Ethan Allen Interiors Inc (ETD) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Ethan Allen's third-quarter earnings release call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions).

Now I will turn the conference over to David Callen. Please begin.

Thank you, Tyrone. Good morning, everyone. I am David Callen, Ethan Allen's Vice President of Finance and Treasurer. Welcome to Ethan Allen's earnings conference call for our third fiscal quarter ended March 31, 2013.

This call is being webcast live on ethanallen.com where you'll also find our press release which contains supporting details include reconciliations of non-GAAP information referred to in the release and on this call.

Our comments today will include forward-looking statements that are subject to risks that may cause the actual results to be materially different than expected when making those statements. Please refer to our filings with the SEC for a complete overview of those risks. The Company assumes no obligation to update or revise any forward-looking matters discussed during this call.

After our Chairman and CEO, Farooq Kathwari, provides his opening remarks, I will follow with details on the financial results. Farooq will then provide more details about our ongoing business initiatives before opening up the telephone lines for questions.

With that, here is Farooq Kathwari.

Thank you, Dave, and thanks all for participating in our third-quarter call.

Sales for the quarter were $168.1 million, a decrease of 4% from $175.9 million the prior year which had grown 8%. As you can understand we are not happy with any decline in sales even though some external factors contributed to this first decline after we came out of the Great Recession.

This week we have eight members of our Retail division management here in Danbury. I have invited them to join me for this conference call. In addition we have the Head of our Operations, Merchandising and Advertising with me also. Our team understands the importance of growing the top line.

Despite lower sales, our adjusted earnings per share were 50% higher than the third quarter last year. As we mentioned in our press release, several factors impacted our sales including strong delivered and written sales for the third quarter of the previous two fiscal years, the impact of Hurricane Sandy and the timing of Easter and Passover impacted both delivered and written sales.

I understand some questions have been raised about the written sales -- I mean, the amount of written sales that were impacted due to the timing of Easter and Passover. It is difficult to accurately determine the number. The best estimate we have is that our Retail division written was lower by about 2% to 3% and delivered by 1% to 2%.

Our gross margin improved to 54.6% from 53.6%. During the quarter, our Retail division wrote $160 million while delivering $132 million. Due to our constant process of becoming more efficient, our Retail division lowered its operating profit breakeven point.

For the third quarter while delivering $132.1 million as compared to $131.4 million the prior year, adjusted operating profits were improved by $7.3 million. This provides an important average as we increase the top line.

Our adjusted operating expenses in the quarter were $80 million, which is $6 million or 6.9% lower than the prior year. Structural changes in our Retail division and continued focus on efficiencies in all other areas resulted in this reduction. Our total advertising expenses remained about the same as in the previous year.

We also continue to focus on our balance sheet. Having paid $19.6 million in dividends year-to-date, versus $6 million in the prior year, we increased our cash and securities to $117.3 million from $99.8 million in the prior year. Our inventory is $122 million, reflecting a reduction of $13.7 million since June 30, 2012.

In our press release, we mentioned the impact of sales from our licensing in China. They have reported continued increases of their retail sales of Ethan Allen products. However they had accumulated inventory, planned and unplanned, in anticipation of higher sales and opening of more locations. This quarter, our wholesale sales to them reduced by $6 million and we expect about the same impact in our fourth quarter.

We continue to work with them on several strong programs to grow the business, and expect them to continue their orders and growth going forward.

We have many initiatives in place to help us grow our sales and to continue to grow profitably. I will discuss some of these initiatives after Dave provides a more detailed overview of our financials. Dave.

Thank you, Farooq. Our consolidated net sales for our third quarter were $168.1 million, down 4.4% versus the prior year third quarter which had grown 8%. As discussed in our press release, we were negatively affected during the quarter by several factors including prototype product shipments which were especially high during the third quarter last year; a reduction in shipments to our retailer in China, who continues to perform well, but has reduced their stocks which had accumulated in anticipation of higher growth and store count expansion; the timing of Easter and Passover holidays fell into the third quarter this year versus in the fourth quarter last year, and lower opening backlogs impacted by Hurricane Sandy.

Our Retail segment net sales for the quarter were $132.1 million, up 0.5% over the prior year growth of 12.3%. Comparable Design Center net sales also grew 0.5% this quarter. Written orders booked by our Retail division during the quarter, while $28 million higher than delivered sales in the quarter, were 2.4% below the prior year written orders which had grown 11%. Comparable Design Center written orders were also down 2.4% versus the prior year.

The Company's Retail division operated 148 Design Centers at the end of the quarter versus 149 last year.

Our Wholesale segment net sales of $108.1 million were down 10.7% from the prior year which had grown 16.3%. The prior year growth was due in part to higher than normal shipments of prototype products in support of our significant product overhaul.

Our global retail network included 296 Design Centers at March 31, 2013 compared with 299 locations this time last year. Independent retailers operated 148 of these in the current year, including 69 in China, compared with 150 independently operated last year which also included 69 in China.

Our consolidated gross margin for the quarter was 54.6%, up 100 basis points from 53.6% the prior year quarter.

Our Retail division made up 78.5% of our consolidated net sales for the quarter compared with 74.7% for the third quarter of fiscal 2012. The higher mix of retail business helps the consolidated gross margins.

We also benefited in consolidation by stronger sellthrough of retail inventory. The impact of lower volumes through our manufacturing operations were largely offset with operating efficiencies in our plants during the quarter including the leverage of our operations in Mexico and Honduras.

Our adjusted operating expenses in the quarter were $80 million, which is $6 million or 6.9% lower than the prior year. Structural changes in our Retail operations and lower variable costs drove this reduction year over year.

For the current quarter, we excluded a $1.8 million or $0.04 per diluted share loss on the sale of vacant property and $1.3 million or $0.03 per diluted share of cost incurred as we invest in new international markets.

In the prior year quarter, we excluded $0.5 million or $0.01 per diluted share of cost incurred to establish our plant in Honduras. Please refer to our press release to reconciliation tables showing the adjustments made to our results in both periods.

Our adjusted operating income for the quarter was $11.8 million or 7% of net sales compared to $8.3 million or 4.7% of net sales the prior year, an increase of 41.6%. Our normalized income tax rate for both the current year and the prior year was approximately 36.5%. The prior year income tax rate includes an income tax benefit of $23.9 million for the reversal of valuation reserves against certain deferred tax assets.

Adjusted earnings per diluted share for the quarter increased 50% to $0.21 compared to $0.14 per diluted share the prior year. Consolidated net sales year-to-date increased 0.5% to $546.8 million. The Retail division's net sales year-to-date grew 4.2% to $433 million. Our Wholesale segment year-to-date sales of $327.7 million were down 4.8% from the prior year which had grown 10.1%, in part from higher than normal shipments of prototype products during our significant product overhaul last year.

Consolidated gross margin year-to-date improved 150 basis points to 54.9% from 53.4% the prior year-to-date. Adjusted operating income year-to-date was $51.3 million or 9.4% of consolidated net sales up 36.8% versus the $37.5 million or 6.9% of net sales of prior year-to-date.

Our adjusted net income year-to-date increased 44.6% to $28.5 million or $0.98 per diluted share from $19.7 million or $0.68 per diluted share the prior year-to-date.

We continued to manage our working capital effectively during the quarter. Our cash and securities at March 31, 2013, totaled $117.3 million. This was achieved while executing against our business initiatives, reinvesting in the business and paying a special $0.41 per share dividend last quarter. Our inventory balance of $142 million was essentially equal to the prior year and positions us well to service the business.

Now here is Farooq to discuss our many business initiatives.

Thanks, Dave.

Our main focus remains to grow the top line. We are well-positioned. Our network of about 300 Design Centers, including 200 of them in North America, are in a stronger position to grow sales. We have strong management in place. We have relocated many of our Design Centers and closed several in the last two years due to consolidations within markets or due to underperformance.

During the last nine months we have relocated and opened new Design Centers in Las Vegas, Seattle, and West -- and Des Moines. Our independent retailers relocated Design Centers in Baton Rouge, Louisiana, and in Shanghai, China.

We are investing internationally both in Company operated and in licensee locations. The new Company locations are in Montreal, Canada, and Brussels, Belgium. After opening the first flagship Design Center in Brussels in December, 2012, we are opening the second one in Antwerp later this week. We expect to absorb the opening expenses for another quarter at about the current levels and then expect them to be substantially reduced.

Our international licensees are also growing with the second Design Center opening in Amman, Jordan, and later this year a third Design Center in Korea. We have a new Design Center in Jeddah, Saudi Arabia opening in the summer and we also expect to open up a major licensee-operated Design Center in Eastern Europe in September. And one of our domestic retailers recently opened a new location in Destin, Florida, and two of our locations in Houston were acquired by our independent licensee.

We continue to expand our offerings to project Ethan Allen as a one-stop resource of stylish quality and more obtainable products. We continue to strengthen our staff of Interior Design associates. We are attracting qualified and entrepreneurial associates. In addition we have developed a strong management team to grow the sale of our 150 locations and we also have a very strong licensee network in North America.

We continue to invest in our advertising. In our current fourth quarter, we have expanded our direct mail and national television advertising. Both are being well-received.

In May, we will continue the migration of our website from internal service to a cloud environment which will provide greater flexibility both for our clients and for us. This fall, we plan to further expand our reach to more consumers through our advertising mediums, especially a stronger direct mail and digital presence. We continue to improve the efficiency of manufacturing and logistics, increased volume will further improve our profitability.

Mexico operations are operating well and Honduras is rapidly being developed into a highly efficient case goods facility.

We have a regional conference in June and we are -- invariably will discuss launch of a very strong marketing campaign for this fall. Right after the conference, we intend to have our Annual Investor Conference on June 6, right here in Danbury, Connecticut.

With this, I would like to open the lines for questions and comments.

(Operator Instructions). Brad Thomas, KeyBanc.

Good morning. I wanted to first start off asking a little bit more about China. David, you provided some numbers around how big it is in terms of the store count, but how big is China right now as a percentage of revenues?

Well, prior to this quarter, it had been -- we disclosed our total international business which is about 6% of our consolidated net sales and China makes up the majority of that.

Great. And then if you were to try to back out some of the excess inventory buys, are you still seeing a healthy underlying growth rate from maybe the written orders in those markets? What are you seeing that still gives you confidence in the outlook for China?

Yes, Brad. In fact, Dan Grow, who is responsible for working with our licensee and Dan just got back. And all of this, we are also concerned about these facts and the interesting thing is that the Ethan Allen programs are showing still the largest growth. They have somewhat slowed down overall, I mean, China has, and in fact, our licensees overall also has shown some slowdown, but not in Ethan Allen.

So that is very positive news and we believe that if that trend continues after the end of this next quarter when they will have used up the inventory, we'll get back to normal and hopefully continue to increase our business in China.

And maybe one more in terms of the total Company revenue. Obviously, you will have pressure from China as well as written orders in total that were negative this quarter. So as we think about the revenue outlook for your June quarter, do you think you can have a positive number there? Or do you think we may be seeing a decline again in sales in your fourth quarter?

Well, it is a little bit too early. However, if you take a look at our written business in the Retail, we wrote $160 million and we delivered $132 million. So that is a big -- that is a good indicator that we have an opportunity to deliver more in the fourth quarter.

If you go back a little bit last year, we wrote, the Retail division, wrote $164.1 million, which is 11%. And if you go the year before that, it was third quarter in fiscal 2011, the Retail division wrote $147.9 million, which was 11.4%. So we have gone from $147.9 million to writing $160 million in a two-year period. So it is a pretty good growth. And that gives us an opportunity.

Now, we have the opportunity of doing certainly doing what we did last year or more, depending upon how our business ends up in April and May. And wholesale business of course is also impacted by our retail business. We will not have -- we will be negatively impacted, as I said, with our international licensee, to some degree. But overall, I think, we have an opportunity of doing what we did last year and the good news is that today even the lower sales we have been able to have a higher EPS and higher operating earnings so that the leverage continues.

Actually. Thanks, and best of luck.

Thanks, Brad.

Thanks, Brad.

Matthew Fassler.

This is [Halley Goodman] on the half of Matt Fassler today.

So, gross margin was up more this quarter than last quarter. We were wondering how we should think about the gross margin outlook and when should be these year-over-year increases start to moderate? Thank you.

All right. If you take a look at also our gross margins and, then again, as I was talking about our Retail business and you go to our fiscal third-quarter in fiscal 2011, gross margins were 51%. Last year third quarter went to 53.6%. Now they are 54.6%. And I will say that that is about the range we should expect our gross margins to be.

Thank you.

Todd Schwartzman, Sidoti & Company.

Good morning, gentlemen. If you were to back out the effect of the prior year prototype product shipments, what would -- just normalizing, what would normalized sales be?

Well, let's go back to last year, and if you take a look at last year, just this third quarter, we had consolidated sales of $175.9 million. The Retail division sales were $131.4 million and the Wholesale sales were $121 million which was a 16.3% increase from the previous year of $104 million. So that 16.3% was the major increase that took last year and that was the Wholesale impact. And which it translates approximately to about $10 million, Todd.

Being that in each of your mentions of the factors contributing to the shortfall for lack of a better word, you cite that item as the first. I am assuming that you -- even in your prepared remarks today, you have kind of given that same pecking order. I am assuming that that is in descending order of importance of contribution. Is that correct?

Say that again.

The factors that you cite for the sales decline year over year in Q3, each mentioned either in writing or on the call today, you start with the mention of the year-ago prototype sales and so I am assuming that that was the most -- the largest and most important factor of the three or four that you cited. Is that accurate?

Yes, I think that plus China, those two on the Wholesale side were the important ones. And on the Retail side, really which the impact was to some degree on the timing of the holidays, but as you can see in our Retail division, we did increase the sales on delivered. And the written was somewhat impacted.

Farooq, I know you mentioned that advertising for this third quarter was about flat year over year. Can you put some numbers on a going-forward basis kind of like talking about the best way to approach modeling, the marketing advertising costs into Q4? And more importantly heading into fiscal year 2014, maybe talk about what your plans are there or what factors in particular we should keep in mind?

Yes. What we spend this quarter was approximately, our total net consolidated sales, we spent about 5% of sales that represents our national advertising and our Retail division advertising which was -- and when you look at the third quarter last year, it was about 5 -- also about 5%, 5.1%. Previously it was 4.6%, 4.1% in that range.

So I think at this stage for the next quarter at least, it is going to remain at 5%.

It is possible that when we go into the fall quarter we may have, we may perhaps be looking at it, increase it, because one of the reasons our third quarter historically is low in shipments is because in the second quarter in the month of November and especially in December, we don't -- we sort of do very little business.

Our objective is to change that paradigm this year. We are going to become much more aggressive in marketing Total Home products and that is why when you come to our conference here in June, you are going to see us projecting our products and our offering and our communications and advertising so that we do a lot more business. That is our intent in our third quarter. I'm sorry, in our second quarter.

I am talking second quarter, that is our October, November, and December which historically has been somewhat lower in terms of written sales which ends up lowering our delivered in the third quarter. Our objective is to change that paradigm. That is why all Retail management is here. We are actually having some of our independent retailers coming in tomorrow and then we have the June conference where we -- our objective is to change paradigm which would then, Todd, potentially impact our advertising in our second quarter of our fiscal 2014 this year.

We will let you know when we are here at the conference, keep that in mind. But at this stage, based on the sales we have had, we ran about 4% this quarter and, previously, we have been running between -- close to 4%.

I thought you said 5% this past quarter. (multiple speakers).

I'm sorry. Yes we had 5% this quarter and we had 5.1% in last year third quarter also.

So for fiscal year 2014, are you sticking with that 5% as a good number to use or does it go higher from there?

I think at this stage 5% should be a good number. If we have other changes, we will let you know but I think 5% and, hopefully, which is our plan to have larger sales, it will give us more dollars to spend, which is our objective.

And in product categories, can you speak a little bit about case goods versus upholstery and maybe where, which product categories you are, in particular, in case goods you are seeing the strongest demand, both in Q3 and in these last few weeks?

In the last few years, especially after the recession, we have seen continued growth in our upholstery programs. This is taught in our Company, grew up on case goods and that is sort of our paradigm that we have. That is our DNA.

But we used to have 65% of our -- 60% to 65% was case goods. Now it is down to 30 -- I mean probably 30% and 35%. Upholstery has gone to 55% to 60%.

So that trend continues and you are going to see us focus on upholstery and also a lot on accents. Especially in our second quarter going into this fiscal 2014.

Were upholstery sales up year over year in Q3?

I don't have exact numbers here. I mean, Dave will check into this, but Tracy Paccione is here. She is Head of our Merchandising. Yes, I think the answer is yes; I don't have exact numbers here, but they did go up.

All right. And within case goods, is there any category, product category that is outperforming, where that is starting to do better?

That's a good question. I think that at this stage we continue to see us sort of have -- we do a part more or less equal business in what you might call the more and more Casual lifestyles and the more Classic. And both of them I think have shown growth, especially in the Classic with the new introductions of products like Classic Elegance products as you know that we introduced last year that has been well received. And some of our other Casual product lines are also doing well.

So I would say at this stage, we have more or less about equal both in the Classics and the Casual side.

In terms of international, you have got a lot of moving parts there, a lot of plans. Some of these markets have already been entered.

Can you quantify the cost both to be incurred in the near term and also on a going forward basis start-up and just maintaining these new operations overseas, what this does to the cost structure of the Company?

Our international is -- at this stage, consists of Canada and now Belgium. Canada, we have been there for a long time. Excepting we went to Montreal last December and as you know -- going to Montreal was entirely a new -- it is very, very different entering there than entering Canada because everything we had to do had to also be done in French. We had to develop a new website also and translate it in French, all our communications.

So we have done that and I think that by the very next quarter or so that we stabilize. And that is the extent to some degree of our investments in Canada. There is a possibility that we will have some more business where we are doing very well in British Columbia. We are -- a very strong Design Center there. It is possible we will add maybe one or two.

In Europe, our objective is to only operate these two that we have now in Belgium. We also established a logistics network in Antwerp; and these two are going to be, you might say, our examples of flagships of in Europe. And because of that we also had a very strong retailer in Eastern Europe who came in and the objective is in September, [our show], to open up an Ethan Allen operations there.

Our objective in Europe and at this stage in many other countries have licensees open the Design Centers. So this is about $1 million or so that we had additional expenses this quarter. It is possible we will have that or somewhat closer to next quarter and then it will taper off, Todd, and hopefully turn into profits.

So on a full-year basis, it will be less than $4 million incremental spend in Europe '14 over '13?

Absolutely. Absolutely much less than that, yes.

Great. What about traffic trends, store, web, what can you tell us there?

In April, we have seen better traffic. Now that traffic has to translate into business and that is why all my Retail associates are here and the next -- it's sort of amazing, think what happens in the last week of the month is when we get a lot of business. And that is what we are expecting. Certainly the good -- the positive trends in April have been higher traffic. And now we need to convert that traffic into business. We have a strong advertising program in May also, which should give us in opportunity to increase traffic and business. So from the traffic perspective and the trends are positive.

The April traffic, just to be clear, are higher than last April or higher than this March?

Higher than last April and higher than March both.

In terms of the sales for the quarter, of that 4.4% decline delivered sales, how does that shake out in terms of units versus price?

Dave, put your heads to it and talk to Todd later. I mean that, Todd, Dave will give you the details. I mean, I think that is hard, but Dave, you have --? Let's see, Dave has something on that.

It is, you know what he is showing me, Todd, is that it is about the percentage and the units are about the same. He will get back to you.

That's fine. Thanks. Last question, the structural changes that in your Retail operations that each of you alluded to earlier, could you give us more color on that please?

I will give you some broad perspectives. We have today eight operating managers in our Retail running the whole country and they are all here. Their objective in the last -- certainly for many years, but certainly in the last couple of years, is to improve their operations by taking underperforming Design Centers out, consolidating them. Taking a look at our overall structure of expenses and reduce expenses. In some cases they have strengthened management by having less management or stronger management. They have worked in terms of reducing their expenses in all areas of the business, but certainly in our service end of the business is a big one. When we have taken off some of these Design Centers, they are out of our system. It reduces our occupancy expenses.

So we did reduce approximately $6 million. Approximately $6 million or so this year compared to last year was reduced, Todd, and a lot of it reflected all the factors from occupancy costs to we have less people in the Retail because of the fact that some of -- we reduced and consolidated some of our Design Centers and we also -- we have been also making all our operations more efficient.

So it is a lot of things that we have done across the line that, from our selling expenses to also some degree they also benefited with a little bit of a lower expense in advertising. Some a little higher on the Wholesale side so that also contributed the Retail doing better, but overall as you know we have reduced our expenses by $6 million in the quarter on a consolidated basis.

So a lot of these actions you are referring to predate calendar 2013, correct?

Yes. Some part -- they are -- it is a process. Some of the actions we took in 2011 calendar -- I mean in fiscal 2011, fiscal 2012, we are starting to get -- we are getting benefits of that now.

Thank you.

And that process continues.

Thanks.

John Baugh, Stifel Nicolaus.

Good morning. Farooq, wondering when Sandy will help as opposed to hurt? Are you seeing any orders picking up in those affected areas?

Absolutely. Especially our biggest increase, just last quarter, was Long Island. And Long Island, it was the biggest one and we have seen some smaller in some of the areas where we are in New Jersey and in Connecticut. But we are starting to see them. What we did was, John, was we did decide that if people come to us with the right kind of insurance papers and everything else, that we will give them a special savings, and that is helping us. We had it up to March 31. We just extended it to June 30.

Terrific. And then, on China, I recollect a shipment that you made somewhere in the past recently where they, quote, took it into their inventory. You held it for them or I can't remember the details. Can you refresh me on the amount and when that occurred?

Dave, that was two years back, Dave, what was that amount?

It was about $7 million-ish.

Two years back, about $7 million and I think that is all of that inventory is all -- practically all of that is now out. We don't have it. It is all in China.

So that is not an issue here when we are comparing these numbers both this quarter and the next quarter and your $6 million down, that is not comparative with this event?

Correct.

That is right. It is not.

Super. Any commentary on EA Express? Has it worked, has it not worked, will it get more emphasis, will it be deemphasized? Are you finding you are attracting any new customers? Is it impacting ticket? A lot of questions there. But any color?

Yes, that is a good question. We ourselves are looking at it to see how do we manage it and make it more effective. It is -- it is having an impact. Certainly in our -- it has, as you know, our upholstered products are all custom made. And in the Express program, we have stocks of leather and some upholstery which is for immediate delivery. That is where we are seeing the largest benefit.

In our case goods, we have taken some of our domestic made products and put it in stock for Express delivery, but all of our imported case goods is in stock. So, there, we see some impact but not that great an impact. We will continue to focus on it.

And second thing that, what has happened is that our deliveries of custom product, our timeframe has improved considerably. That we are now shipping close to the -- Corey, what percentage you are shipping in 30 days?

Almost 90%.

90%, John, is shipped within 30 days. So this quick ship which is part of Express is less of a benefit when we can ship custom product as fast as we are doing.

Having said all of this, and I hope that you come here to our June conference where we really are going to show even more attractively priced products in all categories, especially Accents, and then a strong marketing program to market them this fall, which will then expand our reach to more people, younger people, and increase traffic into our Design Centers. That is what we are working on now.

And my last question relates to your promotional activity. Your gross margins are good and so, it doesn't appear to me that you're giving away product in terms of promoting that's impacting your gross margins negatively, but I continue to see 15% offs and 20% offs on some of your promotions.

So are these very selective promotions that are impacting -- that are not impacting a large percentage of your line? Or how do I get my arms around the promotion amounts and magnitude and any impact on gross margin?

As you know we had worked very hard -- now you and I have been discussing this for what, about 20, 25 years?

Don't date me.

Yes, right. I don't want to date you, but I am dating myself. When we went to this Every Day Best Price our objective was to offer Every Day Best Price. When this Great Recession came, people said no, not enough. You have got to give some more savings.

So we decided that we had to give savings. Our designers had to talk to people and approximately for most of our products, we said we have got to give them a 10% savings. And which is what we did.

Now at the same time, fortunately, we improved our operations and our manufacturing; we improved our operations at all levels and even when we were looking at our pricing in our new products, we had to take some of that into account, the fact that we were going to give 10%. Now in some products we are giving 15% to 20%. That is selective. We have most of the products we are giving is about 10% and that 10% is accounted for by becoming more efficient and also that having in case upholstery, we are now getting much more of a benefit of our Silao, Mexico operation. Without Silao, Mexico operations our upholstery margins would not be what they are now.

So, as a follow-up to that, are you -- when you are -- let's use the 10% off. Is it half of the product line in the store that month on that promotion? Is it 40%? 60%? Is that up from where it was and then you are able to offset that because you are more efficient on the manufacturing side?

The 10% is approximately on our total program. Because we make it easy for our designers and customers. The 15% to 20% is on maybe 10% of the product or 15% of the product line at any given time. And then the efficiency is what has helped us.

Great. Thank you for that color. Hope to see you in June.

Thanks.

(Operator Instructions). Cristina Hernandez, Telsey Advisory.

Good morning. Can you -- I know it is still early days, but can you give us some feedback as to how you -- the Fresh Colors and the new products that are targeted to the parents of the four- to 12-year-old is being received?

Yes. We have introduced two programs in the last few months. One of these is Fresh Colors, which is for the younger and then the next one was the Impressions which, actually, we are marketing this month. They have been both well-received. The Fresh Colors and the Impressions, the objective was to help us increase traffic, especially of younger consumers and I am talking of 30, 30 plus who also bring their children in. That we have seen and I think that is taking place and I believe will continue to see us increase our traffic of these younger consumers.

Historically our consumer base has been 40 and 50 -- 40 and up, and 50 and up. But with the Fresh Colors, the objective was to reach the younger consumers through their children and we have started to do that. And the other important benefit of this is that the Fresh Colors program and impressions is all made -- almost all of it is made in our own facilities in North America.

And it also has -- a special feature is customization. Because as you know we converted all of our wood manufacturing to custom. Our upholstery was already there. So, for instance, in Fresh Colors we can give 15 different colors. And now we are shipping, as you heard, almost 90% of that we are shipping in four weeks. So these are great competitive advantages and as we move forward and we continue to advertise it, our objective is to continue to increase our traffic of younger people.

Great, thank you. And then, last one, recently you have talked about the mix of Access moving to 25%, 30% of the assortment? What is the timing of that and what do you expect the mix of product to be by the end of the year assuming you are introducing some of this product for the holiday season?

That's right. This is actually a very important initiative taking place right now. We have been developing products from all over the world and we are also developing an advertising program. So we have a much stronger presence in the holiday season this year. So we will start launching it in September.

Thank you.

And you'll see some of those when you come into our conference here in June.

Thank you. Sir, there are no further questions at this time.

All right. Well, thanks very much. Any questions, comments please give us a call and thanks very much.

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