Haverty Furniture Companies Inc (HVT.A) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Haverty Furniture first-quarter 2005 earnings conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded on Tuesday, May 3, 2005. I would now like to turn the conference over to Mr. Clarence Smith, President and Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning. Our first-quarter earnings performance was a significant disappointment. Moving expenses and duplicate operating costs related to closing and consolidating six warehouses into our new Florida Distribution Center while operating in peak season hit us harder than we expected. We had lower gross margins than last year's quarter due in part to the closings of the individual pools of inventory.

While this transition has been costly and difficult, we are clearly better positioned to handle our growing share of the Florida markets. We finally have the enhanced ability to serve new markets and stores in our largest and fastest-growing state. We are aggressively working to bring down our expenses in every category, with a determined focus on our warehouse and distribution costs. We believe that these efforts will produce results beginning this quarter and to a greater extent in the second half.

We showed a nice 45 basis point reduction in advertising expense in the quarter, due to a focus on our best customers and by reducing mailings and insertions to the least performing zones. We expect that we will see this trend in reduced advertising costs continue and are evaluating all expense areas in great detail.

With March and April's strong comparative store sales, we believe that we are gaining share in our regions and building Havertys as the quality furniture brand. This year, we have had a balanced sales performance by all regions, with the Florida region the best performer. The average sales transaction as well as the average retail price per SKU for the first quarter was up 2%. Our current inventory situation is better balanced and more in stock for best sellers than any time in the past six months.

Current backorders at the end of April are up over $7 million over the same period last year. We believe that these trends bode well for the remainder of the quarter's delivered sales. We expect gross profit margins to improve modestly in the current quarter and more noticeably in the second half due to these new merchandising programs, exclusive product, and fewer closeouts.

Havertys Collections and Havertys Premium Collections have sold very well this quarter and now represent about 50% of our total sales. We are importing approximately two-thirds of all our merchandise, with about 50% coming from China. The demands of managing the import flow properly and efficiently will require us to continue to improve our supply chain systems. We expect to hire a key executive in the next few months to head up this important area. We are just beginning to source product directly from Asia and believe that this will become an important part of our product selection and strengthen the differentiation of Havertys in the coming years.

We are in the process of expanding our eastern distribution center in Braselton, Georgia, to be better able to serve our new growth in the greater Washington D.C. markets as well as our growth plan in the Ohio and Indiana areas. The EDC serves as our main distribution center, serving 11 states, and supplements some of the domestic merchandise needs of the Florida region. We have put an enormous effort into building an effective distribution center to serve our regions with the best mix of domestic and imported merchandise, and are structured now to deliver prepped goods to markets within 250 miles, or one-day's round-trip drive, of any of our three DCs and three home delivery centers.

We are pleased that our new markets entered late last year and our newer stores' sales are growing faster than our average store base. Our newest store, which opened in Northern Virginia, has been immediately accepted by the community and is an impressive presentation of the best of Havertys. We expect that we will continue to grow our store base in the greater Washington D.C. area.

With the availability of existing retail space coming on the market in many of the areas we serve, we expect that we will have significant opportunities to be able to expand and to accelerate our growth in the next two to three years. We have begun discussions on a number of possible sites and will announce specific locations when we finalized them. However, our first priority is to grow comparative store sales, and our second is to reduce our operating costs.

This past quarter has been very difficult for much of our team. The ever-changing regulatory requirements and interpretations of the accounting rules have required our finance, audit, and information systems staff to expend enormous time and resources. Our operating teams and store personnel have worked countless hours to complete our new distribution systems to our fastest-growing regions, while delivering record sales volumes in many of our markets.

I am very grateful for the dedication of all of our teams from the home office to each of the 76 markets that our 118 stores serve. We have an enthusiastic team of 4,300 associates and are dedicated to providing them with the best stories, facilities, and logistical support to serve our customers better than any competitor. We are committed to efficiently providing the best value and service to earn our customers' business and to provide a strong return for our stockholders. I would like now to turn the call over to Dennis Fink, our CFO.

Thank you, Clarence, and good morning, everyone. First of all I will mention that inventories were up 6.4 million end of March versus March a year ago. That is up 5.8%, which is quite a bit less than the sales increase. The inventory level is lower than it was at the end of the second quarter last year, and similar to the level that it was at the end of the third quarter.

On our credit operations, we had financed sales by our customers of about 40% of total sales during the quarter; that is down from about 42% for the year last year. The breakdown is slightly more than half of the finance sales were handled in-house, and a little less than half was handled by our third-party provider. Last year that ratio was about half and half.

In terms of debt on the balance sheet, we have reduced $9 million of debt during the quarter; and at this point, our balance sheet leverage is 17.3% total debt to total cap. That is about a 2% improvement from 19% at year-end.

Our net retail square footage this year on a weighted average basis is still expected to increase about 4%. Capital expenditures for the first quarter was $7.2 million; that is on a total expected expenditure for the year of $46 million, which has been our figure consistently for the past several months and was disclosed in our annual report. The funding for capital expenditures will come from earnings from operations and to a lesser extent it is going to be from sales of existing properties and some additional borrowings. However, we don't expect our debt to total cap to be above 20% at the end of this year.

There is one new SG&A expense item I will mention today. $350,000 was reported in the first quarter for compensation expense related to the restricted stock option grants made late last year. There will be a slightly smaller amount than this $350,000 that will be expensed, amortized expense for each of the remaining three quarters of this year. The first time we granted any restricted shares was last year, at the same time we started issuing fewer stock options. The expensing of options won't begin until 2006. We felt the accounting treatment of restricted stock is more straightforward, so we have been transitioning in that direction.

We have had higher than normal SG&A expenses obviously for the last three quarters, and as Clarence Smith mentioned we are fully committed to leveraging these costs for the second half of 2005, expecting to show a reduction as a percent of sales in SG&A from last year's results for the second half.

I will mention that written sales orders for April were up about 12% in total and about 6% for comparable stores. That is about 1.5% less than the delivered sales increases that were in our press release this morning. The written orders were up more early in the month and at the very end of the month.

I will also mention that the forward-looking statement disclaimer that is in our press releases applies also to this conversation today. Also we will mention that we have our Chairman, Clancy Ridley, with us today to help answer questions. And at this point in time I will turn it back over to you, operator, to poll the audience.

(OPERATOR INSTRUCTIONS) Charles Grom with J.P. Morgan.

Can you walk through the leading factors which led to your gross profit margin decline, and when we should expect the year-over-year improvement? Is it going to be in the second quarter or is it more in the back half of the year?

It will be more in the back half of the year. I mentioned that in my comments. We expect a minor improvement this quarter, but certainly third and fourth we expect to see improvement closer to where we were at our peak prior. So I would say that a large part of that has been closing out of the individual pools of inventory that were in some of these six smaller warehouses. We had to basically eliminate that inventory. We weren't going to move any of that back or much of that back to our new DC there. So I would say for the quarter, the greatest fall-off there was due to the closeout of inventories.

But you do expect the 2Q gross profit margins to be up, or flat, or down? I am just trying to clarify.

Slightly up in the second quarter; and third and fourth would be when we see the improvement.

Okay. When you look at the five buckets that you outlined which led to the SG&A increase, which ones do you anticipate lingering over into the second quarter, Dennis? And could you quantify what you think these costs could be at this point in time?

Yes. The one item that is really a performance item on our part is the demurrage issue. That has to do with how fast we can turn around the containers that our imports are coming in. That is a difficult one to predict. It is based on really the rationality of the flow of merchandise.

There will be some demurrage charges I think with us in the future. It would be very difficult to have a zero number, but we think the 600,000 number is much higher than is acceptable, and we are working diligently to try to smooth out the flow so that we don't have that same level of expense again.

As Clarence also mentioned, we will be having a little more warehouse space by early next year to help smooth that flow out, or not be overwhelmed by it when so much comes in at one time, which is really the issue.

It was that plus the fact that we were moving and closing the Florida warehouses. So that combined too.

Right. How about the remaining four? How about the Florida transition? Is it complete? Are there any costs that are lingering over into April?

There are some costs that are lingering. We don't think they will be anything like what we have incurred. I think most of it is just related to getting the labor complements in line. We have had a lot of temporary labor, and there was still some in April. But the transition costs of that are largely behind.

We have some other warehouses where the system is being converted without any physical moves. That is to have the whole Company operating on the same information system platform. That has been in and established for over two years now, and it is just a matter of converting the rest of the stores and warehouses to that. So there will be some travel associated with that; probably some overtime. But we really have since mid-March been running the new facility flat out, and literally flat out with record sales.

Those other items that we mentioned in the press release, I think some of them will subside. The professional services and Sarbanes-Oxley cost we don't expect to be as high this year for the remainder of the year. But I think that that is certainly subject to change based on really what issues arise.

And the other costs I think are here to stay. It's hard to predict on fuel, but that gives you the kind of idea of how sensitive we are to fuel cost. The insurance costs are probably here to stay as well. We are working on a variety of programs to try to get those down, but the reality is that I think those levels will be difficult to take down very much.

On the transportation, Dennis, what is your average stem (ph) mile?

You're talking about the cost per mile?

The actual length.

I am not sure I can answer that. I will have to -- we really have two pieces of that. Literally our transportation is from our big distribution centers to our local market drop sites. Just to pick something off the top of my head, we don't go further than 250 miles for the drop-off to the local markets.

Are you questioning to get to our customer or to serve the DCs?

Serve the DCs.

All the DCs are within 250 miles of each other to be able to be reached. In other words, the DC serves the home delivery centers, which are within probably 200 miles; and then those reach another 250 miles to reach customers.

I understand. On the comp, what was the April comp versus the rest of the store base?

The April comp in total?

The April comp in the state of Florida.

Oh, in Florida.

We don't give it by individual regions.

But it was better. Florida has been the strongest throughout the year, and it's been strongest for the last couple of years.

Great, thanks,

Susan Maklari (ph) with UBS.

Can you talk a little bit about your ability to raise your transportation or your delivery fees? And how you are looking at making adjustments in order to contain the higher fuel costs?

I think the delivery fees, Susan, are dependent on what the local market is, competitive situation. We look at that very closely. We charge a flat stock fee is how we do it. It is averaging probably $75 a stop. We are looking at increasing that to help offset these fees, these increases. That is really the only way we can get it back, is to increase those individual delivery charges. But we want to make sure we are competitive.

Okay. Then I have a bigger picture question. One of the things that has made you guys as successful as you have been is that you have got an ability to customize some of your merchandise to the different regions of the country. As you move towards importing more and perhaps even importing directly, how do you balance that between maintaining that kind of regional product mix?

I think the way we have set up our DCs really allows us to customize to where the specific tastes are really different. Florida is really the one that is most unique. The facility we opened in Lakeland is designed to serve Central Florida South; and we can bring and do bring containers in directly there of goods that are more lighter finishes, lighter fabrics, brighter colors, more Florida looks.

And we do the same for the West. In Dallas, we do a little more oak out there, some heavier frames, and we bring in containers direct to Dallas. The main facility, Braselton, does serve a broader mix. In other words we have some of that coastal mix or Florida mix also in the Braselton facility. Because it serves more markets, we can have a broader mix.

But where it is specifically different, and that is really Florida, we are able to uniquely merchandise for that area, as well as supplement it with the core merchandise from the Braselton facility.

Okay. Do you specialize in any of your Havertys Collections projects or collections around the regions? Or is that more of a standardized kind of offering?

Yes. We do have a Florida core for Havertys Collections and to a lesser extent in the West. But yes we do have different Havertys Collections for the different regions.

Okay, thank you.

Todd Schwartzman of Sidoti & Co.

With respect to the various insurance costs that have been escalating over these past three quarters or so, have you switched carriers at any time over the past nine months?

Yes, we did for our group medical, Todd.

Are you contemplating other changes, such as on the workers’ comp front?

The workers’ comp has gone up as well. We have some very strong people in that area that, frankly, I am not sure if there is a specific program. But the big thing is to keep lost time accidents down; and there is various initiatives to help that happen.

We are really starting to see some flattening out there of rates. We do put all of our programs out for bid. The thing that hit us the heaviest last year was the health insurance, which we did change over. So it is an area we feel like we have got some real expertise, and we believe that we can bring it in under control.

Do you typically put them out for bid on an annual basis regardless of what the pricing trends have been?

I would say that is accurate.

As far as Sarbanes-Oxley, I saw the mention in the press release, the cost of compliance contributed to a $0.5 million increase in professional service fees. What was the actual direct Sarbanes number for the quarter? And where do you see that quarter-by-quarter for the remainder of the year?

The Sarbanes piece of that was I believe about 300 -- actually it is the audit and in the environment of Sarbanes-Oxley. Audit and Sarbanes combined was I think about $350,000 of that increase. There was some of that that was related of course to the year-end audit and the first 404 certification that was expensed in this year.

So I think that is going to be going down. The increase over last year will be going down for the rest of the year. It is difficult. I haven't got a good gauge about how much. I just know that the first time through has got to be more complicated and expensive than subsequent times. So I am hoping to see some relief in that, maybe 20, 30% less of an increase than we just showed.

Got it. Also, could you talk about April traffic versus March?

The traffic count itself, we have really just begun getting good statistics for the whole chain on traffic. Our best proxy for that right now is just the written business itself. So written --

I would say it was down from March about like the business difference. April is historically our slowest month as far as traffic, and we try to fight that, but it historically is a weak month. So I would say it relates to what you saw in the difference in sales.

On a year-over-year basis we think it was probably up about the 6 and 12% that we talked about in written order comp.

Thank you.

Joel Havard with BB&T Capital Markets.

I wanted to circle back on the Florida DC issue for just a second. Are the carryover or the lingering costs you guys are anticipating in Q2, is that more physical transition? Or is this kind of a final merchandise closeout?

I would say it is the latter more. We still have some merchandise we are closing out currently, and we have closed all of the warehouses that we are going to close. We still have some merchandise that we're moving out and some costs in doing that. But this facility is up and full-bore right now.

That was my understanding, and I am glad to hear that. I know it is hard to put a dollar figure on this, but do you all have a sense of what kind of dollar impact we ought to look for in Q2 as a result of this merchandise issue?

That is kind of built into the comments Clarence was making about gross margin. That is what would keep it from going up more than he said. We think there will just be a modest gross margin improvement in the second quarter; and keeping it from going back to the levels, say, of the first quarter last year, among that would be these closeouts.

All right, Dennis. Because of that we are then -- the implication is that we're not getting a hit on the SG&A side like we did this time from that issue?

That is certainly correct. There are still some, I am sure, ongoing -- call it startup type or break-in period that is going on in a new operation. But the pure costs of the transition are all behind us. As I said, we have some other systems rollouts that are software and procedural that are not --.

Dennis, you're anticipating my question there. Your comments suggested that there was still a little bit of sort of back office or warehouse IT conversion going on. That is in SG&A cost, I presume?

Yes, it is. Those will be really across the country, several different cities we have that going on. Everything that is served directly by one of our large DCs is on our system; and there are several smaller markets that need to convert over to the software.

Dennis, again, is that limited to Q2? I guess what I am looking for is both the timeline -- give me the time and the budget.

A lot of this is people that are here anyway. It's a matter of what their effort is. So there is some travel associated with that and some overtime. I am not sure I can just call out a number. But in second quarter there will be some of that; it will go into the third. But it is not something that we will point to at the end of the quarter as something major.

It is really just so that we are clear that there are still some parts of the whole distribution rollout that are still taking place. We are through with all the major milestones and the big physical moves. Those are the costly ones.

Did you all say Clancy was in the room?

Yes, I'm here.

Clancy, I would like your thought, and this is more philosophical in nature, but with all we are hearing about the turmoil with some of these big box retailers, most of whom are mall, off mall, do you have a sense of opportunity for picking up real estate above and beyond what would sort of be built into the 4% square footage that Dennis was talking about earlier?

That is a real good question. We're watching that very closely. Some of the opportunities that we thought may have become available have not yet become available. But we're watching particularly I would say Rhodes, Toys, and others as you know. We're watching that very closely.

However, since we don't know the timing of the availability of those boxes, we are going ahead with an aggressive program of our own to build out the store growth that Clarence has earlier referred to as over two years, averaging 6% a year. So we don't --

Averaging, that is with 4% sort of baked in this year? Okay.

Now, we think it is quite likely there will be some very attractive opportunities, and we are on top of that on a daily basis.

Okay, glad to hear it. All right, guys, that's all I had. Thanks and good luck.

Budd Bugatch with Raymond James and Associates.

This is Rex Henderson filling in for Budd this morning. A couple of questions. I wanted to circle back a little bit on the demurrage cost. Do you have any idea how many days of demurrage that represents? And how that compares to what your normal demurrage costs, demurrage days might be?

First of all, this is a new deal for us. Demurrage was not a major factor in the past. It really came about, as much as anything, because of the delays in getting goods in last year that came in early in the year with imports; and then that on top of the fact that we were moving warehouses. So it was never a factor like anything close to what we saw here. So I don't have the numbers on the average day.

I do know that the carriers are increasing the charges. They are shortening the times that you can keep containers without returning them and raising the fees. That is why Dennis said we think it is going to be a factor going forward. We are really all over this. But it hit us real hard. We were not expecting that. We know it is a key issue. It is a new factor, and it is major for us.

Going forward, do you think it will be half of what it was this year or somewhat less, somewhere around there? Do you have any sense about that?

I would say we would certainly hope it would be half of what we just paid for this quarter or less. That was a huge number, and it was kind of a perfect storm there as far as we were concerned that helped create that.

But we know it is going to be a key issue. I mentioned the fact that we want to bring in some real top expertise in learning how to handle this better, and we will do that. So our folks are expecting to continue to pay it, but at a much reduced rate.

The second thing I wanted to ask about was the transition costs. In the fourth-quarter call you said you thought that the transition costs in the first quarter would be roughly equivalent to what they were in the fourth quarter of about $1 million. And it came in a lot higher then that. Can you give me any sense of where the variances were and what you might have learned in terms of internal controls and how you manage that process?

I would say one of the first things that made it a lot higher was the demurrage. That was one factor that we were not as experienced in as we should have been. I would say that probably the margins, the closeouts hit us a little harder than we expected, and those were hard to quantify. Dennis, do you have any other comments on that?

Several categories. I think as we looked at it on a broader basis when we came up with the actual than we had when we made that comment. The biggest single item was in related to labor. It is temp labor; it is severances; it is the training cost of the new people. It took longer.

Really as you know in the state of Florida is (ph) that big of a distance, but the warehouse workers by and large did not make that transition from one, from Ocala down to Lakeland. A lot of the drivers stayed the same and the management stayed the same. There's relocation costs for people, and it just got very expensive.

Getting out of the old situations took a lot more administrative and warehouse time than we had looked for. But I think the only thing you learn is that really these things are very difficult to scope out and predict; and that when you sign up for one, you sign up for the duration and you stay there until the job gets done.

I think having it during this season too in Florida, just for instance all the travel costs, the hotel costs, people that were from other cities that joined in the effort. Again, you know, in Florida in the January through March time period, it is the most expensive time to be down there. I think all of those factored in to run it quite a bit higher than we did look for.

One other point of clarification is the 600,000 of demurrage costs; is that included in the 1.9 in transition costs? Or is that a separate item?

It is a separate item. Yes. (multiple speakers) That's right.

Thank you.

Laura Champine with Morgan Keegan.

Could you talk a little bit about the competitive environment and what you are seeing in terms of promotional activity? Maybe if you can talk about what you expect for Memorial Day weekend that is coming up, and how that might compare to a year ago.

I think it will be on par with a year ago is what I would guess, as far as the overall promotional atmosphere. Credit is still a big issue, particularly with a lot of different players. We are in that competitive market, so that will be a factor.

There is a lot of pressure on the lower end of the market now, with a lot of the players coming in at that level. We haven't yet seen a lot of the stores that supposedly are going to open in the higher end in our markets yet, but I am sure they will be coming on. So it is a competitive marketplace, and I would say particularly on the lower end.

Clarence, you mentioned that you believe you're taking share in one of the press releases you issued. Do you think that your competition is showing year-over-year growth as well in general?

I would say it depends on the marketplaces. Some of those comments are based on what I am seeing from other retailers and other releases that are coming out that are less than our numbers. Granted, we're the only public retailer that releases, so at least it is pure furniture.

But I think in these faster growing markets, because we are well positioned with new stores we are gaining share. Overall, it is slightly up I would say. Some markets have been tougher. We are starting to see balance amongst our regions where in the past several of them were down. So that also makes us feel like things are better, that we're gaining some share. We're seeing very good balance across our merchandise categories. We are seeing good growth in every category right now. So that is what helps us feel that way.

Great, thank you.

Richard Diamond (ph) with Inwood (ph) Capital Partners.

Talk to you about -- I have a couple of questions about sourcing and competition as well. I assume that most of the case goods now will be sourced from China. Do you see yourself extending your sourcing to lower-priced motion upholstery directly from China and/or bedding as well?

We are bringing in different categories from China as it comes on and is competitive. We haven't done anything with bedding. We're looking at that. That is probably one of the last, because of the bulk. I know they shrink it down and that type of thing. But the quick delivery is important. The bulk is an issue.

But we are bringing in a lot of categories, and I would say we will see most categories come from Asia. It is not just China. We are bringing in a lot of bedroom furniture now particularly from Vietnam. But China is the big horse there, and generally when they attack a category, they will figure it out in time.

So I would expect to see all categories, and we're starting to bring in different upholstery categories, some of which you mentioned, from China.

So motion furniture, even at lower price points, is competitive from China in other words?

It is being imported some from China, yes.

Second question, it seems like the market is converging, with Havertys becoming a direct importer of furniture from Asia; and with the major brands opening, through their own distribution network, direct single-brand stores. Could you assess the competitive threat to Havertys from this convergence, as it seems that everyone is moving into the same space?

It is definitely an industry in transition. We are getting -- we have entered the pool of importing and getting experience there. We have hired some expertise. But our focus is on serving our customers and establishing a good distribution and retail network. So we're retailers, number one. When we can get an advantage on pricing and quality by importing directly, we will do that.

We are working through agents primarily now and some manufacturers. But you're right, the industry is moving head-on at each other. We think we have an advantage in that we are in the best markets or some of the best markets in the country, and have significant share, and have built this infrastructure that we have been talking about to better serve our customer. Many of the manufacturers who are opening stores don't have that kind of structure. So we think --

Do you worry long-term about competitiveness, in terms of custom upholstery for example? Let's say a customer comes into one of your stores and wants a certain fabric on a chair that is not in inventory and needs to be custom-made, or some type of upholstery that needs some type of customization. You go to a Broyhill and/or a La-Z-Boy to get the custom furniture, that in terms of orders you will go to the back of the pack. And where a customer could go to a store brand and get something that can be customized in a week because of Havertys’ new position, you are suddenly at a competitive disadvantage when it comes to customized furniture.

We're not a custom house per se. We do offer custom choice fabrics on most of the goods we sell, and those are stocked for us. Some of those are by Broyhill, some of those are by other vendors. I don't see us going to the back of the pack that would hurt us.

Certainly if they decide not to sell us, then that is another issue. But we are building our program and our brand primarily, and that is our focus. We do offer custom choice and different colors on different fabrics, on frames that we offer on our floor. So we're doing it now. I don't see Broyhill putting us to the back of the pack. That is a possibility, but I just don't think that's going to happen.

Thank you very much.

Michael Cox with Piper Jaffray.

My first question relates to the comments you made about expanding the Braselton, Georgia, facility. Could you discuss the timeline of that and the costs associated with that? You are coming off of the major changes you have made in Florida.

We announced that we were going to expand it. We were hoping to get it open this year. It will probably fall into next year. It is a two-phase expansion. It will take the building after the two phases sometime next year to about 800,000 feet total, from about 510 now.

That is a leased facility, so we won't be paying until we are in it. The rates are good. The primary capital expenditures involved in that would be rack and some equipment to support that. Dennis, do you have any numbers on that?

At this time, we're developing those. There will be hopefully the volume increase to absorb some of that, but there is not a physical move involved. It is purely whatever the lease rate is and the carry cost on the inventory that is in there.

So it should be much simpler than what we have experienced in the past few months here.

Yes. This was designed to have actually as much as we are adding plus even another 100,000 feet when we first occupied the building. So the plans were already in place. It's just a matter of executing those.

My second question relates to the direct sourcing from Asia that you mentioned earlier. Could you quantify the amount that you're currently direct sourcing? It sounds like you're early on. Where you think that number could go over the next couple of years?

And then, lastly, on the margin differential between sourcing it directly versus using an importer.

We're very early on that. We are just now getting some of our initial product in that we have helped develop. I would say that going forward over the next several years this could be significant to us. We don't have percentages. I would also say that it depends on the kind of value that we can get and the reduction in costs for those who are currently doing it.

I think one of the things it has allowed us to do is get a better handle on how it works, the risks, the different costs, the different add-on costs, and which costs we want to take on. So we're gaining experience. In case goods as we already know it is going to be all imported or mostly imported, and we want to be a player in that field, but we are going very deliberately. We don't want to make big mistakes and have to liquidate inventory that is somewhere else.

So I see it as being a significant factor, eventually, over the next three years. I think we could be a regular major player in that area, but it will be a deliberate process.

Okay, great. Thanks a lot.

(OPERATOR INSTRUCTIONS) Management, at this time we have no further questions. Please continue with any further remarks that you would like to make.

Thank you very much. We appreciate your listening.

Ladies and gentlemen, this concludes the Haverty Furniture first-quarter 2005 earnings conference call. If you would like to listen to a replay of today's conference, please dial in to 1-800-405-2236 and enter the access code of 110-29531. (OPERATOR INSTRUCTIONS) We thank you for your participation. You may now disconnect, and thank you for using AT&T teleconferencing.