ETD 10-K & 10-Q changes, risk factors and insider trading

The following risks could materially and adversely affect our business, financial condition, cash flows, results of operations and could cause the trading price of our common stock couldto decline. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Investors should also refer to the other information set forth in this Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements including the related notes. Investors should carefully consider all risks, including those disclosed, before making an investment decision.

Other financial or operational difficulties due toIncreased competition may result in a decrease in our sales, earnings and liquidity.

The residential home furnishings industry is highly competitive and fragmented. We currently compete with many other manufacturers and retailers, including digital retailers, some of which offer widely advertised products, and others, several of which are large retail dealers offering their own store-branded products. Competition in the residential home furnishings industry is based on quality, style of products, perceived value, price, service to the customer, promotional activities,value and advertising.service. The highly competitive nature of the industry means we are constantly subject to the risk of losing market share, which would likely decrease our future sales, earnings and liquidity.

AOnline majoritysales ofcompete our business reliesheavily on physicalprice brickas opposed to style, service and mortarquality. design centers that merchandise and sell our products and aA significant shift in consumer preference towards exclusively purchasing products online could have a materially adverse impact on our sales and operating margin.margin Weas a majority of our sales are attemptingfinalized to meet consumers where they prefer to shop by expandingwithin our onlinephysical capabilitiesbrick and improving the user experience at ethanallen.com including our virtualmortar design center.centers.

Sales of our products are dependent upon consumer acceptance of our product designs, styles, quality and price.quality. We continuously monitor changes in home design trends through attendance at trade shows, industry events, internal and external marketing research, and regular communication with our retailers and design professionals who provide valuable input on consumer tendencies. However, as with many retailers, our business is susceptible to changes in consumer tastes and trends. Such tastes and trends can change rapidly and any delay or failure to anticipate or respond to changing consumer tastes and trends in a timely manner could materially adversely impact our business and operating results.

Industry globalization has led to increased competitive pressures brought about by the increasing volume of imported finished goods and components, and the development of manufacturing capabilities in other countries, specifically within Asia. In addition, because many foreignnon-U.S. manufacturers are typically able to maintain lower production costs, including the cost of labor and overhead, imported product may be capable of being sold at a lower price to consumers, which, in turn, could lead to some measure of further industry‐wide price deflation.

We have potential exposure to market risk related to conditions in the commercial real estate market. At June 30, 2025,2026, there were 142141 Company-operated retail design centers averaging approximately 14,00013,700 square feet in size per location. Of these 142141 properties, we own 48 and lease 94.93. Our retail segment real estate holdings could suffer significant impairment in value if we are forced to close design centers and sell or lease the related properties during periods of weakness in certain markets. We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased design centers and retail home delivery centers. At June 30, 2025,2026, the unamortized balance of such right-of-use assets totaled $109.2$107.7 million. Should we have to close or abandon one or more of these leased locations, we could incur additional impairment charges if rental market conditions do not support a fair value for the right of use asset in excess of carrying value.

We have a limited number of manufacturing locations. Our upholstery operations consist of three upholstery plants in North Carolina as well as three plants in Mexico. Our case goods operations are supported by two manufacturing plants located in in Vermont and Honduras, as well as one sawmill, one rough mill and one kiln dry lumberyard. If any of our manufacturing sites experience significant business interruption, our ability to manufacture or deliver our products in a timely manner would likely be impacted. Fewer locations could result in longer distances for delivery and could result in higher costs to transport products if fuel costs significantly increase.

Disruption of the Company’s supply chain capabilities due to trade restrictions, political instability, increased tariffs, severe weather, natural disasters, public health crises, terrorism, product recalls, global unrest, war, labor supply or stoppages, the financial and/or operational instability of key suppliers and carriers, or other reasons could impair the Company’s ability to distribute its products. To the extent we are unable to mitigate the likelihood or potential impact of such events, there could be a material adverse effect on our operating and financial results. Furthermore, supply chain disruptions could materially adversely impact our manufacturing production and fulfillment of backlog.

Imported finished goods represent approximately 25% of our consolidated net sales. The prices paid for these imported products include tariffs and inbound freight. To the extent that we experience incremental tariffs and/or inbound freight costs, we may increase our selling prices to offset the impact. However, increases in selling prices may not fully mitigate the impact of the cost increases which would adversely impact operating income.

Cyberattacks are becoming more sophisticated,sophisticated with evolving technologies, including artificial intelligence, and in some cases have caused significant harm. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. We operate many aspects of our business through server and web‐based technologies, and store various types of data on such servers or with third parties who in turn store it on servers and in the cloud. Any disruption to the internet or to the Company's or its service providers' global technology infrastructure, including malware, insecure coding, “Acts of God,” attempts to penetrate networks, data theft or loss and human error, could have adverse effects on the Company's operations.

During fiscal 2026, we experienced attempts to breach our networks and systems, and we expect such attempts to continue. A cyberattack of our systems or networks that impairs our information technology systems could disrupt our business operations and result in loss of service to customers. We believe we have a comprehensive cybersecurity program designed to protect and preserve the integrity of our information technology systems. We expect to continue to experience attempted cyberattacks of our IT systems or networks, through malware, ransomware, computer viruses, phishing attempts, social engineering and other means of unauthorized access; however, none of the attempted cyberattacks has had a material impact on our operations or financial condition to date. If a computer security breach or cyberattack affects our systems or results in the unauthorized release of proprietary or personally identifiable information, our reputation could be materially damaged, our customer confidence could be diminished, and our operations, including technical support for our devices, could be impaired. We would also be exposed to litigation and potential liability, which could have a material adverse effect on our business, results of operations, cash flows and financial condition. Moreover, the costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful, resulting potentially in the theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations.

We have access to customerclient information in the ordinary course of business. If a significant data breach occurred, the loss, disclosure or misappropriation of our business information may adversely affect our reputation, customer confidence may be diminished, or we may be subject to legal claims, or legal proceedings, including regulatory investigations and actions, which may lead to regulatory enforcement actions against us, and may materially adversely affect our business, operating results and financial condition.

Economic uncertainty, as well as other variations in global economic conditions such as fuel costs, wage inflation, global trade policies including tariffs, and currency fluctuations, may cause inconsistent and unpredictable consumer spending habits, while increasing our own input costs. These risks resulting from economic uncertainty could also severely disrupt our manufacturing operations, which could have a material adverse effect on our financial performance. We import approximately 25% of our finished goods as well asand operate manufacturing plants in Mexico and Honduras and retail design centers in Canada. As a result, our ability to obtain adequate supplies or to control our costs may be adversely affected by events affecting global commerce, including natural disasters, public health crises, changes in international trade including tariffs, central bank actions, changes in the U.S. dollar versus other currencies, labor availability and cost, and other governmental policies of countries from which we operate our manufacturing facilities in as well as import from.

Changes in the political environment in the U.S. may require us to modify our current business practices. During fiscal 2025, the U.S. announced its intention and/or actively took actions to increase tariffs at various rates, including on certain products imported from many countries and individualized higher tariffs on certain other countries. Other countries have announced reciprocal tariffs or other similar actions. In some cases, these tariffs have since been followed by announcements of limited exemptions and temporary pauses. We are subject to risks relating to increased tariffs on U.S. imports, and other changes affecting imports, as we manufacture components and finished goods in Mexico and Honduras and purchase components and finished goods manufactured in foreign countries. The recent enactment of these tariffs, along with the unpredictability of the rates, poses a risk to our business operations and may materially increase our costs and reduce our margins. There continues to be significant uncertainty about the future relationship between the U.S. and other countries regarding such trade policies, treaties and tariffs. As such, we can make no assurances about the eventual impact on our consolidated operating results and business. However, based on information currently available to us, theincluding recent introduction of additionalcurrent tariffs byimposed on imports into the U.S.U.S., andwe reciprocal tariffs by other countries is expected to result inexpect incremental costs for our imported raw materials and finished goods. These higher costs are expected to impact certainour ofwholesale ourand consolidated margins and could lead to an increase in our retail selling prices, potentially reducing consumer demand and impacting our sales volume. We may not be able to fully or substantially mitigate the impact of tariffs, pass price increases on to our customers,clients, or secure adequate alternative sources of products or materials. The tariffs, along with any additional tariffs or retaliatory trade restrictions implemented by other countries, could negatively impact customerclient sales, including potential delays in product received from our vendors, our cost of goods sold and results of operations. We continue to work to determine our overall tariff cost exposure, the potential impact of retaliatory responses thereto, if any, and mitigation plans. Our inability to minimize the impact of tariffs on our raw material input costs, pass through price increases or find alternative sources for our raw materials, may have a material adverse impact on our sales volume, earnings and liquidity. For more information, see Item 7A. Quantitative and Qualitative Disclosures About Market Risks, under the heading of “Duties and Tariffs Risks”, of this Annual Report on Form 10-K.

Changes in U.S. or international tax laws and regulations, such as those caused by the recent enactment of the federal One Big Beautiful Bill Act,Act (“OBBBA”) in fiscal 2026, may have a material adverse effect on our business in the future or require us to modify our current business practices. In the ordinary course of business, we are subject to tax examinations by various governmental tax authorities. The global and diverse nature of our business means that there could be additional examinations by governmental tax authorities and the resolution of ongoing and other probable audits, which could impose a future risk to the results of our business.

Ethan Allen sells to the U.S. government both through GSA Multiple Award Schedule Contracts and through competitive bids. Total net sales to the U.S. government individually represented 6%less than 5% of our consolidated net sales in fiscal 2025.2026. The U.S. government has and may continue to implement initiatives focused on efficiencies, affordability and cost reductions, such as those pursued by the Department of Government Efficiency (“DOGE”). On January 20, 2025, President Trump announced an executive order establishing the DOGE to maximize government efficiency and productivity. In February 2025, President Trump stated that he has directed DOGE to review U.S. government spending for potential waste and fraud.reductions. Pressures on and uncertainty surrounding the U.S. federal government’s budget and potential changes in budgetary priorities, could adversely affect our revenue, financial condition, and results of operations. These initiatives and changes may change the way U.S. government contracts are solicited, negotiated and managed.

The success of our business depends upon our ability to retain continued service of certain key personnel, including our Chairman of the Board, President and Chief Executive Officer, M. Farooq Kathwari, whose employment agreement was amended on July 30, 2024, extending his term for an additional two years, ending June 30, 2027.personnel. We face risks related to loss of any key personnel and we also face risks related to any changes that may occur in key senior leadership executive positions. Any disruption in the services of our key personnel could make it more difficult to successfully operate our business and achieve our business goals and could adversely affect our results of operation and financial condition. These changes could also increase the volatility of our stock price.

Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations. At June 30, 2025,2026, the Company operates 142141 retail design centers, 137136 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 2025,2026, we opened four new Company-operated design centers in Middleton,Colorado WI,Springs, Toronto,Concord Canada,(Canada), Peoria,San AZDiego and Watchung, NJ that showcase our unique vision of American style while combining complimentary interior design services with technology.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. InWe addition, wealso contract with various suppliers located in Europe, Asia and other various countries to import products that support our business.products.

WeEthan executedAllen well throughout the fiscal year as the Company remained focusedfocuses on fivethe key areas: of talent, service, marketing, technology and social responsibility. These areas of focus along with our interior design professionals combining personal service with technology contributed to Ethan Allen recently being named America’s #1 Premium Retailer by Newsweek, for the third year in a row. Our strategic initiatives to further strengthen our talent, 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.well for sustained profitability and returning value to shareholders.

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 customersclients 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 utilizingan omni-channel approach via our website, ethanallen.com, as a key marketing tool to drive traffic to our retail design centers.ethanallen.com. We aim to position Ethan Allen as athe premier interior design destination and a preferred brand offering products of superior style, quality, and value to customersclients 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, 2025,2026, our employee count totaled 3,211,3,062, with 2,2392,137 employees in our wholesale segment and 972925 in our retail segment. Our employee count decreased 5.7%4.6% or 193149 associates during fiscal 2025,2026, with 5647 fewer employees in retail and 137102 fewer employees in wholesale. We werecontinually pleasedlook for opportunities to strengthen our teams during fiscal 2025 while at the same time reducingoptimizing headcount through operational efficiencies.

Fiscal 20252026 Financial Year in Review (1). Our financial performance during fiscal 20252026 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 generatedwere strongable to improve operating cashefficiency flowand ofrun $61.7a million,leaner whichenterprise helpeddespite usa growreduction in our cash,contract cash equivalentsbusiness and investmentssluggish total to $196.2 million at June 30, 2025. We continued our history of returning capital to shareholders by paying four regular cash dividends of $0.39 and declared a special cash dividend of $0.40 per share, bringing the total amount of dividends paid to $50.1 million during fiscal 2025.demand. Consolidated net sales of $614.6$579.5 million were down 4.9%5.7% compared to the prior year due to lower contract sales, a decline in delivered unit volume, reduced available backlog, less design center trafficvolume and fewer contractincoming salesorders which led to lower available backlog partially offset by a higher average ticket prices. We ended the fiscal year with wholesale backlog of $48.9 million, down 8.7% from a year ago due to lower contract volume and improved customer lead times.price. Our consolidated gross margin of 60.5%61.2% was comparablehigher tothan 60.8%60.5% in the prior year asdue benefits fromto a change in sales mix, lower inputin-bound freight costs, reduced headcount, fewer designer floor sample salesheadcount and selective price increases were offset by lower unit volume sales, increased promotional activity anda higher financingaverage costs.ticket price. Our adjusted operating margin was 10.2%7.8% compared to 12.1%10.1% in the prior year primarily due to deleveraging from lower unitconsolidated net sales and higher tariffs partially offset by disciplined cost management and grossretail marginprice preservation.increases. Adjusted dilutedDiluted earnings per share of $2.04$1.56 was downlower fromthan $2.49$2.01 in the prior year.year due to fewer net sales and the impact of tariffs.

Wholesale net sales decreased $28.4 million or 7.9% in fiscal 2025 decreased 3.2%2026 compared to the prior year primarily due to a decline in contract sales partially offset by an increase in intersegmentand sales to both our intersegment Company-operated design centers.centers and independent U.S. retail network. Excluding intersegment sales to our retail segment, wholesale net sales decreased $14.2$23.2 million or 13.4% compared to the prior year period.year. Our contract sales, including shipments to the GSA, decreased 23.7%56.0% primarily due to lessfewer incoming orders as a result offrom the slowdownchange in presidential administration in 2025 combined with the U.S. government spending,shutdown, whichbeginning ledin toOctober lower available backlog.2025. Our wholesale international sales, which represented 1.4%0.9% of total wholesale net sales in fiscal 2025,2026, decreased 27.6%43.6% primarily from lowerreduced netorder salesvolumes towith China.

Wholesale written orders, which represent orders booked through all of our channels, were down 3.2%11.2% in fiscal 20252026 compared to the prior year drivendue primarilyto fromdeclines theacross declineall inchannels ouras contractmacroeconomic business.uncertainty combined with lower traffic created near-term pressure. Contract orders were down 25.4%49.5% while our international retailersretailers, including China, decreased 17.9%.52.0%. However, ordersduring 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 weredeclined relatively flat compared to prior year as demand patterns began to show signs of improvement7.4% during thefiscal just completed fourth quarter.2026. Wholesale backlog was $48.9$44.3 million at June 30, 2025,2026, down 8.7%9.3% from a year ago due to lower contract volumeand andinternational business. Lower backlog levels led to improved customer lead times.times, Theincluding lowering the number of weeks of wholesale backlog atcompared June 30, 2025 was 7.0 weeks, down from 7.3 weekswith a year ago.

Retail net sales from Company-operated design centers decreased 3.2%$11.9 duringmillion or 2.3% in fiscal 20252026 compared to the prior year primarilydue fromto reducedlower delivered unit volumes,volumes lowerand fewer written orders,orders lesspartially availableoffset backlog,by lowerincreased designer floor sample sales and decreaseda premier home delivery revenue partially offset by an increase inhigher 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 2.7%2.4% while sales from our Canadian design centers decreasedincreased 20.8%.2.3%.

Consolidated gross margin was 60.5%,61.2%, a 30-basis70-basis point declineimprovement 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 unitcontract volume sales and higher financing costs partially offset by a change in sales mix, lower raw material and freight input costs, reduced headcount, fewer designer floor sample sales and selective price increases which contributed to a higher average ticket price. Retail sales, when expressed as a percentage of total consolidated net sales, were 85.1% in fiscal 2025, up from 83.6% in the prior year period, which had a positive impact on our consolidated gross margin. Wholesale gross margin was up 70 basis points over the prior year due to lower raw material and fuel input costs, reduced headcount and investments in technology, which helped streamline production workflows.sales. These benefits were partially offset by reducedincremental productiontariffs, volumeslower clearance sales margins, and deleveraging from lowerfewer incomingdelivered writtensales. orders, which led to increased plant inefficiencies and higher manufacturing variances. Our retailWholesale gross margin decreased 30310 basis points compared to the prior year due to higherincremental financingtariffs, costslower contract sales and increasedunfavorable promotionalmanufacturing levelsvariances 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 areduced declinefinancing in sales of designer floor samples.costs.

SG&A expenses for fiscal 2025 decreased $5.4$1.1 million or 1.7%0.4% in fiscal 2026 compared to the prior year.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 50.4%,53.3%, an increase from 48.8%50.4% in the prior year primarily due to fixed cost deleveraging from lower delivered sales. SG&A expenses were down 1.7% while consolidated sales decreased 4.9%, which led to a decrease in operating leverage.

Consolidated selling expenses were down 3.6%1.3% during fiscal 2025.2026. Wholesale selling expenses, which include our logistics operation, decreased 0.1%3.4% from a 9.8% decline in wholesaledistribution unitsvolume, shipped,reduced loweroutbound freight costs including fuel, and less outgoing distribution costs combined with reducedlower headcount partially offset by an increase in advertising expenses and digital and web-technology spend. Retail selling expenses were down 4.8%0.6% due to reduced delivery costs from lower delivered revenue, less headcount and lower designer variable compensation from lower retaildelivered sales.volume Consolidatedand less headcount partially offset by an increase in advertising expenses were equal to 2.9% of net sales, up from 2.5% in the prior year due to increased digital media spend, including paid social campaigns and a higher volume of digital magazine mailings.expenses.

Retail operating income for fiscal 20252026 was $6.7 million compared with $19.8 million orin 3.8%the prior year. As a percentage of retail net sales, retail operating income for fiscal 2026 was 1.3% compared towith $24.7 million or 4.6%3.8% in the prior year. The decrease in retail operating income and related operating margin was drivendue primarilyto bylower theretail $17.4net millionsales, reductiona decrease in retail net sales combined with a 30-basis point drop in gross margin and higher occupancy costs partially offset by areduced declinevariable incosts SG&Afrom expenses.lower net sales and less headcount.

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 decreasedincreased 5.5% to $7.3 million during fiscal 202515.3% due to foreign currency losses reflecting greater volatility in exchange rates, including a weakercontract U.S.termination dollarfee received during the first quarter of fiscal 2026 from our former private label credit card provider. This income was partially offset by an additional $0.1 million inlower interest income onfrom ourreduced investments.available investments and lower interest rates.

Income tax expense for fiscal 20252026 decreased $4.2$4.1 million or 19.4%23.7% compared with the prior year due to the $16.4$15.8 million or 23.0% decrease in income before income taxes. Our effective tax rate for fiscal 2026 was 25.2%25.0% compared with 25.3%25.2% in the prior year. Our fiscal 2026 effective tax rate of 25.2%25.0% varies from the 21% federal statutory rate primarily due to state taxes.

Net income forin fiscal 20252026 was $51.6$39.9 million compared with $63.8$51.6 million in the prior year period.year. Adjusted net income was $52.3$41.1 million, a decrease of 18.0%21.4% compared with $63.8$52.3 million in the prior year period.year. The decrease in net income was driven by the $31.6$35.2 million reduction in consolidated net sales partially offset by improved consolidated gross margin and lower SG&A expenses.

Diluted EPS for fiscal 20252026 was $2.01$1.56 compared to $2.49$2.01 per diluted share in the prior year period.year. Adjusted diluted EPS was $2.04,$1.61, down 18.1%21.1% compared with the prior year period. The decrease in diluted EPS was primarily due to deleveraging from lower consolidateddelivered net sales partially offset by improved consolidated gross margin and lower SG&A expenses.

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

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 andplans, invest in capital expenditures and pay dividends for the foreseeable future. We are committed to maintaining a strong balance sheet and monitoring our liquidity closely.liquidity.

The following table illustrates the main components of our available liquidity (in thousands).liquidity.

At both June 30, 2026 and 2025, we had working capital of $157.1 million compared with $179.0 million at June 30, 2024 and a current ratio of 2.032.06 at June 30, 2025,2026, comparable to 2.162.03 a year ago. Our non-U.S. subsidiaries held $3.6$6.4 million in cash and cash equivalents at June 30, 2025,2026, which we have determined to be permanently reinvested.

At June 30, 2025, we held cash and cash equivalents of $76.2 million compared with $69.7 million at June 30, 2024. Cash and cash equivalents aggregated to 10.3% of our total assets at June 30, 2025, compared with 9.4% a year ago. In addition to cash and cash equivalents of $76.2$73.6 million, we had aggregated investments of $113.9 million at June 30, 2026 compared with $120.0 million at June 30, 2025 compared with $126.1 million at June 30, 2024.2025. Our investments at June 30, 20252026 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 $60.0$59.6 million while our U.S. Treasury notes with maturities ranging between one and two years totaled $60.0$54.2 million. We believe our cash, cash equivalents and investments are available to meet short-term liquidity needs.

Cash used in investing activities was $2.4$2.8 million during fiscal 2025,2026, compared with $20.0$2.4 million in the prior year. During fiscal 2025,2026, 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, net of purchases, which representedrelated to $94.1 million of U.S. Treasuries that matured during the fiscal year of which $85.2 million was reinvested. The prior year included an outgoing $10.4 million of net purchases of investments, which related to $124.5 million of U.S. treasuries that matured during the year and werethe subsequentlysubsequent reinvested at a higher amountreinvestment of $134.9$85.2 million. Capital expenditures during fiscal 20252026 were $11.3$11.0 million compared with $9.6$11.3 million in the prior yearyear. asOur wecash furtherused expandedin 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 manufacturingBeecher facilitiesFalls insawmill Mexico,and remodeled$2.0 ourmillion hotel,for built-outthe newreimbursement of a flood-damaged retail design centers and continued to invest in new manufacturing equipment and technology.center.

Cash used in financing activities was $52.6$53.3 million during fiscal 20252026 compared with $52.3$52.6 million in the prior year. Total dividends paid were $50.1$46.3 million, a decrease offrom 0.4%$50.1 frommillion paid a year ago due to athe reduction in the special cash dividend paid, which went from $0.50$0.40 per share last year to $0.40$0.25 per share in thefiscal current2026. year.We Therepurchased decrease250,000 inshares under our specialexisting share repurchase program during fiscal 2026 at an average price of $19.22 per share for a total cash dividendoutflow wasof offset$4.8 by an 8.3% increase in our regular quarterly dividend, which rose from $0.36 to $0.39 per share, effective May 2024.million. In addition, during fiscal 2025,2026, a total of 70,49562,267 shares valued at $2.2$1.8 million were repurchased from employees to satisfy their withholding tax obligations upon vesting of equitystock-based awards. This compared to $2.1$2.2 million repurchased for similar withholding tax obligations in the prior year period.year.

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, 20252026 we helddid not have any restricted cash compared with $0.8 million ofin restrictedthe cashprior year, which related to the Ethan Allen insurance captive compared to $0.5 million in the prior year.captive.

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 less than $0.1$0.3 million during fiscal 20252026 compared with $0.3less than $0.1 million in the prior year period.year. These changes had an immaterial impact on our cash balances held in Canada,Mexico, MexicoCanada and Honduras.

Letters of Credit. At both June 30, 20252026 andwe 2024held there were $4.0$3.8 million ofin standby letters of credit outstanding under the Facility.Facility compared to $4.0 million in the prior year.

During fiscal 20252026 we paid a total of $1.96$1.81 per share in cash dividendsdividends, for an aggregate total of $50.1$46.3 million. This included the special dividend of $6.4 million paid on August 29,28, 2024 totaling $10.2 million.2025. In the prior year period,year, total dividends paid were $50.3$50.1 million, including a special cash dividend of $10.2 million. With our dividends, weWe have returned $721.3$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. ThereWe wererepurchased no250,000 share repurchasesshares under our existing multi-year share repurchase program at an average price of $19.22 per share during fiscal 20252026. orThere 2024.were no share repurchases under the program in fiscal 2025. At June 30, 2025,2026, we had a remaining Board authorization to repurchase 2,007,3641,757,364 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.

Fluctuations in our operating results, levels of inventory on hand,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 on hand,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, 2025,2026, we had total contractual obligations of $182.8$183.1 million, downcomparable fromto $197.9$182.8 million a year ago primarily due to lower retail design center lease obligations and timing of purchase orders for the procurement of finished goods and raw materials.ago.

Product Warranties. At both June 30, 2025 and 2024,2026 our product warranty liability totaled $0.8 million compared to $1.0 million.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.

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, 20252026 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. Our inventory reserves of $1.5 million at June 30, 2025 were down from $1.8 million a year ago primarily due to a decline in our inventory carrying levels combined with fewer returns and obsolete items.

There have been no material changes during the first sixnine months of fiscal 2026 to the Company’s risk factors disclosed in Part I, Item 1A, Risk Factors, in our 2025 Annual Report on Form 10-K.

Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations. At DecemberMarch 31, 2025,2026, the Company operates 142 retail design centers, 137 located in the U.S. and 5 in Canada. We also have 4544 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 DecemberMarch 31, 2025,2026, 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.

Talent. At DecemberMarch 31, 2025,2026, our employee count totaled 3,149,3,105, with 2,1772,158 inwithin our wholesale segment and 972947 in our retail segment. We continue to strengthen our teams while at the same time reducingOur headcount throughis operationaldown efficiencies5.7% compared with a year ago and have reduced headcount by 5.1% in the last 12 months and 30.7%39.4% less than Decemberat March 31, 2019.

Fiscal 2026 SecondThird Quarter in Review (1). Our fiscal 2026 secondthird quarter results were highlightedimpacted by a strongreduction grossin marginbusiness with the U.S. State Department, lower international sales and robustsluggish balancedemand sheet despitefrom a challenging environment.environment for home furnishings, which included weather disruptions and macroeconomic uncertainty. Consolidated net sales were $149.9$135.8 million, a 4.7%4.8% decrease from the prior year quarter primarily due to fewer contract salessales, 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. WholesaleRetail segment written orders declinedwere 19.3%flat to last year while retailour wholesale segment written orders declined 17.9%.7.6% Ourprimarily demanddue trendsto reflectmacroeconomic challenges, reduced government activity and a difficultslowdown priorin yearour comparisoninternational combined with macroeconomic and industry-specific challenges, including higher tariffs, the government shutdown, elevated inflation, lower consumer sentiment and reduced home sales.business. We maintained a strong consolidated gross margin of 60.9%59.4% due to a change in sales mix, selective price increases and lower headcount partially offset by increasedincremental tariffs, delivering written orders that had higher promotional activity, incremental tariffsdiscounts and higherincreased designer floor sample sales. Our adjusted operating margin was 9.0%4.8% compared to 11.5%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 $0.44 compared with $0.59 a year ago.$0.24. Lower operating margin was driven by fewer contract sales, increased promotions, lower unit volumes, incremental marketing spend,increased tariffs, elevated designer floor sample sales and increased employee benefitoccupancy costs partially offset by change in sales mix, reduced freight, lower headcount, disciplined spending and a higher retail average ticket price. We ended the quarter with 187 Ethan Allen retail design centers, including 142 Company-operated and 45 independently owned and operated locations. Cash, cash equivalents and investments totaled $179.3 million at December 31, 2025 and we had no outstanding debt. 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.

For an understanding of the significant factors that influenced our financial performance during the three and sixnine months ended DecemberMarch 31, 20252026 and 2024,2025, respectively, the following discussion should be read in conjunction with the consolidated financial statements and related notes presented in this Quarterly Report on Form 10-Q.

Consolidated net sales decreased $7.3$6.9 million or 4.7%4.8% for the three months ended DecemberMarch 31, 20252026 compared with the same prior year period. The decrease during the second quarter was driven by fewer contract sales, a decline in delivered unit volume and inclement weather during January and February 2026 combined fewer incoming wholesale written orders, which led to lower available backlog and less manufacturing production. Backlog represents all written orders received that have not yet been delivered. The decline in consolidated net sales was partially offset by higher average ticket price, incremental designer floor sample sales and fewer sales returns. TheConsolidated net sales decreased 4.7% during the first sixnine months of fiscal 2026 wereas impactedwe byhad lesslower contract sales, a decline in delivered unit volume, lower available starting backlog and reduced design center traffic.

Wholesale - Wholesale net sales decreased $7.7$14.1 million or 8.9%14.2% for the three months ended DecemberMarch 31, 2025.2026 Thedue decrease was driven primarily byto lower contract sales, including shipments to the U.S. government General Services Administration (“GSA”)., fewer international sales and a difficult prior year comparison. The first nine months of fiscal 2026 were impacted by fewer contract and international sales. Sales related to our contract business have been lower in the current fiscal year primarily due to fewer incoming orders from the GSA, primarily driven by the U.S. government shutdown and the change in administration during 2025. International sales represented 1.2%0.8% of total wholesale net sales during the secondthird quarter of fiscal 2026 compared with 1.4% in the prior year quarter. TheFor the first sixnine months of fiscal 20262026, international sales were impacted1.0% byof lowertotal contract sales, a decrease in sales to our U.S. independent dealers and lowerwholesale net sales to China partially offset by elevated levels of intercompany salescompared to our1.5% retaila segmentyear related to new product introductions.ago.

Wholesale written orders, which represent undelivered orders booked through all of our channels, were down 19.3%7.6% for the three months ended DecemberMarch 31, 20252026 compared to the same prior year period primarily from the decline in contract orders combined with fewer orders from both our intersegment Company-operated design centers and independent retail network.dealers. For the first halfnine months of fiscal 2026, wholesale written orders were down 12.6%11.0%, driven by declines across all our channels,channels. including lower contract orders. The slowdown in U.S. government spending, including the recent government shutdown, resulted in lower incoming contract orders and available backlog. We ended the fiscal 2026 second quarter with wholesaleWholesale backlog ofwas $49.8$42.0 million,million at March 31, 2026, down 13.6%23.1% from a year ago and 6.9%15.7% lower insince the paststart threeof monthsthe fiscal third quarter due to timing oflower incoming contractorders. orders,The which are at their highestreduction in our fiscal first quarter and at their lowest every fiscal second quarter based on the U.S. government’s fiscal year-end. Lower undelivered backlog helped us improve customer lead times, including a reduction inlowering the number of weeks of wholesale backlog at December 31, 2025 compared with a year ago.

Retail - Retail net sales increaseddecreased $0.1$1.4 million or 0.1%1.2% for the three months ended DecemberMarch 31, 20252026 compared with the same prior year period. The increase for the quarterdecrease was driven by higherlower starting retail backlog,backlog incrementaland less design center traffic due to inclement weather conditions partially offset by higher designer floor sample sales, fewer sales returns and an increase in average ticket priceprice. partiallyRetail offsetbacklog byon January 1, 2026 was 12% lower incomingthan writtenthe ordersyear andprior, lesswhich designled centerto traffic.fewer net sales during the fiscal 2026 third quarter. Retail net sales during the first sixnine months of fiscal 2026 felldecreased by 1.5%1.4% due to lower delivered unit volumes, fewer written orders and reduced traffic 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 new 2026 inventory in the retail design centers.

There were 142 Company-operated design centers at DecemberMarch 31, 2025,2026, updown one compared with a year ago. During the just completed secondthird quarter we relocated our SanVancouver, Diego,British CaliforniaColumbia (Canada) design center and have plans to open new design centers in Rancho Cucamonga, California, and Aventura, Florida and Vancouver, British Columbia (Canada) during 2026.

Consolidated gross profit decreased $3.6$6.7 million for the three months ended DecemberMarch 31, 20252026 compared with the same prior year period. The decrease in gross profit was driven by lower wholesale net sales, increased promotional activity, incremental tariffs and alower changepremier inhome productdelivery mix. These decreases wererevenue partially offset by aincreased higherdesigner percentagefloor ofsample our total sales coming from the retail segment,sales, lower inbound freight, reduced labor costs from lower headcount, higher designer floor sample salesheadcount and selective price increases that led to a higher average ticket price. Wholesale gross profit for the third quarter decreased 12.4%25.3% due to lower contract salessales, a reduction in delivered unit volume and incremental tariffs partially offset by lower freight and laboremployee costs.compensation. Retail gross profit decreased 3.7%2.5% primarily due to increasedlowered promotionaldelivered activityunit whichvolume led toand a 180-basis point reduction in thehome retaildelivery gross marginrevenue partially offset by higherincreased designer floor sample sales and selectivea pricehigher increases.average ticket price. For the first sixnine months of fiscal 2026, consolidated gross profit decreased $7.2$13.9 million due to $14.7 million fewer consolidated net sales, increased promotional activity and incremental tariffs partially offset by a higher percentage of total sales coming from the retail segment, lower headcount and selective price increases in the last 12 months.increases.

Consolidated gross margin was 60.9%59.4% for the three months ended DecemberMarch 31, 20252026 compared with 60.3%61.2% in the prior year period. Our secondfiscal 2026 third quarter consolidated gross margin expandeddeclined by 60180 basis points due to incremental tariffs, the impact of increased promotional activity, higher designer floor sample sales and reduced manufacturing production partially offset by a change in the sales mix, lower freight costs, reduced headcount and a higher retail average ticket price partially offset by increased promotional activity, incremental tariffs and elevated designer floor sample sales.price. Our sales mix, which represents the percentage of retail sales compared to total consolidated sales, increased to 89.6%85.6% in the current year, up from 85.4%82.4% in the prior year due to lower contract sales within our wholesale segment. Wholesale gross margin for the secondthird quarter was down 120460 basis points over the prior year period due to incremental tariffs, lower contract sales and incrementalunfavorable tariffsmanufacturing partiallyvariances offset byfrom lower inbound freight and labor costs.production. Retail gross margin declined 18060 basis points compared with the prior year period due to increased promotional activity, elevatedhigher designer floor sample sales that carry a lower average marginmargin, lower premier home delivery revenue and changethe inimpact productof mixincreased promotional activity partially offset by higher average ticket price.price from selective price increases. For the first sixnine months of fiscal 2026, our consolidated gross margin increaseddecreased 5020 basis points to 61.1%60.6% due to change in the sales mix, lower raw material input costs, selective price increases, lower headcount and a higher retail average ticket price partially offset by increased promotional activity, elevated designer floor sample sales, higher inbound freight including incremental tariffs and deleveraging from lower delivered sales.sales partially offset by change in the sales mix, lower freight, lower headcount and a higher average ticket price.

SG&A expenses increaseddecreased 1.5%3.1% for the three months ended DecemberMarch 31, 20252026 compared with the same prior year period. When expressed as a percentage of sales, SG&A expenses for the quarter were 51.9%,54.4%, up from 48.8%53.4% in the prior year secondthird quarter primarily due to fixed cost deleveraging from lower delivered sales combined with additional marketing spend, ongoing investments in technology and increased employee benefit costs, including medical and workers compensation.sales. For the sixnine months ended DecemberMarch 31, 2025,2026, SG&A expenses increased 3.1%1.1% compared with the same prior year period as we invested in additional strategic marketing to further our brand. When expressed as a percentage of sales, SG&A expenses for the first halfnine months of fiscal 2026 were 53.1%,53.5%, up from 49.0%50.4% in the prior year period primarily due to lower consolidated net sales.sales combined with additional marketing, ongoing investments in technology and higher occupancy costs. Disciplined spending, cost control initiatives and lower headcount helped to offset inflationarythese costadditional pressuresinvestments andin theour incremental marketing investments.business.

Consolidated selling expenses were updown 0.8%5.0% during the secondthird quarter of fiscal 2026 primarily due to additionalthe marketing.4.8% reduction in consolidated net sales. Lower sales led to less variable expenses, including fewer delivery costs and commissions. Retail selling expenses were updown 2.4%0.4% due to increasedlower advertising expenses, higher employee benefit costsdelivery and additionalvariable delivery expensescompensation from the 0.1%1.2% increasedecrease in Retail net sales.sales partially offset by increased digital advertising expenses. Wholesale selling expenses, which include our national logistics, decreased 4.2%16.8% due to a reduction inlower distribution volumes, less outbound freight, fewerreduced headcountheadcount, lower employee benefit costs and lowerdecreased fees associated with our contract business partially offset by incremental marketing costs, higher digital and web-technology spend and elevated employee benefit costs.spend. For the first sixnine months of fiscal 2026, consolidated selling expenses were up 3.1%0.4% primarily due to theincreased 34.1%marketing, increase in marketing costs, incrementalhigher digital and web-technology spend and elevated employee benefit costs partially offset by reduced headcount and lower distribution volumes.

Our consolidated advertising expenses during the secondthird quarter of fiscal 2026 increasedwere byup 25.2%0.7% compared to the prior year. Marketing expenses represented 3.6% of consolidated net sales in the fiscal 2026 third quarter, up from 3.4% in the prior year period. For the first nine months of fiscal 2026, consolidated marketing costs were up 21.0% primarily due to increased digital media spend, including paid search and social campaigns as well as higher direct mail and trade campaign costs. Marketing expenses represented 3.2% of consolidated net sales in the current year second quarter, up from 2.5% in the prior year period.

Consolidated general and administrative expenses induring the secondthird quarter of fiscal 2026 were updown 2.5%0.6% compared to the prior year period primarily due to increasedlower employee benefit costs combinedand withreduced headcount partially offset by higher occupancy costs from newly opened retail design centers partially offset by lower headcount.centers. Wholesale general and administrative expenses were up9.1% $1.1lower millionthan a year ago due to higherlower employee benefit costs.costs and disciplined spending. Retail general and administrative expenses decreasedincreased by 1.0%2.1% due to reduced headcount partially offset byfrom incremental rent associated with newly added design centers.centers partially offset by reduced headcount. For the first sixnine months of fiscal 2026, consolidated general and administrative expenses were up 3.2%1.9% due to higher occupancy and employee benefit costs partially offset by lower headcount. Compared to a year ago, our consolidated headcount is down 5.1% or 169 associates,5.7%, including 1536.4% lower at wholesaleWholesale and 164.1% less at retail.Retail.

A gainloss of $0.8$0.3 million was recorded within Restructuring and other charges, net of gains forduring the secondthird quarter of fiscal 2026, compared to an expense of less than $0.1 million in the prior year period. Included in the current year third quarter were $0.1 million of costs related to repairing our sawmill located in Beecher Falls, Vermont. Fiscal 2026 year-to-date restructuring and other charges, net of gains was aless gainthan of $0.3$0.1 million compared to expense of $0.2$0.3 million in the prior year.year Insurance proceeds from the Beecher Falls, Vermont fire, net of repair costs incurred, were partially offset by an early lease termination charge during fiscal 2026.period.

Consolidated operating income of $14.2$6.5 million and $24.2$30.7 million decreased by $3.9$4.5 million, or 21.6%,million and $11.5$16.1 million, or 32.3%,million for the three and sixnine months ended DecemberMarch 31, 2025,2026, respectively, compared to the same prior year periods. As a percentage of net sales, consolidated operating income for the secondthird quarter of fiscal 2026 was 9.5%,4.8%, compared to 11.5%7.7% in the prior year quarter. Adjusted operating incomemargin for the secondthird quarter of fiscal 2026 was $13.5 million, or 9.0% of net sales5.0% compared with $18.2 million, or 11.5% of net sales8.0% in the prior year quarter. For the first six months of fiscal 2026, adjusted operating income was $24.0 million, or 8.1% of net sales compared with $36.0 million, or 11.5% of net sales in the prior year period.year. Reduced operating income during fiscal 2026 was primarily driven by lower contract sales, incremental tariffs, increased promotional activity, additional marketing spend and higher employee benefit costs.costs partially offset by selective price increases and reduced headcount.

Wholesale operating income was $6.3$7.7 million and $14.2$22.0 million for the three and sixnine months ended DecemberMarch 31, 2025,2026, respectively, compared with $9.6$14.3 million and $21.5$35.8 million for the same prior year periods. As a percentage of net sales, wholesale operating income for the secondthird quarter of fiscal 2026 was 8.0%,9.1%, compared to 11.1%14.5% in the prior year quarter.year. Adjusted wholesale operating margin was 10.0% compared with 14.8% in the prior year. For the first nine months of fiscal 2026 wholesale adjusted operating income was $5.6$21.9 millionmillion, or 7.0%8.7% of net sales compared with $9.6 million or 11.1% of net sales in the prior year second quarter. For the first six months of fiscal 2026 wholesale operating income was $14.2$36.5 million, or 8.6% of net sales compared with $21.5 million, or 12.4%13.4% of net sales in the prior year period. The decrease in wholesale operating income for the three and sixmargin monthsduring both periods presented was driven byfrom a decline in contract sales combined with higher tariffs,and incremental marketing and employee benefit costs.tariffs.

Interest and other income, net includes interest income, foreign currency gains or losses and other income (expense), net. Interest and other income, net was $1.5$1.4 million for the three months ended DecemberMarch 31, 2025,2026, down from $2.0$1.6 million a year ago due to lower interest rates combined with lesslower availableinterest-bearing cash and investments.balances. Interest and other income, net was $5.6$7.1 million for the sixnine months ended DecemberMarch 31, 2025,2026, an increase compared with $4.2$5.8 million a year ago due to a contract modification fee received by Ethan Allen during the first quarter of fiscal 2026. This fee was related to our former private label card service provider.

Income tax expense was $4.0$1.9 million and $7.5$9.4 million for the three and sixnine months ended DecemberMarch 31, 2025,2026, respectively, compared with $5.1$2.9 million and $10.1$13.0 million in the same prior year periods. Our consolidated effective tax rate was 25.3%24.2% in the current year secondthird quarter compared with 25.4%23.4% a year ago. Lower income tax expense during fiscal 2026 was driven by the reduction in income before income taxes. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes. Lower income tax expense during fiscal 2026 was driven by a reduction in income before income taxes as our effective tax rates were comparable in both periods presented.

Net income was $11.7$5.9 million and $22.2$28.1 million for the three and sixnine months ended DecemberMarch 31, 2025,2026, respectively, compared with $15.0$9.6 million and $29.7$39.3 million in the same prior year periods, down 21.7% and 25.3% from the same prior year periods. Adjusted net income was $11.2$6.2 million and $22.1$28.3 million for the three and sixnine months ended DecemberMarch 31, 2025,2026, respectively, down 25.5%37.1% and 26.2%28.9% fromwhen compared with the same prior year periods. The decline in net income forduring the three and six monthboth periods presented was driven by lower wholesalefewer net sales andcombined increasedwith SG&Aa expenseslower gross margin partially offset by adecreased higherSG&A gross marginexpenses and lower income tax expense.

Diluted EPS was $0.46$0.23 and $0.87$1.10 for the three and sixnine months ended DecemberMarch 31, 2025,2026, respectively, compared to $0.59$0.37 and $1.16$1.53 in the same prior year periods. Adjusted diluted EPS was $0.44$0.24 and $0.86$1.10 for the three and sixnine months ended DecemberMarch 31, 2025,2026, respectively, compared to $0.59$0.38 and $1.17$1.55 in the same prior year periods. The decrease in diluted EPS was driven primarilyby bydeleveraging from lower wholesaledelivered net sales,sales whichcombined ledwith togross deleveragingmargin and lower net income.erosion.

At DecemberMarch 31, 2025,2026, we had working capital of $176.2$139.5 million compared with $157.1 million at June 30, 2025 and a current ratio of 2.31.9 at DecemberMarch 31, 2025,2026, compared with 2.0 at June 30, 2025. Our working capital decreased by $17.6 million during the first nine months of fiscal 2026 primarily due to lower short-term investments, as we reinvested in long-term U.S. Treasury notes when U.S. Treasury bills matured during the period. Our non-U.S. subsidiaries held $5.8$5.6 million in cash and cash equivalents at DecemberMarch 31, 2025,2026, which we have determined to be indefinitely reinvested.

At DecemberMarch 31, 2025,2026, we held cash and cash equivalents of $64.3$66.6 million compared with $76.2 million at June 30, 2025. Cash and cash equivalents aggregated to 9.0%9.2% of our total assets at DecemberMarch 31, 20252026 compared with 10.3% at June 30, 2025. In addition to cash and cash equivalents, we had aggregated investments of $115.1$114.3 million at DecemberMarch 31, 20252026 and $120.0 million at June 30, 2025. Our investments are in U.S. Treasury bills and notes, which we expect will further enhance our returns on excess cash. Our short-term U.S. Treasury bills totaled $75.1$39.9 million with maturities of less than one year while our long-term U.S. Treasury notes totaled $40.0$74.4 million with maturities ranging between one and two years. We believe our cash, cash equivalents and investments are available to meet short-term liquidity needs.

Our cash, cash equivalents and restricted cash decreased $12.4$10.2 million or 16.1% during the first sixnine months of fiscal 2026 due to $26.3$36.3 million in cash dividends paid, capital expenditures of $5.3$8.3 million and $1.8 million in taxes paid related to net share settlement of equity awards partially offset by $15.0$30.1 million of net cash provided by operating activities and $5.0 million of proceeds from insurancethe recoveriessale of $2.3investments, million.net of purchases.

We generated $15.0$30.1 million in cash from operating activities during the first sixnine months of fiscal 20262026, a decrease compared with $26.7$36.9 million in the prior year period due to lower net income and changesincremental inrestructuring working capital. The Company’s working capital increased by $19.1 million during the first six months of fiscal 2026, driven by lower customer deposits and a decrease in accrued compensation and benefits based on the timing of our bi-weekly payroll. The change in working capital waspayments partially offset by $1.1$1.7 million in insurance recoveriesrecoveries. relatedRestructuring topayments lossesmade incurred fromby the disposalCompany ofduring damagedthe inventorynine ended March 31, 2026 were $2.8 million, which were for Beecher Falls repair and facilityrestoration cleanupwork, inseverance Beecherand Falls,other Vermont.restructuring costs.

Cash providedused byin investing activities was $0.8$2.0 million during the first sixnine months of fiscal 2026 compared with cash usedprovided of $6.3$2.2 million in the prior year. During fiscal 2026, we had $4.9$5.0 million of net proceeds received from the sale 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 $11.6 million of net proceeds from the sale of investments, which related to $24.9 million of U.S. treasuries that matured and were subsequently reinvested for $20.0 million. In the prior year, we had $1.1 million of net proceeds from the sale of investments, which related to $36.3$46.8 million of short-term U.S. treasuries that matured during the year and the subsequent reinvestment ofwas $35.2 million. Capital expenditures during the first sixnine months of fiscal 2026 were $5.3$8.3 million, down from $7.4$9.4 million in the prior year period. During the first half of fiscal 2026 we received an additional $1.2 million in insurance proceeds related to the reconstruction of the facility damaged by the Beecher Falls, Vermont fire.

Cash used in financing activities was $28.4$38.4 million in the current year compared with $32.5$42.6 million a year ago. Total dividends paid were $26.3$36.3 million during the first sixnine months of fiscal 2026, a decrease from $30.1$40.1 million paid a year ago due to the reduction in the special cash dividend, which went from $0.40 per share last year to $0.25 per share in the current year. In addition, during the first halfnine months of fiscal 2026, a total of 62,627 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 period.

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 DecemberMarch 31, 20252026 and June 30, 2025, we held $0.3$0.2 million and $0.8 million, respectively, of restricted cash related to our insurance captive.

Due to changes in foreign currency exchange rates, namely among the Mexican Peso, Canadian Dollar and Honduran Lempira against the U.S. Dollar, our cash and cash equivalents increased by $0.2 million during the first sixnine months of fiscal 2026 compared with a decrease of $0.4 million in the prior year period. These changes had an immaterial impact on our cash balances held in Mexico, Canada and Honduras.

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. At DecemberMarch 31, 2025,2026, 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. We incurred financing costs of $0.5 million during fiscal 2022, which are being amortized as interest expense over the remaining life of the Facility using the effective interest method.

Letters of Credit. At DecemberMarch 31, 20252026 and June 30, 2025, respectively, there were $3.8 million and $4.0 million of standby letters of credit outstanding under the Facility.

Capital Expenditures. Capital expenditures during the first sixnine months of fiscal 2026 totaled $5.3$8.3 million compared with $7.4$9.4 million in the prior year period. Current year capital expenditures were primarily for new retail design centers, additional manufacturing equipment, reconstruction of our Beecher Falls, Vermont outbuildingoutbuilding, additional manufacturing equipment and investments in technology. ThreeFour new Company-operated design centers located in San Diego, California, Colorado Springs, Colorado andColorado, Concord, Ontario (Canada) and Vancouver, British Columbia (Canada) were opened during fiscal 2026 that showcase our unique style while combining complimentary interior design services with technology.more new openings planned for the future.

We anticipate total capital expenditures to rebuild the structure damaged by the Beecher Falls, Vermont fire to be between $2.5 million and $3.5 million, of which we have incurred $0.7$1.0 million through DecemberMarch 31, 2025,2026, with the remainder to be incurred over the next two fiscal quarters. We have no other 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 12 months and foreseeable future.

Dividends. Our Board of Directors has sole authority to determine if and when we will declare future dividends and on what terms. During the first sixnine months of fiscal 2026, we paid total cash dividends of $26.3$36.3 million, including a special dividend of $0.25 per share in addition to regular quarterly dividends of $0.39 per share in both the first and second quarters.share. We have paid a special cash dividend in each of the past six fiscal years and paid a cash dividend every year since 1996. Although we expect to continue to declare and pay cash dividends for the foreseeable future, the payment of future cash dividends is within the discretion of our Board of Directors and will depend on our earnings, operations, financial condition, capital requirements and general business outlook, among other factors. Our credit agreement also includes covenants that set limitations on our ability to pay dividends.

Share Repurchase Program. There were no share repurchases under our existing multi-year share repurchase program (the “Share Repurchase Program”) during the first sixnine months of fiscal 2026 or 2025. At DecemberMarch 31, 2025,2026, we had a remaining authorization to repurchase 2,007,364 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.

Off-Balance Sheet and Other Arrangements

We disclose our significant accounting policies in Note 3, Summary of Significant Accounting Policies, in the notes to our consolidated financial statements included in our 2025 Annual Report on Form 10-K. There have been no changes in our significant accounting policies during the first sixnine months of fiscal 2026 from those disclosed in our 2025 Annual Report on Form 10-K.

We disclose our critical accounting estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2025 Annual Report on Form 10-K. There have been no significant changes in our critical accounting estimates during the first sixnine months of fiscal 2026 from those disclosed in our 2025 Annual Report on Form 10-K.