Hooker Furnishings Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Hooker Furniture Corporation second quarter 2021 earnings webcast conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Mr. Paul Huckbelt, Chief Financial Officer. Thank you. Please go ahead.

Thank you, Jimmy. Good morning and welcome to our quarterly conference call to review the financial results for our fiscal 2021 second quarter, which began on May 4, 2020 and ended on August 2. We certainly appreciate your participation today. Paul Toms, our Chairman and CEO, Jeremy Hoff, President of our Hooker Legacy Brands, and Lee Boone, Co-President of our Home Meridian 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, including Ann Smith, our Chief Administrative Officer, and Doug Townsend, Co-President of Home Oregon. During our call, we may make forward-looking statements which are subject to risks and uncertainties. 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 second quarter results. Any forward looking statement speaks only as of today and we undertake no obligation to update, revise, or rise any forward looking statement to reflect events or circumstances after today's call. This morning we recorded consolidated net sales of $130.5 million and net income of $5.8 million or 48 cents per diluted share for our fiscal 2021 second quarter, which ended on August 2nd, 2020. Compared to last year's second quarter, our net sales decreased 21.7 million, or 14%, while net income increased 1.6 million, or 39%. Earnings per diluted share increased 37% from 35 cents a year. For the fiscal 21 first half, consolidated net sales were 235 million, down 52 million, or 18%, compared to last year's first half. For the first half, we reported a loss of $29 million or $2.46 per diluted share compared to 52 cents earnings per diluted share in the prior year first half. The year-to-date loss was driven by a $34 million or $44 million pre-tax non-cash intangible asset impairment charge we reported in Q1 as a result of the material impact of the COVID-19 pandemic on our financial performance, market valuation, and other factors in our 2021 first quarter, which triggered the need to perform an intangible asset valuation analysis as of the end of the quarter. As a result of that analysis, we wrote down goodwill in certain trade names in the Home Meridian segment and goodwill in the Shenandoah Furniture Division of the Hooker Domestic Upholstery segment. Now Paul Palms will comment on our fiscal 2021 second quarter results.

Thank you, Paul, and good morning, everyone. While the COVID-19 pandemic continued to impact the economy and our operations, our business began to rebound in mid-May and hasn't let up since. Consolidated fiscal Q2 incoming orders were up 24%, and backlogs were up 35% compared to a year ago. Based on this unusually robust order rate for the summer months, during the pandemic-related economic downturn and safer-at-home practices due to pent-up demand, a robust housing market, and less competition from other discretionary spending, such as travel, dining out, and sporting events. Some of our divisions were able to capitalize on the surge in demand sooner than others. We were able to better capitalize on the exceptional demand including hooker-branded case goods and import upholstery, and some home meridian divisions, such as Eccentrics Home, focused on e-commerce. The positive impact of higher demand was not felt as immediately in the domestic upholstery segment and in the HMI units that service customers via container direct orders. After our upholstery factory shut down for four weeks in the spring, percent of capacity by the end of the quarter. Sales will also lag demand in our container direct businesses at Home Meridian. Container direct orders canceled by large customers early in the pandemic in March and April were reinstated during the summer months and will have a more positive impact on revenue in the second half of our fiscal year as production begins to flow through the pipeline. We're gratified performance this quarter during challenging conditions. Consolidated operating income increased by $1.7 million, or 30%, as compared to the prior year or second quarter. The Home Meridian segment reported operating income of $1.1 million compared to a small operating loss in the prior year or second quarter. The Hooker Branded segment's operating margin performance quarter, despite decreased net sales and the inefficiencies from operating at significantly reduced volumes early in the COVID-19 crisis. The measures we took to reduce spending in response to the economic shutdown had a significant positive impact on profitability in the quarter, as did lower costs of goods sold, as we have steadily shifted offshore production to non-tariff countries since last year. Year-to-date, approximately 22% of our case goods and imported upholstery products have been subject to the 25% tariff on finished goods imported from China, a significant reduction compared to 35% of the imported goods subject to tariffs during the same period a year ago. Some of our cost cutting was temporary, such as furloughs and reductions in executive salaries and director fees, which have now been reinstated. Other cuts will stay in place until higher volume warrants increased spending. The flexibility of our variable cost model has once again proven successful during this crisis by our ability to scale our business correctly to demand. During this unusual period when we're unable to travel and conduct and sustainability of our business. We did this through long-range strategic planning, identifying opportunities to coordinate more internal activities, launching numerous growth initiatives, and focusing our efforts and resources on the products, customers, and vendors driving our business. As part of our focus on the long-range future of Hooker Furniture, this June we announced that the Board of Directors I will remain as chairman of the board. Jeremy joined Hooker Furniture three years ago and currently serves as president of Hooker Legacy Brands. He will become the fourth chief executive officer of the company in our 96-year history. In the time Jeremy has been at Hooker, he's proven a strategic and operationally focused executive who can balance growing sales with being profitable. Importantly, I know he values the culture that has driven so much of our success over the years. I'm confident Jeremy and the entire leadership team will take Hooker Furniture and all of its operating divisions to the next level. And with that, I'll ask Jeremy to comment on results for our Hooker legacy brands for the quarter. Thank you, Paul. In the Hooker percent higher than the comparable period a year ago. Net sales for the segment were essentially flat compared to a year ago, dipping by 585,000 or 1.5 percent in the fiscal 2021 second quarter. Many of the traditional furniture stores that closed during the economic shutdown reopened during the fiscal 2021 second quarter, leading to increased demand from interest high in new products that stay top of mind with customers. We have done this through digital marketing with upscale photography and 360 degree videos in a full showroom on our website showcasing four new collections. We also participated in a three-day mini market held in high point showrooms during June. We were gratified to receive solid orders on the new collections and expect to begin shipping them to retail stores by October. The dynamics of the interrupted product introduction cycle along with pent-up retailer and consumer demand for new furniture styles has significantly increased the importance of the upcoming mid-September we intend to introduce a major home office program at premarket in response to the surge in demand for multifunctional furniture that facilitates more home-based work as the ranks of those working remotely from home has risen during the pandemic. In addition, Hooker Case Goods will display the four new collections we first introduced virtually at the upcoming premarket. In our domestic upholstery Incoming orders decreased by 5.9% as compared to the prior year period. In response to the COVID-19 pandemic, as well as reduced orders in March and April, Bradenton Young's and Shenandoah's manufacturing plants were temporarily closed in April, and Sam Moore operated at reduced capacity. segment this quarter.