Hooker Furnishings Reports Positive Momentum in Fiscal 2023 Second Quarter

Hooker Furnishings Corporation (NASDAQ-GS: HOFT) today reported consolidated net sales of $152.9 million for its fiscal 2023 second quarter ended July 31, 2022, a $9.6 million, or 5.9%, decrease as compared to a year ago.

Consolidated net income for the quarter was $5.5 million, or $0.46 per diluted share, as compared to $7.5 million or $0.62 per diluted share in the prior year period. Consolidated operating income for the quarter was $7.3 million compared to $9.7 million in the prior year period.

For the fiscal 2023 first half, consolidated net sales were $300.2 million, a decrease of $25.2 million or 7.7%, and net income was $8.7 million, or $0.73 per diluted share, as compared to $16.9 million, or $1.40 per diluted share in the prior year first half.

“We are in a much better position for the second half than a year ago when factories overseas closed due to the Covid-19 pandemic,” said Jeremy R. Hoff, chief executive officer and director. “Strong backlogs, full production capacity and optimum inventory levels position us to grow sales across all three segments as the second half progresses.”

“While consolidated sales were down modestly from a year ago, they improved from last quarter, and we expect an even more positive trajectory going forward,” he said. “As factory production in Asia ramped up to near full capacity, consolidated sales and earnings exceeded our internal expectations, and we reported sales increases in 2 of our 3 segments.”

“We believe that overstocked retailer inventories have contributed heavily to the reduction in orders throughout the industry we’ve seen so far this fiscal year. We believe retail business will remain solid as retailers rebalance their inventories and prepare for the fall and holiday selling seasons, a historically brisk time of year in the furniture industry,” Hoff said.

Segment Reporting: Hooker Branded

The Hooker Branded segment’s net sales increased by $2.9 million, or 5.8%, compared to the same period a year ago. Both Hooker Casegoods and Hooker Upholstery achieved an uptick in sales during the quarter.

As Asian suppliers resumed production and shipments earlier this year from Covid shutdowns, inventory receipts at our U.S. warehouses increased each month, allowing us to fulfill orders and reduce backlogs. “At the end of the quarter, inventory levels increased by $33 million compared to the prior year end and by $15 million compared to the previous quarter-end, and we had $24 million of in-transit inventory,” said Paul A. Huckfeldt, senior vice president -finance & accounting & chief financial officer. “A high percentage of the in-transit inventory is sold orders that will help us work our backlog back to more normal levels over the remainder of this year,” he said.

Incoming orders in the Hooker Branded segment decreased as compared to the prior year quarter when home furnishings benefitted from dramatic post-COVID demand. Quarter-end backlog was at a comparable level to the prior year second quarter end but was 21% lower than at fiscal 2022 year-end due to increased shipments during the quarter. “Hooker Branded backlog was still over four times higher than pre-pandemic levels in calendar 2019.” Huckfeldt said.

Segment Reporting: Home Meridian

The Home Meridian segment’s net sales decreased by $28.3 million, or 32.4%, compared to the prior year quarter, due to lower sales at mass merchants and furniture chains from retailers who accelerated orders in the prior year and are currently rationalizing their inventory levels. About 40% of the sales decline is attributed to HMI’s exit from the unprofitable Clubs channel. Lower sales in the e-commerce channel were also a factor, as sales in this channel returned to pre-pandemic levels and growth rates. These decreases were partially offset by continued recovery in the hospitality business and the launch of the Pulaski Upholstery division which is targeted at medium price points not currently serviced by other divisions.

“Having mostly recovered from the factory shutdowns in the second half of last year, we anticipate that HMI will achieve sales growth in the second half of this fiscal year as they exit unprofitable channels to focus on building a more diverse, sustainable and consistent core business,” said Hoff. “We are looking forward to the upcoming introduction of “Portfolio,” a new focus on additional channels of distribution through a warehouse stocking program out of the new Savannah, Georgia warehouse. The program encompasses an assortment of over 1,000 ready-to-ship SKUs across four of HMI’s brands with no order minimums. Launching during the October 2022 High Point Market, the rollout of Portfolio will enable us to further diversify our customer base and distribution channels for HMI, allowing us to reach a vast network of independent retailers and interior designers,” Hoff said. “Servicing the new Portfolio program required an inventory mix change and not an overall increase in our inventory.”

Incoming orders and backlogs decreased as compared to last year when demand was exceptionally strong, and orders were not converting to shipments as quickly as expected. Additionally, mass merchants continue to rationalize their inventories to match current demand levels. At quarter-end, HMI’s backlog levels are similar to levels at the same time in calendar 2019.

Segment Reporting: Domestic Upholstery

The Domestic Upholstery segment achieved the sixth consecutive quarter of double-digit sales gains, with net revenues increasing by $14.7 million, or 62%, as compared to the prior year quarter. The increase was driven by organic sales growth at Bradington Young, Sam Moore and Shenandoah, as well as the addition of Sunset West’s results.

“Although we experienced some disruptions of the delivery of raw materials for production, all three divisions were operating near full capacity with shipments exceeding prior year periods and our internal goals,” Huckfeldt said. “However, gross margins decreased in the fiscal 2023 second quarter due to significantly increased raw material costs, partially offset by overhead absorption on higher sales volume.”

Incoming orders decreased due to current lead times and high backlogs. Quarter-end backlog was at the same level as the prior-year quarter but was 7.8% lower than at fiscal 2022 year-end as higher shipments reduced backlog. Overall, the Domestic Upholstery backlog was five times pre-pandemic levels in calendar 2019.

Cash, Debt and Inventory

Cash and cash equivalents stood at $11.7 million at fiscal 2023 second quarter-end, down $57.7 million as compared to the balance at the fiscal 2022 year-end due principally to a $56.1 million increase in inventory. During the fiscal 2023 second quarter, we received $25 million in term loan proceeds to replenish cash used to make the Sunset West Acquisition in the first quarter. At quarter end, inventories stood at $131.1 million, including the $34 million in transit to our domestic warehouses.

“With the near-record amounts of in-transit inventory, our cash levels have dropped temporarily,” said Huckfeldt. “Because a high percentage of the in-transit inventory is sold, we expect to quickly convert the inventory to shipments and for cash balances to improve later in the fiscal year. However, we have $27.9 million available on our revolving credit facility to support our working capital needs,” he said. During the quarter, we purchased over 68,000 shares at an average price of $16.59 per share under the share repurchase authorization our Board approved at our last meeting and have continued to purchase shares since then. Through September 7, 2022, we have purchased a total of 362,000 shares at a total cost of $5.9 million.

Outlook

“We are closely monitoring economic disrupters like inflation, rising interest rates, and a slowing housing market,” said Hoff. “At the same time, we see many reasons for optimism as the U.S. enjoys strong levels of employment, rising household incomes, continuing strength in consumer spending and watching as another sizeable generation enters into their prime furniture purchasing years.”

“While incoming orders are down, we have substantial backlogs to ship and we believe the reduction of incoming orders from retailers is temporary, and more a result of right-sizing their inventories than a significant decline in normalized consumer demand,” Hoff continued.

“Based on what we have heard from our retail partners, we expect that the fall and holiday seasons will align more closely with pre-pandemic ordering environment. We’re preparing for a strong second half of the year, and based on our backlogs and solid inventory position, we are on track to increase sales in all three segments.

“We believe organic growth will be buoyed by several new strategic initiatives including our recent entry into outdoor furniture, expansion of our presence in the interior design channel in all segments along with the post pandemic recovery within the hospitality and contract businesses. HMI’s portfolio program launches at the upcoming October High Point market which should accelerate the expansion of our Home Meridian customer base, as we roll the program out,” Hoff said.

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About Hooker Furnishings Corporation

Hooker Furnishings Corporation, in its 98th year of business, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture, and fabric-upholstered furniture for the residential, hospitality and contract markets. The Company also domestically manufactures premium residential custom leather and custom fabric-upholstered furniture and outdoor furniture. Major casegoods product categories include home entertainment, home office, accent, dining, and bedroom furniture in the upper-medium price points sold under the Hooker Furniture brand. Hooker’s residential upholstered seating product lines include Bradington-Young, a specialist in upscale motion and stationary leather furniture, Sam Moore Furniture, a specialist in upscale occasional chairs, settees, sofas and sectional seating with an emphasis on cover-to-frame customization, Hooker Upholstery, imported upholstered furniture targeted at the upper-medium price-range and Shenandoah Furniture, an upscale upholstered furniture company specializing in private label sectionals, modulars, sofas, chairs, ottomans, benches, beds and dining chairs in the upper-medium price points for lifestyle specialty retailers. The H Contract product line supplies upholstered seating and casegoods to upscale senior living facilities. The Home Meridian division addresses more moderate price points and channels of distribution not currently served by other Hooker Furnishings divisions or brands. Home Meridian’s brands include Accentrics Home, home furnishings centered around an eclectic mix of unique pieces and materials that offer a fresh take on home fashion, Pulaski Furniture, casegoods covering the complete design spectrum in a wide range of bedroom, dining room, accent and display cabinets at medium price points, Pulaski Upholstery, stationary and motion upholstery collections available in fabric and leather covering the complete design spectrum at medium price points, Samuel Lawrence Furniture, value-conscious offerings in bedroom, dining room, home office and youth furnishings, Prime Resources, value-conscious imported leather upholstered furniture, and Samuel Lawrence Hospitality, a designer and supplier of hotel furnishings. The Sunset West division is a designer and manufacturer of comfortable, stylish and high-quality outdoor furniture. Hooker Furnishings Corporation’s corporate offices and upholstery manufacturing facilities are located in Virginia and North Carolina, with showrooms in High Point, N.C., Las Vegas, N.V., and Ho Chi Minh City, Vietnam. The company operates distribution centers in North Carolina, Virginia, Georgia, California, China and Vietnam. Please visit our websites hookerfurnishings.com, hookerfurniture.com, bradington-young.com, sammoore.com, hcontractfurniture.com, homemeridian.com, pulaskifurniture.com, accentricshome.com, slh-co.com, and sunsetwestusa.com.

Contact:

Jeremy R. Hoff – Chief Executive Officer & Director – (276) 632-2133

Source: Hooker Furnishings Corporation