Paul Huckfeldt - Senior Vice-President & Chief Financial Officer Paul Toms - Chairman of the Board, Chief Executive Officer George Revington - Chief Operating Officer Michael Delgatti - President, Hooker Upholstery.

Anthony Lebiedzinski - Sidoti & Company.

Greetings, ladies and gentlemen, and welcome to the Hooker Furniture quarterly investor conference call reporting its operating results for the fiscal 2017 fourth quarter and fiscal year. 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 you to your host, Paul Huckfeldt, Vice President of Finance and Chief Financial Officer for Hooker Furniture Corporation..

Thank you, James. Good afternoon, and welcome to our quarterly conference call to review our sales and earnings for the fiscal 2017 fourth quarter and year which ended on January 29, 2017. We certainly appreciate your participation this afternoon.

Joining me today are Paul Toms, our Chairman and CEO; George Revington, Chief Operating Officer of the Hooker Furniture Corporation and Michael Delgatti, President of Hooker Furniture brand. During our call today, 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 filings announcing our fiscal 2017 year-end results.

Any forward-looking statements speak 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 of $173.9 million and net income of $11 million, or $0.95 per diluted share, for our 13-week fiscal quarter ended January 29, 2017. Fiscal year net sales were $577 million and net income was $25.3 million or $2.18 per diluted share.

This is the fourth quarter in which our consolidated financial statements include results from Hooker's acquisition of the business of Home Meridian International, which we completed on February 1, 2016, the first day of our 2017 fiscal year.

Home Meridian's results are not included in the Company's prior year fiscal year results that will be referenced on our call today. For the fourth quarter, consolidated net sales increased 187% and more than doubled for the fiscal year compared to a year ago due to the Home Meridian acquisition.

The yearly increase was partially offset by lower sales for Hooker Furniture's brands. The acquisition of Home Meridian earlier this year resulted in some expenses not typically part of our operating results. We incurred about $1.2 million year-to-date in deal-related costs.

As part of the acquisition, we also recorded significant intangible assets including trade names, goodwill, the value of customer relationships and the margin in the acquired order backlog. Some of these assets are considered indefinite lives, while others will be amortized, mostly over a 10-year period.

However, the margin in acquired backlog was fully amortized in the first half of fiscal 2017. We recognized slightly more than $330,000 of amortization expense in the fourth quarter from $3.1 million for the full fiscal year. We expect amortization expense to be about $1.3 million a year for the next 10 years or so.

Now Paul Toms will comment on our fourth quarter results..

Thank you, Paul, and good afternoon, everyone. Our fourth quarter sales and earnings surge lifted our fiscal year performance and allowed us to end the year with positive momentum.

The outstanding fourth quarter results were driven by Home Meridians’ record backlog at the end of the third quarter resulting in record shipments in the final quarter of the year. We also saw excellent post market orders and activity for Hooker Furniture brands after our best fall of furniture market in five years.

With sales recovering at both Home Meridian and Hooker brands, we demonstrated the significant earnings leverage possible with our business model when shipments were strong. Our Hooker case goods, upholstery and Home Meridian segments delivered their strongest performance in the fourth quarter.

For each quarter this year, earnings per share have improved substantially from the previous quarter, from $0.22 per share in the first quarter to $0.46 per share in the second quarter, $0.56 per share in the third quarter to $0.95 this quarter, our largest sequential increase. It was a good year for our shareholders as well.

We experienced appreciation in our share price throughout the year, as a result of strong earnings; we also increased our quarterly dividend by 20% in December 2016.

As a result of Home Meridian’s profitability and a comparatively small amount of stock issued as part of the transaction the acquisition was accretive to earnings per share in the year of acquisition as we expected. This provided further validation of the acquisition and positive momentum to the combined companies.

The management teams have begun to benchmark and collaborate the leverage, the talents and experience of the combined management group.

To further this collaboration at the end of the quarter, we added George Revington’s role as President, Chief Operating Officer of Home Meridian naming him Chief Operating Officer of Hooker Furniture Corporation with responsibility for all of our operating divisions and leadership of our strategic planning process.

George has done a very good job at Home Meridian of using data driven analysis of their business as the foundation to develop and implement strategies for growth in an ever changing industry landscape.

We are excited about him leading a similar strategic development effort for the combined companies and are confident that this will better position Hooker Furniture, Revington, Sam Moore and Hooker Upholstery for future growth. At this time, I’d like to call on George to expand on this strategy we are pursuing to address shifts in the market place.

In addition, George will give us some highlights for the quarter and year for Home Meridian and look ahead to fiscal 2018..

Thank you, Paul and good afternoon. I am excited about the opportunity to work with a lot of Hooker’s business unit as we continue to grow in a changing market place. We will take full advantage of the disruptions occurring in our industry by making positive adjustments to our product assortment, distribution channels and to our organization.

We have an excellent team in place in both companies as well as financial strength. We can leverage both to make strategic shifts to focus our resources on growing channels and customers. One year after the historic merger of Home Meridian and Hooker we are truly a new company.

As the landscape of the economy and our industry has shifted, we are adapting to that changing landscape by revisiting our business around customers and channels.

The success of our traditional business model along with the industry leading operating profitability performance has allowed us to invest in emerging channels of distribution, new product categories through acquisitions and start ups.

Going forward, our strategic priorities will be focussing on emerging distribution channels, focussing on targeted growth customers, broadening our range of product categories and distribution channels, integrating our business units through benchmarking and collaboration to achieve synergies and best practises.

We intend to enhance competitiveness in the fast growing channels of distribution or continue to support our traditional channels. In regard to Home Meridians performance in the fourth quarter and year, HMI finished the year very strong with sales up 23% in the quarter over record sales in the prior period.

Our order backlog was up 9.2% at the end of the quarter and demand has increased as the current year has progressed with orders up 19% during February and March. For the year, sales were up 6%, orders up 8.5%.

The success as a result of strategies we have in place to address emerging channels of distribution in particular e-commerce, hospitality, clubs and mass merchants. During the full year, emerging channels represent 38% of our business and the sales in these channels were up a combined 31%.

Hospitality channel led the way with sales up 76%, e-commerce was up 27% and the clubs and mass merchants were up 25%. For fiscal 2018, we continued to execute our current gross strategies with mega accounts and emerging channels along with expanding our successful Eric Church, Highway to Home program.

We’ll expand our product line with a new start up division, Eccentric Home. Eccentric Homes products will include fashion, influence, Upholstery head board, feeding, Accent chest and tables and other standalone items. The line targets millennials and generation XZ customers who enjoy collecting their own collections of furniture.

We are also expanding a high point market showroom from 82,000 to 92,000 square feet with a new casual and relaxed customer hospitality area and space for the new Eccentric’s home to vision. We are creating a business intelligence group inside Home Meridian.

This group will develop a technology driven process to analyze data from Meridian information sources both within our systems and from many external customer base systems with which we interface. Their goal will be to efficiently minus data to find external information that will help us make Meridian more informed business decisions.

At this time, I’d like to call on Mike Delgatti to give us an overview of the performance of Hooker brands and as well to look ahead to strategy for the year and to the high point market that opens this month..

Thank you, George and good afternoon everyone. Thanks to a very strong high point market in October, incoming order rates for Hooker case goods exceeded prior year levels throughout the fourth quarter providing a positive shift from the first three quarter.

We were able to convert the strong market and an elevated backlog to the best shipping quarter for Hooker casegoods of the year.

Our strategy to fast track and shorten production and shipping time and the well received Hill Country and Arabella collection made them available for shipment to retailers in the fourth quarter rather than well into the following fiscal year as the typical product cycle would have allowed.

That had a positive impact on fourth quarter sales and should give us additional turns of retail in the current fiscal year by hitting the collections two market three to four months earlier than was typical in the past. Our positive momentum is continuing with the year off to a great start.

Case goods orders are up 11% in the current fiscal year to date. On the upholstery side, we were disappointed in our topline results of the slight decline of 2.5% to the upholstery segment. However, we were pleased that even on slightly lower sales operating income was comparable to last year.

In addition, we see a positive shift as consolidated upholstery income and orders were up 5% in the fourth quarter and orders are up 6% for the upholstery segment in the fiscal year todate.

As we have discussed before, much of the upholstery segment sales dip related directly to the lingering effects of a quality issue at Hooker Upholstery that emerged in the second quarter and caused us to be out of stock on bestsellers. Another contributor was labor productivity issues at Sam Moore.

We believe both our short-term problems and they are improving steadily. We expect the upholstery challenge to be behind us by the end of May. We were especially pleased, the Hooker Upholstery’s sales were up 10% in the fourth quarter and we ended the year with an order backlog, 58% higher than in the comparable period a year ago.

Across all Hooker brands we are positioned with strong new products that are performing well and incoming orders that are trending up. At all Hooker brands we are intentionally focused on growing with distribution channels that we have identified as emerging for our business.

We are focusing our efforts to ensure that we support these emerging channels with on spot designs and value, industry-leading marketing support and superior customer service.

We are developing unique strategies for each of the emerging channels of distribution that represent the most potential for growth while supporting at the same time our traditional channels.

The emerging channels we are focused on at Hooker brands include e-commerce, interior design, lifestyle retailers that appeal to Millennial, GenX and Baby Boomers, Contract and International.

As George mentioned, the spring High Point market opens in a little over a week and based on pre-market results we are excited about two major new casegoods in upholstery collection. We have both already on order and expect to be shipping to retailers as early of June on a direct container basis and in August out of the Martinsville Warehouse.

That would give us some extra few months of retail sales compared to the normal production to retail cycle, and when ensure that collections are established at retail with historically strong Labor Day weekend sales. At this time I’d like to turn the call over to Paul Huckfeldt for more details on our fourth quarter and fiscal year results..

Thanks Mike. Consolidated net sales increased due to the addition of the Home Meridian business, which contributed $113 million of net sales to Q4 and $345 million net sales for the year.

In our traditional Hooker business, net sales for fiscal 2017 declined $14.4 million or about 6% compared to fiscal 2016, primarily due to decreased unit volume in our casegoods and upholstery segment which is partly offset by increased average selling prices in those segments.

Unit volume decreases within our casegoods and upholstery segment were primarily due to softer demand environment and the upholstery segment quality issue Mike refer to earlier.

Container direct shipments to retailers were particularly hard-hit earlier this year as retailers work through inventories and showed less willingness to commit to larger inventories. This shift from container to non-container sales contributed the higher average selling prices.

Upholstery’s segment net sales decreased 2.5% on a 6.3% decline in unit volume, which is partially offset by 4.5% higher average selling price.

And net sales in our all other segment grew approximately – grew nearly 14% year-over-year on higher unit volumes mainly on the strength of our H Contract business, but partially offset by lower average selling prices in our Homeware division as we work through that inventory.

Overall average selling prices on our traditional Hooker businesses increased 2.3% during the fiscal year primarily due mix of product shipped and fewer container direct shipments. But the increase in ASP did not offset the nearly 8% decline in unit volume during that same period.

For the year consolidated gross profit increased with the addition of Home Meridian's results. For the traditional hooker businesses gross margins improved with the 180 basis points due primarily to lower ocean freight costs.

Improved margin offset much of the unfavorable impact of lower sales volume, and gross profit dollars were slightly higher than the prior year. Consolidated selling and administrative expenses increased with the addition of Home Meridian.

Excluding the amortization of intangibles Home Meridian’s SG&A expenses are lower as a percent of sales compared to the traditional hooker business, so companywide SG&A costs as a percentage of sales were lower than the prior year.

Within the traditional hooker business SG&A expenses were lower than prior year in dollars and as a percentage of net sales due to higher net sales during the fourth quarter.

For the year SG&A expenses as a percentage of net sales increased due to lower net sales, but decreased in absolute terms due to lower selling expenses and bonus expense partially offset by increased bad debt expense.

For these reasons operating income for the fiscal 2017 year was nearly $25 billion or about 10.7% of net sales, compared to 24.3 or 9.8% of net sales for our legacy hooker businesses during the fiscal 2016, and HMI contributed another $14 million of operating income.

For the quarter, consolidated operating income was nearly $17 million compared to $6.5 million last year. The Home Meridian segment contributed about $8.4 million to operating income, while the legacy hooker businesses contributed 8.6 during that same time period.

Our balance sheet remained strong despite the use of cash on hand and debt to acquire the assets and businesses of Home Meridian.

At the end of the quarter we had cash and cash equivalents of nearly $40 million and about $22 million of cash surrender value of company-owned life insurance, as well as $28.5 million availability on our revolving line of credit, which will provide working capital, capital spending needs and other needs.

Our acquisition-related debt stood at $47.6 million as of the end of the quarter. In March, we announced a quarterly dividend of $0.12 per share which reflects the 20% increase we implemented last quarter. This represents 1.2% dividend yield on our current share price. Now, I’ll turn the discussion back to Paul Toms for his outlook..

Thanks, Paul. We experienced a distinct uptick at retail late in the fall after the uncertainty of the election was over. Consumers seem to have gotten out off the sidelines and are more willing to commit the larger ticket purchases than before.

Macroeconomic environment is generally positive, sales of existing and new homes are trending positively versus a year ago, and new home construction is robust. Stock market gains have kept consumer confidence at high levels, wages are trending up, employment levels are solid and consumer spending is strong.

Based on the improvements we've seen in our business over the last two quarters we’re fairly bullish about the foreseeable future and very confident in our long-term strategy. This ends the formal part of our discussion. At this time I’ll turn the call back over to our operator, James for questions. Thank you..

Yes. Good afternoon and thank you for taking the questions. So, obviously you had great success in the October market with pre-ordering the collections of casegoods furniture.

Is that a strategy that you intend to go on a go forward basis? Any thoughts on that and I do have a couple of other questions as well?.

Yes. Anthony, we are going to continue with that strategy.

As a matter of fact, that pre-market which was about 30 days ago we introduced two major casegoods collections and because of the response prior to pre-market as we’ve added the new introductions with key accounts and response from dealers while at pre-market we went ahead and ordered both collections.

We’ve reserved capacity for a June production and expect to ship both new collections in June with the goal of having those products and most retail floors ahead of the Labor Day weekend which is such an important weekend for furniture sales..

Got it. Okay. That's very helpful. And also as far as the Home Meridian segment; clearly the acquisition looks like it's paid off nicely for you.

And just wondering as far as the pace of change that I think George had alluded to accelerating, with that backdrop can you give us a sense as to how much of your sales are now coming from e-commerce and if you have a number also for the legacy business that's coming from e-commerce players?.

Yes. In the Home Meridian segment our e-commerce businesses just a little bit less than 15% of the total and we measure that only with really true pure play e-commerce customers, lot of people who do e-commerce but not as a whole business. And in the traditional part of our business is still about 64% of the business right now at Home Meridian..

Okay. And switching over then into to the upholstery segment, that was down in your last fiscal year. Some of it was because of some company-specific issues.

I mean, what is your outlook for upholstery now that you enter the new fiscal year?.

Outlook is positive. Bradington-Young continues to perform well over the process of ramping up capacity for that business unit. Sam Moore is aggressively trying to hire more people. It’s currently training more people or seeing a steady improvement in productivity.

And then Hooker Upholstery as I mentioned, we do believe that the issue we have last year will be behind us by the end of May. The good news there is the backlog is very strong and since the fourth quarter we are starting to see a ramp up in sales on a year-over-year basis. So that’s very encouraging to us..

Got it. That’s good to hear.

And I think Mike one of you guys had mentioned the new line the Eccentric Home, will that be ready in the high point market later this month?.

So we will be showing Eccentric Home product in the market that’s coming up, and that part of our business actually has done really very well so far this year, but the full expression of Eccentric’s Home will happen at pre-market at September when we’ll add another 10,000 square foot of showroom space and be able to really show it to its full extent..

Got it. Thanks for that.

And you know lastly also, any sort of comments that you may have on the potential border adjustment tax, I mean there has been a lot of chatter about that and if so any potential impact that could have on you?.

Anthony, this is Paul Toms. And it is something that we monitor; we’ve spoken with our trade association lobbyist in Washington. We follow news releases, we’ve actually joined the National Retail Federation Group and our position of that we get numerous updates from them daily.

I think that it is still a risk, that legislation is currently contemplated by the House, Ways and Means Committee would be very concerning to us.

However, I don’t think there is anybody that believes that that legislation is what the final version will be that the senate is very opposed to the type of order adjustment tax they are proposing in the house and it will have tax reform but it’s really hard at this point to understand how our border tax or import tax will play versus rate, income tax rate reductions and I think we just have to kind of wait and let things emerge..

Got it. Okay, thank you very much..

Thank you..

Thanks..

And there are no further questions at this time. I will turn the call back over to the presenters..

All right. Well we appreciate everybody joining us for our fiscal 2017 fourth quarter and year end call. We are obviously pleased with the results that we are able to report. We are optimistic about the first quarter and look forward to continuing the momentum that we currently have. Thanks for joining us..

This concludes today’s conference. You may now disconnect..