Ethan Allen Interiors Inc. Q2 FY2026 earnings call

• The second quarter was impacted by government shutdown, lower consumer confidence, and tough prior year comparables. However, positive written sales in January were noted.
• Consolidated net sales benefited from higher starting retail backlog, higher average ticket price, and fewer returns, but were offset by fewer contract sales and lower demand.
• Gross margin was up due to sales mix change, reduced headcount, higher average ticket price, and lower inbound freight, partially offset by promotional activity, tariffs, and clearance sales.
• Balance sheet was robust with $179.3 million in total cash investments and no debt. Adjusted operating margin was 9%, higher than pre-pandemic levels.
• Business initiatives include strengthening vertically integrated structure, product programs, marketing (25% increase in advertising, mostly digital), North American manufacturing (75% of furniture), and logistics with white cloud service.

Consolidated net sales for the second quarter were $149.9 million. Gross margin was 60.9%, up 60 basis points from the prior year. Adjusted operating income was $13.5 million with an operating margin of 9%. Retail written orders declined 17.9%, while wholesaler orders were 19.3% lower than the previous year. Wholesale backlog ended the quarter at $49.8 million. Adjusted diluted EPS was $0.44.

• Started third quarter with stronger traffic and positive written sales in January.
• Expect to maintain strong margins due to disciplined investments, expense management, and current business structure.
• Continued focus on growing business through strengthening vertical integration, product, marketing, manufacturing, and logistics.

• Macroeconomic challenges impacting demand.
• Government shutdown affecting contract sales and consumer confidence.
• Tariff exposure on imported materials and finished goods, including Section 232, IEEPA, and Section 301 tariffs. Impact partially mitigated through vendor cost sharing, sourcing diversification, and retail price increases, but uncertainty remains with Supreme Court review of IEEPA tariffs.

Q: About retail written orders during the quarter, what were the underlying trends?

A: Each sequential month in Q2 decreased by a higher percentage, averaging a 18% decrease, impacted by government shutdown and tough prior year comparables. Compared to two years ago, fiscal 2024 was only low single digits down.

Q: On the contract side, after government reopened, any improvement in orders?

A: Orders are coming in, reasonably high but lower than last year as government entities take time to get back on track, but increasing weekly.

Q: About gross margins sustainability, any thoughts?

A: Expect to maintain margins due to combining great talent and technology across retail, manufacturing, and logistics.

Q: Tariff impact, total impact and mitigation?

A: Three-pronged approach: vendor cost sharing, supplier sourcing diversification, and 5% retail price increases. Still some headwinds, with Section 232 tariffs being a major one. U.S. Supreme Court review of IEEPA tariffs could impact 40% of exposure.

Q: January trend improvement, what's the attribution?

A: Consumers came back, better consumer attitude after government shutdown, and strong interior design network maintaining contacts with clients.

Q: Marketing increase, will it continue and how is it measured?

A: Will continue with focus on digital marketing. Reduced spending on some mediums like print magazines, shifted to digital where impact is seen in virtual client interaction and business closing.