Hooker Furnishings Corporation

Greetings, ladies and gentlemen, and welcome to the Hooker Furniture Quarterly Investor Conference Call, reporting its operating results for the first quarter 2021. 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 host, Paul Huxfeldt. 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 preliminary financial results for the fiscal 2021 first quarter, which ended May 3rd, 2020. We certainly appreciate your participation this morning. Paul Toms, our Chairman and CEO, Jeremy Hoff, President of our Hooker Legacy Brands, and Doug Townsend, Co-President of our Home Meridian Division, are joining me today. For the question and answer portion of the call, our other executive officers will also be available to take questions, including Ann Smith, our Chief Administration Officer, and Lee Boone, Co-President of Home Radio. During our call, we may make forward-looking statements which are subject to risks and uncertainty. 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 preliminary fiscal 2021 first quarter results. Excuse me. 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. COVID-19 had a material impact on our financial performance in the fiscal 2021 first quarter and on market valuations, discount rates, and other inputs used in our intangibles valuation analysis. Consequently, and despite having believed a similar intangible asset valuation during our fiscal 2021 fourth quarter, we determined that another intangible asset valuation was appropriate given our performance and these changing market dynamics. Given the effort and complexity involved in this project, we need additional time to complete this analysis. Therefore, the results reported this morning and that we'll discuss on this call are preliminary and do not include any non-cash impairment charges on our intangible assets, which could result from the impairment analysis that's currently underway. Actual results may differ materially from these preliminary unaudited results that are provided this morning and discussed on this call. We expect to complete the intangibles evaluation and finalize the amount of impairment, if any, in connection with the filing of our Form 10-Q for the fiscal first quarter ended May 3, 2020, which we expect to file on or before the extended due date of July 27, 2020. Impairment charges, if any, will not affect our cash position, but would adversely affect operating loss, net loss, loss per share, total comprehensive loss, deferred income taxes, intangible assets, and retained earnings. This morning, we reported consolidated net sales of $104.6 million for our 2021 fiscal first quarter, a 22.8% or $30.9 million decrease compared to last year. For the first time since 2009, we reported a preliminary net quarterly loss in the amount of $1.1 million, a $3.1 million decrease compared to the $2 million net income in the prior year first quarter due to the severely negative impact of the COVID-19 pandemic across all three of our reportable segments, Hooker Branded, Home Meridian, and Domestic Propulsion. We reported a preliminary loss of $0.09 per share compared to $0.17 earnings per share in the prior year. Now Paul Toms will comment on our fiscal 21 first quarter results.

Thank you, Paul, and good morning, everyone. The COVID-19 crisis drove the most significant downturn in our business in over 50 years. The pandemic, stay-at-home restrictions, and an economic shutdown from mid-March to mid-May throughout the U.S. in over a decade. After beginning the fiscal year on an upturn with an 8.3% year-over-year increase in consolidated incoming orders in February, orders plummeted in March and April as many of our retail customers temporarily closed. and operating margin reduction was a temporary shutdown of production at five of our six domestic upholstery plants in Virginia and North Carolina, which resulted in unabsorbed fixed costs and operating inefficiencies. However, the business disruption has not been as severe as we initially feared. While consolidated orders declined steeply by over 70% and 65% respectively in March and April, had a significant month-over-month improvement in consolidated order rates in May. Orders in fiscal May were down about 7% for the period. And since mid-May, consolidated orders have generally comped above the same period last year. Retailers in some regions of the country have glowing reports about their business the last few weeks, including strong Memorial Day holiday weekend sales. We believe there are several positive factors in play including pent-up demand, more focus on home environments from people spending so much time in their homes the last few months, and less competition for discretionary consumer spending from travel, eating out, and other activities. In addition, Hooker's domestic upholstery manufacturing facilities for Braddington Young, Sam Moore, and Shenandoah began ramping up production in early May and are currently operating at approximately 75% capacity on a consolidated basis, increasing efficiencies and cost absorption. Reflecting on the company's response to the international health and economic crisis, we're proud of how our team weathered the storm during this unparalleled time of challenge. First and foremost, we're grateful that none of our 1,000 employees in the U.S. at any locations have tested positive for the virus to date. That's quite an accomplishment and a testament to the diligence with which human resources implemented best practice safety protocols at all locations. Our employees also followed best practices at home and work and adapted to working remotely while staying productive, positive, and engaged. We believe we responded with appropriate mitigation measures cash with difficult but necessary decisions, such as furloughing 600 manufacturing warehouse administrative employees, closing five of six domestic upholstery manufacturing facilities during the month of April, temporarily reducing officer and manager salaries and board of directors fees, and delaying all non-critical capital spending. Unfortunately, we had to reduce our workforce by 35 employees, but we're able to keep 97% of our employees on board during this time. We're also pleased to declare a quarterly cash dividend of 16 cents per share to shareholders of record on June 16th, 2020. We're confident in our long-term strategies and gratified to have been able, even in these extreme circumstances, to maintain our 50-plus year history of consistently paying dividends. The steady improvement in orders and shipments since the end of the first quarter on May 3rd. We expect that our low fixed cost business model, which served us well during the Great Recession, will continue to serve us in this current disruption. Additionally, our ongoing strategy to sell through multiple distribution channels proved itself again during this crisis. While most traditional bricks and mortar furniture retailers were closed for two months, Other channels, such as e-commerce, hospitality, and clubs, flourished and provided a source of revenue. Importantly, our cash position remains strong and has continued to improve since our fiscal year end in early February. We generated $18.9 million in cash from operations this quarter, which contributed to a $15.2 million increase in our cash balance since the end of fiscal 2020. to comment on that division.