Ethan Allen Interiors Inc (ETD) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ethan Allen FY15 fourth quarter and year-end earnings conference call.

Now I will introduce your host for today's conference, Mr. Corey Whitely, Executive Vice President, Administration and CFO. Please begin.

Thank you, John, and good afternoon, everyone. Welcome to Ethan Allen's earnings conference call for our fourth quarter and fiscal year ended June 30, 2015.

This telephone call is being recorded and webcast live on www.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.

As a reminder, our comments today will include forward-looking statements that are subject to risks and uncertainties which could cause actual results to differ materially. 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 and 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 the telephone lines for questions.

With that, here is Farooq Kathwari.

Thank you, Corey, and thank you for participating in our conference call to review our business initiatives and the financial results for the quarter and the year ended June 30, 2015.

We are pleased with our progress. While making major changes to reposition our enterprise, we improved our financial position especially keeping in view the record financial results in the previous year quarter. During the year, we greatly strengthened our offerings, our interior design network, our North American manufacturing, investments and technology and strengthened and refined our message.

As noted in our press release, the main highlights are in the fourth quarter comparable written sales increased by 10.4% and total written by 11.2%. Gross margin increased to 54.9% from previous year of 54.6% mainly due to efficiencies at the Wholesale level. Adjusted operating income of $19.8 million and 10.3% of sales. Adjusted EPS of $0.43 versus $0.50 last year. During the fourth quarter increased dividends by 20% from the previous year and the April 2015 increased dividends by 40% from previous year.

For the fiscal year, sales of $754.6 million, gross margin 54.5%, adjusted operating margin of 9.3% of sales and comparable written in retail division increased by 4.4%. We strengthen our balance sheet by redeeming $129.4 million of our bonds, invested $21.8 million in capital expenditures.

We are gratified at our financial results and the implementation of many important initiatives. We have the opportunity to further improve our financial results with increase in sales.

After Corey gives a brief financial overview of the quarter and the year, I will give more details about our business initiatives. And Corey?

Thank you, Farooq. We are pleased that in spite of the major disruption due to do the transitions we went through during FY15 that we ended the year relatively well. While fourth-quarter FY15 consolidated net sales of $193.6 million decreased 2.6% compared to the fourth quarter of FY14, we held most of the record prior-year 9.1% increase that we were up against.

The full FY15 consolidated net sales were $754.6 million, an increase of 1.1% compared to $746.7 million in FY14. The consolidated gross margin of 54.9% for the fourth quarter of FY15 improved from 54.6% the prior-year fourth quarter primarily benefiting from improved efficiencies in our manufacturing that offset the clearance sale of negative impact on Retail gross margins.

The Retail segment net sales for the fourth quarter were 78.5% of consolidated net sales, that compared to 78.3% during FY14 fourth quarter. The fiscal year gross margin was 54.5% compared to 54.4% the prior fiscal year-to-date period. Consolidated operating income for the fourth quarter was $18.6 million with an operating margin of 9.6%, that compared to $24.3 million in the prior-year fourth quarter with an operating margin of 12.2%.

The 2015 year-to-date operating income was $65.9 million with an operating margin of 8.7%, compared with operating income of $69.6 million with an operating margin of 9.3% in the prior year to date. Consolidated adjusted operating income for the fourth quarter was $19.8 million with an adjusted operating margin of 10.3%, compared to $24.9 million in the prior-year fourth quarter with an adjusted operating margin of 12.5%.

Adjusted operating expenses in the fourth quarter increased $2.6 million over the prior-year fourth quarter primarily by increased advertising media spend and other additional expenses at Retail. Year-to-date adjusted operating income was $70.5 million with an adjusted operating margin of 9.3%, compared with $74.3 million with an adjusted operating margin of 9.9% in the prior year.

Wholesale division net sales for the fourth quarter increased 0.2% and generated adjusted operating income of $17.8 million for an adjusted operating margin of 15.3% compared to 12.3% operating margin for the fourth quarter FY14. Year to date, Wholesale division net sales increased 3.5% and generated adjusted operating income of $68.4 million for an adjusted operating margin of 14.6% compared to 12.7% in the prior-year period.

Retail division net sales for the fourth quarter decreased 2.3% and produced adjusted operating income of $3.4 million for an adjusted operating margin of 2.2% compared to an adjusted operating margin of 5.6% for the fourth quarter of FY14. For the fiscal year, Retail division net sales decreased 0.2% and generated adjusted operating income of $4.9 million for an adjusted operating margin of 0.8% compared to 2.6% adjusted operating margin in the prior fiscal year. Retail division comparable net sales increased 0.7% for the fiscal year.

Total comparable written orders by the Retail division for the fourth quarter of FY15 increased 10.4% compared to the fourth quarter of FY14 while total written orders increased 11.2%. Year to date FY15 comparable written orders increased 4.4% and total Retail written orders increased 3.9% compared to FY14. The Retail segment undelivered backlog at June 30, 2015 increased 18.6% compared to June 30, 2014.

The Retail division operates a total of seven design centers in Canada and Europe and the strengthening US dollar resulted in the decrease of net sales, written orders, and a comparative written orders for the Retail segment of 0.7% during the fourth quarter. The Company's consolidated net sales for the fourth quarter were also negatively impacted 0.5%.

Our global network included 299 design centers at June 30, 2015 compared to 295 in the prior year. The Company operated 144 design centers including 7 international locations. And our independent retailers operated 155 design centers including 97 international locations as of June 30.

This compares with 143 Company-operated, including 8 international locations and 152 independently-operated, including 91 national locations last year. Our global Retail network had a total of 104 international locations at June 30, 2015 and 99 in the prior year. For the FY15 international sales accounted for 11.6% of our consolidated net sales compared to 10.6% in the prior year.

Adjusted net income for the fourth quarter was $12.3 million, or $0.43 per diluted share compared to $14.6 million, or $0.50 per diluted share in the prior-year fourth quarter. Adjusted net income year to date was $41.2 million, or $1.41 per diluted share compared to $42.6 million, or $1.45 per diluted share in the prior year. Our adjusted results in the fourth-quarter of FY15 exclude $1.3 million expense associated with the disposition of real estate. The prior-year fourth quarter included $0.6 million in international startup costs.

Our normalized income tax rate for both the current and the prior year was approximately 36.5%. 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 June 30, 2015 was $12.7 million, or $0.44 per diluted share compared with $17.1 million, or $0.58 per diluted share in the prior-year quarter. GAAP net income for the year was $37.1 million, or $1.27 per diluted share compared to $42.9 million, or $1.47 per diluted share in the prior year.

Our effective tax rate was 30.1% and 34.5% for the 3 and 12 months ended June 30, 2015 compared to 23.9% and 31.2% for the 3 and 12 months ended June 30, 2014.

We strengthened our financial structure during the fiscal year and our balance sheet at June 30, 2015 is healthy. During the fiscal year we put in place a new $150 million credit facility and used part of our cash together with the new facility to redeem the remaining $129.4 million balance of our outstanding 5 3/8% senior notes.

At June 30, 2015 there was $75 million outstanding under our credit facility, together with $0.2 million of standby letters of credit, leaving $74.8 million of availability. The annual interest rate in effect on the credit facility is currently slightly less than 2%.

For FY15 we generated $51.1 million of cash from operations. Our total cash and security at June 30, 2015 totaled $86.4 million, a decrease of $49.4 million compared to June 30, 2014 mostly due to the $53.3 million reduction in debt.

For the fiscal year we also paid out dividends of $13.3 million, an increase of 18% compared to FY14. The Company raised the dividend by 20% in Q1 of FY15 taking it from $0.10 to $0.12, and again by another 17% as announced in April taking the dividend to $0.14 per share. This fiscal year after completing the new credit facility and retiring the senior notes, the Company resumed its stock repurchase program. During the fourth quarter we utilized $13.7 million to purchase 542,100 shares. For the fiscal year, we utilized $16.5 million to repurchase 645,800 shares.

Of the 3 million shares repurchased authorization recently authorized by the Board of Directors, the total open repurchase authorization at June 30, 2015 was 2.5 million shares. We plan to continue to enhance long-term shareholder value by continuing to invest into our infrastructure, payment of cash dividends and repurchase of our stock.

Our FY15 capital expenditures and acquisitions totaled $21.8 million compared to $19.3 million in the prior year. We expect total FY16 capital expenditures of $22 million to $25 million as we continue to invest in new technology in the Retail and Wholesale segments as well as incur capital expenditures related to improving and growing our design centers.

Total FY15 depreciation of $19.1 million increased $1.2 million from FY14. We expect total year depreciation and amortization for FY16 of $20 million to $21 million. Inventory of $151.9 million increased as planned by $5.6 million from June 30, 2014 as we continue to maintain an in-stock inventory program at the Wholesale level for many of our new products.

With that, I'll pass it back over to Farooq.

Yes, thank you, Corey. As I mentioned, we made much progress in FY15 and continue with initiatives in FY16. In FY15 we introduced strong product programs. The phase two products received in May and June 2015 by our Retail network received good customer reaction. We introduced phase three of our product introduction early this month to our Retail network and planned consumer introduction later this fall and early next year.

We have continued to strengthen our interior design network by strengthening management and qualified interior designers. During FY15 we also opened up new design centers including in Chattanooga, Tennessee; Charlotte, North Carolina; Marlton, which is in New Jersey; Redding, California; Las Vegas, Nevada; Pittsburgh, Pennsylvania; a second location in Dubai, the first location Doha, Qatar; a third location in Manila, Philippines; plus 17 locations in China.

We also plan to open new design centers, these are all under construction or in plans in Wichita, Kansas which actually opened -- already opened last weekend. Pittsburgh, Pennsylvania with a relocation. A relocation in Hyannis, Massachusetts; in Cranston, Rhode Island; a new one in Toledo, Ohio. A relocation in Columbia, Maryland. A relocation in Dublin, California in the San Francisco market. A relocation in Rockville, Maryland as a greater Washington market, and several more internationally.

And also I'm very pleased that we are -- we have signed a lease for a second major location in Manhattan that's in the flatiron area, the downtown, and plan to open in early 2016.

Our focus continues on a prudent basis to relocate our design centers to more appropriate locations with a smaller footprint and dispose of those properties that we own and which no longer meet our future focus. Since 2010, we have generated $35 million through sales of our real estate.

We have continued to invest and improve our capabilities in our North American manufacturing with about 70% of our furniture products made in our workshops. We continue a strong focus on investing in technology in various spots of our vertically integrated enterprise. During last year, we made investments in manufacturing and continue to make major improvements to our website and technology at Retail.

Our competitive advantage is further enhanced by combining great personal service with technology. During the year we focused on refining and accelerating our message in various mediums including direct mail, digital advertising, print, and importantly with the launch of our 324-page Muses book.

As I stated in our press release, we are well positioned to grow business on a sound footing by investing for the future consistent with our expressed goal of sustained and long-term growth for the purpose of improving well-being of all of our stakeholders. Since 1993 when we took the Company public, after a Management lead leverage buyout, we have been able to invest and return to stockholders $740.2 million in capital expenditures including in manufacturing, technology, and real estate. Repaid $391 million of debt. Paid cash dividends of $348 million and repurchased 18.8 million of our shares for $549.2 million.

We are positioned well to grow our sales and profits and expect to continue with healthy long-term stockholder returns and look forward to our progress in FY16 and beyond.

We are now open for questions and comments. John?

(Operator Instructions)

So our first question comes from Jessica Mace from Nomura Securities.

My first question is on the overall environment, and I was wondering if you could maybe distinguish some of the impact you saw in the Retail business from a promotional environment and what came from the disruption in your business related to the transition?

Our business has been impacted, first positively, with the introduction of new products. But at the same time, it has been negatively impacted with the sell off of product floor samples and other discontinued inventory. So I would say that the overall environment, if you're talking of the quarter, I think we had gradual improvements and a lot of improvements took place in June, when most of our new products, or phase two, had been received and we started some good reaction to it in the month of June.

Understood. And then as far as phase three, you mentioned that that product line would be introduced to consumers in the fall, as well as into the beginning of next year. Do you still think that the six-month time frame for the transition that you provided last quarter is still a reasonable way to think about how long this impact will last?

Yes, I would say that we'll continue to look at our offerings very critically and to see what -- how we must remain relevant for the future. So this third phase is also very, very important, and which is going to be -- is very well received by our Retail network: extremely well received I would say. And we will start marketing it towards the end of the fall, and also by January of next year. So I think we will continue to see some impact of clearance from our -- from the floors of our Retail network.

Okay and then finally on your marketing plans, is there any way you can quantify for us where you expect, roughly, marketing to be next year versus the levels this year?

Yes, this last quarter our advertising was about 4.2% versus -- compared to 3.6% that we spent in the last year quarter. So I think that as we move forward it will range between 4% and 5%, I would say maybe 4.5% in that range, but between 4% and 5%.

Great, thank you so much for taking my questions.

So we'll take our next question coming from Bud Bugatch from Raymond James.

Good afternoon. This is Bobby filling in for Bud. I appreciate you taking my questions. And congratulations on continued progress with the new product introduction.

Thank you, Bobby.

Real quick, Farooq, I was hoping could you maybe comment a little on product mix with the new offering? And are you seeing any shift in consumer behavior between upholstery, case goods and accessories, now that you have two phases of the new offering and put it into the model?

Overall in the last 8, 10 years, upholstery has shown a greater increase and it continues that way. However, with the introduction of the new products we are starting to see some improvements in our case goods, but also a lot of improvement has come in our accent programs, both in terms of sales and margins. So we're going to continue to see some improvements in case goods and more improvements in upholstery and accents.

Okay, thank you for that detail. And could you maybe comment on how phase one and phase two products are now doing on the manufacturing side of the business? I know they initially start off with a few disruptions, but can you talk about the progress now that those have been introduced for awhile?

The good news is that we have done better than our expectations in managing this change. If you take a look at our results, our margins improved in our Wholesale substantially and that was due to the fact of absorbing a lot of these changes. We've learned to absorb things I think better and also technology is helping us. All our investments in technology in our manufacturing has made the changes, I think, more palatable.

And in fact, we have increased our margins at the Wholesale level and a lot of this came through efficiencies in our manufacturing. And keep in mind we were still not as efficient as we could be because we have a lot of disruption.

I appreciate that color and best of luck next year.

All right Bobby; thanks.

And the next question comes from Brad Thomas from KeyBanc Capital Market.

I wanted to follow up about the recent trends. Certainly when we were out in your stores, we hear favorable things about the new merchandise and I think it does look very good.

Your written results do tend to be somewhat volatile. Could you maybe help put into context 10% written results that you saw this past quarter and were there any other factors like price increases, or timing of the quarter that might have affected things beyond just better receptiveness to the new merchandise?

Well I would say most of the increase did come towards -- in the month of June. And the result -- and the factors were the new products, to some degree also we had a small price increase this year in July and last year it was in August, although part of that did benefit last June. However, we did get a little benefit of that, I would say, this June because of the fact that some of the price increase took place somewhat earlier. But I think a lot of that increase is due to the fact of our new offerings making an impact.

That's great. And then with respect to share repurchase, I think this is one of the bigger quarters that we've seen in a while for share repurchase activity. Any reason for why that was the case? And could you give us a little bit more color maybe on what your appetite will be going forward for more repurchase activity?

Yes, Brad, we first wanted to make sure that we redeemed those bonds that were out there, and we had to also get a new line of credit. So all of that was done in this past quarter. I felt that until we had redeemed all of our bonds, got a new line of credit, it was not wise for us to make some big repurchase of our stock. We had done enough of it. We bought 18, over 18 million shares. So we felt more comfortable and towards the end of the quarter we repurchased the shares.

Great, and then another question on capital structure, if I could. You obviously referenced having sold storage in the past where they weren't necessary. You all obviously own a large number of stores and other facilities. Maybe could you talk about strategically or from a capital perspective why you'd like to own the property that you do own?

We are very fortunate that we own all these properties. And if it wasn't for all of this property that we owned, we are in the cyclical business and the great recession really hit it hard. When our operating income went from $145 million to almost zero and our sales went down 40% unimaginable, if it wasn't the fact that we owned all those properties, I can give it a pretty rough, even I do not know what the future would have held.

Anyway our properties are important, but they are also many of them are also in the stage of transition. Keep in mind we had 30 manufacturing operations only 20 and 25 years back and now we have 8. The rest we have sold and disposed of. We have -- on a plan basis, we have been selling our Retail, and a lot of the Retail Brad that we acquired were from our retiring retailers. So we purchased their properties because we bought their businesses.

And many of these locations was what you might call a freestanding destination locations. Today we are moving more and more into smaller locations and in locations that are much more relevant for today in terms of their proximity to the right kind of traffic, and frankly all of them are leased.

So on a plan basis, as we find new locations with smaller footprints, we are moving them into smaller locations. For instance, if you take a look at the last year with Chattanooga, we used to have a 15,000 square-foot freestanding location, now it is a 6,000 square-foot in the lifestyle center.

In Marlton, which is New Jersey, we had a 15,000 to 16,000 square-foot, now it's leased, close to 8,000 or 9,000 square feet. We used to have in Pittsburgh a 16,000 square-foot owned property, which we sold and replaced with about 7000 square-foot leased space.

So similarly the property for instance that we are now in the process of, another one in Pittsburg that we are just in the process of selling it and relocating it to a leased property. Similarly, we are just in the process of under construction in Toledo, Ohio from a 15,000 square-foot to a 6,000 square-foot. And others are, of course, were leased properties that we are relocating.

So on a plan basis, our strategy continues to be to sell those properties which strategically are not right for us and then move them into more viable locations and then dispose of as we have been doing. As I mentioned the last few years, we got over $35 million proceeds from the sales of our real estate, so we'll continue with that.

That's great. And to follow up on real estate, how many domestic design centers do you think you'll have at the end of this year? Are we going to be growing them in the year ahead?

Yes, but our main focus really has been in position them in the right places. Like for instance we are going back into the markets which number of years we gave up because we had 15,000, 18,000 square-foot freestanding stores like Chattanooga. We were in Chattanooga for many years. We're now back in Chattanooga. We are going back into Toledo. We just opened in Wichita, Kansas. These are all free standing. So we're going to go into these markets. Yes, you're going to see an increase in our domestic design centers this fiscal year.

Great, thank you so much, Farooq and Corey.

And our next question is coming from Jeremy Hamblin from Dougherty & Company.

I wanted to hone in a little bit more, it sounds like you saw really nice acceleration towards the end of the quarter resulting in really strong written orders, as well as tremendous growth in backlog. I don't have data going so far back on that. But the 18.6% is certainly the best you've done in the last few years on backlog growth.

As I think about it in the near term and the correlation between the written orders and the next couple of quarters on sales, it would make me think that you would see a fairly significant acceleration on growth that might not -- I'm not saying to expect 10% growth, or something like that for the year. But I think in the near term if you have Retail backlogs I think it's about a 6- to10-week delivery period on those along with written orders that were up double digits, shouldn't that give you really good visibility into the September quarter? And then with the delivery of the new phase three product, shouldn't that set you up well for the first half of your FY16? Can you maybe shed some light, some color on that?

Yes, Jeremy, it is of course good news that our Retail backlog has increased. But even with this increase of 18.6%, the whole quarter will still depend also how will we do in July and August. But certainly it gives us a good start for this quarter. But there's not something that we can just say that absolutely it is going to mean a fantastic quarter. I think it's a good quarter, which also will depend on how well we do in July and August, too.

Okay, fair enough. And then I just wanted to ask on the margin side of the equation, your gross margins were really strong, actually up more than 20 basis points from last year despite the fact that you had higher clearance and softer sales results. Can you maybe go into that detail as to how you were able to achieve that? Because I think as you expressed you have still some manufacturing inefficiencies. So I would have expected maybe your gross margins to be lower than last year. Can you maybe help us think about that a little bit?

Yes, that is an important issue and we are pleased as I said earlier that our Wholesale margins, as we have reported, you have seen them, that our Wholesale margins for the three months of 15.3%, that's our operating margin, versus 12.3% in the previous year. And for the year the 14.6% versus 12.7%, this is despite the fact that we still are going through the learning curve, the inefficiencies of all these new products that are going through our manufacturing.

Our gross margins at Retail were negatively impacted. That's why -- and the good news is that despite our gross margins at Retail negatively impacted which we do not give those numbers, it did have a positive impact overall by the gross margins increasing. If our retail did not have as much clearance as we had, I think our margins would have even substantially increased. That's the good news.

And so as you look forward on that particular line item into 2016, then can we -- you certainly are likely to improve on the manufacturing inefficiencies, is there other reason to think that we can't see improved gross margins moving forward into next year, all else being equal?

No, I would say that we still have, as I mentioned earlier and Jessica has raised that question, we still have to sell off products. Now we got to keep in mind we are changing a lot of our offerings. We are going to go through phase three and then we'll have phase four. But I could not give all of these phases to our network and everybody at one time, it'll scare everybody.

But we are making changes, so in the next year, while we expect to do well in our margins at Wholesale and most probably somewhat our Retail margins too. But we're still going to be affected by the sale of our products in the next one year. So then after that I think we will not have, I don't hope to have as much of a disruption as you had last year and this fiscal year.

Great, and then on the flip side of that on your operating expenses, you are seeing some fairly significant deleveraging in that despite the fact that it doesn't sound like your -- it sounded like your advertising expenses up about $1 million year over year. Can you help us think about that line item going forward, and whether or not, you've had three consecutive quarters of deleverage on an adjusted basis for operating expenses. Is that something where we would expect that to be more contained moving forward into next year?

Overall our expenses if you take a look at them on adjusted basis were somewhat up, about almost 3%. And a lot of that was due to the fact of our investing in our management and strengthening our Retail division, which is very, very important. I'm very pleased that we have strengthened a lot of people in there and our Management.

And the good news is I think that as we move forward we will not have a lot more of that expense. So a lot of that other expense that we're going to have will all be variable, based on increase in sales. And even the advertising, as I said it was, it did increase about $1 million as you mentioned. I think that going forward operating around 4%, 4.5% of sales will give us more advertising dollars and hopefully on larger sales.

Okay, great. So it sounds like the historical contribution margins of 30% to 40%, if sales increased, would still hold true then moving forward?

That's right, yes, and if you go to our opportunity scenarios that we did many years back, we are following it pretty close with the $800 million level.

Great, thanks so much for taking my questions and best of luck.

Yes, thanks very much.

Our next question is from John Baugh from Stifel.

To get in on the last question and maybe getting a little more help, and if you want to parse it out the next six months versus the latter six months of FY16 that's fine. But wondering if we look at Wholesale and the Retail, how much impact is going to be from these phases? If you could give us some help overall how to think about the way the year unfolds, that would be great.

Thank you.

John, that's a big question, but let me try to answer it.

I believe that in the next six months we will have, as I said, we had the opportunity obviously of increasing sales and increased sales has a positive impact on our gross margins. On one hand on the Wholesale side we are improving our efficiencies. On the Retail side we still have to get through to these -- sell off all these products.

And then on the other hand, as I said, we are very much in control of our operating expenses. So the opportunity is to somewhat improve our operating margins, even keep in mind this last -- having an operating margin of 10.3% is a pretty good margin at any level. So I think we have an opportunity of somewhat improving it, although it is pretty good John, where we are.

Okay. But could we expect the second half of the year EBIT to be stronger than the first half, obviously contingent on how sales fall out I understand. But in terms of maybe disruption of Retail sales, of clearance and manufacturing start ups, et cetera?

Yes John, that's a fair statement, yes.

Okay. And then on the share buyback, is there a long -- you're sitting here essentially with net debt at zero. And was curious whether there's any appetite to put on some amount of leverage, or will you more or less just use the free cash flow you generate to buy in stock and try to stay essentially debt free?

John, we are looking at different options. As you know, we have been fairly aggressive. I would almost say we are pretty strong activists ourselves in terms of the amount of stock that we have purchased,18 million shares repurchased. We have given out a tremendous amount of dividends.

So we will continue to be prudent, but aggressive as we have done in the past and we'll consider whether it will make sense to give a dividend rather than buy -- or keep on buying stock? We're going to look at all options.

Okay. And are you -- I think I heard the CapEx more or less matching D&A, would there be any expectation of working capital change this coming year or would that be fairly consistent with the past performance?

I think it would be pretty consistent.

Great, thanks for answering my questions and good luck.

Thanks, John.

And our next question is from Kristine Koerber from Barrington Research.

First, did you state that you just took a slight price increase with this month?

We did. We took about 3% to 4% price increase, yes.

Okay, I just wanted to make sure it was this July and not a year ago. I believe you said last August, correct, in the year-ago period?

That's right, yes.

Okay and then as far as the real estate, just a follow up on that, how many more real estate locations do you expect to dispose of, or how many do you have that could be potential smaller boxes and smaller design centers that are leased?

Well it's hard to give any numbers, because this is a moving target. We take a look at our opportunities, in many cases we have leases. But, of course, I think you're referring to the ones we own, most probably.

Correct.

Yes, I think that it's -- we look at our properties to see how many properties that in the next 10 years or so that we could possibly be moving and most probably it's possible that it -- depends on a lot of circumstances but $70 million, $80 million worth of properties could be sold and relocated.

Okay, and you said over the next decade?

That's right. Again it depends on availability, it depends on all kinds of factors, but it could be sooner too. But I think in the next 10 years, we have an opportunity of selling off $75 million to $80 million on a plan basis off again destination locations and moving them into more what you might say relevant locations for today.

Okay that's helpful, thank you. And then can you quantify or tell us where you stand with selling off some of the old product? Were you on plan for the fourth quarter as far as clearance and what type of discounts are we seeing, are you at the 60% level?

As you know, we don't have outlet centers so we have to sell it through our own design centers, and sometimes we just use our service centers, that is our Retail warehouses to sell. So it's a longer process for us. And I would say that this process will continue and it is -- it's important but not material as we move forward on a plan basis, we are able to sell it off.

Okay but you did indicate it's going to continue for at least the next quarter or two, correct?

That's right, at least for the next six months, and then after that we I think it will -- we expect to taper off quite a bit.

Okay and then did you also indicate that there's going to be a phase four product offering?

There's always new product offerings, you got to keep in mind. But yes the phase four will be a process continuing with this repositioning of our products into what we call classics that are fashionable, that are relaxed, that go from the somewhat more you might say the formal to the casual. Our phase four will focus more on the casual side, because right now the phase two and phase three have been somewhat more, you might say, formal, but again the formal relaxed. So phase four is more of the casual side.

Okay and that's going to continue into calendar 2016?

That's right yes.

Okay, great. That's helpful, thank you.

And our next question is from Cristina Fernandez from Telsey Advisory Group.

I wanted to ask about your comments last conference call that you had moved to two monthly events from one. Has that brought more traffic and consistency in sales throughout the month?

It has, but again we have to -- as we move forward we have to vary it because what happens is this if you make it too predictable, then we end up by seeing that people wait. So we are going to keep on varying it and certainly at the end of the month are still very, very important for a lot of reasons. So a lot of our business does come at the end of the month, even though we do make it to vary it. And that's why we did in some months we do have a stronger ending in the middle of the month, too.

So so far in July have the strong [written] trends that you saw in the second quarter, have those continued?

It's a little bit earlier. The fact is that we had a very, very strong June and that does have an impact on what happens in July. So it's a bit early, because we really can't just take July, August and September combined is what's going to tell us what happens this quarter.

I wanted to go back to marketing. Can you talk about the mix in digital, print and TV and how your focus will be on FY16 versus what it was for FY15?

Yes, our focus is going to be very strong in direct mail. We are actually expanding our direct mail starting actually in September. We have strong direct mail also in July and August, but September we are expanding our direct mail going from September onwards.

Secondly, we are investing in more digital mediums. Digital advertising is becoming important. Third, we are also going to on a selective basis continue with some of our print advertising in national shelter magazines. And fourth is on a very focused advertising on national television.

Thank you. And then one last one, as far as your CapEx spending, how much of that is stores versus technology and e-commerce? And should we expect any changes to your website or e-commerce strategy over the next 6 to 12 months? Thank you.

Yes, we expect to spend between $20 million, $25 million this next fiscal year, and we are spending money in improving our website and all technology. In fact we have a lot of technology in our Retail network from tablets to our designers to touch screens, so we're investing in those.

And we have a great focus on improving our digital mediums, our e-commerce and to see how we can combine our e-commerce business with the business that we do through our interior designers. You will see much more focus on that.

Okay, so we'll take our next question from Justin Bergner from Gabelli & Company.

A quick question on the real estate. The $35 million that has been generated since 2010 or the $70 million to $80 million that might be generated over the next decade, would you care to share how many locations those numbers would correspond to?

I'll tell you this, let's see whether we want to give that information and make it public, and if we do, then we'll share it with everybody.

Okay, great. And what was the real estate disposition cost this quarter, the $1.3 million exactly?

That was a net loss on the disposition of the assets.

Again, some of these -- this happened to be the Retail location. Yes; again some of these locations that we have had and we are moving them and in many cases we sell them at a loss. But of course, we do get cash and then we get the tax benefit.

Sure. And then, switching gears to your international sales, they're becoming a more meaningful component of the total and certainly of the Wholesale portion. Are Retail, sorry, are international sales accretive to your Wholesale margin for the most part?

Yes, absolutely. Because any business, almost all business internationally is done with our licensees. So it has an impact on -- positively on our Wholesale. And keeping in mind all the business that we do with our own Retail network, that has a similar impact on our Wholesale margins, as long as it is sold to a final customer. Any business that we do with our own Retail network in North America, all of that really helps the wholesale margins, whether it is done through our regional network domestically or internationally.

Got it. One more question, if I may. On the SG&A front, it seems like your earlier comments are suggesting that the SG&A level, that maybe the total SG&A level for the just completed fiscal year of about $345 million, that that's a reasonable base off of which one might grow off of into the coming fiscal year. Or is there anything that you would single out on the SG&A side that's unusual in the just completed year that we should think will go away?

No, I don't think there's anything unusual. But basically other than what we have eliminated due to the sale of our real estate is part of our SG&A. So you got to take out these extraordinary costs related to our Retail real estate loss or gain is part of our SG&A. So that you have to exclude, and that's what we exclude in our numbers when we give you the adjusted operating margins.

I think what we can say is this, that other than this real estate, which is extraordinary expense or income, our expense structure is, I would say, in a good position right now. And any increase would basically reflect a variable cost of for instance our delivery costs. Our costs to our associates and selling of the products. So the variable cost would increase. And some might decrease if it goes down, but it would increase on a variable level. Overall, I think we're in a pretty good shape.

Okay thank you very much. Good luck in the coming year.

All right, thanks very much.

Thank you. So I'm showing no further questions in the queue. I'd like to turn it back to your host for any concluding remarks.

All right well thank you very much. Any questions, comments, please let us know.

And ladies and gentlemen, this does conclude your conference. You may now disconnect and have a great day.