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Ethan Allen Interiors Inc. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: August 16, 2012 06:22PM
Ethan Allen Interiors Inc. (ETH) filed Annual Report for the period ended 2012-06-30.
Highlight of Business Operations:Wholesale revenue for fiscal 2012 increased by $34.0 million, or 8.0%, to $456.9 million from $422.9 million in the prior year. The year-over-year increase was primarily attributable to a 14.9% increase in the incoming order rate for the first half of fiscal 2012, as we began to see a gradual though inconsistent improvement in consumer spending. Orders during the second half of fiscal 2012 decreased 5.6%, compared to a very strong same prior year period, but were up 6.1% over the first half of fiscal 2012. For the full year, orders increased 3.3% in fiscal 2012 compared to fiscal 2011. We believe this improvement in year-over-year sales and orders is due to our promotional activities, significant new product offerings, our ability to increase production through operating efficiencies, staffing increases, and an increase in the number of total design centers globally to 298 at June 30, 2012 from 286 at June 30, 2011. The independently operated retail network grew by twelve net design centers to 151 at June 30, 2012 including a net increase of 17 locations to 70 in China. While the count of Ethan Allen operated design centers was 147 at June 30 of 2012 and 2011, we opened two new locations, relocated two others, closed five and acquired three design centers during the current fiscal year.
Gross profit for fiscal 2012 increased to $390.3 million from $349.5 million in fiscal 2011. The $40.8 million increase in gross profit was primarily attributable to (i) an overall increase in net sales of 7.4%, with increases in both segments, (ii) improved operating efficiencies, (iii) improved product mix within the wholesale segment, and (iv) the higher mix of retail net sales to consolidated net sales in the current year (76.7%) compared to the prior year period (74.5%). With our additional manufacturing capacity in Mexico and Honduras we operated at approximately 75% of capacity during fiscal 2012 compared to 80% in fiscal 2011. The consolidated gross margin increased to 53.5% for fiscal 2012 from 51.5% in fiscal 2011 as a result, primarily, of the factors set forth above.
Operating income for the year ended June 30, 2012 totaled $49.7 million, or 6.8% of net sales, compared to $31.9 million, or 4.7% of net sales, in the prior year. Wholesale operating income for fiscal 2012 totaled $64.4 million, or 14.1% of net sales, as compared to $49.9 million, or 11.8% of net sales, in the prior year. Retail operating loss was $11.5 million, or 2.1% of sales, for fiscal 2012, compared to a loss of $15.4 million, or 3.0% of sales, for fiscal 2011, an improvement of $3.8 million. Improvements in operating income in both segments was primarily attributable to an increase in sales volume, but also arose from continuing operating efficiencies achieved.
Consolidated operating income for the year ended June 30, 2011 totaled $31.9 million, or 4.7% of net sales, compared to a loss of $11.7 million, or 2.0% of net sales, in the prior year. The improvement of $43.7 million was largely attributable to (i) the $88.9 million increase in net sales, and (ii) operating efficiencies noted earlier as a result of the restructuring completed in fiscal 2010.
In fiscal 2012, cash of $37.7 million was generated by operating activities, a decrease of $25.5 million over fiscal 2011. Net income plus depreciation and amortization improved by $18.2 million in fiscal 2012 compared to fiscal 2011 primarily due to a $50.4 million increase in net sales. Cash flow of $13.2 million was used for working capital items (defined below) in the current fiscal year, an increase in cash outflows of $25.1 million compared to fiscal 2011. Increased inventory levels to support the new Ethan Allen Express program contributed to a net increase in cash used for inventory of $7.3 million, and customer deposits and accounts payable balances grew during fiscal 2012 but the amount of the increase was $10.8 million lower than during fiscal 2011. Other operating activities includes income tax payments of $14.7 million made in fiscal 2012 compared to net income tax refunds of $8.6 million received in fiscal 2011 as a result of a prior year tax method change, for a net swing of $23.3 million. Working capital consists of accounts receivable, inventories, prepaid and other current assets, less customer deposits, payables, accrued expenses, and other current liabilities.