Ethan Allen Interiors Inc (ETD) 2002 Q4 法說會逐字稿

Thank you for holding, and welcome to your conference call today with Farooq Kathwari. I would like to remind everyone that you're on a listen-only mode during the conference, and that there will be a question and answer session to follow the presentation. To place yourselves into queue, you can press star one on your touchtone phone, and when your name is announced you will have the floor. Sir, I'll turn it over to you and thank you for using Sprint.

Yes, thank you, Paula and good morning. I'm Farooq Kathwari, Chairman and CEO of Ethan Allen. I am joined by Ed Teplitz, our Vice President and Chief Financial Officer.

Today we are reporting results for the 3 months and fiscal year ended June 30, 2002. We are pleased with the fourth quarter results and the year, particularly given the continued uncertainty in both economy and consumer confidence.

Now, let me give you the key financial highlights for the fourth quarter ended June 30, 2002. Diluted earnings per share excluding restructuring charges were 62 cents, an increase of 24 percent over the prior year quarter which also excluded a restructuring charge. Sales amounted to 234.8 million compared to 226.4 million in the last year's fourth quarter. Wholesale sales remained virtually constant a 175.3 million as compared to 175.4 million in the last year's quarter. Retail sales increased 18.9 percent to 128.1 million versus 107.8 million. Comparable store sales decreased 1.6 percent from the prior year quarter.

Greater efficiencies in manufacturing have resulted in an increase in gross margin to 49.2 percent from 45.4 percent in the prior year quarter. Cost reductions at both wholesale and retail have reflected in higher operating margins. Excluding restructuring charges in both periods, our operating margins -- consolidated operating margin is 16.7 percent versus 14 percent in the prior year quarter.

Wholesale operating margins, excluding restructuring charges, increased to 20 percent versus 14.3 percent in the prior year quarter while retail operating margin remained virtually unchanged at 5.5 percent.

We continue to generate healthy cash flow. During the quarter EBITDA was 39.5 million. Net orders booked for the quarter were up 7.4 percent at the wholesale level and written sales were up 35.3 percent at the retail division. Retail division comparable store written sales increased 8.8 percent over the prior year quarter.

During the quarter, we spent 10.8 million to purchase 300,000 Treasury Shares at an average cost of $36 per share. In July, that is last month, we spent an additional 18.6 million to purchase 603,100 shares at an average cost of $30.89.

Now, the key highlights for the fiscal year as follows.

Sales for the fiscal year totaled 892.3 million as compared to 904.1 million last year. For the fiscal year wholesale sales amounted to 660.8 million versus 705.2 million and retail sales from company operated stores to 459.6 million from 419.3 million. Comparable store retail division sales decreased 2.4 percent from the prior year.

Gross margin increased for the fiscal year to 47.2 percent versus 45.8 percent in the prior year. Operating income for the year excluding restructuring charges in both periods increased 1.6 percent to 135 million from 133 million in the prior year.

The operating margin, excluding the restructuring charge, was 15.1 percent this year versus 14.7 percent last year.

Earning per share, excluding restructuring charges, were $2.14, an increase of 2.9 percent over the prior year, which also excluded restructuring charges.

Net orders booked for the year were down 1 percent at a wholesale level and regional sales were up 13.6 percent for the retail division. Retail division comparable store retail sales increased 0.2 percent over the prior year.

During the fiscal year we purchased 1,003,900 treasury shares at an average cost of $30.38 per share.

Regarding balance sheet, cash and short-term investments increased 27.6 million during the fiscal year. Inventories decreased 1.9 million and we are in good stock position with over 90 percent of our cased goods items available for shipment within four weeks.

We generated cash flow of 132.5 million compared to 87.6 million in the previous year.

We used 73.5 million for capital expenditures and acquisition of new stores, and 30.5 million to purchase our stock in the open markets.

In addition, as I have said previously, we purchased 603,000 shares for 18.6 million with average price of $30.89 in July.

Starting the fourth quarter of fiscal 2002 we increased our dividends in the fourth quarter of fiscal 2002 by 50 percent and in the same quarter S&P raised our ratings from Triple B+ to A-.

Now a brief overview of our business strategies during the year:

Our focus was primarily on six areas: First, to expand our consumer reach to innovative products. Second, to expand and strengthen our store network in the U.S. and abroad. Third, to position Ethan Allen as an authority on decorating. Fourth, to realize efficiencies in manufacturing and logistics. Fifth, to make outsourcing, especially from offshore, an important part of our product mix. And finally, improve financial results.

During the year we expanded consumer reach to stylish and good value products. Our townhouse collection, the first major offshore product, was introduced to the consumer in May, 2002 and has had the best response a company has had for any new product introduction.

We have analyzed the development of two programs, also made offshore, which will be introduced to our retail network next month and to consumers in the spring of 2003. We expect the two programs to be well received by the consumers and we'll continue to balance the mix of offshore products to our domestic products.

Our store network continues to strengthen in the quality of stores. During the quarter we opened four new stores and ended the year with 316 stores, with 103 operated by the company and 213 by our licensees.

In July of this year we completed the purchase of seven stores from our joint venture partner in Canada.

Our stores are being positioned in the right markets with a strong image and we believe we'll continue to realize more from within. The company retail division is now operating in 24 entrepreneurally managed districts, with 110 stores. That includes the seven from Canada. During the year we have added to our management structure, started implementation of a new point of sale system, and improved logistics and operations.

The independent retail network consists of 105 licensees in the U.S., operating 184 stores. The other 22 stores at this stage with small volume are operated outside of North America. Our licensees are experienced, dedicated and financially stable. During the year we opened our first store in the U.K. with our joint venture partner, MFI Industries. The second in the U.K., the second store is planned to open in October of this year. In China we plan to open three stores by this calendar year with our licensee Markor Furniture.

We expect to open about 12 to 15 stores next year, consisting about, of about 50 percent relocations and 50 percent new stores. During the 2002 fiscal year, we spent on our advertising and communications programs via our international, our internal communications programs and advertising. We launched our program to establish Ethan Allen as an authority on decorating, by strengthening our direct mail, print and television programs, with a focus on the message that Ethan Allen makes decorating fun and easy.

The consumer finance programs were an important contribution to our business in fiscal 2002. At year end the Ethan Allen revolving credit card portfolios stood 115 million, with about one billion in open to buy, and a simple finance program that's our installment loan program with a portfolio of 175 million, with about 600 million open to buy. In the marketing program we launched during the year, including the wedding and gift registry programs, available in stores, and also via the Internet through our Website.

During the year we made our manufacturing and distribution more efficient. Made outsourcing an important part of our mix, and continued our focus on quality and service by emphasizing our program of doing it right the first time. And finally, we plan to hold our annual investor conference at our Danbury headquarters on November 12th. Peg Lupton will forward more details shortly to you. With this focus that I've discussed, I believe we are positioned well to continue our growth. And now at this stage I'd like to open for questions and comments.

OK, at this time we would like to open the floor for questions. If you'd like to ask a question, please press star one on your touchtone phone, and your name will be announced when you have the floor. I would also like to remind everyone that today's conference is being recorded. Our first question is from . Go ahead sir, you have the floor.

All right, . , good morning.

Good morning Farooq, how are you?

Your name is as, almost as difficult as mine.

I think it's probably, hopefully more difficult anyway.

Or as bad.

Can you talk a little bit about how business developed in the quarter, give us a feel of how particularly written sales, that eight percent order book is good to see, and the improvement over the third quarter in terms of the comparable store sales was good to see, but kind of, how did it develop in the quarter? And to what extent we can pry out of you, how's it looking so far this year?

, our quarter started good. I think the first two months were the strongest. The third month, that is in June, we did see some slowdown, especially with all the news that consumer is listening to. And I think the softness also continued in July. I think it's somewhat early to tell because I think we've got to go through the whole quarter, but certainly the quarter was very, very good. For the first time in the last year or so, we have had a positive increase, both at the wholesale level and at the retail level in comparable stores and I think we're going to see -- we're going to watch. But in July it was somewhat softer, even though our people are optimistic, I see the consumer is impacted with all that is happening around them.

OK. And when you look at the margin, certainly the manufacturing margin of the wholesale division turned in a spectacular margin in the quarter; how much of that can you attribute to the new Townhouse Collection? Can you kind of give us a feel of how much of the delta was because of the new product?

It's -- I would say it was -- it is getting -- it is going to become important, but I think that it was not tremendously material for our last fiscal year.

And in the last quarter, more importantly? I mean --

Also still. I mean, it had some impact, but as I said, we started really marketing it in May of this year, so, you know, we just really had two months and the shipments -- some of those shipments will take place in this quarter, although we did get some impact, but I don't think it was material.

And if you look forward, what do you think the margin expansion can possibly be in the manufacturing level, I mean --

Well, I think that we have benefited so far from not only the improvements we have made through consolidation, through efficiencies, through the fact that, you know, some of the inefficient labor is not working in our plants, all of those things have helped us as our manufacturing.

And also what has helped us is lower raw material costs, especially lumber. That has been an important factor. So as we go forward, we have to also keep in mind what happens to the lumber prices. So far, you know, they are not increasing, but that is an issue that we have to keep in mind.

The second thing we have to keep in mind is, in the United States, is that to maintain our competitive advantage, we are going to even become somewhat more aggressive, as I've indicated in the past, of making our products, made in the US, become more competitive as are margins improve, I would rather give it to the consumer than keep it ourselves.

OK, and lastly, Dublin, can you kind of give us an update on -- you added capacity a year or so ago and how is that plant running and is up to snuff in terms of profitability now?

Bud, you know what we did about two years back was we added Dublin and then we consolidated four smaller plants. The net result was we added net more production than the four plants we closed, in terms of potential production. But Dublin is operating still at about most probably, you know, 50, 60 percent of what I would like it to operate at. But, on the other hand, the only way it will operate more is by building inventory which we don't want to do because, even in the July quarter, I mean, the June quarter we did take some downtime, not much, in July quarter we'll take a little bit more downtime because of the fact we don't want to build inventory. But the Dublin plant is doing well. It is positioned to grow and consolidation of our plants is helping and I think as our business improves, we have the opportunity of doing more.

OK. Thank you, Farooq, congratulations on the quarter.

Thanks, Bud.

The next question is from Jason Petman, go ahead, sir.

Good morning, Jason.

Hi, good morning, Farooq. Just a few questions. I guess, first, I want to just clarify quickly the store count. You said you purchased an additional 7 stores in July; is that -- so now you have 110 stores? Is that in addition to 103?

Yes, that's right, on the retail division.

Okay, so now you own 110. Could you expand a little bit on obviously that number has been moving up quite a bit recently. I think it ended 2001 at about 84 stores, so this is probably the biggest increase we've seen, and just maybe talk about your appetite for picking up more stores going forward. Is it just really about the timing and a lot of the baby boomers retiring and really no good succession plans at some of the bigger markets?

Yes, yes, and I think that we did see this last fiscal year the largest increase in our retail stores through taking over retiring dealer stores. That was the result of a number of factors. The first is the fact that the timing was there. It just so happened that the timing was right for them to retire and a tougher economy also helped them make that decision. And third, we are also in a much better position in terms of management at the retail division to absorb this. Two, three years back we could not have absorbed this. We have a much stronger management structure, logistics structure, so we were able to absorb 19 new stores in our structure because of the work that we have done in the last two years in strengthening our management and our logistics of the retail division.

Going forward, I think we have some additions but I don't see, at this stage I don't see the kind of an increase we have had in 2001 in terms of acquiring stores.

Was there any type of percentage that you see, like a range that you'd want to be comfortable in? I mean, would you be comfortable owning up to half of the stores or is it just going to be on a case-by-case basis?

I mean, we want to have a very strong independent network and today we do, because you've got to remember that most of the folks, the stores we have taken have been with Ethan Allen from I think from between 25 years and 50 years with our system.

So the people that are operating the Ethan Allen stores are dedicated, financially strong and they want to grow. So I think we've got a good balance now but obviously we will increase the retail division stores to some degree, and I think in terms of number of counter stores if you go 50/50 that would most probably and somewhat in the next few years, most probably that would be something we'd be looking at.

Okay, then just turning a little bit more focused on margins, I know Bud touched on it, but obviously the wholesale margins for the quarter was extremely impressive. And looking to I guess maybe your forecast for 2003, what type of margin are you assuming on the wholesale side for the year? I mean, it looks like that there's going to be a considerable carry-through on the improvement, but I'm just wondering about that.

Yeah, well I think that, as I said to Bud, that I wish that I could just turn the key and it keeps on coming like this. It's not that easy; a lot of factors are there. It will also depend upon the state of the economy, how much downtime we have to take to manage our inventories, so an awful lot of factors.

But let's assume that the business conditions remain reasonably good and that we don't have to take a lot of downtime, which has a negative impact on our margins. I think that last quarter we ended up at 49 percent, for the fiscal year we ended up at 47 percent, somewhere between that range is most probably what we are looking at.

Okay. And just looking at your capacity, you said that Dublin was still under the levels that you'd really be comfortable with. Can you maybe talk about when sales do pick back up, what type of wholesale revenues can you support with your current manufacturing base and then maybe also just briefly touch on your appetite for outsourcing products. Is there any type of percentage that, you know, you have a goal of, you know, ten to 15 percent of maybe revenues in, you know, the next ...

Well Jason, right now our outsourcing is about 20 percent of our total product lines. We have ten percent in approximately in furniture, the rest in accents. And between our outsourcing will continue to increase as a mix. Our furniture obviously is becoming an important outsource to mix increase. And I think that domestically we have a lot of capacity. But our capacity we want to concentrate in fewer plants, so that they become more efficient, and that while we want to develop our outsource product, we also want to see that these folks are able to deliver it. So far they're doing a decent job, which one thing delivering $50 million and delivering $400 million. So, you know, that's a balance we've got to maintain, making sure that they have the abilities to deliver, not only just deliver, you know, good prices.

Do you feel like there's still more capacity rationalization in the U.S. ahead?

Well our focus as, you know, if you go ten years back, we had 27 plants, and we've got 17 now. We are producing 220 to 250 percent more units in ten less plants. My objective continues to do more with less, and we going to increase our capacities because we are using technology, we are using work processes that is improving our throughput in our plants. And we are going to continue to do that. We are not going to add more plants, we are going to become make our plants more efficient.

OK, thank you very much Farooq.

Thanks Jason.

The next question is from . Go ahead ma'am.

Good morning Farooq.

Good morning Pam.

I'd like to talk, just focus a little bit on the retail. You know, as you've said, you are about to anniversary one year ownership of a large number of stores. And I wondered, when you would expect those stores, given what you've done to the them, to start to have a positive impact on same store, on the same store numbers? And can you at all help us in terms of quantifying that?

Yes Pam that's a good question. We have the opportunity in many of these markets to make improvements. And however, you know, the economy is an important factor. We've taken these on at a, in a tough economic times. I believe that in the next couple of years, our objective would be to take these stores, as we've done in the past, and some of these stores we'll relocate, many of these stores we'll reposition in terms of interiors, and management and things of that nature. So I think we got under six months to a year to go to reposition the stores that we have purchased.

OK. I'd also like to know, you know, as you've developed this infrastructure of, I forget how many regional ...

24 districts right now.

24 districts.

I call them entrepreneurial disciplined districts.

At what point would more retail stores, you know, in your mix, do you start to see some synergies realized so that the operating margins for the retail component starts to expand?

I believe that we are, we have that opportunity. I think five and a half percent, despite the fact we made a lot of investments in terms of management structure, in terms of our operating systems, I think we have an opportunity of increasing that five, five and a half percent. And I believe that again, as I said, the volume is a very important factor ...

Right.

... assuming that the economy is half decent, we will start seeing this next year and the year after an improvement in margins at the retail level.

OK. And then just last question. Can you give us an idea of what type of annual retail volume the Canadian stores were generating? Just so that we can get some idea of what we might add incrementally and then project our with, you know, the existing stores.

In US dollars approximately 18 to 20 million dollars.

OK. Thanks very much, Farooq.

Thanks, Pam.

We have a question from Joel Havard. Go ahead, sir.

Thank you, ma'am. Good morning, Farooq.

Good morning, Joel.

We keep flogging on this gross margin question and you've probably answered it fairly, talking about a range and I just wanted to make sure I understood that. You said, a minute ago, 47 to 49 percent ought to be sustainable through 03, 04 and did I understand you also to say that beyond that you probably ought to start putting it back to the consumer in the form of promotions or credit or whatever?

I think that, yes, our objective would be to maintain within that range. What I said is, we -- while maintaining that range, Joel, our objective would be, maybe in the next 6, 9 months, to start, in fact even a few products that we are introducing even in September that are domestically made, we have intentionally made them more competitive because we want to make sure that we maintain the competitive nature of our US manufacturing as much as we can. So we want to start seeing more competitive products that are domestically manufactured, but overall, as we go forward, I think we'll maintain that margin mix. And although you've got to remember, that mix is also impacted by the retail business to our wholesale business. That one has to keep in mind. As the retail business increases -- has increased, this gross margin has increased too.

True, true. That's a good point.

Yeah.

Let me understand, and I know we've all asked you questions about this before and I know you've addressed it in conferences and such, but that ongoing attempt to -- you know, to reach that younger consumer. I know you were just hinting at it from the product side; how far along that curve do you think the company is yet? I mean, are we 10 percent there, 20 percent there? Is it really -- is it price point driven as much or more than design driven, just your thoughts?

We have made a tremendous amount of progress, but I think we have a lot more to go. Today when you take a look at the demographics that we are reaching, it's interesting that approximately 50 percent of our business is done in household incomes of between 50,000 and 100,000 dollars and approximately 20 percent of our business is done with household incomes of 50,000 dollars and less.

Now, and other interesting factors, so, and again, this is all information through our own network of stores that we have, a very, very large sample, that people at different demographic incomes, whether they are at 50,000 or 200,000 are buying our product across the line. In other words, folks who make 200,000 dollars are buying approximately the same percentage of our casual contemporary as folks who are buying say with incomes of 50 to 100,000 dollars.

We have reached -- we are reaching a younger consumer. But, it is still, if you -- to use your example, I would say most probably we are no more than 15 percent of where I would want to be.

OK. So, I guess there's -- and I'm sure there's not a magic bullet for this. Is it just a continuing evolution of --

Well, Joel, next year in one of the products I had mentioned that we're going to introduce two product lines and one of them is going to be a very strong product line for young people, from babies to kids to teenagers, and that is going to be a very important part of our market introduction next year --

Okay.

-- because what we'll do is, and what our objective is to use that to get younger people into our stores, so that they stop for the kids but really we want to get started with them.

And our business opportunity is to get younger people to come into the stores because the perception of many people is that Ethan Allen may not be affordable to them until they come into our stores.

So you're going to see a very strong introduction last year of our product lines to reach the younger people and this product line we are making offshore, so it will have great values and great quality.

So I think they're a tremendous leap. We are looking forward to a very strong marketing to get more younger people into our stores.

And that will be this year's introduction?

That will be this year's introduction but 2003 to the consumer.

Right, right, right, okay.

In the 2003.

All right. Last question, free cash side of the model looks real good. What cap-ex outlook for next year is similar to this year, maybe a little less?

I think that it will be somewhat less. It all depends upon the opportunities we have. Last year, as you know, we purchased, acquired a lot of stores.

Right.

We would be spending less obviously in the manufacturing side. Whatever money we are spending now is on technology and improving efficiencies. We will continue to spend money to buy properties so we can build stores in the right locations and then also to acquire. I would say it won't be less than last year.

Well, I guess maybe that's the better way to pose the question then, Farooq. Between both cap-ex and acquisitions, should that combined number probably still be less anyway?

That's right

Okay. All right. Thanks. That's all I had. Thank you.

All right.

The next question is from Larry . Go ahead, sir.

Farooq, congratulations on a very solid quarter.

Thanks, Larry.

A two-part question: Could you review again the price per share paid for stock repurchased both in the quarter and in the year overall? And the second question is could you talk a little bit about your expectation for SGNA expense ratios going forward as you expand the retail?

First, Larry, on the share repurchase, during the quarter we purchased 300,000 shares. The average price was $36. We paid $11 million. This quarter, this is in July, this first quarter of this fiscal year we purchased 603,000 shares at an average price of $30.89 or 18.6 million. For last year, for total fiscal year we purchased 1,300,000 shares at an average price of $30.38.

Okay, great.

Totaling $30 million.

And on the expense, you know, thoughts about expenses going forward?

Our expenses are falling. I mean, one of the reasons we have been able to increase our operating margins and especially even I get scared when we have operating margins at the wholesale level of 20 percent. People didn't think that we could go back to 20 percent even and especially in a soft market. We did it because of bringing our expense structure down at all levels but especially at the wholesale level.

I think our expense structure at the wholesale level continues to be managed at those levels you see. It is really at the retail level our SGNA increases because of the increase in our retail stores, and that will continue based upon the number of stores we'll add at the retail division. But overall we've got a very good handle on our SGNA at both levels.

Okay, great. Thank you. Congratulations again.

The next question is from . Go ahead sir, you have the floor.

Good morning .

Hi, good morning. I have two questions. One is, can I just get cap ex alone, excluding the acquisitions for the fiscal year?

Yes.

And maybe ...

For fiscal year, our capital expenditures totaled 31.1 million, versus 38.5 million in the last year, and that's the number you need, right?

Yes it is. Thank you. The second question is, you talked about Ethan Allen being recognized as an authority on decorating, or you're trying to position as that. Can you tell us about the success of that so far? I mean, is there, you know, actual evidence of doing more plans, or more people coming into the store, or what, how do you evaluate the success of that so far Farooq?

Well as you know, our total strategy is based on that, on that strategy. That is, taking customers and converting them into clients, providing house call services by our 3,000 design consultants. But we felt this last fiscal year that it was, it was time for us to now ultimately declare that we have that as a major competitive advantage. We started last January, through our direct mail, we positioned it more strongly to get the message across that we have these design consultants who will help you. And last month we started a television campaign, I don't know if you've seen our television commercials, the new ones. If not, I'll have Peg send copies to you anyway.

OK.

And you will see that is a very strong, very, very well received commercials which says that Ethan Allen will help you with your decorating needs, whether it is one piece or the whole group. And very well received so far, it's early. We just started the television campaign about, I think three weeks back. And we have got great response from our own people, as well as the consumer, and I think it's a great competitor advantage that we have, is that now we are announcing it much more strongly than we ever did.

OK. Thank you.

Thanks .

The next question is from . Go ahead sir.

Thank you.

.

Great quarter Farooq. A few follow-ups first of all. One, the volume on the Canadian stores, I assume that's their gross volume, 18 to 20 million?

That's right, yes.

OK. Secondly, is there any way you could quantify townhouse at this point, you said it's the best introduction ever. The best way in my mind would be to, you know, how much did it influence the order book, which I think you said was seven or eight percent. But any way you could quantify the impact of that collection?

I think that's a good question. Let me, in terms of quantifying it, let me, let Ed is here, and simply is I'll ask Ed to put some numbers together so that maybe we can give a better indication of that next quarter. Because, you know, it's just fully introduced in May, to the consumer. That's only three or four months back. But as I said, even in that time period, in terms of actual dollars booked, it had the best response we have had ever. I think that, let us wait one of the quarter and we'll give you some more better information.

OK. And my final question is, relates to return on capital, and I'm curious, when you look at the decision to, for example buy the seven stores in Canada, you know, what the return on that investment is by your calculation, and you go about that, versus say buying in your stock? Your retail division has a relatively low operating margin, I'm assuming the businesses you're buying have a somewhat better margin than yours, although maybe that's not true, and I'm curious as to whether, you know, what the formula is that you buy these dealers out at?

Well, I think that we have to take a look, and it's a very, very important question, because it also has an impact our strategy. We take a look at the overall impact on the profitability and the return on equity and assets of the company.

When we buy -- when we operate a retail store, not only do we get some margin at the retail level, but it has a major impact on margins at the wholesale level. It has an impact of both in terms of increasing our operating earnings and absorbing our overheads and then also having -- creating a return on investment for the whole company. We take a look at that. That's how we look at it. If you're going to take a look at it and say, does that 4 percent or 5 percent return, is that right for us? Is that where we should spend money? If we did only that then perhaps we would make different decisions. But we take a look at the impact on the return on assets of our total company which is substantial when we continue to open stores, even though the retail store itself may show somewhat of a marginal profitability.

But in the stores you're acquiring, I mean, let's maybe get back to Pam's question, are you driving the revenues after you acquire them up substantially, because if you aren't then you're obviously already getting the wholesale volume as an independent license and the fact that you acquire them if your volume stays the same going forward, there is no wholesale benefit and you're just, essentially, picking up a retail operation? But, are you really able to drive -- can you quantify what maybe the experience has been?

You know, John, in the last 10 years, that has really been one of the major driving forces in the development and the growth of our business. We have taken stores, for instance, just to give you a perspective, 8 or 10 years back in the Washington area doing, most probably, at retail, I don't know, 8, 9 million dollars. They are now doing 35 million dollars.

In Philadelphia we took stores that did, I don't know, maybe 5 or 6 million dollars and now they do 20 million dollars. This is what we have done in the last few years and that's what's driven our growth.

Right. That's what I was looking for. Thanks and you know, when you get something on Townhouse, let us know. Thank you.

All right.

The next question is from Barry Vogel. Go ahead sir, you have the floor.

Good morning.

Good morning, Barry.

I want to go back to that consolidation question where you said you had 17 plants at this moment in time and you're not adding any plants. However, with your new Townhouse Collection being so successful and the quality is there that gives you confidence that you can continue coming -- you know, from abroad with imports, could we expect you to have further consolidations going forward?

Barry, I think that I've said this previously, that our objective would be to continue to have less do more and because we have the same number of stores that we had 10 years back, the stores are a much, much better position, I'm not just interested in having stores just for the sake of stores. Similarly, in manufacturing, with the technology that we have today, plus outsourcing and outsourcing is not only today only in fully finished products. But we are now starting to outsource for parts so that our manufacturing in the United States is going to become a mixture of manufacturing and assembly. That gives us an opportunity of consolidation as we go forward.

OK. Now, as far as imports and the percentage of sales, in '02 you said that 10 percent of the 20 percent was furniture and 10 percent was accents.

Given that the success of the Townhouse collection and your increased confidence in doing that, what might we look for perhaps in terms of imports as a percentage of sales in '03?

I would say again we have to be careful that the ability of these folks over there to deliver the product at the level of quality we want is very, very critical, but I would think that this will increase most probably from 10 percent to at least 15 percent.

Versus last year?

That's right, yes.

Okay, now, as far as your mix, can you give us your mix for fiscal '02 and your probably mix in fiscal '03, and by mix I mean upholstery, cased goods and accessories?

Ed, do we give these numbers out? I don't know if we give these numbers out, but approximately this would be an idea that our upholstery is approximately 30 percent, our accents are approximately 14 percent and our cased goods are still approximately 55, 56 percent of the mix.

Now, is there any concerted effort to try to increase upholstery as a percentage of the mix?

Yes. Our objective is to increase upholstery as a part of the mix. Now, what's happened in the last few years is we have substantially improved cased goods. Also is that while our total dollar sales in upholstery have increased, but as a mix it has gone from 28 to 30 percent, but longer term upholstery will become -- should become a larger percentage of the mix.

Could you do this using acquisitions as well as internal growth?

No, I think that we'll do more of it through our internal approach.

And one last question: What is your current authorization for your stock repurchase plans after the July purchases?

We have about a million shares left.

Thank you very much.

Thank you.

The next question is from David Ritchie. Go ahead, sir.

Good morning.

Good morning, David.

Farooq, you reviewed your fixed focus areas for '02. I'm wondering if you can kind of elaborate and look at '03, whether those fixed areas would change at all?

No, I think '03 is going to be about the same in terms of focus.

Okay. And then the other question I wanted to ask about was with the -- assuming that the economy is a little bit softer and the consumers a little more tentative here, does that affect anything that you do perhaps on the marketing side or the promotional side and specifically with interest rates so low are you contemplating something with the credit side?

You know, we have been operating in the last two years in a slow economy and this is when we introduce our simple finance plan, the installment plan and took it from zero to over $175 million of portfolio with about $600 million open to buy. That has been very, very important and we'll continue to market that.

The next -- I think other than that, we'll continue to focus on our business in terms of marketing the services we have, because today consumers are getting more and more I think used to the idea that having professionals does not mean it's going to be expensive, which was the case ten years back, so you're going to see us get the message across that at Ethan Allen not only do we have established products, good value but we've got a service to back it up with in terms of professional design consultants and you're going to see a lot of that this year.

On the credit side, I mean, interest rates are at even lower today than, let's say last fall when you had moved to, you know, a more aggressive stance. Are you in a position that you can even go further with that? I mean, everywhere you look it's zero percent, 12, 18 months financing, and maybe you don't want to go that far, but I suspect you have some room if you wanted to.

Yes, but of course, you know, when you do zero percent and all that, you pay for it. It affects your margins. There's no, you know, there's nothing is called free. So because of the fact that the credit risk becomes greater, so it's not just a question of the interest rates. With all that financing that is taking place, I believe that one of the big concerns I have, overall economy is the consumer debt that's out there. And I think that we'll maintain more or less what we do because of the fact that we of course can be more aggressive, but it's going to come out of our margin.

And I think it's going to, and we've got, and we are very careful in terms of having this impact on our credibility. So I am, we have maintained good credibility, even in very difficult economic times, and I believe that we will maintain that balance of being, you know, aggressive but still maintaining our credibility with the consumer and our own people.

OK. Thanks so much.

All right.

The next question is from . Go ahead please.

Good morning.

Good morning .

My question relates to your ability to find independent dealers to run your, the Ethan Allen stores. Seems like in the past you've been saying that you were looking to find some, and to maintain a good mix of company owned stores versus independent dealers. So could you talk about your, the difficulty you might be having in finding good entrepreneurs to run Ethan Allen stores as independent dealers? And, because it seems to me, and I could, it's a more a capital efficient way to grow your business, so could you talk about that a little bit?

Well there are a number of issues in this. First is that overall there are not that many people who are interested in working in retail, and the tough hours of retail. Second, there is, it does require a fair amount of capital in this business. Third is that we do have a number of people interested in becoming our independents, but they want to take the prior markets.

OK.

And this is where we have, sort of at this stage I'm not willing to give the prior markets, because this is where we have spent a lot of energy to develop these markets, and there's still a lot more work to do. What happens is the independent says although they are very, very well financed, they are interested in sort of maintaining more of the status quo than I'm interested in doing at this stage.

OK. So as a result, going forward we should expect your capital expenditures, including acquisitions of stores, to be somewhat much higher than they used to be in the past. Because if I look this year, it's up to 73 million versus about 47 million last year, so ...

Yes, I would say that between, you know, 50 to $70 million at this stage, to maximize CS spending.

OK. Good, thank you very much.

All right.

Again if anyone would like to ask a question, please press star one on your touchtone phone.

All right , I think we had a lot here, I think we had a lot of questions.

We do have one more.

All right.

go ahead please.

Ah, .

Hi Farooq. I've got three quick questions for you. One is if you could tell us what the average price per unit in case goods was for the year, whether that was up or down? I'd like to get the depreciation and amortization number for the year, versus '02. And then also, just curious what options issuance was for the fiscal year?

All right. On the question of average price. Ed, how about getting me this -- has given me that number. Let us see now, you're looking at every price on goods? It actually went up about five to seven percent from the average price we had in the last fiscal year.

OK.

As far as the depreciation and amortization is concerned, Ed has given this to me, for the quarter it was 5 million, and for the year it was 19.3 million. And options -- it was relatively small options were issued, maybe, I don't know, a little over 100,000 shares or so.

OK, great, thank you very much.

All right, David.

We have no further questions from the phone lines.

All right, well thanks very much. Any other questions, please feel free to call in Danbury. Thanks very much.