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Note 19 - Segment Information
 12 Months Ended
Jun. 30, 2022
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

(19)

Segment Information

 

Operating segments are defined as (i) components of an enterprise that engage in business activities from which they may earn revenue and incur expense, (ii) have operating results that are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (iii) for which discrete financial information is available. Our Chief Executive Officer is our chief operating decision maker (“CODM”) and reviews financial information at the operating segment level and is responsible for making decisions about resources allocated amongst the operating segments based on actual results. Our operating segments are aligned with how the Company, including our CODM, manages the business. As such, our reportable operating segments are the Wholesale segment and the Retail segment.

 

Our wholesale and retail operating segments represent strategic business areas of our vertically integrated enterprise that operate separately and provide their own distinctive services. This vertical structure enables us to offer our complete line of home furnishings and accents more effectively while better controlling quality and cost. We evaluate performance of the respective segments based upon sales and operating income.

 

Wholesale Segment. The wholesale segment, which accounted for 15.6% of net sales during fiscal 2022, 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. Sales to ten of our largest customers accounted for 18.2% of revenues within our wholesale segment during fiscal 2022. Our ten largest customers were all within our wholesale segment and represent 10.8% of our consolidated net sales in fiscal 2022. These customers are the GSA and nine independent retailers. No single customer represented more than 5% of our consolidated net sales in fiscal 2022.

 

Retail Segment. The retail segment, which accounted for 84.4% of net sales during fiscal 2022, 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 June 30, 2022, the Company operated 141 design centers within our retail segment.

 

The accounting policies of the operating segments are the same as those described in Note 3, Summary of Significant Accounting Policies. 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.

 

Information for each of the last three fiscal years is provided below (in thousands):

 

  

Fiscal Year Ended June 30,

 
  

2022

  

2021

  

2020

 

Net sales

            

Wholesale segment

 $483,842  $413,076  $337,948 

Less: intersegment sales

  (355,964)  (282,878)  (210,911)

Wholesale sales to external customers

  127,878   130,198   127,037 

Retail segment

  689,884   554,971   462,800 

Consolidated total

 $817,762  $685,169  $589,837 
             

Income before income taxes

            

Wholesale segment

 $63,930  $52,281  $33,106 

Retail segment

  80,496   28,824   (21,414)

Elimination of intercompany profit(a)

  (6,176)  (3,820)  2,952 

Operating income

  138,250   77,285   14,644 

Interest and other financing costs

  201   481   739 

Other income (expense), net

  72   (393)  284 

Consolidated total

 $138,121  $76,411  $14,189 
             

Depreciation and amortization

            

Wholesale segment

 $6,439  $6,714  $7,107 

Retail segment

  9,548   9,671   9,752 

Consolidated total

 $15,987  $16,385  $16,859 
             

Capital expenditures

            

Wholesale segment

 $8,125  $5,618  $7,454 

Retail segment

  5,262   6,411   8,255 

Consolidated total

 $13,387  $12,029  $15,709 

 

 

(a)

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

 

  

June 30,

 

(in thousands)

 

2022

  

2021

  

2020

 

Total Assets

            

Wholesale segment

 $341,466  $298,332  $255,011 

Retail segment

  412,176   412,066   390,635 

Inventory profit elimination(a)

  (33,747)  (27,153)  (22,857)

Consolidated total

 $719,895  $683,245  $622,789 

 

 

(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.

 

Geographic Information

 

Our international net sales are comprised of our wholesale segment sales to independent retailers and our retail segment sales to customers through our Company-operated design centers. The number of international design centers and the related net sales as a percentage of our consolidated net sales are shown in the following tables.

 

  

Fiscal Year Ended June 30,

 
  

2022

  

2021

  

2020

 

Independent retailer design centers

  122   127   125 

Company-operated design centers

  4   5   6 

Total international design centers

  126   132   131 

% of total design centers international

  42.6%  43.7%  43.1%

% of consolidated net sales

  4.0%  5.1%  5.7%

 

Sales by Country

 

2022

  

2021

  

2020

 

United States

  96.0%  94.9%  94.3%

All Others

  4.0%  5.1%  5.7%

 

The following table sets forth long-lived assets by geographic area at June 30 (in thousands):

 

  

2022

  

2021

  

2020

 

United States

 $295,747  $311,529  $319,012 

Mexico

  15,085   15,381   14,474 

Honduras

  9,967   8,347   8,049 

Canada

  3,513   4,919   4,485 

Total long-lived assets(1)

 $324,312  $340,176  $346,020 

 

 

(1)

Long-lived assets consist of property, plant and equipment and operating lease right-of-use assets and exclude goodwill, intangible assets, deferred income taxes and other assets.