Hooker Furnishings Reports First Quarter Sales and Earnings

Hooker Furnishings Corporation (the “Company”), a global leader in the design, production, and marketing of home furnishings for nearly a century, today reported operating results for its fiscal 2024 first quarter ended April 30, 2023.

Fiscal 2024 First Quarter overview

• Consolidated net sales for the quarter were $121.8 million, a $25.5 million, or 17.3%, decrease compared to a year ago. An expected revenue reduction was driven by a 32.5% sales decrease in the Home Meridian (HMI) segment and, to a lesser extent, a 14.8% decrease in first quarter year-over-year Domestic Upholstery sales. Net sales in the Hooker Branded segment remained relatively unchanged.
• Consolidated net income was $1.5 million, or $0.13 per diluted share for the quarter, compared to $3.2 million, or $0.26 per diluted share, in the prior year period. Consolidated operating income for the quarter was $2 million compared to $3.9 million in the same quarter a year ago.
• The Company strengthened its financial position during the quarter by generating $22.4 million in cash from operating activities and funded $4.5 million in capital expenditures and the continued development of our ERP system, $4.3 million in share repurchases, and $2.4 million in cash dividends.
• Inventory levels decreased by $23 million during the quarter, well on the way toward a goal of reducing inventories by $30 million before fiscal year-end.
• The Hooker Branded and Domestic Upholstery segments and All Other were profitable for the quarter. Home Meridian’s operating loss of $2.1 million, resulting from lower sales volume, improved by $1 million compared to the same period a year ago.
• The grand opening of a nearly 120,000-square-foot new Hooker Legacy Showroom in the Showplace Building at the Spring High Point Market generated a 93% increase in year-over-year retailer traffic, with successful product launches across all brands.

Management Commentary

“Considering the softer retail environment, economic uncertainties and our recent exit from the Accentrics Home (ACH) line, we’re pleased to have exceeded internal and external expectations for sales and earnings this quarter,” said Jeremy Hoff, chief executive officer and director of Hooker Furnishings. “Our liquidation of ACH inventories and other obsolete inventories at HMI is about 80% complete as of May end, which is helping us reduce our domestic warehousing footprint and make progress towards getting profitability back on track at HMI. We generated $22.4 million in cash during the quarter, and we are continuing to build cash currently as we further reduce inventories. Recent cash levels have increased by about $15 million since the end of our first quarter.”

“Our new Hooker Legacy Showroom Grand Opening at the April High Point Market achieved what we intended, as we nearly doubled our attendance from a year ago and attracted new customers,” Hoff said. “Many of our strategic organic growth initiatives that will enable us to broaden our total addressable market and visibility are tied to the new showroom and the Hooker Legacy Brands,” he added. One of those strategic growth initiatives, the High Point Market launch of the ‘M’ domestically produced upholstery and imported occasional furniture brand, “surpassed our expectations,” Hoff said. “This new brand, combining the unique capabilities of HF Custom, Shenandoah, Bradington-Young and Hooker Casegoods, will enable us to compete in a modern lifestyle aesthetic without disrupting any of those core businesses. Retailers affirmed to us that the new M brand is very much on-point with the up-and-coming casual modern lifestyle that today’s younger consumer is gravitating towards.”

Segment Reporting: Hooker Branded

• The Hooker Branded segment’s net sales remained relatively unchanged, decreasing slightly by 0.8% or $339,000, compared to the prior year’s first quarter. Gross profit and margin also remained flat.
• Net sales were negatively impacted by higher discounting compared to abnormally lower levels of discounting in the prior year period. While we benefitted from the price increases implemented in the prior year to mitigate product cost inflation, discounting increased by 230 bps from the prior year due to softer demand in the current quarter.
• Higher demurrage and drayage expenses, which heavily impacted the gross margin in previous quarters, were still higher than the prior-year first quarter but are trending down.
• At the end of the first quarter, Hooker Branded inventory levels decreased by $14 million compared to the fiscal 2023 year-end. Inventories were still elevated at quarter-end and higher than pre-pandemic levels in calendar year 2019. “We are actively working to reduce inventory levels to align with current demand, however our inventory management process is working well, so we’re in stock on most best-selling items and inventory obsolescence is not an issue.” said Paul Huckfeldt, senior vice president and chief financial officer.
• Quarter-end backlog for Hooker Branded was lower than the prior-year first-quarter end but remained 50% higher than pre-pandemic levels at fiscal 2020 first quarter end. Incoming orders decreased by 16.6% as compared to the prior-year quarter and approached levels similar to fiscal 2020 first quarter, reflecting normalized demand after the pandemic.

Segment Reporting: Home Meridian (HMI)

“The sales decrease at HMI was better than our expectations,” said Hoff. “While disappointing, the operating loss of $2.1 million was a $1 million improvement compared to the prior-year first quarter, and also was better than we expected,” he said.

“Our transition to a new business model at HMI will continue into this year as we move away from higher-risk businesses to focus on our core strengths and core businesses – Pulaski, Samuel Lawrence Furniture (SLF), Samuel Lawrence Hospitality (SLH) and Prime Resources International (PRI, which is transitioning to a container-direct-only model). We believe we are on track to achieve profitability in this segment by the end of the fiscal year,” Hoff added.

• Net sales at HMI decreased by $20.2 million, or 32.5%, compared to the prior year’s first quarter, driven by sales decreases with major furniture chains and mass merchants in a slower retail environment for home furnishings. Other contributing factors to the lower sales included lower selling prices due to liquidation sales, and delayed orders from retail customers as they continue to reduce excess inventory.
• Inventories decreased $9 million from the end of fiscal 2023, due to liquidation of obsolete inventories and efforts to align inventory levels with current demand.
• On the positive side, SLH’s net sales more than doubled compared to the prior-year quarter, indicating a strong recovery in the hospitality industry after the COVID pandemic. Additionally, freight costs improved due to the stabilization of ocean freight rates.
• Also on a positive note, Hooker Furnishings and leading lifestyle and entertainment company Scott Brothers Global announced in April the renewal of their multi-year licensing agreement in which HMI’s Pulaski and SLF divisions serve as the exclusive bedroom, dining, and occasional furniture suppliers for the Drew & Jonathan Home brand. “With the major retail placements, we are expecting significant short and long-term sales growth for the Drew & Jonathan Home brand,” Hoff said.
• Incoming orders and quarter-end backlog at HMI were lower than the prior year quarter and fiscal 2020 first quarter, due to the absence of orders from the Club channel (which HMI exited during fiscal 2022) and the ACH business, as well as decreased incoming orders from the retail customers.

Segment Reporting: Domestic Upholstery

• After 10 consecutive quarters of year-over-year sales increases in Domestic Upholstery, the segment experienced its first quarterly sales decline in over two years, a decrease of $6.1 million, or 14.8% compared to last year’s first quarter. Sales reductions at HF Custom, Sunset West and Shenandoah were partially offset by increased net sales at Bradington-Young.
• Sales decreases at Sunset West are attributed to non-recurring factors including slowed shipments in February and March caused by the December conversion to a new ERP system and the expansion of the outdoor furniture brand to the East Coast, which involved transition issues and start-up delays in the Georgia distribution center. These issues were mostly resolved by the end of the first quarter.

“Much of the Domestic Upholstery sales dip was driven by the fact that we worked through our large backlogs in the divisions, and then experienced softer demand. We do not think it is a long-term situation,” Hoff said. “The temporary slowdown at Sunset West occurred due to transitioning to a new ERP system and bi-coastal distribution. Now that this transition is largely complete, Sunset West is expanding to a nationally distributed brand, which we believe offers a double-digit organic growth opportunity over multiple years,” Hoff added.

• Despite the sales decline and disruptions, the Domestic Upholstery segment reported operating income of $1.3 million and operating margin of 3.8%.
• Quarter-end backlog for Bradington-Young remained over three times higher than pre-pandemic levels at fiscal 2020 first- quarter end, while the backlogs for HF Custom and Shenandoah decreased to levels similar to fiscal 2020. Incoming orders at Bradington-Young and Shenandoah were at similar levels in fiscal 2020, while HF Custom experienced lower orders compared to this period.

Cash, Debt, and Inventory

Cash and cash equivalents stood at $31 million at fiscal 2024 first quarter-end, an increase of $12 million from the prior year-end. During the first quarter, the Company used a portion of the $22.4 million cash generated from operating activities to fund $4.3 million of share repurchases, $3.2 million in capital expenditures including investments in its new showroom, $2.4 million in cash dividends to shareholders, and $1.3 million for development of its cloud-based ERP system. “In addition to our cash balance, we have an aggregate of $27.2 million available under our existing revolver at quarter-end to fund working capital needs. We believe that our liquidity and capital requirements will be further improved through the liquidation sales of remaining excess inventories at HMI,” said Huckfeldt.

Capital Allocation

“We’re pleased with the progress we’ve made reducing inventories, which was a large part of the cash we generated during the quarter. Since the repurchase program’s announcement around this time last year, we have returned approximately $20 million to our shareholders and retired 1.2 million shares. Our board recently approved an additional $5 million authorization as part of our capital allocation plan for this year. In addition to continuing to execute the share repurchase plan, our capital allocation priorities include building cash reserves, funding the organic growth initiatives noted earlier, continuing our dividend, and funding typical capital expenditures,” Huckfeldt concluded.

Outlook

“While retail conditions remain mixed along with some economic uncertainties, we saw increases in consolidated incoming orders in May ,” said Hoff, adding that “We believe the industry is getting through some of the elevated inventory challenges and we may be seeing some breakthrough in that area.”

Following its successful new showroom grand opening at the Spring High Point Market, Hooker Furnishings will continue initiatives to enhance visibility and addressable market reach this summer, debuting a new showroom at the Atlanta Market for Hooker Legacy brands. “In addition to opening the new showroom for Legacy brands, Sunset West will also debut a new showroom at the Atlanta Market, which is the new sponsor of the Casual Market for outdoor furniture, relocating from Chicago,” Hoff said. “Hooker Legacy brands will show at its fourth Las Vegas Market this summer as well. At HMI, we expect the previously announced inventory liquidations to be substantially completed by the end of the fiscal 2024 second quarter. While we expect some short-term volatility in sales and earnings at HMI, we continue to expect the segment to achieve profitability by the end of the 2024 fiscal year. The HMI team has rallied around the new level of focus on our core competencies, as we direct our support and resources behind our key businesses while reducing costs.”

“The Hooker Furnishings team continues to focus on organic growth opportunities through expanded visibility, strategic product development, operational improvements and cost reductions,” Hoff said. “By focusing on these controllables, we will be in the strongest possible position when the demand environment improves,” he concluded.

For the full first quarter results, click here.

About Hooker Furnishings

Hooker Furnishings Corporation, in its 99th 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, HF Custom (formerly Sam Moore Furniture), a specialist in fashion forward custom upholstery offering a selection of chairs, sofas, sectionals, recliners and a variety of accent upholstery pieces, 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 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 International, 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, North Carolina and California, with showrooms in High Point, N.C., Las Vegas, N.V., Atlanta, G.A. and Ho Chi Minh City, Vietnam. The company operates distribution centers in Virginia, Georgia, and Vietnam. Please visit our websites hookerfurnishings.com, hookerfurniture.com, bradington-young.com, hfcustomfurniture.com, hcontractfurniture.com, homemeridian.com, pulaskifurniture.com, slh-co.com, and sunsetwestusa.com.

Contact:

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

Source: Hooker Furnishings Corporation