What happened

Share of furniture maker Ethan Allen Interiors (NYSE:ETH) rushed out of the doors Tuesday morning and are up 12% already as of 10 a.m. EDT. The company's shares were buoyed by a business update and earnings preannouncement that was released last night, in which Ethan Allen predicted its fiscal first-quarter 2021 sales and earnings will both come in significantly higher than analysts had been expecting.  

Specifically, Ethan Allen said sales for the quarter will exceed $151 million (analysts had predicted $137.8 million), and that adjusted earnings will range from $0.34 to $0.36 per diluted share -- versus the $0.02 loss that analysts guessed.

Green arrow trending up over the numerals 2021

Image source: Getty Images.

So what

Those are big numbers -- sales better than expected and a big profit instead of Wall Street's expected loss. So how did Ethan Allen do that (or more precisely, how will it have done that when earnings officially come out on Oct. 29)?  

Despite weak results from sales to government agencies, Ethan Allen says orders from its retail segment grew 11% in Q1, and wholesale orders were up 9%. With manufacturing levels back at "pre-COVID-19 levels," Ethan Allen said it is also working more efficiently, such that its gross profit margin has reached 56.8% -- a decade-long high, according to data from S&P Global Market Intelligence.

Now what

The combination of growing sales and fatter profits on those sales is doing tremendous things for Ethan Allen's profitability. If I might raise just one caveat, though, for investors rushing to buy Ethan Allen stock today:

Ethan Allen gave us an adjusted profit number last night. It did not say how profitable it expects to be under the more standardized generally accepted accounting principles (GAAP) method of calculating profits, and it's possible that when the official results come out two weeks from now, we'll learn that Ethan Allen wasn't quite as GAAP profitable as this week's predictions imply.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.