Ethan Allen Interiors Inc (ETD) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ethan Allen first-quarter fiscal year 2015 earnings release conference call. At this time all participants are in a listen-only mode. (Operator Instructions). As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Mr. Corey Whitely. Please go ahead.

Thank you, Jonathan, and good morning, everyone. This is Corey Whitely, Executive Vice President Administration and Chief Financial Officer for Ethan Allen. Welcome to Ethan Allen's earnings conference call for our 2015 first fiscal quarter, ended September 30, 2014. This call is being webcast live on EthanAllen.com, where you will also find our press release, which contains supporting details including 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 which could cause actual results to differ materially from those expected when making such forward-looking statements. Please refer to our SEC filings for a complete review of those risks. The Company assumes no obligation to update or revise any forward-looking matters discussed during this call.

Also joining the call today is John Bedford, our Vice President, Corporate Controller. After our Chairman and CEO, Farooq Kathwari, provides his opening remarks, I will follow with details on the financial results. Farooq will then provide further updates on our ongoing business initiatives before opening up the telephone lines for questions.

With that, here is Farooq Kathwari.

Yes. Thank you, Corey, and thank you for participating in our first-quarter, ended September 30, 2014, earnings call. I am pleased to be taking this call from our upholstery manufacturing operations in Mexico. And I am joined with a number of our associates here.

We continued our progress in many areas including in the financial area, as we reported sales increased 5% to $190.7 million. Both wholesale and retail performed well. Our wholesale did well especially, with increased sales to our international licensees and to our retail network, both independents and company retail division. Adjusted earnings per share increased 33.3% to $0.44 compared with earnings per share of $0.33 in the previous year, reflecting the leverage of our vertically integrated structure and control of operating expenses.

Adjusted operating income of $21.9 million increased 30.4% compared to first quarter of fiscal 2014. Adjusted operating income reflects adjustment for $1.4 million loss on vacant property sales.

Gross margin increased 60 basis points to 55%. Comparable written sales for the retail division increased 0.8% for the first quarter after a 13.8% increase in last year. In addition, this year clearance sales amounted to 9.6% of sales in the quarter, impacting both written sales and margins.

Our balance sheet remains strong with cash and equivalents of $135.2 million. I am pleased that, as we announced yesterday, a new credit facility of $150 million, made up of $100 million revolving credit lines and $50 million in term loan availability. The new facility matures October 21, 2019. We intend to use the proceeds for general corporate purposes and to refinance our senior notes, which are due October 1, 2015.

As you know, we are a vertically integrated company. We are not an assembler of other people's products. We have a bit over, about 2000 interior designer associates. And over 70% of our products made in our own North American plants, and I'm talking of furniture. We go from the concept of ideas to design, to manufacture, to retail and logistics. During the last few years we have taken many steps to position us for the next phase of growth. And after Corey provides a more detailed overview of our financials, I will discuss our initiatives in order for us to continue to grow our revenues and profits.

And with that, Corey?

Thank you, Farooq. For the first quarter of fiscal 2015 consolidated net sales of $190.7 million increased 5% compared to the first quarter of fiscal 2014. Adjusted operating income increased 30.4% to $21.9 million compared to $16.8 million in the prior-year first quarter with adjusted operating margin of 11.5% improved compared to 9.2% in the first quarter of fiscal 2014.

Adjusted net income of $12.8 million increased 34.3% over the prior-year first quarter. Wholesale net sales of $124.6 million increased 10.1% during the first quarter of fiscal 2015 compared to first quarter of fiscal 2014. The retail segment net sales increased 2.3% for the quarter at $145 million compared to $141.8 million in the prior-year first quarter. Both segments benefited from sellthrough of clearance sales and utilizing our stronger inventory position on our expanded selection of in-stock products.

The consolidated gross margin improved to 55.0% for the first quarter of fiscal 2015 from 54.4% in the prior-year first quarter.

Total written orders by the retail segment for the first quarter of fiscal 2015 decreased 0.7% compared to the first quarter of fiscal 2014 while comparable written orders increased 0.8%. There were 143 Company-operated design centers this year compared to 147 in the prior-year quarter.

Clearance sales accounted for 9.6% of written sales for the first quarter compared to 7.1% in the prior-year first quarter. Our global retail network included 294 design centers at September 30 compared to 297 in the prior year. Independent retailers operated 151 design centers including 92 international locations. This compares with 150 independently operated last year including 88 international locations.

Our global retail network have a total of 100 international locations at September 30, 2014, and 96 in the prior year.

Our adjusted results in the first quarter of fiscal 2015 exclude $1.4 million of losses from the sale of excess real estate. The prior year's first quarter adjusted results excluded $0.6 million of international start up losses in $0.2 million of real estate losses.

Our effective income tax rate for the current quarter was 36.6% and the prior-year quarter was approximately 36.2%. We expect our normalized future tax rate to be approximately 36.5%.

Adjusted earnings per diluted share for the first fiscal quarter of 2015 were $0.44, which is 33.3% higher than the $0.33 per diluted share in the prior-year first quarter. Please refer to our press release reconciliation tables showing the adjustments made to our results for all periods.

GAAP net income for the quarter ended September 30, [2015](sic-see press release - 2014), was $11.9 million or $0.41 per diluted share compared with $9 million or $0.31 per diluted share in the prior-year quarter.

Our balance sheet and liquidity improved this year. Our cash and securities at September 30, 2014 totaled $135.2 million, an increase of 13% from the prior year. Approximately $129 million of our senior notes remain outstanding and are due October 1, 2015.

As we announced yesterday, we have entered into a new five-year, $150 million credit facility. The company intends to use the proceeds of the new credit facility for working capital and general corporate purposes and to refinance the outstanding senior notes. Under the new facility our $100 million revolver remains undrawn with approximately $600,000 in standby letters of credit outstanding and $99.4 million in availability. The new revolver also has a $50 million accordion feature. Our term loan availability of up to $50 million is also undrawn and has a six-month draw period. The company intends to draw on the term loan simultaneous with retirement of our outstanding senior notes within this six-month period.

Our inventories at September 30, 2014, of $157.5 million increased from $141.7 million in the prior year, as planned, to support our new product launch including an expended assortment of in-stock products. Our capital expenditures for the first quarter totaled $5.4 million and depreciation and amortization was $4.7 million.

With that, I will pass it back over to Farooq.

Yes, thank you, Corey. As I mentioned earlier, we are vertically integrated enterprise, giving us an opportunity to develop proprietary products, control quality, design, and value. In addition, we provide professional service, personal professional service through our interior design associates, about 1500 in North America and about 1500 internationally.

A brief status of our important initiatives -- our product offerings, we are in the midst of a major makeover of our product offerings. About 80% of the new products were received by our network in September and October. And by early November the new products will be substantially in our design centers. Our next major introductions is scheduled for late spring of 2015.

We have continued to expand our manufacturing capabilities in North America, and now about 70% of our furniture product is made in our North American facilities and we expect it to continue to grow. This focus of North American manufacturing is a major undertaking and, we believe, gives us even more of a competitive advantage as we move forward.

In our first quarter we decided to hold increasing our advertising expenditures, actually reducing them by about $1 million from the previous year first quarter, as we were in the process of transition in getting the new products to our design centers, in the renovation of our design centers; and, in addition, our new website was launched in mid-October and is a major milestone for us. After two years of investments now we are more ready.

And our plan in the second quarter is to increase our advertising expenditures by about 40% of what we spent last year in second quarter. We plan to increase spending in direct mail, national television, shelter magazines, local and retail advertising, and digital mediums. As we go forward we plan to aggressively increase our marketing efforts.

We have also been in the midst of renovating our design centers across the country and also now developing plans to implement in international markets. Most of the renovations in our North American design centers are expected to be completed by the end of our second quarter. In this regard we also continue to sell floor samples and discontinued products on a planned basis. As we reported, 9.6% of our total sales in first quarter were clearance products. We expect about the same or slightly lower amount in the second quarter as well.

We also continued to open new design centers internationally and in North America. During the last few months we have opened new relocated design centers in Cleveland, New Jersey, in Amman, Jordan, the second location. Four were opened in China. We opened in New Jersey, in Houston, in international markets, also Vilnius in Lithuania. And during the next few months we plan to open new design centers, our second in Dubai, first in Doha, Qatar, and several in a number of locations in China.

We also plan to open our third in Manila, Philippines. As I mentioned, we are in Doha and Dubai. We also have planned to have relocations in Las Vegas; in Pittsburgh; in upstate New York; in Chattanooga, Tennessee; in Philadelphia; in Baltimore, Maryland; and a second one in Pittsburgh as well. And again, our focus in North America basically has been in terms of opening up new design centers.

And finally, the focus on adding technology in manufacturing, logistics and retail is an ongoing process. We are pleased our website is launched, as we know that most customers and potential customers visit our website prior to interacting with our professional interior design associates. Combining technology with the personal services of our interior design associates is of critical importance to grow our business.

With this brief overview, I would like to open for comments and questions.

(Operator Instructions) Jessica Mace from Nomura Securities.

My question is about -- I was wondering if you could give us a little bit more timing with regard to the rollout of the new product launch, especially what sort of impact we might be able to see or should see in the written orders in the customer deposit at the end of the quarter and maybe any feedback that you've received in the month of October so far.

Yes. Our new product started getting into our design centers in September. And about, I would say, 70% or so of them were also there by the middle of October. And by end of October/early November we will have all the new products that we introduced in our June conference to be in our design centers. At the same time we have been making renovations to our design centers. Practically all our design centers have been painted. Many of them have new floors. We have improved our lighting. We have improved exterior.

So I would say that from October and November, these are two important months, should give us an opportunity through our advertising to help us increase our sales. Now, obviously, we cannot make comments of what is going to happen. But we do expect that our written business should be positively impacted by the new products as well as our advertising efforts.

Great, thank you. And then my second question is on gross margin. I was wondering if you could talk about a few of the drivers that offset the impact of the higher amount of clearance in the quarter as well as retail becoming a smaller portion of the overall sales. Thank you.

Yes. On the wholesale side we benefited from high volumes. And again, because the vertical integration and higher volumes did offset some of the issues relating to new products being made for the first time in our manufacturing. So that was, I think, the increasing volume. The second one is that we've got a very, very good group of people in our manufacturing. And they have done a great job, considering all the challenges we threw at them. And the third factor was our price increase that we took in the summer.

Thanks very much for taking the questions.

Todd Schwartzman from Sidoti & Company.

My question really -- I like to talk about price promotions, not clearance sales but -- clearance merchandise but rather ongoing products, including maybe even some of the newest ones, if that applies. What does the promotional landscape in October look like versus prior quarter with respect to the percentage of ongoing items on the floor that are on sale?

Yes, Todd. As we know, that there is a lot of promotional activity taking place in all categories including home furnishings. We have tried very hard to maintain lower promotional pricing because of the fact we start with a everyday best price which is incredible price. So for us to reduce our prices is pretty tough.

Having said this, we have -- in October, for instance, we are offering savings from anywhere from 10% to 20% in different categories. So we have, compared to last year, to some degree increased our, you might say, special offerings. And that also happened also in the first quarter as well. Now, combining our efficiencies in manufacturing, also operating -- maintaining our control on operating expenses and the price increase has to some degree offset this, you might say, higher promotional activity, Todd.

So with that in mind, Farooq, how should we think about modeling the gross margin in Q2 compared with the first quarter?

I would say that we will continue -- of course, we have been under pressure but we have done well. So we will continue to be under pressure in the gross margins in the second quarter because of the fact, as I said, we still have approximately about the same number, about the same amount of products to sell on clearance because what we did in the first quarter, while it was 9.6%, really we should have sold more. But we decided not to overwhelm our markets with a lot of clearance. So it also was important for us to make sure that we don't sell our floor samples before getting the new products in. So we have been managing that as well.

So I would say that keep that perspective in mind. And in operating expenses also keep in mind you folks want us to spend more in advertising, which I am doing, which means our operating expenses are going to go up. And so keep that perspective in mind, too, Todd.

Now, with that increase, that 40% year-over-year hike in advertising expense that you mentioned earlier, does that bring SG&A to a mid [80s] kind of number, [85, 87] versus [82, 83]?

Corey, any comments on that? Or John? I think, Todd, they will have to look at that to see. But keep that perspective in mind. It's approximately -- we will be spending anywhere from between $2 million and $3 million more.

And that really doesn't seem to differ too much from what you've been telegraphing for the last six months or so. But what, if any, offsets within operating expenses might there be?

There are not going to be a lot of offsets. We are running up pretty lean operation. When we spend this money we've got to increase sales so that we can increase our overall gross margins. So that's what we have got to pay for it.

Okay. And it looks like you did not buy back any shares in the quarter. Is that correct?

That's right, yes.

And what about this quarter to date? Stock has dipped to the $23 level there for a while. Have you been active at all?

No, we have not because at this stage, as you know, our objective was to make sure that we create a strong capital structure. And with this financing in place we're in a good place now as we move forward.

Got it. And also you talked about the -- teased us a little bit with the new product program coming in the spring of 2015. I guess I'll take the bait there. What's up next?

It's a great product but it's confidential.

Okay. All right, thanks a lot.

Jeremy Hamblin from Dougherty & Company.

Good morning, guys, and congratulations on the strong results. Thank you for taking my questions. I just want to clarify. On the new credit facility which is undrawn at this point, if I'm doing the math right it looks like you would be saving, even if you drew on the whole $150 million, somewhere between $2 million and $3 million in pretax, based on the change in interest rates. Do I have that math about correct?

Yes, your math is correct, Jeremy. In fact, our objective is to draw on the term and to utilize some of our funds which we keep at the banks and they don't give us any returns.

So in other words you may actually not even use the whole revolver side of that loan?

That's right. Once we have drawn it, and our objective is to reduce our -- it is possible that we reduce our interest expense between $3.5 million to $4 million.

Okay, well, $3.5 million to $4 million. And that's on a pretax basis, correct?

That's right. Corey, is that correct?

Yes, that's correct, Farooq.

All right, go ahead, Jeremy.

Okay, great. And then in terms of coming back to the gross margins, which I think were surprisingly strong, and putting into context where it sounds like clearance selling was about 10% of sales and you are saying that that's going to be maybe a similar level in Q2, can you give me some historical context? What would it have been last year or what would it normally be in Q1? Is it something like half of that in terms of clearance as a percent of selling?

Yes, less than half.

Less than half? Okay. And so if I then move that forward into the second half of the year and you've made a lot more progress on getting the new goods in, moving out some of the clearance items and floor samples, would that imply that you simply have a little bit higher gross margins that you can achieve? Because clearly there was a lot of reasons why gross margins should have then dragging down a little bit more. And yet you did a 55% gross margin. Is that just from the manufacturing improvements that you have been making over the last couple of years?

It is a combination of a lot of factors. It is manufacturing. It is also the fact that we moderated the products that we sold on clearance in the first quarter in our retail, so our retail gross margins were not as lower as one would have had, if we had higher clearance. Going forward in the third quarter I think our clearance is going to be less than 5% or in that range. And going into the fourth quarter it may be less than 5%.

So in other words, the opportunity, assuming that you guys can drive the sales, would be that there's maybe a little bit more opportunity in the second half of your fiscal year on gross margins than in the first half? Is that a correct read?

Jeremy, there are a lot of moving parts.

No, I understand that.

And I would not -- I would be somewhat -- I would be cautious of not -- maintaining what we have done is a big challenge.

Okay. Thank you for taking my questions. I'll jump back in the queue.

Budd Bugatch from Raymond James.

I'm trying to do the walk from the 54.4% gross margin last year and the 60 basis points to 55%. We've got -- maybe I could just ask the questions pointedly. Can you give us the impact of the price increase on gross margin in this quarter? And how much of it was effective for the entire quarter?

Let us look at those numbers to see how much we can share. And if that is the case, we will share it.

Okay. What about the clearance? The clearance -- could that be 100 basis points from gross margin to the downside? That's the early number I pegged in.

Corey, any comments on that?

You, on the clearance side it was really a combination of, for retail, having both the price increase. The clearance, it had some drawdown on the margin because of it. But they also sold a lot of -- at the regular price of the new products, even if it was at our sale pricing. So to really add that, it's hard to give the breakout between clearance and the price increase in the regular product.

Also, Budd, with a major increasing our wholesale business, which, as I said, reflected sales -- we had also good increase in sales international markets. We've opened up a number of new design centers for which products were shipped, whether it was in the second location in Dubai, the first one in Doha, four new locations in China. So those were also to our licensees. So as you know, when we are increasing the wholesale we then have to eliminate that part that goes into our retail, which is not sold to the ultimate customer. However, we did have a good business in the wholesale as an increase in wholesale does have a positive impact on our gross margins. So that really was one of the major factors, Budd.

So that got me to that question because the gross margin in wholesale -- it looks like it had to have been really good with a 17% plus operating margin in the wholesale side. So I expected that there would be 80% shipment of the new goods, irrespective of the efficiencies of trying to make the new goods. You had a big improvement in gross margin wholesale. So maybe we parse it by gross margin changes and retail changes, if we can get some of that --

As you know, volume takes care of a lot of things.

Oh yes, right. Any numbers to quantify those lot of things?

Let's take a look at it. I don't want to just give numbers. Let's take a look at it, what we can, and then we will get back.

Okay. China inventory was an issue, I think, last year. We don't have that anymore. As you said, they opened up four new stores. So any commentary on what percentage of sales might have been international? We used to disclose that. I don't think we get that anymore in the Q's.

Corey, are we disclosing that in the Q's?

We do show in the Q the international sales.

So maybe we get an early look at that, Corey?

The international net sales as a percent of our consolidated net sales were 12.1% for the first quarter.

Versus what?

It was 9.8% in the comparable prior-year period.

Okay, great.

But to answer your question, in China on low inventory issues, they are actually doing well. And in fact they also mentioned they have a fairly aggressive plan of opening new stores and even renovating the ones that they have, so very aggressive positive developments internationally, especially China.

Yes, I've heard that, what's going on over there. I am guilty of wanting you to increase advertising. I think you have got a fabulous retail business and I want more people to able to taste that. So I'm guilty of that as charged. You said you're going to spend 40% more, I think, in the second quarter than you did last year. Can you tell us what you spent last year in advertising in the second quarter?

I don't -- here just one second; I will tell you what it is. And Corey, you, of course, have the number, too, there in Danbury. Corey, how much of this do we report on our advertising spend?

I was just looking for the number here to see if I have it, Farooq.

Approximately $7 million I think we spent, between $6 million and $7 million. And we are going to have 40% more. But Corey will look at the right numbers; I don't have it in front of me. But it will be approximately 40% more, between $6 million and $7 million that we spent last year.

Great. Farooq, you know how much I think about the way the business is run. Congratulations on just terrific performance in that profit line and good luck on the second quarter and the balance of the year.

And, Budd, you are my friend for a long time. You folks spent more time thinking about profits. They only think about sales. A lot of folks have sales, no profits. I am focused more on profit and sales. Both are important.

I agree with that, Farooq. Nothing happens to somebody sells something but you do have to bring it to the bottom line. And you do a terrific job of that, for sure. Thank you.

Kristine Koerber from Barrington Research.

So a couple of questions. First, just to follow up on the advertising, I believe you've said in the past overall ad spend was going to be up probably close to $10 million. Is -- any change to that? I know, obviously, you are increasing Q2. But beyond Q2, should we expect more advertising spend than that $10 million that you initially outlined?

Kristine, as I mentioned, we slightly reduced, actually, in the first quarter. So now we are going to increase in the second, third, and the fourth quarter. And I would say that between the second, third, and the fourth quarter we could possibly end up spending that $10 million.

Okay. So it's still pretty much on target. And then as far as -- I know you are not giving a lot of color on the product launch in the spring. But should we expect significantly -- I guess I'm just trying to figure out how much new product should we expect, come this spring? And what is the timing of that?

The product line is going to be fairly, I would say, strong. It's more related to furniture products, more stuff is made in North America. But as we change -- when we talked about changing 600 items of products that we did in this period between our first and second -- and between the first and second quarters, there I'm talking about most probably talking of approximately one-third of that. And the product is going to be introduced around early spring to the consumer. Say by April, May is our launch for the consumer.

Okay, that's helpful. And what percentage of the sales -- or how do I look at the on-demand program? I know you were targeting like 70% of case goods, 50% of upholstery products that would be part of the new product that would be part of the on-demand program. Are you on target there? And what percentage of your sales are coming from that on-demand product at this point?

Yes. In fact, one of the reasons our inventories increased is because of the fact that we are, on the plan basis, putting products that we are showing on the floors of our design centers to be in stock. Our objective is to be what you just said, 70% of the product that we show in case goods to be in stock and about 50% of the items that we show to be in stock. I would say that we would be receiving that by the end of -- most of it by the end of the second quarter and some of it in the first part of the third quarter. So this would give us an opportunity of also helping -- as you know, we have launched a new website. So it is very, very important that our website also help sell our products through our e-commerce as well as driving traffic into our design centers. So the in-stock program that's on demand really is -- the in-stock program should help.

And as far as sales are concerned, there are two aspects to it. We are seeing some increase in sales, keeping in mind that only a portion of our products right now is on demand or in stock that is shown in our stores. What one is really doing is this: it's helping sell our custom products because that's really what is a great competitive advantage that we have. When people come in, they ask what's in stock, we show them. And as human nature is, we see that 80% of them migrate to our custom products because we are shipping our customer products in record time. So in stock is going to increase but, I believe, is going to help us sell our custom products as well.

Okay, that's very helpful. And then just lastly, quickly, I know in the past, I think it was last year, you were trying to capitalize on the holiday gift-giving business. I know it's not typically your business. Are you doing anything differently this year to try to get some of that business in your doors?

Kristine, we are, but I think our focus is more on those areas where we at this stage have a competitive advantage -- business leather, media, those kind of products where we have an advantage, where we can make them. That's what we're going to be promoting this holiday.

Great. Thank you very much and good luck.

Cristina Fernandez from Telsey.

I wanted to see, Farooq, if you could talk about the quarter and whether there were any noticeable changes in either customer behavior, traffic, ticket, or by category that you can call out relative to the last quarter or two.

We do see that customer behavior is being impacted to some degree with all the news that we are hearing. Our 24 news scares people. Then the Wall Street doesn't help with gyrations of the stock going up 200 points one day and the next day coming down. All of these things does concern consumers. And we do see from week to week when those kind of gyrations take place I get the report from our retail network. People are just somewhat hesitant.

Having said this, most at the end of the day end up closing. And a lot of the business we do close at the end of the month. I think there is somewhat of a concern among consumers and what is taking place with all the news that we hear about the world and the economy. So I would say, as I mentioned in our press release, that we are cautiously optimistic. I would say the mood of the consumer is also cautiously optimistic.

Can you clarify -- with regard to the spending for the store remodels, how much of that total spending that your plan was done here in this first fiscal quarter versus what is going to be taking place in the second quarter?

I would say that half of it was done in the first quarter because some of the larger projects like [Queens] and Manhattan, we are in the process of doing some major renovations. I know you folks are in Manhattan. In two, three weeks time you should go there and take a look at it. And similarly, some major changes are taking place in a number of our flagship design centers in Chicago, Southern California, Northern California, Atlanta, and other places. A lot of that is going to take place in the second quarter and some will overflow to the third quarter. I would say we are 70% there with what we have spent so far.

Okay. And remind us what's the total spending for the remodels? Because I know -- I think a couple months ago you had mentioned that this year you are going to spend $9 million more in capital. How much of that was allocated to store remodels?

I think that it's a little bit too early, Cristina. Let us get a little bit more information and we will share it with you in the next quarter.

Okay, and just one last one. On your website I think we have all noticed the new landing page, and the look of the website obviously is new and nice and different. Is there anything that you can tell us about is there any new functionality in the website that is maybe not as apparent to us, whether to the consumers or your interior designers, that was enhanced through this upgrade?

It's a great grade. Of course, keep in mind it's a work in progress. We've just launched it, and it has been well received. But Corey, how about giving four or five important characteristics of the new website? Corey has been deeply involved with it.

Yes. We have really taken the site and made a focus of making it easier to navigate. So the whole navigation for the site is much more streamlined. And that enables people to quickly get to the information and product information that they want to get to. We have also upgraded all of our imagery on the site. So every digital image, for the most part, has been redone, showing the product in a much better presentation and format.

We have also made the site now what's called a responsive site design. And that makes the site viewable on any device. And especially that becomes important on mobile. And in the past we used to have a separate mobile site. And this responsive design really adapts the structure of the site so it has the same content across any device that a customer is looking at.

The path to purchase much enhanced on this new site version, and the checkout process has become much more easier. We have also taken the customization tool and re-skinned it so that it's a much easier process flow and a little bit more intuitive for customers that want to do that while at the same time making the in-stock product much more visible on the site. And that allows the customers just to quickly buy something, put it in their cart, and not have to bother with customizing for the in-stock finishes or the in-stock fabrics.

And then what we are still going to be launching in our second phase in a few weeks will be our additional features, which we will start layering chat, live chat, and then also a blog feature. And then we also have a gift registry that will be phasing in as well. And then we have a few other phases beyond that. So a lot happening with it every day. We're doing about a build every other day on the site yet, and we will continue at that pace for a little while.

Thanks, Corey.

Thank you, very helpful.

Barry Vogel from Barry Vogel & Associates.

I noticed in the press release that you said you were going to have 600 new items -- your fall introductions. And I hadn't seen a number in all these years about how many items you are introducing in the fall. So it struck me to ask you, is this a significant increase versus other fall introductions, or is that normal?

No, Barry, this is a major, major change. In the last year we spent time in reviewing our product lines. We got our own designers. We retained designers from the outside. And we looked upon this whole question of, in this fast-pacing world, how do you remain relevant, whether it's technology or whether it's in offerings.

And what has happened is, which is that -- and where our competitive advantage is -- great quality, great design, tailored finishing but also relaxed. People today want to -- like in the clothing, they want great style but they want to be relaxed. So these products that we have introduced, 600, reflects that. Out of the 600 products there are many that were in line but we changed the finishes. But for our design centers it really meant as a new product. It included -- I would say that what we have introduced this time was most probably at least 60% to 70% larger than we have done in the past.

Thank you. And I have a couple of questions for Corey. Corey, can you tell us what your expected capital expenditures will be this fiscal year and your D&A this year?

We are thinking that the capital expenditures will be right around that $28 million, $29 million range, which is about $10 million, $9 million or $10 million ahead of what we had in capital expenditures last year.

And the D&A, Corey?

That will probably be right around, I'd say, the $18 million to $20 million range.

Now, if we look at the refinancings, can you tell us what the interest rates are on the revolver and the current loan? And how much -- how much interest savings will be accomplished in fiscal 2015 for the year?

Corey, I don't know how much of that we can disclose. But, Barry, let me just tell you this, that obviously we are paying, which is public, 5 3/8% on these notes that we have. And the interest rate today, of course, is, on our revolver as well as the term loan, is substantially, substantially lower than that. And that's why when I answered the question earlier, the difference between what we are paying and what we financed using some of our own money, we end up by saving $3.5 million to $4 million.

So the P&L will benefit by about $3.5 million to $4 million for the fiscal year?

That's right. That is when we redeem the notes. Our notes -- we have a may-call provision. That's why we are waiting because if we redeem them, we've got to pay the interest through the maturity. And there's no hurry for us to do that.

Okay. And you won't tell us how cheaply you are refinancing in terms of rates?

Well, we worked very hard to make it very, very competitive.

On the 8-K that's out on the website, that has a lot of that detail for you.

It does? Okay. So, Barry, we are already disclosing it.

Okay, thank you very much.

Justin Bergner from Gabelli & Co.

Most of my questions have been answered, just a couple one-offs. Are international sales accretive to your wholesale operating margins or wholesale gross margins?

Yes, they are, because of the fact that all our wholesale business that is done, especially to our licensees, are immediately reflected in our sales and its impact positively on the gross margin.

Okay. But international is a little bit better than the broader wholesale?

No, it's about the same. I would not say it's better because our wholesale prices are the same, whether it is to our international accounts or to our domestic.

Okay. Was there anything unusual with respect to manufacturing, helping the wholesale operating margins this quarter that might not continue into future quarters?

The issue really is that as long as we continue to have strong volumes, because our manufacturing does benefit from volumes, it covers our overhead. As our volumes continue to hold up or increase we have an opportunity of leveraging that more in our manufacturing.

Okay, great. And then the final question was just on the sale of excess real estate, what was that excess real estate? Do you have more excess real estate? And how much cash might it be bringing in the door?

The overall cash that we got from the sale of the excess real estate was a little over $4.3 million or so. And over the last few years this excess real estate represents some design centers that we have relocated, consolidated, and also represents some manufacturing and distribution facilities. Fortunately, most of them is behind us. But a few more are coming up. As we do that, we have been able to sell them. And obviously, based on our book value, some of them we sell at a loss, but we do get a positive cash flow.

Great. Good luck in the December quarter.

Dillard Watt from Stifel Nicolaus.

A question maybe for Corey. I was wondering if you could help us parse out what the sales impact might have been from shipping new product into the retail stores and what the difference might be between what the new product was in terms of impact of sales versus underlying sellthrough to customers.

Well, Dillard, certainly retail business drives the wholesale business. So that had a strong impact on wholesale. The new product also boosted wholesale. And you did see probably one of the stronger wholesale quarters within the last four quarters. So the 10.1% net sale increase for wholesale was very strong and benefited from the new product introductions. But it also benefited from the retail as well.

Got it. You have any type of maybe quantification of what the wholesale benefit from new product might have been?

No. We don't really have it to split out that way, Dillard.

Okay. Thank you very much, guys. Good luck.

(Operator Instructions) Jeremy Hamblin from Dougherty & Company.

Thanks for taking just a quick follow-up here. Two things -- one, did you disclose, Corey, what the ending retail backlog percent was? I know last quarter it was down 4.7%. I was just curious where it came out in September.

On September -- the backlog is interesting. Certainly it was up about 11.5% sequentially from Q4. And if you compare it to prior year it was down by 5.3%. But as Farooq mentioned, our manufacturing has record delivery cycle times right now with how fast we are able to move product through. So the production capabilities of our manufacturing have an impact on how much backlog we carry at any one time. So it's a little hard to, sometimes, get a read on that number for your models.

So you are saying it's not a particularly relevant number, just because of the change and improvements in timing on deliveries?

It changes quite a bit with the timing of delivered and our cycle times with manufacturing. And manufacturing has really been doing well in ramping up their capabilities. So that has some impact. But we did see it increase over where we were last quarter sequentially, but yet down where we were last year.

Okay, and just one other follow-up. When you are going through the store, the changes in real estate and store openings, relocations, et cetera -- it looks like you are down four stores on Company-owned basis. And you are actually down -- or, I'm sorry, you are up one store on the independently owned basis in total. How should I think about that over the course of the rest of the year? Will the Company-owned stores continue to slightly drift down and then your independently owned slightly drift up? Or how should I think about that?

Yes. If you take a look at it, as we reported, we had 294 design centers. And it was three lower than what we had the previous year. The retail division had four less at 143. But the important thing is this, that in the retail division we have been relocating and consolidating where, in some cases, where we had two design centers we consolidated them into one. In Cleveland, for instance, we had three we consolidated in one over a period of time. Just recently in New Jersey we had two; we consolidated them into one. So we are looking at -- the consolidations are important because if we can increase our productivity it's good for our designers, good for our people.

To answer your question, at this stage I think the numbers that you see in terms of the Company -- I think our total number would more or less stay the same or slightly -- there will be a change. We will close some, we will open some. I think there you are going to see more increases in our independents, mostly international.

Got it. Thanks so much.

And this does conclude the question-and-answer session of today's program. I would like to hand the program back for any further remarks.

Well, thank you very much. I'm glad that we had this opportunity of giving you our perspectives. It has been a good quarter, but was got a lot of, a lot of work in front of us. And I think the next year or two years is going to give us an opportunity of differentiating. As I said earlier, our model is different. We don't go out, buy the products, and then hope to sell them. And there you can also increase your sales. In our case we have decided that we're going to make the products. We've got to make sure we have the capacities to do that. And we have, in the last two, three years, are spending a great deal -- in fact, in the last five years, in not only consolidating and growing our ability to manufacture, we have invested a great deal in our design centers, in new products.

So I believe that, as we go forward, we will continue to increase. But keep in mind we have to balance what we sell with what we can service. So we cannot overdo in selling and not service it. That's what we've got to -- that's the perspective, and that's what differentiates our business. But that also means better control of expenses, better control of inventories, and better control of cash.

So thanks very much. Any further questions, please get in touch with Corey.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.