Good afternoon, and welcome to the Ethan Allen Fiscal 2024 Fourth Quarter Analyst Conference Call. Please note this conference is being recorded. It is now my pleasure to introduce your host, Matt McNulty, Senior Vice President, Chief Financial Officer and Treasurer. Thank you. You may begin.

Thank you, operator. Good afternoon, and thank you for joining us today to discuss Ethan Allen’s fiscal 2024 fourth quarter and full-year results. With me today is Farooq Kathwari, our Chairman, President and CEO. Mr. Kathwari will open and close our prepared remarks, while I’ll 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. A replay of today’s call will also be made available on our Investor Relations website. There, you will 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. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business. 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 risk factors 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’m pleased to now turn the call over to Mr. Kathwari.

Well, thank you, Matt, and thanks for participating in our fourth quarter and fiscal year June 30, 2024 meeting. As stated in our press release, we are pleased to report strong performance in this post-pandemic period. Despite lower demand and reduction in high backlogs, we did well. We had strong gross margins of 60.9% and despite lower sales had an adjusted operating margin of 13.1%. We continue to generate strong cash and ended with cash and equivalents of $195.8 million, up from $172.7 million last year. Our inventory rates have been reduced by 12.5% since June 30, 2019, and the headcount has also reduced by 28% since June 2019. Now, we know this after multiple years of high demand during the pandemic period, consumers are much more focused on quality, value, and service, which provides an opportunity for enterprises like us that have relevant products, strong talent, providing service, and also maintaining a good healthy cash position. After Matt provides an overview of our financial results, I will review our initiatives going forward. Matt?

Thank you, Mr. Kathwari. Our financial results for the full-year and fourth quarter ended June 30, 2024, were highlighted by double-digit operating margins, disciplined expense management, strong operating cash flow, and a robust balance sheet. As we operate in a post-pandemic period defined by challenges within the home furnishings industry, our operations produced positive financial results, which I will now discuss. Our fiscal 2024 consolidated net sales totaled $646.2 million, which included fourth quarter sales of $168.6 million, our highest level of quarterly delivered sales during the fiscal year. The reduction in net sales when compared to the prior year is reflective of lower delivered unit volumes, reduced backlog, and a strong prior year comparable. Overall demand patterns began to show signs of improvement during the just completed fourth quarter. Retail segment orders for the quarter were down 1.3%, while wholesale written orders increased 0.4%, as our wholesale segment benefited from improving orders within our contract business. We ended the fiscal year with a wholesale backlog of $53.5 million, nearing historical norms and pre-pandemic level. We improved customer lead times and reduced the number of weeks of backlog. For fiscal 2024, our consolidated gross margin was 60.8%, a 10 basis point improvement over last year. In the just completed fourth quarter, consolidated gross margin was also 60.8%, marking our 13th consecutive quarter that gross margin has exceeded 58%. When compared to last year, our quarterly consolidated gross margin was impacted by fewer delivered sales and higher inbound freight, partially offset by a change in sales mix, lower raw material input costs, reduced headcount, and disciplined promotional levels. For the 2024 fiscal year, our adjusted operating margin was 12.1%, down from 16.9% last year. Improved fourth quarter adjusted operating margin of 13.1% reflects lower headcount and strong expense management. Our SG&A expenses decreased 4.9% and equaled 47.7% of net sales, up from 45.1% last year due to lower sales volume relative to fixed costs. Compared to our pre-pandemic 2019 fourth quarter, our adjusted operating margin improved by 450 basis points due to our focus on streamlining our vertically integrated enterprise. On a full-year basis, adjusted EPS was $2.49. For the quarter, our adjusted EPS was $0.70. Our effective tax rate was 25.3% for the full year and 25.1% for the quarter, which varies from the 21% federal statutory rate primarily due to state taxes. Now, turning to our liquidity. We ended our fiscal year with a robust balance sheet, including cash and investments of $195.8 million and no outstanding debt. We generated $26.2 million of cash from operating activities during the just completed quarter, bringing our full-year amount up to $80.2 million. We also reduced our inventory levels by $7.2 million. Capital expenditures were $9.6 million for the full fiscal year, including $2.1 million during the fourth quarter, as we continue to invest capital in manufacturing, retail, technology, and infrastructure. We also continued our practice of returning capital to shareholders in the form of cash dividends. This past April, our Board increased the regular quarterly cash dividend by 8.3% to $0.39 per share, which was subsequently paid in May and brought our total fiscal 2024 dividends paid to $50.3 million. Also, as just announced in our earnings release, our Board declared a special cash dividend of $0.40 per share in addition to our regular quarterly cash dividend, both of which will be paid in August. This recent action marks the fourth consecutive year we have paid a special cash dividend. In summary, our vertically integrated business delivered positive fiscal 2024 operating results during a period marked by industry-wide soft demand and challenging headwinds. We achieved these results and generated strong cash flows while protecting our margin gains through disciplined investments and solid execution. We’re building a fundamentally stronger company, protecting our profitability, and enhancing our operational efficiencies. As we move into fiscal 2025, we will continue to carefully manage our expense structure while investing in growth initiatives that we believe will further our business. We remain cautiously optimistic as our balance sheet has us well-positioned. With that, I will now turn the call back over to Mr. Kathwari.

All right. Thank you, Matt. Matt provided a good overview of our financial results for the fiscal fourth quarter and year ended June 30, 2024. I will now briefly discuss our strategic priorities as follows. First is talent. The continued development of strong talent is critical to our vertically integrated structure. We are pleased with the strong leadership talent in all areas of our enterprise, which includes manufacturing, retail, logistics, marketing, merchandising, technology, and finance. In marketing, we continue to provide innovative marketing both in content as well as the mediums we utilize. While overall marketing expenditures equal to 2.8% of sales, much lower than the 4% of sales we had five years back. The ability to utilize technology in marketing is a game changer. For example, we now reach over 9 million households every two weeks with our 36-page digital magazine. We also continue to mail our printed magazines quarterly. This past quarter, we also mailed our 2024 Style Book. The interaction on social media by our interior designers is extremely important. Utilizing technology at all levels is key to our vertical integration, which involves manufacturing and producing efficiently about 75% of our products in our North American facilities. Also, many years back, we operated over 30 manufacturing plants in the United States, and today, the number is 10 in North America. Now technology has helped us retain strong talent in all areas of our business, especially in manufacturing where we have reduced headcount by 28% since 2019. Our national and retail logistics are very important for our vertically integrated company. We are unique as we deliver our products with what we call a white glove service to our clients in North America at one delivered price. Many years back, we operated 10 national distribution centers for our North American retail, and now one major facility with a smaller backup provides this service. Our retail logistics have also been greatly made smaller and more efficient. Today, we have 22 service centers that deliver great service to our clients throughout North America. Now, combining technology with talented associates has been critical, resulting in very professional service in all areas of our business. It has also resulted in lower headcount. For example, 10 years back, we had a total headcount of 5,000 associates, and now it is 3,400, a reduction of 32%. Now, providing superior service is key to our vertical integration. We are an interior design-based network, and last year we further enhanced this by a number of initiatives, including the launch of what we call the Interior Design Destination concept. This initiative provides great projection throughout our enterprise, reduces the size of our interior designers, and helps provide superior service. Having consistent offerings shown in our design centers has helped productivity and service at all levels, from retail to manufacturing to logistics. Now, since our start over 92 years back, we continue to be a socially responsible enterprise that is in all areas of our enterprise whether it is from manufacturing to logistics to retail and other areas as well. Now finally, we are very pleased that we were recently named again as America’s Premium Retailer by a study conducted by Newsweek. And with that good news, I’d like to open it up for any questions or comments.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from the line of Taylor Zick with KeyBank Capital Markets. Please proceed with your question.

Hi there. How are you?

I’m doing well. How are you, Farooq?

Thanks very much.

I just wanted to start and ask about the cadence of written orders during the quarter. You obviously saw some pretty strong sequential improvement in 3Q and the 4Q. So, could you talk a little bit more about what led to that improvement? And then, maybe if you have any comments on how July is trending so far?

All right. Well, you’re talking about the fourth quarter. Fourth quarter, we had somewhat consistent business throughout the quarter and obviously somewhat stronger towards the end. And I think it also reflects to a great degree the work of our interior designers. They make a tremendous amount of contacts and the social media is tremendously important. So, I would say that, Matt, is that correct with our business was somewhat consistent throughout the quarter?

Yes, that is correct. It was fairly consistent with a little bit of a heightened around the Memorial Day week in May, where there was a little bit of elevated written.

Got you. And then, maybe just one on the cost side as well. You, Farooq and Matt, you’ve done a great job kind of controlling the costs and structurally reducing the overhead over the past three years. But, I’m curious what kind of levers you have left if demand does stay any more challenged? Obviously, you’ve seen an improvement. But what else can you do on the cost side to maintain some of these margins?

Well, this question is about constant reinvention; it is something that you have to get into the system, everybody’s mind. So, it starts with that mindset. And then, technology has played an important role in all areas of our business. As we mentioned, today we have about 2.5% headcount versus 4% four or five years back—a tremendous reduction in headcount, but more qualified people. So, initiatives of technology are crucial, but technology is only good if you have good people. So, we have used technology in our retail network, employing fewer people as I mentioned; we have technology in our manufacturing, in our logistics. So, technology has been tremendously important, which has also resulted in less people. Our headcount is lower as I mentioned. So, I would say this starts with attitude, then it starts with the fact that people have to be stronger, and you’ve got to have technology.

Understood. And, if I could squeeze one last in and I think I’ll head back towards the written orders. Is there anything else you can share on the improvement in written orders? Have you seen the refocus on the home continue in the most recent fourth quarter? Has traffic increased? Any thoughts on conversion or financing and anything like that to help us handicap this significant improvement?

Yes. I think when you take a look at our written orders, we discussed it. Our written orders, when you take a look at it, do we share the written orders?

Yes, we do. Yes.

Okay. They were down 1.3%, which is really incredible given all the challenges being faced by the country and various problems. So, we held up our retail business. And I think that as we go forward, it looks like we’re going to hold it up to the previous year, even though there are a lot of challenges—again, challenges relating to economic challenges, political challenges, but I believe that we have that opportunity.

Great. Thank you.

Thanks very much.

Thank you. Our next question comes from the line of Cristina Fernández with Telsey Advisory Group. Please proceed with your question.

Hello, Cristina. How are you?

Good. How are you, Farooq? Hi, Matt. Yes, I wanted to follow up on Taylor’s question about demand. I guess if you take a step back and think about the industry and particularly furniture demand, do you think overall it’s getting better, like we’ve reached a point where demand has bottomed, or do you see it as more specific to Ethan Allen and some of the— I don’t know if it’s like as you said either product or marketing or your designers that allow you to do a lot better than some other players in the past couple of months?

Well, it’s also a factor that, I mean, there are many great companies in our industry, and I think they will likely do well. Our focus has been on a single brand, one program, one level of quality, with close to 70% made in our own workshops right here in North America. All of those things have positively affected our profitability. It’s amazing we have less headcount than we had last year or even certainly four years back. So, I think this question of combining great talent is essential. When we look at, for instance, North America, we manufacture the product and deliver it at one cost nationally. The other area that has been very important and critical has been our interior design network. That interior design network is smaller but comprises very talented and qualified individuals. So, those elements are crucial for our vertical integration in making, manufacturing, and delivering our product. Think of this: when I proposed this 20 years back, people thought I was crazy that we would deliver our product at the same price in New York, San Francisco, Miami, and Texas—it just can’t be done. But it can be done if you have vertical integration to support it. So, I think all these factors are important. Our interior designer network is leaner, but comprises highly qualified associates. Combining interior designers with technology is, as I said earlier, a game changer. These elements differentiate us. We offer one level of quality and produce the products while consumers are tougher and more careful about who they’re buying from. Last two to three years, that was not the case. I would say those companies that have some of the ingredients I’m talking about will likely do well.

Thanks. And my second question, I wanted to see if you could expand on your strategic plans for fiscal year ‘25, particularly as it relates to your showroom. Do you plan to expand the number of showrooms? And also in marketing, should we think about 3% of sales being a good guidepost for the upcoming fiscal year? Thanks.

In terms of our retail design centers, it has remained pretty consistent. We have 142 design centers that we operate and own. Pre-COVID, we had 144. So, overall, when you take a look at it, we have design centers operated by independents; we have about 30 associated with us, with an average tenure of 40 years with these families. So I think we are very careful about where we’re going to expand. This last year, I think we only opened two or three new design centers. Going forward, it will likely be three to five, but not a large number. Our focus is to ensure we improve what we have. In this last year, as you know, we reduced the size of our design centers. Some of our design centers were 20,000 square feet; in the future, we set the maximum size to be 12,500 square feet, and our newer ones are between 6,000 and 9,000 square feet. Our focus is really simple; we redesigned all our design centers with one cohesive look. Ten or five years ago, people in New Jersey thought they were very different than those in Long Island, let alone California or Florida. Today, all our design centers, especially the company-operated ones, have one image. The other thing that we have been developing is a number of new products. Again, we must be cautious about introducing products because we only bring them in for our own network, but we have been adding new products. By next April, we expect to unveil another major introduction of new products, which we are currently developing.

And last question, can you talk about the State Department contract? How did that progress this quarter? Are you seeing any more demand? Do you expect it to be a little bit of a pause here with potentially a change in administration?

Yes, that’s a good question. With this conflict in the Middle East, it did have an impact where the State Department focus was shifted to various other factors like security. In the last two to three months, they're starting to focus back on home affairs, so we’re beginning to receive good orders now. It looks like we'll have a good business with the State Department in fiscal year.

Thank you and good luck.

All right, Christina. Thanks very much.

Thank you. Our next question comes from the line of Budd Bugatch with Water Tower Research. Please proceed with your question.

Hello, Budd. How are you?

I’m well, Farooq. How are you? Thank you for taking my question.

Well, look at it, I’ve been only doing it for 30 years, 35 years now, your questions.

A longer time than that, yes, that’s correct. Let’s talk a little bit about the dichotomy of sales between wholesale and retail there. The retail sales are still down about 20%. How do they parse out between domestic and international?

Matt is here, but I would say that international was much more impacted during this COVID period the last year. The good news is, they’re starting to get back. In fact, many of our international design centers have also been repositioned with this interior design concept, and they’re having ribbon cuttings all over in many parts of the world. But I think our written business was down only 1.3% in the retail division, while that our international most likely was down close to 30%. So, international is coming back. It was significantly impacted during this COVID period for various reasons. The good news is they are bouncing back, Budd.

Yes. And Budd, just to add, this is Matt here. You are right that wholesale sales were down 20%, while retail was down 7%. A lot of the drive for that or the difference is on our contract business and international business. As Mr. Kathwari alluded to, in our fiscal second and third quarters, the State Department was slow due to the conflict in the Middle East and other factors that delayed the purchases. So, the subsequent delivery of those orders didn’t happen as fast as the fourth quarter for us. So, that definitely rendered the retail division sales side weaker than expected. We’re seeing some improvement there as we talked about on State Department business. So, we should see those two numbers or metrics retail sales and wholesale sales more aligned.

But having said all of that, really, the wholesale orders were down only 9%, considering all those problems that we discussed. So, it’s not too bad, Budd; I think they’ll come back.

Well, I’m concerned about the wholesale as it impacts the partner stores, and you’re right—the international side of it was, I think, weak over the first couple of quarters of the year, and most of that’s in Asia. Is that the weakness we’re seeing in the international?

Yeah, that’s right. Yeah.

Okay. And you gave us the wholesale backlog of, I think, $53.5 million. Did I miss you’re giving us the retail backlog at quarter end?

We do not publicly disclose the retail backlog, but it’s typically a little under two times the customer deposits on our balance sheet.

That’s what you told me last quarter as well. I was giving you the opportunity to see if you wanted to make a change to that.

Budd, we have given you more information than we give to anybody else, but anyway, go ahead, Budd.

I’m not so sure I do agree with that, Farooq. I agree with you that you are an incredible businessman, and you run the business with a great deal of discipline, but the amount of information—that’s a topic of another conversation. The $34 million or so I think of the investments, you included that into the cash and investments side of the business. Can you talk a little bit about what that investment is or what those investments are?

You’re talking about treasuries or what?

Yes. All our—that’s right, Budd. We have close to $200 million in cash; frankly, any extra cash we put in U.S. Treasuries.

Okay. Well, good luck on the upcoming year and good luck to society on the upcoming year as well.

Always good to hear from you, Budd.

Thank you. There are no further questions at this time. I’d like to turn the floor back over to Mr. Kathwari for closing comments.

All right, well, thanks very much. It’s been good to have you all on this call. We’ve encountered many challenges, but I always feel the challenges create opportunities. We are positioned well. We have strong product programs, and in the next year, we’re going to introduce more new products because we had held that back. Our retail network is strengthened, and we have repositioned all our redesigned centers. We have a strong manufacturing base both in North America and a bit elsewhere. As I said earlier, technology has played a tremendously important role. Combining great talent with technology is what it’s all about. I think as we move forward, we’ll continue with these initiatives of strong product programs, strong talent, providing great service, and finally, being a socially responsible company. We have been recognized by many organizations, and I’m happy that, as I said, in Newsweek for the second time, they named us as America’s number one furniture retailer. Thanks very much, and any questions, please let us know.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.