Fiscal 2024 Second Quarter overview:
- Consolidated net sales for the fiscal 2024 second quarter were
$97.8 million , a decrease of$55.1 million , or 36% compared to the prior year second quarter, driven by industry-wide decreased demand for home furnishings, and the planned exits of unprofitable operations within the Home Meridian segment. - Consolidated operating income for the quarter was
$1.3 million or 1.3% of net sales, compared to$7.3 million , or 4.8% of net sales in the prior year period. Consolidated net income was$785,000 or$0.07 per diluted share for the quarter, compared to$5.5 million or$0.46 per diluted share in the prior year period. - During the quarter, the Company strengthened its financial position, generating over
$51 million in cash from operations and ending the quarter with cash and cash equivalents of$50 million . Additionally, it reduced inventory levels by$70 million from a year ago and completed most of its targeted liquidation sales of the Home Meridian segment’s discontinued inventories. - During the quarter,
Hooker Furnishings acquired BOBO Intriguing Objects, anAtlanta -based lighting, décor and accents designer and importer offering one-of-a-kind designs based on vintage pieces found around the world. The acquisition enables the company to broaden its product diversity into new furnishings categories of lighting, wall art, textiles, and décor.
- For the fiscal 2024 six-month period, consolidated net sales were
$219.6 million , a decrease of$80.6 million or 26.8%, as compared to a year ago, also driven by industry-wide decreased demand for home furnishings, and the planned exits of unprofitable operations within the Home Meridian segment. Consolidated operating income was$3.2 million or 1.5% of net sales as compared to$11.2 million or 3.7% of net sales in the prior-year first half. Consolidated net income was$2.2 million or$0.20 per diluted share, as compared to$8.7 million or$0.73 per diluted share in the prior-year first half.
Management Commentary
“Despite a tough business climate and our team’s focus on navigating the last phases of liquidating excess inventories related to higher risk, unprofitable operations that were exited in the Home Meridian segment, we continue to strengthen our balance sheet and reduce overhead and costs while focusing on executing our strategic growth initiatives,” said
“We believe the softer demand seen currently industry-wide is driven by retailers continuing to sell through over-inventoried positions and a short-term glut of heavily discounted home furnishings in the market,” Hoff said. “In addition, the year-over-year comparisons reflect our exit from higher-risk, unprofitable operations at Home Meridian. We are encouraged that incoming orders have trended higher each month through the summer compared to the prior year, and consolidated orders are up by double-digits versus a year ago.”
“In this environment, we’ve prioritized strengthening our financial position and strategically deploying capital and other resources, while investing in new showrooms and systems that position us to immediately leverage increasing demand when it occurs. For example, the collective impact of our new showrooms in
“The transformation of the Home Meridian segment to a sustainably profitable business model is well underway,” Hoff continued. “Most of the excess inventories connected to the exit of ACH at the end of the last fiscal year have been sold and the related cost reduction efforts are paying off. We recorded a small operating income in fiscal July in this segment and while we continue to expect some short-term volatility in sales and earnings, we expect HMI to achieve sustainable profitability in the second half of the fiscal year.”
“We are pleased to have completed the acquisition of
Segment Reporting: Hooker Branded
- Hooker Branded net sales decreased by
$18.1 million , or 34.3% in the fiscal 2024 second quarter due to decreased shipments and unit volume. Furthermore, discounting was 240 basis points higher than the prior year quarter. For the fiscal 2024 first half, Hooker Branded net sales decreased by$18.5 million , or 19.4% compared to the prior-year six-month period. Sales decreases in both periods underscore the aforementioned softer demand for home furnishings. - Despite a decrease in net sales, gross margin increased due primarily to favorable product costs from lower freight rates, and to a lesser extent, decreased warehousing costs. The segment reported operating income of
$3.2 million and an operating margin of 9.3%, compared to$6.1 million and 11.5% in the prior-year second quarter. - While order backlog was lower than the prior-year quarter end, it remained about 40% higher than pre-pandemic levels at the end of the fiscal 2020 second quarter. Incoming orders increased by 18.6% as compared to the prior-year quarter. A significant portion of Hooker Branded’s backlog consists of orders received late last year and earlier this year, which are expected to ship in the second half of this year and position the segment positively for the upcoming quarters.
Segment Reporting: Home Meridian (HMI)
- Home Meridian net sales decreased by
$30.1 million , or 51% in the fiscal 2024 second quarter due to reduced home furnishings demand and the absence of sales from exited higher-risk, unprofitable operations. Sales decreases in the major furniture chains and e-commerce channel accounted for approximately 70% and 15% of the total decrease in this segment, respectively. - Gross profit and margin both decreased in the fiscal 2024 second quarter, resulting from the net sales decline and under-absorbed fixed costs. Product costs decreased as a percentage of net sales due to lower freight costs, but fixed costs such as warehousing rent and labor expenses adversely impacted the gross margin due to significantly lower net sales.
- “We reduced our
Georgia warehouse footprint by 200,000 square feet during the quarter and expect to further reduce it by another 100,000 to 200,000 square feet in early calendar 2024. Right sizing our footprint to align with our current demand resulting from no longer stocking significant volumes of inventory for ACH will not only reduce costs, but will improve liquidity and working capital levels,” saidPaul Huckfeldt , senior vice president and chief financial officer. - Due to the significant sales decline and resulting under-absorbed fixed costs, Home Meridian reported a
$3.3 million operating loss for the quarter. For the fiscal 2024 six-month period, Home Meridian net sales decreased due to the same factors above, including a sales decrease with mass merchants, resulting in a$5.5 million operating loss, which was in line with management’s expectations. - Quarter-end backlog was significantly lower than the previous year's quarter and the fiscal 2020 second quarter. This decline is attributed to the absence of orders from exited operations, as well as a reduction of incoming orders from our retail customers, who are still carrying excess inventories ordered during the previous year.
Segment Reporting:
Domestic Upholstery net sales decreased by$7.4 million , or 19.4% in the fiscal 2024 second quarter due to sales decreases atShenandoah and HF Custom (formerlySam Moore ), partially offset by a 10% increase at Sunset West.Bradington-Young net sales were the same as in the prior year second quarter.- Despite the sales decrease, gross margin was 200 basis points higher than the prior-year quarter due to decreased direct costs, including more stable raw material costs and lower direct labor costs due to reduced production at HF Custom and
Shenandoah , partially offset by under-absorbed indirect costs. - For the fiscal 2024 first half, net sales decreased at HF Custom,
Shenandoah , and Sunset West.Bradington-Young reported a small sales increase for the six-month period. - Incoming orders increased by 36.7% compared to prior-year quarter; however, orders in the prior-year period were relatively low due to higher backlog and longer lead times. Quarter-end backlog for
Bradington-Young remained three times that of pre-pandemic levels at fiscal 2020 second quarter end, while the backlogs for HF Custom andShenandoah decreased to levels similar to fiscal 2020.
Cash, Debt, and Inventory
- Cash and cash equivalents stood at
$50 million at fiscal 2024 second quarter-end, an increase of$31 million from the prior year-end. Inventory levels decreased by$35 million from the year-end and$70 million from this time a year ago. During the six-month period,$51 million of cash generated from operating activities funded$8.7 million share repurchases,$4.9 million in cash dividends to shareholders,$4.0 million capital expenditures including investments in the new showrooms,$2.6 million for development of our cloud-based ERP system, and$2.4 million for BOBO acquisition. - Since the share repurchase program began in the second quarter of last year, as of quarter end, a total of approximately
$22 million has been spent to purchase and retire about 1.3 million shares of common stock. - In addition to the cash balance, an aggregate of
$27.2 million was available under our existing revolver at quarter-end.
Capital Allocation
“During the first half of the year, we’ve made considerable progress in strengthening our balance sheet. The quality of our inventories is much better than it was at the end of last year and is aligned with expected demand and we have generated considerable cash this year,” said Huckfeldt. “For the remainder of the year, we plan to continue to strengthen the balance sheet, continue our share repurchase program, as appropriate, and invest in our organic growth initiatives, which we believe will position us favorably as business improves,” he continued.
Dividends
On
Outlook
“We believe there are conflicting signals in the economy,” said Hoff. “A housing shortage and the over 20-year high on fixed mortgage rates has slowed down housing activity. The continued rise in interest rates has suppressed consumer confidence. However, overall retail spending and activity in the manufacturing sector and new business start-ups is healthy, while the unemployment rate remains near a 30-year low.”
“As we anticipated, the first half of the year was difficult as the industry worked through bloated inventories and consumers’ spending habits changed. We expect demand and business to pick up in the second half for several reasons. First, consolidated orders are up in mid-double-digits over this time a year ago, with orders trending up in each segment for the past few months. Secondly, a significant portion of Hooker Branded’s backlog consists of orders for new products launched at the
“While we’re focused on reducing overhead costs, keeping our balance sheet strong and judiciously deploying capital, we have continued to invest significantly in initiatives that promote higher visibility amongst potential customers and future growth and believe these things will put us in the strongest possible position when demand improves,” Hoff concluded.
Conference Call Details
Certain statements made in this release, other than those based on historical facts, may be forward-looking statements. Forward-looking statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking terminology such as “believes,” “expects,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “would,” “could” or “anticipates,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Those risks and uncertainties include but are not limited to: (1) general economic or business conditions, both domestically and internationally, including the current macro-economic uncertainties and challenges to the retail environment for home furnishings along with instability in the financial and credit markets, in part due to inflation and rising interest rates, including their potential impact on (i) our sales and operating costs and access to financing, (ii) customers, and (iii) suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses; (2) the direct and indirect costs and time spent by our associates associated with the implementation of our Enterprise Resource Planning system (“ERP”), including costs resulting from unanticipated disruptions to our business; (3) the cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers’ income available for discretionary purchases, and the availability and terms of consumer credit; (4) difficulties in forecasting demand for our imported products and raw materials used in our domestic operations; (5) risks associated with our reliance on offshore sourcing and the cost of imported goods, including fluctuation in the prices of purchased finished goods, customs issues, freight costs, including the price and availability of shipping containers, ocean vessels, ocean and domestic trucking, and warehousing costs and the risk that a disruption in our offshore suppliers or the transportation and handling industries, including labor stoppages, strikes, or slowdowns, could adversely affect our ability to timely fill customer orders; (6) risks associated with HMI segment restructuring and cost-savings efforts, including our ability to timely dispose of excess inventories, reduce expenses and return the segment to profitability; (7) the impairment of our long-lived assets, which can result in reduced earnings and net worth; (8) adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products by foreign governments or the
Table I | |||||||||||||
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES | |||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||
(In thousands, except per share data) | |||||||||||||
(Unaudited) | |||||||||||||
For the | |||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||
Net sales | $ | 97,806 | $ | 152,908 | $ | 219,621 | $ | 300,223 | |||||
Cost of sales | 74,465 | 121,853 | 168,374 | 239,709 | |||||||||
Gross profit | 23,341 | 31,055 | 51,247 | 60,514 | |||||||||
Selling and administrative expenses | 21,144 | 22,886 | 46,191 | 47,543 | |||||||||
Intangible asset amortization | 924 | 878 | 1,807 | 1,756 | |||||||||
Operating income | 1,273 | 7,291 | 3,249 | 11,215 | |||||||||
Other income/(expense), net | 357 | (44 | ) | 411 | 234 | ||||||||
Interest expense, net | 654 | 83 | 833 | 111 | |||||||||
Income before income taxes | 976 | 7,164 | 2,827 | 11,338 | |||||||||
Income tax expense | 191 | 1,621 | 593 | 2,612 | |||||||||
Net income | $ | 785 | $ | 5,543 | $ | 2,234 | $ | 8,726 | |||||
Earnings per share | |||||||||||||
Basic | $ | 0.07 | $ | 0.47 | $ | 0.20 | $ | 0.74 | |||||
Diluted | $ | 0.07 | $ | 0.46 | $ | 0.20 | $ | 0.73 | |||||
Weighted average shares outstanding: | |||||||||||||
Basic | 10,732 | 11,876 | 10,854 | 11,871 | |||||||||
Diluted | 10,828 | 11,935 | 10,962 | 11,960 | |||||||||
Cash dividends declared per share | $ | 0.22 | $ | 0.20 | $ | 0.44 | $ | 0.40 | |||||
Table II | |||||||||||||||||
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES | |||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||||||||
(In thousands) | |||||||||||||||||
(Unaudited) | |||||||||||||||||
For the | |||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||
Net income | $ | 785 | $ | 5,543 | $ | 2,234 | $ | 8,726 | |||||||||
Other comprehensive income: | |||||||||||||||||
Amortization of actuarial (gain)/loss | (70 | ) | 60 | (140 | ) | 42 | |||||||||||
Income tax effect on amortization | 17 | (14 | ) | 34 | (10 | ) | |||||||||||
Adjustments to net periodic benefit cost | (53 | ) | 46 | (106 | ) | 32 | |||||||||||
Total comprehensive income | $ | 732 | $ | 5,589 | $ | 2,128 | $ | 8,758 | |||||||||
Table III | |||||||
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
(In thousands) | |||||||
As of | |||||||
2023 | 2023 | ||||||
(Unaudited) | |||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 49,979 | $ | 19,002 | |||
Trade accounts receivable, net | 39,441 | 62,129 | |||||
Inventories | 63,358 | 96,675 | |||||
Income tax recoverable | 3,025 | 3,079 | |||||
Prepaid expenses and other current assets | 7,370 | 6,418 | |||||
Total current assets | 163,173 | 187,303 | |||||
Property, plant and equipment, net | 28,433 | 27,010 | |||||
Cash surrender value of life insurance policies | 28,050 | 27,576 | |||||
Deferred taxes | 14,037 | 14,484 | |||||
Operating leases right-of-use assets | 58,589 | 68,949 | |||||
Intangible assets, net | 30,471 | 31,779 | |||||
15,076 | 14,952 | ||||||
Other assets | 12,286 | 9,663 | |||||
Total non-current assets | 186,942 | 194,413 | |||||
Total assets | $ | 350,115 | $ | 381,716 | |||
Liabilities and Shareholders' Equity | |||||||
Current liabilities | |||||||
Current portion of long-term debt | $ | 1,393 | $ | 1,393 | |||
Trade accounts payable | 14,068 | 16,090 | |||||
Accrued salaries, wages and benefits | 6,447 | 9,290 | |||||
Customer deposits | 8,269 | 8,511 | |||||
Current portion of lease liabilities | 6,926 | 7,316 | |||||
Other accrued expenses | 2,264 | 7,438 | |||||
Total current liabilities | 39,367 | 50,038 | |||||
Long term debt | 22,177 | 22,874 | |||||
Deferred compensation | 7,880 | 8,178 | |||||
Operating lease liabilities | 54,157 | 63,762 | |||||
Other long-term liabilities | 866 | 843 | |||||
Total long-term liabilities | 85,080 | 95,657 | |||||
Total liabilities | 124,447 | 145,695 | |||||
Shareholders' equity | |||||||
Common stock, no par value,20,000shares authorized, | |||||||
10,819 and 11,197 shares issued and outstanding on each date | 49,561 | 50,770 | |||||
Retained earnings | 175,348 | 184,386 | |||||
Accumulated other comprehensive income | 759 | 865 | |||||
Total shareholders' equity | 225,668 | 236,021 | |||||
Total liabilities and shareholders' equity | $ | 350,115 | $ | 381,716 | |||
Table IV | |||||||||
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES | |||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
(In thousands) | |||||||||
(Unaudited) | |||||||||
For the | |||||||||
Twenty-Six Weeks Ended | |||||||||
2023 | 2022 | ||||||||
Operating Activities: | |||||||||
Net income | $ | 2,234 | $ | 8,726 | |||||
Adjustments to reconcile net income to net cash | |||||||||
provided by/(used in) operating activities: | |||||||||
Depreciation and amortization | 4,372 | 4,409 | |||||||
Deferred income tax expense | 481 | 1,839 | |||||||
Noncash restricted stock and performance awards | 1,043 | 873 | |||||||
Provision for doubtful accounts and sales allowances | (475 | ) | (1,532 | ) | |||||
Gain on life insurance policies | (684 | ) | (587 | ) | |||||
Loss on sales of assets | 30 | - | |||||||
Changes in assets and liabilities: | |||||||||
Trade accounts receivable | 23,163 | (4,843 | ) | ||||||
Inventories | 35,062 | (53,489 | ) | ||||||
Income tax recoverable | 53 | 787 | |||||||
Prepaid expenses and other assets | (3,528 | ) | (6,175 | ) | |||||
Trade accounts payable | (2,029 | ) | 4,691 | ||||||
Accrued salaries, wages, and benefits | (2,843 | ) | (1,480 | ) | |||||
Customer deposits | (241 | ) | 27 | ||||||
Operating lease assets and liabilities | 366 | (151 | ) | ||||||
Other accrued expenses | (5,154 | ) | (1,293 | ) | |||||
Deferred compensation | (438 | ) | (283 | ) | |||||
Net cash provided by/(used in) operating activities | $ | 51,412 | $ | (48,481 | ) | ||||
Investing Activities: | |||||||||
Acquisitions | (2,373 | ) | (25,912 | ) | |||||
Purchases of property and equipment | (3,965 | ) | (1,947 | ) | |||||
Premiums paid on life insurance policies | (317 | ) | (404 | ) | |||||
Proceeds of life insurance policies | 444 | - | |||||||
Net cash used in investing activities | (6,211 | ) | (28,263 | ) | |||||
Financing Activities: | |||||||||
Purchase and retirement of common stock | (8,668 | ) | (1,137 | ) | |||||
Cash dividends paid | (4,856 | ) | (4,794 | ) | |||||
Payments for long-term loans | (700 | ) | - | ||||||
Proceeds from long-term loans | - | 25,000 | |||||||
Proceeds from revolving credit facility | - | 30,301 | |||||||
Payments for revolving credit facility | - | (30,301 | ) | ||||||
Debt issuance cost | - | (38 | ) | ||||||
Net cash (used in)/provided by financing activities | (14,224 | ) | 19,031 | ||||||
Net increase/(decrease) in cash and cash equivalents | 30,977 | (57,713 | ) | ||||||
Cash and cash equivalents - beginning of year | 19,002 | 69,366 | |||||||
Cash and cash equivalents - end of quarter | $ | 49,979 | $ | 11,653 | |||||
Supplemental disclosure of cash flow information: | |||||||||
Cash paid/(refund) for income taxes | $ | 60 | $ | (14 | ) | ||||
Cash paid for interest, net | 914 | 55 | |||||||
Non-cash transactions: | |||||||||
(Decrease)/Increase in lease liabilities arising from changes in right-of-use assets | $ | (6,356 | ) | $ | 7,680 | ||||
Increase in property and equipment through accrued purchases | 8 | 207 | |||||||
Table V | |||||||||||||||||||||||
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES | |||||||||||||||||||||||
NET SALES AND OPERATING INCOME/(LOSS) BY SEGMENT | |||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
% Net | % Net | % Net | % Net | ||||||||||||||||||||
Net sales | Sales | Sales | Sales | Sales | |||||||||||||||||||
Hooker Branded | $ | 34,685 | 35.4 | % | $ | 52,817 | 34.5 | % | $ | 76,576 | 34.9 | % | $ | 95,047 | 31.7 | % | |||||||
Home Meridian | 28,911 | 29.6 | % | 59,048 | 38.6 | % | 70,832 | 32.3 | % | 121,133 | 40.3 | % | |||||||||||
30,892 | 31.6 | % | 38,326 | 25.1 | % | 65,996 | 30.0 | % | 79,546 | 26.5 | % | ||||||||||||
All Other | 3,318 | 3.4 | % | 2,717 | 1.8 | % | 6,217 | 2.8 | % | 4,497 | 1.5 | % | |||||||||||
Consolidated | $ | 97,806 | 100 | % | $ | 152,908 | 100 | % | $ | 219,621 | 100 | % | $ | 300,223 | 100 | % | |||||||
Operating income/(loss) | |||||||||||||||||||||||
Hooker Branded | $ | 3,223 | 9.3 | % | $ | 6,072 | 11.5 | % | $ | 5,524 | 7.2 | % | $ | 10,214 | 10.7 | % | |||||||
Home Meridian | (3,336 | ) | -11.5 | % | (991 | ) | -1.7 | % | (5,454 | ) | -7.7 | % | (4,085 | ) | -3.4 | % | |||||||
724 | 2.3 | % | 1,713 | 4.5 | % | 2,051 | 3.1 | % | 4,465 | 5.6 | % | ||||||||||||
All Other | 662 | 20.0 | % | 497 | 18.3 | % | 1,128 | 18.1 | % | 621 | 13.8 | % | |||||||||||
Consolidated | $ | 1,273 | 1.3 | % | $ | 7,291 | 4.8 | % | $ | 3,249 | 1.5 | % | $ | 11,215 | 3.7 | % | |||||||
For more information, contact:
Source:
2023 GlobeNewswire, Inc., source