HOOKER FURNISHINGS Corp 10-Q

Item 1. Financial Statements HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) As of July 30, January 29, 2023 2023 (unaudited) Assets Current assets Cash and cash equivalents $ 49,979 $ 19,002 Trade accounts receivable, net 39,441 62,129 Inventories 63,358 96,675 Income tax recoverable 3,025 3,079 Prepaid expenses and other current assets 7,370 6,418 Total current assets 163,173 187,303 Property, plant and equipment, net 28,433 27,010 Cash surrender value of life insurance policies 28,050 27,576 Deferred taxes 14,037 14,484 Operating leases right-of-use assets 58,589 68,949 Intangible assets, net 30,471 31,779 Goodwill 15,076 14,952 Other assets 12,286 9,663 Total non-current assets 186,942 194,413 Total assets $ 350,115 $ 381,716 Liabilities and Shareholders ’ Equity Current liabilities Current portion of long-term debt $ 1,393 $ 1,393 Trade accounts payable 14,068 16,090 Accrued salaries, wages and benefits 6,447 9,290 Customer deposits 8,269 8,511 Current portion of operating lease liabilities 6,926 7,316 Other accrued expenses 2,264 7,438 Total current liabilities 39,367 50,038 Long term debt 22,177 22,874 Deferred compensation 7,880 8,178 Operating lease liabilities 54,157 63,762 Other long-term liabilities 866 843 Total long-term liabilities 85,080 95,657 Total liabilities 124,447 145,695 Shareholders’ equity Common stock, no par value, 20,000 shares authorized, 10,819 and 11,197 shares issued and outstanding on each date 49,561 50,770 Retained earnings 175,348 184,386 Accumulated other comprehensive income 759 865 Total shareholders’ equity 225,668 236,021 Total liabilities and shareholders’ equity $ 350,115 $ 381,716 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 3 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) For the Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 Net sales $ 97,806 $ 152,908 $ 219,621 $ 300,223 Cost of sales 74,465 121,853 168,374 239,709 Gross profit 23,341 31,055 51,247 60,514 Selling and administrative expenses 21,144 22,886 46,191 47,543 Intangible asset amortization 924 878 1,807 1,756 Operating income 1,273 7,291 3,249 11,215 Other income/(expense), net 357 ( 44 ) 411 234 Interest expense, net 654 83 833 111 Income before income taxes 976 7,164 2,827 11,338 Income tax expense 191 1,621 593 2,612 Net income $ 785 $ 5,543 $ 2,234 $ 8,726 Earnings per share Basic $ 0.07 $ 0.47 $ 0.20 $ 0.74 Diluted $ 0.07 $ 0.46 $ 0.20 $ 0.73 Weighted average shares outstanding: Basic 10,732 11,876 10,854 11,871 Diluted 10,828 11,935 10,962 11,960 Cash dividends declared per share $ 0.22 $ 0.20 $ 0.44 $ 0.40 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 4 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) For the Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 Net income $ 785 $ 5,543 $ 2,234 $ 8,726 Other comprehensive income: Amortization of actuarial (gain) / loss ( 70 ) 60 ( 140 ) 42 Income tax effect on amortization 17 ( 14 ) 34 ( 10 ) Adjustments to net periodic benefit cost ( 53 ) 46 ( 106 ) 32 Total comprehensive income $ 732 $ 5,589 $ 2,128 $ 8,758 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 5 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) For the Twenty-Six Weeks Ended July 30, July 31, 2023 2022 Operating Activities: Net income $ 2,234 $ 8,726 Adjustments to reconcile net income to net cash provided by/(used in) operating activities: Depreciation and amortization 4,372 4,409 Deferred income tax expense 481 1,839 Noncash restricted stock and performance awards 1,043 873 Provision for doubtful accounts and sales allowances ( 475 ) ( 1,532 ) Gain on life insurance policies ( 684 ) ( 587 ) Loss/(Gain) on disposal of assets 30 - Changes in assets and liabilities: Trade accounts receivable 23,163 ( 4,843 ) Inventories 35,062 ( 53,489 ) Income tax recoverable 53 787 Prepaid expenses and other assets ( 3,528 ) ( 6,175 ) Trade accounts payable ( 2,029 ) 4,691 Accrued salaries, wages, and benefits ( 2,843 ) ( 1,480 ) Customer deposits ( 241 ) 27 Operating lease assets and liabilities 366 ( 151 ) Other accrued expenses ( 5,154 ) ( 1,293 ) Deferred compensation ( 438 ) ( 283 ) Net cash provided by/(used in) operating activities $ 51,412 $ ( 48,481 ) Investing Activities: Acquisitions ( 2,373 ) ( 25,912 ) Purchases of property and equipment ( 3,965 ) ( 1,947 ) Premiums paid on life insurance policies ( 317 ) ( 404 ) Proceeds received on life insurance policies 444 - Net cash used in investing activities ( 6,211 ) ( 28,263 ) Financing Activities: Purchase and retirement of common stock ( 8,668 ) ( 1,137 ) Cash dividends paid ( 4,856 ) ( 4,794 ) Payments for long-term loans ( 700 ) - Proceeds from long-term loans - 25,000 Proceeds from revolving credit facility - 30,301 Payments for revolving credit facility - ( 30,301 ) Debt issuance cost - ( 38 ) Net cash (used in)/provided by financing activities ( 14,224 ) 19,031 Net increase/(decrease) in cash and cash equivalents 30,977 ( 57,713 ) Cash and cash equivalents - beginning of year 19,002 69,366 Cash and cash equivalents - end of quarter $ 49,979 $ 11,653 Supplemental disclosure of cash flow information: Cash paid/(refund) for income taxes $ 60 $ ( 14 ) Cash paid for interest, net 914 55 Non-cash transactions: (Decrease)/Increase in lease liabilities arising from changes in right-of-use assets $ ( 6,356 ) $ 7,680 Increase in property and equipment through accrued purchases 8 207 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 6 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except per share data) (Unaudited) Accumulated Other Total Common Stock Retained Comprehensive Shareholders' Shares Amount Earnings Income (loss) Equity Balance at May 1, 2022 12,002 $ 53,649 $ 208,678 $ ( 65 ) $ 262,262 Net income for the 13 weeks ended July 31, 2022 5,543 5,543 Unrealized loss on defined benefit plan, net of tax of $ 14 46 46 Cash dividends paid ($ 0.20 per share) ( 2,405 ) ( 2,405 ) Purchase and retirement of common stock ( 68 ) $ ( 315 ) ( 822 ) ( 1,137 ) Restricted stock grants, net of forfeitures 25 ( 6 ) ( 6 ) Restricted stock compensation cost 371 371 Performance-based restricted stock units costs 154 154 Balance at July 31, 2022 11,959 $ 53,853 $ 210,994 $ ( 19 ) $ 264,828 Balance at April 30, 2023 11,029 $ 50,067 $ 180,152 $ 812 $ 231,031 Net income for the 13 weeks ended July 30, 2023 785 785 Unrealized loss on defined benefit plan, net of tax of $ 17 ( 53 ) ( 53 ) Cash dividends paid ($ 0.22 per share) ( 2,412 ) ( 2,412 ) Purchase and retirement of common stock ( 246 ) $ ( 1,171 ) ( 3,177 ) ( 4,348 ) Restricted stock grants, net of forfeitures 36 - - Restricted stock compensation cost 472 472 Performance-based restricted stock units costs 193 193 Balance at July 30, 2023 10,819 $ 49,561 $ 175,348 $ 759 $ 225,668 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 7 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONT.) (In thousands, except per share data) (Unaudited) Accumulated Other Total Common Stock Retained Comprehensive Shareholders' Shares Amount Earnings Income (loss) Equity Balance at January 30, 2022 11,922 $ 53,295 $ 207,884 $ ( 51 ) $ 261,128 Net income for the 26 weeks ended July 31, 2022 8,726 8,726 Unrealized loss on defined benefit plan, net of tax of $ 10 32 32 Cash dividends paid ($ 0.40 per share) ( 4,794 ) ( 4,794 ) Purchase and retirement of common stock ( 68 ) ( 315 ) ( 822 ) ( 1,137 ) Restricted stock grants, net of forfeitures 105 ( 102 ) ( 102 ) Restricted stock compensation cost 667 667 Performance-based restricted stock units costs 308 308 Balance at July 31, 2022 11,959 $ 53,853 $ 210,994 $ ( 19 ) $ 264,828 Balance at January 29, 2023 11,197 $ 50,770 $ 184,386 $ 865 $ 236,021 Net income for the 26 weeks ended July 30, 2023 2,234 2,234 Unrealized loss on defined benefit plan, net of tax of $ 34 ( 106 ) ( 106 ) Cash dividends paid ($ 0.44 per share) ( 4,856 ) ( 4,856 ) Purchase and retirement of common stock ( 473 ) ( 2,252 ) ( 6,416 ) ( 8,668 ) Restricted stock grants, net of forfeitures 95 ( 150 ) ( 150 ) Restricted stock compensation cost 807 807 Performance-based restricted stock units costs 386 386 Balance at July 30, 2023 10,819 $ 49,561 $ 175,348 $ 759 $ 225,668 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 8 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated) (Unaudited) For the Twenty-Six Weeks Ended July 30, 2023 1. Preparation of Interim Financial Statements The condensed consolidated financial statements of Hooker Furnishings Corporation and subsidiaries (referred to as “we,” “us,” “our,” “Hooker” or the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these statements include all adjustments necessary for a fair statement of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) are condensed or omitted pursuant to SEC rules and regulations. However, we believe that the disclosures made are adequate for a fair presentation of our results of operations and financial position. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended January 29, 2023 (“2023 Annual Report”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect both the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from our estimates. 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 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: ■ 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; and ■ the 2023 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began January 31, 2022 and ended January 29, 2023. 2. 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 as a result of future adoption. 3. Accounts Receivable July 30, January 29, 2023 2023 Gross accounts receivable $ 44,263 $ 67,600 Customer allowances ( 3,193 ) ( 3,702 ) Allowance for doubtful accounts ( 1,629 ) ( 1,769 ) Trade accounts receivable $ 39,441 $ 62,129 9 Table of Contents 4. Inventories July 30, January 29, 2023 2023 Finished furniture $ 77,707 $ 115,015 Furniture in process 1,723 1,943 Materials and supplies 13,318 13,509 Inventories at FIFO 92,748 130,467 Reduction to LIFO basis ( 29,390 ) ( 33,792 ) Inventories $ 63,358 $ 96,675 5. Property, Plant and Equipment Depreciable Lives July 30, January 29, (In years) 2023 2023 Buildings and land improvements 15 - 30 $ 32,796 $ 32,723 Computer software and hardware 3 - 10 16,060 15,887 Machinery and equipment 10 11,361 11,013 Leasehold improvements Term of lease 12,252 11,894 Furniture and fixtures 3 - 10 6,352 5,991 Other 5 695 694 Total depreciable property at cost 79,516 78,202 Less accumulated depreciation ( 52,971 ) ( 53,427 ) Total depreciable property, net 26,545 24,775 Land 1,077 1,077 Construction-in-progress 811 1,158 Property, plant and equipment, net $ 28,433 $ 27,010 6. Cloud Computing Hosting Arrangement 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 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 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 July 30, 2023 and January 29, 2023 were as follows: Capitalized Implementation Costs Capitalized interest expenses Balance at January 29, 2023 $ 8,598 $ 84 Costs capitalized during the period 2,630 160 Accumulated amortization ( 37 ) ( 1 ) Balance at July 30, 2023 $ 11,191 $ 243 10 Table of Contents 7. Fair Value Measurements Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability (an exit price) in an orderly transaction between market participants on the applicable measurement date. We use a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: ■ Level 1, defined as observable inputs such as quoted prices in active markets for identical assets and liabilities; ■ Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and ■ 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 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 July 30, 2023 and January 29, 2023, were as follows: Fair value at July 30, 2023 Fair value at January 29, 2023 Description Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (In thousands) Assets measured at fair value Company-owned life insurance $ - $ 28,050 $ - $ 28,050 $ - $ 27,576 $ - $ 27,576 8. Intangible Assets 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; 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: July 30, 2023 January 29, 2023 Gross carrying amount Accumulated Amortization Gross carrying amount Accumulated Amortization Intangible assets with indefinite lives: Goodwill Domestic Upholstery - Shenandoah * 490 - 490 - Domestic Upholstery - Sunset West 14,462 - 14,462 - All Other - BOBO Intriguing Objects 124 - - - Goodwill 15,076 - 14,952 - Trademarks and Trade names * 8,011 - 7,907 - Intangible assets with definite lives: Customer Relations 38,001 ( 17,301 ) 38,001 ( 15,618 ) Trademarks and Trade names 2,334 ( 574 ) 1,938 ( 449 ) Intangible assets, net 48,346 ( 17,875 ) 47,846 ( 16,067 ) *: 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. 11 Table of Contents 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. 9. Leases 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 Twenty-Six Weeks Ended July 30, 2023 July 31, 2022 July 30, 2023 July 31, 2022 Operating lease cost $ 2,862 $ 2,270 $ 5,700 $ 4,797 Variable lease cost 70 56 152 111 Short-term lease cost 92 78 170 164 Total operating lease cost $ 3,024 $ 2,404 $ 6,022 $ 5,072 Operating cash outflows $ 2,679 $ 2,389 $ 5,371 $ 5,224 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 Real estate $ 57,946 $ 68,212 Property and equipment 643 737 Total operating leases right-of-use assets $ 58,589 $ 68,949 Current portion of operating lease liabilities $ 6,926 $ 7,316 Long term operating lease liabilities 54,157 63,762 Total operating lease liabilities $ 61,083 $ 71,078 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 (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. The weighted-average discount rate is 5.04 %. The weighted-average remaining lease term is 7.3 years. 12 Table of Contents 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 $ 4,864 2025 9,980 2026 10,059 2027 9,888 2028 8,342 2029 and thereafter 31,691 Total lease payments $ 74,824 Less: impact of discounting ( 13,741 ) Present value of lease payments $ 61,083 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. 10. 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”). Details of the individual credit facilities provided for in the Amendment are as follows: ■ Unsecured Revolving Credit Facility. Under the Amendment, the expiration date of the existing $ 35 million Unsecured Revolving Credit Facility (the “Existing Revolver”) was extended to July 26, 2027. Any amounts outstanding will bear interest at a rate per annum, equal to the then current Bloomberg Short-Term Bank Yield Index (“BSBY”) (adjusted periodically) plus 1.00 %. The interest rate will be adjusted on a monthly basis. The actual daily amount of undrawn letters of credit is subject to a quarterly fee equal to a per annum rate of 1 %. We must also pay a quarterly unused commitment fee that is based on the average daily amount of the facility utilized during the applicable quarter; ■ 2022 Secured Term Loan. The Amendment provided us with 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. The interest rate will be adjusted on a monthly basis. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. The Secured Term Loan is secured by certain company-owned life insurance policies under a Security Agreement (Assignment of Life Insurance Policy as Collateral) dated July 26, 2022, by and between the Company and BofA; and ■ 2022 Unsecured Term Loan. The Amendment provided us with a $ 7 million unsecured term loan (the “Unsecured Term Loan”), which was disbursed to us on July 26, 2022. We are required to pay monthly principal payments of $ 116,667 and monthly interest payments at a rate per annum equal to the then current BSBY (adjusted periodically) plus 1.40 % on the outstanding balance until paid in full. The interest rate will be adjusted monthly. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed. As of July 30, 2023, $ 5.6 million was outstanding under the Unsecured Term Loan, and $18 million was outstanding under the Secured Term Loan. 13 Table of Contents We incurred $ 37,500 in debt issuance costs in connection with our term loans. 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: ■ Maintain a ratio of funded debt to EBITDA not exceeding: o 2.50:1.0 through July 30, 2023; o 2.25:1.0 through July 30, 2024; and o 2.00:1.00 thereafter. ■ 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. 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 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. 11. 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 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. We have issued restricted stock awards to non-employee members of the board of directors since 2006 and to certain non-executive employees since 2014. We have issued restricted stock units (“RSUs”) to certain senior executives since fiscal 2012 under the Company’s Stock Incentive Plan. Each RSU entitles an executive to receive one share of the Company’s common stock if the executive remains continuously employed with the Company through the end of a three-year service period. The RSUs may be paid in shares of our common stock, cash or both at the discretion of the Compensation Committee of our board of directors. We have issued Performance-based Restricted Stock Units (“PSUs”) to certain senior executives since fiscal 2019 under the Company’s Stock Incentive Plan. Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three-year performance period. One target is based on our annual average growth in our EPS over the performance period and the other target is based on EPS growth over the performance period compared to our peers. The payout or settlement of the PSUs will be made in shares of our common stock. 14 Table of Contents We expect to continue to grant these types of awards annually in the future. The following table sets forth the number of outstanding restricted stock awards and RSUs and PSUs, net of forfeitures and vested shares, as of the fiscal period-end dates indicated: July 30, January 29, 2023 2023 Restricted shares 183 132 RSUs and PSUs 156 101 339 233 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 July 30, July 31, July 30, July 31, 2023 2022 2023 2022 Net income $ 785 $ 5,543 $ 2,234 $ 8,726 Less: Unvested participating restricted stock dividends 40 27 71 46 Net earnings allocated to unvested participating restricted stock 13 63 33 85 Earnings available for common shareholders 732 5,453 2,130 8,595 Weighted average shares outstanding for basic earnings per share 10,732 11,876 10,854 11,871 Dilutive effect of unvested restricted stock, RSU and PSU awards 96 59 108 89 Weighted average shares outstanding for diluted earnings per share 10,828 11,935 10,962 11,960 Basic earnings per share $ 0.07 $ 0.47 $ 0.20 $ 0.74 Diluted earnings per share $ 0.07 $ 0.46 $ 0.20 $ 0.73 12. Income Taxes 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. Tax years ending February 2, 2020 through January 29, 2023 remain subject to examination by federal and state taxing authorities. 15 Table of Contents 13. Segment Information As a public entity, we are required to present disaggregated information by segment using the management approach. The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions. The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company’s business units or segments. The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments (“ASC 280”), which are to allow the users of our financial statements to: ■ better understand our performance; ■ better assess our prospects for future net cash flows; and ■ make more informed judgments about us as a whole. We define our segments as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM. For financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses: ■ Hooker Branded , consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses; ■ 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), Shenandoah Furniture and Sunset West, a business acquired at the beginning of fiscal 2023; and ■ 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. 16 Table of Contents The following table presents segment information for the periods, and as of the dates, indicated. Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 % Net % Net % Net % Net Net Sales Sales Sales Sales Sales Hooker Branded $ 34,685 35.4 % $ 52,817 34.5 % $ 76,576 34.9 % $ 95,047 31.7 % Home Meridian 28,911 29.6 % 59,048 38.6 % 70,832 32.3 % 121,133 40.3 % Domestic Upholstery 30,892 31.6 % 38,326 25.1 % 65,996 30.0 % 79,546 26.5 % All Other 3,318 3.4 % 2,717 1.8 % 6,217 2.8 % 4,497 1.5 % Consolidated $ 97,806 100 % $ 152,908 100.0 % $ 219,621 100.0 % $ 300,223 100.0 % Gross Profit Hooker Branded $ 12,419 35.8 % $ 15,598 29.5 % $ 25,512 33.3 % $ 28,837 30.3 % Home Meridian 3,210 11.1 % 7,321 12.4 % 9,922 14.0 % 13,626 11.2 % Domestic Upholstery 6,365 20.6 % 7,128 18.6 % 13,387 20.3 % 16,483 20.7 % All Other 1,347 40.6 % 1,008 37.1 % 2,426 39.0 % 1,568 34.9 % Consolidated $ 23,341 23.9 % $ 31,055 20.3 % $ 51,247 23.3 % $ 60,514 20.2 % Operating Income/(Loss) Hooker Branded $ 3,223 9.3 % $ 6,072 11.5 % $ 5,524 7.2 % $ 10,214 10.7 % Home Meridian ( 3,336 ) - 11.5 % ( 991 ) - 1.7 % ( 5,454 ) - 7.7 % ( 4,085 ) - 3.4 % Domestic Upholstery 724 2.3 % 1,713 4.5 % 2,051 3.1 % 4,465 5.6 % All Other 662 20.0 % 497 18.3 % 1,128 18.1 % 621 13.8 % Consolidated $ 1,273 1.3 % $ 7,291 4.8 % $ 3,249 1.5 % $ 11,215 3.7 % Capital Expenditures Hooker Branded $ 622 $ 239 $ 3,409 $ 706 Home Meridian 11 592 238 632 Domestic Upholstery 141 286 257 609 All Other 33 - 61 - Consolidated $ 807 $ 1,117 $ 3,965 $ 1,947 Depreciation & Amortization Hooker Branded $ 503 $ 437 $ 994 $ 1,122 Home Meridian 690 725 1,377 1,386 Domestic Upholstery 1,007 957 1,954 1,896 All Other 25 3 47 5 Consolidated $ 2,225 $ 2,122 $ 4,372 $ 4,409 As of July 30, As of January 29, 2023 %Total 2023 %Total Identifiable Assets Assets Assets Hooker Branded $ 184,244 60.5 % $ 174,523 52.1 % Home Meridian 55,927 18.3 % 92,469 27.6 % Domestic Upholstery 60,534 19.9 % 66,435 19.8 % All Other 3,863 1.3 % 1,558 0.5 % Consolidated $ 304,568 100 % $ 334,985 100 % Consolidated Goodwill and Intangibles 45,547 46,731 Total Consolidated Assets $ 350,115 $ 381,716 17 Table of Contents Sales by product type are as follows: Net Sales (in thousands) Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, 2023 %Total July 31, 2022 %Total July 30, 2023 %Total July 31, 2022 %Total Casegoods $ 49,984 51 % $ 92,869 61 % $ 117,883 54 % $ 167,313 56 % Upholstery 47,822 49 % 60,039 39 % 101,738 46 % 132,910 44 % $ 97,806 100 % $ 152,908 100 % $ 219,621 100 % $ 300,223 100 % 14. Subsequent Events Dividends 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 . 18 Table of Contents Item 2. 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. 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, Lifestyle Brands, and BOBO Intriguing Objects. Forward-Looking Statements Certain statements made in this report, including statements under Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the notes to the consolidated financial statements included in this report, are not based on historical facts, but are forward-looking statements. These statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking terminology such as “believes,” “expects,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “would,” “could” or “anticipates,” or the negatives thereof, or other variations thereof, or comparable terminology, or by discussions of strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. 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 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 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; ■ 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 and possible future U.S. 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; ■ risks associated with our Georgia warehouse including the inability to realize anticipated cost savings and subleasing excess space on favorable terms; 19 Table of Contents ■ 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 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. 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, 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; ■ 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; ■ capital requirements and costs; ■ risks associated with distribution through third-party retailers, such as non-binding dealership arrangements; ■ the cost and difficulty of marketing and selling our products in foreign markets; ■ 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; ■ competition from non-traditional outlets, such as internet and catalog retailers; and ■ 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 as a result of new information, future events or otherwise and you should not expect us to do so. 20 Table of Contents 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. For a discussion of risks and uncertainties that we face, see the Forward-Looking Statements detailed above and Item 1A, “Risk Factors” in our 2023 Annual Report. Investors should also be aware that while we occasionally communicate with securities analysts and others, it is against our policy to selectively disclose to them any material nonpublic information or other confidential commercial information. Accordingly, investors should not assume that we agree with any projection, forecast or report issued by any analyst regardless of the content of the statement or report, as we have a policy against confirming information issued by others. Quarterly Reporting 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. 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 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; and ■ 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 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. 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. Overview 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. 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” 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 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; therefore, customer orders for casegoods are not firm. However, domestically produced upholstered products are predominantly custom-built and consequently, cannot be cancelled once the leather or fabric has been cut. 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. 21 Table of Contents 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 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 July 30, 2023, our backlog of unshipped orders was as follows: Order Backlog (Dollars in 000s) Reporting Segment July 30, 2023 January 29, 2023 July 31, 2022 Hooker Branded $ 17,428 $ 19,276 $ 54,168 Home Meridian 43,001 43,052 80,087 Domestic Upholstery 22,718 28,404 61,849 All Other 5,086 4,654 5,333 Consolidated $ 88,233 $ 95,386 $ 201,437 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 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.” 22 Table of Contents Review 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. 23 Table of Contents 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. 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. Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 Net sales 100 % 100 % 100 % 100 % Cost of sales 76.1 79.7 76.7 79.8 Gross profit 23.9 20.3 23.3 20.2 Selling and administrative expenses 21.6 15.0 21.0 15.8 Intangible asset amortization 0.9 0.6 0.8 0.6 Operating income 1.3 4.8 1.5 3.7 Other income, net 0.4 - 0.2 0.1 Interest expense 0.7 0.1 0.4 - Income before income taxes 1.0 4.7 1.3 3.8 Income tax expense 0.2 1.1 0.3 0.9 Net income 0.8 3.6 1.0 2.9 24 Table of Contents Fiscal 2024 Second Quarter and First-Half Compared to Fiscal 2023 Second Quarter and First Half Net Sales Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 34,685 35.4 % $ 52,817 34.5 % $ (18,132 ) -34.3 % $ 76,576 34.9 % $ 95,047 31.7 % $ (18,471 ) -19.4 % Home Meridian 28,911 29.6 % 59,048 38.6 % (30,137 ) -51.0 % 70,832 32.3 % 121,133 40.3 % (50,301 ) -41.5 % Domestic Upholstery 30,892 31.6 % 38,326 25.1 % (7,434 ) -19.4 % 65,996 30.0 % 79,546 26.5 % (13,550 ) -17.0 % All Other 3,318 3.4 % 2,717 1.8 % 601 22.1 % 6,217 2.8 % 4,497 1.5 % 1,720 38.2 % Consolidated $ 97,806 100 % $ 152,908 100 % $ (55,102 ) -36.0 % $ 219,621 100 % $ 300,223 100 % $ (80,602 ) -26.8 % Unit Volume FY24 Q2 % Increase vs. FY23 Q2 FY24 YTD % Increase vs. FY23 YTD Average Selling Price ("ASP") FY24 Q2 % Increase vs. FY23 Q2 FY24 YTD % Increase vs. FY23 YTD Hooker Branded -36.9 % -23.1 % Hooker Branded 6.8 % 7.3 % Home Meridian -29.8 % -19.6 % Home Meridian -27.5 % -25.8 % Domestic Upholstery -28.6 % -26.7 % Domestic Upholstery 13.3 % 13.2 % All Other 2.2 % 24.6 % All Other 9.6 % 6.6 % Consolidated -30.6 % -20.6 % Consolidated -5.8 % -6.4 % 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. 25 Table of Contents Gross Profit and Margin Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 12,419 35.8 % $ 15,598 29.5 % $ (3,179 ) -20.4 % $ 25,512 33.3 % $ 28,837 30.3 % $ (3,325 ) -11.5 % Home Meridian 3,210 11.1 % 7,321 12.4 % (4,111 ) -56.2 % 9,922 14.0 % 13,626 11.2 % (3,704 ) -27.2 % Domestic Upholstery 6,365 20.6 % 7,128 18.6 % (763 ) -10.7 % 13,387 20.3 % 16,483 20.7 % (3,096 ) -18.8 % All Other 1,347 40.6 % 1,008 37.1 % 339 33.6 % 2,426 39.0 % 1,568 34.9 % 858 54.7 % Consolidated $ 23,341 23.9 % $ 31,055 20.3 % $ (7,714 ) -24.8 % $ 51,247 23.3 % $ 60,514 20.2 % $ (9,267 ) -15.3 % 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) Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 9,197 26.5 % $ 9,526 18.0 % $ (329 ) -3.5 % $ 19,987 26.1 % $ 18,624 19.6 % $ 1,363 7.3 % Home Meridian 6,215 21.5 % 7,978 13.5 % (1,763 ) -22.1 % 14,717 20.8 % 17,043 14.1 % (2,326 ) -13.6 % Domestic Upholstery 5,047 16.3 % 4,871 12.7 % 176 3.6 % 10,189 15.4 % 10,929 13.7 % (740 ) -6.8 % All Other 685 20.6 % 511 18.8 % 174 34.1 % 1,298 20.9 % 947 21.1 % 351 37.1 % Consolidated $ 21,144 21.6 % $ 22,886 15.0 % $ (1,742 ) -7.6 % $ 46,191 21.0 % $ 47,543 15.8 % $ (1,352 ) -2.8 % 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. 26 Table of Contents ■ 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 Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Intangible asset amortization $ 924 0.9 % $ 878 0.6 % $ 46 5.2 % $ 1,807 0.8 % $ 1,756 0.6 % $ 51 2.9 % 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. Operating Profit/(Loss) and Margin Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 3,223 9.3 % $ 6,072 11.5 % $ (2,849 ) -46.9 % $ 5,524 7.2 % $ 10,214 10.7 % $ (4,690 ) -45.9 % Home Meridian (3,336 ) -11.5 % (991 ) -1.7 % (2,345 ) -236.6 % (5,454 ) -7.7 % (4,085 ) -3.4 % (1,369 ) -33.5 % Domestic Upholstery 724 2.3 % 1,713 4.5 % (989 ) -57.7 % 2,051 3.1 % 4,465 5.6 % (2,414 ) -54.1 % All Other 662 20.0 % 497 18.3 % 165 33.2 % 1,128 18.1 % 621 13.8 % 507 81.6 % Consolidated $ 1,273 1.3 % $ 7,291 4.8 % $ (6,018 ) -82.5 % $ 3,249 1.5 % $ 11,215 3.7 % $ (7,966 ) -71.0 % Operating profit and margin decreased as compared to the prior year periods due to the factors discussed above. 27 Table of Contents Interest Expense, net Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Consolidated interest expense, net $ 654 0.7 % $ 83 0.1 % $ 571 688.0 % $ 833 0.4 % $ 111 0.0 % $ 722 650.5 % 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. Income taxes Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Consolidated income tax expense $ 191 0.2 % $ 1,621 1.1 % $ (1,430 ) -88.2 % $ 593 0.3 % $ 2,612 0.9 % $ (2,019 ) -77.3 % Effective Tax Rate 19.6 % 22.6 % 21.0 % 23.0 % 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. Net Income Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, July 31, July 30, July 31, 2023 2022 2023 2022 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Consolidated net income $ 785 0.8 % $ 5,543 3.6 % $ (4,758 ) -85.8 % $ 2,234 1.0 % $ 8,726 2.9 % $ (6,492 ) -74.4 % Diluted earnings per share $ 0.07 $ 0.46 $ 0.20 $ 0.73 Outlook 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. 28 Table of Contents Financial Condition, Liquidity and Capital Resources Cash Flows – Operating, Investing and Financing Activities Twenty-Six Weeks Ended July 30, July 31, 2023 2022 Net cash provided by/(used in) operating activities $ 51,412 $ (48,481 ) Net cash used in investing activities (6,211 ) (28,263 ) Net Cash (used in)/ provided by financing activities (14,224 ) 19,031 Net increase / (decrease) in cash and cash equivalents $ 30,977 $ (57,713 ) 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 Our financial resources include: ■ available cash and cash equivalents, which are highly dependent on incoming order rates and our operating performance; ■ expected cash flow from operations; ■ available lines of credit; and ■ cash surrender value of Company-owned life insurance. 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. 29 Table of Contents Loan Agreements and Revolving Credit Facility On July 26, 2022, we entered into the Fourth Amendment to the Second Amended and Restated Loan Agreement (the “Amendment”) with Bank of America, N.A. (“BofA”) to replenish cash used to make the Sunset Acquisition. The Second Amended and Restated Loan Agreement dated as of September 29, 2017, had previously been amended by a First Amendment to Second Amended and Restated Loan Agreement dated as of January 31, 2019, a Second Amendment to Second Amended and Restated Loan Agreement dated as of November 4, 2020, and a Third Amendment to Second Amended and Restated Loan Agreement dated as of January 27, 2021 (as so amended, the “Existing Loan Agreement”). Details of the individual credit facilities provided for in the Amendment are as follows: ■ Unsecured Revolving Credit Facility. Under the Amendment, the expiration date of the existing $35 million Unsecured Revolving Credit Facility (the “Existing Revolver”) was extended to July 26, 2027. Any amounts outstanding will bear interest at a rate per annum, equal to the then current Bloomberg Short-Term Bank Yield Index (“BSBY”) (adjusted periodically) plus 1.00%. The interest rate will be adjusted on a monthly basis. The actual daily amount of undrawn letters of credit is subject to a quarterly fee equal to a per annum rate of 1%. We must also pay a quarterly unused commitment fee that is based on the average daily amount of the facility utilized during the applicable quarter; ■ 2022 Secured Term Loan. The Amendment provided us with 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. The interest rate will be adjusted on a monthly basis. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. The Secured Term Loan is secured by certain company-owned life insurance policies under a Security Agreement (Assignment of Life Insurance Policy as Collateral) dated July 26, 2022, by and between the Company and BofA; and ■ 2022 Unsecured Term Loan. The Amendment provided us with a $7 million unsecured term loan (the “Unsecured Term Loan”), which was disbursed to us on July 26, 2022. We are required to pay monthly principal payments of $116,667 and monthly interest payments at a rate per annum equal to the then current BSBY (adjusted periodically) plus 1.40% on the outstanding balance until paid in full. The interest rate will be adjusted monthly. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed. As of 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 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: ■ Maintain a ratio of funded debt to EBITDA not exceeding: o 2.50:1.0 through July 30, 2023; o 2.25:1.0 through July 30, 2024; and o 2.00:1.00 thereafter. ■ 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. 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. 30 Table of Contents 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 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. 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 We expect to spend approximately $1 million in capital expenditures over the remainder of fiscal 2024 to maintain and enhance our operating systems and facilities. Enterprise Resource Planning Project 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 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. Dividends 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 There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2023 Annual Report.