Inside the
operations.

Well, thank you, Matt. As we reported, despite a challenging economic environment and strong prior year comparisons, we did well and reported strong margins and a robust balance sheet. We have continued to strengthen various areas of our unique, vertically integrated enterprise, which includes having strong talent, continued strengthening our offerings, our North American-based manufacturing, our strong and repositioned retail network, our national and regional logistics and implementing technology in various areas of our enterprise. We have also continued with a strong cash position and give very good cash dividends. We are positioned well, and after Matt provides a brief financial overview, I will discuss our initiatives to continue to grow our business.

Thank you, Mr. Kathwari. Fiscal 2026 consolidated net sales were $579 million, which included fourth quarter sales of $147 million. Quarterly sales benefited from a higher average ticket price and recent product introductions, offset by lower contract sales, a decline in delivered unit volume, and fewer incoming orders. Wholesale segment written orders declined 11.9% during the quarter, while our retail segment written orders decreased 10.8% as difficult prior year comparison, combined with lower traffic and macroeconomic uncertainty created near-term pressure.

The pace of written orders remained mostly consistent throughout the quarter, with May bringing in a slightly higher volume of orders due to the Memorial Day holiday. We were also pleased to see written order growth in our State Department business this past quarter. We ended the fiscal year with wholesale backlog of $44 million, down 9% from last year. Lower order volume combined with improved lead times led to lower backlog. For the full year, our consolidated gross margin was 61.2%, comparable to 60.5% last year.

Our adjusted gross margin of 59.7% in the fourth quarter benefited from a change in sales mix, a higher average ticket, lower headcount and reduced financing costs. The impact of tariffs, lower clearance margins and higher manufacturing input costs contributed to our quarterly adjusted gross margin being lower than last year. Fiscal 2026 operating income was $45 million with a margin of 7.8%. In the fourth quarter, our adjusted operating income was $11 million with a margin of 7.4% compared to 9.7% last year. Our current year operating margin was impacted by higher tariffs and fixed cost deleveraging from lower sales.

Headcount totaled 3,062 at fiscal year-end, a decrease of 5% from a year ago, with 5% decreases noted in both wholesale and retail. On a full year basis, adjusted diluted EPS was $1.61. Fourth quarter adjusted diluted EPS was $0.36. Our effective tax rate was 25% for the full year and 24.8% for the quarter, which varied from the 21% federal statutory rate primarily due to state taxes. Now turning to our liquidity.

We remain debt-free with substantial liquidity and a robust balance sheet. During the fourth quarter, we generated $22 million in operating cash flow, which brought our full year total to $52 million. Included in our operating cash flow was $5 million in tariff refunds received. Strong operating cash flow combined with disciplined capital management helped grow our cash and investments to $187.5 million at fiscal year-end. We also continued our practice of paying cash dividends.

Before concluding, I'd like to provide an update on the current tariff environment, which has impacted our business. Most recently, new tariffs under Section 301 of the Trade Act became effective on July 24 at a rate of either 10% or 12.5%, depending on the country of origin. These new tariffs replaced the previously issued Section 122 tariffs, which expired on July 24 and had imposed a 10% global rate. Our current exposure is concentrated on the 25% tariff that took effect last October under Section 232, which is on upholstered wood products produced and exported out of Mexico. Our remaining exposure is primarily from the newly issued Section 301 tariffs, which apply a 10% tariff on products we manufacture in Honduras, as well as our imports from Indonesia, India and other countries.

Based on our operating levels, we estimate our total tariff exposure to be approximately $15 million. In addition, as noted last quarter, the U.S. Supreme Court invalidated certain IEEPA tariffs introduced in 2025 and required monetary refunds to be issued. By following the Refund Claim Process, we were refunded $5 million during the just completed fourth quarter, which we presented as a reduction to cost of goods sold. This refund benefited our gross and operating margins by 340 basis points and represented nearly all of the previously paid IEEPA tariffs.

As I finish my prepared remarks, we remain confident in our long-term strategy as the interior design destination operating a vertically integrated enterprise supported by strong North American manufacturing and logistics. Our margins, net income and cash held up well despite lower sales. We remain disciplined in how we are managing expenses and are well positioned heading into the new fiscal year.

Thanks, Matt. As we continue to implement strategies to further strengthen and grow our business, we have been able to improve our operating efficiency and run a strong and lean enterprise. The main areas of our focus to grow our business and manage our operations include continuing to strengthen our talent in our vertically integrated enterprise in various areas, including our retail network, merchandising, marketing, manufacturing, logistics and technology. We continue to be the interior design destination. Today we have approximately 500 interior designers that are able to provide complementary interior design services and help clients create custom furniture for their homes, all free of charge.

Combining good service and technology is critical in this area.

Strengthening our products under the design umbrella of classics with a modern design. Combining technology with strong talent continues to be our strong focus. Expanding and enhancing our retail network, including strengthening of our interior design centers. Today, we have 171 design centers in North America and in the last few years many have been relocated, made smaller, and combining strong talent with technology.

Further implement initiatives to make our North American manufacturing more efficient. Today, most of our furniture is made in our North American facilities in Vermont, North Carolina, Mexico, and Honduras. Almost all of our furniture made in our plants in North America is custom on receipt of orders. Delivering our products with personal service to our clients at one delivered price across North America is unique and a great strength. And finally, we maintain a strong cash balance and provide good dividends.

Got you. And then maybe if I can ask about the tariff refunds as well. Matt, you had noted about $5 million in tariff refunds, IEEPA tariff refunds. It sounds like it's most of what you expect to receive and may have been aimed at those share repurchases. But I guess, one, do you expect any incremental refunds here?

And then how do you think the industry is using these refunds? Have you seen them get incrementally promotional as they have these dollars now?

Yes, that's a great question, Taylor. This is Matt. So that is the $5 million refund we got in this past quarter was substantially all of what we were expecting. There may be a little bit more, but this is substantially all that we anticipate to collect and it's all related to the IEEPA tariffs that we previously paid earlier in the fiscal 2026 year.

As for part 2 of your question, what do other companies do? It's a mixed bag. You've seen some of the bigger company headlines out there, Walmarts of the world looking to potentially roll back prices as they say. Others, FedEx and UPS are returning it because they can directly attribute it to surcharges. So it's too early to tell what everyone is doing, but that's what I've seen in the market so far.

The refunds did all come back relatively recently in June. So it's still pretty early from a timing perspective.

And also, I would like to add that in our case, we do make most of our products in our own facilities in North America. So we were less impacted. We are somewhat impacted with our operations in Mexico, but not as -- but less in the rest of the world because of the fact of our manufacturing right here in the United States as well.

I wanted to follow up on Taylor's question on the tariff refund. How are you planning on using it? Was that tied to a special dividend or not? And do you expect to reinvest it in the business? Or are there any specific uses for that $5 million you received?

Well, it is, of course, a relatively small amount relative to the total amount of cash that we have. So we've just put it in our cash. And I think that it really is -- it is going to remain as part of our cash, and we want to maintain a healthy cash balance. So the $4 million (sic) [ $5 million ] is important, but not tremendously that much of a major factor. But we want to continue to have strong cash, and then we continue also to see that we continue to do our regular and special dividends.

Yes. That's a good question, Cristina. Our focus remains to make sure that we have -- we strengthened the various areas of our enterprise. The good news is in the last 2 years, even last year, we spent a fair amount of time in making sure that our design centers project well. We have made them smaller.

We made a great amount of investment. So -- but good news is coming into this fiscal year, most of that has been done.

The second is our interior design network. Our interior design network is critical to our business, and we want to make sure they do well. So I think that going forward to this fiscal year, we are positioned well. Now obviously, we need to get increased traffic. We need to get more people coming in, but we are very well positioned in the projection of our design centers, our interior designers.

And then -- and also, thirdly, we have also been introducing very strong new products to make sure that we have strong offerings.

So combining strong offerings, our interior design network and then finally, technology is critical. Our interior designers are using more and more technology in working with our clients. So when you combine all of those things, it gives us an opportunity to continue the progress. And obviously, of course, we are looking at the economy and consumer confidence and all those factors. We are keeping those in mind, but we are well positioned going into this fiscal year.

And the last question, maybe for Matt. On CapEx, should we think about fiscal year '27, the spend being very similar to fiscal year '26? And are there any other, I guess, investments to keep in mind?

All right. Thanks very much. Glad to have you all on. These are somewhat of a challenging times, but the good news is we are positioned well. I ask about close to 40 of our team members every week to write a report on 5 subjects.

First is talent. We want to make sure we have strong talent. And the good news is we have strong talent across our vertically integrated network.

Last week, I was in Vermont and North Carolina where we are manufacturing and good to see of that -- those 2 operations. Then we want to make sure that we have strong marketing. And marketing, we are providing a lot of marketing. We are extensively but marketing, both internal marketing, external marketing, using technology in marketing is important. And then overall, the use of technology, whether it's in manufacturing or in retail is critical.

And we're going to continue to do that. Our interior designers are more productive. We have less interior designers than we have had in the last year or the last 5 or 10 years. It is because of the fact of having strong interior designers and technology. And finally, social responsibility is critical.

Tariffs also impacted our earnings, especially the unexpected tariffs on our Mexico manufacturing products. The increased tariffs during the quarter of about $4 million were mainly -- were the main reason of our reduced earnings.

Thank you, Mr. Kathwari. Our third quarter financial performance was highlighted by strong operating cash flow and a robust balance sheet despite operating in a challenging macroeconomic environment. Our consolidated net sales of $136 million benefited from a higher average ticket price, increased clearance sales and fewer returns. These increases were offset by lower contract sales, a decline in delivered unit volume and inclement weather.

We ended the quarter with wholesale backlog of $42 million, down 23% from a year ago. Lower U.S. State Department and international business, combined with improved customer lead times helped reduce our wholesale backlog. Our consolidated gross margin of 59.4% was impacted by incremental tariffs, delivering out orders with increased promotional activity and higher clearance sales, partially offset by a change in sales mix, lower inbound freight, reduced head count and a higher average ticket.

Our adjusted operating income was $6.8 million with an operating margin of 5%. Lower operating margin was driven by higher tariffs, incremental digital and technology spend, fewer U.S. government sales and delivering out orders with higher promotions. Disciplined spending, cost control initiatives and lower head count helped to drive SG&A expenses down 3% and offset additional investments we are making in our business. At quarter end, we had 3,105 total associates, a decrease of 6% from a year ago, with decreases noted in both wholesale and retail.

Adjusted diluted EPS was $0.24. Our effective tax rate was 24.2%, which varies from the 21% federal statutory rate, primarily due to state taxes. As noted earlier, our business has been impacted by the current tariff environment, which remains dynamic and uncertain. Since the beginning of 2025, the U.S. government has announced several different measures regarding tariffs.

More recently, in February, the U.S. Supreme Court invalidated certain IEEPA tariffs introduced last year. Shortly thereafter, a new 10% global import tariff under Section 122 was made effective and last until mid-July of this year.

Our current exposure is concentrated on the 25% tariff that took effect in October 2025 under Section 232, which is on upholstered wood products produced and exported out of our Mexican manufacturing facilities. Our remaining exposure is under the aforementioned Section 122 tariff, which applies a 10% tariff on furniture manufactured and exported out of our Honduras facility as well as on imported wood furniture from Indonesia, select fabrics from Asia and imported home accents.

In total, we estimate our current tariff exposure to be in the range of $15 million to $20 million annually. In the past month, the U.S. Customs and Border Protection Agency released guidance regarding IEEPA tariff refunds, including last week's April 20 launch of software that will process IEEPA refund claims at scale. We are currently working through recoverability of previously paid IEEPA tariffs and expect refunds to take up to 80 days to receive.

Now turning to our liquidity. We remain debt-free with substantial liquidity to support long-term growth. We maintain a robust balance sheet and ended the quarter with $181 million in total cash and investments. During the just completed third quarter, we generated $15 million in operating cash flow, up from $10 million a year ago due to improved working capital. Through the first 9 months of fiscal 2026, we have generated $22 million in free cash flow.

As I conclude my prepared remarks, we are pleased that our business model helped deliver another quarter of profitable growth. Our efforts to identify ways to leverage operating expenses are constant.

During the last 6 months, focus has been to introduce new relevant product programs, strengthening our retail network. We have continued to reposition our retail network in North America, design centers numbering 172 locations with smaller footprint with major introduction of technology to help our talented interior design associates. continued strengthening our North American manufacturing, which produces about 75% of our furniture, almost all made custom on receipt of orders.

Continued strengthening our North American national and retail logistics, which enables us to deliver our products with what we call white glove delivery at one delivered price to our clients in North America. And importantly, combining personal service of our interior designers and our manufacturing associates with technology has been a game changer. This has helped us provide great services while reducing costs.

Yes, it's a good -- it's an important question. First is that in this quarter, despite all these challenges we have had in the economy, our retail, retail -- I mean, our written retail held up. In fact, our retail division basically where written orders were about the same as last year, which tremendously important. As Matt also mentioned, the decline was mostly due to the international issues and the State Department issues. So our business has held up.

And now in April, it's actually -- it's been positive. There has been positive news so that we will continue the progress that we saw despite all these challenges last quarter. We maintained our retail. And I think in April, so far, it has been positive.

Great. And then maybe if I can ask maybe on the tariff side, and maybe I can wrap 2 questions in one here. You also gave some great color on the tariffs and where you're exposed. You called out, I think, $15 million to $20 million of exposure on an annual basis. Can you kind of just talk a little bit about how you plan to mitigate some of those tariff expenses?

And then related to that, maybe if you can touch on the gross margin as well because we also have rising diesel costs and increasing foam prices as well. So if you don't mind touching on.

I'll say a few words, and Matt can also join. Our tariffs are -- the impact of tariffs are on our products coming, of course, from imported products, which is mostly Asia. And then recently, last year, there were tariffs imposed in our North American operations, both in Mexico and in Honduras. And interestingly, Mexico has been close to what 25%?

25% and Honduras is 10% -- so they were -- and that really is interestingly, especially in Mexico. The advantage we have, of course, in Mexico to some degree to some degree has mitigated because we operate and own the manufacturing operations. And according to Mexican law, we can ship the products from Mexico to the United States at a relatively small margin. I think it was about 5% or so, 5%. So 5% if that was not the case, we had to buy all those products, nobody would be able to operate 5%.

Even with the 5% margin that we have, we still were impacted substantially with the impact of Mexico, to some degree, Honduras.

And then, of course, our products that come from Asia there, the margin -- I mean, the tariffs have gone very, very high. But now in the last 6 months, tariffs have been reduced from Indonesia, from India and other places, even in China. So I think that we do hope that there is some resolution to what is taking place with the United States and Mexico. It's nothing to do with business. There's a lot of politics that has resulted in those high tariffs.

Yes. That's a great answer. And I'd just like to add a little bit more on to that for you, Taylor. The -- your first part of your question was what steps have we taken? And I think in my prepared remarks, I said the tariff situation is dynamic and ongoing, meaning that the rules and the regulations continue to change.

The Section 122 of the 10% global tariff rate was a 150-day set tariff rate, which is set to expire in July. So the rules may again change in July. But we got to play with what the rules are as of today. So we took certain steps and we continue to take certain steps to mitigate the tariffs. Those include partner sharing or sharing of costs with vendors, sourcing diversification, identifying alternative sources for products if possible.

Third is absorb some of the costs. We know we can't pass along all of them or have our vendors absorb all of them. So we do absorb some ourselves.

And last is price increase. We mentioned on the previous call last quarter that we took about an average 5% price increase in October and November of 2025. So those have helped mitigate some of that incremental tariff exposure that I quantified of $15 million to $20 million.

Yes. But those tariffs really impacted our operating margins. I mean, when you take a look at our operating margins coming down, it's mostly because of those tariffs. Our retail business in the United States held up. All right.

Next, any other questions?

Cristina, a number of factors. First is that we have had a fairly long-term contract with the state department. And recently, just in the last few months, the contract has been up for renewal. So we had to bid, and I'm sure others have bid on it, too. So the bidding has taken place and the state department is right now reviewing all those bids, and we do expect to hear from the state department.

And depending on what happens, we do have an opportunity, which we have done to increase some of our prices based on these issues of tariffs.

But I think in the next few -- I think hopefully, in the next couple of months, we will know about the new contract. Right now, we do have the current contract where we are getting business, not at the level we did last year, but the business is coming in under the current contract.

Then the second question I had was on the impact of promotions you mentioned during the quarter. Is that mostly related to the increased promotional activity back in the second quarter and those deliveries being made now? Or did you offer incremental promotions to consumers during this current quarter versus a year ago?

So there are 2 factors. First is we decided to increase our marketing spend, both in our -- especially in our digital mediums. And so we increased that. And that's -- when you look at our advertising, a lot of it was done because of the fact we increased it. Now which is the right thing to do because our digital mediums are tremendously important.

So that is what you look at it as not because of the -- not only because of the existing promotions, but we expanded in a very strong manner in our digital mediums. And that has helped us and will continue to help us.

And we do have the flexibility as we go forward in determining how much we spend. But last quarter, we spend more relative to the sales. That's why our percentage of marketing was higher.

It's both. We -- in the last couple of years, we have -- 3 years, we have spent a great deal of effort, resources to reposition our existing network. At that existing network, the repositioning has involved, first, investing in the -- our existing design centers to make sure they project well and also reducing the size. We have been able to overall reduce the size of our design centers by at least 25% to 30% because of the technology that we are able today to utilize in helping our designers work with clients. So that's tremendously important.

The second is we do have a number of locations that we actually currently are working on about 5 new locations in the United States. And we also have opened up one or 2 locations in Canada. So we'll continue to open up new locations, but also relocate the current ones. And as I said, we have had a major, major impact of taking our current locations, repositioning them in both in size and also in the new products.

So one of the factors we've got to keep in mind is that our -- and that affected to some degree, our margins is the fact that bringing in lots of new products meant we had to sell what we have. That had somewhat of an impact on our margins because those products we had to sell, and we're still selling them.

Well, thank you very much. And as I said, on one hand, we are going through challenging times, but the good news is we have continued to position ourselves well. We have -- every week, I focus on 5 important things.

First is talent. We are blessed with very, very strong talent in our vertically integrated enterprise from our manufacturing to our logistics, to our merchandising, to marketing, logistics. The second thing is, as we look at after talent is technology. Technology has played a tremendously important role in everything we do today. Third is marketing.

Marketing is important at national level, at the retail level. And fourth is our whole focus on making sure that we provide great service. And fifth and tremendously important is social responsibility. Those 5 things are critical and I think has helped us maintain a strong presence in all our operations.

The second quarter results were strongly impacted by the government shutdown, resulting in lower consumer confidence, lower traffic to our design centers and lower orders at retail and especially from the U.S. government contract, also impacted by a very strong previous year comparison. The good news is that we have started the third quarter with stronger traffic and positive written sales in January, as we mentioned in our press release. During the last few years, we have made major changes to our vertically integrated structure, including our retail network, manufacturing, marketing, logistics and are positioned well. After Matt provides a brief overview of our second quarter financial results, I will provide more details of our business -- of our initiatives to grow our business, and then we'll open up for any questions or comments.

Thank you, Mr. Kathwari. Our financial performance in the just completed second quarter was highlighted by a robust balance sheet and strong margins despite a challenging environment. Our consolidated net sales of $149.9 million benefited from a higher starting retail backlog, a higher average ticket price, incremental clearance sales and fewer returns. These increases were offset by fewer contract sales and lower demand.

We ended the quarter with wholesale backlog of $49.8 million, a lower volume of contract orders combined with improved customer lead times helped reduce our backlog. Our consolidated gross margin was 60.9%, up 60 basis points from a year ago due to a change in sales mix, reduced headcount, a higher average ticket price and lower inbound freight, partially offset by increased promotional activity, incremental tariffs and elevated clearance sales. Our adjusted operating income was $13.5 million with an operating margin of 9%. For historical context, adjusted operating margin during the pre-pandemic 2019 second quarter was 5.4% or 360 basis points lower than it is today. Our current year operating margin was impacted by fixed cost deleveraging from lower sales, combined with delivering out orders with higher promotions, additional marketing, higher occupancy costs from new design centers, increased employee benefit costs as well as incremental tariffs.

These increases were partially offset by disciplined approach to controlling operating expenses, including reduced headcount. At quarter end, we had 3,149 total associates, a decrease of 5.1% from a year ago. Adjusted diluted EPS was $0.44. Our effective tax rate was 25.3%, which varies from the 21% federal statutory rate primarily due to state taxes.

Now turning to our liquidity. We ended the quarter with a robust balance sheet, including total cash and investments of $179.3 million with no debt. Our liquidity position remains strong, although we generated an operating cash flow deficit of $1.8 million during the quarter due to changes in working capital, including lower customer deposits and the timing of our biweekly payroll.

In November, we paid a regular quarterly cash dividend of $10 million or $0.39 per share. Also, as just announced in our earnings release, our Board declared a regular quarterly cash dividend of $0.39 per share, which we paid in February. We are pleased to continue to pay cash dividends while maintaining a strong cash position. Before closing, I'd like to spend a few moments on tariffs. We are exposed to tariffs assessed on raw materials and finished goods we import into the U.S.

Recently enacted Section 232 tariffs made effective in mid-October have resulted in manufactured upholstered wood products being subject to a 25% tariff. Our non-U.S. manufactured case goods are currently subject to a 10% tariff that is partially reduced based on the consumption of U.S.-sourced materials. With regards to imports, our exposure is primarily concentrated on imported case goods from Indonesia, select fabrics from Asia and imported accents consisting of lighting and area rugs. To help offset some of the tariff impact, we worked with our vendors on cost sharing, performed additional sourcing diversification and recently pushed through selective retail price increases, which averaged 5%.

These carefully measured price increases were applied strategically across select SKUs rather than broadly. We will continue to review pricing and we'll respond quickly and thoughtfully as conditions evolve. We believe our North American manufacturing, which represents approximately 75% of the furniture we sell, provides us with a strategic advantage. By controlling more aspects of the production process within North America, we believe we can mitigate some of our tariff exposure.

As I conclude my prepared remarks, we are pleased that our disciplined investments and strong expense management are helpful -- are helping to build a fundamentally stronger company. We delivered another strong quarter and entered the 2026 calendar year with a debt-free balance sheet, strong liquidity and a proven ability to provide clients with custom furniture and complementary design services.

About 75% of our furniture is made in our manufacturing workshops in North America, and all products are custom-made. All products made in North America, I'm talking of furniture, are custom-made on receipt of models. This is possible because of our North American manufacturing and provides a strong competitive advantage.

Strengthening our marketing programs, in our second quarter, we continue to utilize various mediums, including direct mail and digital advertising. We increased our advertising by 25%, mostly in digital mediums. While we did not get the full benefit in our second quarter of this increased marketing spend due to economic slowdown, we feel it will benefit us in the future.

Our retail network, today, we operate 172 design centers in North America and reflects our current projection under the umbrella of, we say, classics with a modern projection. The design centers reflect the reduction of the size due to strong interior design talent and digital technology.

Continued strengthening our manufacturing. As I mentioned, about 75% of our furniture is made in our North American facilities. Combination of strong talent and technology is key to our productivity. Again, I repeat that all our manufacturing in North America is based on custom-made furniture. 20 years back, 80% was in stock that we sold furniture, especially what we call case goods.

Strengthening our national and retail logistics continues to be a very important initiative. We deliver our products to our clients all across North America at one delivered price with what we call white glove service, very unique. If a customer is in Seattle or in Florida or in Texas, it's exactly the same delivered price, and it took us a long time to do this, and it reflects the investments we have made to have a very strong logistics network. And again, very, very important, the focus on continued strengthening of talent combined with technology, combined with technology is key to future.

Understood. And then maybe one last question for me before I turn it over to others. The company continues to put up very strong gross margins here despite the difficult environment and tariffs and all that. So how should we think about the sustainability of these margins as we look to 3Q and 4Q ahead?

I appreciate all the color on the tariffs, Matt, that you gave. I wanted to see if you could give more detail as far as, I guess, what the total impact is. And you mentioned that you were mitigating some of it. So I want to see if you can give some color on what the unmitigated amount is? And how should we think about that impact as we move forward?

Do you think with the price increase and some of the changes you've made, you can mitigate the costs? Or we're going to see some impact flowing through the cost base?

Sure. Yes, I'm happy to answer that one. So there's a couple of strategies we took. It's really a three-pronged approach to trying to mitigate some of the tariff impact. One is vendor cost sharing or partner cost sharing, reaching out to partners to help negotiate and sharing some of the costs that we did over the last several months and was very successful.

Another strategy that we've employed is supplier sourcing diversification, trying to source from other countries, which we've done to some extent. And then the third prong is really the retail price increases, which I mentioned we pushed through a select -- about a blended average of 5% in October this past quarter increase. Those did help mitigate some of the tariff impact. It did not do all of it. Now price increases were late in the beginning of October, but late from a delivered perspective.

A lot of those orders did not get delivered out fully in the quarter. So we'll see a little bit more of a benefit from price increases moving forward.

With that said, there will still be some more headwinds. You mentioned the Section 232 tariffs that came into play mid-October. So we hadn't really experienced a full quarter worth of those. That's probably the largest. That's about 40% of our overall tariff exposure is there.

And then the IEEPA tariffs, which are currently under review by the Supreme Court is about 40% and the remainder is Section 301 tariffs. I would say, all in, we're still seeing a headwind. We don't disclose the actual percentage of the headwind overall, but I think the steps we've taken will help mitigate a significant amount of that, plus our current structure of being 75% in North America does help mitigate it naturally that way.

Yes, Cristina. And also, of course, we are not counting on it, but the U.S. Supreme Court has still not decided on the validity of the IEEPA tariffs. And it's possible that it goes away and which will -- and that will impact 40% of our exposure if they take it down completely with an annual savings of approximately $8 million. But again, as I said, we are hoping that happens, but our plans are to keep them on the side while making all changes so that we are able to maintain strong margins.

I think the most important one is that the consumers came back. I think in the last quarter, with all the uncertainty, government shutdowns, all people were scared. People are not coming in. What we have seen in January, people are coming back. Now the good news is because of our structure, because of our interior design network, and we have most likely the strongest interior design network, they have maintained good contacts with their clients.

And what we've seen is our traffic has increased.

People are coming back. Again, there's still some concerns, but the concerns we had in the last quarter about all the uncertainty in the marketplace that created issues. We see in January, the government shutdown was not there, somewhat of a better consumer attitude. So people -- also the people or designers worked with clients. And as in last quarter, the ones who did not close, they are closing the business now.

Yes. That's a very important issue. Now if we knew that the government shutdown and all of those were going to take place, we would not have increased our marketing by 25%. That's what we did. But the reason it is mostly on digital marketing.

This is the digital marketing is where clients today, it used to be that our designers had to spend a tremendous amount of time working with the clients physically. Today, consumers and our clients and our designers are able to work virtually with our -- with the amount of technology that we have. So all this was to help bring more people through our virtual advertising and also help them close business. And that we'll continue to do.

But having said this, we are going to reduce some of our advertising expense in some other mediums. Look at 10 years back, we spent a lot of money on national advertising, zero. Then we -- in the last year or so, we spent a fair amount of money on sending magazines, digital magazines and print magazine. So one of the things we looked at was the impact of our digital magazine, where we're spending close to, I think, close to $18 million a month. We decided that we'll take it down to $9 million or $10 million and still make an impact and especially spending this more money on the digital marketing will help us.

Well, thank you for joining. I would say that we are stronger today. We have spent a fair amount of time. First, we've got -- as you know, every week, I get about 40 reports. They don't all report to me, but they have to write on five things.

First is talent. What have they done to improve talent. The good news is we've got strong talent. We have less people, but strong talent. And as I said, our headcount today is about 30% less than what was only five or six years back.

Now that is due to high talent, and it's also due to technology. So we're going to continue to have technology tremendously important.

Second, third thing is marketing. And marketing, again, is tremendously important, but the means of marketing are constantly changing. And this also reflected what we did last quarter in terms of spending more money on digital mediums. We'll continue to do that. And service is critical.

Thank you, Mr. Kathwari. Our financial performance during fiscal 2025 was highlighted by strong margins, positive operating cash flow and a robust balance sheet. Despite operating in a challenging environment, our operations produced positive financial results, which I will now discuss. Our fiscal 2025 consolidated net sales were $614.6 million, which included fourth quarter sales of $160.4 million.

Our sales reflect higher average ticket prices and fewer returns, offset by lower delivered unit volume, reduced backlog, less traffic and fewer contract sales. As noted in our earnings release, the home furnishings industry has been challenged. However, overall demand patterns began to show signs of improvement during the just-completed fourth quarter as Retail written orders rose by 1.6%, driven by the strength of new product introductions, promotional levels, elevated clearance and the pause of additional tariffs. Wholesale orders decreased by 6.8% during the quarter as the segment was impacted by our contract business. We ended the fiscal year with Wholesale backlog of $48.9 million, reflecting historical norms.

A lower volume of contract orders, combined with improved customer lead times helped to reduce our backlog. For the full year, our consolidated gross margin was 60.5%, comparable to 60.8% last year. In the just-completed fourth quarter, our consolidated gross margin was 59.9%, which was impacted by fewer delivered orders, higher clearance sales, increased promotional activity and lower manufacturing production, partially offset by a change in sales mix, lower raw material input costs, reduced head count and a higher average ticket price. Our head count totaled 3,211 at fiscal year-end, a decrease of 5.7% from a year ago as we continue to identify operational efficiencies and streamline workflows. For the full year, our adjusted operating margin was 10.2%, while our fourth quarter operating margin was 9.7%.

Now turning to our liquidity. We ended the year with a robust balance sheet, including cash and investments of $196.2 million and no outstanding debt. We generated $24.8 million in operating cash flow during the quarter, which brought our full year total to $61.7 million. We also reduced our inventory levels as clearance sales helped to offset new product introductions. Capital expenditures were $11.3 million, including $1.9 million during the just-completed fourth quarter as we invested capital into manufacturing, retail and technology.

In summary, our vertically integrated business delivered positive fiscal 2025 results. We are confident in the strength of our business model as Ethan Allen has successfully navigated challenging times to serve our clients and deliver value to our shareholders throughout its 93-year history. Looking ahead, we remain focused on executing our strategic initiatives in the face of ongoing macro uncertainty. Our robust balance sheet and financial stability provide a solid foundation and positions us well as we head into fiscal 2026. With that, I will now turn the call back over to Mr.

Thank you, Matt. As we have conveyed, the focus of our enterprise continues to strengthen the five key areas of talent, marketing, service, technology and social responsibility. Great talent, we are gratified to have a strong talent in our vertically integrated enterprise. We continue to make about 75% of our furniture in our North American workshops located in Vermont, North Carolina, Central Mexico and Honduras. Keep in mind, about 20 years back, we had 18 manufacturing locations.

Also, our unique logistics operations delivers what we call white glove delivery at one cost to our clients in North America. This is unique. In national logistics, we have replaced 10 national locations to 2 locations and in Retail, replaced about 100 warehouses to about 20. In our Retail network, about 75% of our -- about 160 Retail leaders have been either relocated -- I mean, Retail locations have either been relocated or made smaller due to the impact of technology, customization and especially a strong interior design professional network. Technology continues to play a central role in all our operations from manufacturing, logistics and especially marketing.

For example, about 15 years back, we spent major dollars in national television and today has been replaced mostly by digital and print magazines, including forwarding about 10 million 36-page digital magazines every 2 weeks. We have also continued to strengthen our product programs and introducing new products on a planned basis. And financially, we have maintained strong results, as Matt mentioned, we have maintained margins -- gross margins of 59.5% -- 59.9% for the quarter and 60.5% for the year. Our operating margins of 9.7% for the quarter and 10.2%. This is despite lots of turmoil in the industry and in fact, in the economy.

Yes. As I had mentioned, these are challenging times, all -- so much uncertainties with what's happening with the economy, the international conflicts, tariffs and everything else. But I think that having said all of those things and Matt had also mentioned, we were very pleased that our written orders for the quarter were up 1.6% despite all these challenges. So I think our people did a good job increasing our written orders in our Retail division in a very tough environment.

That's great. And I was wondering if you could help us think about how tariffs have been affecting your business. I know that you are so important as a U.S. manufacturer, but if you could talk about how, if at all, that's affecting your business directly and how you think it maybe is affecting the competitive landscape in terms of price increases that you maybe have seen from the competition?

Yes. This has been really, really an interesting environment to operate. Fortunately, Brad, we have close to 70% of our furniture or more is made in our North American operations in Vermont, in Carolinas, in Mexico, Honduras. Obviously, there are no tariffs in the United States. And also because of the North America trade treaty, we are not impacted with tariffs in Mexico.

There are smaller tariffs in Honduras. So then about 30% of the products in furniture is coming from overseas, in places like Indonesia, mostly in terms of furniture, some from Vietnam. And I think between the two countries, that's most likely some impact there. Our accessory products do come from all over the world. And there, of course, we have been impacted.

But overall, because of the nature of our operations, our impact of this whole issue of tariffs has been very limited on us.

No, I think that these are very, very important issue. It is a question about, as I mentioned in that technology, and of course, our vertical integration has been very, very important in managing our costs. Think of the first thing is we have -- as I said, from 2019, we have reduced about 35% of our head count. We reduced our head count in the last fiscal year around 5% or 6%. And this is all due to the fact of retaining very strong talent and technology making it happen.

So from that point of view, we have today -- think of this, it's almost impossible to think that we have close to 30% to 35% less head count today than we had in 2019. And a lot of this is due to the technology. Now this also has an implication in our marketing. Think of this, Brad, we used to spend close to $30 million in distributing our magazines, print magazines. Today, all of it is done digitally, and we do most of our advertising again through digital medium, no print mediums.

I had a follow-up question on the trends and also related to gross margin. On the prepared remarks, you talked about some clearance activity and promotions in the quarter. Can you expand on how you're using promotions to drive sales? Were they incremental year-over-year? And what's your approach for the remainder of the year?

Yes. As I said, fortunately, we did not have much of excess inventory to sell. That is because of that, we've been able to maintain. Think of this, our gross margins for the quarter were at 60%, and they were 60.8% in the previous year. So we've been able to maintain strong gross margins.

So our clearance and everything has been relatively small because of the fact close to 80% of our products are custom. Keep in mind, only 15 years back, 80% of our products were sold from stock. The customization is tremendously important. That also has the implication of our national distribution. When I mentioned we had many, many -- I don't know, 8 or 10 major national distribution centers as against one major one now, it is because going from about 70%, 80% inventories to 80% custom has also resulted in the reduction of not only inventory, but all the space that we required to stock it and to ship it.

And then my second question is regarding price increases. You took some earlier in the year. Are you seeing any impact on unit sales? And with the tariffs increasing for some countries like Vietnam, do you plan to have to make more price increases over the next 6 to 12 months?

Yes, we are watching it carefully. We have been able to maintain our pricing, very small increase, not much. Only -- again, because of the fact of close to 80% is made right here in North America. If that was not the case, where some of our products are made in a country like Indonesia. Now we are watching the issue of tariffs, as you know, they announced yesterday, the tariffs.

And so we'll watch that to see the impact of it. Our partners have also helped. When these kind of things happen, they also contribute towards a reduction of the cost. So the impact of the tariffs is less. But overall, no, I think considering the fact that even though our volume was down, we were able to maintain strong margins, again, because of the efficiency of our operations.

Yes, it was a combination of factors. One was the fact that as the quarter progressed, we saw more consumer positive attitudes. I think that helped. I think we have a very, very strong network of associates. They also maintain a very strong relationship with our clients.

That also helped. And I think that we've gone through, as you know, it has been somewhat of a challenging environment for our industry and for most companies. The reason we have been able to do well is because of our structure, our vertical integration. And the fact, which has been tremendously important is combining great personal service and technology. In fact, we slightly increased our marketing expenditures.

Matt, we went from what -- to 3.2% of -- what is it?

We went from 2.8%, and we're -- still is relatively small, and a lot of it is we did it to increase our communications and especially our digital mediums, especially digital mediums. So it's not a big, huge amount. Look, we used to spend 5%, 6%, 7% of our sales on advertising. Now we went to 3.4%. And what it did was, interestingly, it helped us bring in traffic and sales.

Thank you very much. Again, I want to thank all of our team members for doing really an amazing job in tough conditions. It also -- fortunately, our positioning is such that it gives us our vertical integration, maintaining 80% manufacturing and having our design centers. Keep in mind also, we relocated many of our design centers. We repositioned our design centers, reduced our size by 30% or so or more in the last 2, 3 years.

So our design centers have been renovated. They have been relocated wherever we need it to be. And we have also opened up a few. We have opened up -- where did we open up? We opened up four or five new locations in this last year, and we have a few more coming up.

Thank you, Matt. Pleased to have this earnings call during very interesting and challenging times. As mentioned in our press release, we are pleased with our results in the third quarter, which produced strong margins and cash flow in a challenging economic environment.

First, I'd like to begin by providing perspective on our current position, including a very brief overview of our history. Ethan Allen was founded 93 years ago in the green mountains of Vermont. The company went private in 1989 with significant debt and in 1993 went public on the New York Stock Exchange. Since that time, we have paid cash dividends that is since going public in 1989, we have paid cash dividends totaling $711.3 million and repurchased $625.1 million of our common stock. We have improved our cash position up to currently $183 million compared with $26 million in March 2019 that's a COVID era.

Our focus on reinvention, including utilization of technology, has helped reduce our head count by 36% since 2019. Our unique vertical enterprise with constant reinvention has been key. We continue to make about 75% of our furniture in our North American manufacturing and operate 189 design centers globally, staffed with over 500 professional interior designers. Technology has played a key role in developing efficient operations in manufacturing, retail, logistics, marketing, merchandising and other key areas.

Thank you, Mr. Kathwari. Our financial results in the just completed third quarter were highlighted by strong gross margin, managing expenses, generating positive operating cash flow and maintaining a robust balance sheet with no outstanding debt. Despite operating in a challenging environment, our operations produced positive financial results, which I will now discuss.

Our consolidated net sales were $142.7 million, reflecting lower delivered unit volume, partially offset by higher average ticket price, improved contract sales and lower returns. Our wholesale segment sales were elevated due to a higher level of intercompany sales to retail, which also increased wholesale operating income. These sales are eliminated in consolidation as they reflect the transfer of new products to our retail segment.

Current demand levels reflect an industry faced with tariffs, uncertainty in the economy, elevated interest rates and a challenging housing market. Retail segment written orders were down 13.2%, while wholesale orders decreased by 11.2%. The months of January and February were more challenging due to weather, tariff uncertainty and reduced traffic. March saw modest demand growth, which helped improve our backlog. Wholesale backlog of $54.6 million at March 31 represents a decline in the last 3 months as we improved customer lead times, including a reduction in the number of weeks of undelivered backlog.

Our strong consolidated gross margin of 61.2% was driven by lower raw material input costs, reduced head count, a higher average ticket price and leveraging investments in technology. Our head count totaled 3,294 at March 31, 2025, a decrease of 4.5% from a year ago as we continue to identify operational efficiencies and streamline workflows. Adjusted operating margin was 8% compared with 10% a year ago. Our positive operating margin reflects our ability to tightly manage expenses. Compared to pre-pandemic quarter ended March 2019, our adjusted operating margin has improved 180 basis points.

Now turning to liquidity. Our prudent capital management underscores our dedication and commitment to delivering value to our shareholders. We generated $10.2 million of cash from operating activities during the just completed third quarter and ended with total cash and investments of $183 million and no outstanding debt. Higher levels of inventory reflect the introduction of new products and the opening of new design centers.

Capital expenditures of $2.0 million -- were $2.0 million and included the build-out of new retail design centers and investment in manufacturing equipment and technology. New state-of-the-art design centers in Middleton, Wisconsin and Toronto, Canada were opened in the last 3 months that combined our interior design services with technology.

I will start with a brief overview of the current hot topic of tariffs. The good news is we are a vertically integrated enterprise that makes about 75% of our furniture in our North American workshops, including approximately 40% in the United States, 25% in Mexico and 10% in Honduras. Our imports from Mexico currently qualify for tax exemption under the USMCA. Our primary tariff exposures are concentrated on imported accents and select upholstery fabrics from East Asia. Our overall exposure to China is less than 5% of total cost of goods.

While we acknowledge that tariffs exist, the good news is that they have a relatively smaller impact on us. However, we have taken steps to help reduce the impact from tariffs, including cost sharing with our suppliers, placing temporary production and shipping holds on products leaving China, identifying new sourcing opportunities and evaluating raw material options and replacements. To date, many of our supplier partners have been willing to work with us to help absorb some of the incremental tariff costs, and we thank them for their partnership. These steps as well as our strong North American presence have helped keep our exposure from tariffs relatively low. To emphasize, our exposure overseas is limited as much of our production -- as much of our production is in North America.

Leveraging technology, we are able to develop strong marketing programs and reach a large base of current and new clients in a very efficient manner.

Manufacturing. Combining the skills of our teams in various plants within North America has been key to attaining and retaining strong talent. 25 years back, we operated in 20 locations in the United States and currently operate in 4 locations in North America with strong manufacturing. Combining talent and technology is key. National and retail logistics provide opportunity of excellence in service, delivering our products at one cost to consumers and managing our costs.

And finally, our retail network of interior design centers staffed with talented interior designers is key. Providing state-of-the-art technology has been key to service and managing costs. While we face many challenges due to domestic and international changes, we are well positioned to maintain our leadership position.

I wanted to first ask about tariffs and sort of how it affects Ethan Allen's relative positioning in the industry. Obviously, a lot has changed since you all last reported earnings in January. And what's interesting is it does feel like the rest of the furniture industry has much more exposure to countries likely to see incremental tariffs. And so I'm wondering how you think, Farooq, about Ethan Allen's relative positioning. Are you seeing price increases from competitors?

What do you expect in terms of price increases from competitors? And how might you react to that?

Yes, it's a very important issue. We are, as I mentioned, less impacted due to these tariffs because of the fact that most of our manufacturing, especially in furniture, is made in North America. In the United States, Mexico, Honduras, where -- of course, no tariffs in the United States, but in Mexico and Honduras, very little. So our impacts of tariffs for about 75% of our furniture and -- is relatively small.

Now we do have some impact due to some products like accessories, and in fact, in some fabrics also that we get from overseas. But exposure, as I mentioned, from China is relatively small because that's where a lot of the tariffs are. So our products coming from overseas are mostly concentrated in Indonesia, India, Vietnam, where the tariffs are somewhat limited. So I think that overall, our exposure is limited. And also, the good news is that our partners overseas are also working very closely with us to minimize the impact.

Yes. So far, we haven't. And I think that we will take a look at it in the regular course of doing business to see if there are needs to increase prices and perhaps small adjustments in some of the imported products, which, as I said, is relatively small compared to our total product line.

That's right. Yes, because a lot of them, of course, have tremendous amount of dependency on products -- offshore products, imported products, and we don't, yes.

Yes, it's a good question. When you take a look at it, our advertising expenses for the quarter was about 3.4% of sales as compared to 4.4% in the previous year quarter. Now the important thing is this, that we are able to be much more efficient with less money than we were able to do because of the impact of technology. For instance, we are now sending out close to 18 million copies of our magazine, digital magazines and some print magazines every month.

To think of that even 5 years back was impossible. We are able to develop a 36-page digital magazine in less than 2 weeks now. It used to take us 4 months to do. So the quality, the quantity and the value and the price of the cost has come down. So our advertising, marketing has reached more people with less cost.

So I think we're going to continue to do that. And at this stage, I don't think we're going to increase the dollar cost, but I think we'll continue to increase the efficiency of our marketing.

Thank you, Matt, and thanks for participating in our second quarter results ended December 31, 2024. I would like to start with the devastating effects of wildfires in Southern California, which have resulted in loss of life and devastated many communities. Our team members and our clients have been impacted and we pray for their safety. Fortunately, our design center in Pasadena closer to the fires, escaped the fire and is back in operations, along with all of our 6 design centers and a major retail service center in the area. As we mentioned in our press release, despite a challenging critical and economic environment, we had strong financial results in our second quarter, especially in our book orders.

We had strong operating cash flow and ended with $184.2 million, an increase of $16.4 million from a year ago. We paid $10 million in cash dividends and pleased that yesterday, our Board approved a regular cash dividend of $0.39 per share payable on February 26, 2025.

Thank you, Mr. Kathwari. Our financial results in the just completed second quarter were highlighted by strong demand, margins and operating cash flow.

Our consolidated net sales were $157.3 million compared with $167.3 million a year ago as the higher average retail ticket price and lower sales helped to offset lower backlog, fewer contract sales and a lower delivered unit volume.

Demand levels improved sequentially throughout the quarter and concluded with a strong December aided by our special promotion. Retail segment orders grew by 15.8%, while wholesale segment orders were up 14.3%. Written order improvement was driven by increased promotional activity, strong financing programs and elevated interest in home post the U.S. elections held in early November. .

We ended the quarter with 172 Ethan Allen retail design centers in North America, including 141 company-operated and 31 independently owned and operated locations. Wholesale backlog at December 31 totaled $57.7 million, up 5% from a year ago. As expected, our wholesale backlog declined in the past 3 months as our state department delivered sales outpaced the incoming orders.

Our distribution center in North Carolina have previously sustained flooding from Hurricane Helene in September resumed operations, and we're thankful to those who helped us recover.

Strong consolidated gross margin of 60.3% was driven by a favorable change in the sales mix, lower headcount, selective price increases, lower raw material input costs and a higher retail average ticket price.

Our consolidated head count totaled 3,318 associates at December 31, 2024, a decrease of 6.9% from a year ago as we continue to identify operational efficiencies and leverage the use of technology to streamline workflows throughout our vertically integrated enterprise.

Now turning to our liquidity. We ended the quarter with a robust balance sheet, including cash and investments of $184.2 million and no outstanding debt. We generated $11.6 million of cash from operating activities and kept inventory levels consistent with a year ago.

Capital expenditures were $3.8 million and included additional investments in technology, retail design center relocations and improvements and remodeling costs associated with our hotel. New and relocated state-of-the-art design centers in Watchung, New Jersey and Peoria, Arizona, were opened during fiscal 2025 that showcase our unique style while combining complementary interior design services with technology. We also continued our practice of returning capital to shareholders in the form of cash dividends and have a current yield of 5.5%. In October, our Board declared a regular quarterly cash dividend of $0.39 per share, which was paid on November 27. Also, as just announced in our earnings release, our Board declared a regular quarterly cash dividend of $0.39 per share, which will be paid this February.

In summary, we are pleased with our performance that saw incremental consumer interest return back to the home. Disciplined investments and solid execution throughout our vertically integrated business produced strong written demand, positive operating cash flow and a double-digit operating margin. Our robust balance sheet has us well positioned as we continue to move through the calendar year.

Well, thank you, Matt. We are positioned well as a vertically integrated enterprise, which includes a very strong and dedicated team, the ability to provide interior design services with state-of-the-art technology, offering relevant, high-quality products that offer both a modern design with a classic perspective and a classic design with a modern perspective. And this is very important, these 2 attitudes. 75% of our furniture is made in our North American facilities. Our national and retail logistics is unique and a great competitive advantage, enabling us to deliver our products with what we say white glove delivery at one cost in North America to our clients.

We continue to relocate to stronger locations and add new design centers. After the pause due to COVID, we have been introducing new products to strengthen our offerings. Our marketing initiatives continue to get our message across. This includes direct mail magazines, digital magazines, our website, local and regional advertising.

During the last few years, while strengthening our offerings, our retail network, our manufacturing, our logistics, marketing and technologies we have been able to also reduce our headcount. Technology has played a very important role in that. At December 31, 2024, was 3,318 down 7% from a year ago and 27% less than December 2019.

During this period, we also repositioned our manufacturing, our national logistics and our retail network. In summary, we continue to strengthen the various areas of our vertically integrated enterprise and are well positioned to meet the opportunities and challenges ahead.

Well, I can also mention that there are factors that led to this as well. So certainly, obviously, it reflected our enterprise, our strong product programs, our network, but it also reflected the fact that we did give a special savings during this quarter, which helped.

Now -- but it would not have happened without all the other factors. So I think that all of those factors helped make this quarter, especially on the written business, very, very strong.

Now your next question about -- as we move forward, we are positioned very, very well. January did start weak, mostly because of weather. We had very tough weather in many parts of the country for the first 3 weeks. But when -- as the weather improved in the last week or so, we can see more robust activity. We feel good about it.

To answer your question, we have strong programs. Our retail network has been repositioned. Our -- we have strong manufacturing logistics. And as I said, we have been able to do all of this while making it extremely efficient.

So I think the opportunity of having strong product programs, the opportunity of the efficiency that we have brought in and really a strong designer network and combined with technology. As I mentioned, this major decrease in the headcount is mostly due to the effect of combining good talent with technology. And I think as we do that, we feel confident that we'll keep -- we'll continue with the progress.

Yes. I would say that in the last year or so, we have also been introducing new product. We will continue to do that because, again, before -- prior to that, we were cautious because we had very high backlogs and we didn't want to introduce new products because of service. Our service position is very good right now so that we are now being more aggressive introducing new products.

The other one is that we are also increasing our marketing. In fact, in this last quarter, we increased our marketing spend. And we will -- in terms of -- and a lot of that we are doing is in terms of marketing, in terms of getting more new customers in and the new forms of marketing, utilizing technology to bring people in. So we increase our marketing by about $0.5 million?

Well, it's a combination of a number of factors. It is the fact that we felt that because we were in a much better service position that we will be able to deliver the products. That is a very important factor. Because I didn't want to spend a lot of money and we had delays of service because of the backlogs. So that was an important factor.

We felt we are ready, and that's why that was a major factor in investing in marketing.

Yes. Keep in mind that if you take a look at historically, it was not that many years back, we used to spend close to 5% of sales on our marketing. Now with all the technology and other elements, we took it to half of that.

So keep in mind, we have reduced our total margin by almost 50% as a percentage of sales than what we used to do. We increased this time by about 0.5%. And so we'll continue with that kind of a rate.

And then another topic I wanted to talk about was your exposure to Mexico, and you've always talked about 75% of manufacturing in North America. Obviously, we are all aware of potential tariffs, how much of that 75% is manufactured in Mexico? And if there were to be tariffs on imports from that country, would you look to move it to the U.S. or Honduras or I guess, how are you planning for the different outcomes?

YEs. That is an important issue. And in fact, we were having a discussion with our team on that today, that Mexico is our upholstery products that are made in Mexico. We have 2 major operations, one in Mexico and one in North Carolina. And the Mexico operation makes and cut fabrics for our operation in North Carolina.

And then it also makes products -- full products in Mexico.

So it is approximately at this stage, I would say that, close to of our total manufacturing in Mexico represents approximately 25% of our total manufacturing. So we have some flexibility as we go forward. There's a possibility we could consider raising prices. There's a possibility that more of that product could be made in North Carolina because we are manufacturing in both places.

Thank you, Matt. As stated in our press release, we are pleased with our first quarter fiscal 2025 financial results. We had sales of $154.3 million, continued strong gross margin of 60.8%, operating income of $17.6 million with a margin of 11.4%. We also continued strong cash generation and ended the quarter with $186.4 million in cash and investments. We paid $20.2 million in cash dividends during the quarter and the Board approved a regular cash dividend of $0.39 per share payable November 27, 2024.

After Matt provides a brief overview of our financial results, I will review our continued focus to strengthen the 5 key areas of talent, marketing, service, technology, and social responsibility. Matt?

Thank you, Mr. Kathwari. Our financial results in the just-completed first quarter were highlighted by strong margins and operating cash flow amid a challenging economic environment. Our consolidated net sales were $154.3 million, down 5.8% compared with last year, primarily due to lower contract sales and a decline in delivered unit volume. From a demand perspective, our retail segment orders were down 6.8%, while wholesale segment orders decreased 4.8%.

Lower incoming orders reflect a soft home furnishings market, a housing market that has not yet rebounded and less contract business. On a positive note, we saw an increase in average ticket price, higher designer home calls, more qualified traffic, and a strong month of September for incoming contract orders. We ended the quarter with wholesale backlog of $63.9 million, down 15.2% from a year ago, but up $10.4 million since June 30 due to the timing of incoming contract orders. Strong consolidated gross margin of 60.8% was driven by a change in the sales mix, reduced headcount, selective price increases, and lower raw material input costs. Adjusted operating margin was 11.5% compared with 12.1% a year ago.

Our double-digit operating margin reflects our ability to maintain a disciplined approach to controlling operating expenses. Compared to our pre-pandemic first quarter ended September 2019, our adjusted operating margin has improved 450 basis points due to streamlining our vertically integrated enterprise. Now I'd like to provide an update on our distribution center located in Old Fort, North Carolina, which was impacted by Hurricane Helene in late September. The distribution center suffered a loss of $0.3 million related to damaged inventory and remediation costs as well as a temporary work stoppage and disruption in shipments. We are thankful to report that our associates have returned to work and the distribution center has resumed normal operations.

The combined impact of Hurricane Helene and import disruptions in advance of the temporary East Coast port strike lowered our first quarter net sales by approximately $2 million, which we expect to catch up on during our second quarter. Adjusted diluted EPS was $0.58. For historical context, adjusted diluted EPS for the 3 months ended September 2019 was $0.35. Our effective tax rate was 25.3% for the quarter, which varies from the 21% federal statutory rate primarily due to state taxes. Now turning to liquidity.

We ended the quarter with a robust balance sheet, including cash and investments of $186.4 million and no outstanding debt. We generated $15.1 million of cash from operating activities and reduced inventory levels by 4.3%. Capital expenditures were $3.6 million and included expansion of our manufacturing operations in Mexico, additional investments in technology, retail design center relocations and improvements, and remodeling costs associated with our hotel. We also continued our practice of returning capital to shareholders in the form of cash dividends. In July, our Board declared a special cash dividend of $0.40 per share in addition to our regular quarterly cash dividend of $0.39 per share, both of which were paid on August 29.

We have paid a special cash dividend in each of the past 4 years. Also, as just announced in our earnings release, our Board declared a regular quarterly cash dividend of $0.39 per share, which will be paid in November. In summary, our vertically integrated business produced a double-digit operating margin during a period marked by industry-wide headwinds. We achieved these positive results and generated $15.1 million in operating cash flow while protecting our margins through disciplined investments and solid execution. We ended the quarter with a robust balance sheet and look forward to continuing our progress.

Thank you, Matt. I will briefly discuss our continued focus on the 5 areas. The first is talent. We continue to develop strong teams in our vertically integrated enterprise, which includes our retail network, manufacturing, logistics, products, marketing, and technology. In marketing and merchandising, we have accelerated introduction of new products under the umbrella of classic design with a modern perspective.

During the last 18 months, we have completed the redesign of our design centers under the umbrella of an interior design destination with strong interior design and strong technology. This has enabled great productivity with less headcount. The redesigned design centers reflect about 25% less floor display space, making it much more efficient. Strong interior design associates, coupled with technology is, as I have said, a game-changer. Next, we have continued to refine our North American manufacturing, which makes about 75% of our furniture and custom-made on receipt of orders.

This is a great differentiator and has provided more design options to our interior designers and clients and also increased productivity and lowered inventory. We have also made improvements to our national and retail logistics, enabling us to deliver our products at one price to our clients in North America. Our marketing also benefits from technology with our advertising costs of about 2.3% of sales as compared to about 6% of sales about 7 to 8 years back. We are pleased to continue to maintain strong cash while providing good cash dividends. Quarter ended September 30, we gave cash dividend of $20.2 million and ending with cash of $186.4 million compared to $163.2 million at September 30, 2023.

Great. And then maybe just to talk about some -- the upcoming election, Farooq, you kind of mentioned, I think we all kind of want that behind us. But as we look at a potential outcome here and the potential that there may be tariffs, given 75% of your product is manufactured in North America, I would assume you'd be relatively insulated from any potential tariffs. And that could also be a tailwind for you if your competitors are impacted. So I guess as you think about that, what are some of the puts and takes as you think about any tariffs?

Yes. I mean there's a lot of talk. We just have to see what happens. At this stage, we are, of course, 75% of our products are made in North America, which is -- includes United States, which includes Mexico and Honduras. That's where we -- because we have the North American treaty.

So we are watching everything. It's a good question. We are watching with all the politics going on is they're, of course, talking mostly about tariffs coming internationally from overseas. So we don't hear much about changing the North American treaty, but we're watching it carefully. And we also somewhat -- even though we do pay higher freight for the 25% of the product that we don't make here.

But if we were making 75% or 90% of our products overseas, tremendous uncertainty. When you take a look at what's happening with the freight rates coming from overseas with the war going on with the impact of the Suez Canal, we fortunately are impacted but not -- only 25%. 75%, we have the benefit here. So we're watching it very carefully. But at this stage, as you mentioned, we do have an advantage.

Yes. Also, keep in mind that we are now over the backlogs that were created during the COVID period. That benefited us and everybody else. But now this quarter to a great degree, that the past quarter reflected more normal times. So even there's a little very small little decline in our sales, which is pretty good considering the fact that we had already used up the backlogs.

So we did pretty good. And I think going forward, I think that we are cautiously optimistic. I think we are positioned very, very well in terms of our marketing, our -- we have a very strong network. We have reduced our headcount everywhere because, as I mentioned in my comments, combining technology and good personal service is key to our vertically integrated enterprise. It's helping our manufacturing.

Yes, that's a good question because we were impacted. First, we had tremendous floods in Texas. So especially Houston and all that area was impacted. Now good news is they're getting more or less to normal. Then we got impacted with the storms in Florida, and that also impacted our retail to a great degree.

But good news is we watch it very carefully. They're all more or less back to operating at a normal level. We did have impact and that also to some degree, impacted our written business in the end of September. We are catching it to some degree somewhat. It also impacted October, but now we are starting to catch up.

Then we got impacted our business with this major, major storms in Asheville, we have a couple of very major operations, our distribution centers, which Matt just referred to, which was closed for some time, tremendous impact to our people, but good news is they are back. The next impact was the strike on the dock strikes. It fortunately didn't last too long, but for a few days, it did. It stopped a lot of business, both in terms of products coming in, then exports, especially our state department business was impacted. But good news is more or less, they're getting back to normal.

And then my second question was on the reduction in headcount that you've done over the last year, the 8%, 9% you called out on the press release, what areas have been most impacted? Where is that headcount coming out from?

It is coming in 2 major areas. One is our retail and the other is our manufacturing. And both of those have been impacted to a great degree with a combination of -- I mean, again, we have very little turnover, but it did have an impact of reducing our staffs, both at retail and at our manufacturing. And that really has been the tremendous benefit of utilizing technology. It also -- the other benefit has been with this uncertainties in the workplace and everything else, we have also been able to acquire strong talent.

That's very, very important. We've been able to acquire stronger talent in our retail, also in our manufacturing and -- but especially at retail. So this whole trend of what is taking place has given us an opportunity, even though while we have lowered our headcount, but we've also added people. Overall, we have less headcount, but I have -- but we have stronger people because we've been able to attract stronger people who are attracted to us because of our programs, because of stability, and some issues, challenges with competition. So those are 2 areas, Cristina.

Yes, Cristina, good question. On one hand, we have reduced the size of our design centers. 2, 3 years back, we went from an average of 15,000 to 18,000 square feet to under 10,000 feet. So with a major reduction in space, they're more productive, which means we have less floor space. But having said this, our products that we have introduced have been more in terms of options, some products that go into the floor of our design centers, but most of them are options that our designers can use with their work with the clients.

And keep in mind, our designers today, almost all of them, maybe 80%, 90% when they work with a client, they're using technology. Combining personal service of our interior designers and technology has been a great help. And that has also helped us in our inventory management in these new products. In the olden days, we had to have that new product in our design center. But today, with the technology, our designers can use that product even though it is not in the design centers.

And the last question I had was on the trends you're seeing on the cost side of the business. You mentioned supply chain. But what are the trends in raw materials, product costs? Are those stable? Are they going up, going down?

Yes. They are more or less stable, haven't gone up or down, a little bit on the lower side because there is a lower demand of raw materials, especially from our competitors. So with that in mind, keep in mind that our products are -- our case wood products are made in Vermont, they're made in Honduras, but we supply them with all the raw materials, all the wood is supplied from our sawmills from the United States to Honduras. Today, the client cannot tell the difference whether that item is made in Honduras or in Vermont. Same thing in our upholstery.

All right. Thank you. And I'm looking forward to more stability in terms of the political environment and the international environment and all kinds of problems. Good news is we are positioned well. We also made lots of progress in terms of -- in all areas.

As I said, first, talent. We have a really stronger talent. Secondly, we have increased our marketing. Marketing has given us an opportunity to reach much more people. Third, our technology in all areas is critical and whether it's a retail.

Well, thank you, Matt, and thanks for participating in our fourth quarter and fiscal year June 30, 2024, meeting. As stated in our press release, we are pleased to report strong performance in this post-pandemic period. Despite lower demand and reduction in high backlogs, we did well. We had strong gross margins of 60.9% and despite lower sales had an adjusted operating margin of 13.1%. We continue to generate strong cash and ended with cash and equivalents of $195.8 million, up from $172.7 million last year.

Our inventories have been reduced by 12.5% since June 30, 2019, and the headcount also reduced by 28% since June 2019. Now we know this after multiple years of high demand during the pandemic period, consumer is much more focused on quality, value and service. And provides an opportunity for enterprises like us that have relevant products, strong talent, providing service and also to have good healthy cash positions. After Matt provides an overview of our financial results, I will review our initiatives going forward. Matt?

Thank you, Mr. Kathwari. Our financial results for the full year and fourth quarter ended June 30, 2024, were highlighted by double-digit operating margins, disciplined expense management, strong operating cash flow and a robust balance sheet. As we operate in a post-pandemic period defined by challenges within the home furnishings industry, our operations produced positive financial results, which I will now discuss. Our fiscal 2024 consolidated net sales totaled $646.2 million, which included fourth quarter sales of $168.6 million, our highest level of quarterly delivered sales during the fiscal year.

The reduction in net sales when compared to the prior year are reflective of lower delivered unit volumes, lower backlog and a strong prior year comparable. Overall demand patterns began to show signs of improvement during the just completed fourth quarter. Retail segment orders for the quarter were down 1.3%, while wholesale written orders increased 0.4% as our wholesale segment benefited from improving orders within our contract business. We ended the fiscal year with wholesale backlog of $53.5 million nearing historical norms and pre-pandemic levels. We improved customer lead times and reduced the number of weeks of backlog.

For the fiscal 2024 year, our consolidated gross margin was 60.8%, a 10 basis point improvement over last year. In the just completed fourth quarter, consolidated gross margin was also 60.8%, our 13th consecutive quarter that gross margin has exceeded 58%. When compared to last year, our quarterly consolidated gross margin was impacted by fewer delivered sales and higher inbound freight, partially offset by a change in sales mix, lower raw material input costs, reduced headcount and a disciplined promotional levels. For the 2024 fiscal year, our adjusted operating margin was 12.1%, down from 16.9% last year. Improved fourth quarter adjusted operating margin of 13.1% reflects lower headcount and strong expense management.

Now turning to our liquidity. We ended our fiscal year with a robust balance sheet, including cash and investments of $195.8 million and no outstanding debt. We generated $26.2 million of cash from operating activities during the just completed quarter, bringing our full year amount up to $80.2 million. We also reduced our inventory levels by $7.2 million. Capital expenditures were $9.6 million for the full fiscal year, including $2.1 million during the fourth quarter as we continue to invest capital in manufacturing, retail, technology and infrastructure.

We also continued our practice of returning capital to shareholders in the form of cash dividends. This past April, our Board increased the regular quarterly cash dividend by 8.3% to $0.39 per share, which was subsequently paid in May and brought our total fiscal 2024 dividends paid to $50.3 million. Also, as just announced in our earnings release, our Board declared a special cash dividend of $0.40 per share in addition to our regular quarterly cash dividend, both of which will be paid in August. This recent action marks the fourth consecutive year we have paid a special cash dividend. In summary, our vertically integrated business delivered positive fiscal 2024 operating results during the period marked by industry-wide soft demand and challenging headwinds.

We achieved these results and generated strong cash flows while protecting our margin gains through disciplined investments and solid execution. We are building a fundamentally stronger company, protecting our profitability and enhancing our operational efficiencies. As we move into fiscal 2025, we will continue to carefully manage our expense structure while investing in growth initiatives that we believe will further our business. We remain cautiously optimistic as our balance sheet has us well positioned. With that, I will now turn the call back over to Mr.

Continued development of strong talent is critical to our vertically integrated structure. We are pleased with strong leadership talent in all areas of our enterprise, which includes manufacturing, retail, logistics, marketing, merchandising, technology and finance. In marketing, we continue to provide innovative marketing, both in content as well as the mediums we utilize, while overall marketing expenditures equaled to 2.8% of sales, much lower than the 4% of sales we had 5 years back. The ability to utilize technology in marketing is a game changer. For example, we now reached over 9 million households every 2 weeks with our 36-page digital magazine.

We also continue to quarterly mail our printed magazines and this past quarter also mailed our 2024 Style Book. The interaction on social media by our interior designers is extremely important. Utilizing technology at all levels is key to our vertical integration, which involves manufacturing, producing efficiently about 75% of our products in our North American facilities. Also many years back, we operated over 30 manufacturing plants in the United States. And today, the number is 10 in North America.

Now technology has helped us retain strong talent in all areas of our business and especially in manufacturing where we have reduced headcount by 28% since 2019. Our national and retail logistics is very important for our vertically integrated company. We are unique as we deliver our products, what we call a white glove service, to our clients in North America at one delivered price. Many years back, we operated 10 national distribution centers for our North American retail and now one major facility with a smaller backup provides this service. Our retail logistics had also been greatly made smaller, more efficient.

Today, we had 22 service centers that deliver great service to our clients throughout North America. Now combining technology with talented associates has been critical, resulting in very professional service in all areas of our business. It has also resulted in lower headcount. For example, 10 years back, we had a total headcount of 5,000 associates, and now it is 3,400, a reduction of 32%. Now providing superior service is key to our vertical integration.

We are an interior design based network. And last year, we further enhanced by a number of initiatives including the launch of what we call the interior design destination concept. This initiative provides great projection throughout our enterprise, uses the size of our interior designers and helps provide superior service by interior designers. Having consistent offerings shown in our design centers has helped productivity and service at all levels from retail to manufacturing to logistics. Now since our start over 92 years back, we continue to be a socially responsible enterprise.

All right. Well, you're talking about fourth quarter. Fourth quarter, we had, I think, somewhat consistent business throughout the quarter. And obviously, somewhat stronger towards the end. And I think it also, it's reflected to a great degree, our -- the work of our interior designers.

They make tremendous amount of contacts. And then the social media is tremendously important. So I would say that, Matt, is that correct with -- our business was somewhat consistent throughout the quarter?

Well, this question about constant reinvention that is -- it is something that you've got to get into the system, everybody's mind. So it starts with that mindset. And then technology has played an important role in all areas of our business. As we mentioned today, we have about -- our headcount is at 2.5% versus 4% 4 or 5 years back. Tremendous reduction in headcount, but more qualified people.

So initiatives of this technology -- but technology is only good if you got good people. So we have used technology in our retail network, less people, as I mentioned. We have technology in our manufacturing, in our logistics. So technology has been tremendously important, which has also resulted in less, less people. Our headcount is lower, as I mentioned.

So I would say, so first starts with an attitude, then it starts with the fact that people have to -- you've got to have stronger people and you've got to have technology.

Understood. And if I can squeeze one last thing. And I think I'll head back towards the written orders. Is there anything else you can share on the improvement in written orders? Have you seen the refocus on the home continue in the most recent fourth quarter.

Has traffic increased? Any thoughts on conversion or financing? And anything like that to kind of help us handicap this pretty good improvement?

Well, it's also a factor of that -- I mean there are a lot of many great companies in our industry, and I think well and would most likely will do well. Our focus has been whereby we have focused on one brand, one program, one level of quality and close to 70% made in our own workshops right here in North America. All of those things have been affected in terms of -- for our profitability. It's amazing we have less headcount than we have had last year or even certainly 4 years back. So I think this question of combining great talent in -- when we look at, for instance, let us say, North America.

North America is where we manufacture the product. We deliver our products at one cost naturally. The other area that has been very important and critical has been our interior design network. That interior design network is very stable. It's less because of the fact of over a period of time, there have been less people, but very qualified people, talented people.

So that -- those elements of that is vertical integration from making manufacturing, delivering our products. Think of this, when I did this in 20 years back, people thought I was crazy that we will deliver our product at the same price in New York and in San Francisco, Miami and Texas. It can't be done. Well, it can be done, but you have a vertical integration to make it happen. So I think all of those factors are important.

I think that our interior designer network is less but very talented and qualified. Combining interior designers with technology is, as I said earlier, it's a game-changer. So those things that differentiate us. We have one level of quality, we produce the programs, products, and consumer is tougher. They're much more careful who's that they're buy from.

In the last 2, 3 years back, that was not the case. So I would say those companies that have some of the ingredients I'm talking about most likely will do well.

In terms of our retail design centers, it has remained pretty consistent. We have today -- we have 142 design centers that we operate and we own. Pre-COVID, we were 144. So we have, overall, when you take a look at it, we had design centers. We have about 40 that are operated by our -- 30 that are operated by our independent retailers with an average association of 40 years with us, families.

So I think that we are very careful where we're going to bring in. So this last year, I think we only brought in 2 or 3 new design centers. I think going forward, it will be most likely 3 to 5, but not a large number. Our focus is to make sure we improve what we have. But also in this last year, as you know, we reduced the size of our design centers.

We reduced -- some of our design centers were 20,000 square feet and above. I said, no, the max size is 12,500, and we are -- the newer ones we're getting is anywhere from 6,000 to 8,000 or 9,000 square feet. So I think that our focus really is having -- and then the other thing we did was we -- you might say, we call them the Interior Design Concept, we redesigned all our design centers with one great look. Five years back, people in New Jersey, thought they are very different than in Long Island or, I guess, California, Florida. All our design centers today, especially the company operated one have one image.

Now the other thing that we are doing is, now we have been developing a lot of also new product. Again, we have to be cautious that we only bring in product because we don't sell it to anybody else. It's all through our own network, but we have been adding new products. And as we have the ability to make the product -- it is coming into our design centers. And by next April, around that time, we would have other major introduction of new products which we are developing right now.

Yes, and Budd, just to add, this is Matt here. You are right that wholesale sales were down 20%, while retail was down 7%. A lot of it -- drive for that -- or the difference is on our contract business and international business. As Mr. Kathwari alluded to, our fiscal second and third quarters, the State Department was slow, conflict in the Middle East and other factors that delayed the purchases.

So the subsequent delivery of those orders didn't happen as fast as the fourth quarter for us. So that definitely was a lot weaker than the retail division sales side of things. Now we're seeing some improvement in there, as we talked about on the State Department business. So we should see those 2 numbers or metrics, retail sales and wholesale sales more aligned.

Okay. And you gave us the wholesale backlog of, I think, of $53.5 million. Did I miss you're giving us the retail backlog at the quarter end?

We do not publicly disclose the retail backlog, but typically, it's a little under 2x the customer deposits on our balance sheet.

I'm not so sure I do agree with that, Farooq. I agree with you that you are an incredible businessman and you run the business with a great deal of discipline, but the amount of information, that's a topic of another conversation. The $34 million or so, I think, of investments, you included that into the cash and investments side of the business. Can you talk a little bit about what that investment is or what those investments are?

You're talking about U.S. Treasuries or what?

Yes, all our -- Budd, we have close to $200 million in cash, strictly, any extra cash we put in U.S. Treasuries.

All right. Well, thanks very much. Well, good to have you all on this call. We've gone through a lot of challenges, but I always felt the challenges creates opportunities. We are positioned well.

We have a strong product programs. And in the next year, we're going to now introduce more new products because we held that back. We have -- retail network has strengthened. We have repositioned all our design centers. We have a strong manufacturing base, both -- in North America.

And then as I said earlier, technology has played a tremendously important role. Combining great talent with technology is what it's all about. And I think as we move forward, continuing with this -- these initiatives, our strong product programs, strong talent, providing great service, and then finally be a socially responsible company. We have been recognized by many organizations, and I'm happy that, as I said, the Newsweek for the second time named us as America's #1 retailer -- furniture retailer. Thanks very much.

Our consolidated net sales totaled $146.4 million, reflecting lower delivered unit volume, reduced manufacturing from lower backlog, a cautious consumer environment and a strong prior year comparable. Overall demand patterns across our industry have been sluggish. Our written order trends in the quarter were impacted by continued softening of the market, elevated interest and inflation rates, reduced designer center traffic, partially due to adverse winter weather conditions and a strong prior year demand.

Wholesale segment written orders decreased 14.6% compared to last year, while retail segment orders were down 8.6%. We ended the quarter with wholesale backlog of $57.7 million, reflective of historical norms and pre-pandemic levels. We continue to improve customer lead times and reduced the number of weeks of backlog during the quarter.

Consolidated gross margin was 61.3%, the 12th consecutive quarter that our gross margin has exceeded 58%. The 140 basis point increase in consolidated gross margin was driven by a change in sales mix, lower manufacturing input costs and reduced head count, partially offset by deleveraging from lower unit volumes and higher sales of designer floor samples.

Adjusted operating margin of 10% reflects fixed cost deleveraging from lower sales, partially offset by gross margin improvement, lower head count, less variable expenses and the ability to maintain a disciplined approach to cost savings. Our SG&A expenses decreased 9.6% and equaled 51.4% of net sales, up from 44.7% last year due to lower sales volume relative to fixed costs.

Now turning to our liquidity. We ended the quarter with a robust balance sheet, including cash and investments of $181.1 million and no outstanding debt. We generated $23.7 million of cash from operating activities during the quarter, primarily due to net income and improvements in working capital.

Thanks, Matt. As we discussed in our last quarterly meeting, our results reflect post-COVID [indiscernible]. COVID emergency started to end about 12 months back, and consumers' interest diverted to other areas such as travel, resulting in lower sales for us and our industry also resulted in a number of bankruptcies in our industry and in my opinion, they do not take the precautionary measures. We did take strong measures to reduce inventories and expenses and increase our cash. We do now see the start of increased interest in the home and start of positive sales.

Our net income of $12.4 million for quarter ended March 31, 2024, again, compared to $22 million as of March 31, 2023 and $8.2 million as of March 31, 2019. We have continued to have a strong cash position, as Matt just said, at March 31, 2024 of $181 million; March 31, 2023 at $156.2 million; and again, very importantly, that at March 31, 2019, that's a pre-COVID, our cash of $25.7 million.

Very importantly, with the combination of technology and personal skills and looking at our business from a base 0, we have been able to have to reduce our head count. As of March 31, 2024, it was 3,448 compared to 3,816 as of March 31, 2023, a decline of 9.6%. And very importantly, we had a head count of 5,120 as of March 31, 2019, a reduction of 32.7%. Tremendously important is the fact of reviewing all our operations, you might see from base 0, having great talent and technology that has resulted in strong efficiency in our enterprise.

Very importantly, the size of our design centers have been reduced. At this stage, our objective is to have the maximum size of 12,000 square feet from the 20,000 or so, 20,000 square feet that we have had, that most of our design centers were operating in. The extra space has been converted in the design centers the way we have the space into what we call a design floor sample area. We've been selling the extra inventory resulting from the change.

Now the impact of this has been that is, of course, very cash positive, but it also had an impact of lower margins because we were selling a lot of floor sample products. And another impact it had was on our manufacturing, because instead of products we made for manufacturing, we were selling a lot of products from floor samples.

Now the good news is most of that is over. We still have products that will be sold because this does take some time, but we have now started to have more of the orders coming in and going to our manufacturing. As I said earlier, the combining very strong interior designers and technology is a game changer in terms of productivity and costs.

Now in our marketing and merchandising. Our marketing is constantly utilizing technology in developing and distributing our message. During each month, 2 digital magazines of about 36 pages are distributed each time to 9.5 million customers and prospects. In April, we just introduced our new Style Book, which has been very well received by our teams and clients. They will -- this Style Book will be, again, available both in print form and digitally.

Now in manufacturing and logistics. We have 75% of our products are made in our manufacturing in North America. In furniture, I mean, we do get other products like accessories and other things from different parts of the world. And we continue to invest in many areas from new machinery and equipment and strengthening our environmental and social responsibility in the various regions.

Keep in mind, with technology and, of course, strong people, we have now today reduced our manufacturing from about 30 manufacturing plants only 10, 15 years back to about 10, but it's in North America.

Now as you know, with all the conflicts taking place in the world, the international freight has increased. Again, as we make 75% of our furniture in North America, the impact has been less, mostly on products that are coming from overseas, access and some furniture.

So overall, we are well positioned. Our interior design network has been redesigned. In terms of the projection, very important. We have continued to have strong interior designers and technology in all areas.

Yes. This is really -- it's almost like a revolution. Five years back, folks in New Jersey thought they needed something very different than in Connecticut, and forget California or Texas. But the fact is good design is good design. And we decided that we will, along with -- we have to make sure that all our key designers, that our folks are managing were on board because they have to -- they have one right in the feet.

They all love what we did.

We introduced it last April actually in our Danbury headquarters design center. And then it took us close to a year in implementing it across. Very well received by consumers, very well received by our designers because they have good design. And of course, what differentiates us is that 75% of our furniture is made custom when they come in. So if we were in a business of selling this product alone, what we show on the floor, it will be a different model.

Yes. That's all that is important. There are two important factors. One is our government business. This conflict is taking place, a lot of interest -- I mean, a lot of attention from the government into spending money on security in other areas, that's what we understand.

The good news is recently now, in the last couple of weeks, they've started to pay more attention to their furniture needs. So we've seen increased business back.

For the last 3, 4, 5 months, there was a lot of attention going to other areas, and our business was substantially down. Then, of course, also our international business was down quite a bit, especially in China. Good news is that the China is now, they started the process of creating this Interior Design Destination in design centers there in China. Still, the business has started to improve. But the factors of our international business, China being the #1, but our business in other countries also was down.

Our state department business was down. That was the big difference between our wholesale and retail.

And then the last question I have is in relation to the SG&A dollars. You've been able to reduce those. You were down 10% year-over-year this quarter. Where are you flexing the SG&A? Is it mostly the head count reductions in the last year?

Or are you also pulling back on marketing or other sort of expense buckets?

Yes. Actually, it is mostly head count, and that is both in manufacturing and retail. The combination of technology has really had a tremendous impact in the business we are doing. We have actually somewhat increased our marketing relative to what we did in the previous quarters. Matt, how much -- in this quarter, how much did we then got, 3%, 4%?

So we increased our marketing. Of course, comparing to some lower sales, but marketing has increased. It really was what you mentioned, the reduction in head count has been a major factor.

I want to punch into that retail, the consumer adding back to the home. And I hear you, and it's one of our true failings. We try to put numbers on things. And you're good with numbers, and you're also good at sidestepping us when we want numbers. So let me see if I can get a couple of them.

The backlog increased from the last quarter to this quarter by about, if I do it right -- not the backlog, but the customer deposits increased about $17 million from the second quarter to the third quarter. Is that about right, Matt? Is that -- do I have that correct? And last year, it was about a $29 million increase. And is that reflective of what's going on in terms of retail orders?

How do you look at that?

Yes. So what I was saying, yes, our deposits are up year-over-year. Part of that was timing of when the orders come through in the quarter, but also is reflective of, as Mr. Kathwari said, an increasing focus on the home and a higher dollar volume of orders that we saw this past quarter compared to the last 6 to 9 months. So the customer deposit balance did increase and also backlog.

I see. You gave us a backlog number for wholesale. If you gave us one for retail, I missed it. What is the retail backlog at the end of the third quarter?

Yes. We typically do not disclose the retail backlog, although we do say it is approximately 2x that of customer deposits on hand.

Okay. So the customer deposits is about 50% of what the backlog is, okay, of what an order is. And so when you look at -- you're talking about increased attention to the home. Are you really talking about what you're seeing in April? Or are you seeing -- or what you saw at the end of March?

How do you -- when did that begin? And help us account for it.

Despite operating in a softening economy, our operations produced positive financial results, which I will now discuss. Our consolidated net sales totaled $167.3 million, reflecting lower delivered unit volume, reduced manufacturing from lower backlogs and a strong prior year comparable. Written order trends in the quarter were impacted by continued softening of the home furnishings market, reduced design center traffic and strong prior year demand. Wholesale segment written orders decreased 10.9% compared to last year, while retail segment written orders were down 9.4%. We ended the quarter with wholesale backlog of $54.9 million, which is near pre-pandemic levels.

We improved customer lead times and reduce the number of weeks of backlog, bringing it more current, helping to reduce lead times within casegoods with increased production in Vermont as we recover from significant flooding that occurred in July 2023. Our Vermont wood furniture plant has resumed operations and operated at approximately 75% capacity during the just completed quarter. Consolidated gross margin was 60.2%, our 11th consecutive quarter that consolidated gross margin exceeded 58%. Our current quarter consolidated gross margin was impacted by deleveraging from lower unit volumes, combined with the change in the sales and product mix, partially offset by lower input costs and head count.

Adjusted operating margin of 12.8% reflects lower sales, gross margin erosion and incremental costs from our design center refresh and grand reopenings. These costs were partially offset by lower headcount in our ability to maintain a disciplined approach to cost savings and expense control. Our SG&A expenses decreased 9.1% and equaled 47.3% of net sales, up from 42.9% last year due to fixed cost deleveraging. On a sequential basis, our adjusted operating margin improved 70 basis points as we increased sales by 2.1% while reducing SG&A expenses by 1.4%. And when compared to our pre-pandemic 2018 second quarter, our operating margin has improved even more, up 460 basis points.

Adjusted diluted EPS was $0.67. Our effective tax rate for the quarter was 25.5%, comparable to 25.7% a year ago. Now turning to our liquidity. We ended the quarter with a robust balance sheet, including cash and investments of $167.8 million and no outstanding debt. We generated $13.6 million of cash from operating activities during the quarter driven by strong profits, improved cash collections and lower inventory levels.

In November 2023, we paid a regular quarterly cash dividend of $9.2 million or $0.36 per share. Also, as just announced yesterday, our Board of Directors declared a regular quarterly cash dividend of $0.36 per share, which will be paid in February. We are also pleased to pay cash dividends while maintaining a strong cash position. In summary, our vertically integrated enterprise was able to produce a double-digit operating margin during this post-pandemic period marked by industry-wide softening demand. Our business model generated strong positive cash flow and protected our operating margin as we remain committed to disciplined investments and strong expense management.

Well, thank you, Matt. As we mentioned in our press release, we are now entering the post pandemic period. The pandemic period defined as fiscal year 2021 through 2023 reflected strong consumer focus on home, high demand and major increase in sales. We had record high backlogs, which are now returning to pre-pandemic levels. For the second quarter ended December 31, 2023, gross margins increased to 60.2% compared to 55.2% for the quarter ending December 31, 2018.

That is a pre-pandemic period. Cash and investments of $167.8 million increased from $38.8 million 5 years ago. During this period, we have returned $137.9 million to shareholders in the form of cash dividends, an increase of $41.4 million or 42.9% during the 3-year period leading up to the pandemic. Our inventory was reduced 11.5%, and headcount reduced 31.1% from the pre-pandemic levels of December 2018. Now going forward, we are well positioned.

We continue to strengthen our offerings. And now that our supply chain has improved, we plan to start introducing new products. Our retail network continues to be strengthened. The repositioning of our design centers throughout North America has been a major undertaking and has placed us strongly. The interior design destination focus is very important to position us for growth.

We have also reduced the space of our interior design centers, which reflected selling of large amounts of floor samples. This resulted in lower customer orders, which is a core of our North American manufacturing reflected in lower production. We have completed most of the repositioning of our design centers. Our marketing has been greatly enhanced, while major reduction of costs advertising expenses equal to 2% of net sales as compared to 4% prior to the pandemic. Despite lower delivered sales, maintained gross margin of 60.2% and an operating margin of 12.8%.

Okay. And I noticed, of course, that the operating margin differential was significant quarter-over-quarter in both segments. You mentioned some deleverage in the -- which would imply from the manufacturing segment, I would think. Can you talk to about what might have been other than volume? Were there any other issues other than unit volume going through that might have impacted that?

Okay. And my last question, just talking -- you talked about floor sample sales, that has an impact on both revenue and margin. Can you maybe help us get a feel of the color at the margin side and how much impact that might have had on the gross margin and the operating margin in the retail segment.

Yes. I think there are a number of impacts it had. As I mentioned in my comments that substantial -- actually, all of our North American manufacturing, but almost all of it is custom. And when we decided to reposition ourselves as an interior design destination, one of the things we did is -- developed and implemented was reducing the floor space. Today, with our strong interior designers, with our technology, we don't need 20,000 square foot design centers.

So we started -- we decided early last year, in 2023 calendar year, that we will start repositioning, and we would then reduce the size from, let us say, many of them from 20,000 to 12,000. And the rest of that product, we called it designer floor samples. And it was -- it helped us sell the products. Obviously, the margins were lower, but it also had another impact, it was on a manufacturing. Because when we were selling existing inventory, we were not making custom product.

So good news is that most of that is over.

Yes. This is a good question, Brad, because we are now in a very different environment than we were a year back, which is that the interior design destination created a situation where we had the same product, almost the same product in all our design centers. So when we now introduce new products, we have to determine how much of that will go on the floor of our design centers and how much will be available for our interior designers to sell. Now we have just finished repositioning our design centers all over the country with the products. And what we are now going to do is this.

We are going to utilize the new products to a great degree by making them available to our interior designers. Because today, our interior designers are operating from smaller spaces, and they are able to utilize our technology in creating room environments designs with products that they don't have in their design centers. 10, 15 years back, we couldn't have done it. We had to put it in the stores or design centers. Today, of this new product, I think at this stage, relatively small, will get into our floors.

The rest will be available to our designers to use with customers. Because through our technology, they are digital technology, they are able to place that product in their designs with the customers.

Yes. I think, Brad, that is important. We have -- the weather has been a major factor. And the good news is this, in those areas where weather was not a major factor, we did okay. But in areas where weather was really bad, bad, sales have been down.

So I would say that, that the weather impacted it, but I would believe that as we come out of this and especially -- you can see the difference actually between the first 12, 15 days of this month and the interest that is taking place now. So I think there'll be much more interest, but the weather did impact our sales in those areas where the weather was very bad.

I just have a couple. I wanted to ask, of the $15 million in delayed sales due to the flood in the summer that you had called out on the last call, how much of that were you able to deliver in the December quarter? And how should we think about the remaining amount? When is that going to flow through the income statement?

Yes. So to give a little background, we're pleased that the plant was able to get up to over 75% capacity in the quarter. As you recall, back in July, it was shut down for quite a while. So we ramped up, we're in good shape now. We were able to deliver a portion of that amount.

I would say roughly 25% to 35% of that amount, we were delivering. Now what that does is it keeps our plants running efficiently up in Vermont. Given the softening of the demand, it was able to keep us continue going. So we're about 1/3 of the way through, and we'll deliver the rest of it in this upcoming quarter.

Yes. Cristina, this -- the Vermont situation had a number of implications because when -- in the last few years, we brought in a lot of technology. And we didn't think of the fact of what this climate change is going to do. So a lot of the technology was put on the first floor. It's a multistory.

Then a number of that equipment, we had to repair, replace, it took time. And now some of that equipment is going on the second floor because we don't know what's going to happen. So most of that equipment is in. And I think that as we continue, it's -- we had to purchase new equipment, and we ran also to repair. But I think in the next few weeks, more or less, they'll be back to normal.

About $0.5 million or so because it was really paint and some minor changes, some flooring and things of that nature. The rest, of course, was products. And the impact really was selling of the floor products, which had an impact, certainly to increase sales, but it had an impact on our gross margins. It also has an impact, as I said earlier, on our manufacturing. About $0.5 million or so was used, mostly paint.

Okay. And then the last question I had, anything -- any updated parts where you're seeing from a cost perspective, whether it's input cost, materials or freight that we should be aware as we move through 2024?

Yes. Cristina, look at what's happening right now in the transportation in the Suez Canal, now fortunately for us. So that is going to have some impact. But because of the fact that 75% of our products are made in North America, we are going to be less impacted. But if we had most of our products coming through from offshore, it would be an issue.

We did see overall container rates have come down from, let's say, from East Asia to North America, they have gone up to $30,000 from $4,000, $5,000. They came down to $5,000, $6,000, but now you can start seeing they're starting to increase. Our exposure is limited because of the fact that we are involved with making our products in North America. And then we shift our products through our own network at one delivered price nationally. That also had an impact.

During the COVID, we did not change any of our prices. I mean, we did not change any what I would say any special charges. We maintained, and it was absorbed, all those increased costs. Whether it was international cost or our domestic costs, our high volumes helped us. But now most of those costs are back to normal, but they've come down quite a bit.

And we will see some impact of what is taking place internationally. For us, it is somewhat smaller than most likely others.

Thank you, Matt, and good to have you join our call to review our first fiscal 2024 results and our initiatives. As we reported, we maintained strong operating margins, gross margin of 61.1% and operating margin of 12.1% despite a decline of delivered sales of 23.6%. Our sales are impacted due to softening of the economy and the impact of a major flood in our Vermont manufacturing operations. We are positioned well. We have continued to strengthen our vertically integrated enterprise.

We have also continued to maintain a strong cash balance. During the quarter, we distributed $0.36 of regular and $0.50 of special dividend; and we also, yesterday, announced a regular dividend of $0.36 in addition to these 2. After Matt provides a brief overview of our financial results, I will discuss our various initiatives in growing and growing our business by positioning us as an Interior Design Destination, strengthening our talent, marketing, manufacturing, logistics and our unique retail network providing interior design service increasingly combined with technology. Matt?

Thank you, Mr. Kathwari. As a reminder, we present our financial results on both a GAAP and non-GAAP basis. Non-GAAP results exclude restructuring initiatives, impairments, unusual or infrequently occurring events, such as the Vermont flood and other corporate actions. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business.

Our financial results in the just completed first quarter are highlighted by strong margins, sales being impacted by July flooding at our Vermont casegoods plant, positive operating cash flow, the payment of a special cash dividend and a robust balance sheet. Despite operating in a softening economy, our operations produced positive financial results, which I will now discuss. Our consolidated net sales totaled $163.9 million, a decrease of 23.6% due to lower delivered unit volume from softening order demand, reduced manufacturing production from lower backlog, a strong comparable prior year and the impact from the Vermont flooding, which resulted in a temporary work stoppage and lowered net sales by approximately $15 million in the quarter. Our Orleans plant has since resumed operations, and we expect to recover from the delayed shipments during the upcoming second and third quarters. Sales in the first quarter a year ago set a near record pace as we work through historically high backlog leading to a difficult comparison.

From a demand perspective, we are back to more normal conditions, down from the high demand we experienced during the height of the pandemic. Wholesale segment written orders decreased 15.6% compared to last year, while retail segment written orders were down 13.2%. We ended the quarter with wholesale backlog of $75.4 million, down 28.6% from a year ago but up $1.4 million since June 30, 2023, due to the timing of contract business orders, combined with production levels being impacted by the Vermont flood. The number of weeks of backlog as of September 30, 2023, was down compared to last year, with notable improvements seen within upholstery and home access. Our wholesale backlog is approaching pre-pandemic levels as our teams are managing the business to service our customers.

Consolidated gross margin was 61.1%, our tenth consecutive quarter that consolidated gross margin exceeded 58%. When compared to last year, our consolidated gross margin was up 70 basis points due to favorable product mix, lower input costs, investments in technology and reduced headcount, partially offset by lower delivered unit volume and a change in sales mix. Retail sales were 81.5% of consolidated sales, down from 85.6% last year as we delivered out more wholesale backlog, including a greater percentage of contract business. Adjusted operating margin was 12.1%, down from 17.6% last year, primarily from lower sales. These costs were partially offset by gross margin expansion, lower headcount, and the company's ability to maintain a disciplined approach to cost savings and expense control.

Our SG&A expenses decreased 12.7% and equaled 49% of sales, up from 42.9% last year from fixed cost deleveraging. As previously stated, in July 2023, our wood furniture manufacturing operations located in Orleans, Vermont sustained damage from flooding. In addition to losses related to inventory and state-of-the-art manufacturing equipment, the flooding also resulted in a temporary work stoppage for many associates and a disruption and delay of shipments. The gross financial loss incurred from the disposal of inventory, inoperable machinery equipment from water damage, facility cleanup and restoration amounted to $3.6 million. And after insurance proceeds of $1 million and a grant from the state of Vermont of $500,000, the net amount of the pretax loss was $2.1 million and was reported within restructuring and other charges and is excluded from our adjusted earnings.

Adjusted EPS was $0.63 compared with $1.11 last year. For historical context, our adjusted diluted EPS for the 3 months ended September 30, 2019, was $0.35. Our effective tax rate was 25.6%, which is comparable to 25.3% a year ago. Now turning to our liquidity and capital resources. We ended the quarter with a strong balance sheet including cash and investments of $163.2 million and no outstanding debt.

We generated $16.7 million of cash from operating activities during the quarter, which was driven by strong profits. Our inventory levels decreased $18 million from a year ago as we restore our operating inventory levels to more historical norms as backlog decreases. We continued our practice of returning capital to shareholders in the form of cash dividends. In August, our Board declared a special cash dividend of $0.50 per share in addition to our regular quarterly cash dividend of $0.36 per share, both of which were paid on August 31. We have now paid a special dividend in each of the past 3 years.

Also, as just announced yesterday, our Board declared a regular quarterly cash dividend of $0.36 per share, which will be paid in November. In summary, our vertically integrated business was able to produce a double-digit operating margin during a period marked by industry-wide softer demand and a temporary work stoppage at our Vermont plant that led to lower sales. We generated $16.7 million in positive cash flow and protected our margins through disciplined investments and a strong expense management. We will continue to carefully manage our expense structure. With that, I will now turn the call back over to Mr.

Recently, we had ribbon cuttings in 16 locations. Just to give you a perspective, including having this enhanced projection in Manhattan, New York; in Albany, New York; in Cordova, Tennessee; Plaistow, New Hampshire; Marlton, New Jersey; Lancaster, Pennsylvania; Garden City, Long Island; Westchester, New York; Mount Pleasant, South Carolina; Green Bay, Wisconsin; Peach City (sic) [ Peachtree City ], Georgia; Knoxville, Tennessee; Princeton, New Jersey; and Setauket, Long Island. This week, actually just now, we are in the process of having grand openings in Kennesaw, Georgia. That's near Atlanta; San Francisco, California; Oklahoma City, Oklahoma; Birmingham, Alabama. Our objective is to continue implementing this in our 174 design center locations in North America.

Next 30 days, 67 are scheduled and in December 27 and by end of December, 114 of the design centers have -- will have been repositioned with the products and the attitude. The initiative has many benefits, including consistent projections across North America, continued strengthening of our interior design associates, consistent marketing across North America, strengthened and motivated interior designers and clients. Consistency in offering across North America helps improve service and gross and operating margins. After the amazing focus of consumers in their homes during the COVID pandemic, we see consumers have spent more time and focus in other areas such as travel. We expect to see that moderate and more focus on home, although not at the level we saw during the COVID period.

We continue to see reduction of costs such as in raw materials, energy and transportation. While we have developed very strong new products during the last 2 to 3 years, we decided to hold off introducing during the COVID period. We have now started introducing new products, and we'll continue to do so in the next 12 months. During the last 3 years, despite high demand, we continue to strengthen and streamline our operations, including strengthening our interior design teams in our design centers. Today, we have about 30% less interior design professionals who are about to do the same business.

In fact, from 2019, our total headcount in the -- in our company is less by 21%. By using technology, in -- whether it is in our manufacturing, whether it's our retail, especially in retail, and in our logistics has helped us make our interior designers more proficient and as they say, is the game changer. We have strengthened our talent and unfortunate recent bankruptcies of furniture retailers has brought us also new and experienced talent. Our manufacturing also has continued to benefit from strong teams and use of technology. Keep in mind that 75% of all our products are made in our North American operations.

Congratulations on the margin performance and what has got to be, I'd say, a very challenging environment. And I do have a few questions, and I'm trying to just project forward. As you look at the volume and going forward, you noted that your deposits are down about 29% year-over-year at customer deposits. That would be at retail. So I'm thinking -- and you did a pretty good job of less -- you were less down in orders for the retail than you were in actual net sales.

So I suspect that, for the second quarter, retail sales will be down year-over-year but probably somewhat lower than what we saw in the first quarter, lower than the -- less than the 24% -- 27% for retail, pardon me.

Yes, it's a little bit early, Budd, but I think that your comments are good comments in the sense that while we have reduced our backlogs to a great degree but still, keep in mind, as I said, our backlog is now down and because -- it's down because we delivered. We're down by about 27% and 28% or so at our wholesale, 27% at retail. So we generated a lot of backlog. We still have a reasonably good backlog. We are still -- backlog is -- when you go back to pre-COVID when, for instance, our backlog is still about 20% higher than it was in 2019, so we have a decent backlog, not as what we had last year.

But that backlog still gives us an opportunity to continue to ship products. And we are also expecting, hopefully, hope is not a method, but we're expecting that consumers' attitudes, as I mentioned, are going to somewhat go back into home after, in the last 3 or 4 months, they have spent a tremendous amount of time in travel and other areas.

Okay. And for me, too, just one thing on the margin performance, which is notable with that 61%, can you kind of give us a -- I know you don't disclose that, but give us a flavor of how that compared retail versus wholesale? I know you had the issue in the Orleans plant. So I'm just curious as to how that proceeded.

We do not break out gross margins on a retail and wholesale perspective. We do on an operating margin.

Budd, generally, I would say this, that if you take out this question of what happened in Orleans -- but again, what happens in Orleans was considered as extraordinary. I think that on a basis of our operations, we've been consistent both in our wholesale margins and the retail margins.

Okay. And last for me on the inventory. It's down, I think, what was it, about 11% year-over-year. How does that compare retail -- again, retail versus wholesale?

Inventory is down 11% from last year.

No, he says inventory is down...

It would be more down on the wholesale side versus the retail side. As Mr. Kathwari pointed out, we do have a new product that's coming out on the floor of our design centers, so the retail inventory was a little bit higher compared to a year ago versus the bigger decrease with that wholesale.

It's a good question, Cristina. At this stage, it's really hard to say because the good news is that we are operating much more efficiently, both at the manufacturing level and at the retail level. When I talked about the decrease in our associates, it has taken place in all levels and especially with the use of technology. It's amazing how the technology has helped us, especially at retail, where our interior designers today are about 30% less than what we had just a few years back, writing more business because of the combination of technology and their personal service. And of course, this was also tremendously important in the COVID when many, many people were working with them from their homes.

So I think that from a perspective, it is more or less, I would say, consistent between the 2 major areas of our business, wholesale and retail.

Well, it's a good question because when we went from $92 million that we had in the previous year quarter to $80 million, that's a pretty major decline in -- from year-to-year. So I think that we always keep on taking a look at what needs to be done, but there's always a possibility. We are always looking at the opportunities. And again, as I said, the combination of technology and personal service in our manufacturing, in our retail, in our logistics is tremendously important. So there is a possibility, but I think we have cut down it quite a bit.

I know Matt had mentioned earlier that you don't break out gross margins based on retail or wholesale segment. But in the Q, just kind of noticed that you had mentioned that gross margins were unchanged year-over-year for the retail segment. And so I was wondering -- I'm assuming you're seeing some form of favorable product mix on that end, favorable input costs but noticed that clearance sales were higher. So I was wondering if you could kind of bridge that for us or maybe help us understand what impact elevated clearance has had on gross margins on the retail segment.

Yes, that's a good question because of the fact that we did a number of initiatives. One was, of course, that after we did the Danbury design center with a great projection, of course, I think you saw that we also had it in Manhattan, and now we are launching it all over the country. What it has done is this. It has done a great job of having very strong projection in all our design centers, but it also created some products that had to be sold clearance. So that is -- and that clearance has been sold at a lower margin.

So that affected our gross margins. The other thing we did, which I think we have -- may not have mentioned too much, is that the size of our design centers has -- is going to change. It's already changing. Keep in mind, Manhattan, for instance, we, for 30 years or so, were in a 30000-square-foot location and we went to 7,000 square feet. In many, many areas of the country, we are going to 7,000, 8,000, 10,000, and what we also did, starting in Danbury when we repositioned Danbury, which was a 20000-square-foot design center, we said anything over 12,000 square foot will not be part of a regular design center.

So we created space, so products had to be sold, and that product was sold at lower margins. They are all good products. They did 2 things that obviously -- certainly give us business, brought in customers, but it also, in the short term, did sell products at a lower margin. But as we get out of those, we will have a greater benefit of having less products on the floors because, today, I also mentioned that almost 75% of the products that we sell is a combination of interior design and technology. 25 years back, we sold whatever we showed on the floors.

That's why we had 20,000-, 30000-square-foot design centers. All of that has had tremendous impact. But as we go forward, I think it will take us another 6 months or so to sell off this excess products that we had in all these design centers in the country. The good news is, as we move forward, we'll have smaller design centers and much more efficient.

Got it. That's really helpful. And kind of piggybacking off of that, just really honing in on retail segment gross margins, something we've been kind of tracking really closely maybe over the past month or so is just credit delinquencies and kind of financing for big ticket for discretionary items. We've noticed, over the past 2 quarters, you've kind of called out increased financing costs as an impact to retail gross margins. I was just wondering, could you -- do you have any sense of what percent of your retail sales are financed versus nonfinanced?

And then on that end, can you provide any color on what you're seeing in terms of interest rates associated with that?

Yes, that's a good question because interest rates on financing has gone up quite a bit. And we were offering, until 2 months back, 24 months free interest. I mean loans with a free interest for, I don't know, 12 months or 24 months?

24 months. And we said no, that was too much. And even though we realize that most probably close to 15% to 20% of our business was done with that -- with those loans, we took it down to 12 months and instead of 24 months. And because I think the interest rates went up from 3% to close to 5% -- 6%, so I think as we go forward, what we feel is that still there are people who will need financing, but we believe that 12 months is sufficient. Now we have to be careful that we don't want to lose business.

So we're going to watch very, very carefully. But at this stage, we have taken down from 24 months to 12 months, which has an impact of about -- as I said, the impact on the margins, the interest has gone from 5% to 3% or so.