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Bear of the Day: Ethan Allen (ETH)

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Founded in 1932, Ethan Allen Interiors Inc. (ETH - Free Report) is an interior design company and manufacturer and retailer of quality home furnishings. Through its website and network of design center locations in the U.S. and abroad, the company offers free interior design services to customers and sells a full range of furniture products and decorative accessories. 

Last year, Ethan Allen struck up a partnership with online retail giant Amazon (AMZN - Free Report) where Ethan Allen product would be sold on in its own unique part of the shopping platform. This marked the first time the company’s furniture and accessories were sold outside of Ethan Allen locations.

Q3 Results

The Zacks Rank #5 (Strong Sell) stock reported third-quarter fiscal 2018 results a few weeks ago, and while the top and bottom line fell in-line with the Zacks Consensus Estimates, analysts weren’t too impressed with the quarterly performance.

Adjusted earnings were 11 cents per share compared to 23 cents in the prior year quarter, while consolidated net sales grew just 0.5% to $181 million.

Adjusted net income was $3 million, down by over half when compared to last year. Looking at adjusted operating income, this metric was $4.4 million, or 2.4% of sales.

Retail written orders increased 2.6% year-over-year, and backlogs increased 15% in its retail division and 70% in its wholesale division.

Additionally, the company’s total debt of $1.7 million decreased $12.6 million from last June thanks to an early payoff. This reduced borrowings to zero.

Earnings Outlook Lowered

As a result, estimates took a hit in the days following the report.

For the current quarter, three analysts cut their outlook in the last 60 days, and the consensus has dipped 10 cents from $0.53 to $0.43 per share. Earnings are only expected to grow around 2.4% for the quarter.

Five analysts have revised their estimates downward for the current fiscal year, and earnings are projected to fall over 8%. The consensus has decreased from $1.58 to $1.33 per share.

Looking at the next fiscal year, earnings could grow about 25%, and the current consensus sits at $1.67 per share.

Can ETH Get Back on Track?

Shares of Ethan Allen are down 19% so far this year and down well over 27% in the past one year. Compared to the S&P 500, the index has lost about 2.6% and gained 9%, respectively.

The company is currently trading at a forward P/E of about 17.3X.

Looking ahead, Ethan Allen hopes that its recently unveiled initiatives will help push their business forward. Thanks to improvements in their wholesale segment—which did see a 7% lift last quarter—and an expansive marketing campaign, ETH hopes to boost traffic both on its website and in its retail stores. The company’s CEO, Farooq Kathwari, says he and Ethan Allen “remain cautiously optimistic.”

For investors wanting a retail stock in the Home Furnishings space with more near-term potential, they should consider At Home Group Inc. (HOME - Free Report) , a company that owns and operates home-decorating accessories stores in the U.S. It’s a #2 (Buy) on the Zacks Rank right now and earnings could grow almost 30% for the current fiscal year.

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