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Note 20 - Segment Information
 12 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

(20)

Segment Information

 

Ethan Allen conducts business globally and has strategically aligned its business into two reportable segments: Wholesale and Retail. These two segments represent strategic business areas of our vertically integrated enterprise that operate separately and provide their own distinctive services. Our operating segments are aligned with how the Company, including our chief operating decision maker, manages the business. We evaluate performance of the respective segments based upon sales and operating income. The accounting policies of the operating segments are the same as those described in Note 3, Summary of Significant Accounting Policies. 

 

  

Wholesale Segment. The wholesale segment 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. Wholesale revenue is recorded upon the shipment of our products to our retail network of independently operated design centers, Company-operated design centers, and other third-party contract business customers and accounted for 16.4% of net sales during fiscal 2024 compared to 16.3% in the prior year period. Our wholesale segment’s net sales include sales to our retail segment, which are eliminated in consolidation. Our ten largest customers were all within our wholesale segment and accounted for 22% of wholesale sales during fiscal 2024 compared with 21% of wholesale sales during fiscal 2023. These customers were nine independent retailers and the United States government GSA, which individually represented 7% of our consolidated net sales in fiscal 2024.

 

Within the wholesale segment, we record revenue information according to each respective product line (i.e. case goods, upholstery and home accents). Wholesale profitability includes (i) the wholesale gross margin, which represents the difference between the wholesale net sales price and the cost associated with manufacturing and/or sourcing the related product, and (ii) other operating costs associated with wholesale segment activities. The wholesale segment’s product line revenue, expressed as a percentage of net sales during fiscal 2024, is comprised of 49% upholstered products, 32% case goods and the remaining 19% home accents and other.

 

Our independent retailers are required to enter into license agreements with us, which authorize the use of certain Ethan Allen trademarks and require adherence to certain standards of operation, including a requirement to fulfill related warranty service agreements. We are not subject to any territorial or exclusive retailer agreements in North America.

 

Retail Segment. The retail segment sells home furnishings and accents to clients through 142 Company-operated design centers and accounted for 83.6% of net sales during fiscal 2024 compared to 83.7% in the prior year period. Ethan Allen design centers are typically located in busy retail settings as freestanding destinations or as part of town centers, lifestyle centers, and suburban shopping malls, and average approximately 13,800 square feet in size. Over the past 10 years, 43% of our design centers are new or have been relocated as we continually evaluate our retail footprint. Other initiatives include regularly updating presentations and floor plans, strengthening the qualifications of our designers through training and certifications and combining technology with personal service in our design centers, which has also allowed us to reduce headcount and the size of our design centers. In the past five years, we have either opened or relocated 20 design centers with an average size of 7,600 square feet. These smaller footprint design centers reflect our shift to lifestyle centers that better project our brand and offer increased traffic opportunities. During fiscal 2024, we strategically relocated two design centers (New York, NY and Louisville, KY), to locations that have bright, open, and modern layout designs. The geographic distribution of our retail design center locations is disclosed under Item 2, Properties, contained in Part I of this Annual Report on Form 10-K.

 

Retail segment revenue is recorded upon the delivery of our products to our retail customers. 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. We measure the performance of our design centers primarily based on net sales and operating income on a comparable period basis. The frequency and timing of our promotional events can affect comparability during a given period. Due to the nature of the business in which the retail segment operates, there are no customer concentration risks. The retail segment’s product line revenue, expressed as a percentage of net sales during fiscal 2024, is comprised of 50% upholstered products, 28% case goods and the remaining 22% home accents and other.

 

Intersegment. 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, interest and other income, 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,

  
   

2024

    

2023

    

2022

  

Net sales

                        

Wholesale segment

   $ 371,087     $ 449,591     $ 483,842  

Less: intersegment sales

     (265,416 )     (320,764 )     (355,964 )

Wholesale sales to external customers

     105,671       128,827       127,878  

Retail segment

     540,550       662,555       689,884  

Consolidated total

   $ 646,221     $ 791,382     $ 817,762  
                         

Income before income taxes

                        

Wholesale segment

   $ 48,707     $ 68,792     $ 63,930  

Retail segment

     24,704       67,256       80,496  

Elimination of intercompany profit(a)

     4,580       1,148       (6,176 )

Operating income

     77,991       137,196       138,250  

Interest and other income, net

     7,700       4,042       72  

Interest and other financing costs

     245       213       201  

Consolidated total

   $ 85,446     $ 141,025     $ 138,121  
                         

Depreciation and amortization

                        

Wholesale segment

   $ 6,336     $ 6,328     $ 6,439  

Retail segment

     9,620       9,286       9,548  

Consolidated total

   $ 15,956     $ 15,614     $ 15,987  
                         

Capital expenditures

                        

Wholesale segment

   $ 4,240     $ 6,787     $ 8,125  

Retail segment

     5,366       7,098       5,262  

Consolidated total

   $ 9,606     $ 13,885     $ 13,387  

 

(a)

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

 

   

June 30,

  

(in thousands)

  

2024

    

2023

    

2022

  

Total Assets

                        

Wholesale segment

   $ 379,693     $ 373,921     $ 341,466  

Retail segment

     392,243       403,651       412,176  

Inventory profit elimination(a)

     (27,019 )     (32,119 )     (33,747 )

Consolidated total

   $ 744,917     $ 745,453     $ 719,895  

 

(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 in Canada.

 

The following table sets forth consolidated net sales by geographic area for each of the past three fiscal years:

 

   

Fiscal Year Ended June 30,

  

 

  

2024

    

2023

    

2022

  
Sales by Country                  

United States

     96.7 %     97.0 %     96.0 %

All Others

     3.3 %     3.0 %     4.0 %

 

 

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

 

   

2024

    

2023

    

2022

  

United States

   $ 296,849     $ 301,951     $ 295,747  

Mexico

     17,986       20,695       15,085  

Honduras

     11,245       10,686       9,967  

Canada

     3,420       4,696       3,513  

Total long-lived assets(1)

   $ 329,500     $ 338,028     $ 324,312  

 

(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.