Good day, and thank you for standing by. Welcome to the Hooker Furnishings Fiscal ‘24 Third Quarter Earnings Conference Call. Please be advised, today's conference call is being recorded. I would now like to turn the conference over to your speaker for today, Paul Huckfeldt, the floor is yours.

Thank you, Lisa. Good morning and welcome to our quarterly conference call to review our financial results for the fiscal 2024 third quarter, which began July 31 and ended October 29, 2023. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation. During our call, we may make forward-looking statements which are subject to risks and uncertainties. A discussion of factors which could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2024 third 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. This morning, we reported consolidated net sales for our fiscal 2024 third quarter of $116.8 million, a decrease of $35 million or about 23% compared to last year's third quarter, driven by continued soft demand for home furnishings as well as our exit from Accentrics Home product line. Despite the sales decline, operating income and margin both increased due to decreased product costs at Hooker Branded and improved margin at Home Meridian due to the exit from unprofitable categories. Consolidated net income was $7 million or $0.65 per diluted share for the quarter, compared to $4.8 million or $0.42 per diluted share in the prior year period. For fiscal 2024, 9 month period, consolidated net sales decreased by $115 million or 25% to $336 million as compared to last year at the same period. Consolidated net income was $9.3 million or $0.85 per diluted share compared to $13.6 million or $1.14 per diluted share in the prior period. Now, I'll turn the call over to Jeremy to comment on our fiscal 2024 third quarter results.

Thank you, Paul, and good morning, everyone. Today, we'll discuss our third-quarter results and the performance for the first nine months. We will also explore how our strategy to shift the Home Meridian segment from a high-risk, unpredictable revenue model to a low-risk, sustainable profit model is yielding real results. Despite challenges from the housing market slowdown, high interest rates, and changing consumer spending, we are optimistic about positive trends such as stabilizing ocean freight rates, easing supply chain issues, more consistent raw material costs, and improved labor availability. Our forecasts have indicated that profitability would improve in the latter half of the year. For the first time since 2021, the Home Meridian segment posted a quarterly operating income, contributing $900,000 to this year's third-quarter income compared to a $3.2 million loss in the same period last year. Although the macroeconomic environment for the home furnishings sector remains tough, we commend our team for navigating difficult decisions and short-term challenges to foster a more sustainable and profitable model for the segment. After focusing on our core products and businesses over the last few years, it's encouraging to see HMI report a quarterly profit for the first time in two years and contribute positively to our overall profitability. HMI inventory levels decreased by $15 million compared to year-end and by $46 million compared to the third quarter last year. We also realigned our inventory mix to match our current business strategy and reduced our Georgia warehouse footprint by 200,000 square feet in the second quarter, with plans to cut another 200,000 square feet by early next year. By liquidating excess inventories, right-sizing overhead, and exiting unprofitable segments, we have strengthened our overall position. Our primary focus remains on executing our strategic growth initiatives and managing the factors we can control. While demand has decreased from previous quarters, consolidated orders rose by $12.7 million or 15.7% in the third quarter. For the first nine months, consolidated orders increased by $75.8 million or 33.5%, primarily driven by Home Meridian segment orders, which were particularly low in the previous year. We have also improved our financial standing this quarter, generating approximately $49 million in cash from operations during the first nine months of the fiscal year. By the end of the quarter, our cash and cash equivalents reached $40 million, an increase of $21 million from the previous year. Inventory levels dropped by $32 million from year-end, and by $69 million from this time last year. The recent Fall High Point Market yielded positive results across the company. Increasing our visibility is a core strategic goal, and adding two smaller showrooms in Las Vegas and Atlanta, along with relocating our main High Point showroom, has greatly expanded our audience for products in our legacy business and Sunset West. HMI also performed well in the market by enhancing the product assortment for Pulaski, Samuel Lawrence Furniture, and PRI. The initiatives by our HMI team to refresh and reposition offerings for growth have received encouraging retail feedback and new placements from major customers. As previously mentioned, the collective effect of our new showrooms in High Point, Atlanta, and Las Vegas has increased our customer contacts from about 3,000 to around 14,000 annually, more than quadrupling our existing and potential customer base. In the first half, we opened 1,000 new accounts, and this quarter we added an average of 150 new customers each month as visibility and engagement remain strong. The furniture industry is currently facing softer business conditions overall, but we are confident about our controllable factors. Our inventory and overhead situation is healthy, and most of our cost reductions, aside from warehousing, are behind us, meaning we do not anticipate further personnel cuts. Now, I will hand it over to Paul to discuss highlights from each of our segments.

Thanks, Jeremy. Beginning with Hooker Branded, soft home furnishings demand and short-term delays with an impact of about $3 million related to the implementation of our new ERP system over the Labor Day weekend drove a net sales decrease in the segment of about $17 million or 31%. Without the ERP-related delays, we believe sales would've been about 26% below the prior year. Despite the sales decline, Hooker Branded reported a solid operating income of $7.3 million and an operating margin of 18.6%, an improvement compared to the $5.9 million and 10.3% in the prior year quarter. For fiscal 2024 9-month period, net sales decreased by $35 million or 23% due to decreased unit volume. Sales decreases underscore the softer demand for home furnishings. Gross profit and margin both increased for the fiscal 2024 third quarter despite the decline in net sales; these favorable outcomes are attributed to significantly decreased product costs driven by lower ocean freight rates. In addition, warehousing costs were lower due to lower demurrage and drainage expenses, as well as lower labor and compensation expenses due to the reduced shipping activities. The higher-than-average gross profit margin of 45.6% for the quarter is expected to be temporary and as a result of the timing of reduced freight and product costs and recent price reductions across the segment. While price decreases and promotions were implemented in August, the majority of inventory sold in the quarter still carry higher selling prices, which were implemented in the prior years to address massive freight cost increases, which resulted in unusually high gross margins. We expect Hooker Branded margins to normalize to historical levels in the coming quarters. Incoming orders increased by 7% compared to the prior year's third quarter, and this year's second quarter. Although quarter end order backlog was lower than the prior year quarter-end, it increased from this year's second quarter and remained nearly 70% higher than pre-pandemic levels at the end of the fiscal 2020 third quarter. At Home Meridian, Home Meridian segment net sales decreased by $6.9 million or 13% compared to the prior year third quarter, but increased compared to the first and second quarters of the current year. Sales decreases in the e-Commerce channel previously served by Accentrics Home accounted for over 40% of the overall decrease in the segment due to our exit from that line. The remaining decreases in the segment were driven by sales decreases at Samuel Lawrence Furniture, PRI, and Pulaski, all divisions observed independent furniture stores and major retail chains. These decreases were partially offset by strong sales at Samuel Lawrence Hospitality, which reported sales increases of 152% and 46% for the third quarter and 9 months respectively. Despite the net sales decrease, HMI gross profit and margin increased by 940 basis points or $3.4 million in the fiscal 2024 third quarter. This increase was attributed to improved margin as we exited from unprofitable sales channels and product lines. Decreased product costs and increased profitability in our hospitality division also helped. Furthermore, decreased costs in the Georgia warehouse and decreased wage expenses due to organizational and personnel changes all contributed to the increase in gross profit margin. For the fiscal 2024 9-month period, gross profits slightly decreased driven by sales decreases while gross margin increased by 530 basis points due to the factors I've just mentioned, as well as the absence of the warehouse transitions and startup costs incurred in the prior year first quarter. Home Meridian recorded a quarterly operating income of $900,000 compared to a $3.2 million operating loss in the prior year third quarter. The liquidation of inventories that were written down in the fourth quarter of fiscal 2023 was essentially completed during the quarter and we had an immaterial impact on gross profit. Incoming orders were 19% higher than the prior year third quarter, but lower than the first and second quarter orders as our retail customers are matching their inventories and orders to current soft demand for home furnishings. The quarter end backlog was lower than the same period a year ago. At domestic upholstery, after 2 years of sales growth, domestic upholstery net sales decreased by $11 million or 25% in the fiscal 2024 third quarter due to lower demand. All four divisions reported sales decreases for the quarter and the 9-month period. Gross profit and margin both decreased in the fiscal 2024 third quarter and 9-month period driven by net sales decreases. Direct material costs were below prior year periods due to more stable raw material costs. However, these decreases were more than offset by under-absorbed indirect costs, which were higher compared to the prior year third quarter and 9-month period, primarily due to indirect labor costs. Incoming orders increased by 39% in comparison to the third quarter of the prior year as Bradington-Young, HF Custom and Shenandoah all recorded increased orders. Sunset orders remained flat as compared to the prior year third quarter. Quarter end backlog for the segment slightly decreased from the second quarter end. As Bradington-Young's backlog was 2.5 times that of pre-pandemic levels. While backlogs at HF Custom and Shenandoah decreased to levels comparable to the fiscal 2020 year end. One of our core values at Hooker Furnishings is maintaining a strong balance sheet and financial position. As Jeremy mentioned earlier, we generated $49 million in cash from operations during the first 9 months. That cash funded $12 million of share repurchases, $7 million of cash dividends to our shareholders, $5.7 million of capital expenditures, including the investments in our new showrooms, $3.8 million for the development of our cloud-based ERP system, and $2.4 million to acquire BOBO Intriguing Objects in the second quarter. On Tuesday, we announced our quarterly dividend of $0.23 per share, a 4.5% increase over the previous dividend, which will result in an annual dividend yield just under 5%. This increase represents the 8th consecutive year in which we increased our dividend, reflecting our confidence in our business model and our commitment to providing a return to our shareholders. Also relating to shareholder value, during the third quarter, we completed the share repurchase program which began in the second quarter of last year. Over that time, we spent a total of $25 million in a little over a year to purchase and retire 1.4 million shares of our common stock. With that, I'll turn the discussion back to Jeremy for his outlook.

While economic indicators remain mixed and furniture retail traffic is down about 15% from January through October 2023, the long-term outlook has improved. Reduced housing activity, high mortgage and interest rates are still challenging, but several positives have emerged since last quarter. Core inflation is at its lowest level since 2021, the US economy grew nearly 5% last quarter. Unemployment remains at record lows and the risk of recession appears to be moderating. As we look to the next quarter, we see flat sales for our Hooker legacy brands, but a continued short-term reduction for HMI sales until the new retail placements begin to generate more sales sometime in the first quarter next year. Early indications in the fourth quarter signal that incoming order activity is returning to better levels, which we experienced most of this year. We believe our growth initiatives will continue to gain traction in the first half of 2024. Our focus on reducing costs, keeping our balance sheet strong, and judiciously deploying capital along with our investments to promote higher visibility and future growth continue to put us in the strongest possible position to leverage a return of furniture demand to more typical levels. This ends the formal part of our discussion. And at this time, I will turn the call back over to our operator, Lisa, for questions.

Our first question today will be coming from Anthony Lebiedzinski of Sidoti.

It's great to see the improvement in our bottom line and a stronger balance sheet compared to last year. HMI has shown a significant increase in profitability from a year ago, with a gross margin of about 20%. Should we expect segment gross margins to trend this way in the future, or was there something unusual this quarter that might mean this rate of gross margin growth isn't sustainable?

That's close to our targets. There's a little bit of fixed cost in there with our warehousing costs, but that could dip with sales decline a little bit, but that's the ballpark in a normalized environment, I think that is what you should be thinking about.

Okay. So that's certainly better than it used to be historically. So that's encouraging.

Well, the gross margin historically been getting covered up by the bad businesses that we exited.

Correct. Right. Okay. And then, the gross margin at the Hooker branded was unusually strong, as you pointed out. Do you think you'll see any sort of benefits from the higher-priced products in the fourth quarter, or do you think you've pretty much flushed out all of that in the third quarter?

We believe that we have flushed a lot of that out, but we still think there may be some benefits left partially in the fourth quarter.

Should normalize customer.

Yes.

Got it. And in terms of your outlook, so for the fourth quarter, you gave us some quantifiable numbers for the Hooker branded. You think sales will be kind of flat, and down at HMI, there was no mention really about domestic upholstery, so I guess, with the orders coming in 16% higher, which is encouraging, but the talk of softer demand. So in total, how should we think about the fourth quarter revenue? I guess if we put all the pieces together?

So, I'll speak to that somewhat generally, but then Paul can fill in the blanks, but have to remember the backlogs that we were coming out of from last year versus this year and our orders, so they were extremely high. And so, the order rate was extremely low against a lot of those businesses. So these high percentages of order rates up are just really filling the backlogs back up for probably closer to a normalized business level versus the increases it looks like in the order rate. Does that make sense?

Yep. Sounds good. And then lastly, before I pass the call to others, so as far as the buyback you completed the repurchase authorization, what is your appetite for doing another share buyback, or would you say your preference would be to pay off whatever debt you have given the higher interest rate environment?

I think right now our objective is to make sure that we're right about the economy and maybe keep it, maintain the strong balance sheet and fund organic growth. I mean, if you've looked at our investor presentation, we've got a lot of pretty aggressive growth targets. We've got some specific strategies, and I think our primary objective now is to fund those organic growth strategies. We've got BOBO and we've got Sunset West that we're expecting to grow pretty significantly. So I think for the short term, those are our higher priorities than another share buyback. And of course, maintain our dividend; we're very proud of the dividend and we just increased the dividend again for the eighth consecutive year. So, I think those are all higher priorities than another share repurchase.

Our next question will be coming from David Storms of Stonegate.

So just wanted to start with some of the normalization and demand and kind of how you think about productivity and capacity specifically in the Home Meridian segment? I noticed that orders were up, but backlog was down. Is this just efficiency is going way up or is there more capacity that you could get out of that segment?

Really, the timing of the order rate increasing on the HMI side didn't happen until later in the third quarter, which created a lower backlog situation, as you mentioned. And that is why we're saying a lot of the placements we have out there, we have a lot of good indicators that those are working and we're starting to get significantly increased orders on the HMI business, and that's why we believe the backlog will spend its time getting larger during the fourth quarter. And that's also why we believe the first quarter will be significantly better for HMI in the first quarter.

We have the Lunar New Year which will change some of the shipping patterns too.

Right. But as it relates to backlog and as it relates to orders, it's really the timing of when those orders really improved on the HMI side. Is that helpful?

Yes, it does. Thank you. And then just when we're thinking about the increased visibility you have going forward as you open up your new showrooms and such, what kind of runway do you think there is for that to improve demand and then ultimately turn into new orders?

So, as it relates to the visibility, which is really when we're talking about the Hooker Legacy side of our business, that increased visibility is as we mentioned also allowing us to be able to try and sell a lot more of a customer base than we've had previously. Selling that customer base and the particular types of customers we're talking about takes some time to really get into their wheelhouse of what they're doing from a project level, whether it be the interior designers and, you know, the things we're trying to work on. So step one is the visibility. Step two is opening the account. Step three is the engagement level that we're able to achieve with those additional accounts, which takes some time, but we, but from our history of doing this with thousands of accounts before we somewhat know that it will eventually kick in and we believe it's a significant growth opportunity for us.

Okay. And then just one follow up on that, what kind of timeline do you expect around, you know, going from making contacts to opening accounts to that turning into sales?

I would say from when we started the higher visibility, I would say, I believe that, you know, it's a from now another 12 to 18 month timeline to really see significant boost on that legacy side due to the visibility exercise.

Thank you. Our next question is coming from Budd Bugatch of Water Tower Research.

Good morning, Jeremy, and good morning, Paul. And congratulations on the profit performance in the quarter. And then that, that's notable. Hard to do that with down sales.

Yes. I really appreciate it. Thank you.

You talk about getting back to normalized margins, gross margins in the Hooker Legacy business. What are those now, after having gone through Covid and supply chain and inflation and disinflation, and what are those normalized margins today?

Okay. On the Hooker Branded, yes. I mean, it's been a long time since we've seen normalized margins, but I think, you know, in that low 30% high 20, low 30 is a more normal margin. You know, obviously there are a lot of dynamics that could still affect it, but that would be sort of a, once we get through this last round of mismatched prices and costs, which right now is working in our favor, it should be back in that low 30% range for Hooker Branded. The other part of our Hooker Legacy business is the domestic upholstery business, and that's a mid to low twenties margin. It’s a manufacturing business; it's a different dynamic.

Our goal was never to increase the margins of our Hooker Branded products or raise prices for more margin. Instead, we aimed to maintain our margins at historically consistent levels while navigating significant fluctuations in costs related to freight, ocean freight, and demurrage. The challenges we faced were considerable, and those in the furniture industry will understand exactly what I mean. We also prioritized protecting our backlog for customers with orders during this chaotic period, which unfortunately led to some negative impacts on our business. Nevertheless, we believe this was the right approach because we value our relationships with our customers, which is central to our mission. On the front end, we made these choices, and now on the back end, we are experiencing some temporary cost reductions. As we promised our customers, we have lowered our prices to align more closely with the value proposition we offered before the extreme freight rate fluctuations.

As a former retailer, I can tell you that, I remember the angst that was created when the price prevailing phrase was bandied around the industry through a previous inflation or time period. And you do too, I'm sure.

I do. Absolutely. I do. You're right.

So my question is, how long will it take to return to those normalized margins? It seems like that mix is in the low 20s to high 30s, which is a significant difference. How long until we achieve that normalized gross margin?

We expect that it'll be first quarter. We'll be back to what we said normalized margins.

Okay. That's encouraging. And the next question is, I'm confused a little bit about the 14,000 contact number. Those are not unique accounts. That's if you see your same account multiple times inside that number and…

No, those are unique. We don't count individuals; we count accounts. In fact, we had two significant entertainment events in high point. One was a celebration of our showroom opening, and we typically do this once per market. We don’t count those numbers when attendance increases because we believe it's often the same people returning multiple times to have a good time. We aim to get an accurate picture for ourselves, not just for you. We want to understand what's actually happening so we can anticipate future outcomes. We were somewhat aware that conditions would be better than what we experienced on the 10th floor of commerce compared to our current situation. We also expected improvements from our Las Vegas and Atlanta showrooms, but we had no idea it would exceed four times our previous numbers. We're pretty excited about this, and we believe it's set us up for a promising future for growth across the board, especially due to the benefits of relocating those showrooms.

So that's exactly where I was going to go next. That seems to be the growth, the Delta. Is there a level of volume for even some of the small designers that makes it an unprofitable account to handle? How do you manage the profitability of an account?

There's a significant amount of digital involvement now. We no longer incur all the costs associated with catalogs or distributing price lists. Many factors have altered the economics of acquiring an account. Considering these changes, along with several initiatives we're implementing, we have successfully identified ways to make the financials work.

It's fascinating. And of the 14,000, can you separate for us maybe the retailers versus the designer or the different type of, the alternative type of distribution?

No, I really can't right now, but I'm sorry.

Thank you. That concludes the Q&A session for today. I would like to turn the call back over to Jeremy Hoff for closing remarks. Please go ahead.

Thank you, Lisa. I would like to thank everyone on the call for their interest in Hooker Furnishings and wish you all a happy holiday season. We look forward to sharing our fiscal 2024 full year results in April next year. Take care.

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