Executive Summary

Q1 FY26 was mixed: solid gross margin (61.4%) and positive operating cash flow ($16.8M) offset by lower delivered sales; both revenue ($146.98M) and EPS ($0.43 adj.) were modest misses versus consensus as marketing and promotions weighed on operating margin (7.2% adj.) . EPS and revenue missed S&P Global consensus of $0.445 and $149.15M, respectively; EBITDA also missed ($14.35M vs. $18.10M)*.
Retail demand continued to heal: retail written orders rose 5.2% YoY (second straight quarter of positive growth), while wholesale written orders fell 7.1% on softer U.S. government/contract activity; backlog and customer deposits increased sequentially, supporting near-term deliveries .
Management leaned into marketing (national spend up ~44% YoY, 2.4%→3.4% of sales) while maintaining price discipline; gross margin benefited from mix, lower input costs, and higher average ticket but was partially offset by promotions and floor sample sales .
Balance sheet remains a differentiator: $193.7M in cash and investments, no debt; Board maintained the $0.39 quarterly dividend (payable Nov 26, 2025), continuing multi-year capital returns .

What Went Well and What Went Wrong

What Went Well

Retail demand inflected positive again: retail written orders +5.2% YoY, with higher conversion despite “30+% lower traffic”; management highlighted “more qualified” customers working with designers .
Gross margin resilience: 61.4% driven by mix, lower materials, selective price increases, and average ticket; vertical integration (≈75% North America) mitigated tariff impacts on furniture .
Strong liquidity and cash generation: $16.8M operating cash flow; cash and investments $193.7M; no debt; dividend maintained .

What Went Wrong

Delivered sales softness and deleverage: consolidated net sales fell 4.8% YoY to $146.98M, with adjusted operating margin down to 7.2% (from 11.5% LY) due to lower volume and higher marketing/promotions/floor clearance .
Contract/government headwinds: wholesale written orders -7.1%; management cited U.S. government delays and shutdown risk; State Department-driven orders dependent on government reopening .
Consensus misses: Q1 revenue, EPS, and EBITDA fell short of S&P Global consensus; marketing investment and promotions weighed on profitability near term (see Estimates Context)* .

Financial Results

P&L Snapshot (sequential trend)

Metric	Q3 2025	Q4 2025	Q1 2026
Revenue ($M)	$142.70	$160.36	$146.98
Gross Margin %	61.2%	59.9%	61.4%
GAAP Operating Margin %	7.7%	9.5%	6.8%
Adjusted Operating Margin %	8.0%	9.7%	7.2%
GAAP Diluted EPS ($)	$0.37	$0.48	$0.41
Adjusted Diluted EPS ($)	$0.38	$0.49	$0.43
Cash from Operations ($M)	$10.18	$24.82	$16.83

YoY Comparison (Q1)

Metric	Q1 2025	Q1 2026
Revenue ($M)	$154.34	$146.98
Gross Margin %	60.8%	61.4%
GAAP Operating Margin %	11.4%	6.8%
Adjusted Operating Margin %	11.5%	7.2%
GAAP Diluted EPS ($)	$0.57	$0.41
Adjusted Diluted EPS ($)	$0.58	$0.43
Cash from Operations ($M)	$15.08	$16.83

Against Consensus (Q1 2026)

Metric	Estimate*	Actual
Revenue ($M)	$149.15*	$146.98
Primary EPS ($)	$0.445*	$0.43
EBITDA ($M)	$18.10*	$14.35*

Values retrieved from S&P Global.

Segment and Demand

Metric	Q3 2025	Q4 2025	Q1 2026
Retail Net Sales ($M)	$117.6	$138.5	$128.6
Wholesale Net Sales ($M)	$99.0	$87.2	$87.0
Retail Written Orders YoY %	-13.0%	+1.6%	+5.2%
Wholesale Written Orders YoY %	-11.2%	-6.8%	-7.1%

Note: Segment net sales are reported before elimination of intercompany amounts; totals will not sum to consolidated net sales .

KPIs and Balance Sheet

KPI	Q3 2025	Q4 2025	Q1 2026
Cash + Short & Long Investments ($M)	$183.0	$196.2	$193.7
Customer Deposits ($M)	$79.3	$75.1	$77.2
Wholesale Backlog ($M)	$54.6	$48.9	$53.5
Inventory, net ($M)	$150.4	$140.9	$139.9
Associates (Headcount)	3,294	3,211	3,189
Marketing Spend ($M)	—	Advertising = 3.4% of sales	$5.1 (vs. $3.5 LY)
Design Centers (NA)	174	172	173; openings in CO Springs, Toronto (Concord), Webster, TX

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Quantitative revenue/margin guidance	FY26/Q2+	None	None	No formal guidance provided
Regular Dividend per Share	Nov 2025 payment	$0.39	$0.39 (payable Nov 26, 2025)	Maintained
Special Dividend	Aug 2025	$0.25 (paid Aug 28, 2025)	None announced this quarter	N/A this quarter

Management reiterated cautious optimism but did not issue numerical revenue or margin guidance .

Earnings Call Themes & Trends

Topic	Q3 2025 (Q-2)	Q4 2025 (Q-1)	Q1 2026 (Current)	Trend
Technology & Efficiency	Streamlining via tech; headcount -35.7% since 2019	Digital marketing replacing TV/print; tech across ops	Tech “game changer” across manufacturing, retail, marketing, logistics	Ongoing leverage of tech to drive efficiency
Marketing & Promotions	Ads at 3.4% of sales; cautious promos	Advertising 3.4% vs 2.8% LY; selective promotions	National marketing +44% YoY; more paid search/social; promos maintained	Higher spend to support demand; disciplined promos
Tariffs/Macro	Tariffs manageable due to NA manufacturing; accessories impacted	Limited tariff impact on furniture; monitoring	Incremental tariffs raised inbound freight; some 5–10% pricing adjustments on select imports	Still manageable; watch non-furniture categories
Demand & Traffic	Retail written orders -13% YoY	Retail written +1.6% YoY	Retail written +5.2% YoY; traffic down >30% but more qualified	Sequential demand improvement despite low traffic
Government/Contract	Wholesale orders -11.2% YoY	Wholesale orders -6.8% YoY	Wholesale orders -7.1% YoY; timing/government shutdown delays	Persistent headwind; timing-related backlog moves
Logistics/Distribution	DC flood recovery (Sept 2024)	Consolidated to one major DC; white-glove delivery one price	Reinforced white-glove, single-price logistics capability	Structural advantage remains in place

Management Commentary

“Retail segment written order growth of 5.2% during the quarter reflects the strength of our brand… We reported…gross margin of 61.4%… adjusted diluted EPS of $0.43.” — Farooq Kathwari, CEO .
“Strong consolidated gross margin of 61.4% was driven by a change in sales mix, lower raw material input costs, selective price increases…partially offset by increased promotional activities… and higher inbound freight, including incremental tariffs.” — Matt McNulty, CFO .
“Our vertical integration is a competitive advantage… we manufacture about 75% of our furniture in our own North American facilities.” — CEO .
“Our marketing costs at the national level increased 44%, going from 2.4% of net sales last year to 3.4% in the current period.” — CEO .
“Wholesale orders decreased by 7.1%… impacted by lower contract business, including reductions in government spending… wholesale backlog rose by $4.7M due to timing of incoming contract orders.” — CFO .

Q&A Highlights

Retail cadence and traffic: Despite “30+% lower traffic,” conversion improved; written order gains were “more or less” steady through the quarter, aided by designer engagement .
Promotional strategy: Company maintained steady promo cadence (quarterly “special savings”) and financing; avoided “major promotions,” supporting gross margin .
Tariffs and pricing: Furniture less impacted due to NA manufacturing; non-furniture more exposed; taken selective price increases of ~5–10% depending on region/supplier .
Contract/government: State Department orders constrained by government status; new orders expected to flow upon reopening; timing implies lag to deliveries .
Marketing mix: Incremental spend focused on paid search/social and an extra direct mail drop; benefits expected to build over coming quarters .

Estimates Context

Q1 FY26 versus S&P Global consensus: revenue $146.98M vs $149.15M (miss), EPS $0.43 vs $0.445 (miss), EBITDA $14.35M vs $18.10M (miss)* .
Prior quarter (Q4 FY25) beat both revenue ($160.36M vs $152.20M) and EPS ($0.49 vs $0.45)* .
Implications: Given Q1’s margin deleverage from higher marketing/promotions and wholesale softness, models may trim near-term EBITDA and revenue; strong gross margin and rising deposits/backlog provide partial offsets into Q2.
Values retrieved from S&P Global.

Key Takeaways for Investors

Demand healing continues: retail written orders +5.2% with stronger conversion despite weak traffic; near-term deliveries supported by higher customer deposits and rising wholesale backlog .
Profitability near-term pressured: higher marketing/promotions and lower delivered volume compressed operating margin to 7.2% (adj.), resulting in EPS/revenue misses vs consensus .
Structural margin support: 61.4% gross margin reflects mix and input cost benefits; vertical integration helps mitigate tariff volatility, particularly on furniture .
Balance sheet strength and capital returns: $193.7M cash/investments and no debt underpin sustained $0.39 quarterly dividend; special dividends remain a potential tool as conditions allow .
Watch catalysts: continued retail order momentum, normalization of U.S. government/contract flow, benefits from increased digital marketing spend, and new design center ramp (CO Springs, Toronto, Houston) .
Risk factors: prolonged macro softness, tariff volatility on non-furniture imports, and extended government delays could weigh on wholesale demand and operating leverage .

Appendix: Additional Context and Releases

Q1 FY26 earnings press release (8-K Ex. 99.1) and full financials, including non-GAAP reconciliations .
Q1 FY26 earnings call transcript (full) –.
Related press: New Colorado Springs Design Center opening (Sept 29, 2025) .
Prior quarters: Q4 FY25 press release and call (strong margin, retail orders +1.6%) ; Q3 FY25 press release (GM 61.2%, written orders down double digits) .

ETHAN ALLEN INTERIORS INC (ETD)·Q1 2026 Earnings Summary