Greetings, ladies and gentlemen, and welcome to the Hooker Furnishings quarterly investor conference call, reporting its operating results for its fiscal 2023 third quarter. At this time, all participants are in listen only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Paul Huckfeldt, Senior Vice President and Chief Financial Officer for Hooker Furnishings Corporation.
Thank you, Michelle. Good morning, and welcome to our quarterly conference call to review earnings financial results for the fiscal 2023 third quarter, which began August 1st, 2022 and ended on October 30th, 2022. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation today. 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 expectation is contained in our press release and SEC filing announcing our fiscal 2023 third quarter 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 $152 million, an increase of $18 million or 13.6% compared to last year's third quarter. The increase was attributable to the addition of Sunset West results, as well as sales increases across all the other domestic upholstery divisions and higher sales at Home Meridian compared to last year, when Container Direct business was severely impacted by the temporary COVID-related lockdowns in Vietnam and Malaysia. The higher consolidated revenue was slightly offset by a $1.3 million or 2.4% sales decrease at Hooker Branded when comparing to record sales in the third quarter of last year. The company reported net income of $4.8 million or $0.42 per diluted share, compared to a net loss of $1.2 million or $0.10 per diluted share a year ago.
For the fiscal 2023 nine-month period, consolidated net sales decreased by $7 million or 1.5% compared to last year's same period due to decreased net sales in the Home Meridian and Hooker Branded segment, partially offset by higher sales in the domestic upholstery segment and in our H Contract business unit. Hooker Branded sales volume decreased due to inventory unavailability, primarily in the first quarter of this year. Home Meridian sales decrease was attributable to the absence of sales from the unprofitable clubs channel, which we exited at the end of last year, as well as lower sales in the e-commerce channel and lower sales with some retailers who are delaying shipments to help rationalize inventory levels.
We reported net income of $13.6 million or $1.14 per diluted share for the nine-month period, compared to $15.7 million and $1.30 in the prior period. I'll turn the call over to Jeremy to comment on our fiscal 2023 third quarter results.
Thank you, Paul, good morning, everyone. Despite macroeconomic uncertainties and a challenging retail inventory environment, we were grateful that many of the obstacles we faced last year were behind us, and we were able to report revenue and earnings, which both exceeded the prior year third quarter. Steady order backlog fulfillment, full production capacity, healthier inventory levels, and operational improvements fueled these gains, which we expect to build and improve upon next quarter. Year-over-year profitability gains for the quarter were driven by sales growth and successful mitigation of supply chain bottlenecks that have impacted us for over the last two years. Improving our operational cost and exiting unprofitable businesses at HMI is beginning to show up in our margins and will continue to help improve profitability. However, economic indicators are mixed, and there are potential headwinds, including rising interest rates, declining home sales, and consumer confidence.
On a positive note, the recent fall High Point Market was the best-attended market since the pandemic and gave us a real momentum boost. The market attendance exceeded October 2019 by 12%. We found retailers to be upbeat and receptive to new products they can now expect to receive within several months of order for the first time in a couple of years. HMI debuted a remodeled 100,000 sq ft showroom, including a 10,000 sq ft area showcasing the new Portfolio program, featuring a breadth of in-stock styles of bedroom, dining, occasional, and upholstery across HMI brands, which was very well received. Portfolio's launch was a successful first step in expanding and diversifying HMI's customer base to include interior designers and a greater number of independent furniture retailers. At Hooker Furniture, we debuted the Charleston Collection.
The updated traditional styling and finishes were met with enthusiasm from retailers who believe there's a void for timeless designs in the marketplace, a furnishing style that's sought after by a significant set of younger consumers in their prime furniture buying years. This collection will be shipped before the next High Point Market in spring 2023, when we look forward to the grand opening of our new Hooker Legacy showroom, encompassing an entire floor of the Showplace building in High Point. Now I wanna turn the discussion over to Paul, who will discuss highlights in each of our segments.
Thanks, Jeremy. At Hooker Branded, net sales decreased by $1.3 million or 2.4% compared to the same period last year. The lower sales were driven by temporary inventory mix issues. Some vendor factory shipments were received in our warehouses as incomplete collections with missing items, and retailers delayed receipt of orders until collections and groups could ship complete. This issue is being resolved, and we're shipping more of our backlog now. Our Asian suppliers are improving their lead times and Hooker Branded inventories are now about $44 million higher than they were at the end of last year's third quarter, positioning us well for the holiday selling season.
Gross profit increased by about 100 basis points for the quarter, which partially offset that slight sales decline and higher SG&A expenses, which are up due to higher salary and benefit costs and higher commission rates, among other things. Hooker Branded reported $5.2 million in operating income and a 9.5% operating margin for the quarter. Incoming orders in Hooker Branded decreased as compared to the prior year quarter as the market is gradually returning to more typical levels of demand. The quarter end backlog was lower than the prior year-end quarter, but was still about 3 x higher than pre-pandemic levels in calendar 2019.
Moving to Home Meridian, segment's net sales increased by about $4.4 million or 9.4% as compared to the abnormally low volume in the prior year 3rd quarter when container business was severely impacted by the temporary COVID-related factory shutdowns in Vietnam and Malaysia. In addition, the hospitality division reported strong sales as that sector continues to recover from COVID-related downturns. The sales increases were largely offset by the absence of the unprofitable clubs channel sales and decreased e-commerce sales. The exit from clubs channel resulted in significant improvement in returns and allowances and gross margin. E-commerce sales decreased mostly due to normalization of post-COVID consumer demand. Gross profit and margin improved significantly due to the absence of excess chargebacks from the clubs channel and order cancellation costs when we exited the ready-to-assemble furniture category last year.
However, HMI shipments were lower than expected due to mass merchant retailers with high inventories delaying some shipments. Due to deflated sales from delayed shipments and higher than expected transition and labor costs related to our new Georgia distribution center, HMI reported an operating loss of $3.2 million, a $7 million improvement from the operating loss in the prior year quarter. As expected, incoming orders and quarter end backlog decreased significantly due to the absence of club channel orders, as well as decreased orders from our retail customers who are delaying orders to rationalize inventories with current demand. In the domestic upholstery segment, we were pleased to report the seventh consecutive quarter of double-digit sales growth. Net sales increased by $14.1 million or 48% compared to the prior year third quarter.
The increase was driven by the addition of Sunset West results as well as organic sales growth at each of the domestically produced factory divisions, Bradington-Young, Sam Moore, and Shenandoah, which all delivered double-digit net sales gains for the quarterly and nine-month periods. Gross profit and margin increased due to the inclusion of Sunset West results, favorable sales variances, better overhead absorption on higher sales volumes, and near full operating capacities. These improvements were partially offset by increased raw material costs such as leather, foam, and upholstery materials. For the third quarter, the segment generated operating income of $3.8 million and reported an operating margin of 8.8%. Incoming orders decreased compared to the prior year quarter due to current demand, long lead times, and high backlogs. Year-to-date orders were about on the same level as calendar 2019.
Quarter-end backlog was lower than the prior year quarter-end and fiscal 2022 year-end when demand was exceptionally strong and production capacity was constrained. Comparing to calendar 2019, backlog was more than 3 x higher than pre-pandemic levels. Turning now to our cash inventory and debt position. Cash and cash equivalents stood at six and a half million at the fiscal 2023 quarter-end, down $62.9 million from the balance at fiscal 2022 year-end, due primarily to $58.9 million increase in inventory as well as almost $10 million of share repurchases. During the fiscal 2023 nine-month period, we purchased and retired 598,000 shares of our common stock under the $20 million share repurchase authorization approved by our board of directors earlier this year.
Through December 7th, we've purchased 705,000 shares at a total cost of $11.2 million. Even while spending $11 million on share repurchases to date, we've been generating cash since last quarter. With lead times shortened as much as they have, we're aiming to reduce inventories by $25 million by roughly this time next year, which will further enhance our cash position. To improve liquidity, we've also implemented some target promotions on certain products. Related to cash flow, let me take a minute just to discuss our capital allocation priorities. On December 5th, 2022, our board of directors declared a quarterly cash dividend of $0.22 per share, which was paid on December 30th to shareholders of record on December 16th.
This 10% increase in the dividend is the seventh consecutive year in which we've been able to increase our annual dividend. We believe it demonstrates our continued confidence in our strategy and business model. We believe our relatively stable balance sheet and variable cost business model will allow us to adapt to economic downturns that may be on the horizon. Other capital allocation priorities include rebuilding our cash reserves, fulfilling the remainder of our share repurchase authorization, and capital investments in our soon-to-be-implemented ERP upgrade and other capital expenditures to improve our competitive position, such as outfitting the new Hooker Legacy brand showroom for its opening in April 2023.
I'll turn the discussion back to Jeremy for his outlook.
Thank you, Paul. Current economic indicators are mixed, and we are closely monitoring potential disruptors, including rising interest rates, consumer confidence, and a slowing housing market. At the same time, we see reasons for optimism as the U.S. enjoys healthy employment levels, rising household incomes, and continuing strength in consumer spending. Our backlogs on the Legacy side are still much higher than pre-pandemic levels, and our recent entry into outdoor furniture with Sunset West is performing above expectations. We believe the environment in the home furnishings industry is shifting from a reliance on historic demand to a dependence on market share, and we believe that many of our initiatives will help us gain market share, including launch of Portfolio and our new showroom next spring. Strategically, we believe we're well-positioned to capitalize on this change.
Despite our relative optimism, we are paying close attention to economic indicators and retail trends to ensure that our inventory planning and cost structure are appropriate to the short to mid-term conditions while continuing to invest in our longer-term strategies. Typically, our earnings calls focus on financial highlights. We are grateful as an organization to be in the position to support charitable organizations throughout the communities we live and work and where great needs exist. Most recently, we had the opportunity to partner with two key retailers in Florida to send over 1,200 beds and supplies to help with relief efforts for Hurricane Ian. This spirit of giving back is embedded in our culture and has been for almost 100 years. Our employees take this part of our culture seriously and dedicate a significant amount of their own time and resources to many of these efforts.
We believe this is a key differentiator for us, the company, which is why I wanted to mention it, this in our call today. This ends the formal part of our discussion, and at this time, I will turn the call back over to our operator, Michelle, for questions.
Thank you. Ladies and gentlemen, if you have a question or comment at this time, please press star 11. Our first question comes from Andrew Lebiedzinski with Sidoti & Company. Your line is open.
Good morning. Yes, thank you for taking the questions. I'm actually Anthony Lebiedzinski, not Andrew. First on Hooker Branded, just wanted to get a better sense as far as the inventory mix issues. Any way that you guys could quantify what the impact was? I know you said you're shipping better in 4Q. Do you expect to get, you know, most of that back in 4Q, whatever you lost because of these mix issues, or you think that will spill over into the first quarter of next year?
I think we'll get a lot of it back. We're shipping considerably better than we were through most of the quarter.
As far as quantifying, I think it's a little tough to do.
Mm-hmm.
Although I know that, for example, the category of furniture on hold due to waiting on other orders to ship, I believe, was in somewhere in the $5 million-$7 million neighborhood.
Right.
That would probably be one number we could somewhat quantify. Yes, we've actually been in... It's a weekly process at this point. We feel like we've managed through it. We feel like we will get that back in the fourth quarter.
Got it. Okay. Thanks for that. Then, I know you guys talked about the, you know, backlog being up, overall versus pre-pandemic. Any way you guys could quantify what the, you know, consolidated backlog was at the end of the quarter, and how does that compare to the third quarter from calendar 2019?
Consolidated backlog was $137 million. Is that?
Yep.
$137 million now and $126 in 2019.
Okay. Got it. Thanks for that.
That's obviously consolidated. The Legacy side gets much more pronounced as far as how much larger it is.
Right. Brand is 35 versus 11.
Right.
Oh, wow. Okay. All right. That's a meaningful difference. Okay. All right. Thanks for that clarification. Then, you know, for Home Meridian, you said that some customers are delaying shipments. Obviously, we all know that there's a lot of inventory out there in the retail channel. I mean, do you think these are mostly firm orders, or could some of these get canceled? I guess, what's your view as to when you think that inventory levels at the retail partners that you're dealing with, I mean, when do you think those will kind of be more normal?
First of all, the first part of the question, we do believe those are firm orders. We feel like we went through the process of rationalizing our backlog with all of our major retailers, and what we have left is solid. That's how we feel on that question. Secondly.
Okay.
A lot of that is starting because there is a fairly decent retail environment going on out there. You just can't, you can't feel it on the order side because of what's going on with inventories. We are hearing that the inventories are starting to correct themselves to the level that it's gonna finally break through. We don't really know, but we feel like it's definitely getting better kind of on a weekly basis.
Okay. That's good to hear. You know, as far as the distribution center in Georgia, I know you talked about some labor costs and some inefficiencies there. I mean, when would you expect that facility to be operational, as far as, you know, to just, from a efficiency standpoint, when should that be just fully efficient to your standards?
We feel like we'll make significant steps at the end of the first and into the second quarter. I think we'll make more significant steps actually into the third quarter too, because as we rationalize our inventory more and more on that side of the business, we're gonna be able to reduce our costs pretty significantly.
Yeah. We've already seen some improvement there. We're not incurring a lot of excess freight charges for, you know, for goods that haven't been unloaded correct, on time and stuff like that. We're starting to see that progress, we just need to see, you know, continued efficiency improvements.
Got it. Okay. Yeah, thanks. Okay, thank you. Yeah, a couple more questions if I could. You know, as far as on the cost side, you know, ocean freight costs have certainly normalized. As far as the other costs across the business, what are you seeing there, whether it's, you know, labor or domestic transportation or, you know, can you just talk about what you're seeing there?
I think the environment now is what I would call much more stable. You know, before, you were getting daily increases, whether it be foam, whether it be plywood, whether it be whatever you're talking about. Now there's a much more stable environment. To your point that obviously the freight, the ocean freight particularly is coming way down. Now as we've said, I think before, it's difficult to quickly take advantage of that due to the fact we have the contracts in place and we've renegotiated a lot of our contracts, but that's a continuous push from our side to realize, you know, the benefits of that lower ocean freight on top of the fact that everything you shipped into your warehouse still had a lot of the higher cost.
Okay. Got it. Okay. You know, as far as your ability to gain market share, you talked about benefiting from Portfolio. You're moving to a new showroom next year in High Point. What are some of the other things that you think will enable you to gain market share? Also, one of your competitors, Lane Furniture, just abruptly shut down. Just wondering if you think that could be an opportunity for you to also gain share from that.
I'm gonna start with the last part of that. Absolutely, that category, there's definitely a hole in the marketplace for what they were doing. Yeah, I think once there's a lot of product out there from them exiting overseas and factories and whatnot, that will be interesting getting through a little bit of a bottleneck in that, what they have going on over there. After that, I believe there is an opportunity. As far as where we think we're gonna, you know, really take advantage of our growth opportunities, Sunset West is one, you know, big part of that. We bought we acquired that company because we see this huge opportunity to put our operational scale on their business and be able to drive that east, you know, east of Mississippi.
They were pretty West Coast-centric. We've been able to already expand that throughout the country. Also, with Savannah, they'll have a distribution model that's freight-friendly, if you will, on that, on that part of the country as well. There's a lot of opportunity in the outdoor category. Portfolio, you know, it's gonna take time, but we already had really good High Point Market that we believe is going to turn into some pretty significant revenue on the HMI side in diversifying that customer base as well. Moving into Showplace, I know, you know, usually you say, well, you're just moving into another showroom, but we're moving into a showroom that's gonna give us a significant multiplier of audience that we, that we haven't had before.
You know, it's easy to get in the mindset that, well, you know, we're a fairly large furniture company and all these customers know who we are, but being on the tenth floor in Commerce & Design where we were did not enable us to. Our visibility just wasn't where we wanted it to be. This is a real opportunity for us to really show a whole new audience who we are, which is a great opportunity, and we believe it's a great revenue growth opportunity. Lastly, you know, speed. We're working on the time we get an order to how fast we can ship it and being in stock and all the things that matter as far as getting turns, and we believe that's going to have a significant impact to our revenues as well.
All right. Well, that's great to hear, and, thank you and best of luck.
Yeah. Thank you, Anthony. Appreciate it.
As a reminder, to ask a question, please press star one one. There are no further questions. I'd like to turn the call back over to Jeremy Hoff for any closing remarks.
I would like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal 23 full year results in April next year. I hope everyone has a wonderful holiday season. Take care.
This concludes the program. You may now disconnect. Everyone, have a great day.