by Executives address supply chain challenges, including ways to address those challenges on the HMI side of the business
MARTINSVILLE, Va. — Hooker Furnishings’ latest earnings call for the fiscal third quarter illustrates the company’s successes and challenges while offering a glimpse at what to expect in the coming months, particularly relating to ongoing supply chain disruptions.
Given those disruptions in recent months, the company came out better than expected thanks to its domestic upholstery segment. Thus, the news was not all bad.
For example, CEO Jeremy Hoff noted during a conference call with analysts that a consolidated revenue decline of 11% for the quarter ended Oct. 31 follows two consecutive quarters of double-digit increases in revenues and income during the first half.
A decrease in sales and net income driven by reduced shipments from Asia for the Home Meridian International segment also were partly offset by double digit sales increase in the Hooker Branded and Domestic Upholstery segments – 18.5% and 10%, respectively, compared to the prior-year period, according to Paul Huckfeldt, senior vice president and chief financial officer. This compares to a 37% decrease in the Home Meridian segment during the quarter.
“These two segments have achieved five consecutive quarters of higher year-over-year net sales,” Hoff told analysts. “The sales volume reduction at HMI was the primary driver of consolidated operating loss and gross profit decreases during the quarter. Higher freight and product costs also contributed to the decreases.”
This begs the question of when things may turnaround for the Home Meridian segment, which includes Samuel Lawrence and Pulaski Furniture. They have been particularly susceptible to the supply chain disruptions in Malaysia and Vietnam that began over the summer. Re-openings, Hoff noted, began late in the quarter and only at around 25% capacity. He said while they may reach 50% capacity soon, a return to full capacity will not occur at least until the second quarter of 2022.
In the meantime, Hoff said, that the company remains confident “we’re using all available levels to mitigate global logistics challenges, such as factory closures and reduced capacity, higher freight and transit costs and decreased availability of shipping container space. With the goal of minimizing costs and maximizing product shipments to customers during these disruptions, we believe we have mitigated as much as possible through measures including surcharges and price increases to cover higher transportation and raw material costs.”
He added that the company also is “rationalizing our stocking inventory to focus on A and B-level top selling products by prioritizing them for production and container utilization.”
On a bright note, Hoff pointed out that consumer and retail demand remain historically strong with consolidated backlogs nearly triple compared to prepandemic levels.
“However, we expect continuing supply chain turbulence to impact our net sales and income in the short term, at least through the second quarter of next fiscal year,” he noted, adding that the company expects certain segments will be less challenged than Home Meridian as more than 70% of Home Meridian’s business is shipped container direct “versus the domestic warehouse distribution model in the Hooker Branded and Domestic Upholstery segments.”
Another bright note for the company is its newly opened 800,000-square-foot distribution facility in Savannah, Ga., which will help flow goods for the HMI segment.
“Higher freight costs have a greater impact as a percentage on HMI’s lower-price point product line,” Hoff said. “In the short-to-mid-term, we look forward to the expected efficiencies and cost savings from HMI’s new Savannah facility. The facility puts us in an excellent position to grow HMI’s warehouse business.”
“The modern facility is a short distance from the Port of Savannah and will enable us to substantially increase operating efficiencies, reduce our carbon footprint and ship orders faster,” Huckfeldt added. “Our goal is to position the company as a best-in-class logistics operator, and Savannah is a major step in that direction.”
On another positive note, Huckfeldt said that while the company continues to be challenged by raw materials shortages, particularly on the upholstery side, it saw a lot of improvements later in the quarter and “expect these positive trends to continue.”
He added that the company implemented price increases and surcharges with major accounts to improve margins in the segment. He noted since the segment has a current order backlog of five to six months and prices were not increased on backlog orders, the company expects to see benefits of the price increases at the start of the second quarter of 2022.
Hoff concluded with a note of further optimism for the months ahead.
“We will continue to focus on factors we can control, such as developing relevant new products to meet consumer needs, operational improvements, managing overhead and cost and executing our strategic growth initiatives,” he said. “We remain very optimistic about our long-term success as we manage through a challenging environment.”
