Ethan Allen Interiors Inc. ETH disappointed investors Tuesday as the interior design company guided its fiscal second-quarter results below the Street's estimates.
The Analyst
Telsey Advisory Group's Cristina Fernández downgraded Ethan Allen's stock rating from Outperform to Market Perform with a price target lowered from $33 to $27.
The Thesis
Ethan Allen's fiscal Q2 EPS guidance range of 51 to 52 cents was in-line with expectations, but approximately 14 cents per share of the figure is due to a benefit from a lower tax rate of 17 percent versus projections of 36.2 percent, Fernández said in the downgrade note. (See the analyst's track record here.)
The $198.5-million revenue guidance implies sales rose just 1.8 percent, short of the analyst's prior estimate of $212 million. The gross margin rate declined 120 basis points to 54.3 percent, below Fernandez' expectation of 55.5 percent.
Perhaps more important, Ethan Allen's soft sales come at a time when the company's backlog is elevated, as wholesale orders rose 62 percent and retail was up by 12 percent, the analyst said. Coupled with ongoing competitive concerns and expectations for several manufacturing issues to persist, investors may want to consider moving to the sidelines, she said.
Looking forward, Ethan Allen's sales growth will likely be flat to slightly up, with a flattish operating margin profile, the analyst said. This compares to a prior bullish stance of accelerating sales growth and operating margin expansion.
Price Action
Shares of Ethan Allen Interiors were trading lower by nearly 9 pecent early Wednesday afternoon.
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Benzinga's Top Upgrades, Downgrades For January 17, 2018
Photo by Dwight Burdette/Wikimedia.
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