Q3 2024 Hooker Furnishings Corp Earnings Call
Good day, and thank you for standing by welcome to the Hooker furniture.
Cool 24 third quarter earnings conference call at this time, all participants are in a listen only mode.
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Please be advised today's conference call is being recorded I would now like to turn the conference over to your speaker for today Paul.
The floor is yours.
I think it was.
Good morning, walking through our quarterly conference call to review our financial results for the fiscal 2024 third quarter, which began on July 31 and ended October 29 2023.
Joining me this morning is Jeremy Hoff, our Chief Executive Officer.
We appreciate your participation.
During our call we may make forward looking statements, which are subject to risks and uncertainties a discussion of factors, which could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing.
Fiscal 2023rd quarter results.
Any forward looking statement speaks only as of today and we undertake no obligation to update or revise any forward looking statements to reflect events or circumstances after today's call.
This morning, we reported consolidated net sales for our fiscal 2020 for third quarter of $116 8 million, a decrease of 35 million or about 23% compared to last year's third quarter, driven by continued soft demand for home furnishings as well as our exit from eccentrics home product line.
Despite the sales decline operating income and margin both increased due to decreased product costs.
Kirker branded and improved margin at home Meridian due to the exit.
Profitable categories.
Consolidated net income was $7 million or 65 cents per diluted share for the quarter compared to $4 8 million or <unk> 42 per diluted share in the prior year period.
For fiscal 2020 for nine months period.
Consolidated net sales decreased by $115 million or 25%.
33, 336 million as compared to last year's same period.
Its holiday that net income was $9 3 million or <unk> 85 cents per diluted share compared to $13 6 million or $1 14 per diluted share in the prior period.
Now I will turn the call over to Jeremy to comment on our fiscal 'twenty third quarter results. Thank you Paul and good morning, everyone on our call today, we will discuss third quarter and first nine months results and how our strategy to reposition the home Meridian segment from a volatile high risk model with unpredictable revenue and profitability.
To a low risk more sustainable profit model that is yielding tangible results.
While the housing market slowdown high interest rates and a shift in consumer discretionary spending away from home furnishings continued to challenge. We're encouraged by positive indicators like the normalization of ocean freight rates east supply chain constraints more stable raw material cost and increased labor availability.
As we have forecasted for some time now profitability improved significantly as we moved into the second half of the year.
The home Meridian segment achieved a quarterly operating income for the first time since calendar year 2021 contributed 900000 to income in the current year third quarter compared to $3 2 million.
Loss in the prior year third quarter.
By a challenging macroeconomic environment for the home furnishings industry, we're proud of our team for persevering through some difficult decisions and short term pain to create a more sustainable and profitable business model for the segment.
After spending the last couple of years repositioning <unk> to focus on its core products and businesses. It is encouraging to see HMA reported quarterly profit for the first time in two years and contribute to our overall profitability.
HMA inventory levels decreased by $15 million.
As compared to the year end and $46 million compared to the prior year third quarter. In addition, we have realigned our inventory mix to reflect our current business plan and reduced our footprint in the Georgia warehouse by 200000 square feet in the second quarter and entered into an agreement in the third quarter to reduce another 200000 square feet.
By early next year.
Liquidating excess inventories right sizing, our overhead and exiting unprofitable businesses has put us in a much stronger overall position. Our main focus continues to be execution of our strategic growth initiatives and the drivers we can control.
Demand has decreased versus prior quarters. The consolidated orders are still up $12 7 million or 15, 7% for the third quarter.
For the first nine months consolidated orders increased by $75 8 million or 33, 5%. Most of the account consolidated increase is driven by home Meridian segment orders, which were unusually low in the prior year period.
We've continued this quarter to bolster our financial position generating about $49 million in cash from operations in the first nine months of the fiscal year at the end of the quarter cash and cash equivalents were $40 million, an increase of $21 million from the prior year end inventory levels decreased by $32 million from the year end and $60.
$9 million from this time a year ago.
The recent fall high point market.
Was positive by all measurable is across the company Inc.
Increased visibility is one of our major strategic objectives, adding two smaller showrooms in Las Vegas, and Atlanta, while moving our largest high point showroom has created an exponentially larger audience for our products on the legacy side of our business as well as sense at West <unk> also had a good market is a focus on strengthening the product.
<unk> for Pulaski, Samuel Lawrence furniture, and PRA the efforts by our team at HMA to Reenergize and repositioned the product offerings for growth received a lot of positive retail feedback and new placements from our major customers.
As reported before the collective impact of our new showrooms in high point, Atlanta, and Las Vegas has increased our customer contacts from about 3000 to around 14000 annually more than quadrupling, the number of existing and potential customers in this first half.
In the first half we opened 1000, new accounts as visibility and engagement increased this quarter that pace continued as we added 150, new customers on average per month.
Furniture industry as a whole continues to experience softer business conditions. However, we feel very good about all of our controls were in a healthy inventory and overhead position most of our cost reductions other than warehouses are behind us and we do not expect more personnel reductions.
Now I want to turn the discussion over to Paul who will discuss highlights in each of our segments.
Thanks, Jeremy.
Beginning with Hooker branded soft home furnishings demand and short term delays with an impact of about $3 million related to the implementation of our new ERP system over Labor day weekend drove a net sales decrease in the segment of about $17 million or 31%.
Without the ERP related delays, we believe sales would have been about 26% below the prior year.
The sales decline Hooker branded reported a solid operating income of $7 3 million and an operating margin of 18, 6% an improvement compared to the $5 9 million or 10, 3% in the prior year quarter.
For fiscal 2020 for nine month period, net sales decreased by $35 million or 23% due to decreased unit volume.
Sales decreases underscore the softer demand for home furnishings.
Gross profit and margin both increased for the fiscal 2024 third quarter. Despite the decline in net sales. This favorable outcomes attributed to significantly decrease product costs costs, driven by lower Ocean freight rates. In addition, warehousing costs were lower due to lower demurrage, and drayage expenses as well as lower labor and compensation.
Sensors due to the reduced shipping activities.
The higher than average gross profit margin of 45, 6% for the quarter is expected to be temporary as a result of the timing of reduced freight and product cost and recent price reductions across the segment.
While price decreases and promotions were implemented in August the majority of the inventory sold in the quarter still carry higher selling prices, which were implemented in the prior years to address massive freight cost increases which resulted in unusually high gross margins.
We expect hooker branded margins to normalize to historical levels in the coming quarters.
Incoming orders increased by 7% compared to the prior year third quarter and this year's second quarter.
Although quarter end back quarter, and order backlog was lower than the prior year quarter, an increase from this years second quarter and remained nearly 70% higher than pre pandemic levels at the end of the fiscal 2023rd quarter.
At home Meridian home Meridian.
<unk>.
Net sales decreased by $6 9 million or 13% compared to the prior year third quarter, but increased compared to the first and second quarters of the current year.
Sales decreases in the E. Commerce channel previously served by Eccentrics home accounted for over 40% of the overall decrease in this segment due to our exit from that line.
The remaining decreases in this segment were driven by sales decreases at Samuel Lawrence furniture, <unk> and <unk> all divisions.
That's sort of independent furniture stores and major retail chains.
These decreases were partially offset by strong sales at Samuel Lawrence Hospitality, which reported sales increases of 152% and 46% for the third quarter and nine months respectively.
Despite the net sales decrease HMA gross profit and margin increased by 940 basis points or $3 $4 million in the fiscal 2020 for third quarter.
This increase was attributed to improved margin as we exited from unprofitable sales channels and product lines decreased product costs and increased profitability in our hospitality Division also help.
Furthermore decreased costs in the Georgia warehouse and decreased wage expenses due to organizational and personnel changes all contributed to the increase in gross profit margin.
For the fiscal 2020 for nine month period gross profit slightly decreased driven by sales decreases while gross margin increased by 530 basis points due to the factors I've just mentioned.
As well as the absence of warehouse transition and startup costs incurred in the prior year first quarter.
From reading recorded a quarterly operating income of $900000 compared to a $3 $2 million operating loss in the prior year third quarter.
The liquidation of inventories that were written down during the fourth quarter of fiscal 2023 were essentially completed during the quarter and we had an immaterial impact on gross profit.
Incoming orders were 19% higher than the prior year third quarter, but lower than the first and second quarter orders as our retail customers are matching their inventories.
And orders to soft current soft demand for home furnishings.
And backlog was lower than the same period a year ago.
At domestic upholstery after two years of sales growth domestic upholstery net sales decreased by $11 million or 25% in the fiscal 2024 third quarter due to lower demand.
All four divisions reported sales decreases for the quarter and the nine month period.
Gross profit and margin both decreased in the fiscal 2020 for third quarter and nine months period, driven by net sales decreases.
Direct material costs were below prior year periods due to more stable raw material costs. However, these decreases were more than offset by under absorbed indirect costs, which were higher compared to the prior year third quarter and nine months periods, primarily due to indirect labor costs.
Incoming orders increased by 39% in comparison to the third quarter of the prior year as Brad anything young Hei custom and Shenandoah all recorded increased orders.
<unk> orders remained flat as compared to the prior year third quarter.
Quarter end backlog for the segment slightly decreased from the second quarter.
As Brian can you guys, but <unk> backlog was two five times that of pre pandemic levels.
While backlogs at ACF customer Shenandoah decreased to levels comparable to the fiscal 2020.
Sure.
One of our core values at Hooker furnishings is maintaining a strong balance sheet and financial position as Jeremy mentioned earlier.
We generated $49 million in cash from operations. During the first nine months net cash $112 million of share repurchases $7 million of cash dividends to our shareholders $5 7 million of capital expenditures, including the investments in our new showrooms three.
$3 8 million for the development of our cloud based ERP system, and $2 4 million to acquire Bobo intriguing objects in the second quarter.
On Tuesday, we announced our quarterly dividend of <unk> 23.
<unk> per share a four 5% increase over the previous dividend, which will result in an annual dividend yield of just under 5%.
This increase represents the eighth consecutive year in which we increased our dividend, reflecting our confidence in our business model and our commitment to providing a return to our shareholders.
Also relating to shareholder value during the third quarter, we completed the share repurchase program, which began in the second quarter of last year.
Over that time, we spent a total of $25 million and a little over a year to purchase and retire one 4 million shares of our common stock.
With that I'll turn the discussion back to Jeremy for his outlook.
While economic indicators remained mixed in furniture retail traffic is down about 15% from January through October 2023. The long term outlook has improved reduced housing activity high mortgage and interest rates are still challenging but several positives have emerged since last quarter core inflation is that it's at the lowest level.
Since 2021.
Economy grew nearly 5% last quarter unemployment remains at record lows and the risk of recession appears to be moderating as we look to the next quarter, we see flat sales for our hooker legacy brands, but it continued short term reduction for HMA sales until the new retail placements begin to generate more sales sometime in the first quarter.
For next year.
Early indications in the fourth quarter signaled that incoming order activity is returning to better levels. We experienced most of this year. We believe our growth initiatives will continue to gain traction in the first half of 2024.
Our focus on reducing cost keeping our balance sheet strong and judiciously deploying capital along with our investments to grow higher visibility on future growth continued to put us in the strongest possible position to leverage return of furniture demand to more typical levels.
This ends the formal part of our discussion and at this time I will turn the call back over to our operator lease up for questions.
Thank you.
As a reminder.
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Yes.
Our first question will be coming from Anthony.
Good Thanks, Keith Sidoti Your line is open.
Hey, good morning, guys. Thank you for taking the questions.
To see the bottom line outperformance in certainly a stronger balance sheet from a year ago.
Thanks, Joe.
Yes, sure so yes.
So I guess <unk>.
Big improvement.
<unk> ability versus a year ago, the gross margin there was about 20%.
So is this how we should think about segment gross margins going forward or was there anything unusual in the quarter that maybe this pace of gross margin expansion is not sustainable.
That's that's close to our targets.
There is a little bit of fixed cost in there with our warehousing costs.
So that could dip with sales decline a little bit, but that's the ballpark in a normalized environment I think that is what you should be thinking about.
Okay. So so that's certainly better than it used to be historically, so thats encouraging.
<unk> historically been getting covered up by the bad businesses that we exited.
Correct right.
Okay and then.
The gross margin Hooker branded was unusually strong as you pointed out.
Do you think youll see any sort of benefits from the higher priced products in the fourth quarter or do you think you've pretty much flushed out all of that in the third quarter.
We believe that we we have flushed a lot of that out but we still think there may be some benefit left partially in the fourth quarter.
So just normalized yes.
Yes.
Got you and then in terms of your outlook.
For the fourth quarter, you gave us some.
Some quantifiable numbers for the Hooker branded.
Sales will be kind of flat down that.
<unk> bye.
There was no mention really about domestic upholstery, so I guess.
With the orders coming in <unk>.
60% higher which is encouraging but.
Talk of softer demand.
In total how should we think about the fourth quarter revenue I guess, if we put all the pieces together.
So I'll speak to that somewhat general generally, but and then Paul can fill in the blanks, but.
You have to remember the backlogs that we were coming out of from last year versus this year in our order. So they were.
Extremely high and so the order rate was extremely low against a lot of those businesses. So these high percentages of order rates are.
Or just really.
Filling the backlogs backup for probably closer to a normalized business level versus the increases it looks like in the order rate.
Okay that makes sense.
Yep.
Yes.
Alright.
Sounds good and then lastly, before I pass the.
To others, so as far as the buyback you completed the.
The repurchase authorization.
What is your appetite for doing another share buyback or would you say your preference would be to pay off whatever that you have given the higher interest rate environment.
I think right now our objective is to make sure make sure that we're right about the economy.
And maybe keep it and maintain a strong balance sheet and fund organic growth if you've looked at our investor presentation. We've got a lot of pretty aggressive growth targets. We've got some specific strategies and I think our primary objective now is to fund those of those organic growth strategies.
We've got.
We've got Bobo and we've got sets at west that we expect to grow pretty significantly so I think for the short term.
Those are higher priorities than another share buyback.
And of course maintain our dividend, we're very proud of the dividend and just increase the dividend again for the eighth consecutive year. So so I think those are all higher priorities than another share repurchase.
Understood Alright, well, thank you very much and best of luck.
Thank you Anthony.
Thank you one moment for the next question.
Our next question will be coming from both firms.
Your line is open.
The morning.
Good morning.
So just wanted to start.
With some of the normalization in demand.
And kind of how you think about productivity and capacities between like the home Meridian segment.
I noticed that orders were up backlog was down.
Is this just efficiency is going way up or is it more capacity that.
You could get out of that segment.
Really that timing of the order rate increasing on the HMA side.
It didn't happen until later in the third quarter.
Which which created a lower backlog situation as you mentioned.
And that is why we're saying a lot of the placements we have out there. We have we have a lot of good indicators that those are working and we're starting to get significantly increased orders on the <unk> business and that's why we believe that backlog will spend its time getting larger during the fourth quarter and that's also why we believe the first.
We will be.
Significantly better for <unk> in the first quarter.
Right.
Lunar new year will change some of the shifting.
Right. So we put it as it relates to backlog and as it relates to orders its really the timing of when the right orders really improved on the HMA side.
Understood.
Yes no.
Thank you.
And then just when we're thinking about the increased visibility you have going forward.
As you open up your new showrooms and such.
How.
What kind of runway do you think there is for that to improve.
Improved demand and then ultimately turn into new orders.
So.
As it relates to the visibility which is really.
When we're talking about the hooker legacy side of our business that increased visibility.
As as.
As we mentioned also allowing us to.
<unk>.
Be able to to try and sell a lot more of a customer base than we've had previously.
Selling that customer base in that particular types of customers. We're talking about takes some time to really get into their wheelhouse of what theyre doing from a project level, whether it be the interior designers.
Thanks, we're trying to work on that so step one is the visibility step two is opened and the accounts that three is the engagement level that we're able to achieve with those additional accounts, which takes some time, but we.
From our history of doing this with thousands of accounts before we somewhat noted that it will eventually kick in and we believe it's a significant growth opportunity for us.
Okay, and then just one follow up on that what kind of timeline do you.
You expect around going from making contacts to opening accounts too.
Is that turning into sales.
I would say from when we started the higher visibility I would say I believe that.
From now another 12 to 18 month timeline to really see significant boost on that legacy side due to the visibility exercise.
That's very helpful. Thank you very much and I'll pass on.
Okay. Thank you.
Thank you.
Would you like to ask a question. Please press star one on your telephone one.
One moment for the next question.
On the question is coming from but the gas water tower.
Our research your line is open.
Good morning, Jeremy and good morning, Paul.
Yes.
Congratulations on the profit performance in the quarter.
And then debt.
That's notable hard to do that with down on down sales.
Really appreciate it thank you.
Could you talk about getting back to normalized margins gross margins in the hooker legacy.
Business.
What are those now after having gone through Covid and in supply chain and general inflation.
Inflation is disinflation.
Are those normalized margins today.
Yes.
Okay on the Hooker branded yes, I mean, it's been a long time since we've seen normalized margins, but.
But I think that low 30% high <unk> low 30 is a more normal margin.
Obviously.
There are a lot of dynamics that could still affect it but that would be sort of at once we get through this last round.
Mismatched prices and costs.
Right now we're working on our favor it should be back in that low 30% range for appropriate branded.
Okay.
The other part of our Hooker legacy business is the domestic upholstery business and Thats.
Hey.
Mid to low Twenty's margins.
Manufacturing businesses.
Dynamic.
But our goal is never to increase our hooker branded margins and to increase our prices because we wanted more margin. Our goal is to keep our margins historically, where they were why we went through the while we went through the incredible fluctuations in cost of freight and ocean freight and demurrage I mean, you name it.
And any furniture people on the call know exactly what I'm talking about too, but it was pretty crazy. The gyrations, we have to go through as a business. So.
We also protected our backlog for our customers that had orders for customers going into that all of that chaos, which we took hits on the other side of that.
Negative Lee, which impacted us, but it was the right. We believe it was the right thing to do.
Because we've said publicly we believe in our relationships and our customers and Thats a big part of what we do and who we are what we believe we are so.
We did that on the front end on the back end, we're getting some cost reductions that are that are helping us temporarily but we have as we promised all of our customers we have reduced our prices too.
What we believe they were.
Close to where they were from a value proposition standpoint previous to all the crazy freight rates and everything that we had going on.
As a former retailer I can tell you that I remember the angst that gets created when the price prevailing.
Phrase was bandied around the industry through a previous inflationary time period than you do too I'm sure I.
I do absolutely do Youre right.
So my question is how long does it take to get back to those normalized margin does that sounds like that mix is somewhere at the low Twenty's Hi, hi.
About 30 high <unk> kind of range and that's a that's a notable time.
Well Delta.
I want to take to get back to that normalized gross margin.
We expect that it'll be first quarter will be back to what we saw.
Said normalized margins.
Okay, Okay, that's encouraging.
The next question is I'm confused a little bit about the 14000 cars.
Contact number those are not unique accounts.
If you see you see your same account multiple times inside that number in.
No no those are those are unique we don't.
And we don't count individuals', we count accounts and in fact.
We had two significant entertainment.
Evenings and high 0.1 was the celebration of our opening showroom and we do it kind of once a market we don't count those numbers when the.
The attendance boost because we believe those are kind of the same people candidly coming back multiple times to.
To have some bonds.
So we try to make it is we really want the real picture for ourselves not just for you we want to understand what's actually going on so we can anticipate what will happen. So we.
We were somewhat we knew it would be.
Better than what we were on the 10th floor commerce before versus where we are now we also thought it would improve from our Las Vegas showroom in our Atlanta showroom, we had no idea we would more than quadruple. So this is this is.
We're pretty excited about it and we think that this is really set us up for a very.
Very good future for our company for growth.
And really across the board, but the legacy in particular from those share removes.
So so help me out here hopefully has always been known to have a wide will be very widely distributed with a lot of accounts.
So.
Those are notable numbers, maybe maybe just give us a comparison of high point, how much did the moving to show place from the 10th floor.
Increased back those contracts for those.
Those are actually increase the increase in high point in April was around 92% and the increase in October.
Due in April from April previous showroom in October increase was in the eighties I believe was around 84%.
88, probably the 88 <unk>.
Point is we've we've almost doubled.
Our attendance and that chevron versus our old showroom and to answer the first part of your question, Yes, we sell a lot of a lot of brick and more a lot of retailers.
Theres only so many retailers are at the point you were making but there is a lot more designers, we used to not let designers in our showroom period and so.
And a lot of our industry was the same way so obviously that changed years ago, but we continue to drive that strategy.
For us, it's a very significant part of our growth strategy.
So that's and that's exactly where I was going to go next quarters, I mean that seems to be the.
Growth at Delta are there is there a level.
<unk> for even some of the small designers that make it an unprofitable unprofitable account. The handle is do you have to how do you manage the profitability of the account.
<unk>.
You'll remember this there is so much digital now you don't have all the catalog cost you don't have all of the sending out a price list you don't have there's a lot of things that have changed the dynamics of what it cost to to sell an account so with those dynamics along with.
Some other things we're doing.
We've managed to figure out how to make that work financially.
Okay.
And of the 14000.
Can you separate for us maybe the.
Retailers versus the designer or the different type of the alternative type of distribution.
No I really can't right now, but im sorry, okay.
That's competitive.
That's certainly fair fair for you to tell me, but that's our job is to ask them.
I appreciate the question.
Okay. Thank you very much congratulations and good luck on the future absolutely. Thank you, but good talking with you. Thank you.
Great.
Thank you.
That concludes the Q&A session for today I'd like to turn the call back over to Jeremy for closing remarks. Please go ahead.
Thank you Lisa.
I would like to thank everyone on the call for their interest in Hooker furnishings and wish you all a happy holiday season, and we look forward to sharing our fiscal 2024 full year results in April next year take care.
This concludes today's conference call. Thank you all for joining in the amount of crude.
Okay.
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Okay.
Okay.
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