Ethan Allen Announces Second Quarter Sales and Earnings

    Business Editors

    DANBURY, Conn.--(BUSINESS WIRE)--Jan. 19, 2005--Ethan Allen Interiors Inc. (NYSE:ETH) today reported sales and earnings for the three and six months ended December 31, 2004.
    Net delivered sales for the quarter ended December 31, 2004 increased 1.7% to $245.3 million from $241.2 million in the prior year quarter. Net delivered sales for the Company's Retail division increased 4.2% to $155.8 million, while Wholesale sales decreased 1.4% to $161.3 million during that same period. Comparable Ethan Allen store delivered sales increased 1.8% over the prior year quarter. During that same period, Retail division written sales increased 8.2% while comparable store written sales increased 5.7%.
    For the six months ended December 31, 2004, net sales increased 2.5% to $475.6 million from $463.9 million in the prior year. Net delivered sales for the Company's Retail division increased 5.4% to $297.5 million, while Wholesale sales were relatively unchanged at $322.7 million. Year-to-date, comparable Ethan Allen store delivered sales increased 3.3% over the prior year period. During that same period, Retail division written sales increased 3.8% while comparable store written sales increased 1.8%.
    Earnings per share amounted to $0.64 for the current quarter, unchanged from the prior year comparable period. Current quarter operating income totaled $36.8 million, or 15.0% of net sales, and net income amounted to $23.3 million. This compares to $39.1 million and $24.4 million, respectively, in the prior year quarter.
    Farooq Kathwari, Chairman and CEO, commented: "During the quarter, we launched a program to increase the distribution of the Ethan Allen direct mail magazine. We distributed over 11 million magazines during the quarter, representing an increase of 33% over historical levels for the period, and resulting in additional costs of $1.1 million, or $0.02 per share. This decision had a positive impact on our business as reflected in the 5.7% increase in Retail division comparable store written sales."
    Earnings per share for the current six month period totaled $1.15, representing an increase of 1.8% from prior year comparable period earnings per share of $1.13. Year to date operating income totaled $68.0 million, or 14.3% of net sales, and net income amounted to $42.2 million. This compares to $67.7 million and $43.3 million, respectively, in the prior year period.
    During the six months ended December 31, 2004, Ethan Allen spent $38.4 million to repurchase 1.1 million shares of its stock in the open market. As of the end of the current quarter, the Company has a remaining authorization to repurchase an additional 2 million shares. In May 2004, the Company paid a $3.00 per share special dividend, and during the first quarter of the current fiscal year the Board increased the regular quarterly dividend by 50%, from $0.10 per share to $0.15 per share.
    Mr. Kathwari commented: "We are gratified that our strong merchandising and marketing programs have enabled us to increase sales, maintain high levels of profitability, and continue to increase shareholder value through share repurchases and cash dividends."
    Mr. Kathwari further stated: "Our growth strategy continues to be focused on providing solutions to make the decorating process easier for our customers. In the coming months, we will continue to increase the distribution of our "Furnishing Solutions by Ethan Allen" direct mail magazine which will feature the exciting introduction of new collections that update the casual side of our business and compliment the updates we've introduced during the past two years on the formal side of our business. By this spring, 70% of our product offerings will have been newly introduced within the past three years."
    "We also continue to focus on rejuvenating our store network by adding new stores and relocating existing stores to better locations. Over the past five years, we've opened 66 new stores. During the quarter, we opened a new store in Palm Desert, California, and within the past few weeks we've relocated two stores in the Chicago area. Our objective is to develop stylish, quality products at great values, create stores that inspire our associates and our customers, and maintain a well-trained and motivated team to assist in providing decorating solutions to consumers."
    Ethan Allen Interiors Inc. is a leading manufacturer and retailer of quality home furnishings. The Company sells a full range of furniture products and decorative accessories through an exclusive network of 313 retail stores in the United States and abroad, of which 124 are Company-owned. Ethan Allen has 12 manufacturing facilities, which include 2 sawmills, located throughout the United States.
    The Company will conduct a Conference Call at 11:00 AM (Eastern) on Wednesday, January 19th. The live webcast and replay are accessible via the Company's website at www.ethanallen.com/investors.

    This press release should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 2004 and other reports filed with the Securities and Exchange Commission. Management's discussion in this release contains forward-looking statements relating to future results of the Company. These forward-looking statements are subject to various assumptions, risk and uncertainties, and accordingly, actual results could differ materially from those contemplated by the forward-looking statements.

Ethan Allen Interiors Inc. Selected Financial Information (In millions)

Selected Consolidated Financial Data: ------------------------------------

Three Months Ended Six Months Ended ------------------- ------------------- 12/31/04 12/31/03 12/31/04 12/31/03 --------- --------- --------- --------- Net Sales $ 245.3 $ 241.2 $ 475.6 $ 463.9 Gross Margin 48.7% 48.2% 48.3% 48.4% Operating Margin 15.0% 16.2% 14.3% 14.6% Net Income $ 23.3 $ 24.4 $ 42.2 $ 43.3

Operating Cash Flow $ 29.4 $ 26.5 $ 66.8 $ 76.5 Capital Expenditures $ 7.9 $ 5.2 $ 15.4 $ 9.2 Treasury Stock Repurchases (settlement date basis) $ 20.5 $ - $ 39.1 $ -

EBITDA $ 43.1 $ 45.1 $ 79.5 $ 81.1 EBITDA as % of Net Sales 17.6% 18.7% 16.7% 17.5%

Selected Financial Data by Business Segment: -------------------------------------------

Three Months Ended Six Months Ended ---------------------- ---------------------- Retail 12/31/04 12/31/03 12/31/04 12/31/03 ------ ----------- ---------- ---------- ----------- Net Sales $ 155.8 $ 149.6 $ 297.5 $ 282.3 Operating Margin 4.0% 4.0% 3.1% 2.2%

Three Months Ended Six Months Ended ---------------------- ----------------------- Wholesale 12/31/04 12/31/03 12/31/04 12/31/03 --------- ---------- ----------- ---------- ----------- Net Sales $ 161.3 $ 163.7 $ 322.7 $ 322.6 Operating Margin 16.6% 18.5% 17.1% 17.7%

Ethan Allen Interiors Inc. Condensed Consolidated Statements of Operations (In thousands, except per share amounts)

Three Months Six Months Ended December 31, Ended December 31, 2004 2003 2004 2003

Net sales $245,252 $241,150 $475,598 $463,915 Cost of sales 125,796 124,871 245,749 239,193 ------- ------- ------- -------- Gross profit 119,456 116,279 229,849 224,722 Operating expenses: Selling 46,676 41,221 89,889 85,830 General and administrative 36,041 35,946 72,153 71,468 Restructuring and impairment charges (52) - (219) (264) ------- ------- ------- -------- Total operating expenses 82,665 77,167 161,823 157,034 ------- ------- ------- -------- Operating income 36,791 39,112 68,026 67,688 Interest and other miscellaneous income 1,301 737 1,246 2,948 Interest and other related financing costs 138 167 287 308 ------- ------- ------- -------- Income before income tax expense 37,954 39,682 68,985 70,328 Income tax expense 14,688 15,284 26,790 26,991 ------- ------- ------- -------- Net income $ 23,266 $ 24,398 $ 42,195 $ 43,337 ======= ======= ======= ========

Basic earnings per share: ------------------------ Net income per share $ 0.65 $ 0.65 $ 1.18 $ 1.16 ======= ======= ======= ======== Basic weighted average shares outstanding 35,601 37,269 35,906 37,248 Diluted earnings per share: -------------------------- Net income per share $ 0.64 $ 0.64 $ 1.15 $ 1.13 ======= ======= ======= ======== Diluted weighted average shares outstanding 36,564 38,420 36,831 38,333

Reconciliation of GAAP to Non-GAAP Information: ----------------------------------------------

Net income $ 23,266 $ 24,398 $ 42,195 $ 43,337 Add: interest expense 115 132 237 238 Add: income tax expense 14,688 15,284 26,790 26,991 Add: depreciation and amortization 5,076 5,240 10,326 10,505 ------- ------- ------- -------- EBITDA $ 43,145 $ 45,054 $ 79,548 $ 81,071 ======= ======= ======= ======== Net Sales $245,252 $241,150 $475,598 $463,915 ======= ======= ======= ======== EBITDA as % of Net Sales 17.6% 18.7% 16.7% 17.5% ======= ======= ======= ========

Ethan Allen Interiors Inc. Condensed Consolidated Balance Sheets (in Thousands) December 31, June 30, 2004 2004

Assets Current Assets: Cash and cash equivalents $ 33,045 $ 27,528 Accounts receivable, net 21,172 26,967 Inventories 171,117 186,895 Prepaid expenses and other current assets 58,804 54,192 ---------- --------- Total current assets 284,138 295,582

Property, plant, and equipment, net 274,542 277,021 Intangible assets 80,980 80,038 Other assets 3,163 1,790 ---------- --------- Total Assets $ 642,823 $ 654,431 ========== ========= Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt and capital lease obligations $ 80 $ 4,712 Customer deposits 51,658 56,026 Accounts payable 19,957 22,222 Accrued expenses and other current liabilities 57,916 53,729 ---------- --------- Total current liabilities 129,611 136,689

Long-term debt 4,471 4,509 Other long-term liabilities 1,037 1,205 Deferred income taxes 51,782 51,248 Total liabilities 186,901 193,651

Shareholders' equity 455,922 460,780 ---------- --------- Total Liabilities and Shareholders' Equity $ 642,823 $ 654,431 ========== =========

--30--TB/ny*

CONTACT: Ethan Allen Interiors Inc. Investor/Media Contact: Peg Lupton, 203-743-8234

KEYWORD: CONNECTICUT INDUSTRY KEYWORD: CONSUMER/HOUSEHOLD RETAIL EARNINGS CONFERENCE CALLS SOURCE: Ethan Allen Interiors Inc.

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