Greetings, ladies and gentlemen, and welcome to the Hooker Furniture quarterly investor conference call reporting its operating results for the fourth quarter of 2018. [Operator Instructions] As a reminder, this conference call 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, Daniel. Good afternoon, and welcome to our quarterly conference call to review our sales and earnings of the fiscal 2018 fourth quarter and year, both of which ended on January 28, 2018. We certainly appreciate your participation today. Joining me today are Paul Toms, our Chairman and CEO; George Revington, Chief Operating Officer of Hooker Furniture and President and Chief Operating Officer of our Home Meridian segment; and Michael Delgatti, President of our Hooker Furniture Brands segment. 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 filing announcing our fiscal 2018 year-end 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 $175.5 million and net income of $8.8 million or $0.75 per diluted share for the 13-week fiscal quarter ended January 28, 2018. For the fiscal year, net sales were $620.6 million and net income was $28.6 million, which converts to $2.44 per diluted share. Burying in to the details, I need to point out that as part of our annual review of segment reporting, we've made some changes to our segment structure. We've recast prior year data in our press release and will report the new segments in our 10-K and in future reportings. For the quarter, consolidated net sales increased slightly compared to a year ago, primarily due to the addition of net sales from our recent acquisition, Shenandoah Furniture, and an increase in sales at the Hooker Branded segment. For the fiscal 2018 fiscal year, net sales increased 7.5% thanks to increases in the Home Meridian and Hooker Branded segment and the addition of 4 months of sales from our acquisition of Shenandoah Furniture in late September of last year. Earnings per share decreased to $0.75 per share compared to $0.95 in the prior year quarter due to some pressures on gross margins during the quarter and the impact of a $1.8 million charge to revalue our deferred tax assets as part of the recently enacted federal income tax reform. For the year, earnings per share increased to $2.44 from $2.18 per diluted share last year despite the impact of that tax adjustment. Now Paul Toms will comment on our fourth quarter results.

Thank you, Paul, and good afternoon, everyone. We're pleased with our performance for the fiscal year. We had higher sales in all reportable segments, double-digit gains in profitability and strong cash flow generation. For the year, our consolidated sales increase was driven by a 6% increase in the Home Meridian segment, 5% growth in the Hooker Branded segment and a 20% increase in the All Other segment. Nearly 80% of the All Other segment net sales increase was due to the inclusion of 4 months of Shenandoah's net sales. The higher revenues helped boost consolidated operating income by $6.7 million or 17% for the year. The improvement came despite approximately $800,000 in costs related to the Shenandoah acquisition and amortization of short-term intangibles from the acquisition. Also contributing to the higher operating income was $1.8 million less in intangible asset amortization at Home Meridian for this fiscal year. Over the last few years, our strategy has been to leverage the financial strength of our traditional businesses to grow profitability, both organically and through acquisitions. That strategy has helped us build a more diverse and robust portfolio of companies yielding strong results as we focus our resources and management time around winning channels of distribution, growing product categories and a broader spectrum of price points. For the fiscal 2018 fourth quarter, consolidated net sales increased $1.6 million or roughly 1% compared to the fourth quarter prior year. Net income decreased 19.5% mainly because of a $1.8 million charge recorded to reduce the value of our deferred tax assets, resulting from the tax rate reduction under the recently enacted Tax Cuts and Jobs Act of 2017, while income and earnings per share were unfavorably impacted by approximately $0.15 per share in the fourth quarter from the federal tax cut adjustment. Going forward, we anticipate approximately $6 million in additional net income this year from tax reform. During the fourth quarter, Home Meridian segment sales for the year were somewhat tempered by a sales decrease compared to the prior year's record fourth quarter shipments. In addition, the All Other segment experienced some unfavorable impact on margins from raw materials inflation at our domestic upholstering operations and excess capacity at our -- at 2 of our upholstery divisions, Sam Moore and Shenandoah, but we expect these factors to be temporary. Overall, the All Other segment performed very well for the year. At this time, I'd like to call on George Revington to fill us in on the details of Home Meridian's performance for the year and fourth quarter.

Thank you, Paul. Home Meridian's net sales in the quarter were down 9%, but they were up 6% for the full fiscal year. As a result of the extra sales volume and good expense management, operating profit, while down 5% in the quarter, was up a full 30% for the fiscal year. Orders and backlog at the end of the fourth quarter were down 4% and 8% respectively. HMI's current backlog, however, is up 19.3% over the prior year and orders are up 12.2% since the new fiscal year began. While some of these orders are programmed out over the next several quarters and will not affect the first quarter, it's a very positive trend. Sales to our emerging channels remain robust, growing to 40% of HMI's total sales year-to-date. E-commerce grew the most of the emerging channels in terms of both incremental dollar increase and percentage increase, growing 46% this year. Sales into our traditional channels grew 4% for the full year, typical of the industry. Our mega account marketing [Audio Gap] number of the largest and best retailers in different channels and offer proprietary products and deeply integrated operational support continues to pay dividend. These mega accounts now represent 74% of our business, and they grew 13% this fiscal year. Accentrics Home continues to be the fastest-growing division, growing 74% for the full year. We're demonstrating success at selling an eclectic assortment of trend-forward accents and small-space furnishings to both pure-play Internet retailers and large national regional brick-and-mortar retailers who have effective online presences. Accentrics Home's first major product offerings from the October market are just now arriving into our warehouse. While our core strategies are working, we have experienced difficulties from disruptions in our Far East sourcing base that occurred over the Chinese New Year. Also, while…

Thank you, George, and good afternoon to everyone. We're gratified at the performance of both the Hooker Branded and All Other segments during the recently completed 2018 fiscal year, and the momentum has continued in the current year-to-date. The Hooker Branded segment grew $8.1 million or 5.1% in fiscal 2018, primarily due to dramatic sales growth of 36% in the Hooker Upholstery business unit. The strength of Hooker Upholstery's recovery after significant vendor quality issues last year demonstrates the future potential of that business unit and the value it offers our customers. Hooker Upholstery continues at a positive trend this year, performing well with product placements at key retail floors. Hooker Casegoods business stabilized throughout the year, finishing with solid growth in the fourth quarter. The segment continues to trend in the right direction, with sales and incoming orders up approximately 9% in the first 2 months of the current fiscal year. Segment operating margin remained a solid 13% for the year despite $1,800,000 in acquisition-related expenses recorded in the segment. For the quarter, the operating margin was 15.3%, reflecting the leverage gained from the uptick in sales. 4 months of revenue from Shenandoah Furniture contributed nearly 80% of net sales in the All Other segment. Growth at Bradington-Young remained solid, driven by sales from the Comfort@Home-dedicated retail space program, along with the vibrant sales in the luxury motion furniture line product niche in which Bradington-Young is considered an industry leader. While flat for the year, Sam Moore had a very good October 2017 High Point Furniture Market and good fourth quarter floor placements with key accounts. We expect that Sam Moore will steadily improve throughout the year. For both the Hooker Branded and All Other segments, our success is being fueled by our recent focus on emerging channels of…

Thanks, Mike. As I reported earlier, sales increased slightly at about 1% over the prior year quarter due mostly to the addition of Shenandoah net sales in our All Other segment and a solid sales increase in the Hooker Branded segment, which offset a 9% decrease in sales at Home Meridian after a sensational quarter last year. Consolidated unit volume increased 7% and average selling prices decreased 5.7% for the quarter. Home Meridian's unit volume was up 14.8% and ASP was down about 7.5% due to sales growth and customer mix. Unit volume in Hooker Branded segment was up 5.3% due to higher sales in the import Hooker Upholstery business now that we've recovered from the quality-related inventory availability problems, which began in the spring of 2016, and impacted much of our fiscal 2017. Unit volume in the All Other segment was up about 20% due to the sales increase at Bradington-Young as well as the addition of Shenandoah Furniture for the full quarter. Upholstery ASP stayed essentially flat. For the fiscal year, consolidated unit volume increased by nearly 14%, while ASP decreased about 5.5%, mostly due to the increase in the generally lower-priced Home Meridian products in our product mix. For the quarter, gross profit decreased $400,000 despite slightly higher sales, mostly due to higher warehousing and operations costs. We also saw a slight degradation in gross margin due to higher cost of goods sold in the Hooker Branded segment, which offset similar improvements in the Home Meridian segment, which resulted from a shift in the mix and customers and Home Meridian's initiatives to improve margins. Consolidated gross profit for year-to-date increased $9.1 million, with most segments reporting operate -- improvements in gross profit, the largest dollar increase from the Home Meridian segment. Full year gross profit for the…

Thanks, Paul. The current retail conditions and our own business results can best be described as mixed. Business during the President's Day promotions at retail was very good for most retailers and for our companies, but overall activity varies by region of the country, region of the world and by distribution channel. Our businesses cross various home furnishings product categories, price points and distribution channels, so at any given time, we have some divisions outperforming others. Currently, our Hooker Legacy businesses positioned in the higher price points are faring well, with February, March orders up about 5% compared to this time last year. While Home Meridian's orders are up 12% over prior year, its hospitality business, our smallest marketing group, remains weak and their supplier's post-Chinese New Year's recovery has been slower than normal. We expect these situations will be temporary. With our diverse portfolio and strategy to focus on winning channels, we're well positioned to grow sales and income in the coming year, thanks to the solid foundation of our traditional businesses and our numerous initiatives to create new opportunities. This ends the formal part of our discussion. At this time, I'll turn the call back with our operator, Daniel, for questions.

[Operator Instructions] And our first question comes from Anthony Lebiedzinski with Sidoti.

So first, I wanted to ask about the Hooker Upholstery segment. It looks like that did well. You cited dramatic growth there. Can you give us a sense as to what's driving that specifically? Are there any new category? I mean, I don't think there's any new products in there, but maybe you could just share with us what are your top reasons for the performance at the Upholstery segment? And I have a few other questions as well.

Sure. The Hooker Upholstery brand has a lot of energy and has been very aggressive in expanding and further developing those categories that it has had a lot of success in, such as recliners and, more recently, motion. We've also had some really good success in placing some of our newer products with key retailers, and what we're finding is that both products are turning and it seems like success breeds success; as products sell well, retailers have an inclination to expand programs, which is working in our favor. Additionally, we've had success with emerging channels, specifically e-commerce. Hooker Upholstery e-commerce sales have been very strong, along with the interior design channel. So the combination of all of those things is what seems to really be driving Hooker Upholstery sales.

Okay. That makes sense, yes. And so I'm just curious, what percentage of your sales would be to the interior design channel?

Overall, and this would be Hooker Furniture Legacy Brands, our interior design sales are around 10%.

Okay. Got it, okay. And then switching over to HMI, George, you talked about the hospitality group, but can you give us a sense as to how big, how important is that to the overall mix? It doesn't sound like it's overly material, but maybe you could share with us, give us some color as to the hospitality group. I know it's project-based, but just, overall, any additional color, that would be helpful.

Sure. So it's the smallest division of Home Meridian. It's like in the -- about in the 5% range, and -- but I think what's important is it just had a breakout year last year and it had a weak year this year. And it actually was responsible for a significant amount -- well, virtually all of the shortfall of the prior year sales this year.

Okay, got it. And as far as the comment about the post-Chinese New Year recovery being slower than normal, can you maybe explain that a little bit better as to what exactly is going on there? I know you said it's -- you think it's temporary, but can you just explain that issue, please?

Yes, it happens every year. Sometimes, it's more impactful than others. But basically, they'll take 2, 3 weeks, those factories down 2 or 3 weeks. And when they start up, there's a lot of shifts, their shifts and employees, they change jobs. So we have people in Asia right now working on it. Eventually, it smooths out, and we'll be all right, but it's a little more disruptive than it was the prior year.

Okay, got it. Okay. And the other thing I wanted to ask is about the impact of raw materials. Can you give us a sense as to how much did that impact the quarter? There was also a mention of excess capacity in 2 of the domestic manufacturing divisions. So if you could give us some more color in regards to that, that would be very helpful.

So in terms of material cost increases, the domestic upholstery operations have been most impacted, which has resulted in relatively modest price increases to cover those costs, which came at us from a number of different directions, ranging from plywood, to packaging, to foam. So we are in a situation where we anticipate there may be more coming. Specifically to what extent, that's an unknown at this point in time. In terms of capacity, Sam Moore has been challenged in recent months more so than Bradington-Young. They have been operating some short schedules. B-Y, on the other hand, while they've seen a slowdown in incoming orders and in recent weeks, some of it seasonality, some of it relating to Easter being early this year, they do continue to run at full capacity based on their current staffing.

Just to expand on what you're saying too, the price increases we've already experienced from our vendors, we feel like we've recouped in price increases to our customers. But they do lag the price increases we received. And I think we're not alone in that. I think, in our industry, price increases from upholstery vendors are somewhat normal right now. And then I think, going forward, we feel like we have the ability to recoup price increases if we continue to receive them at any of those areas, raw material areas that Mike discussed.

The explanation there, that's very helpful. And as far as the outlook, so I was trying to see if you could perhaps help me better understand. So you talk about, overall, having a mixed outlook, but then when I look at the order and backlog trends, those seem pretty favorable. I heard about the President's Day commentary, which, to me, it appears that more and more people are buying furniture around the holiday times. So I don't know if this is -- are you seeing more compression as to when actually the consumers are choosing to buy furniture more so than ever? Or if you could just help me kind of connect the different pieces, that would be great.

So I think, generally, yes, there is more furniture sold around major holidays, President's Day, Labor Day, others, than in between those periods, or those are the periods that you see a big bump in orders, and then it seems to slow down a little bit afterwards. I think, for the last several months, say, since the start of this year, I would say that most retailers would say they had mixed business in January, February and March, it was good around the holidays, maybe it was good in one of those or 2 of those months, but I think there are very few people that would say business was strong across the entire first calendar quarter of the year. There are exceptions to that. I think Florida is robust, South Texas is very robust, where they're recovering from the flood damages and the hurricanes last September. But I think, overall, businesses, and I think overall retail, not just furniture retail, but retail in general has been kind of sporadic in that period. I think we're doing reasonably well. We shared with you the growth in orders and backlogs through the first 2 months of Q1 for us. And so we go -- we feel pretty bullish based on how we've fared with orders. I do think we kind of would temper that a little bit with saying that where Hooker orders generally are shipped out immediately, because so much of our orders are shipped out of warehouse stock a piece or 2 at a time to customers across the country, Home Meridian's business is programmed out further. I mean, they can be programmed out, and George can expand on this, but from 3 to 6 to 8 months. And so there's not as closely correlated shipments to orders there as there are as for the Hooker Legacy Brands, but eventually, most of our orders get shipped, it's just maybe a little bit longer lag time at Home Meridian.

Got it, okay. No, that's very helpful. Okay. And lastly, what is your longer-term outlook for additional acquisitions? Obviously, Home Meridian was a game-changer for you, and you added Shenandoah Furniture. Longer-term, are you still looking to add to your portfolio of brands or how should we think about the longer-term?

Absolutely. We're definitely -- acquisition is part of our strategy. I think we also have a lot of plans in place to grow our existing businesses organically. But I guess the bottom line is we're generating more cash flow than we need to operate our existing businesses, and we feel like one of the best ways to return money to the shareholders is to invest strategically in businesses that complement what we're doing, that are focused on product categories, our channels of distribution that we see is winning at retail, and we'll continue to look for those. And I think with the recent tax reform, we expect cash flow and earnings to be even better than they have been historically. We're paying down what little debt we have ahead of schedule and trying to position ourselves to be able to take advantage of opportunities as they present themselves.

And our next question comes from Mitchell Brivic with Tygh.

But I just wanted to start off with you just were talking with Anthony about M&A, and I was wondering what was the organic revenue growth if you back out M&A for 2017.

Well, I guess our overall growth was around $40 million, and I think $11 million was the acquisition, 4 months of the Shenandoah acquisition. So you had about $30 million, which would have been about 5% of our overall growth. [ So a ] 5% growth.

And that was sort of split evenly between the major business units.

Right. Maybe 2/3 to Home Meridian and 1/3 to Hooker Legacy -- a little more than 1/3.

Okay. With -- you talked about raw material costs going up and you hear a lot of the retail operators talking about increases in labor costs. Have you experienced any of that domestically or globally?

I would say minimal increases in labor costs. I think we're in a -- not a particularly inflationary environment for labor still. We pay, I think, in both domestic companies -- or all domestic companies very competitive wages, maybe above market. And we have good bonus plans that many of our employees share in. So other than maybe the starting wages for our warehousing personnel, which we intentionally started raising several years ago to get to more of a living wage, not seeing a lot of pressure there.

All right, good. So when you think about cost that you could reduce further, is there much low-hanging fruit or have most of the costs been pulled from the operating model going forward?

I think there's always opportunities to nibble at the edges. I wouldn't say there's any large buckets of cost. I think we've got some nonrecurring expenses around the acquisition costs for Shenandoah, and the initial amortization was accelerated on some of the Shenandoah acquisition. But those -- other than that, I don't see huge changes in our cost structure.

Compliance costs go up in year 1 after an acquisition, and so those should settle back down, but they're all reasonably small numbers.

Okay. What about operating margin expansion? You've seen a nice little trend upward. And I was wondering, is there opportunity to increase those further? And what would be like the medium-term goal of where you'd like to see those in the next 3 to 5 years' operating margins?

Well, I think we do believe there's opportunities through leverage, sales leverage to spread our fixed cost over a larger base and increase operating margins in both companies. At the end of last year in Upholstery, we saw the impact of raw materials price increases, along with some inefficiencies from not being at capacity in 2 of the 3 divisions. And those we can see improvement, but I can't say that I can give you a specific target for what we would expect in operating margin improvement.

Okay. And then how would you describe the health of maybe your top 5 customers? Or does that business continue to accelerate, or is it starting to plateau? Or how would you describe...

Since all of our top 5 customers are probably Home Meridian customers, I'll let George answer that.

And so we have concentrated sales with large customers, and we've been compounding the growth of those, 20 is the way we count them now, at 13%, 14%, 15% a year for 5 years. So I think the strategy's worked and probably will continue to. They're offset by losses in some other channels, but the core strategy works pretty good.

Okay. And is the e-commerce customer as profitable as a non-e-comm customer, or are they comparable?

Yes. They're every bit as profitable as our other channels of distribution.

And that concludes our question-and-answer session for today's call. I would now like to turn the call back over to Paul Toms for any closing remarks.

All right. We really don't have any additional remarks. We just appreciate your listening today to our call. We look forward to being back with you in about 60 days as we present the first quarter results. Thanks for your attention.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.