Ethan Allen Interiors Inc. (ETD) Earnings

Management highlights

### Overall Business Positioning - Despite a challenging macroeconomic environment and tough year-over-year comparisons, the company delivered strong margins and maintains a robust, debt-free balance sheet with significant cash holdings. - Ethan Allen's vertically integrated North American-based business model, including manufacturing, retail design centers, logistics, and in-house talent, remains a core competitive advantage. ### Strategic Operational Focus Areas - **Talent Development**: Continue strengthening talent across all functions, including retail, merchandising, marketing, manufacturing, logistics, and technology, while leveraging technology to boost designer productivity. - **Interior Design Destination Positioning**: Maintain a network of ~500 in-house interior designers that provide complimentary custom design services to customers, combining skilled talent with digital tools to improve service. - **Product Strategy**: Focus on developing product offerings aligned with the 'classics with modern design' design umbrella, with ongoing new product introductions to strengthen market appeal. - **Retail Network Optimization**: Operate 171 design centers across North America; most network relocation and right-sizing (moving to smaller footprints) is complete heading into FY27, with investments completed to update the network. - **North American Manufacturing Efficiency**: Continue implementing efficiency improvements for the company's North American manufacturing facilities (located in Vermont, North Carolina, Mexico, and Honduras), where the majority of the company's products are custom manufactured to order. ### Capital Return and Liquidity - The company ended FY26 with $187.5 million in cash and investments, after generating $52 million in full-year operating cash flow including $5 million in tariff refunds. - The board approved a sixth consecutive year of combined regular and special cash dividends, payable in August 2026. Full-year FY26 dividends totaled $46 million. - The company repurchased 250,000 shares for $5 million in FY26, with 1.8 million shares remaining authorized under the existing repurchase program.

Guidance

Management did not provide explicit quantified forward-looking guidance for fiscal 2027, or any upward/downward revisions to prior guidance. Management confirmed that planned capital expenditure for fiscal 2027 is expected to remain at a similar level to fiscal 2026. Management stated the company is well-positioned heading into the new fiscal year, with core network optimization investments largely complete, allowing the business to capitalize on improved consumer confidence or macroeconomic conditions when they emerge.

Segment performance

The transcript does not break out full financial performance (absolute revenue or revenue contribution percentage) for individual product segments. It only provides segment-level order performance: in Q4 FY26, wholesale segment written orders declined 11.9% year-over-year, while retail segment written orders decreased 10.8% year-over-year. Wholesale segment ended the full fiscal year with a backlog of $44 million, a 9% decrease from the prior year. State Department business, part of the wholesale/contract segment, saw written order growth in Q4 FY26 after three quarters of declines.

Risks & headwinds

• Macroeconomic uncertainty and weak consumer confidence have led to lower retail traffic, reduced incoming written orders, and near-term sales pressure, with fixed cost deleveraging from lower sales pressuring operating margins. • New tariffs are currently in effect: a 25% tariff on upholstered wood products from Mexico (under Section 232), and 10% tariffs on products sourced from Honduras, Indonesia, India, and other countries (under new Section 301 rules that replaced expired Section 122 global tariffs). Management estimates total current tariff exposure of approximately $15 million, with higher tariffs contributing to increased input costs and lower margins in FY26. • Contract/wholesale segment (including State Department business) has faced ongoing pressure from government spending constraints, though activity rebounded slightly in the fourth quarter.

Analyst Q&A

• Q: Retail written orders declined 10.8% in Q4, an improvement from prior quarter deceleration on a two-year basis, with higher May volume from the Memorial Day holiday. Can you provide additional color on quarter performance? /

  A: The order decline reflects consumer caution amid a softer macroeconomic environment. While orders were down close to 11% year-over-year, overall incoming order volume remained relatively healthy, and the company's in-house design team stayed motivated through the quarter.

• Q: The $5 million IEFA tariff refund received this quarter is substantially all the amount the company expects. How are other firms in the industry using these refunds, and is there any incremental refund expected? /

  A: Only a tiny residual amount of refund may still be outstanding, so the $5 million received is almost all the company anticipates. Industry use is mixed: large retailers like Walmart have mentioned potential price rollbacks, while logistics firms like FedEx and UPS are refunding previously added surcharges directly to customers. Refunds were only issued recently in June, so it is too early to see broad industry trends. Ethan Allen was less impacted by tariffs overall than peers because most of its production is in North American company-owned facilities.

• Q: After three quarters of declines, State Department contract sales grew in Q4. When can the wholesale segment return to growth as prior headwinds lap? /

  A: Q4 marked a return to growth in State Department orders after significant government spending cuts that reduced purchases through most of FY26, and early order growth has continued into the start of FY27, which will support deliveries in the first quarter of the new fiscal year. A new government bid for State Department contracts has not yet been issued, but the resumption of purchasing after a period of restraint is a positive near-term development.

• Q: How does Ethan Allen plan to use the $5 million tariff refund, and was it allocated to the special dividend? /

  A: The refund is a relatively small amount relative to the company's total cash balance, so it was simply added to overall cash holdings to maintain the company's target healthy liquidity position. It does not change the company's existing capital return plan of regular and special dividends, which was already set based on the company's strong liquidity position.