Kimball International, Inc.
Q1 2017 Earnings Call Transcript

Published: 3 Nov 2016

[Operator:]

Good morning, ladies and gentlemen. My name is Nicole and I'll be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball International First Quarter Fiscal Year 2017 Financial Results Conference Call. All lines have been placed on listen-only mode to prevent any background noise. After the Kimball's speakers opening remarks, there will be a question-and-answer period where Kimball will respond to questions from analysts and investors [Operator Instructions] As with prior conference calls; todays call November 2, 2016, will be recorded and may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from forward-looking statements. Risk factors that may influence the outcome of forward-looking statements can be seen in the Kimball International Form 10-K and today's release. The panel for today's call is Bob Schneider, Chairman and CEO of Kimball International; and Michelle Schroeder, Vice President and Chief Financial Officer of Kimball International. I would now like to turn the call over to Bob Schneider. Mr. Schneider, you may begin.

[Robert Schneider:]

Thank you Nicole, and welcome everyone to our first quarter conference call. The financial results of our first quarter ended September 30, 2016, and were released yesterday afternoon. As in prior calls, an investor presentation slide deck has also been posted to the Investor Relations section of our website to accompany this conference call. The slide deck includes trending of some very key metrics. Also to help all of you with better clarity, we've gone back through our notes from prior investor discussions and have incorporated thoughts around the key questions from those discussions into our prepared remarks for today. I will start with a few brief comments before I turn the call over to Michelle who will provide you with the key financial highlights for the quarter. We will also then open the call to questions from analysts and investors. I am very pleased with our solid performance for the first quarter with 12% sales growth and 42% increase in our operating income excluding restructuring. We comfortably hit our sales and earnings guidance for the quarter. Recall this was guidance set in May of 2015, over a year ago, and then updated and increased in February of this year. We coordinated the guidance period for when we thought we would have the post-falls restructuring completed. That said, here is what I see as the key highlights for the quarter just ended on September 30. Overall, sales increased 12% in the first quarter with strength in healthcare education and hospitality vertical markets, sales growth is so key and I am very pleased with the 12%. Sales of office furniture which includes all verticals except hospitality increased 11% in the first quarter. We sliced our sales this way to get a good comparison to Beth MA, which is the organization that tracks the office furniture industry, averaging the monthly industry data provided by Beth MA, industry sales were up approximately 1% for the three months ended September. Our 11% increase in sales well exceeded the industry. Our office furniture orders were up 3% for the first quarter, similar to what we heard on other recent office furniture company calls. We saw a softening in orders in July but we saw a pickup again in August and September. Averaging the monthly industry data from Beth MA, orders in the industry were up approximately 1% compared to work increase of 3%, so we again took market share. We had a very strong quarter in the hospitality vertical market with sales increasing 15% and orders increasing 24%. In the last key highlight, and one we are very pleased with -- is our operating income excluding restructuring improved significantly in the first quarter ending at 8.8% of net sales. So those are key highlights; I mentioned earlier that we comfortably hit our earnings guidance. As a reminder, our guidance for the first quarter of fiscal 2017 was $170 million to $180 million in sales, 8% to 9% operating income excluding restructuring and a return-on-capital exceeding 20%. Our first quarter sales ended at $175 million which was right in the middle of our guidance, our operating income excluding restructuring of 8.8% came in at the top end of our range and our return-on-capital was an outstanding 25.5%. We manage our capital base very wisely and it is low relative to our competitors which positions our internal capital among the best or the best in the office furniture industry. We are very proud of that distinction. With our 8% to 9% operating income goal, we had a big hill to climb as we had operating margin below 2% just two years ago for fiscal 2014. I'm very proud of our team for embracing the challenge and executing to achieve such significant improvement in a relatively short period of time. It was the result of 3,000 employees all focused on the customer and continuous improvement. If you could take a look at Slide 21 in the slide deck, it gives a great view of the operating income progress made the last few years. Hitting our guidance was in large part due to the tremendous efforts to bring the market new products and marketing programs coupled with savings realized from our manufacturing consolidation restructuring. We estimated our savings from the restructuring would be approximately $5 million a year or $1,250,000 per quarter. With a lot of hard work and effort by our manufacturing team, we recognized $900,000 of benefit in the first quarter and expect to realize the full $1,250,000 in our second quarter ending December of 2016. As I mentioned in our last call, the consolidation of these manufacturing processes was a long and complex undertaking, so it feels good to have this complete and to be realizing the benefit we expected. And I'm happy to say that in September, we completed the sale of the Idaho facility that was idled by this consolidation; proceeds from the sale were approximately $10 million after deducting selling costs and paying taxes on an estimated pre-tax gain of $2.1 million. Our timing on selling this facility could not have been better; we won't have the burden of holding and maintaining an empty facility going forward. With the additional cash received from the sale of this building, we announced in September that we would use these proceeds towards funding upto $25 million in share repurchases over the next 12 to 14 months which we believe will create further value for our share owners. At the same time, we are exploring other opportunities to invest for future growth including potential acquisitions. With our strong balance sheet, we believe we will have sufficient capital available to complete this share repurchase plan and fund investments for future growth. A key question we often get from investors is, once you complete the turnaround and get to 8%, what's next? It's an excellent question and the answer is a combination of continued growth of our current market verticals and looking for smart acquisitions that we can leverage. So looking forward operationally, we are cautious on the economic outlook as are most people right now. While the presidential election certainly is causing some anxiety in the markets, we believe there is still strength in the furniture market. In the mid-term, we expect our sales to increase mid-single digits over the prior year. And with the manufacturing consolidation now behind us, we expect 8% to 9% operating income with the exception of our fiscal year third quarter which tends to be seasonally lower than other quarters. That is the quarter ending in March for us. Recall, our operating income in fiscal year 2015 was 6.4% excluding restructuring; so 8% to 9% operating income is significant improvement over recent results. At this earnings level, we expect our return-on-capital to exceed 20% which again is among the best in the office furniture industry. Our outlook assumes that economic conditions do not significantly worsen, it also does not include any potential impact to earnings related to the government's review of our self-contract reporting process. As I mentioned regarding acquisitions, we have a team focused on this to drive additional growth and we are evaluating companies routinely. We have a very strong capital structure to fund this growth and we'll continue to consider stock buybacks if our cash generation outpaces our ability to find smart acquisitions we can leverage. Now, I will turn it over to Michelle for a brief overview of the financial results before we open the call to your questions. Michelle?

[Michelle Schroeder:]

All right, thanks Bob. We did have a really good start to our fiscal year, so we're very pleased with that. Our consolidated sales for the first quarter increased 12% to $175 million and we're very pleased to continue our trend of sales growth over the prior year with this being the thirteenth consecutive quarter with year-over-year growth. As Bob mentioned, our sales guidance for the quarter was $170 million to $180 million, so we ended right in the middle of our guidance. The growth really was broad based with five of our six vertical markets increasing over the prior year. We continue to focus a lot of efforts in growing sales in the healthcare vertical market, we've added resources to our healthcare team to take advantage of the opportunities that we see in this space. And we're really seeing benefits of our focused effort with sales increasing 40% in the healthcare vertical market. Sales to the education vertical market increased 21% and we've been working to strengthen our relationship with various group purchasing organizations within the education market, and it really has paid off as we've seen strong sales growth in the first quarter with these GPOs. Sales to the hospitality market increased 15%, primarily on the strength of our program business or in other words, our non-customers projects. Our new products continue to fuel sales growth. Sales from new office furniture products that were introduced in the last three years increased 39% compared to the first quarter of last year, and approximated 28% of our total office furniture sales for the quarter. Overall, our orders received were up 7% in the first quarter with four of our six vertical markets increasing over last year. Healthcare and hospitality were the biggest movers with orders in the healthcare vertical increasing 39% and orders in the hospitality market increasing 24%. So we were pleased to see that we've had particularly strong growth in custom projects for the hospitality market this quarter. In order, custom projects tend to have higher margins on our program business and we often get questions about the swings in shipments versus orders in the hospitality vertical. So for example, in the quarter just ended, our custom shipments were down but the orders received in the quarter for custom products were up significantly. Note that this is just the nature of the business with very choppy order trends because of the large contract nature of that vertical. The consolidated open order backlog at September 30 was $127.9 million which was an increase of 4% over September of last year. So as I move to operating income results, my comments reflect operating income excluding restructuring cost and this non-GAAP disclosure is reconciled in our investor slide deck. So as Bob said, several quarters ago we set the goal of achieving 8% to 9% operating income with the timing of reaching that goal centered around the completion of our manufacturing consolidation project. So originally we stated that we would reach this goal in the quarter ending December of 2016. However, as our consolidation project progressed and we saw that we would complete it sooner than anticipated, we pulled our guidance forward one quarter to the quarter ending in September and we are very pleased we ended at the high end of our guidance with operating income excluding restructuring increasing 42% over last year and ending at 8.8% as a percent of sales. So we've seen significant improvement over where we were just two years ago when we first set the 8% goal, and it really took our entire team to get here. It was the effort of our product development teams to bring innovative products to the marketplace with incredible speed; it was the effort of our sales and marketing teams to elevate our brand recognition within the design community; it was the effort of our manufacturing facilities to produce quality product; it was the effort of everyone involved in the manufacturing consolidation project to complete that project ahead of schedule and reach our estimated savings on the restructuring. So it really was truly a concerted effort by our entire team to increase our sales and to increase our profitability. So now comparing to last year, our operating income excluding restructuring improved from 7.7% of sales in the first quarter of last year to the 8.8% I just mentioned. And the current year quarter benefited from pricing and also leverage on the 12% increase in sales. We also shipped some higher margin custom hospitality projects during the quarter. The first quarter also benefited from approximately $900,000 in savings realized from the restructuring actions. And another question we commonly receive is, what -- why is the expected benefit from pro forma [ph] restructuring so high? Well, it's $5 million per year and primarily that's related to reduced labor and commodity cost and lower freight cost, now that product is shipping from Indiana instead of Ohio – Idaho as a majority of the product ships to the eastern half of the United States. Now partially offsetting these improvements, we did have higher incentive compensation costs that naturally increased as a result of the improved earnings that we saw over last year. We had $1.8 million of pre-tax restructuring income during the first quarter of this year. We had the $2.1 million gain on the Idaho facility that was sold in September and that was partially offset by about $300,000 of expense. The effective tax rate for the first quarter was 37.8% compared to 38.2% in the prior year, and there were no usual tax items to report this quarter. Our first quarter net income excluding restructuring cost was $9.9 million compared to $6.3 million in the prior year. So moving to the balance sheet as of September 30, our cash, cash equivalents and short-term investments totaled $62.7 million. Our operating cash flow in the first quarter was a strong $13 million compared to $6.3 million in the first quarter of last year and we paid $2.1 million in quarterly dividends in the first quarter. Our depreciation for the quarter was $3.9 million and our capital expenditures totaled $2.5 million for the quarter. This was a lower than normal quarter for CapEx but we do expect our capital expenditures to be higher the remainder of the year. And we often get questions regarding our planned capital expenditures; so keep in mind our normal depreciation and amortization is around $15 million per year. For fiscal '17 we expect our capital expenditures to be approximately $20 million in total for the fiscal year. So higher run rate is in part driven by robotics investments. Upgrading certain equipment and renovations to our headquarters to better reflect the new layout and design of offices today. As Bob mentioned, we did announce a share repurchase plan in September; as of the end of September our share repurchases totaled $4.4 million. We continue to review and discuss our capital structure with our board. Our first quarter day sales outstanding which is our measure of accounts receivable performance improved to approximately 28 days compared to 29 days for the first quarter of last year. Our inventory metric or production day supply on-hand for the first quarter declined to approximately 46 days from 53 days in the first quarter of last year as we've had a focused effort on reducing our inventory. All of this helps with our low capital deployed which is positively impacting our strong return-on-capital mentioned earlier. We continue to have almost no long-term debt which stood at $219,000 at September 30, and we also have a $30 million credit facility. So our balance sheet remains very strong. Overall, we are very pleased with our results for this quarter and are excited about the great start that we had to the fiscal year. So with that, I'd like to open up the call today for questions. Nicole, do we have anyone with questions?

[Operator:]

[Operator Instructions] Our first question comes from the line of Catherine Thompson of Thompson Research Group. Your line is now open.

[Steven Ramsey:]

Good morning. This is Steven Ramsey on for Catherine. I've got a few questions here. First off just on the outlook, can you kind of clarify a little bit the mid-term outlook, what sort of timeframe you're thinking there? And then what gives you confidence in sales growth of the mid-single digit range?

[Robert Schneider:]

Steve we're looking at 12 to 18 months roughly in terms of the mid-term. And as we look at the mid-single digits growth, we're factoring in -- taking market share that we've done for many, many quarters now and trying to lay that on top of what might be industry growth and in the future. Very difficult to assess that right now given just the volatility we're seeing in the market, but we feel that mid-single digits probably will be right where we will land. However, very much subject to -- just the general economy, what's going to be happening with the election impact on confidence level by CEOs going forward. Clearly, a lot of risk going forward and that all weighed in in that assessment of guidance and in terms of mid-single digits.

[Steven Ramsey:]

Excellent. And then on the office market; can you kind of talk about project size, trends by large or small orders? And then anything that you're seeing in or for the past quarter or for orders; systems sales versus complimentary products sales?

[Robert Schneider:]

With respect to system sales relative to the rest of our product offering; like pretty much everybody in this industry it's very, very strong in terms of feeding [ph] and that portion of our business -- and I believe most of our competitors is growing in system, that is more of a challenged area. Could you repeat again, Steve -- the first part of your question?

[Steven Ramsey:]

Yes, just -- any trends you would call out for the past quarter and even…

[Robert Schneider:]

On the larger projects?

[Steven Ramsey:]

Yes, larger versus smaller or medium size?

[Robert Schneider:]

We defined larger for our sized company as $750,000 and above, and the orders we had this last quarter versus a year ago were up a little bit. And we're seeing a lot of discussion and activity in terms of quoting. It's a very active market right now and we're not seeing those large projects significantly changing there up as I said a little bit. And the rest of our business, clearly -- I don't have the breakdown in terms of the smaller but I mean -- to be up in office, 11% in sales, I mean clearly we're seeing that kind of positive activity throughout that distribution, large and small.

[Steven Ramsey:]

Right. So I guess just also another way of thinking about it, you would say smaller project size has outpaced the growth in larger project sizes?

[Robert Schneider:]

Yes, slightly but we have strength also in the larger but seeing greater growth in terms of the smaller projects.

[Steven Ramsey:]

Right, okay. And then on the commercial vertical, it's interesting to me that sales have bounced around in the past few quarters in more of a narrow band while orders have just fluctuated a lot more. And then with a bigger drop in orders, this quarter in commercial; can you maybe discuss the divergence between the two and what's driving that?

[Robert Schneider:]

Very good question, Steven. I think there is a lot of caution in terms of businesses across America right now, and I think you see that back in July where generally most of our competitors and ourselves also saw a drop in orders. Fortunately, they picked up in August and September, and I think it's just driving a lot of volatility. But when you look at our education vertical, you look at the healthcare; we have come out with a ton of new products and they are really resonating -- and we've been pretty consistent for at least a year, year and a half in very strong growth in those verticals. Our government vertical has been kind of flattish, it was down I believe 1% this last quarter and that's been kind of consistent for some time now. But our biggest vertical is commercial and we're trying to get our arms around that just as you are. And that one we've obviously like to see growing quite a bit more but I think what we're witnessing is similar to what others in this industry are seeing in terms of a lot of volatility in that general, commercial portion of the market.

[Steven Ramsey:]

Interesting. And then on your -- this would be my last question. On the acquisition front, are you -- maybe just help me think through just by -- are you thinking by the vertical or you're looking in office furniture versus hospitality? Just -- maybe anymore clarification there.

[Robert Schneider:]

What we're looking at -- an ideal acquisition which I guess -- probably you don't see just too often but it would be something that leverages many of our strengths at the same time. We are outstanding at wood finishing, precision metal bending that goes into our steel furniture, we're outstanding; complex project management, we're really good at; and as we look at companies, we look at how can we leverage that? How can we leverage our distribution? And so it could potentially be an existing vertical we have in terms of office furniture, it could be expanding perhaps in the hospitality vertical, into other areas of the hotel that we're not as strong in; we're very, very strong in in-room furniture. So we're -- key core what we're trying to achieve is look at our core strengths and see where we can leverage that in terms of an acquisition, and it could be in any one of these verticals and not necessarily limited just to office furniture and hospitality because if we can let leverages capabilities in a vertical that is -- maybe one lane over. We would certainly look at it really, really closely and I'd say one lane over because I am very, very cautious as is our board of doing an acquisition in a market that we are really not that familiar with; and maybe can't leverage as much of our strength because history has proven those who have a very high chance of failure. So we're looking at things that are maybe a lane over form what we are doing today and how we can leverage our capabilities.

[Steven Ramsey:]

Very helpful. I appreciate it.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Paul Sonkin of Gabelli. Your line is now open.

[Paul Sonkin:]

Hi, I had a couple of housekeeping questions. I guess are the SERP assets included in cash and marketable securities or is it under other assets? I just want to make sure I'm not -- crediting you for too much cash.

[Michelle Schroeder:]

Paul, those investments are in our other assets line, they are not in our cash or our short-term investments.

[Paul Sonkin:]

Okay. And then other thing is that -- I have in my notes that the last time we spoke about CapEx for 2017 you thought it was going to be about $15 million to $16 million. Now I wasn't sure if I heard you correctly but I thought you said that for 2017 it would now be $20 million or…

[Michelle Schroeder:]

That's correct. We're currently estimating about $20 million of CapEx for this current fiscal year, and we're sort of…

[Paul Sonkin:]

So what changed because I thought -- I had my notes I guess from back in May that it was $15 million to $16 million?

[Michelle Schroeder:]

Yes, we are -- we've added a little bit of CapEx related to some renovation that we're planning to do here at our corporate headquarters. Again, part of it -- I don't…

[Robert Schneider:]

Off-hand, Paul I don't recall the rest of the difference because what Michelle is referring to is not the full delta that you were looking at. And that renovation is to better reflect the design aspects that companies are doing in their businesses as we bring customers to our headquarters to see that in person and see our products displayed in that fashion. So that's something we're looking at the latter part of this fiscal year and frankly, some of that may push into next year.

[Paul Sonkin:]

Right. And then I -- in the past, like we have spoken about kind of what's driving the improvement in margins and I guess a lot of it has been due to increases in efficiency and also new products. And I guess on past conference calls you've spoken about like different designers that you're working with and design awards that you have. And I was just wondering if you could update us on what that pipeline looks like?

[Robert Schneider:]

Pipeline of our new products?

[Paul Sonkin:]

Yes.

[Robert Schneider:]

Well, we -- I don't know how many at the top of my head that we're working on presently, but we are continuing to hit the gas pedal on new product introductions. Last June we introduced -- Michelle, 18 I think it was?

[Michelle Schroeder:]

18.

[Robert Schneider:]

And we're continuing that vein of new and innovative products and it shows up, it shows up obviously in terms of what we have reported with a 39% increase in the new product sales, this quarter versus a year ago.

[Paul Sonkin:]

So that activity has increased in the past 12 months?

[Robert Schneider:]

It was at a very high level 12 months ago, and I'd say it stays at a very high level; it's not increasing but it's much higher -- certainly that what we were doing pre-spend.

[Paul Sonkin:]

Okay. And then I was just curious because like you started to hit the top of your guidance on your operating margin, and I was kind of curious as to what the theoretical limit is because I mean you clearly had a big increase in gross margin -- since you spun-off, it's the highest gross margin you've had for any quarter. And I guess that accounts for half of your increase in operating margins. So kind of what's -- could you get to 35% of gross margin or can you get to 10% of operating?

[Robert Schneider:]

Yes, here is the way Paul we look at it. We benchmark and we know all of our competitors in terms of what they're doing on gross margin. And we look at that with respect to the office furniture portion of our company but when you look at Kimball International in total, with Kimball Hospitality, the makeup of the cost structure is very, very different and their gross margin is much lower but their SG&A is much lower. And so what we've basically in order to get -- I think a more manageable metric, we look at the operating income and not gross profit. So to get to your point in terms of getting to a 35% gross margin, that is possible just by virtue of mix. And given it can swing so much, that's why we don't really look at it that way but we look at the operating income percentage and try to drive both businesses in terms of higher volume to get the op-income up to the 8% to 9% level.

[Paul Sonkin:]

I mean what would have to happen if you'd get to 10%?

[Robert Schneider:]

Well, the primary thing given we are now finished with our two restructurings and we took out a ton of cost with a spin -- it's not a cost play as we go forward, it's driving the volume with new products. And so to get to 10% would take higher growth and in the right products.

[Paul Sonkin:]

Okay. And then I guess that sort of brings to my next question; is that -- you mentioned that you had 11% growth versus 1% for Beth MA in office; and I was just curious, is there any one in particular that you're gaining share from? Why do you think you're gaining share? And then kind of -- what feeds into that question would be -- what is the competition from China; does that have any impact on it as an increase/decrease or it does not factor in at all?

[Robert Schneider:]

It has some factor but not a lot, Paul. We think we're taking market share from pretty much everyone, there was one of our competitors had higher sales last quarter. Michelle, that -- do you recall which one? Camera brew was Miller [ph]. Knoll -- no higher growth than we've just experienced. But everyone else, we -- we were much, much higher than what they have reported. So clearly, I would say we're taking market share from -- at least in the last quarter from everybody, maybe not know so much. But in terms of Paul, what's driving it is -- I was answering for Steven earlier -- we have been coming out with some really innovative products in the education vertical, in healthcare the last couple of years and they are resonating very, very well. And have those sales being up so, so strong. And so I think that's helping us, clearly helping us in terms of taking market share by pretty much everybody. But as I said in the last quarter, probably not Knoll.

[Paul Sonkin:]

Right. And then how is the health of the hospitality market? I mean that's something that we've spoken about in the past and we've had some concern about the decreases in…

[Robert Schneider:]

We're keeping a very close eye on it. The industry is still growing, RevPAR is still positive, the outlook for RevPAR next year is down a little bit but still positive. So clearly, the market is not as hot as it was two or three years ago; it is a very cyclical market and we're trying to keep our eye on just where are we in the cycle. I'm very encouraged that the outlook is still growth. But just acknowledging though that growth is lower than what was -- for example, for fiscal '17, for what it was estimated to be just a few months ago. So a little bit of pulling the horns in terms of the industry but it's still in a growth mode.

[Paul Sonkin:]

And then my last question which is not necessarily a fair question but -- if you figure like -- I just threw in like 5.2% sales growth which gets you to that $668 million. And if you figure operating income margin of 8%, that's $53 million of operating income, $15 million of depreciation and amortization, get to that $68 million in EBITDA, your enterprise value is $400 million which gives you an EBITDA multiple of 5.8 times. Is that a reasonable multiple? Is too low? If it is too low -- like what do you think the market doesn't understand about your business?

[Robert Schneider:]

I think we're about 6.5 right now, is what our multiple is and I think some of our competitors are near that area, a little bit higher. To some regard, Paul, I think people have been waiting to get a sense can you really turn this thing around; and that's why we're just so pleased with the quarter we just ended -- getting to that goal of at least 8% op-income. So I suspect some of it was waiting to see, can Kimball actually do this -- and there may be some on the fence waiting as we look to the future and the turmoil that's in this marketplace right now, the overall economic turmoil I mean. Just how is this industry going to fair in the future economic environment, and then how might Kimball handle that. I don't know, it's hard to say what the market is thinking. But from our standpoint, we are very, very encouraged that we got to this point in a short period of time and we're really encouraged that we've got new products that are resonating. I feel totally differently, if we got to 8% op-income and we've got to the EBITDA multiple that you've mentioned, that EBITDA dollar amount, and our sales aren't really doing anything, and are roughly flat with market. I am encouraged that we're taking market share and we've got a pipeline of new products and we're going to keep pushing those through that pipeline and our experience in last couple of years has been they resonate well, and I'm hopeful they're going to continue to resonate and it goes to what I've said earlier to Steven, I'm hopeful that whatever this market does that we will continue to take market share.

[Paul Sonkin:]

So it seems as though -- like you guys are doing your part. And I guess -- so it just sounds like the market is just kind of pressing in a mild recession. But you -- it seems like that you could weather the storm so much better than past downturns.

[Robert Schneider:]

Yes, big time. I would -- and I told our team this, I would certainly not want to go into a storm of a recession with our cost structure the way it was a couple of years ago. So we are much, much better to weather difficulty in the economy; and hopefully that doesn't come to Baird [ph], but we're going to continue to come out with new products and continue to manage our cost structure which frankly -- we did a lot of cost reduction at the spin-date and I'm very happy to say our team has maintained the reduction of the savings and the things we've done in our cost structure. And so that will also bear fruit as we go forward and I'm very encouraged with it because it'd be very easy to loosen the [indiscernible] on cost and we have not done that.

[Paul Sonkin:]

Okay. So then a question that you don't have to answer but I'm going to ask is that -- if you figure that within the next year, year and a half will go into a recession; say for the sake of argument; because there is so much uncertainty going on. Does it makes sense for you to defer your share repurchases until that happens, and you're buying the stock at 9 instead of 12? And again, you don't have to answer that, it's just something that I want to throw out there for a word to think about it.

[Robert Schneider:]

It's a very good point, Paul, and it's something we do think about. I am hopeful we are not going to go into a recession. The expansion we've had since the last downturn in '09, '10, '11 has been so anemic, I'm hopeful that the slow growth we've had for all these years pushes forward well into the future of the next recession. So hopefully that's what we're looking at and -- but there may be bumps in the road; clearly depending what happens with the election that's upon us right now.

[Paul Sonkin:]

Right. Thank you very much.

[Robert Schneider:]

All right. Thanks, Paul.

[Operator:]

Thank you. [Operator Instructions] And I'm showing no further questions at this time. I'd like to hand the call back over to Mr. Bob Schneider for any closing remarks.

[Robert Schneider:]

Okay, thank you Nicole. In closing, I'm very pleased with our first quarter results, a 12% sales increase in this economic climate I believe is incredible; and hitting a high end of our guidance and finishing the quarter with 8.8% op-income was a great start to a new fiscal year. We appreciate your interest, and look forward to speaking with you on our next call. Thank you, and everybody have a great day.

[Operator:]

Thank you. At this time listeners may simply hang out to disconnect from the call. Thank you and have a nice day.