Good day ladies and gentlemen and welcome to Ethan Allen Earnings Release Teleconference. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). I would now like to turn the call over to your host Mr. Farooq Kathwari.

Yes. Good morning. I am Farooq Kathwari, Chairman and CEO for Ethan Allen Interiors, Inc. and with me today is David Callen our Vice President, Finance and Treasurer. Today we are reporting the results for three and nine months ended March 31, 2009. Our focus during this period has been to confront and address the many challenges including maintain our liquidity position, reduce the underlying cost structure, maintain and improve our marketing initiatives, not only survive this recession, but come off stronger. David Callen will provide a financial overview and I will follow with a more detailed overview of our business initiatives and open up for questions. We expect the call to end at about 11.50 AM Dave?

Thank you, Farooq. Good morning, everyone. Please note that in the earnings issued this morning -- earnings release issued this morning and in the course of our prepared remarks, reference has been made to certain non-GAAP information which excludes the effects of restructuring, impairment, and related charges recorded during the quarter and year-to-date ended March 31, 2009 and a comparable prior year period. A reconciliation of this non-GAAP information to the most directly comparable GAAP measure was provided with the tables attached to the press release. Net sales for the quarter were $140.2 million compared to $235.9 million in the first quarter last year. The retail division net sales were $103.3 million versus $172.8 million last year with comparable design center delivered sales 41.8% lower than in the prior year quarter. Written Sales in Retail decreased 38.5% and comparable written sales decreased 40.4% versus the prior year quarter. Wholesale net delivered sales were $88.1 million in the quarter compared to $156.3 million in last year's second quarter. Consolidated gross margin for the quarter was 47.1% compared to 53.1% the prior year quarter. Gross margin was negatively affected in the quarter by lower sales, down time in plans, and floor sample and warehouse sales in the retail division. As a result of the decline in sales in this most recent fiscal quarter, we performed with support from a large accounting firm other than our external auditors, an interim evaluation of the indefinite live assets of the company. We determined that the carrying value of the goodwill on our retail divisions books exceeded its fair value and have therefore recorded our best estimates of an impairment charge of $30.6 million net of tax. Our best estimates of the fair value of the indefinite live assets on our wholesale divisions books exceeded the…

Thank you, Dave. The main areas of focus have been to maintain our momentum while reducing our cost structure. We have on an annual basis from March '08 quarter reduced our underlying cost structure by over $100 million so far. About 80% has been in operating expenses and about 20% in cost of goods. Compared to one year back we have 30% fewer associates. Reductions have taken place during the year across the country in most of our locations. We consolidated in upholstery manufacturing plant. We consolidated retail service center warehouses from 44 to 29 currently and by the end of the fiscal year we will have 23. We have continued the process of rationalizing our logistics. Over the years we have reduced our retail warehouses from about 100 to 23 by the end of this fiscal year. We have reduced management salaries, cash bonus has been eliminated for management, and also cash for other 401K programs. While increasing national advertising in television and shelter magazines overall reduced our expenditures by cutting back on local and regional advertising. You will note that in third quarter, our operating expenses prior to restructuring were down by 20.6 million compared to third quarter last year. We expect to benefit on an ongoing basis from the over $100 million amortized cost reductions both at operating expense level and in cost of goods. As sales improved close to our former levels, we expect at least 60% of the above cost savings to be permanent. During the quarter we took downtime, reflecting about 40% of total shop days available compared to 11% downtime the previous year quarter. In plant days, it amounts to 98 days downtime this year versus 27 days last year quarter. We expect to continue to take extended downtime in the fourth quarter.…

(Operator Instructions). Our first question comes from Budd Bugatch.

Budd, good morning.

Good morning, Farooq and Dave, this is actually Chad filling in for Budd this morning.

Yes.

Couple of questions, Farooq. In the release, you mentioned some -- maybe some early signs of improvement at retail and I know in the press release last week you noted that March, the trend of business improved relative to February. Could you give us the flavor for how April was trending and then as kind of an add on to that, I know it's very early in the promotion but what kind of feedback are you getting from your dealers on the Celebrating American Innovation?

Yes, I did -- we did mention in our previous press release that towards the end of March we did see improvements. We also -- it continued in the first week of April and then sort of the business was flat, reflecting also normally eased taxes and all that is also effective but it was, it became--, it did not continue after the first week. Now last, the end of last week we started our -- this major campaign. It's very early because the national television just started, our direct mail will go out in the next couple of weeks, our major campaign is going to start this week and in the next few weeks. But I was also referring, when I was referring to the retail improvements, I was talking about not our retail, I was talking about the fact there are better signs of improvements in the overall retail environment, not necessarily just arts or the furniture business.

Okay, understood and in regards to the fourteen design center openings that you expect over the next nine months, could you share with us in terms of breakdown of how many of those are independent versus company owned? And how many were actually kind of relocations versus say an incremental new store?

Yes. Now as you know our major objective has been to reposition our network and relocation has been a very important part of our strategy. And in fact in the next-- in the fourteen ones that we are talking about, most of them are going to be in fact, in fact more than half are going to be overseas. We are opening a very major retail design center in Dubai, UAE about in August of this year, a smaller one in Oman, Jordan, a smaller one Cairo, Egypt, about six or seven in China and then we are opening one just opened actually in April Omaha, Nebraska which was we might say a relocation but it had been closed for about a year or so. So relocation was really a new one. We also are going to open up in Raleigh, North Carolina which is our relocation in Charleston, South Carolina which is a relocation and Fort Myers, Naples is -- Fort Myers and Estero which I mentioned is between Fort Myers and Naples will be a relocation. We last year had closed one in Fort Myers, we've one in Naples which we'll consolidate to Estero, Florida.

So, kind of all together is it maybe half and half indication?

It's about half and half.

Okay, that's fair enough. And how many are now design studios out of the total store count?

Well, we have design studios, we have them in two categories, first is as last year about this year we decided to take some of our design centers which even we had a sort of full sized design centers in terms of space we converted them to the design studio concept which is reducing its to a few designers and letting them operate as if it is was their own interior design business. So, about 10 of them is what we did last year. But the one that we just opened, three of them are more of this concept of a design studio between 2000 and 4000 square feet. We open them one in Davenport, Ira and Lansing, Michigan and in close to Springfield, Massachusetts.

Okay, and last question, I know you are very focused on working capital, could you venture for us to be may be a target or a estimate on what level would you like to get inventories down to?

Well, our inventories, I believe that in within the next 10-12 months, we should get it done by another 15, $20 million.

Okay, well thank you very much Farooq, thanks David and good luck.

All right, thank you.

Our next question comes from John Baugh.

Hey John, good morning.

Good morning. I was wondering on the celebration event, is that selective merchandise you've really resisted discounting, just curious what precisely you are doing and how you think about it is obviously a very difficult environment, I guess you have to do something to try and stimulate business, what's precisely are you doing? How long do you-- you said nine months out, I think?

Yes, John what we did is in February, actually in January we were finally able to launch with the marketing of our new website, it's a state of art website and in February we launched a rewards program for having people become members of our new ethanallen.com. Our objective was to get more people visit our website obviously, to get or become a member, so that we have their email, and for that we gave them a $500 rewards to be utilized up to August 31 of this year at the rate of 5%. So if they had to purchase $20,000 -- $10,000 to get $500. Now, so that was in February, and it did make an -- it did help us in -- our hit rate on the web site has gone up. Our membership to the -- our rewards program has gone up because email is becoming a very important part of our marketing campaign. Then we also in January and February had introduced great new products with water base finishes, eco-friendly and all that, and as I said they really got lost with this economic climate. We decided to reintroduce them again this last -- this past week together with some more products, which would support them especially in upholstery and fabrics because we needed to make sure that there is a good element and a balance program. And we decided that we would give it and we call it celebratory prices but including the rewards we will be offering about 10% savings to the consumer. And you are right, we did it because of the fact they're new products, we want them to get across. Most of them are made in America and I think at this very, very difficult time it made sense for us to get give you that opportunity and savings to our clients. Now what we are planning to do as we go forward for the next nine months, we are introducing a number of new product categories. For instance, one after June we are going to be -- we are adding some very, very good fabric programs and our objective is to offer those fabrics at what you might call our beginning grades. So we'll offer good values to our customers and opportunity to -- in fact even encourage people more, more people to become Ethan Allen customers. So it is limited at any given time most probably no more that 10 15% of our product line.

Okay. So I understand the website promotion that you ran. So the way to think about this additional latest promotion is 10 to 15% of your product line will be discounted roughly 10%, is that correct?

Yeah. It could be less than 10 to 15% but that is right.

And then I think your reference to $6 million negative impact in the March quarter from downtime. How do you see the rest of the calendar year playing out, you mention getting inventory down further. What are we looking at the June quarter than may be the second half of the calendar year?

Well, our inventories are in -- have always been in good condition. One of the reasons we did not do - made a discounting in the first quarter was that our inventory position was good. We had good inventory. To sell that off would have basically meant giving it away and I do not know whether we would have got any incremental business in the kind of conditions we were dealing with all kinds of liquidations and people giving 40, 50, 60, 70% off. We would have not only lost credibility but really we would not have gotten much incremental business and we suffered, with a 40% decline in business is monumental, never seen it. Now, going in the next quarter I think that we're going to watch it very carefully, John, we got strong programs to get business and if business starts improving we're going to get our people back to work. Our upholstery's are little better because we consolidated a manufacturing plant. That's why we are able to get back to work. Our case clues (ph) is a one where we are taking downtime. Our inventories are in good position and in fact with this new celebration that we started last year is all our new products and that is a one where we have some inventory because we had build it for launch of January and February position. So we're in a good position. And as we start depleting it we're going to get people back to work. But having said all of that, we're still going to, at this stage its already April and May and June, we're going to continue with downtime maybe not as much as we did in the third quarter, but you're still going to have a fairly large downtime this quarter also, John, and after that we're going to see.

Okay and then a last question quickly, corporate, what Ethan Allen is spending on advertising as a percentage of revenue maybe and I'm interested if you could break it out between which is spending on the wholesale business if you will versus what you're spending within your retail component?

Okay John, Dave will get some number, but I'll tell you this what we have done is we have helped our independent dealer network, our own, the company retail division by reducing their advertising spending at the local level, at the regional level and spending most of it on the national level. I think that has been very beneficial, we have been very-- we've gotten the message across, while spending lower amount. And I think that what I can say is this, that at this stage when we are talking about for our total sales, let me get some numbers to see how much information we can give, what we make public and all that stuff, John, but overall I would say that the retail end of the business has gone down less than 2% of advertising to total sales, the rest is all taken by the wholesale.

Great, thank you.

Our next question comes from Barry Bogo (ph).

Good morning Farooq and other people on the call.

Hi good morning Barry.

You talked about this $100 million in cost savings which is a quite significant number could you put some color on how this is going to play out starting with fourth quarter?

Well, good have the-- the interesting fact of this Barry is that if you take a look at this third quarter, our operating expenses excess restructuring which is we can say the restructuring amount is about $20 million less than what we spend in operating expenses in last year the same quarter so we already getting this quarter $20 million a benefit but this quarter also we had cost associated with severance terminations consolidation of service center, consolidation of our plant while some of that or a fair portion of that goes into restructuring, but still also we have some of it, in fact some fairly large also goes into operating expenses. We're going to get those out as we go into the next quarters. So we're going to have in the fourth quarter onwards at least $20 million and we going be slightly ahead in more than $20 million reductions in every quarter going forward.

If you look at $20 million in the fourth quarter, you had 20 million in the third quarter, going to next fiscal year are you saying because you made the comment about 60 % will be ongoing savings, that next year you'll have a total savings of 60 million on these initiative versus about 40 million this year. In other words, if you have 20 million of savings in the third quarter and then 20 million in the fourth quarter this fiscal year, that will be 40 out of the 60, that you talked about in terms of on going

No, what I was saying was this, Barry we're going to have a $100 million on an ongoing basis. Only reason we are going to, only reason is going to go down by 40% is, when our business sales go back to where they were a year and half back. So we are not going to increase them if the sales don't go back. We're going to maintain a $100 million savings for some time to come.

Okay, because I think the clarification wasn't clear.

No, I understand. We are not going to get them back, what I was saying is, good we go back to a billion dollars, when we have reduced a $100 million at best I see as outstanding $40 million while the $60 million will be permanent savings.

Alright, thank you very much.

Thanks Barry.

Our next question comes from Michael Toledano (ph).

Hi, I'm actually really sorry I got disconnected earlier. How did you say sales book were trending for April so far?

I did not give a--, its too early to say but I did say that in the first week in April and the last week in March, our sales trended better, we saw improvements. In the middle of the month sales were down, and as I also said that they generally are down because of effects in the Easter but they were down also reflecting the economy and then, now we just started a major campaign only end of last week which is really going to affect us in May. But overall I would say sales in April continued to be low and to be down.

Okay, all right. Thank you very much.

Our next question comes from Robert Higginbotham.

Yes, hi, good morning.

Good morning. Couple of questions but first on the gross margin as just sort of a follow-up on a previous question. The $6 million of under absorption cost that you occurred in the third quarter, is there any component of debt that is one time in nature, in other words, should we expect to see the similar type of gross margin pressure in the fourth quarter, given the extended -- continued extended downtimes or is any of that that current downtime is going to be accounted for in, in the third quarter?

Well, its it will depend upon number of factors. In this third quarter, we had to on a very, very aggressive basis reduced our inventories to reflect the fact that such drop in sales. Now -- so that was some element of the in the third quarter which was extra ordinary because we took major steps to bring it down. Now that it is down that element in the fourth quarter is not there. Now in the fourth quarter, it will still depend upon what our business conditions are and I think May and June is generally our good months and if our business continues to be down as much in the third quarter, you are going to see downtime, maybe not exactly to the level of what we had in third quarter but it will be lower but still will be substantial.

Got you. Thank you and on cash flow, sales are of course down extremely sharply. It sounds for the most part that is continuing in over the past couple of quarters, you've work through about 30 million of cash, certainly the recent dividend reductions well, well that will help alleviate some of that pressure. But I wonder what are the levers you might have to call, it sounds like you'll have a little bit of pressure potentially from extended receivable terms and this one on -- what else you can do offset that cash burn pressure? And as part of that maybe you can talk to minimum CapEx levels, you talk to the flexibility that people will 20 million can you go lower than that?

Yes. Our cash was down for number of factors as you mentioned, one of them was that our accounts payable came down quite a bit. As our sales are down, our budgets are down, so that had an impact and the fact we paid all those bills. Second is, that our deposits if you compare our cash position to 630 '8 to now, they were substantially down because of the customer deposits came down. Now in fact in the last quarter this slightly went up because it had already come down quite a bit. Third factor is that we are expecting about I would say Dave more, what $10 million on taxes.

It's probably until after this system (ph).

But yeah, he is talking a little bit -- right of the end of fiscal year Robert, the government owes us at least $10 million of taxes and we are going to continue to on a planned basis reduce our inventories. We are looking at ways of streamlining our business, rationalizing up logistic, that's on ongoing basis but we'll see that as well. Then we have reduced our dividends as you know now, we had $0.25 and a $0.10 and now $0.05. We are going to watch that also very carefully as we go forward. We have continue to reduce our expenditures. So you see that even with all this tough quarter that we had last quarter, our operating cash flow was about 1.9 million negative and for the year it was positive over 13 million, what was it?

Right.

$13 million, so we're very, very careful, conscious that and we also have approximately I think on contract there is a tough period but we expect to get between 5 and $10 million from real estate and acid sales.

Great, thanks, one last question on merchandising. Could you give us some color how on how your recent product introductions, so that the ones that were launched last year are currently doing?

Well, the ones we launched this past quarter, this was they great product but the worst possible time to introduce them. So we've not done very well with them. That's why we are now reintroducing them. We have received lot of great comments. We have now even offered better values to our existing clients. So as far we were concerned all that new product that we introduced we're reintroducing it again Robert now starting actually this week.

Great, thank you.

All right.

Our next question comes from Todd Schwartzman.

Hi Todd, Good morning. Todd Schwartzman - Sidoti & Company: On the celebration pricing, if you're looking at similar initiatives to celebration pricing over the next nine months, does that mean you expect the business to pick up in roughly or within roughly nine months?

Well Todd, what we are planning for nine months. We have flexibility, we have got up to even contingency planning so that if things go even worse what more can we do. If things go better what less can we do. So we're developing some contingency planning at least for nine months we're developing the contingency planning for the fact that business is going to remain tough when business gets better we're going to then some perhaps take down some of this celebratory pricing. Todd Schwartzman - Sidoti & Company: And if you run similar promotions, will that be exclusively regarding newly launched products? Will there be some either close out merchandize in a mix where existing non-close up products as well?

Well, in fact Dave had mentioned also the fact that at the retail, we last quarter, he called these normal cost we had, by introducing these water based finishes we had existing product lines. We converted to water based finishes and we sold those off. And we sold them off at a retail--, at a much of a higher discount then we would normally would but that--, so most of that we did last quarter. Now going forward and including this initiative that we have right now, approximately 80% or 75 to 80% of the products are new and 25% our existing products are supported. And similarly that's what we going to do for the next couple of initiatives. Todd Schwartzman - Sidoti & Company: Got it. Regarding your CapEx projection, did you say that next fiscal year might be below 20 million?

Yes, I did. Todd Schwartzman - Sidoti & Company: Okay.

Just remember this Todd, 20 years back we spend less than $5 million when we had to. Now, you know this quarter, this year we had few two or three, three or four of these design centers which we're under construction and all that. Next year we're watching it very carefully, we're not making any commitments unless absolutely necessary until we see what is taking pace and the good news is we've invested our $0.5 million in our retail division in the last few years, so we're in a very, very good position. We have invested in technology in our plants, we have invested in information system in fact just this month we introduced a new information system for our retail division, state-of-the-art information system which is going to make it possible for our design associates to be more productive and also our back end, our logistics also to operate well. We introduced our new website. If we had to make all those decisions today, to almost probably, we would not do it but fortunately we did all of those things. So our need for capital expenditures is now come down very, very low. Todd Schwartzman - Sidoti & Company: And if you had to venture I guess as far as downtime in Q4, would that be more or less than the 98 days?

I would take between 70 and 80% of that. That's what we may --that would be my estimate for Q4, Todd. Todd Schwartzman - Sidoti & Company: So a little improvement?

Right. Todd Schwartzman - Sidoti & Company: Okay. And you also drew out (ph) a number of 5 to $10 million in real estate in asset sales, I didn't catch the time frame that you apply that to?

I would say in the next six to nine months. It could be earlier but you know -- you don't know this we have had 4 or 5 contracts, they're almost closing in folks, get nervous, but we have 2 or 3 contracts already in place for I think about 5 or $6 million dot. Todd Schwartzman - Sidoti & Company: Okay, and finally any issues related to debt covenance we should be aware of, anything getting close?

No but as you know we are terminating this $100 million revolver which we should not have had in any case because this was unsecured that any time we needed it, the chances are by that time we would not be, we would be tripping the covenants. In last 4, 5 years we never used this. So we came to the conclusion it will make sense. We have been negotiating that; unfortunately that we were not able to finalize the closing but we are pretty close. We will have a what I call an insurance line of credit somewhat smaller $60 million that's what we are looking at, which would be secured so that if we need it we really can use it. But right now I think our objective is not to drown the revolver. Todd Schwartzman - Sidoti & Company: And what will the covenants be?

The new covenants in broad terms as just what we are working on is going to be basically not, not many covenants until we come very, very close to using all of it, then the covenants will come into force. Todd Schwartzman - Sidoti & Company: Any more color on that?

No, it's really what it is because we're securing through that inventory and receivables, so they've got a pretty good security for $60 million of a line. So approximately I don't know, I mean in the last 8 or $10 million or so, when we've come to -- have used, when we've come to using about 80% of it, 90%, some covenants leverage ratio covenants will come into force. Todd Schwartzman - Sidoti & Company: Okay. Thank you very much.

All right, its all right.

(Operator Instructions) Line is showing no further questions at this time, Sir.

All right. Well, thank you very much and any more questions, please give a call to Dave Callen. Thanks very much.

Ladies and Gentlemen, thank you for your participation in today's conference. This concludes the conference. You may now disconnect.