Q1 2024 Hooker Furnishings Corporation Earnings Call
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Ladies and gentlemen, thank you for standing by. Welcome to the Hooker Furnishings Corporation first quarter 2024 earnings webcast. At this time, all participants are in a listen only mode. After this presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automatic message advising your hand is raised.
Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker host, Mr. Paul Hupfeld, Chief Financial Officer. Please go ahead, sir.
Thank you, Livia. Good morning and welcome to our quarterly conference call to review our financial results for our fiscal 2024 1st quarter, which ended on April 30th, 2023.
Thank you.
We appreciate your participation this morning.
fiscal 2024 first quarter results.
Any forward-looking statement speaks only as of today and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call.
This morning we reported consolidated net sales for the fiscal 2024 first quarter of 2018, a decrease of 25.5 million or 17% compared to last year's first quarter.
The revenue decline was driven by a $20 million sales decrease in the home meridian segment due to lower sales with major furniture chains and mass merchants, and to a lesser extent a 15% decrease in domestic upholstery after two years of sales growth in this segment.
Net sales from the Hooker branded segment remained relatively flat compared to the prior one.
consolidated net income was $1.5 million or 13 cents per diluted share this quarter compared to $3.2 million or 26 cents per diluted share in the prior year period.
Now I'll turn the call over to Jeremy to comment on our fiscal 2024 first.
quarter results. Thank you Paul. Good morning everyone. On our call today we'll discuss our quarterly results and several of our long-term strategic initiatives which are positioned to begin delivering organic growth. Considering the softer retail environment, economic uncertainties, and our recent exit from the Accentrics Home line.
We're pleased to have exceeded external expectations for sales and earnings during the quarter. Our liquidation of ACH inventories and other obsolete inventories at HMI is about 80% complete, which is helping us reduce our domestic warehousing footprint and make progress towards getting profitability back on track at HMI.
This quarter, we were able to strengthen our balance sheet. We generated about $22 million in cash from operating activities, which contributed to a $12 million increase in our cash position for the quarter and funded $4.3 million in share repurchases.
along with our typical cash requirements.
As we moved into May and now June , we are continuing to build cash and further reduce inventories. As of yesterday, we have generated almost $16 million more in cash since the end of our first quarter, bringing our cash balance to $46 million.
Inventory levels decreased by 23 million during the quarter, well on our way towards our goal of reducing inventories by 30 million before fiscal year end.
Our new Hooker Legacy Showroom grand opening at the April High Point Market met our expectations as we nearly doubled our attendance from a year ago, attracting new customers and providing a much more meaningful presentation of our Legacy brand and the launch of our new brand M.
Many of our strategic organic growth initiatives that will enable us to increase our share of total addressable market and visibility are tied to the new showroom and the HOKER Legacy brands.
One of those strategic growth initiatives, the high point market launch of M, domestically produced upholstery and imported occasional furniture brand, surpassed our expectations. This new brand combining the unique capabilities of HF Custom, Shenandoah, Bradenton Young and Hooker Case Goods.
will enable us to compete in a modern lifestyle aesthetic without disrupting any of those core businesses.
Retailers affirm to us that the new M brand is very much on point with the up and coming casual modern lifestyle that today's younger consumer is gravitating towards. The rebranding of Sam Moore to HF Custom at the Spring High Point Market came at an ideal time as the timing allowed us to elevate the look of the product with new cover treatments and silhouettes and unveil the brand.
by stocking the line both in its current West Coast warehouse and now adding Sunset West inventory to our East Coast Savannah warehouse. At the Spring High Point Market, Sunset West debuted its first comprehensive display in our industry's major East Coast market.
We believe that Sunset West's expansion to a national distribution offers a double-digit organic growth opportunity over multiple years.
Also in April , we announced that Hooker Furnishings and leading lifestyle and entertainment company Scott Brothers Global have renewed the multi-year licensing agreement, in which HMI's Pulaski and Samuel Lawrence furniture divisions serve as the exclusive bedroom dining and occasional furniture suppliers for the Drew and Jonathan home brand.
At the High Point Market, HMI introduced a 26-piece Drew and Jonathan collection in a California casual to further expand the product line.
After initial delay due to the pandemic, the Drew and Jonathan home line now has the retail placements and demand momentum benefiting shipments in the short and long term.
due to the pandemic, the Drew and Jonathan Home Line now has the retail placements and demand momentum benefiting shipments in the short and long term. Our transition Fram Wrestlers
to a new leaner business model at HMI will continue into this year as we move away from higher risk businesses to focus on our core strengths and businesses.
Pulaski Furniture, Samuel Lawrence Furniture, Samuel Lawrence Hospitality, and Prime Resources International.
we believe are still on track to achieve profitability in this segment by the end of the fiscal year.
Importantly, the HMI team is focused on our core competencies as we direct our support and resources behind our key businesses while reducing cost.
Now I want to turn the discussion over to Paul who will discuss highlights in each of our segments.
Thanks, Jeremy. Beginning with our Hooker branded segment, net sales remained relatively unchanged, decreasing slightly by.8% or $339,000 compared to the prior year of first quarter.
Thanks, Jeremy. Beginning with our Hooker branded segment, net sales remained relatively unchanged, decreasing slightly by.8% or $339,000 compared to the prior year of first quarter. Gross profit and gross margin remained relatively flat.
Net sales were negatively impacted by higher discounting compared to abnormally low levels of discounting in the prior year period. What we benefited from price increases implemented in the prior year to mitigate product costs.
Inflation discounting increased by 230 basis points from the prior year due to somewhat softer demand in the current quarter. Inflation isCarrier higher than straight digital cloud or A Hawg DisIONS Al communicated Electricity so that is why we all have a TOEFL
which heavily impacted the gross margin in previous quarters, were still higher than prior to your first quarter but are trending down.
At the end of the first quarter, Hooker branded inventory levels decreased by $14 million compared to the fiscal 2023 year end.
Inventories are still elevated at quarter end and are higher than pre-pandemic levels in calendar 2019. So we continue to work to align our inventory levels with current demand.
We're pleased that our inventory management process is working well, so we're in stock on most best selling items.
and inventory obsolescence has not been additional.
Quarter end backlog for Hooker branded was lower than the prior year for a quarter end.
but remained 50% higher than pre-pandemic levels. Incoming orders decreased by about 16% compared to the prior year quarter and approached levels similar to fiscal 2020 first quarter, reflecting more normalized post-pandemic demand. Turning to the home radiance segment.
As Jeremy noted, the sales decrease was better than our expectations and the operating loss of $2.1 million was a million dollar improvement compared to the prior year first quarter. Net sales at HMI decreased by $20 million or 32% compared to the prior year first quarter driven by sales decreases with some major furniture change and mass merchants.
in a slower retail environment.
by going back through your story, there will be some
Other factors contributing to the lower sale include delayed orders from retail customers as they continue to reduce their inventory
factors contributing to the lower sale include delayed orders from retail customers as they continue to reduce their inventory and the absence of the clubs and ACH sales businesses.
since we've exited those divisions. Inventories decreased $9 million from the end of fiscal 2023 due to the liquidation of obsolete inventories and our efforts to align inventory levels currently in our program to address ageavis Optical
On an encouraging note, SLH, our hospitality division's net sales, more than doubled compared to the prior year first quarter, indicating a strong recovery in the hospitality industry after the COVID pandemic. Additionally, freight costs have improved due to the stabilization of ocean freight rates.
Incoming orders and quarter-end backlog at HMI were lower than the prior year quarter and fiscal 2020 first quarter due to the absence of orders from the clubs channel, which HMI exited during fiscal 2022, and the ACH business, as well as decreased incoming orders from retail customers.
In the domestic upholstery segment, we experienced the first quarterly sales decline in over two years after ten consecutive quarters of year-over-year sales increases.
Sales decreased by 6 million or about 15%.
compared to prior to last year's first quarter. Sales reductions at HF Custom, Sunset West, and Shenandoah were partially offset by increased net sales at Braddington Young. Sales decreases at Sunset West are attributed to non-recurring factors, including slowed shipments in February and March caused by the December conversion to our new ERP system.
as well as the expansion of the outdoor brands to our East Coast warehouse, which involved transition costs and start-up delays at the time of the pandemic.
Georgia distribution center.
These issues were largely resolved by the end of the court.
We believe that much of the domestic inventory sales dip was driven by the fact that we worked through our large backlogs in these divisions and then experienced somewhat softer demands, which we don't think is a long-term situation.
Despite the sales decline and disruption, the domestic upholstery segment reported operating income of $1.3 million and an operating margin of 3.8%.
Quora and Bracklog for Braddington Young remained three times higher than pre-pandemic levels at the fiscal 2020 first quarter year.
While backlogs at HF Customs in Shenandoah decreased to levels similar to fiscal 2020. Incoming orders of Brank and Young in Shenandoah were at similar levels to fiscal 2020, while HF Customs experienced lower orders compared to that period.
And while it represents a smaller part of our overall business, all other, which includes our H-Contract Senior Living Furniture Division, contributed a $1.1 million sales increase. Going now to cash, debt, inventory, and capital allocation.
Cash and cash equivalents stood at $31 million at the end of the fiscal 2024 first quarter, an increase of $12 million from the prior year end.
As Jeremy reported earlier, we generated 22 million of cash from operations in the quarter, which we used to fund 4.3 million of share repurchases, 4.5 million capital expenditures, including investments in our new showroom and our new ERP system.
And 2.4 million cash dividends to our shareholders, which also helps bolster our cash position.
We're pleased with the progress we've made reducing inventories, which was a large part of the cash we generated during the quarter.
Since the repurchase program's announcement around this time last year, we've returned approximately $20 million to our shareholders and retired just under 1.2 million shares.
And earlier this week, our board approved an additional $5 million authorization as part of our capital allocation plan for the year.
In addition to continuing to execute with the share repurchase plan, our capital allocation priorities for the year include building cash reserves, funding the organic growth initiatives Jeremy noted earlier.
54-year streak of data dividend and funding our typical capital expenditure requirements. In addition to our cash balance, we have an aggregate $27.2 million available under our existing revolver at year ends to fund other working capital needs. Should that become necessary?
We believe that our liquidity and capital requirements will be further improved through the liquidation sales of the remaining excess HMI. And...
Now I'll turn the discussion back to Jeremy for his outlook. Thank you, Paul.
While retail conditions remain mixed, along with some economic uncertainties, we have begun to see more positive transfer consolidated incoming orders in May. And that is holding up so far in June . We believe the industry is getting through some of the elevated inventory challenges, and we may be seeing some breakthrough in that area.
Following our successful new showroom grand opening at the Spring Highpoint Market, Hooker Furnishinge will continue initiatives to enhance visibility and addressable market reach this summer, debuting a new showroom at Atlanta Market for Hooker Legacy Brands. In addition to opening the new showroom for Legacy Brands, Sunset West also will debut a new showroom at the Atlanta Market, which is the new sponsor of the The new showroom will continue to be a new showroom at the Atlanta Market, which is the new sponsor of the new showroom.
In short-term volatility in sales and earnings at HMI, we continue to expect the segment to achieve quarterly profitability by the end of the 2024 fiscal year. The Hooker furnishings team continues to focus on organic growth opportunities through expanded visibility, strategic product development, operational improvements, and cost reductions.
By focusing on these controllables, we will be in the strongest position possible as the demand environment continues to improve. 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.
Sonly, ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please send by while we compile the Kinehr Raster.
And our first question coming from the line of Anthony Lipsinski with Sadoti. Hello, my name is Sadoti.
Good morning and thank you for taking the questions. So first, just a couple of questions in the quarter then on your outlook. So as far as the question and answer, I'm going to go ahead and ask a couple of questions.
But the quote, I know you'll have some of this information in your 10Q, but can you just first comment on unit volumes versus pricing? I know you guys talked about the discounting. So just wondering about just volumes in general versus pricing.
So for hooker, unit volume is down about 6%.
ASP's up about eight percent.
for HMI.
Un volumes down 10%, austri voles down about 25% and the's- these are thirteenamthat to okayso we are.
Okay all right all right
Got it. Okay. And then, you know, just, you know, it was nice to see overall gross margin increase of nearly three percentage points on a consolidated basis. I know you guys talked about, you know, the discount thing as well as higher demurage cost, but I have a suit.
starting to come down versus what we were experiencing during the pandemic. As far as the discount in line, we're really getting back to a little more normalized discount line. We went to an unusual very low or almost zero discount line during the pandemic for obvious reasons, you know, with all the supply chain challenges and everything that was going on.
and the demand at the level that we saw. It changed our entire approach and I think the industry's approach from a discount standpoint. Paul, do you want to add to some of the other...
Lisa of C
So
domestic upholstery, despite the sales decline, domestic upholstery was more efficient. We've seen price increases have taken effect. For during the pandemic, we didn't, even as prices were increasing pretty dramatically, we didn't raise prices on backlog. So our new price lists have come into effect and that's all helped.
I think the strategic decision was made not to raise prices on existing backlog. So it took a long time to cycle through because the backlogs were so big.
And lastly, we've eliminated a lot of prizes we were experiencing on HMI side of our businesses, with top, it obviously affected our overall gross margin negatively.
And lastly, we've eliminated a lot of prizes. We were experiencing an HMI set of our businesses with jobs that obviously affected our overall gross margin negatively when we were going through that.
Gotcha. Okay. Alright. So it's good to see some better predictability with HMI. So, so as far as HMI, so I know you guys talked about reducing the warehouse in footprint. Where are you guys with that? You know,
as of today and kind of where do you think you'll be by the end of the fiscal year with that initiative? So on Savannah as we continue to like we said we're 80% of the way through
you know, getting out of the product we're trying to get out of. As we do that, the requirement for the footprint in Savannah goes to, you know, much less than we needed before. So we've already made arrangements to hand over 200,000 of the million square feet that will happen July 1st of this year, this fiscal year.
We're working on some other plans that our goal would be to get that down to 500,000. We're hoping by fiscal year end. If it's not, then it would be shortly after, but that's our focus and all the other cost reduction activities that we talked about are on track.
for this fiscal year to again return HMI to profitable quarterly profitability by the end of fiscal year.
God, yes, thanks Jeremy. And then you guys have the consolidated backlog number by chance handy?
Got it. Okay. And then I know you touched down this a little bit on your last call in April , but the as far as you know, some said West. That was impacted by the ERP system roll out. I believe you had said it was a couple million dollars, but just just correct me if I'm wrong. And then.
Overall, where do you stand with the ERP rollout? And if it's, I know it's...
work in progress, but could there be potential other issues with other brands as you go through this process?
So first, your number was close on the sunset west, what we referred to as far as the disruption.
They're pretty much through that at this point and they're through a lot of the transition of creating the East Coast distribution for them as well. So, it's going really well. We're optimistic about sunset west for the rest of the year. Regarding the ERP for the rest of the company, we have a go live date in early July . Bye.
for our hook or legacy portion of our business, we feel very good about it. One reason we candidly did Sunset West first is we wanted to make sure a lot of those systems that we were needing to work for the rest of the company would work the way we thought they would work. So we did a test on one of our smaller parts of our company, which we saw the issues and were able to fix them, but we're aware of those going into the larger go live.
And then can you also share some more details about the higher incoming orders that you saw in the month of May and just curious us to what you heard from retailers about the important Memorial Day weekend?
Yeah, so it's actually really encouraging, I think really far industry, the order rates have consistently been better. And as the second quarter has started, we've seen really good order trends.
And really, if you look at throughout our brands, it's somewhat across the board. If you look at HMI, their order rate has been up. If you look at the hooker legacy brands, their order rate has been up, and then Sunset's seeing the same thing. So, you know, Memorial Day feedback from a lot of our partners was positive. So, you know, if you think back to pre-pandemic.
Many times our industry was not that happy before Memorial Day from an order rate standpoint. And I think all of us kind of saw a similar trend recently and then Memorial Day hits.
You know, and so we seem to be in a more normalized cycle from what we used to be in.
Got it. That's great to hear. Well, thank you very much. And best of luck. Thank you, Anthony.
Thank you, and as her mind to ask a question, please press star one one. And our next question coming from the line up, Barry Hemswood, please add to the management, Elena Sultman. Thanks so much and good quarter.
I had a question, one on Sunset West. As you go to the national distribution, did they have an inventory bill that would either help your overhead absorption or your revenue, you know, either this quarter or next quarter? So just, you know, a little help on how that works. And how seasonal are their orders? Are we
kind of pass the season there for them and the bigger benefit would be next year or maybe just a little feel for the seasonality on their business. And then last question, you just mentioned orders being better. I presume that's sequentially and is it still Dan year over year or are we talking better year over year as well? Thanks.
Good morning. I'm going to start with the cyclical nature of outdoor. That's become less and less the case in that category. It's more of a year-round than it's ever been before. But really, you asked about the inventory.
build, I mean we obviously had a little some build on the East Coast to be able to supply those customers and and our we do see a big opportunity for growth sunset because you know all of a sudden the distribution that we're gaining East versus just being more of a West Coast centric company.
gives us a lot of opportunity, really in pretty major revenue portions of the country that we can take advantage of. And then the other part of your question, Paul, do you want to answer that on the orders? The improvement is year over year.
Got it. Okay, thank you. Thank you. Thank you. And our next question coming from the line of John Desser with Pinnacle Valley. Line is open.
Hi, good morning. Thanks for taking my question. On the inventory reduction.
I would guess that was sold at a loss.
guess that was sold at a loss.
I think.
Could you put a number on that? In other words, without the inventory reduction, how much higher would the gross profit have been for the quarter?
Could you put a number on that? In other words, without the inventory reduction, how much higher would the gross profit have been for the quarter?
We took that big charge at the end of Q4, at the end of last fiscal year, that $24 million charge. Okay. So, I'm going to go back to the Q4. Okay.
The impact of actually selling that stuff off is nominal. We reserved against it and then we took the reserves back. So there was not much impact to that. Okay, so no impact. What were the orders for the first quarter? Where is we're 111 million?
Sorry, 111? 111 compared to 81 last year.
Okay, good, that's going in the right direction. And finally, what would be the CapBex budget for this fiscal year?
About 6 million.
About 6 million. 6 million for the year, okay.
Great. Thank you very much. Thank you.
Thank you, and I'm not showing any further questions in the queue at this time. I will not turn the call back over to Mr. Jeremy hub.
I would like to thank everyone on the call for their interest in hooker furnishings. We look forward to sharing our fiscal 24 second quarter results in September . Take care.
Please, and gentlemen, that doesn't have conference for today. Thank you for your participation. You may now disconnect.