Interface Inc (TILE) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to Q4 2014 Interface, Inc. earnings conference call. My name is Nina and I will be your operator for today. (Operator Instructions). I would like to turn the call over to Mr. David Foshee. Please go ahead, sir.

Thank you, Operator. Good morning and welcome to Interface's conference call regarding fourth quarter 2014 results. Joining us from the Company are Dan Hendrix, Chairman and 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. A copy of the earnings release can be downloaded off the Investor Relations section of Interface's website. An archived version of this conference call will also be a available through that website.

Before we begin 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 the risks and uncertainties discussed under the heading Risk Factors in item 1A of the Company's annual report on Form 10-K for the fiscal year ended December 29, 2013 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 is contained in the Company's earnings release and form 8-K filed with the SEC yesterday.

These documents can be found on the Investor Relations portion of the Company's website, www.interfaceglobal.com. Lastly, please note that this call is being recorded and broadcast [to per] Interface. It contains copyrighted material and may not be rerecorded or rebroadcasted without Interface's express permission. Your participation on the call confirms your consent to the Company's taping and broadcasting of it. Now I would like to turn the call over to Dan Hendrix. Please go ahead, sir.

Thank you, David. Good morning, everyone. To say that we were pleased with our performance in the fourth quarter would be an understatement. It was a very strong finish to the year with the best results we have had in any quarter since before the economic downturn in late 2008.

When you consider where we were fourth months ago, the results are even more gratifying. On a sequential basis we improved substantially across all financial metrics making for a speedy and robust recovery from the third quarter. I would like to thank all of our associates for their focus and hard work as we close out the year on a high note. Starting with the top line we had a very healthy sales number of $272 million, with growth in each of our primary geographic regions. The only area of concern was the negative currency impact in Europe which, of course, is outside of our control, but it turned 6% sales growth in local currency into 2% decline as reported in US dollars. I will talk more about currency headwinds in a little bit. The US and Australia which are two of our largest geographic markets were typically strong as the commercial market recovery continued to take shape and we gained share in each market.

We are also encouraged that across Asia made a quick recovery from the third quarter to the fourth. Gross margin turned upward from the third quarter to the fourth as increased demand led to more manufacturing throughput and better fixed overhead absorption, and our initiatives to improve manufacturing efficiencies began to take hold. We are still short of our level achieved a year ago but we are moving in the right direction. There is one thing I'm most proud of about the quarter it is our control over SG&A expenses.

After our restructuring and other cost cutting measures earlier in the year SG&A was at 23.8% of sales which is the lowest level since 2008. In absolute dollars it was $65 million which puts us on track to achieve our goal of $250 million for 2015 while still funding our significant growth opportunities. I would also like to point out that our FLOR business top line was even, but on a year-over-year basis, but extensively trimmed its operating loss in the fourth quarter both on a sequential basis and year-over-year.

As a result of our restructuring and cost cutting, FLOR's fourth quarter loss was down to $500,000 compared to $1.8 million in the third quarter and $800,000 a year ago. On a consolidated basis all of these factors translated into an operating margin of 10% which is substantially improvement over where we had been earlier in the year. Order growth during the fourth quarter was at 3% year over year with solid advances in the Americas and Asia-Pacific being somewhat offset by a decline in Europe. Without the currency translation impacts our orders were up 6% for the quarter with Europe being essentially even.

While this is still lighter than I expected, we have seen a sharp increase in orders in the first month and a half of 2015 which largely alleviates my concern. Year-to-date 2015 orders are approximately 24% with increases coming across all three primary regions including the bounce back this Europe. When you take out the currency impact, the increase is closer to 30%. However, this is not a direct apples to apples comparison to the prior year because our January had an extra week this year.

Nevertheless, the strong order momentum is a very positive trend and gives us a lot of optimism about 2015. I'm also fairly comfortable with our SG&A level as we began the year so our primary focus will be on reducing our cost of sales and thus expanding gross margin. The increased demand level should give us some manufacturing volume support. In addition, we had a number of initiatives underway to improve efficiencies and help us better manage the increasing complexity of our product offering which is an important competitive advantage for us.

We are also seeing some relief on raw materials as a result of lower oil and energy input costs. However, we will face a significant currency headwind in 2015. As a result our forecast declines of the Euro, Australian dollar, and Canadian dollar essentially negating our expected raw material cost savings. We also have an improved capital structure with our debt refinanced at a substantially lower rate which will cut our interest expense for the year. From a market standpoint we are very well positioned. Our new product development has been outstanding. We have an excellent seasoned sales force, we are giving them the tools they need to win business and grow market share.

In addition we are the leader by a wide margin when it comes to sustainability as evidenced by our recent publications Floor Focus and Contract Magazine. In the Floor Focus surveyed the top designers in the United States we were, once again, named the number one green leader and also ranked number one in sustainable culture in Contract Magazine in their annual brand report.

We are also very excited to have on board Jay Gould our new Executive Vice-President and Chief Operating Officer. Jay came to us from American Standard Brands where he was the CEO of the 138-year-old kitchen and bath fixtures company. Before that, Jay had several senior executive level positions at well recognized international companies such as Newell Rubbermaid, Campbell Soup Company, the Coca-Cola Company and General Mills. Jay has hit the ground running and I'm confident that he will accomplish great things at Interface. In summary, I can say that business hasn't felt this good in a long time and I'm excited about our prospects for both sales and earnings growth this year. And with that, I will turn it over to Patrick.

Thank you, and good morning, everyone. I will now take a few minutes to walk through the financial highlights for the first quarter. Sorry, for the fourth quarter. Sales for the fourth quarter were up 8.1% to $272.1 million compared to $251.7 million for the fourth quarter of 2013. Sales saw a sequential increase of nearly $20 million as compared to the third quarter of 2014 and on a consolidated basis due to currency headwinds that Dan mentioned previously we saw an approximate $7 million negative impact on sales for the fourth quarter as compared with the same period in 2013.

We saw gross margin increase on a sequential basis to 33.6% in the fourth quarter of 2014 versus 33.1% for the third quarter of 2014. We still trailed last year's fourth quarter gross margin of 36.5%. In the Americas, sales experienced a nearly 12% increase compared to the fourth quarter of 2013 with the corporate office market leading the way with a double digit increase. Our non office segments also contributed nicely during the quarter with hospitality doubling up last year's fourth quarter sales, retail and government also growing strongly.

In Europe, we saw the impact of the significant decline in the Euro and sales were down 2% in US dollars compared with the fourth quarter of 2013. In local currency, however, we experienced an increase of nearly 7%. The increase in local currency was almost entirely within our corporate office segment which comprises the bulk of the region's sales. Despite the currency headwind we feel good about the resiliency of the European business and are happy with our performance given the continuing macro economic concerns in the region.

Asia-Pacific had a very strong quarter with sales increases across the entire region. In Asia, we experienced double digit growth in southeast Asia and India as well as smaller but still solid sales growth in China. China turned a small profit for the quarter as well. Despite a significant currency headwind in Australia sales grew more than 10% in US dollars and nearly 20% in local currency. As Dan mentioned the order turn in the region is explosive and 2015 shows no sign of slowing down. The increases in the region were largely due to the strength in the corporate office market which was up 34% for the fourth quarter year-over-year. This growth was offset by smaller declines in education and health care market segments.

To follow up on Dan's earlier comments on SG&A we feel really good about where the fourth quarter came in. SG&A as a percentage of sales was 23.8%, down nearly 300 basis points from 26.6% in the fourth quarter last year, and on a sequential basis, the decline is over 150 basis points versus third quarter 2014. These declines show our continued effort at measured, managed investments and early impacts of significant restructuring actions we took in the third quarter of 2014. Due to the factors discussed above, operating income in the fourth quarter of 2014 was $26.7 million or 9.8% of sales.

And it this compares with the fourth quarter of 2013 adjusted operating income of $25 million or 10% of sales when the $7 million gain on the settlement related to our insurance claim in Australia is excluded. Including the gain our operating income in the 2013 fourth quarter was $32 million or 12.7% of sales. During the quarter we got a small taste of the benefits of our new debt restructure as interest expense declined to $4.3 million versus $5.4 million in the fourth quarter of 2013.

We expect continued interest savings going forward as the fourth quarter of 2014 only included one month of savings due to the timing of the refinancing. Depreciation and amortization was $9.5 million in the fourth quarter of 2014 compared with $8.8 million in the fourth quarter of 2013. CapEx for the four quarter of 2014 was $6.7 million compared with $43.9 million in the comparable period last year. The last year amount is unusually high due to the purchase of our new carpet of manufacturing facility in Minto Australia.

Quickly to the balance sheet we exited the quarter with $54.9 million in cash compared with $72.8 million at the end of 2013, and $68.5 million at the end of the third quarter 2014. Inventories were $142.2 million at the end of the fourth quarter compared with $149.6 million at the end of 2013, and down sharply from $162 million at the end of the third quarter of 2014. Our average DSOs in the quarter were 49.2 days compared with 48.8 in the year-ago period and inventory turns up in the fourth quarter 4.8 times compared with 4.1 times last year. That concludes my remarks and with that I will open the call up for questions. Operator?

Thank you, sir. (Operator Instructions). We have quite a few questions on the platform and your first question from the line of Kathryn Thompson from Thompson Research Group. Please proceed.

Hi, thanks for taking my questions today. My first question is on SG&A. How much of the $14 million cost cutting initiatives announced in conjunction with your Q3 pre announcement was able to be realized or achieved in Q4 and what can we expect on a go-forward basis in terms of SG&A in 2015?

Yes, we probably saw about a little over $3 million of that flow through in Q4 related to the restructuring initiatives that got completed, you know, August, September, October time frame. And going into 2015 we are still on track and focused to deliver the $250 million in SG&A level for the full year.

And the bulk of these were really in personnel changes made in higher SG&A markets like Europe? Is that still --

That's right. They were across-the-board but the bulk of them were focused in Europe.

Okay. And then moving to gross margins, to what degree were gross margins still impacted by supply chain inefficiencies in the US in the quarter and in addition to your continuing to ramp up Australian operations?

Well, we did continue to see yarn disruption issues in Q4 versus Q3. The improvement from our yarn supplier, it got better, still a long way from perfect. So we still had some drag related to that. Hard to quantify exactly what that was in the quarter. And you know, as it relates to Australia that facility has been up and running and performing well since Q2, Q3 time frame so not much of a drag relating to Australia at all in Q4 margins.

Are the yarn supply disruptions largely behind you and what other -- other than the obvious of FX are there any other issues that we should think about when modeling gross margin as we go into the early 2015?

No, I would think for modeling purpose the FX head winds are being offset by raw material declines. I think we are going to continue battle these yarn disruption issues in the near term. Getting better, you know, first three weeks in February was the best that have seen with on time delivery up over 80% versus kind of mid 70%s earlier or on average in Q4. Getting better, but I think we will still battle it a little bit here early part of 2015. But those are the near term issues that we are facing.

And then finally on raw materials I know you indicated that the positive impact would be largely offset by FX. To what degree do your recycled materials experience the same type of fluctuation in costs or is it tied to petro? In other words, are you not seeing as much of a swing with your recycled materials versus your other materials that are very clearly tied to energy prices?

I would say that from a recycling (inaudible - background noise) related to our yarn out of Aquafil, that it is somewhat linked to the oil as well. They have to be competitive with the market so they actually go with the market rates on the yarn related to the Aquafil recycled content. What is recycling in our backing it is not tied to it, it actually is tied to the recycling the cost of bringing it back and recycling it but that is not a significant cost of to us. So we are going to get the benefit of raw material price reductions.

Great. Thank you very much.

Thank you.

Thank you.

Thank you, sir. Your next question comes from the line of Josh Borstein from Longbow Research. Please go ahead.

Good morning, Dan, Patrick, and David. Congrats on a good quarter here. Just to follow up a question on gross margin and how you are thinking about gross margins for 2015. Dan, I think you mentioned in the press release getting back to gross margins in 2015 back to last year's levels. Were you referring to the 2013 gross margin rate of 35.5%?

That's right. Yes.

And what some of the puts and takes you know whether it be lean or the absence of the Australia startup costs that give you confidence you can get back to that level?

Those are the exactly the two things that we are really focused on is the continuation of the lean manufacturing initiatives across our US platform. We won't have you know the replication of the startup of Australia in Q1 and even a little bit into Q2 here in 2015. So having those two things and not having the startup should help as well as I have seen some relief on the raw materials side and the order momentum that we are seeing here early part, seven weeks in the year is going to allow us to have decent production levels at least through the first half of the year where the fixed manufacturing absorption should be -- continue to be positive in the first hall of the year, so that should help as well.

Just a follow-up on that commodities issue, you know, first could you talk about where exactly you are seeing the savings? I assume it is the yarn but if there are any other materials where you are seeing the savings, and when it started to appear and if prices are still declining?

It is across the board. It is really across all categories of raw material. We have seen bits and pieces of it. The negotiations were underway late Q4, you know probably just really started to materialize now, probably start to see any benefit related to this late Q3 maybe early part of Q2 when it flows through. It is early stages and you know we think it is just a kind of the beginning of potentially you know even maybe further price reductions throughout the balance of the year.

And can you quantify the amount of FX impact that you think you will see this year that should be offset by lower raw material costs?

As we will sit here today, and assuming the currency rates stay where they are today, it would look like a $50 million top line headwind if you take into consideration the translation of the Euro, the Canadian dollar, and Australian dollar. And that translates to about a $5-ish million translation head wind from an operating income perspective. That is the first part of it. There is some transactional exposure we have as well from a currency perspective for raw materials that we buy from Australia in US dollars and source that into Australia and that is a couple million dollars on top of that.

So we're looking at, at least an immediate $6 million to $7 million headwind at the operating income level from a currency perspective and that is about right now, where we stand in terms of raw material savings that we have negotiated and anticipate seeing based on volume levels and purchase levels and so forth for the balance of 2015.

Great, thanks you for that. And then just last on pricing to the consumer, how sticky is that you know if you do see the price declines in raw materials is there any issue with respect to having to give up that pricing and pass it along to the customer? Thanks.

Historically, no. We have been able to kind of raise prices even in challenging environments and it is certainly not our intention to lower prices across the board. And in fact have gone out with select price increases in certain markets already in 2015.

Great, thanks for the color. Good luck on the rest of year.

Thank you.

Thank you. Your next question he comes from the line of Mike Wood from Macquarie Securities group. Please go ahead.

Hi, guys. This is actually Ryan Hunter. Mike is a little under the weather right now. You guys did a great job lifting your operating margins. Can you give us a bridge to the 290 basis point year-over-year decline in the gross margins and was this mainly because of the continuing yarn production issues?

No, I mean you know last year we didn't have the new Australian manufacturing facility in Q4 of 2013. So a little bit of a drag in 2014 with the new facility. And then also the drag in Q4 of 2014 versus last year related to production levels across our European business was less. And that had a headwind in Q4 2014 on our gross margin as well. Those two things really kind of are the big deltas between this career's gross margin versus last year.

Okay. Can you give us the gross margin in the Americas region for the quarter?

It was 33 -- yes, 33.5% in the quarter.

Okay, great. And then in terms of the SG&A rate to get to the $250 million goal should we expect sequential dollar declines throughout the rest of the year, throughout 2015?

In absolute terms I think we are right about where we are going to be at $62.5 million or so in absolute terms or plus for the balance of year.

Okay, great. Thank you.

Your next question comes from the line of Steven Kim from Barclays. Please proceed.

Thanks very much. Good results, guys. Congratulations on that. I guess my first question relates to the SG&A, again you reiterated the $250 million. I was just wondering if you could give us some handle on what kind of demand environment that -- that would be in the context of? Maybe like some sense of like what sales you are envisioning when you are talking about that number? And also as let me just add that we generally can perceive that about half of your SG&A is variable versus fixed and if you could just confirm that.

It is about half, half fixed-variable. And I think anticipating going into 2015 those levels were on kind of a low to mid single digit kind of top line environment. That is kind of what we had modeled.

Got it. That's great. And then the -- you mentioned in your remarks about focusing on gross margins and efficiencies, you talked about reducing the number of SKUs. Can you be a little more specific? Give us a little more color around what kind of SKU reduction you are talking about where we might see that? A little more color there would be helpful.

It is mostly in the United States, Steven. We have a pretty broad product range within the United States and we are looking at how to rationalize some of the SKUs and minimize the SKUs that we have so we don't create all that complexity in the plant or at least reduce the complexity in the plant.

What kind of order of magnitude what kind of reduction are we talking about?

It is a little early to try to quantify if we are going from 75,000 SKUs or to 70,000 or 65,000. Right now we are trying to get our arms around it, and I don't think we are ready to provide any hard metrics right now as we sit Maybe in a few months we will be able to have a little more clarity on what those hard numbers look like.

Okay, great. And then you, with respect to the orders that we saw month by month, I think in October, November they were mid singles, and then December they were kind of down and then very strong in January. Can you give us a little bit of color, do you think that is there anything you can identify that would sort of explain maybe the volatility there, particularly the big dip in December and the makeup in January that you would want to call out besides just the extra week, the extra day?

If you go by market if you look at the United States market it started improving in August and it was strong throughout the whole back half of the third quarter and the fourth quarter and that trend has continued in the US business. We had a very tough comparison in Europe last year. We had our best order level in the fourth quarter last year in Europe and then you had the currency headwind. I guess Asia-Pacific was the one that was pretty choppy during the fourth quarter. We got -- in January, we woke up and the order business typically falls off in January and it continued at a pretty strong rate. And the extra week did help, but it's -- the business is that strong as well.

That is great. I think --

And it is everywhere. Europe. It is Asia. And it is Americas.

That is encouraging. I guess my last question relates to something that sort of came up in our meeting with David [Okie] down about a month or so ago he was talking about sort of a changing that he was -- a change that he was seeing in terms of the corporate office market, particularly with looking at soft surfaces sort of coming back more in vogue in certain verticals that historically had been more focused entirely on hard surfaces and I was curious if you have seen in this pickup in office that you have talked about maybe some customers that you heretofore hadn't done as much business so I'm thinking the tech sector particularly, if there has been any sort of extension of some of those ideas that David [Okie] was talking about in some of these -- this early pickup that you -- that we have seen.

I would say that we haven't seen that yet. I mean the hard surface in the commercial market is not that significant. And I don't think it is impacting the orders today. What David is referring to is that acoustics are becoming a bigger issue within the office space and the tech guys are the ones that used polished concrete more than anybody else and I think they are trying to deal with acoustics and trying to balance the hard and soft floor covering around acoustics.

Great so we have that to look forward to. Thanks very much, guys, appreciate it.

The next question comes from the line of Keith Hughes from SunTrust. Please go ahead.

Thank you. It appears you had talked about SG&A in the $250 million range and low to mid single digit growth. We're actually going into a strong cycle and it could be above that. Is there any kind of guidance you can give us as a percentage of sales, what it would look like in a stronger scenario? Any help there would be appreciated.

I think we will continue to try to drive it sub 24% range as a percentage. We would like to keep it, you know, in the $62 million to $65 million in absolute dollar terms as well. It would really be largely, you know, dictated by the strength in the top line if we do in fact continue to see the mid to high double digit kind of growth trajectory. But that is certainly going to be the challenge to manage for the balance of the year in that strengthening environment for sure.

Same question on gross margin. The 35.5% is the most recent peak we have seen. I guess we can get above 36% if we go back to 2010 which was a good year. Is there any besides currency which we excluded for a minute is there any other things that would cause you not to be able to get back to those with the right sales level?

The right sales level and we have the throughput we should get back to those levels, Keith.

Okay.

We are making a lot of progress if our US facility. And actually we are making a lot of progress in balancing the Asia-Pacific facilities.

Patrick, can you tell us on an operating margin where the three regions stood for all of 2014?

On a full year basis?

Full year basis, yes.

They were all right at, you know, Americas was over double digit. Europe was just under it, I think, 9% for the full year. And then Asia-Pacific was in a similar range for the full year as well.

Thank you.

Thank you.

Thank you. Your next question comes from the line of Glenn Wortman from Sidoti & Company. Please go ahead.

Good morning, guys. On a percentage basis where did your geographic exposure shake out in 2014? And then within the Americas piece how much of that is outside the country, outside the US I'm sorry?

Taking about currency?

50% of the business is US. 8% of that is outside in Canada and Latin America. Europe runs around 27%, 28% and Asia-Pacific is the rest.

Okay. Thank you for that. And then can you just talk about your performance in some of your near markets in 2014, specifically residential and hospitality and then your outlook for those sectors in 2014 and longer term.

As far as the hospitality business we are actually having a lot of success in hospitality particularly in the United States. I think Patrick has the number, it is growing nicely. It is a really good business that we have created. Yes, he has the --

Hospitality for the full year was up over 30% on a worldwide basis and up over 50% for the full year in the Americas in particular.

And I think that has a lot of head room to grow. The FLOR business we are running flattish in that business. We have got new management there. We have a lot more insight into this trying to drive the web part of that business through the catalog and through digital marketing. One of the things I'm really excited about is Jay Gould comes from the consumer side of that business and he has ideas how to get that back to profitability. Our goal this year is to have a break even business in FLOR and grow it about 10%.

Thanks for taking my questions.

Thank you.

Thanks you.

Thank you, sir. Your next question comes from the line of Matt McCall from BB&T Capital Markets . Please go ahead.

Thank you, ma'am. Good morning, guys. So maybe talk a little bit about the order patterns you are seeing? I know Dan you said you are seeing strength kind of quarter to date across the board but specifically in the office space what are the order patterns looking like really globally and then what is the pipeline telling you about the next 30, 60, 90 days?

We don't quite have visibility into the order pattern by segment in the first seven weeks. We can kind of get a sense from where Q4 was in terms of the strength of the corporate office market. Corporate office market in terms of shipments was up low double digit kind of range from the office market but the shipment pattern or the order pattern in the first seven weeks, we don't have visibility yet into those segments until they actually ship but it has been strong across all of the geographies. I can't remember, what was the second part of the question?

Just the pipeline and you kind of answered it, Patrick. But what about -- did you give orders for North American corporate office in Q4?

We didn't give orders we gave shipments. But shipments in Q4 office in North America was 10%.

And so you don't have an order number?

I don't -- we don't do orders by segment.

Okay. What about -- how much of that business or the strength that you seeing is tied to new buildings? Are you seeing an increase there that you can really point to or is it just a broader remodeling activity that is improving it.

I think it is a little bit of both. I think we are seeing a little bit of new office construction. I think we are anticipating that to build through 2015 and 2016. But still I would say 85% to 90% of our business is still renovation.

Okay. On the SKU reduction efforts, my understanding is that some the complexity that has kind of arisen has been tied to some of these new products that maybe are a little more complex to manufacture and cause a little bit of pressure on the gross margin line. How are you going to balance the SKU reduction efforts with the fact that a lot of this -- the issues have come with some of of these new and more successful products?

Well, I would say that the SKU reduction is that we have had a policy that we will make any product that we have made if we have -- if it is a standard yarn system. And what that does is creates a lot of complexity for short order runs and that is what we are trying to reduce is the short order runs. The complexity of tapestry, it is harder to make and run and when you have the attachment to it when you run four color ways it runs slower. But the SKU reduction is really around the fact we have a policy we will make anything that we have made and we will take out a lot of it in our portfolio. But we are still going to design your floor and have that is one of our biggest strengths is you can design your floor and we will have various -- a lot of SKUs on the floor. We are not going away from that.

Okay. Okay. And then finally, Patrick, can you remind us of the total gross profit impact from the yarn disruptions and from Australia and if you have it by quarter or if you just have it by the full year what was the impact in 2014 from those two items?

You know, I would have to go back and look at from memory it is a couple million bucks in both instances. Q1 Australia startup was probably $2+ million, $3 million bracketed. And then in Q3 the disruption related to the yarn was probably in the similar order of magnitude, a couple million dollar headwind related to that as well. So probably aggregate $3 million to $4+ plus million dollars in 2014 that those two things impacted us.

Matt, it is hard to quantify how many orders you missed because you couldn't deliver in five weeks. That's part of the pain that we went through. But now at 80% delivery on time from our yarn suppliers I think we are way ahead of where we were last year.

Let me thank you Dan. Sneak one more in. The FLOR business, I think you said you only lost $500,000. What is the outlook for this year and maybe if you could provide any color around success by store versus catalog versus web?

Yes, I mean in the quarter in particular FLOR was flat in aggregate. You know, and that was pretty consistent across most of the categories. Really the focus there in the near term has been around profitability and cost reduction and that certainly was demonstrated in Q4 with a pretty significant sequential profitability improvement as well as on a smaller scale but on a year-over-year basis we have taken a tremendous amount of cost out of that business and think we are trending towards break evennish business certainly in 2015 and that is on a high single low double digit kind of top line number going from $45 million in annualized sales to you know right around $50 million in total -- in annualized sales in 2015 in that business.

So break even in 2015. And what was the loss in 2014?

It was about 3 -- sorry. That was $4.5 million, almost $5 million for the full year.

Okay. All right. Thank you, guys.

Thank you.

Thank you. Your next question comes from the line of John Baugh from Stifel. Please go ahead.

Good morning. And congratulations on the strength. Nice to see. I wanted to follow-up just great detail on the FX influence on EBIT. Is there a way, Patrick, to give some color on the gross margin impact versus the SG&A impact?

Sure. In the quarter, John?

No I'm really looking at into the 2015 comments you made about the FX head winds being $6 million to $7 million I think, of -- or $5 million I guess related to that and $2 million of transactional.

On the translation I guess you could just do the math accordingly. It is assuming a 9% or 10% EBIT business and then back into the SG&A and gross margin impacts on a total $50 million top line impact, translate that at 35% and the SG&A at 24%. I don't know what those numbers are off the top of my head. But that should work out for you.

And then the $3 million is gross profit, John.

On the transactional impact on the negative purchase price variance on raw material purchases from Australia.

Australia.

Got it. Thank you. And Dan, maybe could you comment on Australia? Maybe walk us back a little bit and review the history again with the fire and what business did, what customers did, you brought in product from China. You now have the plant. I guess what I'm really driving at is where you think you are in the share gain, what is new or better about the new plant? Because I have no feel for how that local market is doing and how you are doing relative to that. Thank you.

I would say that we -- that business peaked around $110 million Australian dollars. And we bottomed out around $83 million Australian dollars in that business post fire. I think we are building that back to where we are growing at 20%+. I think our share went from probably 45% to 40% and I would say we are back to 45% share today based on the performance over the last three quarters. And looking at the start of year we probably are taking share now. Most of the competitors really just created the import model like we had, they were importing from the United States or importing from Europe. We didn't really have anybody make any huge competitive moves. Godfrey Hirst pretty much did the same thing they were doing which was great for us. We have a three week lead time business which is pretty much made to order. Very customized business. The plant is now state of the art. It's pretty much a Greenfield site so you have the most efficient plant within all of Interface in the Australian plant. And I just like where we are positioned in Australia. And carpet tile is gaining share of broad land in Australia. It is moving in all of the segments. Australia looks a lot like the US where half the business is office and the other half is non office.

If you had to guess, Dan, on what carpet tile industries would do in Australia, 2015 versus 2014, it's going to grow, grow 5%, 10%, what kind of industry performance do you see there?

I would say looking at the macro environment in Australia it is modest, it probably looks a lot like the US. The biggest thing that we have to do is take share gains in the non office part of the market. The market might grow 5% to 10%.

Okay. Great. And then if I could ask sort of the same kind of color on Europe. You're growing in local currency. Sounds like orders are okay. How are you achieving that what market specifically are you still gaining in Germany? What in the general sense is the market doing there and what are you doing to try to at least keep share if not grow it there? Thank you.

I would say that the UK is continuing to be a strong market for us and a strong market for everybody. London has a lot of new construction going on and I think that will probably continue through 2015 and probably into 2016. The southern Europe business has now stabilized and is starting to turn up for us which is very welcomed. It was down significantly probably 30% and it is now turning back up. And we are having a lot of success in Germany. Germany is one of the big bright spots. I think we are -- we were up 30% in Germany and we're continuing to grow that market. And I look for Germany to be one of our biggest markets actually.

Great. Thanks for that color and good luck.

Thank you.

Thank you, sir. You have no questions at this time. (Operator Instructions).

Well, thank you for listening and we will talk to you next quarter.

Thank you, sir. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day. Thank you.