Ethan Allen Interiors Inc. Q3 FY2026 earnings call

• Despite challenges, performed reasonably well, impacted by reduction of business from State Department contract, lower international sales, and sluggish demand for home furnishings. - Tariffs impacted earnings, with about $4 million increase in tariffs during the quarter reducing earnings. - Matt provided details on third quarter financial performance including net sales, retail and wholesale trends, gross margin, operating income, etc. - Farouk reviewed initiatives: continued to take steps to strengthen unique vertically integrated structure, including strengthening product offerings, repositioning retail network in North America, strengthening North American manufacturing, strengthening North American national and retail logistics, and combining personal service of interior designers and manufacturing associates with technology.

North America written sales were flat compared to last year. Wholesale orders declined 7.6% due to reduced US government sales and slowdown in international business. Consolidated net sales were 136 million, benefited from higher average ticket price, increased clearance sales, and fewer returns, offset by lower contract sales, decline in delivered unit volume, and inclement weather. Consolidated gross margin was 59.4% impacted by incremental tariffs, increased promotional activity, etc. Adjusted operating income was $6.8 million with an operating margin of 5%. Adjusted diluted EPS was 24 cents. Ended the quarter with 181 million in total cash and investments. Generated 15 million in operating cash flow in the third quarter, up from 10 million a year ago. Through the first nine months of fiscal 2026, generated 22 million in free cash flow. Paid regular quarterly dividend of 10 million or 39 cents per share.

• Business performed reasonably well despite challenges. - Will continue to monitor retail written trends. - Will deal with tariff situation and its impact. - Continue to view dividend as an attractive use of cash and positive return to shareholders.

Most significant risk factors that could affect future results are described in the most recent quarterly report on Form 10-Q, including risks related to government shutdown affecting State Department contract business, lower international sales, sluggish demand for home furnishings, and tariffs impacting earnings.

Q: Taylor Zick with KeyBank Capital Markets asked about retail written orders trend in April and tariff mitigation and gross margin.

A: Farouk and Matt responded that retail written orders were positive in April, tariffs are impacted on imported products and North American operations, and steps like partner sharing, sourcing diversification, absorbing some costs, and price increases are taken to mitigate tariffs, and tariffs impacted operating margins.

Q: Christina Fernandez with Telsey Advisory Group asked about State Department contract outlook, impact of promotions, and real estate plans.

A: Farouk responded that State Department contract is under review, promotions related to increased marketing spend in digital mediums, and real estate plans include repositioning existing design centers, opening new locations in US and Canada, and relocating current ones with impact on margins due to bringing in new products.