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Hooker Furniture Reports Fourth Quarter Profitability Improvements, Continued Strong Demand and Increased Backlogs

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Hooker Furniture Corporation reported consolidated net sales for the fiscal 2021 fourth quarter of $155.3 million, with net income of $8.5 million, a $1.5 million or 22% increase compared to net income in the fourth quarter a year ago. Earnings per share for the quarter were $0.71 per diluted share, an increase of 20%.

Net sales for the quarter, which began November 2, 2020 and ended January 31, 2021, decreased by $9.6 million, or 5.8%, compared to last fiscal year’s fourth quarter sales. Sales increased in two of the Company’s three reportable segments for the quarter, with Hooker Branded sales up almost $10 million or 25% over the prior year quarter, and Domestic Upholstery sales up approximately $1.4 million or 6% compared to the quarter a year ago. The consolidated sales decrease for the quarter was driven by a $20.2 million sales decline in the Home Meridian Segment, where global supply chain disruptions constrained the segment’s ability to ship strong orders and backlogs.

For the 2021 fiscal year which began on February 3, 2020 and ended January 31, 2021, Hooker Furniture Corporation (“HFC”) reported sales of $540.1 million, an 11.6% decrease from the prior year’s sales of $610.8 million, driven by a $58 million decrease in Home Meridian segment revenues. For the year, the Company reported a net loss of $10.4 million, or $0.88 per diluted share, compared to net income of $17.1 million, or $1.44 per diluted share a year ago.

The 2021 fiscal year net loss was driven by $44.3 million in non-cash impairment charges ($33.7 million net of tax) to write down goodwill and tradenames in the Home Meridian segment and goodwill in the Shenandoah division of the Domestic Upholstery segment. As previously reported, the adverse economic effects of the COVID-19 pandemic triggered an intangible asset impairment analysis in the first quarter of fiscal 2021 in the depths of the COVID-19 economic crisis, which required the Company to perform a valuation of its intangible assets. The Company’s deflated first quarter-end market valuation, which was near a six-year low at the time, was a primary input in the valuation analysis which indicated the assets were impaired and should be written down. The valuation led to the impairment charge and HFC’s first annual net loss since 1929.

Excluding impairment charges, operating income for the fiscal year improved by about $7.2 million. HFC ended the year on a strong note with orders almost 6% higher than the prior year and an order backlog more than double the same time a year ago.

“The volatile economic environment driven by the COVID-19 pandemic resulted in one of the most challenging years in our 97-year history,” said Jeremy Hoff, chief executive officer of HFC. “We’re pleased that we have been able to recover from a severe downturn in our business in much of the first half of the year to achieve the profitability and sales increase we reported in the fiscal 2021 fourth quarter. Beginning in June 2020, the Company began to experience historically high levels of demand and backlogs that continue to be robust and sustainable. We believe this level of demand sets us up for a solid shipping year in fiscal year 2022, assuming global logistics bottlenecks continue to improve.”

As HFC responded to multiple disruptions during the year, “We believe our strategic adaptations placed the Company in a stronger competitive position than pre-pandemic,” Hoff said. “The scale of our Company, strength of our balance sheet, and skills and dedication of our US and international teams enabled us to successfully navigate a devastating macroeconomic event in a way that well positions the Company to take advantage of the improving economy, a robust housing market and a strong demand environment for the home furnishings industry.”

Some of the enduring strategic adaptations HFC made during the year included “an increased diversity of suppliers, a faster product-to-market strategy utilizing video for customer showroom tours and improved photography, and the rationalization of our product line to maximize production capacity and capital utilization,” Hoff said.

The Company’s strong profitability performance in the fourth quarter builds on improvements in the 2021 third quarter, in which HFC reported net income of $10 million, an increase of $6.2 million or 158% compared to the same period a year ago. “Another indicator of our strong second-half recovery is that about 75% of the consolidated net sales decrease for the year occurred in the first half of fiscal 2021 caused by the initial severity of the COVID-19-related economic crisis to our Company as a whole,” Hoff said.

Segment Reporting: Hooker Branded

The Hooker Branded Segment recovered at the fastest pace among all of the Company’s reportable segments, with sales rebounding in the third and fourth quarters. In the fourth quarter of fiscal 2021, Hooker Branded sales were $49.2 million, up almost $10 million, or 25% over the prior year quarter.

Net sales for the full fiscal year were essentially flat, increasing slightly by $452,000, or 0.3% in fiscal 2021. Incoming orders increased at a double-digit percentage starting in June, sustaining through year end, and the segment finished the year with a backlog two times higher than a year ago. The segment is in the process of re-building inventories to meet current demand and increased orders. However, current logistics challenges including the availability of shipping containers, vessel space and Asian production capacity restraints are slowing that process. The Company expects these headwinds to gradually improve over the course of the year.

For the fiscal year, the Hooker Branded Segment reported $22.8 million in operating income, an increase of $1.3 million or approximately 6% compared to the prior year. “Given the economic circumstances, we are especially pleased to have not only maintained, but improved, Hooker Branded Segment profitability compared to pre-pandemic conditions a year ago,” Hoff said.

Segment Reporting: Home Meridian

Home Meridian’s (“HMI”) Q4 of fiscal 2021 sales were nearly $80 million, down 20.2% from the prior year quarter. “The Q4 sales decline was primarily the result of disrupted global logistics driven by the economic impacts of COVID-19 on manufacturing capacities, raw materials, and the availability of shipping containers,” said Lee Boone, president of the HMI Segment.

Fourth quarter operating income was $683,000, a decrease of $1.2 million versus the prior year. The reduction in profit was caused by the smaller top line compared to a year ago, which more than offset the improved gross margin.

“Retail demand remains strong for our products, and we ended Q4 with backlogs more than double their levels of a year ago,” Boone said. “Orders in the quarter were down 26% versus last year after being up 36% in Q3; however, this decline is primarily the result of extended shipping lead times,” he said.

Full-year results also were significantly impacted by the pandemic-related economic downturn. HMI 2021 fiscal year revenue was off 17% versus the prior year, driven by the same dynamics that deflated Q4 sales. “In addition, the current dramatic downturn in the hospitality industry, which is highly dependent on travel, resulted in a sales decrease in our Samuel Lawrence Hospitality division that accounted for 45% of our total revenue decline for the year,” Boone said.

“On a positive note, excluding impairment charges of $27.9 million recorded in Q1, operating profit for the year was about $2 million, an improvement of $9 million compared to fiscal year 2020,” Boone said. “This was primarily the result of significant spending reductions implemented early last year to mitigate the impact of the pandemic disruptions. In addition, our strategies to minimize the impact of China tariffs were largely accomplished in fiscal 2021, and excess returns and allowances were significantly reduced versus the prior year,” he said.

“Looking ahead, we are cautiously optimistic. We believe the current global logistics challenges will begin to improve starting this summer. We do see signs of inflation in our future, as material shortages, manufacturing labor costs and tariffs continue to drive up costs. Nonetheless, we expect robust growth and profit enhancement strategies in place to mitigate these headwinds. Fortunately, we are entering fiscal 2022 with record backlogs, reduced overhead, proven product sales performance, strong customer relationships and an exciting new Scott Brothers Brand Launch on track for this year,” Boone said.

Segment Reporting: Domestic Upholstery

The Domestic Upholstery Segment ended the fiscal year on a high note with net sales up $1.4 million, or 6%, in the 4th quarter compared to the quarter a year ago. Operating income also increased by $1.2 million during the quarter, as all three domestic upholstery divisions ramped up production during the third quarter and returned to full capacity and a normal shipping cycle in the fourth quarter.

For the full 2021 fiscal year, Domestic Upholstery Segment net sales decreased by $12 million or 12.5% due to decreased sales volume in all three domestic manufacturing divisions, attributable to factory shutdown and production delays at the onset of the pandemic-related economic downturn. In April 2020, in response to COVID-19 restrictions and reduced incoming orders, the Company temporarily shut down Bradington-Young’s and Shenandoah’s manufacturing facilities while Sam Moore operated at 50% capacity. The segment resumed production in the second quarter and all three divisions operated at full capacity for much of the fourth quarter and into early FY22. Since March of fiscal 2022, production has been temporarily slowed by a shortage of upholstery foam resulting from disruption in the petroleum industry.

Segment Reporting: All Other

All Other net sales decreased by $1.0 million, or 7.9% in fiscal 2021, primarily due to sales declines in H Contract, as this division which services senior living facilities was adversely impacted by the pandemic. These decreases were partially offset by the addition of net sales for our Lifestyle Brands business unit, which targets the interior design channel. H Contract incoming orders decreased by 11.8% for fiscal 2021; however, the Company expects the COVID vaccine roll-out to help the senior living industry begin to recover, and H Contract’s order deterioration eased in the fourth quarter.

Cash, Debt and Inventory

The Company generated $68.3 million in cash from operations in fiscal 2021 and paid off its term loan debt of $24.3 million. In addition, in the third quarter of fiscal 2021, the Company’s Board of Directors approved the increase of the quarterly dividend to $0.18 per share, an increase of 12.5% or $0.02 per share, for a total of $0.66 per share or $7.8 million paid in fiscal 2021, an increase of 8.2% or $0.05 per share, compared to the prior year.

Cash and cash equivalents stood at $65.8 million at fiscal 2021 year-end, an increase of nearly $30 million compared to the balance of prior year end. “With no debt and an aggregate $28.7 million available under our existing revolver to fund working capital, the Company is confident that our strong financial condition can weather the expected short-term impacts of COVID-19 disruptions to the supply chain, raw material pricing and the overall economy, barring a major reversal in the global recovery from COVID-19 or other major macroeconomic event,” said Paul Huckfeldt, chief financial officer. Additionally, the Company had access to $25.4 million in cash surrender value of Company-owned life insurance policies. Consolidated inventories stood at $70.2 million at fiscal year-end, compared to $92.8 million in the prior fiscal year. Building inventories to more appropriate service levels remains a top management priority.

Outlook

“Hooker Furniture Corporation is entering FY22 with confidence and a positive outlook for our Company and our industry,” said Hoff. “Demand is strong, and we are experiencing significantly increased order rates so far in FY 22 compared to last year this time.”

“Maximizing these high levels of demand and backlogs will be our operational priority in the near term, as we also work to continue the momentum of improved profitability during the last two quarters.”

“Moving forward, we are confronted with what we believe to be temporary headwinds such as global manufacturing capacities, raw material shortages and the cost and availability of shipping containers. Additionally, the recent power grid outage in Texas caused by severe weather negatively impacted the oil industry which produces the by-products used in the fabrication of foam. Consequently, we’re experiencing shortages of upholstery foam. We expect the foam issue to be a short to mid-term problem. The status of the global logistics constraints is uncertain, but we know that ports and freight lines all over the world are working tirelessly to overcome these bottlenecks. To help manage the backlog, our supply chain and sales teams are working to communicate with customers regarding delivery expectations,” Hoff said.

“While competition for the consumers’ discretionary spending such as travel, restaurants and entertainment will increase as COVID vaccinations roll out, we see sustainable positive market conditions for home furnishings, driven by the robust housing market, favorable demographics and a positive economic outlook.”

“While we are optimistic about the economic and industry environment, we are even more bullish on our team’s ability to execute our strategies to grow profitably in each of our 12 divisions and to adapt successfully to unexpected challenges,” Hoff said.

For the full quarterly report, click here.

About Hooker Furniture

Hooker Furniture Corporation, in its 97th 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. It is ranked among the nation’s largest publicly traded furniture sources, based on 2019 shipments to U.S. retailers, according to a 2020 survey by a leading trade publication. 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 Furniture 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, 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. Hooker Furniture Corporation’s corporate offices and upholstery manufacturing facilities are located in Virginia and North Carolina, with showrooms in High Point, N.C. and Ho Chi Minh City, Vietnam. The company operates eight distribution centers in North Carolina, Virginia, California and Vietnam. Please visit our websites hookerfurniture.com, bradington-young.com, sammoore.com, hcontractfurniture.com, homemeridian.com, pulaskifurniture.com, accentricshome.com and slh-co.com.

Contact:

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

Source: Hooker Furniture Corporation