Greetings ladies and gentlemen and welcome to the Hooker Furniture Quarterly Investor Conference Call reporting its Operating Results for the Fiscal 2019 Second Quarter and First Half. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host, Paul Huckfeldt, Vice President, Finance and Chief Financial Officer for Hooker.

Thank you, Joel. Good afternoon and welcome to our quarterly conference call to review our sales and earnings for our fiscal 2019 second quarter, which ended July 29, 2018. We certainly appreciate your participation today. Paul Toms, our Chairman and CEO will join me for our prepared remarks, for the question-and-answer portion of the call several of our business unit heads will be available to take questions including Michael Delgatti, President of Hooker Domestic Upholstery and Emerging Channel; HMI, Co-Presidents, Doug Townsend and Lee Boone; and Jeremy Hoff, President of our Hooker Branded Casegoods and Upholstery Division. 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 filings announcing our 2019 second quarter results. Any forward-looking statements speak 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 $168.7 million and net income of $8.7 million, or $0.74 per diluted share for the fiscal 2019 second quarter, which ended July 29, 2018. For the quarter, consolidated net sales increased 8% compared to a year ago, primarily due to increased sales in our Home Meridian segment and our all other business units. Earnings per share increased to $0.74 per share compared to $0.67 in the prior year quarter. Now, Paul Toms will comment on our second quarter results.

Thank you, Paul, and good afternoon everyone. Thanks for joining us today. We are pleased to report a solid quarter with sales of 8% and net income up almost 12%. Retail business was challenging throughout the summer and we are encouraged that year-over-year order rates have ended up briskly in most divisions since the beginning of August. With in coming orders in our Hooker branded segment up 20% so far in the third quarter and Home Meridian's order backlog 15% over the same period in the prior year. During the quarter, sales softened in the Hooker branded segment following a four consecutive quarters of year-over-year revenue growth. The Home Meridian Segment rebounded a bit from a small sales dip in Q1 reporting an approximate 4.8% net sales increase. HMI resolve the disruptions with Asian suppliers that negatively impacted shipments in the first quarter. And all other, our sales increase was primarily driven by the addition of Shenandoah's net sales which we acquired in last year's third quarter. Consolidated operating income stayed essentially flat in the second quarter. Higher consolidated employee medical benefit cost, weather related property damage at one of our warehouses, price increases for materials and components in the domestic upholstery divisions all negatively impacted consolidated operating income in the quarter. This was partially offset by increased operating profit in the Home Meridian segment. Taking a closer look at each of our segments, I will begin with our Hooker branded segment. As I mentioned, sales leveled off at both Hooker Casegoods and Imported Upholstery during the quarter. After two consecutive quarters of growth, however, we are encouraged in August by 28% up tick in orders for Hooker Upholstery and an 18% up tick in orders at Hooker Casegoods versus a first four weeks of Q3 last year. We are…

Thanks Paul. Consolidated average selling price decreased 6.7% mostly due to lower ASP at Hooker branded. Unit volume increased 8.4% primarily due to a 10.9% increase in unit sales at Home Meridian which continues to trend towards higher volume but lower priced fuel unit price items. Hooker branded segment ASP increased due to lower discounting and its unit volume decreased slightly as business slowed a bit from last quarter. In all other the inclusion of Shenandoah Furniture this quarter and increased sales of higher priced Bradington-Young products helped to offset the sales decrease at Sam Moore. As Paul noted earlier, consolidated gross profit increased $2.5 million in the quarter mostly due to increased sales in the Home Meridian segment and all other. Hooker Branded segment gross profit stayed flat in absolute dollars and increased slightly as a percentage of sales. Consolidated selling and administrative expenses increased in absolute dollars. And as a percentage of net sales higher employee benefit costs, investments in people and systems particularly at HMI and higher compliance-related costs drove the increased spending, but we are able to better leverage fixed costs on the higher sales this quarter. Amortization of acquisition related intangibles was higher in this year's fiscal first quarter -- in this fiscal quarter due to adding amortization of Shenandoah's intangibles from our acquisition of that business in the third quarter last year. For these reasons operating income for the fiscal 2019 second quarter stayed flat and 11.9 million or 7% of net sales. For the fiscal 2019 first half, consolidated operating income increased $2.1 million to $21.2 million or 6.8% of net sales thanks primarily to a $24 million increase in net sales. Our balance sheet remains strong despite the use of cash and additional long-term debt incurred to acquire the business of Shenandoah Furniture last year and the unscheduled $10 million debt payment made earlier this year. At the end of the quarter, we had cash and cash equivalents of over $29 million available to provide the required working capital and to service our acquisition related debt. We also have in excess of $28.5 million on our revolving credit facility and $23 million of cash surrender value, company-owned life insurance, which gives us additional financial flexibility. In today's press release, we also announced a quarterly dividend of $0.14 per share which represents about 1.5% dividend yield. Now will turn the discussion back to Paul Toms for his outlook.

Thanks Paul. Given the improving conditions at retail, recent in coming order trends and increased backlogs at 6 of our 10 divisions, we're encouraged about our position going into the fall season. We do have some concern about the prospects of tariffs being imposed on finished goods and component parts imported from China. This would have a negative impact on a significant portion of our business, elevating costs both on finished goods imports from China and on component parts and materials used in our domestic upholstery manufacturing. We've been actively involved in submitting briefs for the hearings about tariffs in Washington D.C. and we do have strategies in place to mitigate the impact of tariffs if imposed. A generally positive macro environment is driven by GDP growth of 4.1% in Q2, a stock market pushing all time highs. Strong employment and consumer confidence are at record levels. Retail is improving and demographic trends definitely favor our industry. Our expectation for the fall selling season and the balance of the year is guardedly optimistic. This ends the formal part of our discussion. At this time, I'll turn the call back over to our operator Joel for questions.

Thank you. [Operator Instructions] Our first question comes from Anthony Lebiedzinski with Sidoti. Your line is now open.

Thank you. And thank you for taking the questions. So first, I guess I wanted to follow-up about to get a better sense as to the water rate trends. Obviously they have picked up since early August. Is this just a timing issue or maybe you can perhaps better explain the order flow that you've seen so far and perhaps the reasons for that?

Okay. Anthony, this is Paul Toms. And order trends have improved significantly in August over the prior August. And as I noted in my comments we were with about 40 or 50 key retailers at a design meeting in early August and almost to a person they reported improving conditions at retail over what they experienced through the summer. So that's encouraging. Business always improves in the fall, it seems like the summer people are on vacation and not really focused on the interior of their homes as they are once they get back from vacations the kids are in school and they start thinking about the holidays. So it's pretty typical. But again we're comparing to the same season last year. So, I would say summer was a little slower than we would have expected and since early August it's been better than we expected. Within our businesses Hooker gets a more immediate read on business because most of our customers don't order things until they've sold something. And we shipped about 85% of our orders padded up in our warehouses in Virginia. Home Meridian on the other hand is dealing with large customers that are programming orders out months in advance. And I don't know that we feel the impact immediately from those large customers of what their experience in retail every day and home meridians orders, you have two or three large orders fall in one quarter versus another it can make a significant dent in the order trends for that quarter. So we're probably Hooker maybe a better read in a short period three to four weeks than Home Meridian but orders have improved and both divisions and fairly significantly.

Okay. Thank you. Yes. That's certainly good to hear. And yes, so it does sound like there was more lumpiness with the HMI business. As far as the all other segment, you talked about the factory expansion for BY, what's the timing as to when you expect to complete that and do have a couple of other questions as well.

Hi, Anthony. This is Michael Delgatti. We expect to complete the expansion in early 2019. The manufacturing portion of the expansion should be completed before that and we hope that will start producing some product before the end of the calendar year. And then they move to consolidate our corporate office since this is new facility probably take place in February of 2019.

Got it. Okay. And as far as the change in vacation schedules at Sam Moore and Shenandoah, was this simply a shift from 2Q, I'm sorry, from 3Q into 2Q or maybe there was some other timing issue with that and you -- is there any way you guys can quantify as to what the impact of that was towards the top or bottom line?

Certainly had an impact on both operations, Shenandoah over the years as always level out their business so to speak during vacation period. So this is the first time they ever had a three week period. Sam Moore also went along with Shenandoah to the same vacation policy plan that we have had B-Y over the years, whereby we shut down for a week in July and shut down for a week in December as well. And obviously, those shutdowns impact shipping, and in turn, profitability because of lower sales volume against fixed expenses.

Okay.

I guess to add on to that Mike. Previously they would have just rotated people's vacations throughout the year. So it's actually a full week down -- the extra full week down over what they had previously.

Okay. All right. Thanks for that color. And as far as the loss of a key retail customer, it appears that only for that Sam -- for the Sam Moore more brands? Is that correct or is there any [indiscernible] to any other? Okay.

Those spill over [and more often] [ph].

Okay. And the impact of that on as far as annual sales volume certainly could quantify that?

This account represented around 8% of their total business last year. However, fortunately on a year-to-date basis we have made up about half of that loss and well on our way to making up all that and we believe into early next year.

Okay. So, can you give us a better sense -- Sam Moore, how big of a brand is it in the big scheme of things? What's the typical sales volume that you do just for Sam Moore?

Sam Moore is around $35 million business for us. As you know, Anthony, it's a chair company that's what drives the vast majority of their volume. They're a good sized company considering they produce primarily chairs.

Got it. Okay. All right. Thanks for that. And as far as the commentary about Home Meridian, one of the things that you touched on was increased spending. Is this something that we should expect on a year round bases, or did you spend more to gain business in the second quarter than what you would have previously spent?

Hi, Anthony. This is Doug Townsend. Our spending is up and as we've mentioned a lot of it is, is investments into some of our emerging channels and emerging customers. I think now in terms of where we are it'll stay where it is and we have different spending control programs in place to make sure that we stay within our limits. So we don't foresee making major additional investments at this time.

Got it. Okay. And lastly, as far as the potential tariff impact, can you give us a sense as to -- if these tariffs do get implemented, if you can give us a better sense as to how this would impact your business, if you could give us some quantifiable measures that would be great. Thank you.

So, Anthony this is Paul Toms, again. The tariffs if implemented will impact different parts of our business in different ways. We have several divisions that import upholstery and most of the imported upholstery, I would venture maybe 90% of the upholstery that's imported into the U.S. comes out of China. Our general strategy is to put surcharges on our furniture that's impacted by tariffs equal to about the amount of the tariff. In the case of a category like import upholstery where everybody is impacted, it's easier to do that. There's other parts of our business that Casegoods and the Hooker division. Over half of our volume comes out of China and in that case our competitors don't all have as higher percentage of their volume out of China. So we're a little less ability to pass through every bit of the surcharge or the impact through a surcharge. We'll do that. We'll work with our vendors to try to negotiate a little bit better price to offset some of the impact of the tariffs. We will continue to -- we brought in a good bit of inventory to try to get ahead of any prospective tariffs. We have a very good inventory position already in the U.S. on products from China that of course wouldn't be subject to tariffs because they were already brought in. That will help us for a while. But it really varies by division even our domestic upholstery division. The three companies are impacted differently. But we import a lot of fabrics from China. We import some of the mechanisms from China. We import some of the other component parts frames and screws and springs that we use. And again, it varies by division but there is some impact in most of the parts of our business and our strategies are to pass those increases due to tariffs along and a surcharge to negotiate with our suppliers in Asia to try to offset some of that impact, so we don't have to raise the price of products as much. And then, to continue to lobby or present in Washington for the hearings and we filed written briefs both as an individual company and also through our trade association as part of the industry. As far as the exact financial impact, I'm not sure that we can say that at all. In our HMI business, they don't ship a lot out of warehouses in the U.S. So but they will see it more immediately, but a lot of their customers are the importer of record. So the tariffs will actually be borne by whoever is the importer of record and that helps mitigate a little bit of that with Home Meridian.

Okay. All right. Well, thank you and hopefully cooler heads will prevail in Washington so we'll stay there. Thank you.

All right. Thank you.

Thanks Anthony.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Paul Toms for closing remarks.

All right. Well, we appreciate everybody joining us today. We weren't completely satisfied with the quarter, we would have liked to done a little bit better. But all things considered, I think we did reasonably well, we've got good momentum heading into the third quarter. We're encouraged about August as well as the rest of the quarter. We look forward to getting back within December and updating you on the results from that. Thanks again for joining us.

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 great day.