Ethan Allen Interiors Inc (ETD) 2009 Q1 法說會逐字稿

Welcome to the Ethan Allen earnings release. At this time, all participants are if a listen only mode. Later, we will conduct a question and answer session. (OPERATOR INSTRUCTIONS) At this time, I would like to introduce your host, Mr. Farooq Kathwari. Sir, you may begin.

Yes, good morning. I'm Farooq Kathwari Chairman and CEO of Ethan Allen, and also joining me today is Dave Callen, our Vice President of Finance.. These extraordinary times have challenged us to remain extremely proactive in managing our costs on one hand, and also maintaining the morale and forward momentum for our enterprise. While our sales declined 17%, we maintained higher growth margins, reduced our expenses and most importantly, focused on maintaining strong liquidity position. We also continued to strengthen many aspects of our enterprise which positions us very well for growth in sales and profitability. I will discuss in greater detail after David Callen gives an overview of our financial results. Dave?

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 effect of restructuring and impairment charges recorded during the quarter ended September 30, 2008. Our reconciliation of this non-GAAP information for the most directly comparable GAAP measure is available on our website.

Net sales for the quarter were $205.8 million compared to $248.7 million in the first quarter last year. The retail division's net sales were $155.9 million versus $182.8 million last year. With comparable design center delivered sales 19% lower than in the prior year quarter. Written sales in retail decreased 24.3% and comparable written sales decreased 27.7% versus the prior year quarter. Wholesale, net delivered sales were $121.3 million in the quarter compared to $156.3 million last year in the first quarter. Consolidated gross margins for the quarter continued to improve to 54.4% as compared to 53.7% in the prior year period reflecting improved margin in our retail segment and the increase in the proportion of retail sales to our total sales. Gross profits in the quarter was $111.9 million. Consolidated operating margins was 5.9% for the quarter or 5.1% excluding the $1.6 million of restructuring income in the quarter. This restructuring income resulted from a gain in the sale of a property included in retail restructuring actions that began in January, 2008 and was partially offset with other charges as actions came to their planned conclusions during the quarter. We expect the other properties held for sale to be sold in the next 12 months with gains or losses to be also recorded in the restructuring line of the income statement.

Wholesale operating margins were 10.1% and retail operating margin was minus 3.3%, excluding the restructuring charge. During the quarter, in addition to the restructuring impact, there was an incremental charge to the results of $4.6 million or 10% per diluted share related to the change in the compensation structure of our designs. Even with these costs, consolidated selling expenses decreased $2.3 million. General and administrative costs decreased $2 million over the prior year quarter. Interest and other income decreased $1.8 million from the prior year due primarily to lower interest income, lower average invested balances and lower interest rates. Plus, the prior year included gains totaling $800,000,or $0.02 per diluted share associated with the sale of certain real estate assets. Other factors which is positively impacted results for the period include one time tax benefits of $800,000, or $0.03 per diluted share in the quarter, a lower effective tax rate of 36.4% and the effects of a share repurchases and retirements occurring during the last 12 months which served to reduce the weighted share count by 5.3%, or 1.6 million shares.

Diluted earnings per share for the quarter were $0.26 on that income of $7.4 million. Excluding the impact of restructuring, but including the one time item, diluted earnings per share were $0.22 on net income of $6.4 million. This compares to diluted EPS of $0.57 per share and net income of $17.5 million in the prior year quarter. During the three months ended September 30, 2008, we generated operating cash of $18.1 million and ended the quarter with $79. 9 million of cash and cash equivalents. During the quarter, we spent $11.1 million on fixed assets, primarily in the retail segment but also realized $5.7 million in cash on the sale of a site mentioned earlier. We did not repurchase any of our common stock in the quarter, but did pay $6.3 million in dividends to our shareholders. Our accounts receivable are in good shape with 96% of our dealer receivables current. Inventories hedged up 0.7%, $1.2 million during the quarter in preparation for our new product launch of the Artisan collection. We remain in a strong position with respect to incoming orders with over 90% of our case goods items available for shipment within 30 days, and over 85% of our customer upholstery.

EBITDA for the quarter, excluding restructuring and impairment charges, totaled $17.6 million, or 8.6% sales as compared to $35.1 million and 14.1% of sales in the first quarter of laster year. Given the challenging economic times, we spent some time this quarter to insure that our nearly $80 million in cash and equivalents are held in diversified and appropriately protected money market funds or other highly liquid holdings. We also took the opportunity to review our existing $200 million revolving line of credit set up in July of 2005 which expires in July of 2010. This line has not been used other than for letters of credit that total $12.5 million at the end of the quarter. We are working with our lending group to insure that the facility we have in place is structured the right way and right size to support the business at a minimal cost. We are happy to have the backing of stable and well-positioned lenders in our banking group, and we continue to be confident in liquidity and capitalization of the company and pleased with our operating results and financial standing in this challenging economic environment. Now, back to Farooq for his closing comments.

Thanks, Dave. Our ability to maintain profitability and increase our cash position under very adverse conditions is due to many initiatives undertaken in the recent past. These initiatives include absorbing costs associated with almost a complete redesign of our product lines to reflect better style, quality and value, and also absorbing the costs of projecting them in our design centers in life- style presentations during the last fiscal year. The implementation of the team concept in our retail division was a major undertaking. It changed the paradigms of how we interact with our clients and has created a stronger professional team structure in our retail division. This initiative, while strengthening the structure, also reduced our annual costs as fewer associates were needed under this new structure. We will reduce annual -- we expect to reduce annual costs of about $15 million. A proportional amount was also saved in our first quarter.

As Dave mentioned, during our first quarter, we expensed $4.6 million of prepaid commissions on our balance sheet and will expense an additional $2.5 million in the second quarter. During our first quarter, we acquired two design centers, in Fargo,North Dakota, and Warwick, Rhode Island from retiring dealers. We did not open any new design centers during the quarter. The restructuring of our national distribution centers and the consolidation of 18 retail service centers was also completed last fiscal year, resulting in a more efficient operation and also reduction of costs. The reduction of costs gave us the ability to absorb almost all of the doubling of fuel costs. As you know, we delivered our products at one every day best price to our customers nationally. We are continuing to maintain a very strong presence in national television advertising. Our message of the new modern attitude is being heard. As we are able to better utilize the synergies of our national advertising programs and the money spent on advertising in our retail division, we were able to increase our national television advertising in the first quarter by about 32% compared to the same quarter last year. While our overall advertising was reduced by $2.7 million. We were able to divert our -- some of the funds from print and direct mail to national television advertising.

As Dave mentioned, increasing our liquidity is an important objective. We increase our cash by $5.5 million to a balance of about $18 million on 9-30-08. During the last three years, just in the last three years alone, we have invested $161 million of capital expenditures, mostly spent on acquiring real estate for our regional operations and also renovating existing retail locations. This initiative was also mostly completed last fiscal year and in the first quarter of this fiscal year in which we spent $11.1 million on capital expenditures, again mostly on the development of the retail network and some on the development of our new website. Last year, our capital expenditures amounted to $60 million and this fiscal year, our plans at this stage are to spend somewhat less than $30 million. During the last two years, we have invested, developed a state of the art website. We expect to launch it by end of next month. This new website will open almost all of our products to be sold online and connect customers to our design consultants so that the benefits of combining technology with the personal service of our design associates and the logistics service of our retail network is taken as an advantage.

Last week at our retail conference, we introduced new products in all categories, case goods, upholsteries and (inaudible). These new products were well received and the focus was to inject modern attitude to our lifestyles. The characteristics of the new wood products are that they are made of American woods, mostly utilizing the the two saw mills that we operate and are manufactured in the US plants and most importantly, we have now developed the technology to utilize water based finishes, providing ecofriendly finishing to our product lines. These products will be introduced to the consumers in January 2009. During the period, credit has almost dried up for consumers. We have been able to offer a very attractive 4.99% APR, four year term loan to our customers on a non-recourse basis to us or to our retailers. This program has been effective from September 24 and will end on November 24. Now, our focus in the near term remains to keep our associates moderated and focused on areas we control. Providing great service is essential.

Our business trends more or less continue to be what we saw in the last quarter. So it's very critical for us to make sure that we manage our costs provide great service and maintain liquidity and also remain profitable. We have plans to play in place to monitor our expenses and inventories and on planned bases, and as I mentioned earlier, substantially reduce our capital expenditures. We are not repurchasing any of our stock and will hold that off until the environment is better. We will, however, maintain a strong national television presence so that our brand remains in front of the consumers. In January, 2009, we will introduce our new products to the consumers through a coordinated national television advertising program. Also in January, we will take the soft launch of our new website in November to a stronger advertising presence from January. With that brief overview, you would like to now open it up for any questions or comments, please.

(OPERATOR INSTRUCTIONS) First question is from Budd Bugatch, your line is open.

Good morning, Farooq, good morning, David.

Good morning, Budd.

I think you said the negative that the written comp store sales, David, were down 27. 7% in the quarter if I heard that right.

That's correct.

Can we get any way to characterize that as it develops to the quarter, and as we all have unfortunately found out is that the first couple of weeks of October have been even more difficult at least for many. Can you kind of give us a flavor of where that sits?

Also, the business is still very soft, Budd, however, just keep in mind that when you take a look at our comp, they do reflect the fact that these are all renovations of existing design centers. These are not new design centers, mostly. So we do, as you know, when we renovate a design center, relocate a design center, we consider it almost like a new, so you also have to take a look at our comp and you have to look at the actual, for the whole network, so keep that in mind. The actual for the whole network is, in our case, somewhat more closer to the comps although we have to report the way we report. But having said this, October is still early, but our business as I said, as I indicated, we are somewhat running, as far as part of the total business is compared, close to what we saw last quarter.

And so then if I heard you right, Farooq, then the comps -- the comparable store sales as a percentage of the total company owned network today is what percentage? You've taken the renovations out of --

All right, I was -- I don't know. I would say the comp represents approximately 85%.

Okay. Can you -- you are to be congratulated on the new store in New York, which is lovely and beautiful. Can you give us a feel of what New York represents as a percentage of the system? This is unfortunately going through probably pretty tough times right now, or will go through for many of your customers.

Are you talking about New Manhattan? The New Manhattan design center -- actually Manhattan representative about 2.5% of our total retail.

Got you. And finally, on the inventory, you indicated that the inventory was up because of the new Artisan collection, and I think will be shipped in the next couple of weeks. Can we get a quantification of what that might have been?

Our -- Dave, our case closed in (inaudible) by about what, $3 million? Approximately? About $3 million was increased involved in inventories, and some also, as you know, we also have some of these -- we also had some work in process, approximately $3 million represented increase in case goods inventory between raw materials and work in process.

All right. Thank you, Farooq. Good luck on this upcoming quarter and the upcoming year.

Thanks, Budd.

Our next question comes from Matthew Fassler, your line is open

Hi, Matt, good morning.

Good morning. It's actually Robert Higginbotham in for Matt. A couple of questions. Number one, on the expenses, you guys talked to a higher number of cost savings than you have in the past. I was wondering if you could help us with where that extra source of cost savings are coming from?

All the cost savings are across our whole network. We mentioned the fact that on an annual basis, about $15 million was saved due to the restructuring of our retail last year. And we got the benefit of that, but also, keep in mind that this past quarter, we had $4.6 million we expensed and went into our expenses, which really was an one time charge of writing off the prepaid commissions, non-cash, so keep that in mind. That also was an extraordinary cost just one quarter, and we have what, I think $2.5 million for next quarter too, but also non-cash. If you exclude those, you can see that our cost reductions were fairly substantial and it represented both the retail as well as our wholesale, mostly in the distribution end of the business.

Sure. So just to be clear, when you talk to the $15 million of cost reductions, year-over-year, are you including or excluding that one time accrual? This quarter?

Look, $15 million excludes that -- that $4.6 million.

Okay. Fair enough. And one last question. When you look at your retail division profitability, clearly, sales are down. It would be amazing if you were producing a profit in that segment. Can you give us a sense of what kind of volumes you would need to, in that segment, to have a positive operating profit?

Well, keep in mind that in this 3.3% negative operating margin that Dave talked about, also included expensing of the $4.6 million.

Sure. But even so, a modest decline.

That's a very modest decline considering the fact that we had a substantial decline in our deliveries, yet, we were able to have a very modest decline in our earnings, and that is the positive steps we took in the last year. In consolidating, we took up I think 12 design centers last year. We took out regional service centers, we had close to 500 less people. All of those have helped us take a (inaudible). And what we did last quarter was pretty close to break even. Made the decline in sales.

Great. One last question. Could you help us with -- help us characterize the promotional environment and how it might have changed throughout the quarter, because presumably, trends weakened substantially.

Well, as you know, we sell our products at every day best price, so our promotions really, we do not reduce our prices. We did offer a 4.99% financing to clients, which of course, our retail network had to subsidize to some degree, but on the other hand, we do that every year, so it was nothing unusual. So from our perspective, we actually increased our gross margins at retail in this last quarter. So we've been able to maintain our credibility, our stability. Yes, it's possible that we would have gotten more sale if we had done more promotions, but the chances are we would have loss a lot of margin, too.

Sure, sure. It was more a question of what you thought -- I understand your strategies, but wondering what you've seen out of the guys across the street.

Across the street is crazy. People are going out of business. People are selling products at a price and almost no bottom, so obviously, we are impacted by those kinds of things, so you have a very major thinning out of the retail taking place. There is a lot of promotion going on, but this really -- the consumer very, as we all know, consumer is concerned, they are very, very, and you really have to have a great, great offering, great service to induce people today to buy. And let's face it, when people talk about the fact that business is down and if over 80% of the people are still buying, we just have to be careful, and I'm talking, I've given some interviews, too. Yes, being down 20%, 15% or 20% is major, but let's not forget that 85% of the people are still buying.

Great, thank you.

All right.

Our next question comes from [Todd Schwartzman]. Your line is open.

Hi, Todd. Good morning.

Hi, good morning Farooq. Your gross margin was up 70 bips year-over-year. How much of that was due to the better retail performance in the retail, improved retail mix?

Most of our gross -- actually, our gross margins improved at retail by about 100 basis points. It went down somewhat on our wholesale side and then some improvement was due to the slightly greater mix of retail to wholesale, but we did increase at the retail level about 100 basis points.

I just -- I want to get clear on the shift in compensation structure. I guess first question is, how are you differentiating, or are you making a distinction between design associates and design consultants?

No. They are all the same. I use the word, I know I mix -- I use the word interchangeably. Design associates, design consultants are the same. They are basic interior designers, they are all part of a team. A team is compensated on a salary and then also a bonus. That is a team bonus, but shared based upon the relative experience and relative interest of each of the designers in that team.

So from here on out, commissions will play what role? Nil?

Well, what we are doing is this. We are not giving -- there is no role in commissions. What we are doing is we are giving base salary and then we are giving a bonus, and the bonus is based on their writing business over a certain base amount. And that bonus amount is then shared within the team based on -- it's like a partnership. Based on the percentage partnership interest of each designer in the team.

Will you be capping that bonus as a percentage of base? No, there's no cap. Okay.

No cap. Let us say that somebody had -- let's say that there's, somebody has a salary of $60,000. There are two people in a team, another has a salary of $40,000. And base objective is to write, let's say a million dollars. If they write anything in excess of a million dollars, say, $200,000 more, they get 9% of that as a bonus, shared, 60% by the first, 40% by the second.

Okay. So was the $4.6 million comp overlap built into your $0.20 to $0.26 guidance for the quarter?

No, it was not. I think that we -- I should have mentioned it, but we realize this somewhat a little bit later that was on our balance sheet and had to be written off.

Got it. Lastly, have you seen anything - - a while back, a few months back, you shifted your plans for new designs center openings for growth from the US to overseas. Have you seen anything more recently in the domestic real estate realm that makes you rethink this strategy?

I'm sorry, are you talking about manufacturing in the United States?

No, I'm talking about store growth.

As you know, we had -- as we had mentioned in the past, our objective was to create a base number of design centers, larger design centers supplemented with smaller design studios. Now, we have approximately, I think 275 or so design centers in the United States. Mostly large sized in major cities. We in fact, as you know, closed a few ones that were larger ones in smaller cities, and in fact last, about two weeks back, we opened our -- about a 1,800 square foot design studio in Long Meadow, Massachusetts. That's near Springfield. We also opened a 3,000 square foot -- reopened, it actually had been closed in Hamptons of Watermill in New York. And there we are looking to use these studios as a supplement to a major design center, so at this stage, our thinking is -- remains the same. That there is a limited number of large design centers, but we are going to experiment with a large, smaller design studios which would then compliment these larger design centers, and that's a plan we're going to do, and as I said, fortunately, we had completed most of these relocation renovations last year, so our capital expenditures are going to be substantially reduced because of that.

Did I hear you say earlier that the expectation now is to spend less than $30 million?

That's right.

Okay. That's for full year '09?

That's right.

Okay, thank you.

Yes, Todd.

Our next question comes from John Baugh. Your line is open.

John, good morning.

Good morning Farooq, David. My question is sort of following up on the CapEx guidance. Is there any assumption in there of having to acquire any dealers in fiscal '09? I know you mentioned that most of them are current, and I know they are reasonably well run businesses, but this is a tough downturn and it could last a while, and I'm just curious whether you think you're going to need to acquire several of those this coming 12 months.

Fortunately, your dealer network is in a relatively better shape, and also hurting. These are tough times. However, we do not see any -- at this stage, I do not see any major acquisitions of retiring retailers or retailers wanting to sell the business. It's possible a few might, might be acquired by us, but that will be covered within the $30 million, John.

Great. Thank you. Do you have any insights on the -- it may be too new, but for the 4.99 program. What approval rate, and is it GE that's doing your credit? Do you have any insights? And refresh us on again how many customers are using financing currently and sort of what the rejection or approval changes have been.

It's a little bit early, however, number of factors. First is the fact that we are very, very pleased that GE has continued to offer this and renewed it about two weeks back, after 1124 at a time when most people have been worried about providing more credit. We have's not seen any significant reduction in their credit approvals, but although I do understand there is some tightening of it and I think that's also normal. On on the other hand, where it is more significant is the fact that even with this great financing, people are concerned of taking it because all of what's happening in the marketplace, what they read about day in and day out. So from that point of view, the consumers are not utilizing it as much as we would like to. We do use -- our credit card about 30% of the total finance, or represents about 30% of total sales, John --

Okay.

-- which includes all various financing offerings that we make.

And so interestingly, you haven't really in the last month or so seen an appreciable change in that percentage, 30%, using financing?

No, we have not seen that. (inaudible)

And would you be willing to say in these renegotiations in the last couple of weeks that GE asked for a little something more or it's the same program?

No, they did not ask for more, but it took more time for them to make the decision and rightly so. I think we have got a great relationship with them, and I am -- we were very, very pleased that they are -- that they have been able to make this offering at the same terms as we had before.

Great, thank you.

Thank you.

Our next question comes from Joe Vard. Your line is open.

Good morning, everybody.

Hi, good morning.

That's Joel Havard, by the way Farooq, in case there was some confusion. The asset gains that we had originally been looking for for the year were in the neighborhood of $4.5 million. We'd kind of lumped that into Q4 anticipating you would get it in dribs and drab over the year. Is the $4.5 million still appropriate, and do you still see that at an unpredictable time?

Is this in addition to what we already got?

No, that would include the 1.6.

Yes, you're talking 1 point -- are you looking from a cash point of view, or are you looking from the earnings point of view?

From a gross sale price standpoint, so that was pretax, $4.5 million.

All right, pretax. We were very fortunate that first one we sold, we sold it for cash of $6 million.

Okay.

So we beat the whole year's budget in the first quarter. Although we had -- but in terms of the -- we added carrying costs to it, we had some other restructuring that we took and it ended up with a gain of what? A million?

$1.6 million.

$1.6 million is the gain.

Okay, the --

We have some more properties for sale, we've got some in contract, people are somewhat cautious. One or two folks backed off.

That was the gist of it, is how much of the total number -- what was the number of properties, and was this one location or multiple?

This is one location. We still have more. That's good news, and the chances are that we will end up selling another $4 million, $5 million in cash, at least.

Okay, all right. Second question. On the gross margin side, I can recall in conversations with you in the past, every time you would hit a new sort of threshold, when you got to 48%, then 49%, then 50%, then 51%, analysts always ask, what can you do next? You would say gosh, isn't that enough? This is really -- the 54- 4 is very impressive in this environment. I'm not going to ask you to set the bogey yet higher, I would ask if you think that range is sustainable in, particularly, given this may be sort of a trough seasonal view with a little macro influence on top of that and if it's sustainable, is this starting to get any benefit out of Mexico yet? Or is this pretty much just pricing at the stores? How would you characterize that?

Joel, you're right, don't ask me for more. (laughter) Now, the second is that we have been able to make this kind of margin while still keeping our case goods plants during the quarter at 32 hours.

Okay.

So we've been hurting on margin of that side. And this quarter also, we've been operating at 32 hours, but in the next few weeks, good news is we are going to have them work 40 hours because they are making this new water based product which we will introduce in January. So it's -- I think that at this stage, Joel, we are reasonably confident that we'll be able to maintain this kind of range in gross margins.

That's great. And again, any contribution noticeable in that out of the Mexico cut and sew yet, or is that -- ?

It's still too small.

Okay, okay. Well thanks, guys. Good luck.

Thanks, Joel.

Our next question comes from Rishi Sater -- I'm sorry if I mispronounce this Satarangani, your line is open.

Thank you. It's Rashi Saterangani from AllianceBernstein, hello. Farooq, a couple of questions on your expense base and your expense structure. First question is, how would you characterize your fixed source as variable breakdown, and how is that changing as you implement some of these cost cutting initiatives? And my second question is what additional levers or means do you have before the streamline your cost structure as you mean the negative operating leverage continues.

As -- on your first question of fixed variable, as you know, that'sa relative term because even though we have people that we have substantial, variable cost, that is the compensation of advertising, all of those factors. Yet on other hand, we -- they are not completely variable because of the fact that we can't reduce all those costs. Our fixed costs are approximately $40 million in our occupancy costs, our rentals that we pay outside, approximately $11 million on the $200 million debt, so approximately $51 million is real, real fixed. The rest is technically variable. And the second question was?

What other initiatives do you see to -- as you have negative operating leverage with the top line coming down to reduce your expense base or right size it or -- for the streamline apps. What are some --

We have -- we are looking at -- obviously, we are still spending a fairly substantial amount on national advertising. We have continued to maintain our presence in our brand. Now, that is a variable expense, so it has -- obviously we have to keep in mind that if we reduce it, does it have even a greater impact of reducing our business, but at certain time, of course, we will keep that perspective in mind. We have reduced already a great degree of expenditures and costs, both in wholesale and in our retail, and we're going to continue to look at that. Our new website, which we are going to launch next month, should help us also become more efficient because it adds a tremendous amount of technology to the working of our design consultants. So overall, it will help us to become more efficient and I believe reduce our costs. We are launching actually, also from January of next year a new information technology system for our retail division, which has also been spending about two years in development. And while we will not see immediate cost cuttings in the next three or four months, but in next year or so, it will help us become more efficient and reduce costs, so we have these kinds of initiatives across the board. Other one I think is also, our fuel costs have increase by 50% and if it holds up the way it is, we are going to get a benefit of that, because we absorb a significant amount of fuel costs both in our trucking as well as in the energy costs that we use in our manufacturing distribution and retail. That is a significant amount, if the current price of oil sticks.

Thank you.

All right.

Our next question comes from John Zimmerman, and again (OPERATOR INSTRUCTIONS). Sir, your line is open.

Hi, good morning.

Hi, Farooq. Good morning. How much of your comp store sales were offset by price increases that you took?

In this quarter, we put a price increase in June and -- middle of June, so it really was not much. Maybe less than 0.5% if I just had to make a judgment. It might have some impact more in the second quarter.

And what about the gross margin impact?

The gross -- well, yes, let me clarify that. Gross margin did impact because of the fact that in our suggested pricing -- let me clarify that. Our price increase that we took in June had two components to it.. One was an increase at the wholesale level, and other one was an increase at the retail level, giving the opportunity at the retail level to make up to about, at least 100 to 150 basis points more than gross margin. The retail did get that, most of that, in that quarter. That's why our gross margins increased. At the wholesale level, the benefit was less. We will see more of that, I think, in the second quarter. So I would say that the impact of our price increases at the retail level was, I would say, 100 basis point increase that we saw in the retail gross margins. Obviously, 75% of that was due to the price increase.

Okay. And all of your competitors are taking down pricing and getting more promotional. How are you reacting to that and in light of the current environment and the erosion of wealth from housing and the stock market, how elastic do you think your customer is?

Our, our focus has been to offer the consumers every day best value, and we provide our customers with a one stop shopping, a great service with our interior designers. So with the total package of value that we offer and I think that, yes, if somebody was just at this stage bargain hunting for close-outs, it's hard to compete on that, and it's possible that some customers we are losing on that, but the good thing is that our customers more and more are realizing the benefit of our brand, of our quality, of our style and the total package and especially the service we provide of our interior designers, free delivery. When you add all of those things, we offer a pretty good value. Yes, it is possible that some people are tempted by all the things that are taking place, but I believe that of our -- we are able to maintain a relatively good relationships with our customers, and we have lots of projects going on. And interesting this is this, that yes, traffic is lower, but what we are getting from the field is that people are working on projects. People are interested in doing their homes, yet some of the people are holding back because they are looking at overall environment. I think as soon as overall environment clears up, we have lots of projects in place in hold that I believe will mature as people feel somewhat more comfortable.

Thanks, Farooq.

Thanks.

(OPERATOR INSTRUCTIONS)

Looks like that's it?

Yes sir, I'm showing no further questions.

Thank you very much. Any questions, comments, please let us know. Peg Lupton is also available online, so she will be able to answer any questions. Thank you very much.

Ladies and gentlemen, this does conclusion today's conference. You may now disconnect, and have a wonderful day.