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Hooker Furnishings Reports Sales & Earnings for 2022 Fiscal Year

General News
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Hooker Furnishings Corporation today reported consolidated net sales of $593.6 million for its 2022 fiscal year ended January 30, 2022, a $53.5 million, or 9.9%, increase compared to a year ago.

The revenue gain was driven by sales increases of over 20% in both the Hooker Branded and Domestic Upholstery segments compared to the prior year, partially offset by a 1.2% sales decrease in the Home Meridian segment (“HMI”).

Consolidated net income for the fiscal year was $11.7 million, or $0.97 per diluted share, as compared to a net loss of $10.4 million or ($0.88) per diluted share in the prior year period. Consolidated operating income for the current year was $14.8 million compared to a $14.4 million operating loss in the prior year period. The prior year operating loss was driven by a $44.3 million ($33.7 million net of tax) non-cash intangible assets impairment charge.

“We successfully mitigated a multitude of macroeconomic challenges for much of the year on the Hooker legacy side of the business and for the first half at Home Meridian. We were able to grow sales, remain profitable and undertake transformative strategic initiatives for the long-term expansion of the business,” said Jeremy Hoff, chief executive officer. “Particularly during the first half of the year, when all segments achieved double-digit sales increases, we were able to better meet historical levels of demand with the right products and inventory readiness,” he added. “HMI was more quickly and severely impacted by rising freight costs, reduced vessel space and the Covid-related factory shutdowns which began in August,” Hoff concluded.

Macroeconomic challenges the Company faced in fiscal 2022 included soaring ocean freight costs and shipping bottlenecks throughout the year, material and component parts inflation, and staffing and foam shortages. “Over the course of the last 18 months, transportation costs have roughly tripled, substantially increasing our cost of imported goods sold,” Hoff said.

“We were able to mitigate many of these dynamics until late summer, when the unexpected COVID-related shutdown of our Asian factories began and continued through most of the rest of the fiscal year,” Hoff said. “While incoming orders and backlogs remained historically high, this loss of production capacity substantially reduced our supply of imported products, which impacted Home Meridian immediately and even began to cause out of stock issues and low inventory receipts at Hooker Branded in the 4th quarter, despite that segment’s US warehousing model,” he said.

As a result, the Company reported a 13.2% consolidated sales decrease in the fourth quarter that began on November 1, 2021 and ended January 30, 2022. Fourth quarter consolidated sales were $134.8 million, with the decline driven by a 23.7%, or $18.9 million, revenue decrease at HMI and an 11.8%, or $5.8 million, sales decline at Hooker Branded. These lower sales were slightly offset by a $3.2 million or 13.5%, increase in Domestic Upholstery sales during the fourth quarter.

Over the last few months, our Asian suppliers have begun to ramp up production again and are “currently operating at around 85% to 90% capacity and improving weekly,” Hoff said, adding that “While we anticipate that production of imported goods will reach 100% capacity sometime during the first quarter of fiscal 2023, as we forecasted last quarter, we won’t feel the full impact of higher production until the second quarter.”

Also in the 2022 fourth quarter, the Company reported a consolidated operating loss of $5.3 million, compared to $10.5 million of operating income in the prior year period. Net loss for the fourth quarter of fiscal 2022 was $4.0 million, or ($0.33) per diluted share, as compared to a net income of $8.5 million, or $0.71 per diluted share, in the fourth quarter of fiscal 2021.

Driven by a $12.0 million operating loss at HMI, contributing factors in the Company’s fourth quarter consolidated net loss included inventory unavailability due to the Asian factory shutdowns, high freight costs, a decline in ecommerce and hospitality furniture sales and the Company’s planned exit from unprofitable businesses and channels. “Chargebacks from the Clubs channel that we are exiting and one-time order cancellation costs as we wind down our ready-to-assemble (RTA) furniture business at HMI had a combined cost of over $5 million,” Hoff said.

Segment Reporting: Hooker Branded

For the 2022 fiscal year, net sales increased by $38.3 million, or 23.5%, at Hooker Branded, compared to the prior fiscal year. The revenue gains are attributed to a stronger product portfolio, effective supply chain and logistics management and robust consumer demand.

“Hooker Branded managed well through some turbulent economic conditions, achieving double-digit sales gains and increased profitability for the year, despite losing sales momentum in the fourth quarter when inventory outages caused by the Asian factory shutdowns caught up with us,” Hoff said.

By the end of fiscal 2022, the majority of shipments in the Hooker Branded segment carried price increases implemented in July 2021 to mitigate higher ocean freight and product costs we had experienced to that point. However, sales volume declined in the fourth quarter due to reduced inventory availability, resulting in lower operating income compared to the fiscal 2021 fourth quarter.

Incoming orders increased by 24.2% compared to the prior year period when business dramatically rebounded from the initial Covid crisis. Backlog remained historically high and nearly doubled as compared to the prior year end when backlog was already at a high level, with part of that increase being due to lower shipments in the fourth quarter.

Segment Reporting: Home Meridian

The Home Meridian segment’s net sales decreased by 1.2% compared to the prior year period due to decreased unit volume as the result of COVID-related factory shutdowns in Vietnam and Malaysia, which led to lower shipments.

For the fiscal 2022 fourth quarter, the HMI segment’s sales decreased by $18.9 million or 23.7% as compared to the prior year fourth quarter. Sales increases in the first and second quarters of fiscal 2022 at HMI were offset by the sales volume loss during the second half of the year.

Driven by higher freight costs, exit costs from the RTA furniture category, and significant chargebacks from the Clubs distribution channel, HMI reported a $21.3 million operating loss for the year. Higher freight costs adversely impacted gross margin by approximately 530 bps in fiscal 2022 and were the primary driver of increased product costs. Current and expected future freight costs, which will have an adverse effect on potential profit margins caused us to rethink our entry into the RTA furniture category. Consequently, HMI exited the RTA furniture category and incurred one-time order cancellation costs of $2.6 million in fiscal 2022. In addition, due to continued poor profitability and excess chargebacks of $2.9 million, HMI made the decision to exit the Clubs channel and incurred one-time order cancellation costs of $900,000.

Although these actions adversely affected our earnings and partially resulted in an operating loss, “We believe these actions allow us to focus on more profitable businesses and stable channels to drive long-term growth,” Hoff said. “We’re now positioning our working capital and resources on solid businesses like Pulaski, Samuel Lawrence, ACH and PRI with a goal to be in stock in our new 800,000-square-foot Georgia warehouse to service growing channels such as brick and mortar retailers, the interior design trade and ecommerce, while still growing our major partners,” Hoff said.

Segment Reporting: Domestic Upholstery

The Domestic Upholstery segment’s net sales increased by $18.6 million, or 22.2%, in fiscal 2022 due to double-digit sales increases at all three divisions of the segment. For the fiscal 2022 fourth quarter, Domestic Upholstery net sales increased by $3.2 million or 13.5%. Domestic Upholstery achieved a year-over-year sales increase during every quarter of the 2022 fiscal year.

However, gross margin decreased as compared to the prior year and pre-pandemic levels as this segment faced manufacturing constraints which adversely impacted profitability, including foam shortages early in the year, higher raw material and freight costs, and labor shortages and inefficiencies. The segment reported operating income of $4.3 million, or a 4.2% operating margin, as compared to a $12.4 million operating loss in the prior year, which was attributable to $16.4 million non-cash intangible assets impairment charge. Incoming orders increased by 38%, and this segment finished the year with an order backlog 122% higher than the prior year, when backlog levels were already at a historical high. Our manufacturing capacity is increasing weekly, which will help us address this higher backlog.

Segment Reporting: All Other

All Other net sales increased by $197,000 or 1.7% as compared to the prior fiscal year, due principally to a sales increase at Lifestyle Brands, a business started in fiscal 2019 targeted at the interior design channel. Although this business is still small, net sales to the growing interior designer channel increased nearly 80% compared to the prior fiscal year.

For the fiscal 2022 fourth quarter, All Other net sales increased by $1 million or 46.1% as H Contract net sales increased by 44.2%, which offset the sales decreases in the first three quarters. H Contract’s incoming orders increased by 27% in fiscal 2022 and finished the year with backlog 126% higher than prior year end.

Cash, Debt and Inventory

“While inventories are still not at optimum levels due to service demand and backlogs, we have significant inventory in transit and expect our inventory levels to improve incrementally during the first quarter of fiscal 2023 and dramatically in the second quarter,” Hoff said.

Cash and cash equivalents stood at $69.4 million at fiscal 2022 year-end, an increase of $3.5 million compared to the balance at the fiscal 2021 year-end due primarily to collection of accounts receivable. During fiscal 2022, the Company used a portion of the $19.2 million generated from operations and $372,000 in life insurance proceeds to pay $8.8 million in cash dividends to our shareholders, and $6.7 million in capital expenditures, primarily on our newly opened Georgia distribution center and enhancements of other facilities and systems.

Outlook

“Incoming orders and backlogs continue to be strong in most divisions,” said Hoff. “We are concerned about ongoing global logistics constraints and economic headwinds affecting the consumer that could impact short-term demand, such as inflation, high gas prices and the war in Ukraine.

As we mentioned earlier, we expect production capacity of our Asian suppliers to improve significantly, reaching 100% capacity at some point during the first quarter, although the full financial impact of this improvement in inventory readiness won’t be felt until the second quarter. We remain optimistic that long-term trends will continue to benefit us, such as demand for housing, the renewed and sustainable focus on home interiors and exteriors, and the Millennial generation entering their prime earning and household formation years. We were also very encouraged by the recently concluded Spring High Point market. Attendance was up significantly compared to both the Fall 2021 and June 2021 markets, more in line with pre-pandemic levels. New products were very well received with major placements across all brands, including new placements of Home Meridian’s licensed products.

While we have worked through a broad spectrum of challenges during the past year, our team has continued to focus on multiple strategic growth initiatives, many of which we expect will positively impact us in the next 6 to 12 months,” Hoff said. “One such initiative is the integration of Sunset West, a leading manufacturer of outdoor furniture, which we acquired on February 1st of this year. The acquisition immediately positioned Hooker in the growing outdoor furniture segment of the industry with one of the most respected brands in the category and gives Sunset West access to our East Coast distribution system, our High Point showroom and retail and interior design customer base. We were pleased with the strong reception Sunset West received at its recent High Point market debut. As we integrate Sunset West and move past the current headwinds, we expect faster growth from Sunset West than our existing businesses as it is able to leverage the full capabilities of our organization,” Hoff concluded.

For the full press release, click here.

About Hooker Furnishings

Founded by the Hooker family in 1924, Hooker Furnishings is a diverse, international company with locations across the globe.

We are proud to rank among the nation’s largest publicly traded furniture companies, manufacturing and importing case goods, leather furniture and fabric-upholstered furniture for the residential, hospitality, and contract markets.

Our organization is comprised of twelve business units: three domestic upholstery manufacturers, two import upholstery divisions, five import case goods brands, and two contract furnishings groups. Together, we offer our customers a variety of different price points and product categories.

Domestically, we produce premium, residential custom leather and custom fabric-upholstered furniture through our Bradington-Young, Sam Moore, MARQ and Shenandoah Furniture brands.

Our HMI segment — including Pulaski Furniture, Prime Resources International, Samuel Lawrence Furniture, Samuel Lawrence Hospitality, Accentrics Home and HMidea – focuses on design, craftsmanship, logistics and distribution, with an expertise in private label and proprietary furniture designs.

We have a rich history and a unique culture that is rooted in quality and craftsmanship. As our ever-changing industry evolves, we are quick to adapt, always striving to be at the forefront of innovation, technology, and creativity.

Contact:

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

Source: Hooker Furniture Corporation