Hooker Furnishings Achieves Sales, Income Gains in Third Quarter

Hooker Furnishings Corporation, a global leader in the design, production and marketing of home furnishings for nearly a century, today reported results for its fiscal-year 2023 third quarter ended October 30, 2022. 

Fiscal 2023 Third Quarter Highlights:

• Net sales for the quarter were $151.6 million, an increase of $18.2 million, or 13.6%, compared to the prior-year quarter. Higher sales were driven by revenue growth across all divisions of the Domestic Upholstery segment, higher net sales at Home Meridian and recovery in the H Contract business.
• Gross profit and margin improved in all three segments. Consolidated operating income was $6.4 million, and consolidated net income was $4.8 million or $0.42 per diluted share for the fiscal third quarter compared to a net loss of $1.2 million or ($0.10) per share for the comparable prior year quarter.
• Global supply chain dynamics are stabilizing. Product flow and lead times have improved, production levels are at full capacity and ocean freight costs have lowered significantly. The lower freight costs have not positively impacted our profitability due to most of our warehouse inventory still carrying the higher costs.
• Attendance at the recent Fall High Point Market was up substantially, even above 2019 levels. HMI debuted a remodeled 100,000-square-foot showroom including a 10,000-square-foot area showcasing its new Portfolio in-stock warehouse program of bestsellers across brands. Portfolio aims to help HMI diversify and expand its customer base.
• The Domestic Upholstery segment marked the seventh consecutive quarter of double-digit sales increases with growth of $14.1 million, or 48%. Along with the addition of sales from recently acquired Sunset West, the domestically produced upholstery companies Bradington-Young, Sam Moore and Shenandoah collectively grew 18%.
• For the fiscal 2023 nine-month period, consolidated net sales were $451.8 million, a decrease of $7.0 million or 1.5%, as compared to a year ago. Consolidated net income was $13.6 million, or $1.14 per diluted share, as compared to $15.7 million, or $1.30 per diluted share in the prior year nine-month period.

Management Commentary

“Steady fulfillment of backlogs, full production capacity, healthier inventory levels, and operational improvements positively impacted our revenues this quarter,” said Jeremy Hoff, chief executive officer. “We anticipate continued improvements throughout these key areas within our organization as we approach our fiscal year end. However, economic indicators are mixed and there are potential headwinds including rising interest rates, declining home sales and consumer confidence.”

“Year-over-year quarterly profitability gains were driven by sales growth and successful mitigation of supply-chain bottlenecks over the last two years,” Hoff said. “Improving our operational costs and exiting unprofitable businesses at HMI is beginning to show up in our margins and will continue to improve profitability,” he said.

“New program and product introductions at the well-attended Fall High Point Market created considerable momentum,” Hoff said. “Our market launch of the in-stock Portfolio program at HMI was very well-received,” Hoff said. “Portfolio’s launch was a successful first step in expanding and diversifying HMI’s customer base.”

“At Hooker Casegoods, we debuted the 92-piece Charleston Collection, one of the largest introductions in our history. The updated traditional styling, clean finishes and accent color finishes were met with enthusiasm from retailers who believe there’s a void for classic designs in the marketplace, a furnishings style that’s sought-after by a significant set of younger consumers in their prime furniture-buying years. This collection will be shipped before the next High Point Market in Spring 2023, before the grand opening of our new Hooker Legacy showroom in High Point.”

Segment Reporting: Hooker Branded

• The Hooker Branded segment’s fiscal third quarter net sales decreased by $1.3 million, or 2.4%, compared to the same period a year ago. The lower sales were due to a temporary inventory mix issue as some vendor-factory shipments were received in our warehouses as incomplete collections missing some pieces, and retailers delayed receipt of orders until collections and groups could ship complete.
• Despite the sales dip, gross profit increased in the segment, which reported $5.2 million in operating income and a 9.5% operating margin for the quarter.
• Incoming orders decreased as compared to the prior year quarter as the market is gradually returning to more typical levels of demand. Quarter-end backlog was lower than the prior-year quarter end but was still about three times higher than pre-pandemic levels in calendar 2019.

“Inventory imbalances, which held up some shipments, are resolving,” said Paul Huckfeldt, chief financial officer. “Our Hooker Branded inventories are $44 million higher than last year’s third quarter end, which we think positions us well for the holiday selling seasons.”

 Segment Reporting: Home Meridian

• The Home Meridian segment’s net sales increased by $4.4 million, or 9.4%, as compared to the prior-year third quarter when container-direct business was severely impacted by the temporary COVID-related factory lockdowns in Vietnam and Malaysia. In addition, the hospitality division reported strong sales as that sector continues to recover from the COVID-related downturn.
• Sales increases to furniture chains, mass merchants and hospitality customers were offset by the absence of clubs channel sales, which we exited last year, and decreased ecommerce sales mostly due to normalization of post-COVID consumer demand. Additionally, HMI shipments were lower than expected due to customers with high inventories delaying shipments.
• Incoming orders and backlogs decreased compared to last year due to the absence of clubs channel orders as well as lower orders from mass merchant retailers delaying shipments to rationalize inventories.
• Due to deflated sales from delayed shipments and higher-than-expected transition and labor costs related to the new Georgia Distribution Center, HMI reported an operating loss of $3.2 million, a $7 million improvement from the operating loss in the prior-year quarter, which was impacted by low volume, unrecovered inbound freight costs, and costs related to exiting the Ready-To-Assemble furniture business.

“HMI reported substantial improvement from last year’s third quarter, but delayed shipments were a factor in the quarterly operating loss. Recovery is somewhat constrained by industry inventory conditions but we’re optimistic about the longer-term, due to lowering freight and product costs, positive feedback from the recent High Point Market and cost containment efforts,” said Huckfeldt. 

Segment Reporting: Domestic Upholstery

• For the 7^th consecutive quarter, the Domestic Upholstery Segment reported double-digit sales growth, with net sales increasing by $14.1 million, or 48.2%, compared to the prior year third quarter.
• The increase was driven by the addition of Sunset West results as well as organic sales growth at Bradington Young, Sam Moore and Shenandoah, which each also delivered double-digit net sales gains for the quarterly and nine-month periods.

• Incoming orders decreased as compared to the prior-year quarter due to current demand, long lead times and high backlogs, but year-to-date orders were at about the same level as calendar 2019.
  
• Quarter-end backlog was lower than the prior year quarter end and fiscal 2022 year-end when demand was exceptionally strong while production capacity was constrained. Comparing to calendar 2019, quarter-end backlog was more than three times higher than pre-pandemic levels.

Cash, Debt and Inventory

Cash and cash equivalents stood at $6.5 million at fiscal 2023 third quarter-end, down $62.9 million from the balance at the fiscal 2022 year-end due principally to a $58.9 million increase in inventory.

During the fiscal 2023 nine-month period, we purchased and retired 598,000 shares of our common stock under the $20 million share repurchase authorization approved by our Board of Directors earlier this year.

“Even while spending $9.4 million on the share repurchase, we have been generating cash since last quarter,” Huckfeldt said. “With lead times reducing as much as they have, we are aiming to reduce inventories by $25 million by roughly this time next year, which will further improve our cash position. To support the inventory reduction effort and improve liquidity, we have also implemented targeted promotions on certain products,” he said.

Capital Allocation

On December 5, 2022 the Company’s Board of Directors declared a quarterly cash dividend of $0.22 per share which will be paid on December 30, 2022 to shareholders of record at December 16, 2022. “This 10% increase in the dividend is the seventh consecutive year in which we have been able to increase our annual dividend. We believe it demonstrates our continued confidence in our strategy and business model,” said Huckfeldt. Other capital allocation priorities include building a cash reserve, fulfilling the remainder of the share repurchase authorization, and capital investments in our soon-to-be implemented ERP upgrade and other capital expenditures to improve our competitive position, such as the outfitting of the new Hooker Legacy brands showroom for its April 2023 opening. 

Outlook

“Economic indicators are mixed and we are closely monitoring potential disrupters including rising interest rates, consumer confidence and a slowing housing market,” said Hoff. “We’re paying close attention to economic indicators and retail trends to ensure that our inventory planning and cost structure are appropriate to short-to-mid-term conditions, while continuing to invest in our longer-term strategies.”

“At the same time, we see reasons for optimism as the U.S. enjoys strong levels of employment, rising household incomes, and continuing strength in consumer spending. Our backlogs on the legacy side are still much higher than pre-pandemic levels and our recent entry into outdoor furniture with Sunset West is performing above our expectations. Additionally, we expect to begin to see the benefits of recent reductions in ocean freight costs beginning in the first quarter of calendar 2023. We believe the environment in the home furnishings industry is shifting from a reliance on historic demand to a dependence on market share gains. Strategically, we believe we are well positioned for this change in landscape,” Hoff concluded.

For the complete press release, click here.

About Hooker Furnishings Corporation

Hooker Furnishings Corporation (NASDAQ-GS: HOFT), 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