ETHAN ALLEN ETHAN ALLEN INTERIORSINTERIORS

Derek Ho

December 2, 2004

BackgroundBackground

Founded in 1932 and sold products under the Founded in 1932 and sold products under the Ethan Allen brand name since 1937.Ethan Allen brand name since 1937.Incorporated in 1989 through its wholly owned Incorporated in 1989 through its wholly owned subsidiary, Ethan Allen Inc. It is a leading subsidiary, Ethan Allen Inc. It is a leading manufacturer and retailer of quality home manufacturer and retailer of quality home furnishings and accessories, offering a full furnishings and accessories, offering a full complement of home decorating solutions complement of home decorating solutions through the country’s largest network of home through the country’s largest network of home furnishing retail stores. furnishing retail stores.

BackgroundBackground

Mission: To provide customers with a Mission: To provide customers with a convenient, full-service, one-stop shopping convenient, full-service, one-stop shopping alternative for their home decorating alternative for their home decorating needs.needs.6600 employees (half are represented by 6600 employees (half are represented by unions)unions)300+ stores located primarily in the U.S.300+ stores located primarily in the U.S.12 manufacturing facilities12 manufacturing facilities

Stock PerformanceStock PerformanceAs of 12/01/2004As of 12/01/2004

–Current Price: $39.95/shareCurrent Price: $39.95/share–EPS: $2.11EPS: $2.11–Half of revenues of competitors but higher market Half of revenues of competitors but higher market capitalizationcapitalization

Acquired on 10/22/1999Acquired on 10/22/1999–Paid $33.00/share Paid $33.00/share –700 shares700 shares–Cost basis of $23,100Cost basis of $23,100–Represents approximately 9% of our portfolioRepresents approximately 9% of our portfolio–21% unrealized gain21% unrealized gain

Ethan Allen’s Business Ethan Allen’s Business

Wholesale manufacturingWholesale manufacturingDistribution to independent retail stores Distribution to independent retail stores and Ethan Allen storesand Ethan Allen stores3000+ design consultants3000+ design consultantsExisting products include:Existing products include:

case goods (wood furniture such as beds, case goods (wood furniture such as beds, dressers, and tables), dressers, and tables), upholstery items (sofas, recliners), and upholstery items (sofas, recliners), and accessories (wall decor, lighting).accessories (wall decor, lighting).

Ethan Allen’s Business (Cont.)Ethan Allen’s Business (Cont.)

New ProductsNew Products– Ethan Allen KidsEthan Allen Kids

Prevention of furniture tippingPrevention of furniture tipping– Furnishing Solutions by Ethan AllenFurnishing Solutions by Ethan Allen

Over 40 million copies distributedOver 40 million copies distributedOne of most important marketing toolsOne of most important marketing tools

– Ethan Allen Online Room plannerEthan Allen Online Room plannerDecorate own roomDecorate own room

Macro. Factors (Competitors)Macro. Factors (Competitors)

Furniture Brands International (FBN)- Broyhill Furniture Brands International (FBN)- Broyhill Furniture, Drexel Heritage Furniture, Furniture, Drexel Heritage Furniture, Thomasville FurnitureThomasville FurnitureLa-Z-Boy Inc. (LZB) La-Z-Boy Inc. (LZB) Ashley Furniture Industries, Inc. (priv)Ashley Furniture Industries, Inc. (priv)

A highly competitive industryA highly competitive industry– Growing number of foreign manufacturersGrowing number of foreign manufacturers– ETH differentiates with solutions-oriented business ETH differentiates with solutions-oriented business

strategystrategy

Relative PerformanceRelative Performance

ETH v. LZB

Differences?

•ETH- exceptional growth

•Competition with China

ETH v. S&P 500

Differences?

•Furniture industry very cyclical

Business StrategyBusiness Strategy

Focuses on Differentiation from Focuses on Differentiation from competitors (over 1000 manufacturers of competitors (over 1000 manufacturers of furniture in U.S. alone)furniture in U.S. alone)Competitive advantage with Competitive advantage with complimentary design service and product complimentary design service and product and styling and qualityand styling and qualityTrademarks and design patents are Trademarks and design patents are valuable assetsvaluable assets

Future GrowthFuture Growth

Uncertain where trends will change product lineUncertain where trends will change product lineGoal of adding 10-15 stores each yearGoal of adding 10-15 stores each yearEssentially debt free and continues to have the Essentially debt free and continues to have the strong cash flow needed to fund future growth strong cash flow needed to fund future growth and to maintain operating flexibility.and to maintain operating flexibility.According to the National Association of Home According to the National Association of Home Builders, single family home production has Builders, single family home production has increased 6.4% since last October.increased 6.4% since last October.Quarterly revenue growth of only .07% within the Quarterly revenue growth of only .07% within the furniture industry (one of last 6 worst)furniture industry (one of last 6 worst)

ValuationValuation

See ExcelSee Excel

In the NewsIn the News

In April 2004, ETH closed and In April 2004, ETH closed and consolidated 2 plants.consolidated 2 plants.As of June 30, 2004 received notices that As of June 30, 2004 received notices that it may be a potentially responsible party to it may be a potentially responsible party to environmental laws and regulations.environmental laws and regulations. In August, ETH expanded with 2 stores in In August, ETH expanded with 2 stores in China (for a total of 6 scattered in China). China (for a total of 6 scattered in China).

Significant RisksSignificant Risks

Anti-dumping legislation in ChinaAnti-dumping legislation in ChinaCompetitors more open to manufacturing Competitors more open to manufacturing overseas (around 25%)overseas (around 25%)Not as large as competitors LZB, FBNNot as large as competitors LZB, FBN

RecommendationRecommendation

Hold SharesHold SharesIn years past, ETH has been able to In years past, ETH has been able to maintain growth and “change with the maintain growth and “change with the times” by offering more product and times” by offering more product and service solutions.service solutions.Questions?Questions?