Memorial Day weekend. Our everyday pricing, “no sale” strategy, instituted two years ago, has proven enormously successful. This year, our sales surpassed the $1 billion mark. Our clients appreciate that they no longer have to wait for a sale and they know they can shop with confidence at Ethan Allen because we offer them our best prices everyday. As a companion to everyday pricing, we launched an everyday financing program during the first quarter of this fiscal year. This offer is available to our clients any day of the week and gives them a 6 months no payment/deferred interest option. Clients also still have the option of our Simple Finance Plan, which lets them decorate on a budget with fixed monthly payments at a fixed interest rate for up to 60 months. We continue to recognize and act on the importance of store location. We are always on the lookout for the best, high-traffic locations for new stores and for the relocation of existing stores. We have been able to help retiring retailers by acquiring their stores and have been able to support independent retailers as they foster the growth of their stores, thereby ensuring the continued success of the Ethan Allen brand. What remains the same in the face of any changes we undertake is our mission: to make decorating fun, easy, and affordable for our clients. This year, our sales surpassed 1 billion dollars. i n s p i r e d b y SUMMER d e s i g n e d b y This year’s magazine design confirms our position as experts in home decorating and showcases all that we have to offer. Our email newsletter informs subscribers of current style trends. E T H A N A L L E N B OA R D O F D I R E C T O R S Top row from left: Clinton A. Clark Richard A. Sandberg Horace G. McDonell Frank G. Wisner Bottom row from left: Farooq Kathwari Kristin Gamble Edward H. Meyer(cid:2) cor(cid:2)orate data(cid:3) officers an(cid:2) D I R E C T O R S M. Farooq Kathwari CHAIRMAN OF THE BOARD, PRESIDENT, AND CHIEF EXECUTIVE OFFICER Clinton A. Clark PRESIDENT AND SOLE STOCKHOLDER OF CAC INVESTMENTS, INC. Kristin Gamble PRESIDENT, FLOOD GAMBLE ASSOCIATES, INC. Horace G. McDonell FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER, PERKIN ELMER CORPORATION Edward H. Meyer CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, GREY GLOBAL GROUP, INC. Richard A. Sandberg CHIEF FINANCIAL OFFICER, MATRITECH Ambassador Frank G. Wisner VICE CHAIRMAN, EXTERNAL AFFAIRS, AMERICAN INTERNATIONAL GROUP, INC. O F F I C E R S M. Farooq Kathwari Jack Moll CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER Pamela A. Banks VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY Kelly A. Bean VICE PRESIDENT, ADVERTISING Jack DeKorne VICE PRESIDENT, RETAILER RELATIONS Charles J. Farfaglia VICE PRESIDENT, HUMAN RESOURCES Don Garrett VICE PRESIDENT, CASE GOODS MANUFACTURING Jeffrey Hoyt VICE PRESIDENT, FINANCE AND TREASURER Henry Kapteina DIRECTOR, INTERNAL AUDIT Sandra Lamenza GENERAL MANAGER, ETHAN ALLEN HOTEL Margaret W. Lupton DIRECTOR, INVESTOR RELATIONS AND ASSISTANT SECRETARY James D. McCreary VICE PRESIDENT, PRODUCT SOURCING GENERAL MANAGER, PHYSICAL DISTRIBUTION Nora Murphy VICE PRESIDENT, STYLE Kenneth Musante MANUFACTURING CONTROLLER Tracy Paccione VICE PRESIDENT, MERCHANDISING, UPHOLSTERY AND ACCENTS PROGRAMS Craig Stout VICE PRESIDENT, CASE GOODS MERCHANDISING Edward Teplitz VICE PRESIDENT, RETAIL DIVISION EXECUTIVE VICE PRESIDENT, ETHAN ALLEN RETAIL, INC. Clifford Thorn VICE PRESIDENT, UPHOLSTERY MANUFACTURING Corey Whitely VICE PRESIDENT, OPERATIONS EXECUTIVE VICE PRESIDENT, ETHAN ALLEN OPERATIONS, INC. Ann M. Zaccaria VICE PRESIDENT, BUSINESS DEVELOPMENT C O R P O R AT E D ATA Corporate Headquarters Ethan Allen Interiors Inc. Ethan Allen Drive Danbury, CT 06811 203.743.8000 www.ethanallen.com Transfer Agent Computershare Investor Services, LLC 2 North LaSalle Street P.O. Box A3504 Chicago, IL 60690-3504 312.360.5196 Independent Certified Public Accountants KPMG LLP 3001 Summer Street Stamford, CT 06905 203.356.9800 Stock Exchange Listing New York Stock Exchange Ethan Allen Interiors Inc. Trading Symbol: (ETH) Investor Relations 203.743.8234 plupton@ethanalleninc.com Design Ethan Allen Global, Inc. E T H A N A L L E N form 10-k(cid:4) the new(cid:2) L (cid:2)uxury E T H A N A L L E N I N T E R I O R S I N C . A N N U A L R E P O R T 2 0 0 6 a n n u a l r e p o r t 2006 ©2006 Ethan Allen Global, Inc. 

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