ETD - Ethan Allen Interiors: Commercial Concerns Persist

2024-04-01 10:30:10 ET

Summary

• ETD has struggled to achieve growth during the last decade (-1% CAGR), illustrating a declining competitive position and the rise of e-commerce.
• We struggle to see its fortunes changing, with growth likely to be <4% on a normalized basis.
• At this level, ETD will continue to lose market share and face greater pressures on margins.
• From an operational perspective, Management has executed well, with improving margins and strong distributions to shareholders. This cannot continue without growth, however.
• ETD is trading at its fair value we feel, given the various issues identified.

Introduction and thesis

Ethan Allen Interiors Inc. ( ETD ) is a leading American furniture manufacturer and retailer headquartered in Danbury, Connecticut. The company specializes in designing, manufacturing, and selling high-quality home furnishings and accessories. With a rich heritage spanning over 80 years, Ethan Allen is renowned for its craftsmanship, innovation, and commitment to timeless design.

ETD is a business that has struggled to adapt to changing industry conditions, contributing to a decline in its competitive position and financial results. Whilst Management has attempted to right the ship, ETD’s performance has lacked any evidence of a turnaround, even with a post-pandemic bump. This said, it is worth highlighting that margins have never been compromised, allowing for market leading returns....

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