Meet the Street: Home Is Where the Spending Is

Instead of being hurt by the terrorist attacks of Sept. 11, Ethan Allen's CEO says his company, a chain of high-end furniture and home furnishings stores, actually has benefited.

Farooq Kathwari, Chairman & Chief Executive Officer, Ethan Allen

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That's because the phenomenon of "cocooning," or spending more time at home after that fateful day, has led Americans to spend more on items for their homes, says Farooq Kathwari, the company's president, chairman and chief executive officer.

Kathwari talks about how his 67-year-old company also has been benefiting from other trends that have led Americans to focus on their homes, as well as his outlook for the holiday season.

TSC: Ethan Allen posted first-quarter results about a month ago. What were the most important details of those results, and how has your company been impacted by the events of Sept. 11 and thereafter?

Kathwari: For the first quarter ended Sept. 30, I believe we did well by having about the same sales as last year; we were down about 2%. Our earnings of 42 cents per share were slightly above the estimates on Wall Street. Again, we held up well. Our earnings, our operating margins are still among the highest in the industry, and our cash flow is decent.

Sept. 11 did impact us. In the first couple of weeks, traffic in our stores had substantially decreased. [Since then] we have seen a steady increase of people coming back. At this stage, people are going back to their normal lives -- they have to. And they are coming into our stores.

The interesting thing is that people are more focused on the home. Traveling has decreased. In tough times, home and households provide a haven. Of the more than 10,000 employees at Ethan Allen, we have over 3,000 design consultants working in more than 300 stores. A great deal of our business comes when they make a house call, which means they develop a relationship with a client. Taking a customer and turning them into a client is really a competitive advantage and, I would say, a secret of our business.

During the past couple of weeks, we have seen that people are interested in wanting to work with our design consultants. [They] are inviting them to their homes, which I believe is a good sign.

TSC: Sales down 2% in the first quarter from a year ago is actually very decent performance, given the rough economy we are now in. But was that really close to your guidance? ...