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Ethan Allen Interiors (ETD)

Participants
Corey Whitely Executive Vice President, Administration and Chief Financial Officer
Farooq Kathwari President and Chief Executive Officer
Robert Griffin Raymond James Financial, Inc.
Bradley Thomas KeyBanc Capital Markets Inc.
Jeremy Hamblin Dougherty & Company LLC
John Baugh Stifel Financial Corp.
Justin Bergner GAMCO Investors, Inc.
Cristina Fernández Telsey Advisory Group
Matthew Kupersmith Iron Compass Investors
Call transcript
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Operator

Good afternoon, and welcome to the Ethan Allen Fiscal 2018 Second Quarter Analyst Conference Call. It is now my pleasure to introduce your host, Corey Whitely, Executive Vice President, Administration and CFO. Thank you.

You may begin.

Corey Whitely

Yeah, thank you, Brandon. afternoon. Good Ethan XX, for XXXX. to quarter fiscal conference December ended Allen's welcome our call second And our contains This webcast non-GAAP on where find this live call information on release, conference is the ethanallen.com, you being referred to call. will release reconciliations details including supporting recorded in and press of which and also

differ to As our matters comments could that SEC various to subject uncertainties a a discussed further opening up his of today that, Kathwari. which statements financial ongoing on during complete refer Farooq obligation any reminder, those company the here before risks our actual update cause I materially. filings updates for CEO, to risks. business forward-looking results Farooq are Farooq initiatives revise some or and Kathwari, our assumes opening then will will questions. on include details Please this to and results. review forward-looking provides for no With is our provide call. will After the Chairman remarks, follow lines telephone with The

Farooq Kathwari

Corey, our and to earnings welcome call. you, Thank

production events although this a their for affected that resumed. These mostly were and sales increasing Several new and we in Department political up portion and shipment contract, margins delay at third a product factors to U.S. resolved with XX of are significant our our now quarter. processed were shipments, large They increasing been request. quarter higher. per would be quarter delivered produced Honduras State backlogs order But on also and events due as in second Our ended backlogs be until has had production, gross in wholesale production retail have by division to was XX.X% bottlenecks X%. We to held impacted days X%. shipments. We

increased laws. the from EPS the change adjusted $X.XX, of helped year, tax by Our prior XX.X% in

sales. with a of to maintained While X.X%, strong margins delivered the higher had we more have opportunity margin operating we

underway, progress, and good State residential our making already the locations division projections While expanding increase worldwide we design our we efforts improvements a to capabilities, network. marketing our develop American we team, quarter. centers North and program, the in and written to many in including substantially strengthening strong Department, With increase the of our internationally, offerings to U.S. third are a and contract our in with initiatives continuing production talented plan furniture need the our retail business in our business

year XX% third greater levels We in and expect higher to by gives increase third discuss will quarter and a fourth After XX% quarters. from expenditures spent advertising in last quarter in initiatives the overview, the our the fourth our in I brief detail. Corey

Corey Whitely

Thank you, Farooq.

the division wholesale the company our end backlog. State was XX.X%, and that year Department design of X% the XX, And to backlog was up operated December the centers XXX compared the increased international second sales of sales With retail retail shipments XXXX, during quarter Department products impact as to we increased to new X.X%, decreased X.X% $XXX.X sales and of the Wholesale our while At XXX quarter. from with the quarter, up million. quarter. on retail ended up especially XXXX. the X% the includes with fiscal of stronger our due quarter manufacturing, shipments, of State in primarily net which second consolidated We delayed backlog order prior geared to

sales which compared prior international of the X.X% the during in quarter. consolidated quarter, sales XX% to Our were year

segment the prior net year for for gross was to the XX.X% Our the of quarter, primarily impacted sales consolidated the compared retail sales and net to which was mix consolidated XX.X% was quarter. margin quarter XX.X% by in

to of in million net Adjusted compared and $X.XX income X.X% of per $XX.X $XX adjusted to compared the quarter. XX.X% there were $X.XX year. The prior million expenses was $X.X year quarter. share current sales. was no prior the restructuring million were to in year costs, in operating in quarter Adjusted the favorable operating adjustments adjustments adjusted the Our margin EBITDA included adjustment year prior

for half, Tax quarter Cut the as and for was effective of Our Act. the first result fiscal XX.X% a rate and tax XX% Jobs

We expect be quarters expect fiscal XX%. for for the about rate XXXX, XX.X%, about our and rate two we effective next be to effective to will XX%

provisionally XX.X% rate The second assets benefited quarter liabilities. and tax by we as remeasured deferred

had We debt have At sheet. credit facility. we a our XX, XXXX under no strong December balance outstanding

$XX.X totaled Our million. total cash and securities

the dividends $X.X quarter. to for the prior increase of During an the of XX% of compared $X.X capital out year expenditures the $X.X million, in And to million invested in quarter, paid compared year quarter quarter. million we we prior

expect $XX $XX.X were over December our With for in capital $XXX.X of deposits XX, XXXX, I'll in line second million expenditures million turn customer with At backlogs. the back was We to about inventory that, million it Farooq. and half.

Farooq Kathwari

Thank you, Corey.

plan focus to action. major digital sales. our create we mentioned retail increase traffic market further medium advertising. to factor be is to campaign major a this desire a I launch increase in As advertising And to will spaces to and increase Broadcast our and major

position investments. advantageous an to make in major are We

modern Passport even smaller and continue increase we youthful of The introduce year launch from spring; our last with important offerings we Uptown strengthened. will third in spending by and attractive scale be the XX% advertising about In spent quarter. We Our the more higher to quarter, the reflects also third in about an collection; fiscal summer and levels will quarter. fourth XX% from in pricing. collection to recently launched a advertising the assortment plan that's we increase this early levels our higher XXXX increase our classic, quarter spending fourth

vertically focus business strengthen to manufacturing to we our retail integrated on design on to teams. to continue operate priorities logistics, and including and we talent, from our continue also We

business of in capabilities to to a XX% what furniture advertising orders design, our say made the of At teams made to surge. addition division, About this our and For corporate, on order, furniture team important while we our positive with of manufacturing in differentiation is point two our executives quarter. senior major about managing of we important. manageable last have American and creates continue when we continue of units. custom marketing Increasing retail create more, our strengthen merchandising in entrepreneurial in and I the inventories, us, issues is receipt XX% North for is facilities, improving made capacities service the

also is Our major differentiation tremendously with focus in-house also production is work combining X,XXX the of our to increase important from manage and perspective. designers initiative. this is technology an interior Technology a service focus,

an and are online mobile our been with to manufacturing interior to devices adding improved it our manage launched also technology by to launch in system do have we the XXX for social in production are process clients. furniture expect necessary their we monitor March. About live of designers us of and in in chat increase to reality and We We've rooms, augmented deploying visualize management clients to a reviews app along in facilities media online, efficiency. consumer reputation

Finally attention strong operating to a focus. to our with business utmost continues social responsibility be

diversity, open culture associates. on leadership good the good I conscience, a the state am pleased maintain Our governance to for social bottom on to safe that enterprise relies line. which for is principles, environment, support processes, and ten our our we or corporate technology comments. our questions now And focus

Corey Whitely

then. open it ahead up Yeah, Brandon, and go

Operator

Bobby your first [Operator from question Instructions] comes And Griffin.

Farooq Kathwari

Hi, you? how are Yeah. Bobby,

Robert Griffin

questions. afternoon Corey. Good. Good to you How and about taking you? for my Thank you

in quarter. I sure the want understood about the comments tax I quickly, the to Just make rate

the of referenced liabilities, So correct? benefit tax XX.X% the is for was guys you the that revaluation

Corey Whitely

Yes, the about and deferred was revaluation. XX.X% assets tax liability tax deferred -

Robert Griffin

Okay. Corey, I then, And couldn't hear.

is? referenced next sorry. With the that what you rate you was up when I'm that the the quarters My were rate two was breaking for microphone talking,

Corey Whitely

about, was be said what It we next two XX.X% would quarters. for the sorry. Oh, is

Robert Griffin

But with Okay, of written guess, orders, kind the to of then, ended wanted to it of we or any perfect, segment, in quarter quarter In think with we ended I that mentioned was - drop the January to pre-release in appreciate that detail. that fell I how kind written of should I of you color appreciate close kind advertisement on - about, retail the progressed? about quarter the talk the I guys get trends? was X% the on a understanding And growth better coincide and how guess, the we off, kind last up.

Farooq Kathwari

You're talking of written?

Robert Griffin

written. it about down X.X%, was written the down last comp X.X% total was In ended I quarter, kind quarter of talking I'm note. Yeah, guess, on and and this positive a

hope some detail get just progressed to quarter about to more I So this trying trend. the to during what was change

Farooq Kathwari

Corey, go ahead.

Corey Whitely

was recall were two lower probably first quarter. parts to there's we than it. Bobby, quarter first the Yeah, - is where as prior advertising half year the the in One in we

went the up as advertising quarter, as second the it we moved So And through just increase slightly. we we quarter. into was

comparative December standpoint. that's was So progress as it. we in month the did strongest a sales written the we our how quarter actually quarter from progressed. see And saw

Farooq Kathwari

That's right.

to whole a also think, question advertising. we making of advertising, major this Bobby, giving now I commitment are increase just on color a

In fact, we advertising a when if quarter increased two, fiscal on of three last look our little quarter than a was bit But that had at advertising fiscal, we fiscal take lower XXXX. a quite take in look you it, in is XXXX, at a our bit.

are XX.X%. approximately $X.X Now, increasing now base it and another talking of we to from of $XX.X gone on have by we million, XX% million this

important an believe is - an impact. reason make that I this, the and will it's Now, and differentiation

on print mail advertising relied, a has of major a We important reasons, one. degree been Direct to have very great for lots as mediums. our

quarter. are we to to of strong of of going we similarly advertising, have has while going going very this an quarter have people. a increase quarter, our the and opportunity next to are are direct believe this a some broadcast also Now, but that raising mail, we reaching - in lot we And television

XXXX is medium, not spent and this issue are benefit. million. a spending you mind, be of because talking make million spending may spending quarter are over $XX getting great we lot the impact, in in the we in fact keep money a broadcast that of more really third are really Now, you we and the It's that now money, $X.X unless while

- mediums investment a I take in So we different. going will major are to the going that's advertising. major would say to be why make now are a But

Robert Griffin

follow-up should that roll that for, how we I those about I guess, modeling detail. stores Are quarters From guess, those, the one four expect two during comp that for closed? any more meaningful appreciate relocations quarter. to - or I should the guys a I retail, company-owned expect think the we going me standpoint, as forward? there for those impact on we that should I permanently were of were forward noticed going And EBIT so stores out reopen should And Okay. is next the you is account base? then, closed

Farooq Kathwari

look States, X. In by if went by increased company the actually, you United in at, down a the No, dealer owned take our quarter, second our X.

our company, we XXX So have locations.

Robert Griffin

looking… I'm sorry, was Farooq, I

Farooq Kathwari

go will it approximately approximately But remain X. same, down - we're right, yeah. sorry, I'm the you're Yeah, Bobby.

Robert Griffin

curious worries. back Okay, to I those of that's going was if relocations in all. future but just were open part as up no quarters,

Farooq Kathwari

yeah. Right,

Robert Griffin

ordering, should questions. list. a got were kind a of bit guys you Okay. cadence balance, sorry, we assume that being the the now of And kind more I for on the Oh, production forward? more orders you think that be going of understanding But kind assume on apologize. that manageable kind that I we - from standpoint, one had or they're is for government? government making between having making we Should orders to is retail - now that's on the my shift the of that production going production cadence of about little more all to

Farooq Kathwari

absolutely. Oh, yeah,

happened these to is days and the what XX was contract, that of it we are this year. last government new. product was have made our lot September, to which And ship in supposed And all see fiscal of got in it it in the You days. month was according that XX we orders almost

but made really So it. it our did and complicate - lives, we

in are still it operating also those time So, XX.X% with a is having a our ended position But with is now, in manufacturing, right better all have with always now, every the made Considering the good good time, that, up shipped the news inefficiencies. we we're because and position. we first margin products, inefficient. we

Robert Griffin

really I guys the of you all right, for my forward. going answering detail Best All luck time appreciate the and questions.

Farooq Kathwari

Thank you, Bobby.

Operator

question comes KeyBanc Thomas next from your And Capital Brad from Markets.

Farooq Kathwari

hi, Yeah, Brad. you? How are

Bradley Thomas

afternoon, Corey. all Good Hi, Farooq. good you doing? are How afternoon,

Corey Whitely

Brad. Hi,

Bradley Thomas

magnitude of the as try a have and so big starting that terms, I Good. follow-up backlog? what can tailwind is, that dollar work backlog. of is maybe about sense questions, get Couple give you question both first, Bobby's. that's sense here maybe wholesale in you to for the you of at the that us that the guess, I behind we down if on may you a Can Clearly, with retail. how could

Corey Whitely

a want backlog either. I was don't the give we But Brad, We every to doing in. those that the was we And the a about December still of orders we We brought portion of quarter. it XX. that think don't said, Department, we State have numbers we start that just that a orders had third probably backlog that's that out had of it. wholesale on now. And two-thirds shipped shipped, what's at shipping backlog of the out and lot

lot it a of related what up up and rest So then that was on which X%. the catching to is backlog, we're retail the was

move So now that, normalize. as I that forward, you'll we see think that

Bradley Thomas

Got you.

and pretty challenges to up gone to as okay. the And cater more of Okay, as expanded it like being the we Department, we're just that that you've manufacturing to State being worked think then, about assortment the efficient. some close through you've sounds

the about as normalized be you move the of rate, on you products I through underlying we third as for are think system into Department? And still the margin trend the and the of State on So, - margin what drag we feel a some of normal do moving might to kind as gross these plans quarter? should see more gross efficiencies fiscal gross back maybe the guess, margin like the the

Farooq Kathwari

well consists retail margin gross gross from from as gross our wholesale you as business. of the Brad, know as the margin our margin

is retail total So to the important percentage factor. of sales an

So are important. margins the gross

impact were of due like So they're to were But lower, they our gross to the sales fact, some retail lower there mostly in this - due component manufacturing. sales our were instance, are last to as fact that due a mostly for margins quarter, lower. total

that perspective. keep in So

might to are the opportunity in So wholesale it at the also margin of it they're contract operating business, lower margin although in we the going business good, a showing government level depends about we're how better. very very, business, much of the increasing do while gross the is

perspective. in that keep So

Bradley Thomas

you. Got

working you just third Department and start a may think hitting this - have high And still still trend gain lower it do some these because quarter of back? quarter through, level, a just the take here projects maybe State at they're potentially to P&L, so that and that some gross before newer of other margin would product you're the you

Farooq Kathwari

Yeah.

be but on sales. of I think, operating it's higher margin that's the the but as opportunity lower, assumption, the again margin component that good total wholesale a possible is I gross said side, could to because of

Bradley Thomas

great. Great,

on Okay. hoping I Maybe more for housekeeping that I two if is could on you? just items, Amazon, Farooq, was for how an progressing update

Farooq Kathwari

it's things feel want Yes, designers, are we they Amazon, but that's and centers taking but what progressing thought observations taste also more positive interesting slower product our are thought, it coming would but is retail the is of getting is the happen meet - now because we design place, people we It that up our also buy that's it, that see to what go we're and taste what seeing. they seeing than some, I are an to people to we getting. end sales some

Bradley Thomas

just you are just then at any with marketing as reform business tax how in reform how all about ask or approach respect are thinking a in And impact lower - rate you've of higher not tax lower changing, want spend because change the and talked all directly, you tax in tax the tax rate to and that but obviously team all business? here, Great. you is advertise, the how you're you money Farooq, having have or you on increasing guess I about you to

Farooq Kathwari

and we some probably on most good, an range, so that money fact to that No. close Corey? in would going or I always $XX million is basis, the to Brad, Well, annual get get credits think we're we alwayslike

Corey Whitely

$X About $X million to million, overall…

Farooq Kathwari

Depends $XX - depends on our our million business what $X million on to is.

in having dividend. that also So million? payable - it it an date spending special we a fact for fact it's special critical. is are that Yes, our not about impact, was but spending on the marketing. money the critical on today More expenditures. today is $XX we capital our important, gave We're Was

Corey Whitely

dividend. total with Right, the

Farooq Kathwari

regular, was out, a dividend, it gave $XX special and total we because today million The Brad. out the so

we've gotten a that I kind So of money. wish,

did and that. position marketing, money do spend But on to in we fortunately So to a we going decent that. we are are

Bradley Thomas

much. thank Well, you. Got you so

it again. someone Now over I'll turn to Thanks else.

Farooq Kathwari

All right, Brad.

Operator

question Hamblin comes your Jeremy from next And Company. Dougherty from &

Farooq Kathwari

Hello, gentleman.

Jeremy Hamblin

Farooq Hi, things been of good the on evening, can see I if bit more a little have that precision clarify up. brought and Corey. questions. for a Thanks need couple taking to we

first really The we saw when step last you really had at one-off of that's to was back on of get are to or the you out last that whatnot. a years more couple I Department three the XX.X%, fairly think whether when few above State and we at bit running a XX.X%. items little have XX% very there nice little is called two with been over been need that But is the understand is This drag. have running I have want clarity to years a the here structural a you something contract rate for gross look lowest not run almost the years. you it's significant margins, might level

as retail I like XX.X% as sales of I from forward it's it of that's you percentage QX XX.X% XXX percent look was look and a as down think to a last a basis you total sales retail points year-ago, at year but had total.

the - trying sales retail similar we percent more as is, now lot ask step of or didn't call XX% down total State when expected clearly to that a do be you nearly Or into Department you but you ship in had what question like that of the is, to a like QX quarter a that see total in think October. as hosted in shipped of you've these the should I'm this you we amount orders, December I tied and sales? thinking said you've XX%

trying two margins Can put the expectations things are providing you your as help those appropriate where for in to sales well as color? am I to out QX. together are gross So your sure that make in more level me

Farooq Kathwari

and again free you lower that gross lot everybody gave quarter happened are in margins under an me we do add to Let higher last impact that. fact, that our we at was Corey and give than had pressure giving still else, reflects some retail on like And slightly of we will maybe that Gross and margin. quarter, discounts. of where that some a delivery this

is but So the that that have there, pressure of that pressure. I opportunity think we managing

So that's one sales element, sales. addition total the in fact to to retail of

pressure manufacturing Second gross one wholesale we at delays. our because a retail on inefficiencies margins and these level, pressure slightly production had margins and gross some of is on somewhat at of of also the

are we've in those But an factors impact the think as to So I margins. the where right as move we to said, got three gross that operating keep on I also on keep perspective you forward, your you're margin. had that perspective, got

Jeremy Hamblin

agree you've with from I that. starting as the is, communicated any we point, one-off those issues, here. and point what need some I appropriate we think don't I Totally anticipate the of guess we're past

XX% where And is kind or have of if expectations comfortable, you on Corey should we an as margins? gross be that starting Farooq, where so feel area point, this

Farooq Kathwari

quarter XX% is vary, from but to quarter, be. it that should of it's around we Well, where range possible, will

Jeremy Hamblin

enough. Fair Okay.

side. is on marketing point second The the

it like as million to this $X looks calculation quarter. correct a your you've I spend last Corey, calculation? disclosed about in that pretty versus I increase marketing do think, year, March my is what

Corey Whitely

Yes.

Farooq Kathwari

Yes, it is.

Jeremy Hamblin

quarter? because compared does Where the, say, quarters or rate more run been that SG&A really in And last million couple that about $XX been June do you've $X of at, million let's like structural then, how you've to $XX - million. to embedded you the

I like or theory, that would are maybe million be $XX going think, total? you - to $XX SG&A in this in assume running more in

Farooq Kathwari

commissions And Jeremy, $XX that track, has too. million so write, could on close or be of increase how our But sales, million. million, that related an on impacted closer is also rate. $XX we More think, - by I that an it of to on written to our depends because has the right that you be much - impact incentives it business are in impact so run that course, at $XX and sales. would

perspectives on in a range. sales about - So line. keep of have perspective if operating increase in you've those in our to got basis close from think a we be in But then if million of you no the all expenses flat will $XX increase

Jeremy Hamblin

Okay. State back come Fair and enough. Department want with finish to I to that.

think deliveries. you've good you the that I really statement on made progress made So those - was

that on clearing come on be some to of October your you be question. you're up expectations you through catch the of March that had gut up close but XX%, that's You going where fully going Are do XX%? feel says And your cleared do deliveries. that backlog? didn't this mostly backlogs part Or quarter in XX%, you one in are to will still the not stand in you reporting April deliveries, probably like My to on through? your

The part are you is, second continuing…

Farooq Kathwari

at let's one Brad. it do time, No, a

Jeremy Hamblin

Go ahead. Okay.

Farooq Kathwari

Jeremy. I from hope past it is we going that don't shipping. a increase I very, very be am be Jeremy, sorry, State of backlog, but most strong the that the to because it Department business in will of think got I would

we new of getting to but a in tend middle us give the to orders. we are and the September. to We lot order so orders, as they rate getting what is But end are do they're - to small said, towards year, compared relatively as fiscal I of our orders write got

So we going is major going now, as factor Department fourth the backlogs quarter. our not a be think to stand into I in the State right

Jeremy Hamblin

there, a of quarter the in just end quarter probably the and going all concerns winning basis as are because in share over on of government. XX%? bit that's But than of the out the continuing lower on business were well you I year budgetary the fiscal rates the kind total still you an this - dollar that a Are quite absolute order to gather September

Farooq Kathwari

That's hear. what we

Jeremy Hamblin

Thanks, guys. Okay, Good luck. great.

Farooq Kathwari

Thanks. Jeremy. right, All

Operator

question from John next from your Stifel. Baugh And comes

Farooq Kathwari

John. Hello,

John Baugh

their no, Amazon? you has answered to I to down you taking get wanted Thank Hello, together Corey. evening. from experience how it's And but Hello, Good benefiting Farooq. sense comment. been I an to Several people just my that to early, these into I to that putting It question. you really haven't your on Or some just from comment. which X% I'm are know order a getting still percentage thoughts Amazon have with have Amazon, to but X%? your coming really good store day-to-day yet? obviously I'm from steeper steered the store that's much business is already, but happening. guess, - are written been your They your for orders if are from these trying down of that is you people any. people, a said degree think been trying it order But the if traffic store, go back square is you the written

Farooq Kathwari

mean, we But are. going business something not say coming Amazon coming I us. to I relatively major it John, still is it's have folks and small. We from to can that in

just but every incremental, it's week. China. the with it's still a We I better difference past Disney doing small, in just rate. a the It's this at to think to it's opened make month, smaller but Disney Middle enough incremental, in a East We're these not numbers. our like program, - Disney growing growing it's

John Baugh

moved pricing, pricing if last there. and think A concern summer, it was wondering materials of manufacturing we as decision but the costs? believe, I have any there's working about I'm then energy I lot versus any know And here, costs? out input how's issues you and took Okay.

Farooq Kathwari

- considering of is few increases well. in price good also faced months our in as in as course, costs, driven it question, material that significant by industry you increase these of business. has upholstery next is, to the of costs significant. upholstery just so increases plywood, for seen increases a We've they been know our materials, the been material from are foam, we segment which have John, material packaging a raw Well, our have And

John Baugh

or me. wasn't lastly, And dollars a whatever increasing Okay. TV. bit increasing clear and or It talked about Are marketing - digital you fair to it, digital, Or call mentioned you and to more TV? or of online to want you year-over-year? to you but Are it. mobile total more you're is mix going no, on the TV you spending to more still over year changing - be

Farooq Kathwari

on spend substantially going less national We somewhat digital, more on print. are television and to

John Baugh

Okay.

feel will don't can you stay start to know help that we And you promotions I And hopefully monthly when haven't them When us already Give there's sorry, you're to see when lag if advertise you between the we and Okay. for a into when TV. - I doing. - business. or glued hit? these, us because, a will quarterly then write degree ties some to see whatever

will on plays So about lagged? I'm written trying to because in it measuring something all this how talk think Or be that orders? higher when we we out, hopefully XX days it's from else, now,

Farooq Kathwari

of start again advertising first John, in Most the of week is in good March. question. our to broadcast a going

unless very, not And get very, you very is strong. that a as March of earlier, to going on do national much benefit. very even strong you be So do said basis, it a any I

the this So business quarter have our in fact written, look in that impact upon of increasing we we quarter. our deliveries opportunity of and an should that the fourth in be

the in digital in course, of will, quarter and continue well. advertising, broadcast as this We including our - fourth our increase

John Baugh

in Okay. a advertising dollar little spent. the back-end-loaded the terms But it bit quarter, of at in least, sounds

Farooq Kathwari

lots as already know, March, are might copies for sent received of January really, X I we in accelerating, which direct beautiful sent right. of said, and advertising we you increasing mail, as may then, million That's exposure, have you a February in we our reasons. And that. But

more today. As I ready said, we are

we We in are offerings; retail. more are ready in ready our our

fair And Now of business are which that which is large create able custom. a sorry, have produce lot have but you our sure the was to got capacity, mentioned great, orders, issues, did it. me. on when the - we I I'm make I because Amazon, excess we a Department. sites. these that say? What State Amazon what all it is John, of we of saw Department. also State also do that what a is, got done have I also we fact portion Yeah, to the we is we That's people sitting don't thinking

John Baugh

State got it. Department. Yes, I

Farooq Kathwari

- will we So yeah.

gap, it's managing think, this So important. I

that So we see delivery fourth should this having a is benefit strong expectation. written with should what strongly that's quarter, we And to going quarter. be in that you're in our then the expectation,

John Baugh

best to the you you quarter? guess, atypical what March discount the us you. my differently? seeing terms on Okay. December set what And a year-over-year then we're Thank up everywhere. from And of is would last the you I or having that's how mentioned not quarter may give the little more of - discounting, and simply in sense question be a bit year-over-year did similarly in Could

Farooq Kathwari

We did in factor again, discounts, our increase of the - our Yeah. important overall business. is and very some volume a

So you'll that had gross lowest we when see and delivered that our in operating impact somewhat written, margins. lower a our on margins,

So are lower our gross by margins impacted operating deliveries.

discounts, as given have the mind we as impact lower an much on while margins has more - may but in keep had discounts. some So delivery our

with on an in have increase gross the increase volume, in and margin higher operating with both impact volumes. So level an we

an on volume impact So in some margins discounting. increase gross and had decreased

John Baugh

be level? curious as to I'm State or quarter. year-over-year, Yeah, any I hope in kind similar you to ship discounts fairly of Department, just maybe get aggressive? will even the there discounting the certainly curious, whether the similar more, just planned more or particularly was incremental March are that a I

Farooq Kathwari

It be will No. similar, about John.

John Baugh

for much my very you and Thank right. good taking luck. All questions, Okay.

Farooq Kathwari

right. Thank All you.

Operator

Company. comes question from next Justin your Bergner from & And Gabelli

Farooq Kathwari

Justin. Hello,

Justin Bergner

questions Farooq. that, of Hi, of couple been asked haven't yet. Hi, mine guess, Corey. I A

on bit a the up stepped in would could relate the detail to they that advertising timing and you how more will provide are helpful. Passport little be your collection If that just and

Farooq Kathwari

the Justin, our And quarter. into was the our overall of advertising - collection well Passport end received. mostly was design was of mail. And medium it direct towards went it course, centers, second main our

our also Passport to programs we've uptown are will news. that think in as increasing hearing a traffic other retail, internally, reviews good marketing with centers along have good opportunity think would is our our good getting well I the design I digital business. we So from If we need more design so as centers. March, around externally. that of had now into be that. our And we We the do And

Justin Bergner

will that uptown, how be your currently anything stores? Okay. different you than on in the - And just have what that

Farooq Kathwari

you the uptown, The somewhat more, relaxed today. name but, implies course, formal - is the of as product more might of say, up

as Passport introduced customer uptown we and the relaxed others, say Monica while are now before Santa And the then I of working, people, is and the new for mentioned, current was our might our Brooklyn the more so will the millennials reaching line as So say, well are younger will you we which that you of new, go more which more summer, introducing right basically working and next the in on - base. might teams side, as traditional. on product again then the

Justin Bergner

around that if up that a it. that maybe from And Is Disney past is jumped the was it Got correctly. of it's materially ballpark sort I million $XX or you that in revenueing mentioned then, rate on that? Okay. mean, think in still recall the I the annual sales, I

Farooq Kathwari

it's No, approximately that range, Justin. in

Justin Bergner

if or more One Okay. two I may.

the store have second in possible affected orders is State the it deliver contract, which us might beenX or quarter? estimate Given Department degree the to need for the that to your retail the and issues sales could you manufacturing written comparable

Farooq Kathwari

and delivered. increase And delivery being And A about had increased X% in retail impact of the that delivered, talking we that in had well, have You're but volume X%, increase because that the that of really increase done delivered that our helps we increased board. very, that, in that we by not in did our have margins, would very across our have margins, delivered. profitability we - the X%. an backlog X% incremental well, would operating delivering gross

Justin Bergner

income Okay, basis of with got add If clarification segments, question. $XX operating is $XX.X wholesale I high And end up the sort up and it. profit adjusted the your in one retail just on million. then, the of million. I order And something

Could that So relates you the your operating part there's of income. like a what that Corey, overall maybe reconciliation to? clarify, positive meaningful is to

Corey Whitely

Yeah, between and the profit of that's retail. It's it's consolidation made. adjustment the wholesale the intercompany

Justin Bergner

to so history of just over the the unusually sort it's large, years. just was the the of tracking why any last it large wholesale of there guess to $X outlier? greater is sort that the - cause sort to company this reason that's there of I stay range of more or of going I in something number million an $X mean, is just of couple Is sort million

Corey Whitely

changes number how and Yeah, of it the go wholesale factors over then you that if retail - It inventory the and also on between retail. time. there's the sales, at it's wholesale of it sales And into - it over and much all versus kind between really so fluctuates of a also look - margins.

we look are a model with to in. that We necessarily don't models. there at factors of when that look So work I our wouldn't influence that, number that.

Justin Bergner

Okay. - higher sales skew the as number forward. of a wouldn't fact I overall going sort is of is there no that that consistently if mean, lower like retail percentage

Corey Whitely

No, it not. would

Justin Bergner

Okay, my forth. thanks taking and questions. appreciate that back for I you

Farooq Kathwari

Brandon? thanks. All right, Justin,

Operator

question And Telsey your next comes from Fernández Advisors. from Cristina

Farooq Kathwari

Cristina. hello, Yeah,

Cristina Fernández

with little Hi, wanted the more you to Or Just we the would the could networks good reach And be going should are same the wanted helpful. it that a time? customer? expanding you're T.V. you bit of changing. you think be using in the are if to adding, more understand to wider as color I if are be you is about a color initiative. there showing number more I networks brand see around messaging afternoon. provide going to marketing to in

Farooq Kathwari

broadcast at for had, Yeah, level we the talking Cristina, haven't advertising, advertising really some now. national time, we are television about

look the And direct media. story. I saw a in And you messaging color, very in important. the So, this the broadcast terms going - major you also is to of and projection, have with see for assume, details, very, our to January the for at mail all and is taken you're us details it's be the going the

differentiates And level we not going And something we've this the see Ethan about a that done in at talk in the so starting to what Allen manner. attractive do is details us March. very you're are to going

Cristina Fernández

there And doing business? that work on relates far is the to any the some as new work, That's other contract hotels Are initiatives other Okay. helpful. of as side progressing? it you're with that how as the

Farooq Kathwari

this we Orlando. have As major undertaking first with the in you Margaritaville know, projects

the in model process We are another in hotel, in Margaritaville are building homes furnishing we on in Orlando, thousand And the working West the also we're Coast. There also just homes. Allen Daytona to and Beach. in now, of another a right furnish Ethan also starting hotel the of Hotel process

and progress continue making that believe in we're progress, will the yes, make So contract business. to we I

Cristina Fernández

product Passport And new then and in issues? launching of when few where that guess, lastly, I that State Department the is Thanks. and, just you spring are at the the you complexity look the manufacturing how different from collections summer, the had the

Farooq Kathwari

react incremental Well, business. keep question to designers, said our the in it. the of having course, great of structure but have is mind of advantage, terms custom of business outside, of a it's - thrown business. creating adjustments a we, some And are in the was great to The That complexity capacities. advantage it's is it's then it we the have I we get all that we business that XX% about also the of product. When not then from then to is related making X,XXX interior day of every great, to sudden when

are increasing we So capacities.

inventory only not a But Ethan a model then why we lot product but products Certainly, for - retailer and in have a who this making manufacturer is ready providing some make because of the North getting sells product, contract. or adjusting Carolina, and our and our for offshore. Our and America, they're fact this that including at to custom inventory in of management builds Vermont, receives to making operations capacities made are we're it. of North That's being Honduras; is now, all very our America orders offshore, North some Allen. of is that makes Mexico, good them, to not

lots very But contract, Now, on Department less are where that with I we problems. a we the initially no lead delivery can time, is meet times that short contract did as State then this create there comes as or sensible U.S. we we issues. problems think get have that had of

Corey Whitely

little we got State for move Department, prepared add just that of it understanding I'll we'll a bit we have quarter. year, to better expect that final as Next and into what

Farooq Kathwari

is Good moving think position, we're of and them in. These also, - custom I And of through - these gone so Cristina. were lot to better products. time made And make we we - we busy new a all news our making we've these those were when products, this a then were time came first lot a in that, are the at we had products. all forward,

Cristina Fernández

Thank And quarter. next you. your good luck to

Farooq Kathwari

you. Thank

Operator

Matt Kupersmith next Compass] New from from comes your And [ph]. question [Iron

Farooq Kathwari

me, Yeah, afternoon, hi, good good - yeah. excuse Matt,

Matthew Kupersmith

impacting for to you Day was looks Hi, about taking the like guess come And I I on the - we year? the the guys. It it decision-making last for Thanks just holiday advertising, question. wanted have What process not this that to should President's for it think national on quarter? guys back. ran year. how the T.V.

Farooq Kathwari

I think hard view, or levels, local. of at advertising person's tell so viewing a that most from some point the it's it course national probably, Matt, whether done to to regional look have of that may we at it's

been have doing We some T.V.

done of they going Jersey to mean, difference the is major markets. at television retail in have today, New doing been on pace. is like are in it by I be company retail level operated level the paid corporate this level But This at And - we local at networks. many a local either Even to do national is and a here a this just a we've going instance, level, lot at and is markets. T.V. in - retail, are in or independents. at the For a the it to be level corporate. the television at be going than local going the done rather national is is

Matthew Kupersmith

Got it.

Okay.

saying were national advertising was President's there you Day? So for no last year

Farooq Kathwari

if I national. don't remember - don't national. so. any Corey, regional, And not it think was local I having we did, mostly No,

Matthew Kupersmith

it. Got

Okay. All right, you. thank

Farooq Kathwari

All Matt. right, Brandon?

Operator

[Operator queue Instructions] We no time. have at this in questions

Farooq Kathwari

to business taking All our very we terms that of next steps thank everybody. These thanks taking are important steps and in the the right, Brandon, level. you - are think are I

always to spend more Some of you really me to advertise, have money. wanted

were going to ready So lot than anybody are do more it. we're to to going spend do, a but money we we thought

And So we business to increased this have with strong keeping plants with business, all hopefully, of busy. continued profitability. our that opportunity look of forward all and an having

Operator

does call. today's conclude conference this And

disconnect. may You now