Quarterly report pursuant to Section 13 or 15(d)

Note 17 - Segment Information

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Note 17 - Segment Information
6 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

(17)

Segment Information

 

Ethan Allen conducts business globally and has strategically aligned its business into two reportable segments: Wholesale and Retail. These two segments represent strategic business areas of our vertically integrated enterprise that operate separately and provide their own distinctive services. Our operating segments are aligned with how the Company, including our chief operating decision maker, manages the business. This vertical structure enables us to offer our complete line of home furnishings and accents more effectively while controlling quality and cost. We evaluate performance of the respective segments based upon sales and operating income.

 

Wholesale Segment. The wholesale segment is principally involved in the development of the Ethan Allen brand and encompasses all aspects of design, manufacturing, sourcing, merchandising, marketing and distribution of our broad range of home furnishings and accents. Our wholesale segment net sales include sales to our retail segment, which are eliminated in consolidation, and sales to our independent retailers and other third parties. Wholesale revenue is generated upon the sale and shipment of our products to our retail network of independently operated design centers, Company-operated design centers and other contract customers.

 

Retail Segment. The retail segment sells home furnishings and accents to clients through a network of Company-operated design centers. Retail revenue is generated upon the retail sale and delivery of our products to our retail customers through our network of retail home delivery centers. Retail profitability reflects (i) the retail gross margin, which represents the difference between the retail net sales price and the cost of goods, purchased from the wholesale segment, and (ii) other operating costs associated with retail segment activities. As of December 31, 2022, the Company operated 139 design centers within our retail segment.

 

Intersegment. We account for intersegment sales transactions between our segments consistent with independent third-party transactions, that is, at current market prices. As a result, the manufacturing profit related to sales to our retail segment is included within our wholesale segment. Operating income realized on intersegment revenue transactions is therefore generally consistent with the operating income realized on our revenue from independent third-party transactions. Segment operating income is based on profit or loss from operations before interest and other financing costs, other income (expense), net and income taxes. Sales are attributed to countries on the basis of the customer's location.

 

 

Segment information is provided below (in thousands):

 

   

Three months ended

   

Six months ended

 
   

December 31,

   

December 31,

 
   

2022

   

2021

   

2022

   

2021

 
Net sales                                

Wholesale segment

  $ 106,247     $ 115,921     $ 220,898     $ 225,369  

Less: intersegment sales

    (74,849 )     (87,411 )     (158,628 )     (169,518 )

Wholesale sales to external customers

    31,398       28,510       62,270       55,851  

Retail segment

    171,763       179,583       355,421       334,569  

Consolidated total

  $ 203,161     $ 208,093     $ 417,691     $ 390,420  
                                 
Income before income taxes                                

Wholesale segment

  $ 14,569     $ 9,744     $ 29,982     $ 22,563  

Retail segment

    18,080       22,635       40,069       36,980  

Elimination of intercompany profit (a)

    4,420       3,913       6,668       4,109  

Operating income

    37,069       36,292       76,719       63,652  

Interest and other income, net

    901       (26 )     1,297       2  

Interest expense and other financing costs

    50       48       105       96  

Consolidated total

  $ 37,920     $ 36,218     $ 77,911     $ 63,558  
                                 
Depreciation and amortization                                

Wholesale segment

  $ 1,575     $ 1,588     $ 3,166     $ 3,228  

Retail segment

    2,263       2,274       4,529       4,959  

Consolidated total

  $ 3,838     $ 3,862     $ 7,695     $ 8,187  
                                 
Capital expenditures                                

Wholesale segment

  $ 2,701     $ 1,324     $ 4,762     $ 2,412  

Retail segment

    2,593       877       3,711       1,318  

Consolidated total

  $ 5,294     $ 2,201     $ 8,473     $ 3,730  

 

 

(a)

Represents the change in wholesale profit contained in the retail segment inventory at the end of the period.

 

(in thousands)

 

December 31,

   

June 30,

 

Total Assets

 

2022

   

2022

 

Wholesale segment

  $ 351,282     $ 341,466  

Retail segment

    389,087       412,176  

Inventory profit elimination (a)

    (26,388 )     (33,747 )

Consolidated total

  $ 713,981     $ 719,895  

 

 

(a)

Represents the wholesale profit contained in the retail segment inventory that has not yet been realized. These profits are realized when the related inventory is sold.