Good afternoon, welcome to the Ethan Allen 2019 Fiscal Second Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to queue for a question during this time, please press star one on your telephone keypad. If you would like to withdraw your question, please press the pound key. It is now my pleasure to introduce your host, Corey Whitely, Executive Vice President, Administration and CFO. Thank you. You may begin.
Thank you, Rafael. Good afternoon, welcome to Ethan Allen's conference call for our second quarter ended December 31st, 2018. This conference call is being recorded and 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. As a reminder, our comments today will include forward-looking statements that are subject to risks and uncertainties, which could cause actual results to differ materially. 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. After I provide some brief details on the financial results, our Chairman and CEO, Farooq Kathwari, will provide updates on the business and on ongoing growth initiatives. We'll open up the telephone lines for questions.
Our consolidated net sales for our fiscal 2019 second quarter of $197.2 million compared to $198.5 million in the prior year, we ended the first six months of the fiscal year with a consolidated net sales increase of 1.4%, despite challenging macroeconomic conditions. Our strong retail net sales of $158.5 million compare to $153 million in the prior year and resulted in net profitability for the retail segment for the second quarter and the first half, demonstrating the opportunity our retail segment has in driving increased profitability. Wholesale net sales of $107.7 million compare to $118 million in the prior year quarter. During the previous year, second quarter wholesale sales were at elevated levels as the shipping delays and high order backlogs in the prior year first quarter were getting caught up during the second quarter.
This year, the wholesale segment order backlog levels in the first quarter were at normal levels, as our manufacturing is running much more efficiently this year with no shipping delays. Wholesale experienced a 31% decrease in international sales compared to the prior year second quarter. We also experienced pricing pressures on GSA contract orders that resulted in extraordinary sales discounts off our standard GSA pricing. We provided these extraordinary discounts in order to win important GSA bids while another bidder was liquidating their inventory during their bankruptcy. Consolidated gross margin for the quarter was 55.2% compared to 54.3%. Retail sales as a percent of total consolidated sales was 80.4% for the quarter, compared to 77.1% in the prior year quarter, increasing our consolidated gross margin due to this increased mix. Our second quarter operating expenses were $92.7 million, and adjusted operating expenses were $92.4 million.
The 2.1% increase in adjusted operating expenses was primarily due to distribution cost increases and increased variable costs at retail, partly offset by a decrease in advertising. Year-to-date advertising is running about 4.1% of sales. For the quarter, the operating margin was 8.2%, which compared to 8.8%. GAAP EPS was $0.45 per share for the second quarter, compared to $0.54 per share in the prior year period. Adjusted EPS was $0.46 per share, compared to $0.53 per share. The tax rate for the second quarter was 25.1%, and that compared to 16% in the prior year second quarter. With the effects of the 2017 Tax Act on last year's income normalized to the current year rate, comparative adjusted EPS would have been $0.45 per diluted share in the prior year period.
Turning to the balance sheet, during the quarter, we paid $5.1 million in dividends and ended the quarter with cash and securities of $38.8 million, with no bank debt outstanding. With that, I'll turn the call over to Farooq.
All right, Corey. Thank you. As mentioned in our press release, our unique vertically integrated structure provides us an opportunity to differentiate and grow both sales and profits. Our key initiatives include expanding reach through new products. Recent introductions include Artisan, more modern in style, smaller in scale, simpler and linear. Uptown, transitional, updated take on traditional, dressier in style. Passport, global in style and distressed finishes. This spring, introducing Relaxed Modern, which is transitional in style with classic forms reinterpreted in a casual manner. These designs project a diversity of style in an eclectic fashion to attract a larger audience. All our products are developed with a consistent level of superior quality. These new products gives us an opportunity to expand our customer base. Our next important focus is always on talent.
Our vertically integrated structure requires talent in many diverse areas, from managing a sawmill in the Northeast Vermont, to manufacturing locations in North America, to a retail network, a logistics network, and teams to develop various aspects of marketing, merchandising, and also managing operations. A major strength includes our 1,500 interior design associates, who take a customer and convert them to a long-term client. The continued positioning of design centers to more relevant locations is ongoing. During last 15 years, over 60% of the 200 design centers in North America have been relocated. The company operates 150 of the 200 locations. Recently opened new design centers in Denver, Colorado, and under construction are design centers, all relocations, in Albany, N.Y., Coralville, Iowa, Tysons Corner, Virginia, and Ann Arbor, Michigan.
Internationally, last three months, we opened a large flagship design center with our licensee in Wuhan, China, and also a new design center in Phnom Penh, Cambodia. Expanding our integrated marketing initiatives are critical. These include continued utilization of direct mail. In fiscal 2019, this last six months, we mailed about 10 million copies of our direct mail magazine. Expanded reach through digital campaigns. We are also implementing an advanced version of a CRM, a customer relationship management program. Continued focus on improving efficiency of manufacturing and logistics, with 70% of furniture made in our North American workshops. Our national logistics delivers products in North America at landed cost, and our retail logistics delivers in a white glove service to clients, resulting in excellent service and control on returns. We believe that our manufacturing and logistics gives us a competitive advantage.
We also continue to focus on conducting our enterprise in a socially responsible manner, including environmental, health, and safety management. With this brief introduction, I'm pleased to open for questions or comments.
Rafael will go ahead and open the lines.
Yes, sir. Thank you. Again, I would just like to remind everyone, in order to ask a question, please press star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Jeremy Hamblin from Dougherty & Company. Your line is open.
Yeah. Hello, Jeremy.
Hi. Good evening. Thanks for taking the questions. I wanted to start by seeing if we could get some color here on the wholesale division. It looks like that was probably the significant difference between expectations and final results. In terms of the GSA contract, I had two things I was hoping you could provide color on. The first is, you noted that the Drexel or the Heritage bankruptcy led to some discounting to continue to win that contract. They've kind of gone through their bankruptcy proceedings at this point in time. What type of impact is that going to have going forward on Q3 and Q4 results? That's part one. Then part two is, obviously with the government shutdown over the past month, what type of impact is that going to have on Q3 results, if any? Hoping you can provide some more specific color.
Jeremy, good questions. The State Department bidding, as Corey just mentioned, had an impact both on the top line and on the bottom line, because these were basically provided almost at cost, with the result was that if it had our normal gross margins, the sales would have increased as well as operating margins would have increased. Now, the good news is that most of this has already been delivered. The orders that we have been getting in the last month, two months, and they've been pretty good. We are now getting them at our regular gross margins, and they will be delivered in our third and fourth quarter, which should help us the top line and the bottom line.
Okay. Can you give more specifics in terms of Corey, can you help us on the total amount of backlog on that State Department contract at the end of Q2?
Jeremy, I don't think based upon our agreements with the GSA, we are able to give all those numbers out. But as I said, I can use the word, it is good, it is strong, and it is going to help us both at the top line, and we'll be able to recoup our margins that we lost in our second quarter.
Maybe just to clarify a little bit on the volume hasn't been really substantially impacted because of the government shutdown.
Oh, yeah. The government has not, interestingly, this whole area, this whole division was impacted to some degree, but not much. The good news is now they are back. They were just a little bit slow in sending orders. Now, starting actually even today, they're very busy. I think that they did not stop the orders coming in. They just slowed them down.
Okay. You're saying that you expect the State Department related contracts to be up on a year-over-year basis in Q3 and in Q4?
Yes. Right. Both in terms of sales, because as we discussed, let us assume that, let's say $1 million, and when you give it at cost or so, you're talking of taking off 30% on sales and 30% on operating margins. That's what it really means, or maybe 30%+ . That's the impact of that.
Even with the discounts, they were up for the second quarter. They shouldn't make too much of a margin on them, but they were just slightly up on the second quarter.
The sales were up.
Understood.
Overall, and keep in mind, the previous year also, we were impacted because that was the year when we were shipping the products where the sales were at a higher number, but the margins were impacted because we had to ship a lot of product, if you recall. The second quarter in the previous year, we had to ship a lot of product in a very short period of time, which impacted our efficiencies and even deliveries to the rest of our retail network. That was not the case this second quarter of this fiscal year.
Okay. Just a follow-up question here on the wholesale segment. I think what I caught in your prepared remarks was that, did you say that sales in China were down 31%?
Oh, sorry, Jeremy. Go on.
Just could you provide some color, or can you clarify that in terms of China? Then you also noted that you saw your business in Canada down at retail as well. I'm just hoping you can provide a little more color on the international side of your business.
Jeremy, let me give a basic overview, then Corey can add on. China was impacted, as we know, by a number of factors. First, Chinese economy has slowed down. Secondly, the tariff situation also created a big problem. They held up. They were not sure whether it was going to be 25%. We had to also work very hard in trying to determine what should we do, where should the product be made in our operations. Should it be made in Mexico, in Honduras? All of this created a lot of confusion, the result was they were holding up orders. We also had to determine the source of manufacturing. The combination of this whole issue of the taxes, as well as somewhat of a slowdown in China, had an impact.
The good news is that the Chinese economy still is not as strong as it was, there is somewhat of a less of a concern on the question about these tariffs. It looks like we didn't go to the 25%, which was a concern last quarter. It's now about 10%. 10% is a little bit more tolerable.
To clarify, Jeremy, on the wholesale, the 31% referred to both China as well as Canada for the wholesale component of Canada. Canada impacted wholesale, and of course, it also impacted retail at the retail sales level.
Jeremy, just again, in Canada, the same situation was there. For the beginning of the quarter, there was a lot of concern on the fact of tariffs on American products to China. People got concerned. They were holding up. The second thing is in Canada, especially on the west coast of Canada, which is the same situation in the west coast of the U.S., Chinese residents also, for a number of reasons, slowed down their purchases, which have been a pretty good important customer base for the whole coastline from Vancouver down to San Diego. That was another factor.
The potential for 25% tariffs in 2019 slowed orders at the end of 2018, like in your second quarter?
Yes. Right. Because that's really when the whole thing was implemented, or they were talking about the question of having a 25% tariff. The tariff was supposed to start on January 1st, later on, they decided to hold off the implementing the 25% tariff. It created a lot of confusion.
Okay. Thanks for taking the questions. I'll hop back in the queue.
All right. Thank you.
Your next question comes from the line of Cristina Fernandez from Telsey Advisory Group. Your line is open.
Hello, Cristina.
Hi, good afternoon. I wanted to ask about the cadence of the order intake during the quarter. It was down 3%-4%. Can you walk us through what you saw, just given that you had ended the prior quarter on an increase note? It seems like it was a little bit more volatile here.
It's an interesting situation that developed that we were up in November. We were doing extremely well to the middle of December, then all of a sudden, with the issue of a number of factors, the stock markets were down substantially. There's the government shutdown, the tariffs. We could see it, that customers really held back in the last Most of our, this change took place in the last two weeks of December. As we said in our press release, the good news is that in January, people started coming back, and we have had sequentially increase in traffic in our design centers so far in January.
Thanks. A second question was on the gross margin, it was up 90 basis points even with a lot of that pressure from the government contracts being low margin. Can you help us understand what were the drivers of that expansion?
As Corey mentioned, one of the main one was the relative increase, the percentage of retail sales to total sales. When that happens, Corey said, what was it, 80%?
Yeah, 80.4.
80.4% versus?
77.
Versus 77%. As you know, the retail gross margins are much, much higher, and that had an impact. The other factor is, I'll just mention it, that our operating margins were impacted also by not only the somewhat lower volume but also higher freight costs that we had to, somehow, towards the end of the year, there was a lot of freight costs that we had to incur. Having said all of this, and one other important thing is this, which shows the leverage of our business, that our retail sales increased during the quarter. There's a delivered sale by 3.6%, and our operating margin went to a positive 2.2% versus a negative 2.1%. That's a major thing because I've always said that our business has leverage on both sides.
Similarly, our operating margins at 8.3% is, in our industry, that's on the more or less towards the middle of the higher side, but for us, it's on the lower side. I think that leverage we have on both sides, on operating side as well as on our retails division, is pretty good leverage. Being a vertically integrated company, we get impacted both ways. When sales are somewhat down, it impacts our retail, it affects our manufacturing, our solvents, everything. On the other hand, with even a slight increase, we have an opportunity and ability to take our operating margins. I would say that many years back, our operating margin was much, much higher. Going up to 10% or so with some increase in volume is within reach.
Okay. One last question for me. Marketing spend, based on my calculations, seemed like it was down about over 20% this quarter. Can you confirm that, and how should we think about the marketing spend going forward against the pretty big increases you saw last year?
Yeah. This quarter, we spent about 3.8% versus 4.3% the previous year quarter. If you go to the third quarter of last year, we spent 7.6%. It will be lower, and it will be closer to 4% or in that range as against 7.6%, because we spent a fair amount of money last year in the third and the fourth quarters.
Thank you.
Again, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Justin Bergner from Gabelli & Company. Your line is open.
Yeah. Hi there, Justin. How are you?
Good. How are you doing, Farooq? How are you, Corey?
Good. You disappeared. I don't know where you have been.
These things happen. I wanted to ask about the comment in the press release about January traffic or January activity improving. Is that supposed to suggest that January traffic or some sort of comp or orders number was positive in January, or just that it was sort of less negative than what you saw in the second quarter?
January, we compare it to the January of the previous year. When we say it's positive, it's positive to the January of the previous year, not to our second quarter. Now as you know, the next three, four days are critical because that's when a lot of our business is closed. The positive trends have been, as I said, in December, last two weeks in December, we just saw people just held back. In January, progressively, they've started to come back. Traffic has increased, and it's increased compared to the previous year, not to the second quarter.
Okay, great. It is a traffic metric. That's helpful. Then are you able to quantify how much higher transportation costs or how much higher transportation costs net of what you were able to recover impacted margins in the quarter?
Corey will tell you, the impact of this was on several fronts. Impact of it was, for instance, on the transportation of products from the East Coast to the West Coast. That is taken by our logistics division. The costs also increased from some of the shipments from Mexico and Honduras to the United States. The costs increased also at the retail level in terms of the additional costs that our retail had to pay in delivering the products to the consumer's home. If you take it at all different levels, Corey, you have given any numbers?
Yeah. It's over $1 million
In the wholesale
at the wholesale side. Because the volume at retail, the variable component for the home delivery, that also increased. What we're seeing is higher costs in drivers, in contract carriers, and in the fuel, so it's kind of across the board. We also have shipped a little bit more on a ground basis versus on a rail basis just because of the service level than the timing that rail has grown to.
Justin, as we were talking earlier about the State Department contract, we shipped a lot of these products because, of course, we are taking it at lower margins, but we pay the freight from our distribution centers to the ports. With very little margin, we have to bear that too. Going forward, with the higher margins, we'll be able to take it in.
Okay, great. Have any of those shipping pressures eased or not yet?
It's a little bit too early, but I think that, I mean, I'm just making a judgment that business overall, I think people are somewhat softer, and we are doing all right. Our business, as I said, January was positive. It depends on how the overall economies of the business is. If that is the case, then there'll be less pressures. In the second quarter, there was a lot of demand for shipments. We will see. At this stage, we are just counting on whatever we spend in the last two quarters.
Okay. Lastly, just could you maybe say a few more words about the Relaxed Modern product line that's coming out this spring?
Yeah. Well, I hope you're able to come next month to Danbury, which you really should, because this is a beautiful program, and I think that it's good that you raised it. Our objective really has been to expand our reach so that we, our brand is similar. I'm just using an example of BMW or Mercedes-Benz. These great companies have taken a brand and expanded their reach to, you might say, younger people or even folks who are interested in products that are somewhat smaller in scale. Similar to that, there's products that we have been introducing, whether it's an Artisan or whether it is this new modern. It reflects an attitude like those great automobile companies created a three and a five, and a seven. This, you might just say, is a three. We already had a five and a seven.
This will expand our reach, and we're going to market it in a manner so people will understand that today at Ethan Allen, we have an opportunity of reaching a wider consumer base, but maintaining our quality and great design.
Okay, great. Thank you so much for taking my questions.
Thank you. Thanks, Justin.
We have a follow-up question from the line of Jeremy Hamblin from Dougherty & Company. Your line is open.
Hello, Jeremy.
Thanks for taking the follow-up. I wanted to just ask about the operating expenses, $92.7 million. In terms of the increase, could you quantify, that's about $2.5 million up year-over-year. Of that increase, how much of that was related to the wholesale distribution costs versus the increased variable cost at retail? Corey?
Retail had about $1.1 million of increased costs. Much of it was variable. You could take $1 million of the distribution expenses on the wholesale side, there were some other minor costs. At a high level, that's how I would look at it, Jeremy.
Jeremy, as Corey said, half of that is due to the increase in sales and deliveries of retail, the other half is basically, as we mentioned, increased logistic, I mean, distribution and trucking costs.
Okay. Where do the distribution costs stand today compared to where they were in Q2? We know that there's been some tightness out there in terms of the trucking systems across the country.
I think it's more or less similar. We are watching it very carefully. We did, I'm not giving too many details, but we decided also in the second quarter to ship products from the East Coast to the West Coast by rail because of Christmas holidays and everything else, so we decided that that was an important thing to do. That almost probably added half a million dollars to our costs in the second quarter. Right now, having no Christmas in this quarter, we're not going to do that.
Yeah. That was by truck versus rail, and the truck is higher than the rail.
Half a million dollars cost, Jeremy, on that, just in the last quarter.
That's all part of the demand. Rail has taken longer, and for those holiday deliveries, we really wanted to wow the customer with a very speedy delivery.
In terms of looking forward here back half of the year, is your baseline SG&A run rate closer to this $92 million-$93 million range or closer to the $90 million that you saw in Q1?
Jeremy, just keep in mind, of course, one can make an assumption. It also is a factor of how much, whether you're considering flat business because our operating costs, especially at the retail division, are variable, especially both in terms of the compensation to our designers as well as the delivery cost is a variable cost based on sales. It depends on what you use. You can then use your judgment. Based on that, you can use the numbers. They are variable costs if you
Understood. If all else is equal, if your sales were exactly the same and the split between retail and wholesale were exactly the same as last year for Q3 and Q4, what would that translate to?
Well, it will translate on the wholesale side at least half a million dollars less, and on the retail side, about the same.
On a year-over-year basis?
No, on the quarter, just in the one quarter. Right, Corey?
Compared to Q2?
Compared to Q2.
Okay. About $92 million seems to be the baseline run rate.
Yeah. That $91 million-$92 million. It's going to depend on where freight actually finally comes in at.
Jeremy, $92 million is fine. All right.
Okay. No, I'm just trying to clarify so that we can...
It could be a little bit lower, Jeremy.
Understood. Okay. Thanks for taking the follow-up, guys. Good luck.
All right. Thank you.
Again, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Ian Dominguez from Schonfeld. Your line is open.
All right.
Hi, thanks for the question. I guess two, actually. One is on, I guess in the 10-Q, it mentions a release of intercompany profit previously held in inventory, that served to increase gross profit by $1.1 million. Can you just explain how that works? Second, on lease accounting, the ASU 2016-02, I also noticed in the 10-Q it says company expects it will have a material impact on our consolidated balance sheet. Can you just outline early thoughts as to what that exactly looks like in terms of the material impact? Thank you.
Sure, Ian. This is Corey. On the inventory side is really what kind of drives the release of that intercompany profit. Our inventory that we held at December 31st was about $6.5 million less than where it was at the end of the prior quarter. When we leave that inventory, we capture the embedded wholesale profit at the time that retail relieves it. That's the capture. As inventory decreases, we get the capture of the profit. As inventory increases, then it kind of works the other way, and the profit's held until it's sold. On the lease accounting, in our 10-K, we have about $175 million of lease obligations. Under the lease accounting rules, we'll net present value that and throw it up as an asset with a corresponding liability on the balance sheet.
There's really no P&L impact as a result of the lease accounting change. It'll just primarily be the asset and the liability, basically at a net present value at a high level.
Thank you.
Okay. All right. Thanks.
Your next question comes from the line of Brett Reis from Janney. Your line is open.
Thank you for the opportunity to ask a question or two. Do you give out net store count figures, and is it a metric that even one should pay attention to?
Numbers?
We give out our accounts. It was in the press release also. At the end of the quarter, our company operated, we had 146 design centers and 305 in total with our independents. That compared to last year, our retail had 148. There was also a difference in total store count, which had an impact on the difference in total written sales.
Okay. You mentioned the three or four that you're planning to open. At year-end, do you think you're gonna wind up the year with more or less design centers?
It's a good question because our focus has been to reposition the design centers in the right places. All these locations that I talked about are basically relocations. Keep in mind that historically, all the design centers are almost 95%, 98%, 15 years back were operated by our licensees. As they retired and we took them over, then these stores had been opened up in the 1960s and '70s, and we started relocating them. The total number would more or less stay the same. In some cases, when we close, we determine that we may have another location close by which will get the business. We look at it very carefully whether it is going to have any major negative impact. If we don't, then one location is better than two if it can do the business.
That's we have also been consolidating that way. All the ones that we have listed today that we are going to open are relocations.
Okay. Could you talk to me a little bit about your design consultants. You have 1,500. Is there a low or high turnover of these people? With unemployment being so low, if somebody leaves, are they hard to replace? What's the timetable on a learning curve for a design consultant to come up to speed?
Yeah. Again, a very important relative question, which we deal with all the time. The 1,500 designers, our turnover is very low. These designers are, I would say, the vast majority have come through many years of being associated with Ethan Allen. We have also been able to get many interior designers who ran their own businesses, and they come and join us, because under our umbrella, they have the ability to operate a business for interior design in an entrepreneurial manner, but also disciplined. They get the benefits of being an employee, but they also have the benefit of being an entrepreneur because their compensation is based on the business that they do. Yet there has been some pressures because of the economy. On the other hand, the many businesses that were involved with interior design are no longer existing.
There are not that many companies left over there that do what we do. We have the opportunity of getting really strong interior designers to come and join us.
Right. Oh, that's helpful. I appreciate that. How correlated is your business to new housing sales? They've been soft the last couple of reported data points on that. What's the correlation there in your experience?
No, I understand. It is not necessarily one-to-one because in our case, really, the more important factor is consumer confidence. If consumer confidence is impacted, as it was with, for instance, with the stock market being down or the shutdowns and all those external factors have people holed up. Obviously, we do have an impact, a longer-term impact with the housing, but it is not immediate for us because we are not dependent on necessarily only new homes. A lot of our business comes from existing homes where people are redecorating. We don't see it immediate impact. Of course, longer term, it does have some impact.
Right. Now, in my own business, it's been a challenge to reach out and curry favor and win business from millennials.
Yeah.
It seems in looking at your business, you're having the same challenges. Can you talk to me a little bit about how that's going, and how are you going to hit the right buttons there?
That's an important issue, certainly, and I was referring to it earlier question, I think it was Justin, when he asked me the question about our newest product program that we introduced this last quarter called Artisan, and he asked about that. I answered that our objective has been to expand our reach. Our objective has been to expand our reach in a manner that is consistent for us. In our industry and many industries, I'm just using the auto industry, many years back, General Motors to expand their reach, they developed a lot of different brands. Similarly, some furniture home companies have developed a lot of different brands. We felt that with our one brand, Ethan Allen, is a brand that is desired, is well-known, and obviously it has been known somewhat for, you might say, the folks, not necessarily the millennials or the younger folks.
Our objective has been to reach them, but reach them in a manner that would be consistent in maintaining quality, maintaining good design, and offering folks design and a price point that would be somewhat more compatible without taking off quality. Similar to, as I mentioned earlier, companies like Mercedes-Benz and BMW and Audi have been able to do. You're going to see us being much more focused in reaching out to folks, millennials as well as everybody else, that today, Ethan Allen has the opportunity of reaching a larger consumer base with our offerings in design, in quality, price points, yet we're going to maintain great quality. You're going to see a lot more of that as we go forward.
Great. Thank you for answering my questions. I appreciate it.
All right. Thanks for good questions.
We have a follow-up question from the line of Justin Bergner from Gabelli & Company. Your line is open.
Yeah. Hello, Justin.
Oh, hi again. Just a quick couple clarification questions. The adjustments that you took to your adjusted results in the quarter, it seems to include, I guess, asset purchase cost in your, I assume, in your retail asset purchase cost. What's that?
Go ahead, Corey.
Yeah. That was associated with a location where we had a retailer that retired, and we acquired some of those assets and are continuing to operate in that market. There's certain costs that are incurred during that process.
An independent became company-owned?
Yes. That's the one that shows as a transfer on the design center chart in the back.
This is a very great family in San Jose for the last 50, 60 years. The second generation retired. I've known them for a long time. We sat down, and like we've done with all these other folks. We took it over just last, I think it was December.
In December.
In December.
End of the month, yeah.
That $160,000, that represents the entire cost to bring them in?
No, that just represents certain costs that go around the acquisition-related activities. The other cost is really just purchasing inventory.
Yeah, that's the main cost, is inventory. That we, of course, take into inventory.
Yeah. That's just a basic asset purchase.
Okay
with our operating cash flows.
Okay. The wholesale, sorry, the international being down 31%, that is mainly China and Canada, but there are some other markets in there too, right?
There are, especially the Middle East. They've been down too. As you can see, the situation in Saudi Arabia and Dubai, Qatar, Kuwait, Jordan, they all have been impacted. The good news is they're all motivated. They're still operating it. They want to keep it going, but they had a tough time in the last, with all the problems that's taking place in the Middle East.
Okay. Lastly, the special dividend obviously was just paid out $1 per share. Does that sort of exhaust your cash return for this current fiscal year, or is it still possible that we could see share purchases pick back up?
Well, we just also announced today our regular dividend, we'll continue with the regular dividend. We will see what we need to do. We have continuously purchased, as you know, we purchased 42% of the company back. I just got to make sure that we got to also watch the float over there. We have been doing both things. We have been buying shares. We have paid half a billion dollars of dividends since we took this company private. We invested about almost $800 million in capital expenditures. We have been fortunate so far, been able to buy our shares back, pay a lot of dividends, invest in the company. At this stage, basically, we have used up most of the cash, Justin, we got to build the cash back up.
Okay. Thank you.
All right.
There are no further questions at this time for presenters. Please continue.
All right. Thanks very much. Good to have everybody on the call. If there are any questions, please let us know. Thanks very much.
This concludes today's Conference call. You may now disconnect.