Interface Inc (TILE) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Interface, Inc. Earnings Conference Call. My name is Jeremy, and I will be your operator for today. (Operator instructions)

I would now like to turn the Conference over to your host for today's call, Mr. Eric Boyriven of FD. Sir, you may proceed.

Thank you, operator. Good morning, and welcome to Interface's Conference Call regarding first quarter 2011 results. Joining us from the Company are Dan Hendrix, President, Chief Executive Officer; and Patrick Lynch, Senior Vice President and Chief Financial Officer.

Dan will review highlights from the quarter as well as Interface's business outlook. Patrick will then review the Company's key performance metrics and financial results. We will then open the call for Q&A.

If you have not yet received a copy of the results release which was issued after the close of market yesterday, please call Financial Dynamics at 212-850-5600, or you can get a copy off of the Investor Relations section of Interface's website. An archived version of this Conference Call will be available through that website.

Before we begin the formal remarks, please note that during today's Conference Call, management's comments regarding Interface's business which are not historical information are forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements, including risks and uncertainties associated with the economic conditions in the commercial interiors industry, as well as risks and uncertainties discussed under the heading Risk Factors in item 1-A of the Company's Annual Report on Form 10-K for the fiscal year ended January 2nd, 2011, which has been filed with the Securities and Exchange Commission. We direct all listeners to that document.

Any such forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995. The Company assumes no responsibility to update or revise forward-looking statements made during this call and cautions listeners not to place undue reliance on any such forward-looking statements.

Management's remarks during this call refer to certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most comparable GAAP measures are contained in the Company's Results Release and Form 8-K filed with the SEC yesterday afternoon, each of which can be found on the Investor Relations portion of the Company's website at www.interfaceglobal.com.

Lastly, please note that this call is being recorded and broadcasted for Interface. It contains copyrighted material. It may not be rerecorded or rebroadcast without Interface's express permission. Your participation on the call confirms your consent to the Company's taping and broadcasting of it.

With these formalities out of the way, I'd like to turn the call over to Dan Hendrix. Please go ahead, sir.

Thank you, and good morning to everyone.

I'll begin by saying that I am pleased with our first quarter results as we continue to realize return on our operational efficiencies and past investments in our business. The key word for this quarter is "steady." We continue to see steady signs of recovery in all markets. This general uptick was punctuated by a few high points. Let me summarize them for you.

As you know, our business is seasonal, and we experienced solid financial performance across all of our business units during what is typically our slowest quarter. The first quarter was complicated by a slow January due to severe weather that hampered manufacturing operations and sales activity in several major markets. Both our US carpet tile and Bentley Prince Street businesses experienced double-digit sales growth year-over-year.

We had a strong first quarter in Asia and Australia, a particular highlight of which was the official opening ceremony of our carpet tile plant in China. Our European business experienced double-digit sales growth. And our FLOR stores in Santa Monica and Chicago delivered results ahead of plan, and two new stores just came on-line.

In terms of segments -- the corporate office market generated strong results in the first quarter, particularly in the US and Australia, our two largest markets by sales volume. We continue to benefit from our focus on market segmentation. Sales in non-office commercial markets were up compared to the prior-year period, primarily driven by demand in the government and retail sectors in the US and abroad.

Our strong sales growth is flowing through to the income statement. Gross profit and operating margins expanded as we continued to make investments in sales and marketing -- and expanding our manufactured capacity to prepare for growth opportunities we anticipate, as a secular shift to carpet tile accelerates. While these events have led to an increase in SG&A expense in the first quarter, we expect this to be offset by both absolute and percentage terms as revenues increase moving forward.

So although we are still in the early stages of the recovery, the activities we track in our market segments point to strong growth. With overall orders in the first quarter growing to a solid 10% year-over-year, the first three weeks of the second quarter look even better.

Now to the detail on our businesses -- our US modular business saw its sixth straight quarter of year-over-year sales improvement, driven by strong performance in the corporate office segment. We're encouraged by the demand trends we're seeing in this segment as the Company used the cash on their healthy balance sheets to enhance their space. We believe this is driving the release of pent-up demand which we believe indicates the early stages of this steady, sustainable recovery in the marketplace.

Interface continues to take market share in both the commercial office and non-office segments in the US, and we intend to keep investing in our people, facilities, technology to fuel this momentum.

The emerging markets are also showing strength. The Asia Pacific experienced strong sales growth in the quarter compared to the prior period. Australia had its strongest first quarter ever, and India and China also demonstrated particularly strong sales growth. Our new carpet tile plant in China is ramping up and should be running at breakeven levels by the end of the second quarter.

I'm also very pleased with our performance in Europe. Driven by the beginnings of recovery in the commercial market and the inroads we're making in the non-office commercial segment, our European business experienced double-digit sales growth in the quarter as compared to the prior-year period. This sales growth, combined with operational efficiencies, resulted in strong increase in operating income for the region.

Germany was a particular bright spot during the quarter and is now our third-largest business in the region, behind the UK and France. Given the depths of the European recession, we're extremely pleased with these results and will continue to pursue our strategy for growth going forward.

In our commercial business, our newest products have been extremely well received by the marketplace, and we believe these products represent another significant product platform in the commercial markets. Given the recent extension of our contract with David Oakey, our principal design consultant; and with our new design platform consistently delivering what I believe is -- what we believe to be groundbreaking products, we're more excited than ever about our product direction.

At Bentley Prince Street, sales increased by nearly 13% year-over-year as demand for our high-end carpet tile products continued to improve, which now represents over 40% of the Bentley Prince Street's total sales. Although the broadloom side of the business is not recovering as quickly, we are encouraged by Bentley Prince Street's significant increase in operating performance, driven by both sales growth, increased presence of carpet tile, and its overall product mix.

We're also excited by the prospects for significant growth in our FLOR consumer business. Our existing FLOR stores in Chicago and Santa Monica were well ahead of plan during the quarter, with same-store sales in Chicago up over 50% compared to the prior period.

In March, we had a highly successful FLOR store opening in the SoHo District of New York City. We're holding the grand opening of our fourth FLOR store in Atlanta this evening. We remain on track to have a total of seven stores open by the end of July, and I'm excited about the energy and activity that we're seeing in this business.

Given our positive performance during the first quarter, seasonally our slowest -- as the outlook for the business globally, we are optimistic about the prospects for the remainder of the year.

In summary -- the steady rebound of the corporate office market appears sustainable. We continue to benefit globally from our market segmentation strategy. The European market shows early signs of recovery. Asian emerging markets are growing, and our consumer business is exceeding expectations. The secular shift towards carpet tile is accelerating, and we believe Interface is poised globally to increase sales growth and profitability in the expanding market.

With that, I'll turn it over to Patrick.

Thank you, and good morning, everyone. I'll now take a few minutes to talk to the financial highlights for the first quarter.

Sales for the first quarter of 2011 increased 13%, to $245.4 million from $217.2 million in the first quarter of 2010. Foreign currency favorably impacted our sales year-over-year by approximately $4 million. As Dan mentioned, our sales performance was driven by the continued rebound in the corporate office market, particularly in the domestic market; growth in our non-office commercial segments, led by government, retail and education sectors; and increasing demand in the emerging markets.

Gross profit increased to 35.4% compared with 33.8% in the first quarter of 2010, reflecting the increased absorption of fixed manufacturing costs due to higher sales volumes. It's notable that this margin expansion was achieved in spite of $1.5 million in additional costs related to our new China facility as that operation gets up and running. As Dan mentioned, we expect to be running at breakeven levels by the end of the second quarter at this facility.

SG&A expense in the first quarter of 2011 increased to $65.4 million from $56.5 million last year. The increase was attributable in part to increases in noncash restricted stock performance vesting of approximately $3.5 million that will not recur in subsequent periods, increased sales commissions due to higher sales volumes, investments we've made in our non-office segmentation strategy, global sales and marketing efforts, and investments in our consumer strategy in the United States.

As a percentage of sales, SG&A increased slightly to 26.7%, compared with 26% a year ago. As in prior years, we expect it to decline to more normalized levels over the course of the year.

Our operating income performance continued to demonstrate the leverage in our business model. On a 13% increase in sales, operating income in the first quarter of 2011 improved by 27.5% to $21.5 million, or 8.8% of sales; compared with the operating income of $16.9 million, or 7.8% of sales, when you exclude the $3.1 million restructuring charge from our year-ago results. Including the restructuring charge, operating income in the first quarter of 2010 was $13.8 million, or 6.3% of sales.

Interest expense in the first quarter was $6.7 million, compared with $8.8 million in the first quarter of 2010. This reduction reflects the refinancing of most of our senior [and] subordinated notes during the fourth quarter of 2010. We continue to expect annual interest savings of approximately $8 million in 2011 as a result of this refinancing.

Net income attributable to Interface, Inc. for the 2011 first quarter was $9.8 million, or $0.15 per share when adjusted for the restructuring charge, and $1.1 million in expense related to our bond redemption from the year-ago period. Net income attributable to Interface, Inc. for 2010 first quarter was $4.9 million, or $0.08 per share. Including these items, first quarter 2010 net income attributable to Interface was $1.9 million, or $0.03 per share.

Depreciation and amortization was $9.1 million in the first quarter 2011, compared with $6.1 million in the first quarter 2010. Capital expenditures for the first quarter 2011 were $10.3 million, compared with $2.8 million in 2010. For the full year 2011 we expect capital expenditures to range from $35 million to $40 million.

Now I'll take a few minutes to review some of the details of our individual business segments.

Our modular carpet segment continued its strong performance in the 2011 first quarter. Sales in the segment were up $25.3 million, or 13% from 2010 levels, reflecting growth across all regions. After adjusting the 2010 period for restructuring charge -- $2.9 million -- operating income for the modular carpet segment in 2011 first quarter rose 25.9%, or $5.2 million, to $25.3 million from $20.1 million a year ago. We're very pleased with the 20% incremental contribution margins shown in this segment as compared to the first quarter of 2010.

As a percentage of sales, operating income for the segment was 11.5%, compared with 10.4% last year, once the $2.9 million restructuring charge is excluded from the 2010 period. Including that restructuring charge, the segment had operating income of $17.2 million, or 8.9% of sales in the first quarter 2010.

Turning to Bentley Prince Street -- demand continued to improve, and the segment generated sales of $26.1 million in the 2011 first quarter, up 12.5% from $23.2 million in the first quarter of 2010. Bentley Prince Street's operating loss improved by $1.2 million, to only $157,000 in the first quarter of 2011; compared with the loss of $1.4 million in the prior-year period. Included in the prior-year results for this segment was a restructuring charge of $200,000, or 1% of sales.

Turning to the balance sheet -- we exited the quarter with $39.7 million in cash, compared with $69.2 million at the end of the fourth quarter of 2010. Inventories were $159.7 million at the end of the first quarter, compared with $136.8 million at the end of the fourth quarter of 2010. The increase in inventory was the primary reason for the decrease in cash as we purchase additional materials in anticipation of cost increases, as well as to minimize any service disruptions as we ramp up our operations to meet anticipated demand during the rest of 2011.

In regard to cost inputs -- we continue to see upward pressure and expect to announce a 4% to 6% price increase in May. Our average DSOs during the first quarter were 54.8 days compared with 53.8 days in the year-ago period. And inventory turns in the first quarter were 4.3 times compared with five times last year.

The first quarter of 2011 was an excellent start to the year. We generated strong financial performance, while also executing on our plans to gain additional market share and further expand our reach. Looking ahead to the remainder of the year and beyond -- we're focused on building on these initiatives while maintaining our commitment to our customers as the leading manufacturer of modular and broadloom carpet. Finally, we're in an excellent position to fund these efforts and look forward to our continued success.

Now I'll turn the call back over to our operator for your questions.

(Operator instructions) Sam Darkatsh, Raymond James.

Couple questions -- depending on how you measure this, it looks like the book-to-bill is under one the second quarter in a row, although your commentary around April was very encouraging. Do you think, Dan, there might be a reacceleration of growth rates? And if so, what would drive that, in your view?

I would say that we have a good start to April. We had a terrible start to January and the first two weeks in February. And if you look at the last seven weeks of the first quarter, business was very good. And that's continuing.

So yes, I think that the education bubble is going to come through for us. I think we're well positioned for that. Europe to me is showing surprising strength, and that's been one of the drags on our company. And we're seeing a good start to March and April for the European business. I'd say the emerging markets are really starting to accelerate again. So to me, it all points to having, obviously, a better growth rate in the second quarter than the first quarter.

We shut our plant down in LaGrange for four days due to the weather. And Europe had severe weather as well. Don't want to blame it on the weather, but it does impact it when you're in the building products business.

Incremental margins near term -- you have rising input costs, but then you also won't have the noncash restricted stock performance, I'm guessing, going forward. How should we look at near-term incremental margins?

I would say that the SG&A line will come down, as I said in my comments, in absolute terms; as well as, obviously, the percentage as we increase sales. We had raw material increases in the first quarter, and were actually able to expand margins, or hold margins, for the fourth quarter. So as you know, our goal is always to pass on price increases, and we expect to do that again.

Last question -- inventory's up -- was that currency, a safety stock in China, some strategic buying? What --

I would say, Sam, that -- I'm not sure if you remember last year, but we got constrained because the business turned out a lot better than we thought it was in the first quarter. We were all expecting a pretty slow first quarter. And this year, with the momentum in the business and the fact you had raw material input costs going up, we made a decision to run the business and to bring in inventory. So strategic purchasing, and run the business to service the second quarter, when we actually fell behind last year.

Do inventories come down from here? Or do they -- how should we look at that?

I think you can look at us normalizing back to the returns that we had before, moving back toward the five turns. I think we ended last year around 5.3 turns, and I think that's where we'll end up this year.

Very helpful, thank you.

Thank you.

Kathryn Thompson, Thompson Research Group.

SG&A was a little bit higher than what we had modeled. And how should we think about SG&A for the remainder of the year? And should SG&A for the year grow in line with top-line growth assumptions?

I would say that we have -- and Sam just mentioned it -- we had some restricted stock, that accelerated SG&A in the first quarter, of about $3.5 million. That won't occur the rest of the year. So I would say that SG&A as a percentage to start coming down, more to our 24% level that we look at. And absolute terms -- I think we hit $65 million. I would expect that will move down in the second quarter, and probably in the third quarter, and then start ticking back up in the fourth quarter.

Great.

You mentioned you made price increase -- you had a price increase in Q1. Will the combined price increases be sufficient to maintain gross margins year-over-year?

That's our goal. That's always been our goal is to maintain our margins on price increases. We did it in the first quarter, and we'll hopefully do it in the second quarter. But that's our business strategy, Kathryn.

Okay.

And could you expand a little bit more on manufacturing additions you're making in the US over the next couple years, and what this means for overall capacity?

Yes, our goal is to pretty much double that capacity over the next three years. We've got a CapEx program that's $40 million this year and probably $40 million next year. We're not doubling the footprint of the plant; we're just breaking bottlenecks. And most of those bottlenecks are around [Company]. And so we're ramping up for that business to grow in double-digit for the foreseeable future, which means we need to double the capacity in that business.

Okay.

And finally, one just housekeeping -- interest expense for the year?

Yes, it'll probably be around this 6.6, 6.7 per quarter. We made a decision during the quarter to focus -- ease cash mostly for inventory build. There's still about $20 million of unredeemed senior notes out there, that I was hoping to get to sooner, that are still pretty expensive at that 11 and three eighths. But we'll look at those maybe a little bit later in the year as an opportunity for some interest reduction.

Thanks so much.

Sure.

Thank you.

David MacGregor, Longbow Research.

Can you just talk about price increases in your non-North American business?

Pretty much the same price increases around the board.

Okay.

We raised prices in Europe in January; we actually raised them in April as well.

And --

The same thing in Asia.

-- been a little more of a challenge getting some traction on those in that market, or --

I would say that the toughest market to get traction will be Asia. Other than that, no.

No surprises there, I guess.

You talked about recycled fiber on the last call. And I think you said you were at about 37% recycled fiber, if I remember correctly.

I would say we're now 40% recycled content in our products.

Yes, I guess that was the question, is just -- I remember you saying that you're cost-neutral at $90 oil. But here we are at $112, $115. What kind of a benefit do you get from subbing in the recycled fiber? And how far can you take that number?

We're trying to take it to, as you know, 80% in the next 10 years. We are looking at setting up some recycling in New York, and in Seattle and in China, actually. And our goal's to get to that 80% level. It is definitely cost-neutral to us what we're recycling. We just need to make it a bigger part of the content.

Does it become accretive at some point?

Yes, I think it's -- what we're recycling today is accretive, but we're just not recycling enough.

Where's that threshold?

I'd say we're getting the benefit today. But I would say once you get to 60%, 70%, then you've got a lot to talk about.

Okay.

The other question I had was, Dan, just on the CapEx. And in your press release, you make the comment that you're investing to capture market share. I was wondering if I could just get you to drill in a little further on that, and --

There's two kind of investments that we're making. We're making the capacity investments in China. To me, that's a big part of our strategy going forward. We're making some pretty big capital investments in the American market to increase capacity.

We're also making a lot of investments on the marketing sales front. We're going to add about 50 salespeople globally. That's a 10% increase in salespeople. We're revamping our own hospitality group in the United States and creating dedicated sales forces in hospitality.

And we're also investing a lot in the consumer FLOR strategy. We've got four stores opened. Hopefully, somebody went to the -- it's in the New York SoHo store, but it's fantastic. And we're open in Atlanta today. And so we're investing in this consumer business, which I believe in. But it's really -- today, it's obviously a drag on earnings. So we're making a lot of investments to capture share around the non-office segments.

Okay. And geographically -- can you just add some color on the geo priorities in non-office?

I would say that Europe -- we had really good traction in Europe. And we had some pretty good traction in Australia. We had two markets that really showed some non-office segmentation growth in those two markets.

Okay.

And the last question -- you just talked about operational efficiencies driving the 160-basis point gross margin expansion. Can you provide some specifics?

I would say that every one of our plants had a very good first quarter operation, except China. Our Australian plant ran very well. Our US plant ran very well. And Bentley Prince Street, glad to say -- they ran very well. And so we offset the $1.5 million increase in gross profit -- not gross profit -- cost of goods sold hit from the China plant [commissioning]. And we were able to raise the gross profit line. So we got the benefit of volume and running the plants very well.

So were you just leveraging the volume, or was there anything else going on there?

I'd just say that we're -- yes, I think efficiently we ran better in our LaGrange operation than we have in awhile.

And the mix?

Excuse me?

More profitable mix?

Well, yes. More profitable mix. We've reduced some SKUs that weren't as profitable and so forth in that business. And we just ran the plants well, considering it's the first quarter, which is seasonally a tough quarter for us.

Right.

I was very proud of our operations this quarter.

Great. Thanks very much. Nice job.

John Baugh, Stifel Nicolaus.

The first question I had is -- if I recall correctly, you are on FIFO accounting. And you stockpiled some yarn here. So I'm curious -- the increase in price that you took, I think you said March -- will you need a larger increase, this 4% to 6%? Is that bigger than what you took in March, as we get the layers of inventory going through at a higher cost?

No. No.

It's similar?

Yes.

Okay.

And then, help me think about FLOR residential -- we're now going, it looks like, to a store model. I don't believe we were ever making money in the segment. And I'm curious -- you mentioned, I think, a 50% comp in the Chicago store. And that was the first store. So is that store profitable? How do we think about --

Yes, I would put it this way, John. We are going to some stores to augment the online strategy and the catalog strategy. It's still a three-pronged strategy. It's the catalog, the store and the Web -- all three work in concert together.

One thing that we're having success is we're advertising, and now with TV and print media, around the Chicago store. So you're getting a lot of people walking into the store, looking at the product, touching and feeling it; and then going and ordering on the Web. So they play off of each other. But the Chicago store had a 28% direct contribution margin in the first quarter.

Right. So you're still, obviously, losing -- you mentioned with the drag -- even in residential. But it's primarily around not so much the stores you're opening -- there'll be seven, I guess, you said -- as it is continued marketing spend in general?

Yes, it's trying to drive that top line, and making consumers more aware of that product, and trying to get this geometric sort of growth, as word-of-mouth gets around and people understand that there's a great product -- that's modular for your home.

I think our biggest issue is not touching enough people. Because when people touch it, they really like it. It's a very sticky, sticky brand.

Distribution, yes.

Then lastly, is there anything, on a longer-term picture, happening with [base] fiber -- nylon, or your PVC backing -- that's going to change the composition of your product over time? Or will it still be nylon and PVC?

We obviously have a lot of R&D going on. But we're trying to look at some bio-based fibers as well. And there's some post-consumer manufacturers of yarn out there today that make that pretty attractive. We can feed them raw materials, and they can feed us yarn.

So I don't -- there's nothing imminent that we're going to change to a different yarn system in the near future. But we're working on new yarns all the time.

And then, my last question, Dan, was -- in Europe, where you mentioned there was some strength -- what is the segmentation mix, number one? And number two, is that what drove it, or was that an office recovery, and segmentation still really hasn't kicked in?

Well, the segmentation -- you're talking about in Europe -- the segmentation --

Yes.

-- was double what the office increase was in Europe. If you take out the India business, which -- we put that into Europe and Middle East -- the mix is about 65-35.

Got it. Thank you.

Thank you.

Matt McCall, BBT Capital.

I guess, looking outside of the cycles, maybe even outside of this secular -- if we combine some of these company-specific initiatives -- we haven't heard enough [yet] on Bravo. Maybe if we combine Bravo with retail with China -- talk about the potential for growth from those three initiatives, and anything else I'm forgetting that's more company-specific -- both top line and from a profit perspective --

Yes, I would say, Matt, I'd love to give you all that, but I don't like my competitors understanding all of that detail about my business. Obviously, we believe that those initiatives will grow significantly more than the growth of the office and non-office strategy.

But to give that out -- I'm not trying to hedge it; I just -- we're just getting too granular for my competitors when I start talking about those initiatives.

Can you tell me -- can you give me an update on how Bravo's trending in this second full quarter, I guess, or --

We had the big stocking, first initial.

Yes.

We've had -- about six of them have reordered. And so we're encouraged by it. We're doing another product for the Bravo line. But from a main-street standpoint, I'd say that we're still sort of neutral on where that might go. But I do know that we've got a lot of energy that's pretty positive around Bravo.

Another product question -- I think the product was Tapestry that you've highlighted recently -- I know it's early, but seemed to be a big push for you. Any update on that, or any other new products that are making a big splash?

Well, the Tapestry platform -- that was the new manufacturing platform that I referred to -- we introduced those products in March, and they were well received by the marketplace. One of the big investments we're making is ramping up that platform. A big part of the capital investment in the US business, and in Europe and in Asia, is that platform. And from a consumer standpoint, [cost] standpoint, that manufacturing platform really makes a lot of great products. So I'm extremely pleased with what's going on with that.

Okay, and --

(Inaudible) puts in that technology.

Okay.

And then finally, I know you talked about some profitability metrics by geography. But did you talk about the margins by the different geographies? And if not, can you give us some detail there? And what would be the expectations as we move through the year?

I would say that the model of 15% to 20% contribution margin from increased sales is there. We have obviously beat it this quarter. Every one of our businesses -- and we try to highlight in the script -- every one of our businesses performed this quarter. Every one of them was up, and all of them had expansion in margins.

The biggest drag, obviously, was the corporate piece. But to me, the Asia Pacific had a great margin expansion. Europe had a good one, and so did the US. So our whole model of creating 15% to 20% on every sales dollar increase is alive and well right now.

And just following up on that -- you did a 9% operating margin. Is there any outlier there, either above or below that average, from a geographic perspective?

Yes, Europe's still the one that's lagging behind. But the modular business did 11%, if you take out the Bentley and corporate. Our goal is to get that to 15%. And I think Europe is the one that's lagging behind that. Asia-Pacific is there, believe it or not. And US is right in the middle.

Perfect. Thank you.

Thank you.

Keith Hughes, SunTrust.

A couple questions.

Just building on your last comment in Europe -- is the margin issue in Europe still just capacity utilization?

Yes, it's volume. Europe has our biggest contribution margins on growth.

And is it the situation where you just need growth anywhere in the continent, and it'll get you towards that goal? Or are there specific countries where you need the demand?

I'd say that anywhere where you can get demand -- we're doing very well in Germany. That's an important data point, because Germany's been -- one of our focuses to get Germany going, because it's the largest commercial carpet market in Europe and has the lowest penetration of carpet tile. And we had really good growth last year in Germany. We had 24% growth in Germany, when the market grew 3%. And Germany started out strong this year. So to me, we need to get Germany going. And we need the UK to kick in.

I would say the other markets are doing okay. Italy -- believe it or not, we're doing okay in Italy. It's not a big market for us, but we're doing okay in it. But the UK -- get going, get Germany, is [probably] the two -- and to get the segmentation strategy off the non-office going.

What kind of capacity utilization are you at right now in Europe?

Probably at around 60% in Europe.

And how many facilities do you have there now?

We have three. It's great -- we have a euro facility and a pound facility -- pounds sterling facility. To me, the balance in Europe is really good from a currency standpoint.

Okay.

Patrick, on the D&A -- what kind of D&A are we looking at for the year?

Probably around $36 million.

Okay. That's all for me, thanks.

Thanks.

Thank you.

(Operator instructions) Eric Prouty, Canaccord.

Guys, I know new construction's not a particularly big driver for you guys. But are you seeing any resumption in any of your geographies in new construction, or still almost all the retrofit type business?

It's mostly all retrofit. I would say in the technology band out in Silicon Valley and San Francisco, we're seeing some pretty good activity. But other than that, we're not.

And then, just a question around branding -- you guys were obviously early into branding around recycled materials, the whole green building movement, et cetera. We're obviously seeing a lot of me-toos coming to the market, and also playing those cards. What are you seeing, or how are you evolving the message, from a branding standpoint, that you're giving to the market out there? And has that changed at all as other people have kind of entered into this market?

I would say that the fact that we got into the sustainability movement in 1994 -- and when you're talking about the commercial base of customers that you have, it's a pretty close-knit base -- that our messaging probably hasn't changed since '94. And we're considered to be pretty authentic in this space, with Ray Anderson sort of leading the whole change of the carpet industry.

And so our message has always been to drive toward post-consumer recycled content and get off of oil. And what we do is we just talk about what we're doing in it. But we don't really lead with sustainability; we lead with design and fashion, and sustainability sort of underpins everything that we do as a culture.

But I think we have a great story that we tell our end users. And it really hasn't involved that much at all over the years. It's just -- do what we are going to do, which is get off of oil.

That's great. Do you plan on kind of positioning yourself similarly for the retail market? Or will that be a different message?

I think the message, really, in the consumer business, has got to be around fashion and design, and something different, new and hip. But when you walk into the store, when you look at our literature, it reads about sustainability. But we're not putting it right in the face, and leading with sustainability with the consumer business.

Sure.

Our research says 3% of the people will buy because it's green.

Yes.

So to me, you've got to have the best product out there. In our opinion, the best products, the best-selling products, are going to have the best-quality service and all that other stuff. And by the way, they're going to be green.

Okay. Thanks a lot for the commentary.

[Right].

At this time, with no further questions, I would like to turn the call back to management for any closing remarks.

Well, thank you for being shareholders. And we hope to report a very good quarter in the second quarter. Thank you.

Ladies and gentlemen, that does conclude today's Conference. Thank you for your participation, and you may now disconnect.