New tariffs and softer demand weighed on second-quarter profits at Danbury-based Ethan Allen Interiors Inc., prompting continued workforce reductions.
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Ethan Allen Interiors Inc. said new tariffs on imported furniture and materials, combined with softer demand, weighed on profits in its fiscal second quarter, prompting continued workforce reductions as the Danbury-based furniture maker looks to control costs.
The company reported net income of $11.7 million for the quarter ended Dec. 31, down 21.7% from a year earlier, as weaker sales cut into profits.
A key headwind cited by management was the impact of tariffs, including a new 25% duty on upholstered wood products manufactured in Mexico and imported into the U.S. under Section 232 of the Trade Expansion Act. The tariffs took effect in October and increased costs across Ethan Allen’s manufacturing operations, the company said.
Ethan Allen also faces higher tariffs on imported case goods, fabrics and home accents from countries including China, Indonesia and India. The added duties hurt results during the quarter, leading the company to raise some retail prices to help offset the costs.
Demand also weakened during the quarter. Wholesale orders fell 19.3%, while retail orders declined 17.9%, reflecting slower government contract activity, reduced consumer traffic and broader economic pressures, the company said.
To help absorb cost pressures, Ethan Allen said it continued to reduce headcount. As of Dec. 31, the company said it employed 3,149 workers, down 5% from a year earlier and roughly 31% below pre-pandemic levels in December 2019. The reductions were concentrated primarily in the wholesale segment, which includes manufacturing and logistics operations, the company said.
Lower staffing levels helped keep labor costs in check and supported profitability. Still, overall margins narrowed as lower sales and higher marketing and benefit costs weighed on results.
Ethan Allen said it views its North American manufacturing footprint — which accounts for about 75% of the furniture it sells — as a long-term advantage in managing tariff risk, though it acknowledged that additional duties or trade policy changes could lead to further price increases.
“Our ability to offer relevant high-quality products, provide complimentary interior design service and manufacture 75% of the custom furniture in our own North American facilities is a major advantage for us and positions the company well as we navigate the current operating environment,” said Ethan Allen CEO Farooq Kathwari.
Despite the pressure on earnings, the company ended the quarter with a strong balance sheet, holding $179.3 million in cash and investments and carrying no debt.
