Executive Summary
Ethan Allen delivered a solid QQ2 2025 performance characterized by robust demand momentum, a favorable product mix, and disciplined cost management within a vertically integrated, North America–focused model. Reported revenue of $157.26 million and gross margin of 60.30% supported a double-digit operating margin (adjusted 11.5%) and an adjusted diluted EPS of $0.59. The period showed strong order activity, with Retail orders up 15.8% and Wholesale orders up 14.3%, contributing to a Wholesale backlog of $57.7 million (up ~5% YoY). Operating cash flow was $11.62 million, supporting a robust balance sheet with cash and investments of $184.2 million and no net debt per management commentary. Management attributed the results to a combination of product programs, a repositioned retail network, efficiency gains from technology, and selective price increases, complemented by promotional activity that boosted demand in December (a 5% savings promotion). Management signaled ongoing investment in marketing and product development, planned expansion of the design-center network, and a continued emphasis on North American manufacturing. However, the quarter faces a mix of headwinds, including weather variability affecting consumer traffic and ongoing macro uncertainty, including tariff dynamics. Overall, the company appears well-positioned to sustain demand momentum and leverage its vertical integration, technology-enabled operations, and strong liquidity to navigate a gradually improving, but uncertain, consumer backdrop.
Key near-term drivers include: (1) continued product introductions and marketing investments that attract new customers and improve ticket value; (2) geographic and supply-chain flexibility within North America to mitigate tariff risk; (3) ongoing efficiency programs to protect margins as promotional activity fluctuates. Investors should monitor order cadence going into the holiday season, evolving macro conditions, and any further promotional strategies that could impact gross margin in the near term.
Key Performance Indicators
Key Insights
Revenue: $157,260,000; YoY -5.99%; QoQ +1.89%
Gross Profit: $94,837,000; YoY -5.76%; QoQ +1.03%
Operating Income: $18,157,000; YoY -16.28%; QoQ +3.37%
Net Income: $15,004,000; YoY -13.82%; QoQ +1.94%
EPS (Diluted): $0.59; YoY -13.24%; QoQ +1.72%
Gross Margin: 60.30%; Operating Margin: 11.55%; EBITDA Margin: ~15.38%
Backlog (Wholesale): $57.7 million, up 5% YoY; December wholesale backlog decline noted due to sales outpacing orders
Operating Cash Flow: $11.62 million
Capital Expenditures: $3.78 m...
Financial Highlights
Revenue: $157,260,000; YoY -5.99%; QoQ +1.89%
Gross Profit: $94,837,000; YoY -5.76%; QoQ +1.03%
Operating Income: $18,157,000; YoY -16.28%; QoQ +3.37%
Net Income: $15,004,000; YoY -13.82%; QoQ +1.94%
EPS (Diluted): $0.59; YoY -13.24%; QoQ +1.72%
Gross Margin: 60.30%; Operating Margin: 11.55%; EBITDA Margin: ~15.38%
Backlog (Wholesale): $57.7 million, up 5% YoY; December wholesale backlog decline noted due to sales outpacing orders
Operating Cash Flow: $11.62 million
Capital Expenditures: $3.78 million
Free Cash Flow: $7.84 million
Cash & Investments: $184.20 million; Debt: No outstanding debt per management commentary on the call (Balance sheet shows total debt ~ $124.76 million and net debt ~$67.69 million; reconciling items may exist in 10-Q disclosures)
Dividends: Regular cash dividend of $0.39 per share; ongoing yield cited around 5.5%
Headcount: 3,318 employees, down 7% YoY; substantial headcount optimization via technology
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
157.26M |
-5.99% |
1.89% |
| Gross Profit |
94.84M |
-5.76% |
1.03% |
| Operating Income |
18.16M |
-16.28% |
3.37% |
| Net Income |
15.00M |
-13.82% |
1.94% |
| EPS |
0.59 |
-13.24% |
1.72% |
Key Financial Ratios
operatingProfitMargin
11.5%
operatingCashFlowPerShare
$0.46
freeCashFlowPerShare
$0.31
dividendPayoutRatio
66.4%
Management Commentary
Key management insights and quotes from the QQ2 2025 earnings call, grouped by themes:
Strategy and investments
- Matt McNulty (CFO): 'Our financial results in the just-completed second quarter were highlighted by strong demand, margin and operating cash flow.' This underscores that demand strength, coupled with margin discipline, drove quarterly performance.
- Farooq Kathwari (CEO): 'We are positioned well as a vertically integrated enterprise, which includes a very strong and dedicated team, the ability to provide interior design services with state-of-the-art technology, offering relevant, high-quality products that offer both a modern design with a classic perspective and a classic design with a modern perspective.' This highlights their integrated model and design-enabled value proposition.
- Kathwari on marketing and promotions: 'We increased our marketing spend by 0.5 million, from 2% to 2.5%, 15% higher, as a percentage of sales, to drive new customer acquisition and capitalize on improved service levels.' This shows a strategic shift toward more aggressive marketing tied to service improvements.
Operations and execution
- Kathwari: '75% of our furniture is made in our North American facilities' and 'white-glove delivery at one cost in North America' emphasizing the competitive edge from NA manufacturing and logistics.
- Matt McNulty on orders and mix: 'Retail segment orders grew by 15.8%, Wholesale orders up 14.3%,' with selling price and mix helping offset lower backlog and unit volume.
- On headcount and technology: 'headcount totaled 3,318, down 7% YoY... leveraging technology to streamline workflows' signaling efficiency gains.
Market conditions and risk factors
- Kathwari acknowledged external factors: 'weather impacted January' and ongoing macro uncertainties, including tariffs, while noting flexibility to shift manufacturing between Mexico and North Carolina.
- On Mexico exposure: 'Mexico represents approximately 25% of total manufacturing; there is flexibility to increase North Carolina production if tariffs rise' highlighting operational risk management and geographic hedging.
Strategic implications and guidance posture
- 'We will continue to grow our business and strengthen the vertically integrated structure' signaling a constructive but non-specific forward outlook, with emphasis on internal initiatives rather than explicit numeric guidance.
Our consolidated net sales were $157.3 million, compared with $167.3 million a year ago, and the higher average retail ticket price and lower sales helped to offset lower backlogs, fewer contract sales and a lower delivered unit volume.
— Matt McNulty
75% of our furniture is made in our North American facilities.
— Farooq Kathwari
Forward Guidance
Nature of guidance: Formal numeric guidance was not provided in the call. Management conveyed a constructive near-term outlook anchored in operating discipline, product innovation, and marketing effectiveness.
- Near-term catalysts: sustained demand momentum as weather normalizes, ongoing product introductions, and targeted marketing investments; expanding and refreshing design-center footprint; technology-enabled efficiency gains to support margins.
- Promotional activity: December 5% savings contributed meaningfully to order acceleration; management plans to blend promotional activity with efficiency to protect margins while driving customer acquisition.
- Margin trajectory: gross margin benefited from favorable mix and cost controls; the company signaled continued, but measured, use of marketing to drive demand while leveraging pricing power and NA manufacturing to protect margins.
- Risks to monitor: macro consumer spending, political and regulatory developments affecting tariffs, supply chain disruptions, and potential cadence changes in orders due to seasonality and macro noise.
- Investment thesis: maintain a positive stance given a debt-free (per call narrative) liquidity position, strong balance sheet, NA-centric manufacturing, expanding design-center network, and a track record of converting demand into written orders with improving ticket prices. Investors should monitor (i) order backlog evolution in wholesale, (ii) promotional cadence and its impact on gross margin, (iii) tariffs and trade policy developments, and (iv) ongoing headcount and technology-enabled efficiency programs.