ETHAN ALLEN INTERIORS INC (ETD)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) is designed to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.

The MD&A is based upon, and should be read in conjunction with, our 2025 Annual Report on Form 10-K, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission (“SEC”), and the consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.

The MD&A is presented in the following sections:

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the MD&A, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Generally, forward-looking statements represent management’s beliefs and assumptions concerning current expectations, projections or trends relating to results of operations, financial results, financial condition, strategic objectives and plans, expenses, dividends, share repurchases, liquidity, use of cash and cash requirements, borrowing capacity, investments, future economic performance, and our business and industry. Such forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These forward-looking statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “continue,” “may,” “will,” “short-term,” “target,” “outlook,” “forecast,” “future,” “strategy,” “opportunity,” “would,” “guidance,” “non-recurring,” “one-time,” “unusual,” “should,” “likely,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. We derive many of our forward-looking statements from operating budgets and forecasts, which are based upon many detailed assumptions. While the Company believes that its assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and it is impossible for the Company to anticipate all factors that could affect actual results and matters that are identified as “short term,” “non-recurring,” “unusual,” “one-time,” or other words and terms of similar meaning may in fact recur in one or more future financial reporting periods.

Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that are expected. Actual results could differ materially from those anticipated in the forward-looking statements due to a number of risks and uncertainties including, but not limited to the risks and uncertainties disclosed in Part I, Item 1A, Risk Factors, in our 2025 Annual Report on Form 10-K, and elsewhere here in this Quarterly Report on Form 10-Q.

All forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements, as well as other cautionary statements. A reader should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties. Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Many of these factors are beyond our ability to control or predict. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Executive Overview

Who We Are. Founded in 1932, Ethan Allen is a leading interior design company, manufacturer and retailer in the home furnishings marketplace. We are a global luxury home fashion brand that is vertically integrated from product design through home delivery, which offers clients stylish product offerings, artisanal quality and personalized service. We are known for the quality and craftsmanship of our products as well as for the exceptional personal service from design to delivery. Our strong network of entrepreneurial leaders and interior designers provide complimentary interior design service to our clients and sell a full range of home furnishing products through a retail network of design centers located throughout the U.S. and internationally, as well as online at ethanallen.com.

Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations. At March 31, 2026, the Company operates 142 retail design centers, 137 located in the U.S. and 5 in Canada. We also have 44 independently owned and operated Ethan Allen design centers located in the U.S., Asia, the Middle East and Europe. We manufacture approximately 75% of our furniture in our North American manufacturing plants and have been recognized for product quality and craftsmanship since 1932. At March 31, 2026, we own and operate 11 manufacturing facilities, including four manufacturing plants, one sawmill, one rough mill and a kiln dry lumberyard in the U.S., three manufacturing plants in Mexico and one manufacturing plant in Honduras. We also partner with suppliers located in Europe, Asia, and other countries to produce and import various products that support the business.

Business Model. Our vertical integration is a competitive advantage for us. Our North American manufacturing and logistics operations are an integral part of an overall strategy to maximize production efficiencies and maintain this competitive advantage. Our business model is to maintain continued focus on: (i) providing relevant product offerings, (ii) capitalizing on the professional and personal service offered to our customers by our interior design professionals, (iii) leveraging the benefits of our vertical integration including a manufacturing presence in North America, (iv) investing in new technologies across key aspects of our vertically integrated business, (v) maintaining a strong logistics network, (vi) communicating our messages with strong marketing campaigns, and (vii) utilizing our website, ethanallen.com, as a key marketing tool to drive traffic to our retail design centers. We aim to position Ethan Allen as a premier interior design destination and a preferred brand offering products of superior style, quality, and value to customers with a comprehensive, one-stop shopping solution for their home furnishing and interior design needs. We seek to constantly reinvent our projection and product offerings through a broad selection of products, designed to complement one another, reflecting current fashion trends in home furnishing.

Talent. At March 31, 2026, our employee count totaled 3,105, with 2,158 within our wholesale segment and 947 in our retail segment. Our headcount is down 5.7% compared with a year ago and 39.4% less than at March 31, 2019.

Fiscal 2026 Third Quarter in Review (1). Our fiscal 2026 third quarter results were impacted by a reduction in business with the U.S. State Department, lower international sales and sluggish demand from a challenging environment for home furnishings, which included weather disruptions and macroeconomic uncertainty. Consolidated net sales were $135.8 million, a 4.8% decrease from the prior year quarter primarily due to fewer contract sales, lower delivered unit volume, reduced available backlog and inclement weather partially offset by higher average ticket price, incremental designer floor sample sales and fewer sales returns. Retail segment written orders were flat to last year while our wholesale segment written orders declined 7.6% primarily due to macroeconomic challenges, reduced government activity and a slowdown in our international business. We maintained a strong consolidated gross margin of 59.4% due to a change in sales mix, selective price increases and lower headcount partially offset by incremental tariffs, delivering written orders that had higher promotional discounts and increased designer floor sample sales. Our operating margin was 4.8% compared to 7.7% a year ago while diluted EPS was $0.23 compared with $0.37 a year ago. Adjusted operating margin in the current year third quarter was 5.0% while adjusted diluted EPS was $0.24. Lower operating margin was driven by fewer contract sales, lower unit volumes, increased tariffs, elevated designer floor sample sales and increased occupancy costs partially offset by change in sales mix, reduced freight, lower headcount, disciplined spending and a higher retail average ticket price. We also continued our history of paying dividends to shareholders by paying a regular quarterly cash dividend of $10.0 million. Cash, cash equivalents and investments totaled $180.9 million at March 31, 2026 and we had no outstanding debt. We ended the quarter with 142 Company-operated and 44 independently owned and operated locations with new design centers to be opened in vibrant markets such as Rancho Cucamonga, California and Aventura, Florida later this year.

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Key Operating Metrics

A summary of our key operating metrics is presented in the following table (in millions, except per share data):

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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.

The MD&A is based upon, and should be read in conjunction with Item 7A. Quantitative and Qualitative Disclosures About Market Risks and our Consolidated Financial Statements and related Notes included under Item 8 of this Annual Report on Form 10-K.

Executive Overview

Who We Are. Founded in 1932, Ethan Allen is a leading interior design company, manufacturer and retailer in the home furnishings marketplace. We are a global luxury home fashion brand that is vertically integrated from product design through home delivery, which offers clients stylish product offerings, artisanal quality and personalized service. We are known for the quality and craftsmanship of our products as well as for the exceptional personal service from design to delivery. We provide complimentary interior design service to our clients and sell a full range of home furnishings through a retail network of design centers located throughout the U.S. and internationally as well as online at ethanallen.com.

Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations. At June 30, 2026, the Company operates 141 retail design centers, 136 located in the U.S. and five in Canada. Our independently operated design centers are located in the U.S., Asia, the Middle East and Europe. During fiscal 2026, we opened four new Company-operated design centers in Colorado Springs, Concord (Canada), San Diego and Vancouver.

We also own and operate eleven manufacturing facilities, including four manufacturing plants, one sawmill, one rough mill and a kiln dry lumberyard in the U.S., three upholstery manufacturing plants in Mexico and one case goods manufacturing plant in Honduras. Approximately 75% of our furniture is manufactured in our North American plants. We also contract with various suppliers located in Europe, Asia and other countries to import products.

Ethan Allen focuses on the key areas of talent, service, marketing, technology and social responsibility. Our initiatives to introduce new products, run strong marketing campaigns, invest in our North American manufacturing, and maintain our logistics network throughout North America has positioned us well for sustained profitability and returning value to shareholders.

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Foundation: Ethan Allen is rooted in our core values of quality, craftsmanship and personal service—values that have enabled us to navigate many economic and housing cycles. Through constant reinvention, including the evolution from a wholesale dealer business to a retail network, we have remained profitable each year since going public in 1993 and have built a differentiated enterprise supported by strong margins, disciplined management and consistent cash dividends. Vertically integrated from retail to manufacturing to logistics, we continue to craft 75% of our furniture in eleven North American manufacturing plants, supporting jobs, strengthening our supply chain and investing in quality.

Business Model. Our vertical integration is a competitive advantage for us. Our North American manufacturing and logistics operations are an integral part of an overall strategy to maximize production efficiencies and maintain this competitive advantage. Our business model is to focus on providing relevant product offerings, capitalizing on the personal service offered to our clients by our interior design professionals, leveraging the benefits of our vertical integration including a manufacturing presence in North America, investing in new technologies across our business, maintaining a strong logistics network, communicating our messages with strong marketing campaigns, and utilizing an omni-channel approach via our website, ethanallen.com. We aim to position Ethan Allen as the premier interior design destination and a preferred brand offering products of superior style, quality, and value to clients with a comprehensive, one-stop shopping solution for their home furnishing and interior design needs. We seek to constantly reinvent our projection and product offerings through a broad selection of products, designed to complement one another, reflecting current fashion trends in home furnishing.

Talent. At June 30, 2026, our employee count totaled 3,062, with 2,137 employees in our wholesale segment and 925 in our retail segment. Our employee count decreased 4.6% or 149 associates during fiscal 2026, with 47 fewer employees in retail and 102 fewer employees in wholesale. We continually look for opportunities to strengthen our teams while at the same time optimizing headcount through operational efficiencies.

Fiscal 2026 Financial Year in Review (1). Our financial performance during fiscal 2026 was highlighted by strong margins, positive operating cash flow and strong cash dividends supported by a robust balance sheet despite operating in a challenging macroeconomic environment. We were able to improve operating efficiency and run a leaner enterprise despite a reduction in our contract business and sluggish demand. Consolidated net sales of $579.5 million were down 5.7% compared to the prior year due to lower contract sales, a decline in delivered unit volume and fewer incoming orders which led to lower available backlog partially offset by a higher average ticket price. Our consolidated gross margin of 61.2% was higher than 60.5% in the prior year due to a change in sales mix, lower in-bound freight costs, reduced headcount and a higher average ticket price. Our operating margin was 7.8% compared to 10.1% in the prior year primarily due to deleveraging from lower consolidated net sales and higher tariffs partially offset by disciplined cost management and retail price increases. Diluted earnings per share of $1.56 was lower than $2.01 in the prior year due to fewer net sales and the impact of tariffs.

We remain debt-free with substantial liquidity and a robust balance sheet to support long-term growth. We generated $52.5 million in operating cash flow during fiscal 2026, which helped grow our total cash and investments to $187.5 million at June 30, 2026. We continued our history of returning capital to shareholders by paying four regular quarterly cash dividends of $0.39 per share and a special cash dividend of $0.25 per share, bringing the total amount of dividends paid to $46.3 million during fiscal 2026. As part of our capital allocation strategy, we also repurchased 250,000 shares of Company stock for $4.8 million during fiscal 2026. Inventory levels totaled $148.5 million at June 30, 2026, an increase of 5.4% since last year as new product introductions combined with price increases drove higher levels of on-hand inventory but improved in-stock inventory positions. Customer deposits from undelivered written orders totaled $62.7 million at June 30, 2026, down from $75.1 million a year ago as delivered sales outpaced incoming retail written orders. Our wholesale backlog was $44.3 million at June 30, 2026, a decrease of 9.3% due to a slowdown in orders and improved customer lead times.

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Key Operating Metrics

A summary of our key operating metrics is presented in the following table (in millions, except per share data).

Results of Operations

For an understanding of the significant factors that influenced our financial performance in fiscal 2026 compared with fiscal 2025, the following discussion should be read in conjunction with the consolidated financial statements and related notes presented under Item 8 in this Annual Report on Form 10-K. Refer to Results of Operations under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in Part II of our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, filed with the SEC on August 22, 2025, for an analysis of the fiscal 2025 results as compared to fiscal 2024.

Net Sales

Consolidated net sales decreased $35.2 million or 5.7% in fiscal 2026 compared to the prior year due to lower contract sales, a decline in delivered unit volume and less available backlog from fewer incoming orders. The decline in consolidated net sales was partially offset by a higher average ticket price, new product introduct

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