Organization

Founded in 1932 and incorporated in Delaware in 1989, Ethan Allen Interiors Inc., through its wholly-owned subsidiary, Ethan Allen Global, Inc., and Ethan Allen Global, Inc.’s subsidiaries (collectively, “we,” “us,” “our,” “Ethan Allen” or the “Company”), is a leading interior design company, manufacturer and retailer in the home furnishings marketplace.

Nature of Business

We are a global luxury home fashion brand that is vertically integrated from product design through home delivery, which offers our customers stylish product offerings, artisanal quality, and personalized service. We provide complimentary interior design service to our clients and sell a full range of home furnishings through a retail network of design centers located throughout the United States and abroad as well as online at ethanallen.com.

Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations. As of  December 31, 2021, the Company operates 141 retail design centers with 136 located in the United States and five in Canada. Our independently operated design centers are located in the United States, Asia, the Middle East and Europe. We also own and operate nine manufacturing facilities in the United States, Mexico and Honduras, including one sawmill, one rough mill and a lumberyard. Approximately 75% of our products are manufactured or assembled in these North American facilities. We also contract with various suppliers located in Europe, Asia, and various other countries that produce products that support our business.

Impact of the COVID-19 Pandemic Upon our Financial Condition and Results of Operations

We have been and continue to be impacted by the ongoing global coronavirus (“COVID-19”) pandemic. Our design centers are open and demand for our products continues to be strong as customers allocate greater amounts of discretionary spending to home furnishings than at the start of the COVID-19 pandemic. After having re-opened our manufacturing facilities in May 2020, we have ramped up and increased production capacity by adding headcount as well as second shifts and weekend production shifts to our North American plants. Our ability to expand production combined with higher import receipts has led to a reduction in order backlog during the second quarter of fiscal 2022. However, because we continue to experience strong written orders taken at both the retail and wholesale segments, our order backlog is approximately 50% higher than our backlog during the prior year period.

While we have increased production to meet the strong demand for our products, we continue to experience ongoing logistical challenges that we, as well as the entire home furnishings industry, have faced resulting from COVID-19 related supply chain disruptions creating delays in order fulfillment. Our focus on inventory and supply chain management is critical as we balance the need to maintain supply chain flexibility to help ensure competitive lead times with the risk of inventory shortage and obsolescence. In addition, ocean freight capacity issues continue to persist worldwide due to the ongoing COVID-19 pandemic, which has resulted in price increases per shipping container. While we continue to manage and evaluate our logistics providers, we do not believe ocean freight container rates will return to pre-COVID-19 levels in the near-term. While we improved our headcount during the second quarter of fiscal 2022, we continue to experience a shortage of qualified labor in certain geographies, particularly with United States manufacturing plant production workers and at our distribution facilities. Outside suppliers that we rely on have also experienced shortages of qualified labor. While we continue to actively identify, recruit, develop and retain qualified talent, an ongoing shortage in certain geographies could result in increased costs from higher overtime and the need to hire temporary help to meet demand and higher wage rates from actions to attract and retain employees, as well as higher costs to purchase raw materials or services from such third parties, all of which would have a negative impact on our results of operations.

The COVID-19 pandemic has also exposed us to greater market risk as a result of increases in the cost of raw materials that we use in our manufacturing processes, principally wood, fabric and foam products. These raw materials have been, and continue to be, subject to rising inflationary pressures, partially attributable to the COVID-19 pandemic, which has led to increased costs of production. As commodity prices rise, we continue to evaluate whether a price increase to our customers to offset these costs is warranted.

In addition, in recent months, the United States federal government has issued orders and regulations directing employers to require their employees to be vaccinated against COVID-19. Due to our United States government General Services Administration contract, we are classified as a government contractor. In addition, we are a company with more than 100 employees, thus subject to these recently issued orders and regulations, if finalized. However, given the uncertainty surrounding if the mandates are legal and when they become effective, it is not possible to predict with certainty the impacts the mandates would have on us.

Although we actively manage the impact of the ongoing COVID-19 pandemic, we are unable to predict the impact COVID-19 will have on our financial operations in the near- and long-term. The timing of any future actions in response to COVID-19 is dependent on the mitigation of the spread of the virus along with the adoption and continued effectiveness of vaccines, status of government orders, directives and guidelines, recovery of the business environment, global supply chain conditions, economic conditions, raw material prices, and consumer demand for our products.