David Callen - Vice President, Finance and Treasurer Farooq Kathwari - Chairman and Chief Executive Officer.

Halley Goodman - Goldman Sachs Todd Schwartzman - Sidoti & Company Brad Thomas - KeyBanc Capital John Baugh - Stifel Budd Bugatch - Raymond James Cristina Fernández - Telsey Group Jeremy Hamblin - Dougherty & Company Barry Vogel - Barry Vogel and Associates.

Good day, ladies and gentlemen, and welcome to the Ethan Allen Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) I would now like to introduce your host for today's conference call, Mr.

David Callen. You may begin, sir..

Thank you, Kevin. Good morning. I am David Callen, Ethan Allen's Vice President of Finance and Treasurer. Welcome to Ethan Allen's earnings conference call for our first fiscal quarter ended September 30, 2013.

This call is being webcast live on ethanallen.com, where you will also find our press release which contains supporting details, including reconciliations of non-GAAP information referred to in the release and on this call.

Our comments today will include forward-looking statements that are subject to risks, which may cause the actual results to be materially different than expected when making those statements. Please refer to our filings with the SEC for a complete review of those risks.

The company assumes no obligation to update or revise any forward-looking matters discussed during this call. After our Chairman and CEO, Farooq Kathwari, provides his opening remarks, I will follow-up with details on the financial results.

Farooq will then provide more details about our ongoing business initiatives before opening up the telephone lines for questions. With that, here is Farooq Kathwari..

Thank you, Dave, and thank you for participating in our first quarter earnings call. I’m pleased that we are also joined today by a number of our interior designers or attending our Annual Interior Design Conference here in Danbury. Where 200 of them are here and as we thought be good for them to also listen and participate in this conference call.

While our September 30, 2013 quarter had lower sales and profitability compared to our strong quarter in the previous year, we are pleased than we did have respectable result of sales of $181.7 million and adjusted operating earnings of 9.2%. We also had adjusted earnings per share of $0.33 per share compared to $0.38 in the previous year.

We increased our backlogs both at wholesale and retail.

During the quarter, our retail division sales were lower by 4.9% reflecting a lower backlog in the beginning of the quarter selling floor products to make room for new products impacting both sales and profitability and sale of two retail locations to an independent retailer after the first quarter of last year.

Our retail division retail sales increased by 11.4% with comparable increasing 13.8% on top of a 9% increase in the previous year. While very strong growth we were impacted in September due to concerns relating to the government shutdown.

As mentioned about the previous year also reflected results of the two design centers which we sold to our independent retailer. We continue to improve our balance sheet with cash of $119.6 million increasing from $100 million from 09/30/12.

Our inventories of $141.7 million, a decrease by $16.3 million from 09/30/12 and increased by $4.4 million from 06/30/13 and almost all of that in working process reflecting higher orders. Capital expenditures were $3.3 million compared to $8.3 million in the previous year.

We expect capital expenditures for full year to be between $15 million to $20 million with D&A of about $18 million. Our advertising in the quarter was about the same as in the previous year. We expect to increase our advertising spend in the second quarter at this time about a 10% increase.

Our written business in the first two weeks of October was impacted by the severe bickering in Washington DC. We now do see consumers starting to focus on decorating their homes and we remain cautiously optimistic due to our many initiatives. At this stage, Dave will provide more financial information.

I will then review our business initiatives and open for questions and comments.

Dave?.

Thank you, Farooq. Consolidated net sales during the first quarter were $181.7 million, which was nearly flat sequentially with net sales of $182.3 million in our fourth quarter of fiscal 2013 but were 3.1% lower than the prior year quarter.

As noted in our press release our deliveries during the quarter were negatively affected by retail backlogs at the beginning of the quarter that were 7.2% lower than the prior year. Our retail division net sales of $141.8 million were 4.9% lower than the prior year reflecting the lower opening backlogs.

The retail growth in net sales was also negatively affected by the sale in the second quarter last year of our two Houston design centers to our independent operator in that region.

Though our wholesale business continued to sell to that retailer, these impacts were partly offset by significantly higher clearance events sales this quarter as our design centers made room for our new products in support of our new eclecticism campaign launched in early October.

Our wholesale net sales of $113.2 million were 1.6% higher including the benefit of shipping the new floor sample products to our retail division and to independent retailers alike. Our retail divisions written orders in the first quarter grew 11.4% including comparable design center growth of 13.8%.

The difference between these metrics is largely due to the sale of last year of our two Houston design centers. Our written orders benefited this quarter by the shift in our annual price increase from July to prior year to August this year as clients tend to close out projects in advance of the price increase.

Our written order growth also includes the growth in clearance sales during the quarter which affected written and delivered sales. We operated 147 design centers at the end of the quarter compared to 149 operated at by the company at the end of the prior year quarter.

Our global retail network included 297 design centers at September 30, 2013 compared with 302 locations at the end of the quarter last year. Independent retailers operated 150 of these including 70 in China. This compares with 153 independently operated last year including 73 in China.

Our consolidated gross margin of 54.4% in our first quarter improve 40 basis points sequentially from our fourth quarter but was lower than the 55.6% gross margin in last years first quarter.

The gross margin last year benefited from a higher portion of floor price sales at retail where clients elected to finance their purchase over 48 months through our third-party financing partner.

The prior year mix of retail net sales of consolidated net sales also provided a lift to the prior year gross margin as did a $900,000 greater benefit last year consolidation from the sell-through of retail inventory. Our gross margin during the current year was negatively affected by the significant increase in clearance sales during the quarter.

On the wholesale side our plants and logistics operations continued to perform well largely offsetting higher health insurance related costs and modest material cost pressures with improved operating efficiencies.

Our product mix was beneficial to our gross margin with higher shipments of accessory and upholstery floor samples which offset a decline in shipments of case goods during quarter. We continue to see operational improvements in our wholesale business including leverage of our operations in Mexico and Honduras.

Our adjusted operating expenses were well controlled for the quarter at $82 million or 45.1% of net sales compared with $84.7 million or 45.2% of net sales the prior year.

Consistent with our practice these adjusted expenses in the quarter exclude $600,000 of international startup losses and $200,000 loss on the sale of vacant real estate in our retail division. The prior year expenses included a loss in the sale of vacant retail real estate of $1.6 million.

Please refer to our press release reconciliation tables showing the adjustments made to our results for all periods. Our adjusted operating income for the quarter was $16.8 million or 9.2% of net sales compared with a very strong prior year adjusted operating income of $19.6 million or 10.4% of net sales.

Our normalized income tax rate for both the current year and the prior year was approximately 36.5%. Adjusted earnings per diluted share for the quarter of $0.33 compared with $0.38 the prior year. Now I’ll briefly comment on our balance sheet and liquidity.

Our cash and securities at September 30, 2013 totaled $119.6 million, our inventories are healthy $141.7 million and customer deposits are strong $67.4 million reflecting our higher retail backlogs at the end of the first quarter.

We continue to be well positioned to pursue our business initiatives and now here again is Farooq to discuss those initiatives further..

Alright thanks Dave. And as I mentioned previously reinvention is critical to any enterprise or institution and the cycle of reinvention is getting shorter and shorter. I follow the wise saying insanities doing the same thing over and over again but expecting different results.

Our focus on launch of our marketing initiatives under the umbrella of new eclecticism is part of reinvention of migrating from a leader in furniture to a leader in home fashion.

Our strength is that we create iconic beautifully designed products and now further differentiate these products with unique high impact branding and deliver them in one of a kind retail experience.

Our focus is to communicate a unique more modern, more fashion forward sensibility and our customer experience is already fundamentally different due to our in-house professional interior design services.

In October we mailed a 60 page magazine to – over 3 million households and will be followed by another 3 million mailing of magazines in November with a focus on holiday shopping. We are already seeing greater interest in our accessory products and these accessories are important increasing traffic and especially being relevant in the holiday season.

We plan to continue to focus on our marketing campaigns next spring and we continue to open new design centers and to relocate our design centers to better locations.

In the past 12 months, we have opened design centers in Montreal, Canada; Brussels, Belgium; Antwerp, Belgium; Jeddah, Saudi Arabia; Seattle, Las Vegas, Des Moines, Boca Raton, Corte Madera in the San Francisco area, Burlington in the Boston area and Winter Park in the Orlando area.

Under construction and opening in the next few months our new locations in Amman, Jordan, this is the second in Jordan, Seoul, Korea this is our fourth in Korea. Bucharest, Romania this is the first in Eastern Europe. Lyndhurst area of Cleveland, Calgary, Canada the second location, Sarasota, Florida again a relocation a new design center coming up.

Houston, Texas again a relocation Marlboro, New Jersey a new design center and a relocation and Rockville, Maryland in the greater Washington DC area. Our manufacturing and logistic are in good shape. We are now investing in our newest operations in Honduras and expect it to get fully on board within the next 12 months.

I would also like to mention that Ethan Allen Green is part of our business model and we’re pleased to have received many awards for environmental efforts.

We continue to focus on adding relevant technology at all levels of our vertically integrated business in particular we have the twin focus of providing the most current technology to our retail associates and also to substantially increase our presence in the social media including Facebook, Twitter, Pinterest, Posts and Instagram and others.

And with this I would like to open it up for any questions and comments that you might have..

(Operator Instructions) Our first question comes from Matthew Fassler with Goldman Sachs..

Hi this is Halley Goodman on behalf of Matt Fassler.

We are wondering what your plans are for promotions going forward and how we should think about gross margin trends in the next quarter?.

Yes, as Dave mentioned that our gross margins at 54.4% still at very healthy levels was somewhat lower than the 55.6% that in the prior year which was again as I said was a strongest quarters.

Keep that in mind in the last few quarters we have been running at 53%, 54%, 53% and 52%, so we maintained a strong margin and as we go forward into the spring period I believe that the opportunity for us is to somewhat improve our gross margins for what we have in this last quarter because of the fact that our promotional activity will continue to be aggressive but we keeping in mind that we also want to maintain and increase our gross margins and I think that’s what you are going to see..

Thank you..

Our next question comes from Todd Schwartzman from Sidoti & Company..

Hello Todd..

Hi Farooq, hi Dave just a couple of quick ones, how should we think about the current quarter, so Q2 any follow through on the floor sample closeout issue and how that, what the pace of that is throughout the current quarter?.

You are now talking about Q2?.

Q2 correct?.

Q2 we’ll have some of it, but most of it was done in our first quarter Todd, we’re going to have some impact, what the impact is going to be more on the continuous regular basis rather than the one-time impact we had in the first quarter..

Okay, so also thank you for that, just to be clear on your commentary opening remarks Farooq, as well as in the release regarding the goings-on in Washington any impact on your business, first two weeks October a little slow and just paraphrasing now the last 10 days or so, last week and half things have returned to normal was that your back to September levels in terms of traffic?.

No, I think we have a new normal after this bickering in Washington the normal is defined differently Todd, so I think that we don't – we are not going back to the last year, but as you also know that in the last week or so when we do get most of our written business so to some degree this October is not going be that different.

We are now gearing up, we starting to work on projects, be little concerned and they were concerned in September, as I mentioned that I believe that our September results were also impacted by this shutdown issues in Washington.

It carried through the first two weeks in October and now we see people coming back but people are still somewhat cautious however, as our business is not something that you know, that is not high upper end restaurants where if you don’t eat you don’t come back. In our case people do come back.

So we do expect most people to come back yet people are cautious Todd..

Okay.

Tom, could you, do you have any, do you keep internal data regarding the slicing and dicing consumer's personal income segment in terms of how that shakes out with respect to written and delivered sales within the quarter, is it the high-end, the middle end that was staying away for that period is it kind of across the board?.

I think it’s across the board. It would be surprising to see people in all levels of income concerned on what's happening in Washington and as I said that’s the cause of our and also keep in mind we launched one of our most aggressive and the most exciting campaigns this month.

If I knew the government was going to be shutdown I would perhaps have done it some other time, not really we would have still done it, but we have a very, very major campaign out there.

It is exciting, it’s excited our people here, its exciting consumers and I see that it’s exciting especially not only our core customers but it is exciting the Gen Xers, which is really what we want to improve as our base. So I think we are sort of seeing the issues and the benefits across the board and consumer you might say different demographics..

Does it surprise you or maybe disappoint you slightly that the government shutdown would be having this much impact at a time when the stock market is at a multiyear high?.

Well, you know, Wall Street lives in a different world than main street, so I think the main street people are concerned and I think most probably the Wall Street is thinking of the future and future most probably I think is more positive, even Wall Street is thinking of the fact that overall I think we are improving the economies, improving consumer confidence is improving.

So I see rightly that Wall Street is looking in the next six months or so I would hope so. Well the main street is concerned on what’s happening right now. I think that’s way the differences in my opinion..

Okay.

Can you speak to the pacing of the written business in the quarter I mean we know about October, but from the July to September period how that played out?.

Todd, most of our business was increased in August I mean July and August, more in July because we had as Dave mentioned we had price increases in August. And September we had lower sales than last year and we shouldn’t have had lower sales. We attributed all to this concern of the shutdown..

Are there any additional price increases plan – either in conjunction with new eclecticism or just in general?.

Not yet, Todd. I think that at this stage we have stabilized, we did increase prices few months back and at this stage I think that the real benefit is going to be to leverage those increases and also to leverage the benefit of our manufacturing operating at fuller you might say not full capacity, but at a higher level that helps us..

Got it.

And also it doesn’t seem as though you bought back any bonds or stock in Q1, what are the plans, what are your plans for the fiscal year?.

Well we’re watching it very carefully. We have about 1.1 million share authorization for buyback going to keep our options open..

Okay. Thank you..

Alright. Todd Thanks..

Our next question comes from Brad Thomas with KeyBanc Capital..

Hi Brad..

Hey, Farooq, good morning David. Just to follow up about the new eclecticism I apologize if I missed this, I had some technical difficulties at the start of the call here, but with some of the new merchandise on the floor now.

Could you just talk a little bit more about the response that you're seeing to it and is it helping to improve the close array or bring in some incremental customers that you don’t think you would've gotten?.

Well, you know, as I had mentioned perhaps you missed that. We have 200 of our top interior designers here with us and many of them are listening to these comments because I wanted them to hear this kind of a conversation so that they go back and do more business and they are excited.

They are very excited about this focus on migrating Ethan Allen from a furniture, leader in furniture to a leader in home fashion. They are excited about the eclecticism and color and the variety that we offer because the consumer is moving towards that.

Today eclecticism is taking place, whether it’s in apparel, whether it’s in fashion, whether it's in automobiles even your telephones. So they see it and they are excited. They are also excited because they can help consumers make it happen. If all of it is in one color, consumers think they can do it too.

Consumers want eclecticism, they also want great quality and they want service and our designers are able to do it. So the reaction has been very positive and you know, Brad I think if we didn't have all these concerns of shutdown and all of that I think we would have a stronger interest by consumers however, it is just to early.

This is a very major launch, this is going to be for months at a time that we're going to be at it. So we have had a so far a very strong response..

It’s great.

And then I know that the company has made a point to bring down price point on the accessories, what are you seeing with respect to that change at this point?.

Yes, good, good response. I had mentioned that also that our accessories sales in September are showing much higher increase than we’ve had in the previous months and of course in October I mean it’s still as early we have a very, very strong program in October.

So as I had said earlier we really want to become much more relevant in the holiday period and we are also have established a very strong logistics based so that consumers can if they don’t buy it and take it home from the stores, but they will also be able to be shipped to them the same day or the next day..

Great. And then just to get the back to this kind of question of what the underline run rate of sales looks like when you normalize for things like the price and the clearance events that you did.

I mean just stepping back Farooq and putting things in the perspective I mean this is the strongest written comp that you guys have had and I think over three years and the backlog I think is up about – the deposits were up about a 11% at the end of the quarter, how much of this is sort of getting the backlog back to where you wanted be and or could potentially deliver sales in the 10% plus range in this December quarter I mean or is that too high up a bar for us to think for this December quarter?.

Yes I mean if you look at just keeping in perspective our written business, our written business has been reasonably good if you take a look at after this great recession our comparable written in let say I’m now talking three or four years after this great recession in 2011 was up 10.3%, in 2012 was up 8.4%, 2013 we were up only 1%.

So that’s what you are looking at then when you look at to this quarter we are up in fact even in Q1 of fiscal 2012 we're up 11.4% in comparable and now we are and even and now we are looking at an increased comparable 13.8%.

So really other than this 2013 which is you know the fiscal year ended where we had for four quarters of low comparable increases in the last three four years our comaparables have been up.

Now having said this I think that 13.8% is a very high number and while we are pleased it, it also reflects as I said some impact may be 3%, 4% of the price increase. But on the other hand we had maybe I'm either just a guess at this stage maybe 3% or 4% negative due to the shutdowns.

So 10% 12% is really the run rate this quarter going forward it's hard to say but our objective obviously is to have positive increases in comps and also total. So I think that just don’t get carried away Brad, but be reasonable and I think we're going to increase them..

Sound clear, thank you so much for it. Farooq Kathwari Alright..

Our next question comes from John Baugh with Stifel..

Hello John..

Good morning Farooq and Dave I just had a couple of things one did you clarify or did I understand on the clearance some of that sell into the orders in Q1?.

Most actually in all the clearance basically almost all of it is delivered right way. Now it has two impacts John you know this business quite well the impact of that is that we sell the product at lower retail, lower margin in fact we would think we would higher sales with clearance the other way around.

Because unfortunately clearance also take attention of our designers for selling products and working on – working with the client's on regular business. So we think that we would get greater business. It is unfortunately for us because of the fact a lot of our business takes place when our designers are working on projects.

If we takeaway some projects they sell clearance, yes we have immediate sale which is delivered. It has negative on margin but the good news it's all of that is in that particular quarter..

Okay. And then I want to ask you, I date myself if I remember the year and I'm glad I don't, but you sort of moved away from a colonial early American only store facade and product line a long, long time ago.

And here are you saying you got to move even further towards modern and fashion, where are you do you think in migrating your product line and is this what the younger consumer wants and we still need to make a significant shift to cater to that customer or more so the 50 to 75 crowd?.

Yes John, you know, you are right, it was in the early 90s then be made a major push to migrating from early American colonial to the more modern perspective. However, the modern perspective of the 1990 is different than what we need to be today.

The focus on color, the focus on eclecticism mixing is very, very important even in the 90s it’s a migration of consumers pace. In the 90s consumer did move towards more modern perspective but still the mixing of products, the mixing of even different levels of quality was not there.

Today people are as you know comfortable in shopping at Neiman Marcus and even Target. So we want to offer, in our case we are not going to have two different levels of quality, but this whole question of taste whether it is the Baby Boomers and certainly of course the Gen Xers is taking into a shape of new fashion.

So whatever we did 20 years back today really is not as much relevant and today we need to be relevant and that’s why this whole focus on the eclecticism takes us to a fashion business, it takes us to a lot more accessory business, soft good business and that’s what you’re going to see John..

And following up on that, could you speak to the size of your stores I mean if we’re migrating more to home décor and less of furniture in case your sales continue to decline it seems like it would seem like your store footprint were just still too big for the new normal or whatever you want to call it.

Do you see it that way where we see continued as leases come to or places that you owned you might even consider moving selling and moving discuss your real estate strategy?.

I think that, all the things that you’ve said are important. John that if you – as Dave mentioned we have somewhat two or three less design centers now than we had a year back is by plan. In fact right now we have a number of design centers under construction.

We have one in Marlboro, New Jersey which is going to replace two but in a more important area in terms of traffic and in terms of the neighbors. Similarly we are now building one in Cleveland that is going to replace – in Cleveland we have three neighborhood stores. We’re replacing it at one flagship or one major store.

Now the location is critical, the size is somewhat less smaller than we used to build, we use to build 18,000 square foot stores about 10 years back and now we’re building them anywhere from 8,000 to 12,000 or 13,000 square feet. So sizes come down locations have improved and in some cases, we have taken duplicate stores out.

So that process continues. We are today building in much better locations, higher traffic for instance in Burlington, Boston.

We just moved only a few blocks away but into much better traffic area and we went from I think a 17,000, 18,000 square feet to I think 9,000 and 10,000 feet but much better and stronger and that’s what we've been doing overall in the country John..

Okay. And then is there a goal on accessories as the percentage of mix, or mind is where you're running kind of now and then what that influence might be to your financials going forward..

Today, we are running about 15%, 16%, 17% our real ideal goals should be, I mean we got to get there not next year.

Our ideal goal should be to between 30%, 35% but it's going to take from us from 16% to 30% 35%, we're going to make a lot of, lot of impact in the next year, year and a half and the margin profitability of our access is approximately 6%, 7% gross margin net higher than furniture..

Great. And my last question is China, can you tell us sort of what's going on there in terms of both their retail effort and then your wholesale business into their warehouses and how that may the cadence of that may play out over the next few quarters? Thank you..

Yes, John the Chinese are doing what everybody is doing. They're trying to leverage, they wanted to do more business with less inventories. They want to make sure the folks that they buy from maintain inventories and support them, that’s what they have been doing in the last one year. They went from and, we understand it.

So we are now almost through that going to the next phase it did affect us about a couple of million dollars in sales and shipments this last quarter.

But going forward from that perspective we have now sort of made it into a more of a normal run, but business at the retail level is increasing and Ethan Allen business is increasing greater than the other brand that they have..

Farooq, your store count, I think if I heard it right was down three stores, you say the business is increasing. Could you give us a feel for what the retail business is like and how fast is it growing and how fast would you guess it might grow in the next four quarters? Thanks..

John you know, what they are doing is and even learning. I'm actually going the next week to spend a few days there and last week we had a whole team of them here.

You know, they have 70 or so locations, but almost half of them are very small sized in second locations or third location or fourth in Shanghai, Beijing, Shenzen other places in smaller markets. So they're also finding out that some of these smaller locations have to be closed.

In our case most of our business is down in 20 of their main location and those are the ones that they are focused on and we're focused on.

So this question of you know having three of four of five less – does not impact the total business because the one that they are impacting is some of these 4,000, 5,000 square foot small locations that they have opened up..

Thank you. Good luck..

Alright John..

Our next question comes from Budd Bugatch with Raymond James..

Good morning Farooq..

Hi Budd good morning, how are you?.

I am well, thank you I hope you are as well. John and Brad took most of my questions, but I do have a question. I think last year you spend for the K if I remember the K information right about $29 million on advertising that was disclosed in the K.

Can you give us this year what might be what the advertising budget is I think it was 4.1% of sales last year?.

Budd, let me just say that, we’re running approximately a little less than 4% in this last quarter. We’re going to go to about 5% in the next quarter and than progressively increase it..

To what kind of level, where would you think the higher the market?.

Well, I think most probably I won't increase dollars not percentages because I think that we want to get more business, I think 5% or so is a pretty good number for us Budd..

That would be delightful. If – and David we missed it with the operator kind of interrupted some of the presentation so I missed the store counts.

Did you give the details of the store counts?.

I did Budd we are operating 147 company operated design centers and there were 297 in total..

Total, how many of those are now in the states so you got 70 in China?.

Correct..

Okay.

And what’s the independence store owned in the states and Canada?.

There are 62 in U.S..

And Canada?.

And then 18 remainder..

18 in Canada or?.

Outside of the U.S including Canada..

Okay, alright. Thank you on that.

And Farooq you did say is the inventory issue in China pretty much done I thought that was going to be done kind of last quarter, is that over now?.

Yes it is. Actually most of it is done as I said it was – overall relatively small impact but it’s mostly done and now we need to see us get more business and the good news is as I said is the retail business has been increasing..

Okay, alright. That’s it from me. I think our colleagues have kind of gotten all the information. Thank you..

Alright Budd thanks..

Our next question comes from Cristina Fernández from Telsey Group..

Yes, hello Cristina..

Hi good morning..

Good morning..

I wanted to see if you could tell us how many of the 300 or 27 design centers have now transitioned to the new eclectic format and have the home accessories.

Last quarter you said about 200 were going to be done at the end of the September, is that where you end up?.

Yes approximately almost all the 200 of them were reflectors of new eclectic as again most of them, somewhat more, some less but every one of them has now this projection of our eclectic presentations.

And as we move forward, we'll continue to keep on improving it and adding to it but this is a major, major undertaking last quarter and it was substantially completed in September and a little bit in October..

Okay.

So then the remaining 100 or so there or less, I mean is that all going to be done here in this second quarter or is that going to take place over couple of quarters?.

No the one that we have 200 of the ones in North America substantially all of them were done, ones that are overseas are being done at a different level timeframes..

Okay, that’s helpful.

And then I wanted to go back to the, I think it was Brad's question on to written orders, I mean if most of the increase happened in July and August and September with a little weaker, would your lead times now being four to six week, I mean should we assume that most of the written orders were already delivered in this first quarter or is that carrying through to help with the second quarter?.

They would help us in the second quarter because most were not delivered, we did end up with higher backlogs at retail and wholesale and they will be delivered in the second quarter.

But also keep in mind the second quarter will also be impacted in the business we do in October because some of that – and most of that we would have delivered in the in the second quarter too of what we didn’t write in the first two weeks of October.

As we start moving towards more in the end of October, November, some we will deliver in this quarter but the rest we will deliver in the following quarter, but the business we did get in the first quarter increased our backlogs and that we will deliver in the first quarter – I mean we will deliver it in the second quarter..

Okay, thank you..

Alright Christina..

Our next question comes from Jeremy Hamblin with Dougherty & Company..

Yes, hi there, Jeff, how are you?.

Good morning.

So I just wanted to ask about your, the price increase and the implementation of the shipping charges and see if you guys have had any customer feedback and one did they notice the shipping charges that you haven't had in place before, I think it’s $75 for the first $2,000 of goods, the 129 above that, how is the customer responding to seeing this, is there something more, I mean it is competitive with your peers but it’s something new and different for the company?.

You know Jeff, I’ll just tell you this, our designers are sitting here. They are listening to these conversations and I'm sure they are impressed with the kind of questions you all folks are asking because they are really, really related to our business and we had 200 of our interior designers here, only one asked a question.

It’s amazing we had even forgotten the fact that we had implemented it, it had gone very well and so you know, it has been received well, it's gone well. There are certain things we need to do to keep on fine tuning it but it has not had any – we've have not had issues at retail or implementing it..

Okay. And then I wanted to also ask about your Platinum Awards program and how you feel about the initial response? Can you give us a sense for the initial sign up? I think the program started in September.

How is the initial sign up for the program compared to your expectations and if you could give us a sense for the percentage of customers that signed up for the program? How many of those actually made a purchase?.

I’d say overall it was a very major undertaking. We send out of this Platinum magazine to over, I think it was 5.3 million households. This was our biggest mailing, but again timing is everything. With this shutdown and everything else it did distract people.

And secondly, I think that because of the fact people expected this to be somewhat of a reward program in points, not the kinds of rewards program that – we had a little bit of a confusion I think, which we are now working to take it to the next level. People did sign up.

Actually everybody who had – who became a customer signed up because by signing it up is when they would get the benefit of a lower price. So it helped us get people sign up. It helped us get them on our email list. So that they're now receiving our email blast which go almost everyday.

So as we move forward, for instance this month in October those folks who are on our Platinum – who have signed up for the Platinum are getting an extra 5% on – if they purchase of accessory products.

And now as we move forward in the next quarter our objective is to also take this Platinum program and convert it into a point program where our existing customers will get point rewards which they can then utilize in the future..

Okay. So it sounds like it, do you feel like your design associates understand the program, I mean as we talked to bunch of centers in the last month or two.

It did sound like there is some confusion around the program and do you feel like there, is there an additional education that you need to a training program for your design associates and independently of course?.

Yes I think as I said, it was a little bit of mix because of the fact that people expected it to be more of the point of the reward system of points. However, I think our design associates understand it was a little bit harder to implement because of the fact they had to more work to get it implemented in orders.

But other than they do understand it but it was a little bit more of a harder work to implement by our design associates and as we go forward, I think they are understanding it better and we are also helping them make it, and make it somewhat simpler..

Great. And you talked about new eclecticism being and the shift in consumer sentiment to more variety and the ability to mix products as being the new norm.

I'm wondering in terms of your promotional strategies going forward, it seems as if the company is almost being forced into being more promotional simply because the competitive environment is dictating that and but we see that through things like your platinum awards program, I think was 15% off in September and the $50 off of $400 purchase at the $400 of purchase equates the 12.5% in October.

Is this going to be the new normal for the company going forward that you’re going to just be more aggressive in general and promotion?.

Well, it’s all the relative term and people say you have to be aggressive you’re talking of 40%, 50% that’s what every most other folks are offering as discounts. In our case 10% 12% is the normal and – our objective is to stay in that range..

10% to 12%. Okay, great thanks so much..

Alright. Thanks very much..

Our next question comes from Barry Vogel with Barry Vogel and Associates..

Good morning, Farooq, good morning Dave..

Hey Barry where have you been all this time?.

I’m in North Carolina..

I see, how are you?.

I’m okay.

How about yourself?.

Yes, thanks.

Good. I don’t want to be the dead horse and most of my question have been answered, but I haven’t front of me and it’s a good thing that I'm must be on one of your – couple of your mailing list, three beautiful brochures and the two of them say you belong here and the other one has to do with Express, Ethan Allen Express.

And the broachers has done very well and consistent in these brochures are all kind of sales and all kind of savings.

Now historically before the great recession, you never did this before and of course you found out that world has changed and so what I’m wondering is in your strategy for promotions the new normal for you that what I’m looking at in front of me is going to continue because that’s the fact of life or is this just a temporary situation?.

Now Barry, tell me did you receive the October magazine?.

No, I don’t..

Your better get it. Dave, make sure you send him overnight because you’re going to be excited what you’re looking at is old stuff. So you should file that Barry. You’re going to get new ones and you’re going to see excitement, you’re going to be more excited than you were 25, 20 years back when we last met..

Not that much back. Alright, no I appreciate that, but I don’t know which mailing list I'm on but it’s very impressive brochures and they are consistently telling the customer you know, that Ethan Allen does have sales prices throughout the year, it just depends. Now the other comment I wanted to make, which has to do with the eclecticism..

Yes..

My daughter lives – she is not far from here, about half an hour away and historically she always made fun of the furniture that my wife and I have in our home and of course we have totally different taste than the young people do.

And she finally decided after saving some money to start spending it and she is the new – young people even though she's in her low 40s and she is not interested in the stuff that my wife and I are interested in she wants contemporary only.

So I think you've got it nailed that the younger people want something really different than you and I thought was proper furniture or design in our house?.

But Barry, I am very contemporary, you speak for yourself. But all designers sitting here, you know, Barry, you are absolutely right.

I think this attitude of contemporary, the attitude of modern but with a classic perspective, meaning, great design, great quality, I think we offer tremendous value and the good news is that we are now going to reach this whole Gen Xers and your daughter you mentioned and that really is going to expand the reach because we are going to offer them a lot of choices which most of these, many of our competitors don't, especially to those who are reaching these younger people..

So yes, I just want to tell you my personal experiences because it is invalidated by your movement very aggressively into this eclecticism?.

Yes..

So thank you very much, keep up…..

Alright, Barry good to hear from you again..

It’s a pleasure..

Our next question comes from (indiscernible)..

Good morning..

Yes good morning..

Couple of questions first, can you just provide a little more clarity on the gross margin, how much of the decline was due to the clearance versus the mix, versus maybe ongoing promotional activity?.

When you take a look at the gross margin there are many moving parts, we had as Dave mentioned those, but he can do I just summarize it. Our gross margin this quarter was impacted first by the clearance, it was – secondly it was impacted by doing more business in products that are sold at sale than finance.

As you know, when we use our financing, then people have to buy the products at a regular price. And our selling expense on financing goes to our selling expenses rather than gross margin. So that was a second moving part. And the third one was the facts that are mix of retail to total sale was lower this time then the last.

I would just say that more or less, most all of those three to some degree contributed more or less equally to the difference in the gross margin..

Okay that’s helpful. And then as far as with regard to the advertising campaign in the direct mailers.

Can you give us some idea of the percentage of mailing for the targeting new customers versus existing and did you acquire any mailing list?.

This quarter we did not acquire mailing list, we have done that in the past. I would say that at this time when we expand our mailing like in September and October we are now reaching approximately 60 and 40, 60 our core and 40 Gen Xers..

Okay.

And are they – some of them new customers?.

They are prospects yes actually all..

Okay, they are all prospects?.

Other than approximately 700,000, 800,000 of our client base everybody is a prospect..

Okay, great, thank you..

Alright..

The next question comes from Jennifer David (ph) with Ethan Allen Inc..

Yes, go ahead, who is this?.

If your phone line is mute, could you please mute the phone line? Maybe they queued by mistake.

Do you want me to move on to the next question?.

Yes please. So I think might be a mistake yes..

Our next question is a follow up from Cristina Fernández with Telsey Group..

Yes Cristina..

Hi I just had a quick follow up. So in September you hire and you see for an office Dave Moore.

Can you just comment on what you expect him to bring to the organization and should we expect different marketing message once he gets on board or should it just be an evolution of the strategy do you have currently in place?.

Well Dave is sitting in this conference room and listening so we expect him to work very, very hard and be very, very creative and productive. In fact this eclecticism campaign is something that he was supervising. He actually joined us about six months back.

We actually had retained the agency that he worked and is the one that was involved and responsible for supervising this campaign that we have just launched. So he is already working. He has already done a good job and we expect him to continue to work very hard and be very creative and productive..

Okay. Thank you..

Alright..

And I am not showing any further questions at this time.

Would you like me to repeat the instructions again?.

No that’s fine. Thanks everybody. And if you have any questions, please give a call to Dave Callen and I'm sure he’ll be able to answer any further comments and questions that you might have. So thanks very much..

Ladies and gentlemen, this concludes today's presentation. You may now disconnect. Have a wonderful day..