Hooker Furnishings Posts Double-Digit Income Gains in Third Quarter

Hooker Furnishings Corporation (NASDAQ-GS: HOFT), a global leader in the design, production, and marketing of home furnishings for nearly a century, today reported operating results for its fiscal 2024 third quarter and nine-month period ended October 29, 2023.

Fiscal 2024 Third Quarter Overview:

• Consolidated net income for the quarter increased 45.4% to $7 million or $0.65 per diluted share, compared to $4.8 million or $0.42 per diluted share a year ago. Consolidated operating income increased 36.6% compared to the prior year quarter. Operating income and margin were $8.8 million and 7.5% as compared to $6.4 million and 4.2% in the prior-year third quarter, due to improved profitability in the Hooker Branded and Home Meridian (HMI) segments.
• Consolidated net sales for the fiscal 2024 third quarter decreased by $34.7 million, or 22.9%, compared to a year ago, driven by continued soft demand for home furnishings, as well as the Company’s exit from the Accentrics Home product line. Net sales declined in each of the three segments versus the prior year period. However, HMI segment’s sales increased compared to the first and second quarters of the current fiscal year, sparked by a large volume of shipments for new product placements. Hooker Branded sales also increased compared to the previous quarter in the current fiscal year.
• The Company’s strategy to reposition the Home Meridian Segment from a volatile, high-risk model with unpredictable profitability to a lower risk, more sustainable revenue and profit model is beginning to yield tangible results. As the Company forecasted, the Home Meridian segment achieved a quarterly operating income for the first time since calendar year 2021. The segment contributed $0.9 million to income in the current-year third quarter compared to a $3.2 million loss in the prior-year third quarter.
• For the fiscal 2024 nine-month period, consolidated net sales decreased by $115.4 million, or 25.5%, as compared to the same period last year. The nine-month results were driven by decreased net sales in all three segments, attributable to industry-wide soft demand, as well as the exit from the Accentrics Home product line which accounted for about $10 million of the decrease. Consolidated operating income and margin were $12 million, or 3.6%, as compared to $17.6 million and 3.9% in the prior-year nine-month period. Consolidated net income was $9.3 million or $0.85 per diluted share, as compared to $13.6 million or $1.14 per diluted share in the prior-year nine-month period.

Management Commentary

“Despite a challenging macroeconomic environment for the home furnishings industry, we’re proud of our team for persevering through some difficult decisions and short-term pain to create a more sustainable and profitable business model for Hooker Furnishings,” said Jeremy Hoff, chief executive officer. “After spending considerable time repositioning HMI to focus on its core products and businesses, it is encouraging to see HMI report a quarterly profit for the first time in two years and contribute to our overall profitability. Liquidating excess inventories, rightsizing our overhead and exiting unprofitable businesses have put us in a much stronger overall position,” Hoff said. “Ongoing execution of our strategic growth initiatives is our main focus,’ he continued.

“While the housing market slowdown driven by high interest rates, and a shift in consumer discretionary spending away from home furnishings continue to challenge, we’re encouraged by positive indicators like the normalization of ocean freight rates, eased supply chain constraints, more stable raw material costs and increased labor availability.

“Demand is improving, with consolidated orders up $12.7 million, or 15.7%, for the third quarter versus the prior year period. For the first nine months, consolidated orders increased by $75.8 million or 33.5%,” he said. “Most of the consolidated increase is driven by Home Meridian segment orders which were unusually low in both prior year periods.”

“The recent Fall High Point Market was positive by all measurables across the company,” Hoff added. “Increased visibility is one of our major strategic objectives. Adding two smaller showrooms in Las Vegas and Atlanta, while moving to our largest High Point showroom, has created an exponentially larger audience for our products on the Legacy side of our business, including Sunset West. HMI also had a good market as they focused on strengthening the product assortment for Pulaski (PFC), Samuel Lawrence Furniture (SLF) and Prime Resources International (PRI). The efforts by our team at HMI have reenergized and repositioned the product offerings for growth and have received a lot of positive retail feedback along with new placements,” he said.

“As reported previously, the collective impact of our new showrooms in High Point, Atlanta and Las Vegas has increased our customer contacts from about 3,000 to around 14,000 annually, more than quadrupling the number of existing and potential customers. In the first half of the fiscal year, we opened 1,000 new accounts as visibility and engagement increased. This quarter that pace continued as we added 150 new customers on average per month,” Hoff said.

Segment Reporting: Hooker Branded

• Weak home furnishings demand drove a net sales decrease in the segment of $17.5 million or about 31%. Also contributing to the net sales decrease in the segment were short-term delays related to the implementation of a new ERP over Labor Day weekend which had an impact of approximately $3 million, which would have positioned the business down 26% for the quarter. However, Hooker Branded reported a solid operating income of $7.3 million and an operating margin of 18.6%, an improvement compared to $5.9 million and 10.3% in the prior-year quarter.
• For the fiscal 2024 nine-month period, net sales decreased by $35.2 million, or 22.8%, also due to softer demand for home furnishings.
• Gross profit and margin both increased in the fiscal 2024 third quarter despite the decline in net sales. This favorable outcome was attributed to significantly decreased product costs driven by lower ocean freight rates. In addition, warehousing costs decreased due to lower demurrage and drayage expenses, as well as lower labor and compensation expenses due to reduced shipping activities.
• The higher-than-average gross profit margin of 45.6% for the quarter was temporarily elevated due to timing issues with reduced freight and product costs. While price decreases and promotions were implemented in August, the majority of inventories sold in the quarter still carried price increases implemented in a prior year, resulting in the unusually high gross margin. We expect Hooker Branded margins to normalize to historical levels in the coming quarters.
• Incoming orders increased by 7% compared to the prior year’s third quarter and this year’s second quarter. Although quarter-end order backlog was lower than the prior-year quarter-end, it increased from this year’s second quarter-end and remained nearly 70% higher than pre-pandemic levels at the end of fiscal 2020 third quarter.

Segment Reporting: Home Meridian (HMI)

• Home Meridian’s segment net sales decreased by $6.9 million, or 13.6%, compared to the prior-year third quarter, but increased compared to the first and second quarters of the current fiscal year. Sales decreases in the e-commerce channel previously served by ACH accounted for over 40% of the overall decrease in the segment, due to our exit from the ACH line. The remaining decreases in the segment were driven by sales decreases at SLF, PRI and PFC, the divisions that serve independent furniture stores and major furniture chains. These decreases were partially offset by strong sales at Samuel Lawrence Hospitality (SLH), which reported sales increases of 152% and 46% for the third quarter and nine-month periods, respectfully.
• Despite the net sales decrease, HMI gross profit and margin increased by $3.4 million or 940 bps, in the fiscal 2024 third quarter. This increase was attributed to improved margin as we exited from the unprofitable sales channels and product lines, decreased product costs, and increased profitability at SLH. Furthermore, decreased costs in the Georgia warehouse, and decreased wage expenses due to organizational and personnel changes, all contributed to the increase of gross profit and margin. For the fiscal 2024 nine-month period, gross profit slightly decreased driven by sales decreases, while gross margin increased by 530 bps due to the previously mentioned factors, as well as the absence of warehouse transition and start-up costs incurred in the prior year first quarter.
• Home Meridian recorded a quarterly operating income of $0.9 million compared to a $3.2 million operating loss in the prior-year third quarter.
• Liquidations of inventories that were written down in the prior-year fourth quarter were essentially completed during the quarter and had immaterial impact on gross profit. Inventory levels decreased by $15 million as compared to the year-end and $46 million compared to the prior-year third quarter. In addition, we have realigned our inventory mix to reflect our current business plan and reduced our footprint in the Georgia warehouse by 200,000 square feet in the second quarter. We also entered into an agreement in the third quarter to reduce another 200,000 square feet by early next fiscal year.
• Incoming orders were 19% higher than the prior-year third quarter, but lower than the current year first and second quarters’ orders as our retail customers are matching inventories to current soft demand for home furnishings. Quarter-end backlog was lower than the same period last year and the first and second quarters of fiscal 2024.

Segment Reporting: Domestic Upholstery

• After two years of sales growth, Domestic Upholstery net sales decreased by $10.9 million, or 25%, in the fiscal 2024 third quarter due to lower demand. All four divisions reported sales decreases for both the quarter and the nine-month period.
• Gross profit and margin both decreased in the fiscal 2024 third quarter and nine-month period driven by net sales decreases. Direct material costs were 220 bps and 310 bps below prior year periods due to more stable raw material costs. However, these decreases were more than offset by under-absorbed indirect costs, which were 440 bps and 370 bps higher as compared to the prior-year third quarter and nine-month period, respectively, and consisted primarily of indirect labor costs.
• Incoming orders increased by 39% in comparison to the third quarter of the previous year, as Bradington Young, HF Custom and Shenandoah all recorded increased orders. Sunset West orders remained unchanged as compared to the prior-year third quarter. Quarter-end backlog for the segment slightly decreased from the second quarter end. Bradington-Young backlog was 2.5 times that of the pre-pandemic levels at fiscal 2020 third quarter end, while the backlogs for HF Custom and Shenandoah decreased to levels comparable to fiscal 2020.

Cash, Debt, and Inventory

• Cash and cash equivalents stood at $40 million at fiscal 2024 third quarter-end, an increase of $21 million from the prior year-end. Inventory levels decreased by $32 million from year-end and $69 million from this time a year ago. During the nine-month period, $48.8 million of cash generated from operating activities funded $11.7 million in share repurchases, $7.2 million in cash dividends to shareholders, $5.7 million in capital expenditures including investments in the new showrooms, $3.8 million for development of our cloud-based ERP system, and $2.4 million for the BOBO acquisition.
• Since the share repurchase program began in the second quarter of last year, a total of $25 million has been spent to purchase and retire 1.4 million shares of common stock. The share repurchase program was completed during the fiscal 2024 third quarter.
• In addition to the cash balance, an aggregate of $27.2 million was available under our existing revolver at quarter-end.

Capital Allocation

“Going into the end of the year, our inventory levels are aligned with current demand and our S&OP process is working well,” said Paul Huckfeldt, chief financial officer. “Our balance sheet gives us the cushion to get through the softer demand we’re seeing in the fourth quarter and continue to fund our internal growth initiatives, as well as maintaining our dividend and funding some capital projects, including further development of our ERP, which is now live at the Hooker Legacy divisions.”

Dividends

On December 5, 2023, our board of directors declared a quarterly cash dividend of $0.23 per share which will be paid on December 29, 2023 to shareholders of record at December 15, 2023. This represents a $0.01 per share or 4.5% increase over the previous quarterly dividend and the eighth consecutive annual dividend increase.

Outlook

“While economic indicators remain mixed and furniture industry retail traffic is down about 15% from January through October 2023, we believe the long-term economic outlook has improved which bodes well for Hooker and the industry,” said Hoff. “Reduced housing activity and high mortgage interest rates are still challenging, but several positives have emerged since last quarter. Core inflation is at the lowest level since 2021, the US economy grew nearly 5% last quarter, unemployment remains at record lows and a recession appears less likely.

“As mentioned earlier, current retail conditions are soft, but consolidated orders are up $12.7 million, or 15.7% for the third quarter. For the first nine months, consolidated orders increased by $75.8 million or 33.5%,” Hoff said.

“As we look to the next quarter, we see flat sales for our higher-priced Hooker Legacy brands as compared to the prior year fourth quarter. We expect that the current downturn in the furniture retail business will temporarily suppress sales growth at HMI through the fourth quarter. However, significant new retail product placements achieved by HMI recently should begin to buoy sales by the first quarter of next fiscal year as the placements generate orders and backlogs.

We believe a lot of our growth initiatives will begin to gain traction in the first half of calendar 2024. We believe that our focus on reducing costs, keeping our balance sheet strong and judiciously deploying capital, along with our investments to promote higher visibility and future growth will continue to put us in the strongest possible position to leverage a return of furniture demand to more typical levels,” Hoff concluded.

About Hooker Furnishings Corporation

Hooker Furnishings Corporation, in its 99th year of business, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture, fabric-upholstered furniture, lighting, accessories, and home décor 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, HF Custom (formerly Sam Moore), a specialist in fashion forward custom upholstery offering a selection of chairs, sofas, sectionals, recliners and a variety of accent upholstery pieces, 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 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 International, 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, North Carolina and California, with showrooms in High Point, N.C., Las Vegas, N.V., Atlanta, G.A. and Ho Chi Minh City, Vietnam. The company operates distribution centers in Virginia, Georgia, and Vietnam. Please visit our websites hookerfurnishings.com, hookerfurniture.com, bradington-young.com, hfcustomfurniture.com, hcontractfurniture.com, homemeridian.com, pulaskifurniture.com, slh-co.com, and sunsetwestusa.com.

Contact:

Paul A. Huckfeldt – Senior Vice President & Chief Financial Officer – (276) 666-3949

Source: Hooker Furnishings Corporation