Ethan Allen Interiors Inc. · NYSE:ETD
Ethan Allen Interiors — Proxy Contest (November 2015)
66 slides from Ethan Allen Interiors's proxy contest presentation, Nov 5, 2015
Slide 1: Executive Summary
Ethan Allen Investor Presentation Executive Summary ICONIC BRAND – We differentiate ourselves from our competitors by leveraging our strong brand equity in creative and compelling ways that remind consumers of our tremendous range of home furnishing products, professional interior designer services,
Slide 2: Agenda
Ethan Allen Investor Presentation Company Overview Transformation Strategies – Positioned to Grow Strong Financial Profile Review of Financial Opportunities Effective Corporate Governance Setting the Record Straight Summary Conclusions 3
Slide 3: Company Overview
Company Overview Ethan Allen (NYSE:ETH) is a vertically integrated, leading interior design company and a manufacturer, wholesaler, and retailer of quality home furnishings. • The Company offers complimentary interior design service to its clients and sells a full range of furniture products and dec
Slide 4: Results for FY2016 First Quarter Ended September 30, 2015
RESULTS FOR FY2016 FIRST QUARTER ENDED SEPTEMBER 30, 2015 • • Sales of $190.4 million. Previous year $190.7 million Total cash and securities of $94.8 million compared to $86.4 million at prior fiscal year end Paid dividends of $4.0 million, an increase of 38% over the prior year quarter Gross margi
Slide 5: October 2015 Written Orders
October 2015 Written Orders • Total written orders in Company’s Retail Division for the month of October increased 33.9% and comparable written orders increased 32.3%, compared to the previous year October Record written orders for the month of October 2015 exceeds strong written prior year month of
Slide 6: Home Furnishings Industry Overview
Home Furnishings Industry Overview • Home Furnishing market is a stable and growing $200+ billion industry, expected to grow at a compounded annual growth rate 4.6% through 2021 Key drivers include: consumers’ spending and return to housing market, increasing housing churn, increasing home prices an
Slide 7: Transformation Strategies
Transformation Strategies The Board and Management’s Growth Strategy for the Company coming out of the Great Recession – The Path to Exceeding $1 Billion in Sales • Enhance competitive differentiation - - Emphasize product customization and North American artisanship Maintain our vertically integrat
Slide 8: Transformation Strategies
Transformation Strategies The Board and Management’s Growth Strategy for the Company coming out of the Great Recession – The Path to Exceeding $1 Billion in Sales • Develop a more effective and targeted retail network - Renovate, relocate and add new design centers to increase traffic and enhance th
Slide 9: Transformation Strategies
Transformation Strategies The Board and Management’s Growth Strategy for the Company coming out of the Great Recession – The Path to Exceeding $1 Billion in Sales • Expand digital commerce to reach wider demographic - - Move to new cloud platform for website Update Website to serve dual purpose o In
Slide 10: Vertically Integrated Business Model
Vertically Integrated Business Model Requires a Strong and Diversified Board and Management Team Case Goods DESIGN CENTERS Accents Product Sourcing Suppliers Vertically integrated structure from design to delivery provides a superior customer experience: relevant product design, consistent quality,
Slide 11: Strengthened Vertically Integrated Structure From Design through Delivery
Strengthened Vertically Integrated Structure From Design through Delivery Case Goods Manufacturing - Upholstery Manufacturing - Accents Manufacturing Offshore Sourcing - Logistics • • 70% of furniture products manufactured by Ethan Allen 80% of furniture products are custom made-to-order and can be
Slide 12: Manufacturing and Logistics Footprint
Strengthened Vertically Integrated Structure from Design through Delivery Manufacturing and Logistics Footprint Own and operate 8 manufacturing facilities in the U.S. (6), Mexico (1), and Honduras (1) Manufacture and/or assemble approximately 70% of our furniture products in our own North American p
Slide 13: Quality Craftsmanship: A Cornerstone of the Brand
Quality Craftsmanship: A Cornerstone of the Brand • • • • • Much of our furniture is built by hand, one piece at a time, in our own North American workshops Most frames are hand-assembled and stitching is guided by hand We select international partners as committed to quality as we are All case good
Slide 14: Expanded and Repositioned Retail Design Centers Network
Expanded and Repositioned Retail North American Design Centers Network • In the past 5 years, opened 25 company-operated stores, including 14 relocations, and 79 independently operated stores, including 23 relocations Relocating to Design Centers with smaller footprints, reflecting changes in consum
Slide 15: Innovative Global Home Furnishings Provider
Innovative Global Home Furnishings Provider • From its roots as a manufacturer of high-quality home furnishings, Ethan Allen has matched its superior craftsmanship with over 1,500 interior designers and 300 Design Centers around the world Vertically integrated from concept through delivery, affordin
Slide 16: Leading Interior Design Company
Leading Interior Design Company Strengthening Interior Design Network • • • Leading interior design enterprise with 1,500 interior designers in North America Added entrepreneurial interior designers – 60% with entrepreneurial backgrounds Our interior designers directly interact with customers develo
Slide 17: New Competitive Differentiation Offerings
Transformation Strategies – New Competitive Differentiation Offerings Unique product value • Complimentary Design Service – Design Centers staffed with professional designers, offering highly personalized, complimentary service from room planning to color selection • Diversity of Style – Ethan Allen
Slide 18: New Offerings
Transformation Strategies - New Offerings From Fall 2014 to Spring 2016, Ethan Allen has been refreshing about 70% of its product offerings; we have completed Phases I, II and III through Fall of 2015. About 80% of our furniture products are customizable to match our clients’ unique style preference
Slide 19: New Offerings Phase III
Transformation Strategies - New Offerings Phase III: In-Process Fall 2015 • Romantic Classics with influences inspired by European designs Taking inspiration from the classics and modernizing them for today’s living; continued focus on U.S. manufacturing • Phase IV: Implementing Spring 2016 • Casual
Slide 20: Technology & Ecommerce
Transformation Strategies –Technology A key part of our repositioning has been to add technology throughout our business to create a dynamic omni-channel environment. This includes investing in our technological infrastructure–including digital, retail, manufacturing, finance, operations, warehousin
Slide 21: Digital Strategy Objectives
Transformation Strategies –Technology & Ecommerce Ethan Allen’s Digital Strategy Objectives • Provide a rich branding experience for the consumer while introducing them to our interior design services and expansive product offerings that reflect today’s focus on fashion for the home. Drive traffic t
Slide 22: Accelerating Marketing Efforts
Transformation Strategies - Accelerating Marketing Efforts In 2015 with our new merchandise now in place, Ethan Allen has been accelerating its marketing efforts • • • • • Launched Muses, a 328-page Coffee Table Book Sent Out About 30 Million Direct Mail Marketing Magazines Expanded Digital and Tele
Slide 23: Accelerating Marketing Efforts: Direct Mail
Transformation Strategies - Accelerating Marketing Efforts Direct Mail - Fall Issue, September 76 pages Direct Mail - Fall Issue, October 100 pages 24
Slide 24: Accelerating Marketing Efforts: Social Media
Transformation Strategies - Accelerating Marketing Efforts Social Media Focus - The Muse blog, Facebook, Pinterest, Houzz, Twitter, Instagram, Google+, and YouTube 25
Slide 25: Positive Views From Analysts of Strategy & Performance
Transformation Strategies – Positive Views From Analysts of Strategy & Performance “We believe management has done an excellent job with the new product designs, which are still classic yet have a modern flair.” “We believe it will be a bumpy road for the next several quarters and that FY/17 will li
Slide 26: Strong Financial Profile
Strong Financial Profile • Strong Balance Sheet and Sound Fiscal Controls Allowed the Company to Weather the Great Recession Post Great Recession-Rebuilt Operating Performance Rapidly Despite Major Rebuilding and Repositioning of Vertically Integrated Enterprise Managed Cash While Executing Transfor
Slide 27: Financial Profile - Superior Performance
Financial Profile - Superior Performance $740 28 Adjusted Operating Margin 12.0% 10.0% 9.4% 9.3% 8.0% 6.0% 4.0% 2.0% 0.0% 2010 2011 2012 2013 2014 2015 ($ in 000's) Adjusted Operating Income $90 $75 $68.8 $74.3 $70.5 $60 $ 45 $30 $15 $- 2010 2011 2012 2013 2014 2015 5-Year CAGR 119.0% $51.8 $33.7 $1
Slide 28: Financial Profile - Superior Performance
Financial Profile - Superior Performance Adjusted EBDITA 000's) $86.7 $1.47 29 GAAP EPS $2.954-Year CAGR 5.9% $2.45 $1.95 $1.45$1.27 $0.95 $0.45 -$0.05 -$0.55 -$1.05 -$1.55 Adjusted EPS $2.954-Year CAGR 24.9% $2.45 $1.95 $1.45 $0.95 $0.45 -$0.05 -$0.55 -$1.05 -$1.55 $1.71 $1.01 $1.11 $(1.53) 2010 20
Slide 29: Financial Profile - Superior Performance
Financial Profile - Superior Performance Cash Dividends Paid - Total 000's) Special Dividend 2011 2012 2013 2014 2015 30 Dividend Yield 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% Regular Dividends Per Share $0.55 $0.50 $0.45 $0.40 $0.35 $0.30 $0.25 $0.20 20112012201320142015 1.9% 1.6% 1.5% 1.0% 1.3% In
Slide 30: Financial Profile - Superior Performance
Financial Profile - Superior Performance 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x $80 $70 $60 $50 $40 $30 $20 $10 $0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 1.2x 1.0x 1 Free cash flow defined as Adj. EBITDA minus capital expenditures 0.8x 0.6x 0.4x 0.2x 0.0x 2011 2012 2013 2014 2015 31 1.0x
Slide 31: Disciplined Capital Structure and Assets
Review of Financial Opportunities Disciplined Capital Structure and Assets Enabled Us To Survive the Great Recession, When Many of Our Competitors Did Not. • Ethan Allen strategy of owning select real estate assets while maintaining a disciplined capital strategy ensured that Ethan Allen survived th
Slide 32: Consistent Financial Performance and Debt Strategies
Review of Financial Opportunities Consistent Financial Performance and Debt Strategies Prudent Capital and Debt Management • • • Paid down $210.4m of debt during the past 5 fiscal years Improved total leverage from fiscal 2010 of 9.6x to 1.0x in fiscal 2015 Improved net leverage from fiscal 2010 of
Slide 33: Real Estate Strategies
Review of Financial Opportunities - Real Retail Real Estate: Estate Strategies • 53 Design Centers owned after selling and repositioning 38 properties, realizing about $67.2m in net sale proceeds 17 Design Centers subject to land leases 74 Design Centers leased from third parties Current average siz
Slide 34: Real Estate Strategies
Review of Financial Opportunities - Real Estate Strategies • Transitioning Real Estate as Core Part of Our Strategy. Strategic repositioning requires flexibility to continue selling and repositioning existing Design Centers: – From larger legacy Design Centers, averaging about 16,000 sq. ft., to sma
Slide 35: Real Estate Strategies: Capital Structure
Review of Financial Opportunities - Real Estate Strategies • Capital Structure Permits Our Real Estate Strategy. New proposed $250 million debt financing leverages owned properties: – Utilizing owned properties as collateral permits strategic repositioning of real estate footprint Financially engine
Slide 36: Proposed Senior Term Credit Facility and Pro Forma Capitalization
Review of Financial Opportunities The proposed $250m senior term credit facility, along with the $115m senior asset-based facility provides Ethan Allen with significant financial flexibility to execute its strategic plan, including providing a substantial capital return to stockholders, without impr
Slide 37: Proposed $250m Debt
Review of Financial Opportunities Proposed $250m Debt. Ethan Allen is evaluating a $250m debt financing, subject to market conditions. • Secured by substantially all of Ethan Allen real estate and other intangible assets Refinance our outstanding indebtedness and be layered along with our $115 milli
Slide 38: Capital Return Strategies
Review of Financial Opportunities Ethan Allen Capital Return Strategies-In the past 5 fiscal years, Ethan Allen has used internally generated cash to repurchase shares ($20.6m), pay dividends ($60.7m), make store acquisitions and support capital expenditures ($96.3m), and make substantial debt repay
Slide 39: Focus on Shareholder Returns
Focus on Shareholder Returns • Long and consistent history of returning value to stockholders, including payments of Regular and Special Dividends Total Dividends Paid $348.4 million • (millions) Annual Dividends Paid 40 2013 Paid $0.50 Special Dividend 2004 Paid $3.00 Special Dividend (millions) La
Slide 40: Focus on Shareholder Returns: Share Repurchases
Focus on Shareholder Returns • Long and consistent history of returning value to stockholders, including frequent Share Repurchases Total Share Repurchases $549.2 million • ( $ thousands ) Annual Share Repurchases $39.1 41 $90.0 $85.1 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $.9 $3.6 $.0 1993
Slide 41: Focus on Shareholder Returns
Focus on Shareholder Returns • Leveraging our strong operational performance to generate excess cash, which is returned to stockholders through special and ordinary dividends and stock buybacks. Share price valuation metrics have remained consistently on par with our furniture peers during major tra
Slide 42: Shareholder Returns: Total Shareholder Return
Shareholder Returns Total Shareholder Return • • Strong returns with opportunity for accelerated growth. New debt financing provides opportunity for increased shareholder returns. BSET Total 1 year Shareholder Return 110% 90% 70% 50% 30% WSM LZB RUSSELL 10% -10% -30% as of 6/30/2015, compound annual
Slide 43: Shareholder Returns: Total Shareholder Return
Shareholder Returns 44 Total 5 year Shareholder Return 60% 50% 40% 30% 20% 10% 0% as of 6/30/2015, compound annual growth rate with dividends reinvested Total 3 year Shareholder Return 60% 50% 40% 30% 20% 10% 0% -10% PIR as of 6/30/2015, compound annual growth rate with dividends reinvested BSET LZB
Slide 44: Superior Operating Performance: EPS and Dividend Yields
Superior Operating Performance-Post Great Recession Ethan Allen Maintains Consistently Stronger EPS and Dividend Yields Than Our Furniture Peers. Ethan Allen’s vertical integration provides greater operating leverage than our furniture peers. $3.00 2.5% PIR 45 Dividend Yield 2.0% ETH LZB 1.5% HVT 1.
Slide 45: Superior Operating Performance: Gross Margins
Superior Operating Performance-Post Great Recession Ethan Allen Maintains Consistently Higher Gross Margins Than Our Furniture Peers. Ethan Allen’s vertical integration, with a strong manufacturing and retail base, enables Ethan Allen to maintain consistently higher gross margins than our furniture
Slide 46: Superior Operating Performance: EBITDA Margins
Superior Operating Performance-Post Great Recession Ethan Allen Maintains Consistently Higher EBITDA Margins Than Our Furniture Peers. Ethan Allen’s merchandising and vertical integration structure, along with prudent financial management, enables Ethan Allen to maintain a consistently higher EBITDA
Slide 47: Opportunity for Increased Shareholder Returns
Opportunity for Increased Shareholder Returns ($, millions except per share) Opportunity Scenarios As sumptions : FY2015 reflects adjusted results , excluding one-time nonrecurring charges . Opportunity scenarios exclude one-off special adjustments and are normalized annual opportunities ; quarterly
Slide 48: Good Corporate Governance
Good Corporate Governance We Continue to Implement Important Corporate Changes • • • Implemented Non-Binding Vote on Executive Compensation – 2011 Eliminated Shareholder Rights Plan – 2012 At the 2013 Annual Meeting, implemented an number of significant changes: – – – – Appointed Lead Director Elimi
Slide 49: Good Corporate Governance: Independent Board
Good Corporate Governance Independent Board. All members of our Board are independent directors, with exception of our Chairman of the Board who is also the Chief Executive Officer Independent Board Committees. All members of our Committees are independent directors Independent Executive Sessions. R
Slide 50: Good Corporate Governance: Independent and Engaged Board
Good Corporate Governance Independent and Engaged Board Skilled, Diversified and Engaged Board. Best practices in good governance. • Refreshed Board: – – – 83% (5 of 6) of independent directors new in past five years. 50% (3 of 6) of independent directors new in past three years. 33% (2 of 6) of ind
Slide 51: Good Corporate Governance: Executive Compensation Initiatives
Good Corporate Governance Executive Compensation Initiatives Strong Say on Pay Support. At our 2014 Annual Meeting of Stockholders, 95% of our stockholders voted in support of Ethan Allen management in a "Say On Pay" vote. Background of 2015 Employment Agreement • The Compensation Committee recogniz
Slide 52: Sandell Proxy Contest Observations
Sandell Proxy Contest Observations Ethan Allen has been Engaged with Sandell, with over 23 Interactions. Ethan Allen Has Maintained Communication with Sandell. Ethan Allen invited Sandell to attend our annual investor conference, which they choose not to attend. Ethan Allen advised Sandell of the Bo
Slide 53: Setting the Record Straight
Setting the Record Straight Realized 67.2 million in net sale proceeds by selling 38 properties sale-leaseback the reduces that flexibility joined the Board in the past five years 54 Sandell Claim Fact Ethan Allen should monetize its real estate through a sale-leaseback or other alternatives and ret
Slide 54: Setting the Record Straight
Setting the Record Straight performance-based incentives with about 70% “at risk” 55 Sandell Claim Fact The Company has poor Corporate Governance Policies •No classified Board terms •Independent Committees of the Board with established policies •No Stockholders Rights Plan •No cumulative voting •Boa
Slide 55: Setting the Record Straight
Setting the Record Straight order and require a more hands-on approach to client interaction special and regular dividends and share repurchases 56 Sandell Claim Fact Ethan Allen is falling behind its competitors in the use of its website for ecommerce opportunities •80% of the Company’s furniture p
Slide 56: Sandell Holdings (13-F Filings)
Sandell Source – SEC 13-f filings; Sandell Asset Management Corp, Sandell Investment Services, LLC 58 Sum of (x $1000) Reporting Date Holding 3/31/2014 6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 HOSPIRA $25,890 $27,781 HUDSON CITY BANCORP INC $10,171 $3,503 $3,641 $3,791 $3,735 HUMANA INC $1
Slide 57: Company Has Skilled & Relevant Board
Company has Skilled & Relevant Board. Sandell Nominees are not additive and do not have the critical experience in key areas. 59 Ethan Allen Board Nominees Furniture Industry Experience CEO Level Experience Public Board Experience Experience managing a vertically integrated business Operating Experi
Slide 58: Farooq Kathwari Home Furnishings Industry Leader
Farooq Kathwari Home Furnishings Industry Leader • • Chairman, President and CEO of the Company since 1988 Has extensive experience and knowledge of the history of the Company and the furniture industry as well as extensive experience in growing and managing a business Possesses insight into retaili
Slide 59: James B. Carlson and Clinton A. Clark
JAMES B. CARLSON LEADER IN THE LEGAL AND FINANCIAL INDUSTRIES CHAIRMAN OF THE COMPENSATION COMMITTEE AND A MEMBER OF THE AUDIT COMMITTEE • • Independent Director of the Company since June 10, 2013 Currently a partner in the law firm Mayer Brown LLP. Past Partner-in-Charge of the firm's New York Offi
Slide 60: John J. Dooner, Jr. and Domenick J. Esposito
JOHN J. DOONER, JR. LEADER IN MARKETING AND STRATEGIC COMMUNICATIONS MEMBER OF THE COMPENSATION AND NOMINATIONS COMMITTEES • • Independent Director of the Company since January 26, 2011. Currently Chairman Emeritus of McCann World group, a company he formed in 1997, Former Chief Executive Officer of
Slide 61: Dr. James W. Schmotter and Tara I. Stacom
DR. JAMES W. SCHMOTTER LEADER IN HIGHER EDUCATION ADMINISTRATION LEAD DIRECTOR, CHAIRMAN OF NOMINATIONS COMMITTEE, MEMBER OF AUDIT COMMITTEE • • Director of the Company since April 20, 2010 President Emeritus of Western Connecticut State University, an institution he led eleven years as president; F
Slide 62: Strong Management Team Led by Veteran CEO
Strong Management Team Led by Veteran CEO The Company’s management team is comprised of individuals with vast industry knowledge and a proven track record, critical in a vertically integrated enterprise. The Company is led by Farooq Kathwari, Chairman, President and CEO who is surrounded by a cadre
Slide 63: Ethan Allen Executive Summary
Ethan Allen Investor Presentation Executive Summary ICONIC BRAND – We differentiate ourselves from our competitors by leveraging our strong brand equity in creative and compelling ways that remind consumers of our tremendous range of home furnishing products, professional interior designer services,
Slide 64: Disclaimers (Non-GAAP, Forward Looking, Safe Harbor)
Disclaimers (Non-GAAP, Forward Looking, Safe Harbor) This presentation refers to certain non-GAAP information, which excludes the effects of restructuring, impairment, transition costs, and certain other items recorded during the periods presented. Reconciliations of this non-GAAP information to the
Slide 65: Non-GAAP reconciliation
Non-GAAP reconciliation 2015 2014 2013 2012 2011 2010 2006 Operating income Special items Adjusted Operating income $ 65.9 4.6 $ 70.5 $ 69.6 4.7 $ 74.3 $ 60.4 8.4 $ 68.8 $ 49.7 2.1 $ 51.8 $ 31.9 1.8 $ 33.7 $ (11.7) 13.1 $ 1.4 $ 142.7 4.2 $ 146.9 Operating Margin Special items Adjusted Operating Marg
Slide 66: Non-GAAP reconciliation
Non-GAAP reconciliation amis 2014 2013 22 201 2010 2006 Operatingincome s 69 $ 5 § oa § 47 $ aus $ (a7 $ 1027 Special tems 46 a7 aa 2a 18 Ba 42 ‘Adjusted Operating income s ws $ m3 § wes sus $ BT $ 1a s 1869 Operating Margin an 9.3% aa% ean 47% 2.0% 4% Special tems 06% 0K 1% 03% 03% 22% 0.8% ‘Adjust
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