What changed in this filing

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Item 1. Financial Statements

2023-09-08 compared with 2023-06-08 · 312 added, 195 removed, 507 unchanged (50% of the section changed)

21 unchanged sentences

Customer deposits

Current portion of lease liabilities

Current portion of operating lease liabilities

Other accrued expenses

18 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Cost of sales

2 unchanged sentences

Operating income

Other income, net

Other income/(expense), net

Interest expense, net

9 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Other comprehensive income:

Amortization of actuarial (loss) / gain

Amortization of actuarial (gain) / loss

Income tax effect on amortization

5 unchanged sentences

(In thousands)

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Operating Activities:

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

Adjustments to reconcile net income to net cash

provided by/(used in) operating activities:

Depreciation and amortization

3 unchanged sentences

Gain on life insurance policies

Loss/(Gain) on disposal of assets

Changes in assets and liabilities:

12 unchanged sentences

Premiums paid on life insurance policies

Proceeds received on life insurance policies

Net cash used in investing activities

1 unchanged sentence

Purchase and retirement of common stock

Payments for long-term loans

Cash dividends paid

Cash used in financing activities

Payments for long-term loans

Proceeds from long-term loans

Proceeds from revolving credit facility

Payments for revolving credit facility

Debt issuance cost

Net cash (used in)/provided by financing activities

Net increase/(decrease) in cash and cash equivalents

5 unchanged sentences

Non-cash transactions:

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

(Decrease)/Increase in lease liabilities arising from changes in right-of-use assets

Increase in property and equipment through accrued purchases

6 unchanged sentences

Income (loss)

Balance at May 1, 2022

Net income for the 13 weeks ended July 31, 2022

Unrealized loss on defined benefit plan, net of tax of $ 14

Cash dividends paid ($ 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 July 31, 2022

Balance at April 30, 2023

Net income for the 13 weeks ended July 30, 2023

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

Cash dividends paid ($ 0.22 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 July 30, 2023

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 26 weeks ended July 31, 2022

Unrealized loss on defined benefit plan, net of tax of $ 10

Cash dividends paid and accrued ($ 0.20 per share)

Cash dividends paid ($ 0.40 per share)

Purchase and retirement of common stock

Restricted stock grants, net of forfeitures

1 unchanged sentence

Performance-based restricted stock units costs

Balance at May 1, 2022

Balance at July 31, 2022

Balance at January 29, 2023

Net income for the 26 weeks ended July 30, 2023

Unrealized loss on defined benefit plan, net of tax of $ 34

Cash dividends paid and accrued ($ 0.22 per share)

Cash dividends paid ($ 0.44 per share)

Purchase and retirement of common stock

2 unchanged sentences

Performance-based restricted stock units costs

Balance at April 30, 2023

Balance at July 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 Thirteen Weeks Ended April 30, 2023

For the Twenty-Six Weeks Ended July 30, 2023

Preparation of Interim Financial Statements

9 unchanged sentences

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

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.

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,” “second quarter” or “quarterly period”) that began May 1, 2023, and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began January 30, 2023, which both ended July 30, 2023.

This report discusses our results of operations for these periods compared to the 2023 fiscal year thirteen-week period that began May 2, 2022, and the twenty-six-week period that began January 31, 2022, which both ended July 31, 2022;

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

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

29 unchanged sentences

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.

The ERP went live at Sunset West in December 2022 and in the legacy Hooker divisions in early September 2023.

We expect it to go live in the Home Meridian segment during fiscal 2025.

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.

Both these costs are recorded on the “Other 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

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

Implementation Costs

interest expenses

Balance at January 29, 2023

1 unchanged sentence

Accumulated amortization

Balance at April 30, 2023

Balance at July 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 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.

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

Fair value at April 30, 2023

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

Fair value at July 30, 2023

Fair value at January 29, 2023

3 unchanged sentences

Intangible Assets

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.

Our intangible assets with indefinite lives consist of:

goodwill related to the Shenandoah, Sunset West and BOBO Intriguing Objects acquisitions;

and trademarks and tradenames related to the acquisitions of Bradington-Young, Home Meridian and BOBO Intriguing Objects.

During the fiscal 2024 second quarter, we recorded $ 500,000 trademarks with indefinite lives and $ 124,000 goodwill as a result of the BOBO acquisition.

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.

consequently, we began amortizing the Sam Moore trade name over a 24 -month period using the straight-line method beginning mid-April 2023.

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

July 30, 2023

January 29, 2023

Gross carrying amount

Accumulated Amortization

Gross carrying amount

Accumulated Amortization

Intangible assets with indefinite lives:

1 unchanged sentence

Domestic Upholstery - Sunset West

All Other - BOBO Intriguing Objects

Trademarks and Trade names *

3 unchanged sentences

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.

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's trade names, which were recorded in fiscal 2021.

Amortization expenses for intangible assets with definite lives were $ 924,000 and $ 1.8 million for the second quarter and first half of fiscal 2024, respectively.

Amortization expenses for intangible assets with definite lives were $ 878,000 and $ 1.8 million for the second quarter and first half of fiscal 2023, respectively.

For the remainder of fiscal 2024, amortization expense is expected to be approximately $ 1.8 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:

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

We recognized sub-lease income of $ 45,000 and $ 74,000 for the second quarter and first half of fiscal 2024, respectively.

We recognized sub-lease income of $ 34,000 and $ 381,000 for the second quarter and first half of fiscal 2023, respectively.

The components of lease cost and supplemental cash flow information for leases for the three-months and six-months ended July 30, 2023 and July 31, 2022 were:

Thirteen Weeks Ended

April 30, 2023

Twenty-Six Weeks Ended

July 30, 2023

July 31, 2022

July 30, 2023

July 31, 2022

Operating lease cost

3 unchanged sentences

Operating cash outflows

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

April 30, 2023

During fiscal 2024 second quarter, we reduced our footprint by 200,000 square feet in the Georgia warehouse.

This modification resulted in an approximate $ 8 million decrease in the lease right-of-use assets and liabilities.

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

July 30, 2023

January 29, 2023

9 unchanged sentences

The weighted-average remaining lease term is 7.3 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 April 30, 2023:

Undiscounted Future Operating Lease Payments

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on July 30, 2023:

Undiscounted Future

Operating Lease Payments

Remainder of fiscal 2024

3 unchanged sentences

Present value of lease payments

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.

During the fiscal 2024 second quarter, we entered into an agreement to further reduce our footprint in the Georgia warehouse in the fourth quarter of fiscal 2024.

This amendment will result in an approximate $ 3 million decrease in rental payments over the remaining lease term.

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

Long-Term Debt

10 unchanged sentences

2022 Secured Term Loan.

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

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

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

8 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 April 30, 2023, $ 5.9 million was outstanding under the Unsecured Term Loan, and $18 million was outstanding under the Secured Term Loan.

As of July 30, 2023, $ 5.6 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 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.

As of July 30, 2023, unamortized loan costs of $ 30,000 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:

7 unchanged sentences

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 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.

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

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

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

Earnings Per Share

15 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 2024 six-month period, we purchased and retired 473,463 shares of our common stock (at an average price of $ 18.29 per share) under the $ 20 million share repurchase authorization approved by our board of directors in fiscal 2023 and the additional $ 5 million share repurchase authorization approved by our board of directors in the second quarter of this year.

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 2024 second quarter and first half shown below.

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

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Unvested participating restricted stock dividends

6 unchanged sentences

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.

We recorded income tax expense of $ 191,000 for the fiscal 2024 second quarter compared to $ 1.6 million for the comparable prior year quarter.

The effective tax rates for the fiscal 2024 and 2023 second quarters were 19.6 % and 22.6 %, respectively.

For the fiscal 2024 first half, we recorded income tax expense of $ 593,000 , compared to $ 2.6 million for the comparable prior year period.

The effective tax rates for the fiscal 2024 and 2023 first half periods were 21.0 % and 23.0 %, 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, 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.

Neither of these operating segments were individually reportable;

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

All Other , consisting of H Contract, Lifestyle Brands and BOBO Intriguing Objects.

None of these operating segments were individually reportable;

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

During the second quarter of fiscal 2024, we acquired substantially all the assets of BOBO Intriguing Objects.

Based on the requirements of ASC 280:

Segment Reporting , BOBO’s results are included in All Other on a prospective basis.

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

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Hooker Branded

12 unchanged sentences

Domestic Upholstery

Depreciation & Amortization

& Amortization

Hooker Branded

1 unchanged sentence

Domestic Upholstery

As of April 30,

As of July 30,

As of January 29,

Identifiable Assets

7 unchanged sentences

Thirteen Weeks Ended

April 30, 2023

Twenty-Six Weeks Ended

July 30, 2023

July 31, 2022

July 30, 2023

July 31, 2022

Subsequent Events

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.

On September 5, 2023 , our board of directors declared a quarterly cash dividend of $ 0.22 per share which will be paid on September 29, 2023 to shareholders of record at September 18, 2023 .

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

3 unchanged sentences

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.

All Other includes H Contract, Lifestyle Brands, and BOBO Intriguing Objects.

Forward-Looking Statements

5 unchanged sentences

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;

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 cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers’ income available for discretionary purchases, and the availability and terms of consumer credit;

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;

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;

risks associated with Home Meridian 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;

2 unchanged sentences

conflict with China;

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;

1 unchanged sentence

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 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;

the risks related to the Sunset West 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;

the risks related to the BOBO Intriguing Objects acquisition, including the loss of a key BOBO employee, inconsistencies in standards, controls, procedures and policies across the business which could adversely affect our internal control or information systems and failure to realize benefits anticipated from the BOBO acquisition;

changes in U.S.

9 unchanged sentences

changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials;

price competition in the furniture industry;

9 unchanged sentences

Quarterly Reporting

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.

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,” “second quarter” or “quarterly period”) that began May 1, 2023, and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began January 30, 2023, which both ended July 30, 2023.

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

References in this report to:

6 unchanged sentences

Our 2023 Annual Report and other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com.

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

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

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

10 unchanged sentences

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.

At times, the ratio of new products to currently available inventory items can affect the amount of the backlog that can be converted to shipments in the short-term.

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) 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.

There have been exceptions to the general predictive nature of our orders and backlogs noted in the above 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:

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

Order Backlog

1 unchanged sentence

Reporting Segment

April 30, 2023

July 30, 2023

January 29, 2023

July 31, 2022

Hooker Branded

1 unchanged sentence

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.

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

The decrease was attributable to more normalized levels of shipping, lower incoming orders driven by a decrease in overall demand, and the absence of ACH orders and backlog in the Home Meridian segment.

See Review below for additional information on our incoming orders and backlog.

Executive Summary-Results of Operations

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.

Consolidated net sales for the fiscal 2024 second quarter decreased compared to the prior year second quarter, driven by decreased demand for home furnishings industry wide, as the industry continues to reduce excess inventories to more normal levels, and our exit from the ACH product line in our Home Meridian segment.

Consolidated gross profit decreased driven by lower sales volume;

however, gross margin increased due to improved margins at Hooker Branded (reduced freight costs) and Domestic Upholstery (improved material costs partially offset by under-absorbed indirect costs as the result of reduced production).

Home Meridian gross margin decreased due to sales decline and under-absorbed operating costs.

S&A expenses decreased for the quarter due to lower variable selling and compensation expenses driven mostly by lower net sales and profitability.

Due to these factors, the company reported lower consolidated operating income and net income compared to the prior year second quarter.

BOBO’s results starting from mid-June till the end of the second quarter were recorded in All Other;

however, it is immaterial to the consolidated results.

For the fiscal 2024 first half, the consolidated net sales decrease was also driven by decreased demand for home furnishings industry wide as the industry continues to reduce excess inventories to more normal levels, and our exit from the Accentrics Home (ACH) product line in our Home Meridian segment.

Gross profit decreased in three segments, while gross margin increased in Hooker Branded and Home Meridian segments due primarily to reduced freight costs.

Domestic Upholstery’s gross margin decreased slightly as favorable material costs were largely offset by under-absorbed indirect costs due to reduced production.

S&A expenses decreased due to lower variable selling and compensation expenses driven mostly by lower net sales and profitability, partially offset by increased expenses in the new showrooms.

Due to these factors, the company reported lower consolidated operating income and net income compared to the prior year six-month period.

Despite being a smaller part of consolidated results, All Other contributed sales and profit increases.

BOBO’s results starting from mid-June till the end of the second quarter were recorded in All Other;

however, it is immaterial to the consolidated results.

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

The fiscal 2024 second quarter was challenging as we continued to experience macro-economic uncertainties and weak demand for home furnishings, consistent with that of our direct competitors and the home furnishings industry at large.

We believe current anemic demand is driven by retailers continuing to sell through over-inventoried positions and a glut of heavily discounted home furnishings currently in the market on products carrying extremely high freight costs from prior periods.

In this environment, we prioritized strengthening our financial position and strategically allocating our capital and resources.

During the quarter we spent $2.4 million to acquire BOBO Intriguing Objects, a small Atlanta-based lighting, accessories, and décor source which we believe will position us as an even more valuable and well-rounded partner for our customers.

Much like our Sunset West Acquisition, we intend to scale BOBO using our existing sales, marketing, and operations teams to make it a material part of our consolidated sales equation in the medium-to-longer term.

At the end of fiscal 2024 second quarter, cash and cash equivalents stood at $50 million, double the balance of our term loans, compared to $11.7 million a year ago.

During the first half of fiscal 2024, $51 million was generated from operating activities.

Inventory levels decreased by $35 million from the year-end and $70 million from the same time a year ago.

The liquidation sales of the now-shuttered ACH product line and other excess inventories written down in the fourth quarter of fiscal 2023 are mostly complete.

We continue to align inventory levels with current demand, reduce obsolescence, and focus on our best sellers and new products.

Despite a significant sales decrease during the quarter, we are pleased to report a consolidated net income and continued profitability at Hooker Branded, Domestic Upholstery, and All Other.

Although Home Meridian had a difficult quarter with its sales decline due to reduced home furnishings demand and substantial closeout sales, its first half operating loss was in line with management’s expectations.

The Hooker Branded segment ’ s net sales decreased by $18.1 million, or 34.3%, in the fiscal 2024 second quarter.

This decrease was due primarily to reduced volume driven by lower demand, as well as the same period of the previous year having unusually large net sales.

Summer is normally our slowest season.

However, delays in shipments during the prior year’s first quarter due to inventory unavailability caused a surge in net sales in the subsequent quarter of the prior year and exacerbated the contrast with the current quarter.

In addition, discounting increased by 240 bps from abnormally low levels in the prior year reflecting current softened demand.

Despite these challenges, gross margin increased to 35.8% for the quarter, due to inventories carrying price increases to mitigate product cost inflation and higher ocean freight costs in the prior year.

As most inventories that carried historically high freight costs have been sold, we anticipate implementing price adjustments to align with current product costs and demand.

Furthermore, decreased warehousing costs also contributed to the increased gross margin.

Demurrage and drayage expenses decreased significantly due to the easing of transportation and supply chain constraints.

Despite the decline in net sales, this segment reported a solid operating income of $3.2 million and an operating margin of 9.3%, compared to $6.1 million and 11.5% in the prior year period.

While quarter-end order backlog was much lower than the prior year quarter end, it remained about 40% higher than pre-pandemic levels at the end of fiscal 2020 second quarter.

Incoming orders increased by 18.6% as compared to the prior year quarter.

A significant portion of Hooker Branded’s backlog consists of orders received late last year and earlier this year, which are expected to ship in the second half of this year and position us positively for the upcoming quarters.

The Home Meridian segment experienced a net sales decline of $30.1 million, or 51%, in the fiscal 2024 second quarter.

Sales decreases at Samuel Lawrence Furniture (SLF) and Pulaski Furniture (PFC), the divisions that serve major furniture chains, accounted for approximately 70% of the decrease in the segment.

While the re-invention of product line at SLF caused some delays in shipments, the sales decreases were due primarily to reduced order rates and delayed shipments to our retail customers which still carried excess inventories from the post-pandemic inventory glut and the return to a more typical retail environment for home furnishings.

In addition, e-commerce channel sales were much lower due to our exit from the ACH product line, contributing to about 15% of the overall decrease.

Samuel Lawrence Hospitality (SLH) net sales decreased in the second quarter, contrasting with a large increase in the first quarter.

This fluctuation is attributed to its project-based business model.

Sales of inventory that was written down in the fiscal 2023 fourth quarter totaled $5.5 million in the fiscal 2024 second quarter but had immaterial impact on the gross profit.

Prime Resources International (PRI) net sales were flat as compared to the prior year quarter.

Due to the significant sales decline and under-absorbed operating expenses, Home Meridian reported a $3.3 million operating loss for the quarter;

however, its first half operating loss was in line with management’s expectations.

We reduced our footprint in the Georgia warehouse by 200,000 square feet during the fiscal 2024 second quarter and expect to further reduce it another 100,000 to 200,000 square feet in early calendar 2024.

Right-sizing our footprint to align with our current business plan, in which we will no longer stock significant volumes of inventory for ACH will not only reduce costs, but will improve liquidity and working capital levels.

Incoming orders nearly doubled compared to the prior year second quarter due to absence of Clubs order cancellations experienced early last year.

Quarter-end backlog was lower than the previous year’s quarter and the fiscal 2020 second quarter.

This decline is attributed to the absence of orders from exited businesses, as well as a reduction in incoming orders from our retail customers burdened with excess inventories.

The Domestic Upholstery segment ’ s net sales decreased by $7.4 million, or 19.4%, in the fiscal 2024 second quarter due to sales decreases at Shenandoah and HF Custom.

During the quarter, incoming orders and backlog decreased to pre-pandemic levels from fiscal 2020 at Shenandoah and HF Custom.

In response, we reduced production at these factories to align with current backlog levels.

This reduced direct labor costs, but adversely impacted shipments and net sales in these divisions.

Sunset West net sales increased by 10% compared to the prior year quarter.

This rebound followed disruptions caused by the ERP system conversion and transition challenges incurred in the Georgia warehouse earlier in the year.

Bradington-Young net sales stayed flat as compared to the prior year second quarter.

Despite a decrease in overall net sales, the segment’s gross margin increased by 200 basis points due to improved gross profit and margin at Bradington-Young and Sunset West.

Direct material costs decreased as a percentage of net sales due to price increases we implemented last year to help mitigate materials cost inflation, as well as more stable raw material costs across all divisions.

However, the favorable variance, including lower direct labor costs, were partially offset by under-absorbed indirect costs at Shenandoah and HF Custom.

This segment reported an operating income of $724,000 and an operating margin of 2.3% due to solid profitability at Bradington-Young and Sunset West, partially offset by the volume loss at Shenandoah and HF Custom.

Incoming orders increased by 36.7% as compared to prior year quarter;

however, orders in the prior year period were relatively low due to higher backlog and longer lead times.

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

Cash and cash equivalents stood at $50 million at fiscal 2024 second quarter-end, an increase of $31 million from the prior year-end.

During the six-month period, we used a portion of the $51 million cash generated from operating activities to fund $8.7 million share repurchases, $4.9 million in cash dividends to our shareholders, $4.0 million capital expenditures including investments in our new High Point and Atlanta showrooms, $2.6 million for further development of our cloud-based ERP system, and $2.4 million on BOBO acquisition.

We have spent a total of approximately $22 million to purchase and retire approximately 1.3 million shares of our common stock since our share repurchase program began in the second quarter of last year.

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 operations 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 income included in this report.

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Cost of sales

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Income tax expense

Fiscal 2024 First Quarter Compared to Fiscal 2023 First Quarter

Fiscal 2024 Second Quarter and First-Half Compared to Fiscal 2023 Second Quarter and First Half

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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

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.

Consolidated net sales decreased in the fiscal 2024 second quarter and first half compared to the prior year periods:

The Hooker Branded segment’s net sales decreased by $18.1 million, or 34.3%, in the fiscal 2024 second quarter due to decreased shipments and unit volume.

Furthermore, discounting was 240 basis points higher than the prior year quarter, indicating softer demand for home furnishings.

Although ASP increased due to the price increases we implemented last year in response to product cost inflation, the favorable impact was not sufficient to offset the volume loss.

For the fiscal 2024 first half, Hooker Branded net sales decreased by $18.5 million, or 19.4%, compared to the prior year six-month period.

This was due principally to the second quarter sales decrease which was driven by lower demand.

In addition to discounting, quality-related costs also negatively impacted net sales in the current second quarter and six-month period.

The Home Meridian segment’s net sales decreased by $30.1 million, or 51%, in the fiscal 2024 second quarter due largely to lower demand driven by excess customer inventories.

Sales decreases in the major furniture chains and e-commerce channel accounted for over 70% and 15% of the total decrease in this segment, respectively.

SLH hospitality net sales decreased in the second quarter but increased in the first quarter.

This fluctuation was ascribed to its project-based business model.

ASP decreased significantly due primarily to the liquidation sales of heavily discounted ACH inventories.

Sales of obsolete inventories at PRI and SLF also negatively impacted ASP.

For the fiscal 2024 six-month period, Home Meridian net sales decreased due to the same factors discussed above, including sales decreases with mass merchants.

The Domestic Upholstery segment’s net sales decreased by $7.4 million, or 19.4%, in the fiscal 2024 second quarter due to sales decreases at Shenandoah and HF Custom, partially offset by a 10% increase at Sunset West.

Bradington-Young net sales were the same as in the prior year second quarter.

For the fiscal 2024 first half, net sales decreased at HF Custom, Shenandoah, and Sunset West, which experienced disruptions earlier in the year with the ERP conversion and transitions to the Georgia warehouse.

Bradington-Young reported a small sales increase for the current six-month period.

ASP increased across all divisions during the fiscal 2024 second quarter and first half due to the price increases we implemented last year in response to the inflation of raw material costs.

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

All Other’s net sales increased in the fiscal 2024 second quarter and first half driven by increased unit volume and ASP at H Contract due to continued recovery of the senior living industry after the COVID pandemic, and to a lesser extent, the addition of BOBO net sales.

Gross Profit and Margin

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Hooker Branded

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Domestic Upholstery

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.

Consolidated gross profit decreased in the second quarter and first half of fiscal 2024, due primarily to decreased net sales in all three segments, while consolidated gross margin increased during these periods.

The Hooker Branded segment’s gross profit decreased in the fiscal 2024 second quarter and first half due to a decrease in net sales.

However, gross margin increased during these periods due primarily to favorable product costs.

Inventories carried price increases to mitigate higher product costs and freight costs, which helped to increase gross margin.

In addition, warehousing costs decreased due to lower demurrage and drayage expenses, lower labor and compensation expenses due to reduced shipping activities, and the exit of a leased warehouse in Asia.

The Home Meridian segment’s gross profit and margin both decreased in the fiscal 2024 second quarter as a result of net sales decline and under-absorbed operating costs.

Product costs decreased as a percentage of net sales due to lower freight costs, but fixed costs such as warehousing rent and labor expenses adversely impacted the gross margin due to significantly lower net sales.

For the fiscal 2024 first half, gross profit decreased due to the net sales decrease.

However, lower ocean freight costs, the absence of warehouse transition and start-up costs incurred in the prior year first quarter, and lower wage expenses due to organizational and personnel changes all contributed to an increase in gross margin.

Sales of previously written-down or written-off inventory had an immaterial impact on gross profit in the fiscal 2024 second quarter and first half.

The Domestic Upholstery segment’s gross profit decreased in the fiscal 2024 second quarter due to a sales decrease;

however, the segment reported a gross margin 200 basis points higher than the prior year quarter due to decreased direct costs, including more stable raw material costs and lower direct labor costs due to reduced production at HF Custom and Shenandoah.

These decreases were partially offset by under-absorbed indirect costs, which negatively affected gross margin.

For the fiscal 2024 first half, gross profit decreased due to a decrease in net sales.

Gross margin slightly decreased by 40 basis points, as favorable material costs were largely offset by increased indirect costs.

All Other’s gross profit and margin both increased in the fiscal 2024 second quarter and first half due to increased net sales, lower product costs, and lower freight expense.

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 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.

Consolidated selling and administrative (“S&A”) expenses decreased in absolute terms for the fiscal 2024 second quarter and first half due primarily to the decreases at Home Meridian.

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

The Hooker Branded segment’s S&A expenses decreased in absolute terms during the fiscal 2024 second quarter.

This was driven by lower selling costs resulting from decreased net sales, and lower bonus accruals based on current profitability.

These decreases were partially offset by higher showroom expenses including those for the Showplace showroom and the new Atlanta showroom, higher salary expenses due to salary inflation and increased headcount, as well as the resumption of international travel.

For the fiscal 2024 six-month period, S&A expenses increased in absolute terms due to increased showroom expenses, higher compensation expenses, increased donations of second-quality furniture, and higher professional service fees.

These increases were partially offset by lower selling costs and bonus accruals.

S&A as a percentage of net sales increased for the fiscal 2024 second quarter and first half due to lower net sales.

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

These decreases were partially offset by higher travel expenses and repairs.

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

The Domestic Upholstery segment’s S&A expenses increased in absolute terms in fiscal 2024 second quarter due to increased showroom expenses and advertising supplies for the new M Brand.

The increases were partially offset by decreased salary expenses at HF Custom due to personnel changes and reduced work schedules, the absence of accelerated depreciation expense of the ERP system in the prior year period, and other spending reductions.

S&A expenses decreased for the six-months period due to decreased salary expenses, lower selling costs, as well as the absence of accelerated ERP depreciation expenses discussed earlier.

These decreases were partially offset by increased showroom expenses, expenses for the new M Brand, and benefits expense driven by higher medical claims and workers compensation costs.

All Other S&A expenses increased in the fiscal 2024 second quarter and first half due to increased selling costs on H Contract net sales increases and higher bonus accrual on current profitability, as well as the addition of BOBO operating expenses.

Intangible Asset Amortization

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Intangible asset amortization

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

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

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

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Hooker Branded

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Domestic Upholstery

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

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

Interest Expense, net

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Consolidated interest expense, net

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

Consolidated interest expense was higher in fiscal 2024 second quarter and first half due to interest on the term loans, which we entered in July 2022, as well as increased interest rates.

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Consolidated income tax expense

Effective Tax Rate

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.

We recorded income tax expenses of $191,000 and $1.6 million for the fiscal 2024 and fiscal 2023 second quarters, respectively.

The effective tax rates for the fiscal 2024 and 2023 second quarters were 19.6% and 22.6%, respectively.

For the fiscal 2024 first half, we recorded income tax expense of $593,000, compared to $2.6 million for the comparable prior year period.

The effective tax rates for the fiscal 2024 and 2023 first half periods were 21.0% and 23.0%, respectively.

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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.

We believe there are conflicting signals in the economy.

A housing shortage and an over 20-year high on fixed mortgage rates has slowed down housing activity.

The continued rise in interest rates has suppressed consumer confidence.

However, overall retail spending and activity in the manufacturing sector and new business start-ups is healthy, while the unemployment rate remains near a 30-year low.

As we anticipated, the first half of the year was difficult as the industry worked through bloated inventories and consumers’ spending habits changed.

We expect demand and business to pick up in the second half for several reasons.

First, consolidated orders are up in mid-double-digits over this time a year ago, with orders trending up in each segment for the past few months.

Secondly, a significant portion of Hooker Branded’s backlog consists of orders for new products launched at the High Point market and are expected to ship in the second half of this year.

Thirdly, in the second half, Home Meridian expects to ship to over a thousand retail floors in what we believe to be the largest number of new product placements in its history.

We believe all the right pieces are in place for Home Meridian to achieve sustainable profitability in the second half of the year.

While we are focused on reducing overhead costs, keeping our balance sheet strong and judiciously deploying capital, we have continued to invest significantly in initiatives that promote higher visibility amongst potential customers and future growth and believe these things will put us in the strongest possible position when demand improves.

Financial Condition, Liquidity and Capital Resources

Cash Flows – Operating, Investing and Financing Activities

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Net cash provided by/(used in) operating activities

Net cash used in investing activities

Cash used in financing activities

Net Cash (used in)/ provided by 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.

During the six months ended July 30, 2023, we used a portion of the $51.4 million cash generated from operations and $444,000 life insurance proceeds to fund $8.7 million share repurchases, $4.9 million in cash dividends to our shareholders, $4.0 million capital expenditures including investments in our new showrooms, $2.6 million for development of our cloud-based ERP system, $2.4 million on the BOBO acquisition, and $317,000 in life insurance premiums on Company-owned life insurance policies.

In comparison, during the six months ended July 31, 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, fund the Sunset West Acquisition, pay $4.8 million in cash dividends, $1.9 million capital expenditures to enhance our business systems and facilities, $1.1 million in purchases and retirement of common stock, and $404,000 in life insurance premiums on Company-owned life insurance policies.

Liquidity, Financial Resources and Capital Expenditures

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2022 Secured Term Loan.

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

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

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

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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.

As of July 30, 2023, $5.6 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 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.

As of July 30, 2023, unamortized loan costs of $30,000 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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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.

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

As of July 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 July 30, 2023.

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

Share Repurchase Authorization

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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.

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.

In fiscal 2024 second quarter, 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 fiscal 2023.

During the first half of fiscal 2024, we used approximately $8.7 million of the authorization to purchase 473,463 of our common shares (at an average price of $18.29 per share), with approximately $3.0 million remaining available for future purchases under the authorization as of the end of the fiscal 2024 second quarter.

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.

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.

The ERP system went live at Sunset West in December 2022 and in the legacy Hooker divisions in early September 2023.

We expect it to go live in the Home Meridian segment in fiscal 2025.

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

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.

On September 5, 2023, our board of directors declared a quarterly cash dividend of $0.22 per share which will be paid on September 29, 2023 to shareholders of record at September 18, 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