Ethan Allen's Operating Margin Sustainable Despite Challenging Sales Environment: Analyst

Telsey Advisory Group analyst Cristina Fernández reiterated a Market Perform rating on Ethan Allen Interiors Inc.  ETD, raising the price target to $33 from $28.

ETD recently reported Q4 results, where consolidated net sales of $187.4 million were lower by 18.4%.

The analyst views Ethan Allen's Q4 results as good, with the company demonstrating its ability to manage profitability and deliver a better operating margin of 16.3%, even with a steeper-than-expected sales decline.

The analyst adds that the mid-teens operating margin was 770 bps higher, highlighting that the mid-teens operating margin that it has generated in the past few quarters is sustainable in a challenging sales environment. 

The company also announced a special dividend of $0.50 per share.

The analyst also applauds the upside in gross margin, which expanded 322 bps Y/Y to 61.5% vs. the estimate of 59.0%.

The analyst adds that half of the gross margin expansion was from a favorable sales mix due to the higher retail segment penetration and the remainder from lower input costs (inbound freight and raw material costs).

For FY24, the analyst's EPS estimate is now $3.30, up from $3.10 previously.

The analyst, however, projects a sales decline of 6.8% in FY24 to $737 million. The previous forecast was a 6% sales decline to $747 million in FY24.

For FY24, the analyst forecasts an operating margin of 14.8% vs. the prior 13.9%.

Price Action: ETD shares are trading higher by 16.1% to $35.58 on the last check Thursday.