Greetings, ladies and gentlemen, and welcome to the Hooker Furnishings Quarterly Investor Conference Call Reporting its Operating Results for the First Quarter 2023 Earnings. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Paul Huckfeldt, Vice President, Finance and Chief Financial Officer for Hooker Furnishings Corporation. Please go ahead, sir.

Thank you, Olivia. Good morning, and welcome to our quarterly conference call to review our results for the fiscal 2023 first quarter, which began January 31 and ended on May 1, 2022. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We certainly appreciate your participation today. 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 2023 first 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 $147 million, a decrease of $15.5 million or 9.5% compared to last year's first quarter due to sales decreases in the Home Meridian and Hooker Branded segments, driven by continued supply chain disruptions. The decreases were partially offset by strong sales in the Domestic Upholstery segment and the addition of Sunset West sales. The company reported net income of $3.2 million or $0.26 per diluted share, compared to $9.4 million or $0.78 per diluted share a year ago. Now, I'll turn the call over to Jeremy to comment on our fiscal 2023 first quarter results.

Thank you, Paul, and good morning, everyone. As we expected and forecasted last quarter, first quarter results continued to be hindered by the slow ramp up of casegoods production capacity in Asia following the factory shutdowns in the second-half of last year. Consolidated net sales and earnings decreased on a year-over-year basis, however they improved compared to an operating loss last quarter and surpassed management's expectations for the quarter. The Asian factory shutdown and lengthy ramp up reduced the inventory available for direct shipment to customers, and reduced our ability to replenish warehouse inventories which became depleted as the shutdown wore on. At the end of the first quarter, in April, Asian casegoods production finally reached fully capacity, so we expect improving conditions and results to continue. In addition, we have a record amount of inventory in transit now, and a high percentage of it sold orders that will ship as soon as the shipments arrive in our domestic warehouses. Backlogs remain much higher than pre-pandemic levels. So, we believe we will ship well as inventory availability improves. The Home Meridian and Hooker Branded segments were most impacted by the factory shutdowns in Vietnam and Malaysia, and the resulting sales declines, partially offset by strong sales in Domestic Upholstery segment, and the addition of the revenues of our newly acquired Sunset West business unit in our quarterly results. Despite continued supply chain disruptions and high transit cost, we are pleased to have started fiscal '23 with historically high backlogs, a leaner portfolio focused on our most profitable channels and products, and with the acquisition of Sunset West, a leading player in the growing outdoor furnishings market. The integration of Sunset West is going extremely well. Sunset West contributed above expectations to operating profitability this quarter, and offers significant long-term growth opportunities in the outdoor furnishings category for Hooker Furnishings. Now, I want to turn the discussion over to Paul Huckfeldt who will discuss highlights for the first quarter in each of our segments.

Thanks, Jeremy. For Hooker Branded segment, net sales decreased by $9 million or 17.5% compared to the same period a year ago, a decline that was fully driven by casegoods inventory unavailability resulting from the temporary factory shutdowns in Vietnam. The temporary halted production during the summer and early fall of last year resulted in low inventory receipts in the second-half of fiscal '22, and this quarter. Lower shipments at Hooker Casegoods were partially offset by increased net sales at the Hooker Upholstery division due to quicker inventory turns in that division. Thanks to its domestic warehousing business model, Hooker Branded was able to sustain shipments longer, but eventually the strong shipments, without sufficient replenishment resulted in depleted inventory. As of May, we're now moving into positive territory as our inventory levels have more than doubled compared to the fiscal year-end, with a record amount of inventory in transit from Asia. Additionally, a large percent of these shipments carry the price increases we implemented in July 2021 to mitigate excess freight and logistics costs. The Hooker Branded segment reported $4.1 million of operating income, and a 9.8% operating margin for the quarter. Incoming orders in the Hooker Branded segment decreased by 13% compared to the prior year quarter, when business was dramatically rebounding with exceptionally strong demand after the initial COVID outbreak. However, quarter-end backlog was 11% higher than at fiscal 2022 year-end, and 87% higher than the end of the fiscal 2022 first quarter, and has remained at historical highs. Turning now to the Home Meridian segment, net sales decreased in the first quarter by $22 million or 26% compared to the prior year period driven by continued supply chain disruptions and our exit from the unprofitable Clubs channel, as well as lower ecommerce sales reflecting recent trends in that channel. These declines were partially offset by the launch of the Pulaski Upholstery division, and sales increases in our hospitality business. Most shipments carried price increases and freight surcharges which helped to offset the impact of higher freight costs. However, profitability was negatively impacted by higher-than-expected demurrage expense and transition and startup costs at our new Georgia warehouse. We also experienced labor shortages and higher training cost as we bring the Georgia warehouse up to speed. These factors drove the segment's operating loss for the quarter. While disappointing, it was in line with our expectations. Order backlogs decreased in the Home Meridian segment due to our exit from the Clubs channel, and adjustments to programmed orders by some large customers. But backlogs are still about 50% higher compared to pre-pandemic levels of early 2020. Finally, the Domestic Upholstery segment continued strong revenue performance with its fifth consecutive quarter of double-digit net sales gains. Net sales in this segment increased by $15.8 million, or 62% in the fiscal 2022 quarter due to strong sales at Bradington Young, Sam Moore, and Shenandoah, as well as the addition of Sunset West's sales. However, raw material price -- and cost increases and freight surcharges increased product costs and partially offset some of those gains from increased sales. So, while profitability was higher than the same period last year, we were not fully able to leverage those sales increases. Incoming orders decreased by 5.4% compared to the prior year quarter due to current lead times and historically high backlogs. At the end of fiscal 2023 first quarter, the backlog was 18% higher than fiscal 2022 year-end, and 80% higher than fiscal 2022 first quarter end. Turning now to cash, debt, inventory; cash and cash equivalents stood at $10 million at the end of the quarter, down $59 million as compared to the balance at year-end due to a $30 million increase in inventory, and $26 million spent on the acquisition of Sunset West. At quarter end, inventories stood at $107 million, with a record $40 million of inventory at cost in transit to our domestic warehouses. We're experiencing a short-term decline in our cash balance. A very high percentage of this inventory in transit is sold, so we expect to convert much of that inventory to shipments fairly quickly. We expect our cash balances to improve by the end of the quarter, and return to normal later this year. Last week, we declared a dividend of $0.20 per share, which represents about a 4.5% dividend yield at our current share price. And this morning, we also reported that our Board has approved a share repurchase authorization of up to $20 million. Now, I'll turn the discussion back to Jeremy for his outlook.

Thank you, Paul. We are seeing a leveling off of demand with incoming orders down from the meteoric but unsustainable levels we experienced in the last 18 months. Order rates are stabilizing at above fiscal 2020 levels for most divisions. HMI orders for the quarter were lower than pre-pandemic levels, reflecting our exit from the Clubs channel and order adjustments from some of our larger customers. Backlogs at all divisions remain sizable and sufficient to support our sales targets for coming quarters. Once we receive all the inventory in transit, we expect to be in a near-optimum shipping position throughout the second quarter, and will begin to feel the full benefit of Asian production levels being at 100% capacity. We continue to watch inflationary pressures in the economy, and believe those are affecting consumers more at the lower price points than at the upper-medium and upper price points. We are still optimistic about the housing market's strong levels of employment, and having two of the largest generational groups in prime household formation and furniture purchasing years. Our variable cost business model will allow us to adjust to changing economic conditions, and we continue to focus on multiple strategic initiatives to spur organic growth and increase market share. This ends the formal part of our discussion. And at this time, I will turn the call back over to our operator, Olivia, for questions.

Thank you. And our first question, coming from the line of Anthony Lebiedzinski with Sidoti & Company. Your line is open.

Good morning and thank you for taking the questions.

Morning, Anthony.

Morning, Anthony.

Good morning. So, first just to overall backlog, can you provide consolidated backlog numbers which you had at the end of the quarter, and how did that compare versus a year ago or maybe two years ago, whatever number you have handy, that would be great?

Backlog at the end of the first quarter this year was 283, compared to 280 this time last year.

Okay. All right, that's helpful, okay. And in terms of the order cancellations or adjustments, are you only seeing that on the HMI side or you seeing anything on the Hooker Branded or Domestic Upholstery side of the business?

It's mostly the cancellations have happened on the HMI side, and they're mostly orders that are planned much further out. And so, with lead times starting to come down with the productivity overseas changing, that's changing the dynamic of timing of what our accounts need on order. So, a lot of that is -- could result from that.

Got it, okay. And thanks, Jeremy. And then for Sunset West, can you share how much of revenue was impacted by the acquisition of Sunset West?

One second, Anthony.

Yes. Just wanted to get a sense as to what the organic growth was and just kind of operating out of Sunset West.

About $7.5 million.

Got you, okay, thanks for that. Okay, and then SG&A was 19% higher than last year in the quarter. Can you just comment as to what drove the increase and how should we think about the SG&A expenses going forward?

Well, of course, lower volume affects that. And the addition of Sunset West certainly drives some of that. And I think we have incurred additional labor, like labor costs, bonus accruals. So, it's, I think -- I think the quarter was pretty typical for spending, as you know, about 5% or so of our SG&A is variable, the rest of it is fixed. I think if you back the 5% of sales out I think you could probably get a run rate that's pretty normal for the rest of the year.

Okay, got it. Okay, so there weren't any like one-off of costs as far as associated with the integration of Sunset West that could have maybe caused the SG&A to be up higher?

Other than -- you mean other than the addition of Sunset West, and of course I think, last year, we reversed a bonus accrual in the first quarter that was $500,000. So, nothing major, I mean we -- like you said, I think if you backed out or adjusted for the variable part of the -- the variable portion of SG&A, this is probably a run rate -- a normal run rate.

Got it. Okay, thanks for that. I have a couple more questions here. So, as we look forward, particularly for the second-half of the year, you will face rather easy year-over-year comparisons, and specifically for HMI. I mean that was, as you guys know, should really hurt the last year be of the shutdown in Vietnam. So, in theory, that should help the second-half this year. But then you guys also talked some seeing some pressure on the lower-end consumer, which is understandable, but the -- so, kind of given the various puts and takes, how should we think about, specifically, HMI sales and profitability for the back-half of the year? Just kind of directionally, how should we think about that?

Anthony, I'll answer that. We like our opportunity at HMI mainly because the massive amount of things we had to both get out of, so when you look at the RTA cost, you look at the Clubs cost, you look at all the things that I would call massive headwinds, we feel like eliminated a lot of those things, and a lot of those things that could surprise us. And so, right now, it's really a matter of managing our day-to-day business and making sure some of the inefficiencies from a newer warehouse in Savannah and some things like that that don't bite us. But these major things we had last year, we're feeling good about the runway we have versus last year.

Okay, that's great to hear. Okay, and then the other thing I wanted to ask is, in your release you talked about focusing on multiple strategic initiatives to spur organic growth and increase market share. Could you further expand on that as to what you guys are planning to do to help us think about the -- as far as updating our models and so on what are your thoughts there as far as the strategic initiatives?

Yes, sure. I touched on it some last call as well. One of them -- one of the big initiatives that we're working on at HMI is a program called Portfolio. It's a program designed to really target thousands of more customers in that customer base versus like we don't want to -- we like our customer base now from a mega customer base standpoint it's very -- it can be very project-oriented, it's with a lot of major customers. But if you take that down a level or two, there is a lot of opportunity for HMI to sell into a much deeper audience which includes really utilizing the Savannah warehouse. It also would help us with more ecommerce business with having that inventory in Savannah. It would help us with selling the interior design channel as well. So, doing all those things should help us mid- to-longer term both draw our customer base, draw our revenues, and expand our margins. That's a major one. And it's a big play for us at HMI that's going to -- it's going to play out longer. But it's not -- that's definitely something we are launching in October. And we are preparing for that now. That's one example. Another example is when we get to April of fiscal '24 market, Hooker Legacy -- the entire Hooker Legacy company is moving showrooms to Showplace which is we feel like it'll give us probably somewhere in the level of 10 times more exposure to a different audience and interior designers. We'll still see all of our customers that we see now. But we think we can really increase that footprint as well. Not to mention all of the aesthetics advantages that we are going to have with natural lighting and things to show furniture properly that we get in that building versus being on the 10th where we are where there is candidly one window. So, it's a major difference in a lot of ways that we feel will incrementally grow our sales in the different companies within Hooker Legacy.

Got it.

And Vegas coming up sooner.

Got you. Okay. All right, yes, thanks for additional color. And then I guess -- lastly I guess it's more of a comment than a question. But the share buyback announcement certainly makes a lot of sense to me here. I mean as far as when you guys would potentially start buying, any sort of comment that you can share with us as far as the buyback program?

Not a lot we are going to share, but it should start in the next week or two, in the next couple of weeks. There are some administrative work to done to get that in place. It's open an authorization. And we'll have the 10b5 plan in place to make purchases as per our instruction. And I think we feel like the shares are undervalued. And we think it's a good use of our capital at this point than probably continue to pay the dividend and not doing the share repurchase right now is our entire capital allocation strategy.

Got it, okay. Well, it definitely makes a lot of sense. So, thank you very much and best of luck.

Thank you, Anthony.

Thanks, Anthony.

And our next question is coming from the line of Sandy Mehta with Evaluate Research. Your line is open.

Yes, good morning. Can you provide me with more commentary on the price increases? How much have you increased prices? I know you said that there is a little bit more impact on the lower end of the market than the higher end. And also that the second question is that now that home prices seem to be leveling off, does that give people more discretionary funds that they can spend on furniture, or does that reflect just little bit the overall cooling off of the housing market? Thank you.

Good morning, Sandy. This is Jeremy. Regarding the first part of your question, price increases weren't more significant in the lower price points of our company. I was saying that the demand difference currently has affected lower price points more than it has affected the upper price point. So, I wanted to make that distinction. Also, as far as -- you really have to go through all 12 businesses to get an understanding of where each one had price differently based on conditions that you had to meet. So, for example, Hooker branded which is Hooker casegoods Hooker upholstery, a major part of those price increases had to with freight and all the transit cost that have gone up so significantly. So, if you take that out of those price increases, that's probably in the neighborhood of 65% of the increases have actually been related to freight on that side of the business. If you go into the domestic upholstery, they have been going up, of course, because we have responsibility for raw materials and all the things you need to build furniture. We own those factories. So, we're -- we obviously had to go up at the levels of those materials going up. So, all I would say you could estimate that was in kind of 8% to 10% range for domestic upholstery. And on the HMI side, being that most of their business -- 70% to 80% of their business is direct container where a lot of our customers have their contracts for their freight we are not really responsible for most of the freight on that side of company. So, we increase the levels needed for factory price increases from our suppliers. So, it's really three different stores. Regarding your housing question, first of all I am not going to pretend that I know the answer to that. I mean your guess might be as good as mine. But we like the dynamics -- we know that there is a backlog of homes. We know that there is consumer still wanting to buy homes. And we know that that's an advantage to us when it happens. So, we still feel pretty good about all of that. Of course, the interest rates are concerning. Keep going up. The inflation all those things happening, but we are still have quite a bit of confidence from watching the housing market. Even if it slows down, it's still way ahead of where it was fiscal '19 to fiscal '20.

It feels like whenever there is a disruption, interest rates go up or some of that news comes up, I think because is such a big purchase, I think it tends to cause consumers pause, but longer . So, we feel good about that. And obviously, it's all predicated on our economy holding up, but we feel like housing demand is still really positive for the mid to longish kind of term.

Great. Thank you so much.

You're welcome. Thank you.

And I am showing no further questions at this time. I would now like to turn the call back to Mr. Jeremy Hoff for any closing remarks.

Thank you, Olivia. I would like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal '23 second quarter results in September. Take care.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.