LL Flooring Holdings Inc (LL) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Lumber Liquidators first-quarter earnings conference call. With us today is Mr. Jeff Griffiths, CEO of Lumber Liquidators, and Mr. Dan Terrell, CFO of Lumber Liquidators. As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in all or in part without permission from the Company.

I would like to now introduce Ms. Leigh Parish of FD. Please go ahead.

(technical difficulty) for forward-looking statements. This conference call may contain forward-looking statements that are subject to significant risks and uncertainties including the future operating financial performance of Lumber Liquidators. Although Lumber Liquidators believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in Lumber Liquidators filings with the SEC.

The information contained in the call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative at a later time. Lastly, Lumber Liquidators undertakes no obligation to update any information discussed in this call.

And now I am pleased to turn the call over to Jeff Griffiths, CEO of Lumber Liquidators.

Good morning, everyone. Thank you for joining us for Lumber Liquidators first-quarter 2009 earnings call. With me on the call today is Dan Terrell, our CFO. I would like to begin today with a review of some highlights of our first-quarter performance. Dan will then review our financial results in detail as well as our outlook for 2009 and I will finish up with a few closing remarks. We will then open the call to questions.

We are very pleased with our solid performance in the first quarter. Though the economic environment remains challenging, we sought to gain market share in the highly fragmented foreign market, strengthened our unique value proposition for a customer that is more aware of the cost of their purchase and is seeking value, and further build our infrastructure and position the Company for sustainable growth while continuing to generate operating margin expansion.

Our first-quarter highlights measure our success as we increased total net sales 8.1%, expanded gross margin 100 basis points, improved operating margin despite decreased comparable store sales and investments in our infrastructure, significantly increased free cash flow, and grew net income by 18.1%. Our net sales increase was driven by the contributions of our new stores, which we continued to be able to open at a relatively low cost. As planned, we opened 10 new store locations during the first quarter and ended the period with 160 locations.

As many of you know, we have a flexible store model that rapidly offers a strong return on invested capital and we continue to plan for 30 to 36 new stores in 2009. The long term we expect to open these new store locations in an approximately equal mix of new and existing markets. In this current economic environment, we have chosen to more heavily weight our new store openings in new markets as we focus on gaining share in the highly fragmented wood flooring industry.

Our strong brand recognition and effective national advertising program continued to enable us to successfully enter new markets and we remain pleased with the solid results generated by these new stores.

As most of you are aware, we were up against our strongest comparable store sales increases from 2008 in the first quarter. We had anticipated we would have particularly difficult 2009 comparisons in the January/February period as that timeframe in 2008 had been bolstered by certain unique liquidation deals and a substantially better economic environment.

In March however, we were encouraged by the strengthening of customer demand throughout the month and we ended the quarter with a substantial increase in open orders and customer deposits versus the same period of 2008. In fact for the month of March, our comparable store sales decrease was less than half of the decrease for the entire quarter. We have been further encouraged by customer demand and comparable store sales trends in April in terms of both invoice sales and open orders.

Our first-quarter results reflect the strong appeal of Lumber Liquidators value proposition and the flexibility we have in delivering our marketing message. We continued to broaden our product assortment across a greater range of price points and we strengthened our in stock position including moldings and accessories to better satisfy our customers. We continue to see customers seek out the value that we provide through our superior selection of quality products offered at everyday low prices.

Our call to action advertising focused on specific offerings resonated with consumers in the current environment and helped drive strong store traffic and sales as the quarter progressed. We continued to invest in the infrastructure supporting our store growth and we are already seeing a return on those investments in our gross margin and cash flow. Due in large part to consistent execution by our entire team and the operating efficiencies we have achieved across our business, we achieved 100 basis point improvement in gross margin for the quarter.

While we are seeing our customers shift their purchases to lower price point categories, our gross margin has continued to benefit from customers purchasing premium products within those categories as we have expanded our merchandise assortment and improved our in-stock position of key items.

We have continued to focus on product flow and our advancements in merchandise planning and allocation as well as additional efficiencies in transportation and our supply chain are beginning to yield significant benefits. We are strengthening relationships with our vendors, lowering product costs, and being more efficient in the way in which we are bringing product in as well as how that product is being allocated to specific stores. As a result, we are not only seeing savings in freight but also more efficient use of our inventory.

We are very pleased that our efforts to position our business for sustainable growth have begun to yield dividends in the form of profitable expansion and solid operating results for the first quarter. As we look forward, our strong capital structure combined with our highly attractive value proposition and low cost and adaptable business model place Lumber Liquidators in a strong position to further expand the business and continue increasing our market share.

While we remain cautiously optimistic in the near term, given the current environment, we are confident in our ability to continue to grow and expand operating margin.

With that, I would like to turn the call over to Dan for a detailed review of our financial results and outlook for 2009.

Thank you, Jeff, and good morning to everyone. As Jeff mentioned, I am going to provide some additional details on our results for the first quarter of 2009 and then discuss our outlook for the year.

Net sales for the three months ended March 31, 2009 grew to $123.9 million, an increase of 8.1% from $114.6 million for the first quarter of 2008 due to the growth in our store base. We have opened 35 new store locations in the 12-month period ended March 31, 2009, and we opened 10 new stores during the first quarter of 2009 ending the quarter with 160 stores operating in 44 states.

Comparable store net sales decreased 5.8% for the first quarter compared to an increase of 7% for the first quarter of 2008. The first quarter of 2008 had been bolstered by the sale of special or unique liquidation deals and delivered our strongest comparable store net sales increase last year.

Comparable store net sales in the first quarter of 2009 continued to be impacted by the weakness in the general economy and the shift by our consumers to product lines with lower than average retail prices. Within those product lines, however, the customers continued to prefer the premium products, partially offsetting the impact on the average sale, which we believe decreased approximately 8.6% to $1600 on a total Company basis when comparing the first quarter of 2009 to the same period in 2008.

As a reminder, we define our average sale as the average invoiced sale per customer measured on a monthly basis and excluding transactions less than $250 and more than $30,000. We continue to be pleased with the overall performance of our new stores given the challenging environment as total net sales met our expectations for the first quarter of 2009. Of the 10 new store locations opened in 2009, seven were in new markets. We continue to expect to open new store locations in an approximately equal mix of new and existing markets for the full year as Jeff noted.

Gross margin in the first quarter of 2009 with 36%, an increase of 100 basis points over the first quarter of 2008. The gross margin expansion was primarily due to a combination of the following. The continuing shift in sales mix to product lines with higher than average gross margins and within those product lines, a shift in the sales mix to premium products. Lower domestic and international transportation costs and the continued benefit from operational initiatives within store operations, merchandising, and logistics.

I would also add that the 35% gross margin for the first quarter of 2008 included 50 to 65 basis points of benefit related to the special liquidation deals which were unusual in their combination of unit count, quality and cost.

Selling, general and administrative expenses were up $36.3 million or 29.3% of net sales for the first quarter of 2009, compared to $32.3 million or 28.2% of net sales for the first quarter 2008. The increase as a percentage of net sales reflects the increase of certain in-store labor costs and occupancy expenses as a result of the growth in our store base.

In addition, the current labor market presented opportunities to invest in our key infrastructure areas supporting product flow, including merchandising, warehousing logistics, and information technology which have and are expected to continue to provide gross margin benefit. Partially offsetting the increase as a percentage of net sales, we continue to leverage our investment in national advertising over a larger store base.

Other income, which includes interest was $122,000 for the first quarter of 2009 and $213,000 for the first quarter of 2008. The effective tax rate was 39.3% in the first quarter of 2009, down from 46.2% in the first quarter of 2008. This decrease was primarily due to approximately $700,000 of additional income tax expense that was recorded in the first quarter of 2008 related to the one-time exercise of a certain equity right.

Net income for the first quarter of 2009 increased 18.1% to $5.1 million or $0.19 per diluted share based on the approximately 27.2 million weighted average diluted shares outstanding. Net income for the first quarter of 2008 was $4.3 million or $0.16 per diluted share based on approximately 26.8 million weighted average diluted shares outstanding.

Turning now to our balance sheet and cash flow, we ended the quarter in a strong cash position with $46.1 million in total cash and cash equivalent, up from $32.6 million at March 31, 2008 and $35.1 million at December 31, 2008. Our operating activities provided net cash of $12.3 million in the first quarter of 2009, up from $1.1 million in the prior year period. This increase is primarily a result of strength in merchandising infrastructure, reducing the seasonal build and available inventory per store, and stronger consumer demand in the latter half of March 2009, which bolstered open orders in the related customer deposits.

Merchandise inventories totaled $106.5 million at the end of the first quarter, up from $95.9 million at March 31, 2008 and $88.7 million at December 31, 2008. Available for sale inventory, which are products we have received and inspected at either our central distribution center or at a store location totaled $84.1 million at March 31, 2009 compared to $75.5 million at December 31, 2008 and $72.1 million at March 31, 2008.

On a per store basis, available for sale inventory was $525,000, down from $576,000 at March 31, 2008 and up from $503,000 at December 31, 2008 in preparation for second quarter net sales which have historically been our strongest quarter.

Working capital was $102.2 million at quarter end with a current ratio of 2.7 times. This compares with working capital of $82.1 million at the end of 2008 first quarter with a current ratio of 2.5 times. Capital expenditures totaled approximately $1.3 million for the first quarter of 2009 compared to $1.6 million for the first quarter of 2008. In each period, capital expenditures were used primarily for fixtures and leasehold improvements for new stores and certain routine purchases of computer hardware and software.

Turning to our outlook for the year, though we have seen somewhat stronger consumer demand in March and April 2009 relative to both the fourth quarter of 2008 and the January/February 2009 timeframe, we continue to expect total net sales for the year in the range of $515 million to $530 million. We continue to expect comparable store net sales to decrease in the low to mid single digit range for the year and we plan to open 30 to 36 new store locations by December 31, 2009. To date, we have opened 14 new locations.

We continue to anticipate full-year 2009 earnings per diluted share in the range of $0.76 to $0.86 based on approximately 27.5 million diluted shares. Finally, we continue to expect capital expenditures of approximately $10 million to $13 million in 2009 and we expect to be cash flow positive in 2009, remaining free of long-term debt.

I will now turn the call back over to Jeff for his closing remarks.

Thanks, Dan. As I mentioned earlier, we are very pleased with our results to date this year, especially given the challenging economy. Our customers continue to be attracted to Lumber Liquidators' unique value proposition and the operational efficiencies we have achieved through our investments and infrastructure have enabled us to turn strong results and grow the Company even in this current environment.

As I noted earlier on the call, we saw an improvement in comparable store net sales trends as the first quarter progressed and that has continued in April. Speaking anecdotally based on what we are seeing in our stores, we believe customer interest in and demand for our products has been gaining strength in the last six weeks or so compared to what we experienced in the fourth quarter of last year and early in the first quarter of this year.

As most of you know, we hold our big annual big sale in April and we achieved a record performance at this year's sale. In anticipation of customers looking for value and purchasing our lower-priced products, we increased our assortment of these products, which helped drive strong customer response during the sale. The combination of improved sales trends and strong orders makes us cautiously optimistic as we move forward.

We are moving forward as planned in our pilot program where our Asian vendors, supplying a range of various products can ship to a central warehouse in China and a single container will be prepared with a variety of flooring for direct to store shipment. As this is rolled out across our store base over time, we believe we can achieve additional reductions in transit time and cost as well as continued improvement in our in-stock positions and merchandise availability. All of this will allow us to improve customer satisfaction and strengthen our competitive advantage.

In addition, we are on track in our plans to upgrade our technology and systems so that we can increase the disciplined and efficiency with which we manage operations throughout our organization. As we previously discussed, the upgrade is intended to optimize our warehouse and distribution systems and assist us with managing our inventory.

While we have spoken this quarter and over the course of the last year about the benefits we are seeing from the strengthening of our infrastructure and our ability to operate more efficiently, I would like to point out that we are still only in the early stages in terms of our goals. We believe there is much more we can do to further enhance our execution and we expect that we will be able to maintain the positive momentum in our business over time.

On last year's call at this time, I highlighted some of the unique aspects of our business model that are contributing to our success. I would like to close today by reiterating those points. Specifically, we continue to build on our position as a leading specialty retailer of wood flooring in a highly fragmented market. We have a great low risk, high return store model that allows us to expand despite the external environment. We have a great value proposition and a flexible marketing strategy that allows us to highlight our quality products at everyday low prices.

We have a strong infrastructure in place and are only beginning to realize the benefits of the operating efficiencies we have created across the business. All of this makes us confident in our ability to continue to grow and expand our market share.

We would now like to turn the call over to answer any questions that you may have. Operator?

(Operator Instructions) Rick Nelson, Stephens.

Thank you and good morning. I would like to ask you about the gross margin improvement. We've seen now a string of year-over-year improvements. I'm wondering if you think the level we see this in the quarter is sustainable.

You know, we continue to believe that we have opportunity to continue to grow margin. We were very pleased with the margin this quarter. There are certain things that happened this quarter that will continue to happen, the shift in the product mix to the more premium products that carry the higher margins, the continually increasing add-on sales of moldings and accessories, we should continue to see that. Certainly we should not underestimate the improvements that we are making in our product allocation and inventory management. Those things will continue to get better.

We did get some benefit from the lowering of the freight -- the fuel costs. You know, that I don't think we can assume will last forever, but certainly short-term it probably will. You know, as you look at our business historically, we tend to carry a bit lower margin in the second quarter because of the big sales in April that tend to be more promotionally driven, carry a bit lower margin. But our feeling is that we are going to continue to see stronger margin and we are -- we remain long-term committed to that 10 of 20 basis points annual increase in margin over the long term.

Thank you. How do you see closeouts at present? I know you took an (inaudible) floors inventory. Are they less available today than they were prior year? I know you had tough compares that way in this quarter.

You know, it still seems as though there's quite a bit of product available out there. It's -- I think the thing to caution you on is that it's not always predictable and it is not always consistent, but certainly there's still a lot of excess capacity and with some retailers in the category struggling, it creates opportunities for others. And I think as we continue to develop relationships with our vendors and getting a better understanding of how they manage their business, we are finding opportunities to create special buys.

For instance, some of our vendors had a lot of leftover product that we call shorts, I guess, and now we are working with them to create special buys with those products. That's product that they previously were either throwing out or were selling below grade for something else. So we are finding ways to create deal product as well. So our feeling is that we are going to aggressively continue to look for promotional product and we are confident that we're going to continue to be able to find real value deals.

And [pro-sales] strength that you pointed to, can you quantify the type of increase that you are seeing and is it more aggressive promotions that is driving that? What do you think is behind the improvement in April?

I think it was a combination of we did plan and put together a very successful sale, and I think that's another example of our continuing improvement and our ability to execute. The sale was much bigger and much more complex than anything we had previously done and I think that's one of the benefits that we get from the increased investment that we've made in training at both the store level and the home office level.

And I also think that it was part of our marketing strategy and one of our benefits is that we have the ability to adjust our marketing message in a very quick -- short period of time if we want to. And we continue to see consumers responding to value, responding to good prices, good promotions, and so we are going to continue to do that and again, we think that's one of our advantages.

Finally, Jeff, if I could get an update on your logistics strategy particularly consolidating overseas and shipping direct to stores in the West, how that's proceeding.

It's -- we're in the final stages of testing. We should -- that should go live early next month if everything goes according to plan. But you can see that a lot of the margin improvement in the first quarter was driven by other improvements in the way we've managed the inventory. If you look at the inventory per store came down from the first quarter last year. The growth in inventory was lower than it was in the first quarter last year, and a lot of that had to do with just the fact that we are continuing to improve how we're managing the inventory. We are improving our planning and allocation, which again, when we talked about our goals for this year, this was one of our main areas of focus.

And so we are seeing benefits this early in the year and we expect to continue to see additional benefits as a result of that investment in infrastructure. You know, if you take a look at some of the SG&A, we've made -- we continue to make some investments in spending there because we think that's going to help drive, continue to drive improved gross margin.

Thanks a lot and good luck.

Robert Higginbotham, Goldman Sachs.

Good morning. A question about the composition of the comp. This quarter you talked to an 8.6 decline in average ticket. Last quarter you had talked to a decline of 3% to 4%. Now, I don't know if that is apples to apples because if you had a specific definition for this quarter, but maybe you could clarify that to start with.

But could you talk about the moving pieces within that? Last quarter average unit retails were down significantly, but those were offset by big pickups in volume. So I was wondering if those trends had continued or if there was some change in that pattern?

That is a continuation of the same trend, for the most part. Customers definitely have continuing to trade down. Laminate sales are significantly higher than they were last year. Bamboo sales are significantly higher. Some of the deal product that we bought at lower price points. But again, what we have mentioned before is that within those products categories, we are selling more premium products and that's really helped drive the margin improvement.

We actually are serving a much larger number of customers than we served a year ago and so we think that that's important that there is -- that tells us that the traffic and demand is good and, you know, the consumer is just responding more cautiously with their purchasing decisions. And we think that trend is probably going to continue for a while and we are planning for that. We've increased our product assortment in those categories and again, we are not overly concerned about that because of the better margins that we've been able to get out of those products.

Robert, I would just add that the decline I think that we disclosed in the average ticket at the end of the year was the full year average ticket, where it fell from $1800 to $1750. But on a quarterly basis, this is a continuation of the same trend that we saw which is the consumer preferences towards lower than average retail prices.

Got you, understood, and that certainly makes a lot of sense. I guess one thing I'm wondering if you are seeing people still take on bigger projects, albeit at lower price point per foot. Are they kind of doing two rooms instead of one?

I don't think we have seen a dramatic shift in that -- in the volume per ticket. Generally the same trend that we saw at the end of last year.

Got you, and one last question on costs. You of course pointed to your focus on improving things within your infrastructure capabilities like merchandise flow and you certainly demonstrated a lot of progress this quarter and you made a big hire towards the end of the first quarter. Kind of looking forward, kind of just big picture, I mean where are you in terms of kind of building the staff you think that you will need kind of for the long haul? Do you foresee needing to build any significant muscle in any areas? Or are you kind of where you think you need to be?

You know, we think we have a strong senior management team. We feel like we have all the pieces in place for that. We will continue to strategically add staff were we feel that it's going to help bring more operating efficiency. We recently brought in a director of product allocation because we felt that that having a person with a deeper level of experience in that area would help again, part of our major strategic initiative for this year. And so like I said, a lot of the margin improvement was attributed to that and we've really just scratched the surface there. We've got a lot of opportunity to continue to get better in that area.

Great. Thank you very much.

Brad Thomas, KeyBanc Capital Markets.

Thanks. Good morning, Jeff. Good morning, Dan. Dan, I wanted to follow up on a comment that I think you made saying how March and April were better than some of the previous months as well as better than last year. If I heard you correctly, were you implying or saying that comps are positive year-over-year for those months?

No, Brad, when I mentioned last year they were stronger than in the fourth quarter of 2008 and then stronger than the January/February time period.

Got it, okay. Thanks.

We have seen a strengthening in the demand, but not positive year-over-year yet.

We are still -- we still are anticipating that comps will be down in the low to mid single digits and as we had said at the end of the year that we felt that they would be weakest early in the year and then would continue to improve as we got later in the year for two reasons. One is that we will be going up against easier comparisons from the second through fourth quarter and that we do believe that the consumer demand will get a bit stronger as we go throughout the year.

Perfect. That's helpful, Jeff. Thanks. Then in terms of your balance sheet, it looked like customer deposits up about 45% year-over-year. How should we think about that line item? Is that just an indicator of the pickup in demand that we saw towards the end of the quarter?

Yes. We had a really strong last two weeks of March and that's reflected in the customer deposit balance as well as the open orders that go with those.

Perfect. I just wanted to follow-up on new store economics. It looks like the new store productivity number is still holding up very well this quarter relative to the last couple of quarters. Could you talk a little bit more about what you are seeing sort of year two, year three, and how stores are maturing once they enter the comp base? I mean, I would imagine that you are not maybe seeing quite the same lift because the average ticket has come down, but hopefully you are still seeing strong lift in traffic. Would that be a fair way of thinking about it?

It is. We are pretty much on our plan when we say the new stores are not only the new stores that we opened in 2009, but all the non-comp stores to include those that we opened in 2008 as well and as far as those that have recently entered the comp base, with an understanding of where we are in the economy, we are still seeing performance that is at or above our expectation.

Great. Okay. Thanks so much.

Peter Keith, Piper Jaffray.

Thanks, good morning, guys. I was wondering on the three gross margin drivers that you outlined, would you put any qualification to those or perhaps rank them in order of importance?

We really don't, Peter, but they are all significant and that's why we really felt the need to break out the three in that transportation is benefited by both the fuel cost but as well as the logistics initiatives. The team we put in place, you know when we talk about the investment and the infrastructure and where yields benefit, we are just -- we are pleased with what the store folks did with the merchants and with the logistics people. So we haven't broke those out as individually quantifiable.

Okay, that's fine, and just a follow-up from some of the previous questions. With the ticket down about 8%, so the simple math would suggest that your traffic was positive during the quarter.

Right.

Okay, that's good to hear. Then lastly just on looking at your stores across the whole country, have you noticed any interesting regional trends perhaps some areas showing some stabilization or anything falling off?

Yes, our store performance, our comp store performance historically has been more impacted by cannibalization and maybe the second area or a lesser degree by individual store staff performance as opposed to what we could identify as a regional trend. But I will say that there has not been any area of the country that we have looked at and said, wow, that looks like it's really a problem.

So I would say that to answer that, we feel there is stabilization. One market that has been particularly stronger than others is certain parts of Texas, and I think that is still -- we are benefiting from the recovery from the hurricanes last fall.

Okay, that's great to hear. Thanks a lot and good luck.

(Operator Instructions) Laura Champine, Cowen & Company.

Good morning, guys. It looked like your payroll expense was a little higher than what I expected and I did hear you on the call say that you have made some investments in good hires in some key positions. Are those hires that you can leverage over time or do you think -- if you can give us any kind of guidance on the expected increase year on year in payroll cost this year and where that number should settle out as a percentage of sales longer term, that would be great.

I guess I would respond to that by saying that we are going to continue to invest in talent and staffing when we feel that it can lead to improved efficiencies in the business, which will lead to improved gross margin. So where we -- most of the investments we've made over the past year or year and a half have been directly related to that goal.

So -- and I will say one other thing there is that in this environment where there have been a fairly large number of retailers that have either downsized or gone out of business, there are an incredible amount of very talented people available now and so we are going to take advantage of that.

So to think about it in years forward, though, how long do you think it takes before we can leverage some of that additional staff expense?

Well, if we had positive comp store sales, we would have leveraged it. So maybe when comps come back to being positive again.

We don't expect too add the same amount of infrastructure throughout the rest of this year as we did in this first quarter. There was just an opportunity and a need on our part as we focused on the product flow and it just matched up well with the talent that was out there. About half of the basis point increase was related to the new store growth, so we may see some continued deleverage there as we continue to add stores until the overall comp train goes positive. But I think you can look at this first quarter as more unique.

Got it. Thank you.

Gregory Melich, Morgan Stanley.

Thanks, guys. I have a couple questions. One was first on the financials, the customer deposits and store credits up a lot year-over-year. Was there a timing issue with that or is that a sign of the orders you have coming in for a stronger April? How should we look at that?

It was a surge in customer demand in the last two weeks of March and we have continued to improve the delivery time and satisfying open deposits year-over-year so you can view that not just as a timing but as a surge in demand in the latter part of the month.

Okay, great. So from a cash flow perspective, we shouldn't expect that to be some sort of an ongoing thing unless there's some huge acceleration that continues. Is that fair?

Fair, we would like to see it every quarter. But that's (multiple speakers)

I'm not arguing with that. I'm just trying to understand. The second is on the traffic. You said your customers at your comp stores were up 3%. I think I read that in the release. Is it fair to say that as the comp improved through the quarter that it was traffic that was the improvement there as opposed to any less decline in the ticket?

That would be fair.

Great, thanks.

Hardy Bowen, Arnhold & Bleichroeder.

How are you doing, Jeff and Dan? Advertising costs were up 6%. Is that a timing thing or is that the kind of thing we expect to do for the year?

You know, we always look for about 40 basis points of leverage on an annual basis, but it's going to vary quarter-to-quarter just based on the promotional opportunities and this would be expected actually a little below our expectations for the first quarter. So we were pleased with where it came in.

Okay and I guess the delivery of molding seems to be something that is held up orders. I mean, it takes three weeks sometimes. Is there anything going on to improve that?

We are continuing to make investments in the ability to support that business. We've greatly expanded the assortment of offerings. We are now offering a lot of customized moldings especially the exotic hardwoods and some of the higher priced engineered products. And we're finding it's taking a bit longer to get that whole process in place, but we are continuing to invest in that. And just -- we keep growing that category and you know, as we get better and better at it, we have more and more customers placing orders for molding.

So it continues to put some pressure on us to support that, but we view that as a good thing and I think that's another example of where we have proven that when we invest in staffing to support a new part of the business like that, that we have been able to get positive results. So we are continuing. We actually just -- we are in the process of adding another person into that staff now to help support that growth.

Hardy, I would just add though from the previous comment, we have continued to reduce the days outstanding for open orders and given that the molding sales of moldings and accessories increased to 11.6% for the quarter, up from 10.4% and that has been a consistent trend, we really think that makes us unique in the industry and it is a competitive advantage in what we can offer in molding and accessories, same species as the floor, and that's unique.

So you are really -- you have been able to work around that even as it is now?

It has always been a difficult part of the business, but we are certainly putting the resources to it and we think we are ahead of our competitors and that's going to remain a competitive advantage.

Is there any progress with HSBC on paying for installation costs as well as for product? On the credit card?

You are talking about on our Lumber Liquidators card?

Yes.

Still a work in process.

I guess there's a lot of work in progress in banks these days.

Kind of an uncertain industry out there.

Right, cost of product I guess with sales being down for the industry I guess, should be a lot of excess capacity. Do you actually see cost of product falling and also the currency I guess in Brazil is favorable, or is it holding steady or what is it doing?

You know, we continued to see some benefits from some cost reductions. We are not making any assumptions that that is going to continue going forward, but certainly in this environment we have been able to take advantage of some of those.

Okay, sounds good.

Okay, thank you for joining us on the call today. While we are aware of the environment and remain cautiously optimistic in our outlook, we also continue to be excited about our growth prospects. We look forward to speaking with you again soon and keeping you updated on our progress. Thank you.

Ladies and gentlemen, that does conclude today's conference call. Thank you for attending.