Note 4 - Revenue Recognition

9 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

(4) Revenue Recognition

Our reported revenue (net sales) consists substantially of product sales. We report product sales net of discounts and recognize them at the point in time when control transfers to the customer. For sales to our customers in our wholesale segment, control typically transfers when the product is shipped. The majority of our shipping agreements are freight-on-board shipping point and risk of loss transfers to our wholesale customer once the product is out of our control. Accordingly, revenue is recognized for product shipments on third-party carriers at the point in time that our product is loaded onto the third-party container or truck. For sales in our retail segment, control generally transfers upon delivery to the customer. We recognize the promised amount of consideration without adjusting for the effects of a significant financing component if the contract has a duration of one year or less. As our contracts typically are less than one year in length and do not have significant financing components, we have not adjusted consideration.

Shipping and Handling. Our practice has been to sell our products at the same delivered cost to all retailers and customers nationwide, regardless of shipping point. Costs incurred by the Company to deliver finished goods are expensed and recorded in selling, general and administrative (“SG&A”) expenses. We recognize shipping and handling expense as fulfillment activities (rather than as a promised good or service) when the activities are performed even if those activities are performed after the control of the good has been transferred. Accordingly, we record the expenses for shipping and handling activities at the same time we recognize net sales.

Sales Taxes. We exclude from the measurement of the transaction price all taxes imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes). Sales tax collected is not recognized as revenue but is included in Accounts payable and accrued expenses on the consolidated balance sheets as it is ultimately remitted to governmental authorities.

Returns and Allowances. Estimated refunds for returns and allowances are based on our historical return patterns. We record these estimated sales refunds on a gross basis rather than on a net basis and have recorded an asset for product we expect to receive back from customers in Prepaid expenses and other current assets and a corresponding refund liability in Other current liabilities on our consolidated balance sheets. At March 31, 2024 and June 30, 2023, these amounts were immaterial.

Allowance for Doubtful Accounts. Accounts receivable arise from the sale of products on trade credit terms and is presented net of allowance for doubtful accounts. We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is based on a review of specifically identified accounts in addition to an overall aging analysis. At March 31, 2024 and June 30, 2023, the allowance for doubtful accounts was immaterial.

Commissions. We capitalize commission fees paid to our associates as contract assets within Prepaid expenses and other current assets on our consolidated balance sheets. These prepaid commissions are subsequently recognized as a selling expense upon delivery (when we have transferred control of our product to our customer). At March 31, 2024, we had prepaid commissions of $13.2 million, which we expect to recognize to selling expense during the remainder of fiscal 2024 as Selling, general and administrative expenses within our consolidated statements of comprehensive income.

Customer Deposits. We collect deposits from customers on a portion of the total purchase price at the time a written order is placed, but before we have transferred control of our product to our customers, resulting in contract liabilities. These customer deposits are reported as a current liability in Customer deposits on our consolidated balance sheets. As of March 31, 2024, we had customer deposits of $80.5 million. At June 30, 2023 we had customer deposits of $77.8 million, of which we recognized $74.7 million of revenue related to our contract liabilities during the nine months ended March 31, 2024. Revenue recognized during the three months ended March 31, 2024, which was previously included in Customer deposits as of December 31, 2023, was $2.7 million, compared to $6.1 million of revenue recognized during the three months ended March 31, 2023, which was previously included in Customer deposits as of December 31, 2022. We expect that substantially all of the customer deposits as of March 31, 2024 will be recognized as revenue within the next twelve months as the performance obligations are satisfied.

The following table disaggregates our net sales by product category by segment (in thousands):

	Three months ended March 31, 2024										Three months ended March 31, 2023
	Wholesale			Retail		Eliminations(1)			Total		Wholesale			Retail		Eliminations(1)			Total
Upholstery(2)	$	44,187		$	54,407	$	(31,692	)	$	66,902	$	56,923		$	71,269	$	(38,603	)	$	89,589
Case goods(3)		31,542			35,494		(19,803	)		47,233		39,761			41,917		(24,439	)		57,239
Accents(4)		15,670			25,548		(14,525	)		26,693		19,456			29,382		(15,760	)		33,078
Other(5)		(1,574	)		7,167		-			5,593		(1,945	)		8,355		-			6,410
Total	$	89,825		$	122,616	$	(66,020	)	$	146,421	$	114,195		$	150,923	$	(78,802	)	$	186,316

	Nine months ended March 31, 2024										Nine months ended March 31, 2023
	Wholesale			Retail		Eliminations(1)			Total		Wholesale			Retail		Eliminations(1)			Total
Upholstery(2)	$	138,071		$	186,519	$	(98,853	)	$	225,737	$	169,206		$	245,144	$	(121,089	)	$	293,261
Case goods(3)		91,060			103,308		(55,358	)		139,010		113,734			137,061		(68,855	)		181,940
Accents(4)		54,309			83,167		(43,496	)		93,980		57,292			97,737		(47,486	)		107,543
Other(5)		(3,558	)		22,420		-			18,862		(5,139	)		26,402		-			21,263
Total	$	279,882		$	395,414	$	(197,707	)	$	477,589	$	335,093		$	506,344	$	(237,430	)	$	604,007

(1) The Eliminations column in the tables above represents the elimination of all intercompany wholesale segment sales to the retail segment in each period presented.

(2) Upholstery includes fabric-covered items such as sleepers, recliners and other motion furniture, chairs, ottomans, custom pillows, sofas, loveseats, cut fabrics and leather.

(3) Case goods includes items such as beds, dressers, armoires, tables, chairs, buffets, entertainment units, home office furniture and wooden accents.

(4) Accents includes items such as window treatments and drapery hardware, wall décor, florals, lighting, clocks, mattresses, bedspreads, throws, pillows, decorative accents, area rugs, flooring, wall coverings and home and garden furnishings.

(5) Other includes product delivery sales, Ethan Allen Hotel revenues, sales of third-party furniture protection plans and other miscellaneous product sales less prompt payment discounts, sales allowances and other incentives.