Hooker Furniture Corporation [HOFT] Conference call transcript for 2021 q1
2021-06-04 12:17:07
Fiscal: 2022 q1
Operator: Greetings, ladies and gentlemen and welcome to the Hooker Furniture Quarterly Investor Conference Call reporting its operating results for the First Quarter 2022. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paul Huckfeldt, Vice President, Finance and Chief Financial Officer for Hooker Furniture Corporation.
Paul Huckfeldt: Thank you, Liz. Good morning and welcome to our quarterly conference call to review the financial results for our fiscal 2022 first quarter which ended May 2, 2021. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We certainly appreciate your participation this morning.
Jeremy Hoff: Thank you, Paul, and good morning, everyone. Our goal this quarter was to return to the growth trajectory we were on prior to the global pandemic and economic downturn. We are pleased to have surpassed that goal. While we expected a sizable sales improvement over last year's first quarter when the pandemic driven economic downturn began in mid to late March, our results this quarter represent a strong improvement over the first quarter of fiscal 2020 as well. Sales were up 20% compared to the first quarter 2 years ago. Profitability has improved significantly in all segments and income in order rates are more than double our historical norms. In fact, both our quarterly revenues and net profit performance represent record high sales and earnings for the company's fiscal first quarter. I'm especially proud of our team for delivering this strong rebound a year after the onset of the pandemic despite industry wide logistics challenges including higher ocean and freight transit cost, and shipping equipment bottlenecks, raw materials shortages and inflation. The Hooker Branded segment lead the way during the quarter with a nearly 90% sales increase compared to a year ago. While the Home Meridian and Domestic Upholstery segments both reported sales increases of approximately 46%. We attribute the double-digit gains to industry-wide high consumer demand for home products and dramatic improvements and expansions of our product lines and rationalizing our stocking inventory, helping us to maximize shipping and production capacity along with improving our cash utilization.
Paul Huckfeldt: Thanks, Jeremy. I'll begin with the Hooker Branded segment, which led the way in the company's record first quarter sales and earnings. Net sales increased by $24 million or about 90% and incoming orders nearly doubled compared to the pandemic impacted prior year quarter. The quarter ended with a backlog 3x that of the prior year first quarter. Because much of the segments product line is shipped out of U.S distribution centers and product is ordered on a consistent weekly basis. We had goods in stock which enabled us to ship more than expected despite the limitations on ocean vessel space and trucking capacity. With our strategy to prioritize best sellers, we maximized our ability to perform against significant operational constraints. And due to the industry-wide demand surge for home furnishings, we were able to sell-through some slow-moving inventory in this favorable demand environment. As a result, the Hooker Branded segment remained highly profitable, thanks to the increased revenues and reduced discounting and contributed over 75% of the consolidated operating profit for the quarter.
Jeremy Hoff: Thank you, Paul. Our consolidated orders and backlogs are more than double historical norms as we head into the summer months. Given the strong position, we're cautiously optimistic considering the industry-wide supply chain logistics and raw materials shortages and inflation. We believe we have mitigated these dynamics as much as possible through surcharges and price increases. Yet the supply side factors are unpredictable, and can involve unexpected changes occurring almost daily.
Operator: Our first question comes from Anthony Lebiedzinski with Sidoti & Company.
Anthony Lebiedzinski: Good morning and thank you for taking the questions. So, yes, first, I wanted to see if you guys could quantify perhaps the order trend or maybe if you guys can quantify the backlogs that you're seeing now at the end of the first quarter. That'd be very helpful.
Paul Huckfeldt: Let's see. Sales and backlog is -- at the end of the quarter was $280 million compared to $91 million the same time last year.
Anthony Lebiedzinski: Okay, got it. Okay. Thanks, Paul. And then, as far as the price increases, obviously, we're in extraordinary time period given inflation. Can you just talk about how many rounds of price increase have you done over the past 12 months or so? Or maybe also, like, what would be the cumulative effect of the price increases that you've seen in the last few quarters?
Jeremy Hoff: Good morning, Anthony. This is Jeremy. I would tell you that it really varies depending on which of the 12 brands that you're asking. So, if you're in Domestic Upholstery, you're reacting to raw material increases and shortages of foam and various movement in the -- various movement parts in the furniture that increase as well. So, Domestic Upholstery, you would be looking at, like, two different increases would probably be an accurate number across that segment. When you look at more of the import divisions, the freight, it's really -- it's been unpredicted at best. And it's usually a reactionary versus what you would like being able to be proactive. So you find out end of -- obviously, end of each month, okay, what has happened to freight at this point. So that's been a little more reactionary with a surcharge strategy, which the surcharge is probably changed 3x or 4x on our different import companies. And then there's been also first cost increases from factories that vary by brand of import products as well. And so I can't really say consistent because they're different with each one of them. But we have everything from two different adjustments to zero adjustments thus far on factory increases.
Anthony Lebiedzinski: Got it. Okay. Yes, thanks, Jeremy, for that. So …
Jeremy Hoff: Yes.
Anthony Lebiedzinski: .. yes, so in terms of your SKU rationalization, so obviously, you've benefited from that in the quarter. Is it possible for you guys to like give some more details as to the benefit that you saw in the quarter? And then what's the outlook going forward as far as the benefits from that SKU rationalization?
Jeremy Hoff: Yes, so fortunately, we started pretty deep into that exercise on our largest warehouse program, which is really the Hooker Branded product. And that really became an ABC mentality, not to oversimplify it. But really trying to make sure we weren't invest in cash and fees, trying to manage the obsolescence at very low levels, which we've been able to do, and really putting all of our capacity, and all of our utilization of our container space towards A's and B's. And that has definitely helped us weather this storm that we're in, for sure. And it's significant, and it will continue to be significant because we have an extremely disciplined approach about how we're going to utilize our cash for these stocked items.
Paul Huckfeldt: Yes, it allowed us to ship at the level.
Jeremy Hoff: Right, right. Right.
Anthony Lebiedzinski: Got it. Okay. So you think this will benefit you guys for the balance of the year as far as the SKU rationale then?
Jeremy Hoff: Yes. What it essentially does when we have a large transfer product, that we would love to be able to stock up more products in our warehouses, but when we do have large transfers, most of its sold. So -- and that …
Anthony Lebiedzinski: Got it.
Jeremy Hoff: … that -- those are SKUs that are obviously are better SKUs. So -- and we're not stocking up SKUs that don't matter.
Anthony Lebiedzinski: Got it. Okay. And then, so this past Monday, we just wrapped up Memorial Day weekend, which was typically a strong selling season for retailers. So just curious, coming off from Memorial Day, what are you hearing from your retail partners as far as the demand outlook?
Jeremy Hoff: Very strong. Everyone we've spoken with has relayed to us that Memorial weekend continued, this very strong demand environment that we're in and so that was encouraging. So we really haven't seen much of a wall in the demand, really since just past the -- just past the start of the pandemic.
Anthony Lebiedzinski: Okay, great. That's great to hear. And then I have a couple more questions for me. So, Jeremy, when you joined as CEO at the beginning of February, one of the things you've put in place is project one -- one company one culture. So just wanted to get a better sense as to what you've done? What have you seen from that initiative and kind of how should we think about that for the balance of the year?
Jeremy Hoff: Well, we've been able to quickly see benefits, I believe, from all of our operations coming together, and really supporting each of the 12 businesses with utilizing our scale. So, having one team that's HMI group and other team that’s Hooker Branded and another , so we took all those really good people. And by the way, it was not a -- this was not a cost saving exercise. It was a get better exercise. It was us becoming more efficient, and getting better at what we do and trying to be the best sourcing company that we can be the best quality company, and the best safety. So we try very hard to make sure everyone is running in the same direction, and working on what we need to work on with all the good people that we have. And that's what it really has done.
Anthony Lebiedzinski: Got it again. And then last question for me. So given the strong balance sheet that you guys have, I mean, what is your outlook for acquisitions?
Jeremy Hoff: We continue to fine tune our profile regarding what type of company, we would be entrusted in and so our management team is -- and our Board are very well aligned, and what that would look like. And we -- we're very upset before, we're not in a hurry to do anything that wouldn't be positive and the right fit, culturally the right fit, EBITDA the right fit in all categories, that matter, we want it -- we would want to make sure that it would make an incremental difference and be accretive. We don't want anything that would possibly be dilutive. I mean, that's -- I'm stating the obvious, but that's where we are. And if that doesn't happen, we won't buy anyone.
Paul Huckfeldt: Right. And we're comfortable, actually having this strong balance sheet makes us -- it's been a tradition in this company and it makes us a lot more comfortable weathering these ups and downs. Just we weathered the COVID crisis pretty well. We can look back 10 years ago to the recession and I think having that maybe what you might consider an excessive balance sheet is a pretty positive thing when things get tough. So, we're not in a hurry to spend that money.
Jeremy Hoff: No.
Paul Huckfeldt: But we will spend it for the right acquisitions.
Anthony Lebiedzinski: Right. Okay. That was a lot of sense. Well, thank you and best of luck.
Jeremy Hoff: We appreciate it. Thank you, Anthony.
Paul Huckfeldt: Thanks.
Operator: Our next question comes from Sandy Mehta with Evaluate Research.
Sandy Mehta: Yes, congratulations on the strong result. All of the CapEx that you guys are doing, including the 800,000 square foot facility in Georgia, can you tell us once all these facilities are up and running, what would be the run rate revenues, incremental revenues as well as profits you hope from -- to get from all this incremental CapEx? Thank you.
Paul Huckfeldt: Well, that's a tough one. The warehouse in Georgia is primarily a cost saving exercise. Now, obviously, we hope to grow our warehouse businesses, which is like our eCommerce business, in particular. But there's also a new initiative to grow the warehouse business on the Home Meridian side, which is traditionally focused on mega accounts. The cost saving on that is the difference between hauling containers 25 miles or to the Savannah port versus about 300 miles to the -- to our Georgia, North Carolina ports. So that's -- that should be a significant cost savings. I mean, it's -- it will take days off the transit process allowing us to ship more quickly. And honestly it's -- there's a -- there's an environmental benefit too because we're not running trucks up and down the road. So I think we expect to see incremental growth, but that one is primarily a cost saving. Some of our other major projects, the ERP is it's time to upgrade that ERP. I'm not sure you can pin incremental savings or incremental growth to an ERP project, but those are end of life systems that need to be replaced. And those are going to support our project one -- bringing the company together as a single back office operation. So I know I'm dodging your question a little bit, but we think that they're all going to be accretive to the bottom line, maybe not all the top line.
Sandy Mehta: And the current housing boom and furniture boom, what are your thoughts on the longevity of this cycle? Do you think that demand will remain strong, both for housing and furniture going till the end of next year at least? Thank you.
Jeremy Hoff: Yes, we do. We believe we have a nice runway for demand, mainly due to the demographics with millennials really starting to purchase homes and really starting to furnish these homes. And we feel like we have some dynamics that have occurred from the pandemic, with consumers moving out of big cities into larger homes, there's a lot of things going on that do benefit us. And as I said earlier, we're going to compete more for the discretionary dollars being spent on travel and the things that people are going to be able to do post-pandemic, and as this vaccine gets more and more rolled out. But, all in all, that really from our standpoint, it looks -- the future looks bright as far as demand is concerned.
Paul Huckfeldt: Yes, the numbers I've heard is that there's a nationwide shortage of about 4 million homes. And so, even if people are moving into new homes, there's going to be a lot of furniture, we believe there's going to be a lot of furniture purchased.
Sandy Mehta: Great. Thank you very much.
Jeremy Hoff: You're welcome. Thank you.
Operator: Our next question comes from JP Geygan with Global Value Investment Corp.
JP Geygan: Hey, good morning and congratulations on the strong quarter. I think between the previous two analysts, some of my questions or at least elements have been answered already, but at the risk of sounding redundant. Let me piggyback on Anthony's question about your use of cash and you'll obviously be flushing cash. Well, you are flushing cash right now, I think in your prepared remarks, you said, expect your cash balance to decline modestly throughout the year. But if your strong end markets persist, you'll generate quite a bit of cash going forward. More generally, I'd asked about capital allocation, including any sort of plans to allocate capital in addition to your intent to acquire.
Paul Huckfeldt: Well, that's I think building the assets to make an acquisition is our primary focus. And, like I said, also we’re -- I think we've got a long standing tradition of being perhaps overly cautious and overly carrying more cash than you might expect that there may be the textbooks will tell you. We, of course, we've been increasing our dividend, which is it's a small use of capital. And we do have these capital projects that are going to be more than our typical -- our typical capital spending was $3 million to $4 million a year. We've got this ERP project, we've got the Savannah warehouse project, so we're going to have a couple of years. We'll be refurbishing showrooms. So we've had a couple of years that involve -- are going to use a little more capital than typical. And I know this question usually winds up with share repurchase. And we talk about share repurchase a lot. And so far, we've felt like there have always been higher priorities. But you're right, if we continue to generate cash, it's obviously going to be a significant discussion at our Board meetings. I can't tell you that we're planning to repurchase at this point.
JP Geygan: That's helpful. I appreciate your insight. We're well aware of shortages in components like foam and plywood. But I thought I heard you say in your prepared remarks that there are shortages in other components. Can you put some flesh around that comments, and perhaps talk about your perception of the appetite of consumers for additional price increases, particularly as demand might settle in at a higher normalized level than we've previously seen?
Jeremy Hoff: As far as the earlier comments, steel is another thing that seems to be a little bit -- we're not as predictable as usual with a lot of movements in motion furniture and whatnot. But the big -- the biggest part of all of this is logistics, the container shortages, the amount of money it takes to get a container from overseas, which we don't believe will -- we believe it will continue, really through probably through the next quarter, but we think there will start to be a light at the end of the tunnel. We do think that we'll be paying more than historical norms eventually when it settles. But not anywhere near the rates we're talking about. So a lot of the -- much of the inflation or price increases that have occurred for us have been related to that not all to do with cost increases from factories and raw materials. Although that has happened to just not at the level that is more than the logistics.
Paul Huckfeldt: The industry's gone a long time without significant price increase.
Jeremy Hoff: As deflation.
Paul Huckfeldt: Yes. Yes. So, this is a little bit of a catch up. I mean, it's just like the whole country, this is a bit of a catch up.
JP Geygan: Got it. Thank you for your comments. I appreciate the color and congratulations again on a good quarter.
Jeremy Hoff: Thank you.
Paul Huckfeldt: Thanks.
Jeremy Hoff: We appreciate it.
Operator: I'm showing no further questions in queue. I'd like to turn the call back to Jeremy Hoff for closing remarks.
Jeremy Hoff: Thank you, Liz. I would like to thank everyone for participating in our call today and your interest in Hooker Home Furnishings. We look forward to sharing our second quarter results with you in September. Thank you and have a great day.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
