Hooker Furnishings Corporation

Greetings, ladies and gentlemen, and welcome to the Hooker Furniture Quarterly Investor Conference Call, reporting its operating results for the fourth quarter of 2020 earnings. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. To ask a question during the session, you will need to press star 1 on your telephone. As a reminder, this conference is being recorded. It is now my pleasure to introduce your hosts, Paul Huckfeld, Vice President, Finance, and Chief Financial Officer for Hooker Furniture Corporation.

Thank you, Joelle. Good morning and welcome to our quarterly conference call to review our financial results for the fiscal 2020 fourth quarter and full year, which ended on February 2, 2020. We certainly appreciate your participation this morning. Paul Toms, our Chairman and CEO, Jeremy Hoff, President of our Hooker Legacy Brands, and Lee Boone, Co-President of our HMI Division, are joining me today for prepared remarks. For the question and answer portion of the call, our other executive officers will be available to take questions as well, including Ann Jacobson-Smith, Chief Administration Officer, and Doug Townsend, Co-President of HMI. During our call, we may make forward-looking statements which are subject to risks and uncertainties. A discussion of 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 2020 results. year-end 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. Before we get into the results, a word about our operating segments. In the fourth quarter of 2020, we updated our operating segments. Our domestic upholstery business units, Braddington Young, Sam Moore, and Shenandoah, were moved out of All Other and aggregated into a new segment called Domestic Upholstery. All Other now consists of H Contract and Lifestyle Brands. Our two largest segments, Hooker Branded and Home Meridian, were unchanged. We believe doing this better aligns our segment reporting with the accounting guidance. This morning, we reported consolidated net sales of $610 million and net income of $17 million, or $1.44 per diluted share of for our 2020 fiscal year ended February 2, 2020. Earnings per diluted share for fiscal 2020 decreased 57 percent from $3.38 in the prior year. For the year, net sales decreased 10.6 percent or $73 million compared to last year and net income decreased 57 percent or $22.8 million. For the fiscal fourth quarter, beginning November 4th and ending on February 2nd, consolidated net sales were $165 million, with net income of $7 million, or $0.59 per diluted share. Net sales decreased $35.6 million, or 17.8% compared to last year's fourth quarter, due to net sales decreases across all three reportable segments, Booker Branded, Home Meridian, and Domestic Upholstery, and were essentially flat in all other Net income for the quarter decreased 52%, or $7.7 million. Contributing to the consolidated revenue decrease for both the quarter and the year was one week less of sales compared to the previous fiscal year. Fiscal 2019 had 53 weeks, while fiscal 2020 had 52 weeks. The additional week in the prior year contributed approximately $13 million. to consolidated net sales based on an average net sales per day of shipping day. Paul Toms will now comment on our fiscal 2020 and fourth quarter results.

Thank you, Paul, and good morning, everyone. I'll apologize ahead of time. There's a fellow right outside my window mowing the grass, so you can hear some background noise. That's what it is. The world has changed a great deal since our fourth quarter and fiscal year ended on February 2nd. A little over a month later, on March 11, the COVID-19 virus was classified as a global pandemic by the World Health Organization. Shortly thereafter, federal, state, and local governments in the U.S. and elsewhere began imposing restrictions on travel and business operations and advising or requiring individuals to limit or eliminate time outside their homes. Temporary closures of businesses have also been ordered in many states, and other businesses have temporarily closed on a voluntary basis. Consequently, the COVID-19 outbreak has severely restricted the level of economic activity in the US and around the world. Before we review our fourth quarter and fiscal year results in more detail, I'd like to address the company's response to the COVID-19 health and economic crisis. We're carefully monitoring the evolving updates and advisories from the CDC and believe we are adhering to their best practice recommendations regarding the health and safety of our employees. To limit the possibility of spreading infection, most of our administrative staff are telecommuting. For those administrative staff not telecommuting and for our warehouse and domestic manufacturing employees, we have implemented appropriate physical distancing policies and has stepped up facility cleaning at each location. Nonessential domestic travel for our employees has ceased, and international travel has been completely prohibited. Testing and treatment for the COVID-19 is covered 100% under our employee medical insurance, and counseling is available through our employee assistance plan to support those with financial, mental, and emotional stress related to the virus and other issues. In addition, we're offering temporary paid leave to employees diagnosed with the virus or those associates with another diagnosed person or persons in their household and are working to accommodate associates with childcare needs related to school or daycare closures. To address the financial impact of the virus and to conserve cash, we are eliminating all non-critical spending and are postponing all non-essential capital projects. which represent about $3 million of our $5 million capital plan this year. We've reduced the CEO and CFO salaries by 20%, other NEO salaries by 15%, and officer and certain other company managers pay by 10%. Our board of directors voted last week to reduce their own pay by 20%, all in the cash portion of their fees. We're significantly reducing marketing and product development spending, as well as most travel domestic and international. We're reviewing all orders previously placed with our manufacturing partners and canceling, adjusting, or delaying those orders based on our latest demand projections. Additionally, based on our belief that this downturn will continue well into the second half of this year, we made the difficult decision to reduce headcount and eliminate 27 positions in the Hooker in the HMI administrative offices and six in the HMI warehouses. We're furloughing approximately 500 manufacturing and warehouse employees as necessary based on current reduced demand. We believe the difficult decisions we are making today are both necessary and appropriate to ensure the survival of the company. We will continue to pursue options to preserve cash and reduce costs including pursuing applicable government-sponsored programs, evaluating the continuation of our quarterly dividend, and approaching our business partners, including factories, landlords, and other service providers for assistance navigating these difficult times. At the end of the call during the outlook, I'll comment further on how we expect the unprecedented economic challenge of COVID-19 pandemic to impact us in the next quarter and beyond. Now, turning to the most recently completed fiscal year and fourth quarter, this past fiscal year was a very challenging year. We faced the headwinds of 25% tariffs on finished goods and component parts imported from China and industry-wide weak retail demands. The tariffs created a chain reaction of higher product costs, higher selling prices to our customers, and supply chain and inventory disruptions. we deployed significant management and financial resources to ship certain parts of our production to factories in non-tariff countries and successfully reduced our reliance on Chinese factories by half during the year. Our top line was hit by tariff-related price increases to our customers that reduced retailer and consumer demand for our products, and our bottom line was adversely impacted by higher costs, which lowered margins. Adding to these external disruptions, we encountered an unexpected quality-related issue with a single large Home Meridian customer, resulting in significant excess chargebacks and lost revenues. The sales decrease in chargebacks from a single customer accounted for nearly 80% of Home Meridian's sales decline for the year. We met the challenges presented to us and finished the year on a more positive note in the fourth quarter. which was our strongest quarter of the year. While sales were down versus a record fourth quarter in the prior year, the shorter fiscal year compared to the last year that Paul mentioned earlier counted for about 40% of the 17.8% decline in revenue for the quarter. Sequentially, compared to the third quarter, consolidated fourth quarter sales were up over 4%, and net income was up nearly 80%. Compared to the previous year end, Our backlog was up over 9%. Also in the fourth quarter of fiscal 2020, we put the excess chargebacks with the single large HMI customer behind us and resolved the quality issue. Throughout the year, we successfully executed our tariff mitigation and resourcing strategies and reduced the amount of product we import from China by about half, with factories in Vietnam and Malaysia picking up most of the production moved out of China. And importantly, we generated over $41 million in cash from operations, paid down debt on schedule, ended the year with $25 million more in cash compared to the prior year, and we've grown cash another $15 million since year end through April 13th. During the year, we launched new divisions, new product lines, and merchandising programs and strengthened our management team. Together, we overcame challenges on multiple fronts. At this time, I'll ask for Jeremy Hoff, our Hooker-branded president, to comment on results for the Hooker Legacy brands.