What changed in this filing

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Item 1. Financial Statements

2021-12-09 compared with 2021-09-09 · 234 added, 236 removed, 492 unchanged (49% of the section changed)

Financial Statements

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

Current assets

1 unchanged sentence

Trade accounts receivable, net

Income tax recoverable

Prepaid expenses and other current assets

27 unchanged sentences

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

1 unchanged sentence

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Cost of sales

Thirty-Nine Weeks Ended

Cost of sales (See note 3)

Selling and administrative expenses

2 unchanged sentences

Intangible asset amortization

Operating income/(loss)

Other income/(expense), net

Operating (loss)/income

Other income, net

Interest expense, net

Income/(loss) before income taxes

Income tax expense/(benefit)

Net income/(loss)

Earnings/(loss) per share

(Loss)/income before income taxes

Income tax (benefit)/expense

Net (loss)/income

(Loss)/earnings per share

Weighted average shares outstanding:

1 unchanged sentence

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

(In thousands)

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Net Income/(Loss)

Thirty-Nine Weeks Ended

Net (loss)/income

Other comprehensive income (loss):

2 unchanged sentences

Adjustments to net periodic benefit cost

Total Comprehensive Income/(Loss)

Total comprehensive (loss)/income

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Operating Activities:

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Deferred compensation

Net cash (used in)/provided by operating activities

Net cash provided by operating activities

Investing Activities:

2 unchanged sentences

Proceeds received on life insurance policies

Net cash used in investing activities

Net cash (used in)/provided by investing activities

Financing Activities:

9 unchanged sentences

Non-cash transactions:

Decrease in lease liabilities arising from changes in right-of-use assets

increase in lease liabilities arising from changes in right-of-use assets

Increase in property and equipment through accrued purchases

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

9 unchanged sentences

Performance-based restricted stock units costs

Balance at August 2, 2020

Balance at November 1, 2020

Balance at January 31, 2021

4 unchanged sentences

Performance-based restricted stock units costs

Balance at August 1, 2021

Balance at October 31, 2021

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated)

For the Twenty-Six Weeks Ended August 1, 2021

For the Thirty-Nine Weeks Ended October 31, 2021

Preparation of Interim Financial Statements

The condensed consolidated financial statements of Hooker Furniture Corporation and subsidiaries (referred to as “we,” “us,” “our,” “Hooker” or the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).

The condensed consolidated financial statements of Hooker Furnishings Corporation and subsidiaries (referred to as “we,” “us,” “our,” “Hooker” or the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).

In the opinion of management, these statements include all adjustments necessary for a fair statement of the results of all interim periods reported herein.

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Operating results for the interim periods reported herein may not be indicative of the results expected for the fiscal year.

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 2022 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “second quarter” or “quarterly period”) that began May 3, 2021, and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began February 1, 2021, which both ended August 1, 2021.

This report discusses our results of operations for these periods compared to the 2021 fiscal year thirteen-week period that began May 4, 2020, and the twenty-six-week period that began February 3, 2020, which both ended August 2, 2020;

and our financial condition as of August 1,2021 compared to January 31, 2021.

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 2022 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 2, 2021, and the thirty-nine week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began February 1, 2021, which both ended October 31, 2021.

This report discusses our results of operations for these periods compared to the 2021 fiscal year thirteen-week period that began August 3, 2020, and the thirty-nine week period that began February 3, 2020, which both ended November 1, 2020;

and our financial condition as of October 31,2021 compared to January 31, 2021.

References in these notes to the condensed consolidated financial statements of the Company to:

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Recently Adopted Accounting Policies

In August 2018, the FASB issued ASU No.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2018-14, Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”).

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The adoption of ASU 2018-14 did not have a material impact on our consolidated financial statements or disclosures.

Cancellation Costs

The Home Meridian segment incurred cancellation costs of $ 2.6 million for raw materials related to its exit of the ready-to-assemble furniture category.

The amount was recorded in cost of sales in the fiscal 2022 third quarter.

Due to the increases in freight costs since these items were ordered, we determined that the additional cost needed to move these products stateside would have resulted in a substantially greater loss than the cost to cancel the orders at the factories.

Accounts Receivable

21 unchanged sentences

Property, plant and equipment, net

The increase in construction-in-progress (“CIP”) is primarily due to (1) assets purchased for our leased Georgia distribution facility which are expected to be placed into service in the second half of the current fiscal year and (2) lower prior year CIP balances due to cash preservation efforts at the onset of COVID-19 crisis.

Fair Value Measurements

5 unchanged sentences

Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of August 1, 2021 and January 31, 2021, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs.

As of October 31, 2021 and January 31, 2021, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs.

The fair value of the Company-owned life insurance is determined by inputs that are readily available in public markets or can be derived from information available in publicly quoted markets.

Additionally, the fair value of the Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period.

Our assets measured at fair value on a recurring basis at August 1, 2021 and January 31, 2021, were as follows:

Fair value at August 1, 2021

Our assets measured at fair value on a recurring basis at October 31, 2021 and January 31, 2021, were as follows:

Fair value at October 31, 2021

Fair value at January 31, 2021

4 unchanged sentences

January 31, 2021

August 1, 2021

October 31, 2021

Non-amortizable Intangible Assets

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Balance at January 31, 2021

Balance at August 1, 2021

For the remainder of fiscal 2022, amortization expense is expected to be approximately $ 1.2 million.

We recognized sub-lease income of $ 150,000 for the three-month period and $ 296,000 for the six-month period, both ended August 1, 2021.

The components of lease cost and supplemental cash flow information for leases for the three-months and six-months ended August 1, 2021 were:

Balance at October 31, 2021

For the remainder of fiscal 2022, amortization expense is expected to be approximately $ 596 ,000.

We recognized sub-lease income of $ 266,000 for the three-month period and $ 561,000 for the nine-month period, both ended October 31, 2021.

We recognized sub-lease income of $ 144,000 for the three-month period and $ 432,000 for the nine-month period, both ended November 1, 2020.

The components of lease cost and supplemental cash flow information for leases for the three-months and nine-months ended October 31, 2021 and November 1, 2020 were:

Thirteen Weeks Ended

Twenty-Six Weeks Ended

August 1, 2021

August 2, 2020

August 1, 2021

August 2, 2020

Thirty-Nine Weeks Ended

October 31, 2021

November 1, 2020

October 31, 2021

November 1, 2020

Operating lease cost

3 unchanged sentences

Operating cash outflows

The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheets as of August 1,2021 and January 31,2021 were as follows:

August 1, 2021

The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheets as of October 31, 2021 and January 31, 2021 were as follows:

October 31, 2021

January 31, 2021

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Total operating lease liabilities

The increase in right-of-use assets and lease liabilities is primarily due to the commencement of the operating lease at our new warehouse facility in Georgia during the fiscal 2022 third quarter.

The weighted-average remaining lease term is 8.5 years.

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The weighted-average discount rate is 1.93 %.

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on August 1, 2021:

Undiscounted Future

Operating Lease Payments

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on October 31, 2021:

Undiscounted Future Operating Lease Payments

Remainder of 2022

3 unchanged sentences

Present value of lease payments

As of August 1, 2021, the Company had leases for a warehouse in Georgia and a showroom in North Carolina that had not yet commenced with estimated future minimum rental commitments of approximately $ 51 million.

Both leases have an initial lease term of 10 years, with the warehouse lease expected to commence in Fall of 2021 and the showroom lease expected to commence in Fall of 2022.

Since the leases have not yet commenced, the undiscounted amounts are not included in the table above.

As of October 31, 2021, the Company had an additional lease for a showroom in High Point, North Carolina.

This lease is expected to commence in Fall of calendar 2022 with an initial lease term of 10 years and estimated future minimum rental commitments of approximately $ 23.7 million.

Since the lease has not yet commenced, the undiscounted amounts are not included in the table above.

Long-Term Debt

As of August 1, 2021, we had an aggregate $ 28.7 million available under our $ 35 million revolving credit facility (the “Existing Revolver”) to fund working capital needs.

Standby letters of credit in the aggregate amount of $ 6.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facility as of August 1, 2021.

There were no additional borrowings outstanding under the Existing Revolver as of August 1, 2021.

As of October 31, 2021, we had an aggregate $ 27.9 million available under our $ 35 million revolving credit facility (the “Existing Revolver”) to fund working capital needs.

Standby letters of credit in the aggregate amount of $ 7.1 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of October 31, 2021.

There were no additional borrowings outstanding under the Existing Revolver as of October 31, 2021.

Employee Benefit Plans

2 unchanged sentences

The two plans include:

a supplemental retirement income plan (“SRIP”) for certain former and current executives of Hooker Furniture Corporation;

a supplemental retirement income plan (“SRIP”) for certain former and current executives of Hooker Furnishings Corporation;

the Pulaski Furniture Corporation Supplemental Executive Retirement Plan (“SERP”) for certain former executives.

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Net periodic benefit costs

3 unchanged sentences

The SRIP and SERP plans are unfunded plans.

In fiscal 2022, we paid $ 365,000 in the second quarter and $ 544,000 in the first half and expect to pay a total of approximately $ 489,000 in benefit payments from our general assets during the remainder of fiscal 2022 to fund SRIP and SERP payments.

In fiscal 2022, we paid $ 259,000 in the third quarter and $ 803,000 in the nine-month period and expect to pay a total of approximately $ 230,000 in benefit payments from our general assets during the remainder of fiscal 2022 to fund SRIP and SERP payments.

Earnings Per Share

17 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Net income/(loss)

5 unchanged sentences

Weighted average shares outstanding for diluted earnings per share

Basic earnings/(loss) per share

Diluted earnings/(loss) per share

We recorded income tax expense of $ 2.2 million for the fiscal 2022 second quarter compared to $ 1.6 million for the comparable prior year quarter.

The effective tax rates for the fiscal 2022 and 2021 second quarters were 22.7 % and 21.8 %, respectively.

For the fiscal 2022 first half, we recorded income tax expense of $ 5.0 million, compared to income tax benefit of $ 9.3 million for the comparable prior year period, of which $ 10.7 million was recorded related to goodwill and trade name impairment charges.

The effective tax rates for the fiscal 2022 and 2021 first half periods were 22.7 % and 24.2 %, respectively.

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

* Due to the net loss recorded in the fiscal 2022 third quarter, approximately 164,000 potentially dilutive shares would have been antidilutive and are therefore excluded from the calculation above.

Due to the fiscal 2021 year-to-date net loss, approximately 92,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share for the thirty-nine weeks ended November 1, 2020.

We recorded income tax benefit of $ 403 ,000 for the fiscal 2022 third quarter compared to $ 3.0 million income tax expense for the comparable prior year quarter.

The effective tax rates for the fiscal 2022 and 2021 third quarters were 24.8 % and 22.9 %, respectively.

For the fiscal 2022 nine-month period, we recorded income tax expense of $ 4.6 million, compared to income tax benefit of $ 6.3 million for the comparable prior year period, of which $ 10.7 million was recorded related to goodwill and trade name impairment charges.

The effective tax rates for the fiscal 2022 and 2021 nine-month periods were 22.5 % and 24.8 %, respectively.

No material and non-routine positions have been identified that are uncertain tax positions.

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

August 1, 2021

August 2, 2020

August 1, 2021

August 2, 2020

Thirty-Nine Weeks Ended

Hooker Branded

6 unchanged sentences

$ 133,428 100 % $ 149,687 100.0 % $ 458,807 100.0 % $ 384,821 100.0 %

Gross Profit/(Loss)

Hooker Branded

6 unchanged sentences

$ 20,007 15.0 % $ 33,483 22.4 % $ 85,306 18.6 % $ 79,137 20.6 %

Operating Income/(Loss)

Operating (Loss)/Income

Hooker Branded

22 unchanged sentences

$ 2,040 $ 1,687 $ 5,623 $ 5,052

As of August 1,

As of October 31,

As of January 31,

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

August 1, 2021

August 2, 2020

August 1, 2021

August 2, 2020

Thirty-Nine Weeks Ended

October 31, 2021

November 1, 2020

October 31, 2021

November 1, 2020

Subsequent Events

On September 2, 2021 , our board of directors declared a quarterly cash dividend of $ 0.18 per share, which will be paid on September 30, 2021 to shareholders of record at September 16, 2021 .

On December 7, 2021 , our board of directors declared a quarterly cash dividend of $ 0.20 per share, an increase of $ 0.02 per share or 11 % over the most recent dividend, which will be paid on December 31, 2021 to shareholders of record at December 17, 2021 .

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

All references to the “ Company, ” “ we, ” “ us ” and “ our ” in this document refer to Hooker Furniture Corporation and its consolidated subsidiaries, unless specifically referring to segment information.

All references to the “ Company, ” “ we, ” “ us ” and “ our ” in this document refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information.

Forward-Looking Statements

4 unchanged sentences

Those risks and uncertainties include but are not limited to:

disruptions involving our vendors or the transportation and handling industries, particularly those affecting imported products from Vietnam and China, including customs issues, labor stoppages, strikes or slowdowns and the availability of shipping containers and cargo ships;

disruptions involving our vendors or the transportation and handling industries, particularly those affecting imported products from Vietnam, China, and Malaysia, including customs issues, labor stoppages, strikes or slowdowns and the availability and cost of shipping containers and cargo ships;

the effect and consequences of the coronavirus (COVID-19) pandemic or future pandemics on a wide range of matters including but not limited to U.S.

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risks associated with our reliance on offshore sourcing and the cost of imported goods, including fluctuation in the prices of purchased finished goods, ocean freight costs, including the price and availability of shipping containers, vessels and domestic trucking, and warehousing costs and the risk that a disruption in our offshore suppliers could adversely affect our ability to timely fill customer orders;

risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices and availability of key raw materials, as well as changes in transportation, warehousing and domestic labor costs, availability of skilled labor, and environmental compliance and remediation costs;

changes in U.S.

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risks associated with product defects, including higher than expected costs associated with product quality and safety, and regulatory compliance costs related to the sale of consumer products and costs related to defective or non-compliant products, including product liability claims and costs to recall defective products and the adverse effects of negative media coverage;

disruptions and damage (including those due to weather) affecting our Virginia, North Carolina or California warehouses (and our new Georgia warehouse when occupied), our Virginia or North Carolina administrative facilities or our representative offices or warehouses in Vietnam and China;

risks associated with our newly leased warehouse space in Georgia, including delays in construction and occupancy and risks associated with our move to the facility, including information systems, access to warehouse labor and the inability to realize anticipated cost savings;

disruptions and damage (including those due to weather) affecting our Virginia, Georgia, North Carolina or California warehouses, our Virginia or North Carolina administrative facilities, our North Carolina showrooms or our representative offices or warehouses in Vietnam and China;

risks associated with our newly leased warehouse space in Georgia, including risks associated with our move to and occupation of the facility, including information systems, access to warehouse labor and the inability to realize anticipated cost savings;

the risks specifically related to the concentrations of a material part of our sales and accounts receivable in only a few customers, including the loss of several large customers through business consolidations, failures or other reasons, or the loss of significant sales programs with major customers;

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the interruption, inadequacy, security breaches or integration failure of our information systems or information technology infrastructure, related service providers or the internet or other related issues including unauthorized disclosures of confidential information or inadequate levels of cyber-insurance or risks not covered by cyber insurance;

the direct and indirect costs and time spent by our associates associated with the implementation of our Enterprise Resource Planning system, including costs resulting from unanticipated disruptions to our business;

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;

achieving and managing growth and change, and the risks associated with new business lines, acquisitions, including the selection of suitable acquisition targets, restructurings, strategic alliances and international operations;

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Also, our business is subject to a number of significant risks and uncertainties any of which can adversely affect our business, results of operations, financial condition or future prospects.

For a discussion of risks and uncertainties that we face, see the Forward-Looking Statements detailed above and Item 1A, “Risk Factors” in our 2021 annual report on Form 10-K (the “2021 Annual Report”).

For a discussion of risks and uncertainties that we face, see the Forward-Looking Statements detailed above and Item 1A, “Risk Factors” in our 2021 Annual Report.

Investors should also be aware that while we occasionally communicate with securities analysts and others, it is against our policy to selectively disclose to them any material nonpublic information or other confidential commercial information.

Accordingly, investors should not assume that we agree with any projection, forecast or report issued by any analyst regardless of the content of the statement or report, as we have a policy against confirming information issued by others.

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2022 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “second quarter” or “quarterly period”) that began May 3, 2021, and the twenty-six week period (also referred to as “six-months”, “six-month period” or “first half”) that began February 1, 2021, which both ended August 1, 2021.

This report discusses our results of operations for these periods compared to the 2021 fiscal year thirteen-week period that began May 4, 2020 and the twenty-six week period that began February 3, 2020, which both ended August 2, 2020;

and our financial condition as of August 1, 2021 compared to January 31, 2021.

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2022 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 2, 2021, and the thirty-nine week period (also referred to as “nine-months”, “nine-month period” or “year-to-date period”) that began February 1, 2021, which both ended October 31, 2021.

This report discusses our results of operations for these periods compared to the 2021 fiscal year thirteen-week period that began August 3, 2020 and the thirty-nine week period that began February 3, 2020, which both ended November 1, 2020;

and our financial condition as of October 31, 2021 compared to January 31, 2021.

References in this report to:

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

At August 1, 2021, our backlog of unshipped orders was as follows:

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

Order Backlog

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Reporting Segment

August 1, 2021

October 31, 2021

January 31, 2021

August 2, 2020

November 1, 2020

Hooker Branded

1 unchanged sentence

Domestic Upholstery

At the end of fiscal 2022 first half, order backlog increased $72.3 million or 29% as compared to the end of fiscal 2021 and increased $157.9 million or 97% as compared to the prior-year six months end, due to increased incoming orders in all three reportable segments as well as longer delivery times resulting from the supply chain disruptions in the Home Meridian and, to a lesser degree, Hooker Branded segments and production delays in the Domestic Upholstery segment.

At the end of the fiscal 2022 third quarter, order backlog increased $82.8 million, or 33.3%, as compared to the end of fiscal 2021 and increased $89 million, or 36.8%, as compared to the prior-year nine months end, due to increased incoming orders in all three reportable segments as well as longer delivery times resulting from the supply chain disruptions in the Home Meridian and, to a lesser degree, Hooker Branded segments 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 compared to the pre-pandemic environment and we expect that to continue through the second half of fiscal 2022.

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.

however, due to the current supply chain issues including the lack and cost of shipping containers and vessel space and limited overseas vendor capacity, orders are not converting to shipments as quickly as could be expected compared to the pre-pandemic environment and we expect that to continue at some level through the fiscal 2023 second quarter.

The current logistics challenges are slowing order fulfillment, particularly for Home Meridian whose average order sizes tend to be larger and more project-based 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.

The following discussion should be read in conjunction with the condensed consolidated financial statements, including the related notes, contained elsewhere in this quarterly report.

We also encourage users of this report to familiarize themselves with all of our recent public filings made with the Securities and Exchange Commission (“SEC”), especially our 2021 Annual Report.

We also encourage users of this report to familiarize themselves with all of our recent public filings made with the SEC, especially our 2021 Annual Report.

Our 2021 Annual Report contains critical information regarding known risks and uncertainties that we face, critical accounting policies and information on commitments and contractual obligations that are not reflected in our condensed consolidated financial statements, as well as a more thorough and detailed discussion of our corporate strategy and new business initiatives.

Our 2021 Annual Report and our other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurniture.com.

Hooker Furniture Corporation, incorporated in Virginia in 1924, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture and fabric-upholstered furniture for the residential, hospitality and contract markets.

Our 2021 Annual Report and other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurniture.com.

Hooker Furnishings Corporation, incorporated in Virginia in 1924, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture and fabric-upholstered furniture for the residential, hospitality and contract markets.

We also domestically manufacture premium residential custom leather and custom fabric-upholstered furniture.

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Executive Summary-Results of Operations

Consolidated net sales for the fiscal 2022 second quarter increased by $32.0 million or 24.5% as compared to the prior year period, from $130.5 million to $162.5 million, as all three reportable segments had net sales increases over 20%.

For the fiscal 2022 first half, consolidated net sales increased by $90.2 million or 38.4% as compared to the prior year period, due to 53.5% net sales increase in the Hooker Branded segment and over 30% sales increases in both Home Meridian and Domestic Upholstery segments.

All Other net sales decreased by over 10% in the fiscal 2022 second quarter and first half as compared to the prior year periods, as the senior living industry which comprises the majority of H Contract’s business, has not yet recovered from certain impacts of the COVID-19 pandemic.

Consolidated gross profit for the fiscal 2022 second quarter increased due to increased gross profit and margin at Hooker Branded and Domestic Upholstery segments, while margin decreased due to decreased gross profit and margin at Home Meridian as this segment was heavily impacted by higher freight costs which largely offset the gross profit gains from its sales increase.

For the fiscal 2022 first half, consolidated gross profit and margin increased as compared to the prior year period, due to increased gross profit in all three reportable segments, partially offset by decreased gross margin in the Home Meridian segment due to higher freight costs.

All Other’s gross profit and margin decreased in the fiscal 2022 second quarter and first half as compared to the respective prior year periods due to decreased net sales.

Consolidated operating income for the fiscal 2022 second quarter was $9.7 million as compared to $7.5 million in the prior year period and operating margin was essentially flat due to the adverse impact of higher freight costs.

Consolidated net income for the quarter was $7.5 million or $0.62 per diluted share, as compared to $5.8 million or $0.48 per diluted share in the prior year quarter.

For the fiscal 2022 first half, consolidated operating income was $21.9 million compared to a $37.9 million operating loss in the prior year period, which was largely attributable to $44.3 million in non-cash impairment charges on certain of our intangible assets due to the impact of the Covid crisis on the Company’s share price in the prior year.

Consolidated net income for the fiscal 2022 first half was $16.9 million or $1.40 per diluted share, as compared to net loss of $29.0 million or $(2.46) per diluted share in the prior year period.

Our fiscal 2022 second quarter and first-half performance are discussed in greater detail below under “Review” and “Results of Operations.”

The economic recovery continued in our fiscal 2022 second quarter as furniture and home furnishings sales outperformed many other retail categories.

We are pleased to report over 20% net sales increases in all three reportable segments and solid consolidated operating margins as compared to the prior year quarter despite the continued adverse impact of high ocean freight costs and industry-wide logistics challenges.

The Hooker Branded segment’s net sales increased by $11.1 million, or 28.6%, as compared to the prior year quarter due to higher sales volume and lower discounting driven by increased demand.

The majority of Hooker Branded sales are shipped out of U.S.

warehouses and because we source product on a consistent weekly basis, we are better able to flow imports from Asia.

These factors helped reduce some of the unfavorable impacts of shortages of vessel space and shipping containers and domestic trucking availability.

Thanks to our strategy of focusing on keeping our best sellers in stock, we were able to limit order cancellation rates in this segment.

Additionally, the Hooker Branded segment was able to increase prices to mitigate increased product costs from higher ocean freight and inflation on goods sourced from Asia.

As a result, the segment remained highly profitable and contributed over 90% of our consolidated operating profit during the quarter.

Incoming orders increased by 38% as compared to the prior year second quarter and 10% as compared to fiscal 2022 first quarter and the segment finished the quarter with a backlog tripled versus the prior year second quarter end.

The Home Meridian segment’s net sales increased by $16.2 million or 22.7% in the fiscal 2022 second quarter as compared to the prior year period due to increased sales with major furniture chains and retail stores, partially offset by decreased sales in the e-commerce, hospitality, and clubs channels.

The Pulaski Furniture, Samuel Lawrence Furniture and Prime Resources International divisions reported significantly increased net sales driven by increased sales volume.

However, profits on these increased sales were largely offset by higher freight costs as the result of continued global supply chain challenges.

The Accentrics Home division, which focuses on the e-commerce channel, reported a 20% net sales decrease due to lack of inventory brought on by current logistics challenges.

Higher freight costs adversely impacted the profitability in this division and resulted in an operating loss in the second quarter.

The HMidea division also reported a 20% sales decline due to decreased sales with club accounts.

On a positive note for that division, product chargebacks decreased by 400 bps in the second quarter largely as a result of favorable product mix and better quality experience in the clubs channel;

however, sales volumes were not sufficient to fully cover fixed costs at the relatively lower margins in this channel.

The Samuel Lawrence Hospitality division was also unprofitable during the quarter due to very low sales volume as the hospitality industry has not yet recovered from the COVID crisis.

The Home Meridian segment recorded $43,000 in operating income in the fiscal 2022 second quarter due to the factors discussed above.

Freight surcharges and price increases were imposed during the quarter;

however, they did not fully mitigate increased costs as larger customers required advanced notice ahead of price increases.

Incoming orders increased by about 4% as compared to the fiscal 2022 first quarter but decreased by 35% as compared to prior year second quarter when business rebounded dramatically after the height of the initial COVID crisis.

Backlog was 62% higher than prior year second quarter end and we built inventory about $20 million higher than fiscal 2021 year- end.

The Domestic Upholstery segment’s net sales increased by $5.0 million or 28.7% in the fiscal 2022 second quarter as compared to the prior year period due to significant sales increases at Bradington-Young and Shenandoah and to a lesser extent at Sam Moore.

In the prior year period, both Bradington-Young and Shenandoah temporarily closed their factories due to COVID and thus operated at reduced capacities.

Although foam allocation and certain other raw materials shortages impacted production levels in May 2021, Bradington-Young and Shenandoah returned to normal levels in July 2021, while Sam Moore recovered at a slower pace as this division experienced labor retention and productivity issues, which adversely impacted sales volume during the second quarter of fiscal 2022.

Other manufacturing constraints adversely impacted our profitability, including the inflation in raw materials such as foam, lumber, plywood, fabric and mechanisms, and supply chain disruptions such as domestic truck availability.

We are increasing prices to our customers where possible to offset increased raw material inflation.

Incoming orders continued to grow as compared to the fiscal 2022 first quarter and the prior year second quarter.

At the end of fiscal 2022 second quarter, backlog was at historic levels for all three divisions and managements’ priorities continue to focus on servicing the backlog, with quality and speed of delivery.

All Other’s net sales decreased by $307,000 or 10.1% in the fiscal 2022 second quarter as compared to the prior year period due to an 11.3% sales decrease at H Contract.

Consolidated net sales for the fiscal 2022 third quarter decreased as compared to the prior year period due to significantly reduced shipments in the Home Meridian segment as the result of temporary COVID-related factory closures in Vietnam and Malaysia.

Consolidated gross profit and margin decreased in the fiscal 2022 third quarter as compared to the prior year period due primarily to the sales volume decline and to a lesser extent higher freight costs, inventory cancellation costs and higher than expected customer chargebacks in the Home Meridian segment.

Consolidated operating loss for the fiscal 2022 third quarter was $1.7 million, compared to a $13.0 million operating income in the prior year period.

Consolidated net loss for the quarter was $1.2 million or ($0.10) per diluted share, as compared to net income of $10.1 million or $0.84 per diluted share in the prior year quarter.

For the fiscal 2022 nine-month period, consolidated net sales increased by $74.0 million, or 19.2%, compared to the prior year period, as all three reportable segments had sales increases.

Consolidated gross profit increased due to increases in the Hooker Branded and Domestic Upholstery segments, partially offset by decreased gross profit and margin in the Home Meridian segment.

Consolidated operating income was $20.2 million for the fiscal 2022 nine-month period compared to a $24.9 million operating loss in the prior year period.

Consolidated net income was $15.7 million or $1.30 per diluted share for the fiscal 2022 nine-month period, as compared to net loss of $19.0 million or ($1.61) per diluted share in the prior year period.

Our fiscal 2022 third quarter and nine months performance are discussed in greater detail below under “Review” and “Results of Operations.”

Despite favorable demand for home furnishings and our strong order backlog, we were challenged by ongoing supply chain disruptions, the COVID lockdown and slower than expected reopenings in Vietnam and Malaysia, and industry-wide inflationary pressures.

Fiscal 2022 third quarter consolidated net sales decreased by 10.9% compared to prior year period.

Sales volume decline and increased product costs led to an operating loss of $1.7 million.

The Hooker Branded segment’s net sales increased by $8.7 million, or 18.5%, as compared to the prior year quarter, which was attributable to increased sales volume and lower discounting driven by higher demand, as well as inventory availability.

All the net sales increases were in our Casegoods non-container business, which comprised 80% of revenue in this segment.

Because we source product on a consistent weekly basis and ship product to our U.S.

warehouses, Hooker Branded is better able to mitigate supply chain constraints and keep its best sellers in stock.

However, higher ocean freight and product cost inflation significantly impacted this segment’s gross margin and offset the gains from sales increases in the third quarter.

Despite these adverse factors, this segment reported $6.7 million operating income or an 11.9% operating margin.

Incoming orders decreased slightly by 1.9% as compared to prior year period when business dramatically rebounded.

Backlog remained historically high and nearly doubled as compared to the prior year third quarter end when backlog was already at a high level.

Home Meridian segment’s net sales decreased by $27.5 million, or 37.3%, as compared to the prior year third quarter and this segment reported a $10.2 million operating loss.

Despite the disappointing financial results, we believe the challenges are short-term as discussed below:

During the quarter, container direct sales, which typically comprise the majority of revenue in this segment, decreased by over 50% compared to the prior year third quarter, driven by sales volume loss due to the temporary COVID lockdowns in Vietnam and Malaysia.

As a result, sales with major furniture chains and large independent accounts decreased by over 50% compared to the prior year quarter, which counted for two thirds of total sales decrease in this segment.

Additionally, e-commerce sales decreased by 25% due to inventory unavailability and price increases due primarily to increased freight costs.

Clubs sales decreased due to lower volume and higher than expected chargebacks which negatively impacted net sales and operating income by $1.9 million in that channel.

Hospitality sales also decreased during the quarter as this business has not yet recovered from the COVID crisis.

Higher freight costs adversely impacted gross margin by 800 bps in the quarter and were the primary driver of increased product costs.

We imposed freight surcharges and price increases during the second and third quarters to mitigate these excess costs;

however significant volume was shipped at pre-surcharge selling prices.

To help drive improved future profitability, eliminate low-margin categories and avoid unnecessary costs, we exited the Ready-To-Assemble (“RTA) furniture category and incurred cancellation costs of $2.6 million for raw materials related to this exit.

Although these costs increased segment cost of goods sold by 580 bps and resulted in a gross loss in the quarter, we estimate we avoided roughly $10 million in additional product and freight costs related to these orders by taking this action.

Furthermore, this action allows us to focus resources on more profitable business opportunities to drive long-term growth.

The Home Meridian segment finished the quarter with a backlog 12% higher than the prior year third quarter end, and more than doubled as compared to pre-pandemic levels.

The Domestic Upholstery segment’s net sales increased by $2.6 million, or 10.3%, in the fiscal 2022 third quarter compared to the prior year period as all three divisions of the segment reported over or close to 10% sales increases.

However, material cost inflation for nearly all the raw materials and higher freight surcharges on the materials increased product costs by 340 bps and offset the gains from increased sales.

Other manufacturing constraints adversely impacted our profitability, including wage inflation and the domestic driver and truck shortage which adversely impacted the delivery of finished products.

Despite increased material costs, this segment reported operating income of $1.4 million, or 5.2% operating margin for the third quarter.

Although we are encouraged by historically high backlog at the end of the fiscal 2022 third quarter at all three divisions, production levels were adversely impacted by manufacturing capacities, inconsistent deliveries of materials due to supply disruption with our suppliers, and labor inefficiencies at the Sam Moore division.

We have implemented price increases and surcharges with major accounts to improve margin and filled key positions to improve labor productivity.

Since this segment has current order backlog levels of 5-6 months and prices were not increased on backlog orders, we anticipate seeing the benefits of the price increases beginning in the second quarter of fiscal 2023.

All Other’s net sales decreased by $134,000, or 4.0%, in the fiscal 2022 third quarter as compared to the prior year period, due to a 5.6% sales decrease at H Contract.

The senior living industry, which comprises the majority of H Contract’s business, has been severely impacted by the pandemic and has reduced capital spending due to increased costs and uncertain revenues.

Although we are encouraged by a 6.4% increase in incoming orders during the quarter and nearly 50% higher backlog than the prior year quarter, our Domestic Upholstery production capacity limited H Contract’s shipments as it sold more domestically manufactured products.

Despite the sale decline, All Other still reported an 8.5% operating margin for the quarter.

Cash and cash equivalents stood at $37.4 million at fiscal 2022 second quarter-end, a decrease of $28.4 million compared to the balance at fiscal 2021 year-end due primarily to a $33.4 million increase in inventory as we continue to build inventories to meet increased customer demand and prepare for the holiday selling season.

Accounts receivable balances increased by $15 million as the result of increased net sales.

During the first six months of fiscal 2022, we used existing cash on hand to pay $4.3 million in cash dividends to our shareholders and $3.5 million of capital expenditures to enhance our business systems and facilities including $2.1 million in our new Georgia distribution center.

However, as vaccination rates have increased, especially among the senior population, H Contract’s incoming orders have increased for three consecutive quarters in fiscal 2022 and finished the quarter with backlog 150% higher than prior year third quarter end.

Despite the sales decrease, All Other still reported a 10.7% operating margin for the quarter.

Cash and cash equivalents stood at $57.2 million at fiscal 2022 third quarter-end, down $8.6 million compared to the balance at the fiscal 2021 year-end due primarily to $7.7 million increase in inventory.

During the first nine months of fiscal 2022, we used cash on hand and $5 million generated from operations to pay $6.6 million of capital expenditures including $4.4 million in our newly opened Georgia distribution center, $6.4 million in cash dividends to our shareholders, and $2.6 million on our new common, cloud-based ERP platform.

In addition to our cash balance, we have an aggregate of $27.9 million available under our existing revolver to fund working capital needs.

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Cost of sales

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Net income/(loss)

Fiscal 2022 Second Quarter and First-Half Compared to Fiscal 2021 Second Quarter and First-Half

Fiscal 2022 Third Quarter and Nine Months Compared to Fiscal 2021 Third Quarter and Nine Months

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Hooker Branded

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Domestic Upholstery

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Average Selling Price ("ASP")

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FY22 YTD % Increase

Hooker Branded

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Domestic Upholstery

Consolidated net sales increased significantly in the fiscal 2022 second quarter and first half due to strong sales in all three reportable segments as compared to the prior year periods.

The Hooker Branded segment’s net sales increased in the fiscal 2022 second quarter and first half, as compared to the prior year periods respectively, due to both increased unit volume and ASP, driven by increased demand, lower discounting, and price increases in response to higher freight costs and product inflation.

The Home Meridian segment’s net sales increased in the fiscal 2022 second quarter and first half due to increased sales volume with major furniture chains and retail stores as the result of strong demand, partially offset by decreased net sales and unit volume in e-commerce channel, Samuel Lawrence Hospitality, and the clubs business.

Consolidated net sales decreased in the fiscal 2022 third quarter due to the sales decline in Home Meridian segment but increased in the first nine months as compared to the prior year periods.

The Hooker Branded segment’s net sales increased significantly in the fiscal 2022 third quarter and nine months, as compared to the respective prior year periods, due to both increased unit volume and ASP, driven by increased demand.

Hooker Upholstery unit volume decreased during the third quarter due to inventory unavailability issues.

The Home Meridian segment’s net sales decreased in the fiscal 2022 third quarter driven by a 46% decrease in unit volume as the result of COVID lockdown in Vietnam which led to much lower shipments.

For the nine-month period, net sales increased with major furniture chains and retail stores as the result of strong demand, partially offset by decreased net sales in hospitality business, e-commerce and the club businesses, and higher than expected chargebacks from a clubs channel customer.

The ASP increase was attributable to price increases to mitigate higher freight costs;

however, the increases were not sufficient to cover increased product costs driven by higher freight.

The Domestic Upholstery segment’s net sales increased in the fiscal 2022 second quarter and first half due to significant sales increases at Bradington-Young and Shenandoah as compared to the prior year periods when these two divisions experienced temporary factory shutdowns.

ASP increased at all three divisions in this segment in response to the inflation of material costs.

Sam Moore net sales increased by single digit in fiscal 2022 second quarter due to increased ASP, partially offset by its decreased unit volume due to production constraints.

Foam allocation and certain material shortages impacted all three divisions early in the fiscal 2022 second quarter.

Bradington-Young and Shenandoah resumed normal production level late in the quarter while Sam Moore recovered at a slower pace due to labor retention and productivity issues.

All Other’s net sales decreased in the fiscal 2022 second quarter and first half as compared to the prior year periods due principally to reduced unit volume at H Contract, as this division has not yet recovered from the impact of reduced capital spending by the senior living industry in response to increased costs and uncertain revenues as a result of COVID.

Gross Profit and Margin

however, the increases were not sufficient to cover the excess freight costs.

The Domestic Upholstery segment’s net sales increased in the fiscal 2022 third quarter and nine months as all three divisions of the segment reported increased net sales for both periods.

ASP increased at all three divisions in response to the inflation of material costs, with Sam Moore ASP increasing the most in order to improve profitability in this division.

However, Sam Moore unit volume decreased during the third quarter due to labor inefficiencies.

All Other’s net sales decreased in the fiscal 2022 third quarter and nine-month period due to reduced unit volume at H Contract, as this division has not yet recovered from the impact of reduced capital spending by the senior living industry as a result of COVID crisis.

ASP increased in response to increased product costs;

however, it was not sufficient to offset the volume loss.

Gross Profit/(Loss) and Margin

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Domestic Upholstery

For the fiscal 2022 second quarter, consolidated gross profit increased and margin decreased as compared to the prior year quarter.

For the fiscal 2022 first half, consolidated gross profit and margin both increased as compared to the prior year period.

The Hooker Branded segment’s gross profit and margin both increased in the fiscal 2022 second quarter and first half, due primarily to the net sales increase as well as lower discounting due to higher demand.

However, product costs have begun to be negatively impacted by inflation and higher freight costs in this segment.

The Home Meridian segment’s gross profit and margin decreased in the fiscal 2022 second quarter as compared to the prior year period despite a net sales increase, due primarily to significantly increased freight costs which negatively impacted gross margin by 550 bps.

For the fiscal 2022 first half, Home Meridian gross profit increased due to net sales growth while margin decreased as compared to the prior year period.

Freight costs increased about 400 bps, which was the primary driver of product cost increase in fiscal 2022 first half.

On a more positive note, chargebacks which adversely impacted Home Meridian profits in prior years were at much lower levels due to favorable product mix and better-quality experience in the clubs channel.

The Domestic Upholstery segment’s gross profit and margin increased in the fiscal 2022 second quarter and first half due to net sales increases and production efficiencies from operating near full capacity due to historic levels of backlog.

In the prior year first and early second quarters, this segment experienced reduced sales volumes and operating inefficiencies due to temporary factory shutdowns, which led to lower gross profit and margin for both the fiscal 2021 second quarter and first half.

Foam allocations and certain other raw material shortages which impacted Domestic Upholstery production in the fiscal 2022 first quarter improved significantly by late in the second quarter.

However, inflation of raw material costs drove increased product costs in this segment and adversely impacted gross margin by about 200 bps in fiscal 2022 second quarter.

All Other’s gross profit and margin decreased in the fiscal 2022 second quarter and first half due principally to net sales declines and to a lesser extent unfavorable product mix as more product sold was manufactured domestically.

For the fiscal 2022 third quarter, consolidated gross profit and margin both decreased as compared to the prior year quarter.

For the fiscal 2022 nine-month period, consolidated gross profit increased due to the sales increase while margin decreased.

The Hooker Branded segment’s gross profit and margin both decreased in the fiscal 2022 third quarter driven by higher freight costs, product cost inflation, and higher demurrage and drayage expenses due to supply chain interruptions.

For the nine-month period, gross profit increased due primarily to the net sales increase while gross margin decreased slightly.

The Home Meridian segment’s gross profit and margin decreased significantly in the fiscal 2022 third quarter and nine-month period, due to sales volume loss, excess ocean freight costs, higher than expected customer chargebacks and order cancellation costs.

The Domestic Upholstery segment’s gross profit and margin decreased in the fiscal 2022 third quarter due primarily to raw material cost inflation, which offset the effect of increased sales.

Gross profit and margin increased in the nine-month period due to net sales increases and production efficiencies from operating near full capacity due to historic levels of backlog.

All Other’s gross profit decreased in the fiscal 2022 third quarter and nine-month period due principally to H Contract net sales declines, while gross margin still maintained a high level.

Selling and Administrative Expenses (S&A)

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Domestic Upholstery

Consolidated selling and administrative (“S&A”) expenses increased in absolute terms while decreased as a percentage of net sales in the fiscal 2022 second quarter and first half versus the prior year periods.

The Hooker Branded segment’s S&A expenses increased in absolute terms and stayed essentially flat as a percentage of net sales in fiscal 2022 second quarter.

The increases were driven by increased selling costs as the result of higher net sales, increased salaries and wages due to the absence of salary reductions and furloughs seen in the prior year period, increased selling expenses due to Spring High Point Furniture Market which was held in June 2021, and to a lesser extent increased expenses incurred as part of our ERP upgrade project.

For the fiscal 2022 first half, Hooker Branded segment S&A increased in absolute terms due to the factors discussed above, partially offset by lower bad debt expenses due to a customer write-off in the prior year.

S&A expenses decreased as a percentage of net sales in fiscal 2022 first half due to increased net sales.

The Home Meridian segment’s S&A expenses increased slightly in absolute terms but decreased as a percentage of net sales in the fiscal 2022 second quarter and first half.

The increases were attributable to severance expenses due to personnel changes, the absence of employee furloughs in the prior year period, and increased market expenses and other spending as business returned to more normal levels, partially offset by lower professional expenses, decreased compensation expense on lower profits, and decreased advertising supply expense.

The Domestic Upholstery segment’s S&A expenses increased in absolute terms in fiscal 2022 second quarter and first half due to increased selling expenses on higher net sales, increased salaries and wages due to the absence of a number of employees furloughed due to factory shutdowns in the prior year period, and increased depreciation expenses due to the accelerated depreciation of our existing ERP system due to the expected implementation of an upgraded cloud-based ERP solution in fiscal 2023.

All Other S&A expenses decreased in absolute terms in the fiscal 2022 second quarter and first half due to decreased selling expenses, partially offset by increased advertising supply expenses in the current second quarter due to the postponement of the High Point Furniture Market.

S&A expenses increased as a percentage of net sales due to lower net sales.

Consolidated selling and administrative (“S&A”) expenses increased in absolute terms and as a percentage of net sales in the fiscal 2022 third quarter.

For fiscal 2022 nine-month period, S&A expenses increased in absolute terms but decreased as a percentage of net sales.

The Hooker Branded segment’s S&A expenses increased in absolute terms in the fiscal 2022 third quarter driven by increased selling costs as the result of higher net sales, increased expenses incurred as part of our ERP project, and increased salaries and wages, partially offset by decreased bonus accruals on lower profits.

For the fiscal 2022 nine-month period, S&A expenses increased in absolute terms due to the factors discussed above, offset by lower bad debt expenses due to the absence of a customer write-off in the current year.

S&A expenses decreased as a percentage of net sales in the fiscal 2022 third quarter and nine-month period in the segment due to increased net sales.

The Home Meridian segment’s S&A expenses decreased in absolute terms in the fiscal 2022 third quarter due to lower selling costs on decreased sales, partially offset by increased severance expenses due to personnel changes and increased professional service expenses.

S&A expense increased as a percentage of net sales in the fiscal 2022 third quarter due to decreased sales.

For the fiscal 2022 nine-month period, S&A expenses decreased slightly in absolute terms, with lower selling costs, professional service expenses and advertising supply expenses, nearly offset by increased severance expenses, the absence of employee furloughs in the current year period, and increased market expenses and other spending as business returned to more normal levels.

S&A expenses decreased as a percentage of net sales in the nine-month period in the segment due to higher net sales.

The Domestic Upholstery segment’s S&A expenses increased in absolute terms in the fiscal 2022 third quarter and nine-month period due to increased selling expenses on higher net sales, increased salaries and wages due to the absence of a number of employees furloughed when factories were temporarily shut down in the prior year period, and increased depreciation expenses due to the accelerated depreciation of our existing ERP system due to the expected implementation of an upgraded cloud-based ERP solution in fiscal 2023.

All Other S&A expenses increased in absolute terms in the fiscal 2022 third quarter and stayed essentially flat in the nine-month period due to increased market expenses, advertising supply expenses and other spending, offset by decreased selling expenses.

S&A expenses increased as a percentage of net sales due to lower net sales in the segment.

In the prior year first quarter, we recorded $23.2 million and $16.4 million in non-cash impairment charges to write down goodwill in Home Meridian segment and the Shenandoah division under Domestic Upholstery segment, respectively.

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Intangible asset amortization

Intangible asset amortization expense stayed the same compared to the prior year periods.

Operating Profit/(Loss) and Margin

Operating (Loss)/Profit and Margin

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Domestic Upholstery

Operating profitability increased in absolute terms and as a percentage of net sales, due to the factors discussed above.

We recognized an operating loss in the fiscal 2022 third quarter due to the factors discussed above.

Interest Expense, net

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Consolidated interest expense, net

Consolidated interest expense decreased in both the second quarter and first half of fiscal 2022 due to the payoff of our term loans in fiscal 2021 fourth quarter.

Consolidated interest expense decreased in both the third quarter and nine months of fiscal 2022 due to the payoff of our term loans in fiscal 2021 fourth quarter.

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Consolidated income tax expense/(benefit)

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Consolidated income tax (benefit)/expense

Effective Tax Rate

We recorded income tax expense of $2.2 million for the fiscal 2022 second quarter compared to $1.6 million for the comparable prior year quarter.

The effective tax rates for the fiscal 2022 and 2021 second quarters were 22.7% and 21.8%, respectively.

For the fiscal 2022 first half, we recorded income tax expense of $5.0 million, compared to income tax benefit of $9.3 million for the comparable prior year period, of which $10.7 million was recorded related to goodwill and trade name impairment charges.

The effective tax rates for the fiscal 2022 and 2021 first half periods were 22.7% and 24.2%, respectively.

Net Income/(Loss)

We recorded income tax benefit of $403,000 for the fiscal 2022 third quarter compared to $3.0 million income tax expense for the comparable prior year quarter.

The effective tax rates for the fiscal 2022 and 2021 third quarters were 24.8% and 22.9%, respectively.

For the fiscal 2022 nine-month period, we recorded income tax expense of $4.6 million, compared to income tax benefit of $6.3 million for the comparable prior year period, of which $10.7 million was recorded related to goodwill and trade name impairment charges.

The effective tax rates for the fiscal 2022 and 2021 nine-month periods were 22.5% and 24.8%, respectively.

Net (Loss)/Income

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Net (loss)/income Consolidated

Diluted earnings/(loss) per share

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For those administrative staff not telecommuting and our warehouse and domestic manufacturing employees, we have implemented appropriate social distancing policies and have stepped-up facility cleaning at each location.

Non-essential domestic travel for our employees has ceased and international travel has been prohibited out-right.

Domestic travel for our employees has been limited and international travel is mostly non-existent.

Testing, treatment and vaccinations for COVID-19 are covered 100% under our medical plan and counseling is available through our employee assistance plan to assist employees with financial, mental and emotional stress related to the virus and other issues.

We are encouraging vaccinations and requiring the wearing of masks for unvaccinated employees.

In addition, we are offering temporary paid leave to employees diagnosed with the virus (and those associates with another diagnosed person or persons in their household) and are working to accommodate associates with child-care issues related to school or day-care closures.

As more state and local governments have eased restrictions on retail activities, we have seen a significant improvement in our business conditions, including order rates, profitability, and financial condition.

However, we continue to cautiously make decisions regarding our financial resources to weather and adapt to changes in market conditions, including any further impacts of COVID-19, including certain COVID variants and possible future pandemics.

Consumer and retail demand remain historically strong, with consolidated backlogs nearly double and incoming orders up 27% over last year as of the end of the fiscal 2022 second quarter.

However, we are facing significant headwinds on the supply side that will impact us in the short-term.

The surge of the Delta variant of COVID-19 has caused factories in our source countries of Vietnam and Malaysia to close temporarily, with reopening prospects uncertain.

In addition, global logistics challenges with higher freight and transit costs and lower transportation capacity, along with raw materials inflation and some labor shortages continue.

Our Hooker Branded and Domestic Upholstery segments, where we have more of an ability to keep product flowing and to ship from our significant US and Asia warehousing capacity, is less challenged than Home Meridian, since Home Meridian ships primarily to larger customers via direct container and is more impacted by shipping costs and capacity, especially in the short-term.

Consequently, we expect our second-half net sales and income to be adversely affected by these challenges, particularly in our Home Meridian segment.

We continue to manage our logistics issues, with the goal of minimizing costs and maximizing delivery however there is no indication that ocean freight container rates will return to pre-COVID-19 levels in the near term.

We believe we have mitigated these dynamics as much as possible through surcharges and price increases, but these increases can trail price increases received from logistics partners and suppliers for up to ninety days.

Additionally, these supply-side factors are unpredictable and often involve frequent, unexpected changes with little or no notice.

Longer-term, we believe that several macroeconomic factors provide a path for growth such as the strong housing market and favorable demographics with the large Millennial generation becoming highly engaged in household formation and home furnishings purchases.

While we expect the extraordinary levels of demand for home furnishings to diminish somewhat, we also expect that demand for home furnishings will settle into a higher level of demand than pre-pandemic.

We believe we are well positioned to help consumers enhance their homes with comfortable, stylish and quality home furnishings.

We continue to cautiously make decisions regarding our financial resources to weather and adapt to changes in market conditions, including any further impacts of COVID-19, including certain COVID variants and possible future pandemics.

Consumer and retail demand remain historically strong, with the Company experiencing consolidated backlogs nearly triple compared to pre-pandemic level.

However, we expect varying degrees of continued supply chain turbulence and product and raw materials cost inflation to impact our net sales and income in the short term, at least through the second quarter of fiscal 2023.

We expect that our Hooker Branded and Domestic Upholstery segments will continue to be less challenged than Home Meridian primarily due to more than 70% of Home Meridian’s business historically being direct container versus domestic warehouse distribution.

In addition, higher freight costs have a greater impact as a percentage on the Home Meridian’s lower price points.

We continue to manage our logistics issues, with the goal of minimizing costs and maximizing delivery;

however, there is no indication that ocean freight container rates will return to pre-COVID-19 levels in the near term.

Additionally, in the current environment, these supply-side factors are unpredictable and often involve frequent, unexpected changes with little or no notice.

We believe we are utilizing all available levers to help mitigate these headwinds, and we remain optimistic about our long-term position as we work our way through these transitory disruptions.

Our strong balance sheet and variable cost business model give us confidence that we can weather this current industry-wide challenge and will allow us to take advantage of the healthy consumer demand environment and long-term positive economic indicators and demographic trends for home-related industries.

However, we expect increased competition for consumer discretionary income from industries such as travel, apparel, dining out and in-person events as vaccination rates increase.

Additionally, potential adverse effects of new COVID-19 variants on the US and global economies remains uncertain.

However, we continue to see increased competition for consumer discretionary income from industries such as travel, apparel, dining out and in-person events as vaccination rates increase.

Additionally, potential adverse effects of new COVID-19 variants on the US and global economies remain uncertain.

We believe we are well positioned to help consumers enhance their homes with comfortable, stylish and quality home furnishings and will continue to focus on items under our control such as developing relevant new products to meet consumer needs, operational improvements, managing overhead and costs, and executing our strategic growth initiatives.

We remain optimistic as we manage through the current challenging environment.

Financial Condition, Liquidity and Capital Resources

Cash Flows – Operating, Investing and Financing Activities

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Net cash used in investing activities

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Net (decrease)/increase in cash and cash equivalents

During the six months ended August 1, 2021, we used a portion of the existing cash and cash equivalent on hand to pay $3.5 million of capital expenditures to enhance our business systems and facilities, $4.3 million in cash dividends, and $473,000 in life insurance premiums on Company-owned life insurance policies.

In comparison, during the six months ended August 2, 2020, we used a portion of the $53.2 million cash generated from operations and $673,000 life insurance proceeds to pay $3.8 million in cash dividends, $3.2 million in principal and interest payments on our term loans, and $453,000 in life insurance premiums on Company-owned life insurance policies.

During the nine months ended October 31, 2021, we used a portion of the existing cash and cash equivalents on hand and $5 million generated from operations to pay $6.6 million of capital expenditures to enhance our business systems and facilities, including $4.4 million in our newly opened Georgia distribution center, $6.4 million in cash dividends, $2.6 million on our new common, cloud-based ERP platform and $533,000 in life insurance premiums on Company-owned life insurance policies.

In comparison, during the nine months ended November 1, 2020, we used a portion of the $67.6 million cash generated from operations and $1.5 million life insurance proceeds to pay $5.7 million in cash dividends, $4.8 million in principal and interest payments on our term loans, $642,000 to enhance our business systems and facilities, and $519,000 in life insurance premiums on Company-owned life insurance policies.

Liquidity, Financial Resources and Capital Expenditures

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The loan covenants agreed to under the Previous Agreements continue to apply to us.

They include customary representations and warranties and requires us to comply with customary covenants, including, among other things, the following financial covenants:

They include customary representations and warranties and require us to comply with customary covenants, including, among other things, the following financial covenants:

Maintain a ratio of funded debt to EBITDA not exceeding 2.00:1.00;

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They do not restrict our ability to pay cash dividends on, or repurchase shares of our common stock, subject to our compliance with the financial covenants discussed above, if we are not otherwise in default under the agreements.

We were in compliance with each of these financial covenants at August 1,2021,and expect to remain in compliance with existing covenants for the foreseeable future.

We were in compliance with each of these financial covenants at October 31, 2021 and expect to remain in compliance with existing covenants for the foreseeable future.

We believe we have the financial resources to fund our business operations, including weathering the logistics issues, cost increases and production capacity constraints which are currently impacting our industry.

As of August 1, 2021, we had $28.7 million available under our Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $6.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of August 1, 2021.

There were no additional borrowings outstanding under the revolving credit facility as of August 1, 2021.

As of October 31, 2021, we had $27.9 million available under our Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $7.1 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of October 31, 2021.

There were no additional borrowings outstanding under the revolving credit facility as of October 31, 2021.

Capital Expenditures

We expect to spend approximately $4 million in capital expenditures over the remainder of fiscal 2022 to maintain and enhance our operating systems and facilities.

Of those amounts, we expect to spend approximately:

$1.5 million outfitting a newly built leased warehouse space in Savannah, Georgia.

Hiring of staff is in process and we expect to commence operations at the new facility in October 2021.

The facility will consolidate several older, less efficient Home Meridian segment warehouses into a single strategically located distribution facility near the port of Savannah and major interstate highways.

We believe this is critical to servicing customers and is expected to reduce transportation costs and increase operating efficiencies;

$1.5 million on implementation costs for a new common, cloud-based Enterprise Resource Planning (“ERP”) platform which we expect to be online in our Hooker Branded segment and certain divisions under Domestic Upholstery segment by mid-calendar 2022, with other segments following thereafter.

We expect to spend approximately $500,000 in capital expenditures over the remainder of fiscal 2022 to maintain and enhance our operating systems and facilities.

Enterprise Resource Planning

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We anticipate spending approximately $5.5 million over the course of this project, with a significant amount of time invested by our associates.

We spent approximately $1.5 million on this project in the first half of fiscal 2022.

On September 2, 2021, our board of directors declared a quarterly cash dividend of $0.18 per share, which will be paid on September 30, 2021 to shareholders of record at September 16, 2021.

We spent approximately $2.6 million on this project in the first nine months of fiscal 2022 and expect to spend approximately $1 million in the last quarter of fiscal 2022.

On December 7, 2021, our board of directors declared a quarterly cash dividend of $0.20 per share, an increase of $0.02 per share or 11% over the most recent dividend, which will be paid on December 31, 2021 to shareholders of record at December 17, 2021.

The Board will continue to evaluate the appropriateness of the current dividend rate considering our performance and economic conditions in future quarters.

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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-Q

Item 1. Financial Statements