Ethan Allen Interiors
Annual Report 2022

Plain-text annual report

A N N U A L R E P O R T 2 0 2 2 CELEBRATING 90 YEARS OF INNOVATION financial highlights a t a d Net sales 2022 2021 2020 $817,762 $685,169 $589,837 t n e m e t a t s e m o c n i Adjusted gross margin (a) Adjusted operating income (a) Adjusted net income (a) Adjusted diluted EPS (a) Cash and cash equivalents Total assets Long-term debt Total liabilities Shareholders’ equity Working capital Adjusted return on equity (a) Current ratio Long-term debt to equity Common shares outstanding a t a d t e e h s e c n a a b l s c i r t e m y e k 59.3% $134,240 $100,277 $3.93 $109,919 $719,895 – $312,572 $407,323 $131,106 26.4% 1.61 0.0% 57.5% $80,335 $60,059 $2.37 $104,596 $683,245 – $331,827 $351,418 $71,377 17.7% 1.32 0.0% 55.7% $17,072 $13,512 $0.52 $72,276 $622,789 $50,000 $294,724 $328,064 $90,974 3.9% 1.65 15.2% 25,322,792 25,237,415 25,053,082 y t i i d u q i l Cash flows from operating activities Capital expenditures and acquisitions Cash dividends paid Dividend yield $69,356 $13,387 $48,257 6.3% $129,912 $12,029 $43,290 3.6% $52,696 $17,059 $21,469 7.1% Amounts in thousands, except share and per share data (a) See reconciliation of U.S. GAAP to adjusted key financial measures in this annual report Dear Fellow Shareholders As we celebrate 90 years of innovation, we are pleased to report strong financial results for the fiscal year ended June 30, 2022, including net sales of $817.8 million, adjusted operating income of $134.2 million, and adjusted diluted EPS of $3.93, an increase of 65.8%. We also generated $69.4 million of cash from operating activities, ended the year with no debt, and increased our regular quarterly cash dividend by 28% while paying a special cash dividend of $0.75 per share. We remain focused and well positioned, capitalizing on our brand differentiators while implementing strategic initiatives with an eye toward the future. Despite unprecedented supply chain challenges and economic uncertainties, we have continued to strengthen our vertically integrated enterprise; reinvent existing product collections while expanding our portfolio of offerings for the whole home; strategically relocate existing Design Centers and open new ones; invest in technology; and offer the complimentary design service of our interior design professionals combined with technology. We have expanded the reach of our brand and recently launched a new digital magazine program that has helped our prospect outreach and conversion. We also remain committed to our environmental, health and safety, and social responsibility initiatives. Vertical integration: the key to our success One of our greatest competitive advantages, our unique vertically integrated enterprise has enabled us to deliver exceptional service even as we faced raw material shortages and logistical challenges, including elevated shipping container costs. We manage the Ethan Allen experience from product concept to delivery, making approximately 75% of our products within our own North American manufacturing workshops. Through our Premier In-Home Delivery service, we further enhance the value of the Ethan Allen experience, ensuring the highest level of personal service. Combining technology with personal service We offer complimentary design service through our world-class interior designers as part of every Ethan Allen experience. Our investments in 3D technology and augmented reality, including our 3D Room Planner and our EA inHome® app, have given our designers additional opportunities to connect with their clients in the Design Center, at home, or via virtual appointment. In fiscal 2022, we launched the state-of-the-art immersive 3D Ethan Allen Virtual Design Center, which showcases the timeless aesthetic of our vast product portfolio. Breadth of styles & customization options Another advantage of vertical integration is our ability to customize most of our upholstery and case goods, and to curate accents from the world’s finest artisans. All of our products are Ethan Allen branded. This year, to further strengthen our position as a whole-home interior design solution, we introduced several new products in upholstery; in case goods, including home office; in outdoor living; and in accents, including lighting, decorative accents, and a new flooring program. Our craftspeople focus on the details—many items are handcrafted one at a time—enabling clients to customize our products with the help of our interior design professionals. Social responsibility Across our enterprise, we maintain a steadfast commitment to good corporate governance, environmental stewardship, and social responsibility. Our primary focus remains operating in a safe manner for our associates and clients. Throughout our history, philanthropy has been a core value to us. We strive to develop exceptional programs based on partnerships where employees feel a sense of connection to and pride in their communities, and our mission is to enhance the quality of life in the communities in which we work and live. Talent Our associates possess an entrepreneurial spirit, a passion for style, a drive for excellence, and outstanding communication skills, supporting a culture that embraces creativity, integrity, diversity, innovation, and inclusion of people from all backgrounds. 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. I would like to thank each associate, as well as our Board of Directors, our clients, and all shareholders, for their continued support as we look forward to a successful fiscal 2023 and turn our eyes toward the next 90 years— we’re just getting started. Farooq Kathwari Chairman, President and CEO Ethan Allen Interiors Inc. 1  4 6 8 10 12 13 OU R VER TI CALLY I NTEG R ATED ENTER PR I S E MAN U FAC TU R I N G & DI STR I B UTI O N WHERE INTERIOR DESIGN & TECHNOLOGY CONVERGE AMERICAN ST YLE , MADE TO ORDER SOCIAL R E S PO N S I B I LIT Y & SUSTAINAB I LIT Y E THAN ALLEN BY TH E N U M B ER S A unique vision of American style. A steadfast reputation for quality. A robust network of more than 1,000 interior designers, and 75% of products made in our North American plants. We are Ethan Allen. This is our story. 2  3 our vertically integrated enterprise 174 Design Centers in North America KE Y Manufacturing Plants Distribution Centers Home Delivery Centers Design Centers 4 NEW OR RELOCATED DESIGN CENTERS: 13% in the past five years 48% in the past ten years Ethan Allen Design Centers are typically located in busy retail settings as freestanding destinations or as part of town centers, lifestyle centers, and suburban shopping malls. Ethan Allen operates ten manufacturing facilities located in the United States, Mexico, and Honduras. These facilities are owned by the Company and include five case goods plants and five upholstery plants. Approximately 75% of our products are manufactured or assembled in these North American facilities. The Company also owns and operates three national distribution centers, which are located in North Carolina and Virginia. Westport, CT Walnut Creek, CA Hartsdale, NY manufacturing & distribution At Ethan Allen, we design our own upholstery and premium freight rates, we’ve maintained and case goods products, manufacturing industry competitive lead times. about 75% in our North American workshops. Our logistics network is integrated from manufacturing to the client’s home, utilizing air freight, ocean vessels, trucks, and trains for safe, on-time delivery. In addition to emphasizing safety throughout our manufacturing and logistics network, we continue to manage specific processes that reinforce our value proposition for quality. We mill much of our own wood, inspect any Since we purchased our Beecher Falls lumber that we purchase, and kiln-dry all wood workshop in 1936, our vertically integrated to ensure correct moisture content, so that structure has been both a strategic and a furniture doesn’t split or crack. We also tailor branding advantage. Despite supply chain all upholstery by hand, using fabrics that meet challenges, including shortages of drivers, or exceed industry standards and leathers that trailers, containers, and ocean vessel capacity, we cut and color-blend in our workshops. as well as port closures, port congestion, 6 Our workshops Case Goods Beecher Falls, VT: Sawmill & Machining • 336,000 sq. ft. of manufacturing capacity • Sawmill, kiln drying, wood panel processing, machining, and some assembly operations Beecher Falls, VT Orleans, VT: Machining, Veneering & Finishing • 666,000 sq. ft. of manufacturing capacity • Rough mill, machining and sanding, cabinet, finishing, and rub and pack operations Pine Valley, NC: Lumber Processing Center • 63,000 sq. ft. • Procures regionally sourced lumber from local sawmills • Grading, stacking, and kiln-drying Choloma, Cortes, Honduras: Machining through Finishing • 241,000 sq. ft. of manufacturing capacity • Processing and machining of rough lumber, sanding, carving, assembly, and finishing through shipping Orleans, VT Upholstery Maiden/Claremont, NC: Fabric Upholstery • 736,000 sq. ft. of manufacturing capacity • Recently added cutting-edge exposed wood frame manufacturing technology Silao, Guanajuato, Mexico: Fabric & Leather Upholstery • 572,000 sq. ft. of manufacturing capacity • Utilizes state-of-the-art fabric and leather cutting machines, plus C&C routers that cut engineered wood frames Our distribution centers Our wholesale distribution centers ship to approximately 51 retail service centers as well as to all international retailers. Dublin, VA • 631,000 sq. ft. of warehouse and parts fulfillment capacity • Ethan Allen’s primary furniture and accents distribution facility; receives more than 600,000 pieces of furniture and accessories every year Pine Valley, NC • 490,000 sq. ft. of warehouse capacity • Domestic distribution, plus all exports for U.S. State Department program • Hard accents, soft goods, area rugs, outdoor furniture, and accents Maiden, NC • 54,000 sq. ft. of warehouse capacity • Hard accents UPS direct-to-consumer shipping; hanging fabric samples and swatch fulfillment Maiden, NC Silao, Mexico Choloma, Honduras where interior design & technology converge From choosing the perfect fabric to designing The professionalism of our entrepreneurial our clients’ homes, our interior designers interior design team ensures that the quality combine personal service with digital design of our interior design service is a significant technology. Utilizing 3D room planning and AR competitive advantage. Through a business tools, our team of interior designers serve our model that encourages entrepreneurship clients in Design Centers, at their homes, and and a sense of ownership, we attract and via virtual appointment. retain top interior designers who build long-term client relationships. 8 THE FUTURE OF HOME Many complimentary interior design service sessions begin online, an evolution made possible by our 3D Room Planner. Designers create custom room layouts with furniture, accents, and even flooring and window treatments, starting a collaborative process that continues online, in clients’ homes, or in the Design Center. Clients can preview furniture in their current spaces, at size and scale, with the EA inHome® app. Through the photorealism of our 3D renderings, designers can provide a preview of projects before clients place their orders. Our 3D room planner offers both overhead and in-room perspectives on designed rooms. Our Virtual Design Center showcases Ethan Allen’s vast product portfolio while fostering collaboration between designers and clients. 9 9 9 American style, made to order Our unique vision of American style brings of upholstery and case goods selections in together the best designs from all over the fiscal 2022. Inspired by various design genres, world and reimagines them from a distinctly formal in presentation yet transitional in form, American point of view. each new piece highlights our commitment Centering our business around a made- to-order model enables us to maintain an extensive catalog of products and to classic handcraftsmanship through veneer work, hand-applied metallic finishes, and collar and ferrule elements. customizations that can be created on To further cement our status as a whole-home demand. Through customization, we project interior design solution, we also expanded ourselves as an aspirational, luxury brand, our accents selection by launching new offering truly handcrafted furnishings that lighting collections that included coordinating can be personalized with the help of an chandeliers, lamps, and sconces. We also interior designer. premiered a curated, high-quality selection Continuing our focus on classic design with a modern perspective, we debuted a series of Luxury Vinyl Flooring. ENDLESS CUSTOMIZATIONS An immense selection of frames, fabrics, leathers, finishes, and accents provides a bottomless toolkit with which designers can showcase our design philosophy—“classic design, modern perspective”— in ways that are personalized to every client. 10 expanding our reach Our creative messaging is relevant, aspirational, and conveyed through a variety of channels. Recognizing that our clients increasingly spend time in digital spaces, we have transitioned to a digital-first marketing strategy. DIGITAL MAGAZINES DIRECT MAIL Published and distributed via email twice a month to national and dedicated prospects, our digital magazines enable us to broaden our reach and enhance desirability and visibility while expressing our dynamic brand story. Print media, including direct mail magazines that we deploy approximately once per quarter, and broadcast media also continue to play key roles in our fresh, ever-evolving creative marketing approach and strategy. OUR TIMELESS TRADITION forEXCEPTIONAL CRAFTSMANSHIPclassic DESIGN through today’s eyesintroducing NEW designs for springsocial responsibility & sustainability We aim to build a collaborative culture that we follow federal Equal Opportunity that enable associates to feel both a sense of emphasizes dignity and respect for all of our Employment standards, ensuring freedom connection to and pride in their communities. associates while offering equal opportunity from discrimination on the basis of across our global organization. Our Silao protected classes. Our work to cut our carbon footprint, greenhouse emissions, electrical and water workshops have earned Great Place to Work® Mexico certification for three consecutive years. The annual health fair that we provide for our associates in Honduras has been named Best Health Fair for multiple years by the Medical Enterprise System of the Honduras Institute of Social Security. We continue to develop impactful practices usage, and landfill waste continues, as does to make our company more diverse and our commitment to prioritizing responsible inclusive by supporting diversity awareness, forestry and materials that are not harmful maintaining an inclusive environment free from to the environment. discrimination of any kind, including sexual or other discriminatory harassment and offering multiple avenues, including a confidential Our case goods and upholstery finishes, many of which are water based, are low in volatile organic compounds (VOC) and in hazardous air pollutants (HAP), and the flexible polyurethane foams used in our upholstery are certified through the CertiPUR-US® program. We work every day to capitalize on the talents whistleblower hotline, through which to report of our diverse workforce through recognition inappropriate behavior. We also work to and promotion to leadership positions. enhance quality of life in the communities in Furthermore, as a U.S. government contractor, which we work and live, developing partnerships PRESERVING OUR RESOURCES Most of the wood we source for domestic production comes from responsibly managed Appalachian forests, and we have been Verified Sustainable and Legal by the Appalachian Hardwood Manufacturers, Inc. In our Vermont workshops, we use recycled biomass— chips and sawdust leftover from making furniture—to cogenerate electricity for our wood-drying kilns. by the numbers L E 7 2 A % D a r 4 7 le e w o f r o % m a d o f c e r s a r o m E R e t S e n H ail le I P a d e r s e w p a n y o m e n R E T M 1 7 o r e t A IL 4 D h a e si g n 1, 0 n 0 0 0 1 2 0, 0 + 3 C e 0 in D r o n t e o m r s in t e ri o r d p la n N o r t h e si g s c r e A m n e r s e ric a a t e d M 5 u 5 c A N a s U p h e g F A o ls o o d A b m o 2. 6 m a d u t 7 t e r e in 5 % y p a n m illi o u f a n s c t u o o u r o f p w r o q n C T s ( w U o o R I d f u N G la n t s r nit u rin u a g a r e f n d e e d u w c o r k t s s h r e) p la t o d r y - f o p s kiln c a p a cit y n t s 5 D I S 1. 2 a n T R m d p illi o I B 1 p N r o o vi d r t h in A a r t s f U TI O q u a n s ulfill ric a m m g P r e e m ie n r r I r e f e N & D t e e n t c o f w E a p LI e t n - H ail s a cit a r e y h o V E R o m e r e D vic eliv e c e u s Y e e r y n t e r s 13 consolidated sales & operating margin Consolidated Net Sales Adjusted Operating Margin (a) Millions $575 $600 $625 $650 $675 $700 $725 $750 $775 $800 $825 2022 2021 2020 $589.8 2.9% $817.8 16.4% $685.2 11.7% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% (a) See reconciliation of U.S. GAAP to adjusted key financial measures in the back of this annual report. total special & regular dividends paid Cash Dividends Paid—Total Dividend Yield Millions $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 6.3% $48.3 3.6% $43.3 $21.5 7.1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 2022 2021 2020 100 DIRECTORS EXECUTIVE OFFICERS Farooq Kathwari Chairman of the Board, President and Chief Executive Officer Farooq Kathwari Chairman of the Board, President and Chief Executive Officer María Eugenia Casar Former Under-Secretary-General, United Nations Amy Franks Executive Vice President, Retail Network & Business Development Dr. John Clark Special Advisor, Connecticut State Colleges and Universities Matt McNulty Senior Vice President, Chief Financial Officer & Treasurer John J. Dooner Jr. Chairman, The Dooner Group Ashley Fothergill Senior Vice President, Merchandising Eric Koster Vice President, General Counsel & Secretary David M. Sable Co-Founder and Partner, DoAble, LLC Tara I. Stacom Executive Vice Chairman, Cushman & Wakefield Cynthia Ekberg Tsai Chief Executive Officer, Tana Systems Corporate Headquarters Ethan Allen Interiors Inc. 25 Lake Avenue Ext. Danbury, CT 06811 203.743.8000 ethanallen.com Independent Registered Public Accounting Firm CohnReznick LLP 1301 6th Avenue New York, NY 10019 212.297.0400 Investor Relations Matt McNulty Senior Vice President, Chief Financial Officer & Treasurer IR@ethanallen.com Stock Exchange Listing New York Stock Exchange Ethan Allen Interiors Inc. Trading Symbol: ETD Transfer Agent Computershare Investor Services, LLC 211 Quality Circle, Suite 210 College Station, TX 77845 computershare.com corporate data. C N I , L A B O L G N E L L A N A H T E 2 2 0 2 © 

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