Risk Factors Dashboard

ITEM 1A. RISK FACTORS

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 to 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.

Home Furnishings Industry Risks

Declines in certain economic conditions, which impact consumer confidence and consumer spending, could negatively impact our sales, results of operations and liquidity.

Historically, the home furnishings industry has been subject to cyclical variations in the economy and to uncertainty regarding future economic prospects. Should current economic conditions weaken, the current rate of housing starts further decline, or elevated inflation persist, consumer confidence and demand for home furnishings could deteriorate which has in the past and could in the future adversely affect our business through its impact on the performance of our Company-operated design centers, as well as on our independent licensees and the ability of a number of them to meet their obligations to us. Our principal products are consumer goods that may be considered discretionary purchases. Economic downturns and prolonged negative conditions in the economy have in the past and could in the future effect consumer spending habits by decreasing the overall demand for discretionary items, including home furnishings. Factors influencing consumer spending include general economic and financial market conditions, consumer disposable income, fuel prices, recession and fears of recession, U.S. government default or shutdown, high unemployment, war, availability of consumer credit, consumer debt levels, the housing market, increased interest rates, sales tax rates, changes in global trade policies including tariffs, inflation, civil disturbances and terrorist activities, consumer confidence, natural disasters and consumer perceptions of personal well‑being and security, including health epidemics or pandemics.

Increased 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, value and service. Competition in the residential home furnishings industry is based on quality, style of products, perceived value, price, service to the customer, promotional activities, and advertising. 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.

A significant shift in consumer preference toward purchasing products online could have a materially adverse impact on our sales and operating margin.

Online sales compete heavily on price as opposed to style, service and quality. A significant shift in consumer preference towards exclusively purchasing products online could have a materially adverse impact on our sales and operating margin as a majority of our sales are finalized within our physical brick and mortar design centers. A majority of our business relies on physical brick and mortar design centers that merchandise and sell our products and a significant shift in consumer preference towards exclusively purchasing products online could have a materially adverse impact on our sales and operating margin.

We are able to meet clients where they prefer to shop, through home calls, online or in the design center. However, a material shift to online only could significantly reduce our competitive advantage, which could lead to reduced sales. Evolving technologies are altering the manner in which the Company and its competitors communicate and transact with customers. Evolving technologies are altering the manner in which the Company and its competitors communicate and transact with customers. Adoption of new technology and related changes in customer behavior present a specific risk in the event we are unable to successfully execute our technology plans or adjust them over time if needed. If we do not continue to enhance our digital capabilities and the online client experience at a pace that keeps up with evolving customer expectations (including with respect to online shopping, virtual design tools and other digital experiences) and competitive offerings (including via the use of digital and omni-channel capabilities), or if our ongoing investments in these areas do not achieve the results we anticipate, our ability to attract and retain clients, particularly younger or digitally-oriented consumers, could be adversely affected, which could have a material adverse effect on our sales, results of operations and competitive position.

Risks Related to our Brand and Product Offerings

Inability to maintain and enhance our brand may materially adversely impact our business.

Maintaining and enhancing our brand is critical to our ability to expand our base of customers and may require us to make substantial investments. Our advertising campaigns utilize direct mail, digital, newspapers, magazines, television, and radio to maintain and enhance our existing brand equity. We cannot provide assurance that our advertising and other efforts to promote and maintain awareness of our brand will not require us to incur substantial costs. If these efforts are unsuccessful or we incur substantial costs in connection with these efforts, our business, operating results and financial condition could be materially adversely affected.

Failure to successfully anticipate or respond to changes in consumer tastes and trends in a timely manner could materially adversely impact our business, operating results and financial condition.

Sales of our products are dependent upon consumer acceptance of our product designs, styles, and 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.

Competition from manufacturers and retailers may materially adversely affect our business, operating results or financial condition.

Our wholesale segment competes with other U.S. and foreign manufacturers. Our retail network competes with a diverse group of retailers ranging from specialty stores to traditional home furnishings and department stores, any of which may operate locally, regionally, nationally or globally, as well as online. We also compete with these and other retailers for retail locations as well as for design professionals and management personnel. This competition could materially adversely affect our future financial performance.

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 non-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 may not be able to maintain our current design center locations at current costs. We may also fail to successfully select and secure design center locations.

Our design centers are typically located in urban settings as freestanding destinations or as part of suburban shopping malls, depending upon the real estate opportunities in a particular market. Our business competes with other retailers and as a result, our success may be affected by our ability to renew current design center leases and to select and secure appropriate retail locations for existing and future design centers.

We have exposure to market risk related to the commercial real estate market. At June 30, 2026, there were 141 Company-operated retail design centers averaging approximately 13,700 square feet in size per location. At June 30, 2025, there were 142 Company-operated retail design centers averaging approximately 14,000 square feet in size per location. Of these 141 properties, we own 48 and lease 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, 2026, the unamortized balance of such right-of-use assets totaled $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.

Manufacturing and Supply Chain Risks

Our number of manufacturing sites may increase our exposure to business disruptions and could result in higher costs.

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 Vermont and Honduras, as well as one sawmill, one rough mill and one kiln dry lumberyard. 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.

Disruptions of our supply chain and supply chain management could have a material adverse effect on our operating and financial results.

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.

Fluctuations in the price, availability and quality of raw materials and imported finished goods could result in increased costs and cause production delays which could result in a decline in sales, either of which could materially adversely impact our earnings.

In manufacturing furniture we use various types of logs, lumber, fabrics, plywood, frames, leathers, finishing materials, foam, steel and other raw materials. Fluctuations in the price, availability and quality of raw materials could result in increased costs or a delay in manufacturing our products, which in turn could result in a delay in delivering products to our customers. Although we have instituted measures to ensure our supply chain remains open to us, higher raw material prices and costs of sourced products could have an adverse effect on our future margins. While we strive to maintain a number of sources for our raw materials, decreased availability on raw materials may create additional pricing and availability pressures.

Imported finished goods represent approximately 25% of our consolidated net sales. The prices paid for these imported products include tariffs and inbound freight. The prices paid for these imported products include 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. To the extent that we experience incremental 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.

Environmental, Health and Safety Risks

Our current and former manufacturing and retail operations and products are subject to environmental, health and safety requirements.

We use and generate hazardous substances in our manufacturing operations. In addition, the manufacturing properties on which we currently operate and those on which we have ceased operations are and have been used for industrial purposes. Our manufacturing operations and, to a lesser extent, our retail operations involve risk of personal injury or death. We are subject to environmental, health and safety laws and regulations relating to our products, current and former properties and our current operations. These laws and regulations provide for substantial fines and criminal sanctions for violations and sometimes require the installation of costly pollution control or safety equipment, or costly changes in operations to limit pollution or decrease the likelihood of injuries. We may also become subject to potentially material liabilities for the investigation and cleanup of contaminated properties and to claims alleging personal injury or property damage resulting from exposure to or releases of hazardous substances or personal injury because of an unsafe workplace.

In addition, noncompliance with, or stricter enforcement of, existing laws and regulations, adoption of more stringent new laws and regulations, discovery of previously unknown contamination or imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could be material. Further, enhanced regulation in other environmental, health and safety matters could result in increased compliance costs and subject us to additional potential liabilities. The extent of these costs and risks is difficult to predict and will depend in large part on the extent of new regulations and the ways in which those regulations are enforced.

Product recalls or product safety concerns could materially adversely affect our sales and operating results.

If the Company's merchandise offerings do not meet applicable safety standards or consumers' expectations regarding safety, the Company could experience decreased sales, increased costs and/or be exposed to legal and reputational risk. Although we require that all of our vendors comply with applicable product safety laws and regulations, we are dependent on them to ensure that the products we buy comply with all safety standards. Events that give rise to actual, potential or perceived product safety concerns could expose the Company to government enforcement action and/or private litigation. Reputational damage caused by real or perceived product safety concerns or product recalls could negatively affect the Company's business and results of operations.

Technology and Data Security Risks

We rely extensively on information technology systems to process transactions, summarize results, and manage our business and that of certain independent retailers. Disruptions in both our primary and back-up systems could adversely affect our business and operating results.

Our primary and back-up information technology systems are subject to damage or interruption from power outages, computer and telecommunications failures, viruses, phishing attempts, spoofing, cyberattacks, malware and ransomware attacks, security breaches, severe weather, natural disasters, and errors by employees or third-party contractors. Though losses arising from some of these issues may be covered by insurance, interruptions to our critical business information technology systems or failure of our back-up systems could result in longer production times or negatively impact clients resulting in damage to our reputation and a reduction in sales. If our critical information technology systems or back-up systems were damaged or ceased to function properly, we might have to make a significant investment to repair or replace them.

Further, information systems of our suppliers or service providers may be vulnerable to attacks by hackers and other security breaches, including computer viruses and malware, through the internet, email attachments and persons with access to these information systems. If our suppliers or service providers were to experience a system disruption, attack or security breach that impacts a critical function, it could result in disruptions in our supply chain, the loss of sales and customers, potential liability for damages to our customers, reputational damage and incremental costs, which could adversely affect our business, results of operations and profitability.

Successful cyberattacks and the failure to maintain adequate cybersecurity systems and procedures could materially harm our operations.

Cyberattacks designed to gain access to and extract sensitive information or otherwise affect or compromise the confidentially, integrity, and availability of information, including phishing attempts, denial of service attacks, and malware or ransomware incidents, have occurred over the last several years at a number of major global companies and have resulted in, among other things, the unauthorized release of confidential information, system failures including material business disruptions, and negative brand and reputational impacts. Despite widespread recognition of the cyberattack threat and improved data protection methods, cyberattacks on organizations continue to be sophisticated, persistent, and ever-changing, making it difficult to prevent and detect these attacks. Additionally, we rely on third-party service providers to execute certain business processes and maintain certain information technology systems and infrastructure, and we supply such third-party providers with the personal information required for those services.

Cyberattacks are becoming more 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. 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.

Where necessary and applicable, we have enabled certain employees to arrange for a hybrid work approach. Although we continue to implement strong physical and cybersecurity measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyberattacks and other disruptions due to the fact that certain employees work remotely and we cannot guarantee that our mitigation efforts will be effective.

Artificial intelligence (“AI”) and agentic commerce could transform our industry and business model, and our failure to optimize these capabilities could adversely affect our competitive position.

We use, and may over time increase our use of, AI technologies, including generative AI and autonomous or agentic commerce tools, to support certain business functions, including administrative, customer service, finance, marketing, and operational activities. However, these technologies are rapidly developing and may not always perform as intended.

The increasing use of AI, including generative AI and autonomous or agentic commerce tools, may materially change how consumers identify, evaluate, specify, purchase, and manage furniture and workplace solutions. These technologies could alter client expectations, affect the role of dealers, designers, and digital channels, and change competitive dynamics in our industry. If competitors or other market participants adopt or optimize AI-enabled tools more quickly or effectively than we do, or if AI-enabled platforms disintermediate existing sales channels or influence purchasing decisions in ways that do not favor our brand, our sales, margins, and client relationships could be adversely affected. A prolonged shortage or inability to retain qualified labor could decrease our ability to effectively produce and meet client demand and efficiently operate our facilities, which could negatively impact our business and have a material adverse effect on our results of operations.

AI algorithms and generative AI tools may also produce outputs that are inaccurate, biased, or deficient, which could result in operational inefficiencies, reputational harm, or adverse impacts on our clients and business partners. Any failure to effectively manage risks associated with AI, including risks related to third-party AI service providers, could result in increased costs or legal or regulatory exposure. Furthermore, the legal and regulatory landscape surrounding AI is rapidly evolving and remains uncertain. Compliance with new or emerging AI-related laws and regulations could require significant resources and could limit our ability to incorporate certain AI capabilities into our business. Any of these factors could adversely affect our business, financial condition, or results of operations.

Loss, corruption and misappropriation of data and information relating to customers could materially adversely affect our operations.

We have access to client 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.

Legal and Regulatory Risks

Global and local economic uncertainty may materially adversely affect our manufacturing operations or sources of merchandise and international operations.

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 and operate manufacturing plants in Mexico and Honduras and retail design centers in Canada. We import approximately 25% of our finished goods as well as 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 U.S. trade and tax policy could materially adversely affect our business and results of operations.

Changes in the political environment in the U.S. may require us to modify our current business practices. During fiscal 2026, the U.S. took actions to increase tariffs at various rates, including on certain products imported from many countries and individualized higher tariffs on certain other countries. We are subject to risks relating to these 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 enactment of these tariffs, along with the unpredictability of future tariffs, poses a risk to our business operations and may materially increase our costs and reduce our margins. 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, including current tariffs imposed on imports into the U.S., we expect incremental costs for our imported raw materials and finished goods. These higher costs are expected to impact our wholesale and consolidated margins and could lead to an increase in our retail selling prices, potentially reducing consumer demand and impacting our sales volume. These higher costs are expected to impact certain of our 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 clients, or secure adequate alternative sources of products or materials. We may not be able to fully or substantially mitigate the impact of tariffs, pass price increases on to our customers, 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 client sales, including potential delays in product received from our vendors, our cost of goods sold and results of operations. The tariffs, along with any additional tariffs or retaliatory trade restrictions implemented by other countries, could negatively impact customer sales, including potential delays in product received from our vendors, our cost of goods sold and results of operations. 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.

We believe our annual tariff cost exposure to be approximately $15.0 million and will continue to work to determine the potential impact of retaliatory responses thereto, if any, and mitigation plans. We will also monitor and may in the future consider to the extent available and appropriate, possible tariff refund claims via the process administered by U.S. Customs and Border Protection (“CBP”). Clients may also bring claims against us for tariff refunds whether or not we independently solicit refunds from CBP, all or any of which could adversely affect future results of operations.

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.

Our business may be materially adversely affected by changes to tax policies.

Changes in U.S. or international tax laws and regulations, such as those caused by the enactment of the One Big Beautiful Bill 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.

Initiatives aimed at reducing the level of spending within the U.S. government may result in lower future revenues from our contract with the U.S. government.

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 less than 5% of our consolidated net sales in fiscal 2026. The U.S. government has and may continue to implement initiatives focused on efficiencies, affordability and cost 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.

Failure to protect our intellectual property could materially adversely affect us.

We believe that our copyrights, trademarks, service marks, trade secrets, and all of our other intellectual property are important to our success. We rely on patent, trademark, copyright and trade secret laws, and confidentiality and restricted use agreements, to protect our intellectual property and may seek licenses to intellectual property of others. Some of our intellectual property is not covered by any patent, trademark, or copyright or any applications for the same. We cannot provide assurance that agreements designed to protect our intellectual property will not be breached, that we will have adequate remedies for any such breach, or that the efforts we take to protect our proprietary rights will be sufficient or effective. Any significant impairment of our intellectual property rights or failure to obtain licenses of intellectual property from third parties could harm our business or our ability to compete. Moreover, we cannot provide assurance that the use of our technology or proprietary know‐how or information does not infringe the intellectual property rights of others. If we have to litigate to protect or defend any of our rights, such litigation could result in significant expense.

Human Capital Risk

Our business is dependent on certain key personnel; if we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed.

The success of our business depends upon our ability to retain continued service of certain key personnel. We face risks related to loss of key personnel and 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 business goals and could adversely affect our results of operation and financial condition. These changes could also increase the volatility of our stock price.

The market for qualified employees and personnel in the retail and manufacturing industries is highly competitive. Our success depends upon our ability to attract, retain and motivate qualified artisans, professional and clerical employees and upon the continued contributions of these individuals. We cannot provide assurance that we will be successful in attracting and retaining qualified personnel. A shortage of qualified personnel may require us to enhance our wage and benefits package in order to compete effectively in the hiring and retention of qualified employees. This could have a material adverse effect on our business, operating results and financial condition.

Labor challenges could have a material adverse effect on our business and results of operations.

In our current operating environment, due in part to macroeconomic factors, we continue to experience various labor challenges, including competition for skilled manufacturing and production employees, pressure to increase wages as a result of inflationary pressures, and at times, a shortage of qualified full-time labor. The future success of our operations depends on our ability, and the ability of third parties on which we rely, to identify, recruit, develop and retain qualified and talented individuals in order to supply and deliver our products. A prolonged shortage or inability to retain qualified labor could decrease our ability to effectively produce and meet client demand and efficiently operate our facilities, which could negatively impact our business and have a material adverse effect on our results of operations. Higher wages to attract new and retain existing employees, as well as higher costs to purchase services from third parties, could negatively impact our results of operations.

Actions of activist shareholders could be disruptive and potentially costly and the possibility that activist shareholders may seek changes that conflict with our strategic direction could cause uncertainty about the strategic direction of our business.

Activist investors may attempt to effect changes in our strategic direction and how we are governed, or to acquire control over the Company. Activist investors have, and in the future, may commence campaigns seeking to influence us to take particular actions favored by the activist or gain representation on the Board of Directors, which could result in additional disruption and diversion of management’s attention. Some investors may seek to increase short-term shareholder value by advocating corporate actions, such as financial restructuring, increased borrowing, or even sales of assets or the entire Company. While we welcome opinions from all shareholders, activist campaigns that contest or we believe conflict with our strategic direction could have an adverse effect on our results of operations and financial condition, as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our Board of Directors and management from the pursuit of business strategies.

In addition, perceived uncertainties as to our future direction as a result of changes to how we are governed and/or operate may lead to the perception of a change in our business, as well as the perception of instability or lack of continuity, which may be exploited by our competitors, may cause concern to our current or potential clients, and may make it more difficult to attract and retain qualified personnel. These types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

Financial Risks

Our total assets include substantial amounts of long-lived assets. Changes to estimates or projections used to assess the fair value of these assets, financial results that are lower than current estimates at certain design center locations or determinations to close underperforming locations may cause us to incur future impairment charges, negatively affecting our financial results.

We make certain accounting estimates and projections with regards to individual design center operations as well as overall Company performance in connection with our impairment analysis for long-lived assets in accordance with applicable accounting guidance. An impairment charge may be required if the impairment analysis indicates that the carrying value of an asset exceeds the sum of the expected undiscounted cash flows of the asset. The projection of future cash flows used in this analysis requires the use of judgment and a number of estimates and projections of future operating results, including sales growth rates. If actual results differ from Company estimates, additional charges for asset impairments may be required in the future. If impairment charges are significant, our financial results could be negatively affected.

We are subject to self-insurance risks.

We are self-insured for our health benefits and maintain per employee stop loss coverage; however, we retain the insurable risk at an aggregate level. Therefore, unforeseen or significant losses in excess of our insured limits could have a material adverse effect on the Company’s financial condition and operating results.

Our operations present hazards and risks which may not be fully covered by insurance, if insured.

As protection against operational hazards and risks, we maintain business insurance against many, but not all, potential losses or liabilities arising from such risks. We may incur costs in repairing any damage beyond our applicable insurance coverage. Uninsured losses and liabilities from operating risks could reduce the funds available to us for capital and investment spending and could have a material adverse impact on the results of operations.

Access to consumer credit could be interrupted as a result of conditions outside of our control, which could reduce sales and profitability.

Our ability to continue to access consumer credit for our customers could be negatively affected by conditions outside our control. If capital market conditions have a material negative change, there is a risk that our business partner that issues our private label credit card program may not be able to fulfill its obligations under that agreement. In addition, the tightening of credit markets as well as increased borrowing rates may restrict the ability and willingness of clients to make purchases.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

Risk Management and Strategy

We have policies, procedures and processes in place to identify, assess and monitor material risks from cybersecurity threats. These plans are part of our overall enterprise risk management strategy and are part of our operating procedures, internal controls, and information systems. Cybersecurity risks include, among other things, fraud, extortion, harm to employees or customers, violation of privacy or security laws and other litigation and legal risks, and reputational risks. We have developed and implemented a cybersecurity framework intended to assess, identify and manage risks from threats to the security of our information, systems, and network using a risk-based approach. The framework is informed in part by the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework, although this does not imply that we meet all technical standards, specifications or requirements under the NIST.

Our key cybersecurity processes include the following:

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Risk-based controls for information systems and information on our networks: We seek to maintain an information technology infrastructure that implements physical, administrative and technical controls that are calibrated based on risk and designed to protect the confidentiality, integrity and availability of our information systems and information stored on our networks, including customer and employee information.

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Cybersecurity incident response plan and testing: We have a cybersecurity incident response plan and dedicated teams to respond to cybersecurity incidents. When a cybersecurity incident occurs or we identify a vulnerability, we have cross-functional teams that are responsible for leading the initial assessment of priority and severity, and external experts may also be engaged as appropriate. Our cybersecurity teams assist in responding to incidents depending on severity levels and seek to improve our cybersecurity incident management plan through periodic tabletops or simulations. Our Vice President of Information Technology and other members of his team oversee the implementation of this plan and are made aware of ongoing risks and incidents.

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Training: We provide security awareness training to our employees so they may better understand their information protection and cybersecurity responsibilities. We also provide additional training to certain employees based on their roles.

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Supplier risk assessments: Our processes also address cybersecurity threat risks associated with our use of third-party service providers, including those in our supply-chain or who have access to our customer and employee data on our systems. Third-party risks are included within our enterprise risk management assessment program, as well as our cybersecurity-specific risk identification program. These considerations affect the selection and access to our systems, data, or facilities. We also seek contractual commitments from key suppliers to appropriately secure and maintain their information technology systems and protect our information that is processed on their systems.

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Third-party assessments: We have engaged third-party vendors to periodically assess our cybersecurity posture, to assist in identifying and remediating risks from cybersecurity threats. We also regularly engage with consultants, auditors, and other third-parties to help identify areas for continued focus, improvement and compliance.

While the Company has experienced cybersecurity incidents, we are not aware of any cybersecurity incidents to date, including as a result of any previous cybersecurity incidents, that has materially affected or is reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition. However, the sophistication of and risks from cybersecurity threats and incidents continue to increase and the preventative actions we have taken and continue to take to reduce these risks and protect our systems and information may not successfully protect against all cybersecurity threats and incidents in the future. For more information, see Item 1A. Risk Factors under the heading of “Technology and Data Security Risks”, of this Annual Report on Form 10-K.

Governance

The Company’s Board of Directors, as a whole, has oversight responsibility for our strategic and operational risks. The Board of Directors regularly review and discuss with management the strategies, processes and controls pertaining to the management of our information technology operations, including updates on the internal and external cybersecurity threat landscape, incident response, assessment and training activities, and relevant legislative, regulatory, and technical developments. Our Vice President of Information Technology presents, at least annually, to the Board of Directors, an overview of our cybersecurity threat risk management and strategy as well as provides reports regarding the evolving cybersecurity landscape, including emerging risk. Our Vice President of Information Technology presents, at least annually, to the Board, an overview of our cybersecurity threat risk management and strategy as well as provides reports regarding the evolving cybersecurity landscape, including emerging risk. Our Vice President of Information Technology and other members of his team remain informed about cybersecurity threats through the reporting framework as described above under Cybersecurity Risk Management and Security – Cybersecurity incident response plan and testing.

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

The Information Technology team is responsible for the day-to-day assessment and management of cybersecurity risks. Our cybersecurity risk management and strategy are led by our Vice President of Information Technology, and our Manager of Security. Such individuals have over 50 years of work experience, collectively, in various roles managing information security, developing cybersecurity strategy, and implementing effective information and cybersecurity programs, as well as relevant degrees and certifications.