The dust has settled; the battle for Ethan Allen is over; and a new management team has taken the reins. Exactly what they will do remains to be seen, but one thing is clear: They are expected to move fast and furious to reinvent one of the furniture industry’s most iconic legacy brands.
Following a proxy fight led by investor Doug Bergeron, longtime Ethan Allen CEO Farooq Kathwari is gone, succeeded by Neiman Marcus alumna Stefanie Tsen Ward on an interim basis. Bergeron has become executive chairman of an expanded Ethan Allen board controlled by his allies.
Just days after taking over, Bergeron was working on plans to recharge a brand that has been in decline since the pandemic surge and has appeared inconsistent in its go-to-market strategies.
“Today marks Day One of our 100 day plan,” he stated in a press release this week. “Every one of our new directors are working on the ground in Danbury [Ethan Allen’s corporate headquarters in Connecticut] rolling up their sleeves with management to identify early wins we can actualize now. This week we also are visiting our manufacturing facilities in Vermont, Virginia and North Carolina to meet the people who make our products great. […] For the employees, customers and shareholders of Ethan Allen, a new day begins.”
Ethan Allen had delayed releasing its first-quarter financial results until after the proxy vote was decided, and on Monday it was plain to see why. The company issued disappointing numbers across the board, with a 9.1 percent drop in revenues, from $147 million to $129.6 million. Operating margins also declined from last year’s 7.2 percent to 1.3 percent.
One of Bergeron’s first steps was to cut the dividend Ethan Allen paid out to shareholders from $.39 to $.20, a move designed to free up cash his team will need to carry out their transformation plans. So far Wall Street has not reacted positively to the drama at the company. On Monday, its stock dropped roughly 10 percent, from $20 to $18 per share.
Telsey Advisory Group, a brokerage focused on the consumer sector, wrote in a recent report that “Ethan Allen is a company in transition. Under new leadership, there is the potential for the brand to modernize and achieve improved results over time. In the near term, investors are likely to be disappointed in the meaningful dividend cut, the weak [first-quarter] result and the investments that will likely be needed to execute a transformation.”
There are currently about 150 Ethan Allen locations in the U.S., most of which are company-owned. The company produces about 75 percent of its upholstery products in North America—a strategy that runs counter to most furniture production, which has moved overseas. This is what Bergeron and Ward are inheriting at a time when the entire home furnishings business has been in a funk caused by the dismal state of the housing market, increased costs and reduced overall demand following the surge of purchasing during the pandemic years.
Bergeron’s “new day” will not be an easy one.