Preliminary Q1 2021 Hooker Furniture Corp Earnings Call
Welcome to the Hooker furniture quarterly Investor Conference call affording its operating results for the first quarter 2021.
At this time, all participants I not listen only mode.
Next question and answer session will follow the formal presentation.
Good question. During this session you will need to pet star one on your telephone.
I know this conference is being recorded.
It is not my pleasure introduce your host Paul Huckfeldt.
President and Chief Financial Officer.
Richard Corporation.
Thank you draw.
Good morning, welcome to our quarterly conference call review, our preliminary financial results for the fiscal 2021 first quarter, which ended May 30, 20 twond.
We certainly appreciate your participation.
All types, our chairman and CEO, Jerry Hall, President of our Hooker legacy brands and sub counts until precedent home Meridian Division are joining me today. The question. That's a portion of the call or other executive officers velocity of that will take questions, including and Smith, our chief administrative officer, and we've Oh precedent.
There are call we may make forward looking statements, which are subject to risks and uncertainties.
Actually the factors that could cause our actual results to differ materially from management's expectations.
In our press release.
She filing it out you know preliminary fiscal 2021 first quarter results.
Good.
Forward looking statements speaks only as of today, we undertake no obligation to update or revise any forward looking statements to reflect events or circumstances after that.
Overlapping head up that's true real impact our financial performance in the fiscal 2021 first for add on market valuation discount rates and other inputs used in our intangibles valuation.
That's what like despite having.
Similar intangible asset valuation during our fiscal Twentys funny fourth quarter.
We determined that another intangible asset valuation was appropriate given our performance these changing markets.
Given the efforts and complexity involved in this project, we need additional time to complete the smell. Therefore the results reported this morning.
That's on this call a preliminary does not include any non cash impairment charges, our intangible assets, which could result from the impairment analysis.
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Actual results may differ materially somebody's preliminary unaudited results.
Got it provides this morning.
Just on this call.
We expect to complete the intangibles valuation that finalize the amount of impairment if any.
In connection with the filing of our form 10-Q for the fiscal first quarter and it makes her 25, which we expect to file on or before the extended to date of July 27.1.
Impairment charges if any.
It affects our cash position, but would adversely affect operating loss that loss loss per share.
Comprehensive loss deferred income taxes intangible assets advertiser.
This morning, we reported consolidated net sales of 104.6 million.
Our 2021 first systems' fiscal first quarter.
22.8% or $30.9 million decrease compared to last year for the first time since 2009 reported a preliminary that quarterly loss in the amount of 1.1 that.
$3.1 billion decrease compared to the $2 million net income in the prior year first quarter due to the severely negative impact of the cope with 19 pandemic across all three of our reportable segments for granted Oh meridian and domestic upholstery.
We reported a preliminary loss.
Nine cents per share compared to 17 cents earnings per share in the prior year.
Now Paul Toms comments, our fiscal 21 first quarter.
Thank you Paul and good morning, everyone.
Good night in crisis drove the most significant downturn at our business and over 50 years.
And then make stay at home restrictions and an economic shut down for mid March to mid May.
Ralph you watch, resulting in the double digits cells decline.
Companys first quarterly operating and net net income losses and over a decade.
After beginning the fiscal year on an upturn.
3% year over year increase and consolidated incoming orders in February.
Orders and plummeted in March and April as many of our retail customers temporarily close.
Large customers cancel stock orders and other preferred others to FERC order.
Also contributing to the quarterly income loss.
Operating margin reduction.
It's a temporary shutdown of production at five of our six domestic upholstery plants, Virginia North Carolina.
Resulted in Unabsorbed fixed costs and operating inefficiencies.
However, the business disruption has not been a severe as we initially feared.
Consolidated orders decline steeply if I ever 70% of 65% respectively at March and April.
We had a significant month over month improvement in consolidated order rates and May.
Orders in fiscal by were down about seven for some period.
And since mid May consolidated orders from generally comped above the same period last year.
Retailers in some regions of the country have flooring reports about their business the last few weeks.
Polluting strong memorial day holiday weekend themselves.
We believe there are several positive factors in play, including pent up demand.
More focus on home environment from people spending so much time in their homes the last few months.
Less competition for discretionary consumer spending.
Travel eating out and other activities.
In addition occurs domestic upholstery manufacturing facilities from Bradington Young Sam Moore, and Shenandoah and ramping up production in early May and are currently operating at approximately 75% capacity.
On a consolidated basis, increasing efficiencies and cost absorption.
Reflecting on the company's response for the international health and economic prices.
We're proud of how our team weathered the storm hearing this unparalleled time of challenge.
First and foremost we're grateful that none of our 1000 employees in the U.S.
And at any locations have tested positive for the virus today.
It's quite an accomplishment and a testament to the diligence with which human resources implemented best practice safety protocols and all locations our employees all sort of follow at best practices at home and work.
And adapted to working remotely while staying productive positive and engage.
We believe we responded with appropriate mitigation badger measures to reduce operating expenses and preserve cash with difficult, but necessary decisions such as Furloughing 600 manufacturing warehouse and administrative employees.
Closing five or six domestic upholstery manufacturing facilities during the month of April.
Early reducing officer at manager salaries and board of directors fees.
Thing and the like all non critical capital spending.
Fortunately, we had to reduce our workforce.
35 employees, but we're able to keep 97% of our employees onboard during this time.
We're also pleased to declared quarterly cash dividend of 16 cents per share to shareholders of record on June 16 2020.
We're confident in our long term strategies gratified that April even in these extreme circumstances to maintain our 50 plus year history.
Distantly paying dividend.
Steady improvement in orders and shipments at the end of the first quarter on May 30, we expect that are low fixed cost business model, which served us well during the great recession.
We will continue to surface and this current disruption.
Additionally, our ongoing strategy to sell through multiple distribution channels proved itself again during this crisis.
Most traditional bricks and mortar furniture retailers for employment for too much.
Other channels, such as E commerce hospitality.
Clubs floors and provided to source revenue.
Importantly, our cash position remains strong and has continued to improve center fiscal year end in early February.
Generated 18.9 million then cash from operations this quarter, which contributed to a 15.2 million dollar increase and our cash balance since the end of fiscal 2020.
At this point I'd like to turn the call over the Jeremy Hall, President of corporate brands.
Comment on that division.
Thanks, Paul and the Hooker branded segment net sales declined 12.4 million or 31%.
In the domestic upholstery segment net sales declined 8.5 million more 33.7% during the first quarter.
Turning to a more detailed look at each of our segments I'll begin with occur branded segment.
Because traditional furniture stores and small and regional change, which comprises the lions share of Hunker branch distribution base or closed during the economic shutdown incoming order rates dropped dramatically during the quarter. Despite the sales decline segments flow fixed cost and the high variable cost model and able to to maintain a 20.
1.5% gross margin and 4.9% operating income margin during the quarter.
Also the quarter.
Bring highpoint furniture market originally scheduled for late April was cancelled and high point Chevron's disclosed despite that hunker case goods has been able to sell new collections. Originally set for spring introductions from three virtual showroom presentation money password protected areas the company's website.
For the Chevron pause, we prioritized upscale environmental and detailed photography for new collections that are already in production.
We have done very well selling through the first cuttings via this online presentation to our retail customers, which is very encouraging.
Our next step is to produce a 360 degrees style video tour of the collections in our showroom this month.
In the domestic upholstery segment incoming orders fell 40% during the quarter during the month April manufacturing plants in France, and young and Shenandoah were temporarily closed while Sam Moore operated in about 50% capacity.
Employees returned to the factories and production restarted the weakens may 4th and currently the segment is operating at approximately 75% capacity sales decline and operating inefficiencies from the temporary shutdown resulted in significantly decreased gross margins and an operating loss.
For all other which includes H contract and the newly formed lifestyle brands net sales stayed essentially flat and we reported an operating income of 387000 due to continued solid performance in each contract, which achieved a 16% increase in incoming orders and 68% higher backlog.
Compared to the prior year first quarter now I'd like to call on Doug towns and to give more detail on each of my segment this quarter.
Thank you Jeremy good morning, everyone.
Each of my first quarter sales were 57.7 million down 14.7% from the prior year.
Preliminary Q1 operating loss was 2.4 million an improvement of 52% over the prior year results.
While the global economic slowdown from covered 19 significantly impacted Q1 orders.
And profits.
Each of my bottom line improvement over prior year results is attributable to the company's fundamental turnaround strategy.
Some of these improvement indicators, our first quarter allowances were 21% below prior year.
Contribution margin as a percent of net sales.
Improved 360 basis points over the prior year.
And the fixed expenses were 1.5 million below prior year.
These are all areas of concentrated management focus among many others.
The cobot 19 pandemic significantly interrupted our Asian supply chain during the first half of Q1.
Our factories were unable to operate normally due to the massive quarantines in Asia and many production facilities were forced to close temporarily.
All of our factories in China, and Malaysia were closed for a month as those countries had countrywide shutdowns.
The nationwide retail shutdowns in the U.S. that started in mid March severely impacted our shipments for the balance of Q1.
Only recently are we beginning to see conventional furniture retailer three open for business.
Nonetheless, there were some bright spots that outperformed expectations during the quarter.
Specifically, our ecommerce business increased significantly outperformed all expectations and accounted for 35% of our total sales in the quarter.
Business with several of our Mega and mass accounts held up much better than originally projected.
Fortunately some of our customers such as wholesale clubs big box stores and mass merchants were able to remain open while dedicated furniture retailers and many locales reports to close temporarily.
These bright spots combined with major spending reductions another cost control measures and able to mine to significantly outperform prior year results.
The only two of our business units reported an operating profit in Q1 for up six units beat the prior year results.
Eccentric tone benefited from exploding E commerce demand and Samuel Lawrence Hospitality benefited from a healthy backlog of hotel projects that were already in process.
Thanks to significant new business with a major mass channel account and having completed our resourcing of the entire product line.
Our its entire product line out of China pure eyes upholstery sales were 83% prior year. Despite the corporate banking crisis, and gross margin improved by 610 basis points over the prior year.
Peter I also significantly outperformed last year's dismal bottom line results.
Samuel Lawrence furniture improved prior year bottom line results by virtue of margin improvements in spending controls as well.
The Corona virus economic slowdown provided us the impetus to implement numerous new cost control measures, some temporary and others permanent.
Staff and compensation reductions employee furloughs lease cost reductions product cost reductions and curtailment of all non essential operations and extending our about a few of the mini putt measures in place.
These measures and partially mitigated the losses from the sudden significant revenue growth.
Inventory reduction is another area, where we have made much progress as of the end of May our inventories have decreased approximately $19 million or 29% present from the beginning of the fiscal year.
While the decrease was intentional we're now in a position of needing to replenish stocks to maintain an acceptable service position.
Our manufacturing partners have suffered during this difficult time as well they have experienced erratic flow materials and components labor shortages government mandated shutdowns, that's not what's other cancellations and delays.
Nonetheless, we're very pleased with the way our factory partners have weathered the storm and supported our business and every matter possible. We're very fortunate to have an exceptionally strong stable of suppliers many of whom have been our partners for 10 to 20 years.
Looking forward, we have several business growth initiatives to increase sales first we're hosting several major account retailers that are showroom. This summer for private product presentations, which will help mitigate the impact of the cancellation of the Highpoint spring furniture market and hopefully generate new product placements.
We have several other initiatives intended to grow sales, including a new branded license collection in the works a new mass channel customer partnerships are each am idea Archie a product launch our club business re growth efforts.
Our PR I upholstery business reboot, and perhaps most importantly, given the current circumstances, a major effort to maximize sales through our ecommerce channel.
Well, we feel we are weathering the storm it is important for us to keep our teams and collective thinking in alignment on the most important issues, we change, especially since most of our staff is working remotely.
For now our focus is on these issues to health and welfare of our people a thoughtful and careful return of employees to the workplace when conditions permit regular open and candy communications with all stakeholders cost control and profitability and the adaptation of our organization and strategies to be well positioned for the post pandemic future.
Well the economic impact of the chronic virus will continue to impact Q2 likely the balance of the year to some degree. We are encouraged that April and May results were much better than we had forecasted at the beginning of the crisis. We are cautiously optimistic that the worst of the retail slowdown is behind us and we're starting to see stronger demand for shipments as we enter the summer and the majority of our customers.
Open their retail stores.
At this time I'd like to turn the call over to Paul Huckfeldt, who will elaborate further on our quarterly results.
Thanks.
Average selling prices were up in the low to mid single digits in both the hooker granted and home Meridian segments. However, consolidated average selling prices decreased 2.1% due to a change in mix between divisions.
Unit volumes in the higher priced took for granted and domestic upholstery segments were down in the low to mid 30% range.
Much more than the 18% decline.
Increased average selling prices.
We ended at home Meridian segment were attributable to favorable product mix and help offset a small decrease in average selling price.
Domestic upholstery segment. However, these factors were not sufficient to offset the nearly 21.6% unit volume decrease which resulted from lower orders across all three SEC.
Consolidated gross profit decreased $6.9 million from 25.5 to 18.7 million.
From 18.8% to 17.8% as a percent of net sales.
Okay branded gross profit decreased in absolute terms and as a percentage of net sales due principally to the net sales decreased.
Meridian segment. Despite a net sales declined gross profit increased in absolute terms and as a percentage net sales, reflecting some of the turnaround cycle for two or.
In the prior year period home meridians gross margin was negatively impacted by unexpected quality related charge rights as.
As well as undercover tariff rates all these issues did not recur in fiscal 2021.
Which we believe is the result of the resource and transition to Vietnam, which has helped to reduce product costs and the exit is temporary warehouses, which has reduced warehousing and habits.
Domestic upholstery domestic upholstery segments gross profit decreased significantly in absolute terms and as a percentage of net sales due to the net sales decline and the inefficiencies, resulting from operating significantly reduced production volume.
As mentioned before we temporarily closed five.
The six domestic upholstery plants in April.
Yeah, and Shenandoah were essentially did not report sales in April while Sam Moore's April net sales were only 37% prior year enough.
Preliminary consolidated selling and administrative expenses decreased in absolute terms due to decreased selling expenses on the lower net sales base and cost reductions that we made in response to the focus 19, pandemics such as decreased employee compensation.
These temporary help reduce temporary temporary salary reductions furloughs and the elimination of physicians as well as decreased travel and furniture market related expense.
These decreases were partially offset by higher bad debt expense, including the recognition.
Current expected credit losses under the newly adopted FC 326 accounting standard.
For these reasons preliminary operating profit for the fiscal 2021 first quarter decreased $4 million.
Preliminary 1.1 million dollar loss compared to $2 million $2.9 million operating income in the prior year first quarter.
Operating margin.
Decreased from 2.1% to a minus 1.1%.
Despite these operating losses for the quarter, our cash balance increased about 15 million.
From the fiscal 2010 year has to fit to just over 51 million.
We generated 18.9 million in cash from operating activities much of it from the significant reduction in inventory levels since year end and the collection of accounts receivable as well as the benefits of spending reductions and rationalize and purchase orders with us lives.
In addition to our cash on hand, we have access to almost 26 million our revolving credit facilities and just under 26 million of cash surrender value of company owned life insurance.
Just give us additional financial flexibility to navigate these days.
Despite the lower profitability, we're confident our financial condition. We believe we have the financial resources to weather the expected short term impact until mid nineties.
So in June our board of directors approved the 16 cents per share dividends, which occurred share prices gives us a dividend yield of 3.2%.
However, an extended impact.
And it's dead extended impact of a crisis could materially affect that adversely impact sales earnings.
Now I'll turn the discussion back Paul Toms for an album.
Thanks, Paul.
Well, we have limited visibility of held the economic and held the crisis may fluctuate on the coming months and still faces significant headwinds.
Hi level of unemployment.
Our business is improving and we're better positioned than we expected to be at this time.
The company remains an exceptional financial condition.
In times like these we believe a strong balance sheet is even more important than the income statement.
We're grateful for the adaptability and resilience of our employees and look forward to bringing back our administrative and management team members into the offices in the states that we can and more importantly, when we fill excite based on the status of the virus and then communities around our corporate locations.
We expect to second quarter to be significantly better than the first.
Barring a second wave of infection.
We expect business each quarter to improve as we go through the year.
We're confident we will emerge from this crisis stronger company.
The sense of formal part of our discussion this town I'll turn the call back every well for questions.
Thank you as a reminder to ask a question you would need to press star one on your telephone George I question Press the pound key please stand by we compile the Q1 day last day.
Our first question comes from Anthony Lebiedzinski with Sidoti and company.
Line is now open.
Thank you and good morning, everyone.
So thank you for taking the questions.
First I just wanted to get a better sense about your sales channel mix.
Obviously, you called out the.
Within each of my 35% of the sales came from E commerce, which is much higher than that typically so just wanted to get a sense.
As to what that was for the entire company and also if you could comment also but warehouse clubs and also.
Just overall broadly speaking as far as your sales penetration to non traditional sellers of furniture that are.
We're not closed during the Pandemics.
Alright, Thats a lot of questions within that.
[laughter] I'll take a stab at it.
I don't think hookers.
Legacy brands.
Sales and the E Com channel were to the same degree that home meridians in other words, they weren't 35% of our volume in Q1, I don't leave I don't have a number for overall, but I would guess it somewhere in a 15% to 20% range our domestic upholstery.
Has very little penetration and E Commerce channel.
That would calibrating. The overall now we are fortunate to sell through.
And.
In addition, we're fortunate to be in clubs like Costco or say items or.
Other warehouse type clubs that we're able to operate Moran other retailers that were open during this period cost saves, though some groceries.
And there were considered essential so we had some.
Box retailers for customers.
Also we are able to operate in the.
I'm not sure what other parts of your question have about answer though.
The staff.
I think yeah. It was so within that.
Multi multi part question, yeah, I think the that pretty much I think covers that so yeah. Thank you for that Paul.
Anthony This is Doug I'm, not just high level. Thanks.
Hi, my sales to those other emerging channels mass merchants that were opened roofing clubs.
And then hospitality hotels that we were still developing as another 20% plus patronize because some companies.
Give me some labor.
Got it okay. So that's that's very helpful. Okay.
Okay. So I'm guessing so Doug you also talked about.
Sometimes some control cost control measures that you implemented.
I was just wondering if you could expand on that and perhaps would be quantify what are some of the.
Just just overall these permanent cost control measures.
Oh, Okay, well Uh huh.
Color on it is.
It's everything from the things that Paul we've talked about earlier, Paul Huckfeldt about travel.
Reducing basically cutting spending everywhere, we could in addition to we've.
Cut salaries.
10% to 15% laid off about 10% of our workforce for furloughed about.
Happy people now corporate offices.
On rotating furloughs.
The combination of all about half of that as well as just managing spending in a fairly draconian way just it seems as possible.
Now if we look at it for the first quarter, we reduced our spending.
Our overall fixed cost was $2 million relative to what we budgeted.
To this.
Got it okay. That's very helpful. Thanks for that Doug and.
And as far as your exposure to China, obviously because of the tariffs you have been reducing your product sourcing there. So.
Did you guys wind up a at the end of Q1.
Q1, 12% of our shipments came from China, China.
Obviously a little.
Deflated by the fact that China was closed for a whole month to month.
If you looked at it over the six month period to period.
18%.
Got it going forward that probably something in between those two numbers.
Got it. Thank you look at total company.
That number that Dave and around 22%.
Sales at the end of last year, probably not significantly different it might be at the high teens.
And one.
Yes. Thanks, so that's the pull and if so.
Okay, and then couple couple of other questions. If I may so you talked about the obviously is seeing better results. So far in your second quarter.
Can you just remind us too.
When you look at the different regions within the country, where do you have the most exposure to and.
And I assume that probably.
Northeast is going to be lagging.
The rest of the country, but if you could just kind of expand that that'd be great.
Right I think the northeast and maybe the.
Upper Midwest northwest maybe slower reopening.
Parts the sell through.
Wes.
Yes.
It's really hard to I mean, we can look at our traditional customers and kind of know where sales are but when you get them that E com and catalogs.
Clubs.
It's really hard or.
No exactly where furniture ends up to regions. So.
But I think.
It would be safe to say certainly on the corporate brand to.
As well as the domestic upholstery.
Thanks.
More concentrated.
And this other parts of the country this itself so.
I'd say room in Texas.
Oklahoma the Sun belt.
Then we are.
But we have very good.
Presence in the northeast I think for some of the other channels of distribution and probably more through all meridian than we do through the other two sites.
Got it Okay and then.
Operationally. So so obviously you have easier domestic upholstery plants, you talked about now operating at a sub 75 for some capacity just wondering operationally what do you guys doing differently as far as from from a safety protocol prospective and this and then.
Can you be as.
I assume that you probably can't be as efficient as pre covert but I mean.
Just just wanted to get a sense. This how we should think about additional costs related to just just dealing with co bid.
Good morning, Anthony This is Jeremy good morning, Jeremy.
We obviously followed all the CDC guidelines.
And we're being as careful as possible made our number one priority throughout this entire crisis and the safety of our employees.
And that will remain our focus.
Doing we're obviously doing social business, even within our factories were utilizing the masks.
I don't know what the additional cost that part of your question I don't I don't see substantial additional cost to practice in the safety measures that we put in place.
I would agree it's not like a meat packing plant, where you have people right on top of each other things are naturally spread out we'll have more in a manufacturing facility.
But we are I don't know that we can really quantify.
Impact financially.
In a more safe position that would suggest that period.
Okay.
Okay.
The big part of this is communication M&A every week, we have calls to make sure. We understand the dynamics that are are today and we do that on it almost probably more of a daily basis on a weekly basis. So at this thing changes we change with it and we want to make sure we stay on top of that.
Got it Okay and then my last question is.
The breadth about the.
Obviously, you have sold home office furniture from for a while a just wondering as.
And then you post cope with World. How are you guys do it thinking about the new product categories of collections and if you could expand on your exposure to home office that'd be great.
On the on the Hooker legacy side of business, specifically case goods. Fortunately, we were planning a major home office launch of a new program for this fall. So that's that's obviously timely I would call it a little bit luck candidly.
We are going to be in great position for what trends we see.
Coming out and also we have a the other part of our major production is a new casual dining program as well and both of those categories are seen positive trends in the marketplace I'd like to let pass it to Doug as well for his side of business.
Sure sure Yeah, Hum home office products. Unfortunately for home Meridian, we're in a fairly small category for us.
But obviously once we saw this trend the trend two months ago, we started to additional product development in the category.
Racing print AD products category.
Got it okay. Thank you and best of luck.
Thanks, Thanks, Thank you.
Thank you I next question comes from JP Gagan with global value investment. Your line is now open.
Thank you hi, good morning.
Opened 19 situation has overshadowed some existing issues, namely product quality issues in tariffs and I know you addressed.
Each of those to some degree but can you add any color around those two particularly the success of your efforts to rebuild the club relationships.
Sure.
So I'll, let towns yeah.
Hi, JP doesn't Doug.
Excuse me.
Yeah, our relationships with our clubs are strong.
Our sales are growing slightly with them after the fall back that we took last year.
No.
Quality issues from no problems, we're both growing with them in their retail stores as well as follow on their online.
Thanks.
And.
So really no issues those those issues are behind US we don't have any.
In quality chargebacks or anything like that in terms of carats. If you mentioned before we've moved a substantial portion of that business out of China, and India, Vietnam, and Malaysia, and the few products that we still have in China, we're paying the 25% tariff on our products that's inside the marketplace.
Can withstand.
The cost increases and so we passengers on.
Great. Thank you.
Looking ahead.
Can you talk generally about the outlook of your customers, especially considering that the coping 19 pandemic might have brought about an acceleration in changes of consumer behaviors like consumer shop.
Anybody's welcome to chime in but now.
I would say I mean, obviously, we've seen ecommerce strengthen and this I think some of that will be sustained I don't think it'll be at the level. It was when bricks and mortar would close but I think people probably that work shopping online before it's.
Got it somewhat comfortable doing that so I expect.
That channel of distribution to remain advantage.
Other channels clubs.
That's pretty steady we had little to pick up last year, obviously, but I think we've.
Got it passed that catalogs.
Seems to have done equally well and the downturn.
Bricks and mortar I think it really varies by the individual retailers we've had some small.
Mom and pop independent retailers that have actually.
Gone out of business during the last few months, that's totally unexpected that may have happened even absent the crisis of depend Debbie.
You also have strong regional players that I think are going up.
Fared very well going forward.
Some of them.
And close all their stores from him did close any other stores.
I would say a lot of our bricks and mortar customers.
Definitely increase their E com business.
In the last few months, which wasn't a big part of their business before but maybe it goes from 2% to 10%. So I think they've learned that they can.
Sell online and may be found ways to take advantage of that is.
Storage reopened as well.
So that would be my response for them certainly.
Her Jeremy welcome to chime in on early.
Yeah, I have one comment to comment on that one is in terms of channels I think hospitality channel is going to be challenged at least in the near term with all the.
Disruption that hotels have gone through and.
Just a reduction of travel.
How many.
Hotels, we have so I think thats, one channel that's going to be challenged with near term at least.
And then in terms of.
At brick and mortar and traditional channel.
On the there is going to be disruption.
People going out of business some of the weaker ones, having issues, but it's going to create huge opportunities for the stronger once in a lot of the bigger players that we deal with our.
Looking for those opportunities waiting for those opportunities and are looking to do some expansion and things like that so while there will be some disruption I think thats also.
I'm going to be growth for some of the stronger once.
Great Thats good detail. Thank you finally as manufacturing ramps up again, both internationally and domestically can you elaborate on any supply chain constraints that you might see.
I think generally when the pandemic.
And stores, specifically had to close in mid March.
The reaction by most everybody was.
Slowed things down cancel orders were not going to need the inventory, we certainly saw that from our large customers, which we passed on to.
Our suppliers in Asia.
We.
Cancel some stock orders ourselves probably.
More at home Meridian, where we went into this a bit over inventoried less at Hooker, where we were chasing inventory going into this.
I think that.
Yes.
Asian suppliers first of all that came back from Chinese new year.
Out of their plants I couldn't run the costs of people having to shelter at home.
Government mandates to close there was disruption from their suppliers on components and sub parts that they needed about the time, they got back ramped up and producing on a regular schedule.
The pandemic hit over here and you saw this order cancellations they laid off.
Some of their workforce, they slowed things down and then.
I know for us and I suspect for many other people in this industry like us.
By mid May you realize hey, maybe this is going to be as bad as we originally thought let's start getting orders back in place that kind of.
See solve it is definitely not ideal for manufacturers.
We're going to see we RC and already some lengthening of lead times from suppliers in Asia, but.
But I think for most of the people that we source with.
We are a significant customer if not their largest customer one of their top two or three customers. So I think we enjoy a pretty good position.
And with good.
Efforts and manufacturing time, and I think you're working extremely hard to try to.
Supply us with what we need.
Doug anything to add to that.
No I would.
Just reiterate kind of.
With as big of a disruption at this was that the massive cancellations of orders in retail that flowed all the way to Asia and with many of our factories shutting down for two to four weeks for the time just to preserve cash on their end.
It's amazing have bounced back.
The lack of disruption, we're having a we do have longer lead times, you're there a couple of weeks, but nothing.
Nothing material nothing that's affecting the business in a big Rand.
No actually very impressed.
Okay, that's happened in the supply chain.
Great. Appreciate your time just wondering.
Thank you.
Thank you as a reminder to ask a question you will need to press star one on your thoughts on.
Next question comes from John D. show with Pinnacle. Your line is now open.
Good morning, everyone. Thanks for taking my questions.
Morning.
I was just curious on the product picks coming in from China subject to the terrorists where are you still feel you can bring that in and raise prices.
What type of product is that from China that you feel.
You can pretty good and pass through the price increases.
Really runs across several businesses and.
Home Meridian I think some of their hospitality business other things that are sourced in China that are not easily source and other countries.
We were running large cuttings of upholstery.
For some of our.
Customers and by thousands of the time.
And that's probably better Don in China.
And they and the customer is imported record and pays the tariffs associated with it our contract hospitality customers I believe.
All are paid the tariffs that's something that's produced in China.
In our line of Curios, which is we are dominant player in that category, it's a niche business, but there's parts of that that are.
Better produced in China, and were able to get paid for it on the hunker side of the business we have.
Vendor that we've done business with for 20 years in China. They also have newer plant that was a couple of years ago in Vietnam.
The third China plant is able to produce product.
That nobody else, we've found is able to produce similar products.
Erie.
Lot of hands on great, finishing a lot of detail that just it's hard to do in mass production and.
We are historically have been paid for.
Our prices come out of that plant and even with the tariffs we raise prices.
And early lunch tariffs with the 10% and without the additional 15% to 25%.
We were able to past most of that along and the part that was not.
Mitigated by the vendor, helping us too so.
I think parts of the business that are still in China, as we said earlier.
The customers are willing to pay us tariff. So it's not like last year, where we had on recovery tariff costs I think now the things that we source are very intentional it is becoming smaller.
Month by month quarter by quarter.
I think were in much better position related to tariffs on China production than we were a year ago.
Okay.
Hi, Thanks, that's helpful.
I'm a little fuzzy on the head count right now at year end you had approximately 1200 50 full time employees.
Where are you with full time employees approximately today.
And where do you see that number going.
As you get to the point.
Where do you think you'll be operating over the next few months or so.
Okay, and I can understand your big confusion, because we throw numbers around a thousand employees a 1200 50.
At the end of last year, we had 1200 50 employees about 250 of those were in Asia.
Vietnam in China, primarily with a few in Malaysia.
The U.S. employees that's Allison.
Say that we reduce headcount by about 45, so were 965.
Some of those are furloughed, but I expect most of those employees to remain employees I don't see our business being impacted long term, where we need to shrink our workforce beyond what we already.
In Asia, we were probably somewhat inflated and that 250 employees because we were in the process of moving production out of China to Vietnam option last year, you had employees, both in China and in Vietnam.
Trying to move the production and I think we're at a point now where we don't need all of those and actually.
Reduced headcount there yes.
Can help me here, but maybe 50 75 people out of that 250.
That's probably yeah.
Yes, that's been number.
Okay. So the headcount is going to come down a little bit but overall.
You will be slightly below where you ended last year.
Maybe 100 employees so 8%.
Okay.
And the majority of that would be in Asia. Okay.
It's a capex budget still targeted for $3 million this fiscal year.
That's probably a reasonable number although I think we're monitoring that and.
We will value we evaluate every project as we go up obviously.
In a crisis like this cash conservation is a priority. So we'll continue to evaluate that but typically our capital since low even in a good year.
Yeah no.
That's one of the benefits of owning your company so low capex.
Where are we with the refinancing I know.
Both determined the revolver come due February 1st about seven or eight months away.
Where are we with refinancing and does the write down.
If it happens.
Impact any of the covenants.
For the existing debt facilities.
Covenants Ron on EBITDA so.
We don't expect that's the problem to be honest, the refinancings kind of done on whole because we see a little more stability.
In the market, we have the luxury of having.
Sufficient financial resources that we don't really by the end of the year, we won't need.
To refinance the term loan its terms are appropriately I think we'd like to we have other resources like the cashman value of life insurance.
If we don't refinance I think it doesn't doesn't affect our operating cash sharper image.
So it's it's been on whole temporarily I think will restart that process shortly and.
And now that we're starting to see a little more clarity in both our results and.
Yesterday, we suffered more clarity in the financial Mark.
Okay. So even in a worst case scenario with the write down.
Of the intangibles, you don't expect that to impact the refinancing process.
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Okay.
Great Thanks, and good luck.
Q.
Thank you I'm not showing any further questions at this time and I'd like to turn the call back over to Paul times for closing remarks. Thanks Joel.
Really have no additional remarks were appreciate everybody joining us today, although we'd never like to have lost we hadn't had one in 10 years.
I think given what we've just gone through.
It's.
Not bad performance and we're certainly are very encouraged by what we've seen.
The third week or middle of May and.
We hope that Thats sustainable.
Thanks.
Furniture is advantaged right now and.
We're in good position to take advantage of any uptick in business.
We've seen over the last three or four weeks.
We look forward to back with you in early September hopefully having better results.
About the and again, thank you for joining us today.
Good day.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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