Hooker Furnishings Reports First Quarter Operating Results and Cost Reduction Plan

Hooker Furnishings Corporation (the “Company” or “HFC”), a global leader in the design, production, and marketing of home furnishings for 100 years, reported its fiscal 2025 first quarter operating results for the period beginning January 29 and ending April 28, 2024.

Fiscal 2025 first quarter overview and expected cost reductions:

• Consolidated net sales for the quarter were $93.6 million, a decrease of $28.2 million, or 23.2%, compared to the prior year’s first quarter. All three reporting segments experienced sales decreases driven mostly by continuing weak demand for home furnishings which is adversely affecting much of the industry. Additionally, about 25% of the quarterly decrease is due to absence of sales from divisions exited in the prior year in the Company’s Home Meridian segment. Year-over-year industry-wide U.S. furniture store sales fell compared to the prior year same months for the 14th consecutive month, according to the U.S. Census Bureau.
• Gross profit decreased primarily due to lower sales volume across all segments. Unfavorable customer and product mix in the Home Meridian segment drove reduced gross profit, along with under-absorbed costs in the Domestic Upholstery segment as a result of lower production and sales. Consequently, the Company recorded a consolidated operating loss of $5.2 million, with a negative margin of (5.5%), compared to $2.0 million in operating income and 1.6% margin reported in the previous year’s quarter. The consolidated net loss was $4.1 million or ($0.39) per diluted share, compared to net income of $1.5 million or $0.13 per diluted share in the prior year quarter.
• As the extended industry downturn continues, the Company is focused on maintaining a healthy financial position and balance sheet. Cash levels remain strong at approximately $41 million, and inventory levels are well-aligned to current demand, down $5.2 million to $56.6 million compared to $61.8 million at year end.
• During this sustained downturn in retail and consumer demand, Hooker Furnishings continues to focus on both the execution of its organic growth initiatives and the continued pursuit of its long-range strategic initiatives that it believes will ideally position the Company for growth when business rebounds. Now HFC is beginning a remerchandising of its Hooker Legacy Brands to position the Company as a more integrated, whole-home, consumer-centric resource with an elevated aesthetic and presentation. This strategy is being led by the Company’s Chief Creative Officer, who joined the Company at the April High Point Market in the newly created position.
• In addition to the pursuit of its long-term strategic initiatives and while the Company expects to be profitable in the current fiscal year and beyond, Hooker Furnishings expects to finalize and implement cost reduction plans in the fiscal 2025 second quarter. It expects to realize a 10% reduction in fixed costs beginning in the second half of fiscal 2025. The cost savings are expected to come from a combination of the consolidation of certain operations and other fixed cost reduction.

Management Commentary

“The ongoing weak demand that’s adversely impacting the furniture industry made our first quarter challenging,” said Jeremy Hoff, Chief Executive Officer. “However, we remain confident that the strategies we are pursuing in operations, marketing and merchandising are transformative. Times like these present an opportunity to recalibrate and even reinvent aspects of our business,” he said.

“While we are disappointed to report a rare operating loss this quarter, the loss was almost entirely driven by the sales reductions in each segment, and we strongly believe we’ll return to profitability once demand and revenues rebound,” Hoff said. “We do, however, expect some short-term volatility in earnings until the industry-wide downturn ends.”

Segment Reporting: Hooker Branded

Hooker Branded segment net sales decreased by $8.1 million, or 18.6%, compared to the prior year’s first quarter. This decrease was primarily due to decreased unit volume and, to a lesser extent, lower average selling prices resulting from price reductions (due to lower ocean freight costs) implemented late last year.

The soft demand across the home furnishings industry led to a 13% decrease in incoming orders during the quarter, with a corresponding 14% decrease in backlog compared to the prior year quarter-end. Quarter-end order backlog remained nearly 40% higher than pre-pandemic levels at the end of fiscal 2020 first quarter.

Segment Reporting: Home Meridian (HMI)

Home Meridian segment net sales decreased by $15.5 million, or 37% in the fiscal 2025 first quarter. Nearly half of the revenue decline was attributed to the absence of Accentrics Home, or ACH, liquidation sales after exiting that business last year. The remaining decreases were due to lower sales through major furniture chains, independent furniture stores and the hospitality business, driven by anemic industry demand. On a more positive note, fixed overhead costs were reduced by $2 million from business repositioning, including redeploying space at our Georgia warehouse to support Sunset West’s East Coast expansion.

Incoming orders increased by 6.4% compared to the prior year’s first quarter, with SLH incoming orders more than tripling. The quarter-end backlog was 22% higher than the same period last year and 37% higher than the fiscal 2024 year-end in January.

Segment Reporting: Domestic Upholstery

The Domestic Upholstery segment net sales decreased by $5.1 million, or 14.5% in the fiscal 2025 first quarter due to decreased volume at Bradington-Young, HF Custom and Shenandoah. In contrast, Sunset West experienced a 20% sales increase compared to the previous year’s first quarter, attributed to its expansion to East Coast distribution and the stabilization of its new ERP system over the past year. Additionally, Sunset West saw a 9% increase in incoming orders compared to the prior year’s first quarter. “For much of last year, Sunset West experienced some speed bumps related to onboarding a new operating system and building out the resources and personnel needed to expand its distribution,” Hoff said, adding, “Sunset West is now beginning to hit its stride for a positive trajectory going forward.”

While incoming orders increased by 2.8% during the quarter, quarter-end backlog for the segment decreased compared to prior year quarter-end but increased from fiscal 2024 year-end. Excluding Sunset West, order backlog was 38% higher than the pre-pandemic fiscal 2020 first quarter-end.

Cash, Debt, and Inventory

Cash and cash equivalents stood at $40.9 million at fiscal 2025 first quarter-end, a decrease of $2.3 million from the fiscal 2024 year-end. During the first quarter, cash and cash equivalents on hand and the $1.5 million cash generated from operating activities were used to fund $2.5 million in cash dividends to our shareholders, $1.3 million for further development of our cloud-based ERP system, and $843,000 capital expenditures. In addition to the cash balance, an aggregate of $28.3 million was available under the existing revolver and $28.7 million in cash surrender value of Company-owned life insurance policies was outstanding at quarter-end.

Capital Allocation

“Given the uncertainty in the furniture industry and the general economy, we remain committed to our capital allocation policy. Our short-term capital allocation strategy is focused on preserving capital until we begin to see an industry-turnaround, while also protecting our 50-plus year history of quarterly dividends and continuing to invest in organic growth,” said Chief Financial Officer, Paul Huckfeldt. “We believe we have a conservative balance sheet, which can help us weather the current demand environment”, he continued, “but understand the need for caution in a cyclical industry like ours”.

Outlook

“Much remains unsettled on the macroeconomic front. Economic indicators remain mixed with unemployment continuing under 4% and inflation easing slightly in April, leading to record stock market performance in mid-May. However, consumer sentiment index fell nearly 10% in May after holding steady for months, indicating a deterioration in optimism across age, income and education levels,” Hoff said.

“Additionally, in both March and April, existing home sales decreased year-over-year. Because the Federal Reserve has yet to cut interest rates this year, we believe home sales may be ‘stuck.’ As long as interest rates remain high, we believe the housing industry – and therefore home furnishings demand – will remain subdued.”

“This environment has necessitated the adjustment of our cost footprint to current and expected medium-term demand through a realignment of operations which we expect will lead to a 10% reduction in overall fixed costs, the largest cut in our history, but one necessitated by current industry conditions. Planned actions include consolidating BOBO into Hooker Branded, further reducing our Georgia warehouse footprint, and consolidating certain other operations and additional fixed cost reductions. We’re still finalizing those plans and expect to have more information in the current fiscal quarter. We’re intensely focused on creating an appropriate expense structure, while not jeopardizing the pace and impact of our strategic initiatives, which we believe will have a significant positive impact on Hooker once demand normalizes. We expect to be profitable in the current fiscal year and beyond.”

“Despite the current environment, we believe our investments in new showrooms and expanding our addressable customer base and our focus on our strategic initiatives, will help us gain market share. Already we’ve seen a nearly 400% increase in traffic and visibility through our expanded showroom footprints. We see tremendous upside potential to take our flagship Hooker Legacy Brands product lines from good to great. The addition of Caroline Hipple to the new position of Chief Creative Officer was extremely well-received by our retailers, designers and sales representatives at the recent High Point Market. She has significant credibility in the industry and her ability to pull people together for collaboration is powerful. As part of the executive leadership team, she will direct a collaborative merchandising approach across our brands that integrates case goods, import and domestic upholstery and outdoor furnishings, as well as lighting, accessories and accents. As we bring our divisions into full alignment and move forward in the same creative direction, inspired by consumer trends in style, materials, color and aesthetics, we can become a whole-home resource offering a more forward-facing product line and presentation,” he said.

“We continue to believe the investments and process improvements we made in the past year, such as the comprehensive repositioning of Home Meridian with the ultimate goal of sustainable profitability when demand returns to normal levels, along with the continued refinement of our strategy, as well as the transformative approach to merchandising we plan to launch across Hooker Legacy Brands will be a springboard to higher sales and profitability. Since many fundamentals of the economy are solid and our company is well-positioned, we believe an upturn in consumer confidence, demand and industry-wide business will be significant when it occurs,” he continued.

“Compared to fiscal year-end in late January, our consolidated backlog is up approximately 19% through the first quarter, and consolidated orders increased by 11%, with orders up across every segment as compared to the previous quarter,” Hoff said. “We are encouraged by these increases,” he concluded.

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About Hooker Furnishings Corporation

Hooker Furnishings Corporation, in its 99th year of business, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture, fabric-upholstered furniture, lighting, accessories, and home décor 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), 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