Hello and welcome to the Ethan Allen Fiscal 2024 Third Quarter Analyst Conference Call. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the conference over to Matt McNulty, Senior Vice President, Chief Financial Officer and Treasurer. Please go ahead, Matt.

Thank you, Kevin. Good afternoon, and thank you for joining us today to discuss Ethan Allen’s fiscal 2024 third quarter results. With me today is Farooq Kathwari, our Chairman, President, and CEO. Mr. Kathwari will open and close our prepared remarks, while I will speak to our financial performance midway through. After our prepared remarks, we will then open the call for your questions. Before we begin, I’d like to remind the audience that this call is being recorded and webcast live under the News and Events tab on the Investor Relations page of our website. There, you will also find a copy of our press release, which contains reconciliations of non-GAAP financial measures referred to on this call and in the press release. A replay of today’s call will also be made available on our Investor Relations website. Our comments today may include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. The most significant risks that could affect our future results are described in our annual report on Form 10-K. 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. With that, I am pleased to now turn the call over to Mr. Kathwari.

Thank you, Matt, and thank you all for participating in our third quarter earnings call. As we stated in our press release, we are pleased with our financial performance and the continued strengthening of our enterprise. We are also seeing incremental consumer interest returning to the home after being previously diverted to other areas such as travel. Again, after Matt provides a brief financial overview, I will discuss in greater detail our initiatives. Matt?

Thank you, Mr. Kathwari. As a reminder, we present our financial results on both a GAAP and non-GAAP basis. Non-GAAP results exclude restructuring initiatives, impairments, and other corporate actions. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business. Our financial results in the just completed third quarter were highlighted by a robust balance sheet, strong cash dividends, and a double-digit operating margin. Despite currently operating in a challenging home furnishings industry, our operations produced positive financial results which I will now discuss. Our consolidated net sales totaled $146.4 million reflecting lower delivered unit volume, reduced manufacturing from lower backlogs, a cautious consumer environment, and a strong prior year comparable. Overall demand patterns across our industry have been sluggish. Our written order trends in the quarter were impacted by the continued softening of the market, elevated interest and inflation rates, reduced designer center traffic partially due to adverse winter weather conditions and a strong prior year demand. Wholesale segment written orders decreased 14.6% compared to last year while retail segment orders were down 8.6%. We ended the quarter with a wholesale backlog of $57.7 million reflective of historical norms and pre-pandemic levels. We continued to improve customer lead times and reduced the number of weeks of backlog during the quarter. Consolidated gross margin was 61.3%, the 12th consecutive quarter that our gross margin has exceeded 58%. The 140 basis point increase in consolidated gross margin was driven by a change in sales mix, lower manufacturing input costs and reduced headcount partially offset by deleveraging from lower unit volumes and higher sales of designer floor samples. Adjusted operating margin of 10% reflects fixed cost deleveraging from lower sales partially offset by gross margin improvement, lower headcount, less variable expenses and the ability to maintain a disciplined approach to cost savings. Our SG&A expenses decreased 9.6% and equaled 51.4% of net sales, up from 44.7% last year due to lower sales volume relative to fixed costs. Compared to our pre-pandemic 2019 third quarter, our operating margin has improved 380 basis points due to our initiatives focused on streamlining and reducing the operating cost structure while enhancing operating efficiencies. Adjusted diluted EPS was $0.48. Our effective tax rate for the quarter was 25.1%, consistent with a year ago. Now, turning to our liquidity, we ended the quarter with a robust balance sheet including cash and investments of $181.1 million and no outstanding debt. We generated $23.7 million of cash from operating activities during the quarter, primarily due to net income and improvements in working capital. In February 2024, we paid a regular quarterly cash dividend of $9.2 million or $0.36 per share. More recently, on April 22, our Board of Directors increased our regular quarterly cash dividend by 8.3% to $0.39 per share, which will be paid in May. This recent action marks the fifth time we have increased our regular quarterly cash dividend since January of 2021. In summary, we remain cautiously optimistic as the strength and stability of our balance sheet position us well to maximize our vertically integrated structure in anticipation of a better macroeconomic and home furnishings environment. We are building a fundamentally stronger company, protecting our profitability, and enhancing our operational efficiency. With that, I will now turn the call back over to Mr. Kathwari.

All right, thanks Matt. As we discussed in our last quarterly meeting, our results reflect the post-COVID business environment. The COVID emergency started to end about twelve months back and consumers' interest diverted to other areas such as travel, resulting in lower sales for us and our industry, and also resulted in a number of bankruptcies in our industry. In my opinion, they did not take the precautionary measures. We took strong measures to reduce inventories and expenses and to increase our cash. We do now see the start of increased interest in the home and the beginning of positive sales. While Matt has given some financial information, I would like to again emphasize the fact that our operating margins of 10% for the quarter ended March 31, 2024 are of course lower than the 15.2% for the quarter ended March 31, 2023, yet our pre-COVID operating margins as of March 31, 2019 were 6.2%. Our net income of $12.4 million for the quarter ended March 31, 2024 is again compared to $22 million as of March 31, 2023 and $8.2 million as of March 31, 2019. We have continued to maintain a strong cash position as Matt just said at March 31, 2024 of $181 million, compared to March 31, 2023 at $156.2 million. And very importantly, on March 31, 2019, our cash was $25.7 million. We have also maintained strong cash dividends for the quarter ended March 31, 2024, paying out $9.2 million. As we just mentioned, and as Matt noted in the press release, the Board increased our regular dividend to $0.39, an 8% increase. Importantly, with the combination of technology and personal skills, and looking at our business from a base zero, we have been able to reduce our headcounts. As of March 31, 2024, our headcount was 3,448, compared to 3,816 as of March 31, 2023, a decline of 9.6%. And very importantly, we had a headcount of 5,120 as of March 31, 2019, a reduction of 32.7%. Tremendously important is the fact of reviewing all our operations, you might say, from a base zero, having great talent and technology that has resulted in strong efficiency in our enterprise. Now, very briefly, on some of our current initiatives. During the last twelve months, we launched the interior design initiative. This initiative reflects our next reinvention in our 93 years. Most of our 175 design centers in North America have been repositioned, and the main elements are our design centers reflect consistency of product programs across North America, and we are currently working with our international partners. Very importantly, the size of our design centers has been reduced. At this stage, our objective is to have a maximum size of 12,000 square feet from the 20,000 square feet that most of our design centers were operating at. The extra space in the design centers has been converted into a design floor sample area where we've been selling the extra inventory resulting from the change. The impact of this has been cash positive, but it also has affected lower margins because we are selling a lot of slow sample products. Another impact it has had was on our manufacturing because instead of products made for manufacturing, we were selling a lot of products from floor samples. Now, the good news is most of that is over. We still have products that will be sold because this does take some time, but we have now started to see more orders coming in and going to our manufacturing. As I said earlier, combining very strong interior designers with technology is a game changer in terms of productivity and costs. Our marketing and merchandising is constantly utilizing technology in developing and distributing our message. Each month, we distribute two digital magazines of about 36 pages to 9.5 million customers and prospects. In April, we just introduced our new style book, which has been very well received by our teams and clients. This style book will again be available in both print form and digitally. Merchandising is focused on strengthening our product programs and introducing them to our network and consumers in a planned manner. We did hold up some of our product introductions, but now we have been very aggressive in fact, in the next six months, we'll introduce a fair amount of new products. We also want to ensure we stay relevant. I, along with some of our key people, had an opportunity last week to review products at the Milan fashion and furniture fair so that we understand where we stand. Our focus has been to have products that differentiate us, and that will continue to be our focus. Our product programs, I say we will focus on classics but with a modern perspective, and we believe that is the right attitude for us. In manufacturing and logistics, we have 75% of our products made in our manufacturing in North America. We do get other products like accessories and other items from different parts of the world. We continue to invest in many areas, including new machinery and equipment, while strengthening our environmental and social responsibility in various regions. Keep in mind, with technology and strong people, we've been able to reduce our manufacturing from about 30 plants only 10 to 15 years back to about 10, but it's all in North America. As we know, with all the conflicts taking place in the world, international freight has increased. Given that we manufacture 75% of our furniture in North America, the impact has been less, mostly on products that are coming from overseas. Overall, we are well positioned. Our interior design network has been redesigned in terms of projection. Very importantly, we have continued to have strong interior designers and technology in all areas. With that brief overview, I'd like to open it up for any questions or comments.

Thank you. One moment please while we poll for questions. Our first question today is coming from Taylor Zick from KeyBank Capital Markets. Your line is now live.

Hey, good afternoon.

Hi there, how are you?

Hey, Farooq. It's Taylor Zick on for Brad Thomas. I just wanted to ask about the cadence of the business for the quarter. You'd mentioned that January was kind of weak because of the weather, but some of the trends have seemed to get better as the quarter moved along. So, curious about what you have seen during the quarter and if you have any thoughts on how April is trending?

Yes, I think that in this quarter we did have an impact from the weather in the middle of the month; it really had an impact and that created issues. On top of it, as I said, our focus, with consumers' interest in other areas, also impacted. But as we moved towards March, we did start seeing some improvements. In April, consumers, as we indicated in our press release, have shown more interest in returning to the home from travel and other areas.

Great. And then maybe just on the refresh of your design stores, you mentioned you're complete on most of those refreshes. So I'm curious about what you're hearing from your customers or perhaps your designers there and any feedback on some of those updated products as well?

Yes, this is truly almost like a revolution. Five years ago, folks in New Jersey thought they needed something very different than in Connecticut and forget California or Texas. The fact is, good design is good design, and we decided that we would. Along with that, we had to ensure that all our interior designers were on board because they are the ones working in the field. They all loved what we did. We introduced it last April actually in our Danbury headquarters design center, and it took us about a year to implement across the board. It has been very well received by consumers and our designers because they know good design, and what differentiates us is that 75% of our furniture is custom-made when they come in. So if we were in a business of selling just products alone, what we show on the floor would create a different model. We need to ensure we have the best representation of our products on the floors and then have the ability of our designers to use technology to create room settings. Five years back, you couldn't imagine the amount of virtual business we are doing combined with technology. Personal service and technology are making a significant difference.

Great. Thanks, Farooq. I'll pass it along.

Say hello to him, would you please?

Thank you. Our next question is coming from Cristina Fernández from Telsey Advisory Group. Your line is now live.

Hi, good afternoon.

Hi, Cristina.

Hi. I wanted to follow up on the first question and your comment about seeing improved interest in the home. If I understand your comment correctly, it seems like you're experiencing some sequential improvement in March and April. Can you talk about what you're seeing year-over-year? Are the declines lessening? And what green shoots are giving you the confidence to feel that consumers are indeed returning to making purchases for the home?

Yes, Cristina, the issue is really what I was referring to is the fact that the improvements are from the last six or nine months because that's when we saw consumer interest moving to other sectors. You've got to compare this more to the last couple of quarters or three quarters at most, when a lot of interest was diverted due to COVID. We are now seeing that people have traveled and spent money in other areas, and they are looking back into their homes. During the COVID period, a lot of folks did spend a lot of money on home projects. So, it will be relative to see how much better we can perform, but we are certainly going to do better than what we achieved in the last couple of quarters.

And then I wanted to ask about the order intake; the spread between retail and wholesale was wider than what we've seen the past couple of quarters. Is it the timing of the State Department contract, or what other factors are influencing that wholesale order intake?

Yes, that's all important. There are two significant factors. First is our Government business. The ongoing conflict has meant a lot of attention from the Government has gone towards spending money on security and other areas. The good news is that recently they have started to pay more attention to their furniture needs, and we have seen an increase in business. However, for the past three, four, or five months, their focus was shifted from our category. Additionally, our international business was down significantly, especially in China. The good news is that China is now beginning to create this interior design destination in their design centers, so our business is starting to improve. However, the factors impacting our international business, particularly in China, have been a significant contributor to the wider disparity between wholesale and retail.

Thanks. The last question I have is in relation to the SG&A dollars; you've successfully reduced those, down 10% year-over-year this quarter. Where are you flexing the SG&A? Is it mainly from headcount reductions this past year, or are you also pulling back on marketing or other expense buckets? Thanks.

Actually, it is primarily from headcount reductions, both in manufacturing and retail. The combination of technology has had a tremendous impact on our performance. We have slightly increased our marketing relative to previous quarters. Matt, how much are we at this quarter? What is it, about 4%?

Yes, marketing actually was up 24% year-over-year and was 3.4% of sales, compared to only 2.1% of sales last year, so we've increased it.

So we increased our marketing, and our reduction in SG&A is mostly attributed to the reduction in headcount. However, it is notable that variable nature of compensation also contributed to this, as lower delivered sales have resulted in decreased variable compensation, whether from designer selling or delivery costs, and we're benefiting from lower fuel costs year-over-year, which also aids the SG&A line.

Thank you.

Okay, Cristina. Thanks very much.

Our next question today is coming from Budd Bugatch from Water Tower Research. Your line is now live.

Hey Budd, how are you? Is Budd Bugatch there?

Budd perhaps your phone is on mute. Please pick up your handset.

There you go. You're off mute now. Can you hear me now?

Yes, Budd, I am. How are you?

I'm not bad for an old guy. I'm trying to catch up to you.

Budd, I don't like to hear that. You're just getting started.

Well, we're not old, we're just getting older. I want to punch into that retail, the consumer adding back to the home, and I hear you, and it's one of our true failings. Just try to put numbers on things, and you're good with numbers, and you're also good at sidestepping us when we want numbers. So let me see if I can get a couple of them. The backlog increased from the last quarter to this quarter by about, if I do it right, and not the backlog, but the customer deposits increased about $17 million from the second quarter to the third quarter. Is that about right, Matt? Is that correct? Last year it was about a $29 million increase, and is that reflective of what's occurring in terms of retail orders? How do you look at that?

Yes, that is correct. Sorry, go ahead.

No, go ahead, Matt.

So what I was saying is yes, deposits are up year-over-year. Part of that was timing of when the orders came through in the quarter. But also, it reflects, as Mr. Kathwari said, an increasing focus on the home and a higher dollar volume of orders that we saw this past quarter compared to the last six to nine months, so the customer deposit balance did increase.

Actually, you gave us a backlog number for wholesale, Matt. If you provided one for retail, I missed it. What is the retail backlog at the end of the third quarter?

We typically do not disclose the retail backlog, although we do say it is approximately twice that of customer deposits on hand.

The customer deposit is around half of the backlog. Regarding Farooq, are you referring to the increased focus on the home that you noticed in April, or is it more about what you observed at the end of March? When did this trend start, and can you help us understand it better?

Well, March was almost unique because Easter fell on March 31, and we were closed. Being closed on the last day of the month is not a good day to be closed. So that did impact numbers in March. Now, of course, Easter will be in April this month. What we did see was just at the beginning right after the end of Easter, we could see an increase in business because the timing of Easter impacted sales, but I think some of that business did also spill into April. So I see that what we are seeing is just the start, and we still have to watch it carefully, but it's a somewhat positive start in April.

That is helpful. When I had my retail business, I would always say that Easter or Passover was either late or early, but it was never on time, and that’s one of the…

Having it on March 31 is not a good day to have it.

No, that's not. It's never good for the business. Okay, well, that really gets to the heart of my questions, which is really, and I think that's the key for Ethan going forward, to understand the viability and vibrancy within the consumer. I know you've got a comprehensive plan to reduce the size of the design centers and make them more efficient, so we'll see how that translates into the numbers. Thank you for taking my questions.

Yes, thanks very much, Budd.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Kathwari for any further or closing comments.

Well, thanks very much. I am pleased that we have this opportunity for discussion amid many challenges facing our industry and the broader economy. However, with all the great work that our team has accomplished, at a time when many others increase their expenses, we were able to reduce them positively. We didn't just introduce reductions for the sake of it; it was a combination of great talent, technology, and the last 10 to 15 years of reducing our manufacturing to a more sensible operating model that we have. All these elements are impacting our outlook, and we look forward to continued progress as we move ahead. Thanks very much, everyone. I look forward to talking to you next quarter.

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.