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
Douglas Townsend

significant quality and sales problem with one of our largest retailers have resulted in an extremely challenging year for Home Meridian.

With respect to traditional retail, we have reason for encouragement, as October market yielded positive results for Pulaski Furniture and Samuel Lawrence Furniture, with mega retailers buying several new product introductions from both companies. Both Pulaski and Samuel Lawrence are developing compelling new designs and offering these products at exceptional values in the marketplace.

Furthermore, the recently launched Samuel Lawrence Furniture Vietnam-based mixing warehouse is enabling smaller US customers to buy assortments of a broad range of products directly from Asia, which lowers inventory and logistics costs for the retailer. In addition, our Prime Resources division launched the new Terry Bradshaw motion upholstery collection at October market to a customer base enthusiastic about the NFL legend and the product line branded with his name. The exclusive new collection is targeted at today's motion upholstery customer, many of whom are fanatical sports enthusiasts, who clearly identify with the Terry Bradshaw brand. We expect many new growth and profit opportunities to result from this launch. Shipments are now expected to begin in the first quarter of next year.

Our efforts to mitigate the China tariffs are on schedule. Product shipments from China are now less than 20% of our total, down from over 45% in Q4 last year. This number will continue to come down as Vietnam and Malaysia develop additional capacity and new product capabilities become available in other countries. Given China's historical grip on furniture production, some major retailers have been understandably reluctant to buy products from other developing countries. These concerns are beginning to abate as the Vietnam factories ramp up production. Still there are capacity and capability shortages in some product categories outside China, and we will need to continue managing our sourcing to limit negative impacts.

Regarding our quality and sales problem with the major retailer, we have conducted a comprehensive analysis of the business, the problems and the root causes. In the nearly 10 years of doing business with this retailer, we have never encountered chargebacks anywhere close to this magnitude. By year-end, our sales will be down approximately 50% with this retailer, and we are projecting some further reductions next year as we right-size the business.

Fortunately, we have sales growth opportunities with other mega accounts that should offset this decline. Our remaining business with this customer should better match our core competencies and should be much less volatile. We do not expect the recurrence of the quality issues we face this past year. In addition to rightsizing the business, we are installing a new focused management team to deliver improved results in that segment.

On a somewhat more positive note, our e-commerce business is up 11% year-to-date, although growth slowed considerably in Q3. We attribute this slow down to price increases we issued in response to the 25% China tariffs implemented this summer. We continue to view e-commerce as our largest growth opportunity