Sandell Asset Management filed a preliminary proxy statement in connection with its campaign to elect its slate of new, highly-qualified candidates to the Board of Ethan Allen.
Tom Sandell, the CEO of Sandell Asset Management, issued the following statement:
“What was most distressing in our interaction with Mr. Kathwari was what we viewed to be his total disregard for the Company’s stock price performance, even going so far as to say, “We run [Ethan Allen] like a private company.”ValueWalk’s December 2021 Hedge Fund Newsletter: Hedge Funds Avoid Distressed China Debt
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“It is unfortunate that Farooq Kathwari has rejected the good faith attempts that we have made to seek an amicable resolution that would have greatly enhanced the Ethan Allen Board of Directors and better positioned the Company to deliver increased value to shareholders. Instead, Mr. Kathwari seems to be content with using the Company’s stockholders’ money to forestall our efforts to bring about much-needed change at Ethan Allen. While we were in fact willing to engage in further negotiations, it became painfully clear that Mr. Kathwari had no interest in pursuing meaningful change when he failed to even offer a counter-proposal.
“What was most distressing in our interaction with Mr. Kathwari was what we viewed to be his total disregard for the Company’s stock price performance, even going so far as to say, “We run [Ethan Allen] like a private company.”(1) The fact of the matter is that the Company’s stock price is lower now than it was 10 years ago and Ethan Allen shareholders have suffered years of poor performance versus its peers as well as the broader market. The stock price of Ethan Allen has underperformed its peers by 119% over the last 10 years. It seemed to us that Mr. Kathwari was in complete denial of the fact that the only metric by which investors measure value is a company’s stock price.
“Since we first publicly voiced our concerns about Ethan Allen and the years of governance failings that we believe have contributed to the Company’s poor performance, we have heard from numerous members of the investment community, and the key concern that they have voiced to us relates to the Company’s inability to generate sustained revenue growth. We believe this can be traced to the Board’s stale and outmoded merchandising and marketing strategy that has failed to appeal to modern consumers against a retail backdrop of increasing online sales.
“The Company has failed to increase revenue over the last several years versus its peers, and particularly its online efforts versus its two most-often cited competitors, namely Restoration Hardware and Williams-Sonoma (Pottery Barn). Some of the salient points illustrated include the following:
- Ethan Allen generated compound annual revenue growth of 2.7% over the last five years versus a 9.9% average of its peers
- Ethan Allen’s revenue increased a mere 11% in aggregate over the last five years
- Ethan Allen has an insignificant online presence, with e-commerce revenue estimated at between 2% and 5% of total revenue, versus peers such as Restoration Hardware and Williams-Sonoma, who each generate approximately 50% of their revenue from online and non-store sales
- Restoration Hardware’s revenue five years ago was not materially different from Ethan Allen, yet it was able to re-position the company for merchandising success and has seen its revenue increase 142% in aggregate over the last five years
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