What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-12-08 compared with 2023-09-08 · 249 added, 261 removed, 558 unchanged (48% of the section changed)

42 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Cost of sales

2 unchanged sentences

Operating income

Other income/(expense), net

Other income, net

Interest expense, net

9 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Other comprehensive income:

7 unchanged sentences

(In thousands)

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Operating Activities:

48 unchanged sentences

Income (loss)

Balance at May 1, 2022

Net income for the 13 weeks ended July 31, 2022

Balance at July 31, 2022

Net income for the 13 weeks ended October 30, 2022

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

3 unchanged sentences

Restricted stock compensation cost

Performance-based restricted stock units costs

Performance-based restricted stock units cost

Balance at October 30, 2022

Balance at July 30, 2023

Balance at April 30, 2023

Net income for the 13 weeks ended July 30, 2023

Net income for the 13 weeks ended October 29, 2023

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

3 unchanged sentences

Restricted stock compensation cost

Performance-based restricted stock units costs

Balance at July 30, 2023

Performance-based restricted stock units cost

Balance at October 29, 2023

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

6 unchanged sentences

Balance at January 30, 2022

Net income for the 26 weeks ended July 31, 2022

Net income for the 39 weeks ended October 30, 2022

Unrealized loss on defined benefit plan, net of tax of $ 15

4 unchanged sentences

Performance-based restricted stock units costs

Balance at July 31, 2022

Balance at October 30, 2022

Balance at January 29, 2023

Net income for the 26 weeks ended July 30, 2023

Net income for the 39 weeks ended October 29, 2023

Unrealized loss on defined benefit plan, net of tax of $ 50

4 unchanged sentences

Performance-based restricted stock units costs

Balance at July 30, 2023

Balance at October 29, 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 Twenty-Six Weeks Ended July 30, 2023

For the Thirty-Nine Weeks Ended October 29, 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.

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.

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,” “third quarter” or “quarterly period”) that began July 31, 2023, and the thirty-nine week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began January 30, 2023, which both ended October 29, 2023.

This report discusses our results of operations for these periods compared to the 2023 fiscal year thirteen-week period that began August 1, 2022, and the thirty-nine-week period that began January 31, 2022, which both ended October 30, 2022;

and our financial condition as of October 29, 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 in the legacy Hooker divisions in early September 2023.

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

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

We expect the new ERP system 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.

1 unchanged sentence

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.

Amortization expense commenced when the ERP system 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:

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

Implementation Costs

2 unchanged sentences

Costs capitalized during the period

Accumulated amortization

Balance at July 30, 2023

Accumulated amortization during the period

Balance at October 29, 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 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.

As of October 29, 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

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

Fair value at October 29, 2023

Fair value at January 29, 2023

6 unchanged sentences

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;

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

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

In the third quarter of fiscal 2024, we recorded additional fixed assets and revised goodwill to $ 84,000 .

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.

1 unchanged sentence

Details of our intangible assets are as follows:

July 30, 2023

October 29, 2023

January 29, 2023

8 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'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.

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 $ 924,000 and $ 2.7 million for the third quarter and nine-month period of fiscal 2024, respectively.

Amortization expenses for intangible assets with definite lives were $ 878,000 and $ 2.6 million for the fiscal 2023 third quarter and nine-month period, respectively.

For the remainder of fiscal 2024, amortization expense is expected to be approximately $ 924,000 .

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:

We recognized sub-lease income of $ 27,000 and $ 101,000 for the third quarter and nine-month period of fiscal 2024, respectively.

We recognized sub-lease income of $ 34,000 and $ 415,000 for the third quarter and nine-month period of fiscal 2023, respectively.

The components of lease cost and supplemental cash flow information for leases for the three-months and nine-months ended October 29, 2023 and October 30, 2022 were:

Thirteen Weeks Ended

Twenty-Six Weeks Ended

July 30, 2023

July 31, 2022

July 30, 2023

July 31, 2022

Thirty-Nine Weeks Ended

October 29, 2023

October 30, 2022

October 29, 2023

October 30, 2022

Operating lease cost

4 unchanged sentences

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

During the third quarter, we entered into an agreement to further reduce our footprint by 200,000 square feet by early calendar 2024.

These modifications resulted in an approximate $ 13 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 October 29, 2023 and January 29, 2023 were as follows:

October 29, 2023

January 29, 2023

5 unchanged sentences

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.

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

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

The weighted-average discount rate is 5.05 %.

The weighted-average remaining lease term is 7 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 July 30, 2023:

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on October 29, 2023:

Undiscounted Future

Operating Lease Payments

Operating Lease

Remainder of fiscal 2024

3 unchanged sentences

Present value of lease payments

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

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

On July 26, 2022, we entered into the Fourth Amendment (the “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”).

8 unchanged sentences

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.

The Amendment provided us with an $ 18 million Secured 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 July 30, 2023, $ 5.6 million was outstanding under the Unsecured Term Loan, and $18 million was outstanding under the Secured Term Loan.

As of October 29, 2023, $ 5.2 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.

As of October 29, 2023, unamortized loan costs of $ 28,125 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:

1 unchanged sentence

2.25:1.0 through July 30, 2024;

2.00:1.00 thereafter.

3 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 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.

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

As of October 29, 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 October 29, 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.

During the fiscal 2024 nine-month period, we purchased and retired 620,634 shares of our common stock (at an average price of $ 18.79 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.

The share repurchase program was completed during the fiscal 2024 third quarter.

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

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Unvested participating restricted stock dividends

6 unchanged sentences

Diluted earnings per share

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.

We recorded income tax expense of $ 2.0 million for the fiscal 2024 third quarter compared to $ 1.3 million for the comparable prior year quarter.

The effective tax rates for the fiscal 2024 and 2023 third quarters were 22.4 % and 21.6 %, respectively.

For the fiscal 2024 nine-month period, we recorded income tax expense of $ 2.6 million, compared to $ 3.9 million for the comparable prior year period.

The effective tax rates for the fiscal 2024 and 2023 nine-month periods were 22.0 % and 22.5 %, respectively.

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

17 unchanged sentences

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

Changes to segment reporting for fiscal 2024

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

1 unchanged sentence

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

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

Before the fiscal 2024 third quarter, H Contract’s results included sales of products sourced from the Hooker Branded segment and Sunset West.

Due to a change in the way management internally evaluates operating performance, beginning with fiscal 2024 third quarter, Hooker Branded and Domestic Upholstery segments’ results now include sales of products formerly included in H Contract’s results.

Fiscal 2024 year-to-date period and fiscal 2023 results discussed below have been recast to reflect this change.

The Home Meridian segment is unchanged.

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

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

8 unchanged sentences

Domestic Upholstery

Capital Expenditures

Capital Expenditures (net of disposals)

Hooker Branded

5 unchanged sentences

Domestic Upholstery

As of July 30,

As of October 29,

As of January 29,

8 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

July 30, 2023

July 31, 2022

July 30, 2023

July 31, 2022

Thirty-Nine Weeks Ended

October 29, 2023

October 30, 2022

October 29, 2023

October 30, 2022

Subsequent Events

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 .

On December 5, 2023 , our board of directors declared a quarterly cash dividend of $ 0.23 per share which will be paid on December 29, 2023 to shareholders of record at December 15, 2023 .

This represents a $ 0.01 per share or 4.5 % increase over the previous quarterly dividend and the eighth consecutive annual dividend increase.

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

12 unchanged sentences

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;

the cyclical nature of the furnishings 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;

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

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;

risks associated with Home Meridian segment restructuring and cost-savings efforts, including our ability to timely reduce expenses and return the segment to profitability;

the impairment of our long-lived assets including goodwill, 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.

4 unchanged sentences

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 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 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;

10 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;

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

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

price competition in the furnishings industry.

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

6 unchanged sentences

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.

and our financial condition as of July 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,” “third quarter” or “quarterly period”) that began July 31, 2023, and the thirty-nine week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began January 30, 2023, which both ended October 29, 2023.

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

References in this report to:

8 unchanged sentences

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

Changes to segment reporting for fiscal 2024

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.

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

Before the fiscal 2024 third quarter, H Contract’s results included sales of certain products sourced from the Hooker Branded segment and Sunset West division of the Domestic Upholstery segment.

Due to a change in the way management internally evaluates operating performance, beginning with the fiscal 2024 third quarter, Hooker Branded and Domestic Upholstery segments’ results now include sales of products formerly included in H Contract’s results.

Fiscal 2024 year-to-date period and fiscal 2023 results discussed below have been recast to reflect this change.

The Home Meridian segment is unchanged.

Orders and Backlog

15 unchanged sentences

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:

At October 29, 2023, our backlog of unshipped orders was as follows:

Order Backlog

1 unchanged sentence

Reporting Segment

July 30, 2023

October 29, 2023

January 29, 2023

July 31, 2022

October 30, 2022

Hooker Branded

1 unchanged sentence

Domestic Upholstery

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.

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

The decrease was attributable to soft 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.”

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.

Consolidated net sales for the fiscal 2024 third quarter decreased by $34.7 million, or 22.9%, compared to the prior year quarter due to sales decreases across all three reporting segments driven by continued soft demand for home furnishings, as well as our exit from the Accentrics Home product line.

Despite the sales decline, consolidated gross profit and margin both increased for the quarter due to decreased product costs in the Hooker Branded segment driven by lower ocean freight costs and improved margin at Home Meridian segment due to our exit from the unprofitable categories, partially offset by decreased gross profit and margin in the Domestic Upholstery segment due to under-absorbed indirect costs, primarily indirect labor costs.

Consolidated operating income and margin were $8.8 million and 7.5% as compared to $6.4 million and 4.2% in the prior year third quarter, due to improved profitability in the Hooker Branded and Home Meridian segments.

Consolidated net income was $7.0 million or $0.65 per diluted share, compared to $4.8 million or $0.42 per diluted share in the prior year quarter.

For the fiscal 2024 nine-month period, consolidated net sales decreased by $115.4 million, or 25.5%, as compared to the same period last year due to decreased net sales in all three segments also attributable to industry-wide soft demand, as well as our exit from the Accentrics Home product line in the Home Meridian segment.

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

Consolidated operating income and margin were $12.0 million or 3.6% as compared to $17.6 million and 3.9% in the prior year period.

Consolidated net income was $9.3 million or $0.85 per diluted share, as compared to $13.6 million or $1.14 per diluted share in the prior year period.

Our fiscal 2024 third quarter and nine months performance are discussed in greater detail below under “Review” and “Results of Operations.”

Despite a challenging macroeconomic environment for the home furnishings industry, including a slowdown in the housing market, high interest rates, and a shift in consumer discretionary spending away from home furnishings, we are pleased to report an increase in net income for the fiscal 2024 third quarter.

Despite these challenges, we are encouraged by positive indicators such as the normalization of ocean freight costs, eased supply chain constraints, more stable raw material costs, and increased labor availability.

Additionally, our strategy to reposition the Home Meridian segment from a volatile, high risk model with unpredictable profitability to a lower risk, sustainable profit model have begun to yield positive results, with the segment reporting a quarterly operating income for the first time since calendar year 2021.

All these factors have contributed to our improved profitability for the quarter.

The Hooker Branded segment experienced a net sales decrease of $17.5 million, or 30.9%, in the fiscal 2024 third quarter, due primarily to reduced volume driven by current lower demand for home furnishings.

Short-term delays related to the implementation of a new ERP system over the Labor Day weekend had an impact of approximately $3 million, which would have positioned the sales in this segment down 26% for the quarter.

Compounding this, the unusually high net sales in the previous year's third quarter created a challenging basis for comparison in the current year.

Despite the sales decline, this segment reported an increased gross margin of 45.6% for the quarter, due mostly to lower ocean freight costs.

We implemented price decreases and promotions on new orders in August to align with decreased ocean freight costs and the discounting levels in the home furnishings market.

However, the majority of shipments still carried price increases we implemented in the prior year, which combined with lower freight costs, led to unusually high gross margins for the quarter.

We anticipate a subsequent decrease in gross margin as more orders are shipped under our revised pricing.

Additionally, decreased warehousing costs also contributed to the increased gross margin, as demurrage and drayage expenses decreased significantly compared to the prior year period.

The segment reported a solid operating income of $7.3 million and an operating margin of 18.6%, compared to $5.9 million and 10.3% in the prior year period.

Incoming orders increased by 7% compared to both the prior year’s third quarter and this year’s second quarter.

Although quarter-end order backlog was much lower than the prior year quarter-end, it increased from this year’s second quarter-end and remained nearly 70% higher than pre-pandemic levels at the end of fiscal 2020 third quarter.

The Home Meridian segment ’ s net sales decreased by $6.9 million, or 13.6%, compared to the prior year third quarter, but increased compared to the first and second quarters of fiscal 2024.

The sales decrease in the e-commerce channel accounted for over 40% of the overall decrease in the segment, due to our exit from the Accentrics Home (ACH) product line.

The remaining decreases in the segment were attributable to sales decreases at Samuel Lawrence Furniture (SLF), Prime Resources International (PRI) and Pulaski Furniture (PFC), the divisions that serve independent furniture stores and major furniture chains.

The decreases were partially offset by strong sales at Samuel Lawrence Hospitality (SLH), which reported sales increases of 152% and 46% for the third quarter and nine-month period, respectively, versus the prior year periods.

Liquidations of inventory that were written down in the prior year fourth quarter were substantially completed during the quarter and had an immaterial impact on gross profit.

Despite the net sales decrease, HMI gross profit and margin increased by $3.4 million and 940 bps compared to the prior year third quarter, due to the absence of sales in unprofitable sales channels and product lines, as well as strong performance at SLH.

The segment recorded a quarterly operating income of $0.9 million compared to a $3.2 million operating loss in the prior year third quarter.

Inventory levels decreased by $15 million as compared to year-end and $46 million as compared to prior year third quarter end due primarily to the absence of Accentrics Home inventory, as well as the realignment of inventory mix to reflect our current business plan.

We reduced our footprint in the Georgia warehouse by 200,000 square feet in the second quarter and entered into an agreement in the third quarter to reduce another 200,000 square feet by early next year.

Consequently, costs at the Georgia warehouse decreased by 100 bps during the third quarter.

Incoming orders were 19% higher than prior year third quarter, but lower than the first and second quarters’ orders as our retail customers are matching inventories to current soft demand for home furnishings.

Quarter-end backlog was lower than the same period last year.

The Domestic Upholstery segment ’ s net sales decreased by $10.9 million, or 25%, compared to the prior year third quarter due to sales declines in all four divisions.

We reduced production at Bradington Young and HF Custom in August to conform to the prevailing backlog levels.

Gross profit and margin decreased by $3.4 million and 290 bps, primarily due to the sales decline.

On a positive note, direct material costs were 220 bps lower than prior year quarter due to more stable material costs;

however, this favorable variance was more than offset by under-absorbed indirect costs, which increased by 440 bps from the prior year third quarter attributable to lower net sales.

Direct labor and warehousing expenses decreased as a result of decreased production levels and demurrage costs but increased as a percent of sales due to lower net sales.

Shenandoah and Sunset West recorded operating income despite sales decreases.

Bradington Young achieved breakeven for the quarter, while HF Custom recorded an operating loss due to its sales decline and under-absorbed costs and operating expenses.

Incoming orders increased by 39% in comparison to the third quarter of the previous year, as Bradington Young, HF Custom and Shenandoah all recorded increased orders.

Sunset West orders remained unchanged as compared to the prior year third quarter.

Quarter-end backlog for the segment slightly decreased from second quarter end.

Bradington-Young backlog was 2.5 times that of the pre-pandemic levels at fiscal 2020 third quarter end, while the backlogs for HF Custom and Shenandoah decreased to levels comparable to fiscal 2020.

Cash and cash equivalents stood at $39.8 million at fiscal 2024 third quarter-end, an increase of $20.8 million from the prior year-end.

During the nine-month period, we used a portion of the $48.8 million cash generated from operating activities to fund $11.7 million share repurchases, $7.2 million in cash dividends to our shareholders, $5.7 million capital expenditures including investments in our new High Point and Atlanta showrooms, $3.8 million for further development of our cloud-based ERP system, and $2.4 million on BOBO acquisition.

Our $25 million share repurchase program was completed during the fiscal 2024 third quarter.

We purchased and retired approximately 1.4 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.

3 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Cost of sales

6 unchanged sentences

Income tax expense

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

Fiscal 2024 Third Quarter and Nine Months Compared to Fiscal 2023 Third Quarter and Nine Months

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

8 unchanged sentences

Domestic Upholstery

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.

Consolidated net sales decreased in the fiscal 2024 third quarter and nine-month period compared to the prior year periods:

The Hooker Branded segment’s net sales decreased by $17.5 million, or 30.9%, in the fiscal 2024 third quarter primarily due to decreased unit volume driven by current soft demand for home furnishings, and to a lesser extent, decreased average selling prices and short-term delays related to the implementation of the new ERP system in early September.

In response to normalized ocean freight costs and to align with current demand, we implemented price decreases and promotions on new orders effective in August, leading to the first quarterly decrease in ASP since calendar 2020.

For the fiscal 2024 nine-month period, net sales decreased by $35.2 million, or 22.8%, due to decreased unit volume, which was driven by lower demand.

ASP increased during the nine-month period as the majority of inventories sold still carried price increases we implemented last year in response to higher freight costs and product cost inflation.

The Home Meridian segment’s net sales decreased by $6.9 million, or 13.6%, in the fiscal 2024 third quarter.

This decrease was attributed to decreased unit volume due to the absence of ACH sales and lower sales with independent furniture stores and major furniture chains.

The decreases were largely mitigated by strong sales at SLH, driven by the continued rebound in the hospitality business.

ASP increased during the third quarter as the liquidation sales of furniture previously written down were substantially completed, having a minimal impact on revenue for this period.

Additionally, ASP benefitted from increased SLH sales, which tend to be higher priced items.

For the nine-month period, net sales decreased by $57.2 million, or 33.3%, due to sales declines across the major furniture chains, the e-commerce channel, independent furniture stores, and mass merchant categories.

These decreases were also partially offset by sales increases at SLH.

ASP decreased during the nine-month period primarily due to the liquidation sales of heavily discounted ACH inventories and the sales of obsolete inventories at PRI and SLF during the first and second quarters.

The Domestic Upholstery segment’s net sales decreased by $10.9 million, or 25%, in the fiscal 2024 third quarter due to a significant decrease in unit volume.

All four divisions reported sales decreases for both the quarter and the nine-month period.

The Domestic Upholstery segment experienced sales growth for the past two years.

However, as incoming orders and backlog normalized, we reduced production to align with current demand.

ASP increased across all divisions during the fiscal 2024 third quarter and nine-month period 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 unit volume loss.

Gross Profit and Margin

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

1 unchanged sentence

Domestic Upholstery

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.

In the fiscal 2024 third quarter, consolidated gross profit and margin increased due to significantly improved profitability at Hooker Branded and Home Meridian segments.

Consolidated gross profit decreased in the nine-month period of fiscal 2024, primarily as a result of lower net sales.

However, consolidated gross margin increased during the period, also attributable to improved profitability at Hooker Branded and Home Meridian segments.

The Hooker Branded segment’s gross profit and margin both increased in the fiscal 2024 third quarter despite a decline in net sales.

This favorable outcome was attributed to significantly decreased product costs driven by lower ocean freight.

Inventories sold carrying the price increases we implemented last year, combined with lower freight costs, contributed to the increase in gross profit and margin.

Furthermore, inventory turns have increased steadily since August, resulting in a higher proportion of inventories sold at lower costs.

However, price decreases and promotions implemented on new orders starting in August are expected to gradually erode margins as more orders sold at lower prices are shipped.

In addition, warehousing costs decreased due to lower demurrage and drayage expenses, as well as lower labor and compensation expenses due to reduced shipping activities.

For the fiscal 2024 nine-month period, gross profit decreased due to sales decline, while gross margin increased due to the factors discussed previously.

The Home Meridian segment’s gross profit and margin increased by $3.4 million and 940 bps, respectively, in the fiscal 2024 third quarter.

This increase was primarily attributable to improved margin due to previous exits of unprofitable sales channels and product lines, decreased product costs, and increased profitability at SLH.

Furthermore, decreased costs in the Georgia warehouse, and decreased wage expenses due to organizational and personnel changes all contributed to increased gross profit and margin.

For the fiscal 2024 nine-month period, gross profit slightly decreased driven by the sales decrease, while gross margin increased by 530 bps due to the previously mentioned factors, as well as the absence of warehouse transition and start-up costs incurred in the prior year first quarter.

Sales of previously written-down or written-off inventory had an immaterial impact on gross profit in the fiscal 2024 third quarter and nine-month period.

The Domestic Upholstery segment’s gross profit and margin both decreased in the fiscal 2024 third quarter and nine-month period driven by net sales decreases.

Direct material costs were 220 bps and 310 bps below prior year periods due to more stable raw material costs.

However, these decreases were more than offset by under-absorbed indirect costs, which were 440 bps and 370 bps higher as compared to the prior year third quarter and nine-month period, respectively.

Direct labor costs decreased in absolute terms due to reduced production at Bradington Young, HF Custom, and Shenandoah.

Warehousing and distribution expenses also decreased in absolute amount, due to lower demurrage expense and freight-out expense, which was also impacted by lower sales.

Direct labor costs and warehousing costs both increased as a percentage of net sales during these periods due to sales decreases.

Selling and Administrative Expenses (S&A)

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

1 unchanged sentence

Domestic Upholstery

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.

Consolidated selling and administrative (“S&A”) expenses decreased in absolute terms but increased as a percentage of net sales in the fiscal 2024 third quarter and nine-month period.

The Hooker Branded segment’s S&A expenses increased in absolute terms during the fiscal 2024 third quarter and nine-month period.

This increase was primarily attributed to higher selling expenses, including those associated with larger showroom footprints, higher professional services expenses and higher international travel expenses.

These increases were partially offset by lower commissions due to decreased net sales.

S&A expenses as a percentage of net sales increased for both the fiscal 2024 third quarter and nine-month period also due to lower net sales.

The Home Meridian segment’s S&A expenses decreased in absolute terms for the fiscal 2024 third quarter and nine-month period due primarily to decreased salary expenses as the result of personnel changes, and to a lesser extent, lower selling costs and decreased insurance costs due to significantly reduced inventory levels.

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.

The Domestic Upholstery segment’s S&A expenses decreased in absolute terms in fiscal 2024 third quarter and nine-month period due to lower selling costs, the absence of accelerated ERP depreciation expenses, and lower bonus accrual due to current low profitability.

These decreases were partially offset by higher advertising supplies and sample expenses for the new M Brand, as well as higher professional services expenses.

Intangible Asset Amortization

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Intangible asset amortization

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.

Intangible asset amortization expense increased slightly in fiscal 2024 third quarter and nine-month period due to the reassessment and amortization of Sam Moore trade name.

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

1 unchanged sentence

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

1 unchanged sentence

Domestic Upholstery

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

Operating profit and margin increased as compared to the third quarter of the previous year but decreased as compared to the nine-month period of the prior year, due to the factors discussed above.

Interest Expense, net

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Consolidated interest expense, net

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.

Consolidated interest expense was lower in fiscal 2024 third quarter due to the absence of interest expense on the Existing Revolver we drew upon in the third quarter of prior year.

Interest expense increased in the fiscal 2024 nine-month period due to interest on the term loans, which we entered in July 2022, as well as increased interest rates.

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Consolidated income tax expense

Effective Tax Rate

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.

We recorded income tax expense of $2.0 million for the fiscal 2024 third quarter compared to $1.3 million for the comparable prior year quarter.

The effective tax rates for the fiscal 2024 and 2023 third quarters were 22.4% and 21.6%, respectively.

For the fiscal 2024 nine-month period, we recorded income tax expense of $2.6 million, compared to $3.9 million for the comparable prior year period.

The effective tax rates for the fiscal 2024 and 2023 nine-month periods were 22.0% and 22.5%, respectively.

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Consolidated net income

Diluted earnings per share

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.

While economic indicators remain mixed and furniture industry retail traffic is down about 15% from January through October 2023, our consolidated orders were up $12.7 million, or 15.7% for the third quarter and for the first nine months, consolidated orders increased by $75.8 million or 33.5%.

Recent order trends and an improved long-term economic outlook bode well for Hooker and the industry.

Reduced housing activity and high mortgage interest rates are still challenging, but several positives have emerged since last quarter.

Core inflation is at the lowest level since 2021, the US economy grew nearly 5% last quarter, unemployment remains at record lows and a recession appears less likely.

As we look to the next quarter, we see flat sales for our higher-priced Hooker Legacy brands as compared to the prior year fourth quarter.

We expect that the current downturn in the furniture retail business will temporarily suppress sales growth at HMI through the fourth quarter.

However, significant new retail product placements achieved by HMI recently should begin to buoy sales by the first quarter of next fiscal year as the placements generate orders and backlogs.

We believe a lot of our growth initiatives will begin to gain traction in the first half of calendar 2024.

We believe that our focus on reducing costs, keeping our balance sheet strong and judiciously deploying capital, along with our investments to promote higher visibility and future growth will continue to put us in the strongest possible position to leverage a return of furniture demand to more typical levels.

Financial Condition, Liquidity and Capital Resources

Cash Flows – Operating, Investing and Financing Activities

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Net cash provided by/(used in) operating activities

2 unchanged sentences

Net increase / (decrease) in cash and cash equivalents

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.

During the nine months ended October 29, 2023, we used a portion of the $48.8 million cash generated from operations and $444,000 life insurance proceeds to fund $11.7 million share repurchases, $7.2 million in cash dividends to our shareholders, $5.7 million capital expenditures including investments in our new showrooms, $3.8 million for development of our cloud-based ERP system, $2.4 million on the BOBO acquisition, and $378,000 in life insurance premiums on Company-owned life insurance policies.

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

Liquidity, Financial Resources and Capital Expenditures

20 unchanged sentences

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.

The Amendment provided us with an $18 million Secured 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

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.

As of October 29, 2023, $5.2 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.

As of October 29, 2023, unamortized loan costs of $28,125 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:

1 unchanged sentence

2.25:1.0 through July 30, 2024;

2.00:1.00 thereafter.

3 unchanged sentences

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.

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

As of October 29, 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 October 29, 2023.

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

Share Repurchase Authorization

3 unchanged sentences

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.

During the fiscal 2024 nine-month period, we used approximately $11.7 million of the authorization to purchase 620,634 of our common shares (at an average price of $18.79 per share).

The share repurchase program was completed during the fiscal 2024 third quarter.

Capital Expenditures

6 unchanged sentences

We anticipate spending approximately $1 million over the remainder of fiscal 2024, with a significant amount of time invested by our associates.

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.

On December 5, 2023, our board of directors declared a quarterly cash dividend of $0.23 per share which will be paid on December 29, 2023 to shareholders of record at December 15, 2023.

This represents a $0.01 per share and 4.5% increase over the previous quarterly dividend and the eighth consecutive annual dividend increase.

Critical Accounting Policies

1 unchanged sentence

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