Sandell Asset Management Scolds “Irresponsible” Ethan Allen Interiors Inc. (ETH) In Latest Letter

On August 14, Sandell Asset Management sent a letter to Farooq Kathwari, the Chairman and CEO of Ethan Allen, indicating that the shares of the company were trading at a significant discount to its intrinsic value at the time. More specifically, the investment management firm asserted that the company’s intrinsic value totaled $41 per share, which yields an upside of over 37% from the current price of $29.79 per share. Sandell suggested that the real estate assets of Ethan Allen might be worth roughly $450 million, which corresponds to $16 per share. Therefore, the company is believed to have the potential to enhance shareholder value by engaging in “a series of sale-leaseback transactions” or by creating a publicly-traded real estate investment trust. Additionally, the alternative asset management firm indicated that Ethan Allen has greatly underperformed its publicly-traded peers over the last decade or so. Let’s not forget to mention that there are several private equity professionals who have already expressed their interest in acquiring Ethan Allen, so we should expect major changes in the company’s future direction by the end of the year, after its Annual Meeting in November.

Let’s now take a quick look at some financial figures disclosed in the company’s recently-announced financial report for the fourth quarter and 2015 fiscal year that ended June 30, 2015. Ethan Allen Interiors posted consolidated net sales of $193.6 million for the quarter, marking a decrease of 2.6% year-over-year. The company’s net income was $12.7 million or $0.44 per diluted share, compared to $17.1 million or $0.58 reported in the same quarter a year ago. The total debt on the company’s balance sheet amounted to $77.6 million, decreasing by $53.3 million year-over-year, which indicates that the management of Ethan Allen was at least successful in improving the company’s financial health, if not its bottom line results.

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