Hooker Furniture(HOFT) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated net sales for fiscal 2022 were $594 million, an increase of $53.5 million or 10% compared to the previous year, driven by over 20% sales increases in Hooker Branded and domestic Upholstery segments [4] - The company reported a net income of $11.7 million or $0.97 per diluted share, compared to a net loss of $10 million or $0.88 per diluted share in the previous year [5] - For the fourth quarter, consolidated net sales were $135 million, with a net loss of $4 million or $0.33 per diluted share, compared to a net income of $8.5 million or $0.71 per diluted share in the same quarter of the previous year [7] Business Line Data and Key Metrics Changes - Hooker Branded segment net sales increased by $38 million or 23.5% for fiscal 2022, but saw a decline in the fourth quarter due to reduced inventory availability [18][21] - Home Meridian segment net sales decreased by 1% for the fiscal year and by $19 million or 23.7% in the fourth quarter, primarily due to COVID-related factory shutdowns [22] - Domestic Upholstery segment net sales increased by $18.6 million or 22% for fiscal 2022, with a 13.5% increase in the fourth quarter [25] Market Data and Key Metrics Changes - The company ended the fiscal year with a consolidated backlog of $340 million, with some cancellations primarily in the Home Meridian segment [33] - Incoming orders increased by 24% compared to the prior year period, with a backlog that remains historically high [21] Company Strategy and Development Direction - The company is focusing on strategic exits from unprofitable businesses, which resulted in one-time costs of over $5 million in the fourth quarter, but is expected to boost profitability going forward [13] - The opening of an 800,000 square foot distribution center in Savannah, Georgia, aims to reduce costs and delivery times [14] - The acquisition of Sunset West is seen as a significant opportunity for incremental sales in the outdoor furniture market [15] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about ongoing global logistics constraints and economic headwinds affecting consumer demand, such as inflation and high gas prices [30] - Production capacity from Asian suppliers is expected to improve significantly, reaching 100% capacity during the first quarter [30] - The company remains optimistic about long-term trends such as housing demand and demographic shifts, which are expected to drive growth [31] Other Important Information - The company has a strong balance sheet with cash and cash equivalents of $69 million at the fiscal year-end, and plans to use cash generated from operations for dividends and capital expenditures [28] - The company is cautious about share repurchases due to economic uncertainties but believes its stock is a good buy [53] Q&A Session All Questions and Answers Question: Can you quantify the backlog? Are you seeing any notable order cancellations? - The backlog ended the year at $340 million, with some cancellations mostly on the Home Meridian side, but the backlog remains healthy [33] Question: Why would you attribute the order cancellations for HMI? - Cancellations were due to a buildup of inventories with retailers caused by factory shutdowns, leading to space issues [34] Question: Are you done with the costs related to the RTA exit and the Club channel issues? - Most costs related to exiting unprofitable businesses are behind, with only about $1.7 million in RTA inventory remaining [36] Question: Is there a viable path to get HMI margins back to mid-single digits? - With the exit from unprofitable businesses, the company expects to achieve respectable margins within the next quarter or two [44] Question: How much revenue did the Clubs channel contribute to the fiscal year? - The Clubs channel contributed roughly $20 million, down from as much as $90 million in previous years, and the company believes much of that can be transferred to other customers [49] Question: Have you seen any changes to freight costs since the fiscal year-end? - There has been a little relief in freight costs, but the situation remains difficult overall [50] Question: What can you tell us about current quarter revenue and bottom line trends? - The company cannot provide specific guidance yet, but trends are in line with expectations [52] Question: How should we think about cash flow priorities, particularly for potential share repurchases? - The first priority is to bolster the balance sheet, especially after a recent acquisition, before considering share repurchases [53] Question: Could you talk about price increases and demand elasticity? - Price increases have been necessary to keep pace with cost increases, but the company cannot predict how demand will be affected [56][58] Question: What is your sourcing breakdown by country? - Approximately 75% of products are sourced from Vietnam, with the remainder from Malaysia, China, Mexico, and India [64] Question: What percent increase in freight costs should we expect this year? - Contract rates are expected to average about 40% higher than last year [67] Question: How do you monitor demand and avoid excessive inventory? - The company has systems in place to monitor incoming orders and demand to avoid excessive inventory [72] Question: What is your normal supply timeline from Asia to the US? - Lead times have improved to around five to six months, down from over a year [73]