Hooker Furnishings Corporation (HOFT) Earnings Call Transcript & Summary

Thanks, Jimmy. Hello, everyone, and thanks for joining us on this quarterly conference call, where we'll go over the financial results for the second quarter of fiscal 2021 — a period that started May 4, 2020, and wrapped up on August 2; we're glad you could be with us today. Here with me to give prepared remarks are Paul Toms, our Chairman and CEO; Jeremy Hoff, President of our Hooker Legacy Brands; and Lee Boone, Co-President of our Home Meridian division. When we get to the Q&A part of the call, our other executive officers will be on hand to answer questions, among them Anne Smith, our Chief Administrative Officer, and Doug Townsend, Co-President of Home Meridian. During this call, we might make forward-looking statements, and those carry risks and uncertainties. A discussion of factors that could make our actual results differ materially from what management expects appears in our press release and SEC filing announcing our fiscal 2021 second quarter results. Any forward-looking statement speaks only as of today, and we take on no obligation to update or revise any forward-looking statements to reflect events or circumstances arising after today's call; this morning, we reported consolidated net sales of $130.5 million, along with net income of $5.8 million, or $0.48 per diluted share, for our fiscal 2021 second quarter, which ended on August 2, 2020. Versus last year's second quarter, our net sales fell $21.7 million, or 14%, while net income rose $1.6 million, or 39%. Earnings per diluted share climbed 37%, from $0.35 a year ago. For the fiscal '21 first half, consolidated net sales came to $235 million, down $52 million, or 18%, against last year's first half. In the first half, we reported a loss of $29 million, or $2.46 per diluted share, versus $0.52 earnings per diluted share in the prior year first half. That year-to-date loss stemmed from a $34 million, or $44 million pretax, noncash intangible asset impairment charge we reported in Q1, brought about by the material impact of the COVID-19 pandemic on our financial performance, market valuation and other factors in our 2021 first quarter, which triggered the need to perform an intangibles asset valuation analysis as of the end of the quarter. Following that analysis, we wrote down goodwill of certain trade names in the Home Meridian segment and goodwill in the Shenandoah Furniture division of the Hooker Domestic Upholstery segment. Now Paul Toms will comment on our fiscal '21 second quarter results.

Thanks, Paul, and hello everyone. Though COVID-19 keeps weighing on the economy and on how we run things, mid-May marked the start of a comeback for our business, and it has carried on without pause. For fiscal Q2 on a consolidated basis, incoming orders rose 24%, while backlogs climbed 35% versus the same time last year. Given that unusually strong order pace for summer, we still see furniture as a favored part of the economy amid the pandemic-driven slump and safer-at-home habits, thanks to pent-up demand, a sturdy housing market, and weaker competition from other discretionary purchases like travel, eating out, and supporting events. Certain divisions managed to seize the demand spike faster than others. We could seize the extraordinary product demand more effectively in the divisions shipping stock out of our warehouses, among them Hooker Branded Casegoods and Import Upholstery, along with certain Home Meridian divisions, for example Accentrics Home, which centers on e-commerce. That lift from stronger demand arrived less quickly in the Domestic Upholstery segment and in the HMI units serving customers through container-direct orders. Following a 4-week spring shutdown at our upholstery factories, output gradually climbed over the summer, reaching roughly 90% of capacity by quarter's end. Revenue will likewise trail demand in our container-direct operations at Home Meridian. Container-direct orders that big customers scrapped early in the pandemic during March and April got reinstated over the summer and will lift revenue more in the back half of our fiscal year, once production starts moving through the pipeline. We're pleased to share that profitability held up well this quarter under difficult circumstances. Consolidated operating income rose by $1.7 million, or 30%, against last year's second quarter. At the Home Meridian segment, operating income came to $1.1 million, versus a modest operating loss in the prior-year second quarter. Operating margin at the Hooker Branded segment stayed at a high level, and the Domestic Upholstery segment posted roughly breakeven operating results for the second quarter, even with lower net sales and the inefficiencies of running at much smaller volumes early in the COVID-19 crisis. Steps we took to trim spending in reaction to the economic shutdown gave profitability a sizable boost in the quarter, as did a lower cost of goods sold, since we've been steadily moving offshore production to non-tariff countries starting last year. So far this year, about 22% of our casegoods and imported upholstery products have faced the 25% tariff on finished goods brought in from China, a big drop from the 35% of imported goods hit by tariffs in the same period one year earlier. A portion of our cost-cutting was temporary, including furloughs plus cuts to executive salaries and director fees, all of which have since been restored. Other reductions will remain until greater volume justifies more spending. Our variable cost structure's adaptability has shown its value once more amid this crisis, since we could right-size the business in line with demand. Throughout this extraordinary stretch, with travel off the table and normal business conduct impossible, we resolved to treat the moment as a chance to sharpen how efficient, how effective and how sustainable our operations are; that meant doing long-range strategic planning, spotting ways to align more of our internal work, kicking off many growth efforts and directing our attention and resources toward the products, the customers and the vendors that propel our business. As one piece of our long-range focus on Hooker Furniture, back in June we shared that the Board of Directors chose Jeremy Hoff to serve as the company's next Chief Executive Officer, taking effect when I retire on January 31, 2021. My role will continue as Chairman of the Board. Jeremy came aboard Hooker Furniture 3 years ago and right now is President of Hooker Legacy Brands. He becomes the fourth Chief Executive Officer in the company's 96-year history. Over the span of Jeremy's time with Hooker, he has demonstrated that he is an excellent leader. He possesses deep expertise in both casegoods and upholstery. As an executive, he blends strategic thinking with operational focus, able to weigh sales growth against staying profitable. Crucially, I'm aware that he appreciates the culture responsible for so much of our success through the years. I have no doubt that Jeremy and the whole leadership team will lift Hooker Furniture and every one of its operating divisions to the next level. With that, I'll turn things over to Jeremy for his thoughts on results for our Hooker Legacy Brands this quarter.

Thanks, Paul. Over in Hooker Branded, incoming orders were up almost 12% from the same period last year, and we closed the quarter with a backlog 47% larger than what we had a year earlier. Net sales in the segment came in basically level year-over-year, down $584,000, or 1.5%, for the fiscal 2021 second quarter. A lot of the traditional furniture stores that had shut their doors during the economic shutdown started reopening in that fiscal 2021 second quarter, which drove more demand from the segment's biggest distribution channel. Since the industry's product introduction cycle got thrown off by the cancellation of Spring High Point Market, our team came up with creative approaches to keep excitement around new products high and to remain top-of-mind with customers. We've accomplished that via digital marketing featuring upscale photography and 360-degree videos inside a virtual showroom on our website that highlights 4 new collections; on top of that, we took part in a 3-day mini-market hosted in High Point showrooms during June; we were pleased to write solid orders on those new collections and anticipate shipping them to retail stores beginning in October. The way the interrupted product introduction cycle has played out, combined with pent-up demand from retailers and consumers for fresh furniture styles, has made the upcoming mid-September High Point Premarket considerably more important. Normally we'd see roughly 40 retail customers at Premarket, but this time we're expecting more than 100. Based on industry reports, about 235 exhibitors intend to show at the market preview, versus the 25 exhibitors that's been typical historically. We plan to roll out a major home office program at Premarket in response to the surge in demand for multifunctional furniture that makes working from home easier, since the number of people working remotely has climbed throughout the pandemic; on top of that, Hooker Casegoods will show the 4 new collections that we initially introduced virtually at the upcoming Premarket. Turning to our Domestic Upholstery segment, net sales fell $5.2 million, or 22.8%, in the second quarter compared with the same period a year earlier. When the second quarter ended, Domestic Upholstery's backlog stood roughly 45% above where it was a year ago at this time. Incoming orders dropped 5.9% versus the prior year period. In reaction to the COVID-19 pandemic and the lower order volumes in March and April, the manufacturing plants at Bradington-Young and Shenandoah were shut temporarily in April, while Sam Moore ran at reduced capacity. Upholstery production facilities began resuming operations in May. By early September, all 3 divisions were running near capacity. Division management put cost reduction measures in place earlier in the year to offset anticipated operating inefficiencies, and the segment's operating results came within $10,000 of breakeven for the quarter. Now I'd like to turn things over to Lee Boone for more detail on the HMI segment this quarter.

Thanks, Jeremy. For Home Meridian in Q2, revenue came to $71 million, which represents an 18% drop versus the same period a year earlier. Even with that lower sales volume, operating profit rose to $1.1 million, compared with the breakeven figure posted in Q2 of the prior year. Part of the reason Q2 was profitable came from the cost reductions and lower spending we put in place during Q1 as a way to counter pandemic-related effects. We've achieved meaningful headway across a number of areas that had been dragging on our bottom line. In particular, a large decrease in China tariff costs, along with surplus warehousing and freight expenses, gave the bottom line a favorable combined boost. On top of that, margins got better during the second quarter. The drop in Q2 sales stemmed mostly from COVID-19 disruptions — both at our traditional customers, who were slow to reopen stores, and at our factories, many of which had trouble restoring output to the capacity they had before COVID. Luckily, Home Meridian entered the pandemic with a solid inventory position, and that let us ship substantial volumes out of our U.S. warehouses. That said, Q2 brought a sizable drawdown in inventories, and that will weigh on our warehouse shipments in the near term until we can restock in Q3; we're refilling our stock levels as quickly as we can, but demand keeps rising faster than supply. Right now, with retail demand unusually high as it is, we expect to have difficulty getting inventories back to prior year levels until Q1 of next year. So we've moved aggressively to place new production orders with our factories so they ship as fast as possible, and we anticipate that will lift our service levels by the middle of Q3 and through Q4. At SLF, our biggest business unit measured by sales volume, profitability was strong in the second quarter even though net shipments fell 30% against the prior year. SLF's Q2 profits, which came in above prior year, reflect better margins and major spending cuts. ACH, the business unit centered on e-commerce, also turned in results, powered by remarkably strong e-commerce sales during the second quarter. This online demand — mostly a product of the pandemic shutdowns and the work-from-home trend — should stay strong for as long as the current national health crisis lasts; it's also worth noting that our e-commerce demand did ease toward the end of Q2 as our best-selling inventory started running out. PRI, our upholstery division, has shown considerable performance gains in fiscal '21. That turnaround stands out especially given the difficulties this business unit faced last year because of the China tariffs and the supply disruptions that came with them; this year's better results largely stem from stabilized production supply, strong retail demand from a couple of mega retailers, and improved margin management under the new PRI leadership team. Although these results are very encouraging, PRI confronts the same production, inventory and service level challenges that we think may hold back results in Q3 before we start closing the gap between product availability and demand. SLH, our hospitality business unit, posted a small profit in the second quarter, even with the severe negative effect of coronavirus on the hotel and motel sector. The profit came from projects that were already in motion when the pandemic arrived, plus solid cost control inside the company; for the coming few quarters, we anticipate that our hospitality sales will remain under pressure until travel conditions get closer to normal. Our clubs and mass focused division, HMidea, posted a loss in Q2, which came from a sales decline combined with customer allowances that came in above plan; once business conditions normalize, we do see a route to long-term profitability for HMidea. And finally, our step-up casegoods unit, Pulaski Furniture, delivered an operating profit in Q2, even though sales fell 32% compared with prior year. As was said earlier, that sales decrease came from order cancellations by large customers in early Q2 and from pandemic-related disruptions to factory output across the last 5 months. Though small, the PFC profit was hard-earned, achieved through relentless margin and cost management by the PFC team. Home Meridian incoming orders were extremely strong in Q2 and beat orders in the same period last year by 37%. Strong e-commerce demand drove these orders, along with surprisingly strong demand from our brick-and-mortar retailers as they reopened their stores following 4 to 6 weeks of pandemic shutdowns. Home Meridian order backlog kept building in Q2, driven by continuing strong incoming demand from our customers, many of whom are placing orders for shipment well into the future. We ended Q2 with $122 million backlog, up 32% over prior year. Going forward, our order backlog keeps building, and we are working diligently with our partner factories to maximize production and shipments so we can satisfy the unprecedented demand. Last week, HMI current backlog exceeded $150 million, which was a new record for the company; this came from a $28 million backlog increase in August alone. As Jerry mentioned earlier, we expect retail attendance at next week's High Point Premarket to be up four to fivefold. HMI is booking advanced appointments for Premarket, and initial indications point to an exceptionally well attended Premarket event. Our sales teams, samples and showrooms are ready. At this time, I'd like to turn the call over to Paul Huckfeldt, who will elaborate further on quarterly results.

Thanks, Lee. At the close of the quarter, we had $82 million in cash, which is $46 million more than we had at the end of fiscal 2020. Through this year so far, operating activities have brought in $53 million, largely driven by drawing down inventory levels and collecting on accounts receivable. As I mentioned earlier, we intend to put some of that cash toward building inventories back up to satisfy the strong demand we've seen since mid-May. Sales forecasts are being reviewed every week, and we're tweaking production orders in response to incoming demand. Our Hooker Branded business finds itself in a somewhat stronger spot since we chose not to cancel or delay orders with our Asian vendors when the pandemic first hit, whereas the HMI direct business will need a bit more time before production flow returns to normal. Both businesses are responding to the robust demand we've seen since the initial pandemic shutdown by concentrating on restocking our best-selling products, something we anticipate accomplishing within the next 60 days. That said, because of present lead times with our Asian partners, we have experienced and may keep experiencing out of stocks on certain imported products. In the quarter, average selling prices declined 1.4% for the Hooker Branded segment and rose 1% for the Home Meridian segment; consolidated average selling prices were up 1.3%, mainly because of a favorable shift in mix by division, since unit volume in the higher-priced Hooker Branded segment remained essentially flat while falling 14% in the Home Meridian segment. The drop in average selling price for Hooker Branded came from heavier discounting on e-commerce and sales of discontinued products. The rise in average selling price for Home Meridian was the result of product mix. Domestic Upholstery's average selling price fell 6.1%, reflecting a smaller mix of the higher-priced Bradington-Young products. Unit volumes in the Domestic Upholstery segment dropped 17.9%, caused by lower order volumes and running below — running under full capacity during the quarter. Consolidated gross profit fell $1.8 million to $27 million in the second quarter, yet as a percentage of net sales it climbed from 18.9% to 20.7%. The dollar decline came mostly from the — in the Domestic Upholstery segment, primarily because of the sales decrease and unabsorbed fixed costs from running at lower production levels. Hooker Branded gross profit rose both in absolute dollars and as a percentage of net sales, thanks to favorable casegoods product costs and, to a lesser degree, lower warehousing and distribution expenses during the pandemic, partly offset by higher product costs at Hooker Upholstery from a greater mix of goods sourced from China, which carries tariffs imposed over the last 2 years, as we keep shifting from China to Vietnam. In the Home Meridian segment, even with an 18% decline in net sales, gross profit dipped slightly in absolute terms while rising 220 basis points as a percentage of net sales. We think the shift in where we source from — moving away from China to countries without tariffs — worked well to bring gross margins back to where they should be, and a number of problems that hurt Home Meridian's gross margin during the previous year, such as elevated freight, warehousing and handling costs tied to excess inventory, did not happen again in the second quarter of fiscal 2020. Partly offsetting these gains were certain sales programs with lower margins. Over in All Other, net sales came in basically level for the quarter. Gross profit was down a bit both in absolute dollars and as a share of net sales, which came from an unfavorable product mix. Even though it represents a smaller portion of our consolidated results, All Other did post operating income thanks to the ongoing strong results from our H Contract division. Selling and administrative expenses on a consolidated basis declined in absolute dollars and as a percentage of net sales during the quarter. Most of that decline came from reduced selling expense on lower volume and the cost-cutting steps we took because of the COVID-19 pandemic. Partially working against those declines were greater professional service expenses and, to a smaller degree, more bad debt expense, which included recognizing current expected credit losses under the newly adopted accounting standard, ASC 326; because of all this, operating income for the second quarter of fiscal 2021 rose $1.7 million to $7.5 million, up from $5.8 million a year earlier. Operating margin went from 3.8% up to 5.8%. Turning to our balance sheet, beyond the $82 million cash balance, we could draw almost $26 million on our revolving credit facility, plus $25 million of cash surrender value from company-owned life insurance, giving us extra financial flexibility. We have confidence that our strong financial position can handle the short-term effects we expect from COVID-19; that said, if the impact drags on, it could keep hurting our sales, earnings and liquidity in a material way. At this point I'll hand things back to Paul Toms for his outlook.

Thank you, Paul. With the housing sector performing so well, demand remaining powerful from mid-May onward, and backlogs climbing 35%, we head into autumn carrying momentum and plenty of confidence. Like I said before, during the time we were shut down, we set out to pinpoint avenues for expansion, sharpen how efficiently and effectively every one of our operations runs — spanning cost cutting, extended-range strategic planning, and directing our energy and assets toward the goods, buyers, and suppliers that propel our company. Each of these efforts is going to produce favorable results over the long haul; we feel uneasy about the human and financial damage caused by COVID-19, right now as well as the chance of further virus waves later that could hold up reopenings and create negative consequences in particular areas or states; even so, our team is extremely capable and our financial standing is superb. We made it through last year's tariff upheaval and the pandemic up to this point in the current year. We are thoroughly ready to confront a future full of unknowns and ideally situated to capitalize on furniture's rise as a favored category. That concludes the official portion of what we're covering today, and I'll hand things back to Jimmy, our operator, so we can take questions. Thanks.

It's clearly a positive sign that the backlog rose 35% during the quarter. So how are we supposed to think about when that will actually be recognized as revenue? I realize you've mentioned certain supply chain limitations, and since demand exceeds supply, I just wanted a clearer picture of how that backlog ought to be viewed in terms of turning into revenue.

Anthony, Paul Toms here. Appreciate you being with us, and thank you for asking. The situation differs quite a bit among our various businesses, yet the soonest effect will likely show up in the Hooker Branded segment; in-transit inventories have risen, roughly twice their typical level. And since Hooker ships a far greater share from the warehouses, that in-transit inventory should, I believe, perhaps — we're already beginning to see warehouse receipts in Virginia that are twice our usual amounts. So my sense is that within the coming 2 months, the Hooker Branded segment ought to be back in stock. Much of what arrives will go right back out the door. Whether we'll significantly build inventories, I'm not certain, but we will get the goods required to satisfy the demand we have on hand. Home Meridian could take somewhat longer, perhaps 30 to 60 days, even though this month they're beginning to receive certain bestsellers for the e-comm channel at West Coast facilities. After that, container-direct, which represents a very large portion of Home Meridian's record backlog, will ship a bit in Q3, likely more in Q4, and part of that backlog is in fact intended for next year. We're noticing big customers placing orders further ahead than is usual for them. A typical order might be 4 months out, whereas now it may be 5, 6, 7 months, given the backlogs Asian factories are carrying. Another area I feel especially good about is our Domestic Upholstery. Looking at the volume generated in Q1 and Q2, it's nowhere near their capacity; we were hit fairly evenly. Given how our quarters land, with April in the first quarter and May in the second, those 2 months were when production shutdowns affected us most. So my sense is we came into the third quarter producing at what we call 90% of capacity. And absent absenteeism related to COVID, I believe we're positioned very well. Strong backlogs across all 3 Domestic Upholstery divisions, record backlog. I don't know the records, but the backlogs are enormous, far larger than last year, and that ought to let us run very full schedules through the whole third quarter.

Understood. Yeah. So we saw a nice increase in gross margin this quarter — how long do you figure that kind of improvement can last? I realize you mentioned shifting manufacturing away from China to other nations. But I was hoping to better grasp what our expectations for gross margins ought to be moving forward?

My view is that they can hold up quite well. Everything we've done involves relocating away from China toward countries without tariffs. Some areas still have complications. Capacity needs time to catch up, yet my belief is that over the long run these should remain durable, and margin management is something we're paying attention to as well. So we are reviewing these programs and confirming that our product pricing is correct and our costs are right; so I'd say it's sustainable.

And then, Domestic Upholstery, it should improve as production schedules are more.

Right.

Understood. All right. Now regarding limits in the supply chain, is there anything you're noticing either within the country or beyond the U.S. when it comes to securing raw materials? Is there anything you'd like to highlight regarding possible cost pressures or perhaps favorable factors?

The main item I'd probably mention is that whenever an entire industry is performing strongly, labor tends to be difficult in Vietnam at this moment, even though we hear from certain suppliers that this is the case while others claim it isn't, saying they can draw the workers they require. And I suppose there are parts of the economy that haven't performed as strongly, and perhaps a few of those aren't experiencing the massive spike in demand that this furniture is. Shipping has likewise been difficult, both in obtaining the containers we need to ship goods out of Asia and in terms of space on the ships; however, from what I've gathered in everything I've read, the steamship companies will add more vessels as they observe a lasting need for them. And based on everything I'm seeing, it's possible that container pricing has already hit its peak, with expectations of it being somewhat lower moving forward.

Understood. Then could you refresh our memory about your current level of sales penetration into online retailers?

I suppose I could try, but I doubt I have that precise figure on hand. It's likely lower than what it was during the previous quarter. During that prior quarter, we might have mentioned it accounted for 15%, 20% of overall business; however, in that same period, many physical stores were shut, and they essentially began reopening from the middle of May. Thus, for no less than 2/3 of that quarter, you had conventional shops and physical locations open again, and their performance was outstanding too. So I'd say e-commerce has likely dipped somewhat this quarter as a share of sales.

Understood. All right, then I have two additional questions; Jeremy, I believe you brought up the home office segment and mentioned that you're pushing further into it. Could you help us understand your current level of penetration in home office products? And what's the right way to think about that moving forward?

Anthony, what I'd say is that we've performed quite well within the upper end portion of our line. Our emphasis leans toward the best category. The program we're launching — and in fact, we've already placed orders for it — will place greater emphasis on better. It remains positioned in the middle, and it will certainly allow us to grab additional market share, which is exactly what we're aiming for. So for our business, as a category, it does make an impact.

Understood. Alright, so turning to the final item — what's the right way to frame how you're prioritizing uses of capital? You mentioned stockpiling some inventory, I realize, but even so, your balance sheet is quite strong; so regarding where cash gets deployed, what's on your radar? And perhaps you could address whether any acquisitions might be on the table?

Sure — to start, supporting the existing operation comes first for us; that means accumulating inventory and carrying us through the heavy fall selling period, which will be our main focus. Past that, I believe we've stated fairly regularly that expanding through acquisitions would rank as a priority. As for us — when it comes to a particular acquisition, there's nothing we're able to discuss. Still, I'd say that's definitely on our radar and something we might pursue down the road. Those 2 things strike me as the main ones, along with simply preserving a strong, steady balance sheet. That has treated us quite well across the company's lengthy history and, more recently, during the previous recession as well as throughout this pandemic. Keeping a strong balance sheet, I'd argue, has been among our truly standout strengths. So maintaining a strong balance sheet is something that will always rank as a priority, in my view. Past that, though, I'd say a wise acquisition is likely the next finest option.

Understood. All right, and I have one brief additional question on that point; regarding the dividend, I mean, would you also be looking at raising it as time goes on?

What we've done historically is, number one, keep the dividend in place. I believe that's been the case for 50 years; and number two, to increase it every year. And there was a period in the 2008 to 2009 recession when growth wasn't possible, though we did keep it. And since then, for the last 7 or 8 years, we've raised it fairly consistently and definitely plan to continue doing so moving forward.

Nice work on such a robust quarter. Could you speak to the specifics of bringing goods in from Vietnam as opposed to China, particularly regarding profitability? Do gross margins come in roughly equal, or perhaps somewhat reduced, when the source is Vietnam?

Actually, gross margins come in higher, since the items we bring in from Vietnam don't carry the tariffs that apply to goods originating in China. Beyond that, there are additional considerations — the tariffs stand at 25%. Moreover, certain other items, a number of the goods we bring in from China, face extra duties; bedroom, for instance, carries a duty of roughly 7% from one of our main vendors. Within the hospitality segment, additional duties apply to quartz tops, I believe, along with certain cabinets. So as for margins — the initial cost might be somewhat elevated from Vietnam on certain items, yet margins come in substantially stronger.

Setting the tariff aside, would the profit levels in Vietnam and China end up roughly equal?

Yes, they would be comparable.

All right. And I have one last thing to ask. You — in fiscal year 2019, your company made $3.38 in EPS; and I get that a portion of that might have been preorders tied to that entire China tariff situation from the year after; but even if you adjust for that, do you — at what point do you expect — or do you expect our company to have earnings potential of $3 per share down the road, particularly given how strong housing is too?

Well, clearly, the 25% tariff being imposed hit us first, along with needing to respond to it, which meant, in a lot of cases, absorbing much of that tariff, plus all the chaos it created. And after that, well, a 10% tariff, then a 25% tariff, and then this pandemic has truly disrupted the industry; so it will take — we've had a couple of years of underperformance. But my expectation is that our basic business is good. Housing is good and I think we'll get back to that, though not this year. What I'd say is it's going to take a couple of years to return to that. But yes, I believe the potential is there. We think the business exists and is back to growing.

Yes, Paul Toms here. I completely share the view Paul Huckfeldt just expressed. My take, however, is that this requires us to rebuild the business — our revenue base is smaller today than it was back when we made $3.38, so regrowing the company is essential. We've made substantial progress shifting sourcing from China to nations without tariffs — much of it in Vietnam, though certain portions are in Malaysia and elsewhere; that transition still has to be finished. And — but yes, the opportunity is certainly there. It will take a few years, yet we firmly believe we can keep growing the company over the long term and lift earnings.

You talked about how long you think it will take to get inventory back to a more normal level, but could you put a number on what a more normalized inventory level actually looks like? And given that inventory could be somewhat tight over the next 3 to 6 months, do you anticipate any additional pricing power that could add to gross margins beyond what you're already working on when it comes to protecting your margins?