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Category: Stock Market and Ethan Allen
Date: 5 November 2019 Stock Price: $19.70 We take a look at the 1st quarter earnings report of their 2020 fiscal year of Ethan Allen, a global interior design brand with roughly 1 500 interior designers that sells their products via 300 design centres worldwide. Is their stock worth more than what it was when we valued their 4th quarter 2019 earnings?
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About Ethan Allen
Ethan Allen is an iconic global interior design brand with unparallelled recognition for quality, service, and value. We continually innovate ways to run our business in the best interests of our stakeholders and constantly reinvent our product offerings to stay relevant. As a vertically integrated company, our business is led by a highly experienced management team who work to leverage growth opportunities our distinct business model provides. We have approximately 1,500 interior designers in our North American Design Centers. Our products are sold exclusively through 300 Design Centers worldwide and a state-of-the-art ecommerce website.
Overview of Ethan Allen's 1st quarter 2020 earnings report
Data below refers to quarterly data unless specified otherwise:
- Sales: $173.921 million (down from $187.785 million for the same period of the previous year)
- Sales decreased by -7.4% over the last 12 months
- Cost of sales: $80.127 million (down from $86.335 million for the same period of the previous year)
- Cost of sales decreased by -7.2% over the last 12 months
- Net income: $14.106 million (up from $8.840 million profit for the same period of the previous year)
- Diluted earnings per share: $0.53 (up from $0.33 profit for the same period of the previous year)
- PE ratio of Ethan Allen: 9.29
- Dividend declared: $0.21
- Dividend yield: 4.26%
- Diluted weighted-average shares outstanding: 26.713 million (down from 27.940 million for the same period of the previous year)
- Cash and cash equivalents: $45.876 million
- Cash and cash equivalents per share: $1.71
- Cash and cash equivalents makes up 8.7% of Ethan Allen's market capital
- Cash and cash equivalents makes up 7% of Ethan Allen's total assets
- Accounts receivable: $12.345 million
- Accounts receivable makes up 1.9% of Ethan Allen's total assets
- Inventories: $151.421 million
- Inventories makes up 23.2% of Ethan Allen's total assets
- Stockholders equity in Ethan Allen: $370.5039 million
- Stockholders equity per share: $13.87
- So Ethan Allen is trading a 1.42 times its stockholders equity which is outside the expected range of between 2 and 4 which most firms tend to trade at.
Ethan Allen's management commentary on the results
Farooq Kathwari, Ethan Allen’s Chairman, President and CEO commented, “While we have continued to have strong earnings and cash generation, we believe we have a major opportunity to further increase our profitability by increasing our sales and leveraging our more efficient vertically integrated structure. We continue to strengthen our talent, marketing, retail network, products, manufacturing, logistics and technology, while also maintaining our focus on good governance and social responsibility.”
Mr. Kathwari continued, “During October, we launched a major initiative — the Ethan Allen Member Program. Those who enroll receive special members-only pricing, complimentary interior design service, free shipping and white glove in-home delivery, and in our U.S. design centers, access to special financing options. The membership program will benefit our clients, enable our team of about 1,500 North American interior designers and our vertically integrated operations to operate more efficiently with the opportunity to improve our operating margins. About 75% of our products are made in our North American workshops. The membership program was launched in October with a strong advertising campaign utilizing direct mail, television and digital mediums. We plan to continue with enhanced marketing as we move through our fiscal 2020 year under our new ‘We Make the American Home’ campaign designed to further amplify our design heritage and quintessential American brand identity.”
Mr. Kathwari further commented, “Today we also start our annual convention with interior designers and retail management from all over the world. They will get a first look at our upcoming introductions for spring 2020 including an upholstery brand aimed at younger customers and a modern take on farmhouse styles.”
“While our wholesale orders from China declined 38% mainly due to the imposition of tariffs by China, total wholesale orders excluding our China business increased 1%. Including the impact of decreased China orders, our total wholesale orders decreased 1.5% in the first quarter of fiscal 2020 compared with the same quarter last fiscal year. As expected, our contract business, driven by the GSA contract, had another strong quarter. We believe our new format of reporting wholesale orders booked through all channels provides a more holistic view of our business than our previous reporting approach focusing on the change in only the Company’s retail division written orders,” Mr. Kathwari concluded.
Mr. Kathwari continued, “During October, we launched a major initiative — the Ethan Allen Member Program. Those who enroll receive special members-only pricing, complimentary interior design service, free shipping and white glove in-home delivery, and in our U.S. design centers, access to special financing options. The membership program will benefit our clients, enable our team of about 1,500 North American interior designers and our vertically integrated operations to operate more efficiently with the opportunity to improve our operating margins. About 75% of our products are made in our North American workshops. The membership program was launched in October with a strong advertising campaign utilizing direct mail, television and digital mediums. We plan to continue with enhanced marketing as we move through our fiscal 2020 year under our new ‘We Make the American Home’ campaign designed to further amplify our design heritage and quintessential American brand identity.”
Mr. Kathwari further commented, “Today we also start our annual convention with interior designers and retail management from all over the world. They will get a first look at our upcoming introductions for spring 2020 including an upholstery brand aimed at younger customers and a modern take on farmhouse styles.”
“While our wholesale orders from China declined 38% mainly due to the imposition of tariffs by China, total wholesale orders excluding our China business increased 1%. Including the impact of decreased China orders, our total wholesale orders decreased 1.5% in the first quarter of fiscal 2020 compared with the same quarter last fiscal year. As expected, our contract business, driven by the GSA contract, had another strong quarter. We believe our new format of reporting wholesale orders booked through all channels provides a more holistic view of our business than our previous reporting approach focusing on the change in only the Company’s retail division written orders,” Mr. Kathwari concluded.
OPTIMIZATION OF MANUFACTURING AND LOGISTICS
During the first quarter of fiscal 2020, the Company continued with its previously announced optimization project as it converted the Old Fort, North Carolina facility into a distribution center and expanded its existing Maiden, North Carolina manufacturing campus while finalizing severance and other exit costs associated with its case goods operations. In connection with the foregoing first quarter fiscal 2020 initiatives, the Company recorded pre-tax restructuring and other exit charges totaling $1.7 million, consisting of $1.1 million in manufacturing variances associated with the closing of the Passaic property and the repurposing of the Old Fort case goods manufacturing operations, $0.4 million in employee severance and other payroll and benefit costs, and $0.2 million of other exit costs. The manufacturing overhead variances of $1.1 million were recorded within Cost of Sales with the remaining $0.6 million recorded within the line item Restructuring and impairment charges (gains) in the consolidated statements of comprehensive income.
As part of the optimization plans, the Company completed the sale of its Passaic property in September 2019 to an independent third party. As a result of the sale, the Company’s wholesale segment recognized a pre-tax gain of $11.5 million in the first quarter of fiscal 2020, which was recorded within the line item Restructuring and impairment charges (gains) in the consolidated statements of comprehensive income.
DIVIDEND INCREASE
On July 25, 2019, the Company announced that its Board of Directors had declared a regular quarterly cash dividend of $0.21 per share, which was payable to shareholders of record as of October 10, 2019, and was paid on Friday, October 25, 2019. The $0.21 per share dividend, a 10.5% increase, reflects the continued strengthening of the Company’s balance sheet.
During the first quarter of fiscal 2020, the Company continued with its previously announced optimization project as it converted the Old Fort, North Carolina facility into a distribution center and expanded its existing Maiden, North Carolina manufacturing campus while finalizing severance and other exit costs associated with its case goods operations. In connection with the foregoing first quarter fiscal 2020 initiatives, the Company recorded pre-tax restructuring and other exit charges totaling $1.7 million, consisting of $1.1 million in manufacturing variances associated with the closing of the Passaic property and the repurposing of the Old Fort case goods manufacturing operations, $0.4 million in employee severance and other payroll and benefit costs, and $0.2 million of other exit costs. The manufacturing overhead variances of $1.1 million were recorded within Cost of Sales with the remaining $0.6 million recorded within the line item Restructuring and impairment charges (gains) in the consolidated statements of comprehensive income.
As part of the optimization plans, the Company completed the sale of its Passaic property in September 2019 to an independent third party. As a result of the sale, the Company’s wholesale segment recognized a pre-tax gain of $11.5 million in the first quarter of fiscal 2020, which was recorded within the line item Restructuring and impairment charges (gains) in the consolidated statements of comprehensive income.
DIVIDEND INCREASE
On July 25, 2019, the Company announced that its Board of Directors had declared a regular quarterly cash dividend of $0.21 per share, which was payable to shareholders of record as of October 10, 2019, and was paid on Friday, October 25, 2019. The $0.21 per share dividend, a 10.5% increase, reflects the continued strengthening of the Company’s balance sheet.
Ethan Allen (NYSE: ETH) stock price history
The image below, obtained from Google, shows the stock price history of Ethan Allen over the last 5 years. And it's not been a very good time for Ethan Allen stockholders. 5 years ago the stock was trading at around $29.30 a stock and its currently trading at $19.70 a stock. That's a loss of -32.7% suffered by Ethan Allen stockholders over the last 5 years.
The stock of Ethan Allen is trading at close to the mid point between its 52 week high and its 52 week low, which to us is an indication that the short term momentum and sentiment of Ethan Allen's stock is neutral
The stock of Ethan Allen is trading at close to the mid point between its 52 week high and its 52 week low, which to us is an indication that the short term momentum and sentiment of Ethan Allen's stock is neutral
Ethan Allen (NYSE: ETH) stock price history over the last 5 years
Recent coverage of Ethan Allen
The extract below discussinges the latest news regarding Ethan Allen as obtained from TheStreet.com
Danbury, CT, Nov. 04, 2019 (GLOBE NEWSWIRE) -- Over 500 interior designers and retail management from all over the globe have come together for Ethan Allen's annual international convention, hosted at Ethan Allen headquarters in Danbury, Connecticut, from November 4 to November 6. This year's theme, EA 2020 Vision, charts a bold course for the company's future. "We are well positioned for growth in 2020 and beyond," said Ethan Allen President, Chairman and CEO Farooq Kathwari. "Grounded in our core strengths—talent, marketing, service, technology, and social responsibility—we will venture into the future with confidence." During the convention, designers get a first look at Ethan Allen's upcoming product introductions, which will include a boutique upholstery brand aimed at younger clients, a modern take on farmhouse style, and innovative new products designed for compatibility with smart homes. A new "We Make the American Home" campaign honors the company's history as America's classic design brand while setting the stage for a future embodied in these products, which are designed to be forward looking yet timeless. A sneak peak of this campaign has already debuted on various local television networks
Danbury, CT, Nov. 04, 2019 (GLOBE NEWSWIRE) -- Over 500 interior designers and retail management from all over the globe have come together for Ethan Allen's annual international convention, hosted at Ethan Allen headquarters in Danbury, Connecticut, from November 4 to November 6. This year's theme, EA 2020 Vision, charts a bold course for the company's future. "We are well positioned for growth in 2020 and beyond," said Ethan Allen President, Chairman and CEO Farooq Kathwari. "Grounded in our core strengths—talent, marketing, service, technology, and social responsibility—we will venture into the future with confidence." During the convention, designers get a first look at Ethan Allen's upcoming product introductions, which will include a boutique upholstery brand aimed at younger clients, a modern take on farmhouse style, and innovative new products designed for compatibility with smart homes. A new "We Make the American Home" campaign honors the company's history as America's classic design brand while setting the stage for a future embodied in these products, which are designed to be forward looking yet timeless. A sneak peak of this campaign has already debuted on various local television networks
An interior designed by Ethan Allen
Ethan Allen (NYSE: ETH) latest stock valuation
So what is Ethan Allen's stock worth based on the release of their latest earnings report and their fiscal guidance provided? Based on Ethan Allen's latest earnings report our valuation models provide a target (full value) price for Ethan Allen's stock at $24.70 a stock. We therefore believe that the stock of Ethan Allen's is undervalued.
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $24.70. Therefore we believe a good entry point into Ethan Allen's stock is at $22.20 or below. Since the stock of Ethan Allen's is trading at just below our recommended entry price we rate Ethan Allen's stock as a buy
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $24.70. Therefore we believe a good entry point into Ethan Allen's stock is at $22.20 or below. Since the stock of Ethan Allen's is trading at just below our recommended entry price we rate Ethan Allen's stock as a buy
Next earnings release date for Ethan Allen
It is expected that Ethan Allen (NYSE: ETH) 2nd quarter 2020 earnings report will be released early February 2020