Farooq Kathwari – Chairman and Chief Executive Officer Corey Whitely – EVP, Administration and Chief Financial Officer.

Budd Bugatch – Raymond James Jessica Schoen Mace – Nomura Securities Brad Thomas – KeyBanc Capital Markets Jeremy Hamblin – Dougherty & Company Todd Schwartzman – Sidoti & Company Kristine Koerber – Barrington Research Cristina Fernandez – Telsey Advisory Group Justin Bergner – Gabelli & Co. .

Good day, ladies and gentlemen and welcome to the Ethan Allen Fourth Quarter 2014 Earnings Release. (Operator Instructions) Now, I would now like to introduce your host for today’s program, Corey Whitely, Executive Vice President, Administration and Chief Financial Officer of Ethan Allen. Please go ahead..

Thank you, Jonathan and good morning everyone. Welcome to Ethan Allen’s earning conference call for our fourth quarter and fiscal year ended June 30, 2014.

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 could cause actual results to differ materially from those expected when making such forward-looking statements. Please refer to our SEC filings for a complete review of those risks.

The company assumes no obligation to update or revise any forward-looking matters discussed during this call. Also joining the call today is John Bedford, our Vice President, Corporate Controller. After our Chairman and CEO, Farooq Kathwari provides his opening remarks I will follow with details on the financial results.

Farooq will then provide further updates on our ongoing business initiatives before opening up the telephone lines for questions. With that, here is Farooq Kathwari..

net sales of 198.8 million increased 9.1% compared to fourth quarter of fiscal 2013. Adjusted EPS grew 47.1% to $0.50 compared to fourth quarter of fiscal 2013. Our GAAP EPS increased 107.1% to $0.58. The gross margin increased 60 basis points to 54.6 compared to fourth quarter of fiscal 2013.

Adjusted operating income of 24.9 million increase 42.4% compared to fourth quarter of fiscal 2013. GAAP operating income increased 47.5%. Retail division net sales increased 7.1% and generated adjusted operating income of 8.7 million for an adjusted operating margin of 5.6% compared to 2.9% for the fourth quarter of fiscal 2013.

Cash and securities of 135.8 million increased 32.3 million or 31.3% of June 30, 2013. Capital expenditures were 19.3 million year to date compared to 19 million the prior year and inventories of 146.3 million increased as planned by 9 million.

Retail division written sales decreased 5.5% compared to fourth quarter of fiscal 2013 and comparable written sales decreased 4.1% during the same time period and as you know we – the regular quarterly cash dividends was increased to $0.12 per share, an increase of 20%.

As I indicated in the press release, our net written orders were impacted by the timing of ending of the July sale and the price increase effective July 8, somewhat sluggish retail environment, Easter falling in the fourth quarter versus third quarter last year.

We had a strong end of sale event ending July 7 reflecting taking the end of sales to July 7 from June 30. And also accelerating price increase to July 8, compared to August 2 in the previous year. Our backlogs and customer deposits increased.

To fully understand the impact, we have to take into account the written business we received in our first quarter of fiscal 2015 -- while we don't -- while it is somewhat early but I know that you're looking for some guidelines and despite some lot of factors that I mentioned we estimate that our comparable written sales in the fourth quarter increased slightly from the previous year.

After Corey gives some further information on the financials, I will then discuss our business initiatives.

Corey?.

Thank you, Farooq. For the fourth quarter of fiscal 2014, consolidated net sales of 198.8 million increased 9.1% compared to the fourth quarter of fiscal 2013.

Adjusted operating income was 24.9 million compared to 17.5 million in the prior year fourth quarter with adjusted operating margin of 12.5% improved compared to 9.6% in the fourth quarter fiscal 2013. Adjusted net income of 14.6 million increased in 8.3% [ph] over the prior year fourth quarter.

Wholesale net sales of 116.1 million increased 8.8% during the fourth quarter of fiscal 2014 compared to the fourth quarter of fiscal 2013. The retail segment net sales increased 7.1% for the quarter at 155.6 million compared to 145.3 million in the prior year fourth quarter.

Both segments benefited from effectively delivering out the undelivered backlog that had grown in the third quarter and utilizing our stronger in stock positions on imports and on demand products. The consolidated gross margin improved to 54.6% for the fourth quarter of fiscal 2014 from 54.0% in the prior year fourth quarter.

The retail segment net sales were 78.3% of consolidated net sales – that compares to 76.2% in the third quarter and 79.7% consolidated net sales during the fiscal 2013 fourth quarter.

[indiscernible] total written orders by the retail segment for the fourth quarter of fiscal 2014 decreased 5.5% compared to the fourth quarter of fiscal 2013 while comparable written orders decreased 4.1%. The retail segment undelivered backlog at June 30, 2014 is down 4.7% from June 30, 2013.

For the year-to-date fiscal 2014 period the retail segment written orders are up 1% compared to fiscal 2013 with comparable fiscal 2014 written orders up 3.0%. Our global retail network included 295 design centers at June 30, 2014, unchanged from the prior fiscal year end.

Independent retailers operated 152 design centers including 91 international locations. This compares with 148 independently operated last year including 86 international locations. Our global retail network had a total of 91 international locations at June 30 2014 as compared to 94 international locations in the prior year.

Our adjusted results in the fourth quarter 2014 exclude 0.7 million of international start-up losses and a gain of 0.1 million on the sale of property. The prior year fourth quarter adjusted results excluded 0.9 million of international start-up losses and a 1.9 million charge associated with the buyback of senior notes.

Our normalized income tax rate for both the current and the prior year was approximately 36.5%. Adjusted earnings per diluted share for the fourth quarter 2014 were $0.50 which is 47.1% higher than the $0.34 per diluted share earned in the prior year fourth quarter.

Please refer to our press release reconciliation tables showing the adjustments made to our results for all periods. GAAP net income for the quarter ended June 30, 2014 was 17.1 million or $0.58 per diluted share compared with 8.2 million or $0.28 per diluted share in the prior year quarter.

Our continued profitability in our retail segment enabled us this quarter to reverse the valuation allowances on our state deferred tax assets. This non-cash benefit along with net favorable adjustments to uncertain tax positions were the primary drivers behind an effective tax rate of 23.9% for the quarter.

Our normalized future tax rate continues to be approximately 36.5%. The fiscal year 2014 net sales were 746.7 million, an increase of 2.4% compared to 729.1 million in fiscal 2013. Fiscal 2014 gross margin and adjusted operating margin were 54.4% and 9.9% respectively compared with 54.6% and .4% respectively in the prior year.

Adjusted earnings per diluted share for fiscal 2014 increased 10.7% to $1.45 compared with $1.31 in fiscal 2013. Our balance sheet and liquidity improved this year. Our cash and securities at June 30, 2014 totaled 135.8 million, an increase of 31.2% from fiscal 2013 year end.

We have approximately 129 million of our senior notes remaining outstanding which become due in October 2015. Our 15 million revolver facility remains undrawn with only about 600,000 in standby letters of credit outstanding.

Our inventories at June 30, 2014 of 146.3 million increased from 137.3 million at prior year end as planned due to expanded assortment of in stock on demand products and a better in stock position on import items. Our capital expenditures for fiscal 2014 totaled 19.3 million and depreciation and amortization for fiscal 2014 was 17.9 million.

With that, I will pass it back over to Farooq..

case goods, upholstery, soft accents, bedding, hot accent, rugs and other related products. Most furniture products were designed to be made in our North America workshops. Products will be introduced by stages. During July, August and September, focus of marketing will also include selling of low inventory to make room for new products.

Some of the new products will be introduced in September and the larger portion in in October and November. Our objective during the year is also to increase our on-demand that is our in-stock programs.

The external and internal projection of our design centers will be undertaken in August and September reflecting the attitude created in our Danbury flagship design center. We plan to continue to strengthen our interior design associates with today number over 1500 in North America and about 2000 internationally.

During the last few years, we have been able to attract experienced and entrepreneurial interior designers to join our retail division and our independent retailers. We also have expanded our IDA, that is a independent design affiliate program to now include over 4800 interior designers.

We will continue to focus on relocation and opening up new design centers. In fiscal 2014 we continued with major progress of opening new and relocated design centers in North America. They includes Winter Park, Orlando, Burlington area of Boston, Portland, Maine; Lindas [ph] area of Cleveland, Calgary, Canada; Marlboro, New Jersey, Sarasota, Florida.

Overseas we opened in Jeddah, Saudi Arabia, Bucharest Romania, second store in Amman, Jordan; fourth one in Seoul, Korea. A number of design centers are opening in the next few months, including the Doha, Qatar and a the second location in Dubai and relocations in Houston, Texas and Marlboro, New Jersey – and Marlton, New jersey.

Introducing the redesigned website, during fiscal year we engaged outside specialists to work with us to substantially improve our website and we expect to launch this in October 2014 as we increase our advertising presence.

Expansion of our North American manufacturing is proceeding well, as the substantial part of new furniture will be made in our workshops, and we have continued to invest in our facilities in order to be ready for increased business. As I had mentioned, we will progressively increase our marketing in fiscal 2015 starting in the second quarter.

At this time we are budgeting to spend about 30% more this fiscal year than we have spent in fiscal 2014. We also expect to invest about $28 million in capital expenditures to re-position our design centers – and to invest in technology at all levels especially in manufacturing, retail and marketing.

And at this stage, I like to open it up for questions and comments..

(Operator Instructions) Our first question comes from the line of Budd Bugatch from Raymond James..

I had a couple of questions, to make sure I understand, Corey, were you giving the written sales so far for the new fiscal year and could you go over those numbers if you were?.

Budd, you’re talking about new fiscal year meaning fiscal ’15?.

Yeah sure, I kind of got lost in a little bit of –.

No, what we did – what I said was that we did not give any numbers, Budd, on fiscal ‘15 because as you know we’re just into the fiscal year. What I did say was this – that our sale ended July 7 this year versus June 30 last year, so that had – that took our June business to July.

I said we did have a strong end to that sale but I also said that in addition to the fact that the sale ended on July 7 we also had a price increase. This year it was effective July 8, last year it was effective August 2. So we did take some business also into this July period from August.

So overall as I said it was strong but keep in mind that we have to wait for the whole quarter to determine what our retail written business is going to be this quarter..

I understand that, that’s what I thought but I just wanted to make sure I didn’t hear a number for something that you didn’t give.

When you talk about the decrease in margin or the impact of selling the floor samples I think in last year's September quarter gross margin was down, for also the sale of floor samples, if I remember, I think it was down about 120 basis points from the prior year.

Should we expect gross margin for the first quarter, the September quarter to be down sequentially from the fourth quarter and down year-over-year from the first question last year? Is that the way to read your comments on the sale of floor samples?.

Yeah, what you’re saying is more on the right – obviously we can't say exactly what's going to happen but I think that it is fair to say that we do have to sell $18 million, $20 million of floor samples between now to September, some in October and that will have an impact.

Yes of course hopefully it will increase sales, bring in more traffic but on the other hand it may have an impact on margins..

Okay and the last question from me is when you talk about 30% more on marketing, are you talking about 30% more on the advertising you report in the K, and if so, since the K is I don’t think out yet, what's the amount of advertising that you spent in fiscal 2014?.

We spent approximately $30 million and our objective is to increase that approximately by about 30%..

About $9 million?.

Yeah, $9 million, $10 million, yes..

Our next question comes from the line of Jessica Schoen from Nomura Securities..

My first question was about the smaller footprint stores. I was wondering if you could give you an update on where you are on that strategy and what maybe we can expect in the next fiscal year..

Jessica, I mentioned the new design centers that we had opened, over the last I would say 10, 12 years our real focus has been to focus on our retail network to make sure they are in the right places. Relocation has been critical for us and in some cases like for instance, I mentioned Cleveland Lindros [ph] Area.

We have over the years have closed – we used to have three stores in Cleveland area, now we have one flagship location. And that we have -- Milwaukee for instance we had three, now we have one major one. Long Island right here, we had in the Suffolk county we had three and now we have one, major one in Garden city.

So we have -- our strategies are on one hand to make sure that our design centers are in flagship locations. Then wherever it makes sense we have also taken the design centers and to somewhat reduce the size. We used to open up 20,000 square feet and now in some of these flagship locations 10,000 to 15,000 square feet make sense.

Then other areas for instance in Portland Maine I mentioned, we had a 10,000 square foot and we have now opened up a 6000 square foot. The smallest one I mentioned was in Orlando in Winter Park 1600 square feet, good performance, done well but it’s a little small.

So our smaller locations are going to be in the range -- then about 4000 square feet because in Winter Park we have only one designer – and if that designer has to go off on vacation, family leave or whatever, this is an issue.

So we are in the process of looking and – of going to open up on one hand in markets like Winter Park maybe 4000 square feet but in other markets where we used to open up 15000 to 20,000 square feet it will be approximately 10000 square feet, so that is a great example for that..

And then the second question I had was on the strength on the top line that you saw in the most recent quarter, I was wondering if there is any additional color you could give, maybe anything you’ve noticed about the consumer, different categories or even different geographies in your business..

Yes, of course as you -- in our top line -- first on the delivered representatives, Corey also mentioned it represented some backlogs we had, some products. Our manufacturing is now gearing up. Some of the import products which was delayed came in. So our top line reflected our ability to ship products that we’re making or receiving.

But in terms of the differences what we’ve seen is for us, for instance, Florida has been very, very strong. It’s continued to be strong. South California has been strong.

These were the two major markets where we see strength and others really represented to a great degree and lot of factors from our own positioning, our own marketing and because some markets in for instance Mid Atlantic and Northeast we’re strong and some we were somewhat lower in sales.

Overall as I mentioned that we did see some concerns of consumers. We saw them somewhat holding back, but overall I think our marketing initiatives are strong and we should expect to, I think, get the benefit of it in our first quarter and moving forward..

Great. Thank you very much for taking the questions..

Yeah, thanks Jessica..

Thank you. Our next question comes from the line of Brad Thomas from KeyBanc Capital Markets. Your question please..

Wanted to just follow up a little bit about the outlook for the upcoming fiscal first quarter. I appreciate the color on the change in the timing of some events.

Are there any other changes in events that we should be aware of as we think about the quarter? And then what sort of benefit do you think we should be modelling in just from specifically the change in some of the timing?.

Well, Brad as I mentioned in the first quarter, our focus really is to get the message across the changes coming that we have to make room plus of course we’re also going to continue to market and sell our programs because we still have a very, very large program in place.

So it is going to be – you’re going to see us as being somewhat aggressive in the first quarter, but the real marketing we’re going to start increasing is in the second quarter and then even much more so in the third and the fourth quarter..

Okay. Thank you. And then with respect to the customer deposits or the backlog, you clearly did a great job of reducing that in the fourth quarter.

As we look ahead to the fiscal first quarter, is there an opportunity to continue to work through some of the backlog?.

Well, the backlog is now somewhat lower obviously maybe 4%, 5% lower, but then we made it up by the end of -- as I mentioned that our sale ended July 7th was strongest, our backlogs increased. I think that we don’t have at this stage excessive backlogs. They are a normal part of our business levels of backlogs that’s what we have.

But having said this, a good news, Brad, is that we have been investing a great deal in our manufacturing in North America. Now you know our model is quite different than lot of other folks who basically go out and buy a lot of products they have it and then they sell it.

In our case we make it and almost 70% is especially in upholstery and even in our good products is custom. So we need to have the capacities to make sure that we are able to make the product and ship the products.

So our capacities in North America which is Vermont, which is North Carolina and now we have made a great amount of headway both in Mexico and Honduras. So we’re in a much better position. But having said this, the new products that we are developing is being made in our own factories and it’s much more complicated.

You saw it has great finishes and a lot of new products is coming up. So we’re going to have some start-up challenges as we already have right now, but the good news is our manufacturing is in great shape and we’re going to continue to expand it so that we should be able to service as we increase our business..

That’s great.

And if I could just ask one more question about China, if you could just give us an update on how many stores you have there today and what the sales performances look like in China?.

I’ll tell you this. One of the things I must tell you this. One of our great partners from China is alright sitting here. The whole team from our associates there are visiting us here because they are – it’s amazing how I had a conversation, they are sitting here with me and I invited them to join.

And they said, “we know that we always operate with speed, but we’re going to now even accelerate our own speed” which means they’re going to be expanding and they’re going to be opening a number of stores and I think their chairman has set a goal in a relatively short period of time of going from 70 to 100. And so they are very aggressive.

They have done a great job and I think that our results also reflect the fact of this increased business that is now coming back from China..

Great. Thank you so much..

Alright, Brad. Thanks..

Thank you. Our next question comes from the line of Jeremy Hamblin from Dougherty & Company..

Good morning guys and thank you for taking my questions today.

I wanted to just ask a little bit, Corey, about whether you could break out the monthly written orders as we’ve done the last couple of quarters what you saw in April, May, June?.

You know, Jeremy, we really don’t have the breakout right here with me and I don’t have -- sometime we typically do. The numbers that Farooq talked about –.

I will tell you that it was pretty consistent. We didn’t have big major spurs, Jeremy, from month to month. This was not something. And again the main reason being this. We took the June sale to July. That’s where the main effect would have been, but the rest of the March and April were somewhat consistent with what we had done in the previous years..

Yeah, not a big change..

So can I assume then – so were April and May then positive or negative?.

I think that they were pretty much close to what we had done last year..

Okay, so flattish, okay. Thank you.

And then just in terms of what’s really stuck out to me was you had significant leverage on our operating expenses in this quarter substantially more than you had really in a couple of years and at just over 42% of sales, can you just discuss a little bit about how you’re able to achieve that type of operating leverage on your model? Is there something that’s inherently changed over the last three or four months? Is it sustainable to see that kind of leverage going forward? How should we be thinking about that because that really was a pretty impressive job on controlling expenses?.

Yeah, I think Jeremy if you take a look at it, if you take our fiscal years like for instance fiscal year ending 6/30/2012, our total operating expenses were about $341 million. The next year it was $338 million and in fiscal 2014 it was $336 million and even if we exclude some of the special charges they’re about almost the same.

So we have been able to really to a great degree maintain our operating expenses. And the main area that really we have had a great amount of impact has been in the retail division and that is also reflects what I said earlier in terms of consolidating our retail to more prime locations but few retail.

So we have had a major impact of managing our operating expenses on the retail. Others also -- our retail expenses did increase in our manufacturing because of the fact that we have been expanding our manufacturing operations all in Mexico and in Honduras and the rest is really we watched every dollar we spent there..

Would you be able to provide maybe even a little more granular color in terms of where the leverage came from? How much of it was let’s say kind of payroll? How much was G&A versus let’s say marketing expenses?.

I don’t have the numbers in front of me, but Corey when you get a chance show them to me before you talk to Jeremy. How is that? Alright, Jeremy, he will talk to you after he talks to me..

Okay. Great. Thanks for taking my question..

Thanks, Jeremy..

Thank you. Our next question comes from the line of Todd Schwartzman from Sidoti. Your question please..

Hi, Farooq, good morning. Hi, Corey. Thank you for taking the call and congratulations, Corey. Wanted to speak a little about just the long-term future of your domestic case goods manufacturing? Farooq, you had pointed out that number of your competitors do not manufacture anything.

Of those that do in the last year or two? At least a couple of them have reversed course a bit after taking back on source some manufacturing that was previously being sourced overseas. There was another reversal of course.

So the question is again thinking a long term, is there a big enough pool available of talented craftsmen you think that are coming up that will be sufficient to sustain your domestic manufacturing presence?.

Yeah, Todd it’s a good question. You know six our eight years back the easiest thing was to do to close all manufacturing in the United States. We did not do that, we consolidated. We had 31 plants in the early 90s. We had 3 sawmills.

We decided that we’ll consolidate them to our best locations where we had the ability and also have reasonable availability of crafts people and as well as the locations with our facilities and equipment and everything else. I think that we did maintain and we also worked on lower margins.

Our products that we are getting from overseas at higher margins, I have stated that. So we decided at the business that we will do that because I was somewhat concerned that...

I’m talking about six years back or seven years back that we should not give it up and we should maintain that presence and today I think that we have now starting to see that it is importance to have the presence, but the question that you raised is an important one. That is question of availability of labor. It is less.

So technology becomes very, very important. If you now go to our manufacturing in North America especially the United States, you would see tremendous amount of technology which has reduced the labor. We have to do that. They are doing it in China. We don’t have an option here.

So I think for the possible future while it is some challenge, but we are in good places where there is labor available where there was a storage. For instance, in our upholstery operations getting qualified sawyers and cutting of fabric was a tough, tough situation. So we opened up in Central Mexico where we have now 700 people working.

We also gave them a lot of technology. Without that, our North American upholstering manufacturing would not be as viable as is today. Combining the two makes sense.

Our Honduras operation is also helping us in our cased goods for combining that with our operations in Vermont where we have a sawmill and rough mill and also a manufacturing plant and in North Carolina it works.

So I think yes, if we do not invest in technology and if we do not diversify, we could have made manufacturing in Southeast Asia that was an option, but we said no we’ll go the North American zone and that’s helping us, Todd..

If you had to take rough case, Farooq, looking at the Vermont and North Carolina facilities, what would you say the average age of the skilled labors versus maybe 10 years ago?.

You know we don’t discriminate, Todd. I mean people and ages not affect them, but I do understand your question. Average age, I would say it is.. if you take the Mexico where average age could 22/24, in North Carolina and in Vermont it would be between 45 and up..

Thank you [ph]. With all the products to launch and I just want to ask some clarification you were talking about the timeline of the rollouts and you initially said July, August and September. That’s consistent with what you’d spoken to in the last couple of months.

But then I thought I heard a reference to some events, some launches in October and November as well.

Did I hear wrong?.

Now let me just clarify, Todd. We are going to start shipping up new products to our retailers in August in stages. The products that will ship in August will be available to be marketed in September. It’s a smaller portion.

In September, we will be shipping much larger so that we can then start marketing in October and by end of September and early October all the new products would have been shipped. So from marketing perspective, we have to market it once a product is in our design centers.

Our design centers also are going to get a fair amount of renovation from now to September and even early October. 200 of them are going to be renovated. So we’re going to be investing money to fix them and that’s why we’re increasing our capital expenditure.

So the products are going to be coming into our design center by stages and our marketing is going to reflect that..

Got it.

Could you repeat your CapEx expectation for fiscal 15?.

About $28 million..

Okay.

How should we think about year-end inventory with all the puts and takes?.

Well, right. We increased $9 million last year. 66% of that was finished goods and the rest was between work and process and raw materials. As we move forward we are just... for purposes of our own budgeting we are expecting to spend another $10 million increasing our overall inventories which will also reflect more.

On a plan basis, we’re going to increase our own demand product available in our design centers..

So the increase is going to be a little less than $10 million year-over-year..

About $10 million, yeah..

Okay.

And lastly did you buy back any stock in Q4?.

No, we did not. We did increase the dividend by 20%..

Yes. I did see that. Thank you very much..

Alright, Todd..

Thank you. Our next question comes from the line of John [ph] from Stifel. Your question please..

Good morning Farooq and good morning Corey as well. Congratulations.

Most has been [ph] but do the price increase, Farooq, in terms of magnitude same over year-over-year, what was it?.

It’s approximately 4%..

Got it.

In your brand manager position, can you update us on you sort of awarded anything been learned, executed, etc.?.

I mean one of the main things of new brand manager really spent time has been on our website. That’s a very, very important part of the next step.

But as know today, generally speaking the retail traffic has declined year-over-year, department, stalls, malls everywhere because people who used to go window shopping now they do it on the website and if the website is not great, then I’ll go to the next level.

So we have spent time on our website, so our marketing team and in fact you may remember Nora Murphy was executive vice president of Style and sort of left for about four years has rejoined and is now working also in our branding because she is of course a very, very talented interior designer.

So she and Dave Moore who is the new head of our advertising, they were being together. So you’re going to see some great things going forward, John..

Does it mean anything the major website hits [ph] and if so what if they have been trending over the last, I don’t know, 24 months?.

Well, we have so far because we have also been taking part if our advertising has gone into digital advertising. We are sending out all e-mail bluffs which I hope you’re getting and what it has done is it has increased substantially our traffic to our website but still not enough. It has also increased some of our e-commerce but not enough.

So what you’re going to see is in greater increase in traffic of website. And even though we want people to go into our design centers and buy, but we are also going to increase our e-commerce business as well..

And that conversion is what...

October 1st, October 31st? What’s this?.

Around the middle of October..

Middle October, okay. And then could you just give up a guideline. You mentioned all those relocating and opening new stores, closing new stores. You refer at this time, next year. What we look like in store count in total? How many be opened? How many would be closed? And what maybe net square footage change would be? Thank you..

John, I think the net square footage hopefully is going to be lower because we want to have less square footage doing mall business. However, on my perspective this stage is most probably by end of next year. The square footage will be about the same.

We’ll have more design centers relocated and most probably internationally and domestically about 8 to 10 new stores open up..

So how about maybe a net store gain of 8 to 10 or is that a gross number that you’re going to then close some off of..

Yeah, I would say that net would be between 5 and 10..

Right. Thank you. Good luck..

Alright John. Thanks..

Thank you. Our next question comes from the line of Kristine Koerber from Barrington Research. Your question please..

Yeah. Hi there. Good morning..

Hi good morning. I have a couple of questions. First, as we’ll get the new merchandize rollout how should we think about margins going forward because I know lot of these talks can be made domestically and I believe in the past you said we should expect higher margins.

Is that correct? And if so, how should we think about the margin?.

Yeah.

This is Kristine, right?.

Yes. It is..

Yes.

Kristine, how are you?.

Good, Farooq..

Good. Now Kristine, if you take a look at the gross margins and you just take a look at this last quarter. We had 54.6%. Previous in the third quarter we had 54%. And if you go and take a look at the last three or four years it has been between 53 and 54 and 54.6%. I think approximately in that range is what our expectation is.

That has been within 54, and when we got everything geared up maybe to 55. So while there is an impact, but I think because of the fact of our whole business, our retail business and the gross margin to some degree is also impacted as a percentage of total retail to our total business.

So if our total retail division business increases, our total gross margin goes up but I would say that for proposes you have to use approximately – around the 54% or so, you’re okay..

And then as far as the advertising – the step up in advertising to 9 million to 10 million, can you give us some idea of the spreads throughout the second and fourth quarters? I know it’s going to step up throughout the quarters but what should we expect and then as far as direct mail piece to this, I believe last year on the call -- there is a big bump in the direct mail pieces, I mean how many – -are you expecting to nail this year over last year?.

Our advertising in the first quarter will be somewhat consistent with what we did last year. And the second quarter will approximately increase by between 10% or so, or between 10% and 15% and third quarter to fourth quarter is where we will be spending much, much higher levels..

And then the direct mail pieces, how should we think about that versus what you mailed last year?.

Well Kristine, we are taking a look at whether that we’re right now in the process of determining direct-mail, national television, digital advertising, shelter magazines. So you’re going to see us in most probably in all those mediums.

So there will be a much more – we will spending – we’re spreading our advertising in those mediums, certainly we’re going to have – we have a stronger presence in shelter magazines, we’re increasing digital, we’ve maintained direct-mail and looking also – we’re right now looking very closely on getting back into national television..

And then just lastly, I guess Europe [ph] is repositioning, I am just trying to get an understanding of -- with the new products being rolled out, when do you think the design centers will be positioned to where you want them to be from a merchandising standpoint et cetera, or is that early next year or later in the year? I know there's just a lot going on, just trying to get an idea when you think all of this will be done..

This is of course always a continuous process. However by the end of October, the phase that you saw in Danbury is going to be implemented in some hundred percent the way -- as you saw it and in some maybe 70% depending upon the location and the size.

But by the end of October this current projection that we have is – our objective is to implement it, so it’s a very, very aggressive program that that our teams is working on..

Our next question comes from the line of Cristina Fernandez from Telsey Advisory Group..

I wanted to ask about the impact of in stock product sales on written orders, when someone comes to a store and places an order for on-demand or in stock product, does that not get booked as written order?.

It does. Everything is booked as a written order and so it is no difference whether they buy it, whether the products are in stock or custom, it all gets into our written orders..

Okay, and the floor sample as well, I am just trying to reconcile because it seems like it was in the last year there has been a wide gap between our written order trends and your total sales.

So the different component of what caused that difference?.

Yes, everything that we sold at the retail level goes into written – into our written business, so whether they are floor samples, whether they’re on-demand with custom, and the difference that you just referred to was that in this last quarter I will show you -- saw was the fact that we got up on or manufacturing and also some of the imported products, so we were able to save.

So hopefully we will always -- we should have somewhat of a higher backlog than shipments but we’re getting more imbalanced..

So it’s just timing –.

It’s timing, yes..

And then I mean you mentioned traffic being weak across retail and we’ve seen that a lot – how the traffic trend through your quarter, was it better year over year or is the benefit you are seeing mostly from higher ticket and conversion?.

No, Cristina, I mean let me just clarify this thing about the traffic. What’s happening is as I said window shoppers are going to the website and more qualified people are coming in.

I think that is – we got to keep that perspective in mind that people who are coming in are much more qualified than – and so today you cannot just compare the total traffic as it used to be before the sold [ph] technology and the websites and the mobile and everything else. So we’re looking at it from a different perspective.

Certainly on the good news is we have much more qualified people coming in because when they come they have also done their homework. They’ve already gone on the website, they have studied us. So that qualified traffic is increasing, overall graphic is somewhat down or flat..

Our next question comes from the line of Justin Bergner from Gabelli & Co..

Most of my questions were actually just asked.

So I will ask a general question which is sort of looking at the June quarter versus the prior quarters, what aspect of your business provides you sort of with the most optimism going forward and what aspect of the business continues to be challenging?.

Good question, and this is an overall question, I think that our structure is the most positive factor. We are vertically integrated structure. We have a – we look upon our interior designers, we are the leading if not the largest interior design company.

We look upon our interior designers as in-house entrepreneurs, we have strengthened them and these are the entrepreneurs that really is the strength of Ethan Allen. 1500 entrepreneurs right in North America plus internationally. So that is our biggest strength.

The second one is the fact that we have 200 locations all over North America, now plus 100 internationally and today these locations are in better locations. We have spent in the last 10, 15 years has been relocating -- relocating to better locations. The third factor is our focus on our brand and our products.

We’ve always been known for classics but we needed to update them to make them more fashionable and relaxed and now as we implement them I think we’re going to have an opportunity of reaching the larger consumer base.

Technology is very, very critical and today as I said we’re investing a lot in technology, in our manufacturing, in our retail, in our website and finally our manufacturing that we have maintained, it’s not been easy to build new manufacturing sites in the last few years which we have done.

And we will now gear them up and I think as we go forward, all of these are starting to get into balance..

One specific question which is – could you comment on how accessories trended this quarter and how larger portion of your business they are now?.

They are increasing and you’re going to see a lot of emphasis on our accessory product lines.

They are increasing and you’re going to see us a lot of focus on all accessories which goes -- in fact we have introduced a very strong bedding program and we are putting in sleep shops in our design centers which we have done in Danbury and we’re now launching it all nationally.

So non-furniture is going to become a much more important part in our product offerings and in our advertising as we move forward..

Okay, would you want to include any figures in terms of how you’re trying [ph] at this time or –.

Right now they are 16%, 17% of our total business and in the next year, our objective is to take it to between – to at least to 20%. And keep in mind the furniture is also going to be increasing and that’s our objective..

Our next question is a follow-up question from the line of Jeremy Hamblin from Dougherty & Company..

Thanks for taking one quick follow-up. I just wanted to ask on in terms of your retail -- the retail segment as a percent of total sales, I think last year in FY13 it was a little over 79%, this year it looks like it’s a little under 78%.

And just reconciling with the question that was asked about real estate for 2015, should we be thinking that retail sales as a percent is likely to slightly go lower than what it was this year? Just because of the changes in the real estate?.

No, go ahead, Corey, what was the numbers that you gave?.

Yeah, I would expect it to stay pretty close to that 78% range..

All right, Jeremy, thanks very much. Okay, Johnson, I hope we are done..

I am not showing any further questions in the queue at this time..

All right. This has been a good call and lot of good questions and thank you for being on the call and those folks are also listening to us on our webcast. We – if you have any questions, comments please let us know and you can always reach Corey Whitely here. So thanks very much..

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day..