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Hooker Furnishings Reports First Quarter Fiscal 2023 Results

General News
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Hooker Furnishings Corporation reported consolidated net sales of $147.3 million for its fiscal 2023 first quarter ended May 1, 2022, a $15.5 million, or 9.5%, decrease as compared to a year ago.

Consolidated net income for the quarter was $3.2 million, or $0.26 per diluted share, as compared to $9.4 million or $0.78 per diluted share in the prior year period. Consolidated operating income for the current year was $3.9 million compared to $12.2 million in the prior year period.

In the last three quarters, consolidated sales and profitability reductions versus the comparable prior year periods were largely driven by COVID-related factory shutdowns in Asia beginning late summer 2021, followed by a slow ramp-up of production through most of the fourth quarter of last year and early this year. Even as demand and backlogs remained strong, the flow of imported furniture came to a near standstill for several months.

While consolidated net sales and profitability decreased on a year-over-year basis during our first quarter of 2023, sales improved by 9% over the fourth quarter of fiscal 2022 and the operating income in the fiscal 2023 first quarter was an improvement compared to the operating loss last quarter. “Both sales and operating income for the quarter surpassed management expectations,” said Jeremy Hoff, chief executive officer. “As we expected, first quarter results continued to be hindered by the slow ramp-up of casegoods production capacity in Asia following the factory shutdowns in the second half of last year.  Backlogs have remained high throughout the two most recent quarters, but inventories were depleted and product unavailable to ship. In April at the end of the fiscal 2023 first quarter, Asian casegoods production finally reached full capacity, so we expect improving conditions and results to continue as we work through our backlog,” Hoff said. “In addition, we have a record amount of inventory in transit now, and a high percentage of it is sold orders that will ship as soon as the shipments arrive in our domestic warehouses.”

The Home Meridian and Hooker Branded segments were most impacted by the Asian factory shutdowns and resulting sales declines, partially offset by strong sales in the Domestic Upholstery segment and the addition of Sunset West revenues in the quarterly results, following the Company’s acquisition of the Vista, California-based outdoor furniture business on January 31, 2022, the first day of the first quarter.

“Despite continued supply chain disruptions and high transit costs, we are pleased to have started fiscal 2023 with very strong backlogs, a leaner portfolio focused on our most profitable channels and products and with the acquisition of Sunset West, a leading player in the growing outdoor furnishings market,” Hoff said. “The integration of Sunset West is going very well,” he added. “Sunset West contributed above expectations to operating profitability this quarter and offers significant long term growth opportunities in the outdoor category for Hooker Furnishings.”

Segment Reporting: Hooker Branded

The Hooker Branded segment’s net sales decreased by $9.1 million, or 17.7% compared to the same period a year ago, a decline that was “fully driven by casegoods inventory unavailability from the temporary factory shutdowns in Vietnam,” said Hoff.  The temporary halt of production during the summer and early fall of last year resulted in low inventory receipts in the second half of fiscal 2022 and this quarter. The decrease was partially offset by increased net sales at Hooker Upholstery.

“Due to its domestic warehousing business model, Hooker Casegoods was able to sustain shipments longer, but eventually our inventory became depleted,” Hoff said. “As of May, we are now moving into positive territory as our inventory levels have more than doubled compared to our fiscal year end with a record amount of inventory in transit from Asia. Additionally, a large percentage of these shipments carry the price increases we implemented in July 2021 to mitigate excess freight and logistics costs,” he said.

Incoming orders in the Hooker Branded segment decreased by 12.9% as compared to the prior year quarter when business dramatically rebounded after the initial COVID outbreak, and the demand for home furnishings was exceptionally strong. However, quarter-end backlog was 11% higher than at fiscal 2022 year-end and 87% higher than the end of the fiscal 2022 first quarter end and has remained at historical highs.

Segment Reporting: Home Meridian

The Home Meridian segment’s net sales decreased by $22.3 million, or 26.4% compared to the prior year quarter, driven by lower sales in the e-commerce channel, the exit from the unprofitable Clubs channel, and to a lesser extent continued supply chain disruptions, partially offset by the launch of the Pulaski Upholstery division.

“Order backlogs decreased in the Home Meridian segment due to our exit from the Clubs channel and adjustments to programmed orders by large customers, but backlogs were still about 50% higher compared to pre-pandemic levels in early 2020,” Hoff said. “We’ve shipped essentially all the remaining Clubs channel order backlog, which is a major milestone in our Clubs channel exit and a positive and much needed step towards segment profitability. While excess chargebacks are a risk as we complete our exit, this critical step allows us to focus on more profitable customers and channels,” he added.

Segment Reporting: Domestic Upholstery

The Domestic Upholstery segment’s net sales increased by $15.8 million, or 62.2%, in fiscal 2022 due to strong sales at Bradington Young, Sam Moore and Shenandoah as well as the addition of Sunset West’s sales. However, higher raw material costs and freight surcharges increased product costs which partially offset the gains from increased sales.

Incoming orders decreased by 5.4% as compared to the prior year quarter due to current lead times and historically high backlogs. At the end of fiscal 2023 first quarter, backlog was 18% higher than at fiscal 2022 year-end and 80% higher than the fiscal 2022 first quarter end.

Cash, Debt and Inventory

Cash and cash equivalents stood at $10.1 million at fiscal 2023 first quarter end, down $59.3 million as compared to the balance at the fiscal 2022 year-end due largely to a $30.1 million increase in inventory and $26 million spent for the acquisition of Sunset West.

“With a record $40 million of inventory in transit to our warehouses, we are experiencing a short-term dip in cash,” said Hoff. “A very high percentage of the inventory in transit are sold goods, so we expect to quickly convert the inventory to shipments. We expect our cash balances to improve by the end of the fiscal 2023 second quarter and expect them to normalize soon thereafter,” he added.

 At quarter end, inventories stood at $107.7 million, including the $40 million in transit to our domestic warehouses.

Outlook

“We are seeing a leveling off of demand, with incoming orders down from the meteoric but unsustainable levels we experienced in the last 18 months,” Hoff said..

“Once we receive all the inventory in transit, we expect to be in a near-optimum shipping position throughout the second quarter and will feel the full benefit of Asian production levels being at 100% capacity.”

“We are watching inflationary pressures in the economy and believe those are affecting consumers more at the lower price points than at the upper medium and upper price points. We’re still optimistic about the housing market, strong levels of employment and having the two largest generation groups in prime household formation and furniture purchasing years. Our variable cost business model will allow us to adjust to changing economic conditions, and we continue to focus on multiple strategic initiatives to spur organic growth and increase market share,” Hoff said.

Share Repurchase Authorization

On June 6, 2022, the Hooker Furnishings Corporation (the “Company”) Board of Directors (the “Board”) authorized the repurchase of up to $20 million of the Company’s common shares. The authorization does not obligate the Company to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of the Board. Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to the Company’s cash requirements for other purposes, compliance with the covenants under the loan agreement for the Company’s revolving credit facility and other factors it deems relevant.

Dividends

On June 1, 2022 the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per share which will be paid on June 30, 2022 to shareholders of record at June 17, 2022.

For the full first quarter results, click here.

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