Q1 2023 Hooker Furnishings Corp Earnings Call
Greetings, ladies and gentlemen, and welcome.
Finishing quarterly Investor Conference call. Good morning, its operating results for the first quarter of 2022 earnings.
At this time all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation to ask a question. During this session you will need to press star.
One key on your Touchtone telephone.
This conference is being recorded it is now my pleasure to introduce your host Mr. Paul Hudson, Vice President Finance and Chief Financial Officer for Hooker Furniture Corporation. Please go ahead Sir.
Thank you Olivia.
Good morning, and welcome to our quarterly conference call to review our results for the fiscal 2023 first quarter, which began January 31 and ended on May one 2022 joining.
Joining me this morning is Jeremy Hoff, our Chief Executive Officer.
Certainly appreciate your participation today.
During our call we may make forward looking statements, which are subject to risks and uncertainties.
The factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2023 first quarter results any forward looking statements speaks only as of today and we undertake no obligation to update or revise any forward looking statements to reflect events or.
After today's call.
This morning, we reported consolidated net sales of $147 million, a decrease of $15 5 million or nine 5% compared to last years first quarter due to sales decreases in the home Meridian and Hooker branded segment driven by continued supply chain disruption.
The decreases were partially offset by strong sales in the domestic upholstery segment and the addition of Sunset West sales.
Company reported net income of $3 2 million or <unk> 26 per diluted share compared to $9 4 million or <unk> $78 78 per diluted share a year ago now I'll turn the call over to Jeremy to comments on our fiscal 2023 first quarter results. Thank you Paul and good morning, everyone as we expected and forecasted last quarter.
<unk> first quarter results continued to be hindered by the slow ramp up of case goods production capacity in Asia. Following the factory shutdowns in the second half of last year.
Consolidated net sales and earnings decreased on a year over year basis. However, they improved compared to an operating loss last quarter and surpassed management's expectations for the quarter.
The Asian factory shutdown and lengthy ramp up produce the inventory available for direct shipment to customers and reduced our ability to replenish warehouse inventories, which became depleted as the shutdown war on at.
At the end of the first quarter and April Asian case goods production finally reach full capacity. So we expect improving conditions in results to continue.
In addition, we have a record amount of inventory in transit now and a high percentage of it is sold orders that will ship as soon as the shipments arrived in our domestic warehouses.
Backlogs remained much higher than pre pandemic levels. So we believe we will ship well as inventory availability improves.
Home Meridian and Hooker branded segments were most impacted by the factory shutdowns in Vietnam, and Malaysia, and the resulting sales declines partially offset by strong sales in the domestic upholstery segment and the addition of the revenues of our newly acquired Sunset West business unit and our core deliver results.
Despite continued supply chain disruptions and high transit cost. We are pleased to have started fiscal 'twenty three with historically high backlogs a leaner portfolio focused on our most profitable channels and products and with the acquisition of sense at West a leading player in the growing outdoor furnishings market the integration of <unk>.
<unk> West is going extremely well sunset west contributed above expectations to operating profitability this quarter and offer significant long term growth opportunities in the outdoor furnishing category for Hooker furniture, <unk> now I want to turn the discussion over to Paul heartfelt, who will discuss highlights for the first quarter in each of our segments.
Thanks, Jeremy.
The Hooker branded segment net sales decreased by $9 million or 17, 5% compared to the same period a year ago. A decline that was fully driven by case goods inventory on availability, resulting from the temporary factory shutdowns in Vietnam.
The temporary halt in production during the summer and early fall of last year resulted in low inventory receipts in the second half of fiscal 'twenty, two and this quarter lower shipments at Hooker case goods were partially offset by increased net sales at Hooker upholstery division due to quicker inventory turns and that exist.
Thanks to its domestic warehousing business model Hooker branded was able to sustain shipments longer but eventually the strong shipments without sufficient replenishment resulted in completed inventory.
As of May we're now moving into positive territory as our inventory levels have more than doubled compared to the fiscal year end with a record amount of inventory in transit from Asia.
Additionally, a large percent of these of these shipments carry the price increases we implemented in July 2021 to mitigate excess freight and logistics costs.
Hooker branded segment reported $4 1 million of operating income and at 94, 8% operating margin for the quarter.
Incoming orders in the Hooker branded segment decreased by 13% compared to the prior year quarter when business was dramatically rebounding with exceptionally strong demand after the initial COVID-19 outbreak.
However quarter end backlog was 11% higher than in fiscal 2022 year at 87% higher than the end of the fiscal 2022 first quarter and has remained at historical highs.
Turning now to the home Meridian segment net sales decreased in the first quarter by $22 million or 26% compared to the prior year period, driven by continued supply chain disruptions and our exit from unprofitable unprofitable clubs channel as well as lower e-commerce sales, reflecting recent trends in that channel.
These declines were partially offset by the launch of the Pulaski upholstery division and sales increases in our hospitality business.
Most shipments carry price increases in freight chart surcharges, which helped to offset the impact of higher freight costs. However, profitability was negatively impacted by higher than expected <unk> expense and transition and startup costs at our new Georgia warehouse.
We also experienced later labor shortages and higher training costs as we bring the Georgia warehouse up to Steve.
These factors drove the segment's operating loss for the quarter, while disappointing it was in line with our expectations.
Order backlog decreased in the home Meridian segment due to our exit from the club channel and adjustments to programs orders by some large customers, but backlogs are still about 50% higher compared to pre pandemic levels.
Early 2020.
Finally, the domestic upholstery segment continued strong revenue performance with its fifth consecutive quarter of double digit net sales gains.
Net sales in the segment increased by $15 8 million or 62% in the fiscal 2022 quarter.
Due to strong sales of brands, Sam Moore, and Shenandoah as well as the addition of Sunset West sales.
However, raw material price cost increases and freight surcharges increased product cost and partially offset some of those gains from increased sales. So while profitability was higher than the same period last year, we were not fully able to leverage those sales increases.
Incoming orders decreased by five 4% compared to the prior year quarter due to the current lead times historically high backlogs.
At the end of fiscal 2023 first quarter backlog was 18% higher than fiscal 2022 year end, an 80% higher than fiscal 2020 to first quarter.
Turning now to cash debt inventory.
Cash and cash equivalents stood at $10 million at the end of the quarter down $59 million as compared to the balances.
At year end due to 31 of $30 million, increasing inventory and $26 million spent on the acquisition of Sunset West.
At quarter end inventory stood at $107 million with a record $40 million of inventory at cost in transit.
Our domestic warehouses.
We are experiencing.
<unk> a short term decline in our cash balance a very high percentage of this inventory is in transit is sold so we expect to convert much of that inventory to shipments fairly quickly.
We expect our cash balances to improve by the end of the quarter and returned to normal later this year.
Last week, we declared a dividend of <unk> 20 per share, which represents about a four 5% dividend yield at our current share price and this morning. We also reported that our board is.
Approved a share repurchase authorization of up to $20 million.
Now I will turn the discussion back to Jeremy for his outlook.
Thank you Paul we are seeing a leveling off of demand with incoming orders down from the meteoric, but unsustainable levels. We experienced in the last 18 months order rates are stabilizing at above fiscal 2020 levels for most divisions HMA orders for the quarter were lower than pre pandemic levels.
Reflecting our exit from the clubs channel in order adjustments from some of our larger customers backlogs at all divisions remains sizable and sufficient to support our sales targets for coming quarters.
Once we receive all the inventory in transit, we expect to be in a near optimum shipping position throughout the second quarter and will begin to feel the full benefit of Asian production levels being at 100% capacity. We continue to watch inflationary pressures in the economy and believe those are affecting consumers more at the lower price points than at the upper medium and.
Upper price points, we're still optimistic about the housing market strong levels of employment and having two of the largest generational groups and prime household formation and furniture purchasing years, our variable cost business model will allow us to adjust to changing economic conditions and we continue to focus on multiple strategic initiatives.
<unk> to spur organic growth and increased market share. This ends the formal part of our discussion and at this time I will turn the call back over to our operator Olivia for questions.
Thank you, ladies and gentlemen, if you would like to ask a question at this time you will need the question Scott.
When you touched on the telephone.
Please standby will be compile the Q&A roster.
Now first question coming from the line of Anthony <unk> with Sidoti <unk> Company. Your line is open.
Good morning, and thank you for taking the questions.
Just wanted to ask good morning Anthony.
So so.
So first just the overall backlog.
Could you provide.
Consolidated backlog numbers.
You had at the end of the quarter, how does that compare versus a year ago or maybe two years ago, whatever whatever number you have.
That's great.
Backlog at the end of the first quarter. This year was $2 83 compared to $2 80. This time last year.
Okay.
That's helpful.
And in terms of the.
Order cancellations or adjustments are you only seeing that on the HMA side or are you seeing anything on the hooker branded or.
Domestic upholstery side of the business.
Mostly the cancellations have happened on the <unk> side, and they're mostly orders that are planned much further out and so with lead times starting to come down with the with the productivity overseas changing that's changing the dynamic of timing of what what our accounts need on order so a lot of that.
As a result from that.
Got it okay. Thanks, Jeremy and then.
For Samsung West can you share how much.
<unk>.
Impacted by the acquisition of <unk> West.
One second Anthony.
Sure.
Yes.
Just wanted to get a sense of.
What the organic <unk> growth was kind of that operating.
About $7 5 million.
Got you okay. Thanks for that Okay and then.
SG&A was 19% higher than last year in the quarter.
Can you just comment as to what drove the increase and how should we think about the SG&A expenses going forward.
Well of course, lower volume effects of that.
And the addition of Sunset West certainly drive some of that.
Thanks.
We have incurred additional labor like labor costs bonus accruals.
I think.
I think the quarter was typical for for spending as you know about five or so percent of our SG&A is variable and the rest of it is fixed.
If you back if you back that 5% of sales out.
I think you could probably get a run rate.
That's pretty normal for the rest of the year.
Okay got it okay. So so so there werent any like one offs.
Cost as far as associated with the integration of Tulsa West that could have maybe caused SG&A to be up higher.
Other than you mean.
Other than the addition of Sunset West and of course.
I think last year, we reversed a bonus accrual in the first quarter that was happening.
<unk>.
Nothing nothing major.
Yes.
Like I said I think if you backed out that were adjusted for the variable part of.
The variable portion of SG&A. This is probably a run rate of normal run rate.
Got it okay. Thanks for that and I have a couple more questions here.
So as we look forward.
Particularly for the second half of the year.
You will face rather easy here.
Year over year comparisons.
And specifically for HMA.
As you guys know so really hurt the last year because of the shutdowns of Vietnam.
So in theory that should help the second half this year, but then you guys also talked about seeing some pressure on the lower end consumer.
Which is understandable, but kind of given the various puts and takes how.
How should we think about specifically HMA.
Sales and profitability for the back half of the year.
Just kind of Directionally, how should we think about that Anthony I'll answer that we like our opportunity at <unk>.
Mainly because the massive amount of things we had to both get out of so when you look at the RTA costs do you look at the clubs costs do you look at all the things that.
I would call massive headwinds.
We feel like we eliminated a lot of those things and a lot of those things that could surprise us.
No.
Right now, it's really a matter of managing our day to day business and making sure.
Some of the inefficiencies from a newer warehouse in Savannah, and things like that don't bite us, but these major things we had last year, we're feeling pretty good about the runway we have versus last year.
Okay.
That's great to hear.
Okay, and then yes.
The other thing I wanted to ask is.
The release, you talked about focusing on multiple strategic initiatives to spur organic growth and increased market share can you further expand on that as to what you guys are planning to do so.
It doesn't help us think about the.
As far as updating our models and so on.
What are your thoughts there as far as the strategic initiatives.
Yes, sure I touched on it some last call as well.
One of them one of the big initiatives that we're working on at HMA has a program called portfolio.
It is a program designed to.
Really target.
Of more customers and that customer base versus we don't want to we like our customer base now from Omega customer base standpoint, its very it can be very project oriented it's with a lot of major customers, but if you take that down a level or two there is a lot of opportunity for <unk> to sell into a much deeper.
For audience.
And which includes.
Utilizing the Savannah warehouse.
It also would would help us with more ecommerce business with having that inventory in Savannah, It would help us with.
Selling the interior design channel as well so doing all of those things should help us mid to longer term both grow our customer base grow our revenues and expand our margins.
It's a major one and it's a big play for us at <unk>, that's going to it's going to play out longer but it's not that's definitely something we're launching in October and we're preparing for that now. So that's one example, another example is when we get to April of fiscal 'twenty four.
Market.
Our legacy the entire Hugger Hooker legacy company is moving showrooms to show place, which is we feel like it will give us probably somewhere in the level of 10 times more exposure to.
A different audience, an interior designers, we'll still see all of our customers that we see now, but we think we can really increase that footprint as well not to mention all of the aesthetics advantages that we're going to have with natural lighting and the things to show furniture properly that we get in that building versus being on the 10th floor, where we are where there's cans.
Ideally one window so.
It is a major difference in a lot of ways that we feel will incrementally grow our sales in the different companies within hooker legacy.
Got it yes Vegas coming up sooner.
Gotcha, Okay alright.
Thanks for additional color and then I guess lastly, I guess, it's more of a comment and then a question, but there will be share buyback announcements certainly makes a lot of sense.
So may here.
As far as.
When you guys would potentially start buying.
Any sort of comments.
Can you share with us as far as.
The buyback program.
Not a lot we are going to share but.
It should start in the next week or two in the next couple of weeks.
There are some administrative work to be done to get that in place.
Yes.
It's an open authorization and.
We'll have a <unk> five plan in place to.
To make purchases.
As per our instructions.
I think.
We feel like the shared that our shares are undervalued and we think it's a good.
Good use of our capital at this point that's probably.
Continuing to pay the dividend and now doing the share repurchase our that's our.
Right now as our entire capital allocation strategy.
Got it okay.
Typically makes a lot of sense, so well. Thank you very much and best of luck.
Thank you Anthony.
And as a reminder, Laythan gentlemen asked a question. Please press star one.
And our next question coming from the line of Sandy Meacham with evaluate research your line is open.
Yes. Good morning can you provide little bit more commentary on the price increases.
How much have you increased prices I know you said that there's a little bit more impact on the lower end of the market in the higher end.
And also that.
Second question is that now that whole prices seem to be leveling off does that.
People more.
Missionary funds that they can spend on furniture or does that reflect just a little bit.
Excluding off of the housing market. Thank you.
Good morning, Sandy this is Jeremy.
Regarding the first part of your question.
Price increases werent more significant in the lower price points of our company, we feel I would say.
Saying that the demand difference currently has affected lower price points more than it has effected affected the upper price points. So I wanted to make that distinction.
Also as far as you really have to go through all 12 businesses to get an understanding of where each one had to price differently based on the conditions that had to meet so for example.
<unk> branded which is hooker case goods hooker upholstery.
A major part of those price increases have to do with freight and all the all the transit costs that have gone up so significantly. So if you take that out of those price increases thats probably.
Probably in the neighborhood of 65% of the increases have actually been related to freight.
On that side of the business if you go into the.
The domestic upholstery.
Been going up of course, because we have responsibility for raw materials and all the all the things that you need to build furniture, we own those factories. So.
We obviously had to go up at the levels of those materials going up so.
Paul I would say you could estimate that was in kind of the 8% to 10% range for domestic upholstery and then on the HMA side being that most of their business, 70% to 80% of their businesses can direct container.
Lot of our customers have their contracts for their freight we're not really responsible for most of the freight on that side of the company. So.
We increased the level needed for factory price increases from our suppliers. So it's really three different stories.
Regarding your housing question.
First of all I'm not going to pretend that I know the answer to that I mean, your guests might be as good as mine, but we like the dynamics.
Know that there is a backlog of homes, we know that theres consumers still wanting to buy homes and we know that.
We know that that's an advantage to us when it happens so we still feel pretty good about all of that of course, the interest rates are concerning keep going up the inflation all of those things happening but.
We still have some quite a bit of confidence from watching the housing market, even if it slows down it's still way ahead of where it was fiscal 19.
We feel logical 'twenty whenever there is a disruption interest rates go up for some of that just comes out I think because housing is such a big purchase I think it tends to cost consumers pause.
But longer to medium.
There. So we feel good about that I mean, obviously, it's all predicated on our economy.
We feel like housing demand.
<unk> is still really positive for the mid to mid to long term.
Great. Thank you so much youre welcome. Thank you.
And I am showing no further questions at this time I would now like to turn the call back over to Mr. Jeremy Hall for any closing remarks. Thank.
Thank you Olivia I would like to thank everyone on the call for their interest in Hooker furnishings, we look forward to sharing our fiscal 'twenty three second quarter results in September take care.
Okay.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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