Good gentlemen, welcome to the Hooker Furnishings quarterly investor conference call reporting its operating results for the first quarter 2022. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. To ask a question during the session, you'll need to press star then one on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paul Huckfeldt, Vice President Finance and Chief Financial Officer for Hooker Furnishings Corporation.
Thank you, Liz. Good morning and welcome to our quarterly conference call to review the financial results for our fiscal 2022 first quarter, which ended May 2, 2021. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We certainly appreciate your participation this morning. During our call, we may make certain 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 2022 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.
For our fiscal 2022 first quarter, which began February 1, 2021, and ended on May 2, consolidated net sales were $163 million, an increase of $58 million or 55% compared to the prior year first quarter. We reported revenue gains in all three of the company's reportable segments with Home Meridian sales up $27 million or 46%, Hooker Branded sales up $24 million or 89%, and Domestic Upholstery sales up $7.7 million or 46% compared to the prior year first quarter. The company reported net income of $9.4 million, or $0.78 per diluted share compared to a net loss of $34.8 million a year ago, which was principally due to a $44.3 million or $33.7 million after-tax non-cash impairment charge. Now I'll turn this call over to Jeremy to comment on our first quarter results.
Thank you, Paul, and good morning, everyone. Our goal this quarter was to return to the growth trajectory we were on prior to the global pandemic and economic downturn. We are pleased to have surpassed that goal. While we expected a sizable sales improvement over last year's first quarter when the pandemic-driven economic downturn began in mid to late March, our results this quarter represent a strong improvement over the first quarter of fiscal 2020 as well. Sales are up 20% compared to the first quarter two years ago. Profitability has improved significantly in all segments, and incoming order rates are more than double our historical norms. In fact, both our quarterly revenues and net profit performance represent record high sales and earnings for the company's fiscal first quarter.
I'm especially proud of our team for delivering this strong rebound a year after the onset of the pandemic, despite industry-wide logistics challenges, including higher ocean and freight transit cost and shipping equipment bottlenecks, raw material shortages, and inflation. The Hooker Branded segment led the way during the quarter with a nearly 90% sales increase compared to a year ago, while the Home Meridian and Domestic Upholstery segments both reported sales increases of approximately 46%. We attribute the double-digit gains to industry-wide high consumer demand for home products and dramatic improvements and expansions of our product lines and rationalizing our stocking inventory, helping us to maximize shipping and production capacity along with improving our cash utilization. In order to accommodate travel restrictions in place earlier this year, the High Point Spring Market was officially pushed to June.
In its place, the Hooker Branded, Home Meridian, and Domestic Upholstery segments participated in a High Point Pre-Market event in late April. Hooker Furnishings results from the Pre-Market were exceptionally strong in terms of traffic, buying activity, and reception to new product introductions. We enjoyed record attendance at the High Point Pre-Market with very positive customer response to a number of introductions, including Hooker Casegoods collections, the new brand launches of the Scott Brothers licensed collections, Commerce & Market, an accent furniture line with pricing, styling, and materials to reach Millennials and Gen X, and Hooker Upholstery's launch of the upscale Aspire Motion seating brand. Consolidated operating income for the quarter was $12.2 million compared to a $45.4 million operating loss in the prior year period.
Last year's loss was primarily attributable to $44.3 million in non-cash impairment charges related to a write-down of goodwill and trade names in the Home Meridian segment and goodwill in the Shenandoah division, prompted by the impact of the COVID-19 downturn on our financials last year. Now, I want to turn the discussion over to Paul Huckfeldt, who will discuss highlights in each of our reportable segments.
Thanks, Jeremy. I'll begin with the Hooker Branded segment, which led the way in the company's record first quarter sales and earnings. Net sales increased by $24 million or about 90%, and incoming orders nearly doubled compared to the pandemic-impacted prior year quarter. The quarter ended with a backlog three times that of the prior year first quarter. Because much of the segment's product line is shipped out of U.S. distribution centers and product is ordered on a consistent weekly basis, we had goods in stock, which enabled us to ship more than expected despite the limitations on ocean vessel space and trucking capacity. With our strategy to prioritize best sellers, we maximized our ability to perform against significant operational constraints.
Due to the industry-wide demand surge for home furnishings, we were able to sell through some slow-moving inventory in this favorable demand environment. As a result, the Hooker Branded segment remained highly profitable thanks to increased revenues and reduced discounting, and contributed over 75% of the consolidated operating profit for the quarter. The strengthening of our product line over the past two years, including an expanding lifestyle collection focus and a renewed emphasis on our value proposition within our various product categories, has begun to significantly affect our top and bottom line performance. Moving to the Home Meridian segment, HMI Q1 sales were $84 million, up 46% over the prior year. The Q1 sales increase was the result of continued strong retail demand versus weak demand during the initial weeks of the COVID-related economic shutdown last year.
Q1 sales would have been higher had we not struggled with inventory availability and shipping limitations. Q1 operating income was $866,000, an increase of $3.3 million over the pre-impairment loss recorded during the industry shutdown last year. Operating income was driven by higher sales, reduced allowances, and reduced fixed expenses.
Q1 profits were constrained by significant excess freight costs experienced during the quarter. Unfortunately, these headwinds are expected to continue impacting results over the next several months. The supply chain-related headwinds we're facing cannot be overstated. There are multiple factors at play that include general increased global demand for imported products, particularly for home goods, significant shipping equipment disruptions resulting from the COVID pandemic and the recent blockage of the Suez Canal, current unloading bottlenecks at most U.S. ports, and rampant dislocation of empty containers. All these factors are compounding a situation.
It's difficult to secure shipping space at virtually any price, and the price of shipping has multiplied to levels that discourage retailers from releasing their shipments. This dynamic creates another compounding issue when factories cannot move out finished goods. They quickly run out of space to operate, which forces them to stop or slow production despite record consumer demand for furniture. In general, HMI's service position improved moderately in Q1 as inbound shipments replenished out-of-stock items. Nonetheless, logistical limitations will likely continue to constrain service at some level for the balance of the year.
As mentioned on our last conference call, material and product cost increases are driving up our cost of goods sold. We're working diligently to pass these product and freight increases on to our customers. The vast majority of our retail customers understand the situation and are accepting these increases.
Regardless, there are time lags that negatively impact margins in the short term. We continue to work on this issue and expect to return to target margins later this year. Breaking the results down by business unit, Q1 net sales were up strongly at Pulaski Furniture, Samuel Lawrence Furniture, at Prime Resources International, and HMidea , largely driven by weak comparisons in the prior year and strong demand this year.
Sales at Accentric Home, our e-commerce-focused business unit, were flat due to service limitations and strong e-commerce sales last year. SLH, our hospitality division, struggled with significantly lower demand due to the ongoing negative impact of the pandemic on the hospitality industry. Overall, Q1 profits were much improved across every business unit except SLH. We believe the hospitality business will struggle for at least another quarter. However, we're beginning to see signs that demand will improve later this year.
Q1 orders were $85 million, up $44 million or 108% compared to the unusually low order rate we experienced last year during the early weeks of the pandemic. Incoming orders and backlog continue to run much higher than average, resulting from a combination of robust retail demand and ongoing shipping limitations.
HMI participated in the High Point Pre-Market event in late April. Of note was the extremely enthusiastic response to our Scott Brothers brands, Scott Living and Drew & Jonathan Home, which are planned to officially launch later this year. We have numerous major dealers committing to buy the branded introductions now and floor them as soon as we can deliver. Even though the High Point Market does not open until tomorrow and no Scott Brothers Furniture products are yet in stores, we're already hearing about consumers inquiring about where they can buy these products at retail.
All these positive reactions underscore the tremendous opportunity we see in bringing together HMI, one of the largest suppliers of home furnishings, with Scott Brothers Global, the most popular celebrity lifestyle brand in the home furnishings space. The reach of the Scott Brothers brand via print, television, streaming, social media, and other digital mediums, combined with the scope of HMI's design, product development, sourcing, sales, and distribution capabilities, create a formidable combination to drive enthusiastic consumer buying for years. Turning now to Domestic Upholstery, the segment's net sales increased by $7.7 million or 46% during the fiscal 2022 first quarter due to significantly increased sales at all three divisions.
In response to the COVID-19 restrictions and reduced orders that began in March a year ago, manufacturing plants at Bradington-Young and Sam Moor were closed for about a month during the prior year first quarter, and Sam Moore operated at about 50% capacity. As a result, these divisions reported sales at a much lower level during that period. Although we're encouraged by incoming orders for the Domestic Upholstery segment during the quarter, we started to experience foam allocation shortages and inflation in certain raw materials such as foam, lumber, plywood, fabric, and mechanisms during the second half of the quarter. These supply chain and manufacturing constraints led to reduced production levels, which adversely impacted sales volume and operating efficiencies for much of the quarter.
We expect these challenges to continue in the short term. In all other, net sales decreased by $368,000 or 12% compared to the prior year period, principally due to a 17% decrease in H Contract, which serves the senior living and retirement industry. As you know, the senior living industry was hit particularly hard by the COVID crisis and has not yet recovered. However, we believe the ongoing progress in vaccinations will improve conditions in most senior living communities, and H Contract incoming orders increased by 9.5% during the quarter, and the backlog was 35% higher than a year ago. Despite the sales decline, H Contract will contribute operating income for the quarter. Lifestyle Brands, a new business started in fiscal 2019, also reported a small profit. Finally, I'd like to touch on our cash and inventory position.
Since the end of last year, we've increased our inventory levels by about $10 million. This increase is about evenly divided between products in transit and in our warehouses and will help get us back in position to better service our backlog and increase our in-stock position on best sellers. Cash and cash equivalents stood at $61.6 million at the fiscal 2022 first quarter end, a decrease of $4.2 million compared to the balance at the end of fiscal 2021. Consolidated inventory stood at $81.5 million compared to $70.2 million at fiscal year-end, an increase of $11.3 million. We expect our cash balances to decrease slightly in the coming months as strong sales continue and we build inventories to meet increased customer demand. I'll turn the discussion back to Jeremy for his outlook.
Thank you, Paul. Our consolidated orders and backlogs are more than double historical norms as we head into the summer months. Given the strong position, we're cautiously optimistic considering the industry-wide supply chain, logistics, and raw material shortages, and inflation. We believe we have mitigated these dynamics as much as possible through surcharges and price increases, yet these supply-side factors are unpredictable and can involve unexpected changes occurring almost daily. Several macroeconomic factors provide a nice runway for growth, such as the ongoing strong housing market and favorable demographics with the massive millennial generation becoming highly engaged in household formation and home furnishings purchases. On the negative side, we expect increased competition for the consumer's discretionary income from industries such as travel, apparel, and events as the COVID-19 vaccinations continue to roll out.
While we expect the extraordinary levels of demand for home furnishings to diminish somewhat, we also expect the demand for home furnishings will settle into a higher level of demand than pre-pandemic. Consumers aren't going to fall out of love with their homes, and we are positioned to help them enhance their homes with comfortable, stylish, and quality home furnishings. We believe our company is strongly positioned to win in this environment. That ends the formal part of our discussion, and at this time, I will turn the call back over to our operator, Liz, for questions.
Our first question comes from Anthony Lebiedzinski with Sidoti & Company.
Good morning, and thank you for taking the questions. Yeah, first I wanted to see if you guys could quantify perhaps the order trend or maybe if you guys could quantify the backlogs that you're seeing now at the end of the first quarter. That'd be very helpful.
Let's see. Consolidated backlog at the end of the quarter was $280 million, compared to $91 million the same time last year.
Okay. Got it. Okay. Thanks, Paul. As far as the price increases, obviously, we're in an extraordinary time period, given inflation. Can you just talk about how many rounds of price increase have you done over the past 12 months or so? Maybe also, what would be the cumulative effect of the price increases that you've seen a lot in the last few quarters?
Good morning, Anthony. This is Jeremy.
Morning.
I would tell you that it really varies depending on which of the 12 brands that you're asking. If you're in Domestic Upholstery, you're reacting to raw material increases and shortages of foam and various movement parts in the furniture that increase as well. Domestic Upholstery, you would be looking at two different increases, would probably be an accurate number across that segment. When you look at more of the import divisions, the freight, it's been unpredictable at best, and it's usually a reactionary versus what you would like is being able to be proactive. You find out, obviously end of each month, okay, what has happened to freight at this point? That's been a little more reactionary with a surcharge strategy, which the surcharge has probably changed three or four times on our different import companies.
There's been also first cost increases from factories that vary by brand of import products as well. I can't really say consistent because they're different with each one of them, but we have everything from two different adjustments to zero adjustments thus far on factory increases.
Got it. Okay. Yeah, thanks, Jeremy, for that.
Yeah.
Well, yeah. In terms of your SKU rationalization, obviously, you benefited from that in the quarter. Is it possible for you guys to give some more details as to the benefit that you saw in the quarter, and then what's the outlook going forward as far as the benefits from that SKU rationalization?
Yeah. Fortunately, we started pretty deep into that exercise on our largest warehouse program, which is really the Hooker Branded product. That really became an ABC mentality. Not to oversimplify it, but really trying to make sure we weren't investing cash in Cs, trying to manage the obsolescence at very low levels, which we've been able to do. Really putting all of our capacity and all of our utilization of our container space towards As and Bs. That has definitely helped us weather this storm that we're in, for sure. It is significant, and it will continue to be significant because we have an extremely disciplined approach about how we're going to utilize our cash for these stocked items.
Yeah, it allowed us to shift at the level.
Right.
Got it. Okay. You think this will benefit you guys for the balance of the year as far as the SKU rationalization?
Yes. What it essentially does when we have a large transfer of product that we would love to be able to stock up more products in our warehouses, but when we do have large transfers, most of it's sold.
Got it.
That tells you those are SKUs that are obviously our better SKUs. We're not stocking up SKUs that don't matter.
Got it. Okay. This past Monday, we just wrapped up Memorial Day Weekend, which is typically a strong selling season for retailers. Just curious, coming off Memorial Day, what are you hearing from your retail partners as far as the demand outlook?
Very strong. Everyone we've spoken with has relayed to us that Memorial Weekend continued this very strong demand environment that we're in. That was encouraging. We really haven't seen much of a lull in the demand, really, since just past the start of the pandemic.
Okay. Great. That's great to hear. You have a couple of more questions for me. Jeremy, when you joined as CEO at the beginning of February, one of the things that you've put in place is Project One Company, One Culture. Just wanted to get a better sense as to what you've done. What have you seen from that initiative, and how should we think about that for the balance of the year?
Well, we've been able to quickly see benefits, I believe, from all of our operations coming together and really supporting each of the 12 businesses with utilizing our scale. Having one team that's HMI group, another team that's Hooker Branded, then another, right? We took all those really good people. By the way, this was not a cost saving exercise. It was a get better exercise. It was us becoming more efficient and getting better at what we do and trying to be the best sourcing company that we can be, the best quality company, and the best safety. We try very hard to make sure everyone is running the same direction and working on what we need to work on with all the good people that we have, that's what it really has done.
Got it. Last question from me. Given the strong balance sheet that you guys have, what is your outlook for acquisitions?
We continue to fine-tune our profile regarding what type of company we would be interested in. Our management team and our board are very well aligned in what that would look like. I've said before, we're not in a hurry to do anything that wouldn't be positive and the right fit culturally, the right fit EBITDA, the right fit in all categories that matter, we would want to make sure that it would make an incremental difference and be accretive. We don't want anything that would possibly be dilutive. I'm stating the obvious, but that's where we are, and if that doesn't happen, we won't buy anyone.
Right. We're comfortable actually having this strong balance sheet it's been a tradition in this company, and it makes us a lot more comfortable weathering these ups and downs. We weathered the COVID crisis pretty well. We can look back 10 years ago to the recession, and I think having that maybe what you might consider an excessive balance sheet is a pretty positive thing when things get tough. We're not in a hurry to spend that money.
No.
We will spend it for the right acquisitions.
Right. Okay. Makes a lot of sense. Well, thank you, and best of luck.
We appreciate it. Thank you, Anthony.
Thank you.
Our next question comes from Sandy Mehta with Evaluate Research.
Yes. Congratulations on the strong result. All of the CapEx that you guys are doing, including the 800,000 square foot facility in Georgia, can you tell us, once all these facilities are up and running, what would be the run rate revenues, incremental revenues, as well as profits you hope to get from all this incremental CapEx? Thank you.
Well, that's a tough one. The warehouse in Georgia is primarily a cost-saving exercise. Obviously, we hope to grow our warehouse businesses which is like our e-commerce business in particular. There's also a new initiative to grow the warehouse business on the Home Meridian side, which is traditionally focused on mega accounts. The cost saving on that is the difference between hauling containers 25 miles or to the Savannah Port versus about 300 miles to our Georgia and North Carolina ports. That should be a significant cost savings. It will take days off the transit process, allow us to ship more quickly, and honestly, there's an environmental benefit too, because we're not running trucks up and down the road. I think we expect to see incremental growth, that one is primarily a cost saving.
Some of our other major projects, the ERP, it's time to upgrade that ERP. I'm not sure you can pin incremental savings or incremental growth to an ERP project. Those are end-of-life systems that need to be replaced. Those are going to support our Project One, bringing the company together as a single back office operation. I know I'm dodging your question a little bit. We think that they're all going to be accretive to the bottom line, maybe not all to top line.
The current housing boom and furniture boom, what are your thoughts on the longevity of this cycle? Do you think that demand will remain strong both for housing and furniture going till the end of next year at least? Thank you.
Yeah, we do. We believe we have a nice runway for demand mainly due to the demographics with millennials really starting to purchase homes and really starting to furnish these homes. We feel like we have some dynamics that have occurred from the pandemic with consumers moving out of big cities into larger homes. There's a lot of things going on that do benefit us, and as I said earlier, we are going to compete more for the discretionary dollars being spent on travel and the things that people are going to be able to do post-pandemic and as this vaccine gets more and more rolled out. All in all, really from our standpoint, the future looks bright as far as demand is concerned.
Yeah. The numbers I've heard is that there's a nationwide shortage of about four million homes. Even if people are moving into new homes, we believe there's going to be a lot of furniture purchased.
Great. Thank you very much.
You're welcome. Thank you.
Our next question comes from JP Geygan with Global Value Investment Corp.
Good morning and congratulations on the strong quarter. I think between the previous two analysts, some of my questions, or at least elements, have been answered already. At the risk of sounding redundant, let me piggyback on Anthony's question about your use of cash. You'll obviously be flush in cash. Well, you are flush in cash right now. I think in your prepared remarks, you said you expect your cash balance to decline modestly throughout the year, but if your strong end markets persist, you'll generate quite a bit of cash going forward. More generally, I'd ask about capital allocation, including any sort of plans to allocate capital in addition to your intent to acquire.
Well, that's, I think, building the assets to make an acquisition is our primary focus. Like I said, also, I think we've got a long-standing tradition of being perhaps overly cautious and overly carrying more cash than you might expect that maybe the textbooks would tell you. Of course, we've been increasing our dividend, which it's a small use of capital. We do have these capital projects that are going to be more than our typical capital spending was $3 million or $4 million a year. We've got the ERP project, we've got the Savannah warehouse project. We're going to have a couple of years. We'll be refurbishing showrooms. We've got a couple of years that are going to use a little more capital than typical.
I know this question usually winds up with share repurchase, and we talk about share repurchase a lot, and so far we've felt like there have always been higher priorities. You're right, if we continue to generate cash, it's obviously going to be a significant discussion at our board meetings. I can't tell you that we're planning to repurchase at this point.
That's helpful. I appreciate your insight. We're well aware of shortages in components like foam and plywood. I thought I heard you say in your prepared remarks that there are shortages in other components. Can you put some flesh around that comment and then perhaps talk about your perception of the appetite of consumers for additional price increases, particularly as demand might settle in at a higher normalized level than we've previously seen?
As far as the earlier comments, steel is another thing that seems to be a little bit not as predictable as usual with a lot of the movements in motion furniture and whatnot. The biggest part of all of this is logistics, the container shortages, the amount of money it takes to get a container from overseas, which we believe it will continue really through probably through the next quarter, but we think there will start to be a light at the end of the tunnel.
We do think that we'll be paying more than historical norms eventually when it settles, but not at anywhere near the rates we're talking about. Much of the inflation or price increases that have occurred for us have been related to that, not all to do with cost increases from factories and raw materials.
Although that has happened, too, just not at the level that is more than the logistics.
The industry's gone a long time without significant price increases.
We've had deflation, actually.
Yeah. This is a little bit of a catch-up. Just like the whole country, this is a bit of a catch-up.
Got it. Thank you for your comments. I appreciate the color, and congratulations again on a good quarter.
Thank you.
Thanks.
We appreciate it.
I'm showing no further questions in queue. I'd like to turn the call back to Jeremy Hoff for closing remarks.
Thank you, Liz. I'd like to thank everyone for participating in our call today and your interest in Hooker Furnishings. We look forward to sharing our second quarter results with you in September. Thank you and have a great day.
This concludes today's conference call. Thank you for participating. You may now disconnect.