Greetings, ladies and gentlemen. And welcome to the Hooker Furniture Quarterly Investor Conference Call reporting its Operating Results for the third quarter of 2020. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] 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 of our fiscal 2020 third quarter, which ended November 3rd, 2019. We certainly appreciate your participation this morning. Paul Toms, our Chairman and CEO; and Doug Townsend, Co-President of our Home Meridian division will join me for our prepared remarks. For the question-and-answer portion of the call, several of our business units heads will be available to take questions including Michael Delgatti, President of Hooker Domestic Upholstery and Emerging Channels; and Jeremy Hoff, President of our Hooker Branded segment. During our call, we may make 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 2020 third quarter results. Any forward-looking statement speaks only as of today and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. This morning, we reported consolidated net sales of $158.2 million and net income of $3.9 million or $0.33 per diluted share for our fiscal 2020 third quarter, which ended on November 3rd. Compared to last year's third quarter, our net sales decreased $13.3 million or 7.8% and net income decreased $5.4 million or 58%. Earnings per diluted share decreased 58.2% from $0.79 a year ago. For fiscal 2020 first nine months, consolidated net sales were $446 million, with net income of $10 million or $0.85 per diluted share. Net sales were down 7.7% or $37 million compared to last year's first nine months. Earnings per diluted share for the first nine months decreased 60% to $0.85 a share from $2.13 in the prior year. Now, I'll turn the call over to Paul Toms to comment on our fiscal 2020 third quarter results.

Thank you, Paul and good morning everyone. Significantly higher chargebacks and reduced volume from a single large retail customer at Home Meridian was the most significant driver in our lower third quarter sales and earnings. In addition, lingering effects of 25% tariffs on finished goods and component parts imported from China, along with spotty retail demand that's continued through the first nine months of the year, are other factors negatively impacting our results. The sales decline with the single major customer represented 70% or $6.4 million of a $9 million volume reduction in the HMI segment. And approximately $3 million in excess chargebacks from the same retailer drove a $4 million operating loss for the quarter in that segment. That compares to operating income of about $5 million at Home Meridian in the same quarter a year ago. Despite the headwinds, we had positive achievements this quarter in several areas, including improved gross profits and operating income as a percentage of net sales in our Hooker Branded segment and All Other. Even though sales decreased modestly in both, we continue to build our cash position this quarter. Since the end of the last fiscal year, we've built our cash by over $13 million, ending the quarter with $24.5 million in cash and cash equivalents. We reduced inventories in the quarter, especially discontinued and overstocked items, as we adjusted inventory levels to our lower order and sales rate. We made progress in our sourcing transition to non-tariff countries, which are on schedule. We expect to reduce a portion of our overall product line imported from China from 40% at the end of our most recent fiscal year to approximately 22% by this fiscal year end, with further progress expected next year. Given the challenging retail environment and the continued impact of tariffs, we are gratified to improve profitability performance in Hooker Branded segment and our domestic upholstery and H Contract divisions. While sales were down in each segment in the mid to low single-digits, respectively, gross profits and operating income as a percentage of net sales improved compared to the prior year third quarter. Our Hooker Branded segment achieved 190 basis point improvement in operating income margin. And our All Other achieved a 390 basis point improvement compared to prior year third quarter. Taking a closer look at each of our segments, I'll begin with the Hooker Branded segment. Net sales for the Hooker Branded segment decreased $2.8 million or approximately 6% in the fiscal 2020 third quarter versus the prior year third quarter. Hooker Casegoods experienced lower incoming orders and reduced sales volume, driven by lower consumer demand and soft home furnishings retail business condition. The impact of the 25% tariffs on imported furniture from China enacted over the past 15 months has generally resulted in a 10% price increase on that portion of the company's product line imported from China in this segment, suppressing retail demand somewhat, particularly in Casegoods, which are a higher ticket purchase that consumers are more likely to postpone. The volume loss was partially mitigated by higher average selling prices as the division adjusted pricing to mitigate increased product costs and tariffs. Hooker Upholstery continued the growth momentum that division has achieved the entire year, a broader product offering with the product mix, including more sofas and sectional sofas, which have higher average selling prices for fueling Hooker Upholstery's growth. Our growth strategies for Hooker Branded are based around product-line extensions as well as a clear focus on our category or niche businesses. We're excited about the spring launch of a new casual dining initiative along with the precut of two major collections that we -- will be available to ship in the second quarter of next year. Hooker Upholstery continues to focus on programs that maximize sales per square foot for the retailer. The success of this strategy is recognized through additional cover offerings, expanded recliner options, and customizable 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 U.S. 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 channels, 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.

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 thus, the impact was amplified in the overall results. Current demurrage expenses are significantly reduced from earlier this year and expected 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 produced goods and the significant quality and sales problem with 1 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 U.S. 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 Teryy 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 a 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 faced 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 slowdown 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, and we continue to invest in developing this channel. SLH, our hospitality division, is our fastest-growing division this year. Sales were up 34% year-over-year, backlog is up nicely, positive 27% at the end of October, which bodes well for SLH's Q4 and Q1 shipments. Earnings in this segment were negatively impacted earlier in the year by several different tariffs and unusually high freight costs. Most of these costs are behind us and profitability has improved in the past two months. Growth in the hospitality channel is helping to offset headwinds in the traditional residential channel, and we will continue to invest in this business. Looking forward, we anticipate better HMI shipments and far less RNA, which will result in significant performance improvement in Q4 and beyond. At this time, I'd like to turn the call over to Paul Huckfeldt, who will elaborate further on our quarterly results.

Thanks Doug. Consolidated average selling prices increased 1.7% due to increased average selling prices in the Hooker Branded segment and All Other, which is attributable to price increases necessitated by the imposition of tariffs and higher freight costs. A favorable product mix also contributed to the higher average selling price, but these factors were not sufficient to offset the 7.5% unit volume loss, which resulted in lower order volumes in both of our reporting segments and All Others. Consolidated gross profit decreased $7.4 million to $28.5 million in the fiscal 2020 second -- third quarter and decreased from 20.9% to 18% as a percentage of net sales. Hooker Branded gross profit decreased modestly in absolute terms due to the lower sales for the quarter, but increased as a percentage of net sales due to the relative success this segment has had, mitigating the impact of tariffs. In the Home Meridian segment, gross profit declined significantly in absolute terms and as a percentage of net sales. Home Meridian's gross margin was negatively impacted by lower sales and higher chargebacks as well as unrecovered tariff and freight costs and some lower-margin sales programs that we've been working to improve or discontinue. Other factors impacting gross profit were a $650,000 write-down of returned inventory in order to try to increase its rate of sale, excess freight and handling costs of about $600,000, and about $450,000 of increased warehousing costs on returns and higher-than-planned inventory. Despite the sales decline in All Other, gross margin increased in absolute terms and as a percentage of net sales due primarily to lower material costs in our domestic upholstery units as well as increased sales and profits in H Contract. These gains were partially offset by slightly higher direct labor and overhead cost as a percent of sales attributable to the reduced manufacturing products. Consolidated selling and administrative expenses decreased slightly in absolute terms, but increased as a percentage of sales due to lower net sales base in the fiscal 2020 third quarter. In addition to variable selling expenses, which were lower due to the lower sales volume this quarter, compensation and bad debt expenses were lower, which helped to offset higher costs due to the Asian sourcing transition, consulting and professional fees and about $200,000 of start-up costs for our HMIdea division. All these costs were partially offset by a $520,000 gain on the settlement of our pension plan during the quarter, which we recorded in other income. For these reasons, operating income for the fiscal 2020 third quarter decreased $7.3 million to $5 million. Operating margin decreased from 7.2% to 3.2%. On the balance sheet, our cash balances increased $13 million from the fiscal 2019 year-end to $24.5 million. So far this year, we've generated $26.6 million in cash from operating activities, much of it from the collection of accounts receivable and customer deposits in Home Meridian's Hospitality division, as well as $1.4 million in proceeds from the sale of a former distribution facility, which we had owner-financed. I should also note that we adopted ASC 842 at the beginning of the year. This is the new lease accounting standard, which puts about $41 million of new assets and a similar liability on our balance sheet and affects comparisons to last year's balance. At the end of the fiscal 2020 third quarter, we had access to almost $26 million on our revolving credit facility and $25 million of cash surrender value in our company-owned life insurance, which gives us some additional financial flexibility. We continue to have confidence in our business model and the steps we're taking to return to our historical profitability. So, at our recent Board meeting, our Board of Directors approved a $0.01 increase to our -- in our quarterly dividend, which gives us a dividend yield of about 2.8%. And now I'll turn the discussion back to Paul Toms for closing remarks and his outlook.

Thanks Paul. Compared to the second quarter, consolidated orders increased by about $8 million or 5% in the third quarter. However, compared to the same period a year ago, consolidated orders dipped approximately $15 million or 8%. The decline in orders from the one large Home Meridian customer is a significant part of that reduction along with the subdued demand from increased prices due to tariffs. While some retail segments like large national chains, clubs, international sales, and full line furniture independent retailers are sluggish, sales performance in other channels, such as e-commerce, hospitality, contract furniture and interior design are up. On a consolidated basis, we expect earnings to improve on a sequential basis next quarter. We believe the earnings performance momentum we have in the Hooker Branded and All Other segments will continue, and for the Home Meridian segment earnings to improve significantly despite the reduced volume from the single large customer. There are two calendar dynamics to point out that will impact our performance next quarter. First, last year was a 53-week fiscal year. So, company-wide, we will have one less week of shipments this year in the fourth quarter. In addition to this lost week of shipping, the Chinese New Year and Vietnamese Tet New Year holiday vacations are earlier this year, which will result in five to 10 fewer shipping days this fiscal year for our container direct customers. Regarding the overall business climate, we believe positive housing and demographic trends bode well for us and for the furniture industry in general. Housing activity has been particularly robust in recent months For example, permits for home construction, jumped to a 12-year high recently and housing starts were up nearly 10% year-over-year in October. Household formations, home affordability, mortgage interest rates, have all trended positively recently. Demographically, millennials are finding jobs, leaving home, getting married, creating households and starting families. Gen X consumers are reaching peak earnings years, and we're seeing housing turnover from baby boomers as they retire, relocate or downsize. All of these would be positive for people in the furniture industry like ourselves. We expect to be well-positioned strategically, financially, and with the right product lines and talent to capitalize on all these trends. That ends the formal part of our discussion. And at this time, I'll turn the call back over to our operator, Liz, for questions.

[Operator Instructions] We have a question from the line of Anthony Lebiedzinski with Sidoti & Company. Your line is now open.

Good morning. Thank you for taking the questions. So, I guess, first, just wanted to get a better handle on the HMI, it seems like this is not the first quarter that we've had some of these issues. So, I guess, with respect to the single large retail customer that you manageable and here, little less Volatility sounds like, if I heard correctly that you still expect to do some business with this customer next year, but it sounds like significantly less. Is that correct?

Anthony, this is Doug. Yes, that is correct.

Okay. I guess, so -- and as far as reasons why your sales are down so much with this customer and expect to be down so much. Can you perhaps expand on that?

Part of it is -- it's project-based, and so it's not like traditional furniture where you put something on someone's floor and then it sells for a long time on the floor. So, there's different cycles. And you can gain more projects or less projects, depending on the cycle. And I think part of it is just kind of resetting and resizing the business to one that is manageable and has a little less volatility.

Okay. So, -- and then you -- it sounds like you expect to be able to offset some of this because of some new customers, will you be able to fully offset the sales decline from this one customer next year or not?

Our intention is to fully offset.

Okay. Got it, okay. And so as far as the cost, as far as the chargebacks associated -- so I know what happened in the quarter here that you just reported, as far as the fourth quarter, is there an expectation of -- what is the expectation for the chargebacks for Q4 from this customer?

Our current expectation is that the chargebacks are behind us and that we don't know of any other ones that are related to this.

Anthony, this is Paul Toms chiming in. A couple of things in addition to what Doug said. I would reinforce, I think, in total, we definitely expect Home Meridian to grow next year in spite of some continued attrition with that one single large customer. And as far as chargebacks, there may be -- a lot of the chargebacks we've received this year from that customer are related to two significant product returns late last year in the fourth quarter. We believe that trailing chargebacks are behind us, but we have accrued in the third quarter for what we believe could be residual kind of last charges related to those products. So, we could have some, but I believe we're properly accrued for it in this quarter's results.

Okay. All right. That's very helpful. Okay. So, Paul, while we are on the subject of Home Meridian, so it sounds like you're pretty optimistic that despite the loss of this -- or not a total loss, but sort of the partial loss from this one customer -- can you just give us some examples of either products or retailers, not necessarily by name, but just kind of like broadly speaking, if you could just give us some examples as to what will enable you guys to actually drive improvement in sales from Home Meridian next year?

Right? So, kind of bear with me as I give you a little bit of a lengthy response. But I think if you look at this year, we're certainly impacted by significantly reduced business with this single customer. But we're also impacted by the cycle of inventorying that our large home Meridian customers typically do. You think back a year ago, there was a threat that tariffs were going to go to 25% on January 1st. A lot of retailers brought in much inventory as they could of China products to try to get ahead of those tariffs. And it turns out; they didn't go to 25% till later in the year. But people have brought in a tremendous amount of inventory, and it's about exactly the same time that business turned down for most of these retailers. And it could have turned down from a really poor stock market performance, late last year government shutdown, tariff concerns. There's all kinds of reasons that business may have turned down, but retail was pretty soft in the first half of this year. And so our customers, I think, entered the year over inventory it took them through the first quarter, maybe into the second quarter to kind of get inventories properly sized. And then business started to pick up maybe late summer, and it's been better in the fall than it was the first half of the year. It's still not to the levels, I think, of a year ago, but it's closer. So, I don't think the sales of our products at retail have been as poor as our shipments. Mainly in the first and second quarters of this year. So, when you get past this one large customer, which we've said we're going to do less business with, I think our placements for placements with other customers are good. They've added new products at this most recent market. We have transitioned over half of what we were importing from China to other non-tariff countries. So, the pricing on those products will not go up. In some cases, it may come down. I just don't see anything with the other customers at Home Meridian that indicate that we're losing floor space or potential volume with them. And then they've launched the Terry Bradshaw collection, that will be incremental business. They're launching HMIdea, they're right -- ready to assemble product that's targeted in mass, but will also be sold through e-commerce. And there are other product line extensions that they have, whether it's leather program at Pulaski or laminate program at Samuel Lawrence Furniture. There's just a lot of regular product line extensions that I think will generate business. So, we expect for Home Meridian to bounce back next year to grow certainly over what they've done this year. And I think that a lot of the impacts from chargebacks related to the returns last year, excessive chargebacks for the year from that one customer and to move of sourcing changes will all be positive.

Okay. Well, yes, thanks for that clarification, Paul. So, it sounds like if you expect sales to improve at Home Meridian your profitability should be even better, right? Because of the absence of the chargebacks and the move to Vietnam and elsewhere, right?

Right. We really are looking at how long will it take us to recover to get back to the profitability that Home Meridian enjoyed last year. And I don't think it will all return next year. But I think the majority of it will, and maybe it will take us two years to get back to the full profitability from the previous fiscal year, but I expect next year to be a significant turnaround, and they do as well. I mean, I didn't just grab numbers, I asked them to look at their business and placements and take out these what we believe are unusual and nonrecurring type expenses. And the -- how quickly we can rebuild it. We were impacted this year a lot more than we would have expected by the chargebacks but also by tariffs. And Home Meridian is less able to pass tariffs along to their customers than the other parts of our company. Their customers are just much larger. They're very price sensitive, and we've had to eat a lot of the tariffs in that division this year, and I think that the sourcing changes and a lot of that's behind us.

Okay. Well, thank you for that. So, switching to the other segments, Hooker Branded and All Other, you were able to improve your operating income despite the decrease in sales there. So, can you just kind of expand on the reasons why you were able to do that? And also give us some sense as to whether that is sustainable through the fourth quarter?

I think the best thing here would may be to let the two gentlemen that are responsible for those businesses chime in. And so I'll ask Jeremy Hoff first, to comment on the Hooker Branded Casegoods and imported upholstery business, and Mike Delgatti can answer that question with the domestic upholstery and H Contract.

Got it.

Anthony, this is Jeremy.

Good morning Jeremy.

How are you doing?

Okay. Good, good.

So, the main things that we tried to do during the year when we saw the tariffs coming at us, of course, at first at a 10% level and then at a 25% level is we went into very much a control or controllables mode. There's several levers, I would say, discounting was definitely a lever that we tried to control in the company. We also had to extend price increases at a reasonable level without killing our demand. So, -- and we kept our costs at a reasonable level that would help us offset the tariffs. So, those are really the biggest levers I can think to tell you that help drive the profitability.

Okay, got it. Thank you.

Anthony, as far as All Other, we've done a number of different things. First of all, as was pointed out earlier, we did benefit from lower material costs. Particularly with leather, leather costs have dropped rather significantly over the last 12 months or so. We also have been very proactive and purging businesses of some low-margin programs and products. I also think the business unit leaders have been very effective in managing cost spending. And as Jeremy just pointed out, we, too, had a couple of price increases over the last 12 months, tariff related.

Got it. All right. Well, thank you, Mike, and best of luck in your upcoming retirement.

Thank you. I'm going to miss these calls.

I bet.

[Indiscernible] Anything else Anthony?

That will conclude our question-and-answer session. I'd like to turn the call back to Mr. Toms for closing remarks.

All right. We thank you for joining us. We're sorry we didn't have better results to report this quarter, but I think we understand what's impacting our business and have strategies in place to mitigate those impacts. We expect much better performance in the current quarter and certainly in the coming year. So, thank you for joining us today. Good bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.