Farooq Kathwari, CEO of Ethan Allen

This is a partial transcript from Your World with Neil Cavuto, July 31, 2003, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.

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NEIL CAVUTO, HOST: Meanwhile, shares of Ethan Allen picked up 4 percent today in an otherwise kind of squishy market. The company said the quarterly earnings fell slightly as consumers spent a little less money on home furnishings.

With interest rates creeping up and the housing environment suddenly now out of favor, when is business going to pick up for this guy, or is something sinister afoot?

He’s Farooq Kathwari. He is the CEO of Ethan Allen.

Farooq, good to see you.

FAROOQ KATHWARI, CEO, ETHAN ALLEN (ETH): Good to see you, Neil, and congratulations. A great studio.

CAVUTO: Oh, thank you very much. You should furnish it, by the way.

KATHWARI: We will.

CAVUTO: OK. Good.

Let me ask you something. What’s going on here? I mean the backup in interest rates is fairly pronounced, Farooq. It’s more than a point, a little more than a month. Everyone’s saying it’s bad for housing and bad for the guys who put stuff in that housing.

KATHWARI: Well, I see the light at the end of the tunnel. You know, the last six months have been tough. We had a war, the aftereffects of the war. Consumer confidence was affected.

And, for us, as Ethan Allen, we did relatively well. Our sales were a little bit higher the last quarter, for the whole year, the fiscal year just ended. We were up about 2 percent in sales, and our earnings per share were about the same as last year, which is, you know, remarkable.

CAVUTO: So it wasn’t bad, but now do you worry, Farooq, that with the backup in interest rates -- I know it’s a sign of an improving economy -- that people don’t get off the fence and start buying more homes, that, in fact, they just sort of hang tight. We’ve had a big backup here. Thirty- year back well over 6 percent, but it’s going to put a chill.

KATHWARI: No, I think that people are going to buy home furnishings. In the last couple of years, they bought a lot of homes, but they have not spent on a lot on home furnishings because most of the homes that have been built in the last couple of years have been relatively more modest homes, and the people who have bought them have done a great job in taking advantage of the low interest rates, but they’ve had no money.

CAVUTO: They have no money left over.

KATHWARI: That’s right. But now I believe there is great interest in the home. I think it’s going to benefit us because people are interested in decorating. They are interested in cocooning, they’re interested in staying home, and I believe that, with better economy, with improvements in consumer confidence, those who are -- those of us who are going to help the consumer with solutions, I think, are going to benefit.

CAVUTO: So you think it’s a given that the trend in economic numbers is positive, that it does point to better days ahead, maybe even higher interest rates ahead, but that the offset there will be the improved economy benefiting more Americans.

KATHWARI: Oh, no question about because I think the interest rates today are at a historic low.

CAVUTO: Yes.

KATHWARI: In my view, I’m not an economist, but even if they were to go up...

CAVUTO: Well, you’ve been more accurate than many economists.

KATHWARI: If they were to go up 3 percent or 4 percent or 5 percent, we still are talking about relatively low interest rates. It’s a question of job creation. It’s a question of consumer confidence.

Now, as you know, this week, we just increased our dividends by 43 percent. We had increased 17 percent last quarter. It reflects that companies like ours...

CAVUTO: But was that the president’s tax cut that kind of pushed that, or was that your confidence in your company and this country?

KATHWARI: Both. Even in a tough year, we generated over a hundred million dollars of cash.

Now I believe very strongly that cash is good and that it also makes sense to give it back to your stockholders, and the president made it easier because the value of dividends is much higher. So we have -- last year, we purchased about $40 million worth of our stock.

We gave out dividends, and now we’ll balance it. We’ll balance it between giving dividends and buying our own stock.

CAVUTO: All right. Farooq Kathwari, thank you very much. Always good seeing you.

KATHWARI: Good to be here.

CAVUTO: Be well.

All right. The big cheese over at Ethan Allen.

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