Ethan allen CEO: Smaller stores are the future

Will Atkinson | Jan 23, 2008 2:26pm EST | Comment

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Ethan Allen Interiors Inc. (NYSE: ETH) CEO Farooq Kathwari said the furniture retailer is in the midst of a transition to become an interior design company from its traditional role as a consumer goods seller. Kathwari made the comments during a midday conference call.

“We are selling solutions and service. We’ve got about 100 of our [interior design] professionals here with me and they’re nodding their heads,” Kathwari said.

The chief executive said the firm’s new retail locations will be smaller, with “design consultants” doing most of their work outside of the office making sales pitches. He said the company is looking at converting some of its existing larger stores into smaller “design studios.”

For the reset of Ethan’s fiscal year, which ends on June 30, Kathwari said the firm’s main initiatives will be increasing the amount of offerings and improving the company’s “vertically integrated structure to provide interior design solutions.”

Over the next six months, Ethan Allen plans to open eight to 10 new design centers in various metropolitan areas, including Sacramento, Denver and Philadelphia. The firm’s flagship design center will open in Manhattan this spring. As of Dec. 31, Ethan had 305 design centers, 160 of which are owned directly by the company.

“We have substantially strengthened the caliber of interior design professionals in our design centers,” the chief executive said in explaining Ethan’s program of employee recruitment and training.

Ethan Allen is making “good progress” on its revamped website and expects to be online by the summer, Kathwari said. Because website orders will be forwarded to design consultants who will assist shoppers, the CEO said online orders will be a combination of personal contact and technology.

“Our objective is to develop a state-of-the-art website combining personal service of our interior design consultants with technology,” Kathwari said. “The website will have great digital photography and graphics. I think it will reach a tremendous amount of younger people, which is extremely important for us to do.”

During the quarter, he said Ethan bought a facility in Mexico that will help streamline its upholstery operations. The chief executive also noted that expenses related to design center relocations will decline significantly over the next year.

Responding to an analyst’s question about competitors, Kathwari said design centers are a fragmented industry. The CEO said there are some regional competitors succeeding, but did not acknowledge any thriving nationwide competitors.

“We have a lot of competition,” he said. “There are many people who at the regional level are doing well, but at the national level, I think are still somewhat behind where we are.

Before the opening, Ethan Allen reported second-quarter net income of $20.6 million, or $0.70 per share, which was better than analysts’ estimate of earning $0.68 per share. A year earlier, Ethan Allen posted net income of $22.8 million, or $0.70 per share.

“Overall, we are very pleased with our operating results and financial standing in this challenging economic environment,” said David Callen, Ethan Allen’s vice president of finance.

For the three months ended Dec. 31, the Danbury, Conn.-based firm’s revenue totaled $259.5 million, beating Wall Street projections of $258.8 million. During the year-ago period, Ethan Allan’s revenue was $257.4 million.

In midday trading, ETH shares are up 15.18%, or $3.79, at $28.75. Over the last 52 weeks, shares have ranged from $22.67 to $39.56.