Q3 2024 Ethan Allen Interiors Inc Earnings Call
Speaker Change: [music].
Operator: Hello, and welcome to the Ethan Allen fiscal 2024 third quarter analyst conference call. If anyone should require operator assistance, please press star zero on your telephone keypad. Our question and answer session will follow the formal presentation. You may place the question cue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the conference over to Matt McNulty, Senior Vice President, Chief Financial Officer, and Treasurer. Please go ahead, Matt.
Hello, and welcome to the Ethan Allen fiscal 2024 third quarter Analyst Conference call. If anyone should require operator assistance. Please press star zero on your telephone keypad.
A question and answer session will follow the formal presentation.
Would it be placed in the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the conference over to Matt Mcnulty Senior Vice President Chief Financial Officer, and Treasurer. Please go ahead Matt.
Matthew J. McNulty: Thank you, Kevin. Good afternoon, and thank you for joining us today to discuss Ethan Allen's fiscal 2024 third quarter results. With me today is Farooq Kethwari, our Chairman, President, and CEO. Mr. Kethwari will open and close our prepared remarks, while I will speak to our financial performance midway through. After our prepared remarks, we will then open the call for your questions. Before we begin, I'd like to remind the audience that this call is being recorded and webcast live under the News and Events tab on the Investor Relations page of our website.
Matthew J. McNulty: Thank you Kevin Good afternoon, and thank you for joining us today to discuss the Ethan Allen fiscal 2024 third quarter results with me today is fruit category, our chairman President and CEO. Mr. Katz, why will open and close our prepared remarks, well I will speak to our financial performance midway through after our prepared remarks, we will then.
Matthew J. McNulty: Open the call for your questions before we begin I'd like to remind the audience that this call is being recorded and webcast live under the news and events tab on the Investor Relations page of our website.
Matthew J. McNulty: There you will also find a copy of our press release, which contains reconciliations of non-GAAP financial measures referred to on this call and in the press release. A replay of today's call will also be made available on our investor relations website. Our comments today may include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. The most significant risks that could affect our future results are described in our annual report on Form 10-K.
Matthew J. McNulty: There you'll also find a copy of our press release, which contains reconciliations of non-GAAP financial measures referred to on this call and in the press release.
Matthew J. McNulty: Today's call will also be made available on our Investor Relations website.
Matthew J. McNulty: Our comments today may include forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. The most significant risks that could affect our future results are described in our annual report on Form 10-K, please refer to our SEC filings for a complete review of those risks the company assumes no obligation to update or.
Matthew J. McNulty: Please refer to our SEC filings for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. With that said, I am pleased to now turn the call over to Mr. Cafuari.
Mr. Katz: Any forward looking matters discussed during this call with that I am pleased to now turn the call over to Mr. Katz y.
Farooq Kethwari: Thank you, Matt, and thank you all for participating in our third quarter earnings call. As we stated in our press release, we are pleased with our financial performance and continued strengthening of our enterprise. We are also seeing incremental consumer interest returning to the home after being previously diverted to other areas such as travel. Again, after Matt provides a brief financial overview, I will discuss in greater detail our initiatives.
Katz: Thank you Matt and.
Katz: And thank you all participating in all of them.
Katz: Third quarter earnings call.
Katz: As we stated in our press release, we are pleased with our financial performance and continued strengthening of enterprise. We are also seeing incremental consumer interest returning back to their home after being previously diverted to other areas such as travel.
Katz: Again off the Mark the map provides a brief financial overview.
Speaker Change: I will.
Speaker Change: Discuss in greater detail.
Speaker Change: Our initiatives Matt.
Matthew J. McNulty: Thank you Mr. Kent for it as a reminder, we present our financial results on both a GAAP and non-GAAP basis non-GAAP results exclude restructuring initiatives impairments and other corporate actions. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business our financial results for the just completed third quarter were highlighted by a robust.
Operator: As a reminder, we present our financial results on both a GAAP and non-GAAP basis. Non-GAAP results exclude restructuring initiatives, impairments, and other corporate actions.
Matthew J. McNulty: We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business. Our financial results in the just-completed third quarter were highlighted by our robust balance sheet, strong cash dividends, and a double-digit operating margin. Despite currently operating in a challenging home furnishings industry, our operations produce positive financial results, which I will now discuss. Our consolidated net sales totaled $146.4 million, reflecting lower delivered unit volume, reduced manufacturing from lower backlogs, a cautious consumer environment, and a strong prior year comparable.
On sheet.
Matthew J. McNulty: Cash dividends and a double digit operating margin. Despite currently operating in a challenging home furnishings industry. Our operations produce positive financial results, which I will now discuss our consolidated net sales totaled $146 4 million, reflecting lower delivered unit volume reduced manufacturing from lower backlogs a cautious consumer.
Matthew J. McNulty: Environment and a strong prior year comparable.
Matthew J. McNulty: Overall demand patterns across our industry have been sluggish. Our written order trends in the quarter were impacted by continued softening of the market, elevated interest and inflation rates, reduced designer center traffic, partially due to adverse winter weather conditions, and strong prior year demand. Wholesale segment written orders decreased 14.6% compared to last year, while retail segment orders were down 8.6%.
Matthew J. McNulty: Overall demand patterns across our industry had been sluggish are written order trends in the quarter were impacted by continued softening of the market elevate elevated interest in inflation rates reduce designers center traffic, partially due to adverse winter weather conditions and a strong prior year demand.
Matthew J. McNulty: Wholesale segment written orders decreased 14, 6% compared to last year, while the retail segment orders were down eight 6%.
Matthew J. McNulty: We ended the quarter with wholesale backlog of $57.7 million, reflective of historical norms and pre-pandemic levels. We continued to improve customer lead times and reduced the number of weeks of backlog during the quarter. Consolidated gross margin was 61.3%, the 12th consecutive quarter that our gross margin has exceeded 58%. The 140 basis point increase in consolidated gross margin was driven by a change in sales mix, lower manufacturing input costs, and reduced headcount, partially offset by deleveraging from lower unit volumes and higher sales of designer floor samples.
Matthew J. McNulty: We ended the quarter with wholesale backlog of $57 7 million reflective of historical norms and pre pandemic levels, we continue to improve customer lead times and reduced the number of weeks of backlog during the quarter.
Matthew J. McNulty: Consolidated gross margin was 61, 3% the 12th consecutive quarter that our gross margin has exceeded 58% 140 basis point increase in consolidated gross margin was driven by a change in sales mix lower manufacturing input costs and reduced head count, partially offset by deleveraging from lower unit volumes and higher.
Matthew J. McNulty: Sales of designer floor samples adjust.
Matthew J. McNulty: Adjusted operating margin of 10% reflects fixed cost deleveraging from lower sales, partially offset by growth margin improvement, lower headcount, less variable expenses, and the ability to maintain a disciplined approach to cost savings. SG&A expenses decreased 9.6% and equaled 51.4% of net sales, up from 44.7% last year due to lower sales volume relative to fixed costs.
Matthew J. McNulty: Adjusted operating margin of 10% reflects fixed cost deleveraging from lower sales, partially offset by gross margin improvement lower head count less variable expenses and the ability to maintain a disciplined approach to cost savings R.
Matthew J. McNulty: Our SG&A expenses decreased nine 6% and equaled 51, 4% of net sales up from 44.7% last year due to lower sales volume relative to fixed costs compared to our pre pandemic 2019 third quarter. Our operating margin has improved 380 basis points due to our initiatives focused on streamlining.
Matthew J. McNulty: Compared to our pre-pandemic 2019 third quarter, our operating margin improved 380 basis points due to our initiatives focused on streamlining and reducing the operating cost structure while enhancing operating efficiency. Adjusted diluted EPS for the quarter was $0.48. Our effective tax rate for the quarter was 25.1%, consistent with a year ago.
And reducing the operating cost structure, while enhancing operating efficiencies.
Matthew J. McNulty: Adjusted diluted EPS was <unk> 48, our effective tax rate for the quarter was 25, 1% consistent with a year ago now turning to our liquidity. We ended the quarter with a robust balance sheet, including cash and investments of $181.1 million and no outstanding debt, we generated $23 seven.
Matthew J. McNulty: Million dollars of cash from operating activities during the quarter, primarily due to net income and improvements in working capital in February of 'twenty 'twenty four we paid a regular quarterly cash dividend of $9 2 million or <unk> 36 per share.
Matthew J. McNulty: Now turning to our liquidity, we ended the quarter with a robust balance sheet, including cash and investments of $181.1 million and no outstanding debt. We generated $23.7 million of cash from operating activities during the quarter, primarily due to net income and improvements in working capital. In February 2024, we paid a regular quarterly cash dividend of $9.2 million, or $0.36 per share. More recently, on April 22nd, our Board of Directors increased our regular quarterly cash dividend by 8.3% to $0.39 per share, which will be paid in May.
Matthew J. McNulty: More recently on April 22nd our board of directors increased our regular quarterly cash dividend by eight 3% to 39 cents per share which will be paid in may. This recent action marks the fifth time, we have increased our regular quarterly cash dividend since January of 2021.
Matthew J. McNulty: In summary, we remain cautiously optimistic as the strength and stability of our balance sheet has us positioned well to maximize on our vertically integrated structure in anticipation of a better macroeconomic and home furnishings environment. We are building a fundamentally stronger company protecting our profitability and enhancing our operational efficiency with that I will now.
Matthew J. McNulty: This recent action marks the fifth time we have increased our regular quarterly cash dividend since January of 2021. In summary, we remain cautiously optimistic as the strength and stability of our balance sheet have us positioned well to maximize on our vertically integrated structure in anticipation of a better macroeconomic and home furnishings environment. We are building a fundamentally stronger company, protecting our profitability, and enhancing our operational efficiency. With that, I will now turn the call back over to Mr. Tepwar.
Mr. Catwalk: I'll turn the call back over to Mr. Catwalk.
Catwalk: All right. Thanks, Matt.
Mr. Catwalk: As we discussed in our last.
Matthew J. McNulty: Quarterly meeting all our results reflect both Covid business.
Matthew J. McNulty: Yeah.
Catwalk: Covid emergency started to end about 12 months back and consumers' interest diverted to other areas such as travel resulting in lower sales.
Quite often in our industry.
Catwalk: Also resulted in a number of bankruptcies in our industry.
Uh huh.
Catwalk: I've been in my opinion, and they did not take the precautionary measures.
Catwalk: We did take strong measures to reduce inventories and expenses and increase our cash.
Farooq Kethwari: All right, thanks, Matt. As we discussed in our last... Our results reflect the post-COVID business environment. The COVID emergency started to end about 12 months ago, and consumers' interest diverted to other areas, such as travel, resulting in lower sales for us and our industry, and also resulted in a number of bankruptcies in our industry. And in my opinion, they did not take the necessary precautionary measures.
Catwalk: We do now see the startup increased interest in the home and start a positive sales.
Catwalk: Yeah.
Catwalk: While our math is given.
Catwalk: Some financial information I would like to again emphasize the fact that the operating margins of 10% for quarter ended March 31 can be plentiful of course lower than the 15, 2% for the quarter ended March 31 23.
Farooq Kethwari: We did take strong measures to reduce inventories and expenses and increase our cash. We do now see the start of increased interest in the home and start of positive sales, while Matt has given. Some financial information, I would like to again emphasize the fact that operating margins of 10% for the quarter ended March 31, 2024 are, of course, lower than the 15.2% for the quarter ended March 31, 2023. And, however... Our pre-COVID, that is, March 31, 2019, our operating margins were 6.2%.
Catwalk: And however.
Catwalk: Our pre COVID-19 that as of March 31 billion 19 operating margins were six 2%.
Catwalk: Our net income of $12 4 million for quarter ended March 31, 'twenty 'twenty four.
Speaker Change: I'm good.
Speaker Change: Two 2 million as of March 31, 2023.
Speaker Change: An 8.2 million.
Speaker Change: As of March 31, going in I D.
Speaker Change: We have continued to have strong cash position not just yet.
Speaker Change: At March 31 billion to $481 million.
Speaker Change: March 31 going to you're going to create $156 2 million.
Speaker Change: And again very importantly.
Speaker Change: As of March 31, 2019.
Farooq Kethwari: Our net income of $12.4 million for the quarter end of March 31, 2024, again compared to $22 million as of March 31, 2023 and $8.2 million as of March 31, 2019. We have continued to have strong cash positions, as Matt just said, and Mark 31224 of 181 million dollars. March 31, 2023 at 156.2 million.
Speaker Change: Pre COVID-19.
Speaker Change: Oh, gosh, there's going to be $5.7 million.
Speaker Change: We've also maintained strong cash dues.
Speaker Change: For quarter ended March 31 is really going to go up at 9.2 million and.
Speaker Change: And as we just mentioned in my math did in the press release that the board increased our regular dividend to 39 cents.
Speaker Change: Chris.
Chris: Very importantly.
With the combination of technology and personal skills I'm looking at our business from a base zero, we have been able to have.
Farooq Kethwari: And again, very importantly, as March 31, 2019, that was the peak of it. Our cash is $25.7 million. We've also maintained strong cash dividends for the quarter ended March 31, 2024, paid $9.2 million, and as we just mentioned and Matt did in the press release, the board increased our regular dividend to 39 cents, an 8% increase.
Chris: To reduce our head count.
Chris: As of March 31, pretty good before it was 3448 mm.
Compared to 3816.
As of March 31, 2023 a decline of nine 6%.
Chris: And very importantly, we had a head count of 5120 as of March 31, 2019, a reduction of 32, 7%.
Chris: Tremendously important is the fact of reviewing the all our operations you might see from base, you're having great talent and technology that has resulted in strong efficiency.
Farooq Kethwari: Very important. With the combination of technology and personal skills, and looking at our business from a base zero, we have been able to reduce our headcount. As of March 31, 2024, it was 3,448, compared to 3,816 as of March 31, 2023, a decline of 9.6%, and, very importantly, we had a head count of 5,120 as of March 31, 2019, a reduction of 32.7%.
Chris: They're not enterprise.
Chris: Now very briefly on our current initiatives.
Chris: During the last 12 months, we launched the interior design initiative.
Chris: This initiative reflects our next reinvention.
Chris: In our 93 years.
Chris: Most of our 175 design centers in North America have been repositioned.
Chris: And the main elements out.
Chris: Our design centers reflect consistency of product programs across North America and are and we are currently working with our international partners.
Farooq Kethwari: Tremendously important is the fact that we have reviewed all our operations, you might say from day zero, having great talent and technology that has resulted in strong efficiency in our enterprise. Now, very briefly, on the current units. During the last 12 months, we launched the Interior Design Initiative. This initiative reflects a next phase in our 93 years. Most of our 175 design centers in North America have been repositioned, and the main elements are:
Chris: Very importantly, the size of the Frac design, such as having reduced at this stage. Our objective is to have the maximum size of the 12000 square feet from the 20000, or so 70000 square feet.
Chris: That.
Chris: Most of our design centers were all.
Chris: Great.
Chris: The extra space has been converted into the design centers.
Chris: We have the space into what we call a design flaw central area, we've been selling the extra inventory, resulting from the change.
Farooq Kethwari: Our design centers reflect consistency of product programs across North America, and we are currently working with our international partners. Very importantly, the size of our design structures has been reduced. At this stage, our objective is to have a maximum size of 12,000 square feet from the 20,000 or so, 20,000 square feet that we have had that. Most of our design centers. We're all pretty.
Chris: No.
The impact of this has to be that is of course then.
Chris: Yes.
Chris: Positive.
Chris: It also had an impact on lower margins, because we were selling a lot of.
Chris: Slowly Cebu province, and all of them in fact, it had was an hour.
Farooq Kethwari: The extra space has been converted in the design centers where we have the space into what we call a design floor sample area. We've been selling the extra inventory resulting from the change.
Chris: Manufacturing because it's at all.
Chris: The need for manufacturing, we were selling a lot of product from those tablets.
Chris: Now the good news is most of that is all what you still have.
Farooq Kethwari: And the impact of this has been, that is, of course, we have been very careful. But it also had an impact of lower margins because we were selling a lot of floor sample products. And another impact it had was on our manufacturing, because instead of products we made from manufacturing, we were selling a lot of products from floor samples. As I said earlier, we had more orders coming in and going to our manufacturers.
Chris: Well, that's that will be sold because this does take some time, but we are now starting to.
Chris: I have more of the orders coming in I'm going to have manufacturing.
Chris: You said earlier.
Chris: Combining very strong interior designers.
Chris: Technology is a game changer in terms of productivity and costs.
Chris: No not in marketing and merchandising.
Farooq Kethwari: The combination of very strong interior designers and technology is a game changer in terms of productivity and cost. Now we're on marketing and merchandise. Our marketing is constantly utilizing technology in developing and distributing our message. During each month, a digital magazine of about 36 pages is distributed each time to nine and a half million. [inaudible] In April, we just introduced our new style, which has been very well received by our teams and clients. This child's book will again be available both in print form and digital.
Chris: Our marketing marketing is constantly utilizing technology and developing and distributing our message.
Chris: Each month.
Chris: Ooh digital magazines, it's all.
All of about 36 stages, a distributed each time to nine and a half million.
Chris: Customers and prospects.
Chris: In April.
Chris: We just introduced our new styles book.
Chris: It has been very well received by our teams and clients.
Chris: David This is Luke will be again available both in print form and digitally.
Chris: Merchandising is focused on strengthening our product programs and introducing them to our network and consumers in our land men, we didnt hold up.
Farooq Kethwari: Merchandising is focused on strengthening our product programs and introducing them to our network and consumers in a planned manner. We did hold up. Some of our product introductions, but now we have been very aggressive, and in fact, in the next six months, we'll have a fair number of new products introduced. We also want to make sure we stay relevant. I, along with some of our key people, had an opportunity last week to review products at the Milan Fashion and Furniture Fair so that we can understand where we are. And again, as you know, our focus has been to have products that, uh, that, that, The Differentiator, and that will be our focus. You'll see more of that coming in.
Chris: Some of our product introductions, but now we have been very aggressive and in fact in the next six.
Chris: Six months, we'll have a fair amount of new products introduced.
Chris: We also want to make sure we stay relevant I along with some of our key people I had the opportunity last week to review products in the Milan fashion in furniture fast. So that we can we understand where we are and again as you know our focus has been to be to have products that are that cause that.
Chris:
Chris: But definitely hit us.
Chris: And that would be our focus you'll see more of that coming in.
Chris: Our product programs, Oh, I'd say, we've been focused on.
Chris: Classics, but with a modern perspective.
Speaker Change: I believe that is the right attitude for us.
Speaker Change: Now in manufacturing and logistics.
Speaker Change: We have 75% of our profits are made in our manufacturing in North America.
Farooq Kethwari: Our product programs, I say we focus on classics, but with a modern perspective, and we believe that is the right attitude for us. Now, in manufacturing and logistics. We have 75% of our products made in our manufacturer in North America. Infernity, I mean, we do get other products like accessories and other things from different parts of the world. And we continue to invest in many areas, including new machinery and equipment and strengthening our environmental and social responsibility in the various regions.
Speaker Change: Thank goodness, we do get other projects like accessories, and other things from different parts of the world.
Speaker Change: Because you're getting less in many areas of new machinery and equipment and shrinking our environmental and social responsibility in the various regions keep in mind with technology.
Speaker Change: And of course strong people, we have now today, who would use our manufacturing from about 13 manufacturing plants only.
Farooq Kethwari: Keep in mind, with technology and, of course, strong people, we have now, today, reduced our manufacturing from about 30 manufacturing plants only 10, 15 years ago to about 10, but it's in North America. Now, as we know, with all the conflicts taking place in the world, international freight has increased. Again, as we make 75% of our furniture in North America, the impact has been less, mostly on products that are coming from overseas in accents and furniture.
Speaker Change: 10 to 15 years back.
Speaker Change: To about 10.
Speaker Change: It's in North America.
Now as you know with all the conflicts taking place in the world. The international creates has increased.
Speaker Change:
Speaker Change: Again, as we make 75% of our furniture in North America. The back has been less mostly on products that are coming from overseas and accidents and some furniture. So overall, we are well positioned.
Speaker Change: Our interior design network has been redesigned.
Speaker Change: Himself.
Speaker Change: Projection very important we have continued to have strong media designers and technology in all areas with that brief overview I'd like to open it up for any questions or comments.
Farooq Kethwari: So, overall, we are well-positioned. Our interior design network has been redesigned in terms of projection, which is very important. We have continued to have strong interior designers and technology in all areas. With that brief overview, I'd like to open it up for any questions or comments.
Speaker Change: Thank you will not be conducting a question and answer session.
Speaker Change: If you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Our first question today is coming from Keller zinc from Keybanc capital markets. Your line is now live.
Operator: Thank you. We will now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our first question today is coming from Taylor Zink from KeyBank Capital Markets. Your line is now live.
Speaker Change: Hey.
Keller Zinc: How are you.
For Zach on for Brad Thomas I, just wanted to ask about cadence of the business for the quarter you'd mentioned that January was kind of weak coming out weather, but some of the trends that seem to get better as the.
Keller Zinc: Quarter have moved along so curious to what you have seen during the quarter and then if you have any thoughts on how April is trending.
Taylor Zink: Hey, how are you? Hey, Farouk. It's Taylor Zick on for Brad Thomas.
Keller Zinc: Yes.
Farooq Kethwari: I just wanted to ask about the cadence of the business for the quarter. You know, you mentioned that January was kind of weak because of the weather, but some of the trends have seemed to get better as the quarter has moved along. So curious about what you have seen during the quarter and then if you have any thoughts on how April is trending. Yeah.
Speaker Change: I think that.
Speaker Change: In.
Speaker Change: Was it this quarter.
Speaker Change: We did have the impact of weather in the middle of the month. So it really had an impact.
Speaker Change: And Oh, yeah and that.
Speaker Change: Created issues.
Speaker Change: On top of it as I said.
Speaker Change: With our focus with the consumer's interest in other areas that also impacted but as we went.
Farooq Kethwari: Yes, I think that in this quarter we did have an impact from weather in the middle of the month. It really had an impact, and that created issues. And on top of it, as I said, with our focus on the consumer's interest in other areas, that also impacted us. But as we went into towards March, we did start seeing some improvements. And in April, as we said in our press release, we saw more interest in consumers getting back into the home from travel and all other activities.
Speaker Change: Into March we did start seeing some improvements and in April.
Speaker Change: Consume as a as we said in our press release, we have seen more interesting to consumers getting back into the home from travel and all the other areas.
Speaker Change: Great.
Speaker Change: And then maybe just on the refresh of your design stores you'd mentioned your complete on most of those refreshes I'm curious on what you're hearing.
Speaker Change: You know from from your customers or maybe your designers there and any feedback on some of those updated products as well.
Taylor Zink: Great. And then maybe just on the refresh of your design stories, you mentioned. You're complete on most of those refreshes. I'm curious about what you're hearing, you know, from your customers, or maybe your designers there, and any feedback on some of those updated products as well.
Speaker Change: Yeah. You know this is a really almost like a revolution.
Speaker Change: Five years back folks in New Jersey part of their need to do something very different than in Connecticut, and so good luck with the California, or Texas, but the fact is good design is good design and we decided that we'll reveal.
Farooq Kethwari: Yeah, you know, this is really, it's almost like a revolution. Five years ago, folks in New Jersey thought they needed something very different than in Connecticut, so they got a lot of California, Texas...
Speaker Change: How long would you have to make sure that all of our interior designers are folks who are managing.
Speaker Change: Alert onboard because they have to they have the one right in the fleet. They all loved what we did is it introduces last April actually in our Denver headquarters Design Center and then it just took us close to a year in implementing it across very well received by consumers.
Farooq Kethwari: But the fact is, good design is good design. And we decided that we would, along with, we have to make sure that all our interior designers that our folks are managing are on board, because they have to, they have the ones right in the field. They all love what we did. We introduced this last April, actually, at our Danbury Headquarters Design Center. And then it took us.
Speaker Change: Very well received by our designers because they're good design and and of course, what differentiates us is that 75% of what it is made faster.
Farooq Kethwari: [inaudible] when they come and show. If we were in a business of selling just products alone, what we show on the floor, it would be a different model. We need to make sure we have the best representation of our products on the floors and then have the ability of our designers to use technology to create room settings. You know, five years ago, you could not imagine that the amount of virtual business we are doing combined with technology, personal service, and technology is making a big difference.
Speaker Change: When they come and so if people in the business of selling this product to low what we show on the floor it'll be a different model.
We need to make sure we had the best representation of our projects and the flows and then have the ability of our designers because they use of technology of creating a room setting you know five years that you cannot imagine that the amount of virtual business. We are doing combined with technology.
Personal service and technology is making a big difference.
Great. Thanks, Farooq I'll I'll pass it along.
Taylor Zink: Thanks, Rook; I'll pass it along.
No I say Hello to him would you please.
Farooq Kethwari: Now, say hello to him, would you please?
Speaker Change: Thank you. Our next question from Cristina Fernandez from Telsey Advisory Group Your line is that life.
Operator: Thank you, our next question is coming from Cristina Fernandez from Telsey Advisory Group. Your line is open.
Cristina Fernndez: Hi, Hello, Christine Hi, I wanted to just follow up on that.
Cristina Fernndez: Hi, I wanted to follow up on the first question and your comment about seeing improved interest in the home. If I understand your comment correctly, it seems like you're seeing some sequential improvement in March and April. Can you talk about what you're seeing year over year? Are the declines lessening? And I guess what is giving you the confidence to kind of see the green shoots, what are you seeing with the traffic to feel confident that the consumer is in fact kind of back purchasing for the home?
Cristina Fernndez: First question on your comment about seeing them improve interests in the home if I understand your comment correctly. It seems like you're seeing some sequential improvement in March and April can you talk about what you're seeing your year over year declines lessening and guess what.
Cristina Fernndez: What's giving you the confidence to what kind of what green shoots what what are you seeing with the traffic to kill confident that that the consumer is in fact kind of back purchasing for the home.
Speaker Change: Yeah Kristina the issue is really what I was.
Farooq Kethwari: Yeah, Cristina, the issue is really what I was referring to is the fact that the improvements are from the last six months or nine months because that's when we saw consumers' interest go to other areas. And before that, you know, a year back, there was a lot of interest in the home. So you've got to compare this more to the last couple of quarters or three quarters at most when a lot of interest in COVID was sort of debated, and a lot of interest went to other areas.
Speaker Change: Referring to his effect the improvements from.
Speaker Change: From the last six months or nine months, because that's when we saw consumers interest in go to other areas.
And before that you know you're back.
Speaker Change: Back there was a lot of interest in the home.
Kristina: So you got to compare this more to the last couple of quarters, a few quarters at most than lot of interest a COVID-19.
Kristina: Covid did they did a lot of interest into other areas. You know see if people are traveling people spend money in other areas and they're now looking back.
Farooq Kethwari: We are now seeing that people have traveled, people have spent money in other areas, and they are now looking back into the home. But keep in mind that during the COVID period, a lot of folks did spend a lot of money on it and gave it a lot of attention, so it is going to be relative to see how much better we are going to do, but certainly, we're going to do better than what we did in the last.
Kristina: Is it a hole, but keep in mind during the code. There is a lot of folks did spend a lot of money on home. There's a lot of attention. So this is going to be relative to see how much.
Kristina: That's what we are going to do but certainly they're going to do better than what we did.
Kristina: And the last.
A couple of quarters.
Okay.
Cristina Fernndez: And then I want to ask about the order intake; the spread between retail and wholesale was wider than what we've seen in the past couple of quarters. So is it the timing of the State Department contract, or I guess what other factors are at play in that wholesale order intake?
Kristina: Then I wanted to ask about the the order intake the spread between retail and wholesale was lighter than what we've seen in the past couple of quarters. So it's it did not.
Kristina: You may have to take a department contract.
Kristina: What other factors are at play in that wholesale order intake.
Farooq Kethwari: Yeah, that's all that is important that too. Important factors, one is... Our government, with this conflict, has taken a lot of interest. I mean, a lot of attention from the government went into spending money on security in other areas. That's what we understand.
Speaker Change: Yeah, that's all that is important too.
Speaker Change: Important factors one is.
The olive garden business.
Speaker Change: This conflict.
Speaker Change: You can place a lot of interest.
Speaker Change: I'm in a lot of attention from the government went into spending money on security and other areas. That's what we understand.
Farooq Kethwari: The good news is that recently, in the last couple of weeks, they've started to pay more attention to their financial needs. So we've seen increased business. But for the last three, four, five months, there was a lot... A lot of attention was given to other areas, and our business was substantially down. Then, of course, also our international business was down quite a bit, especially in China. The good news is that China is now, they've started the process of creating this interior design destination in design centers there in China.
Speaker Change: But the good news is that it.
Speaker Change: Recently now in the last couple of weeks they started to pay more attention because they are fun to needs. So we've seen increased business, but for the last 345 months there was a lot of.
Speaker Change: Hum.
Speaker Change: A lot of attention going into other areas.
Business was essentially done and then of course also Oh international business was down quite a bit especially in China.
Speaker Change: Good news is that the China is now they've started the process of creating the interior design destination in design centers in China.
Farooq Kethwari: Still, business has started to improve, but the factors of our international business, China being number one, but our business in other countries also was down. Our State Department business was down. That was the big difference between our whole thing and...
Speaker Change: Business has started to improve.
Speaker Change: But the factors of our international business, Canada being.
Speaker Change: Number one but a lot into our business in other countries also was down a state department business was up that was the big difference between our wholesale and retail.
Speaker Change: And then the last question I have is in relation to the SG&A dollars you'd been able to reduce dose them. They were down 10% year over year. This quarter, where I guess, where are you selecting the SG&A, it's mostly the head count reductions and the law.
Cristina Fernndez: And the last question I have is in relation to the SG&A dollars, you've been able to reduce those; they were down 10% year-over-year this quarter. Where are you flexing the SG&A, is it mostly headcount reductions in the last year, or are you also pulling back on marketing or other sort of expense buckets?
Speaker Change: Here or are you also pulling back on marketing or are there sort of expense buckets. Thanks.
Farooq Kethwari: Yeah, actually, it is mostly headcount, and that is both in manufacturing and retail. The combination of technology has really had a tremendous impact on the business we are doing. We have actually somewhat increased our market, relative to
Speaker Change: Yeah, no actually it is.
Speaker Change: Mostly head count and that is both in manufacturing and reach at the combination of technology has really had a tremendous impact in the business we are doing.
Speaker Change: Hum.
Speaker Change: We have actually.
Speaker Change: Somewhat increase our marketing.
Speaker Change: Relative to what we did in the previous quarters, Matt I'm going to be in this quarter, how much did we win booked.
Matthew J. McNulty: Yeah Laurie.
Matthew J. McNulty: You end up 24% year over year and was three 4% of sales versus only 2.1% of sales last year and we've increased it does increase our market of course sandy were competing for some of the lower sales, but marketing is increase it really was.
Farooq Kethwari: Yeah, marketing actually ended up 24%.
Farooq Kethwari: So we increased our
Cristina Fernndez: Okay, Christina, thanks very much.
You mentioned the reduction in has gone from being a major factor.
Matthew J. McNulty: I would also argue that until some of that flexing down is variable in nature. So as sales deliver itself do come down.
Operator: Our next question today is coming from Budd Bugatch from Watertower Research. Her line is now live.
Matthew J. McNulty: Download this year variable compensation comes down whether its designers selling compensation or delivery costs, and we're benefiting from lower fuel costs year over year. So that's coming down on the SG&A line.
Budd Bugatch: Hey Budd, how are you? Budd, perhaps your phone is on mute; please pick up your handset.
Speaker Change: Thank you.
Speaker Change: Okay, Christina thanks very much.
Operator: But Perhaps your phone is on mute. Please pick up your handset.
Christina: Our next question today is coming from but production from waters, how our research providers that life.
Operator: There you go. You're off the mute now. There you go. I'm sorry. Sorry for that.
Christina: Hey, Bob how are you.
Yeah.
Bob: But the guys there, but perhaps your phone is on mute please pickup your handset.
Bob: And you don't get off mute now there you go I'm, sorry, I'm sorry for that.
Budd Bugatch: Yeah, but I am in Hawaii.
Bob: Can you hear me now.
Bob: Yeah, but I mean, how are you.
Budd Bugatch: I'm not bad for an old guy trying to catch up with you, so I don't like to hear that you're just getting started. Well, we're not old; we're just getting older. I want to punch into that retail, the consumer adding back to the home, and I hear you, and you know, it's one of our true failings to try to put numbers on things, and you're good with numbers, and you're also good at sidestepping us when we want numbers. Let me see if I can get a couple of them.
Bob: Hum.
Speaker Change: Not bad for an old Guy.
Speaker Change: I'm trying to catch up to you.
Speaker Change: I'd like to add that we are just getting started.
Speaker Change: Well, we're not an older just getting older.
Speaker Change: I wanted I want to punch into that retail the consumer and adding back to the home and I I hear you and them.
You know, it's a it's one of our our true failings is try to put numbers.
Oh on things and you're good with numbers in your offer good at sidestepping us when we want them. So.
Speaker Change: Let me see if I can get a couple of them.
Budd Bugatch: The backlog increased from the... From the last quarter to this quarter, by about, if I do it right, I'm not the backlog, but the customer deposits increased about $17 million from the second quarter to the third quarter. Is that about right, Matt? Do I have that correct? Last year, it was about a $29 million increase. Is that reflective of what's going on in terms of retail orders? How do you look at it?
Speaker Change: Backlog increased from.
Speaker Change: From from the last quarter to this quarter by about it by Baidu at right about the backlog, but the customer deposits for increased about $17 million from the.
Speaker Change: From Uh Huh.
Speaker Change: In the second quarter to the third quarter or is that about right, Matt because that's the way how is that correct and last year. It was about $29 million increase in is that reflective of what's going on in terms of retail orders. How do you how do you look at that.
Matthew J. McNulty: Yeah, that's right.
Matthew J. McNulty: Yeah.
Alright.
Matthew J. McNulty: Yeah.
Matthew J. McNulty: Yeah, Oh, sorry, what I was actually yes.
Matthew J. McNulty: Yeah, that is correct. Sorry, but go ahead.
Matthew J. McNulty: <unk> are up.
Matthew J. McNulty: Year over year, it's part of that was timing of when the orders come through in the quarter, but it also is reflective of as Mr. Kessler I said are increasing.
Budd Bugatch: [inaudible] It's reflective of, as Mr. Kethlory said, an increasing focus on the home and a higher dollar volume of orders that we saw this past quarter compared to the last six to nine months. Hi, how's it going, Mattie?
Increasing focus on the home and in a higher dollar volume of orders that we saw this past quarter compared to the last six to nine months. So the customer deposit balance did increase.
Speaker Change: You gave us a backlog number for a wholesale I. If you gave this one for retail I missed it what is the what is the retail backlog at the end of the third quarter.
Matthew J. McNulty: You gave us a backlog number for wholesale. If you gave us one for retail, I missed it. What is the retail backlog at the end of the third quarter?
Matthew J. McNulty: We typically do not disclose the retail backlog, although we do say it is approximately 2x that of customer deposits on hand.
Matthew J. McNulty: We typically do not disclose the retail backlog, although we do say it is approximately two <unk> that of customer deposits on hand.
Budd Bugatch: Okay, so the customer deposits about 50% of what the backlog is. Okay, of what an order is.
Matthew J. McNulty: Okay. So the customer deposits about 50% of what of what the backlog is okay or what are the orders and so.
Farooq Kethwari: When you look at Farouk, you're talking about increased attention to the home. Are you really talking about what you're seeing in April? Are you seeing or what you saw at the end of March? How do you know when that began? Help us account for it.
Matthew J. McNulty: When you look at group you're talking about increased.
Matthew J. McNulty: Pension into their home are you really talking about what you're seeing in April are you seeing or what you saw at the end of March how do you when did that begin in <unk>.
Matthew J. McNulty: Hope if account for it.
Farooq Kethwari: Well, you know, March was somewhat unique because Easter fell on March 31st, and we were closed. And closed on the last day of the month is not a good day to be closed on. So that is what that did impact me. The numbers, In March now, of course, Easter is going to be in April this month. What we did see was, just in the beginning, right after the end of Easter, we could see more increase in population because the timing of Easter did impact it greatly, but I think that some of that business overflow did also go into April. So I think that what we are seeing is it's still a start. We still have to watch this carefully, but it's somewhat of a positive.
Speaker Change: Well it means a much who just lots of published unique because Easter fell on March 31st.
Matthew J. McNulty: And we were closed.
Matthew J. McNulty: On the last day of the month.
Matthew J. McNulty: It will be closed off so that does that that didn't impact the numbers Oh and must now of course, there's going to be in April. This month, what we did see was.
Matthew J. McNulty: In the beginning right after that.
Matthew J. McNulty: And of Easter. It was you could see more increase in business because the timing of the Easter did in fact, much but I think that some of that visits over there.
Matthew J. McNulty: We did also go into April so I see that what we're seeing is it's still a thought.
Matthew J. McNulty: From.
Matthew J. McNulty: You know, we still have to watch it carefully but it's somewhat of a positive start in April.
Speaker Change: Okay. That's that that is that is helpful. When I when I had my retail business I would always say that Easter and Passover was either late or early but it was never on time.
Budd Bugatch: Okay. That is very helpful.
Budd Bugatch: When I had my retail business, I would always say that Easter or Passover was either late or early, but it was never on time. (inaudible) Not having it on March 31st is not a good day to have it. No, no, it's not. It's never good for business. Okay, well, that really gets to the heart of my questions is which, and I think that's the key for Ethan going forward, is what is the viability, and what's the vibrancy of each thing in the consumer? And I know you've got a big plan to reduce the size of the design centers and make them more efficient, so we'll see how that plays out in the numbers. But thank you for taking my question.
Speaker Change: Yeah.
Speaker Change: That's one of them not having it on March 30, but it's just not a good good day to have it.
Speaker Change: No.
Speaker Change: It's not it's never good for the business, Okay, well that that really gets to the heart of my question, which is.
Speaker Change: It was really that and I think that's the key for for even going forward as to what is the viability of what's the vibrancy or be singing the consumer and I know you've got a big plan to reduce the size of our design centers and make them more efficient so well see that well see how that portrays into the numbers, but thank you for taking my question.
Speaker Change: Yeah, Thanks, very much Doug.
Budd Bugatch: Yeah, thanks very much, Bud.
Speaker Change: Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Mr. Culbreth for any further or closing comments.
Operator: Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to Mr. Capuari for any further or closing comments.
Culbreth: Well, thanks very much.
Farooq Kethwari: Well, thanks very much, in the case that we have this opportunity of discussing and a lot of challenges in our industry and the economy. However, with all the great work that our team has done, that is, at a time when many others increased their expenses, we were able to reduce them, but in a positive manner, not just introduce them for the sake of reducing them. It was a combination of great talent, technology, and the last 10-15 years of reducing our manufacturing to a more sensible operating model that we have. So those things are impacting, and we look forward to continued progress as we move forward. So thanks very much, everybody, and I look forward to... talking to you next quarter.
Speaker Change: Is that we have this opportunity how disgusting.
Culbreth: And a.
Speaker Change: A lot of challenges.
Speaker Change: The economy.
Speaker Change: All of US all of the great work that our team has done that is good.
Speaker Change: At this time and you know many others increase of expenses, we were able to reduce it but in a positive manner. We just introduced it for the sake of producing it if it was a combination of great talent technology and in the last 10 15 years, all reducing our manufacturing Joe Moore.
Speaker Change: Sure.
Speaker Change: Sensible operating model that we have so all of those things are impacting and we look forward to continued progress as we move forward. So thanks, very much everybody and look forward to.
Speaker Change: Talk with you next quarter.
Speaker Change: Thank you that does conclude today's teleconference. Webcast you may disconnect providing at this time and have a wonderful day. We thank you for your participation today.
Operator: Thank you. That does conclude today's teleconference webcast, and we disconnect your line at this time. Have a wonderful day. We thank you for your participation today.
Speaker Change: Yeah.