Ethan Allen: #1 Furniture Retailer And New Stores For New Momentum (NYSE:ETD)

Let’s start with how Ethan Allen’s (NYSE:ETD) stock prices got to the levels they’re at today. It’s old news, but it’s worth going through to have a clearer picture of this company’s fortunes. In July 2023, the company’s Vermont plant suffered major damage from flooding.

The damages were estimated to be in the region of $2.5 million, which should be covered by insurance policies. The real problem was that 25% of associates were unable to get back to work for an extended period.

Add to this scenario the economic slowdown and consequent negative performance of the broader stock market and it seems clear that the fall in stock price is in line with external factors, rather than intrinsic problems at the company.

Why Ethan Allen Has Upside Potential

Let’s continue with my analysis of why I believe this company still has strong upside potential. Before we get into more detail, to my understanding, ETD still has a sound business model, great products, and no intrinsic failures.

Top Furniture Retailer

Ethan Allen ranked 5th in the top 10 of retail stores for 2023 according to Newsweek. The furniture retailer ranked number one in the Premium Furniture category, with an overall score of 92.48. The ranking by a major publication, such as Newsweek, is a big marketing and publicity boost.

It also means that, at least according to Newsweek, Ethan Allen is doing a better job than any other furniture store in the US. This capability of offering top quality products and services should be reflected positively in terms of increasing market share and profits.

Store Reopenings

This might not sound like a big deal, at the end of the day, just redesigned stores and a bit of publicity around the reopening events. However, what I see here is a greater understanding of what customers are looking for in an interior design store.

To further understand the importance of the refurbishments, let’s take a closer look at what these reopenings mean. The stores have been given a major revamp in what the company names as Interior Design Destinations. These upgrades align with the increasingly sophisticated demands of consumers. Customers and interior designers will now be able to tap the use of the latest technology to empower the design process.

As we move forward and the world becomes increasingly connected to technology, this seems a very well thought out and enhancing move. Ethan Allen is not just an average furniture and interior design store. It’s also at the forefront of technological innovation.

Ethan Allen has produced a proprietary interior design app that allows potential customers to create all the environments of their homes. They can choose directly from Ethan Allen’s catalogue of products and design 3D floor space without having to scribble it on paper.

The app allows customers to directly contact their local interior designer. So, you can email your questions and get a response related to your query that’s relevant to your potential design, and you can share your 3D plans also.

This is the kind of technology that many customers, perhaps mostly under 50s, are very likely to be attracted to. I would imagine other store brands will follow suit, if they haven’t already. But the Ethan Allen brand remains at the forefront of technological innovation thanks to the marketing stunt of reopenings.

Digital Marketing Continues Expansion

All this technology links in well to the digital marketing strategies employed by Ethan Allen. I won’t go into detail here, you can read a bit more about this aspect in my previous article. But they have been doing a great job in that area as far as I’m concerned.

For comparison to my last article in January 2023, the company’s website has gone from around 650 thousand visits per month in December 2022 to over 1.4 million visits per month in October 2023. That’s more than twice the number of visits. While domain authority is also slowly increasing, up to 62 from 61 in December 2022.

More clicks, more visits and more interactivity through the app in my opinion can only lead to more clients, sales, and profits.

Relative YTD Performance

ETD’s performance YTD hasn’t been exactly spectacular, in fact it’s underperformed the S&P 500 by around 16% YTD. But I would say that’s not so bad when you take into consideration the flooding of the Vermont plant in July.

The stock price closed Friday with a 4.09% return YTD, while the SPX has climbed 20.15% YTD. Considering ETD has a Beta of 1.24, the stock has a lot of catching up to do. Of course, I’m considering that the company is on track to return to earnings reports that show substantial growth with positive surprise.

The opposite happened with the last earnings release on October 25. But as the CEO stated, the Vermont flooding and the downturn in the general economy played significant roles in producing those numbers.

Technical View

Looking at the daily chart below for ETD we can see what looks like an ongoing bear market. The stock price is below the Ichimoku cloud, and even well below its 200-day moving average. But there are a few technical points that may be indicative of a trend reversal.

Price has bounce recently on two occasions (B and C) on a support level from December 2022 (A). This is significant as price action may have created a floor at the area. We also see that over the past 2 weeks price action has touched the SuperTrend line (purple) which usually indicates further price action in the same direction.

For now, the rally may be stalled as price enters the Ichimoku cloud, a major level of resistance. The cloud also coincides with the 200-day moving average which may also make a break through the cloud a bit harder.

Looking at the weekly chart, we see the bull trend is still intact. Weekly price action has bounced off the bottom of the cloud, which coincides with the touch made in December 2022 and another touch made in May 2023.

Price is well above the 200-period moving average, although it still hasn’t broken out of the cloud as of last week. Overall, the weekly chart as well as confirming the medium-term bull trend, also shows a long and extremely wide sideways market, outlined by the yellow rectangle.

The range started back in May 2021, and appeared to be broken to the upside in August 2023. However, the market had other plans, and price retraced back into the range. The bounce off the cloud also created a bullish engulfing 2 candle formation.

It still remains to be seen, but it looks like the coming weeks could see price action above the weekly cloud and further price increases to around the $31.50 mark, which is the resistance offered by the SuperTrend.

Conclusion

I see a company that is completely aware of the need for innovation, whether it’s store refurbishment or technological advancement. I also believe that the fact that they are increasing their digital footprint will play an important role in their future growth.

I’ll be reviewing ETD again in June 2024. Interest rates should soften through the first half of 2024, that should lead to higher sales for consumer goods and services as loan payments will be cheaper. Ethan Allen should be well positioned to take advantage of that credit environment.

In the meantime, I’m going to put a number on the ETD stock price from here to June and would call the area close to $40. Having said that, it may take some time, but I’m confident January’s earnings call will bring back positive surprise, and that should bring cautious investors back into the stock.