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EA

ETHAN ALLEN INTERIORS INC (ETD)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered resilient profitability amid softer demand: net sales $142.7M, gross margin 61.2%, GAAP diluted EPS $0.37 and adjusted diluted EPS $0.38; cash from operations was $10.2M with total cash and investments of $183.0M and no debt .
  • Versus consensus, ETD posted a miss: Revenue $142.7M vs $146.9M*, EPS $0.38 vs $0.455*, EBITDA $14.9M vs $17.9M*; estimate breadth remained narrow (two estimates) *.
  • Sequentially, revenue fell (Q2: $157.3M → Q3: $142.7M) and margins compressed (adjusted operating margin 11.5% → 8.0%) as January–February softness and tariff uncertainty weighed on traffic; March improved backlog and lead times .
  • No formal revenue/margin guidance; Board maintained the regular quarterly dividend at $0.39 per share (payable May 29, 2025), underscoring capital returns and balance sheet strength .
  • Management highlighted limited tariff exposure (China <5% of total COGS), vertical integration (≈75% North American-made), and marketing efficiency gains as strategic advantages heading into a cautious macro backdrop .

What Went Well and What Went Wrong

What Went Well

  • Strong profitability and cash generation despite macro headwinds: gross margin 61.2% and positive operating cash flow ($10.2M); cash and investments $183.0M, zero debt .
  • Vertical integration and tariff positioning: “Our overall exposure to China is less than 5% of total cost of goods,” with ≈75% production in North America and suppliers helping absorb tariff costs .
  • Marketing and efficiency: ad spend at 3.4% of sales with improved reach via technology (≈18M monthly magazines), supporting margin preservation and demand engagement .

What Went Wrong

  • Demand softness and written orders declined: retail written orders down 13.0% and wholesale down 11.2% in Q3; traffic weakened in Jan–Feb before modest March improvement .
  • Margin compression YoY and sequentially: adjusted operating margin 8.0% vs 10.0% last year and 11.5% in Q2; EPS declined YoY (adjusted $0.38 vs $0.48) .
  • Estimate misses across key metrics: revenue ($142.7M vs $146.9M*), EPS ($0.38 vs $0.455*), and EBITDA ($14.9M vs $17.9M*) indicated weaker-than-expected topline and operating leverage *.

Financial Results

Consolidated Performance (Sequential trend)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$154.3 $157.3 $142.7
Gross Margin (%)60.8% 60.3% 61.2%
GAAP Diluted EPS ($)$0.57 $0.59 $0.37
Adjusted Diluted EPS ($)$0.58 $0.59 $0.38
GAAP Operating Margin (%)11.4% 11.5% 7.7%
Adjusted Operating Margin (%)11.5% 11.5% 8.0%
Cash from Operations ($USD Millions)$15.1 $11.6 $10.2

Q3 2025 YoY Comparison

MetricQ3 2024Q3 2025
Net Sales ($USD Millions)$146.4 $142.7
Gross Margin (%)61.3% 61.2%
GAAP Diluted EPS ($)$0.50 $0.37
Adjusted Diluted EPS ($)$0.48 $0.38
Adjusted Operating Margin (%)10.0% 8.0%

Actuals vs Consensus (S&P Global)

MetricQ1 2025Q2 2025Q3 2025
Revenue Estimate ($USD Millions)*$157.7*$160.6*$146.9*
Revenue Actual ($USD Millions)$154.3 $157.3 $142.7
EPS Estimate ($)*$0.56*$0.61*$0.455*
EPS Actual ($)$0.58 $0.59 $0.38
EBITDA Estimate ($USD Millions)*$22.3*$23.5*$17.9*
EBITDA Actual ($USD Millions)*$21.7*$22.1*$14.9*

Values marked with * were retrieved from S&P Global.

Segment Net Sales

SegmentQ1 2025Q2 2025Q3 2025
Retail Net Sales ($USD Millions)$132.8 $134.3 $117.6
Wholesale Net Sales ($USD Millions)$86.1 $86.8 $99.0

KPIs and Operating Metrics

KPIQ1 2025Q2 2025Q3 2025
Cash & Investments ($USD Millions)$186.4 $184.2 $183.0
Inventories ($USD Millions)$143.2 $142.0 $150.4
Customer Deposits ($USD Millions)$74.1 $70.8 $79.3
Wholesale Backlog ($USD Millions)$63.9 $57.7 $54.6
Employees3,347 3,318 3,294
NA Design Centers173 172 174

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY/QuarterNo formal guidance No formal guidance Maintained
Operating MarginFY/QuarterNo formal guidance No formal guidance Maintained
Advertising ExpenseQ3 2025—3.4% of net sales (actual) Informational
DividendQ3 2025Regular dividend $0.39/share (declared Jan 28; paid Feb 26) Regular dividend $0.39/share payable May 29, 2025 Maintained
Balance SheetQ3 2025No debt outstanding No debt outstanding Maintained

Note: ETD does not provide formal revenue/earnings guidance; management emphasizes capital return consistency via dividends .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025, Q2 2025)Current Period (Q3 2025)Trend
Tariffs & ExposureNA manufacturing (≈75%); flood/Hurricane Helene impact in Q1; service restoration in Q2 China exposure <5% of COGS; USMCA-exempt Mexico; supplier cost-sharing; limited impact Favorable positioning; proactive mitigation
Demand & PromotionsQ2 written orders up 15.8% retail, 14.3% wholesale; special December promotion aided demand Jan–Feb softness (traffic); promotions not escalated; March modest demand growth Normalizing; cautious stance
Marketing EfficiencyQ2 ad spend 2.5% of sales; increased by ~$0.5M to attract new customers 3.4% of sales; 18M monthly magazines via tech; faster content cycles Greater reach at lower cost
Supply Chain & BacklogQ1 flood recovery; Q2 DC resumed operations; backlog $57.7M Backlog $54.6M; lead times and weeks of backlog reduced Operational improvement
Retail Network & New CentersNew centers in Watchung, NJ; Peoria, AZ in FY25 Opened Middleton, WI and Toronto, Canada in Q3 Network growth
Government ContractQ2: State Dept drove timing of contract orders Recent caution, still buying; lesser amount of business near-term Slight headwind

Management Commentary

  • “Our vertically integrated enterprise…manufacture about 75% of our furniture in our own North American facilities, has provided us a strategic advantage” .
  • “Our overall exposure to China is less than 5% of total cost of goods…our partners overseas are working…to help absorb some of the incremental tariff costs” .
  • “Advertising expenses…about 3.4% of sales…we are now sending out close to 18 million copies of our magazine…develop a 36-page digital magazine in less than 2 weeks” .
  • “Retail segment written orders were down 13.2%, while wholesale orders decreased by 11.2%…March saw modest demand growth, which helped improve our backlog” .
  • “We generated $10.2 million of cash from operating activities…ended with total cash and investments of $183 million and no outstanding debt” .

Q&A Highlights

  • Tariffs and relative positioning: ETD’s limited China exposure and North American manufacturing base reduce tariff impact; competitors more likely to raise prices; ETD sees only potential small adjustments on select imported products .
  • Demand trends: April remained soft, late-April/early-May improved; traffic down but conversion strong among engaged customers, suggesting cautious consumer sentiment but solid ticket quality .
  • Promotions strategy: Management avoided aggressive discounting given low traffic elasticity; believes environment normalization, not deeper promos, will drive better intake; maintains regular offers .
  • SG&A/Advertising: Q3 ad spend at 3.4% of sales vs 4.4% prior-year quarter; technology sharply improved reach and lowered costs; plan to continue efficiency over dollar increases .
  • State Department contract: Still in place, but recent caution and lesser amounts of business amid departmental changes .

Estimates Context

  • Q3 2025 vs consensus: Revenue $142.7M vs $146.9M* → bold miss; EPS $0.38 vs $0.455* → bold miss; EBITDA $14.9M vs $17.9M* → bold miss *.
  • Trend vs prior quarters: Q2 also modest misses on revenue ($157.3M vs $160.6M*) and EPS ($0.59 vs $0.61*), while Q1 beat EPS ($0.58 vs $0.56*) but missed revenue ($154.3M vs $157.7M*) *.
  • Potential estimate revisions: Given lower delivered unit volume and normalized promotions, near-term topline estimates may drift down; margin assumptions should reflect sustained 60%+ gross margin but tighter operating leverage at ~8–12% adjusted OPM depending on demand .

Values marked with * were retrieved from S&P Global.

Key Takeaways for Investors

  • Operating resilience: ETD sustained 61.2% gross margin and positive FCF in a soft quarter; balance sheet remains a backstop with $183M cash/investments and no debt .
  • Strategic moat via vertical integration: ≈75% North American manufacturing and China exposure <5% of COGS should cushion tariff volatility vs peers .
  • Demand cadence: Expect choppy near-term demand; management refrains from heavy discounting, prioritizing brand equity and margin discipline; monitor written orders trajectory into early Q4 .
  • Marketing ROI lever: Technology-driven reach (≈18M monthly magazines) supports efficient customer acquisition; advertising intensity can flex without materially pressuring margins .
  • Inventory and backlog: Q3 inventory build tied to new products/design centers; backlog/lead-time reduction indicates operational agility—watch whether July-quarter deliveries convert cleanly .
  • Capital returns: Regular $0.39 dividend maintained (5%+ yield cited by management); cash returns likely persist absent formal growth guidance .
  • Estimate bias: Near-term consensus may need to temper revenue and EBITDA given Jan–Feb softness; margin preservation likely mitigates downside but not enough to offset topline misses *.