Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Budd Bugatch - Raymond James
Budd Bugatch - Raymond James
I want to make sure I understand the retail Op margin, the warehouse change, you say it effected the upholstery by $3.3 million and $12 million of sales, what impact would it have had if it were accounted for the old way on the retail segment.
Mike Riccio
We’ve also made a lot of changes within the warehouse structure by eliminating some duplicate cost and taking out some people, so we’re in the middle of that transition at this period of time but obviously some of the savings that we had in the retail section what was attributable to changing the warehouse but I would say its about half and half to some of the other things we’ve done.
Budd Bugatch - Raymond James
So about half of the $3 million impact on the upholstery segment is, would have been if you had left under the retail operation, your retail margins would have been $3 million, or $1.5 million less.
Mike Riccio
No, the $3.3 million is just the, when we sell to our different divisions, we have to account for whatever that profit was in inventory. The $3.3 million is just the [limiting] the profit and inventory. It’s a one-time charge, it has nothing to do with the warehouse operations. That is just moving the inventory back onto upholstery’s books and taking the profit out of the inventory that was in there, that we eliminated in consolidation, that has nothing to do with the operations of the warehouse. The going forward will be what the cost of the operations of the warehouse are versus what we’re charging retail for that.
Budd Bugatch - Raymond James
So its actually unsold inventory that you had shipped to the warehouses that had been in, underneath the retail segments that you had to report it as intercompany sales or intercompany profit.
Mike Riccio
Exactly.
Budd Bugatch - Raymond James
So there’s nothing to read that this change had any impact on the retail operating margins themselves. That’s what I’m trying to get to.
Kurt Darrow
I would answer it this way, there were three substantial improvements this quarter in our retail business, and they probably all had close to equal weight. One was an improved gross margin, two was more effective marketing spend, and three was the warehouses. And collectively they make up not only the $1.5 million improvement but also the recovery of the lost profit on the lost sales that we would have had a higher [degradation] had we not had all those changes.
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