What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-04-16 compared with 2020-04-17 · 70 added, 39 removed, 114 unchanged (49% of the section changed)

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Consequently, Hooker acquired Home Meridian on February 1, 2016 and Shenandoah Furniture on September 29, 2017.

We believe our acquisition of Home Meridian has better positioned us in some of the fastest growing and advantaged channels of distribution, including e-commerce, warehouse membership clubs and contract furniture.

While growing faster than industry average, these channels tend to operate at lower margins.

We also believe our acquisition of Shenandoah Furniture, a North Carolina-based domestic upholsterer, has better positioned us in the “lifestyle specialty” retail distribution channel.

For that channel, domestically-produced, customizable upholstery is extremely viable and preferred by the end consumers who shop at retailers in that channel.

Reportable Segments

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The Home Meridian segment which includes the following brands/marketing units:

Accentrics Home, home furnishings centered around an eclectic mix of unique pieces and materials that offer a fresh take on home fashion;

Accentrics Home, home furnishings centered around an eclectic mix of unique pieces and materials that offer a fresh take on home fashion focused on e-commerce customers;

Pulaski Furniture, casegoods covering the complete design spectrum in a wide range of bedroom, dining room, accent and display cabinets at medium price points;

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Prime Resources International, value-conscious imported leather motion upholstery;

Samuel Lawrence Hospitality, a designer and supplier of hotel furnishings targeted toward four and five-star hotels, and

HMidea, 2019 start-up that provides better-quality, ready-to-assemble furniture to mass marketers and e-commerce customers.

Samuel Lawrence Hospitality, a designer and supplier of hotel furnishings targeted toward four and five-star hotels;

HMidea, 2019 start-up that provides better-quality, ready-to-assemble furniture to mass marketers and e-commerce customers and includes our Clubs channel.

The Domestic Upholstery segment which includes the following operations:

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Imported Products

We have sourced products from foreign manufacturers for nearly thirty years, predominantly from Asia.

Imported casegoods and upholstered furniture together accounted for approximately 83% of our net sales in fiscal 2020, 84% of our net sales in fiscal 2019, and 87% of our net sales in fiscal 2018.

Our imported furniture business is subject to inherent risks in importing products manufactured abroad, including, but not limited to, supply disruptions and delays due to a variety of reasons, including due to the coronavirus (COVID-19) pandemic and possible similar health-related issues, currency exchange rate fluctuations, transportation-related issues, economic and political developments and instability, as well as the laws, policies and actions of foreign governments and the United States.

These laws, policies and actions may include regulations affecting trade or the application of tariffs, much like the current U.S.

administration’s imposition of an initial 10% tariff in September 2018 that increased to 25% in May 2019 on certain goods imported into the United States from China, including almost all furniture and furniture components manufactured in China during fiscal 2019 and 2020.

In response to these tariffs, we began re-sourcing products from non-tariff countries, primarily Vietnam, and reduced our Chinese imports by about half by the end of fiscal 2020.

We have sourced products from foreign manufacturers for over thirty years, predominantly from Asia.

Imported casegoods and upholstered furniture together accounted for approximately 83% of our net sales in both fiscal 2021 and fiscal 2020 and 84% of our net sales in fiscal 2019.

Our imported furniture business is subject to inherent risks in importing products manufactured abroad, including, but not limited to, supply disruptions and delays due to a variety of reasons, including the coronavirus (COVID-19) pandemic and possible similar health-related issues, currency exchange rate fluctuations, transportation-related issues, economic and political developments and instability, as well as the laws, policies and actions of foreign governments and the United States.

These laws, policies and actions may include regulations affecting trade or the application of tariffs, much like the current 25% tariff on certain goods imported into the United States from China, including almost all furniture and furniture components manufactured in China since fiscal 2019.

In response to these tariffs, we began re-sourcing products from non-tariff countries, primarily Vietnam, and reduced our Chinese imports to less than 20% by the end of fiscal 2021.

Because of the large number and diverse nature of the foreign suppliers from which we source our imported products, we have flexibility in the sourcing of products among any particular supplier or country.

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Supply disruptions and delays on selected items could occur for six months or longer.

If we were to be unsuccessful in obtaining those products from other sources or at a comparable cost, then a disruption in our supply chain from a major furniture supplier, or from Vietnam or China in general, could decrease our sales, earnings and liquidity.

In early fiscal 2021 because of plant closures in China due to COVID-19, many of our Chinese suppliers were closed or operating at reduced capacity and we experienced some out of stocks on better selling items.

If we were to be unsuccessful in obtaining those products from other sources or at a comparable cost, a disruption in our supply chain from a major furniture supplier, or from Vietnam or China in general, could decrease our sales, earnings and liquidity.

In fiscal 2021, many of our Chinese suppliers were closed or operating at reduced capacity due to the effects of COVID-19 and we experienced some out-of-stocks on better selling items.

We offered and sold available goods on hand and in transit but were unable to fully mitigate the entire sales loss from these out-of-stocks.

These suppliers were in the process of returning to full capacity when the COVID-19 crisis hit the U.S.

Consequently, some of these supplier locations are closing temporarily or reducing capacity.

We expect outages in select products as a result.

Given the sourcing capacity available in China, Vietnam and other low-cost producing countries, we currently believe the risks from these potential supply disruptions are manageable, however, we have limited insight into the extent to which our business could be further impacted by COVID-19 and there are many unknowns including, how long we will be impacted, the severity of the impacts and the probability of a recurrence of COVID-19 or similar regional or global pandemics.

These suppliers were in the process of returning to full capacity when the COVID-19 crisis hit the U.S., resulting in order cancellations by many furniture customers, which caused many furniture wholesalers in the U.S.

to cancel production orders with their Asian suppliers.

Consequently, some supplier locations closed temporarily or reduced capacity and we experienced outages in select products as a result.

While most of our Asian suppliers have returned to near full capacity, demand for furniture products has surged to historic levels.

This unusually high demand has caused delays in the receipt of goods as suppliers scramble to fill orders, obtain shipping containers and steamship bookings.

Additionally, port congestion has led to delays in unloading furniture once it reaches US ports.

All of these factors, combined with the production halt that regularly occurs at Chinese and Vietnamese New Year holidays, have significantly lengthened the time it takes to receive goods and our order backlog is at historic levels.

Given the sourcing capacity available in Vietnam, China and other low-cost producing countries, we currently believe the risks from these potential supply disruptions are manageable;

however, we have limited insight into the extent to which our business could be further impacted by COVID-19 and there are many unknowns including, how long we will be impacted, the severity of the impacts and the probability of a recurrence of COVID-19 or similar regional or global pandemics.

See Item 1A, “Risk Factors” for additional information on our risks related to imported products.

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Dollars, typically for a term of at least one year.

We accept the exposure to exchange rate movements beyond these negotiated periods.

We accept the exposure to exchange rate movements during these negotiated periods.

We do not use derivative financial instruments to manage this risk but could choose to do so in the future.

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We believe our sources for raw materials are adequate and that we are not dependent on any one supplier.

However, we have seen some delays in some pre-cut and sewn kits imported from China as a result of COVID-19.

However, we have seen some delays in some pre-cut and sewn kits imported from China as a result of COVID-19 and our domestic upholstery segment is currently experiencing foam shortages due to a recent severe weather event in Texas that affected production of the by-products used in foam production.

Our five largest domestic upholstery suppliers accounted for 28% of our raw materials purchases for domestic upholstered furniture manufacturing operations in fiscal 2021.

Should disruptions with this supplier occur, we believe we could successfully source these products from other suppliers without significant disruption to our operations.

Should disruptions with these suppliers occur, we believe we could successfully source these products from other suppliers without significant disruption to our operations.

Our home furnishings products are sold through a variety of retailers including independent furniture stores, department stores, mass merchants, national chains, warehouse clubs, catalog merchants, interior designers and e-commerce retailers.

One customer accounted for approximately 11% of our consolidated sales in fiscal 2020.

One customer (Wayfair LLC and its subsidiaries) accounted for approximately 12% of our consolidated sales in fiscal 2021.

Our top five customers accounted for approximately 30% of our fiscal 2021 consolidated sales.

The loss of any one or more of these customers would have a material adverse impact on our business.

1.6% of our sales in fiscal 2020 were to international customers, which we define as sales outside of the United States and Canada.

Roughly 2% of our sales in fiscal 2021 were to international customers, which we define as sales outside of the United States and Canada.

The furniture industry is highly competitive and includes a large number of foreign and domestic manufacturers and importers, none of which dominates the market in our price points.

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We distribute furniture to retailers directly from factories and warehouses in Asia via our container direct programs and from our distribution centers in Virginia, North Carolina and California, and in limited cases, from customer operated warehouses in strategic locations.

We are in the process of consolidating our Home Meridian segment’s East Coast warehousing operations into an 800,000 square foot distribution center in Liberty County, Georgia.

We believe that this strategically located facility near the Port of Savannah and major interstate highways will allow us to more efficiently service our customers, reduce transportation costs and better position us for future growth.

This leased facility is currently under construction and we expect to occupy it in the Fall of 2021.

It is our policy and industry practice to allow order cancellation for casegoods up to the time of shipment or, in the case of container direct orders, up until the time the container is booked with the ocean freight carrier, therefore, customer orders for casegoods are not firm.

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We generally import casegoods inventory and certain upholstery items in amounts that enable us to meet the delivery requirements of our customers, our internal in-stock goals and minimum purchase requirements from our sourcing partners.

However, during fiscal 2019 and 2020 we accelerated the delivery and subsequently increased inventory levels of some imported products from China due to the threat of tariffs on those products and the threat of subsequent increased tariffs.

However, a large percentage of products sold are not warehoused by us but ship directly to our customers and thus not included as inventory.

However, during fiscal 2019 and 2020 we accelerated the delivery and subsequently increased inventory levels of some imported products from China due to the threat of tariffs on those products.

Inventory levels fell significantly during fiscal 2021 as compared to the end of fiscal 2020 due primarily to the COVID-19 crisis.

In early calendar 2020, Asian factories closed as COVID levels spiked in Asia.

They began to slowly re-open as levels spiked in the US and the demand for home furnishings plummeted.

As the initial crisis subsided in the US and demand surged, Asian manufacturing capacity was strained, and receipts of products slowed.

Additionally, container availability and steamship capacity became scarce.

We expect these conditions to improve as we move through fiscal 2022.

A large percentage of products sold are not warehoused by us but ship directly to our customers and thus not included as inventory.

We do not carry significant amounts of domestically produced upholstery inventory or hospitality products, as most of these products are built to order and are shipped shortly after their manufacture.

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However, we may offer extended payment terms in certain circumstances, including to promote sales of our product.

Due to the COVID-19 crisis in the U.S.

and the related decline in demand for home furnishings that began in the first quarter of fiscal 2021, some customers have informed us that they intend to take extended credit terms of 60-120 days.

We purchase accounts receivable insurance on certain customers or factor their receivables if their risk profile warrants it and the insurance is available.

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Order Backlog

At February 2, 2020, our backlog of unshipped orders was as follows:

At January 31, 2021, our backlog of unshipped orders was as follows:

Order Backlog

(Dollars in 000s)

February 2, 2020

January 31, 2021

February 2, 2020

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Domestic Upholstery

Order backlog increased $9.8 million or 9.4% as compared to the prior-year due to orders in the Home Meridian segment during the 2020 fiscal fourth quarter and due to the timing of orders received in the Domestic Upholstery segment for two major customers near the end of fiscal 2020.

For the Hooker Branded segment, Domestic Upholstery segment and All Other, we consider unshipped order backlogs to be one helpful indicator of sales for the upcoming 30-day period, but because of our relatively quick delivery and our cancellation policies (discussed under Warehousing and Distribution, above), we do not consider order backlogs to be a reliable indicator of expected long-term sales.

We consider the Home Meridian segment’s backlog to be one helpful indicator of that segment’s sales for the upcoming 90-day period.

Due to (i) Home Meridian’s sales volume, (ii) the average sales order sizes of its mass, club and mega account channels of distribution, (iii) the proprietary nature of many of its products and (iv) the project nature of its hospitality business, that segment’s average order sizes tend to be larger and consequently, its order backlog tends to be larger.

However, due to the order and supply disruptions caused by COVID-19, a spike in order cancellations in early fiscal 2021 has decreased the usefulness of order backlog at February 2, 2020 as an indicator of future sales.

In the discussion below and herein we reference changes in sales orders or “orders” and sales order backlog (unshipped orders at a point in time) or “backlog” over and compared to certain periods of time and changes discussed are in sales dollars and not units of inventory, unless stated otherwise.

We believe orders are generally good current indicators of sales momentum and business conditions.

However, except for custom or proprietary products, orders may be cancelled before shipment.

If the items ordered are in stock and the customer has requested immediate delivery, we generally ship products in about seven days or less from receipt of order;

however, orders may be shipped later if they are out of stock or there are production or shipping delays or the customer has requested the order to be shipped at a later date.

For the Hooker Branded and Domestic Upholstery segments and All Other, we generally consider unshipped order backlogs to be one helpful indicator of sales for the upcoming 30-day period, but because of our relatively quick delivery and our cancellation policies, we do not consider order backlogs to be a reliable indicator of expected long-term sales.

We generally consider the Home Meridian segment’s backlog to be one helpful indicator of that segment’s sales for the upcoming 90-day period.

Due to (i) Home Meridian’s sales volume, (ii) the average sales order sizes of its mass, club and mega account channels of distribution, (iii) the proprietary nature of many of its products and (iv) the project nature of its hospitality business, for which average order sizes tend to be larger and consequently, its order backlog tends to be larger.

There are exceptions to the general predictive nature of our orders and backlogs noted in this paragraph due to current demand and supply chain challenges related to the COVID-19 pandemic.

They are discussed in greater detail below and are essential to understanding our prospects.

At the end of fiscal 2021, order backlog increased $134.3 million or 118% as compared to the prior-year due to increased incoming orders in all three reportable segments as well as the supply chain disruptions in the Home Meridian segment and production delays in the Domestic Upholstery segment.

We are very encouraged by the current historic levels of orders and backlogs;

however, due to the current supply chain issues including the lack of shipping containers and vessel space and limited overseas vendor capacity, orders are not converting to shipments as quickly as could be expected in the pre-pandemic environment and we expect that to continue at least into the fiscal 2022 first quarter.

The current logistics challenges are slowing order fulfillment, particularly for Home Meridian whose average order sizes tend to be larger and more episodic versus orders for the traditional Hooker businesses, which tend to be smaller and more predictable.

Additionally, Home Meridian orders are programmed out and scheduled for delivery to its larger accounts further into the future than usual, which is also contributing to the increased backlog.

Generally, sales in our fiscal first quarter are lower than our other fiscal quarters due to the post-Chinese New Year shipping lag and sales in our fiscal fourth quarter are generally stronger due to the pre-Chinese New Year surge in shipments from Asia and the product introduction schedule of a major customer.

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The costs associated with our environmental responsibilities, compliance with federal, state and local laws regulating the discharge of materials into the environment, or costs otherwise relating to the protection of the environment, have not had and are not expected to have a material effect on our financial position, results of operations, capital expenditures or competitive position.

As of February 2, 2020, we had 1,251 full-time employees, of which 236 were employed in our Hooker Branded segment, 377 were employed in our Home Meridian segment, 630 were employed in our Domestic Upholstery segment and 8 were employed in All Other.

Human Capital Resources

As of January 31, 2021, we had 1,148 full-time employees, of which 213 were employed in our Hooker Branded segment, 318 were employed in our Home Meridian segment, 611 were employed in our Domestic Upholstery segment and 6 were employed in All Other.

None of our employees are represented by a labor union.

We consider our relations with our employees to be good.

We are committed to creating a diverse, equitable and inclusive space for all our employees, customers, and retail partners.

The core values of our company include integrity, caring, and inclusivity that affirms every individual.

Our leadership team is committed to fostering an environment where everyone is welcome, respected, listened to and valued for their unique contributions to the organization.

We focus on taking meaningful steps towards positive change and open mindedness.

The action steps that we are working on currently include:

A Diversity, Equity and Inclusion (DEI) Leadership Team has been formed with over 15 senior executives representing all divisions of the organization.

This group meets on a regular basis to guide both short- and long-term goals in addition to creating the overall strategic direction of DEI at our Company;

We have partnered with an external consultant to assist us with crafting a plan to embed DEI in our culture;

Diversity, Equity & Inclusion training is required of all domestic employees;

We examine our internal practices and policies around compensation, career development, and promotional opportunities to ensure that our practices are fair and equitable;

We are committed to proactively creating a more diverse organization by evolving our recruiting and talent acquisition methods and practices.

We offer competitive benefits to support the well-being of all employees including health insurance, disability and life insurance, wellness credit, paid time off, a 401(k) savings plan with company-match, an employee assistance program, and educational stipends to children and spouses of our employees (excluding family members of officers and board directors of the Company).

Additionally, need and merit-based renewable undergraduate college scholarships are available through the Hooker Educational Scholarship Fund for children and spouses of full-time employees, excluding family members of current and former officers and board directors of the Company.

Patents and Trademarks

The Hooker Furniture, Bradington-Young, Sam Moore, Pulaski Furniture, Samuel Lawrence Furniture, Samuel Lawrence Hospitality, Room Gear, Right2Home, Home Meridian International, Prime Resources International, Accentrics Home, HMidea, Shenandoah, H Contract, Homeware and MARQ trade names represent many years of continued business.

We believe these trade names are well-recognized and associated with quality and service in the furniture industry.

We believe these trade names are well-recognized and associated with quality and service in the furnishings industry.

We also own a number of patents and trademarks, both domestically and internationally, none of which is considered to be material.

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Additional Information

You may visit us online at hookerfurniture.com, bradington-young.com, sammoore.com, homemeridian.com, pulaskifurniture.com, slh-co.com and hcontractfurniture.com.

You may visit us online at hookerfurnishings.com, hookerfurniture.com, bradington-young.com, sammoore.com, homemeridian.com, pulaskifurniture.com, slh-co.com and hcontractfurniture.com.

We make available, free of charge through our Hooker Furniture website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports, and other documents as soon as practical after they are filed with or furnished to the Securities and Exchange Commission.

A free copy of our annual report on Form 10-K may also be obtained by contacting Earl Armstrong, Corporate Controller and Secretary at Earmstrong@hookerfurniture.com or by calling 276-632-2133.

A free copy of our annual report on Form 10-K may also be obtained by contacting Earl Armstrong, Corporate Controller and Secretary at earmstrong@hookerfurnishings.com or by calling 276-632-2133.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business