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. LZB
ETH v. S&P 500
Differences?
Differences?
•ETH- exceptional growth
•Furniture industry very cyclical
•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?