What changed in this filing

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Item 1. Financial Statements

2023-06-08 compared with 2022-12-08 · 283 added, 413 removed, 419 unchanged (62% of the section changed)

12 unchanged sentences

Deferred taxes

Operating lease right-of-use assets

Operating leases right-of-use assets

Intangible assets, net

6 unchanged sentences

Customer deposits

Current portion of operating lease liabilities

Current portion of lease liabilities

Other accrued expenses

10 unchanged sentences

Retained earnings

Accumulated other comprehensive loss

Accumulated other comprehensive income

Total shareholders’ equity

5 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Cost of sales

1 unchanged sentence

Intangible asset amortization

Operating income/(loss)

Operating income

Other income, net

Interest expense, net

Income/(Loss) before income taxes

Income tax expense/(benefit)

Net income/(loss)

Earnings/(Loss) per share

Income before income taxes

Income tax expense

Earnings per share

Weighted average shares outstanding:

2 unchanged sentences

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net income/(loss)

Other comprehensive income:

Amortization of actuarial loss

Amortization of actuarial (loss) / gain

Income tax effect on amortization

Adjustments to net periodic benefit cost

Total comprehensive income/(loss)

Total comprehensive income

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

2 unchanged sentences

(In thousands)

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

Operating Activities:

Adjustments to reconcile net income to net cash

(used in)/provided by operating activities:

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:

Depreciation and amortization

9 unchanged sentences

Accrued salaries, wages, and benefits

Accrued income taxes

Customer deposits

Operating lease liabilities

Operating lease assets and liabilities

Other accrued expenses

Deferred compensation

Net cash (used in)/provided by operating activities

Net cash provided by/(used in) operating activities

Investing Activities:

3 unchanged sentences

Financing Activities:

Proceeds from long-term loans

Payments for long-term loans

Proceeds from revolving credit facility

Payments for revolving credit facility

Debt issuance cost

Purchase and retirement of common stock

Payments for long-term loans

Cash dividends paid

Cash provided by/(used in) financing activities

Net decrease in cash and cash equivalents

Cash used in financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents - beginning of year

13 unchanged sentences

Income (loss)

Balance at August 1, 2021

Net income for the 13 weeks ended October 31, 2021

Unrealized loss on defined benefit plan, net of tax of $ 24

Cash dividends paid and accrued ($ 0.18 per share)

Restricted stock grants, net of forfeitures

Restricted stock compensation cost

Performance-based restricted stock units costs

Balance at October 31, 2021

Balance at July 31, 2022

Net income for the 13 weeks ended October 30, 2022

Unrealized loss on defined benefit plan, net of tax of $ 5

Cash dividends paid and accrued ($ 0.20 per share)

Purchase and retirement of common stock

Restricted stock grants, net of forfeitures

Restricted stock compensation cost

Performance-based restricted stock units costs

Balance at October 30, 2022

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

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONT.)

(In thousands, except per share data)

Comprehensive

Shareholders'

Income (loss)

Balance at January 30, 2022

Net income for the 39 weeks ended October 31, 2021

Unrealized loss on defined benefit plan, net of tax of $ 4

3 unchanged sentences

Performance-based restricted stock units costs

Balance at October 31, 2021

Balance at May 1, 2022

Balance at January 29, 2023

Net income for the 39 weeks ended October 30, 2022

Unrealized loss on defined benefit plan, net of tax of $ 17

4 unchanged sentences

Performance-based restricted stock units costs

Balance at October 30, 2022

Balance at April 30, 2023

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

2 unchanged sentences

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

For the Thirty-Nine Weeks Ended October 30, 2022

For the Thirteen Weeks Ended April 30, 2023

Preparation of Interim Financial Statements

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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 2023 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 1, 2022, and the thirty-nine-week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began January 31, 2022, which both ended October 30, 2022.

This report discusses our results of operations for these periods compared to the 2022 fiscal year thirteen-week period that began August 2, 2021, and the thirty-nine-week period that began February 1, 2021, which both ended October 31, 2021;

and our financial condition as of October 30, 2022 compared to January 30, 2022.

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 2024 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “first quarter” or “quarterly period”) that began January 30, 2023 and ended April 30, 2023.

This report discusses our results of operations for this period compared to the 2023 fiscal year thirteen-week period that began January 31, 2022 and ended May 1, 2022;

and our financial condition as of April 30, 2023 compared to January 29, 2023.

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

the 2024 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began January 30, 2023 and will end January 28, 2024;

the 2022 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 1, 2021 and ended January 30, 2022.

On January 31, 2022, the first day of our 2023 fiscal year, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sunset HWM, LLC (“Sunset West”) and its three members to acquire substantially all the assets of Sunset West (the “Sunset Acquisition”).

Simultaneously, we closed on the transaction by paying $ 23.9 million in cash and $ 2 million subject to an escrow arrangement and possible earn-out payments to the Sunset West Members up to an aggregate of $ 4 million with the closing cash consideration subject to adjustment for customary working capital estimates.

In the fourth quarter of fiscal 2023, we received $ 639 ,000 from the seller for the final working capital adjustments.

Under the Asset Purchase Agreement, the Company also assumed specified liabilities of Sunset West.

Sunset West’s results are included in the Domestic Upholstery segment’s results beginning with the fiscal 2023 first quarter.

Consequently, comparable prior-year information for Sunset West is not included in the financial statements presented in this report.

The acquisition is discussed in greater detail below in Note 3 Acquisition.

the 2023 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began January 31, 2022 and ended January 29, 2023.

Recently Adopted Accounting Policies

No new accounting pronouncements have been adopted in the 2024 fiscal year.

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 because of future adoption.

In accordance with FASB Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”), the Acquisition has been accounted for using the acquisition method of accounting.

We recorded assets acquired, including identifiable intangible assets, and liabilities assumed, from Sunset West at their respective fair values at the date of completion of the Acquisition.

The excess of the purchase price over the net fair value of such assets and liabilities was recorded as goodwill.

The following table summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Acquisition as of October 30, 2022.

The preliminary estimates of fair value of identifiable assets acquired and liabilities assumed are subject to revision, which may result in adjustments to the preliminary values presented below, when management’s appraisals and estimates are finalized.

In the fourth quarter of fiscal 2023, we received $ 639 ,000 from the seller for the final working capital adjustments.

Fair Value Estimates of Assets Acquired and Liabilities Assumed

The consideration and components of our initial fair value allocation of the purchase price paid at closing and in the subsequent net working capital adjustment consisted of the following:

Purchase price consideration

Fair value estimates of assets acquired and liabilities assumed

Purchase price consideration

Cash paid for assets acquired

Cash receivable from the seller for final working capital adjustment

Fair value of earnout

Total purchase price

Accounts receivable

Prepaid expenses and other current assets

Intangible assets

Customer deposits

Accounts payable

Accrued expenses

Total purchase price

Property was recorded at fair value and primarily consists of machinery and equipment.

Property and equipment will be amortized over their estimated useful lives.

Goodwill is calculated as the excess of the purchase price over the net assets acquired.

The goodwill recognized is attributable to growth opportunities and expected synergies.

All goodwill is expected to be deductible for income tax purposes.

Intangible assets, consist of two separately identified assets:

Sunset West customer relationships, which are definite-lived intangible assets with an aggregate fair value of $ 10.4 million.

The customer relationships are amortizable and will be amortized over a period of 10 years;

The Sunset West trade name, which is definite-lived intangible asset with fair value of $ 1.1 million.

The trade name is amortizable and will be amortized over a period of 12 years.

The total weighted average amortization period for these assets is 10.2 years.

We incurred Acquisition-related costs of $ 414,000 in fiscal 2022 and $ 69,000 in the first nine months of fiscal 2023.

These expenses were included in the “Selling and administrative expenses” line of our fiscal 2022 and fiscal 2023 condensed consolidated statements of operations.

Sunset West’s results are included in the Domestic Upholstery segment’s results beginning with the fiscal 2023 first quarter, which include $ 8.8 million in net sales and $ 1.4 million of operating income, including $ 282,000 in intangible amortization expense for the fiscal 2023 third quarter and $ 23.6 million in net sales and $ 2.4 million of operating income, including $ 846,000 in intangible amortization expense for the fiscal 2023 nine-month period.

Accounts Receivable

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Cloud Computing Hosting Arrangement

We are in the process of implementing a common Enterprise Resource Planning (ERP) system across all divisions and expect to go-live with this system at Sunset West in late fiscal 2023 and in our legacy Hooker divisions in early fiscal 2024, with other segments and divisions following thereafter.

Based on the provisions of ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software, we capitalize implementation costs incurred to develop internal-use software associated with hosting arrangements that are service contracts.

These costs are recorded on “Other noncurrent assets” line of our condensed consolidated balance sheets.

Amortization expense is expected to commence at system go-live in the second half of fiscal 2023.

The capitalized implementation costs at October 30, 2022 and January 30, 2022 were as follows:

Implementation Costs

We are in the process of implementing a common Enterprise Resource Planning system (ERP) across all divisions.

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

Based on the provisions of ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software , we capitalize implementation costs associated with hosting arrangements that are service contracts.

In addition, based on the provisions of ASC 835 Interest , we capitalize interest associated with this ERP project by applying the interest rate on our unsecured term loan to the amount of the accumulated expenditures for the ERP asset.

Both these costs are recorded on the “Other noncurrent assets” line of our condensed consolidated balance sheets.

Amortization expense commenced when the ERP went live at Sunset West in the fourth quarter of fiscal 2023.

Capitalized implementation costs and interest are amortized over ten years on a straight-line basis.

The capitalized implementation costs and interest expenses at April 30, 2023 and January 29, 2023 were as follows:

Capitalized Implementation Costs

Capitalized interest expenses

Balance at January 29, 2023

Costs capitalized during the period

Balance at October 30, 2022

Accumulated amortization

Balance at April 30, 2023

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 October 30, 2022 and January 30, 2022, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs.

As of April 30, 2023 and January 29, 2023, 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 October 30, 2022 and January 30, 2022, were as follows:

Fair value at October 30, 2022

Our assets measured at fair value on a recurring basis at April 30, 2023 and January 29, 2023, were as follows:

Fair value at April 30, 2023

Fair value at January 29, 2023

3 unchanged sentences

Intangible Assets

During the fiscal 2023 nine-month period, we recorded both non-amortizable and amortizable intangible assets because of the Acquisition.

Details of these new intangible assets, as well as previously recorded intangible assets assigned to our Domestic Upholstery and Home Meridian segments, are shown in the following two tables:

Our intangible assets with indefinite lives consist of goodwill related to the Shenandoah and Sunset West acquisitions and trademarks and tradenames related to the acquisitions of Bradington-Young, Sam Moore and Home Meridian.

During the fiscal 2024 first quarter, we announced the rebranding of the Sam Moore product line to “HF Custom”.

As a result, we reassessed the characteristics of the Sam Moore trade name and the roll-out process, and determined it qualified for amortization.

We will amortize the value of Sam Moore trade name over a 24 -month period using the straight-line method, starting from mid-April.

Our intangible assets with definite lives are recorded in our Home Meridian and Domestic Upholstery segments.

Details of our intangible assets are as follows:

April 30, 2023

January 29, 2023

October 30, 2022

Non-amortizable Intangible Assets

Beginning Balance

Net Book Value

Goodwill - Shenandoah Furniture

Domestic Upholstery

$ 490 $ - $ 490

Goodwill - Sunset West

Domestic Upholstery

- 14,462 14,462

Total Goodwill

$ 490 $ 14,462 $ 14,952

Trademarks and trade names - Home Meridian

Home Meridian

6,650 - 6,650

Gross carrying amount

Accumulated Amortization

Gross carrying amount

Accumulated Amortization

Intangible assets with indefinite lives:

Domestic Upholstery - Shenandoah *

Domestic Upholstery - Sunset West

Trademarks and Trade names *

Domestic Upholstery

1,257 - 1,257

Total Trademarks and trade names

$ 7,907 $ - $ 7,907

Total non-amortizable assets

$ 8,397 $ 14,462 $ 22,859

Our amortizable intangible assets are recorded in our Home Meridian and Domestic Upholstery segments.

The carrying amounts and changes therein of those amortizable intangible assets were as follows:

Amortizable Intangible Assets

Relationships

Balance at January 30, 2022

Balance at October 30, 2022

For the remainder of fiscal 2023, amortization expense is expected to be approximately $ 878 ,000.

We have operating leases for warehouses, showrooms, manufacturing facilities, offices and equipment.

We recognized sub-lease income of $ 34,000 for the three-month period and $ 415,000 for the nine-month period, both ended October 30, 2022.

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.

The components of lease cost and supplemental cash flow information for leases for the three-months and nine-months ended October 30, 2022 and October 31, 2021 were:

Intangible assets with definite lives:

Customer Relations

Trademarks and Trade names

Intangible assets, net

The amounts are net of impairment charges of $ 16.4 million related to Shenandoah goodwill and $ 4.8 million related to certain Home Meridian segment trade names, which were recorded in fiscal 2021.

Amortization expenses for intangible assets with definite lives were $ 883,000 and $ 878,000 for the first quarters of fiscal 2024 and 2023, respectively.

For the remainder of fiscal 2024, amortization expense is expected to be approximately $ 2.8 million.

We recognized sublease income of $ 29,000 and $ 348,000 in the first quarters of fiscal 2024 and 2023, respectively.

The components of lease cost and supplemental cash flow information for leases in the first quarters of fiscal 2024 and 2023 were:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 30, 2022

October 31, 2021

October 30, 2022

October 31, 2021

April 30, 2023

Operating lease cost

1 unchanged sentence

Short-term lease cost

Total lease cost

Operating lease cash outflows

The right-of-use assets and lease liabilities recorded on our condensed consolidated balance sheets as of October 30, 2022 and January 30, 2022 were as follows:

October 30, 2022

Total operating lease cost

Operating cash outflows

The right-of-use assets and lease liabilities recorded on our condensed consolidated balance sheets as of April 30, 2023 and January 29, 2023 were as follows:

April 30, 2023

January 29, 2023

Property and equipment

Total leases right-of-use assets

Total operating leases right-of-use assets

Current portion of operating lease liabilities

Long term operating lease liabilities

Total lease liabilities

Total operating lease liabilities

For leases that commenced before July 2022, we used our incremental borrowing rate which was LIBOR plus 1.5% .

When we entered into the new loan agreement our incremental borrowing rate for unsecured term loan became the current BSBY rate plus 1.40%.

When we entered into the new loan agreement (described in Note 10 below), our incremental borrowing rate for unsecured term loan became the current BSBY rate plus 1.40% .

We use this rate as discount rate for leases commenced in July 2022 and thereafter.

1 unchanged sentence

The weighted-average remaining lease term is 7.8 years.

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 30, 2022:

Undiscounted Future

Operating Lease Payments

Remainder of 2023

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 April 30, 2023:

Undiscounted Future Operating Lease Payments

Remainder of fiscal 2024

2029 and thereafter

2 unchanged sentences

Present value of lease payments

As of October 30, 2022, the Company had an additional lease for a showroom in High Point, North Carolina.

This lease was commenced in November 2022 with an initial lease term of 10 years and estimated future minimum rental commitments of approximately $ 23.7 million.

Since the lease was not commenced as of October 30, 2022, the undiscounted amounts are not included in our financial statements or in the table above.

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 Acquisition.

As of April 30, 2023, the Company had an additional lease for a showroom in Atlanta, Georgia.

This lease commenced in May of calendar 2023 with an initial lease term of 3 years and estimated future minimum rental commitments of approximately $ 1.0 million.

Since the lease had not yet commenced at quarter end, the undiscounted amounts are not included in the table above.

Subsequent to the fiscal 2024 first quarter, we entered into an agreement to reduce our footprint in the Georgia warehouse.

This amendment results in an approximate $ 6 million decrease in rental payments over the remaining lease term.

Since the agreement had not yet commenced, the modification is not reflected in the table above.

Long-Term Debt

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

(“BofA”) to replenish cash used to make the acquisition of substantially all of the assets of Sunset West (which closed at the beginning of the first quarter of fiscal 2023) (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”).

18 unchanged sentences

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

As of October 30, 2022, $ 6.6 million was outstanding under the Unsecured Term Loan, $18 million was outstanding under the Secured Term Loan.

As of April 30, 2023, $ 5.9 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 October 30, 2022, unamortized loan costs of $ 35,625 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.

As of April 30, 2023, unamortized loan costs of $ 31,875 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:

3 unchanged sentences

2.00:1.00 thereafter.

The other financial covenants under the Existing Loan Agreement continue to apply to us, including a basic fixed charge coverage ratio of at least 1.25:1.00 and limit capital expenditures to no more than $15.0 million during any fiscal year.

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.

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 October 30, 2022 and expect to remain in compliance with existing covenants through fiscal 2023 and for the foreseeable future.

During the fiscal 2023 second quarter, we drew $ 30.3 million under our $35 million Existing Revolver to cover working capital needs driven by finished goods inventory purchases from our Asian suppliers but had repaid such amounts by the end of the quarter due in part to receiving the proceeds from the Secured Term Loan and Unsecured Term Loan.

During the fiscal 2023 third quarter, we drew $ 5.9 million from the Existing Revolver but repaid such amounts by the end of the quarter.

As of October 30, 2022, 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 October 30, 2022.

There were no additional borrowings outstanding under the Existing Revolver as of October 30, 2022.

We were in compliance with each of these financial covenants at April 30, 2023 and expect to remain in compliance with existing covenants for the foreseeable future.

As of April 30, 2023, we had $ 27.2 million available under our $ 35 million Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $ 7.8 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of April 30, 2023.

There were no additional borrowings outstanding under the Existing Revolver as of April 30, 2023.

Earnings Per Share

We refer you to the discussion of Earnings Per Share in Note 2.

Summary of Significant Accounting Policies, in the financial statements included in our 2022 Annual Report, for additional information concerning the calculation of earnings per share.

Summary of Significant Accounting Policies, in the financial statements included in our 2023 Annual Report, for additional information concerning the calculation of earnings per share (EPS).

All stock awards are designed to encourage retention and to provide an incentive for increasing shareholder value.

12 unchanged sentences

All restricted shares, RSUs and PSUs awarded that have not yet vested are considered when computing diluted earnings per share.

During the fiscal 2023 nine-month period, we purchased and retired 598,000 shares of our common stock (at an average price of $ 15.63 per share) under the $ 20 million share repurchase authorization approved by our board of directors in the second quarter.

These repurchases reduced our total outstanding shares and, consequently, reduced the weighted outstanding shares used in our calculation of earnings per share for the fiscal 2023 third quarter and year-to-date periods shown below.

The following table sets forth the computation of basic and diluted earnings/(loss) per share:

The following table sets forth the computation of basic and diluted earnings per share:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net income/(loss)

Unvested participating restricted stock dividends

Net earnings allocated to unvested participating restricted stock

Earnings/(Loss) available for common shareholders

Earnings available for common shareholders

Weighted average shares outstanding for basic earnings per share

1 unchanged sentence

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 $ 1.3 million for the fiscal 2023 third quarter compared to income tax benefit of $ 403 ,000 for the comparable prior year quarter.

The effective tax rates for the fiscal 2023 and 2022 third quarters were 21.6 % and 24.8 %, respectively.

For the fiscal 2023 nine-month period, we recorded income tax expense of $ 3.9 million, compared to $ 4.6 million for the comparable prior year period.

The effective tax rates for the fiscal 2023 and 2022 nine-month periods were both 22.5 %.

Basic earnings per share

Diluted earnings per share

We recorded income tax expenses of $ 402 ,000 and $ 991 ,000 for the fiscal 2024 and fiscal 2023 first quarters, respectively.

The effective tax rates for the fiscal 2024 and 2023 first quarters were 21.7 % and 23.7 %, respectively.

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

13 unchanged sentences

Home Meridian , a business acquired at the beginning of fiscal 2017, is a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins;

Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, Sam Moore, Shenandoah Furniture and newly acquired Sunset West;

Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, HF Custom (formerly Sam Moore Furniture), Shenandoah Furniture and Sunset West, a business acquired at the beginning of fiscal 2023;

All Other , consisting of H Contract and Lifestyle Brands.

1 unchanged sentence

therefore, we combined them in “All Other” in accordance with ASC 280.

Changes to segment reporting for fiscal 2023

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 first quarter, H Contract’s results included sales of seating products sourced from Sam Moore.

Due to a change in the way management internally evaluates operating performance, beginning with fiscal 2023 first quarter Sam Moore’s results 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.

As discussed in Note 3 above, we acquired substantially all the assets of Sunset West on the first day of the 2023 fiscal year.

Based on our analysis and the requirements of ASC 280:

Segment Reporting , Sunset West’s results are included in the Domestic Upholstery segment on a prospective basis.

The following table presents segment information for the periods, and as of the dates, indicated.

Prior-year information has been recast to reflect the change discussed above.

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

1 unchanged sentence

Domestic Upholstery

Gross Profit/(Loss)

Hooker Branded

5 unchanged sentences

Domestic Upholstery

Capital Expenditures (net of disposals)

Capital Expenditures

Hooker Branded

1 unchanged sentence

Domestic Upholstery

& Amortization

Depreciation & Amortization

Hooker Branded

1 unchanged sentence

Domestic Upholstery

As of October 30,

As of January 30,

As of April 30,

Identifiable Assets

7 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 30, 2022

October 31, 2021

October 30, 2022

October 31, 2021

April 30, 2023

Subsequent Events

On December 5, 2022 , our board of directors declared a quarterly cash dividend of $0.22 per share which will be paid on December 30, 2022 to shareholders of record at December 16, 2022 .

This represents a 10 % increase over the previous quarterly dividend and the seventh consecutive annual dividend increase.

On June 5, 2023 , our board of directors declared a quarterly cash dividend of $ 0.22 per share which will be paid on June 30, 2023 to shareholders of record at June 16, 2023 .

Additional Share Repurchase Authorization

On June 5, 2023 our Board of Directors approved an additional $ 5 million for the repurchase of our common shares, adding to the $ 20 million authorization it approved in June 2022.

As of the filing date of this report, approximately $ 5.5 million remains available for the repurchase of our shares under these authorizations.

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 Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information.

References to the “ Acquisition ” refer to the recently completed acquisition of substantially all of the assets of Sunset West on January 31, 2022.

All references to the “ Hooker, ” “ Hooker Division(s), ” “ Hooker Legacy Brands ” or “ traditional Hooker ” divisions or companies refer to all current business units and brands except for those in the Home Meridian segment.

The Hooker Branded segment includes Hooker Casegoods and Hooker Upholstery.

The Domestic Upholstery segment includes Bradington-Young, HF Custom (formerly Sam Moore), Shenandoah Furniture and Sunset West.

All Other includes H Contract and Lifestyle Brands.

Forward-Looking Statements

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Those risks and uncertainties include but are not limited to:

general economic or business conditions, both domestically and internationally, including the current macro-economic uncertainties and challenges to the retail environment for home furnishings along with instability in the financial and credit markets, in part due to rising interest rates, including their potential impact on (i) our sales and operating costs and access to financing or (ii) customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses ;

difficulties in forecasting demand for our imported products;

general economic or business conditions, both domestically and internationally, including the current macro-economic uncertainties and challenges to the retail environment for home furnishings along with instability in the financial and credit markets, in part due to inflation and rising interest rates, including their potential impact on (i) our sales and operating costs and access to financing, (ii) customers, and (iii) suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses;

difficulties in forecasting demand for our imported products and raw materials used in our domestic operations;

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

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.

and local economies;

our business operations and continuity;

the health and productivity of our employees;

and the impact on our global supply chain, inflation, the retail environment and our customer base;

risks associated with HMI segment restructuring and cost-savings efforts, including our ability to timely dispose of excess inventories, reduce expenses and return the segment to profitability;

the impairment of our long-lived assets, which can result in reduced earnings and net worth;

adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products by foreign governments or the U.S.

government, such as the prior U.S.

administration’s imposition of a 25% tariff on certain goods imported into the United States from China including almost all furniture and furniture components manufactured in China, which is still in effect, with the potential for additional or increased tariffs in the future;

government and possible future U.S.

conflict with China;

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;

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, hacking or other cyber-security threats or inadequate levels of cyber-insurance or risks not covered by cyber- insurance;

risks associated with our Georgia warehouse including the inability to realize anticipated cost savings and subleasing excess space on favorable terms;

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;

the risks related to the recent Acquisition including integration costs, costs related to Acquisition debt, maintaining Sunset West’s existing customer relationships, debt service costs, interest rate volatility, the use of operating cash flows to service debt to the detriment of other corporate initiatives or strategic opportunities, the loss of key employees from Sunset West, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies across the business which could adversely affect our internal control or information systems and the costs of bringing them into compliance and failure to realize benefits anticipated from the Acquisition;

the risks related to the Sunset Acquisition including integration costs, maintaining Sunset West’s existing customer relationships, debt service costs, interest rate volatility, the use of operating cash flows to service debt to the detriment of other corporate initiatives or strategic opportunities, the loss of key employees from Sunset West, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies across the business which could adversely affect our internal control or information systems and the costs of bringing them into compliance and failure to realize benefits anticipated from the Sunset Acquisition;

changes in U.S.

and foreign government regulations and in the political, social and economic climates of the countries from which we source our products;

risks associated with product defects and changing consumer product safety laws, 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 or Georgia warehouses, our Virginia, North Carolina or California administrative facilities, our North Carolina and Las Vegas showrooms or our representative offices or warehouses in Vietnam and China;

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

risks associated with product defects, including higher than expected costs associated with product quality and safety, regulatory compliance costs (such as the costs associated with the US Consumer Product Safety Commission’s new mandatory furniture tip-over standard, STURDY) related to the sale of consumer products and costs related to defective or non-compliant products, 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 or Georgia warehouses, our Virginia, North Carolina or California administrative facilities, our High Point, Las Vegas, and Atlanta showrooms or our representative offices or warehouses in Vietnam and China;

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;

our inability to collect amounts owed to us or significant delays in collecting such amounts;

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 (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;

the impairment of our long-lived assets, which can result in reduced earnings and net worth;

capital requirements and costs;

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competition from non-traditional outlets, such as internet and catalog retailers;

changes in consumer preferences, including increased demand for lower-quality, lower-priced furniture.

Our forward-looking statements could be wrong or incomplete considering these and other risks, uncertainties, and assumptions.

changes in consumer preferences, including increased demand for lower-priced furniture.

Our forward-looking statements could be wrong considering these and other risks, uncertainties and assumptions.

The future events, developments or results described in this report could turn out to be materially different.

Any forward-looking statement we make speaks only as of the date of that statement, and we undertake no obligation, except as required by law, to update any forward-looking statements whether because of new information, future events or otherwise and you should not expect us to do so.

Any forward-looking statement we make speaks only as of the date of that statement, and we undertake no obligation, except as required by law, to update any forward-looking statements whether as a result of new information, future events or otherwise and you should not expect us to do so.

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

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Quarterly Reporting

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2023 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 1, 2022, and the thirty-nine-week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began January 31, 2022, which both ended October 30, 2022.

and our financial condition as of October 30, 2022 compared to January 30, 2022.

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2024 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “first quarter” or “quarterly period”) that began January 30, 2023 and ended April 30, 2023.

This report discusses our results of operations for this period compared to the 2023 fiscal year thirteen-week period that began January 31, 2022 and ended May 1, 2022;

and our financial condition as of April 30, 2023 compared to January 29, 2023.

References in this report to:

the 2024 fiscal year and comparable terminology mean the fiscal year that began January 30, 2023 and will end January 28, 2024;

the 2022 fiscal year and comparable terminology mean the fiscal year that began February 1, 2021 and ended January 30, 2022.

the 2023 fiscal year and comparable terminology mean the fiscal year that began January 31, 2022 and ended January 29, 2023.

Dollar amounts presented in the tables below are in thousands except for per share data.

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 our recent public filings made with the SEC, especially our 2022 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 2023 Annual Report.

Our 2023 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.

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

We believe that consumer tastes and channels in which they shop for furniture are evolving at a rapid pace and we continue to change to meet these demands.

Changes to segment reporting for fiscal 2023

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 first quarter, H Contract’s results included sales of seating products sourced from Sam Moore.

Due to a change in the way management internally evaluates operating performance, beginning with fiscal 2023 first quarter Sam Moore’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.

As discussed in Note 3 above, we acquired substantially all the assets of Sunset West on the first day of the 2023 fiscal year.

Based on our analysis and the requirements of ASC 280:

Segment Reporting , Sunset West’s results are included in the Domestic Upholstery segment on a prospective basis.

Orders and Backlog

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

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

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

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

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

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

It is our policy and industry practice to allow order cancellation for casegoods up to the time of shipment or, in the case of container direct orders, up until the time the container is booked with the ocean freight carrier;

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However, domestically produced upholstered products are predominantly custom-built and consequently, cannot be cancelled once the leather or fabric has been cut.

Additionally, our hospitality products are highly customized and are generally not cancellable.

Our hospitality products are highly customized and are generally not cancellable.

For our outdoor furnishings, most orders require a deposit upon order and the balance before production is started, and hence are generally non-cancellable.

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

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

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

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

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

In the prior year, orders were not converting to shipments as quickly as would be expected compared to the pre-pandemic environment due to the lack and cost of shipping containers and vessel space as well as limited overseas vendor capacity.

As a result, backlogs were significantly elevated.

At October 30, 2022, our backlog of unshipped orders was as follows and a further discussion of our current backlog by segment is discussed below under “Review”:

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

There have been exceptions to the general predictive nature of our orders and backlogs noted in this paragraph, such as during times of extremely high demand and supply chain challenges as experienced during the immediate aftermath of the initial COVID-19 crisis and subsequent recovery.

Orders were not being converted to shipments as quickly as would be expected compared to the pre-pandemic environment due to the lack and cost of shipping containers and vessel space as well as limited overseas vendor capacity and our domestic production capacity.

As a result, backlogs were significantly elevated and reached historical levels in the prior two years.

At April 30, 2023, our backlog of unshipped orders was as follows:

Order Backlog

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Reporting Segment

October 30, 2022

April 30, 2023

January 29, 2023

October 31, 2021

Hooker Branded

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Domestic Upholstery

At the end of fiscal 2024 first quarter, order backlog decreased as compared to the fiscal 2023 year-end and the prior year first quarter end.

The decrease was attributable to more normalized levels of shipping and lower incoming orders driven by a decrease in overall demand.

Executive Summary-Results of Operations

Consolidated net sales for the fiscal 2023 third quarter increased by $18.2 million, or 13.6%, compared to the prior year quarter.

This increase was primarily attributable to higher net sales in the Domestic Upholstery segment due to the addition of Sunset West results as well as sales growth across its divisions, higher net sales at Home Meridian, and the recovery in the H Contract business.

The increases were slightly offset by $1.3 million or 2.4% sales decrease at Hooker Branded.

Gross profit and margin improved in all three segments.

Consolidated operating income and margin were $6.4 million or 4.2% as compared to an operating loss of $1.7 million or (1.3%) of net sales in the prior year quarter.

Consolidated net income was $4.8 million or $0.42 per diluted share for the fiscal 2023 third quarter, compared to a net loss of $1.2 million or ($0.10) per diluted share in the prior year quarter.

Consolidated net sales for the fiscal 2023 nine-month period decreased by $7.0 million, or 1.5%, as compared to the same period last year due to decreased net sales in the Home Meridian and Hooker Branded segments, partially offset by higher net sales in the Domestic Upholstery segment and All Other.

Consolidated gross profit and margin increased due to the increases at the Domestic Upholstery and Home Meridian segments and All Other, partially offset by a decline in Hooker Branded’s gross profit and margin due to a drop in sales in the first quarter of fiscal 2023.

Consolidated operating income and margin were $17.6 million or 3.9% as compared to $20.2 million and 4.4% in the prior year period.

Consolidated net income was $13.6 million or $1.14 per diluted share for the fiscal 2023 nine-month period, as compared to $15.7 million or $1.30 per diluted share in the prior year period.

Our fiscal 2023 third quarter and nine months performance are discussed in greater detail below under “Review” and “Results of Operations.”

Despite macro-economic uncertainties and a challenging retail environment, especially for the home furnishings industry, we were grateful that many of the obstacles we faced in the prior year were behind us and were able to report revenue and earnings both exceeded the prior year third quarter.

The Hooker Branded segment ’ s net sales decreased by $1.3 million, or 2.4%, compared to record sales in the third quarter of last year.

The inventory unavailability issues experienced in the fiscal 2022 fourth quarter and fiscal 2023 first quarter caused by the unexpected COVID-related lockdowns at our suppliers in Vietnam were no longer an issue.

At the end of fiscal 2023 third quarter, inventory levels for this segment increased by $42 million as compared to fiscal 2022 year-end and $44 million as compared to prior year third quarter end, which positions us well for the holiday selling seasons.

Shipments were somewhat lower than our expectations in the third quarter due to a temporary inventory mix issue.

Some inventories were received as incomplete collections in our U.S.

warehouses missing some pieces.

Dealers delayed receipts of orders until collections could ship complete.

On a more positive note, a large percentage of the shipments carried the price increases we implemented last year and early this year to mitigate higher freight and product costs;

as a result, gross profit increased despite a decline in sales and gross margin grew by 100 basis points as compared to prior year quarter.

This segment reported $5.2 million operating income and a 9.5% operating margin for the fiscal 2023 third quarter.

Incoming orders decreased as compared to the prior year quarter as the pace of orders returned to near pre-pandemic levels.

Quarter-end backlog was lower than prior year quarter end and fiscal 2022 year-end but was still about three times higher than pre-pandemic levels in calendar 2019.

The Home Meridian segment ’ s net sales increased by $4.4 million, or 9.4%, as compared to the prior year quarter when container direct sales, which comprise a large portion of the revenue in this segment, decreased significantly due to the temporary COVID-related lockdowns in Vietnam and Malaysia.

As a result, sales with major furniture chains and mass merchants increased during the current year quarter.

Additionally, the hospitality business reported strong sales as that sector continues to recover from the COVID-related downturn.

These increases were largely offset by the absence of Clubs channel sales and decreased E-commerce sales.

The exit from the unprofitable Clubs channel resulted in a significant improvement in returns and allowances.

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

Gross profit and margin improved significantly in the fiscal 2023 third quarter due to the absence of excess chargebacks from the Clubs channel and order cancellation costs when we exited the Ready-To-Assemble furniture category in the prior year quarter.

Additionally, most shipments carried price increases and freight surcharges to help mitigate higher freight costs.

While sales volume improved over the abnormally low prior-year year levels, HMI shipped far less than expected due mostly to dealers with high inventory levels delaying shipments.

Additionally, HMI recorded higher-than-expected transition and labor costs related to the new Georgia warehouse.

Consequently, it reported an operating loss of $3.2 million, which was $7 million improvement from a $10 million operating loss in the prior year quarter.

As expected, incoming orders and quarter-end backlog decreased significantly due to the absence of Clubs channel orders as well as decreased orders from our retail customers due to the delayed shipments previously mentioned.

The Domestic Upholstery segment ’ s net sales increased by $14.1 million, or 48.2%, as compared to the prior year quarter due to the addition of Sunset West results as well as organic sales growth at Bradington Young, Sam Moore and Shenandoah which all delivered double-digit net sales increases for the quarterly and nine-month periods.

Gross profit and margin increased due to the inclusion of Sunset West results, favorable sales variances, better overhead absorption on higher sales volumes and near full operating capacity.

These improvements were partially offset by increased raw material costs such as leather, foam and upholstery materials.

This segment generated operating income of $3.8 million and reported an operating margin of 8.8% for the fiscal 2023 third quarter.

Incoming orders decreased as compared to prior year quarter due to current demand, long lead times and high backlogs, but were at about the same level as year-to-date calendar 2019.

Quarter-end backlog was lower than prior year quarter end and fiscal 2022 year-end when demand was exceptionally strong while production capacity was constrained.

Comparing to calendar 2019, backlog was more than three times higher than pre-pandemic levels.

Cash and cash equivalents stood at $6.5 million at fiscal 2023 third quarter-end, down $62.9 million from the balance at the fiscal 2022 year-end due principally to $58.9 million increase in inventory.

During the nine-month period, we used cash collected from accounts receivable to pay $9.4 million in share repurchases, $7.8 million for capital expenditures and development of our new cloud-based ERP system, and $7.1 million in cash dividends to our shareholders.

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

In addition to our cash balance, at fiscal 2023 third quarter end, we had $26.4 million available under our existing revolver to fund working capital needs.

To improve liquidity, we have also implemented targeted promotions on certain products.

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.

Consolidated net sales for the fiscal 2024 first quarter decreased by $25.5 million, or 17.3% compared to the prior year quarter, driven by a 32.5% sales decrease in the Home Meridian segment and to a lesser extent, a 14.8% decrease in the Domestic Upholstery segment.

Despite being a smaller part of overall results, All Other contributed a $1.1 million sales increase.

Net sales in the Hooker Branded segment remained relatively unchanged.

Consolidated gross profit decreased mainly due to lower sales volume, while gross margin increased.

Consolidated operating income was $2.0 million or 1.6% of net sales, compared to $3.9 million or 2.7% in the prior year period.

Consolidated net income was $1.5 million or $0.13 per diluted share for the quarter, compared to a $3.2 million or $0.26 per diluted share in the prior year period.

Our fiscal 2024 first quarter performance is discussed in greater detail below under “Review” and “Results of Operations.”

The home furnishings industry continues to experience decreased demand and a sluggish retail environment, as well as other economic uncertainties such as increased inflation and rising interest rates.

We remain cautious yet positive for fiscal 2024 as during the first quarter of fiscal 2024 we managed to strengthen our financial position by building up cash by $12 million from the 2023 fiscal year ended in January, reducing inventory levels by $23 million, and maintaining profitability in the Hooker Branded and Domestic Upholstery segments.

The Home Meridian segment’s operating loss was lower than prior year quarter’s result and better than management expected for the current year considering the current retail environment and the significant amount of closeout sales recorded in the first quarter.

The Hooker Branded segment ’ s net sales were essentially flat, decreasing slightly by 0.8% or $339,000 compared to the prior year period.

Discounting increased by 230 bps from abnormally low levels in the prior year due to softened demand in the quarter.

In addition, returns and allowances increased by 140 bps compared to the prior year period.

At the end of the first quarter, inventory levels decreased by $14 million as compared to fiscal 2023 year-end but were still elevated and much higher than pre-pandemic levels in fiscal 2020.

We are actively working to reduce inventory levels to align with current demand.

This segment reported an operating income of $2.3 million and an operating margin of 5.5%, compared to $4.1 million and 9.8%, respectively, in the prior year period.

The decrease was due to higher professional services fees and increased marketing and advertising expenses to support the growth and expansion strategies.

Additionally, compensation expenses also increased due to wage inflation and higher benefits expenses.

Quarter-end backlog was much lower than the prior year first quarter end but remained 50% higher than pre-pandemic levels at fiscal 2020 first quarter end.

Incoming orders decreased by 16.6% as compared to the prior year quarter and approached levels similar to fiscal 2020 first quarter, reflecting more normalized demand after the pandemic.

The Home Meridian segment ’ s net sales decreased by $20.2 million, or 32.5% in the fiscal 2024 first quarter versus the prior year first quarter.

In addition, this segment recorded an operating loss of $2.1 million resulting from sales volume losses.

Sales of inventory that was written down in the fiscal 2023 fourth quarter totaled $12.2 million in the fiscal 2024 first quarter.

Sales of previously written-down or written-off inventory had an immaterial impact on gross profit in the quarter.

While the results were disappointing, the operating loss improved by $1 million as compared to prior year first quarter.

The sales declines were attributed to decreases with major furniture chains and mass merchants, due to a slower retail environment for home furnishings and slower order rates and delayed orders from our retail customers as they continue to reduce their inventory levels.

Prime Resources International and Samuel Lawrence Furniture accounted for nearly all the net sales decreases and about 70% of the operating loss, while Pulaski Furniture’s net sales decreased by $1.2 million.

Meanwhile, at the Accentrics Home business unit (ACH), which focused on e-commerce customers, net sales remained flat as compared to the prior year quarter, and accounted for 30% of the operating loss in this segment due to the liquidation of the ACH business.

On a more positive note, Samuel Lawrence Hospitality’s net sales more than doubled compared to the prior year quarter indicating a strong recovery in the hospitality industry after the COVID pandemic.

Additionally, freight costs improved by approximately 300 bps versus the prior year first quarter due to the stabilization of ocean freight rates.

Incoming orders and quarter-end backlog were lower than the prior year quarter and fiscal 2020 first quarter, due to the absence of orders from Clubs channel and the ACH business, as well as decreased incoming orders from the retail customers.

The Domestic Upholstery segment ’ s net sales decreased by $6.1 million, or 14.8% in the fiscal 2024 first quarter, following a streak of sales growth for the past two years.

HF Custom, Sunset West and Shenandoah experienced sales decreases.

These decreases were partially offset by increased net sales at Bradington-Young.

The sales decline at HF Custom resulted from decreased incoming orders.

Sales decreases at Sunset West were attributed to slowed shipping in February and March caused by the December 2022 conversion to our new ERP system.

Additionally, during the expansion of our outdoor furniture business to the east coast, we experienced transition issues and start-up delays in the Georgia warehouse, which affected shipping activities at Sunset West.

These issues were mostly resolved by the end of the first quarter.

Profitability in the segment was negatively impacted by higher medical claims across all divisions and under-absorbed indirect costs at HF Custom due to sales volume loss and reduced working hours.

Gross margin benefited from the price increases we implemented last year to help mitigate materials cost inflation.

Despite the sales decline and disruptions, this segment reported an operating income of $1.3 million and an operating margin of 3.8%.

Quarter-end backlog for Bradington-Young remained over three times of the pre-pandemic levels at fiscal 2020 first quarter end, while the backlogs for HF Custom and Shenandoah decreased to levels similar to fiscal 2020.

Incoming orders at Bradington-Young and Shenandoah were at similar levels in the first quarter of fiscal 2020, while HF Custom experienced lower orders compared to this period.

Cash and cash equivalents stood at $31 million at fiscal 2024 first quarter-end, an increase of $12 million from the prior year-end.

During the first quarter, we used a portion of the $22.4 million cash generated from operating activities to fund $4.3 million share repurchases, $3.2 million capital expenditures including investments in our new showroom, $2.4 million in cash dividends to our shareholders, and $1.3 million for development of our cloud-based ERP system.

In addition to our cash balance, we had an aggregate of $27.2 million available under our existing revolver at quarter-end to fund working capital needs.

We believe that our liquidity and capital requirements will be further improved through the liquidation sales of excess inventories at Home Meridian, as discussed above.

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

Results of Operations

The following table sets forth the percentage relationship to net sales of certain items included in the condensed consolidated statements of income included in this report.

The following table sets forth the percentage relationship to net sales of certain items included in the condensed consolidated statements of operations included in this report.

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Cost of sales

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Intangible asset amortization

Operating income/(loss)

Operating income

Other income, net

Interest expense

Income/(Loss) before income taxes

Income before income taxes

Income tax expense

Net income/(Loss)

Fiscal 2023 Third Quarter and Nine Months Compared to Fiscal 2022 Third Quarter and Nine Months

Fiscal 2024 First Quarter Compared to Fiscal 2023 First Quarter

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

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Domestic Upholstery

FY24 Q1 % Increase vs.

Average Selling Price (“ASP”)

FY24 Q1 % Increase vs.

Hooker Branded

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Domestic Upholstery

*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 increased in the fiscal 2023 third quarter and decreased in the nine-month period, both versus corresponding prior year periods.

The Hooker Branded segment’s net sales decreased in the fiscal 2023 third quarter and nine months as compared to the corresponding periods in the prior year.

During the third quarter, this segment experienced a temporary inventory mix issue.

Some inventories were received as incomplete collections missing some pieces.

Retailers delayed receipt of orders until collections could ship complete, which resulted in lower shipments in spite of the large amount of incoming inventory.

For the nine-month period, sales volume decreased due to inventory unavailability, mostly in the first quarter.

In addition, net sales in the prior year periods increased significantly due to a demand surge after the initial COVID crisis.

ASP increased due to price increases we implemented in response to higher freight costs and product cost inflation.

However, it was insufficient to offset the sales decreases driven by unit volume loss.

The Home Meridian segment’s net sales increased as compared to the prior year third quarter when its container direct business was severely impacted by the temporary COVID-related lockdowns in Vietnam and Malaysia which resulted in significant sales volume loss.

For the nine-month period, the sales decrease was attributable to the absence of sales from the unprofitable Clubs channel and lower sales in the e-commerce channel, and to a lesser extent lower sales with the mass merchants.

These declines were partially offset by the recovery of hospitality business and the addition of Pulaski Upholstery category.

We implemented price increases to mitigate higher freight costs;

however, ASP was negatively impacted by discounts offered on e-commerce sales and discounted Ready-To-Assemble category sales, the category we determined to exit last year.

The Domestic Upholstery segment’s net sales increased significantly in the fiscal 2023 third quarter and nine-month period due to the addition of Sunset West’s sales as well as strong sales at all three divisions.

Prior-year sales were negatively affected by a foam shortage which is no longer a significant issue.

Although we experienced some disruptions of the delivery of raw materials for production earlier this year, all divisions were operating at full capacity and working through backlog.

Additionally, ASP increased at three divisions due to price increases we implemented in response to the inflation of raw material costs.

All Other’s net sales increased in the fiscal 2023 third quarter and nine months driven by increased unit volume at H Contract due to the recovery of senior living industry after the COVID pandemic.

Gross Profit/(Loss) and Margin

Consolidated net sales decreased in the fiscal 2024 first quarter due to sales declines in the Home Meridian and Domestic Upholstery segments, while net sales at All Other were up $1.1 million and Hooker Branded net sales decreased slightly.

The Hooker Branded segment’s net sales decreased by 0.8% in the fiscal 2024 first quarter compared to the prior year quarter.

Although ASP increased due to the price increases we implemented last year in response to product cost inflation, the favorable effect was offset by higher discounting and returns and allowances, which were 370 bps higher than prior year period, as well as decreased unit volume.

The Home Meridian segment’s net sales decreased by 32.5% in the fiscal 2024 first quarter attributed to lower sales in the major furniture chains and mass merchant channels due to a slow retail environment.

These decreases were partially offset by strong sales in the hospitality business, which more than doubled as compared to the prior year period.

ASP decreased significantly due to the increased volume of liquidation sales, which accounted for over 50% of the total units sold but less than 30% of total sales dollars.

The Domestic Upholstery segment’s net sales decreased by 14.8% in the fiscal 2024 first quarter compared to the prior year period.

This decrease was driven by sales declines at HF Custom and Sunset West, and to a lesser extent, a sales decrease at Shenandoah.

Bradington-Young reported a sales increase.

ASP increased across all divisions due to the price increases we implemented in response to the inflation of raw material costs.

However, it was not sufficient to offset the decrease in unit volume.

All Other’s net sales increased significantly in the fiscal 2024 first quarter driven by increased unit volume and ASP at H Contract due to continued recovery of the senior living industry after the COVID pandemic.

Gross Profit and Margin

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Hooker Branded

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Domestic Upholstery

Consolidated gross profit and margin both increased in the fiscal 2023 third quarter and nine months.

The Hooker Branded segment’s gross profit and margin increased in the fiscal 2023 third quarter despite a slight net sales decrease.

A large percentage of shipments carried the price increases we implemented last year and earlier this year to mitigate higher freight and product costs.

However, gross profit was negatively impacted by higher warehousing labor costs as well as higher demurrage and drayage expenses due to large volume of inventory receipts and supply chain constraints.

Hooker Branded gross profit and margin decreased in the fiscal 2023 nine-month period driven by a sales decline in the first quarter due to inventory unavailability and to a lesser extent higher freight and product costs.

The Home Meridian segment’s gross profit and margin improved significantly in the fiscal 2023 third quarter as compared to a margin loss in the prior year quarter due to increased net sales as well as the absences of excess customer chargebacks from the Clubs channel and order cancellation costs incurred when we exited the Ready-To-Assemble furniture category.

For the fiscal 2023 nine-month period, gross profit was negatively impacted by sales volume losses, higher product costs, higher-than-expected labor rates and transition costs at the new Georgia warehouse, and margin loss on a quality-related issue, but improved over the prior-year period due to the absence of the aforementioned Clubs channel chargebacks and order cancellation costs in the current period.

Ocean freight costs continued to negatively impact margins but improved as compared to prior year periods due to price increases and freight surcharges.

The Domestic Upholstery segment’s gross profit and margin increased in the fiscal 2023 third quarter and nine-month period due to the addition of Sunset West results and sales increases across all divisions, which also benefitted overhead absorption and production efficiencies.

Gross profit and margin were negatively impacted by increased raw material costs and warehousing costs including freight costs.

All Other’s gross profit and margin both increased in the fiscal 2023 third quarter and nine months driven by strong net sales at H Contract.

Consolidated gross profit decreased in the fiscal 2024 first quarter due to a decrease in the Domestic Upholstery segment, partially offset by increases in gross profit at Home Meridian and All Other.

Consolidated gross margin increased due to lower net sales and improved gross margin in the traditionally lower margin Home Meridian segment.

The Hooker Branded segment’s gross profit and gross margin both remained flat.

Warehousing costs increased primarily due to higher demurrage and drayage expenses.

Although these expenses have shown a downward trend in recent quarters, they were higher than the prior year first quarter.

Additionally, operating and shipping supplies expenses, along with benefits expenses, also contributed to the increase in warehousing costs.

These increases were partially offset by lower warehouse costs resulting from the exit of a leased warehouse in Asia and lower labor expenses due to reduced shipping activities.

The Home Meridian segment’s gross profit and margin both increased in the fiscal 2024 first quarter despite a net sales decline.

Gross profit and margin increased due to lower ocean freight costs, the absence of warehouse transition and start-up costs incurred in the prior year period, and lower wage expenses due to organizational and personnel changes.

Sales of previously written-down or written-off inventory had an immaterial impact on gross profit in the quarter.

The Domestic Upholstery segment’s gross profit and margin both decreased in the fiscal 2024 first quarter due to sales decline and increased benefits expense driven by higher medical claims, which were 310 bps higher than the prior year period.

All Other’s gross profit and margin both increased in the fiscal 2024 first quarter due to increased net sales.

Selling and Administrative Expenses (S&A)

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Hooker Branded

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Domestic Upholstery

Consolidated selling and administrative (“S&A”) expenses increased in absolute terms and as a percentage of net sales in the fiscal 2023 third quarter and nine months.

The Hooker Branded segment’s S&A expenses increased both in absolute terms and as a percentage of net sales in the fiscal 2023 third quarter and nine months driven by increased headcounts and wage rates, higher bonus accruals due to abnormally low prior year expense because of the reversal of unearned executive bonuses, higher commissions, and increased operating expenditures including professional services and training expenses to support the Company’s growth strategies.

The Home Meridian segment’s S&A expenses largely stayed flat in absolute terms in the fiscal 2023 third quarter.

Higher selling costs on higher net sales were nearly offset by decreased compensation expense due to personnel changes as well as decreased bad debt expense on lower accounts receivable.

For the fiscal 2023 nine-month period, S&A expenses decreased in absolute terms also due to lower commissions on decreased net sales, partially offset by higher designing fees on 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.

The Domestic Upholstery segment’s S&A expenses increased in absolute terms in the fiscal 2023 third quarter and nine months due principally to the addition of Sunset West’s S&A expenses, as well as higher selling costs and higher salaries across all divisions.

Domestic Upholstery S&A expenses decreased as a percentage of net sales in the fiscal 2023 third quarter and nine months due to higher net sales.

All Other S&A expenses increased in absolute terms while they decreased as a percentage of net sales in the fiscal 2023 third quarter and nine months due to higher selling costs on strong net sales.

Consolidated selling and administrative (“S&A”) expenses increased slightly in absolute terms due to the increase in the Hooker Branded segment, which was offset by decreases in the Home Meridian and Domestic Upholstery segments.

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

The Hooker Branded segment’s S&A expenses increased both in absolute terms and as a percentage of net sales in the fiscal 2024 first quarter.

This increase was attributed to various factors, including higher compensation and benefits expense from salary inflation and higher medical claims, higher marketing costs and higher professional services fees.

The increases were partially offset by a decrease in bad debt expense due to decreased AR balance.

The Home Meridian segment’s S&A expenses decreased in absolute terms in the fiscal 2024 first quarter due primarily to decreased salary expenses as the result of personnel changes, and to a lesser extent lower selling costs and product development cost.

These decreases were partially offset by higher bad debt expense due to an increase in uninsured AR balance, return to more normalized travel expenses and higher compliance costs.

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

The Domestic Upholstery segment’s S&A expenses decreased in absolute terms and remained flat as a percentage of net sales in the fiscal 2024 first quarter.

The decrease was primarily due to lower selling costs resulting from decreased net sales, the absence of accelerated depreciation expense on its ERP system in the prior year period, as well as decreased wage expenses.

The decrease was partially offset by increased benefits expense driven by higher medical claims, higher professional service fees, and other general spending.

All Other S&A expenses increased in the fiscal 2024 first quarter due to increased selling costs on over 60% net sales increase.

Intangible Asset Amortization

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Intangible asset amortization

Intangible asset amortization expense was higher in fiscal 2023 third quarter and nine-month period due to Acquisition-related amortization expense.

Intangible asset amortization expense increased slightly in fiscal 2024 first quarter due to the reassessment and amortization of Sam Moore trade name.

See Note 8 to our Condensed Consolidated Financial Statements for additional information.

Operating Profit/(Loss) and Margin

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Hooker Branded

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Domestic Upholstery

Operating profit and margin increased as compared to the prior year quarter due to the factors discussed above.

Sunset West operating profit of $1.4 million and $2.4 million for the fiscal 2023 third quarter and nine-month period, respectively, net of $282,000 and $846,000 in intangible asset amortization expense on Acquisition-related intangibles, were included in the Domestic Upholstery segment’s results.

Operating profit and margin decreased as compared to the prior year quarter due to the factors discussed above.

Interest Expense, net

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Consolidated interest expense, net

Consolidated interest expense was higher in fiscal 2023 third quarter and nine-month period mostly due to interest on new term loans and the amounts drawn on the revolving credit facility.

Consolidated interest expense was higher in fiscal 2024 first quarter due to interest on the term loans, which we entered into in July 2022.

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Consolidated income tax expense/(benefit)

Consolidated income tax expense

Effective Tax Rate

Consolidated income tax expense was $1.3 million for the fiscal 2023 third quarter compared to income tax benefit of $403,000 for the prior year quarter.

The effective tax rates for the fiscal 2023 and 2022 third quarters were 21.6% and 24.8%, respectively.

For the fiscal 2023 nine-month period, consolidated income tax expense was $3.9 million, compared to $4.6 million for the prior year period.

The effective tax rates for the fiscal 2023 and 2022 nine-month periods were both 22.5%.

Net Income/(Loss)

We recorded income tax expenses of $402,000 and $991,000 for the fiscal 2024 and fiscal 2023 first quarters, respectively.

The effective tax rates for the fiscal 2024 and 2021 first quarters were 21.7% and 23.7%, respectively.

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Consolidated Net Income/(Loss)

Diluted earnings/(loss) per share

Current economic indicators are mixed and we are closely monitoring potential disrupters including rising interest rates, consumer confidence and a slowing housing market.

We are paying close attention to economic indicators and retail trends to ensure that our inventory planning and cost structure are appropriate to short-to-mid-term conditions, while continuing to invest in our longer-term strategies.

At the same time, we see reasons for optimism as the U.S.

enjoys strong levels of employment, rising household incomes, and continuing strength in consumer spending.

Hooker Legacy backlogs are still much higher than pre-pandemic levels and our recent entry into outdoor furniture with the acquisition of Sunset West earlier this year is performing above our expectations.

While HMI’s recovery is somewhat constrained by industry inventory conditions, we are optimistic about the longer-term, due to declining freight and product costs, positive feedback from the recent High Point Market and cost containment efforts.

We expect to begin to see the benefits of recent reductions in ocean freight costs beginning in the first quarter of calendar 2023.

We believe the environment in the home furnishings industry is shifting from a reliance on historic demand to a dependence on market share gains.

Strategically, we believe we are well positioned to capitalize on that change.

Consolidated net income

Diluted earnings per share

While retail conditions remain mixed and economic uncertainties continue, we saw increases in consolidated incoming orders in fiscal May.

We believe the industry is steadily working through excess inventory and believe incoming order trends are indicative of that progress.

Furthermore, we are encouraged by reports from customers about strong Memorial Day sales.

Following Hooker Legacy Brands’ successful new showroom grand opening at the Spring High Point Market, we expect to continue initiatives to enhance visibility and addressable market reach this summer such as debuting a new showroom at the Atlanta Market for Hooker Legacy brands and showing at our fourth Las Vegas Market this summer.

Sunset West will debut a new showroom at the Atlanta Market, which is the new sponsor of the Casual Market for outdoor furniture, recently relocated from Chicago.

At HMI, we expect the previously announced inventory liquidations to be substantially completed by the end of the fiscal 2024 second quarter.

While we expect some short-term volatility in sales and earnings at HMI, we continue to expect the segment to achieve profitability by the end of the 2024 fiscal year.

We continue to focus on organic growth opportunities through expanded visibility, strategic product development, operational improvements, and cost reductions.

We believe by focusing on these controllables, we will be in the strongest possible position when the demand environment improves.

Financial Condition, Liquidity and Capital Resources

Cash Flows – Operating, Investing and Financing Activities

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Net cash (used in)/provided by operating activities

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Net cash provided by/(used in) operating activities

Net cash used in investing activities

Cash provided by/(used in) financing activities

Net decrease in cash and cash equivalents

During the nine months ended October 30, 2022, we used a portion of the $25 million term-loan proceeds and existing cash and cash equivalents on hand to build up inventory levels by $58.9 million, fund the $26 million Acquisition, pay $9.4 million in purchases and retirement of common stock, $7.1 million in cash dividends, $4.4 million for the development of our new cloud-based ERP system, $3.5 million capital expenditures to enhance our business systems and facilities, and $464,000 in life insurance premiums on Company-owned life insurance policies.

In comparison, 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.

Cash used in financing activities

Net increase / (decrease) in cash and cash equivalents

During the three months ended April 30, 2023, we used a portion of the $22.4 million cash generated from operations to fund $4.3 million share repurchases, $3.2 million capital expenditures including investments in our new showroom, $2.4 million in cash dividends to our shareholders, $1.3 million for development of our cloud-based ERP system, and $107,000 in life insurance premiums on Company-owned life insurance policies.

In comparison, during the three months ended May 1, 2022, we used a portion of the existing cash and cash equivalents on hand to build up inventory levels, fund the Acquisition, pay $2.4 million in cash dividends, $830,000 capital expenditures to enhance our business systems and facilities, and $118,000 in life insurance premiums on Company-owned life insurance policies.

Liquidity, Financial Resources and Capital Expenditures

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cash surrender value of Company-owned life insurance.

We believe these resources are sufficient to meet our business requirements and the payment of dividends through fiscal 2023 and for the foreseeable future, including expected capital expenditures and working capital needs.

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 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 and repayment of long-term debt.

Loan Agreements and Revolving Credit Facility

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

(“BofA”) in order to replenish cash for all or a portion of the purchase price and other costs associated with the acquisition of substantially all of the assets of Sunset West.

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.

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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 BSBY (adjusted periodically) plus 1.00%.

The interest rate will be adjusted monthly.

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%.

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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 monthly.

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 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;

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.

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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 on a monthly basis.

The interest rate will be adjusted monthly.

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

As of October 30, 2022, $6.6 million was outstanding under the Unsecured Term Loan, $18 million was outstanding under the Secured Term Loan.

As of April 30, 2023, $5.9 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 October 30, 2022, unamortized loan costs of $35,625 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.

As of April 30, 2023, unamortized loan costs of $31,875 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:

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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.

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.

We were in compliance with each of these financial covenants at October 30, 2022 and expect to remain in compliance with existing covenants through fiscal 2023 and for the foreseeable future.

As of October 30, 2022, 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 October 30, 2022.

There were no additional borrowings outstanding under the Existing Revolver as of October 30, 2022.

We were in compliance with each of these financial covenants at April 30, 2023 and expect to remain in compliance with existing covenants for the foreseeable future.

As of April 30, 2023, we had $27.2 million available under our $35 million Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $7.8 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of April 30, 2023.

There were no additional borrowings outstanding under the Existing Revolver as of April 30, 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.

In fiscal 2023, 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.

Through the third quarter of fiscal 2023, we had used approximately $9.4 million of the authorization to purchase 598,165 of our common shares (at an average price of $15.63 per share), with approximately $10.6 million remaining available for future purchases under the authorization as of the end of the fiscal 2023 third quarter.

During the first quarter of fiscal 2024, we used approximately $4.3 million of the authorization to purchase 227,330 of our common shares (at an average price of $18.99 per share), with approximately $2.3 million remaining available for future purchases under the authorization as of the end of the fiscal 2024 first quarter.

See Note 14 to our Condensed Consolidated Financial Statement “Additional Share Repurchase Authorization” herein for an update on our share repurchase program.

Capital Expenditures

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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 at Sunset West in late fiscal 2023 and in our legacy Hooker divisions in the first quarter of fiscal 2024, with the Home Meridian segment following afterwards.

The ERP system went live at Sunset West in December 2022 and is expected to go live in other 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.

In addition to the capital expenditures discussed in the section immediately above, we anticipate spending approximately $1 million over the remainder of the year, with a significant amount of time invested by our associates.

On December 5, 2022, our board of directors declared a quarterly cash dividend of $0.22 per share which will be paid on December 30, 2022 to shareholders of record at December 16, 2022.

This represents a 10% increase over the previous quarterly dividend and the seventh consecutive annual dividend increase.

We anticipate spending approximately $2.5 million over the remainder of fiscal 2024, with a significant amount of time invested by our associates.

On June 5, 2023, our board of directors declared a quarterly cash dividend of $0.22 per share which will be paid on June 30, 2023 to shareholders of record at June 16, 2023.

Critical Accounting Policies

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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