HOOKER FURNISHINGS Corp
For the period ended Oct 27, 2024. Filed Dec 6, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Oct 27, 2024 · Filed Dec 6, 2024
HOFT$14.53-0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-07-28; filed 2024-09-06.
0001185185-24-000870
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-10-27; filed 2024-12-06.
0001185185-24-001187
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 73 previous paragraphs and 65 current paragraphs.
40 unchanged; 15 reworded; 10 added; 18 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 59 previous and 63 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (10)
Current report
Consolidated order backlog decreased by 5.3% and 8.4% compared to the end of the previous year’s third quarter and the fiscal 2024 year-end in January, respectively.
Current report
Hooker Branded incoming orders decreased by 13.3% year-over-year. The quarter-end order backlog was 30% lower than at the end of the prior year’s third quarter but remained 18% higher than pre-pandemic levels at the end of the fiscal 2020 third quarter.
Current report
Home Meridian incoming orders increased by 8.1% compared to the previous year’s third quarter. The quarter-end backlog was 32.2% higher than the prior year’s third quarter end, primarily due to increased orders from the hospitality business.
Current report
Domestic Upholstery incoming orders decreased by 4.8% during the quarter, and the quarter-end backlog was 29.9% lower than at the end of the prior year’s third quarter. Excluding Sunset West, the order backlog remained consistent with pre-pandemic levels at the end of the fiscal 2020 third quarter.
Current report
Our fiscal 2025 third quarter and nine months results were adversely affected by macro-economic headwinds and challenging conditions which are impacting most of the home furnishings industry. Consolidated net sales were $104.4 million, a decrease of $12.5 million, or 10.7%, compared to the same quarter of the previous year. Additionally, we recorded $2.4 million in bad debt expense due to a large customer’s bankruptcy, which also triggered tradename impairment of $2.0 million. On a positive note, we are starting to see benefits from our cost reduction plan announced in the second quarter; however, we incurred $3.1 million in costs related to those measures in the third quarter. The Company reported a consolidated operating loss of $7.3 million and a net loss of $4.1 million, or ($0.39) per diluted share.
Current report
For the nine-month period of fiscal 2025, consolidated net sales were $293.0 million, a decrease of $43.4 million or 12.9% compared to the same period of the previous year. This decrease was also due to persistent low demand affecting the home furnishings industry, and the absence of $11 million in liquidation sales from the unprofitable ACH product line which the Company exited last year. For the current nine-month period, the Company reported a consolidated operating loss of $15.4 million and a net loss of $10.2 million, or ($0.97) per diluted share, attributed to lower overall sales, higher ocean freight costs at Hooker Branded, under-absorbed indirect costs at Domestic Upholstery, as well as a total of $7.5 million charges mentioned earlier.
Current report
Consolidated net sales decreased in both the third quarter and nine-month period of fiscal 2025, as all three segments reported lower sales due to the ongoing challenging environment for home furnishings.
Current report
The Company reported operating losses in the fiscal 2025 third quarter and the nine-month period due to the $3.1 million in restructuring costs, $2.4 million in bad debt, and $2.0 million in intangible asset impairment, as well as low sales volume.
Current report
Over the last few months, the key economic indicators that impact furniture sales have been trending positively:
Current report
While the macro-economic outlook is improving, we continue to focus on the controllables and improvements already underway. Our balance sheet, financial condition and seasoned management team should well equip us to navigate any remaining challenges as we focus on maximizing efficiencies with the cost reductions while simultaneously investing in expansion strategies that will position us for revenue and profitability growth when demand fully returns.
Removed paragraphs (18)
Previous report
Consolidated order backlog decreased compared to the end of the second quarter of the prior year but increased from year-end in January 2024, driven by a higher backlog in Home Meridian’s hospitality business. Order backlog in the Hooker Branded and Domestic Upholstery segments decreased slightly from year-end but remained above pre-COVID levels in calendar 2019.
Previous report
Our fiscal 2025 second quarter and first half results were adversely affected by continued anemic demand for home furnishings which is impacting most of home furnishings industry. Additionally, in the prior year’s second quarter and first half, the $3.5 million and $11 million in liquidation sales from the unprofitable businesses we exited were not present in the current year periods. Year-over-year industry-wide U.S. furniture store sales fell compared to the prior year same months for 17 consecutive months, according to the U.S. Census Bureau.
Previous report
During the fiscal 2025 second quarter, consolidated net sales decreased by $2.7 million, or 2.8%, compared to the same quarter last year. Net sales decreased by $2.3 million at Domestic Upholstery and $1.6 million at Hooker Branded, while Home Meridian saw a $1.6 million increase, driven by strong sales in its hospitality business. Consolidated gross profit and margin decreased for the quarter, primarily due to decreased profitability in the Hooker Branded and Domestic Upholstery segments, which were attributed to lower sales and higher product costs, as well as under-absorbed indirect costs. This decrease was partially offset by improved profitability in the Home Meridian segment. The Company reported a quarterly consolidated operating loss of $3.1 million, with a margin of (3.3%), driven by low sales volume and under-absorbed expenses, compared to an operating income of $1.3 million and a 1.3% margin in the prior year’s second quarter. The consolidated net loss for the quarter was $2.0 million, or ($0.19) per diluted share, compared to net income of $785,000, or $0.07 per diluted share, in the same quarter last year.
Previous report
During the fiscal 2025 first half, consolidated net sales decreased by $31.0 million, or 14.1%, compared to the same period last year, also due to the persistent low demand for home furnishings driven by macroeconomic uncertainties. All three segments experienced sales decreases during the six-month period. Consolidated gross profit and margin decreased, impacted by lower overall sales, higher product costs in the Hooker Branded and Domestic Upholstery segments, and an unfavorable customer mix in the Home Meridian segment. However, these decreases were partially offset by strong profitability in the hospitality business. The company reported an operating loss of $8.2 million, with a margin of (4.3%), compared to an operating income of $3.2 million and a 1.5% margin in the same period last year. The consolidated net loss for the six-month period was $6.0 million, or ($0.57) per diluted share, compared to $2.2 million, or $0.20 per diluted share, in the prior year period.
Previous report
Review
Previous report
The softness in the macroeconomic environment and ongoing challenges in the home furnishings industry, which we observed in the previous quarters, have extended beyond our initial expectations. In response to this downturn, we have focused on maintaining a strong balance sheet while protecting our 50-plus year history of quarterly dividends. We have continued to grow our profitable businesses, including driving Home Meridian’s gross margin to one of the highest levels since its acquisition in 2016. We continue to invest in growth initiatives, including the addition of new talent in areas like merchandising, interior design sales and support, increased showroom footprint as well as the continued expansion of Sunset West, all of which we believe will position us for improved profitability when demand returns. Additionally, we are in the process of implementing cost reduction measures including the consolidation of certain operations and other fixed cost reductions. In the fiscal 2025 second quarter, we reported a modest 2.8% decrease in revenue compared to the same period last year. However, sales volumes remained insufficient to reach breakeven. Despite the quarterly operating loss, we strongly believe in our strategic positioning and expect profitability to resume once the market recovers and sales volumes rebound.
Previous report
The*** ***Hooker Branded segment’s net sales decreased by $1.6 million, or 4.5%, compared to the second quarter of the prior year, driven by the lower average selling prices due to the price reductions we implemented on orders after August of the prior year to align with reduced ocean freight costs. Incoming orders decreased by 6.8% during the quarter, reflecting the persistent industry-wide weak demand for home furnishings. Although unit volume exceeded both the prior year's second quarter and the current fiscal year's first quarter, it was still among the lowest quarters in recent history. On a more positive note, the quarter-end order backlog remained 20% higher than pre-pandemic levels at the end of the fiscal 2020 second quarter.
Previous report
Gross profit and gross margin both decreased during the quarter due to reduced net sales and higher product costs, driven by the recent increase in freight costs. The prior period's gross margin benefited from lower freight costs and price increases implemented two years ago, making the current quarter's comparison more challenging. Additionally, warehousing and distribution costs increased during the quarter, largely due to increased labor costs.
Previous report
Despite achieving a 30% gross margin, the segment recorded a small operating loss of $406,000 for the quarter, driven by under-absorbed selling and administrative (S&A) expenses due to low sales, compared to a $3.9 million operating income in the prior quarter. S&A expenses were higher as a percentage of sales due to the impact of lower sales on the mostly fixed nature of these expenses. Additionally, S&A expenses increased in part because this segment assumes the majority of expenses associated with the Company’s growth and strategic initiatives, including investments in talent, ERP implementation expenses, professional services expenses, and other sales and marketing expenses. Given that much of the increased spending is in growth initiatives, we believe the additional spending is warranted. Notably, management remains committed to optimizing spending and expects to see significant fixed cost reductions beginning in the second half of fiscal 2025 and beyond.
Previous report
The* Home Meridian segment *reported a $1.6 million, or 5.6%, increase in net sales for the fiscal 2025 second quarter, despite the absence of $3.5 million ACH liquidation sales that were in the prior period. This marks the first year-over-year quarterly sales increase for the segment in two years. The growth was primarily driven by strong sales at Samuel Lawrence Hospitality (SLH). Additionally, we saw a sales uptick with major furniture chains and mass merchants during the quarter. However, these increases were partially offset by decreased sales to independent furniture stores and e-commerce channels.
Previous report
Home Meridian reported an increase in gross profit, achieving a gross margin of 19.5%, one of the highest levels since the acquisition of the business in 2016. This was driven by strong profitability at SLH, along with reduced Georgia warehouse costs and lower expenses in Asian operations, though it was partially offset by sales of some lower-margin products and customer mix. The segment recorded a quarterly operating loss of $896,000 due to sales volume deficit; however, it improved from a $3.3 million operating loss in the same quarter last year and a $3.4 million loss in the first quarter of the current fiscal year. This result was in line with management's expectations given the current industry conditions. While incoming orders decreased during the second quarter, the quarter-end backlog was 2.1% higher than the same period last year and 22% higher than the fiscal 2024 year-end in January.
Previous report
The* Domestic Upholstery segment*’s net sales decreased by $2.3 million, or 7.6%, compared to the prior year second quarter due to decreased sales at Bradington-Young and HF Custom, partially offset by increased sales at Sunset West and Shenandoah. Industry weakness affected order rates and backlog levels, leading to reduced production at Bradington-Young and HF Custom during the quarter. On a more positive note, excluding Sunset West, the order backlog remained 20% higher than the pre-pandemic levels at the end of the fiscal 2020 second quarter. Gross profit and margin both decreased during the quarter due to increased direct material costs and under-absorbed indirect costs attributed to lower sales and resulting reduced production efficiencies at these domestic facilities, which negatively impacted margins by 150 bps and 180 bps, respectively. Additionally, warehousing costs increased due to higher labor costs and increased warehouse rent expenses, as Sunset West has expanded into a portion of the Georgia warehouse for its growing East Coast footprint. S&A expenses also increased by 240 bps during the quarter. As a result, the segment recorded an operating loss of $1.3 million, compared to operating income of $724,000 in the prior year period.
Previous report
Cash and cash equivalents were $42.1 million at the end of the second quarter, down $1.1 million from the fiscal 2024 year-end, but up $1.2 million from the first quarter ended in April 2024. Inventory levels decreased by $4.7 million from year-end. During the six-month period, we used cash and cash equivalents on hand and $5.3 million cash generated from operating activities to fund $4.9 million in cash dividends to our shareholders, $2.4 million for further development of our cloud-based ERP system, and $1.4 million in capital expenditures. In addition to our cash balance, we had an aggregate of $28.3 million available under our existing revolver at quarter-end to fund working capital needs, as well as $29.4 million cash surrender value of company-owned life insurance. With strategic inventory management, reasonable capital expenditures, and prudent expense management, we believe we have sufficient financial resources to support our business operations for the foreseeable future.
Previous report
Consolidated net sales decreased in the second quarter of fiscal 2025, primarily due to decreases in the Domestic Upholstery and Hooker Branded segments, partially offset by an increase in net sales at Home Meridian. For the first half of fiscal 2025, consolidated net sales decreased as all three segments experienced a downturn in sales.
Previous report
The Company reported operating losses in the fiscal 2025 second quarter and first half due to the factors discussed above.
Previous report
We are encouraged that inflation hit its lowest post-pandemic level in July, with the Consumer Price Index cooling to 2.9%, setting up a possible interest rate cut in September. There has been a recent surge in mortgage refinancing in August, which is a positive indicator. We believe, if the Federal Reserve lowers interest rates, housing activity will accelerate.
Previous report
While the U.S. Department of Commerce reported its 17th consecutive month of lower home furnishings retail sales in July, overall retail sales rose about 3% during the same period, and the University of Michigan Consumer Sentiment Index rose in early August for the first time since March. Additionally, existing-home sales grew in July ending a four-month sales decline.
Previous report
Our strong balance sheet, financial condition and seasoned management team will well equip us to navigate the remaining downturn, as we focus on maximizing efficiencies with the planned cost reductions. We are in the process of refinancing our credit facility and expect to have that completed in the near future. In addition, we plan to pay off $22 million in term debt during the third quarter, demonstrating our confidence in our future. We will continue investing in expansion strategies that will position us for improved profitability and revenue growth when demand returns.
Reworded paragraphs (15)
Previous wording
This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2025 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “second quarter” or “quarterly period”) that began April 29, 2024 and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began January 29, 2024, which both ended July 28, 2024. This report discusses our results of operations for these periods compared to the 2024 fiscal year thirteen-week period that began May 1, 2023, and the twenty-six-week period that began January 30, 2023, which both ended July 30, 2023; and our financial condition as of July 28, 2024 compared to January 28, 2024.
Current wording
This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2025 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began July 29, 2024 and the thirty-nine week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began January 29, 2024, which both ended October 27, 2024. This report discusses our results of operations for these periods compared to the 2024 fiscal year thirteen-week period that began July 31, 2023, and the thirty-nine week period that began January 30, 2023, which both ended October 29, 2023; and our financial condition as of October 27, 2024 compared to January 28, 2024.
Previous wording
*For comparison purposes, we included order backlog as of fiscal 2020 second quarter end, the year before the COVID crisis. At fiscal 2020 second quarter end, Home Meridian backlog included approximately $14 million orders from the unprofitable ready-to-assemble (RTA), Clubs and Accentrics Home e-commerce (ACH) businesses which we decided to exit in fiscal 2022 and fiscal 2023, respectively. Domestic Upholstery backlog did not include Sunset West, the business we acquired in the beginning of fiscal 2023. At fiscal 2020 second quarter end, Sunset West had approximately $3 million in backlog. See Review below for additional information on our incoming orders and backlog.
Current wording
*For comparison purposes, we included order backlog as of fiscal 2020 third quarter end, the year before the COVID crisis. At fiscal 2020 third quarter end, Home Meridian backlog included approximately $17 million orders from the unprofitable Clubs and Accentrics Home e-commerce (ACH) businesses which we decided to exit in fiscal 2022 and fiscal 2023, respectively. Domestic Upholstery backlog did not include Sunset West, the business we acquired in the beginning of fiscal 2023. At fiscal 2020 third quarter end, Sunset West had approximately $1.5 million in backlog. See Review below for additional information on our incoming orders and backlog.
Previous wording
Our fiscal 2025 second quarter and first-half performance are discussed in greater detail below under “Review” and “Results of Operations.”
Current wording
Our fiscal 2025 third quarter and nine months performance are discussed in greater detail below under “Results of Operations.”
Previous wording
Fiscal 2025 Second Quarter and First Half Compared to Fiscal 2024 Second Quarter and First Half
Current wording
Fiscal 2025 Third Quarter and Nine Months Compared to Fiscal 2024 Third Quarter and Nine Months
Previous wording
Consolidated gross profit decreased in the fiscal 2025 second quarter and first half primarily due to overall lower net sales, while consolidated gross margin decreased in both periods due to reduced margins in the Hooker Branded and Domestic Upholstery segments, partially offset by increased gross margin at Home Meridian.
Current wording
Consolidated gross profit and margin decreased in both the third quarter and nine-month period of fiscal 2025, primarily due to lower overall net sales and increased ocean freight costs at Hooker Branded, partially offset by increased gross margin at Home Meridian.
Previous wording
Consolidated selling and administrative (“S&A”) expenses increased both in absolute terms and as a percentage of net sales in the fiscal 2025 second quarter and the six-month period.
Current wording
Consolidated selling and administrative (“S&A”) expenses increased in absolute terms in the fiscal 2025 third quarter and the nine-month period due to a $2.6 million restructuring costs and a $2.4 million bad debt expense recorded in the third quarter. S&A increased as a percentage of net sales due to lower net sales and these charges.
Previous wording
Intangible asset amortization expense remained unchanged in the second quarter of fiscal 2025 but increased slightly over the six-month period due to the reassessment and subsequent amortization of the Sam Moore trade name, which began in April of the previous year. See Note 8 to our Condensed Consolidated Financial Statements for additional information.
Current wording
See Note 8 to our Condensed Consolidated Financial Statements for additional information.
Previous wording
During the second quarters of fiscal 2025 and 2024, we recorded income tax expenses of $85,000 and $191,000, respectively. The effective tax rates for these periods were (4.5%) and 19.6%, respectively. Due to the annualization method, we recognized income tax expenses on a loss before income tax in fiscal 2025 second quarter. For the fiscal 2025 first half, we recorded income tax benefits of $731,000 compared to the income tax expense of $593,000 for the previous year’s first half. The effective tax rates for the fiscal 2025 and 2024 first half periods were 10.8% and 21.0%, respectively.
Current wording
We recorded income tax benefit of $2.8 million for the fiscal 2025 third quarter, compared to $2.0 million income tax expense in the comparable prior year quarter. The effective tax rates for the fiscal 2025 and 2024 third quarters were 40.7% and 22.4%, respectively. The increase in the fiscal 2025 third-quarter effective tax rate was primarily due to the annualization method, which resulted in the recognition of income tax benefits from previous quarters. For the fiscal 2025 nine-month period, we recorded income tax benefit of $3.6 million compared to the income tax expense of $2.6 million for the previous year’s comparable period. The effective tax rates for the fiscal 2025 and 2024 nine-month periods were 26.0% and 22.0%, respectively.
Previous wording
During fiscal 2025 first half ended July 28, 2024, we used existing cash and cash equivalent on hand, $5.3 million cash generated from operations and $936,000 life insurance proceeds to fund $4.9 million in cash dividends to our shareholders, $2.4 million for further development of our cloud-based ERP system, $1.4 million capital expenditures and $326,000 in life insurance premiums on Company-owned life insurance policies.
Current wording
During fiscal 2025 nine-month period, we used existing cash and cash equivalents on hand and $936,000 life insurance proceeds to fund $7.4 million in cash dividends to our shareholders, $2.8 million for further development of our cloud-based ERP system, $2.7 million capital expenditures and $387,000 in life insurance premiums on Company-owned life insurance policies.
Previous wording
In comparison, during the six months ended July 30, 2023, we used a portion of the $51.4 million cash generated from operations and $444,000 life insurance proceeds to fund $8.7 million share repurchases, $4.9 million in cash dividends to our shareholders, $4.0 million capital expenditures including investments in our new showrooms, $2.6 million for development of our cloud-based ERP system, $2.4 million on the BOBO acquisition, and $317,000 in life insurance premiums on Company-owned life insurance policies.
Current wording
In comparison, during the fiscal 2024 nine-month period, we used a portion of the $48.8 million cash generated from operations and $444,000 life insurance proceeds to fund $11.7 million share repurchases, $7.2 million in cash dividends to our shareholders, $5.7 million capital expenditures including investments in our new showrooms, $3.8 million for development of our cloud-based ERP system, $2.4 million on the BOBO acquisition, and $378,000 in life insurance premiums on Company-owned life insurance policies.
Previous wording
We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed. As of July 28, 2024, $4.2 million was outstanding under the Unsecured Term Loan and $18 million was outstanding under the Secured Term Loan.
Current wording
We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed. As of October 27, 2024, $4.0 million was outstanding under the Unsecured Term Loan and $18 million was outstanding under the Secured Term Loan.
Previous wording
We incurred $37,500 in debt issuance costs in connection with our term loans. As of July 28, 2024, unamortized loan costs of $22,500 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.
Current wording
We incurred $37,500 in debt issuance costs in connection with our term loans. As of October 27, 2024, unamortized loan costs of $20,625 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.
Previous wording
Due to our first half results, we were not in compliance with the Existing Loan Agreement’s basic fixed charge ratio covenant in either fiscal 2025 quarterly period; however, subsequent to the end of both quarterly periods, we obtained covenant waivers from BofA. Based on the risk of future non-compliance and according to U.S. GAAP, we have classified all of the debt as current in our consolidated balance sheets. We have sufficient cash and investments on hand to retire the debt if necessary. However, we expect to finalize a new credit facility with BofA during the fiscal 2025 third quarter. Consequently, we expect to be in compliance with our revised financial covenants beginning in our fiscal 2025 third quarter and for the foreseeable future.
Current wording
Due to our first nine months results, we were not in compliance with the Existing Loan Agreement’s basic fixed charge ratio covenant in the first three fiscal 2025 quarterly periods. Additionally, we were not in compliance with the Funded Debt to EBITDA Ratio in the third quarter. However, subsequent to the end of all three quarterly periods, we obtained covenant waivers from BofA. Subsequent to the fiscal 2025 third quarter end, we finalized a new credit facility with BofA. Consequently, we expect to be in compliance with our revised financial covenants in our fiscal 2025 fourth quarter and for the foreseeable future. We refer you to the discussion in Note 14 Subsequent Events.
Previous wording
We expect to spend approximately $1 million in capital expenditures over the remainder of fiscal 2025 to maintain and enhance our operating systems and facilities, excluding any possible spending decreases resulting from the cost reduction plan discussed above.
Current wording
We expect to spend approximately $600,000 to $700,000 in capital expenditures over the remainder of fiscal 2025 to maintain and enhance our operating systems and facilities, excluding any possible spending decreases resulting from the cost reduction plan discussed above.
Previous wording
During calendar 2021, our Board of Directors approved an upgrade to our current ERP system and implementation efforts begun shortly thereafter. The ERP system went live at Sunset West in December 2022 and in the legacy Hooker divisions in early September 2023. Due to our cost reduction initiatives, we have paused the ERP project in the Home Meridian segment. We do not anticipate further significant ERP spending in fiscal 2025.
Current wording
During calendar 2021, our Board of Directors approved an upgrade to our current ERP system and implementation efforts begun shortly thereafter. The ERP system went live at Sunset West in December 2022 and in the legacy Hooker divisions in early September 2023. Due to our cost reduction initiatives, we have temporarily paused the ERP project in the Home Meridian segment. We do not anticipate further significant ERP spending in fiscal 2025.