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.

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. During our call, we may make certain forward-looking statements, which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management’s expectations is contained in our press release and SEC filing announcing our fiscal 2022 first quarter results. Any forward-looking statement speaks only as of today and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after today’s call. For our fiscal '22 first quarter, which began February 1, 2021, and ended on May 2, consolidated net sales were $163 million, an increase of $58 million or 55% compared to the prior year first quarter. We reported revenue gains in all three of the company's reportable segments with Home Meridian sales up $27 million, or 46%; Hooker Branded sales up $24 million or 89%, and Domestic Upholstery sales up $7.7 million or 46% compared to the prior year first quarter. The company reported net income of $9.4 million or $0.78 per diluted share compared to a net loss of $34.8 million a year ago, which was principally due to a $44.3 million or $33.7 million after tax noncash impairment charge. Now I'll turn this call over to Jeremy to comment on our first quarter results.

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 two years ago. Profitability has improved significantly in all segments and incoming 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 costs, shipping equipment bottlenecks, raw materials shortages, and inflation. The Hooker Branded segment led 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 in and expansions of our product lines, rationalizing our stocking inventory, helping us to maximize shipping and production capacity along with improving our cash utilization. In order to accommodate travel restrictions in place earlier this year, the High Point Spring Market was officially pushed to June. In its place, the Hooker Branded, Home Meridian, and Domestic Upholstery segments participated in a High Point Pre-Market event in late April. Hooker furnishings results from the Pre-Market were exceptionally strong in terms of traffic, buying activity, and reception to new product introductions. We enjoyed record attendance at the High Point Pre-Market with very positive customer response to a number of introductions, including Hooker Casegoods Collections, the new brand launches of the Scott Brothers licensed collections, Commerce & Market, an accent furniture line with pricing, styling, and materials to reach Millennials and Gen X, and Hooker Upholstery’s launch of the upscale Aspire motion seating brand. Consolidated operating income for the quarter was $12.2 million compared to a $45.4 million operating loss in the prior year period. Last year's loss was primarily attributable to $44.3 million in non-cash impairment charges related to a write-down of goodwill and trade names in the Home Meridian segment and goodwill in the Shenandoah division prompted by the impact of the COVID-19 downturn on our financials last year. Now I want to turn the discussion over to Paul Huckfeldt, who will discuss highlights in each of our reportable segments.

Thanks, Jeremy. I'll start with the Hooker Branded segment, which was pivotal in achieving the company's record sales and earnings for the first quarter. Net sales rose by $24 million, or about 90%, with incoming orders nearly doubling compared to the same period last year affected by the pandemic. The quarter concluded with a backlog three times larger than the prior year’s first quarter. Since much of the segment’s product line is shipped from U.S. distribution centers and is ordered consistently every week, we had sufficient stock that allowed us to ship more than anticipated, despite constraints on ocean vessel space and trucking capacity. By focusing on our best sellers, we enhanced our performance amid significant operational challenges. The surge in industry demand for home furnishings also enabled us to move some slow-moving inventory in this advantageous market. Consequently, the Hooker Branded segment remained highly profitable, driven by increased revenues and reduced discounting, accounting for over 75% of the consolidated operating profit for the quarter. The enhancements made to our product line over the past two years, including a growing focus on lifestyle collections and a renewed emphasis on our value proposition, have begun to greatly influence our top and bottom-line results. Now transitioning to the Home Meridian segment, HMI's first quarter sales were $84 million, up 46% year-over-year. This increase in sales stemmed from strong retail demand compared to the weak demand seen at the onset of the COVID-related economic shutdown last year. Sales could have been even higher, but we faced challenges with inventory availability and shipping limitations. Operating income for the quarter was $866,000, an increase of $3.3 million compared to the impairment loss recorded during last year's industry shutdown. This income increase was driven by higher sales, lower allowances, and decreased fixed expenses. However, profits were impacted by significant excess freight costs during the quarter, which are expected to continue affecting results in the coming months. The supply chain challenges we are encountering are considerable, with multiple factors contributing, including an overall rise in global demand for imported products, notable shipping equipment disruptions due to the COVID pandemic, and the recent blockage of the Suez Canal. Current unloading bottlenecks at most U.S. ports and the quick dislocation of empty containers are compounding the issue. Securing shipping space has become difficult at any price, with shipping costs skyrocketing to levels that deter retailers from releasing shipments. This situation creates another issue—when factories cannot dispatch finished goods, they quickly run out of operational space, forcing them to halt or slow production despite strong consumer demand for furniture. In general, HMI’s service position improved modestly in the first quarter as inbound shipments replenished stock levels. However, logistical limitations will likely continue to restrict service at some level for the remainder of the year. As we mentioned on the last conference call, rising material and product costs are increasing our cost of goods sold. We are diligently working to pass these product and freight increases on to our customers, most of whom understand the situation and are accepting these price changes. Nonetheless, the lag in passing these costs on is adversely affecting margins in the short term. We are addressing this issue and expect to achieve target margins later this year. Looking at the results by business unit, net sales in the first quarter rose significantly at Pulaski Furniture, Samuel Lawrence Furniture, Prime Resources International, and HMIdea, mainly due to weaker comparisons last year and robust demand this year. Sales at Accentrics Homes, our eCommerce segment, were flat due to service limitations and strong eCommerce sales last year. SLH, our hospitality division, faced significantly diminished demand due to the ongoing adverse effects of the pandemic on the hospitality industry. Overall, profits in the first quarter improved across nearly all business units, except for SLH. We anticipate the hospitality sector will face challenges for at least another quarter but are starting to observe indications of demand improvement later this year. First quarter orders totaled $85 million, an increase of $44 million, or 108%, compared to the unusually low order rate from early last year during the pandemic. Incoming orders and backlog remain substantially above average due to a mix of strong retail demand and ongoing shipping limitations. HMI participated in the High Point Pre-Market event in late April, where the very positive reception to our Scott Brothers Brands, Scott Living and Drew and Jonathan Home, which are set to officially launch later this year, was notable. Numerous significant dealers are committing to buy these branded introductions as soon as we can deliver them. Even though the High Point market doesn't officially open until [indiscernible] and no Scott Brothers Furniture products are yet available in stores, we’ve already received inquiries from consumers about where to purchase these products. These positive reactions highlight the significant opportunity we see in merging HMI, one of the largest suppliers of home furnishings, with Scott Brothers Global, the leading celebrity lifestyle brand in the home furnishings sector. The reach of the Scott Brothers Brand through various media, combined with HMI's extensive capabilities in design, product development, sourcing, sales, and distribution, creates a strong combination that will drive consumer interest for years to come. Moving on to Domestic Upholstery, this segment's net sales rose by $7.7 million, or 46%, in the first quarter of fiscal '22 due to significant sales increases across all three divisions. Last year, manufacturing plants at Bradington Young and Shenandoah were closed for about a month due to COVID-19 restrictions, and Sam Moore operated at around half capacity, resulting in much lower sales during that period. While we were encouraged by the incoming orders for the Domestic Upholstery segment during the quarter, we began facing foam allocation shortages and rising costs on certain raw materials, such as foam, lumber, plywood, fabric, and mechanisms, in the second half of the quarter. These supply chain and manufacturing limitations led to lower production levels, adversely affecting sales volume and operational efficiencies for much of the quarter. We expect these challenges to persist in the near term. In other areas, net sales fell by $368,000, or 12%, compared to last year, chiefly due to a 17% decrease in sales within each contract segment serving the senior living and retirement market. As you know, the senior living sector was particularly hard hit by COVID-19 and has not yet fully recovered. However, we believe the ongoing vaccination efforts will enhance conditions in most senior living communities, and incoming orders for each contract increased by 9.5% during the quarter, with backlog up 35% from a year ago. Despite the decline in sales, the each contract segment still contributed operating income for the quarter. Lifestyle Brands, which we initiated in fiscal 2019, also reported a small profit. Finally, regarding our cash and inventory situation, we’ve raised our inventory levels by about $10 million since the end of last year. This increase is fairly balanced between products in transit and those stored in our warehouses, allowing us to better serve our backlog and improve our stock levels of bestsellers. Cash and cash equivalents at the end of the first quarter stood at $61.6 million, down $4.2 million from the previous fiscal year-end balance. Consolidated inventories reached $81.5 million, an increase of $11.3 million compared to $70.2 million at the fiscal year-end. We anticipate a slight decrease in our cash balances in the coming months as strong sales continue and we build inventories to meet rising customer demand. Now, I'll turn the discussion back to Jeremy for his outlook.

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. Several macroeconomic factors provide a nice runway for growth, such as the ongoing strong housing market and favorable demographics with the massive millennial generation becoming highly engaged in household formation and home furnishings purchases. On the negative side, we expect increased competition for consumers discretionary income from industries such as travel, apparel, and events as COVID-19 vaccinations continue to roll out. While we expect the extraordinary levels of demand for home furnishings to diminish somewhat, we also expect the demand for home furnishings will settle into a higher level of demand than pre-pandemic. Consumers aren't going to fall out of love with their homes, and we are positioned to help them enhance their homes with comfortable, stylish, and quality home furnishings. We believe our company is strongly positioned to win in this environment. That ends the formal part of our discussion. And at this time, I will turn the call back over to our operator, Liz, for questions.

Our first question comes from Anthony Lebiedzinski with Sidoti & Company.

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.

Let's see. Our backlog is at the end of the quarter was $280 million compared to $91 million the same time last year.

Okay, got it. Okay. Thanks, Paul. And then, as far as the price increases, obviously, we're in an extraordinary time period given inflation. Can you just talk about how many rounds of price increases 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?

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 movements in the components of the furniture that increase as well. So, Domestic Upholstery, you would be looking at two different increases which would probably be an accurate number across that segment. When you look at more of the import divisions, the freight has been unpredicted at best. And it's usually a reactionary versus what you would like to be able to be proactive. So you find out at the 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 has probably changed three to four times on our different import companies. And then there have also been first cost increases from factories that vary by brand of import products as well. 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.

Got it. Okay. Yes, thanks, Jeremy, for that. So …

Yes.

… 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 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?

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 investing 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 and B products. 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.

Yes, it allowed us to ship at the level.

Right, right. Right.

Got it. Okay. So you think this will benefit you guys for the balance of the year as far as the SKU rationale then?

Yes. Essentially, when we have a large transfer product, we would like to stock up more items in our warehouses, but most of it gets sold quickly. These are obviously more valuable SKUs, and we are not stocking up on less relevant SKUs.

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?

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 lull in the demand, really since just past the start of the pandemic.

Okay, that's good to hear. I have a couple more questions for you. Jeremy, since you became CEO at the beginning of February, you've introduced Project One - one company, one culture. Can you share what actions you've taken, what you've observed from this initiative, and how we should approach it for the rest of the year?

We have quickly started to see positive outcomes from our operations coming together, supporting each of the 12 businesses by leveraging our scale. We brought together team members from the HMI group and Hooker Branded, tapping into the talent we already had. It’s important to note that this initiative was not about cutting costs; it was about improving and becoming more efficient. Our goal is to be the best sourcing company, with top quality and safety. We strive to ensure that everyone is aligned and focused on what needs to be done, leveraging the strong team we have. That’s the essence of what we’ve achieved.

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?

We are refining our understanding of the type of company we are interested in, and our management team and Board are aligned on this vision. We are not rushing into any decisions that would not positively contribute or align culturally and financially. It is essential that any potential acquisition makes a meaningful contribution and is beneficial. We want to avoid anything that could be detrimental, and if we cannot find a suitable opportunity, we will not pursue any acquisitions.

Right. We're comfortable with our strong balance sheet, which has been a tradition in this company and makes us more resilient during ups and downs. We handled the COVID crisis well, and looking back at the recession ten years ago, having what some might view as an excessive balance sheet is beneficial when times get tough. Therefore, we're not rushing to spend that money.

No.

But we will spend it for the right acquisitions.

Right. Okay. Makes a lot of sense. Well, thank you and best of luck.

We appreciate it. Thank you, Anthony.

Thanks.

Our next question comes from Sandy Mehta with Evaluate Research.

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 all this incremental CapEx? Thank you.

That's a challenging question. The warehouse in Georgia is mainly focused on cost savings. We aim to expand our warehouse operations, particularly within our eCommerce sector. Additionally, there's a new effort to enhance the warehouse business for Home Meridian, which typically serves large accounts. The cost savings come from transporting containers just 25 miles to the Savannah port instead of about 300 miles to our ports in Georgia and North Carolina. This should lead to significant savings and reduce transit times, allowing us to ship faster. There’s also an environmental advantage because we're minimizing truck travel. We anticipate incremental growth, but the primary goal here is cost savings. Regarding other major projects, it’s time to upgrade our ERP system. While it may be difficult to directly link savings or growth to the ERP upgrade, these systems are outdated and need replacement. This upgrade will support our project to unify our operations into a single back-office system. I know I'm not directly answering your question, but we believe that all these initiatives will positively impact our bottom line, though not necessarily reflect in top-line growth.

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.

Yes, we believe we have strong demand ahead, primarily due to millennials beginning to buy homes and furnish them. The pandemic has led to consumers moving out of large cities into bigger homes, creating beneficial dynamics for us. As I mentioned earlier, we will face more competition for discretionary spending on travel and activities that people will enjoy post-pandemic, particularly as vaccine rollout continues. Overall, we feel optimistic about the future demand.

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.

Great. Thank you very much.

You're welcome. Thank you.

Our next question comes from JP Geygan with Global Value Investment Corp.

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 ask about capital allocation, including any sort of plans to allocate capital in addition to your intent to acquire.

Building our assets to facilitate an acquisition is our main priority. We've traditionally been somewhat cautious, often holding more cash than expected. We've been increasing our dividend, which is a modest use of capital. Additionally, we have several capital projects that will exceed our usual spending, which has typically been around $3 million to $4 million per year. Currently, we are working on the ERP project and the Savannah warehouse project, along with refurbishing showrooms. These efforts will require more capital than usual over the next couple of years. While share repurchase is a topic of frequent discussion, we have always considered other priorities as more pressing. However, if we continue to generate cash, it will certainly be an important topic at our Board meetings, though I cannot commit to any share repurchase plans at this moment.

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?

Regarding the earlier comments, steel is currently less predictable due to various factors in motion furniture. The primary concern is logistics, including container shortages and the high costs associated with bringing containers from overseas. We anticipate that this situation will persist into the next quarter, although we expect to see some improvement eventually. We believe that once things settle, prices will stabilize at a higher level than historical norms but not as high as current rates. Much of the inflation and price increases we are experiencing is related to these logistics issues, rather than solely due to increased costs from factories and raw materials, although those costs have also risen, they haven't done so to the extent that logistics costs have.

The industry's gone a long time without significant price increases.

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.

Got it. Thank you for your comments. I appreciate the color and congratulations again on a good quarter.

Thank you.

Thanks.

I'm showing no further questions in queue. I'd like to turn the call back to Jeremy Hoff for closing remarks.

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.

This concludes today's conference call. Thank you for participating. You may now disconnect.