Ethan Allen Interiors Inc. (NYSE:ETH) Q1 2019 Earnings Conference Call Transcript

Oct 24, 2018 • 05:00 pm ET

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Ethan Allen Interiors Inc. (NYSE:ETH) Q1 2019 Earnings Conference Call Transcript

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Presentation
Executive
Farooq Kathwari

and opportunity are to differentiate ourselves in this fast-changing world, impacting retail, manufacturing and technology.

In our opinion, brick and mortar and the selling of product as a commodity will continue to lose market share. Service is crucial. With our strong retail network providing a full range of interior design services, we believe we are positioned well to capitalize on this point of differentiation. 1,200 dedicated interior designers in our 200 North American interior design centers and 500 designers in our 100 design centers overseas, offers personal service combined with the technology, another critical point of differentiation.

We continue to focus on five important areas. First is the development of talent; second is a strong marketing program that includes relevant offerings and comprehensive advertising that encompasses both traditional and digital mediums; third, investing in manufacturing, logistics and sourcing to provide products of the highest quality and well-managed inventories and margins; fourth, investment in technology is critical in all areas, including manufacturing and retail; and fifth is a strong focus on social responsibility.

We are positioned well for growth as 70% of our products have been refreshed in the last three years. This quarter, our artisan-inspired products were introduced and well received. Two weeks from now, we will introduce our newest products to more than 500 team members at our annual convention at our Danbury headquarters where we will also celebrate our associates' accomplishments and review our marketing programs, including the new products I just mentioned. The new products are inspired by modern, casual living with a planned consumer launch in spring 2019.

We continue to expand our marketing in various mediums. In our first quarter, we increased our advertising spend, as Corey said, by 12.8%. Our objective is to continue strong programs to drive traffic to our digital mediums, and importantly, to our design centers. We continue to invest in our infrastructure. As noted earlier, our retail network consists of 200 design centers in North America and 100 internationally.

In North America, we remain focused on transitioning to stronger locations with about 70% of our stores relocated in the past 15 years. Currently, new design centers are under construction in Albany, New York; Coralville, Iowa; Denver, Colorado; and Rancho Mirage, California.

Internationally, we continue to grow with recent openings in Taiwan, Bangkok and China, a location in Cambodia is under construction. While we believe we received the bulk of the State Department contracts, the sales amounts and gross margins were negatively impacted due to low bidding by a competitor, which was in Chapter 11.

Our North American manufacturing facilities produced about 75% of our furniture offerings. During the last two years, we have doubled our Mexico upholstery manufacturing to about 600,000 square feet, increasing our workforce and investing in technology. We continue to invest in technology in our US and Honduras manufacturing plants, and we also continue to invest in our logistics network, delivering products at one cost in North America and Premier In-Home delivery to our clients.

Finally, we