UPDATE 2-Ethan Allen posts Q3 loss, sees charges in Q4

Wed Apr 28, 2010 2:26pm EDT

* Sees $1.5 mln restructuring charges in Q4

* Q3 adj shr/loss $0.05 vs est $0.00

* Q3 net sales up 5 pct, in line with Street View

* Q3 gross margin 49 pct vs 47 pct year-ago

* Shares fall as much 14 pct (Recasts, adds conference call details, analyst comment, updates share movement)

By Shradhha Sharma

BANGALORE, April 28 (Reuters) - Ethan Allen Interiors Inc (ETH.N) reported a wider-than-expected quarterly loss, as it struggled to reign in transition costs related to plant closures, and said it sees another $1.5 million in related costs in the fourth quarter, sending its shares down as much as 14 percent. On a conference call with analysts, Chief Executive Farooq Kathwari said the furniture retailer continues to incur transition costs related to both its closed plants and for ramping up production.

"While business continues to improve, we are still cautious in our outlook, and will need to see another quarter of solid retail activity to project a level of acceptable profitability," CEO Kathwari said on the call. Ethan Allen recorded a $2.1 million, or 5 cents a share, charge related to the transition during the third quarter. [ID:nWNAB3328]

The restructuring relates to the consolidation of four company plants and the ramp up of its upholstery plants and transition to custom case goods, which also hurt second-quarter gross margins by 7 cents a share.

"They did improve their results pretty drastically year-over-year... but the street was looking for more of a rebound in sales translating into the earnings line," Wall Street Strategies analyst Brian Sozzi said.

"As we expected, Ethan Allen's transition to custom casegoods manufacturing and a smaller distribution footprint were the main culprits in the gross margin shortfall compared to consensus."

Shares of the Danbury, Connecticut-based retailer touched a low of $20.51, but recouped some of their losses later and were trading down $2.12 at $21.61 Wednesday afternoon on the New York Stock Exchange.

NARROWER Q3 LOSS

For the third-quarter ended March 31, the furniture retailer posted a net loss of $855,000 or 3 cents a share, down from a loss of $48.7 million, or $1.69 a share, a year earlier.

Excluding restructuring, impairments, transition charges, Ethan Allen posted a loss of 5 cents a share.

"A year-over-year improvement is not enough. If you drill into these numbers, they missed by about 260 basis points on gross margins," analyst Sozzi said.

Ethan Allen saw a slight improvement in quarterly gross margins to 49 percent, compared with 47 percent a year ago.

It also reported strong early 2010 orders. Consolidated booked orders for the quarter jumped 20 percent to about $176 million, said in a statement.

"Our consolidated booked orders, if maintained, would translate to annual sales of about 700 million, which would provide us an opportunity to be profitable," CEO Kathwari said on the call.

Net sales at the company rose 5 percent to $147.3 million. [ID:nASA009YM] The upper-end retailer, which had retained its full prices throughout most of the economic downturn, is now offering more promotions to curtail share losses and appeal to a wider range of shoppers.

Analysts on average, were expecting the company to break even, and report net sales of $147.3 million, according to Thomson Reuters I/B/E/S. (Reporting by Shradhha Sharma in Bangalore; Editing by Jarshad Kakkrakandy)