Refurbishing Gives Ethan Allen New Legs in Weak Market

Like a newly polished table, Ethan Allen Interiors Inc. is standing out as a gleaming exception to an otherwise faded U.S. household furniture industry.

Thanks to a revamping of its manufacturing, marketing and retail operations that has widened the company’s appeal, Ethan Allen’s sales, profit and stock price have been surging higher for more than a year.

Ethan Allen’s stock, in fact, soared $6.94 a share, or 13%, to $61.69 in New York Stock Exchange composite trading Thursday after the company said profit for its fiscal fourth quarter ended June 30 nearly doubled again from a year earlier.

The company stands out from the industry as a whole--national retail furniture sales are growing only about 3% to 4% a year in dollar terms, meaning the industry is just keeping up with inflation.

Other furniture stocks have done well recently--Bassett Furniture Industries Inc. is up 42% in the last 12 months and Ladd Furniture Inc. is up 32%. The gains likewise reflect restructurings at those companies, but neither stock comes close to Ethan Allan, which has skyrocketed 140% in the last 12 months.

The company has “hit on just the right combination of factors,” said Terry Schumacher, an analyst at Black & Co., a regional investment firm in Portland, Ore.

Ethan Allen, based in Danbury, Conn., is a 65-year-old company that specializes in the upper end of the mass market for furniture. It has 299 stores (including 17 in Southern California) and makes nearly all of its own products, with 20 manufacturing plants (including an upholstering facility in Chino).

For all of fiscal 1997, Ethan Allen’s profit soared 73% from the year before to $49 million, on a 12% sales gain to $572 million.

To be sure, the impressive gains partly reflect steady improvement from weak numbers a few years ago, when Ethan Allen was going nowhere.

The company’s Colonial-style stores (its name comes from the Revolutionary War hero Ethan Allen) “were looked at as being dowdy,” and its emphasis on traditional, unexciting, early American merchandise did little to change the reputation, said Britt Beemer, chairman of America’s Research Group, a consumer research firm in Charleston, S.C.

“We were a flat business,” M. Farooq Kathwari, Ethan Allen’s chief executive, said in a telephone interview.

So six years ago, Kathwari said that he decided “we had to give up everything we’d been doing” and make several changes. Ethan Allen replaced 85% of its furniture with new designs that preserved the traditional pieces, but also put more casual and contemporary sofas, tables, chairs and bedroom sets into its stores.

The stores’ exteriors were renovated with a newer look. So far, 80% have been remodeled or moved to new locations and then remodeled. The entire refurbishment will cost more than $30 million.

Ethan Allen also spent more than $50 million putting new technology into its manufacturing to boost efficiency and shave operating costs.

“We also reduced our prices by 15% to 17%,” Kathwari said.

But Kathwari, 52, also launched a new marketing campaign to sell Ethan Allen not on price cuts and weekend “blowout” sales--a common promotion among furniture sellers--but on value and service. The idea is to allay consumers’ typical fear of buying such a big-ticket item that they’ll have to look at each day for years to come.

“It’s the best [furniture] advertising out there,” said Kimberley Wray, editorial director of High Points magazine, a trade publication based in High Point, N.C., a major furniture-production center. (North Carolina is the nation’s leading center for furniture manufacturing. Southern California is second.)

Indeed, uninspiring advertising is one of many reasons why the furniture industry’s sales remain weak despite a robust economy, low interest rates and solid consumer spending, analysts said.

Wray said one reason why Ethan Allen’s ads succeed is because they reflect the company’s willingness to poll women--who account for 70% to 90% of furniture purchases--about what goods they want.

The company’s resurgence has also padded Kathwari’s wealth. A native of the Kashmir region between Pakistan and India, Kathwari made upholstery fabric while in college in New York and Ethan Allen was a customer. But he didn’t join the company until 1980.

After becoming chief executive, he led a 1989 management buyout of Ethan Allen, which then went public in 1993. But Kathwari still owns about 11% of the shares, a stake whose value has more than doubled in the last year to $107 million.

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Custom-Made Success

Although the furniture industry barely grows as fast as inflation, Ethan Allen Interiors has found a way to increase business, earnings and customer loyalty. And its stock price over the last year reflects its success. Biweekly closes since August 1996 and latest:

Thursday: $61.69, +$6.94

Source: Bloomberg News