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

container-direct capabilities.

Turning to All Other, which includes domestically produced upholstery divisions Bradington-Young, Shenandoah and Sam Moore, along with H Contract. We reported a net sales decrease of $1.3 million or approximately 4.3% of sales. Sales of $28.7 million in the current third quarter compared to $30 million in last year's third quarter. Lower sales were driven by a sales decline in our domestic upholstery manufacturing divisions due to soft retail conditions, partially offset by continued growth at H Contract, which specializes in furnishings for senior living and retirement facilities.

Despite a sales decrease, All Other's gross profit increased in absolute terms and as a percentage of net sales, due to lower material costs and better cost containment. The segment reported operating income margin of 9.6% and 8.7% for the fiscal third quarter and first nine months respectively.

The US upholstery companies and Hooker Contract continue to focus on sales and profitability growth through new product development initiatives, including the development of proprietary products for key accounts and the pursuit of new product categories. Additionally, there is a focus on better aligning marketing programs and products to capture more market share through advantaged channel, interior design, senior living segments of contract.

At this time, I'd like to call on Doug Townsend to give more detail on the Home Meridian segment performance this quarter.

Executive
Douglas Townsend

Thank you, Paul. HMI's third quarter net sales were $86 million, down $9 million or 9.7% versus Q3 of last year. The significant reduction in sales with one major retailer that Paul mentioned earlier, combined with continued softness at retail across all sales channels are the primary reasons for the decrease. The sales decline with the major retailer represents 70% of the total HMI sales reduction in the quarter. Year-to-date sales are down 9.8%, the majority of which is attributable to the same single customer.

Orders in Q3 were down 9% versus the prior-year and our backlog was down 11% versus Q3 last year. Most of these declines are related to that same customer. Q3 operating loss was negative $4 million or negative 4.6% of sales. This loss is primarily the result of lower sales, continued tariff sharing with a couple of major accounts that still have shipments coming from China, and significantly higher chargebacks associated with the same large retailer. Furthermore, we reserved additional funds in Q3 in expectation of inventory markdowns necessary to liquidate that customer's product returns. Also contributing to the loss were freight and demurrage costs on inventory brought in earlier than needed, as well as warehousing costs for surplus and returned inventory. These charges were taken during a time period of significantly reduced sales with the customer and that's the impact was amplified in the overall results.

Current demurrage expenses are significantly reduced from earlier this year and expect to be minimal by the end of Q4, resulting in a $500,000 savings versus Q3. The combination of soft traditional retail conditions, China tariffs, business disruptions from resourcing China produce goods, and the