Ethan Allen Interiors Inc. (NYSE:ETH) Q3 2018 Earnings Conference Call - Final Transcript

Apr 26, 2018 • 05:00 pm ET

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Ethan Allen Interiors Inc. (NYSE:ETH) Q3 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good afternoon and welcome to the Ethan Allen's Earning Release Conference Call. It is now my pleasure to introduce your host, Mr. Corey Whitely, Executive Vice President, Administration and CFO. Thank you. You may begin.

Executive
Corey Whitely

Yeah, thank you, Anna. Good afternoon and welcome to Ethan Allen's conference call for our fiscal third quarter ended March 31st, 2018. This conference call is being recorded and webcast live on ethanallen.com where you will also find our press release, which contains supporting details, including reconciliations of non-GAAP information referred to in the release and on this call.

As a reminder, our comments today will include forward-looking statements that are subject to risks and uncertainties which could cause actual results to differ materially. Please refer to our SEC filings for a complete review of those risks. The Company assumes no obligation to update or revise any forward-looking matters discussed during this call.

After our Chairman and CEO, Farooq Kathwari provides his opening remarks, I will follow with some details on the financial results. Farooq will then provide further updates on our ongoing business initiatives before opening up the telephone lines for questions.

With that, here is Farooq Kathwari.

Executive
Farooq Kathwari

Thank you, Corey; and good to have you all on our earnings call. As we discussed in our April 10th investor meeting, we are positioned well to grow and service our business. We have strengthened many initiatives, including expanding our presence as a premier interior design destination, multiplying our fashionable and relevant offerings, leveraging our vertically integrated manufacturing and logistics and most importantly increasing our marketing.

We're also pleased that we have continued to increase the cash dividends this year by 64.7%. We've also repurchased about 2% of our outstanding shares this month, and the Board of Directors increased share repurchases to 3 million shares. After Corey provides a brief financial overview, I will provide further information and open for questions and comments. Corey?

Executive
Corey Whitely

Yeah. Thank you, Farooq. Consolidated net sales for the third quarter of fiscal 2018 increased 0.5% to $181.4 million. Our manufacturing made good progress during the quarter and working through the production challenges from the first-half, which helped drive the 7.3% increase in wholesale sales. Retail sales decreased 3.6%, primarily due to delayed shipments from wholesale.

The retail backlog increased 15% compared to prior year, and now with our manufacturing moving past the earlier production challenges, we expect the retail order backlogs to come back down over the next several months. Our consolidated gross margin for the quarter was 53.3%. The mix of retail sales as a percent of consolidated sales was 75.5% for the quarter compared to 78.6% in the prior year.

Strong wholesale shipments including shipments to retail and for the government contract drove the change in mix, which was a primary impact to gross margin. Higher raw material costs also impacted our gross margin. Our adjusted operating expenses were $92.3 million, and our advertising expense increased by approximately 20% during the quarter.

Turning to the balance sheet, our cash and