Good afternoon, and welcome to the Ethan Allen Fiscal 2023 First Quarter Analyst Conference Call. At this time all participants’ are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, that this conference is being recorded. It is now my pleasure to introduce your host, Matt McNulty, Senior Vice President, Chief Financial Officer and Treasurer. Thank you. You may begin.

Thank you, Diego. Good afternoon, and thank you for joining us for today to discuss Ethan Allen's fiscal 2023 first quarter results. With me today is Farooq Kathwari, our Chairman, President and CEO. Mr. Kathwari will open and close our prepared remarks, while I will speak to our financials midway through. After our prepared remarks, we will then open the call for your questions. Before we begin, I'd like to remind the audience that this call is being recorded and webcast live under the News & Events tab on the Investor Relations page of our ethanallen.com website. There, you will also find a copy of our press release, which contains reconciliations of non-GAAP financial measures referred to in the release and on this call. A replay of today's call will also be made available via phone and on our website. As a reminder, our comments today will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. With that, I am pleased to now turn the call over to Mr. Kathwari.

Thank you, Matt, and we are pleased and gratified with very strong results. Our teams and our vertically integrated enterprise have done a good job in helping develop strong programs in our various areas from strengthening our interior design network, strengthening our product programs and marketing and effective use of technology in all areas, including our marketing, manufacturing and logistics. After Matt provides an overview of our financial results, I will review our focus to continue to grow our enterprise. Matt?

Thank you, Mr. Kathwari. As a reminder, we present our results on both a GAAP and non GAAP basis. Non-GAAP results include restructuring initiatives, asset impairments and other corporate actions and are further detailed in our press release. We believe the non-GAAP presentation better reflect underlying operating trends and performance of the business. For the quarter, consolidated net sales increased 17.7% as a result of strong order backlog, along with improved manufacturing production and efficiency and higher receipt of offshore products. Previous constraints, including COVID related shutdowns, labor disruptions, supply chain challenges, shipping delays and raw material availability have eased in recent quarters, which helps us reduce the time to convert written orders to delivered shipments. Beginning about two quarters ago, we increased our manufacturing productivity as well as saw an uptick in receipt of imports and raw materials from a higher volume of shipping container receipts, which led to strong sales growth during the first quarter. Our wholesale backlog as of September 30, 2022 was $106 million, down 24.4% from a year ago, but up 62.1% from September 2019. In the near-term, our teams are effectively managing the business to work through this high order backlog and to service our clients. Our written -- our retail written orders were down 8.6% due to a strong prior year comparable. However, when compared to the pre-pandemic first quarter of fiscal 2020, retail written orders were up 7.4%. Wholesale segment written orders were down 7.2% to last year, but nearly flat to Q1 of 2020. Consolidated gross margin was 60.4% for the first quarter, primarily due to a change in sales mix with our retail segment becoming a larger portion of favorable product mix, previous product pricing actions that are now working their way through delivered sales and higher manufacturing productivity and…

All right. Thanks, Matt, and pretty good overview. So we are pleased with the progress. And as you have heard me in the past, we are just getting started. Crisis creates an opportunity. For over 90 years of our history, every major crisis gave us an opportunity to examine what we do and take steps to innovate and position up for growth in the next chapter of our long history. Our focus going forward is on the following areas. First, continued transitioning from a furniture store to an interior design destination. This involves a number of key areas, most importantly having qualified and motivated interior design talent. Today we have about 1,200 interior design associates in our North American network, compared to about 2,400 10 years doing more business. The quality of talent is extremely important and most critical has been adding technology to enable the interior designers to work effectively with clients in our design centers and remotely. Adding effective technology to our talented interior designers will remain a major focus. Secondly, repositioning of our design centers. Today over 70% of the 170 design centers in North America have been relocated in the last 25 years, of which 48% have been relocated in the last 10 years, and the process continues. Currently, many design centers are being relocated, including in Manhattan, Chicago, San Jose, northern Florida and New Hampshire. We will also continue to refresh our current locations to make them even more effective as an interior design destination. Third is continued strengthening of our product offerings. While during the pandemic, we had to slow down our new product introductions, we are now in a position to accelerate and introduce new products. Both investing in our marketing, we have substantially increased our digital marketing, which has expanded our reach…

[Operator Instructions] Our first question comes from Cristina Fernandez with Telsey. Please state your question.

Hey, good afternoon. Hi, Farooq and Matt, and congratulations on a good result. I wanted to get your thoughts on the demand environment how the demand progress through the quarter. And I guess what is your outlook going forward and might some of the housing matrix being softer?

Yes, Cristina. We are coming to the next stage which is where after having gone through very high demand for all, for in our industry, especially in [indiscernible] products, we see that there is obviously just leveling off. However, as Matt said, we are still doing higher than our business prior to the COVID. So I would see that we continue to do well because of the various programs we have. Obviously, the -- our written business has moderated and not as high as it was 2 years back, but still it is there. So we can -- we will continue to see some growth going forward.

And then another question I had was on the gross margin, so it's very high this quarter 60.4, which is at a peak versus historical levels. Can you -- I understand a lot of that it's like the higher mix of retail sales. But the other drivers, I guess, how structural are they? Should we see the gross margins still stay, let's say, like, in the high 50s level, is that a reasonable assumption?

Yes. But if you can take -- if you take a look at our gross margins in the last year -- even in the last year or so, not even before, we have been able to keep them at the high 50s levels. And I believe that is what our intention is.

And then a last question is on the supply chain. You talked about seeing a better flow of products? Can you comment on the order to delivery times? Where are those now? And how long will they take -- will they take to get back to pre-pandemic levels, if they're not there yet?

Yes, we do. Of course, Cristina, our advantage has been that 75% of our products are made in our North American workshops. And then about 75% of our total products are custom when we get the orders. So it's a somewhat of a unique and a different structure than most businesses. What we have seen is that, for instance, almost 100% of our upholstered products, their custom, but made in North America and we have caught up and our lead times have gone to a very good levels of anywhere, close to 8 weeks or less. Our wood products, which are made mostly in North America also, and again, it's custom. So keep in mind, it's a very different model than those folks who's shipped products from stock that also is now close to 10 to 12 weeks, which for custom is still a pretty good delivery period.

Thank you.

Thank you, Cristina.

Thank you. [Operator Instructions] Our next question comes from Zachary Donnelly with KeyBanc. Please state your question.

Hello, Zachary. How are you?

Thank you. Good. How are you? Congratulations on the strong quarter.

Yes, thanks, Zachary.

Yes, of course. I was just wondering, kind of looking at your wholesale backlog, which was $106 million as of September 30. I know, last quarter, you had stated the backlog was about $102 million. So kind of just seeing a little bit of an uptick in the backlog. And kind of despite strong delivered sales within the wholesale segment and are seeing written orders kind of decline year-over-year and increase manufacturing efficiencies and deliveries. I was kind of just wondering if you could maybe shored up, how we got to an elevated backlog despite higher delivered wholesale sales and kind of written order trends coming down year-over-year?

Yes, a good question. As you know, that our wholesale backlog still is at about $106 million at 930, down from $192 million. It was very, very high levels, but still at a good level. The reason is based upon also we still have business to deliver at our regional network, and also our contract business has been strong. So that has resulted in the higher wholesale backlogs.

Understood, thank you. If I could just a follow-up question on some of the margin inputs. I know you'd kind of mentioned with freight and raw material prices, kind of remaining elevated this quarter. I was wondering just some of the data we're looking at whether or not it's inbound freight and containers or domestic transportation rates or gas. We're seeing prices and trends kind of come down year-to-date or throughout the year. So I was kind of just wondering, are you seeing any benefit associated with that year-over-year? And do you kind of expect that to maybe be a tailwind moving forward as it relates to margins?

Well, there is. Then you take a look at, for instance, ocean freight coming from East Asia have gone 50% down, they're gone. They're gone up from $567, 000 to $30,000. Now, they've gone from $30,000 to about $16,000. But still very high, but at least going in the right direction. Similarly, our transportation costs domestically, still on the higher side, but the trend is lower. And so I believe that, as I mentioned, we delivered our products at one cost nationally. So we have in despite these fortunately, despite the increase in freight costs, we have been able to maintain high gross margins across the board, which reflected a tremendous amount of efficiencies, and of course, higher volume. But as we go forward, we do see that our domestic freight will also start moderating because of the overall lower business.

Right. Thank you. I appreciate it.

All right. Zachary, take care.

Thank you. And we see no further questions at this time. I'll hand the floor back over to Mr. Farooq Kathwari for closing remarks. Thank you.

All right. Well, thanks very much. And again, we're very, very, very pleased and gratified that the work of our associates, they've really done an amazing job in terms of positioning guards, but we're just getting started. As I started my compensation, our focus on more and more getting the message across of being an interior design destination is going to have a tremendous major impact and benefits as we go forward. And you're going to hear a lot about it in the future quarters. So thank you for all for attending. And look forward to talking to you again next quarter.

Thank you. And this concludes today's conference. All parties may disconnect. Have a great evening.