ETHAN ALLEN INTERIORS Derek Ho December 2, 2004
Background • Founded in 1932 and sold products under the Ethan Allen brand name since 1937. • Incorporated in 1989 through its wholly owned subsidiary, Ethan Allen Inc. It is a leading manufacturer and retailer of quality home furnishings and accessories, offering a full complement of home decorating solutions through the country’s largest network of home furnishing retail stores.
Background • Mission: To provide customers with a convenient, full-service, one-stop shopping alternative for their home decorating needs. • 6600 employees (half are represented by unions) • 300+ stores located primarily in the U.S. • 12 manufacturing facilities
Stock Performance As of 12/01/2004 • Current Price: $39.95/share • EPS: $2.11 • Half of revenues of competitors but higher market capitalization Acquired on 10/22/1999 • Paid $33.00/share • 700 shares • Cost basis of $23,100 • Represents approximately 9% of our portfolio • 21% unrealized gain
Ethan Allen’s Business • Wholesale manufacturing • Distribution to independent retail stores and Ethan Allen stores • 3000+ design consultants • Existing products include: • case goods (wood furniture such as beds, dressers, and tables), • upholstery items (sofas, recliners), and accessories (wall decor, lighting).
Ethan Allen’s Business (Cont.) • New Products • Ethan Allen Kids • Prevention of furniture tipping • Furnishing Solutions by Ethan Allen • Over 40 million copies distributed • One of most important marketing tools • Ethan Allen Online Room planner • Decorate own room
Macro. Factors (Competitors) • Furniture Brands International (FBN)- Broyhill Furniture, Drexel Heritage Furniture, Thomasville Furniture • La-Z-Boy Inc. (LZB) • Ashley Furniture Industries, Inc. (priv) • A highly competitive industry • Growing number of foreign manufacturers • ETH differentiates with solutions-oriented business strategy
Relative Performance • ETH v. S&P 500 • Differences? • Furniture industry very cyclical • ETH v. LZB • Differences? • ETH- exceptional growth • Competition with China
Business Strategy • Focuses on Differentiation from competitors (over 1000 manufacturers of furniture in U.S. alone) • Competitive advantage with complimentary design service and product and styling and quality • Trademarks and design patents are valuable assets
Future Growth • Uncertain where trends will change product line • Goal of adding 10-15 stores each year • Essentially debt free and continues to have the strong cash flow needed to fund future growth and to maintain operating flexibility. • According to the National Association of Home Builders, single family home production has increased 6.4% since last October. • Quarterly revenue growth of only .07% within the furniture industry (one of last 6 worst)
Valuation • See Excel
In the News • In April 2004, ETH closed and consolidated 2 plants. • As of June 30, 2004 received notices that it may be a potentially responsible party to environmental laws and regulations. • In August, ETH expanded with 2 stores in China (for a total of 6 scattered in China).
Significant Risks • Anti-dumping legislation in China • Competitors more open to manufacturing overseas (around 25%) • Not as large as competitors LZB, FBN
Recommendation • Hold Shares • In years past, ETH has been able to maintain growth and “change with the times” by offering more product and service solutions. • Questions?