Ethan Allen Interiors Inc (ETD) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Ethan Allen earnings release teleconference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). I would now like to turn the call over to your host, Mr. Farooq Kathwari.

Yes, good morning. I am Farooq Kathwari, Chairman and CEO of Ethan Allen Interiors Inc. and with me today is David Callen, our Vice President, Finance and Treasurer.

Today, we are reporting the results for three and nine months ended March 31, 2009. Our focus during this period has been to confront and address the many challenges, including maintain our liquidity position, reduce the underlying cost structure, maintain and improve our marketing initiatives, not only survive this recession, but come out stronger. David Callen will provide a financial overview and I will follow with a more detailed overview of our business initiatives and open up for questions. We expect the call to end at about 11.50 a.m. Dave?

Thank you, Farooq. Good morning, everyone. Please note that, in the earnings issued this morning, the earnings release issued this morning and in the course of our prepared remarks, reference has been made to certain non-GAAP information, which excludes the effects of restructuring, impairment and related charges recorded during the quarter and year-to-date ended March 31, 2009 and the comparable prior year periods. A reconciliation of this non-GAAP information to the most directly comparable GAAP measure was provided with the tables attached to the press release.

Net sales for the quarter were $140.2 million compared to $235.9 million in the first quarter of last year. The Retail division's net sales were $103.3 million versus $172.8 million last year with comparable Design Center delivered sales 41.8% lower than in the prior year quarter. Written sales in Retail decreased 38.5% and comparable written sales decreased 40.4% versus the prior year quarter. Wholesale net delivered sales were $88.1 million in the quarter compared to $156.3 million in last year's second quarter.

Consolidated gross margin for the quarter was 47.1% compared to 53.1% in the prior year quarter. Gross margin was negatively affected in the quarter by lower sales, downtime in plants and floor sample and warehouse sales in the Retail division.

As a result of the decline in sales in this most recent fiscal quarter, we performed, with support from a large accounting firm other than our external auditors, an interim evaluation of the indefinite lived assets of the Company. We determined that the carrying value of the goodwill on our Retail division's books exceeded its fair value and have therefore recorded our best estimate of an impairment charge of $30.6 million net of tax.

Our best estimate of the fair value of the indefinite lived assets on our Wholesale division's books exceeded the carrying value of $45.2 million and warranted no impairment charge. We expect that the non-cash charge to the Retail goodwill will be trued up if necessary when the final evaluation work is completed in the next fiscal quarter.

We also recorded $3.5 million net of tax in restructuring, impairment and other related charges for the actions previously announced to consolidate our Eldred, Pennsylvania upholstery plant into two other domestic upholstery plants and to consolidate several retail logistic service centers as those operations are optimized as well.

Consolidated operating loss was $74.7 million versus an operating profit of $15.6 million in the third quarter last year. Included in this total were $48.4 million of goodwill impairment and $7.3 million of restructuring, impairment and related costs. The prior year third quarter also included $4 million of restructuring, impairment and related costs.

Interest and other income decreased $600,000 from the prior year due primarily to lower interest income with lower average invested balances and lower interest yield. The effective tax rate for the quarter was 36.7% compared to 37% in the prior year quarter. Diluted loss per share for the quarter was $1.69 compared to diluted earnings per share of $0.30. Excluding restructuring, impairment and related charges, the net loss per diluted share was $0.46 compared to earnings per diluted share of $0.39 in the prior year quarter.

During the quarter, we absorbed other costs recorded in normal operations incurred to close and consolidate the Pennsylvania upholstery plant of about $2 million of normal costs associated with underabsorption of overhead in our case goods, upholstery and other manufacturing plants of about $6 million, steeper discounts for sales of floor samples and discontinued inventory in retail of about $3 million and additional compensation for terminated employees and for reserves on certain assets of about $2 million combined. The sum of these items negatively impacted the results on the quarter by about $0.28.

Year to date, net sales were $535.6 million compared to $744.1 million last year. The Retail division's net sales year to date were $406.4 million versus $548.1 million last year. And Wholesale net sales were $318.2 million compared to $468.5 million last year to date.

Consolidated gross margin year to date was 52.2% as compared to 53.5% in the prior year-to-date period. Gross profit year to date was $279.8 million. Consolidated operating loss year to date was $52.4 million or $1.7 million, excluding the goodwill impairment and restructuring and impairment charges. This compares to operating profit last year to date of $76.9 million, or $80.9 million excluding restructuring and impairment charges booked last year.

Interest and other income decreased $3.5 million from the prior year due primarily to lower interest income with lower average invested balances and lower interest rates plus the prior year included a nonrecurring gain from the sale of real estate.

Diluted net loss per share year to date was $1.24, or $0.09 excluding the impact of goodwill impairment, restructuring and impairment charges. This compares to the prior year-to-date diluted EPS of $1.58 per share, or $1.67 excluding restructuring and impairment charges.

We ended the quarter with $51.2 million in cash and equivalents having reduced inventories by $13.5 million since December 31, 2008. We have generated $13.8 million in cash from year-to-date operations despite the challenging economic environment.

We have invested $20.5 million year to date in capital expansions, but also realized $6.3 million in cash on the sale of properties. We have not repurchased any of our common stock this fiscal year to date, but we have paid $20.7 million in dividends to our shareholders.

We initiated the termination of our $100 million cash flow-based revolving credit facility and have commitments in hand for an asset-based revolving loan facility that provides significantly more flexibility. As you know, we have never drawn on the old revolver and have arranged for a continuation of support for the $12.5 million and letters of credit outstanding. The new facility will provide us real insurance we believe is prudent in these challenging times. We expect to complete the new facility in the coming weeks and will report further details with an 8-K filing when that deal is complete.

We are pleased to have the backing of stable and well-positioned lenders and continue to be confident in the liquidity and capitalization of the Company. We are also happy with the progress made on the actions taken across the business to reposition the Company for profitability even at lower sales volumes. Now back to Farooq.

Thank you, Dave. The main areas of focus have been to maintain our momentum while reducing our cost structure. We have, on an annual basis from March '08 quarter, reduced our underlying cost structure by over $100 million so far. About 80% has been in operating expenses and about 20% in cost of goods. Compared to one year back, we have 30% fewer associates.

Reductions have taken place during the year across the country in most of our locations. We consolidated an upholstery manufacturing plant. We consolidated retail service center warehouses from 44 to 29 currently and by end of the fiscal year, we will have 23. We have continued the process of rationalizing our logistics. Over the years, we have reduced our retail warehouses from about 100 to 23 by the end of this fiscal year. We have reduced management salaries. Cash bonus has been eliminated for management and also cash for our 401(k) programs, while increasing national advertising in television and shelter magazines overall reduced our expenditures by cutting back on local and regional advertising.

You will note that, in third quarter, our operating expenses prior to restructuring were down by $20.6 million compared with third quarter last year. We expect to benefit on an ongoing basis from the over $100 million amortized cost reductions both at operating expense level and in cost of goods. As sales improve (inaudible) levels, we expect at least 60% of the cost savings to be permanent.

During the quarter, we took downtime, reflecting about 40% of total [sharp] days available compared to 11% downtime the previous year quarter. In plant days, it amounts to 98 days downtime this year versus 27 days last year quarter. We expect to continue to take extended downtime in the fourth quarter.

The marketing initiatives during the third quarter included the introduction of new products in January and February, including American Artisan, addition to existing programs, organic fabrics and soft goods and eco-friendly water-based finishes. Unfortunately, due to the negative macroeconomic issues, the new products did not make the necessary impact.

We maintained a strong advertising presence on national television and in shelter magazines. We introduced a rewards program, which has enabled us to reach out to clients with an effective closing tool, as well as to expand our core e-mail membership list. We maintain strong financing offerings with good support of national television. And very importantly, the launch of our state-of-the-art new website, which combines personal service with technology and drives traffic to the Design Centers.

On April 23, that is last week, we announced the launch of our next major campaign entitled Celebrating American Innovation. This overarching umbrella will address both internal and external audiences. This initiative will project the key point of the Ethan Allen value proposition, which includes the following.

Diversity of style. The Company like this country started with just early American and colonial designs, but today Ethan Allen projects the many design inspirations that have bubbled up from the melting pot.

Craftsmanship. Our careful attention to detail is a major factor in our value proposition. We make about 65% of our products here in America. The introduction of water-based, eco-friendly finishes reflects our continued innovation. We are very pleased that, on April 20, we were honored with the Vermont Governor's Award for environmental excellence.

Our personal services from complementary interior design services with in-home calls to our free white glove delivery and setup services, these innovative services in this age of sameness, poor service and mediocrity, give us a competitive advantage.

We will market aggressively the combination of personal service and all of our new technology. While our business in April so far has not shown much improvement, we note that the retail environment seems to show some indications of improvement. The initiative started on April 23 with a campaign of reintroducing new, eco-friendly and other selected products at special celebratory pricing, which is about 10% lower than our everyday best price. We are supporting this campaign starting this week with national television, shelter magazines in May in June, direct mail, e-mail blasts, Web and our design associates contacting the clients. We have planned a number of such initiatives for the next nine months, so that we are in a position to react on a proactive basis to this challenging economy.

And other areas I want to touch briefly on are our dealer network has taken proactive steps to reduce costs. We are very fortunate that our network has held up and our accounts receivable remains current with over 90% within our terms. In order to assist our independent licensees, we temporarily extended our payment term from 15 to 30 days -- from 15 to 30 days.

We have continued to strengthen our Design Centers. On March 31, we had 290 Design Centers with 159 operated by the Company's Retail division and 131 by our licensees. During the nine months ended March 31, the process of relocating and opening new Design Centers has continued. We have opened 14 new Design Centers, including Austin, Texas; Cleveland, Ohio; Dallas, Texas; Salt Lake City, Utah, all opened by our independent retailers.

In addition, four were open in China. 14 are opening in the next nine months, including Estero, Florida between Naples and Fort Myers; Charleston, South Carolina; Dubai UAE; Amman, Jordan and six or seven in China.

During the quarter, we also opened three new Design Centers. That is part of the 14 that I just mentioned for which our working name is a Design Studio. They range in size from 2000 to 4000 square feet. Our business migrating to providing complementary interior design services and combined with the state-of-the-art web technology offers us the opportunity to have a presence in many markets where a larger size Design Center is not viable.

We have identified at least 100 markets for this concept and Dan Grow, who joined us a few months ago and was previously President and CEO of Drexel Heritage, has been talking to independent retailers and design firms in the first 10 markets that we have selected in these what we would call the middle and smaller markets.

Our inventory will reduce during the quarter by $13.5 million and from previous year by $12.2 million. From previous year, inventories decreased about the same amount, both in raw materials and finished goods. Our objective continues to reduce inventories reflecting the lower sales and also continued structural changes to our logistics and the retail network to maximize efficiencies.

Our capital expenditures during the quarter amounted to $4.3 million and for nine months to $20.5 million. For the previous year same period, the amounts were $16 million and $46.3 million and we expect to spend about $25 million this year at this time and at this time, we are projecting under $20 million for the next fiscal year. We reduced our dividend to $0.05 from $0.10. We believe in this economic environment, it was the right decision to maintain the lower level. With this, I would like to open it up for any questions and comments.

(Operator Instructions). Budd Bugatch.

Good morning, Farooq and David. This is actually Chad filling in for Budd this morning. A couple of questions. Farooq, in the release, you mentioned maybe some early signs of improvement at Retail and I know in the press release last week, you noted that March, the trend of business improved relative to February. Could you give us a flavor for how April was trending? And then as kind of an add-on to that, I know it is very early in the promotion, but what kind of feedback are you getting from your dealers on the Celebrating American Innovation?

Yes, we did mention in our previous press release that, towards the end of March, we did see improvements. It also continued in the first week of April and then the business was flat, reflecting also normally Easter, taxes and all that is also affected. But it became -- it did not continue after the first week.

Now, at the end of last week, we started this major campaign. It is very early because the national television just started, our direct mail will go out in the next couple of weeks, our major campaign is going to start this week and in the next few weeks. But I was also referring -- when I was referring to the retail improvements, I was talking about not our retail, I was talking about the fact that there are better signs of improvements in the overall retail environment, not necessarily just us or the furniture business.

Okay, understood. And in regard to the 14 Design Center openings that you expect over the next nine months, could you share with us kind of the breakdown of how many of those are independent versus company-owned and how many are actually kind of relocations versus say an incremental new store?

Yes. Now, as you know, our major objective has been to reposition our network and relocation has been a very important part of our strategy. And in fact, in the next -- the 14 ones that we are talking about, most of them are going to be -- in fact, more than half are going to be overseas. We are opening a very major retail Design Center in Dubai, UAE in about August of this year, a smaller one in Amman, Jordan, a smaller one in Cairo, Egypt about six or seven in China. And then we are opening one -- we just opened actually in April, Omaha, Nebraska, which was, you might say, a relocation, but it had been closed for about a year or so. So it is a relocation, but it is really a new one. We also are going to open up in Raleigh, North Carolina, which is a relocation; in Charleston, South Carolina, which is a relocation; and Fort Myers, Naples is -- Fort Myers -- Estero, which I mentioned is between Fort Myers and Naples, will be a relocation. We last year, had closed one in Fort Myers. We have one in Naples, which we will consolidate to Estero, Florida.

Unidentified Participant So kind of altogether, is it maybe half and half?

It's about half and half.

Okay, that's fair enough. And how many are now Design Studios out of the total store count?

Well, we have Design Studios -- we have them in two categories. First is, as last year about this year, we decided to take some of our Design Centers, which even had sort of full size Design Centers in terms of space, we converted them to the Design Studio concept, which is reducing it to a few designers and letting them operate as if it were their own interior design business. So about 10 of them is what we did last year. But the ones that we just opened, three off them are more of this concept of a Design Studio between 2000 and 4000 square feet. We opened them, one in Davenport, Iowa and Lansing, Michigan and close to Springfield, Massachusetts.

Okay. And last question, I know you are very focused on working capital. Could you venture for us maybe a target or a guesstimate on what level would you like to get inventories down to?

Well, our inventories -- I believe that within the next 10, 12 months, we should get it down better than $15 million, $20 million.

Okay, well, thank you very much, Farooq. Thanks, David and good luck.

John Baugh.

Hey, John, good morning.

Good morning. I was wondering on the Celebration event, is that selective merchandise? You have really resisted discounting. I am just curious what precisely you are doing and how you think about it. It is obviously a very difficult environment, I guess you have to do something to try to stimulate business. So what precisely are you doing and how long -- you said nine months out I think?

Yes, John, what we did is, in February, we -- actually in January, we were finally able to launch with the marketing of our new website, which is a state-of-the-art website. And in February, we launched a rewards program for having people become members of our new ethanallen.com. Our objective was to get more people visit our website obviously, to become a member so that we have their e-mail and for that, we gave them a $500 reward to be utilized up to August 31 of this year at the rate of 5%. So they had to purchase $20,000 -- $10,000 to get $500.

Now so that was in February and it did make -- it did help us and our hit rate on the website has gone up. Our membership to our rewards program has gone up because e-mail is becoming a very important part of our marketing campaign. Then we also in January and February had introduced great new products with water-based finishes, eco-friendly and all that. And as I said, they really got lost with this economic climate.

We decided to reintroduce them again this past week. Together with some more products, which will support them especially in upholstery and fabrics because we needed to make sure that there is a good element and a balanced program and we decided that we would give it and we call it celebratory prices, but including the rewards, we would be offering about 10% savings to the consumer.

And you are right. We did it because of the fact they are new products. We want them to get across. Most of them are made in America and I think at this very, very difficult time, it made sense for us to debut that opportunity and savings to our clients.

Now what we're planning to do as we go forward for the next nine months, we are introducing a number of new product categories. For instance, one after June, we are going to be -- we are adding some very, very good fabric programs and our objective is to offer those fabrics at what you might call our beginning grades. So we will offer good values to our customers and opportunity to, in fact, even encourage people, more and more people to become Ethan Allen customers. So it is limited at any given time, most probably no more than 10%, 15% of our productline.

Okay. So I understand the website promotion that you ran. So the right way to think about this addition or latest promotion is 10% to 15% of your productline will be discounted roughly 10%, is that correct?

Yes, it could be less than 10% to 15%, but that is right.

And then I think you referenced a $6 million negative impact in the March quarter from downtime. How do you see the rest of the calendar year playing out? You mentioned getting inventories down further. What are we looking at in the June quarter and then maybe the second half of the calendar year?

Well, our inventories are in -- have always been in good condition. One of the reasons we did not do major discounting in the first quarter was that our inventory position was good. We had good inventory. To sell that off would have basically meant giving it away, and I do not know whether we would've gotten any incremental business.

And the kind of conditions, we were dealing with all kinds of liquidations and people giving 40%, 50%, 60%, 70% off. We would have not only lost credibility, but really we would not have gotten much incremental business. And you know we suffered with a 40% decline in business is monumental, never seen it.

Now going in the next quarter, I think that we are going to watch it very carefully, John. We have got strong programs to get business and if business starts improving, we are going to get our people back to work. Our upholstery is a little better because we consolidated our manufacturing plant. That is why we are able to get back to work.

Our [case screws] is one where we are taking downtime. Our inventories are in good position and, in fact, with this new celebration that we started last year is all on new products. And that is the one where we have some inventory, because we had built it for the launch of January and February positions. So we are in a good position. And as we start depleting it, we are going to get people back to work.

But having said all of that, we are still going to at this stage -- it is already April and May and June -- we are going to continue with downtime, maybe not as much as we did in the third quarter, but you're still going to have a fairly large downtime this quarter also, John. And after that, we are going to see.

Okay, and then last question quickly. Corporate, what Ethan Allen is spending on advertising as a percentage of revenue maybe. And I am interested if you could break it out between what you're spending on the wholesale business, if you will, versus what you are spending within your retail component.

Okay, John, Dave will get some number. But I'll tell you this, what we have done is we have helped our independent dealer network, our own -- the company retail division by reducing their advertising spending at the local level, at the regional level, and spending most of it on the national level. I think that has been very beneficial. We have been very -- we have gotten the message across and while spending lower amounts.

And I think that what I can say is this, that at this stage when we are talking about for our total sales -- let me get some numbers to see how much information we can give, what we make public and all that stuff, John. But overall, I would say that the retail end of the business has gone down less than 2% of advertising to total sales. The rest is all taken by the wholesale.

Good. Thank you.

Barry Vogel.

You talk about this $100 million in cost savings, which is quite a significant number. Could you put some color on how this is going to play out, starting with the fourth quarter?

Well, the interesting fact is this, Barry, is that if you take a look at this third quarter, our operating expenses, ex this restructuring which, as you know, we consider restructuring amount, is about $20 million less than what we spent in operating expenses in last year the same quarter.

So we are already getting this quarter $20 million of benefit. But this quarter also we had costs associated with severance, terminations, consolidation of service center, consolidation of our plant. A lot -- while some of that or a fair portion of that goes into restructuring, but still also we have some of it, in fact some fairly large, also goes into operating expenses.

We are going to get those out as we go into the next quarters. So we are going to have in the fourth quarter onwards at least $20 million, and it is going to be slightly ahead, more than $20 million reductions in every quarter going forward.

So if we look at $20 million in the fourth quarter and you had $20 million in the third quarter, going into next fiscal year are you saying -- because you made the comment about 60% will be ongoing savings -- then next year you will have a total savings of $60 million on these initiatives versus about $40 million this year.

In other words, if you have $20 million in savings in the third quarter, another $20 million in the fourth quarter of this fiscal year, that would be $40 million out of the $60 million that you talked about in terms of ongoing.

No, what I was saying was this. Barry, we are going to have $100 million on an ongoing basis. The only reason we are going to -- the only reason it's going to go down by 40% is when our business sales go back to where they were a year and a half back. So we are not going to increase them if the sales don't go back. You are going to -- we are going to maintain $100 million savings for some time to come.

Okay, because I needed clarification; it wasn't clear.

No, no. I understand. We are not going to get them back. What I was saying is we go back to $1 [billion] and we have reduced $100 million at best, I see us spending $40 million while the $60 million will be permanent savings.

All right. Thank you very much.

[Michael Toledano].

Hi, I am actually really sorry. I got disconnected earlier. How did you say your sales were trending for April so far?

I did not give an -- it is too early to say, but I did say that, in the first week in April and the last week in March, our sales trended better. We saw improvements. In the middle of the month, sales were down. And as I also said that they generally are down because of tax and Easter, but they were down also reflecting the economy and then now we have just started a major campaign only end of last week, which is really going to affect us in May. But overall, I would say sales in April continue to be low and to be down.

Okay, all right. Thank you very much.

Robert Higginbotham.

Good morning. A couple of questions, but first on the gross margin and this is sort of a follow-up on a previous question. The $6 million of underabsorptions costs that you incurred end of third quarter, is there any component of that that is one-time in nature? In other words, should we expect to see the similar type gross margin pressure in the fourth quarter given the continued extended downtimes or was any of that current downtimes kind of accounted for in the third quarter?

Well, it will depend upon a number of factors. In this third quarter, we had to, on a very, very aggressive basis, reduce our inventories to reflect the fact of such a drop in sales. So that was some element in the third quarter, which was extraordinary because we took major steps to bring it down. Now that it is down, that element in the fourth quarter is not there.

Now in the fourth quarter, it will still depend upon what our business conditions are and I think May and June is generally our good months and if our business continues to be down as much in the third quarter, you are going to see downtime, maybe not exactly to the level what we had in the third quarter, but it will be lower, but it will still be substantial.

Got you. Thank you. And on cash flow, sales are, of course, down extremely sharply. It sounds for the most part that is continuing. Over the past couple of quarters, you have worked through about $30 million of cash. Certainly the recent dividend reductions will help alleviate some of that pressure. But I wonder what other levers you might have to pull. It sounds like you will have a little bit of pressure potentially from extended receivable terms. And I am just wondering what else you can do to offset that cash burn pressure. And as part of that, maybe you could talk to minimum CapEx levels. You talked to the flexibility to be below $20 million. Can you go lower than that?

Yes, our cash was down for a number of factors as you mentioned. One of them was that our accounts payable came down quite a bit. Our sales are down, our budgets are down, so that had an impact in the fact that we paid all those bills. The second is that our deposits -- if you compare our cash position to 6/30/08 to now, they were substantially down because the customer deposits came down. Now, in fact, in the last quarter, this slightly went up because they had already come down quite a bit. Third factor is that we are expecting about, I would say, Dave, what, about $10 million from taxes?

Probably not until after the fiscal year.

But yes, he is talking a little bit -- right at the end of the fiscal year, Robert. The government owes us at least $10 million of taxes. We are going to continue on a plant basis reduce our inventories. We are looking at ways of streamlining our business, rationalizing our logistics. That is an ongoing basis, but we will see that as well. Then we reduced our dividends as you know. Now we have $0.25 and then $0.10 and now $0.05. We are going to watch that also very carefully as we go forward. We have continued to reduce our expenditures.

So you see that even with all this tough quarter that we had last quarter, our operating cash flow was about a $1.9 million negative and for the year, it was positive -- $13 million -- what was it? $13 million. So we are very, very careful, conscious and we also have approximately I think on contract, this is a tough period, but we expect to get between $5 million and $10 million from real estate and asset sales.

Great, thanks. One last question on merchandising. Could you give us some color on how your recent product introductions, the ones that were launched last year, are currently doing?

Well, the ones we launched this past quarter, this was -- they are great products but the worst possible time to introduce them, so we have not done very well with them. That is why we are now reintroducing them. We have received a lot of great comments. We have now even offered better values to our existing clients. So as far as we were concerned, all that new product that we introduced we are reintroducing it again, Robert, now starting actually this week.

Great. Thank you.

Todd Schwartzman.

On the celebration pricing, if you are looking at similar initiatives to celebration pricing over the next nine months, does that mean you expect this to pick up in roughly or within roughly nine months?

Well, Todd, we are planning for nine months, but we have flexibility. We have relative contingency planning so that if things go even worse, what more can we do. If things go better, what less can we do? So we are developing some contingency planning. At least for the nine months, we are developing contingency planning for the fact that business is going to remain tough. If business gets better, we are going to then perhaps take down some of the celebratory pricing.

And if you run similar promotions, will that be exclusively regarding newly launched products? Will there be some either closeout merchandise in the mix or existing non-closeout products as well?

Well, in fact, Dave had mentioned also the fact that, at the retail, we last quarter, we call these normal costs we had. By introducing these water-based finishes, we had existing productlines, which we converted to water-based finishes and we sold those off. And we sold them off at retail at much of a higher discount than we normally would. So most of that we did last quarter.

Now going forward, and including this initiative right now, approximately 80% or 75% to 80% of the products are new and 25% are existing products to support them. And similarly, that is what we want to do for the next couple of initiatives.

Got it. Regarding your CapEx projection, did you say that next fiscal year might be below $20 million?

Yes, I did. Just remember, 20 years back, we spent less than $5 million when we had to. Now this quarter, this year, we had a few, two or three, three or four of these Design Centers, which are under construction and all that. Next year, we are watching it very carefully. We are not making many commitments unless it is absolutely necessary until we see what is taking place. And the good news is we have invested over $500,000 in our Retail division in the last few years, so we are in a very, very good position.

We have invested in technology in our plans. We have invested in information systems. In fact, just this month, we introduced a new information system for our Retail division, state-of-the-art information system, which is going to make it possible for our design associates to be more productive and also our back-end -- our logistics also to operate well. We introduced our new website. If we had to make all those decisions today, Todd, most probably we would not do it. But fortunately, we did all of those things. So our need for capital expenditures has now come down very, very low.

And if you had to venture a guess as far as downtime in Q4, would that be more or less than the 98 days?

I would take between 70% and 80% of that. That would be my estimate for Q4, Todd.

So a little improvement?

Right.

Okay. And you also threw out a number of $5 million to $10 million in real estate and asset sales. I didn't catch the timeframe that you applied that to?

I would say in the next six to nine months. It could be earlier, but you don't know -- we have had four or five contracts that are almost closing and folks get nervous. But we have two or three contracts already in place writing about $5 million or $6 million, Todd.

Okay. And finally, any issues related to the debt covenants we should be aware of, anything getting close?

No, but as you know, we are terminating this $100 million revolver, which we should not have had in any case because this was unsecured. Anytime we needed it, the chances are, by that time, we would not be -- we would be tripping the covenants. In the last four or five years, we never used it. So we came to the conclusion it didn't make sense. We have been negotiating. Unfortunately, we were not able to finalize the closing, but we are pretty close. We will have, what I call, an insurance line of credit somewhat smaller, $60 million. That is what we are looking at, which would be secured so that if we need it, we really can use it. But right now, I think our objective is not to draw on the revolver.

And what will the new covenants be?

The new covenants, in broad terms, just what we are working on is going to be basically not many covenants until we come very, very close to using all of it, then the covenants will come into force.

Any more color on that?

No, but really what it is is because we are secure with our inventory and receivables, so they have got a pretty good security for $60 million of a line. So approximately, I don't know, of the last $8 million or -- $10 million or so, when we come to using about 80% of it or 90%, some covenant, leverage ratio covenants will come into force.

Okay. Thank you very much.

(Operator Instructions). I am showing no further questions at this time, sir.

All right, well, thank you very much. And any more questions, please give a call to Dave Callen. Thanks very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the conference. You may now disconnect.