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Hooker Furniture Corporation Exceeds Pre-Pandemic Growth Pace With Sales, Profitability Gains and Brisk Demand in First Quarter

General News
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Hooker Furniture Corporation reported consolidated net sales of $162.9 million for its fiscal 2022 first quarter ended May 2, 2021, a $58.3 million, or 56%, increase compared to the year-ago period.

Net income for the first quarter was $9.4 million, or $0.78 per diluted share. Both the quarterly revenues and net income represent record-high sales and earnings for the company’s fiscal first quarter.

“We’re pleased to have surpassed our goal to return to the growth trajectory we were on prior to the global pandemic and economic downturn,” said Jeremy Hoff, chief executive officer.

“While we expected a sizable sales improvement over last year’s first quarter when the pandemic-driven economic downturn began in mid-to-late-March, our results this quarter also represent a strong improvement over the first quarter of fiscal 2020,” Hoff said. “Compared to the first quarter two years ago, sales are up 20%, profitability has improved significantly in all segments and incoming order rates are more than double our historical norms,” Hoff said.

“I’m especially proud of our team in delivering this strong rebound a year after the onset of the pandemic despite current industry-wide logistics challenges including higher ocean and freight transit costs, raw materials shortages and inflation,” Hoff said.

The Hooker Branded Segment led the way with an 89% sales increase compared to a year ago, while the Home Meridian and Domestic Upholstery segments both reported 46% sales increases versus the prior year period. Hoff attributes the gains to industry-wide high consumer demand for home products and dramatic improvements and expansions of product lines throughout company divisions over the past 2-3 years. In addition, “Rationalizing our product line over the last year and focusing on our best sellers has helped us maximize our shipping and production capacity,” he said.

The High Point Spring Market was officially pushed to June to accommodate travel restrictions in place earlier this year. In its place, the Hooker Branded, Home Meridian and Domestic Upholstery segments participated in a Pre-Market event in late April. Results from the Pre-Market were exceptionally strong in terms of traffic, buying activity, and reception to new product introductions. “We enjoyed record attendance at the High Point Premarket, with very positive customer response to a number of introductions including Hooker Casegoods Collections, the new brand launches of the Scott Brothers licensed collections, Commerce & Market, an accent furniture line with pricing, styling and materials to reach Millennials and Gen X, and Hooker Upholstery’s launch of the upscale motion seating Aspire brand,” Hoff said.

Consolidated operating income for the quarter was $12.2 million compared to a $45.4 million operating loss in the prior year period, which was primarily attributable to $44.3 million in non-cash impairment charges related to a write-down of goodwill and tradenames in the Home Meridian segment and goodwill in the Shenandoah division prompted by the impact of the COVID-19 downturn on our financials in the prior year period.

Segment Reporting: Hooker Branded

The Hooker Branded Segment led the way in the company’s record sales and earnings for the quarter. Net sales increased by $24.2 million, or about 90%, versus the prior year period with incoming orders nearly doubled compared to the pandemic-impacted prior year quarter. The quarter ended with backlog tripled as compared to the prior-year first quarter. Operating income for the fiscal 2022 first quarter was $9.4 million or 18.4% of net sales compared to $1.3 million or 4.9% of net sales in the prior-year first quarter.

Because much of the segment’s product line is shipped out of U.S. distribution centers and product is ordered on a consistent weekly basis, shipments exceeded our expectations despite limitations on ocean vessel space and freightliner truck availability. “With our strategy to prioritize best sellers, we maximized our ability to perform against significant operational constraints,” Hoff said. “Due to the industry-wide demand surge for home furnishings, we were able to sell through some slow-moving inventory in the favorable environment. As a result, the Hooker Branded segment remained highly profitable due to increased revenues and reduced discounting and contributed over 75% of consolidated operating profit during the quarter.”

Hoff added, “The strengthening of our product line over the past two-plus years including an expanding lifestyle collection focus and a renewed emphasis on our value proposition within our various categories has begun to significantly affect our top and bottom-line performance.”

Segment Reporting: Home Meridian

Home Meridian first quarter sales were $84.4 million, up 46% over the prior year quarter despite production challenges with Asian sources and logistics challenges. The first quarter sales increase was the result of continued strong retail demand versus weak demand during the initial weeks of the COVID-related economic shutdown in the year-ago period.

First quarter operating income in the segment was $866,000, an increase of $3.3 million over the loss recorded during the economic shutdown last year, excluding last year’s intangibles impairment charge. Operating income improvement was driven by higher sales and reductions in allowances, spending and fixed expenses, which were partially offset by higher logistics costs. “Profits for the Home Meridian segment were subdued by significant excess freight costs experienced during the first quarter. We’ve implemented freight surcharges and price increases to mitigate these excess costs, but these headwinds are expected to continue impacting results in the segment over the next several months,” Hoff said.

In general, Home Meridian’s service position improved in the quarter, as in-bound shipments replenished out-of-stock items. However ACH, Home Meridian’s ecommerce division, has struggled to return to an in-stock position after selling out of many best sellers during the early months of the pandemic. Container availability and cargo bookings will continue to constrain service levels for the foreseeable future at Home Meridian.

Incoming orders were up 108% over the low order rate the business experienced last year during the early weeks of the pandemic. Incoming orders and backlog continue to run much higher than average, resulting from a combination of increased retail demand and on-going shipping limitations, except for our Samuel Lawrence Hospitality division, whose business continues to reflect the downturn in hotel construction and remodeling, which is now beginning to show signs of recovery.

“During the late April High Point Pre-Market event we had an extremely enthusiastic response to our new Scott Brothers Brands, Scott Living and Drew and Jonathan Home, planned for launch later this year,” Hoff said. “We have numerous major dealers committing to buy the branded introductions as soon as we can ship them. The June High Point Market begins tomorrow, and already we are hearing about consumers inquiring about where they can buy the Scott Brothers furnishings at retail. These dynamics bode well for these brands,” he said.

Segment Reporting: Domestic Upholstery

The Domestic Upholstery Segment net sales increased by $7.7 million or 45.9% in the fiscal 2022 first quarter versus the prior year quarter due to significantly increased sales volume at all three divisions in the segment. Operating income for the fiscal 2022 first quarter was $1.7 million or 6.9% of net sales compared to a $16.8 million operating loss or -100.2% of net sales in the prior-year first quarter. The prior year first quarter’s operating loss was driven by a $16.4 million in non-cash intangible asset impairment charges on goodwill.

In response to the COVID-19 restrictions and reduced orders that began a year ago last March, the segment temporarily closed manufacturing plants at Bradington-Young and Shenandoah for about a month during the prior year first quarter, and Sam Moore operated at about 50% capacity. As a result, these divisions reported sales at a much lower level during that period.

“Although we are encouraged by incoming orders for the Domestic Upholstery Segment during the quarter, we started to experience foam allocation shortages and inflation of certain raw materials, such as foam, lumber, plywood, fabric and mechanisms during the second half of the first quarter,” Hoff said. “These supply chain and manufacturing constraints led to reduced production levels, which adversely impacted sales volume and operating efficiencies for much of the quarter. We expect these challenges to continue in the short term.”

Segment Reporting: All Other

All Other net sales decreased by $368,000 or 12.3% as compared to the prior year period due principally to a 17% sales decrease at H Contract, which serves the senior living retirement home industry. Operating income for the fiscal 2022 first quarter was $247,000 or 9.4% of net sales compared to $387,000 or 12.9% of net sales in the prior-year first quarter.

The senior living industry was hit particularly hard by the COVID-19 crisis and has not yet recovered. However, management believes the ongoing vaccination progress will improve conditions in the senior living industry, as H Contract’s incoming orders increased by 9.5% over the prior year first quarter, and backlog was 35% higher than the prior year quarter end.

Despite the sales decline, H Contract still contributed operating income for the quarter. Lifestyle Brands, a new business started in fiscal 2019, also reported a profit.

Cash, Debt and Inventory

“Since the end of last fiscal year, we have increased our inventory levels by over $10 million,” said Paul Huckfeldt, chief financial officer. “This increase is about evenly divided between products in transit and in the warehouses and will start to get us back in position to better service our backlog and increase our in-stock position on best sellers,” he said.

Cash and cash equivalents stood at $61.6 million at fiscal 2022 first quarter-end, a decrease of $4.2 million compared to the balance at fiscal 2021 year-end. Consolidated inventories stood at $81.5 million, compared to $70.2 million at fiscal 2021 year-end, an increase of $11.3 million and the Company remains debt-free after paying off $24.3 million of our remaining term debt in the fiscal 2021 fourth quarter. “We expect our cash balances to decrease somewhat in the coming months as strong sales continue and we build inventories to meet increased customer demand,” Huckfeldt said.

Outlook

“Our consolidated orders and backlogs are more than double historical norms as we head into the summer months,” said Hoff. “Given this strong position, we’re cautiously optimistic, considering the industry-wide supply chain, logistics and raw materials shortages and inflation. We believe we have mitigated these dynamics as much as possible through surcharges and price increases, yet these supply-side factors are unpredictable and often involve unexpected changes occurring almost daily.”

“Several macroeconomic factors provide a nice runway for growth such as the ongoing strong housing market and favorable demographics with the massive Millennial generation becoming highly engaged in household formation and home furnishing purchases. On the negative side, we expect increased competition for the consumers’ discretionary income from industries such as travel, apparel and in-person events as the COVID-19 vaccinations continue to roll out,” said Hoff.

“While we expect the extraordinary levels of demand for home furnishings to diminish somewhat, we also expect that demand for home furnishings will settle into a higher level of demand than pre-pandemic. Consumers aren’t going to fall out of love with their homes, and we are positioned to help them enhance their homes with comfortable, stylish and quality home furnishings. We believe our company is strongly positioned to win in this environment,” Hoff concluded.

For the complete press release, click here.

Contact:

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

Source: Hooker Furniture Corporation