In the wake of Stanley Furniture's (NASDAQ:STLY) disappointing earnings report earlier this week, investors in the home-furnishing sphere once again look to Ethan Allen (NYSE:ETH) for comfort. Ethan Allen reports its own Q3 2006 earnings report Monday morning.
What analysts say:
- Buy, sell, or waffle? Nine analysts follow Ethan Allen. Of these, three rate the stock a buy, five a hold, and one a sell.
- Revenues. Analysts expect to see quarterly sales rise 7% to $236.4 million.
- Earnings. Profits are believed to have risen nearly twice as fast, with Wall Street hoping for a 12% rise to $0.56 per share.
What management says:
In its last earnings announcement, CEO Farooq Kathwari made two comments worth taking note of. First: "during the [second] quarter, we generated $20 million of operating cash, returning that same amount to our shareholders through the repurchase of stock and the payment of quarterly dividends."
Second: "While it has not been our practice to provide specific comments regarding quarterly earnings estimates, we have made an exception for next quarter in light of the effect that our initiatives had on second-quarter results. For the fiscal third quarter ended March 31, 2006, we currently estimate that earnings per share will increase 8%-12% over the prior-year comparable period. Further, at this time, we believe that the current range of analyst estimates for the fiscal fourth quarter ended June 30, 2006, is within reach."
What management does:
Over the past 18 months, Ethan Allen's gross margin has expanded by 160 basis points, but its operating and net margins have actually contracted. The reason for the divergent trends is that while Ethan Allen's sales grew 11% over the past couple of quarters, its selling, general, and administrative costs grew half as fast -- up more than 16%.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
48.1 |
48.2 |
48 |
48.6 |
49.2 |
49.7 |
|
Op. |
14.7 |
14.4 |
13.9 |
13.6 |
13.4 |
13.8 |
|
Net |
8.3 |
8.1 |
7.8 |
8.4 |
8 |
8.1 |
One Fool says: Going back to what management told us back in January, I want to make two comments. First, it's great to see that Ethan Allen returned essentially all of the cash it generated in the quarter to its shareholders. For one thing, that shows the firm's dedication to its owners. For another, it's an expression of confidence from the business: "We're doing so well that we don't need the cash. Here, you take it."
But on a down note, I want to echo my fellow Fool Nathan Parmelee in chastising Ethan Allen for breaking with tradition and forecasting its quarterly earnings last quarter. Said Nathan: "It simply doesn't work well to provide guidance during good times and withhold it during the bad. And when it's all said and done, I'm always more happy to see companies abstain from the guidance game altogether."
My advice to Ethan Allen, on behalf of its shareholders: Hold the (self) applause; just send money.
Competitors:
- Bassett (NASDAQ:BSET)
- Hooker (NASDAQ:HOFT)
- Herman Miller (NASDAQ:MLHR)
- Design Within Reach (NASDAQ:DWRI)
- La-Z-Boy (NYSE:LZB)
Hooker Furniture and Stanley Furniture areMotley Fool Hidden Gemsrecommendations, and La-Z-Boy is aMotley Fool Income Investorpick. Try out any of our investing services free for 30 days.
Fool contributorRich Smithdoes not own shares of any company named above.
