Hooker Furnishings Corporation

Good morning, ladies and gentlemen. Thank you for standing by. And welcome to the Hookah Furnishing Corporation third quarter 2022 earnings webcast. At this time, all participants are in a listen-only mode. For the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press the star then the one key on your touchtone telephone. If you recall operations at any time, please press star then zero. I would now like to hand the conference over to your speaker host today, Sir Paul Hochfeld, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Livia. Good morning and welcome to our quarterly conference call to review our results for the fiscal 2022 third quarter, which began on August 2, 2021 and ended on October 31, 2021. Joining me today is Jeremy Hoff, our Chief Executive Officer. We certainly appreciate your participation today. 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 2022 third 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 of $133 million a decrease of $16.3 million, or 11%, as compared to last year's third quarter. We reported a quarterly net loss of $1.2 million, or 10 cents per diluted share, compared to net income of $10.1 million, or 84 cents per diluted share, in the same quarter a year ago. For the fiscal 2022 nine-month period, consolidated debt sales were $459 million, up $74 million, or 19%, compared to last year during the same period. We reported net income of $15.7 million or $1.30 per diluted share this year compared to a net loss of $19 million or $1.61 per diluted share a year ago, which was primarily due to a $44.3 million or $33.7 million after-tax non-cash impairment charge. Now I'll turn the call over to Jeremy to comment on our fiscal 2022 third quarter results.

Thank you, Paul, and good morning to everyone. While we were encouraged by a strong order backlog, which stands at three times typical levels, and industry-wide strong demand for home furnishings, we were challenged by ongoing supply chain disruptions during the quarter. Specifically, the slower than expected reopening of Vietnam and Malaysia furniture factories following COVID-related shutdowns, continued high freight costs, and logistics challenges had the most adverse impacts on sales and operating income. Our third quarter consolidated revenue decline follows two consecutive quarters of double-digit sales and income gains at Hooker Furnishings during the first half of the year. The declines this quarter were driven by significantly reduced shipments in the Home Meridian segment due to the factory closures in Asia that began around August 1st and did not begin reopening until late in the quarter, and then at only about 25% capacity. The HMI sales decrease was partially offset by double digit sales increases in the hooker branded and domestic upholstery segments versus the prior year period. These two segments have achieved five consecutive quarters of higher year over year net sales. The sales volume reduction at HMI was the primary driver of consolidated operating loss and gross profit decreases during the quarter. High freight and product costs also contributed to the decreases. In addition, HMI had a few significant charges during the period, including $2.6 million in one-time order cancellation costs to exit the ready-to-assemble furniture category. This was a move we made to improve long-term profitability by eliminating this low margin category. Also, HMI incurred $1.9 million of higher-than-expected chargebacks from two Club Channel customers. These charges drove 75% of our earnings missed. Industry-wide inflationary pressures also were a factor in reduced income, along with decisions we made that will have a short-term adverse impact but will strengthen the company in the long term. For example, exiting the HMID RTA category increased consolidated cost of goods sold by 200 basis points and contributed to the quarterly loss. But we believe this move will save about $10 million in product and freight costs related to RTA products on order and help us focus our resources in the areas where we can be most competitive and profitable. We remain confident that we're utilizing all available levers to help mitigate global logistics challenges such as factory closures and reduced capacity, higher freight and transit costs, and decreased availability of shipping container space. With the goal of minimizing cost and maximizing product shipments to customers during these disruptions, we believe we have mitigated as much as possible through measures including surcharges and price increases to cover higher transportation and raw material costs. At the same time, we are rationalizing our stocking inventory to focus on A- and B-level top-selling products by prioritizing them for production and container utilizations. We should point out that the surcharges and increases we enact typically trail price hikes received from logistics partners and suppliers for up to 90 days. Despite all these efforts, the current supply side factors are unpredictable and often involve frequent, unexpected changes with little or no notice. For example, the Vietnam and Malaysia factories remain closed longer than expected and open at only 25% capacity. We expect the factories to begin to approach 50% capacity in the near future but don't expect full capacity at least until second quarter. Now I want to turn the discussion over to Paul Heckfeld, who will discuss highlights of each of our reportable segments.