Hooker Furniture Corp. (NASDAQ:HOFT) Q3 2020 Earnings Conference Call - Final Transcript

Dec 06, 2019 • 09:00 am ET

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Hooker Furniture Corp. (NASDAQ:HOFT) Q3 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Paul B. Toms

several areas, including improved gross profits and operating income as a percentage of net sales in our Hooker Branded segment and All Other, even though sales decreased modestly in both. We continue to build our cash position this quarter. Since the end of the last fiscal year, we built our cash by over $13 million, ending the quarter with $24.5 million in cash and cash equivalents.

We reduced inventories in the quarter, especially discontinued and overstocked items, as we adjusted inventory levels to our lower order and sales rates. We made progress in our sourcing transitions to non-tariff countries, which are on schedule. We expect to reduce the portion of our overall product line imported from China from 40% at the end of our most recent fiscal year to approximately 22% at this fiscal year-end, with further progress expected next year.

Given the challenging retail environment and the continued impact of tariffs, we were gratified to improve profitability performance in Hooker Branded segment and our domestic upholstery and H Contract divisions. All sales were down at each segment in the mid-to-low single digits, respectively. Gross profits and operating income as a percentage of net sales improved compared to the prior-year third quarter. Our Hooker Branded segment achieved 190 basis point improvement in operating income margin and our All Other achieved a 390 basis point improvement compared to prior-year third quarter.

Taking a closer look at each of our segments, I'll begin with the Hooker Branded segment. Net sales for the Hooker Branded segment decreased $2.8 million or approximately 6% in the fiscal 2020 third quarter versus the prior-year third quarter. Hooker Casegoods experienced lower incoming orders and reduced sales volume, driven by lower consumer demand and soft home furnishings retail business conditions. The impact of the 25% tariffs on imported furniture from China enacted over the past 15 months has generally resulted in a 10% price increase on that portion of the Company's product line imported from China in this segment, suppressing retail demand somewhat particularly in Casegoods which are higher ticket purchase that consumers are more likely to postpone. The volume loss was partially mitigated by higher average selling prices, as the division adjusted pricing to mitigate increased product costs and tariffs.

Hooker Upholstery continued the growth momentum that division has achieved the entire year, a broader product offering with the product mix, including more sofas and sectional sofas, which have higher average selling prices for fueling Hooker Upholstery's growth. Our growth strategies for Hooker Branded are based around product line extensions, as well as a clear focus on our category or niche businesses. We're excited about the spring launch of the new casual dining initiative, along with the pre-cut of two major collections that will be available to ship in the second quarter of next year. Hooker Upholstery continues to focus on programs and maximize sales per square foot for the retailer. The success of this strategy is recognized through additional cover offerings, expanded recliner options, and customizable