Ethan Allen (ETH - Snapshot Report) is a leading interior design company and a manufacturer, wholesaler, and retailer of upscale home furnishings. They are one of the best known brands in the industry.
 
They have approximately 1,500 interior designers in their North American design centers. Their products are sold exclusively through 300 design centers around the world and their ecommerce website.
 
Solid Quarterly Results 

The company reported its second quarter fiscal 2016 results on Jan 26. Adjusted earnings for the quarter came in at $0.55 per share, up almost 50% from the same quarter last year and much ahead of the Zacks Consensus Estimate of $0.43 per share.

Consolidated net sales increased 5.3% to $207.5 million, while the gross margin improved 210 basis points to 55.9% thanks mainly to improved manufacturing efficiency and a higher mix of retail sales that offset the impact of clearance sales and promotions.

Returning Cash to Shareholders

On Jan 27, the company announced a 21% increase in their quarterly dividend. They have been consistently raising their dividend. During the reported quarter, they paid dividend of $0.14 per share, up 16.7% from the previous year quarter and up 40% from the same quarter in 2013.
Additionally, they spent $12.2 million to repurchase their shares during the quarter.

Rising Estimates

Analysts have been raising their estimates for the company in the wake of stronger than expected results. Zacks Consensus Estimates for the current and next year are now $1.80 per share and $2.04 per share, up from $1.68 and $1.95 respectively, before the results.

Improving Industry Outlook

Home furnishing market—a $200+ billion industry—is expected to grow at a compounded annual rate of 4.6% through 2021 (per company’s investor presentation). Rising consumer spending, improving home prices and increasing housing turnover are the main drivers behind this trend.

The Bottom Line
 
In the recent past, the company has taken a number of steps to attract younger customer and improve their order fulfillment. Currently about 80% of their furniture products are custom made-to-order and delivered within 4-6 weeks. Further, their vertical integration with a strong manufacturing and retail base enables them to maintain higher gross margins than their peers.
 
With improving outlook, this stock looks poised for further upside.