Ethan Allen Interiors Comfortably Navigates Supply Chain Hurdles

High-Yield Ethan Allen Interiors Is A Deep Value For Income Investors 

Ethan Allen Interiors NYSE: ETD is one of the best-positioned companies in an industry well-positioned for the current environment. Not only does the company manufacture furniture, one of the highest-demand retail categories today, but it also manufactures 75% of its product in US workshops. The company is experiencing hiccups with its operations but not to the extend of others we’ve reported on. The best news is that demand continues to outpace production and deliveries and that points to additional growth over the coming 12 months. What this means for Ethan Allen investors is an opportunity for high double-digit capital gains and special dividends at a deep discount to the broad market while receiving a very safe 4.35% regular dividend payout. Not too bad from the risk-reward perspective.  

Ethan Allen Moves Up On Mixed Results 

Ethan Allen had one of those quarters that missed the analysts' consensus for revenue but excelled in every other way. The company reported $182.3 million in consolidated sales which is up 20.7% over last year and 4.8% versus 2019 but missed the Marketbeat.com consensus by 75 basis points. In our view, given the other metrics, the 75 basis points are a very slim miss and outweighed by the margin, earnings, backlogs, and outlook. On a segment basis, retail sales led with a gain of 31.3% while wholesale revenue lagged with 12.4% growth. 

Moving down to the earnings, the company’s gross margin increased by 310 basis points and the operating margin by 710 basis points on the combined impacts of volume strength and higher prices. On the bottom line, the company’s GAAP earnings of $0.79 grew more than 120% from last year and beat the consensus by $0.13 while the adjusted $0.80 beat by $0.15. The only negative we can see is that cash from ops fell drastically to $17 million but there are mitigating factors to be aware of. The two of most interest are that inventory increases and expansion plans offset most of the difference. 

“Inventories, net increased to $158.7 million at September 30, 2021 compared with $144.0 million at June 30, 2021 as the Company continues to increase its manufacturing productivity and service center inventory. The higher inventory levels will continue to support increased production and delivered sales as well as help protect against future supply chain disruptions.”

Ethan Allen Is A High-Yield Value, And A Safe Dividend 

Shares of Ethan Allen are yielding more than 4.35% with shares trading near their recent lows. That 4.35% yield is as safe as it can be considering the company’s balance sheet is a fortress and earnings are as strong as they are. Add in the fact the stock is trading at only 9X its earnings and you can understand why we are attracted to it. The company’s cash total fell during the last quarter, however, but not in a way that raises any red flags so don’t be alarmed. The company paid out dividends, and special dividends, along with increasing the inventory and expanding the business. It is our opinion that cash balances will begin to increase again as soon as the current quarter and will lead to another special dividend by the end of the fiscal year. 

The Technical Outlook: Ethan Allen Moves Up From Support 

Shares of Ethan Allen advanced as much as 6.0% in after-hours trading but moderated a bit before the open of the following session. Aside from that, price action is confirming support at the key level of $23 and should begin to reverse course soon. The combination of supply chain insulation, business fundamentals, earnings, and dividends should get the stock moving higher.