Ethan Allen Interiors Inc (ETD) 2008 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Ethan Allen second quarter earning's release conference call. If anyone should require assistance during the conference call, please press star and then zero on your touchtone phone. I would like to introduce your host for today's call, Mr. Farooq Kathwari, CEO of Ethan Allen. Sir, you may begin your conference now.

Yes, thank very much. I'm Farooq Kathwari, Chairman and CEO. And joining me are David Callen, our Vice President of Finance and Treasurer, and Peg Lupton, our director for investor relations. And almost very pleased that we have today about 100 of our senior interior design associates from across the country who are attending a special conference here at our Danbury headquarters. I'll give you a brief overview. David Callen will give details of the financials for the three and six months and I'll follow with the business update and then we'll open for questions. We expect to end the call at about 11:45 a.m.

We are pleased that despite difficult economic environment, we have been able to maintain an earnings per share of $0.70, the same as in the previous year quarter. The main drivers have been a positive sales growth, all due to increases in our retail division due to adding of 11 new design centers as compared to last year's quarter. An improvement in gross margins to 53.7% from 52% which resulted in an $0.11 positive impact on our earnings per share. We maintained a strong 12.9% operating margin. We were impacted by the larger expenses due to the addition of the 11 new design centers. This had an impact of $0.17 to our earnings. We are pleased with our ability to continue to repurchase our stock and as you know, our repurchase program is on a continuing basis. During the quarter we had a positive impact of $0.07 due to the repurchases.

Our other income was reduced due to lower interest income by utilizing funds for share purchases. This had an impact of $0.01. We ended with a cash balance of $86.3 million. Our inventories increased 1.4% and all due to our taking a larger position in upholstery fabrics and leathers and the latter is due to the fact of our acquiring a plant in Mexico. We are pleased that despite the additional expenses relating to the 11 new design centers, difficult economic environment, we had overall positive sales growth, a higher gross margin and a good operating earnings and a strong financial position. After David Callen gives more detailed financial information, I'll comment on the many initiatives we continue to take to position Ethan Allen as a provider of stylish, good quality, good value programs backed with interior design solutions. David?

Thanks, Farooq. Good morning. Please note that in the earnings release issued earlier today and in the course of our prepared remarks, reference has been made to certain non-GAAP information which excludes the effects of restructuring and impairment charges recorded during the quarter ended September 30, 2006 and credits recorded during the quarter ended December 31, 2006. Our reconciliation of this non-GAAP information to the most directly comparable GAAP measure is available on our website. Net sales in the second quarter increased .8% over the prior year quarter to $259.5 million. The company's retail division posted an increase in net sales of 8.6% to $192.6 million while comparable design center delivered sales were down 0.6%. Written sales in retail increased 1.6% while comparable written sales decreased 7% versus the prior year second quarter. Wholesale net delivered sales were $155.9 million in the quarter down 5.9% from last year's first second quarter. The quarterly gross margin was 53.7% as compared to 52% in the prior year period reflecting improved efficiencies in our manufacturing and retail operations and increased in the proportion of retail sales to our total net sales. We continued to benefit in the second quarter from less overhead from previously closed facilities and operational efficiencies in both the wholesale and retail divisions.

During the current period, consolidated operating margin was 12.9%. Wholesale and retail operating margins were 16.9% and 3.3% respectively. These operating margins were achieved while investing an additional $3.4 million in selling expenses. This increase was driven by increased advertising and higher commissions on the higher volume of retail sales. The total operating expenses also reflect an increase in general and administrative costs of $5 million primarily for the cost of occupying and running 11 additional company-owned design centers in the retail division when compared to last year at this time. Diluted earnings per share for the quarter were $0.70 on net income of $20.6 million. This compares to diluted EPS of $0.70 cents per share and net income of $22.8 million in the prior year comparable period. Our stock buyback program resulted in $3 million or 9.1% fewer weighted average shares outstanding during the quarter versus the second quarter last year. This benefited the remaining shareholders by $0.07 per diluted share this quarter.

For the six month period, net delivered sales were $508.2 million, an increase of 1.6% from the prior year comparable period. Net delivered sales for the company's retail division increased 9.3% to $375.3 million while comparable design centers delivered sales decreased .2%. Year-to-date written sales in retail increased 5.9% during the period while comparable written sales decreased 3.2%. Wholesale sales were $312.3 million down 2.8% from the prior year-to-date. The year-to-date consolidated gross margin was 53.7% as compared to 52% in the prior year period reflecting the improved efficiencies in our manufacturing and retail operations, as well as the proportional increase in retail sales relative to our total net sales year-to-date. During the six month period,consolidated operating margin was 12.1%. Wholesale and retail operating margins amounted to 17% and 1.9% respectively during the period.

Diluted earnings per share for the six month period amounted to $1.27 and net income of $38.1 million. This compares to diluted EPS of $0.96 per share and net income of $31.2 million in the prior year comparable period which included restructuring and impairment charges totaling $13.6 million related to the consolidations of two manufacturing facilities, one of which has been converted into a regional distribution center. Excluding the restructuring charge, diluted EPS amounted to $1.22 on net income of $39.8 million in the prior year period. Again, our stock buyback program benefited shareholders by $0.10 per diluted share by lowering the weighted shares outstanding year-to-date by 2.6 million shares or 7.9% compared to the prior year-to-date weighted average shares outstanding. Our financial position remains strong. During the six month period ended December 31, 2007, we generated cash of $47.4 million. We used $61.4 million of our available cash to repurchase 1.9 million shares of our common stock.

Also during the year, we used $30.3 million to fund capital expenditure, spent $6.7 million to acquire a cut and sew upholstery facility in Mexico and two design centers in the U.S. plus returned $12.8 million in cash to our shareholders through quarterly dividends. Inventories have increased 1.4% or $2.5 million during the year. We remain in a strong service position with respect to incoming ordering with 98% of our case goods items available for shipment within four weeks. EBITDA for the six-month period totaled $75.7 or 14.9% of sales as compared to $76.5 million and 15.3% respectively in the prior year-to-date period excluding the aforementioned restructuring and impairment charges. Overall, we're pleased with our operating results and financial standing in this challenging economic environment.

Thanks, David. Relating our business, our primary focus in our fiscal 2008 remains in the following initiatives. To further improve our vertically-integrated structure to provide interior design solutions, to further improve our offering and implement a strong and coordinated communications program. Some of the key initiatives include development of a strong interior design professional team at retail. We've continued our aggressive programs of recruitment and training. Since implementing the project management program about three years back, we have today about 400 project managers in place, most of them promoted from within. In addition, we have substantially strengthen the caliber of interior design professionals in our design centers. Migration to lifestyles presentation in our design centers, this has involved changing over 80% of our product programs during the last several years. We have improved style, quality, details, assortment and value. We project our programs in seven lifestyles. And quarter ending December 31, 2007, we introduced new products to support our various lifestyles particularly in villa, global and country house. The new products are being delivered to our design centers at this time.

During the quarter, we also introduced a major repositioning of our fabric and leather assortments. In addition, we introduced a major leather upholstery program which is not being shipped to our design centers as well. We have continued to strengthen our design centers. During the six months ending December 31st, we opened 7 new design centers in the U.S. and three overseas. The new locations - mostly relocations are larger design centers and in prominent locations, including Denver, Los Angeles, Cincinnati, Minneapolis, and New York area. We have also continued to make changes to our existing design centers in projecting the lifestyle presentations that we introduced in the last fiscal year. So far, there were 70 design centers which have implemented and about 40 are to start. Earlier this month, we announced the consolidation of 12 design centers which will help us operate more effectively. We're also until the process of converting four of these consolidated locations to our styles studio concept which involves operating about a 2500 square foot to 3,000 square foot interior design studios.

During the next six months, we plan to open 8 to 10 full-sized design centers in various metropolitan areas such as Denver, Philadelphia, Birmingham, Alabama, Richmond, Virginia, Sacramento, California, Clearwater, Florida, Sarasota, Florida and Austin, Texas. In addition, we're looking forward to the opening of our flagship design center in Manhattan this spring, on third Avenue and 16th street. At December 31, 2007, we have 305 design centers, 160 operated by the company and 145 are independent licensees. During the quarter, we maintained a strong advertising campaign consisting of national television, direct mail and other mediums with the objective being to maintain continued to our message and to expand our reach to more people. We're also making good progress in the development of our new website and expect to get on line by summer of this year. Our objectives are to develop a state-of-the-art website combining personal service of our interior design consultants with technology. As mentioned previously, our products will be available for order on our website and we plan to forward these orders to our design consultants so that our clients benefit from both the technology of the Internet and the personal, professional services of our design consultants.

On our operations side, we continue to make improvements improvements to our vertical advantage which evolves from concept of a design idea to a final delivery to a consumer's home at one best every day price. During the quarter, we purchased a facility in Mexico which will help the cut and sew operations of our upholstery manufacturing in the United States. We continue to produce about 60% of our products in our 9 U.S. manufacturing plants. We've also in placed 5 national distribution centers supporting the work of about 100 retail service centers which prepare and deliver our products to our clients. As David mentioned, we are in a good service position. And at this stage, we'll open for questions and comments. Now, operator, could you please open for questions and comments?

Thank you, sir. Ladies and gentlemen, if you have a question at this time time, please press the 1 key on your touchtone phone. If your question has been answered, please press the pound key. We have a question from Todd Schwartzman.

Hi Todd, good morning.

Good morning, Farooq. Just a quick one for you. With the increased focus on interior design service, you noted in a press release a couple of weeks ago that you do not feel a need - may be for as many design center locations in the major markets. With that in mind, how do you now think about determining the appropriate number of stores in a given top 20, top 30-type market.

Todd, we have today approximately 250 major design centers in North America - 250 plus. And I'm excluding the is 12 we just talked about consolidated. Our objective would be, at this stage we're looking at the opportunity of continuing with r- repositioning our design centers to the right locations. Because as you know, that has been our objective in the last 15 years - that 300 of the design centers, 60% have been relocated. And our objective would be to continue to reposition this year, next fiscal year and after that,we should have a major slowdown in new design centers relocations because we would have completed most of it which has implications on our capital expenditures two years from now. Now supporting these 250 or so, maybe 200, averaging to 150 or 275 major design centers, we are going to support them with smaller design studios and that's why I mentioned that the 4 of the 12 that we are going to be consolidating are being turned into -- initially the existing ones, but in the short, in the next few months, we'll be looking for a smaller space to be able to convert them to a design studio which will be operated by about two interior design professionals and with an assistant and we believe they'll be able to do most of the business that was being done by a full-sized store with operating expenses that are not -- the operating expenses are just too high to be profitable. So, design studio, we believe coupled with regional or major design centers is where we are going to go

So, the expectation would be that the design consultant would be out of the office, so to speak, as much as possible, making a house calls and doesn't need as much of a full-time space than the smaller designed studios.

Absolutely. And in fact, this is all part of our migrating to an interior design company. If we not migrated to that, we will be selling furniture as a commodity. We are selling the solution than service, and as I've said, we're pleased that we have about 100 of our professionals sitting here with me and nodding our heads, and that is really what our strategy is, that's going forward but we could not have done it without having creating a base of an interior design solutions based service.

Now, obviously, a lot of competitors are trying and have tried to emulate this business model. Is there anyone that you think, a competitor of yours that has made some strides in that respect?

Well, you know, this is a very fragmented industry and we have a lot of competition but they're really fragmented and there are many people who are regionally doing level but at the national level, I think it is still somewhat behind where we are. So, I would say that most of our competition in that area is some regional local people who are doing a good job.

Thank you, Farooq.

All right, Todd.

Our next question comes from Budd Bugatch.

Budd, good morning.

Good morning, Farooq. How are you.

You know, I have to use your last name.

Yeah, well, you have the same challenge, I'm afraid. So, we share a challenge.

No, my name is easier. Go ahead. [ Laughter ]

A couple of questions. One, I was struck by the minus 7% comp. Can you talk a little bit at the written level, can you talk a little bit about what you're seeing at retail and how that may have progressed over the quarter?

Well, keep in mind,our comp written is somewhat impacted by the fact of all of these relocations that we're doing because Budd, when we relocate a design center, we take it off our comp and consider it as a new design center so that our comp and our total business is not exactly what you might consider more of a normal basis where people really have new, new design centers. So, keep that in mind. That's number one. Number two is business decisions in the quarter have been somewhat difficult. We've also decided, as we've always done that we are not going to get more sales and give up margins. That's why our margins are higher. Because I always believe that profitability is as important as sales and as importantly, we have also to maintain our strategies of every day best price. So, we've had all of these factors, somewhat of a tougher economic environment. We have seen that throughout the quarter that people were concerned and people are still concerned, but again fortunately, we're getting our share of business.

And did you mention how that may have progressed over the quarter? Is it tougher today than it was at the beginning of the second quarter?

Well, December, I would say the month of December was somewhat tougher. January -- in the first one or two weeks of January, we did see traffic increasing, people coming back into our design centers and the last week with all of the news, especially in the financial market and Wall Street, and everything else, we get people concerned. So, we saw the people - while traffic has increased, people are somewhat concerned but I think this reduction of the discount rate, I think is extremely important. I think it is -- and you can already see that somewhat positive impact on world markets, domestic markets are important because today ,our customers are looking at their wealth and if their wealth goes down they get concerned. So, i think all those sectors, we have to take into consideration.

If I did some quick math, you know, the numbers that David had said in the release went over. The $8.4 million of increase in G&A and sewing expense, s that almost all retail related?

It is almost all retail located. We had some slight increase also in our wholesale business and mostly related overall to our advertising expenses. Our advertising expenses for the six-month period have increased about 14%, this six months compared to the last six months. That includes a total advertising between the retail division and about the corporate expense.

Well, if I did my math right or anywhere near right, it looks like that the retail margin on the comparable store base actually improved maybe something like 70 basis points year-over-year ,so that's around 4% on the same number from last year excluding the -- pardon my phone -- excluding the 11 new stores.

I don't know, Budd. I think -- I'm happy you're doing all of that stuff, but I don't have that information here.

Okay. My last question, Farooq, just on the restructuring charges for the third and fourth quarter, can you give us a feeling of how that would separate quarter by quarter, is that 60 or 40%?

I mean, it's a little bit too early, but I think at this stage, because we don't know where it will end up, but I think for purposes of just at least giving some indication, if you do half and half, that will at least give you some indication.

Will all of the stores be closed by the end of the third quarter or will you have to go into the fourth quarter to close those 12?

No. Some of those will be done-- the ones in New York, that will be consolidated in our fourth quarter. Most of them will be consolidated in this coming quarter, maybe one or two will go in to the fourth quarter.

That's very helpful. Congratulations on your performance in what really is a challenging environment.

Thank you, Budd.

The next question is from John Baugh.

Good morning, John.

Good morning. I want to focus back on the advertising because of it is certainly retail focused, but is your advertising on a wholesale basis or stripping out the retail off, as well, and sort of, what is your strategy going forward there?

You know, John, as today, we have a strong retail presence in the retail division. Some of the money that we used to spend, which will be considered retail advertising has really become national advertising because today we have the ability to spend more money on national programs like direct mail and national televisions. So, I think more and more, we look upon our total advertising between retail and corporate as one advertising program and when you combine the two together, it's up 14%, part of it is up due to the fact we have 11 new design centers that were added and also it is due to the fact that we did increase some direct mail during this past six months compared to the six months in the prior year.

So, it is up sort of wholesale or stripping out, just retail you are slightly up?

14% up.

Okay. And then ,your inventory position looks quite good. You mentioned that in case, because you're shipping 98% and yet I guess, the inference would be your case goods inventories are flat or down. Do I have that right and how have you been able to do that, basically?

Well, you know everyday best price has been a very important part of our strategies in terms of maintaining good inventories, good service and also of course, improving our credibility on the retail side. Because as you know, most of the time inventory increases because of the fact you have to forecast six to nine months in advance. We used to that and however good you are, you are about 30 to 40% wrong. And today, because of our overall structural changes, we're able to focus better. And secondly, we have also, through continuous programs of making sure that we have the right number SKUs. We've taken out the SKUs that do not turn and we added options and samples. And also the fact to this that we still maintained 60% of our manufacturing in the United States. So that also benefits our in inventory position in the United States.

Okay. And last question on credit. Is the percentage of tickets written, is it going up or down, what is that and has your third party credit provider changed credit terms at all?

Our credit terms were actually improved in the last six months. We introduced a very favorable credit program of offering options to our clients, of offering them one year, two, year, three year and five year term payment , and from time to time, we offer them same as cash financing. Our terms have more or less stayed the same, and from what we hear from our third party provider, as you know, it's on a nonrecourse basis to us and our retail network that they'venot had from our customer base any

And what are you running there, the percentage of your tickets roughly?

I don't think John, we give that information.

Okay. All right. Thank you. Congratulations.

Thanks, John.

Our next question comes from Laura Champine.

Good morning, Laura.

Good morning. Farooq, I read a quote from an interview with you after the January 10th earnings warning that said you were surprised the analysts were projecting growth for 2008 earnings. Was that quote right and does that imply that you did expect earnings to be down in 2008?

If I recall, what I was referring to the fact was that, I think we should be pleased with the fact that analysts were expecting us to do much, much better than last year at the same time talking of recession and talking about the fact that our industry is down in the dumps. Yet for us they were saying that we're going to do much better than last year, I think including yourself. So, that was my quote. They have to be realistic.

I'm sorry, Farooq, I'm still having trouble interpreting that. So does that mean we should not be expecting for results to be much better than last year?

No, I was referring to what was being expected of this quarter. And at this quarter, I think some of the analysts were expecting us to do much -- somewhat higher than last year and my comment was that they need to be realistic as we go forward. I think you have to do your own estimates because we're not giving any estimates.

Okay. And then lastly on the inventory side, the inventory is up 3% when sales were up a little less than 1% year-over-year, should we continue to expect that in order to deliver in a more timely way that your inventory should grow faster than sales?

I think if you refer to our inventory growth of 1.4%, that's -- I think that's what David just said. And I think that our object has always been that we've been very fortunate in maintaining very strong control of our inventories and we'll continue to do that.

Okay. Thank you.

Our next question comes from [Edmund Deforest].

Good morning.

Hello, Farooq. I wanted to get your thoughts on balancing the priorities of operating cash flow in terms of you know Capex and share repurchases. It seems like in the past, you were kind of willing to allocate the cash on different places depending on what you thought would give us a better return. Can you update us on how you're thinking about that at this time?

You know, we -- in the last couple of years, we've generated over $100 million of operating cash. We've also, as you know, two years back, took a $200 million senior note. And as I stated, we've ended up with about $86 million of cash in our balance sheet. And while spending both in capital expenditure and fairly substantial stock repurchase in the last six months. We are looking at -- we have to take a look at a lot of factors. We also want to make sure we do not overdo in any of those things, that we do not go overboard in capital expenditures, we do not go overboard in stock repurchases and we do also maintain a decent cash position. So, because while we're doing well, we also have to keep in mind it's better for us to have a reasonably strong financial position. So what you see right now, I think will continue at this stage on a plan basis to invest in our capital expenditures, to continue to repurchase stocks if it does not make sense but I also did mention a couple of years from now, we expect our capital expenditures to come down.

All right. So I guess in terms of priority, is the design center models are those higher priority right now than share repurchases.

Absolutely. Our first priority is to make sure that we strengthen our business and that's where we've invested our money. Most of our capital expenditures has been to invest in real estate so that we have a control of our real estate and control of our occupancy expenses. We would not be doing as well in our operating margins and cash flow if we had not in the last five or six years invested as much as we have in capital expenditures and owning our own real estate and we'll continue to do that.

All right, in the 10-Q, we talked about the upholstery facility that we bought from American leather. Can you kind of talk about what that acquisition means from a strategic standpoint and does that involve any restructuring of the -- I guess U.S. upholstery in intermediate or long term even?

That operation in Mexico produced about 80% of the production was making cut and sew leather for us. They were our primary supplier. And as we go forward - now, what was also done is, when we purchased it, we ended up also purchasing that leather inventory so that's why our total inventory went up only 1.4%. It also reflected the fact that we purchased the inventory of leather and work-in-process in that plant. This is an important initiative to us because we believe very strongly that we must diversify our sourcing. We must have sourcing in the United States. We must also support our United States plants wherever it makes sense in bringing in products which are able to help us maintain a competitive price advantage. Now, we looked upon many different countries in this cut and sew operation. We looked at Southeast Asia. We look at the fact that we should we go there and rather than keep it in the United States. Mexico gives us an opportunity. It's a great -- great people. They're very hard-working. I was extremely impressed when I went there. It was -- it's somewhat in central Mexico, not in the border towns and also in about three or four days, all of the work comes to our plant in the United States. And strategically, cut and sew people in the United States are hard to get. While in Mexico, we have a fair amount of people who want to do that. So strategically, it's a very important of maintaining our upholstery manufacturing in the United States.

And my last couple of questions, can you kind of update us on the cost side in terms of what we're seeing with foam and upholstery costs?

Our costs are sort of a mixed bag. Our raw materials relating to lumber and logs, as you know ,we operate two sawmills up in the northeast, those price have come down. The negative side as you go forward is as prices have come down, less folks are logging. So, we are very deeply involved in our sales. We're on sort of logging people and foresters, so from that point we have benefited from the reduction of pricing the logs and lumber. We've also seen a reduction of foam prices, yet somewhat of what we have seen, some concerns in the last month or two is a change back into increases in petroleum-based products. We're seeing the price increases going back up, and so that's our concern. And certainly of course, our energy costs are a a major factor. I think David, last quarter we were up 7%? We had a 7% increase in our energy costs.

All right. That's it for me. Thanks Farooq.

Thank you.

Again, ladies and gentlemen if you have a question at this time, please press the one key our next question comes from [Edwin Slough].

Good morning.

Good morning. How are you.

Good. Thank you very much.

I wanted to congratulate you. I've really think that with this very difficult environment, you've done extraordinarily well. I think, you've differentiated yourself from the entire furniture industry by your intelligent approach to interior design. It's very impressive. I want to discuss the different divisions. Do you find that there are certain divisions that you find that you're going to be beef up more or are they going to all -- I'm curious to to know if you find the Metro line is selling particularly well or if you find that you're going to change a little bit of the product mix, over the next year?

Good question. Merchandising question. We have been very -- the focus of developing our product lines into the seven lifestyles...

Right.

And you're referring to those lifestyles, it is a very important part of our initiative because these lifestyles have helped us reach a larger consumer base. It has helped us provide the eclectic design that today more and more people need. It has also going to help us our design centers looking good, manage our inventories, all those things. Now, your question about the fact that where we are headed. We made a lot of changes in the last few years. The Metro is somewhat new. It's more of an urban modern. I think, getting there. It is obviously -- the United States is still a country where people still have traditional and country tastes. And that's where most of our business still is. But certainly modern is coming along. So from that perspective, I think Metro is very important and as we go forward, we'll also strengthen our loft, which will also give somewhat of a modern and a casual perspective, very stylish product programs. Those are the things we're thinking about.

I think it's very smart because I think if you can encourage younger people to purchase and know the value of the Ethan Allen name, over time when the family formation takes place, you'll find that maybe they will end up deciding to expand and go for maybe more of a classic kind of colonial look possibly or possibly some of the other -- encourage them to seek out new alternatives.

Absolutely. And especially now, this summer when our website is there, which is going to be state-of-the-art website with great digital photography and graphics and I think that is going to reach a tremendous amount of younger people and I think it's extremely important for us to do.

And also one of the thing, another thing. I think you should beef up the advertising for your New York flagship's store because I think New York being -- carrying such visibility, I think it's important to have a major presence in the New York area.

It will be. And of course, as you know, this new one we are -- if you walk by 3rd and 60th, you will see that the banners are there. And by, I think, April and May when it will be over. It's right adjacent to Bloomingdales.

Wonderful location. Anyway. Very impressed with all you've accomplished and your fine company.

Thank you very much.

Our next question comes from Joel Harvard.

Good morning, Joel.

Good morning Farooq. I wish I had the taste to ask a product question but I'll just ask about stores. The base of dealer - independent dealer acquisition over the past few years has been been pretty strong. I want to say, I recall, its something over a third of what was the independent base call it five years ago has been absorbed. Given market conditions, do you think the opportunity is likely - did that phase increases over the next call it 12, 18 months or are you sort of naturally where you think that's topped out?

No, our objective is to have a strong company operated retail division and also supported by a strong independent licensees. And the good news, frankly, is that time have been somewhat tough in the last few years, especially for those who have not been, for lots of reasons, been able to invest in the businesses, relocate the design centers and also did not have succession plans.

Right.

All of those are the ones we took over. And we have today a very strong core of independent retailers, and of course challenge. These are challenging times and you know we are fortunate that having challenging times, even though once in a while, we have felt that financial issues but look at our account receivables, $11 or $12 million every -- which means they pay us in time. So for financial position, despite the fact that economy is tough, markets are in a difficult situation, our independence are investing, yet I think you'll see in the next few years, I would say on somewhat more limited basis, some of our independent retailers will retire, we'll take those offer, or at least consider taking those over. And there are some in some small markets. It's possible that we do not take them away as we have consolidated these smaller design centers, i mean, these smaller markets from design centers and design studios, we may end up converting those bigger stores to smaller design studios as we move forward.

That's a good overview. And I realized that you all have been opportunistic and there have been a number of different scenarios that have played out as these independents have become available. Specifically, what I was getting at, do you see the next, you know, call it the year plus or minus, given what I think we're all expecting, consumer durables to look like, from a demand standpoint, do you think the pace has the potential to pick up a little bit here again? I know you just crossed over the 50% line with corporate ownership. Could you see that getting at 60 at some point in the next year or two?

I think in the last quarter we acquired only two. So just keep in mind, it was a -- this is a tough times and only two. And that is -- and also that was done because of folks retiring.

Okay. That's insightful. Thanks for the help.

Okay.

Again, ladies and gentlemen, if you have a question at this time, please press the one key. Our next question comes from Charles Weissman.

Charlie, good morning.

Good morning. Nice quarter. I may have misheard earlier in the call but did you talk about - did you actually put a number like the cost on these relocations, the 11 design center relocations? Like a per share cost that I may have misheard?

No, we did not give -- what we did was we talked about the expenditures relating to the opening of the 11 new design centers and the expenses relating to that and we give that number, which was what?

The total is $5 million -- the total EPS was 11.

$0.11. Yeah, Charlie, the impact of the additional expenses due to $0.11...

And the nature of those expenses it's like preopening costs and rent. What exactly are those?

No, actually, Charlie, with your question, we have not given that information. You're talking about, that is the costs we incurred when we opened up a relocated design center which is substantial. Those we have not given and those, of course, we have absolved all along. And as I was saying, that I think in the next year or so, we're going to be substantially reducing that.

Okay. Maybe could you just provide sort of a quick road map of how you think the capital expenditure -- and how many design centers -- could you talk about after a couple of years that Capex significantly rolling off? I was hoping maybe you could just provide somewhat of a road map, in terms of how that will happen over the next call it two to three years or so?

Charlie, again, it's too early. But just so you can keep that in back of your mind, we're going to spend approximately $70 million this fiscal year. We might end up spending between $50 or so million dollars next year and then the year after that, I think it will come down substantially.

That's helpful. Thank you. And nice job, again.

Thank you, Charlie.

I'm showing no further questions at this time, sir.

Thank you very much. And if you have any questions and comments, please get in touch with Peg Lupton. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concluding our conference for today. You may disconnect and have a wonderful day.