Annual Report for Fiscal Year Ending 06-30, 2026 (Form 10-K)

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.

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.

(1)	Refer to the Regulation G Reconciliation of Non-GAAP Financial Measures section within this MD&A for the reconciliation of U.S. generally accepted accounting principles ("GAAP") to adjusted key financial metrics.

Key Operating Metrics

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

		Fiscal Year Ended June 30,
		2026				% of Sales				% Chg				2025				% of Sales				% Chg				2024				% of Sales				% Chg
Net sales		$	579.5				100.0	%			(5.7	%)		$	614.6				100.0	%			(4.9	%)		$	646.2				100.0	%			(18.3	%)
Gross profit		$	354.8				61.2	%			(4.7	%)		$	372.1				60.5	%			(5.3	%)		$	393.1				60.8	%			(18.2	%)
Operating income		$	45.0				7.8	%			(27.4	%)		$	62.0				10.1	%			(20.5	%)		$	78.0				12.1	%			(43.2	%)
Adjusted operating income(1)		$	46.7				8.1	%			(25.8	%)		$	62.9				10.2	%			(19.3	%)		$	77.9				12.1	%			(41.6	%)
Net income		$	39.9				6.9	%			(22.7	%)		$	51.6				8.4	%			(19.1	%)		$	63.8				9.9	%			(39.7	%)
Adjusted net income(1)		$	41.1				7.1	%			(21.4	%)		$	52.3				8.5	%			(18.0	%)		$	63.8				9.9	%			(38.1	%)
Diluted EPS		$	1.56								(22.4	%)		$	2.01								(19.3	%)		$	2.49								(39.7	%)
Adjusted diluted EPS(1)		$	1.61								(21.1	%)		$	2.04								(18.1	%)		$	2.49								(38.2	%)
Cash flow from operating activities		$	52.5								(14.9	%)		$	61.7								(23.1	%)		$	80.2								(20.3	%)
Return on equity			8.6	%											10.8	%											13.4	%
Wholesale written orders											(11.2	%)											(3.2	%)											(10.9	%)
Retail written orders											(6.1	%)											(1.5	%)											(8.4	%)

(1)	Refer to the Regulation G Reconciliation of Non-GAAP Financial Measures section within this MD&A for the reconciliation of GAAP to adjusted key financial metrics.

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.

(in thousands)		Fiscal Year Ended June 30,
		2026				2025				% Change
Consolidated net sales		$	579,487			$	614,649				(5.7	%)
Wholesale net sales		$	330,695			$	359,057				(7.9	%)
Retail net sales		$	511,195			$	523,142				(2.3	%)
Consolidated gross profit		$	354,771			$	372,121				(4.7	%)
Consolidated gross margin			61.2	%			60.5	%

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 introductions and incremental designer floor sample sales.

Wholesale net sales decreased $28.4 million or 7.9% in fiscal 2026 compared to the prior year primarily due to a decline in contract sales and sales to both our intersegment Company-operated design centers and independent U.S. retail network. Excluding intersegment sales to our retail segment, wholesale net sales decreased $23.2 million compared to the prior year. Our contract sales, including shipments to the GSA, decreased 56.0% primarily due to fewer incoming orders from the change in presidential administration in 2025 combined with the U.S. government shutdown, beginning in October 2025. Our wholesale international sales, which represented 0.9% of total wholesale net sales in fiscal 2026, decreased 43.6% primarily from reduced order volumes with China.

Wholesale written orders, which represent orders booked through all of our channels, were down 11.2% in fiscal 2026 compared to the prior year due to declines across all channels as macroeconomic uncertainty combined with lower traffic created near-term pressure. Contract orders were down 49.5% while our international retailers, including China, decreased 52.0%. However, during the just completed fourth quarter of fiscal 2026, incoming order volume from our contract business improved, increasing by 14.8% compared with a year ago. Orders from intersegment Company-operated design centers declined 6.5% and our independent U.S. retail network declined 7.4% during fiscal 2026. Wholesale backlog was $44.3 million at June 30, 2026, down 9.3% from a year ago due to lower contract and international business. Lower backlog levels led to improved customer lead times, including lowering the number of weeks of wholesale backlog compared with a year ago.

Retail net sales decreased $11.9 million or 2.3% in fiscal 2026 compared to the prior year due to lower delivered unit volumes and fewer written orders partially offset by increased designer floor sample sales and a higher average ticket price. Higher designer floor sample sales were driven by selling off discontinued floor product to make room for the new product launches that debuted in retail design centers during fiscal 2026. Sales in the U.S. were down 2.4% while sales from our Canadian design centers increased 2.3%.

Retail written orders declined 6.1% year over year due to lower demand and design center traffic combined with broader macroeconomic uncertainty including a stagnant housing market, elevated interest rates and global unrest. At June 30, 2026, there were 141 Company-operated design centers, including four new locations opened during fiscal 2026 within Colorado Springs, Concord (Canada), San Diego and Vancouver.

Gross Profit and Margin

Consolidated gross profit decreased $17.4 million or 4.7% in fiscal 2026 compared with the prior year due to lower consolidated net sales, the impact of incremental tariffs, lower clearance sale margins and higher manufacturing input costs partially offset by a change in sales mix, a higher average ticket price, lower headcount and reduced financing costs. Included within our fiscal 2026 consolidated gross profit was the recovery of $5.0 million in previously paid tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). These refunds reflect claims we submitted through the U.S. CBP refund system and represent substantially all of our previously paid IEEPA tariffs. Wholesale gross profit decreased 16.2% due to incremental tariffs, lower contract sales, a reduction in delivered unit volume and higher manufacturing input costs partially offset by lower in-bound freight and employee compensation. Retail gross profit decreased 4.6% primarily due to lowered delivered unit volume, lower clearance sale margins and a reduction in premier home delivery revenue partially offset a higher average ticket price and lower headcount.

Consolidated gross margin was 61.2%, a 70-basis point improvement over the prior year primarily due to a change in sales mix, lower in-bound freight costs, reduced headcount and a higher average ticket price. Our sales mix, which represents the percentage of retail sales compared to total consolidated sales, increased to 88.2% in fiscal 2026, up from 85.1% in the prior year due to lower contract sales. These benefits were partially offset by incremental tariffs, lower clearance sales margins, and deleveraging from fewer delivered sales. Wholesale gross margin decreased 310 basis points compared to the prior year due to incremental tariffs, lower contract sales and unfavorable manufacturing variances from lower production and higher input costs. Our retail gross margin decreased 120 basis points due to lower clearance sale margins and less premier home delivery revenue partially offset by a higher average ticket price from selective price increases and reduced financing costs.

Selling, General & Administrative ("SG&A") Expenses

(in thousands)		Fiscal Year Ended June 30,
		2026				2025				% Change
SG&A expenses		$	308,646			$	309,790				(0.4	%)
Restructuring and other impairment charges, net of gains		$	1,109			$	343				223.3	%
Consolidated operating income		$	45,016			$	61,988				(27.4	%)
Consolidated operating margin			7.8	%			10.1	%
Consolidated adjusted operating income(1)		$	46,651			$	62,895				(25.8	%)
Consolidated adjusted operating margin(1)			8.1	%			10.2	%
Wholesale operating income		$	28,644			$	46,989				(39.0	%)
Retail operating income		$	6,667			$	19,781				(66.3	%)

(1)	Refer to the Regulation G Reconciliation of Non-GAAP Financial Measures section within this MD&A for the reconciliation of GAAP to adjusted key financial metrics.

SG&A expenses decreased $1.1 million or 0.4% in fiscal 2026 compared to the prior year primarily due to reduced variable expenses, strong cost control and lower headcount partially offset by incremental marketing and digital costs. When expressed as a percentage of sales, SG&A expenses were 53.3%, an increase from 50.4% in the prior year due to fixed cost deleveraging from lower delivered sales.

Consolidated selling expenses were down 1.3% during fiscal 2026. Wholesale selling expenses, which include our logistics operation, decreased 3.4% from a decline in distribution volume, reduced outbound freight and lower headcount partially offset by an increase in advertising expenses and digital and web-technology spend. Retail selling expenses were down 0.6% due to reduced delivery costs and designer variable compensation from lower delivered volume and less headcount partially offset by an increase in advertising expenses.

Our consolidated advertising expenses during fiscal 2026 totaled $19.5 million, or 3.4% of consolidated net sales in fiscal 2026, up from 2.9% in the prior year. The increased marketing spend was driven by investments across digital channels, including paid search and paid social as well as higher direct mail and trade campaign costs, to support customer acquisition, client engagement and retention. Our marketing investments are disciplined and multi-faceted, with continued focus on enhancing an omni-channel strategy, including our digital footprint, with the goal of strengthening brand awareness and positioning, and creating a more seamless connection between online engagement and in-design-center client experiences.

Consolidated general and administrative expenses during fiscal 2026 were up 0.8% compared to the prior year primarily due to higher occupancy and employee benefit costs partially offset by lower headcount. Wholesale general and administrative expenses were 0.7% higher than a year ago due to higher employee benefit costs partially offset by lower incremental incentive compensation and costs to support our contract business. Retail general and administrative expenses increased by 0.8% from incremental occupancy costs associated with newly added design centers partially offset by reduced headcount. Compared to a year ago, our consolidated headcount is down 4.6%, including 4.6% lower at Wholesale and 4.8% less at Retail.

Restructuring and Other Charges, Net of Gains

Restructuring and other charges, net of gains during fiscal 2026 totaled $1.1 million compared with $0.3 million in the prior year. Included in the current year was $1.5 million from early lease termination fees associated with the closing of two retail design centers during fiscal 2026.

Consolidated Operating Income

Consolidated operating income for fiscal 2026 was $45.0 million compared with $62.0 million last year. As a percentage of consolidated net sales, consolidated operating income for fiscal 2026 was 7.8%, compared with 10.1% in the prior year. Adjusted operating income was $46.7 million, or 8.1% of net sales compared with $62.9 million, or 10.2% of net sales in the prior year. Reduced operating income during fiscal 2026 was primarily driven by lower contract sales, incremental tariffs, additional marketing spend, delivering out increased promotional activity and higher employee benefit costs partially offset by a higher average retail ticket price, lower variable costs and reduced headcount.

Wholesale operating income for fiscal 2026 was $28.6 million compared with $47.0 million in the prior year. As a percentage of wholesale net sales, wholesale operating income was 8.7% compared with 13.1% in the prior year. The decrease in wholesale operating income and related operated margin was primarily from the decrease in contract sales and incremental tariffs. Based on current operating levels, we estimate our annual tariff exposure to be approximately $15.0 million.

Retail operating income for fiscal 2026 was $6.7 million compared with $19.8 million in the prior year. As a percentage of retail net sales, retail operating income for fiscal 2026 was 1.3% compared with 3.8% in the prior year. The decrease in retail operating income and related operating margin was due to lower retail net sales, a decrease in retail gross margin and higher occupancy costs partially offset by reduced variable costs from lower net sales and less headcount.

Other Income (Expense)

(in thousands)		Fiscal Year Ended June 30,
		2026				2025				% Change
Interest and other income, net		$	8,388			$	7,275				15.3	%
Interest and other financing costs		$	227			$	243				(6.6	%)

Interest and other income, net includes interest income on investments, foreign currency gains or losses and other income (expense) incurred outside our normal course of business. Interest and other income, net increased 15.3% due to a contract termination fee received during the first quarter of fiscal 2026 from our former private label credit card provider. This income was partially offset by lower interest income from reduced available investments and lower interest rates.

Income Taxes, Net Income and Diluted Earnings per Share ("EPS")

(in thousands)		Fiscal Year Ended June 30,
		2026				2025				% Change
Income tax expense		$	13,294			$	17,424				(23.7	%)
Effective tax rate			25.0	%			25.2	%
Net income		$	39,883			$	51,596				(22.7	%)
Adjusted net income(1)		$	41,104			$	52,271				(21.4	%)
Diluted EPS		$	1.56			$	2.01				(22.4	%)
Adjusted diluted EPS(1)		$	1.61			$	2.04				(21.1	%)

(1)	Refer to the Regulation G Reconciliation of Non-GAAP Financial Measures section within this MD&A for the reconciliation of GAAP to adjusted key financial metrics.

Income Tax Expense

Income tax expense for fiscal 2026 decreased $4.1 million or 23.7% compared with the prior year due to the $15.8 million or 23.0% decrease in income before income taxes. Our effective tax rate for fiscal 2026 was 25.0% compared with 25.2% in the prior year. Our fiscal 2026 effective tax rate of 25.0% varies from the 21% federal statutory rate primarily due to state taxes.

Net Income and Diluted EPS

Net income in fiscal 2026 was $39.9 million compared with $51.6 million in the prior year. Adjusted net income was $41.1 million, a decrease of 21.4% compared with $52.3 million in the prior year. The decrease in net income was driven by the $35.2 million reduction in consolidated net sales partially offset by improved consolidated gross margin and lower SG&A expenses.

Diluted EPS for fiscal 2026 was $1.56 compared to $2.01 per diluted share in the prior year. Adjusted diluted EPS was $1.61, down 21.1% compared with the prior year primarily due to deleveraging from lower delivered net sales partially offset by improved consolidated gross margin and lower SG&A expenses.

Regulation G Reconciliations of Non-GAAP Financial Measures

To supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures, including adjusted operating income and margin, adjusted net income and adjusted diluted EPS. The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in the tables below.

These non-GAAP measures are derived from the consolidated financial statements but are not presented in accordance with GAAP. We believe these non-GAAP measures provide a meaningful comparison of our results to others in our industry and our prior year results. Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes. Despite the limitations of these non-GAAP financial measures, we believe these adjusted financial measures and the information they provide are useful in viewing our performance using the same tools that management uses to assess progress in achieving our goals. Adjusted measures may also facilitate comparisons to our historical performance.

The following tables below provide a reconciliation of non-GAAP financial measures used in this filing to the most directly comparable GAAP financial measures.

(in thousands, except per share amounts)		Fiscal Year Ended June 30,
		2026				2025				% Change
Consolidated Adjusted Operating Income / Operating Margin
GAAP Operating income		$	45,016			$	61,988				(27.4	%)
Adjustments (pre-tax) *			1,635				907
Adjusted operating income *		$	46,651			$	62,895				(25.8	%)
Consolidated Net sales		$	579,487			$	614,649				(5.7	%)
GAAP Operating margin			7.8	%			10.1	%
Adjusted operating margin *			8.1	%			10.2	%
Consolidated Adjusted Net Income / Adjusted Diluted EPS
GAAP Net income		$	39,883			$	51,596				(22.7	%)
Adjustments, net of tax *			1,221				675
Adjusted net income		$	41,104			$	52,271				(21.4	%)
Diluted weighted average common shares			25,584				25,634
GAAP Diluted EPS		$	1.56			$	2.01				(22.4	%)
Adjusted diluted EPS *		$	1.61			$	2.04				(21.1	%)

* Adjustments to reported GAAP financial measures including operating income and margin, net income, and diluted EPS have been adjusted by the following:

(in thousands)		Fiscal Year Ended June 30,
		2026				2025
Lease exit costs(1)		$	1,471			$	-
Beecher Falls, Vermont fire, net of insurance recoveries(1)			(909	)			100
Retail design center flood loss, net of insurance recoveries(1)			(829	)			-
Impairment of long-lived assets (retail design centers)(1)			449
Severance and other charges(1)			927				243
Other non-restructuring charges			526				564
Adjustments to operating income			1,635				907
Related income tax effects on non-recurring items(2)			(414	)			(232	)
Adjustments to net income		$	1,221			$	675

(1)	Refer to Note 11, Restructuring and Other Charges, Net of Gains, of the notes to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K for additional information regarding these adjustments.

(2)	Calculated using the marginal tax rate for each period presented.

Liquidity

Our sources of liquidity include cash and cash equivalents, short-term and long-term investments, cash generated from operations and amounts available under our credit facility. We believe these sources remain adequate to meet our short-term requirements and contractual obligations and fulfill other cash requirements for day-to-day operations for at least the next twelve months, as well as to meet long-term liquidity requirements and contractual obligations, finance our long-term growth plans, invest in capital expenditures and pay dividends for the foreseeable future. We are committed to monitoring our liquidity.

The following table illustrates the main components of our available liquidity.

(in thousands)		June 30,
		2026				2025
Cash and cash equivalents		$	73,628			$	76,178
Investments, short-term			59,622				59,955
Investments, long-term (1)			54,244				60,030
Availability under existing credit facility			121,202				120,952
Total available liquidity		$	308,696			$	317,115

(1)	Our long-term investments in U.S. Treasury notes are classified as non-current as they have stated maturities greater than one year.

At both June 30, 2026 and 2025, we had working capital of $157.1 million and a current ratio of 2.06 at June 30, 2026, comparable to 2.03 a year ago. Our non-U.S. subsidiaries held $6.4 million in cash and cash equivalents at June 30, 2026, which we have determined to be permanently reinvested.

Summary of Cash Flows

At June 30, 2026, we held cash and cash equivalents of $73.6 million compared with $76.2 million at June 30, 2025. Cash and cash equivalents aggregated to 10.2% of our total assets at June 30, 2026, compared with 10.3% a year ago.

In addition to cash and cash equivalents of $73.6 million, we had aggregated investments of $113.9 million at June 30, 2026 compared with $120.0 million at June 30, 2025. Our investments at June 30, 2026 are within U.S. Treasury bills and notes, which we expect will further enhance our returns on excess cash. Our U.S. Treasury bills with maturities of less than one year totaled $59.6 million while our U.S. Treasury notes with maturities ranging between one and two years totaled $54.2 million.

We believe our cash, cash equivalents and investments are available to meet short-term liquidity needs.

Our cash, cash equivalents and restricted cash decreased $3.3 million during fiscal 2026 primarily due to $46.3 million in cash dividends paid, capital expenditures of $11.0 million and share repurchases of $4.8 million partially offset by $52.5 million in net cash provided by operating activities and $5.0 million of proceeds from sales of investments, net of purchases.

The following table illustrates the main components of our cash flows during each of the last three fiscal years.

(in millions)		Fiscal Year Ended June 30,
		2026				2025				2024
Operating activities
Net income		$	39.9			$	51.6			$	63.8
Non-cash operating lease cost			32.9				32.7				32.0
Restructuring and other charges, net of gains			1.1				0.3				(0.1	)
Payments on restructuring and other charges			(4.0	)			(0.8	)			(2.6	)
Depreciation and amortization			15.2				15.5				16.0
Proceeds from insurance recoveries			2.2				0.2				1.6
Other non-cash items			2.9				1.6				1.2
Changes in operating assets and liabilities			(37.7	)			(39.4	)			(31.7	)
Total provided by operating activities		$	52.5			$	61.7			$	80.2
Investing activities
Capital expenditures		$	(11.0	)		$	(11.3	)		$	(9.6	)
Proceeds from sales of investments, net of purchases			5.0				8.9				(10.4	)
Proceeds from insurance recoveries			3.2				-				-
Total used in investing activities		$	(2.8	)		$	(2.4	)		$	(20.0	)
Financing activities
Taxes paid related to net share settlement of equity awards		$	(1.8	)		$	(2.2	)		$	(2.1	)
Payment of cash dividends			(46.3	)			(50.1	)			(50.3	)
Repurchases of common stock			(4.8	)			-				-
Proceeds from employee stock plans			-				-				0.5
Payments on financing leases and other			(0.4	)			(0.3	)			(0.4	)
Total used in financing activities		$	(53.3	)		$	(52.6	)		$	(52.3	)

Cash Provided by Operating Activities

During fiscal 2026, we generated $52.5 million in net cash provided by operating activities, primarily attributable to net income, adjusted for non-cash items, and insurance recoveries partially offset by unfavorable working capital changes. Our fiscal 2026 operating cash flow of $52.5 million was lower than $61.7 million generated in the prior year due to lower net income and incremental restructuring payments partially offset by $2.2 million in insurance recoveries. Restructuring payments made during fiscal 2026 of $4.0 million were primarily for cleanup of damage caused from the Beecher Falls fire, retail lease exit costs, employee severance and other restructuring matters. Working capital changes during fiscal 2026 were from increased inventory carrying levels along with a reduction in customer deposits. Higher levels of on-hand inventory reflect new product introductions combined with price increases.

Cash Used in Investing Activities

Cash used in investing activities was $2.8 million during fiscal 2026, compared with $2.4 million in the prior year. During fiscal 2026, we had $5.0 million of net proceeds received from sales of investments, which related to $59.8 million of U.S. Treasuries that matured and were subsequently reinvested for $54.8 million. In the prior year, we had $8.9 million of net proceeds received from sales of investments, which related to $94.1 million of U.S. Treasuries that matured during the year and the subsequent reinvestment of $85.2 million. Capital expenditures during fiscal 2026 were $11.0 million compared with $11.3 million in the prior year. Our cash used in investing activities during fiscal 2026 of $2.8 million was net of $3.2 million in insurance proceeds received, including $1.2 related to the reconstruction of an outbuilding at our Beecher Falls sawmill and $2.0 million for the reimbursement of a flood-damaged retail design center.

Cash Used in Financing Activities

Cash used in financing activities was $53.3 million during fiscal 2026 compared with $52.6 million in the prior year. Total dividends paid were $46.3 million, a decrease from $50.1 million paid a year ago due to the reduction in the special cash dividend paid, which went from $0.40 per share last year to $0.25 per share in fiscal 2026. We repurchased 250,000 shares under our existing share repurchase program during fiscal 2026 at an average price of $19.22 per share for a total cash outflow of $4.8 million. In addition, during fiscal 2026, a total of 62,267 shares valued at $1.8 million were repurchased from employees to satisfy their withholding tax obligations upon vesting of stock-based awards. This compared to $2.2 million repurchased for similar withholding tax obligations in the prior year.

Restricted Cash

We present restricted cash as a component of total cash and cash equivalents on our consolidated statements of cash flows and within Other assets on our consolidated balance sheets. At June 30, 2026 we did not have any restricted cash compared with $0.8 million in the prior year, which related to the Ethan Allen insurance captive.

Exchange Rate Changes

Due to changes in foreign currency exchange rates, namely the Mexican Peso, Canadian Dollar and Honduran Lempira against the U.S. Dollar, our cash and cash equivalents were impacted by $0.3 million during fiscal 2026 compared with less than $0.1 million in the prior year. These changes had an immaterial impact on our cash balances held in Mexico, Canada and Honduras.

Capital Resources, including Material Cash Requirements

Sources of Liquidity

Capital Needs. On January 26, 2022, we entered into a Third Amended and Restated Credit Agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A. as administrative agent and syndication agent and Capital One, National Association, as documentation agent. The Credit Agreement amended and restated the Second Amended and Restated Credit Agreement, dated as of December 21, 2018, as amended. The Credit Agreement provides for a $125 million revolving credit facility (the "Facility"), subject to borrowing base availability, with a maturity date of January 26, 2027. The Credit Agreement also provides us with an option to increase the size of the Facility up to an additional amount of $60 million. Availability under the Facility fluctuates according to a borrowing base calculated on eligible accounts receivable and inventory, net of customer deposits and reserves. The Facility includes covenants that apply under certain circumstances, including a fixed-charge coverage ratio requirement that applies when excess availability under the credit line is less than certain thresholds. As of June 30, 2026, we were not subject to the fixed-charge coverage ratio requirement, had no borrowings outstanding under the Facility, were in compliance with all other covenants, and had borrowing availability of $121.2 million of the $125.0 million credit commitment. See Note 12, Credit Agreement, to the consolidated financial statements included under Item 8 of this Annual Report on Form 10-K, for a further description of the Credit Agreement.

Letters of Credit. At June 30, 2026 we held $3.8 million in standby letters of credit outstanding under the Facility compared to $4.0 million in the prior year.

Uses of Liquidity

Capital Expenditures. Capital expenditures during fiscal 2026 totaled $11.0 million compared with $11.3 million in the prior year. Current year capital expenditures were primarily for new retail design centers and remodels, reconstruction of our Beecher Falls outbuilding, additional manufacturing equipment and investments in technology. Four new Company-operated design centers located in Colorado Springs, Concord (Canada), San Diego and Vancouver were opened during fiscal 2026. We expect capital expenditures to be in the range of $12 million to $14 million for fiscal 2027, with continued spending on new design centers and manufacturing-related investments.

We have no material contractual commitments outstanding for future capital expenditures and anticipate that cash from operations will be sufficient to fund future capital expenditures at least for the next twelve months and foreseeable future.

Dividends.Our Board has the sole authority to determine if and when we will declare future dividends and on what terms. We have a strong history of returning capital to shareholders and continued this practice during fiscal 2026 as the following actions were taken pertaining to dividends.

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On July 29, 2025, our Board declared a $0.25 per share special cash dividend in addition to our regular quarterly cash dividend of $0.39 per share, both paid on August 28, 2025

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On October 28, 2025, our Board declared a regular quarterly cash dividend of $0.39 per share, which was paid on November 26, 2025

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On January 27, 2026, our Board declared a regular quarterly cash dividend of $0.39 per share, which was paid on February 25, 2026

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On April 28, 2026, our Board declared a regular quarterly cash dividend of $0.39 per share, which was paid on May 27, 2026

During fiscal 2026 we paid a total of $1.81 per share in cash dividends, for an aggregate total of $46.3 million. This included the special dividend of $6.4 million paid on August 28, 2025. In the prior year, total dividends paid were $50.1 million, including a special cash dividend of $10.2 million. We have returned $767.6 million to shareholders since our initial public offering in 1993. Payment of regular quarterly cash dividends plus special dividends reflect our confidence in cash generation, our debt-free balance sheet and long-term strategy, and reinforces the Board's focus on delivering value to all shareholders.

We have paid a special cash dividend each of the past five years and paid an annual cash dividend every year since 1996. Although we expect to continue to declare and pay quarterly cash dividends for the foreseeable future, the payment of future cash dividends (whether quarterly, special or otherwise) is within the discretion of our Board and will depend on our earnings, operations, financial condition, capital requirements and general business outlook, among other factors. Our credit agreement also includes covenants with certain limitations on our ability to pay dividends.

Share Repurchase Program.We repurchased 250,000 shares under our existing multi-year share repurchase program at an average price of $19.22 per share during fiscal 2026. There were no share repurchases under the program in fiscal 2025. At June 30, 2026, we had a remaining Board authorization to repurchase 1,757,364 shares of our common stock pursuant to our share repurchase program. The timing and amount of any future share repurchases in the open market and through privately negotiated transactions will be determined by the Company's officers at their discretion and based on a number of factors, including an evaluation of market and economic conditions while also maintaining financial flexibility.

Material Cash Requirements from Contractual Obligations

Fluctuations in our operating results, levels of inventory, operating lease commitments, the degree of success of our accounts receivable collection efforts, the timing of tax and other material payments, the rate of written orders and net sales, levels of customer deposits, as well as capital expenditures will impact our liquidity and cash flows in future periods. The effect of our contractual obligations on our liquidity and capital resources in future periods should be considered in conjunction with the factors mentioned here. At June 30, 2026, we had total contractual obligations of $183.1 million, comparable to $182.8 million a year ago.

Our material cash requirements for our contractual obligations at June 30, 2026 were as follows:

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Lease Obligations. We lease real estate for both retail design centers and home delivery centers and also have equipment leases for certain equipment. At June 30, 2026, we had undiscounted operating and finance lease obligations of $140.8 million and $0.3 million, respectively, with $33.3 million and $0.3 million payable within the next 12 months, respectively. For more information, see Note 6, Leases, in the notes to consolidated financial statements included under Item 8 of this Annual Report on Form 10-K.

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Open Purchase Orders. We had purchase obligations, defined as agreements that are enforceable and legally binding that specify all significant terms, including fixed or minimum quantities to be purchased, of $22.5 million at June 30, 2026, comparable to $21.0 million in the prior year. Our purchase obligations at June 30, 2026, all payable within 12 months, related to purchase orders for the procurement of selected finished goods sourced from third-party suppliers as well as lumber, fabric, leather and other raw materials used in our manufacturing. The increase in open purchase orders during fiscal 2026 was driven by vendor price increases and the timing of purchase requisitions and payments.

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Long-term Debt. We had no outstanding borrowings under our revolving credit facility at June 30, 2026 and 2025, respectively. For more information, see Note 12, Credit Agreement, in the notes to the consolidated financial statements included under Item 8 of this Annual Report on Form 10-K.

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Other Purchase Obligations. Other purchase commitments for services such as software, web development, financial and accounting services, insurance, telecommunication and other maintenance contracts was $19.5 million at June 30, 2026, an increase compared with $14.8 million in the prior year primarily due to increased investments in enterprise resource planning technology and cybersecurity protection software and services.

For a discussion of our liquidity and capital resources and our cash flow activities for the fiscal year ended June 30, 2025, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, filed with the SEC on August 22, 2025.

Other Arrangements

We do not utilize or employ any other arrangements in operating our business. As such, we do not maintain any retained or contingent interests, derivative instruments or variable interests which could serve as a source of potential risk to our future liquidity, capital resources and results of operations.

Product Warranties. At June 30, 2026 our product warranty liability totaled $0.8 million compared to $1.0 million in the prior year. Our products, including case goods, upholstery and home accents, generally carry explicit product warranties and are provided based on terms that are generally accepted in the industry. All our domestic independent retailers are required to enter into and perform in accordance with the terms and conditions of a warranty service agreement. We record provisions for estimated warranty and other related costs at time of sale based on historical warranty loss experience and make periodic adjustments to those provisions to reflect actual experience.

Contingencies

We are involved in various claims and litigation as well as environmental matters, which arise in the normal course of business. Although the final outcome of these legal and environmental matters cannot be determined, based on the facts presently known, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.

Critical Accounting Estimates

We prepare our consolidated financial statements in conformity with GAAP. In some cases, these principles require management to make difficult and subjective judgments regarding uncertainties and, as a result, such estimates and assumptions may significantly impact our financial results and disclosures. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We base our estimates on currently known facts and circumstances, prior experience and other assumptions we believe to be reasonable. We use our best judgment in valuing these estimates and may, as warranted, use external advice. Actual results could differ from these estimates, assumptions, and judgments and these differences could be significant. We make frequent comparisons throughout the year of actual experience to our assumptions to reduce the likelihood of significant adjustments and will record adjustments when differences are known.

The following critical accounting estimates affect our consolidated financial statements.

Impairment of Long-Lived Assets

The recoverability of long-lived assets, including those held by our retail design centers, is evaluated for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset or asset group. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of an asset, change in the intended use of an asset, a product recall or an adverse action or assessment by a regulator. If the sum of the estimated undiscounted future cash flows over the remaining life of the primary asset is less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, usually determined by the estimated discounted cash flow analysis or independent third-party appraisal of the asset or asset group. While determining fair value requires a variety of input assumptions and judgment, we believe our estimates of fair value are reasonable. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail segment is the individual design center. For retail design center long-lived assets, expected cash flows are determined based on our estimate of future net sales, margin rates and expenses over the remaining expected terms of the leases.

Goodwill and Indefinite-Lived Intangible Assets

We review the carrying value of our goodwill and intangible assets with indefinite lives at least annually, during the fourth quarter, or more frequently if an event occurs or circumstances change, for possible impairment. Both goodwill and indefinite-lived intangible assets are assigned to our wholesale reporting unit which is principally involved in the development of the Ethan Allen brand and encompasses all aspects of design, manufacturing, sourcing, marketing, sale and distribution of our home furnishings and accents.

Goodwill. We may elect to evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit or fair value of indefinite lived intangible assets is less than its carrying value. If the qualitative evaluation indicates that it is more likely than not that the fair value of a reporting unit or indefinite lived intangible asset is less than its carrying amount, a quantitative impairment test is required. Alternatively, we may bypass the qualitative assessment for a reporting unit or indefinite lived intangible asset and directly perform a quantitative assessment.

A quantitative impairment test involves estimating the fair value of each reporting unit and indefinite lived intangible asset and comparing these estimated fair values with the respective reporting unit or indefinite lived intangible asset carrying value. If the carrying value of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to such excess, limited to the total amount of goodwill allocated to the reporting unit. If the carrying value of an individual indefinite lived intangible asset exceeds its fair value, such individual indefinite lived intangible asset is written down by an amount equal to such excess. Estimating the fair value of reporting units and indefinite lived intangible assets involves the use of significant assumptions, estimates and judgments with respect to a number of factors, including sales, gross margin, general and administrative expenses, capital expenditures, operating income and cash flows, the selection of an appropriate discount rate, as well as market values and multiples of earnings and revenue of comparable public companies.

To evaluate goodwill in a quantitative impairment test, the fair value of the reporting units is estimated using a combination of Market and Income approaches. The Market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). In the Market approach, the method focuses on comparing the Company's risk profile and growth prospects to reasonably similar publicly traded companies. Key assumptions used include multiples for revenues, operating income and operating cash flows, as well as consideration of control premiums. The selected multiples are determined based on public companies within our peer group, and if appropriate, recent comparable transactions are also considered. Control premiums are determined using recent comparable transactions in the open market. Under the Income approach, a discounted cash flow method is used, which includes a terminal value, and is based on management's forecasts and budgets. The long-term terminal growth rate assumptions reflect our current long-term view of the market in which we compete. Discount rates use the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors.

The Company performed its annual goodwill impairment test during the fourth quarter of fiscal 2026 utilizing a qualitative analysis and concluded it was more likely than not the fair value of our wholesale reporting unit was greater than its respective carrying value and no impairment charge was required. In performing the qualitative assessment, we considered such factors as macroeconomic conditions, industry and market conditions in which we operate, including the competitive environment and any significant changes in demand. We also considered our stock price both in absolute terms and in relation to peer companies.

Indefinite-Lived Intangible Assets. We also annually evaluate whether our trade name continues to have an indefinite life. Our trade name is reviewed for impairment annually in the fourth quarter and may be reviewed more frequently if indicators of impairment are present. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of an asset, a product recall or an adverse action or assessment by a regulator. Factors used in the valuation of intangible assets with indefinite lives include, but are not limited to, management's plans for future operations, recent results of operations and projected future cash flows.

Similar to goodwill, we may elect to perform a qualitative assessment. If the qualitative evaluation indicates that it is more likely than not that the fair value of our trade name was less than its carrying value, a quantitative impairment test is required. Alternatively, we may bypass the qualitative assessment for our indefinite lived intangible asset and directly perform a quantitative assessment. To evaluate our trade name using a quantitative analysis, its fair value is calculated using the relief-from-royalty method. Significant factors used in the trade name valuation are rates for royalties, future revenue growth and a discount factor. Royalty rates are determined using an average of recent comparable values, review of the operating margins and consideration of the specific characteristics of the trade name. Future growth rates are based on the Company's perception of the long-term values in the market in which we compete, and the discount rate is determined using the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors.

We performed our annual indefinite-lived intangible asset impairment test during the fourth quarter of fiscal 2026 utilizing a qualitative analysis and concluded it was more likely than not the fair value of our trade name was greater than its carrying value and no impairment charge was required. Qualitative factors reviewed included a review for significant adverse changes in client demand or business climate that could affect the value of the asset, a product recall or an adverse action or assessment by a regulator.

Inventories

Inventories (finished goods, work in process and raw materials) are stated at the lower of cost, determined on a first-in, first-out basis, and net realizable value. Cost is determined based solely on those charges incurred in the acquisition and production of the related inventory (i.e. material, labor and manufacturing overhead costs). At June 30, 2026 our inventory reserves totaled $1.5 million, which we estimate for excess quantities and obsolete items based on specific identification and historical write-downs, taking into account future demand and market conditions. Our inventory reserves contain uncertainties that require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. We adjust our inventory reserves for net realizable value and obsolescence based on trends, aging reports, specific identification and estimates of future retail sales prices. If actual demand or market conditions change from our prior estimates, we adjust our inventory reserves accordingly throughout the period. We have not made any material changes to our assumptions included in the calculations of the lower of cost or net realizable value reserves during the periods presented.

Income Taxes

We are subject to income taxes in the U.S. and other foreign jurisdictions. Our effective tax rate for fiscal 2026 was 25.0% compared with 25.2% in the prior year. Our tax provision is an estimate based on our understanding of laws in Federal, State and Foreign tax jurisdictions. These laws can be complicated and are difficult to apply to any business, including ours. The tax laws also require us to allocate our taxable income to many jurisdictions based on subjective allocation methodologies and information collection processes. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes.

We use the asset and liability method to account for income taxes. We recognize deferred tax assets and liabilities based on the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective+ tax bases and operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates in effect for the year in which we expect to recover or settle those temporary differences. When we record deferred tax assets, we are required to estimate, based on forecasts of taxable earnings in the relevant tax jurisdiction, whether we are more likely than not to recover them. In making judgments about realizing the value of our deferred tax assets, we consider historic and projected future operating results, the eligible carry-forward period, tax law changes and other relevant considerations.

The Company evaluates, on a quarterly basis, uncertain tax positions taken or expected to be taken on tax returns for recognition, measurement, presentation, and disclosure in its financial statements. If an income tax position exceeds a 50% probability of success upon tax audit, based solely on the technical merits of the position, the Company recognizes an income tax benefit in its financial statements. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The liability associated with an unrecognized tax benefit is classified as a long-term liability except for the amount for which a cash payment is expected to be made or tax positions settled within one year. As of June 30, 2026, we had gross unrecognized tax benefits totaling $3.8 million, down from $3.9 million in the year ago period.

Business Insurance Reserves

We have insurance programs in place for workers' compensation and healthcare under certain employee benefit plans provided by the Company. The programs, which are funded through self-insured retention, are subject to stop-loss limitations. We accrue estimated losses using actuarial models and assumptions based on historical loss experience. At June 30, 2026, we recorded a liability of $1.5 million for incurred but not reported healthcare claims and $5.0 million related to workers' compensation claims. These business insurance reserves are recorded within Accrued compensation and benefits on our consolidated balance sheets. Although we believe that the reserves are adequate, the estimates are based on historical experience, which may not be indicative of current and future losses. In addition, the actuarial calculations used to estimate reserves are based on numerous assumptions, some of which are subjective. We adjust insurance reserves, as needed, in the event that future loss experience differs from historical loss patterns.

Significant Accounting Policies

See Note 3, Summary of Significant Accounting Policies, in the notes to our consolidated financial statements included under Part II, Item 8, for a full description of our significant accounting policies.

Recent Accounting Pronouncements

See Note 3, Summary of Significant Accounting Policies, in the notes to our consolidated financial statements included under Part II, Item 8, for a full description of recent accounting pronouncements, including the expected dates of adoption.