Q2 2021 Hooker Furniture Corp Earnings Call
The speaker presentation, there will be a question and answer session to ask a question during the session you'll need to press Star then one on your telephone.
Please be advised that todays conference maybe recorded if your acquire any further assistance. Please press Star then zero I'd now like to hand, the conference over to your speaker today Mr., Paul Huckfeldt Chief Financial Officer. Thank you. Please go ahead.
Thank you gentlemen.
Good morning, and welcome to our quarterly conference call to review the financial results for fiscal dropped 2021 second quarter, which began on May 420 twice and ended August 2nd.
We certainly appreciate your participation.
Paul Toms, our chairman and CEO, Jerry Hall, President of our legacy brands and leasing co president of our homebuilding divisions are joining todays prepared remarks.
A question to answer Fortunately, all our other executive officers will be available.
Question on putting and Smith, our chief administrative officer.
Hello.
President Walmart.
Sure I recall, we may make forward looking statements, which are subject to risks and uncertainties.
Production of factors that could cause our actual results could differ materially from management's expectations.
And in our press release, unless you see filing announcing partners for 2021.
Second quarter results any forward looking statements speak only as of today, we undertake no obligation to update the Dod right any forward looking statements reflect that.
After today's call.
Good morning, we reported consolidated net sales of $130.5 million and net income of 5.8 million for 48 cents per diluted share for our fiscal 2021 second quarter, which ended August 2020 Twond.
Compared to last year's second quarter, our net sales decreased 21.7 million a 14% while net income increased 1.6 million for.
39%.
Earnings per diluted share.
Increased 37% 35 cents here.
For the fiscal joined one first half consolidated net sales were 235 million down 52 million or 18% compared to last year's first half.
For the first half we reported a loss.
It on a million dollars for 2046 cents per diluted share compared to 52 cents earnings per diluted share in the prior year first though.
Year to date loss was driven by 34 million $44 million pretax noncash intangible asset impairment charge, we reported in Q1 as a result material impact overnight overlapping pandemic.
Our financial performance market valuation and other factors, our 2000 or 2021 first quarter, which triggered the need to perform and intangibles asset valuation analysis as at the end of war.
As a result that analysis, we wrote that goodwill and certain trade names in the whole marine segment and goodwill in the Shenandoah furniture Division.
Domestic upholstery.
Now called problems will comment on this becoming one second quarter results.
Paul and good morning, everyone.
Well the cobot 19 pandemic continued to impact the economy.
Ratio.
Our business began to rebound in mid May it hasn't let up so.
So I'll, let David fiscal Q2 incoming orders were up 24%.
Backlogs are up 35% compared to a year ago.
Based on this unusually robust order rate for the summer months, we continue to believe that furniture is an advantage sector and the economy.
And then pandemic related economic downturn and say for his own practices.
There is a pent up demand robust housing market and less competition from other discretionary spending.
Such as travel dining out and sporting events.
Some of our divisions were able to capitalize on the surge in demand sooner than others.
Able to better capitalize on the exceptional demand for products and those divisions that ship stock from our warehouses.
Leading hooker branded case goods and import upholstery and.
Some home Meridian divisions, such as Eccentrics home focused on E commerce.
The positive impact of higher demand was not felt as immediately and the domestic upholstery segment.
And then the Hfive units and service customers via container direct orders.
After our upholstery factory shutdown for four weeks in the spring production slowly ramped up during the summer to approximately 90% of capacity.
The end of quarter.
Cells will also black demand at our container direct businesses at home Meridian.
Container direct orders cancelled by large customers early in the pandemic in March and April.
Reinstated during the summer months, and we'll have a more positive impact on revenue.
Second half of our fiscal year as production began flowing through the pipeline.
We're gratified to reported solid profitability and performance this quarter during challenging conditions.
Elevated operating income increased by $1.7 million.
30% as compared to the prior year second quarter.
Home Meridians segment reported operating income of 1.1 million.
Compared to a small operating loss in the prior year second quarter.
Or branded segment's operating margin performance continued at a high level and the domestic upholstery segment reported essentially breakeven operating results for the second quarter.
Despite decreased net cells and the inefficiencies from operating it significantly reduced volumes early in the coven 19 crisis.
Measures, we talk to reduce spending in response to the economic shutdown at a significant positive impact on profitability in the quarter as did lower cost of goods sold.
As we have steadily shifted offshore production non terra countries since last year.
To date, approximately 22% ever case goods and imported upholstery products have been subject to the 25% Terra.
Finished goods imported from China.
A significant reduction compared to 35% imported goods subject to tariffs during the same period a year ago.
Some of our cost cutting was temporary such as furloughs and reductions in executive salaries and director fees.
And now been reinstated other cuts will stay in place until higher volume warrants increase spending.
Flexibility of our variable cost model as once again proven successful during this crisis I or ability to scale, our business correctly to demand.
During this unusual period, when we're unable to travel and conduct business as normal.
We're determined to use the time as an opportunity to improve the efficiencies and effectiveness.
Sustainability of our business.
We did this three long range strategic planning identifying opportunities to coordinate more internal activities launching numerous growth initiatives, focusing our efforts and resources on their products customers and vendor is dropping our business.
As part of our focus on the long range future Hooker furniture. This June we announced at the board of Directors has elected Jeremy halt and next Chief Executive Officer of the company.
Active upon my retirement on January 31st 2021.
I will remain as chairman of the board.
Jeremy Joint Hooker furniture, three years ago currently serves as president or legacy brands.
It will become the fourth and cheese Chief Executive Officer.
Company in our 96 year history.
And the time, Jeremy has been an hickories proven to be a great leader as knowledge about case goods and upholstery is the.
Is both strategic and operationally focused executive.
And balanced growing sales would be in profitable importantly, I know he values. The culture that has driven so much of our success over the years.
Confident Jeremy and the entire leadership team.
Coker furniture, and all of its operating divisions to the next level.
And with that I'll ask Jeremy to comment on results for Hooker legacy brands for the quarter.
Thank you Paul in the Hooker branded segment incoming orders increased by nearly 12% year over year in the segment finished the quarter with an order backlog, 47% higher than the comparable period a year ago.
Net sales for this segment were essentially flat compared to a year ago.
585000, or 1.5% in the physical 2021 second quarter.
Many of the traditional furniture stores and closed during the economic shutdown reopened during the fiscal 2021 second quarter, leading to increased demand from the segments largest distribution channel.
Because of the disruption of the industry's product introduction cycle due to the cancellation of spring Highpoint market. Our team developed creative ways to keep interest high and new products and stay top of mind when customers. We have done this or digital marketing with upscale photography, and 360 degree videos in a virtual.
Jim on our website showcasing for new collections. We also participated in a three day many market.
Held in high point Chevron's during June we were gratified to receive solid orders on the new collection and expected to begin shipping that retail stores by October.
The dynamics of the interrupt product introduction cycle, along with pent up retailer and consumer demand for new furniture styles has significantly increased the importance of the upcoming mid September highpoint pre market, while we typically see around 40 retail customers and pre market, we expect to see over 100. This time.
According to industry reports approximately 235 exhibitors plan to show at the market preview compared to the 25 exhibitors typically in the past we intend to introduce some major home office program in pre market in response surge in demand for multifunctional furniture that facilitate more home based work as the.
Ranks of those working remotely from home has risen during them endemic in addition, bunker case goods will display the four new collection and we first introduced virtually at the upcoming pre market.
And our domestic upholstery segment net sales decreased by 5.2 million or 22.8% in the second quarter as compared to the same prior year period at the end of the second quarter domestic upholstery is backlog was about 45% higher than a year ago. This time incoming orders decreased by five.
9% added compared to the prior year period.
In response to the coated 19 endemic in as well as reduced orders in March and April Bradington Young and Shenandoah manufacturing plants were temporarily closed in April and Sam Moore operated at a reduced capacity upholstered production facilities gradually resumed operations starting in May as Earl.
Early September all three divisions for operated near capacity envision management implemented cost reduction measures earlier in the year to mitigate expected operating inefficiencies in the segment operating results from within 10000 of breakeven for the quarter.
Now I'd like to call on leave that to give more detail on the Asian My segment this quarter.
Thank you Jeremy.
Hi, Meridian second quarter sales were $71 million down 18% from prior year.
Operating profit improved a 1.1 million from the breakeven Q2 prior year in spite of the reduced sales volume.
Second quarter profitability was partially the result of cost cuts and spending reductions that were implemented to Q1 to combat the effects of the pandemic.
Significant progress has been made in several areas that previously impacted our bottom line.
Most notably.
A significant reduction of China tariff expense.
Excess warehousing and freight charges combined to favorably impact the bottom line.
Furthermore, margins improved in the second quarter.
Q2 sales decline was primarily the result of disruptions from Cobot 19.
Both on on traditional customers slow store reopenings as well as on our factories, many of which struggled to rebuild production capacity to pre could levels.
Fortunately meridian wasn't as strong inventory position prior to the pandemic, which enabled us to ship significant quantities from our U.S. warehouses.
However, inventories were significantly reduced in Q2.
Which will impact our near term warehouse shipments until we can replenish in Q3.
We are replenishing our stock levels as fast as possible, but the surge in demand continues to outpace supply.
At this point given the current unusually high retail demand, we anticipate struggling to rebuild inventories to prior year levels until Q1 up next year.
Consequently, we have aggressively placed new production orders with our factories to ship as quickly as possible, which we expect to improve our service levels mid two three and throughout Q4.
SLF, our largest business unit by sales volume delivered strong profitability in the second quarter.
Despite a 30% decline and that shipments versus prior year.
SLF Q2 profits, which exceeded prior year are the result of improved margins and significant spending reductions.
Hey, CH, our ecommerce focused business unit also delivered good results driven by exceptionally strong E commerce sales in the second quarter.
This online demand largely driven by the pandemic shutdowns and the work from home trend is expected to continue to remain strong for the duration of the current national Health crisis.
It should also be noted that our ecommerce demand did slow toward the end of Q2, as we began to run out of our best selling inventory.
PR right, our upholstery division as demonstrated significant performance improvement in fiscal 2001.
This turnaround is particularly noteworthy given the struggles in this business unit from last year from the China tariffs and associated supply disruptions.
This year's improved results are largely the result of stabilized production supply strong retail demand from a couple of Mega retailers and improved margin management from the new PR I leadership team.
While these results are extremely encouraging POI faces the same challenges for production inventory in service levels. We expect may temper results in Q3, before we begin to catch up product availability to demand.
Yes, I'll Leach, our hospitality business unit reported a small profit in the second quarter. Despite the major negative impact of Corona virus on the hotel motel sector.
This profit was the result of projects already underway when the pandemic hit along with good cost management within the company.
We expect our hospitality sales to struggle for the next few quarters until travel conditions return to closer to normal.
Hey, Jim idea, our clubs and mass focus division reported a loss for Q2. The result of the sales decline combined with customer allowances above plan.
We do see a path to long term profitability Breakroom idea once business conditions returned to normal.
Finally, plaskett furniture step up case goods unit reported an operating profit in Q2, despite sales being down 32% versus prior year.
As mentioned before the sales decrease was the result of order cancellations from large customers in early Q2, and the disruptions of the pandemic on factory output over the last five months.
The PFC profit, although small was hard earned through relentless margin at cost management from the PFC team.
Hi, Meridian incoming orders were extremely strong in Q2 and exceeded orders in the same period last year by 37%.
These orders were driven by strong E commerce demand as well as surprisingly strong demand from our brick and mortar retailers as the reopened their stores following four to six weeks pay depend demick shutdowns.
Hi, Meridian order backlog continue to build in Q2. The result of continuing strong incoming demand from our customers many of whom are placing orders for shipment well into the future. We finished Q2 with $122 million backlog up 32% over prior year.
Looking forward our order backlog continues to build and we're working diligently with our partner factories to maximize production and shipments to satisfy the unprecedented demand.
Hey, Mike current backlog exceeded $150 million last week, which was a new record for the company. This is the result for the $28 million backlog increase in August alone.
As Jeremy mentioned earlier, our expectations are that retail attendance at next week's highpoint pre market will be up four to five fold.
Hi, My is booking advance appointments for pre market and initial indications are for an exceptionally well attended pre marketing events.
Our sales teams samples and showrooms are ready.
At this time I'd like to turn the call over to Paul Huckfeldt, who will elaborate further on quarterly results.
Thanks.
Our cash balance was $82 million at the end of the quarter, an increase of 46 million from the fiscal 2020 year end.
So far this year, we've generated 53 million in cash from operating activities much of it from the reduction in inventory levels and the collection of accounts receivable.
As noted above we plan to utilize some of this cash to increase inventories to meet risk risk demand we've experienced since mid may.
Revisiting sales forecast weekly and adjusting production orders based on incoming demand.
Our record branded businesses and somewhat better position, because we didnt chancellor postpone orders with our Asian vendors at the onset of the pandemic, while the HMS direct business will take a little longer to get back to normal production flow.
Both businesses are reacting to the strong demand has experienced since the initial pandemic shutdown by focusing on getting best selling products back in stock, which we expect to do within the next 60 days given current lead times with agent partners. We have and May continue to experience some out of stocks with respect to certain imported products.
Average selling prices were down 1.4% Hooker branded segment and up 1% in the home Meridian segment for the quarter.
On a consolidated basis average selling prices increased 1.3%, mostly due to a favorable change in mix by division as the unit volume in the higher priced Hooker branded segment stayed essentially flat.
Down 14% in the home Meridian segment.
The average selling price decrease in locker branded segment was driven by higher discounting on E commerce and discontinued product sales.
The increased average selling price the home Meridian segment was attributable to product mix.
Domestic the domestic upholstery segment average selling price decreased by 6.1%.
Due to a smaller mix at the higher price Bradington young product.
Unit volumes were down 17.9% in the domestic upholstery segment, resulting from lower order volumes and operating below capacity during the third full capacity during the quarter.
Consolidated gross profit increased $1.8 million to 27 million.
In the second quarter, but increased from 18.9% to 20.7% as a percentage of net sales.
Most of the decrease in dollars was due to the.
It was in the domestic upholstery segment due primarily to the sales decline and unabsorbed fixed costs, resulting from operating at the lower production level.
Okay branded gross profit increased both in absolute terms and as a percentage of net sales attributable to favorable case goods product costs and to a lesser extent reduced warehousing and distribution expenses during the pandemic.
Partially offset by increased product costs at hooker upholstery due to a higher mix of products sourced from China, which carries tariffs imposed over the last two years as we continue to move from China to Vietnam.
In the home Meridian segment.
Despite an 18% net sales declined gross profit.
Decreased slightly in absolute terms and increased 220 basis points as a percentage of net sales.
We believe the sourcing transition from China to non tariffs countries has been successful in restoring gross margins for normal levels and several issues, which negatively impacted home meridians gross margin in the prior year, including higher freight warehousing and had lunch off on excess inventory didn't recur in fiscal 2021 second quarter.
These improvements were partially offset by lower margin salesperson.
All other net sales stayed essentially flat for the quarter.
Gross profit decreased slightly in absolute terms and as a percentage of net sales due to an unfavorable product mix, although a smaller part of our consolidated results. All other reported an operating income due to the continued solid performance of our H contract. This.
Consolidated selling and administrative expenses decreased in absolute terms.
And as a percent of net sales in the quarter.
The decreases were mostly due to lower selling expenses on lower volume and cost reduction efforts. We made in response to the cause of 19 pandemic.
The decreases were partially offset by higher professional service expenses to a lesser extent increased bad debt expense, including the recognition of current expected credit losses under the newly adopted accounting standard assay 326.
For these reasons.
Operating income for fit the fiscal 2021 second quarter increased $1.7 million to seven of the half million compared to 5.8 million in the prior year quarter.
Operating margin improved from 3.8% to 5.8%.
And on our balance sheet. In addition to the $82 million cash balance.
We had access to almost 26 million on our revolving credit facility and $25 million with cash surrender value.
Company on life insurance, which gives us additional financial flexibility.
We're confident that our strong financial condition can whether the expected short term impacts of cobot nicely.
Over an extended impact could continue to materially adversely affect our sales earnings and liquidity.
Now I'll turn this over.
Paul pumps for his out.
Thanks, Paul.
Given the robust housing market strong demand since mid may and backlogs up 35%.
And our other fall with momentum and a great deal of optimism as I mentioned earlier, we use the shutdown period to identify growth strategies improve efficiencies and effectiveness across all our businesses from expense reduction long range strategic planning to focusing our efforts in resources on.
The products customers and vendor is driving our business.
All these initiatives will yield positive long term results.
We are concerned about the human and economic toll coven 19.
Currently and the future possibility of additional searches in the virus that may delay reopenings and have adverse effects in certain regions or states.
However, we have a very strong team and our in excellent financial condition.
Whether the disruption of tariffs last year.
In the pandemic so far this year.
We're well prepared to face and uncertain future and well positioned to benefit from Furnitures and margins as an advantage category.
The sense of formal part of our discussion today and I'll turn the call back over to operator, Jimmy for questions. Thank you.
Thank you as a reminder, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your touched on telephone to withdraw your question from the Q. Please press the pound key.
Please standby, where we compiled the Q and a roster.
Our first question comes from Anthony Lebiedzinski with Sidoti and company. Your line is now open.
Thank you and good morning, everyone. So.
Obviously, it's encouraging to see the backlog up 35%.
For the quarter. So how should we think about the timing of would you be able to book that as revenue. Obviously I know you talked about some supply chain constraints and the.
With demand outpacing supply so just wanted to get a better handle list. So how should we think about.
Translating that backlog into revenue.
Okay. Anthony this is Paul Toms Thanks for joining us and thanks for your question.
It really varies across our different businesses, but.
Probably the.
Most immediate impact we're going to see is on the hooker branded side.
Transit inventories are up.
Probably double what they normally or and.
Booker.
Ships much more out of the warehouses, so that in transit inventory I think will positive we're already starting to see receipts that are double what our normal receipts or in the warehouses in Virginia. So I think the impact on the hooker branded side will be over the next couple of months, we should be able to get back and stuff.
A lot of what we receive will immediately go back out I'm not sure we'll build inventories a lot.
It will receive the products, we need to fulfill the demand that sand hills.
Meridian, maybe a little further out maybe 30 to 60 days alders, although they are starting to receive some of their best sellers for the E Com channel.
To west coast facilities.
This month.
And then that container direct which is a huge part of home meridians record backlog.
That will show up.
Some in Q3.
Probably.
This more in Q4 and some of that backlog is actually targeted for next year, we're seeing large customers late orders.
For further out than they typically what may be normal.
Ordering would be four months today, it maybe 567 months.
Cost of the backlogs.
Factories in Asia.
You know probably one of the.
Areas, most optimistic about two as our domestic upholstery I'm looking at the volume.
They produced in Q1 in Q2, and it's not anywhere close to what their capacity is.
We were impacted pretty equally the way our quarters fall, where you had.
April fall into the first quarter and May fall into the second quarter. Those were the two months, where we were the most impacted.
With production shutdowns and so I think we entered the third quarter producing at what we say 90% of capacity.
Barring.
You know.
Absenteeism around coated.
I think were and excellent position great backlogs in all three of the.
Just a couple three divisions record backlog went out on the records, but there are huge backlogs way bigger than last year.
That should allow us to run very full schedules for them to our third quarter.
Yes. Thank you for that the color the definitely appreciate that so.
The gross margin was up nicely in the quarter.
How sustainable do you think that expansion is I know you talked about moving production out of China into other countries, but just just wanted to get a better understanding as to how we should think about gross margins going forward.
I think they're pretty sustainable.
This is this is all progress we've made.
On moving out of China, moving to tear countries Theres still some.
Bill some friction in some some places you know the capacity is got to catch up but I believe over the long term that they should be sustainable.
Got it Okay. We're focused on margin that is too so we're evaluating these programs.
And.
Making sure that we've got product price right and we've got direct costs. So I think this thing and then domestic upholstery it should improve as production schedules for right.
Got it okay and in terms of.
Thanks trades are you seeing anything either domestically or.
Outside the us in terms of ability to get the raw materials.
You want to call out as far as are the cost headwinds or maybe tailwinds.
You know probably only thing I would call out would be.
Anytime you have.
And industry at large doing well.
Labor is probably a challenge in Vietnam right now, although we're hearing from some vendors is and other vendors are saying, it's not that theyre able to attract labor then I guess, they're sectors of the economy that havent done as well and maybe some of those are not.
And that huge surge in demand that furniture is.
Great is also.
Than a challenge both.
Hitting the containers that we need to.
Product out of Asia.
Availability on the vessels, but I believe every day, our bread is steamship lines will be bringing.
Our vessels online as they.
See a sustained.
Need for it.
Everything I'm looking at is that maybe the.
Pricing of containers.
I'm already.
Expected to be.
A little bit less going forward.
Got it thanks for that and then.
Can you remind us as far as where you are in terms of your sales penetration to ecommerce retailers.
I can give you I guess, but I'm not sure that I know that exact number.
It's probably less than it was last quarter I think last quarter, we may have said.
It was 15, 20% of our total business, but last quarter you had.
Lot of bricks and mortar retailers closed basically reopened starting in mid may.
So for at least two towards the quarter, you have traditional stores and bricks and mortar reopen in their business.
Stellar also so.
I would say E com, probably come down a little bit this quarter as a percent of cells.
Got it Okay, and then two more questions for me so.
Jeremy you talked about the home office category, so you're expanding more into that.
Can you give us a sense so as to where you are now in terms of your penetration of home office products and how should we think about that going forward.
Anthony I would say that we've been really good it.
In our upper and part of our line.
This more on the best category.
Program, we're bringing now than actually we've already ordered.
I will focus more on our on better so in the middle and its it'll it'll definitely.
Be able to capture more market share, which is what we're trying to do so I think it I think for our business as a category it is impactful.
Got it Okay, and lastly is how should we think about your capital allocation priorities.
You talked about building up some inventory but.
So you guys have a very healthy balance sheet.
So what are you looking at as far as.
Actual usage and maybe comment on many potential acquisitions.
Well.
Our first priority support the business, we have so so build inventory and supporting the business fall selling season will be our primary objective.
That I think we've said pretty consistently that growth by acquisition.
Via priority I don't think Theres nothing we can comment on as far as a specific acquisition.
But I think that Thats, certainly something that we've had in mind.
For the future.
I think those are the two primary that plus just keeping the state of solid stable balance sheet. I think you know that served as really well long history of the company and most recently.
The last recession and through this pandemic I think Kevin a solid balance sheet has been one of our really great strength. So I think that that's always going to be a priority is.
So the balance sheet, but beyond that I think.
Smart acquisitions pub next this thing.
Got it Okay. Just one quick follow up to that and as far as a dividend you would you look to increase that overtime as well.
Our history has been to first of all maintaining the dividend I think we've done that for 50 years.
And then secondly to grow it annually.
Quicker spill into 2008 2009.
Recession, where we weren't able to grow it we did maintain it.
Got it pretty consistently for the last seven or eight years and.
Certainly intend to do that going forward.
Got it that's all for me. Thank you very much and best of luck.
Thank you. Thanks. Thank you.
Thank you. Our next question comes from Sandy Mehta with evaluate research. Your line is now open.
Thank you congratulations on a very strong quarter.
Can you comment specifically on importing from Vietnam versus China, specifically in terms of the profitability.
Our the gross margins about the same or maybe little bit lessened from when you're in putting from Vietnam.
The gross margins are better because we don't have the tariffs product that we're importing from Vietnam that we have one product coming out of China. There also some other so the tariffs are 25%.
And then some of the other products some of the products, we import out of China have additional duties like bedroom has a duty of about 7% from one of our major vendors.
In the hospitality business or some other duties on court stops I think and some cabinets and.
So the margins the first cost maybe a little bit higher out of Vietnam, and some products, but the margins are significantly better.
If it wasn't for the tariff with the profitability. If you set out to satisfy the tariff with the profitability from Vietnam versus trying to be about the same day.
It will be similar sure okay.
Okay and one final question for me.
Hey, you your company earned a $3.38 an S in fiscal year 2019, and I understand some of that may have been preorders because of the oil.
Tariff issue from China from the from the following year.
But even adjusted for that deal when do you see or do you see your company, having an earnings potential of $3 per share.
In the future.
Especially in light of the strong housing market as well thank you.
Well, obviously, we were affected first by the at position to the 25% tariffs.
The need to react to that which involved in many cases tend to absorb a lot of that fair plus just all the disruption caused by that.
And then following all about 10% paraffin then 25% there and then this this pandemic has really disrupted the industry. So it's going to take if we've got a couple of years of.
Underperformance, but I would expect that are our base business businesses is good housing is good.
I think that will return to that it's not going to be this year I'd say, it's going to take a couple of years to get back to that but yes. I believe we have essentially the same businesses, there and back to growth.
Absolutely. This is Paul Toms I, absolutely agree with what.
Just I think it takes us rebuilding our business where smaller topline company.
And we were.
We earned $3 for it so we've got a re grow our business.
We.
Well along in sourcing products out of China into other countries that don't have tariffs lot of its in Vietnam, but subs in Malaysia and other countries.
We have to complete that transition.
And but yes potential absolutely on their take us a few years, but.
We definitely believe that we can continue to the long term growth the company.
Increase earnings.
Thank you so much thank you.
Thank you and our next question comes from JP Gagan with global value investment. Your line is now open.
Good morning. Thank you for your time, you discussed the period of time.
That you expect to pass before you.
Built inventory to a more normalized level.
But im hoping that you might quantify what a more normalized level of inventory looks like and then considering that inventory it might be somewhat constrained for the next three to six months. We you expect any added pricing power that might be accretive to gross margins beyond what you already focusing on defending your margins.
Pricing power from us to our customers are from our vendors to us.
From you to your customers.
Certainly in this environment you have more pricing power.
I think.
The backlog we have as at current prices. So we can't change that we don't really have any plans or see it need presently increased pricing to our customers.
[music].
Or other part of your question was on the level of inventories and.
Yes, I think if you were to look at inventories at the end of last year.
We probably were slightly over inventoried.
Home Meridian and under inventoried at Hooker branded.
I think in total those inventory levels are probably pretty reasonable.
Especially with growth.
Those are slightly more with the kind of a target.
I think it'll take us a while being cautious we said in the coal.
Inventories we receive in the next three to six months are going to turn around and show pretty quickly I think the first thing will do is fulfilling demand in the backlog that we already have.
And then be able to build inventory, so I really look at inventory build probably happening.
[music] four and into next year.
Total.
Okay. Good pricing power Mikey indications I think we're selling fewer closeouts, we were selling down or if it's what we're cleaning up our inventory.
So so in that way, it's not exactly.
Leverage that I think that.
Margins should maintain going forward because we're so we're selling through some of our were clean up inventories and get rid of our b or C. C and D inventory and also discounting less to move inventory promoting last because in this environment really don't need to.
Discount.
Challenges have been enough inventory so it makes no sense to.
Simply discount things.
Environment.
Okay. That's helpful.
Paul Toms in your prepared remarks, you mentioned growth initiatives and you've been very clear on your intention to continue to grow through acquisition, but is there anything else in terms of organic growth or other sort of growth initiatives that you can elaborate on or that investors should be aware of.
There are numerous growth initiatives across.
Many of our branch.
The Hooker branded segment, there's a new online initiatives targeted bid price.
Casual dining.
Seeding parcels shares.
There is.
Another launch I think intended for October market, Germany might be able to comment on that.
We are close to announcing a major license collection with home Meridian.
And be a huge growth to our business.
Yes.
Individual brands have just product line extensions.
They are looking at doing all of that's in addition to.
Through acquisition.
Jeremy.
I will comment so.
Extensions or branded line.
Well, one extension that I think youre, referring to actually is April due to Kevin 19, but it actually targets millennials as well as Chad acts.
It's a different type of product category.
Life more lifestyle product different price point, we're actually branded under a commerce market brand.
That's an example, or we're trying to think always thinking on how we sell a different group to consumers and how we how we actually attracted different audience without.
Necessarily change in that direction of what we think.
Well good at currently.
Doug or anything to add from home meridian beyond what I've already said.
Yes. This is Lee Boon I'm reading I would add it over the last several months Meridian has experienced very encouraging result, with new mass customers that we were either not selling or selling at a minimum level in the past they've been advantage through the cobot pandemic shutdowns and has given us the opportunity.
To build relationships and new merchandising programs with mass customers that we would not have had otherwise so thats going to its going to definitely add sales tour.
Future business.
But also talk about hmm and the new type of products and we're launching there.
Sure Doug you want that we.
Sure. Yes. This is Doug accountant.
Last year, we launched a new division called HM idea, it's brand new product category.
Ready to assemble.
Furniture with easy Assembly.
Abilities, so instead of taking two or three hours to put 100 screws into adeptra chest.
Together and.
Anywhere from five minutes to 30 minutes, depending on the fastening systems. So.
We spent all last year developing those products those products just started to hit the market.
Okay.
In the last couple of months.
There are mostly ecommerce focused right now.
But we have high hopes for that division to be a big part of fueling our growth in the next couple of years.
Great all very helpful. Thank you very much.
Yes.
Thank you and our next question comes when John Deysher with Pinnacle. Your line is now open.
Hi, good morning, and solid quarter.
I was just curious.
You mentioned bad debt.
And the prepared remarks.
What is the bad debt.
For the first half.
The current year versus.
Last year.
The well the biggest part of the bad debt adjustment is the adoption of the new accounting standard.
We experienced.
One bad debt typically that was out of line with our typical experience, but most of the rest of the adjustment was related to the new accounting standard which requires us to look forward.
That was.
Probably.
$400000 in the first half.
Hi, sorry, excluding the accounting adjustment what was the bad debt.
I don't have that I don't have that information.
Oh broadly speaking, what's the health of the underlying customer base at this point.
Retailers, having its issues, but I'm just curious as to.
What's your underlying customer strength.
My guess is Paul Toms is our.
Customer strength is actually better way better than Weve modeled back in March and April.
And.
Furniture is come out of the pandemic very advantage category, because some people and sheltering at home and.
Realizing they need.
Dining furniture, and new works or work spaces.
And less things competing for discretionary spending as we mentioned with travel ban way down dining out being down.
Just don't hesitate discretionary spending there is less things competing with furniture for those dollars. So.
I would say most of our retailers across almost every channel we sell when we sell a lot of different channels.
All right are doing better than they have.
There are two ago lender.
Advantaged.
Hi, good condition, you can find exceptions, obviously look at retailers that have.
Closed or.
Gone through bankruptcy.
I think furniture, specifically is outperforming a lot of retail presently yeah, let's say our.
Our experience to this point hasn't been different than a year.
The one bankruptcy that I referenced was not related to co, but I don't think that the pandemic has created any additional debt exposure, but a.
Well have to wait and see if I think we're pretty comfortable most of these we ensure some of our larger accounts.
Almost all of those have had.
After a after suspension of credit charge during the initial endemic shutdowns most of that and reinstated I think Steve.
The insurance and investment community is pretty positive about our customers as well.
Okay. Good to hear and finally, what was the exact backlog at the end of the quarter right I heard bits and pieces, but what was the total backlog.
Companywide.
Hi.
And that number in front of me I know, we said it was 35% higher than a year ago.
In total up in the Q2.
The total backlog was.
160 minutes.
160 Onesix.
Okay and that was up 35% from a year ago, Yes, correct. Okay.
Thanks, Good luck.
Thanks.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to Paul Toms for any closing remarks.
No additional remarks to make we appreciate everybody joining us today, we're encouraged by the quarter that we just reported but we're certainly.
Very optimistic going forward and believe that.
Coming quarters are going to be very good for the company. Thank you for joining us today.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.
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