Earnings call: Dorel Industries sees mixed results in Q4

Dorel Industries (DII.B), a global consumer products company, has reported a mix of successes and challenges in its fourth-quarter and year-end earnings for the period ended December 30, 2023. The company’s Dorel Juvenile segment showed a strong performance with significant earnings improvement and market share growth, while Dorel Home faced a decline in the furniture market despite an increase in in-store sales.

The company has initiated a cost reduction program and is undergoing restructuring efforts to improve profitability in the face of a challenging economic environment.

Key Takeaways

• Dorel Juvenile’s Q4 revenue increased by 12.2% to $212 million.
• Dorel Home’s Q4 revenue declined by 8.4% to $138.6 million.
• Company-wide Q4 revenue rose by 3.1% to $350.7 million, with a 1.3% organic growth.
• Gross profit surged by 147%, with a gross margin of 20.2%.
• Dorel Juvenile’s operating profit was $11.3 million; Dorel Home reported an operating loss of $12.8 million.
• Restructuring plan expected to save $6.5 million annually.
• New credit facility introduced with a 10% per year repayment schedule.
• Corporate costs anticipated to decrease, but some fixed costs will persist.

Company Outlook

• Dorel Juvenile is expected to continue its improved earnings trajectory.
• Dorel Home is projected to see further improvements following a challenging quarter.
• The company expects to realize cost savings from restructuring throughout 2024.

Bearish Highlights

• Dorel Home experienced a significant revenue drop due to lower online sales and tough market conditions.
• Restructuring costs incurred were approximately $4.5 million, impacting the Home segment the most.
• Dorel faces headwinds in Chile and Peru due to internal and political issues.

Bullish Highlights

• New product development, such as the Maxi-Cosi family 360 car seat, is gaining consumer traction.
• Dorel Home’s participation in the IMM Cologne exhibition led to new customer acquisitions.
• Gross margin improvements were driven by lower costs and sales of older high-cost inventory.

Misses

• The online sales volume for Dorel Home has been struggling despite overall revenue increases.

Q&A Highlights

• CEO Jeffrey Schwartz emphasized the reduction in headcount as part of restructuring.
• Seasonality is expected to impact the Juvenile business’s EBIT in Q1.
• The new “covenant light” credit facility has a repayment schedule of about 10% per year.
• Corporate costs are projected around $20 million, with a focus on cost reduction.
• Gross margins for the Juvenile segment are expected to return to historical levels, while the Home segment may take longer.
• No pricing actions anticipated this year as the company has cycled through high-cost inventories and input costs are stable.
• Inventory levels may increase with sales growth.

Dorel Industries’ fourth-quarter results reflect a company in the midst of strategic adjustment, with its Juvenile segment showing resilience and growth potential. The Home segment, on the other hand, faces ongoing challenges that the company is addressing through cost reductions and operational restructuring.

With a new credit facility and a focus on cost savings, Dorel Industries is positioning itself to navigate the current economic landscape and improve its financial performance in the coming year.

Full transcript – Dorel Industries Inc (DIIB) Q4 2023:

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Dorel Industries Fourth Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded today, March 12, 2024. I would now like to turn the call over to Martin Schwartz, President and CEO. Please go ahead, sir.

Martin Schwartz: Thank you. Well, good morning and thank you all for joining us for Dorel’s fourth quarter and year-end earnings call for the period ended December 30. With me are Jeffrey Schwartz, CFO; and Frank Rana, VP, Finance. We’ll take your questions following our comments. And a reminder that all figures mentioned during this call are in U.S. dollars. We are very pleased with the continuing progress of Dorel Juvenile. Their string of quarter-over-quarter earnings improvement was maintained throughout the past year. In fact, the recent fourth quarter was the best quarter since 2017 and the metrics tell the story. Market share increased again in our major markets. Year-over-year revenues for 2023 grew 2.4%, and we achieved an adjusted earnings turnaround of almost $59 million. We are well on our way to getting Juvenile back on a solid footing. Dorel Home’s fourth quarter was disappointing as the furniture market did not rebound as anticipated. Online sales decreased considerably, but on the bright side, in-store sales were up again. In response to the current difficult economic environment, we initiated a cost reduction program, primarily at Dorel Home, which going forward will result in annual savings. Looking specifically at our two segments, Dorel Juvenile has certainly been on a roll. European and U.S. markets again posted double-digit organic revenue increases. All divisions also recorded sales improvements, the only exception being Chile, where revenue was down single-digits. The continuous focus on new product development is driving market share gains even in the face of a challenging market. Credit goes to our European product development team, which has been highly successful in developing innovative products, continuing to make advances from the competition. The perfect example is Dorel Juvenile’s revolutionary slide-tech, a sliding car seat technology integrated in their high-end Maxi-Cosi family 360 car seat. This enables you to easily slide your child towards you, getting them easily in and out of the car. In the U.S. products such as Safety 1st Grow and Go 3-in-1 convertible car seat is increasingly gaining traction with consumers. And I’m proud to say that earlier this year, three of Dorel’s Maxi-Cosi products won the prestigious iF 2024 Design Award. iF Design is a renowned global design competition recognizing design excellence and product functionality. The winners include the new Oxford Comfort Stroller featuring a lie-flat design, state-of-the-art suspension, and an intuitive compact fold. Also, the 360 Pro family with Dorel slide-tech and the Maxi-Cosi Soho ultra-compact stroller. The Oxford is especially important as it is providing Dorel Europe with the opportunity to recapture share in the stroller category. As well, in a test of 12 different strollers, the Soho was named Germany’s Stiftung Warentest winner in the stroller category. Established 60 years ago, Stiftung Warentest compares aspects of products such as usefulness, functionality, and environmental impact aspects. There has been significant media recognitions lately for Dorel Juvenile products, which have received numerous highly positive reviews both online and in print. With more new products coming, we remain enthused about Dorel Juvenile’s prospects. Towards the end of the year, Nicolas Duran left us to take up a new challenge elsewhere. Rafael Camarano, who joined us 15 years ago when we established Dorel Brazil, has been named President and CEO of the segment. His ability to identify and capitalize on emerging opportunities have been instrumental in making Dorel the market leader in Brazil and improving operations in all international divisions within his scope. Rafael’s appointment will ensure a seamless transition and an uninterrupted path on Juvenile’s current strategic direction. Turning to the Dorel Home, the current economic environment continues to constrain consumer spending on home furnishings. This was particularly the case in December and the market did not rebound as expected. As a result, neither did Dorel Homes sales, statistics compiled by the Advance Monthly Retail Trade Survey MARTS show that in 2023, while consumer sales in general were flat, sales of furniture in particular decreased 7.5%. 30% of furniture sold is based on people moving, but with high interest rates most are staying put. 2023 saw the fewest numbers of moves in the states since the U.S. government began tracking the data back in the 1940s. Home affordability hit an historic low last summer, while interest rates were the highest since 2022. While Dorel Home is affected by this industry situation, there are positive developments. Brick-and-mortar sales increased, continuing the recent positive trend in this channel. Also as store inventories come down, this has prompted replenishment orders from the retailers. The segment’s products development team has been particularly creative and has designed a number of exciting new items, differentiating Dorel Home from the rest of the market. Many of these products are expected to be launched during the second quarter. Dorel Home participated in January’s IMM Cologne, which brings together furnishing, professionals and vendors from around the world. It was the first show since COVID and the first time Dorel Home attended after acquiring Notio Living in late 2021. With an expanded booth, there were many positive meetings and despite the current lackluster market in Europe, a number of new customers were picked up and several others are seen as potential buyers. In terms of our outlook, we expect Dorel Juvenile to maintain its improved earnings. Our strong portfolio of new innovative products, market share gains, excellence in e-commerce, and strong retail relationships provide confidence that we are well-positioned for improvement full-year operating profit over 2023. I do want to point out that due to the seasonality of the Juvenile business, our first quarter while expected to be substantially better than last year’s will not match the strong performance of the recent fourth quarter. At Dorel Home, there is continuing traction at brick-and-mortar, as our focus on that channel is paying off and we expect further improvements. Offsetting this are industry challenges at e-commerce, which is dampening sales overall. Nonetheless, we remain convinced we are heading for a turnaround and expect improvements in 2024. This still depends on overall health of the furniture industry. We will continue to seek lower costs through our restructuring plan and coupled with innovative new products, we believe we will deliver the turnaround at Dorel Home as we did this past year at Juvenile. Jeffrey, will now review the financials.

Jeffrey Schwartz: Thank you, Martin. Just going to go quickly through some of our numbers before moving on to, obviously, the question period. For the fourth quarter, Dorel’s revenue increased $10.4 million or 3.1% to $350.7 million. Organic revenue growth was approximately 1.3% after removing variations from foreign exchange rates, year-over-year. The revenue and organic growth was in Juvenile, which was partially offset by the decline in Dorel Home. Gross profits for the quarter increased by $42.2 million or 147%. The gross margin in the fourth quarter was 20.2%, coming back from last year’s abysmal 8.4%. The marked improvement in gross product was in both the Juvenile and the Home. In Juvenile, it was based on lower product costs, better product, and overhead absorption, improved product mix, and some foreign exchange gains. On the Home side, the improvement was due to lower product costs as well and some increased factory absorption from slightly improved domestic manufacturing activity. For the total, was an operating loss of $7.4 million compared to $40.7 million in 2022. Excluding restructuring costs, adjusted operating loss for the quarter decreased by $36.2 million to a loss of $2.9 million from $39.1 million last year. Our finance expenses in the quarter, decreased by $800,000 to $6 million. The rates, obviously, the rates are higher, but the amount we borrowed was less. Net losses from continuing operations during the quarter, the net loss from continuing operations $3.8 million or $0.12 per diluted share compared to $41.4 million or $1.27 last year. And then excluding restructuring costs for the quarter, it was income of $0.01 per diluted share versus a loss last year of $1.22 per share. Moving over to the Juvenile, as Martin said, we continue to move forward in that division. We’re pleased with the progress. Revenue increased by $23 million or 12.2% to $212 million this year. Organic revenue improved by 9.3% after removing the impact of exchange rates. The improvement in the revenue, and both revenue and organic revenue, was in the majority of the markets, with the most significant contributor being the U.S. and Europe. In the U.S., the increase is across all brands and all product categories. Europe experienced double-digit revenue growth in the quarter for the third sequential quarter in a row. A lot of that, again, has to do with, the new product launches that we launched in the second quarter of 2023. Gross profit in the segment for the fourth quarter was $33.7 million or 110% better than last year. The gross margin was 30.4%, representing an improvement of 1420 basis points from last year’s 16.2%. Again, lower product costs led that last year in 2022 with much higher freight, better overhead absorption and then improved margins from the increased sale of new products. And that’s a key element that we’re going to continue to push. As we introduce more successful new products, they generally come at higher gross margins. So, for the whole quarter, the Juvenile business had an operating profit of $11.3 million for the quarter versus a loss of $23.5 last year. And excluding restructuring costs, we actually increased by $34.7 million, to an operating profit of $12.9 million. Moving over to the Home, unfortunately, revenue declined by $12.7 million or 8.4% to $138.6 million. The decline in the revenue is mainly explained by the online sales from just lower demand, and a more difficult condition. That’s partially offset by the increase in sales in the brick-and-mortar channel. The increased sales in brick-and-mortar, is due to, I believe, people coming back to the stores. It’s due to, increased order replenishment because, a point-of-sale sales POS sales were far exceeded the replenishment orders in the previous few months. So, the inventories at the retail levels have really come down, and now the retailers have started to order, in a level similar to the POS. Gross profit for the quarter in Home, increased by $8.5 million or 416%. Gross margin for the quarter were 4.7% an improvement of 610 basis points from an actual 1.4% loss. The increase in gross profits and gross margin in the quarter were mainly due to lower product costs, raw material costs, freight, etcetera. And then sales of a smaller proportion of older higher cost items, that were no longer in our inventory by the fourth quarter. That was a burden throughout most of the year, that high cost inventory that had come in 2022, and that’s been reduced significantly. Margins were also positively impacted by slightly better domestic manufacturing activity, that’s slowly picking up as well. And, basically, gross margins in the second half of the year were much higher than the first half of the year. Overall, we did still have a loss. The loss declined by $5.5 million for the quarter to an operating loss of $12.8 million from $18.3 million the previous year. If we exclude restructuring costs, the operating loss declined $8.5 million to $9.8 million versus the $18.3 million. If we talk a little bit before I finish about the restructuring costs, so we basically total for the quarter was about $4.5 million of cost. A lot of it, most of it was in the Home side, the majority of it, but maybe about two-thirds of it. We basically restructured in a way where we’ve combined a couple of our operating units under one operating unit, and reduced staff overall in those two divisions as we move them together. There was a little bit as well in the Juvenile side. We’re expecting benefits of about $6.5 million. That should appear throughout the year of 2024. So, we’re expecting to see sort of a return on that right away. With that, I will pass it back to, Martin.

Martin Schwartz: Okay. Thank you, Jeffrey. I’ll now ask the operator to open the lines for questions and as always, request that you please limit them to two on the first round. Operator?

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Derek Lessard of TD Cowen. Please go ahead.

Derek Lessard: Yes, good morning, everybody, and actually congratulations. It’s great to see the improved performance at Juvenile. On that segment in particular, I just, I was curious, strong organic growth obviously in the U.S. and in Europe on the back of some new product introductions. How do you explain the decline in Chile and Peru?

Jeffrey Schwartz: Chile is undergoing significant internal struggles. We are not losing market share there. I assure you of that. The currency is really under a lot of pressure. Most currencies tend to move in tandem with each other against the U.S. dollar, but Chile is moving on its own. It’s pretty close to the lowest level that I can remember since we’ve been there. So that’s had a big impact both on people’s buying power. We have kind of restructured there. We’ve taken a lot of cost out. We’re focused, we’re a retailer there and we continue with anything we’re gaining market share. We’re still helpful. We’ve made a lot of changes. Some of the losses again are currency related. So, but it’s just the most difficult area right now. That’s all I can tell you. But we’re not losing market share. So, we’re just hoping for some stabilization in the country, in the currency, and I think we’ll start moving ahead again.

Derek Lessard: Okay. And, Peru, similar comments?

Jeffrey Schwartz: Yes. Peru is small. I mean, Peru is a small, I wouldn’t focus too much on that. But, yes, Peru has also had a lot of, political issues as well.

Derek Lessard: Okay. And on the Home side, it seems like again, it seems like you’re getting some success, in the retail segment and shows through the strong POS. What’s the disconnect between retail and what’s going on, in the online business?

Jeffrey Schwartz: That’s a good question, and I think I can answer it this way. When it comes to dealing with the retailers that we deal with, we have to bring to the party a lot more than just a good product and a good price, right. We have to have service. We have to have after sales service. We have to have, inventory stock for them, kind of the old way of doing business, right. And, there’s not a lot of people out there that are good and can do what we can do. And, I think a lot of the retailers are realizing that that we deliver, a much more secure product that we stand behind. Online, it’s a little bit more, as they said, the wild west where you have people coming in that don’t necessarily have, the right, the safety, we’ll say, on a product. They don’t necessarily have after sales service. They’re just online with a picture and a price. And, those are a little harder to compete against. And I think, we’re also seeing people coming back to the stores. From what I hear, furniture, even retailer stores are picking up a little bit. And we see the online retailers, some of them struggling, to grow. They’re certainly not growing very much right now. So, I think we’re much better suited versus the competition online. I mean, not online, in-store. And now we’re looking for ways to battle, with the online retailers. It’s a little more for the online suppliers, a little more difficult, but, we’ve got some things going. But, we are definitely focusing on growing the, brick-and-mortar business, which, continues to grow at double-digits now. So, I don’t think that that’s going to slow down.

Derek Lessard: So, brick-and-mortar is growing at double-digit?

Jeffrey Schwartz: Yes.

Derek Lessard: Okay. And I guess, if just on the view of the furniture industry, I was wondering if you had any expectations or maybe thoughts on when you might turn the corner on Home and return to profitability?

Jeffrey Schwartz: I’d like to answer that. I don’t know, so much of it is the industry. I know what we’re doing internally and we’re growing, we’re getting more listings. I mean, a lot of what we see success is increased opportunities at brick-and-mortar. It’s a little more difficult. We have some new products for sure. I think our new product development effort is the best I’ve probably seen in about three years. Some of that goes right to the online. So, expect to see some improvements there. But it’s just difficult. I mean, if interest rates would drop, if Home sales across the U.S. were to pick up, I think that would all have a positive impact on the industry and therefore on us.

Derek Lessard: Okay. And maybe just switching back to Juvenile, you did touch on the product innovation in Home, just curious, if you can maybe just talk about your pipeline for innovation in 2024?

Jeffrey Schwartz: Yes. I’m pretty excited about it. I’ll tell you when you look at where we are and we’ll take Europe. I mean, Europe and America is pretty different. In Europe, we’ve had tremendous success lately in the car seat section. The other big category, is strollers, and we haven’t really been a decent sized player in a while. We’ve had some success in the last six to eight months with a couple of new items. As Martin mentioned, we’ve won some awards. We’re getting increased listings. The success of the car seat is kind of dragging our strollers onto the retail floor. We have a launch of a brand new, pretty exciting product coming, in April of this year. So, I think if we can have just a partial success of strollers compared to what we’ve done in car seats that would be a material impact on Dorel. And, a similar thing in the U.S., we continue to gain market share. We’re doing it everywhere, including, at the higher end of the product range, which I think we probably at the best we’ve seen in maybe 10 years at the high-end. It’s been difficult, the market, as people know with, baby leaving and this one leaving and but, our success at the high-end is definitely improving, and that leads to higher gross margins. And that’s where we’re trying to take the business. We’ve also had a lot of success with a lot of these new products around the world, right? Our export business is growing significantly. Our business in places like, Brazil, Canada, Australia are all doing very, very well now. So, Mexico is doing well. So, I mean, it’s just all coming together on the backs of having some really good product.

Derek Lessard: Awesome. Congratulations again on the significant improvement there, Jeffrey.

Jeffrey Schwartz: Thank you.

Operator: [Operator Instructions] The next question comes from Stephen MacLeod of BMO Capital Markets. Please go ahead.

Stephen MacLeod: Great. Thank you. Good morning, guys. Just a couple of questions. Just in terms of the restructuring and the cost savings, so you’ve cited you highlighted sort of $6.5 million in annual savings. Can you just give us some color on how that breaks out between the two segments? I know it’s majority Home, but wondering if you can just give a little bit incremental color.

Jeffrey Schwartz: Yes. Probably, let’s say, four of it is in Home.

Stephen MacLeod: Okay, great. And is it mostly headcount or is there other sort of restructuring items?

Jeffrey Schwartz: It’s mostly headcount.

Stephen MacLeod: Yes.

Jeffrey Schwartz: I mean, there’s a couple of materially, it’s mostly headcount. Yes.

Stephen MacLeod: Yes. Okay. Okay. And then, would we expect to see that sort of coming in evenly through the year if we think about Q1 through Q4 for 2024?

Jeffrey Schwartz: Yes. I would say so. I would say so. I mean, most of the people have exited, or almost all the people have exited. So, yes, we would start seeing it.

Stephen MacLeod: Yes. Okay. Okay. Great. Okay. And then, just turning to the Juvenile business, it’s a strong Q4 and just in the outlook section you cited some seasonality impacting the Q1. And, I’m just curious, is that based on that seasonality comment, would you expect actually revenues to be lower quarter-over-quarter or is that just a comment around EBIT?

Jeffrey Schwartz: That is a good question. It’s definitely on EBIT. I’m not sure where that falls in, again, we’re expecting sequence, that was a sequential comment, right?

Stephen MacLeod: Yes.

Jeffrey Schwartz: That’s not a, versus last year. Versus last year, we expect improvements on both. I would imagine sequentially it would be down a little bit.

Stephen MacLeod: Okay. Okay. No, that’s helpful. And then maybe just finally or just one more, just on the recent credit facility or the term loan that you announced, can you just talk a little bit about kind of the rates associated with that, including any payment requirements and then and I assume it’s also covenant plea. Is that right?

Jeffrey Schwartz: It is. We’ll call it covenant light. I mean, it should be I mean, all the stuff should be in the financial statements. I do believe there is a repayment schedule of about 10% a year. Everything else should be in the financial statements all the detail, $2.5 million a quarter.

Stephen MacLeod: Okay. $2.5 million a quarter. Great. Thank you. And then just finally, just as you think about the year and obviously some movements in the like Juveniles improving, Dorel is likely or Home is likely to improve through the year, and then countering that just some of the restructuring costs or restructuring items, where do you see corporate costs kind of settling out? I mean, is it in that $20 million range or is it a bit higher than that?

Jeffrey Schwartz: I mean, it should be in that range. We continue every year starting to take cost out of corporate. We shrunk our footprint in in Montreal. We don’t have as much space. We don’t have as many people. So, yes, it creeps down. I mean, there’s, even though we don’t have and, I said this after we sold the bike business. Even though we don’t have a third, let’s say, of our revenue, you can’t, take away a third of, your top accounting staff, your top legal staff, your top tax staff. It doesn’t work, unfortunately, that way. So, that’s what’s sort of keeping it there. But, nevertheless, I think every year, we make a good effort to bring it down.

Stephen MacLeod: Yes.

Jeffrey Schwartz: There’s a lot of variable. There’s some variable cost, but, there’s some fixed cost.

Stephen MacLeod: Yes. Okay. No, that’s helpful. And then, actually just one more for me if I could. Just in terms of gross margin, when you think about each segment, is it fair to assume that in the Juvenile business, you’ll kind of return maybe more in-line with the historical gross margin rates in the sort of high-20s, maybe even into the 30% range? And then on Home, is it also it’s kind of fair to assume that you’ll see some year-over-year improvement, but probably not getting back to those historical levels, maybe sometime until next year based on what we know today?

Jeffrey Schwartz: Yes, I would say that’s probably correct. Yes, we are pretty bullish on the ability to get our Juvenile business back up as we continue to have success with higher priced products. On the Home side, I don’t see getting back to our historical highs for a while.

Stephen MacLeod: Yes.

Jeffrey Schwartz: We had such a tough year last year that, we just want to get back to, a reasonable number.

Stephen MacLeod: Yes.

Jeffrey Schwartz: And we are seeing success in that area. Our business is getting better. Our margin is going up, but the volume is, I guess, where we’re struggling with. We’re keeping our costs down. We’re keeping our margins well in a good place. It’s just getting that online business to move is where everybody’s heads at right now.

Stephen MacLeod: Right. Okay. Okay, no, that’s very helpful. Well, thanks, guys. I appreciate it.

Jeffrey Schwartz: Okay. Thanks, Steve.

Operator: The next question comes from Derek Lessard with TD Cowen. Please go ahead.

Derek Lessard: Yes, guys. Just a few follow ups for me. Is it safe to say that you’ve now cycled or mostly cycled through your high cost inventories? And then sort of a follow-up to that, could you maybe just talk about how your input costs are trending?

Jeffrey Schwartz: Yes. I think for the most part, yes, we’re through the high cost. It doesn’t mean there’s absolutely none left, but for the most part, there’s none left. Costs are fairly stable. There’s a little bump in freight, particularly on the European side as, the problem in the Red Sea is forcing those containers to go around. Not so much for us on the Pacific side. But overall, we haven’t seen, we’re not seeing a rise in cost anywhere, and we’re trying as hard as we can to reduce our costs. So, it’s fairly stable, I think, is the answer.

Derek Lessard: Okay. And so you talked about the cost side. How about on the pricing side? Is there any pricing action that you feel you need to put through this year?

Jeffrey Schwartz: Pricing action usually means raising. At this point, no, we don’t know what’s going to happen. There is a little bit of pressure downwards, particularly in the Home side, but it’s usually matched with cost reductions. So, what we found is, in many cases, if we can lower the retail on some items. We could see spikes, about a 30%, 40% increase in sales on an item when it goes down to another price point. So, we’re trying to do what we can to get our cost down and pass that on to our retailers, and having them reduce the cost. I mean, that doesn’t always happen, but when that happens, we’re generally seeing nice, nice increases.

Derek Lessard: Okay. And one last one for me and it’s on inventories. So, obviously, some pretty good progress there in 2023. Are you done on the inventory side or do you have a little bit more to go?

Jeffrey Schwartz: I mean, there’s always a little bit more. I mean, not to the fair, and then there’s perfect. But, I don’t know as we grow, hopefully, grow the topline if we’re going to actually be growing, shrinking any more inventory. So, it’s more likely to go up than down and that’s just because we’re hoping sales are going to rise.

Derek Lessard: Okay. Okay, that’s fair. All right. Thanks, everybody.

Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Martin Schwartz for any closing remarks.

Martin Schwartz: Okay. Well, I want to thank everybody for joining us today and just wish you all have a good day. Thank you.

Operator: This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a blessed day.

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