DANBURY, Conn. – Written orders at Ethan Allen kept rising in its fiscal 2021 first quarter, and the vertically integrated home furnishings manufacturer and retailer now is concentrating on converting those into reported sales.
Retail written orders increased 10.8%, including 11.8% growth in September following 26.5% growth in August. Moving into the second quarter, October written orders are 50% ahead of October 2019. Despite that strong action in stores and online first-quarter sales were off 13.1% compared with the same prior-year period as Ethan Allen continues to catch up on backlogs.
A conference call discussing first-quarter results with analysts gave some insights.
Catching up on backlogs
Ethan Allen Chairman and CEO Farooq Kathwari told analysts that retail division backlogs at the end of the first quarter were up 39% from the same point last year and increased 43% from June 30 levels, when stores were reopening across the company’s retail network.
“We expect to catch up on most of our backlog by end of this quarter and some early next quarter,” Kathwari said, which will help convert orders into reported revenues.
“Our manufacturing is almost close to operating at the pre-COVID levels,” Kathwari said. “Now having said this, we still have issues relating to some raw materials from fabrics, but we are catching up.”
He expects Ethan Allen will be able to produce 60% to 70% or more of its backlogs in the second quarter and some in the next quarter.
On one hand, Ethan Allen’s vertical model and domestic manufacturing capacity are an advantage. On the other, with most sales on custom goods, it faces stiff competition in a high-demand environment.
“I would say close to 80% of what we sell is custom. That’s a big difference,” Kathwari said. “So we don’t have a lot of excess inventory. Now in this period, people are in a hurry. They’ve been sitting in their homes. They want products, and they want it tomorrow.
“Now we can do some of that, but we cannot compete with folks who (have) lots of inventories on hand and they sell it right from their warehouses,” he continued. “So that has been an impact. And we’ve seen many people who are more of a commodity business or people who have an ability to have had inventories they have sold, but now what I hear is that they’re also running out of it and now they’re waiting for containers coming from overseas.”
With around 70% of its goods made in its own facilities, COVID-19 plant-related shutdowns had huge impact on servicing Ethan Allen’s retail network. Kathwari noted that typical retailers don’t have the overhead of plants.
“We have a positive because when it’s all operating we get the benefit of margins. We get the benefit of service,” he said. “But on the other hand, when there are times where we are not able to produce at a level of that will maintain the right kind of margins, it has an impact on our margin.”
The good news, he added, is that manufacturing is back to full speed, creating the opportunity to fill Ethan Allen’s backlog to increase cash and margins.
Matching marketing with service
Ethan Allen is still bringing personnel back to stores, and design centers are in some regions still are not in full operation, but Kathwari said the company still maintains strong marketing through direct mail, digital channels and some television.
“Keep in mind … we have a different business model than a typical retail where people come in and see and buy it,” Kathwari said. “Our designers operated from homes. In fact, in many design centers still in many cities like for instance Seattle and Chicago in bigger cities where the COVID-19 situation was greater, we were not operating seven days a week.”
He expects that in November, almost all design centers will be operating seven days a week.
“We can maintain our marketing, and we added more days of sales,” Kathwari noted. “All of those things happened in October.”
As a nationwide retailer, Ethan Allen has a sense of what’s going on in various markets and business levels among suburban vs. urban locations.
Kathawari sees variations to some degree month to month, and it’s largely a question of how the pandemic and other factors are playing out in various markets.
“We have issues for instance when you go to the West Coast,” he said, offering examples. “Seattle had been impacted more by this COVID-19. San Francisco and all that area have been affected by wildfires, so there’s a lot of other factors other than the COVID-19.”
He added that business in places such as New Jersey, Long Island and Connecticut is very strong.
“Manhattan is somewhat weaker from last year. I mean still holding up but is weaker. And of course, we know the factors,” he said. “A lot of people are moving to suburbs. And so our business in Connecticut, our business in New Jersey, Long Island is very good, and that also reflects what’s taking place because our business in Washington area is very good.”
Design centers in Ohio and the Carolinas also are performing at high levels.