Ethan Allen Interiors Inc (ETD) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ethan Allen second-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS).

I would now like to turn the conference over to your host, Mr. Farooq Kathwari. Mr. Kathwari, you may begin, sir.

Thank you and good morning. I am Farooq Kathwari, Chairman and CEO of Ethan Allen. I'm joined today by Jeff Hoyt, our Vice President of Finance. Today, we are reporting the results for the three and six months ended December 31, 2004. I would like to begin by providing some key financial highlights for the second quarter.

For the quarter, net delivered sales increased 1.7 percent to 245.3 million. Net delivered sales for the Company's retail division increased 4.2 percent to 155.8 million, with comparable-store delivered sales increasing 1.8 percent. Wholesale sales decreased 1.4 percent to 161.3 million during the same period. Written sales for the company-operated stores increased 8.2 percent, and comparable written sales for the stores increased 5.7 percent.

During the quarter, we distributed over 11 million of our direct-mail magazines, representing an increase of 33 percent over historical levels for the period, incurring additional advertising costs of 1.1 million. The impact of these incremental costs on the Company's earnings per share was approximately 2 cents.

The quarterly consolidated gross margin increased to 48.7 percent, as compared to 48.2 percent in the prior-year period, despite the adoption of 1.1 million of variances related to plants closed earlier in the year. Price increases within certain raw material categories had some impact, as a result of the Company's switch to everyday pricing strategy.

The quality of our earnings remained strong as well, as is evident in the 15 percent consolidated operating margin for the quarter. This reported margin reflects the effect of the plant variance and incremental advertising costs referred to previously. The combined impact of these items on the Company's consolidated operating margin was approximately 1 percent.

During the current period, the wholesale operating margin was 16.6 percent and the retail operating margin was 4 percent. Earnings per share for the quarter amounted to 64 cents on net income of 23.3 million. Current-period EPS is unchanged from that reported in the prior-year quarter, when net income totaled 24.4 million.

The favorable effects of increased sales volume, improved gross margin and share repurchases were offset by increased operating expenses. For the six months ended December 31, 2004, net delivered sales increased 2.5 percent to 475.6 million. Net delivered sales for the Company's retail division increased 5.4 percent to 297.5 million, with comparable-store delivered sales increasing 3.3 percent. Wholesale sales remained unchanged, at approximately 322.7 million during the same period.

For the six-month period, written sales at the Company retail division increased 3.8 percent and comparable-store written sales increased 1.8 percent. The six-month consolidated gross margin was 48.3 percent, effectively unchanged from 48.4 percent in the prior-year period. On a year-to-date basis, the Company has absorbed approximately $3 million of variances related to closed manufacturing facilities, adversely affecting the gross margin by approximately 0.6 percent.

Year-to-date operating margins were held steady, with a consolidated operating margin at 14.3 percent, the wholesale operating margin at 17.1 percent and the retail operating margin at 3.1 percent.

Earnings per share for the six months amounted to $1.15 on net income of 42.2 million. This represents a 1.8 percent increase in earnings per share from the $1.13 reported in the prior-year comparable period, where net income totaled 43.3 million.

Our financial position remains strong. During the quarter, we generated operating cash of 29.4 million, utilizing 20.5 million to repurchase shares of the Company's stock, 7.9 million to fund capital expenditures, 5.4 million to pay quarterly tax dividends and 4.6 million to pay an outstanding industrial revenue bond debt. Inventories decreased 8.1 million during the period, and we remain in a strong inventory position. EBITDA for the quarter was 43.1 million or 17.6 percent of sales, as compared to 45.1 million and 18.7 percent, respectively, in the prior-year period. Overall, despite a challenging economic environment, elections, consumer confidence being negative, we have continued to maintain a strong financial position and results.

Now, I would like to give you a brief update on our business and our strategies. With improving consumer confidence and business environment, we believe the steps we have taken and are taking gives us a unique opportunity to grow our sales and earnings. Our one-stop shopping is a competitive advantage. Our products are stylish, good quality and good value, and 70 percent have been changed in the last three years. After redesigning the formal site, we are now starting to market the casual and contemporary lifestyle products. We are now introducing to the consumer our New Impressions and Horizons programs, followed by another strong program called Tango (ph) in the fourth quarter.

Our strategy has been to provide a full complement of decorating solutions. In this regard, we have continued to improve the productivity and credibility of our 3,000 design associates, by training and offering our entire menu of products at everyday best price.

Our stores are being relocated to prime locations. During the last five years, 66 new stores have been opened up. Past 12 months, we have opened 10 new stores. In the second quarter, we opened a store in Palm Desert, California, closed three small stores, and we ended the quarter with 313 stores, of which 124 are company-operated. In the second half of this fiscal year, we plan to open 7 to 8 new stores, and in the next 12 months about 15 new stores.

Our overall sourcing of products has greatly strengthen. During the last three years, we have consolidated nine domestic plants. Our remaining 12 plants are now starting to operate more efficiently, despite the fact that most of the products we are making currently are new products, with their usual negative impact on margins, due to start-up and learning issues.

In addition to closed plants, incurred $3 million of negative variances in the past six-month period and 1.1 million in the last quarter, and continues to go down substantially as we move forward. We expect this $1.1 million to go down by about 50 percent in the third quarter, and by end of the fourth quarter it should be substantially over.

Both the company retail division and the independent stores are operating with stronger teams and better information and logistics systems. During the third quarter, we started -- during the second quarter, we started to increase our marketing and advertising expenditures. As mentioned earlier, we increased the distribution of our direct mail by 33 percent, reaching 11 million households; and in the third quarter, we are increasing by 40 percent of our direct mail to reach about 13 million households. In the fourth quarter, we plan to take our direct-mail magazines down to previous levels and start national television advertising to market our new Casual Contemporary lifestyle products.

We believe that with the steps that we have taken in the last three years give us an opportunity to be positioned well so that we take advantage of the improved economic environment and consumer confidence.

With that, I would like to open up for any questions and comments.

(OPERATOR INSTRUCTIONS). Charles Grom, JPMorgan.

Right of the bat, I just want to get a guidance. I noticed you didn't comment on your full-year guidance in your press release, and previously you have. Could you remind us what you guys are expecting for fiscal '05?

We have previously given a guidance of about a 5 percent increase in sales and about an 8 percent increase in earnings for the whole year, Chuck. And we have not, as you have noted in our press release, we have not changed that, because it's a little bit early. I believe that our business has improved, reflected by the increase in the written sales. And when we have had a comparable written sales, which is very, very important, close to 6 percent in the last quarter, to us that's a very important sign, even though our earnings were somewhat impacted in the third quarter by mostly some of our marketing expense, related expenses and also continued costs relating to absorption due to these closed plants.

So I think at this stage, we are leaving our guidance as it was, because I have said and I believe that the last year, in the last six or seven months, due to elections and consumer confidence and all of that, has impacted business. So we've got to take a look at what happens as we go forward. We saw in the last quarter that our written business improved, which was a very, very good sign. So as we go forward in the next few weeks, we will be in a much better position to give a better guidance, if it changes from what we have said.

Fair enough. Sales were up only 2 percent during the quarter, yet order trends like you just referred to were solid. Could you elaborate on how business trends trended during the quarter, and what type of sales growth you guys are expecting over the next few months?

Chuck, there's a lot of factors you've got to take into account. This year is when we have launched our everyday best pricing strategy. In June, we are going to anniversary that. And it is having timing differences for us, in terms of the ending of the sale, the beginning of the sale, which is also to some degree impacting our business cycles and its impact on quarters, because what perhaps -- at the end of November, we used to have the end of our sales. This year, we didn't have the end of the sale in November. Business is somewhat more steady. Despite that, in the quarter we did have an increase of 6 percent in comparable sales. I think it's a little bit early, Chuck. I think business conditions are improving. We are increasing our marketing, as reflected by direct mail. We had somewhat more expenses also in our retail division, in terms of gearing up. We have geared up; we have more design consultants, we have more design project managers, because we are spending a lot of effort and time to make sure we have the right people in our stores.

That is also reflected in terms of our selling expenses, if you take a look at our retail division and our overall selling expenses. Our profit at the corporate level, our SG&A stayed about flat with last year. Our retail -- our expenses went up mostly due to this increase in the direct mail. And at a retail level, our expenses went up because we're starting and we are gearing up; we are not completely getting the kind of volume we should get. But as we go forward, I think that our positioning with improvement in the economy, consumer confidence -- I believe we have an opportunity to increase our sales and absorb these additional marketing costs that we have taken on in the last few months.

And last question. Williams-Sonoma is rolling out a new home furnishings line for their new catalog, out in September. How much of a competitive threat do you see -- Williams-Sonoma's new initiative?

Well, we take everybody seriously, and at this stage, I don't believe that it is any more or last less a competitive threat than anybody -- that lots of others around. So I don't think that changes to any degree, to any great degree, the competitive environment, which is very competitive.

And just one quick last one, if I could, just to clarify -- you said you are going to distribute 13 million catalogs in the third quarter. Was I correct there? And how many in the fourth quarter?

The fourth quarter, we are going to go back to our historical levels, because in the fourth quarter, we're going to go back into national television. As you know, last year we decided that in the last six months or the first two quarters of our fiscal year, we decided that television did not make sense with the amount of money being spent on elections and everything else. So we held back, and we're going to go back on television in our fourth quarter, somewhat -- it will be approximately, at this stage, somewhat more than what we have spent the previous year. But I believe that the economic environment and all of the new product lines, which are tremendously, tremendously great -- our new whole Casual Contemporary programs -- we are now getting them into our stores, and we want to let people know that we have them.

Susan Maklari, UBS.

I have a couple of questions for you. The first one is, could you give us a sense on your wholesale manufacturing sales of the impact of negative pricing because of deflation in the quarter, or do you have a sense for that, or was there any?

I refer to the fact that obviously we were, to some degree, impacted by a number of factors. First is we did lower our overall prices with Every Day --

EDLP, yes.

And 75 to 80 percent of our products, we sold it at those prices, anyway. It had an impact. And secondly, our domestic products that we have introduced, and we have introduced some major domestic products -- our Newport, our New Country, our Horizons, our New Impressions are all being made in our domestic plants. Now, there are good news and also its implications. The good news is that, as we have now consolidated our plants, 12 plants -- six in case goods, five in upholstery and one in accents -- the case goods plants are now working full-time. They are becoming more efficient, even though we are having some negative variances because of all these new products going through that.

The interesting thing is that our top three product lines that we sold in the last six months, especially in the last three months, are made in our plants in the US. Now, that's good news. The negative is that, of course, we are operating at a lower margin on these products, especially at a time when our plants are gearing up from consolidation and we are also improving their efficiencies because of new products.

And the $3 million, you said, year to date, so over the last six quarters, you have incurred about $3 million of additional costs. Is that associated with the plant consolidations or with the new products -- you know, just getting the production lines going?

That is all due to the --

The consolidation?

Whatever we have incurred, we have absorbed them in our margins, and we have not sort of stated that separately.

And do you have a sense for what percent of your sales are from the new products now?

I'll tell you this. I don't have -- I'll just give you a sense. I would say that it is increasing, obviously. And when you say new products, you're talking about the products that were introduced, say, in the last --

In the last 12, 18 months.

I would say that 50 percent.

And when you introduced EDLP, I think one of the potential benefits was that it would smooth out the cycle, versus the sales events you had been having periodically. And when will we start to see the benefit of that? Is it post the anniversary at the end of June?

We have started to see some benefits when we saw about a 6 percent increase in comparable-store sales in our second quarter. That was a result of a number of factors. First, it was a result of the fact that we have been improving our product lines. Second was the fact that we increased the distribution of the magazines. Third is that we had most probably the best December we have had, because historically we ended our sales at the end of November, and December used to be --

Quiet?

-- (indiscernible) because it was a self-fulfilling prophecy. Now, we sort of equalized our business in the almost -- in the three months. December was still not as strong as October and November, but it was the strongest we ever had, and it reflected the fact that we were able to equalize our business, and our people were working in December, which is very, very important for purposes of writing better service. Because we used to get a tremendous amount of business at the end of sales, and that for our business, which is focused on providing service, was not good.

I guess my question really is, when you incorporate all of that, and relative to the EPS guidance you've provided, where do you think your retail and wholesale margins are going to be by the end of the year?

Well, I think, as I said to Chuck, that at this stage I am not changing our guidance for the whole year.

There's a lot of moving parts, and I'm trying to figure out --

I think that, Margaret, if you take a -- I know that people get concerned because you folks didn't meet my -- our earnings, right? I mean, I say that I don't have to meet anybody's estimates. But it's hard for you to meet, to understand and to see what we are doing because there are so many moving parts.

I'll tell you this. Until last week or so, we still felt that perhaps we would be able to deliver out to the consumers under the $2, $3 million, and that will have a major impact on our earnings. But it was only towards -- comes in at -- quarter was finished, and we did not deliver those out. Our earnings, which still very, very good at 64 cents, could have been somewhat better. But that $2 or $3 million did have an impact.

However, if you take a look at it and forget the fact that we are now comparing to this, what was it, 67 cents was the mean estimate over there and we came at 64 cents, and people are looking at it -- we had a very, very good quarter.

You did have a good quarter, but you missed your own target. It doesn't matter what we were expecting; you missed your own target. And 4 cents of the 64 came from one-time asset sales. So we are just trying to figure out exactly what we should expect.

I think what I am getting at is this operating earnings of 15 percent -- we have been maintaining that, and that's a pretty good operating earnings. I think that our retail division operating at 4 percent was also decent, even though we know we have an opportunity of increasing that. So if you take a look at those two things, I think you get a pretty good idea of what kind of an opportunity we have.

The last question I had is just in terms of you own about just under 40 percent of your stores now -- what the target is there, and also your priority for uses of cash this year.

Margaret, we have a good balance between what we are operating and what our independent retail is operating. In fact, during the quarter, we transferred three stores from the Company to our independent retailers, and we purchased three stores from the independents to the Company's stores. So we are going to continue to balance it, because I want to have a strong independent retail network, and you are going to see more or less the balance that we have today.

Budd Bugatch, Raymond James.

A couple of questions. The $1.1 million incremental spend for the direct mail -- that implies that your overall advertising was up in the quarter. Is that in fact --?

That's absolutely right. It was, and otherwise we would not have mentioned it.

So overall advertising expense did -- because I thought you had cut back on some advertising expenditures during the quarter, to keep you relatively level with last year?

Did. We cut back in our first quarter, but in the second quarter we believed that it made sense for us to increase it, because the impact of our direct mail is not immediate -- whatever we did in the last quarter. Another thing we are doing now, Budd, is that when we send our direct mail -- like, for instance, we are right now going to send out this quarter 13 million copies of our direct mail. This is in third quarter. Previously, we would send everything out in the first two weeks, because our sales would end in six weeks. But that is not the case now.

Now, we're going to be mailing out every other week in the whole quarter, because of the fact that it brought us a lot on sales. So it has really made possible for us not only to increase our advertising, but to increase it and to become more consistent throughout the period. But to answer your question, yes, we did -- that was an incremental increase.

So overall statement advertising expense for Ethan Allen went up by $1.1 million in the quarter?

That's at the corporate level, and I think we also increased, to some degree, advertising at the retail level. But this was directly done at the corporate level, in addition to what we do at retail.

Yes. Well, today we are concerned with what the income statement has, and that's why I asked you at the income statement level.

Well, I'm talking about our own company-operated stores also, to some degree, increased their own advertising. I'm not talking about the dealers; I'm talking about our own stores, also.

I see. So are you telling us, then, it's more than $1 million of incremental advertising?

We increased some of our marketing expenditures, as I was explaining earlier, both in terms of adding staff. We also increased some advertising at the retail level, but I believe that's an ongoing thing, because it would not be wise for us to say that that was incremental. That we will continue to do. This was a special increase that we had this quarter. We're going to have in this third quarter also, which will be somehow be -- we're going to see the net impact of that versus what we spent on television last year, because in the second quarter last year, we did not have any television, and we had this year direct mail. In the third quarter of last year, we did have television. We are not going to have television, but we're going to have direct mail. So we're going to see the net effect of what happens there. But in the fourth quarter, we're going to go back into direct mail to our historical levels and spend the money on television.

I understand that, and I understand how you have to slow that to meet with the new products coming out. I have no issue with that.

The 5.7 percent increase in written business -- we've got a feel -- you said you had had a very good December. I heard you had a spectacular December. Did all of that increase basically come from the December gain?

It was -- no. We had a very good October. The November was somewhat lower, because we didn't have the end of the sale, and the December was much better. So I think that it was across the board, but December did reflect somewhat more of the rate, first, because of the fact that our people are working. We spent more money on advertising, and also I believe that in December, right after the elections, the middle of November, we started to see positive consumer confidence.

How has that momentum maintained into January?

It is maintaining. It's too early to say. We have got to wait until the whole period ends.

Well, I understand that, but we are more than halfway into the period now, you know, and you can feel how it's going.

The reason is this, that we last year had a beginning of a sale in January. This year we don't. So, you know, from our perspective, this timing -- until June, we're going to have this whole issue of end and beginning of sales. But overall, I think things look relatively positive.

And if I did my math right, if we did our math right, we looked at about $3.8 million of -- there's some other income to get to -- other operating income to get to the EBIT number between applying the wholesale margin to the margin, to the gross shipment and the retail margins. I notice your inventories were down, I think, $8 million quarter over quarter, and began a little bit more from a year-over-year basis. And you usually have a release of profit at the retail level when you have your inventories go down. Did we have much of that increase in this -- that released in this quarter?

The impact of -- profit elimination?

Yes, profit elimination or what typically happens, if I remember the way you all do your accounting, is when you compare your retail inventories at the end of the period, and then you have a certain release of embedded manufacturing profits in that retail inventory change?

Yes. I mean, it had a positive impact on our retail division and approximately, I would say, between $700,000 to $1 million would be the impact of reduction of inventory.

I'm looking for a difference of about $3.8 million, so I'm trying to find out why that difference looks like that, to get to the operating income and to get to the EBIT number.

3.8 is the total, but you're talking about its impact on profits?

Yes. Well, I am. Because to get to your stated consolidated EBIT --

Jeff, do you want to explain this?

Budd, you are right. 3.8 million for the quarter is the effect of that, and it's favorable to the prior year by the amount Farooq indicated.

So it's basically from first quarter to second quarter to get to --?

The change from first to second, correct.

Michael Cox, Piper Jaffray.

My first question relates to the other income, interest income line item. Could you just give some detail as to what comprised that 1.3 million?

Jeff?

Yes. We had a couple of real estate transactions that closed in the period. The amount of incremental income on those sales was favorable to the prior year. That was offset by a little bit less in the way of investment income, obviously, because we are carrying lower cash balances.

Should we expect that in -- are there other pending real estate transactions in the back half of this year?

It's possible, but I would not -- we still have a few plants to sell, but we're not counting on it. It's possible, but I would not count on it.

Could you give any indication of any early acceptance of your new contemporary product that's in the stores now? I know you mentioned an uptick in December, which could be more related to the timing of the sales, but just in terms of those new contemporary items?

Well, the reaction has been very, very positive. If we have an opportunity to -- I do not know if you have received any of our direct mail, which introduces the New Impressions. The New Impressions and the Horizons are already in the stores, and the reception has been very positive. Tango is going to come into the stores in March, and by April we will be marketing that, as well.

And just lastly, just to clarify, I just want to make sure I heard this correctly -- that you are still comfortable with your 5 percent sales growth and 8 percent EPS growth, those targets, at this point? I know you mentioned it's still early, but at this point, are those still -- you are backing those targets?

That's right.

Anand Krishnan, Morgan Keegan.

Can you give out the unit growth during the quarter?

You ask this question every time. Let me just see. And I think Jeff has -- yes. The unit -- actually, our average price, unit price increased in the quarter by 1.1 percent, at the wholesale level, which is also retail.

So pricing is 1.1, and total sales is 1.7, so 60 basis points related to volume? Is that a --?

Yes. I think you can say that 1.1 percent reflected an increase in average unit price of our products that we sold during the second quarter.

And also, I'm trying to reconcile the difference between your recent business increase of 8 percent, and in the balance sheet the customer deposits was down 5 percent on a year-over-year basis. Would you help me with that reconciliation?

I think, Jeff, that maybe -- why don't you give a call to Peg Lupton, and she will give you the reconciliation. I don't have it in front of me.

Ivy Zelman, First Boston.

Good morning, Farooq. It's actually Carlos Ribiero on behalf of Ivy. Most of my questions have already been asked, but can you give us a sense with respect to what you have budgeted for TV advertising in the fourth quarter?

I think that just for competitive purposes, it may be sort of unwise for us to give that information out, but as we go forward, we would let you know. It would be -- our overall marketing expenditures are going to be somewhat close to what we spent last year. We are taking the money away from direct mail, the incremental direct mail, putting it into television, and most probably about $1 million more than what we spent last year.

Justin Maurer, Lord Abbett.

A couple questions. First, on the EDLP strategy, could you talk about it in the context of your contentment with the marketing leverage you are getting? Obviously, like you said, you had been planning on (technical difficulty) catalog back to TV, anyway. But are you satisfied with the metrics you are seeing, either by traffic or sales or what have you from the incremental spend there?

You know, it's a little bit early. Last year, most retailers would, I think, say this -- that traffic has generally been low. We have seen that in the last three years, and that reflected to a great degree what is happening in the economy and consumer confidence. And traffic does increase, obviously, if you have some major promotions and lots of give-aways, which, obviously, we don't do that.

I think that the impact of our everyday pricing is going to be one of the most important things we have done. Now, it's not an easy thing to introduce this in an environment where everybody is selling their products as a commodity and on sales. It has meant a tremendous amount of education. It has meant having products with a lot of value and quality, and our people to accept it internally, which they have done. And it is going to bring about a tremendous amount of efficiency and productivity, as the traffic increases and our people have to handle more people because our old structure was not very efficient. People had to spend all their energies in selling 30 percent of the product line that was on sale, while 70 percent of the product line which they could have sold was not sold. So I think that we see positive. People are accepting it. Consumers are accepting it. There are some, of course, who think that we still -- they are still waiting for a sale. And I believe that another six months or so, all comparisons are going to be out. People are going to forget our old numbers and only going to focus on what we are doing today.

So, from our perspective, this is working, and still needs a tremendous amount of education, training, both at our own level and at the consumer level. That's the reason also we have increased in the last quarter and this quarter our direct mail, because the direct mail -- we are getting the message across why our everyday pricing makes sense to the consumer. It's a great education for our people and the consumers, and the direct-mail magazine is one of the best ways of getting that message across. We can't get that on television.

Well, I would think, too, that just the predictability that that provides, from a forecasting standpoint, whether it's labor, obviously margins with product not being on sale and even the bottleneck of having sales and having to push a lot of customers through at shortened periods of time -- I would that you would start to see that pretty quickly on the gross margin side, anyway, correct?

We are already seeing it. Our gross margins were higher, despite the fact that we still had to absorb these plants being consolidated and a fair amount of cost associated by inefficiencies due to new products getting through our plants. In fact, our plants are now through with their first cuttings. And those who are in the furniture business know that the first cutting, that really brings about a lot of inefficiencies (ph) in our manufacturing.

How are you measuring that, by the way? You mentioned that 3 million, six months and 1 million in the quarter. How are you measuring that, in terms of inefficiencies? Is that a capacity issue, or how do you guys measure that number?

Well, there are two numbers. One is, of course, the plants that we had consolidated. Their variances go over a period of time, and as our inventories are reduced, that's how that is absorbed. As far as our inefficiencies due to new products, that also, to a great degree, is absorbed through our inventories. And I think that we are now absorbing less of these inefficiencies, as reflected in our gross margins. And I think we still will be absorbing some in this next two quarters.

And we expect that by end of this fiscal year, it will be through, because you have got to remember this -- that the amount of products we have changed is dramatic for us. The last time we did this was in the early '90s, when we went from Early American/Colonial to what we had, and those products stayed at Ethan Allen at least 10 years. So most of the products we have introduced -- we are not going to change them. We're not going to have 70 percent changes again for some period of time. We're going to have some incremental changes in our products, and that has a major impact on our efficiencies, but the great news is that these new products are very, very important at retail.

Just on the inventory issue, down about 8 percent, how does that reconcile with the inefficiencies? I would think, whether it's stuff that you guys are making and/or the sourcing program, that inefficiencies would create a little bit extra inventory, not less.

Well, we have less plants. And those less plants have -- we have lots of work in process. We had lumberyards, we had logs and all that. All of that is an out. So you really have -- number one, you have taken out that inventory; and second is that everyday pricing is also making it, as you rightly said, predictable. We don't have to now project, which we had to project six months ahead what we're going to sell in these sales. And you know, anybody who manages inventory knows you're lucky to get 50 percent right.

Just lastly, on the divergence between retail sales and wholesale, about 5.5 percent both in the quarter and year to date -- what programs can you guys put into place, if any, to get the dealers -- I suspect that's just because the dealers are not having as much success as you guys are yet with the program. Are there incentives or marketing things that you guys can do to provide them with a little bit extra push in that?

Let me clarify that. Our wholesale numbers that we have given are delivered sales; they are not written sales. So there is not much of a difference between our written sales and wholesale sales, and our dealers are not doing to much differently than the Company. So I just want to make sure that we understand that our written sales from the last quarter, the only ones we are giving, are what we're writing in our company stores, because that's a very good indication. Our wholesale written sales we're not giving, because that's impacted by all these changes in the sale periods. So the written sales that we have, I think, also reflects what our dealers are doing.

But the retail division sales delivered increased 4 percent in the quarter, and wholesale was down 1.4. Those two are not reconciled to each other -- the delivered sales at retail against the wholesale?

Oh, the long-term, they are. But in the sort of -- from quarter to quarter, there could be some differences.

David Cohen, Midwood Capital.

One thing -- on the guidance, it was a little ambiguous, your comment very early on in the call. Are you likely to address that at some point prior to the next conference call, or is that not the case?

We will. I think that would make sense. In fact, we are speaking at one of the conferences, I think, in February. And before that, by that time, we would have a better indication, and we will update our guidance.

And secondly, maybe you could just help me sort of understand some of the dynamics going on in the marketplace. I know every one of your competitors has a different mix and all that. But looking at your sales and some of your other large competitors', versus the likes of Hooker Furniture, who just reported, who's entirely a wholesale business and a family furniture, both of whom have had very, very strong recent results -- I mean, sales up 15 and 18 percent, respectively. What sort of divergence, if any, is going on in the marketplace between the likes of those guys and you, with your very, very strong brand?

I really don't know their numbers and all that and what they are doing. But I think there has been a shift in the last two to three years in retailing, where some of the major manufacturers have decided to go and have sort of exclusive distribution, and in fact take away their products from retailers have given an opportunity to companies that you mentioned to fill in the gap. And I think they are taking that opportunity, and so I think that they have taken, to some degree, market share from manufacturers who have decided to go a different route. And they happened to be in the right place at the right time, and I think they are running good businesses. So long-term, of course, as this gap gets filled in, and then you're going to see the numbers, but I think they have benefited from this transition taking place in the industry.

And you think your sales have grown in line with the markets, and you are maintaining share, you are not losing share to these other players?

Absolutely, I don't think so. I think there is just a shift.

(OPERATOR INSTRUCTIONS). Alice Ruth.

Hello? I think -- well, at least, then (ph) she is not there, and I would think that just take one more question, and then we should end.

Matt Russman (ph), Clovis Capital.

I wanted to go back to the question earlier about the deposits. I know you said you didn't have the data to do a reconciliation in front of you, but just conceptually, what could explain the written orders going up 8 percent year over year and the deposits going down 5 percent year over year? Just from a conceptual standpoint, I would have thought they should move together. What could I be missing?

Two factors. One is that our delivered could be up because -- and the second is, which I'm going to look into, is whether we have taken somewhat of a smaller deposits than we did in the previous period. But those are the two reasons, but I am going to take a look at it. I'm not in the office; I'll have Jeff and Peg do the reconciliation on that.

Okay, and I can follow up with them. Thank you.

All right. Well, thank you very much. If there's any more questions, please let Peg Lupton know, and looking forward to talking to you again next quarter.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may disconnect your lines.