What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2023-04-14 compared with 2022-04-15 · 235 added, 254 removed, 192 unchanged (72% of the section changed)

4 unchanged sentences

Although we presently intend to continue to declare regular cash dividends on a quarterly basis for the foreseeable future, the determination as to the payment and the amount of any future dividends will be made by the Board of Directors on a quarterly basis and will depend on our then-current financial condition, capital requirements, results of operations and any other factors then deemed relevant by the Board of Directors.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

On June 6, 2022, our Board of Directors authorized the repurchase of up to $20 million of the Company’s common shares.

The authorization does not obligate us to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of our Board of Directors.

Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to our cash requirements for other purposes, compliance with the covenants under the loan agreement for our revolving credit facility and other factors we deem relevant.

The following table details the repurchase activities in the fourth quarter of fiscal 2023:

Total Number of Shares Purchased

Average Price Paid Per Share

Total Number of Shares Purchased As Part of Publicly Announced Program

Maximum Dollar Value of Shares That May Yet Be Purchased Under The Program

October 31, 2022 - December 4, 2022

December 5, 2022 - January 1, 2023

January 2, 2023 - January 29, 2023

Through fiscal 2023, we had used approximately $13.3 million of the authorization to purchase 819,632 of our common shares (at an average price of $16.27 per share), with approximately $6.6 million remaining available for future purchases under the authorization as of the end of fiscal 2023.

Performance Graph (1)

The following graph compares cumulative total shareholder return for the Company with a broad performance indicator, the Russell 2000® Index (2), and a published industry index, the Household Furniture Index (3), for the period from January 28, 2018 to January 29, 2023.

Comparison of Cumulative Total Return

Hooker Furnishings Corporation

The graph shows the cumulative total return on $100 invested at the beginning of the measurement period in our common stock or the specified index, including reinvestment of dividends.

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At January 29, 2023, Zacks Investment Research, Inc.

reported that these two SIC Codes consisted of Nova Lifestyle, Inc., La-Z-Boy, Inc., Leggett & Platt, Inc., Flexsteel Industries, Inc., Hooker Furnishings Corporation, Sleep Number Corp., Kimball International, Inc., Luvu Brands, Inc., Tempur Sealy International, Inc., Compass Diversified Holdings, Natuzzi Spa, Purple Innovation, Inc., Casper Sleep Inc., Bassett Furniture Industries, Inc., Ethan Allen Interiors, Inc., Horrison Resources, Inc., The Rowe Companies, Dorel Industries, and Instadose Pharma Corp.

reported that these two SIC Codes consisted of Bassett Furniture Industries, Inc., Compass Diversified Holdings, Dorel Industries, Ethan Allen Interiors, Inc., Flexsteel Industries, Inc., Hooker Furnishings Corporation, Horrison Resources Inc., Instadose Pharma Corp., Kimball International, Inc., La-Z-Boy, Inc., Leggett & Platt, Inc., Luvu Brands, Inc., MasterBrand, Inc., Natuzzi Spa, Nova Lifestyle, Inc., Purple Innovation, Inc., The Rowe Companies, Sleep Number Corp.

and Tempur Sealy International, Inc.

SELECTED FINANCIAL DATA

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Cost of sales

Inventory valuation expense (2)

Casualty loss (3)

3 unchanged sentences

Intangible asset amortization (4)

Operating income / (loss)(3)

Operating (loss)/income

Other income, net

Interest Expense, net

Income / (loss) before income taxes

Income tax expense / (benefit)

Net income / (loss)

(Loss)/income before income taxes

Income tax (benefit)/expense

Net (loss)/income

Per Share Data:

Basic earnings/(loss) per share

Diluted earnings/(loss) per share

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

Cash dividends per share

Net book value per share (5)

Weighted average shares outstanding (basic)

Weighted average number of shares outstanding (basic)

Balance Sheet Data:

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Shareholders’ equity

Our fiscal years end on the Sunday closest to January 31.

The fiscal years presented above all had 52 weeks, except for the prior fiscal year ended February 3, 2019, which had 53 weeks.

Our fiscal years end on the Sunday closest to January 31, with fiscal 2023 ending on January 29, 2023.

The fiscal years presented above all had 52 weeks, except for the 2019 fiscal year that ended on February 3, 2019, was a 53-week fiscal year.

Represents the inventory write downs of ACH and other excess inventories related to the exit of ACH and repositioning of the PRI business in fiscal 2023.

See Note 3 to our Consolidated Financial Statements for additional information.

Represents the insurance deductible for a casualty loss experienced at one of our Hooker Branded segment facilities in fiscal 2019.

Amounts for fiscal 2018 have been adjusted to reflect the reclassifications from Selling and administrative expenses (“S&A”) to Other income (expense), net of certain benefits costs as a result of adopting ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

This accounting standard requires bifurcation of net benefit cost such that all benefit costs except service cost are reported outside of operating costs.

Amounts reclassified from S&A to Other income (expense), net were ($30,000).

Represents impairment charges and amortization expense on acquisition-related intangibles.

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Net book value per share is derived by dividing “shareholders’ equity” by the number of common shares issued and outstanding, excluding unvested restricted shares, all determined as of the end of each fiscal period.

Long-term debt (including current maturities) consisted of term loans incurred to fund a portion of the Home Meridian and Shenandoah acquisitions.

We paid off the term loans in January 2021.

Long-term debt (including current maturities):

Fiscal 2023 amounts consist of acquisition related term loans to fund the Sunset Acquisition.

Prior periods shown consisted of term loans incurred to fund a portion of the Home Meridian and Shenandoah acquisitions, which were paid off in January 2021.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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We especially encourage you to familiarize yourself with:

All of our recent public filings made with the Securities and Exchange Commission (“SEC”) which are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com;

All of our recent public filings made with the SEC which are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com;

The forward-looking statements disclaimer contained prior to Item 1 of this report, which describe the significant risks and uncertainties that could cause actual results to differ materially from those forward-looking statements made in this report, including those contained in this section of our annual report on Form 10-K;

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If any of these risks materialize, our business, financial condition and future prospects could be adversely impacted;

Our commitments and contractual obligations and off-balance sheet arrangements described in Note 17 to our Consolidated Financial Statements on page F-30 of this report.

Our commitments and contractual obligations and off-balance sheet arrangements described on page 34 and in Note 19 to our Consolidated Financial Statements on page F-34 of this report.

This note describes commitments, contractual obligations and off-balance sheet arrangements, some of which are not reflected in our consolidated financial statements.

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Unless otherwise indicated, references to the “Company,” “we,” “our” or “us” refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information.

All references to the “Hooker”, “Hooker Division”, “Hooker Legacy Brands” or “traditional Hooker” divisions or companies refer to the current components of our Hooker Branded segment, the Domestic Upholstery segment including Bradington-Young, Sam Moore and Shenandoah Furniture, and All Other which includes H Contract and Lifestyle Brands.

All references to the “Hooker,” “Hooker Division,” “Hooker Legacy Brands” or “traditional Hooker” divisions or companies refer to the current components of our Hooker Branded segment, the Domestic Upholstery segment including Bradington-Young, HF Custom, Shenandoah Furniture and Sunset West, and All Other which includes H Contract and Lifestyle Brands.

Furniture sales account for all of our net sales.

For financial reporting purposes, we are organized into three reportable segments- Hooker Branded, Home Meridian and Domestic Upholstery, with our other businesses included in All Other.

We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary.

In the fourth quarter of fiscal 2020, we updated our reportable segments as follows:

Domestic upholstery producers Bradington-Young, Sam Moore and Shenandoah Furniture were moved from All Other and aggregated into a new reportable segment called “Domestic Upholstery.” All Other now consists of H Contract and Lifestyle Brands.

Lifestyle Brands is a business in its start-up phase targeted at the interior designer channel.

The Hooker Branded and Home Meridian segments were unchanged.

We regularly monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary.

Before the fiscal 2023, H Contract’s results included sales of seating products sourced from HF Custom.

Due to a change in the way management internally evaluates operating performance, beginning with fiscal 2023 first quarter, HF Custom’s results, which are included in Domestic Upholstery, now include sales of seating products formerly included in H Contract’s results.

Fiscal 2022 results discussed below have been recast to reflect this change.

The Hooker Branded and Home Meridian segments are unchanged.

Additionally, based on our analysis and the requirements of ASC 280:

Segment Reporting, the operational results of the newly acquired Sunset West division are included in the Domestic Upholstery segment starting in the first quarter of fiscal 2023 on a prospective basis.

See Note 18 to our consolidated financial statements for additional financial information regarding our segments.

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, contract and outdoor markets.

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

We are ranked among the nation’s top five largest publicly traded furniture sources, based on 2020 shipments to U.S.

retailers, according to a 2021 survey by a leading trade publication.

Executive Summary- Fiscal 2023 Results of Operations

Consolidated net sales increased by $53.5 million, or 9.9%, compared to the prior year period, due to over 20% increases in sales in both Hooker Branded and Domestic Upholstery segments, partially offset by a 1.2% sales decrease in the Home Meridian segment.

Despite the sales increases and slight sales decrease in the Home Meridian segment, consolidated gross profit and margin both decreased due to excess freight costs and product cost inflation in the Home Meridian segment and, to a lesser extent, in the Hooker Branded segment, as well as ready-to-assemble (“RTA”) product cancellation costs in the Home Meridian segment incurred as we exited that product category.

Consolidated operating income was $14.8 million compared to a $14.4 million operating loss in the prior year period.

The prior year loss was driven by $44.3 million ($33.7 million net of tax) non-cash intangible assets impairment charge.

Consolidated net income was $11.7 million or $0.97 per diluted share, as compared to net loss of $10.4 million or ($0.88) per diluted share in the prior year period.

Consolidated net sales decreased by $10.5 million, or 1.8%, compared to the previous fiscal year.

The decrease was driven by a $62.6 million, or 22.4% sales decline in the Home Meridian segment, which was largely offset by a significant increase of $49.9 million or 46.7% in the Domestic Upholstery segment.

Hooker Branded segment net sales had a minor decrease of $1.1 million, or 0.5%.

Despite being a small portion of the consolidated results, All Other revenue increased by 45.3% or $3.3 million.

Consolidated gross profit and margin decreased by $8.4 million and 110 bps, respectively, primarily due to the gross loss in the Home Meridian segment resulting from the $24.4 million write down of ACH and other excess inventories, and to a lesser extent, a decrease in gross profit and margin in the Hooker Branded segment.

The charge was initially expected to be $34 million, but estimates were refined during our year-end financial close and was ultimately less than originally estimated in part as sales of the inventory thus far in fiscal 2024 have been at less of a discount than originally expected.

These decreases were partially offset by increased profitability in the Domestic Upholstery segment.

The Company reported a consolidated operating loss of $6.0 million or (1.0%) operating margin, as compared to operating income of $14.8 million in the previous fiscal year.

Consolidated net loss was $4.3 million or ($0.37) per diluted share, as compared to net income of $11.7 million or $0.97 per diluted share in the prior year period.

Our fiscal 2023 performance is discussed in greater detail below under “Review” and “Results of Operations”.

We started fiscal 2022 with strong order backlogs carried over from the prior year end and reported significantly increased sales and profits in the first two quarters.

Although we were pleased that favorable demand for home furnishings continued through the year, ongoing global supply chain disruptions, the COVID lockdowns in Vietnam and Malaysia and the slower than expected re-openings of our suppliers in those two countries, coupled with freight and product inflationary pressures adversely affected our sales and profitability.

We reported a 9.9% consolidated net sales increase and $14.8 million in operating income and finished fiscal 2022 with a consolidated order backlog 25% higher over the level at the end of our fiscal 2021 year-end.

The Hooker Branded segment ’ s net sales increased by $38.3 million, or 23.5%, as compared to the prior fiscal year, which was attributable to increased sales volume and lower discounting driven by higher demand.

About 80% of the net sales increases were in our casegoods non-container business as we were better able to manage our inventory availability and keep our best-selling products in stock during the first half of fiscal 2022.

However, the unexpected COVID-related lockdown at our suppliers in Vietnam and Malaysia for nearly three months, beginning in August and their slow re-openings coupled with continued difficulty obtaining shipping containers and vessel space caused low inventory receipts in the second half of this year which resulted in out-of-stock issues and decreased net sales in the fourth quarter.

On a more positive note, the majority of shipments in this segment carried the price increases we implemented in July 2021 to mitigate higher ocean freight and product cost inflation.

Hooker Branded reported $30.7 million operating income or 15.3% operating margin, an increase of $7.8 million or 34.3% as compared to the prior year.

Given the current economic conditions, we are pleased to have maintained Hooker Branded segment profitability.

Incoming orders increased by 24.2% as compared to prior year period when business dramatically rebounded.

Backlog remained historically high and nearly doubled as compared to the prior year end when backlog was already at a high level, with part of that increase being due to lower shipments in the fourth quarter.

The Home Meridian segment had a difficult year with net sales decreasing by $3.5 million, or 1.2%, as compared to the prior year.

This segment also reported a $21.3 million operating loss.

Despite the disappointing financial results, we believe the challenges are short-term and the strategic decisions made by management will provide us with opportunities to significantly improve profitability in the coming year.

Net sales decreased due to sales declines with e-commerce and Clubs channels, and the hospitality business, nearly offset by sales increases with mass merchants and major furniture chains driven by higher demand.

E-commerce sales decreased by 30% due to lower demand (which was driven by higher product costs due to excess freight costs) and inventory availability issues.

Clubs sales decreased due to lower volume (which was intentional as we began exiting this channel in fiscal 2022) and $2.9 million of higher than expected chargebacks which negatively impacted net sales.

Hospitality sales also decreased during the year as capital spending in the hospitality industry is still recovering from the COVID crisis.

On a more positive note, hospitality order backlog at fiscal 2022 year-end was higher than prior year end.

In the summer of 2021, the temporary COVID lockdowns at our suppliers in Vietnam and Malaysia immediately impacted shipments and sales as the majority of revenue in this segment is container direct sales.

The sales volume loss during the second half of this year largely offset the sales increases in the first and second quarters.

Higher freight costs adversely impacted gross margin by 530 bps in fiscal 2022 and were the primary driver of increased product costs.

Home Meridian’s Accentrics Home division, was impacted the most by higher freight costs due to the lower sales value of its product.

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 improve future profitability, eliminate low-margin categories and avoid unnecessary costs, we took steps to optimize our product, sales channel and customer mix at Home Meridian.

Current freight costs made our RTA furniture products unprofitable.

Consequently, we exited the RTA furniture category and incurred one-time order cancellation costs of $2.6 million.

We estimate we avoided at least $10 million of additional costs by exiting this category.

Due to continued poor profitability and excess chargebacks of $2.9 million, we made the decision to exit the Clubs channel and incurred one-time order cancellation costs of $900,000.

Although these actions adversely affected our sales and earnings and helped drive an operating loss at Home Meridian, we believe these actions allow us to focus resources on more profitable business and stable channels to drive long-term growth.

We are also in the process of redefining our e-commerce business’ price points.

The Domestic Upholstery segment net sales increased by $18.6 million, or 22.2%, in fiscal 2022 due to double-digit sales increases at all three divisions as well as the absence of factory shutdowns in the current year.

However, gross margin decreased as compared to the prior year and pre-pandemic levels as this segment faced several manufacturing constraints which adversely impacted profitability.

Raw material cost increases and higher freight surcharges increased product costs by 360 bps.

The foam shortage we experienced early in fiscal 2022 and inconsistent deliveries of raw materials due to supply chain disruptions with our suppliers adversely impacted our production levels.

Labor shortages and inefficiencies at the Sam Moore division also impacted manufacturing capacities and resulted in higher over-time at already inflated wage rates.

We filled key positions at Sam Moore to improve labor productivity and reevaluated pay and benefits in order to attract and retain qualified employees.

In addition, domestic driver and truck shortages adversely impacted the delivery of finished products.

Despite increased material and labor costs, this segment reported operating income of $4.3 million, or a 4.2% operating margin as compared to a $12.4 million operating loss in the prior year, which was attributable to $16.4 million non-cash intangible assets impairment charge.

Incoming orders increased by 38% and this segment finished the year with an order backlog 122% higher than prior year, when backlog levels were already at a historical high.

We implemented price increases and surcharges in July and October of 2021 to mitigate increased material costs.

Since this segment has current order backlog levels of 5-6 months from when the sale was made 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.

However, these benefits could be offset by continuing price increases from our suppliers that impact us sooner than our price increases.

All Other net sales increased by $197,000 or 1.7% as compared to the prior fiscal year, due principally to sales increase at Lifestyle Brands, a business started in fiscal 2019 targeted at the interior design channel.

Although this business is still small, its net sales increased nearly 80% as compared to the prior fiscal year.

H Contract’s net sales stayed essentially flat as compared to the prior year.

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.

However, according to an industry survey, with new treatments and increased vaccination rates, especially among the senior population, occupancy level increased in the last two quarters of 2021 despite the later waves caused by delta and omicron variants.

H Contract’s incoming orders increased by 27% in fiscal 2022 and turned into 44% increased net sales in the fourth quarter, which offset the sales decreases in the first three quarters.

H Contract finished the year with backlog 126% higher than prior year end.

H Contract’s gross profit and margin decreased due to an unfavorable product mix and much of the product sold did not carry the full price increases.

All Other reported $1.1 million operating income or 9.6% operating margin for fiscal 2022.

Cash and cash equivalents stood at $69.4 million at fiscal 2022 year-end, an increase of $3.5 million compared to the balance at the fiscal 2021 year-end due primarily to collection of accounts receivable.

During fiscal 2022, we used a portion of the $19.2 million generated from operations and $372,000 in life insurance proceeds to pay $8.8 million in cash dividends to our shareholders, $6.7 million in capital expenditures in our newly opened Georgia distribution center and enhancements of other facilities and systems.

In the third quarter of fiscal 2022, our Board of Directors approved the increase of our quarterly dividend to $0.20 per share, an increase of 11.1% or $0.02 per share.

In fiscal 2022, dividends totaled $0.74 per share or $8.8 million in the aggregate paid, an increase of 12.1% or $0.08 per share, compared to the prior year representing the sixth consecutive annual dividend increase.

In addition to our cash balance, we have an aggregate of $27.9 million available under our $35 million revolving credit facility with BofA (the “Existing Revolver”) to fund working capital needs and have access to $26.5 million in cash surrender value of Company-owned life insurance policies.

We believe we have the financial resources to fund our business operations for the foreseeable future, including weathering an extended impact of COVID-19 pandemic as well as the logistics issues, cost increases and production capacity constraints which are currently impacting our industry.

Fiscal 2023 was a challenging year as we faced macro-economic uncertainties, ongoing inflation, volatile interest rates and a slowdown in the demand for home furnishings following the prior year’s demand surge after the initial COVID crisis.

Despite these challenges, we were encouraged by the improvements in the global supply chain, a strong labor market, and our overseas vendors returning to normal production levels.

As discussed below, we were pleased to report solid results in both Hooker Branded and Domestic Upholstery segments;

however, we had to make difficult but necessary decisions aimed at optimizing our resources and improving profitability in the Home Meridian segment.

The Hooker Branded segment ’ s net sales slightly decreased by $1.1 million, or 0.5%, as compared to the all-time record net sales this segment achieved in the prior fiscal year.

At the beginning of the fiscal year, this segment experienced inventory unavailability due to the COVID-related lockdown at our suppliers in Vietnam and their slow re-openings in late 2021 and early 2022.

Inventory levels increased throughout fiscal 2023, allowing us to fulfill a significant portion of the large order backlog carried over from the prior year.

However, in the third quarter, there was a temporary delay in shipments due to inventory mix issues.

Dealers delayed receipts of orders until collections could ship complete.

This was resolved in the fourth quarter.

By the end of fiscal year 2023, inventory had increased by $35 million in this segment compared to the previous year-end and more than doubled compared to fiscal 2020 and 2021 year-end.

Meanwhile, gross profit and margin for the segment decreased by $3.8 million or 180 bps due to much higher-than-expected demurrage expenses and increased warehousing labor costs, driven by the large inventory volume as well as port and warehouse congestion in the U.S..

Operating income decreased to $20.5 million, with an operating margin of 10.3%, compared to $30.7 million and 15.3%, respectively, in the prior year.

The decline was due to higher compensation expenses (due to increased headcount, wage inflation and favorable performance to budget which affected staff variable compensation), higher professional services and training expenses, higher lease expense at the new Hooker showroom in High Point, NC, which is expected to come online in April 2023, and other increased operating expenditures as business returned to the pre-pandemic environment.

Despite a significant decrease in incoming orders compared to the strong rebound in the prior year, order backlog remained 76% higher than pre-pandemic levels at fiscal 2020 year end.

The Home Meridian segment experienced a decline of $62.6 million, or 22.4% in net sales, compared to the prior year.

Moreover, the segment recorded an operating loss of $37.2 million, driven by lower sales volume due to the demand environment and a $24.4 million inventory write down related to the exit of the ACH business unit and repositioning of PRI in the fourth quarter of fiscal 2023.

Nearly 60% of the decrease was driven by sales decreases at PRI and SLF, which service major furniture chains and mass merchants.

These brands experienced decreased incoming orders as retail customers focused on reducing their own excess inventories by delaying incoming shipments.

Pulaski’s fiscal 2023 net sales were essentially flat.

Over 30% of the net sales decrease was driven by HMidea, which was exited in fiscal 2022 and focused on Clubs channel sales.

The Company made the decision to exit HMidea in the prior fiscal year due to continued losses driven by low margins and excessive chargebacks.

While this led to a decrease in revenue, the exit resulted in significant improvement in returns and allowances costs.

E-commerce sales decreased due primarily to the normalization of post-COVID consumer demand.

The ACH business unit, which focused on e-commerce business, contributed about 13% of Home Meridian’s overall revenue, but accounted for over 50% of the operating loss in this segment, primarily due to the write-down of its inventories to market.

The e-commerce business model requires significant capital investment and high handling costs, as we carried significant amounts of inventory to meet quick shipping demands as compared to Home Meridian's other business units, which primarily use a container direct model.

Additionally, these lower-priced and lower-margin inventories carried historically high freight costs we paid in the prior year.

During the second half of fiscal 2023, we implemented targeted promotions to accelerate sales and reduced inventory by approximately $8 million.

However, given the inventory levels, industry discounting levels and low demand, continuing to sell ACH inventory at or near cost would not reach the breakeven but incur additional lease, warehouse labor and other costs.

As a result, we decided to exit the ACH business and recorded $24.4 million charge to write down the ACH and other excess inventories.

With lower inventory levels, we also expect to reduce the physical footprints and related expenses at the Georgia warehouse and other facilities during fiscal 2024.

We believe the actions to eliminate these slow-moving and low-margin categories, reduce overhead, and focus our resources on more profitable products, sales channels and customer mix are essential for sustained performance and long-term profitability.

The Domestic Upholstery segment ’ s net sales increased by $49.9 million, or 46.7% compared to the prior fiscal year.

The sales increase was due primarily to the addition of Sunset West results, which accounted for approximately 54% of the increase, while the remainder was due to double-digit sales growth at Bradington-Young, HF Custom, and Shenandoah for the second consecutive year.

Manufacturing constraints such as shortages and inconsistent deliveries of certain raw materials that we experienced in the prior year were no longer an issue.

Gross margin was 20.8%, compared to 19.5% in the prior year.

Higher sales volume and operating near full capacity significantly improved indirect and fixed costs absorption and direct labor efficiency;

however, price inflation of raw materials and higher freight surcharges offset the favorable sales variances by approximately 300 bps and 220 bps, respectively.

Additionally, Sunset West's shipping activities were disrupted by the conversion of the new ERP system in the fourth quarter due to longer than expected post-implementation stabilization, resulting in low shipments and unabsorbed costs.

This issue was largely resolved in the first quarter of fiscal 2024.

The segment reported an operating income of $8.9 million, with a 5.7% operating margin compared to $4.7 million and 4.4% in the prior year, respectively.

Incoming orders decreased mostly due to current demand, while shipments were higher and aligned with internal goals, fulfilling and reducing the historically high order backlogs which was carried over from the prior year.

At the end of fiscal 2023, order backlog, excluding Sunset West, remained 57% higher than pre-pandemic levels at fiscal 2020 year end.

Cash and cash equivalents stood at $19 million at fiscal 2023 year-end, a decrease of $50.4 million from the prior year-end.

During fiscal 2023, we used a portion of cash on hand and cash collected from accounts receivable to fund $19 million increase in inventory, $13.3 million share repurchases, $9.6 million in cash dividends to our shareholders, $5.4 million for development of our new cloud-based ERP system, and $4.2 million capital expenditure for enhancements of other systems and facilities.

During fiscal 2023, we received $25 million in term loan proceeds to replenish cash used to make the Sunset Acquisition.

In the third quarter of fiscal 2023, our Board of Directors approved the increase of our quarterly dividend to $0.22 per share, an increase of 10% or $0.02 per share, representing the seventh consecutive annual dividend increase.

In fiscal 2023, dividends totaled $0.82 per share or $9.6 million in the aggregate, an increase of 10.8% or $0.08 per share, compared to the prior year.

In addition to our cash balance, at fiscal 2023 third quarter end, we had $26.4 million available under our $35 million revolving credit facility with BofA (the “Existing Revolver”) to fund working capital needs and have access to $27.6 million in cash surrender value of Company-owned life insurance policies.

We believe that our liquidity and capital requirements will be further improved through the write down of ACH inventories and other excess inventories, as discussed above.

With strategic inventory management, reasonable capital expenditures, and prudent expense management, we believe we have the financial resources to support our business operations for the foreseeable future.

Results of Operations

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Cost of sales

Inventory write downs

Selling and administrative expenses

Goodwill impairment charges

Trade name impairment charges

Intangible asset amortization

Operating income/(loss)

Operating (loss)/income

Other income (expense), net

Interest expense, net

Income/(loss) before income taxes

Income tax expense/(benefit)

Net income/(loss)

(Loss)/Income before income taxes

Income tax (benefit)/expense

Net (loss)/income

Fiscal 2023 Compared to Fiscal 2022

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Unit Volume and Average Selling Price ( “ ASP ” )

FY22 % Increase /

(Decrease) vs.

FY23 % Increase / (Decrease) vs.

Average Selling Price

FY22 % Increase /

(Decrease) vs.

FY23 % Increase / (Decrease) vs.

Hooker Branded

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Domestic Upholstery *

Consolidated net sales increased due to sales increases at Hooker Branded and Domestic Upholstery segments, partially offset by a small sales decrease at Home Meridian segment.

Hooker Branded segment’s net sales increased significantly in fiscal 2022 driven by increased demand.

ASP increased in response to higher freight costs and product cost inflation.

However, Hooker Branded net sales decreased in the fourth quarter of fiscal 2022 due to inventory unavailability issues.

The temporary factory shutdown in Vietnam and Malaysia during the summer resulted in low inventory receipts in the third and fourth quarters of fiscal 2022.

The Home Meridian segment’s net sales decreased by 1.2% as compared to the prior year period due to decreased unit volume as the result of COVID-19 lockdown in Vietnam and Malaysia, which led to lower shipments.

The majority of Home Meridian’s business are container direct customers, which were immediately impacted by factory delays.

Net sales and ASP decreased within the e-commence , hospitality and Clubs channels, partially offset by ASP increases with major furniture chains and retail stores as the result of strong demand.

Domestic Upholstery net sales increased in fiscal 2022 as all three divisions of this segment reported double digit net sales increases due to high demand and reduced prior-year sales due to temporary COVID-19 factory shutdowns.

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

Unit volume increased by double digits at Bradington-Young and Shenandoah, while increasing by lower single digits at Sam Moore due to labor inefficiencies.

All Other net sales increased slightly in fiscal 2022 due to sales increases in the Lifestyle Brands business.

H Contract’s net sales were essentially flat as compared to prior year period even though sales rebounded in the fourth quarter when the orders started to improve.

Gross Profit and Margin

*Sunset West is excluded from the Domestic Upholstery segment in the Unit Volume and ASP portions of the table above since it was not a part of our fiscal 2022 results.

Consequently, we believe including its fiscal 2023 results would skew Domestic Upholstery results and reduce the usefulness of those portions of the table.

Consolidated net sales decreased primarily due to sales decline in the Home Meridian segment, partially offset by revenue growth at Domestic Upholstery segment and All Other.

Hooker Branded segment’s net sales remained essentially flat as compared to the prior year’s robust sales, which were driven by a surge in demand following the initial outbreak of COVID-19.

The decrease in unit volume was attributable to shipment disruptions caused by inventory unavailability in the first quarter of fiscal 2023, and to a lesser extent, temporary inventory mix issues due to some inventories received as incomplete collections.

ASP increased due to a large percentage of the shipments carrying price increases we implemented during the two most recent years to mitigate higher freight and product costs.

Home Meridian segment’s net sales decreased by 22.4% compared to the prior year period.

The decline was attributable to the absence of sales in the Clubs channels which we decided to exit in the prior year, decreased sales volume with traditional furniture chains and mass merchants, as well as the e-commerce channel, partially offset by increased net sales in the hospitality business.

ASP increased in all current divisions due to the freight surcharges and price increases we imposed to mitigate higher freight and product costs, while being negatively impacted by the Clubs channels closeout sales and heavy discounting at ACH in the second half of fiscal 2023.

Domestic Upholstery net sales increased by 46.7% compared to the prior year due to the addition of Sunset West’s results as well as double digit sales growth at each of Bradington Young, HF Custom and Shenandoah for the second consecutive year.

ASP increased across all three divisions in response to the inflation of raw material costs.

Unit volume increased as all divisions were operating near full capacity and working through backlog.

All Other net sales increased significantly in fiscal 2023 driven by increased sales volume at H Contract due to the recovery of the senior living industry after the COVID pandemic.

Gross Profit/(Loss) and Margin

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Domestic Upholstery

Consolidated gross profit and margin both decreased as compared to the prior fiscal year due principally to significantly decreased gross profit and margin in the Home Meridian segment.

Hooker Branded segment gross profit increased while margin decreased slightly in fiscal 2022.

Favorable sales variances were partially offset by product cost inflation, increased warehouse labor costs due to increased shipments, and higher demurrage and drayage expenses due to supply chain interruptions.

In the third quarter of fiscal 2022, product sold started to carry the price increases we implemented in the second quarter of fiscal 2022, which helped offset excess ocean freight costs.

Home Meridian segment gross profit and margin decreased significantly in fiscal 2022 due to excess ocean freight costs, which impacted margin by 530 bps, as well as sales volume declines, increased product costs due to inflation, order cancellation costs related to the exit of the RTA furniture category, Clubs channel order cancellation costs, and excess moving costs and disposal of obsolete inventory related to the consolidation of segment warehouse operations to our new Georgia warehouse.

Domestic Upholstery segment gross profit increased in fiscal 2022 driven by increased net sales.

Gross margin decreased in fiscal 2022 due primarily to increased raw material costs (including increased freight costs), which negatively impacted margin by 360 bps, partially offset by improved production efficiencies from operating near full capacity due to historic levels of backlog, as compared to the prior year when factories were temporarily closed or operating at a reduced production level during the initial wave of COVID-19 crisis, which resulted in unabsorbed fixed costs.

All Other gross profit and margin both decreased despite increased net sales because of higher costs due to inflation, partially offset by price increases on these products and increased Lifestyle Brands gross profit.

Consolidated gross profit and margin both decreased as compared to the prior year, attributed primarily to a gross loss at the Home Meridian segment, while partially offset by an increase in gross profit and margin at Domestic Upholstery segment.

The Hooker Branded segment gross profit and margin decreased due to increased warehousing costs which exceeded such costs in the prior year by 160 bps.

These costs included higher demurrage expenses due to large inventory receipts during the year and supply chain disruptions, increased warehouse labor costs, and increased fuel and trucking expenses due to inflation.

The Home Meridian segment recorded a gross loss, primarily due to its sales decline and the $24.4 million write-down of ACH inventories and other excess inventories, which more than offset a decrease in customer chargebacks after the exit from the Clubs channel as well as price increases and freight surcharges.

Additionally, the savings generated from consolidating the California and North Carolina warehouses helped offset higher-than-expected labor and transition costs incurred at the Georgia warehouse.

Domestic Upholstery segment gross profit and margin both increased in fiscal 2023 due to the addition of Sunset West results and improved profitability at HF Custom and Shenandoah.

Favorable sales variances and operating near full capacity benefited production efficiencies and overhead absorption.

Despite a double-digit sales increase, Bradington-Young’s gross profit and margin both decreased due primarily to leather cost inflation and, to a lesser extent, increased direct labor costs.

Additionally, higher freight surcharges negatively impacted profitability of each division.

All Other gross profit and margin both increased in fiscal 2023 due to strong net sales at H Contract.

Selling and Administrative Expenses ( “ S&A ” )

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Domestic Upholstery

Consolidated selling and administrative expenses increased in absolute terms but decreased as a percentage of net sales in fiscal 2022.

Hooker Branded segment S&A expenses increased in absolute terms in fiscal 2022 driven by increased selling costs as the result of higher net sales, increased salaries and wages due primarily to inflation, increased professional service expenses related to the recent Sunset West acquisition, increased ERP project expenses, and increased showroom, samples, travel and other general spendings as business returned to more normal levels.

These increases were partially offset by reversal of executives’ bonus accrual on lower profits and 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 fiscal 2022 due to increased net sales.

Home Meridian segment S&A expenses decreased in absolute terms and as a percentage of net sales due to decreased selling expenses on lower net sales, absence of employee bonuses due to failure to achieve profitability goals, decreased compliance costs and the absence of a customer write-off in the current year period, partially offset by increased severance expenses due to personnel changes, increased depreciation expenses and increased marketing, showroom, travel and other expenses as business returned to more normal levels.

Domestic Upholstery segment S&A expenses increased in absolute terms in fiscal 2022 due to increased salaries and wages because of the absence of employee furloughs when factories were temporarily shut down in the prior year period (and to a lesser extent inflationary pressures), increased selling expenses on higher net sales, and increased depreciation expenses due to the accelerated depreciation of our existing ERP system because of the expected implementation of an upgraded cloud-based ERP solution in fiscal 2023.

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

All Other S&A expenses increased slightly in absolute terms and as a percentage of net sales in fiscal 2022 due to increased selling and market expenses, partially offset by decreased advertising supply expenses.

Goodwill impairment charges

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January 30, 2022

January 31, 2021

% Segment Net Sales

Home Meridian

Domestic Upholstery

Trade name impairment charges

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January 30, 2022

January 31, 2021

% Segment Net Sales

Home Meridian

In fiscal 2021, we recorded $23.2 million and $16.4 million in non-cash impairment charges to write down goodwill in the Home Meridian segment and the Shenandoah division of the Domestic Upholstery segment, respectively.

We also recorded $4.8 million in non-cash impairment charges to write down tradenames in the Home Meridian segment.

See Note 8 to our Consolidated Financial Statements for additional details on these impairment charges.

Consolidated selling and administrative expenses increased in absolute terms and as a percentage of net sales driven by increased S&A expenses at Hooker Branded segment and the addition of Sunset West expenses.

Hooker Branded segment S&A expenses increased in absolute terms and as a percentage of net sales driven by general spending increases as business returned to more normal levels and because of inflation in multiple line items including wages and benefits.

Compensation levels also increased due to increased headcount and higher levels of staff variable compensation driven by favorable performance compared to budget.

Additionally, bad debt reserves increased due to higher AR balances.

These increases were partially offset by the absence of executive bonuses due to missed budgeted profit goals in fiscal 2023.

We recorded a much larger downward adjustment of executive bonus and long-term incentive accruals in fiscal 2022, which exacerbates the comparisons between the two years.

Home Meridian segment S&A expenses decreased in absolute terms, attributable to decreased compensation expense resulting from personnel changes, decreased selling costs due to lower net sales, and decreased bad debt expense on lower AR balances.

These decreases were partially offset by higher designing fees related to a new licensing arrangement, higher international travel expenses as normal travel schedules resumed, and higher depreciation expenses on additions of property and equipment at the Georgia warehouse.

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

Domestic Upholstery segment S&A expenses increased in absolute terms in fiscal 2023 due principally to the addition of Sunset West’s S&A expenses, as well as higher compensation expenses and higher selling costs resulting from higher net sales at each division.

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

All Other S&A expenses increased in absolute terms while decreased as a percentage of net sales due to higher selling costs on increased net sales.

Intangible Asset Amortization

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Intangible asset amortization

Intangible asset amortization expense was unchanged compared to the prior year period.

Intangible asset amortization expense was higher in fiscal 2023 due to Sunset Acquisition-related amortization expense.

See Note 10 Intangible Assets and Goodwill to our Consolidated Financial Statements for additional information about our amortizable intangible assets.

Operating Profit/(Loss) and Margin

Operating (Loss)/Profit and Margin

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Domestic Upholstery

Consolidated operating profitability increased both in absolute terms and as a percentage of net sales in fiscal 2022 compared to the same prior-year period due to the factors discussed above.

Operating profitability decreased both in absolute terms and as a percentage of net sales in fiscal 2023 compared to the prior-year period due to the factors discussed above.

Sunset West operating profit of $683,000 for the fiscal 2023, net of $1.1 million in intangible asset amortization expense on Sunset Acquisition-related intangibles, was included in the Domestic Upholstery segment’s results.

Interest Expense, net

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Interest expense, net

Consolidated interest expense decreased in fiscal 2022 due to the payoff of our term loans in fiscal 2021 fourth quarter.

Consolidated interest expense increased in fiscal 2023 due primarily to interest on new term loans and the amounts drawn on the revolving credit facility throughout the year.

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January 30, 2022

Consolidated income tax expense/(benefit)

Consolidated income tax (benefit)/expense

Effective Tax Rate

We recorded income tax expense of $3.4 million for fiscal 2022, as compared to income tax benefit of $4.1 million for fiscal 2021, of which an income tax benefit of $10.6 million was recorded related to goodwill and trade name impairment charges.

We recorded income tax benefit of $1.8 million for fiscal 2023, compared to income tax expense of $3.4 million for fiscal 2022.

The effective tax rates for fiscal 2023 and 2022 were 29.9% and 22.4%, respectively.

Our effective tax rate was lower in fiscal 2022 due to change in cash surrender value and the absence of employee retention credit in the current year, which increased the effective tax rate in the prior fiscal year due to a loss before income tax benefits.

The effective tax rate was higher in fiscal 2023 due to the impact of the cash surrender value of company-owned life insurance which was added to the favorable tax impact of the pretax loss in current year, versus a subtraction from tax expense in the case of a pretax profit.

See Note 17 Income Taxes to our Consolidated Financial Statements for additional information about our income taxes.

Net Income/(Loss) and Earnings/(Loss) Per Share

Net (Loss)/Income and (Loss)/Earnings Per Share

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Net Income/(Loss)

Diluted earnings/(loss) per share

The analysis and discussion of fiscal 2021 compared to fiscal 2020 results is available in Item 7 of our 2021 Annual Report on Form-10K available through Hooker Furnishings and SEC websites.

Net (loss)/income

Diluted (loss)/earnings per share

The analysis and discussion of fiscal 2022 compared to fiscal 2021 results are available in Item 7 of our 2022 Annual Report on Form-10K available through Hooker Furnishings and SEC websites.

Financial Condition, Liquidity and Capital Resources

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Net cash provided by operating activities

Net cash (used in)/provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net increase in cash and cash equivalents

During fiscal 2022, we used a portion of the $19.2 million generated from operations and $372,000 in life insurance proceeds to pay $8.8 million in cash dividends, $6.7 million in capital expenditures to enhance our systems and facilities and $560,000 for insurance premiums on Company-owned life insurance policies.

Net cash provided by/(used in) financing activities

Net (decrease)/increase in cash and cash equivalents

During fiscal 2023, we used a portion of the $25 million term-loan proceeds and existing cash and cash equivalents on hand to fund the $25 million Acquisition, build up inventory levels by $19 million, pay $13.3 million in purchases and retirement of common stock, $9.6 million in cash dividends, $5.4 million for the development of our new cloud-based ERP system, $4.2 million capital expenditures to enhance our business systems and facilities, and $492,000 in life insurance premiums on Company-owned life insurance policies.

Company-owned life insurance policies are in place to compensate us for the loss of key employees and to facilitate business continuity.

During fiscal 2021, we used existing cash, a portion of the $68.3 million generated from operations and $1.3 million in life insurance proceeds to retire our $30.1 million in outstanding term loans related to the Home Meridian acquisition, pay $7.8 million in cash dividends, $1.2 million in capital expenditures to enhance our systems and facilities and to pay $555,000 for insurance premiums on Company-owned life insurance policies.

During fiscal 2020, we used some of the $41.4 million generated from operations and $1.4 million proceeds received from a note receivable to pay $7.2 million cash dividends, $6.4 million principal payments and interest towards our term loans, $5.1 million in capital expenditures to expand our domestic manufacturing capacities and to enhance our business systems and facilities and $590,000 for insurance premiums on Company-owned life insurance policies.

Liquidity, Financial Resources and Capital Expenditures

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The most significant components of our working capital are inventory, accounts receivable and cash and cash equivalents reduced by accounts payable and accrued expenses.

Our primary cash needs are for imported finished goods and raw materials for our domestic upholstery operations and lease payments on our distribution centers, administrative facilities and showrooms.

Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for inventory, lease payments and labor), quarterly dividend payments and capital expenditures related primarily to our ERP project, showroom renovations and upgrading systems, buildings and equipment.

Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for inventory, lease payments and payroll), quarterly dividend payments and capital expenditures related primarily to our ERP project, showroom renovations and upgrading systems, buildings and equipment.

The timing of our working capital needs can vary greatly depending on demand for and availability of raw materials and imported finished goods but is generally the greatest in the mid-summer as a result of inventory build-up for the traditional fall selling season.

Long-term cash requirements relate primarily to funding lease payments.

We generally fund short-term and long-term cash requirements with cash from operating activities.

While we generally fund short-term and long-term cash requirements with cash from operating activities, during fiscal 2023, at various times we borrowed and repaid amounts totaling $36.2 million on our revolving line of credit.

We believe our primary sources of liquidity will satisfy our cash requirements over both the short-term (the next twelve months) and long-term.

Loan Agreements and Revolving Credit Facility

We paid off the term loans which were related to the Home Meridian acquisition at the end of fiscal 2021 and currently have the Existing Revolver.

The Existing Revolver is based on successive past amendments to previous BofA banking agreements which are collectively referred to as the “Previous Agreements.” Details of our Existing Revolver are outlined below:

The Existing Revolver is available between January 27, 2021 and February 1, 2026 or such earlier date as the availability may terminate or such later date as BofA may from time to time in its sole discretion designate in any extension notice;

During the availability period, BofA will provide a line of credit to the maximum amount of the Existing Revolver;

The initial amount of the Existing Revolver is $35 million;

The sublimit of the Existing Revolver available for the issuance of letters of credit was increased to $10 million;

On July 26, 2022, we entered into the Fourth Amendment to the Second Amended and Restated Loan Agreement (the “Amendment”) with Bank of America, N.A.

(“BofA”) to replenish cash used to make the Sunset Acquisition.

The Second Amended and Restated Loan Agreement dated as of September 29, 2017, had previously been amended by a First Amendment to Second Amended and Restated Loan Agreement dated as of January 31, 2019, a Second Amendment to Second Amended and Restated Loan Agreement dated as of November 4, 2020, and a Third Amendment to Second Amended and Restated Loan Agreement dated as of January 27, 2021 (as so amended, the “Existing Loan Agreement”).

Details of the individual credit facilities provided for in the Amendment are as follows:

Unsecured Revolving Credit Facility.

Under the Amendment, the expiration date of the existing $35 million Unsecured Revolving Credit Facility (the “Existing Revolver”) was extended to July 26, 2027.

Any amounts outstanding will bear interest at a rate per annum, equal to the then current Bloomberg Short-Term Bank Yield Index (“BSBY”) (adjusted periodically) plus 1.00%.

The interest rate will be adjusted on a monthly basis.

The actual daily amount of undrawn letters of credit is subject to a quarterly fee equal to a per annum rate of 1%.

We may, on a one-time basis, request an increase in the Existing Revolver by an amount not to exceed $30 million at BofA’s discretion;

Any amounts outstanding under the Existing Revolver bear interest at a rate, equal to the then current LIBOR monthly rate (adjusted periodically) plus 1.00%.

We must also pay a quarterly unused commitment fee at a rate of 0.15% determined by the actual daily amount of credit outstanding during the applicable quarter.

The loan covenants agreed to under the Second Amended and Restated Loan Agreement continue to apply to us.

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

We must also pay a quarterly unused commitment fee that is based on the average daily amount of the facility utilized during the applicable quarter;

2022 Secured Term Loan.

The Amendment provided us with a $18 million term loan (the “Secured Term Loan”), which was disbursed to us on July 26, 2022.

We are required to pay monthly interest only payments at a rate per annum equal to the then current BSBY rate (adjusted periodically) plus 0.90% on the outstanding balance until the principal is paid in full.

The interest rate will be adjusted on a monthly basis.

On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest.

The Secured Term Loan is secured by certain company-owned life insurance policies under a Security Agreement (Assignment of Life Insurance Policy as Collateral) dated July 26, 2022, by and between the Company and BofA;

2022 Unsecured Term Loan.

The Amendment provided us with a $7 million unsecured term loan (the “Unsecured Term Loan”), which was disbursed to us on July 26, 2022.

We are required to pay monthly principal payments of $116,667 and monthly interest payments at a rate per annum equal to the then current BSBY (adjusted periodically) plus 1.40% on the outstanding balance until paid in full.

The interest rate will be adjusted monthly.

On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest.

We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed.

As of January 29, 2023, $6.3 million was outstanding under the Unsecured Term Loan, and $18 million was outstanding under the Secured Term Loan.

We incurred $37,500 in debt issuance costs in connection with our term loans.

As of January 29, 2023, unamortized loan costs of $33,750 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.

The Amendment also included customary representations and warranties and requires us to comply with customary covenants, including, among other things, the following financial covenants:

Maintain a ratio of funded debt to EBITDA not exceeding:

2.50:1.0 through July 30, 2023;

2.25:1.0 through July 30, 2024;

2.00:1.00 thereafter.

A basic fixed charge coverage ratio of at least 1.25:1.00;

Limit capital expenditures to no more than $15.0 million during any fiscal year.

They also limit our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions.

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.

The Existing Loan Agreement also limits our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions.

The Existing Loan Agreement does 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 Existing Loan Agreement.

We were in compliance with each of these financial covenants at January 29, 2023 and expect to remain in compliance with existing covenants for the foreseeable future.

We believe we have financial resources to weather the expected short-term impacts of COVID-19;

however, an extended impact may materially and adversely affect our sales, earnings and liquidity.

Revolving Credit Facility Availability

As of January 30, 2022, we had an aggregate $27.9 million available under the Existing Revolver to fund working capital needs.

As of January 29, 2023, we had $26.4 million available under our $35 million Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $8.6 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of January 29, 2023.

There were no additional borrowings outstanding under the Existing Revolver as of January 29, 2023.

Share Repurchase Authorization

On June 6, 2022, our Board of Directors authorized the repurchase of up to $20 million of the Company’s common shares.

Through the end of fiscal 2023, we had used approximately $13.3 million of the authorization to purchase 819,632 of our common shares (at an average price of $16.27 per share), with approximately $6.7 million remaining available for future purchases under the authorization as of the end of the fiscal 2023.

Capital Expenditures

We expect to spend approximately $8 million in capital expenditures in fiscal 2023 to maintain and enhance our operating systems and facilities.

Of those amounts, we expect to spend approximately:

$3.5 million on showroom renovations for both the legacy Hooker divisions and the Home Meridian segment.

The showroom for the Hooker legacy will be moved to a location to maximize interior design traffic and to showcase Sunset West products in an outdoor setting.

The Home Meridian renovation will support new initiatives including the new ‘Portfolio’ sales program aimed at retailers who prefer to buy from our warehouse rather than container direct;

$3.5 million on implementation costs for a new common, cloud-based Enterprise Resource Planning platform which we expect to be online in our legacy Hooker divisions in the second half of our 2023 fiscal-year, with other segments following thereafter.

We expect to spend between $2.5-$3.5 million in capital expenditures in fiscal 2024 to maintain and enhance our operating systems and facilities.

Enterprise Resource Planning

During calendar 2021, our Board of Directors approved an upgrade to our current ERP system and implementation efforts began shortly thereafter.

We expect to implement the ERP upgrade in our legacy Hooker divisions in the second half of fiscal 2023, with the Home Meridian segment and the Shenandoah division following afterwards.

The ERP system went live at Sunset West in December 2022 and is expected to go-live in our legacy Hooker divisions in fiscal 2024, with the Home Meridian segment following afterwards.

To complete the ERP system implementation as anticipated, we will be required to expend significant financial and human resources.

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

We anticipate spending approximately $4.0 million in fiscal 2024, with a significant amount of time invested by our associates.

Material Capital Commitments

Our material capital commitments primarily consist of term loan and lease payments.

Contractual term-loan and interest payments assuming identical effective interest rates as of the end of fiscal 2023 are expected to be $2.7 million in fiscal 2024, $2.6 million in fiscal 2025, $2.5 million in fiscal 2026, $2.5 million in fiscal 2027 and $19.2 million in fiscal 2028 including the payoff of $18 million Secured Term Loan.

We lease office space, warehousing facilities, showroom space and office equipment under leases expiring over the next five years.

Future minimum annual commitments under leases and operating agreements are $10 million in fiscal 2024, $10.1 million in fiscal 2025, $10.2 million in fiscal 2026, $10.3 million in fiscal 2027 and $8.9 in fiscal 2028.

We declared and paid dividends of $0.82 per share or approximately $9.6 million in fiscal 2023, an increase of 10.8% or $0.08 per share compared to $0.74 per share in fiscal 2022.

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

As discussed under "Item 1A.

Risk Factors," COVID-19 was recognized as a global pandemic by the World Health Organization.

We continue to monitor information on COVID-19 from the CDC and believe we are adhering to their recommendations regarding the health and safety of our personnel.

To address the potential human impact of the virus, many of our administrative staff are telecommuting for at least part of the work week.

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.

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.

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 vaccination rates have increased and infection rates have stabilized and started to decline, more admin staff are returning to the office for at least partial workweeks.

Domestic travel and limited international travel has resumed and we have adjusted social distancing and masking protocols to the current public health guidelines.

We are concerned about ongoing global logistics constraints and economic headwinds affecting the consumer that could impact short-term demand, such as inflation, high gas prices and the war in Ukraine.

We expect production capacity of our Asian suppliers to improve significantly, reaching full capacity at some point during the fiscal 2023 first quarter;

although we don’t believe the full financial impact of this improvement will be felt until sometime in the fiscal 2023 second quarter.

We continue to be encouraged by long-term trends such as demand for housing, the renewed and sustainable focus on home interiors and exteriors, and the Millennial generation entering their prime earning and household formation years.

We were also very encouraged by the recently concluded Spring High Point market.

Attendance was up significantly compared to both the Fall 2021 and June 2021 markets and new products were very well received with major placements across all brands, including new placements of Home Meridian’s licensed products.

While we have worked through a broad spectrum of challenges during the past year, our team has continued to focus on multiple strategic growth initiatives, many of which we expect will positively impact us in the next six to twelve months.

One such initiative is the integration of Sunset West, a leading manufacturer of outdoor furniture, which we acquired on the first day of our 2023 fiscal year.

The acquisition immediately positioned us in the growing outdoor furniture segment of the industry with one of the most respected brands in the category and gives Sunset West access to our East Coast distribution system, our High Point showroom and retail and interior design customer base.

We were very encouraged by the strong reception Sunset West received at its recent High Point market debut.

As we integrate Sunset West and move past the current headwinds, we expect faster growth from Sunset West than our existing businesses as it is able to leverage the full capabilities of our organization.

We are confident in our team’s ability to execute our strategies to grow profitably and to adapt successfully to unexpected challenges.

Recently Issued Accounting Pronouncements

No new accounting pronouncements were adopted in fiscal 2023 and none are expected to be adopted in fiscal 2024.

We reviewed newly issued accounting pronouncements and concluded they are either not applicable to our business or are not expected to have a material effect on our consolidated financial statements as a result of future adoption.

Economic indicators remain mixed.

We are encouraged by the stabilization of global supply chain dynamics, some moderation of inflation and continuing strength in employment levels, but concerned about possible instability in global banking, interest rates and the stock market.

Other headwinds include retailers delaying shipments due to temporarily high inventory levels, and the regulatory uncertainty with respect to anti-tipping standards on bedroom storage furniture, which we believe negatively impacted incoming order rates in the fiscal 2024 first quarter, especially from larger customers of our Home Meridian segment.

Based on recent developments, it appears the tip-over issue is near resolution and we do not expect it to have a long-term impact on demand or product costs.

As the industry returns to more typical demand and supply chain constraints continue to improve, previously astronomical ocean freight rates have declined, and appear to have stabilized.

We expect to begin realizing cost savings and improved margins as the year progresses as we sell though our existing, higher-cost inventory and replenish with goods carrying lower freight charges.

There is significant momentum at Home Meridian with meaningful new placements with major customers.

We expect the product commitments made by customers will positively affect the current fiscal year, helping put HMI on the path for solid and sustainable profitability.

With the opening of our new Hooker Legacy Showroom and our first Spring High Point Market in the renovated HMI and Portfolio showrooms, we expect an exciting, well-attended furniture market next week.

We believe our new High Point and Las Vegas showrooms and plans to show at the Atlanta Market this summer present an opportunity for us to get our brands in front of more customers and prospects in the next 12 months than at any time in our history.

Critical Accounting Policies and Estimates

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Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations.

Specific areas requiring the application of management’s estimates and judgments include, among others, revenue recognition, assumptions pertaining to valuation of goodwill and intangible assets and useful lives of long-lived assets.

Specific areas requiring the application of management’s estimates and judgments include, among others, revenue recognition, inventory valuation, assumptions pertaining to valuation of goodwill and intangible assets and useful lives of long-lived assets.

Accordingly, a different financial presentation could result depending on the judgments, estimates or assumptions that are used.

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Due to the highly-customized nature of our hospitality products, we typically require substantial prepayments on these orders, with the balance due within 30 days of delivery.

Impairment of Long-Lived Assets

Tangible and Definite Lived Intangible Assets

We regularly review our property, plant and equipment and definite lived intangible assets for indicators of impairment, as specified in the Accounting Standards Codification.

When an indicator of impairment is present, the impairment test for our property, plant and equipment requires us to assess the recoverability of the value of the assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and arising from use and eventual disposition of the assets.

We principally use our internal forecasts to estimate the undiscounted future cash flows used in our impairment analyses.

These forecasts are subjective and are largely based on management’s judgment, primarily due to the changing industry in which we compete, changing consumer tastes, trends and demographics and the current economic environment.

We monitor changes in these factors as part of the quarter-end review of these assets.

While our forecasts have been reasonably accurate in the past, during periods of economic instability, uncertainty, or rapid change within our industry, we may not be able to accurately forecast future cash flows from our long-lived assets and our future cash flows may be diminished.

Therefore, our estimates and assumptions related to the viability of our long-lived assets may change and are reasonably likely to change in future periods.

These changes could adversely affect our consolidated statements of operations and consolidated balance sheets.

When we conclude that any of these assets are impaired, the asset is written down to its fair value.

Any impaired assets that we expect to dispose of by sale are measured at the lower of their carrying amount or fair value, less estimated cost to sell;

are no longer depreciated;

and are reported separately as “assets held for sale” in the consolidated balance sheets, if we expect to dispose of the assets in one year or less.

Intangible Assets and Goodwill

The adverse economic effects brought on by the COVID-19 pandemic, including reductions in our sales, earnings and market value, as well as other changing market dynamics, required that we perform a valuation of our intangible assets during the interim period.

The calculation methodology for the fair value of our Home Meridian segment and the Shenandoah division of our Domestic Upholstery segment included three approaches:

the Discounted Cash Flow Method (DCF) which was given the largest weighting, the Guideline Public Company Method (GPCM) based on the consideration of the facts of the Company’s peer competitors and the Guideline Transaction Method (GTM) based on consideration of transactions with varying risk profiles, geographies and market conditions.

The income approach, specifically the relief from royalty method, was used as the valuation methodology for our trade names and trademarks, based on cash flow projections and growth rates for each trade name for five years in the future, and a royalty rate benchmark for companies with similar activities.

As a result of our intangible asset valuation analysis, in the first quarter of fiscal 2021, we recorded $44.3 million non-cash impairment charges including $23.2 million to Home Meridian goodwill, $16.4 million to Shenandoah goodwill and $4.8 million to certain of Home Meridian segment’s trade names.

Our goodwill, trademarks and trade names are tested for impairment annually as of the first day of our fourth quarter or more frequently if events or changes in circumstances indicate that the asset might be impaired.

The fair value of our trademarks and tradenames is determined based on the estimated earnings and cash flow capacity of those assets.

The impairment test consists of a comparison of the fair value of the indefinite-lived intangible assets with their carrying amount.

If the carrying amount of the indefinite-lived intangible assets exceeds their fair value, an impairment loss is recognized in an amount equal to that excess.

At January 30, 2022, based on our internal valuation, the fair values of our Bradington-Young, Home Meridian, Sam Moore and Shenandoah non-amortizable trademarks and trade names exceeded their carrying values.

Upon the adoption of ASU 2017-04, we perform our annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

Management judgment is a significant factor in the goodwill impairment evaluation process.

The computations require management to make estimates and assumptions, the most critical of which are potential future cash flows and the appropriate discount rate.

Based on our internal goodwill impairment analysis as described above, we have concluded that Shenandoah goodwill in the Domestic Upholstery segment is not impaired as of January 30, 2022.

The assumptions used to determine the fair value of our intangible assets are highly subjective and judgmental and include long-term growth rates, sales volumes, projected revenues, assumed royalty rates and factors used to develop an applied discount rate.

If the assumptions that we use in these calculations differ from actual results, we may realize impairment on our intangible assets that may have a material-adverse effect on our results of operations and financial condition.

Our other significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to our Consolidated Financial Statements beginning at page F-10 in this report.

Acquisition of Sunset West.

The acquisition of Sunset West was accounted for using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations .

The acquisition method of accounting involved the allocation of the $26.0 million purchase price to the estimated fair values of the assets acquired and liabilities assumed.

The $26.0 million in assets acquired included a customer relationships intangible asset with an acquisition-date fair value of $10.4 million.

The allocation process involved the use of estimates and assumptions made in connection with estimating the fair value of assets acquired and liabilities assumed including cash flows expected to be derived from the use of the asset including projected cash flows, the timing of such cash flows, the remaining useful life of assets, royalty rates and applicable discount rates.

Inputs used are generally obtained from historical data supplemented by current and anticipated market conditions and growth rates.

If the actual results differ from the estimates and judgements used in these fair values, the amounts recorded in the Consolidated Financial Statements could result in a possible impairment of these assets or require acceleration of the amortization expense of finite-lived intangible assets.

Inventories, consisting of finished furniture for sale, raw materials, manufacturing supplies and furniture in process, are stated at the lower of cost, or market value, with cost determined using the last-in, first-out (LIFO) method.

Under this method, inventory is valued at cost, which is determined by applying a cumulative index to current year inventory dollars.

We review inventories on hand and record an allowance for slow-moving and obsolete inventory based on historical experience, current sales trends and market conditions, expected sales and other factors.

When we identify inventory that is unlikely to be sold or that has a cost basis in excess of its net realizable value, we record a write-down to reduce the carrying amount of inventory to its estimated net realizable value.

In fiscal 2023, we recorded $24.4 million inventory write down on the ACH and other excess inventories related to the exit of ACH business unit and repositioning of PRI business unit as a direct-container only business model.

These estimates and assumptions were based on then current inventory levels, industry discounting levels, current demand, and offers to purchase these inventories.

Concentrations of Sourcing Risk

In fiscal 2023, imported products sourced from Vietnam and China accounted for 91% of our import purchases and our top five suppliers in Vietnam and China accounted for 50% of our fiscal 2023 import purchases.

A disruption in our supply chain, or from Vietnam, China or Malaysia in general, could significantly impact our ability to fill customer orders for products manufactured in those countries.

A disruption in our supply chain, or from Vietnam or China in general, could significantly impact our ability to fill customer orders for products manufactured in those countries.

Our supply chain could be adversely impacted by the uncertainties of health concerns and governmental restrictions.

For example, in the summer of calendar 2021, our suppliers in Vietnam and Malaysia were temporarily closed or operated at substantially reduced levels due to a COVID-related lockdown.

We faced supply chain constraints including but not limited to slower-than-expected re-openings, capacity limitations and production delays at some of our suppliers, along with the reduced shipping container and ocean vessel space availability.

Home Meridian segment shipping and sales were immediately impacted as the majority of its business is container direct customers.

In the fourth quarter of fiscal 2022, Hooker Branded segment sales were also impacted due to low inventory receipts in the second half of fiscal 2022 which consequently resulted in out-of-stocks.

In some cases, we were able to provide substitutions using inventory on hand, in-transit and from our domestic warehouses, but not enough to entirely mitigate the lost sales.

Supply disruptions and delays on selected items could occur for six months or longer before the impact of remedial measures would be reflected in our results.

If we are unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain from our largest import furniture suppliers, or from Vietnam, China or Malaysia in general, could adversely affect our sales, earnings, financial condition and liquidity.

If we are unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain from our largest import furniture suppliers, or from Vietnam or China in general, could adversely affect our sales, earnings, financial condition and liquidity.

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 5. Market for Registrant’s Common Equity