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Q1 2009 Earnings Call Transcript

Published: 23 Oct 2008

[Operator:]

Good day ladies and gentleman and welcome to the Ethan Allen Earnings Release. (Operator Instructions). At this time I would like to introduce your host, Mr. Farooq Kathwari.

[M. Farooq Kathwari:]

Good morning I am Farooq Kathwari the Chairman and CEO of Ethan Allen and also joining me today is Dave Cullen our Vice President of Finance. These extraordinary times have challenged us to remain extremely proactive in managing our costs on one hand and also maintaining the moral and forward momentum for our enterprise. While our sales declined 17% we maintained higher gross margins, reduced our expenses and most importantly focused on maintaining strong liquidity positions. We also continue to strengthen many aspects of our enterprise, which positions us very well for growth in sales and profitability. I will discuss in greater detail after David Cullen gives an overview of our financial results.

[David R. Cullen:]

Please note that in the earnings release issued earlier today and in the course of our prepared remarks, reference has been made to certain non-GAAP information which exclusively affects of restructuring and impairment charges recorded during the quarter ended September 30, 2008. Our reconciliation of this non-GAAP information to the most directly comparable GAAP measure is available on our website. Net sales for the quarter were $205.8 million compared to $248.7 million in the first quarter last year. The retail division's net sales were $155.9 million versus $182.8 million last year. With comparable design center delivered sales 19% lower than in the prior year quarter. Written sales in retail decreased 24.3% and comparable written sales decreased 27.7% versus the prior year quarter. Wholesale net delivered sales were $121.3 million in the quarter compared to $156.3 million last year in the first quarter. Consolidated gross margins for the quarter continue to improve to 54.4% as compared to 53.7% in the prior year period reflecting improved margin in our retail segments and an increase in the proportion of retail sales for our total sales. Gross profit in the quarter was $111.9 million. Consolidated operating margins were 5.9% for the quarter or 5.1% excluding the $1.6 million of restructuring income in the quarter. This restructuring income resulted from a gain in the sale of a property included in our retail restructuring actions that began in January 2008 and was partially offset with other charges as actions came to their planned conclusion during the quarter. We expect the other properties for sales to be sold in the next 12 months with gains or losses to be reported in the restructuring line of the income statement. Wholesale operating margin was a 10.1% and retail operating margins with a -3.3% excluding the restructuring charge. During the quarter in addition to the restructuring impact there was an incremental charge with a result of $4.6 million or 10% per diluted share related to the change in the compensation structure of our design. Even with these costs consolidated selling expenses decreased $2.3 million. General and administrative costs decreased $2 million over the prior year quarter. Interest and other income decreased $1.8 million from the prior year due primarily to lower interest income with lower average inducted balances and lower interest rates; plus the prior year included gains totaling $800,000 or $0.02 per diluted share associated with a sale of certain real estate assets. Other factors which positively impacted results for the period include one-time tax benefits of $800,000 or $0.03 per diluted share in the quarter, a lower affected tax rate of 36.4% and the affects of our share repurchases and retirements occurring during the last 12 months which serve to reduce the weighted average share count by 5.3% or 1.6 million shares. Diluted earnings per share for the quarter were $0.26 on net income of $7.4 million. Excluding the impact of restructuring, but including the one time item, diluted earnings per share were $0.22 on net income of $6.4 million. This compares to diluted EPS of $0.57 per share and net income of $17.5 million in the prior year quarter. During the three months ended September 30, 2008, we generated operating cash of $18.1 million and ended the quarter with $79.9 million of cash and cash equivalents. During the quarter we spent $11.1 million on fixed assets primarily in the retail segment but also realized $5.7 million in cash on the sale of the site mentioned earlier. We did not repurchase any of our common stock in the quarter but did pay $6.3 million in dividends to our shareholders. Our accounts receivable are in good shape with 96% of our dealer receivables current. Inventories edged up .7%, $4.2 million, during the quarter in preparation for our new product launch of the artisan collection. We remain in a strong service position with respect to incoming orders with over 90% of our case goods items available for shipment within 30 days and over 85% of our custom upholstery. EBITDA for the quarter excluding restructuring and impairment charges total $17.6 million or 8.6% of sales as compared to $35.1 million and 14.1% sales in the first quarter last year. Given the challenging economic times we spent some time this quarter to ensure that our nearly $80 million in cash and equivalents are housed in diversified and appropriately protected money market funds or other highly liquid holdings. We also took the opportunity to review our existing $200 million resolving line of credit set up in July 2005, which expires in July of 2010. This line has not been used other than for letters of credit that total $12.5 million at the end of the quarter. We are working with our lending group to ensure that the facility we have in place is structured the right way and the right size to support the business at a minimal cost. We are happy to have the backing of stable and well positioned lenders in our banking group and we continue to be confident in the liquidity and capitalization as a company and pleased with our operating results in financial standing in this challenging economic environment. Now back to Farooq for his closing comments.

[M. Farooq Kathwari:]

All our ability to maintain profitability and increase our cash position under very adverse conditions is due to many initiatives undertaken in the recent stock. These initiatives include absorbing costs associated with almost a complete redesign of our product line to reflect better style, quality and value and also absorbing the costs of projecting them in our design centers in lifestyle presentations during the last fiscal year. The implementation of the team concept in our regional division was a major undertaking. It staged the paradigms of how we interact with our clients and has created a stronger professional theme structure in our retail division. This initiative, while strengthening the structure, also reduced our annual costs as fewer associates were needed under this new structure. We expect to reduce annual costs of about $15 million. A proportionate amount was also saved in our first quarter. As Dave mentioned, during our first quarter we expensed $4.6 million of prepaid commissions on our balance sheet and will expense an additional $2.5 million in the second quarter. During our first quarter we acquired two design centers in Fargo, North Dakota and Warwick, Rhode Island from retiring dealers. We did not open any new design centers during the quarter. The restructuring of our national distribution centers and the consolidation of 18 retail service centers was also completed last fiscal year resulting in a more efficient operation and also reduction of costs. The reduction of costs gave us the ability to absorb almost all of the doubling of fuel costs. As you know, we deliver our products at one everyday best price to our customers nationally. We are continuing to maintain a very strong presence in national television advertising. Our methods of the new modern attitude is being heard. As we are able to better utilize the synergies of our national advertising programs and the money spent on advertising in our retail division, we were able to increase our national television advertising in the first quarter by about 32% compared to the same quarter last year, while our overall advertising was reduced by $2.7 million. We were able to divert some of the funds from print and direct mail to national television advertising. As Dave mentioned, increasing our liquidity is an important objective. We increased our cash by $5.5 million to a balance of about $18 million on 9/30/08. Just in the last three years alone we have invested $161 million of capital expenditure mostly spent on acquiring real estate for our regional operations and also renovating existing retail locations. This initiative was also mostly completed last fiscal year and in the first quarter of this fiscal year in which we spent $11.1 million in capital expenditures, again mostly on development of the regional network and some on the development of a new Web site. Last year our capital expenditures amounted to $60 million and this fiscal year our plans at this stage are to spend somewhat less than $30 million. During the last two years we have invested to develop a state of the art Web site. We expect to launch it by the end of next month. This new Web site will open almost all of our products to be sold on line and connect with customers to our design consultant so that the benefits of combining technology with a personal service of our design associates and the logistic service of our retail network is taken as an advantage. Last week at our retail conference we introduced new products in all categories

[Operator:]

(Operator instructions) Our first question comes from Budd Bugatch – Raymond James

[Budd Bugatch:]

I think you said the negative – that the written comps store sales, David, were down 27.7% in the quarter if I heard that right?

[David Cullen:]

That’s correct.

[Budd Bugatch:]

Can we get any way to characterize that as it develops to the quarter? As we all unfortunately found out is that the first couple of weeks of October have been even more difficult at least for many. Can you kind of give us a flavor of where that sits?

[M. Farooq Kathwari:]

The business is still very soft, Bud. However, just keep in mind that when you take a look at our comp, they do reflect the fact that it’s all renovations of existing design centers. These are not new design centers mostly. So we do as you know when you renovate design center or relocate a design center we can consider it almost like new. So you also have to take a look at our comp and you also have to take a look the actual for the whole network, so keep that in mind. The actual for the whole network is in our case somewhat more closer to the comp, although we have a report to make the report. But having said this, October is still early but our business as I said, as I indicated we are somewhat running as far as the total business is compared close from what we saw last quarter.

[Budd Bugatch:]

If I heard you right Farooq, then the comparable store sales as a percentage of the total company owned net worth today is what percentage? You’ve taken the renovations out of…

[M. Farooq Kathwari:]

I don’t know. I would say the comp represents approximately 85%.

[Budd Bugatch:]

You are to be congratulated on the new store in New York which is lovely and beautiful. Can you give us a feel of what New York represents as a percentage of the system? This is unfortunately going through probably pretty tough times right now or will go through for many of your customers.

[M. Farooq Kathwari:]

You’re talking about the New Manhattan? The New Manhattan Design Center, actually Manhattan represents about 2.5% of our total retail.

[Budd Bugatch:]

Finally on the inventory, you indicated that the inventory was up because of a new artisan collection that I think that will be tipped in the next couple of weeks. Can we get a quantification of what that might have been?

[M. Farooq Kathwari:]

Dave, our case load in plant and inventories increased by about what $3 million?

[David Cullen:]

About $3 million.

[M. Farooq Kathwari:]

About $3 three million broad increased in large inventories and some also – as you know we also have some work in process. Approximately $3 million represented increase in case goods inventories between raw materials and work in progress.

[Budd Bugatch:]

All right.

[Operator:]

Our next question comes from Robert Higginbotham – Goldman Sachs

[Robert Higginbotham:]

A couple of questions, number one on the expenses, you guys talked to a higher number of cost savings than you had in the past. I was wondering if you could help us with that extra source of cost savings are coming from.

[M. Farooq Kathwari:]

Bob, the cost savings are across our whole network. You mentioned the fact that on an annual basis about 15 million dollars was saved due to the restructuring of our retail last year. And we got the benefit of that, but also keep in mind that this past quarter we had $4.6 million that we expensed and went into our expenses which really was a one time charge of writing of the prepaid commissions, the non-cash, so keep that in mind. That also was an extraordinary cost this one quarter. And we are writing $2.5 million dollars for next quarter too, but also non cash. If you exclude those you can see that our cost reductions were fairly substantial and it represented both the retail as well as our wholesale mostly in the distribution end of business.

[Robert Higginbotham:]

Just to be clear when you talk to the $15 million of cost reduction are you including or excluding that kind of one time accrual this quarter?

[M. Farooq Kathwari:]

No, $15 million excludes that that $4.6 million.

[Robert Higginbotham:]

One last question, when you look at your retail division profitability, clearly sales are down and it would be amazing if you were producing a profit in that segment. Can you give a sense of what kind of volumes you would need in that segment to have a positive operating profit?

[M. Farooq Kathwari:]

Keep in mind that in this 3.3% negative operating margins that Dave talked about also included the expensing of the $4.6 million.

[Robert Higginbotham:]

Sure, but even so, a modest decline.

[M. Farooq Kathwari:]

It is today a modest decline considering the fact that we have substantial decline in our delivery. Yet we were able to have a very modest decline in our earnings. And that is the cause of the steps we took in the last year in consolidating. We took off adding 12 design centers last year. We took out region service centers. We had about close to 500 less people. All of those have helped us take our costs down. And what we did last quarter was pretty close to breakeven, despite that major decline in sales.

[Robert Higginbotham:]

One last question, could you help us characterize the promotional environment and how it might have changed throughout the quarter because presumably trends weakened substantially?

[M. Farooq Kathwari:]

Well as you know we sell our products at everyday best price. So our promotions rarely, we do not reduce our prices. We did offer a 4.99% financing to appliances, which of course our retail network had to subsidize to some degree, but which on the other hand we do that every year so it was nothing unusual. So from our perspective we actually increased our gross margins at retail in this last quarter. So we have been able to maintain our credibility, our stability, yet it’s possible that we would have gotten more sales if we had done more promotions. But the chances are we would have lost a lot of our margin too.

[Robert Higginbotham:]

It was more of a question what you thought. I understand your strategy but I just wondering what you had seen out of the guys across the street.

[M. Farooq Kathwari:]

Across the street it’s crazy. People are going out of business. People are selling products at a price and almost no bottom. So obviously they’re impacted by those kinds of things. So you have a very major thinning out of retail taking place. There is a lot of promotion going on, but the issue really is if the consumer is very, as we know, the consumer is concerned – they very very – and you really have to have a great offering, great service to induce people today to buy. And let’s face it, you know when people talk about the fact that business is down and if over 80% of the people are still buying. We just have to be careful and I’m talking, I mean I have given some interviews too. Yes being down 20%, 15% or 20% is major but let’s not forget that 85% of the people are still buying.

[Operator:]

Our next question comes from Todd Schwartzman – Sidoti & Company

[Todd Schwartzman:]

Your gross margin was up 70 BIPs year-over-year, how much of that was due to the better retail performance in the retail for retail mix?

[M. Farooq Kathwari:]

Most suppliers actually our gross margin improved at retail by about 100 basis points. It went down somewhat on our wholesale side and then some improvement was due to the slightly greater mix of retail to wholesale. But we did increase at the retail level of about 100 basis points.

[Todd Schwartzman:]

I just I want to get clear on the shift in compensation structure. I guess my first question is, how are you differentiating or are you making a distinction between design associates and design consultants?

[M. Farooq Kathwari:]

No they are all the same. I used the words, I know I mix. I use the words interchangeably, design associates design consultants are the same. They’re all basically engineers, designers they’re all part of the team. The team is compensated on the salary and then also a bonus that is a team bonus, but shared based upon the relative experience and relative interest of each of the designers in that team.

[Todd Schwartzman:]

From here on out, commissions will play what role, nil?

[M. Farooq Kathwari:]

Well what we are doing is this, we are not giving – they’re no longer getting commission, but what we are doing is we are giving a base salary and then we are giving a bonus. And the bonus is based on their writing business over at certain base amount. And that base amount is then shared within the team, based on, it’s like a partnership, based on the percentage, the partnership interest of each designer in the team.

[Todd Schwartzman:]

Will you be capping that bonus as a percentage of base?

[M. Farooq Kathwari:]

No there is no cap.

[Todd Schwartzman:]

Okay.

[M. Farooq Kathwari:]

Let us say that somebody has – let’s say that somebody has a salary of $60,000, there two people in the team and other has a salary of $40,000 and their base objective is to write let’s say $1 million. If they write anything in excess of $1 million, say $200,000 more they get 9% of that as a bonus, shared 60% by the first and 40% to the second.

[Todd Schwartzman:]

Okay so was the $4.6 million comp overlap built into your 20 to 26 cent guidance for the quarter?

[M. Farooq Kathwari:]

No it was not. I think that I should have mentioned it but I we realized somewhat a little bit later that this was on our balance sheet and had to be written up.

[Todd Schwartzman:]

Lastly have you seen anything, a while back, a few months back you shifted your plan for new design center openings for growth from the US to overseas. Have you seen anything more recently in the domestic real estate realm that makes you rethink this strategy?

[M. Farooq Kathwari:]

I’m sorry, Todd are you talking about [inaudible] in the United States?

[Todd Schwartzman:]

No I’m talking about store growth.

[M. Farooq Kathwari:]

As you know, we as we had mentioned in the past our objective was to create a base number of design centers. Larger design centers, supplemented with smaller design studios. Now we have approximately I think 275 or so design centers in the United States. Mostly large size, in major cities, in fact as you know closed a few ones that were, larger ones in smaller cities. And in fact last about two weeks back we opened about 1800 square foot design studio in Long Meadow, Massachusetts, that’s near Springfield. We also opened a 3000 square foot, reopened actually it had been closed in Hamptons and Watermill, New York and there we are looking to use these studios as a supplement to our major design centers. So at this stage our thinking is, remains the same. That there is a limited number of large design centers, that we are going to experiment with this and larger, smaller design studios which will then compliment these larger design centers, and that’s’ the plan we’re going to do. And as I said fortunately we had completed most of these relocation, renovations last year, so CapEx expenditures are going to be substantially reduced because of that.

[Todd Schwartzman:]

Did I hear you say earlier that the expectation now is to spend less than $30 million?

[M. Farooq Kathwari:]

That’s right.

[Todd Schwartzman:]

Okay that’s for a full year of ’09.

[Operator:]

Our next question comes from John Baugh – Stifel Nicolaus & Company, Inc.

[John Baugh:]

My question is sort of following up on the CapEx guidance. Is there any assumption in there of having to acquire, any dealers in fiscal loan arena. I know you mentioned that most of them are current and I know they’re reasonably well run businesses. But this is tough downturn and it could last a while, and I’m just curious whether you think you’re going to need to acquire several of those this coming 12 months?

[M. Farooq Kathwari:]

You know unfortunately our dealer network is in a relatively in a better shape, they’re also hurting this is a tough time. However, we do not see any, at this stage I do not see any major acquisitions of retiring retailers or retailers wanting to sell their businesses. It’s possible, you know, a few might be acquired by us, but that will be covered in the $30 million, John.

[John Baugh:]

Do you have any insights on the, and maybe too new for the 4.99 program but what approval rates is it GE that’s doing your credit, do you have any insights and refresh us on thinking how many customers are using financing currently and sort of what the rejection or approval changes have been?

[M. Farooq Kathwari:]

It’s a little bit early; however, number of factors, first is the fact that we are very pleased that GE has continued to offer this and actually renewed this in the last about two weeks back up to 11.24 at the time when most people had been worried about providing more credit. They have, we have not seen any significant reduction in the credit approvals although I do understand there is some tightening of it and I think that’s also normal. On the other hand what is more significant is the fact that even with this great financing people are concerned of taking it, because all what’s happening in the market place, what they read about day in and day out. So from that point of view the consumers are not utilizing it as much as we would like to. Our credit card is about 30% of the total finance; it represents about 30% of our total sales, John, which includes all various financing offerings that we make.

[John Baugh:]

And so you, interesting, you haven’t really in the last month or so seen a principal change in that percentage, 30%, using the financing.

[M. Farooq Kathwari:]

No, we have not seen that. It doesn’t maintain that.

[John Baugh:]

Would you be willing to say in these three negotiations the last couple of weeks that did GE asks for a little something more, or its the same program?

[M. Farooq Kathwari:]

No, they did not ask for more, but it took more time for them to make the decision, and rightly so. I can see it was a great procedure for and I will be very pleased that they have been able to make this offering at the same term as they had before.

[Operator:]

Our next question comes from Joel Havard – Hilliard Lyons

[Joel Havard:]

The asset and gains that we’d originally been looking for the year were in the neighborhood of $4.5 million. We kind of lumped that into Q4 anticipating that you’d get it. In dribs and drabs over the year, is the $4.5 still appropriate and do you still see that sort of at an unpredictable time?

[M. Farooq Kathwari:]

Is this in addition to what we already got?

[Joel Havard:]

No, that would include the $1.6.

[M. Farooq Kathwari:]

Yes, you’re talking of one point – are you looking from the cash point of view or are you looking from the earnings point of view?

[Joel Havard:]

From a gross sale price stand point. So that was pre-tax $4.5 million.

[M. Farooq Kathwari:]

Well, on pre-tax. We were very fortunate that the first one we sold we sold it for a cash of $6 million.

[Joel Havard:]

Okay.

[M. Farooq Kathwari:]

So we beat our whole year in budget in the first quarter, although we had carrying costs to it. We had some other restructuring that we took, and it ended up with a gain of $1.6 million is the gain. We have some more properties for sale, but some are in contract and people are somewhat cautious. One of two folks backed off.

[Joel Havard:]

That was the gist of it is how much of the total number – what was the number of properties and was this one location or multiple?

[M. Farooq Kathwari:]

This is one location. We still have more that’s a good mill, and the chances are that we’ll end up by selling another $4-$5 million in cash, at least.

[Joel Havard:]

On the gross margin side, I can recall in conversations with you all in the past every time you’d hit a new sort of threshold when you got to 48 and 49, then 50, then 51%, analysts always ask, well what can you do next and you’d say well gosh isn’t that enough. The 54.4 is very impressive in this environment. While I’m not going to ask you to set the bogie yet higher, I would ask you if you think that that range is sustainable and particularly given that this may be sort of a trough seasonal view with a little macro influence on top of that. And, if it’s sustainable, is this starting to get any benefit out of Mexico yet or is this pretty much just pricing at the stores? How would you characterize that?

[M. Farooq Kathwari:]

Joel, you’re right, don’t ask me for more. Second is that we have been able to make this kind of a margin while still keeping our case goods plants during the quarter at 32 hours. So we’ve been hurting on margins on that size. And this quarter also, we’ve been operating at 32 hours, but in the next few weeks the good news is we are going to have to work 40 hours because they are making this new water-based product we’re going to introduce in January. So I think that at this stage, Joel, we’re reasonably confident that we’ll be able to maintain this kind of a range in gross margins.

[Joel Havard:]

Again, any contribution noticeable in that out of the Mexico cut and sew yet or is that…

[M. Farooq Kathwari:]

It’s still too small.

[Operator:]

Our next question comes from Rishi Sadarangani – Alliance Bernstein

[Rishi Sadarangani:]

Farooq a couple of questions on expense base and your expense structure. First question is how would you characterize your fixed with a variable breakdown and how is that changing the implements of these costs-cutting initiatives? And my second question is what additional levers or means do you have to fully streamline your (inaudible) structure assuming the negative operating leverage continues?

[M. Farooq Kathwari:]

On your first question of fixed variable, as you know that sort of a relative term because even though we have people that we have a substantial variable cost that is our compensation, our advertising – all of those factors. Yet on the other hand they are not completely variables because we can’t reduce all those costs. Our fixed costs are approximately $40 million and our rentals that we pay outside approximately $11 million on a $20 million debt, so approximately $51 million is real, real fixed; the rest is technically variable. And the second question was?

[Rishi Sadarangani:]

What other initiatives do you see to – you have negative operative leverage with the top line coming down to reduce your expense base or right size it or further streamline it?

[M. Farooq Kathwari:]

Obviously we are still spending a fairly substantial amount on national advertising. We are continuing to maintain our presence and our brand; now that is a variable expense. So obviously we have to keep in mind that if we reduce it doesn’t have even a greater impact of reducing of our measures. But at certain times, of course, we’ll keep that perspective in mind. We have reduced already a great degree of expenditures in costs both in our wholesale and in our retail, and we’re going to continue to look at that. Our new Web site, which we are going to launch next month, should help us also become more efficient because it adds a tremendous amount of technology to the working of our design consultant. So overall it will help us become more efficient, and I believe reduce our costs. We are launching actually, also, from January of next year a new information technology system for our regional division, which has also been spending about two years in development. And, while we will not see immediate costs cutting in the next three or four months, but in the next year or so it will help us become more efficient and reduce costs. So we have these kinds of initiatives across the Board. Other one I think is also our field cost that increased about 50%. And if it holds up the way it is, we will get a benefit of that because we absolve a significant amount of field costs both in our trucking as well as in the energy costs that we use in our manufacturing distribution and retail. That is a significant amount if the current price of oil sticks.

[Operator:]

Our next question comes from John Zimmerman

[John Zimmerman:]

How much of your [consource] sales were offset by price increases that you took?

[M. Farooq Kathwari:]

In this quarter we put a price increase in the middle of June, so it really was not much; maybe less than one-half of 1% if I have to just make adjustments. It might have some impact more in the second quarter.

[John Zimmerman:]

And what about the gross margin impact?

[M. Farooq Kathwari:]

The gross – well, yes, let me clarify that. Yes, the gross margin did impact because of the fact that in our suggested pricing – let me clarify that. Our price increase that we took in June has two components to it. One was an increase at the wholesale level, and the other one was an increase at the retail level giving the opportunity at the retail level to make up to about at least 100 to 150 basis points more than gross margin. The retail did most of that in that quarter; that’s why our gross margins increased. At a wholesale level the benefit was less. We will see more of that, I think in the second quarter. So I would say that the impact of our price increases at the retail level was 100 basis point increase that we saw in the retail gross margin, 75% of that was due to the price increase.

[John Zimmerman:]

All of your competitors are taking down pricing and getting more promotional. How are you reacting to that in light of the current environment and the erosion of wealth from housing and the stock market? How elastic do you think your customer is?

[M. Farooq Kathwari:]

Our focus has been to offer the consumers every day best value and we provide our customers a one-stop shopping, a great service with our interior designers, so we have a total package of value that we offer. And I think that, yes, if somebody was just at this sale bargain head hunting for closeouts it’s very hard to compete on that and if possible some customers we are losing on that. But the good thing is this; that our customers more and more are realizing the benefit of our brand, of our quality, of our style and the total package and especially the service we provide of our interior designers, free delivery. When you add all of those things, we offer a pretty good value. Yes, it is possible that some people are tempted by all the things that are taking place, but I believe that we are able to maintain a relatively good relationship with our customers and we have lots of projects going on. And the interesting thing is this that, yes, traffic is lower but what we are getting from the field is that people are working on projects. People are interested in doing their homes, yet some of the people are holding back because they’re also looking at overall environment. I think as soon as overall environment clears up we have lots of projects in place in hold that I believe will mature as people feel somewhat more comfortable. All right, thank you very much. Any questions; come and please let us know. Pat Lofton is also available online, so she will be able to answer any questions. Thanks very much.

[Operator:]

Ladies and gentlemen, this does conclude today’s conference. You may all disconnect and have a wonderful day.