Ethan Allen replaces longtime CEO after 84% net income plunge

By Amara Osei

Ethan Allen’s first-quarter net income fell 84% to $1.7 million, and the furniture retailer replaced Farooq Kathwari as CEO one day later.

The company’s Tuesday announcement named Stefanie Tsen Ward, a former Neiman Marcus Group executive, as interim CEO (temporary chief executive). Ward will oversee day-to-day operations and a strategic reset while the board searches for a permanent chief, Ethan Allen said in the release. The announcement, as reported by Dive, did not specify milestones or financial targets for the reset.

What happened to Farooq Kathwari?

Kathwari is no longer with Ethan Allen, according to the company. Dive reported that attempts to reach him for comment had failed as of press time. The CEO announcement came one day after Ethan Allen reported declines in first-quarter retail sales, wholesale revenue, profit and margins.

Until this week, Kathwari had served as president since 1985 and chairman and CEO since 1988, a tenure of nearly 40 years as chief executive. One year after taking the helm, he led a group that acquired Ethan Allen, named after a Revolutionary War hero who helped found Vermont, and took it public in 1993.

Kathwari’s departure ends a nearly four-decade leadership era, but it leaves Ethan Allen without a permanent chief.

How did activist pressure reshape the board?

Activist investor (a shareholder who presses for company changes) Doug Bergeron spent months pressing Kathwari to step down and for major changes at Ethan Allen, Dive reported. Kathwari resisted that pressure in recent weeks. Bergeron joined the board after last week’s annual meeting, when shareholders elected three of his five nominees and Kathwari failed to win reelection.

In September, Ethan Allen announced a CEO search. The company planned to name a successor as late as June 30, the day Kathwari’s contract was due to end, and retain him as a nonexecutive board member (a director without a management role) for a few more months, Dive reported. The election of Bergeron’s nominees disrupted that plan.

Shareholders had nominated Ward but had not elected her; the restructured board appointed her and three other directors this week, Dive reported. The other appointees were:

• Anna Brockway, Chairish co-founder and former Levi’s executive.
• Lindsay O’Reilly, who held leadership roles at Barclays and JPMorgan Chase.
• Adam Treanor, managing partner of Stone Bay Capital.

Two more directors also joined the board:

• Kristine Miller, eBay’s former chief strategy officer and a 24-year Bain veteran.
• Steve Oblak, whose previous roles include chief commercial officer of Wayfair.

Dive reported that shareholders reelected Maria Eugenia Casar and Tara Stacom. Bergeron, who owns just over 5% of Ethan Allen shares, now sits on the revamped board.

Cristina Fernández, who leads the Telsey Advisory Group analyst team, wrote after the vote:

“All in, Ethan Allen’s shareholders voted for change with the election of three new board members, but also for an orderly transition after supporting two of Ethan Allen’s existing board members,”

Fernández also said Ward would bring “meaningful experience with brands and retailers” as interim CEO. In a statement, Bergeron invoked Ethan Allen’s military role, including his leadership of the Green Mountain Boys in capturing Fort Ticonderoga in New York and taking British weapons, Dive reported.

“More than 250 years ago, the man whose name this Company carries wrote of a spring morning at Fort Ticonderoga, ‘The sun seemed to rise that morning with a superior lustre,’” Bergeron said. “For the employees, customers and shareholders of Ethan Allen, a new day begins.”

Shareholders backed a wider reset while retaining two incumbents, leaving Ward to manage both the transition and continued activist pressure.

How weak were Ethan Allen’s first-quarter results?

Ethan Allen reported Monday that fiscal first-quarter net sales fell 12% to $130 million. Retail sales declined 11%, wholesale sales fell more than 9%, and orders in both channels edged lower.

Consolidated gross margin (the share of sales left after product costs) shrank 180 basis points (1.8 percentage points) to 59.6%. Ethan Allen cited tariffs, higher sales of designer floor samples (display models) and lower manufacturing production as pressures.

A more favorable mix of products sold, reduced headcount and a higher average ticket price (average amount per sale) partly offset those factors. Net income dropped 84% to $1.7 million.

The quarter leaves Ward with declining sales, thinner margins and a profit base reduced by 84%.

Ward’s reset will be tested on operations: Ethan Allen needs to arrest the 12% sales decline and 180-basis-point margin compression while it searches for a permanent CEO, previously targeted for announcement no later than June 30.