Quarterly report pursuant to Section 13 or 15(d)

Note 17 - Segment Information

v3.22.2.2
Note 17 - Segment Information
 3 Months Ended
Sep. 30, 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, marketing, sale 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 September 30, 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

  
   

September 30,

  
   

2022

    

2021

  

Net sales

                

Wholesale segment

   $ 114,651     $ 109,448  

Less: intersegment sales

     (83,779 )     (82,107 )

Wholesale sales to external customers

     30,872       27,341  

Retail segment

     183,658       154,986  

Consolidated total

   $ 214,530     $ 182,327  
                 

Income before income taxes

                

Wholesale segment

   $ 15,413     $ 12,819  

Retail segment

     21,989       14,345  

Elimination of intercompany profit (a)

     2,248       196  

Operating income

     39,650       27,360  

Interest and other financing costs

     55       48  

Other income, net

     396       28  

Consolidated total

   $ 39,991     $ 27,340  
                 

Depreciation and amortization

                

Wholesale segment

   $ 1,591     $ 1,640  

Retail segment

     2,266       2,685  

Consolidated total

   $ 3,857     $ 4,325  
                 

Capital expenditures

                

Wholesale segment

   $ 2,061     $ 1,088  

Retail segment

     1,118       441  

Consolidated total

   $ 3,179     $ 1,529  

 

 

(a)

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

 

 

(in thousands)

  

September 30,

    

June 30,

  

Total Assets

  

2022

    

2022

  

Wholesale segment

   $ 352,403     $ 341,466  

Retail segment

     400,929       412,176  

Inventory profit elimination (a)

     (31,483 )     (33,747 )

Consolidated total

   $ 721,849     $ 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.