What changed in this filing

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Item 1. Financial Statements

2024-06-07 compared with 2023-12-08 · 268 added, 347 removed, 460 unchanged (57% of the section changed)

42 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Cost of sales

1 unchanged sentence

Intangible asset amortization

Operating income

Operating (loss) / income

Other income, net

Interest expense, net

Income before income taxes

Income tax expense

Earnings per share

(Loss) / income before income taxes

Income tax (benefit) / expense

Net (loss) / income

(Loss) / earnings per share

Weighted average shares outstanding:

2 unchanged sentences

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME

(In thousands)

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net (loss) / income

Other comprehensive income:

Amortization of actuarial (gain)/loss

Income tax effect on amortization

Actuarial adjustments

Income tax effect on adjustments

Adjustments to net periodic benefit cost

Total comprehensive income

Total comprehensive (loss) / income

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

2 unchanged sentences

(In thousands)

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

Operating Activities:

Net (loss) / income

Adjustments to reconcile net income to net cash

provided by/(used in) operating activities:

provided by operating activities:

Depreciation and amortization

3 unchanged sentences

Gain on life insurance policies

Loss/(Gain) on disposal of assets

Changes in assets and liabilities:

8 unchanged sentences

Deferred compensation

Net cash provided by/(used in) operating activities

Net cash provided by operating activities

Investing Activities:

1 unchanged sentence

Premiums paid on life insurance policies

Proceeds received on life insurance policies

Net cash used in investing activities

3 unchanged sentences

Payments for long-term loans

Proceeds from long-term loans

Proceeds from revolving credit facility

Payments for revolving credit facility

Debt issuance cost

Net cash (used in)/provided by financing activities

Net increase/(decrease) in cash and cash equivalents

Net cash used in financing activities

Net (decrease) / increase in cash and cash equivalents

Cash and cash equivalents - beginning of year

1 unchanged sentence

Supplemental disclosure of cash flow information:

Cash paid/(refund) for income taxes

Cash paid for income taxes

Cash paid for interest, net

Non-cash transactions:

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

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

Increase in property and equipment through accrued purchases

5 unchanged sentences

Shareholders'

Income (loss)

Balance at July 31, 2022

Net income for the 13 weeks ended October 30, 2022

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

Cash dividends paid ($ 0.20 per share)

Purchase and retirement of common stock

Restricted stock grants, net of forfeitures

Restricted stock compensation cost

Performance-based restricted stock units cost

Balance at October 30, 2022

Balance at July 30, 2023

Net income for the 13 weeks ended October 29, 2023

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

Cash dividends paid ($ 0.22 per share)

Purchase and retirement of common stock

Restricted stock grants, net of forfeitures

Restricted stock compensation cost

Performance-based restricted stock units cost

Balance at October 29, 2023

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

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONT.)

(In thousands, except per share data)

Comprehensive

Shareholders'

Income (loss)

Balance at January 29, 2023

Net income for the 39 weeks ended October 30, 2022

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

Net income for the 13 weeks ended April 30, 2023

Actuarial adjustments on defined benefit plan, net of tax of $ 17

Cash dividends paid ($ 0.22 per share)

2 unchanged sentences

Restricted stock compensation cost

Performance-based restricted stock units costs

Balance at October 30, 2022

Performance-based restricted stock units cost

Balance at April 30, 2023

Balance at January 28, 2024

Net income for the 39 weeks ended October 29, 2023

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

Net loss for the 13 weeks ended April 28, 2024

Actuarial adjustments on defined benefit plan, net of tax of $ 14

Cash dividends paid ($ 0.23 per share)

Purchase and retirement of common stock

Restricted stock grants, net of forfeitures

Restricted stock compensation cost

Performance-based restricted stock units costs

Balance at October 29, 2023

Performance-based restricted stock units cost

Balance at April 28, 2024

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

2 unchanged sentences

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

For the Thirty-Nine Weeks Ended October 29, 2023

For the Thirteen Weeks Ended April 28, 2024

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,” “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.

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 2025 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “first quarter” or “quarterly period”) that began January 29, 2024 and ended April 28, 2024.

This report discusses our results of operations for these periods compared to the 2024 fiscal year thirteen-week period that began January 30, 2023 and ended April 30, 2023;

and our financial condition as of April 28, 2024 compared to January 28, 2024.

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

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

the 2025 fiscal year and comparable terminology mean the fifty-three-week fiscal year that began January 29, 2024 and will end February 2, 2025;

the 2024 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began January 30, 2023 and ended January 28, 2024.

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.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”.

The new guidance requires enhanced reportable segment disclosures to include significant segment expenses.

ASU 2023-07 is effective for annual periods beginning after December 15, 2023 (our fiscal 2025) and interim periods beginning after December 15, 2024 (our fiscal 2026).

We are currently evaluating the impact that the adoption of this new guidance will have on our consolidated financial statements and will add necessary disclosures upon adoption.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”.

The new guidance requires enhanced effective tax rate reconciliation and income taxes paid disclosures.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024 (our fiscal 2026).

We are currently evaluating the impact that the adoption of this new guidance will have on our consolidated financial statements and will add necessary disclosures upon adoption.

We reviewed all other newly issued accounting pronouncements and concluded that 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.

Accounts Receivable

22 unchanged sentences

Cloud Computing Hosting Arrangement

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

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

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

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

We expect the new ERP system to go live in the Home Meridian segment during fiscal 2026.

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 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 October 29, 2023 and January 29, 2023 were as follows:

These costs are recorded in other noncurrent assets of our consolidated balance sheets.

We amortize on a straight-line basis over a 10 -year term as the system went live at Sunset West and the legacy Hooker divisions.

The amortization expenses are recorded as a component of selling and administrative expenses in our consolidated statements of operations.

Additionally, we recorded capitalized interest as we entered into new term loans in July 2022.

Implementation costs of $ 1.3 million and interest expense of $ 55,000 were capitalized in fiscal 2025 first quarter.

Implementation costs of $ 1.3 million and interest expense of $ 66,000 were capitalized in fiscal 2024 first quarter.

The capitalized implementation costs at April 28, 2024 and January 28, 2024 were as follows:

April 28, 2024

January 28, 2024

Gross carrying amount

Accumulated amortization

Gross carrying amount

Accumulated amortization

Implementation Costs

Interest Expenses

Balance at January 29, 2023

Costs capitalized during the period

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 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.

As of April 28, 2024 and January 28, 2024, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs.

The fair value of the Company-owned life insurance is determined by inputs that are readily available in public markets or can be derived from information available in publicly quoted markets.

Additionally, the fair value of the Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period.

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

Fair value at October 29, 2023

Our assets measured at fair value on a recurring basis at April 28, 2024 and January 28, 2024, were as follows:

Fair value at April 28, 2024

Fair value at January 28, 2024

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 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.

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

Details of our intangible assets are as follows:

October 29, 2023

April 28, 2024

January 28, 2024

Gross carrying amount

Accumulated Amortization

Gross carrying amount

Accumulated Amortization

Intangible assets with indefinite lives:

8 unchanged sentences

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 .

Amortization expenses for intangible assets with definite lives were $ 924 ,000 and $ 883 ,000 for the first quarters of fiscal 2025 and 2024, respectively.

For the remainder of fiscal 2025, amortization expense is expected to be approximately $ 2.8 million.

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

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:

We recognized sublease income of $ 53,000 and $ 29,000 in the first quarters of fiscal 2025 and 2024, respectively.

The components of lease cost and supplemental cash flow information for leases for the first quarters of fiscal 2025 and 2024 were:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 29, 2023

October 30, 2022

October 29, 2023

October 30, 2022

April 28, 2024

April 30, 2023

Operating lease cost

3 unchanged sentences

Operating cash outflows

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

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

The right-of-use assets and lease liabilities recorded on our condensed consolidated balance sheets as of April 28, 2024 and January 28, 2024 were as follows:

April 28, 2024

January 28, 2024

4 unchanged sentences

Total operating lease liabilities

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

When we entered into the new loan agreement (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 5.18 %.

The weighted-average remaining lease term is 6.9 years.

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

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on April 28, 2024:

Undiscounted Future

Operating Lease

Operating Lease Payments

Remainder of fiscal 2025

15 unchanged sentences

2022 Secured Term Loan.

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

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

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

4 unchanged sentences

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.

We are required to make 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.

1 unchanged sentence

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

As of October 29, 2023, $ 5.2 million was outstanding under the Unsecured Term Loan, and $18 million was outstanding under the Secured Term Loan.

As of April 28, 2024, $ 4.5 million was outstanding under the Unsecured Term Loan and $18 million was outstanding under the Secured Term Loan.

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

As of October 29, 2023, unamortized loan costs of $ 28,125 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.

As of April 28, 2024, unamortized loan costs of $ 24,375 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:

6 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 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.

Due to our first quarter results, we were not in compliance with the Existing Loan Agreement’s basic fixed charge ratio covenant;

however, subsequent to the end of our fiscal 2025 first quarter, we obtained a covenant waiver from BofA.

Based on the risk of future non-compliance, we have classified all of the debt as current, and we have sufficient cash and investments on hand to retire the debt if necessary.

However, we are in discussions with our lender, and we expect to reach a longer-term solution through amendments to the Existing Loan Agreement or otherwise, such that we expect to be in compliance with our financial covenants beginning in our fiscal 2025 second quarter and for the foreseeable future.

As of April 28, 2024, we had $ 28.3 million available under our $35 million Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $ 6.7 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of April 28, 2024.

There were no additional borrowings outstanding under the Existing Revolver as of April 28, 2024.

Earnings Per Share

8 unchanged sentences

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.

Historically, 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.

4 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 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.

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 third quarter and nine-month period shown below.

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

Thirty-Nine Weeks Ended

Net (loss) / income

Unvested participating restricted stock dividends

Net earnings allocated to unvested participating restricted stock

Earnings available for common shareholders

(Loss) / Earnings available for common shareholders

Weighted average shares outstanding for basic earnings per share

1 unchanged sentence

Weighted average shares outstanding for diluted earnings per share

Basic earnings per share

Diluted earnings per share

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.

Tax years ending February 2, 2020 through January 29, 2023 remain subject to examination by federal and state taxing authorities.

Basic (loss) / earnings per share

Diluted (loss) / earnings per share

Due to net loss in fiscal 2025 first quarter, approximately 203,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share.

We recorded income tax benefits of $ 816 ,000 and income tax expenses of $ 402 ,000 for the fiscal 2025 and fiscal 2024 first quarters, respectively.

The effective tax rates for the fiscal 2025 and 2024 first quarters were 16.6 % and 21.7 %, respectively.

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

Tax years ending January 31, 2021 through January 28, 2024 remain subject to examination by federal and state taxing authorities.

Segment Information

10 unchanged sentences

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;

Home Meridian , 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;

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

1 unchanged sentence

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.

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 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

Thirty-Nine Weeks Ended

Hooker Branded

4 unchanged sentences

Domestic Upholstery

Operating Income/(Loss)

Operating (Loss) / Income

Hooker Branded

5 unchanged sentences

Domestic Upholstery

& Amortization

Depreciation & Amortization

Hooker Branded

1 unchanged sentence

Domestic Upholstery

As of October 29,

As of April 28,

As of January 28,

8 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 29, 2023

October 30, 2022

October 29, 2023

October 30, 2022

April 28, 2024

April 30, 2023

Subsequent Events

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.

On June 4, 2024 , our board of directors declared a quarterly cash dividend of $ 0.23 per share which will be paid on June 28, 2024 to shareholders of record at June 14, 2024 .

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

10 unchanged sentences

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 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;

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 high 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 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;

risks associated with the ultimate outcome of our planned cost reduction plans, including the amounts and timing of savings realized;

risks associated with the outcome of the HMI segment restructuring which we completed in fiscal 2024, including whether we can return the segment to consistent profitability;

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

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 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;

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, 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;

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;

risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices and availability of key raw materials, as well as changes in transportation, warehousing and domestic labor costs, availability of skilled labor, and environmental compliance and remediation costs;

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

the risks related to the 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;

the risks related to the Sunset Acquisition including 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 costs and risk associated with the expansion of Sunset West distribution to our East Coast facilities, and failure to realize benefits anticipated from the Sunset Acquisition;

changes in U.S.

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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 furnishings industry.

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.

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

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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,” “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.

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2025 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “first quarter” or “quarterly period”) that began January 29, 2024 and ended April 28, 2024.

This report discusses our results of operations for this period compared to the 2024 fiscal year thirteen-week period that began January 30, 2023 and ended April 30, 2023;

and our financial condition as of April 28, 2024 compared to January 28, 2024.

References in this report to:

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

the 2025 fiscal year and comparable terminology mean the fiscal year that began January 29, 2024, and will end February 2, 2025;

the 2024 fiscal year and comparable terminology mean the fiscal year that began January 30, 2023, and ended January 28, 2024.

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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

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

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

Our hospitality products are highly customized and are generally non-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.

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

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

At April 28, 2024, our backlog of unshipped orders was as follows:

Order Backlog

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Reporting Segment

October 29, 2023

April 28, 2024

January 28, 2024

October 30, 2022

April 30, 2023

Hooker Branded

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Domestic Upholstery

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.

Despite a slight decrease from the previous year's first quarter, consolidated order backlog at the end of fiscal 2025 first quarter showed a significant increase compared to fiscal 2024 year-end.

Home Meridian order backlog increased against both periods, driven by continued growth in its hospitality business.

*For comparison purposes, we included order backlog as of fiscal 2020 first quarter end, the year before the COVID crisis.

At fiscal 2020 first quarter end, Home Meridian backlog included $21.5 million orders from the unprofitable RTA, Clubs and ACH businesses which we decided to exit in fiscal 2022 and fiscal 2023, respectively.

Domestic Upholstery backlog did not include Sunset West, the business we acquired in the beginning of fiscal 2023.

At fiscal 2020 first quarter end, Sunset West had approximately $3.5 million in backlog.

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

Executive Summary-Results of Operations

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.

During the fiscal 2025 first quarter, consolidated net sales decreased by $28.2 million, or 23.2%, compared to the prior year’s first quarter.

All three reporting segments experienced double-digit sales decreases due to lower demand for home furnishings, which is adversely affecting the industry as a whole.

Notably, the absence of $7.5 million in revenue from the Accentrics Home (ACH) product line, which we exited during fiscal 2024, accounted for approximately half of the sales decrease in the Home Meridian segment.

Both consolidated gross profit and margin decreased for the quarter.

Gross profit decreased primarily due to the loss in sales volume across all segments.

Gross margin decreased primarily due to unfavorable customer and product mix in the Home Meridian segment and to a lesser extent under-absorbed costs in Domestic Upholstery segment due to lower production and sales.

Consequently, the Company recorded a consolidated operating loss of $5.2 million, with a negative margin of (5.5%), compared to a $2.0 million operating income and 1.6% margin reported in the previous year's first quarter.

The consolidated net loss was $4.1 million or ($0.39) per diluted share, compared to net income of $1.5 million or $0.13 per diluted share in the prior year quarter.

Our fiscal 2025 first quarter performance is discussed in greater detail below under “Review” and “Results of Operations.”

Our fiscal 2025 first quarter was challenging due to the ongoing softness in the home furnishings industry, which we attribute to multiple factors, including a sluggish housing market driven by high mortgage rates, delays in major discretionary purchases driven by persistent inflation and high interest rates, as well as lower consumer confidence and home furnishings spending due to the macroeconomic uncertainties.

We have cautiously navigated through these challenges by maintaining a strong balance sheet and focusing on fine-tuning growth initiatives including expanding both the Sunset West distribution along the East Coast and the Home Meridian licensed product line, investing in talent, improving showroom experiences, and continuing to grow our contract and hospitality businesses.

Despite reporting an operating loss for the quarter, we strongly believe we will return to profitability once demand and sales volumes rebound.

The Hooker Branded segment ’ s net sales decreased by $8.1 million, or 18.6%, compared to the prior year’s first quarter.

This decrease was primarily due to decreased unit volume and, to a lesser extent, lower average selling prices resulting from price reductions (due to lower ocean freight costs) implemented late last year.

The soft demand across the home furnishings industry led to a 13% decrease in incoming orders during the quarter, with a corresponding 14% decrease in backlog compared to the prior year quarter-end.

Quarter-end order backlog remained nearly 40% higher than pre-pandemic levels at the end of fiscal 2020 first quarter.

Despite the sales decline, this segment managed to maintain a gross margin of 31.3%, slightly higher than the prior year quarter.

Inventories sold in the prior year’s first quarter still carried a portion of high ocean freight costs, which was also reflected in prior year selling prices.

Additionally, a shift in the sourcing of Hooker Upholstery products from China to Vietnam, which eliminated tariff costs also contributed to the margin improvement.

However, warehousing costs, which are mostly fixed, increased by 160 bps due to lower net sales, despite decreased demurrage and drayage expenses resulting from a more stable supply chain.

Although selling and administration expenses were slightly higher in an absolute amount compared to the prior year period, they increased significantly as a percentage of net sales due to lower sales volume.

Consequently, Hooker Branded reported breakeven for the quarter, compared to an operating income of $2.4 million in the prior year period.

Notably, this segment assumes the majority of expenses associated with the Company’s growth and strategic initiatives.

Management remains committed to optimizing spending.

The Home Meridian segment experienced a sales decline of $15.5 million, or 37%, compared to the prior year first quarter.

The absence of $7.5 million in ACH sales accounted for nearly 50% of the overall decrease in the segment.

The remaining decreases in the segment were attributable to sales declines at independent furniture stores, major furniture chains, and hospitality business.

Despite more than 3x increase in incoming orders compared to the prior year period, Samuel Lawrence Hospitality (SLH) reported decreased net sales due to the nature of its project-based business model;

additionally, its quarter-end backlog was up nearly 2.5x.

HMI gross profit and margin both decreased due to the sales volume loss, as well as lower margins resulting from lower-margin product and customer mix.

On a more positive note, fixed overhead costs were reduced by $2 million as a result of business repositioning, including redeploying space at our Georgia warehouse to support Sunset West’s East Coast expansion.

The segment recorded a quarterly operating loss of $3.4 million, compared to a $2.1 million operating loss in the prior year period.

However, this result was consistent with management’s expectations given current industry conditions.

Incoming orders increased during the first quarter, and the quarter-end backlog was 22% higher than the same period last year and 37% higher than the fiscal 2024 year-end in January.

The Domestic Upholstery segment ’ s net sales decreased by $5.1 million, or 14.5%, compared to the prior year first quarter.

Each of the divisions, Bradington-Young, HF Custom and Shenandoah experienced double-digit sales decreases.

However, Sunset West reported robust sales growth of 20% for the quarter, attributed to its successful expansion to the East Coast and the stabilization of its ERP system over the past year.

Additionally, Sunset West saw a 9% increase in incoming orders during the quarter.

However, the segment's gross profit and margin both decreased.

Direct material costs, direct labor costs, indirect costs, and warehousing costs all increased slightly as percentages of net sales due to the decrease in overall sales and lower production efficiency.

Consequently, the segment recorded an operating loss of $1.3 million, compared to operating income of $1.3 million in the prior year period.

While HF Custom’s incoming orders increased by 18% during the quarter, quarter-end backlog for the segment decreased compared to prior year quarter-end but increased from fiscal 2024 year-end.

Excluding Sunset West, order backlog was 38% higher than the pre-pandemic fiscal 2020 first quarter-end.

Cash and cash equivalents stood at $40.9 million at fiscal 2025 first quarter-end, a decrease of $2.3 million from the fiscal 2024 year-end.

During the first quarter, we used cash and cash equivalents on hand and $1.5 million cash generated from operating activities to fund $2.5 million in cash dividends to our shareholders, $1.3 million for further development of our cloud-based ERP system, and $843,000 capital expenditures.

In addition to our cash balance, we had an aggregate of $28.3 million available under our existing revolver at quarter-end to fund working capital needs, as well as $28.7 million cash surrender value of company-owned life insurance.

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.

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Cost of sales

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Intangible asset amortization

Operating income

Operating (loss)/income

Other income, net

Interest expense

Income before income taxes

Income tax expense

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

(Loss)/income before income taxes

(Loss)/income tax expense

Net (loss)/income

Fiscal 2025 First Quarter Compared to Fiscal 2024 First Quarter

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Hooker Branded

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Domestic Upholstery

FY25 Q1 % Increase

Average Selling Price ("ASP")

FY25 Q1 % Increase

Hooker Branded

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Domestic Upholstery

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.

Consolidated net sales decreased in all three segments in the fiscal 2025 first quarter compared to the prior year period:

The Hooker Branded segment’s net sales decreased by $8.1 million, or 18.6%, in the fiscal 2025 first quarter.

This decrease was primarily driven by reduced unit volume due to persistently low demand for in the home furnishings industry.

Additionally, average selling prices decreased as a result of price reductions implemented during the second half of last year due to lower ocean freight costs.

The Home Meridian segment’s net sales decreased by $15.5 million, or 37%, in the fiscal 2025 first quarter.

Nearly half of the revenue decline was attributed to the absence of ACH liquidation sales.

The remaining decreases were from lower sales through major furniture chains, independent furniture stores, and the hospitality business.

Meanwhile, the average selling price increased significantly due to the absence of liquidation sales in the current period.

However, it was insufficient to offset the volume loss.

The Domestic Upholstery segment’s net sales decreased by $5.1 million, or 14.5%, in the fiscal 2025 first quarter due to decreased unit volume at Bradington-Young, HF Custom and Shenandoah.

In contrast, Sunset West experienced a 20% sales increase compared to the previous year’s first quarter.

This growth was attributed to the Company’s effort to expand distribution along the East Coast and the stabilization of its ERP system during the past year.

Gross Profit and Margin

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Hooker Branded

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Domestic Upholstery

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.

Consolidated gross profit and margin both decreased in fiscal 2025 first quarter.

The Hooker Branded segment’s gross profit decreased by $2.5 million while gross margin increased slightly.

Product costs were lower due to inventory sold in the previous year’s first quarter still carrying high ocean freight costs.

However, despite significantly reduced demurrage and drayage expenses, warehousing and distribution expenses, which are primarily fixed costs, increased by 160 bps, driven by lower net sales, and to a lesser extent, increased labor costs.

The Home Meridian segment’s gross profit and margin decreased by $3.4 million and 350 bps, respectively, in the fiscal 2025 first quarter.

These decreases were attributed to multiple factors, including lower net sales and unfavorable customer and product mix.

On a more positive note, Georgia warehouse costs were halved due to a decrease in inventory levels.

Additionally, the vacant space within the Georgia warehouse was repurposed to support Sunset West’s business along the East Coast.

The Domestic Upholstery segment’s gross profit and margin decreased by $2.3 million and 430 bps, respectively, in the fiscal 2025 first quarter.

Direct material costs, direct labor costs, and indirect costs increased by 110 bps, 60 bps and 120 bps, respectively, as compared to the previous year’s first quarter.

These increases were partially offset by lower benefits expenses.

Additionally, warehousing costs were 140 bps higher than prior year period due to higher labor costs and lower net sales.

Selling and Administrative Expenses (S&A)

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Hooker Branded

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Domestic Upholstery

Consolidated selling and administrative (“S&A”) expenses 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 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.

Consolidated selling and administrative (“S&A”) expenses decreased in absolute terms but increased as a percentage of net sales in the fiscal 2025 first quarter.

The Hooker Branded segment’s S&A expenses increased by a modest $240,000 in absolute terms.

However, this translated to a significant rise of 630 bps as a percentage of net sales.

This spike was attributed to the decrease in net sales due to low demand for home furnishings, leading to a disproportionate percentage of net sales in comparison to a normal demand cycle.

Additionally, this segment assumes the majority of expenses associated with the Company’s growth and strategic initiatives, including investments in talent, showroom expansions, implementation of the new ERP system, and various professional services.

These increases were partially offset by reductions in compensation and selling expenses.

The Home Meridian segment’s S&A expenses decreased by $2.1 million for the fiscal 2025 first quarter due to lower selling costs due to decreased net sales, lower compensation expenses and other cost-saving initiatives.

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

The Domestic Upholstery segment’s S&A expenses increased by a modest $277,000 in the fiscal 2025 first quarter due to higher selling expenses and amortization expenses related to the new ERP system.

These increases were partially offset by lower compensation expenses.

Intangible Asset Amortization

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Intangible asset amortization

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.

Intangible asset amortization expense increased slightly in fiscal 2025 first quarter due to the reassessment and amortization of the Sam Moore trade name.

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

Operating Profit/(Loss) and Margin

Operating (Loss) / Profit and Margin

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Domestic Upholstery

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

Thirty-Nine Weeks Ended

Consolidated interest expense, net

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.

The Company reported an operating loss in the fiscal 2025 first quarter due to the factors discussed above.

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Consolidated income tax expense

Consolidated income tax (benefits)/expense

Effective Tax Rate

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.

We recorded income tax benefits of $816,000 and income tax expenses of $402,000 for the fiscal 2025 and fiscal 2024 first quarters, respectively.

The effective tax rates for the fiscal 2025 and 2024 first quarters were 16.6% and 21.7%, respectively.

Net (Loss) / Income

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Consolidated net income

Diluted earnings per share

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.

Consolidated net (loss) / income

Diluted (loss) / earnings per share

Much remains unsettled on the macroeconomic front.

Economic indicators remain mixed with unemployment continuing under 4% and inflation easing slightly in April, leading to record stock market performance in mid-May.

However, consumer sentiment index fell nearly 10% in May after holding steady for months, indicating a deterioration in optimism across age, income and education levels.

Additionally, in both March and April, existing home sales decreased year-over-year.

Because the Federal Reserve has yet to cut interest rates this year, we believe home sales may be flat.

As long as interest rates remain high, we believe the housing industry – and therefore home furnishings demand - will remain subdued.

This environment has necessitated the adjustment of our cost footprint to current and expected medium-term demand through a realignment of operations which we expect will lead to a 10% reduction in overall fixed costs, the largest cut in our history, but one necessitated by current industry conditions.

Planned actions include consolidating BOBO into Hooker Branded, further reducing our Georgia warehouse footprint, and consolidating certain other operations and additional fixed cost reductions.

We are still finalizing those plans and expect to have more information in the current fiscal quarter.

We are intensely focused on creating an appropriate expense structure, while not jeopardizing the pace and impact of our strategic initiatives, which we believe will have a significant positive impact on Hooker once demand normalizes.

We expect to be profitable in the current fiscal year and beyond.

Despite the current environment, we believe our investments in new showrooms and expanding our addressable customer base and our focus on our strategic initiatives, will help us gain market share.

Already we have seen a nearly 400% increase in traffic and visibility through our expanded showroom footprints.

We see tremendous upside potential to take our flagship Hooker Legacy Brands product lines from good to great.

The addition of the new position of Chief Creative Officer (CCO) was extremely well-received by our retailers, designers and sales representatives at the recent High Point Market.

The new CCO has significant credibility in the industry and her ability to pull people together for collaboration is powerful.

As part of the executive leadership team, she will direct a collaborative merchandising approach across our brands that integrates case goods, import and domestic upholstery and outdoor furnishings, as well as lighting, accessories and accents.

As we bring our divisions into full alignment and move forward in the same creative direction, inspired by consumer trends in style, materials, color and aesthetics, we can become a whole-home resource offering a more forward-facing product line and presentation.

We continue to believe the investments and process improvements we made in the past year, such as the comprehensive repositioning of Home Meridian with the ultimate goal of sustainable profitability when demand returns to normal levels, along with the continued refinement of our strategy, as well as the transformative approach to merchandising we plan to launch across Hooker Legacy Brands will be a springboard to higher sales and profitability.

Since many fundamentals of the economy are solid and our company is well-positioned, we believe an upturn in consumer confidence, demand and industry-wide business will be significant when it occurs.

Compared to fiscal year-end in late January, our consolidated backlog is up approximately 19% through the first quarter, and consolidated orders increased by 11%, with orders up across every segment as compared to the previous quarter.

We are encouraged by these increases.

Financial Condition, Liquidity and Capital Resources

Cash Flows – Operating, Investing and Financing Activities

Thirty-Nine Weeks Ended

Net cash provided by/(used in) operating activities

Thirteen Weeks Ended

Net cash provided by operating activities

Net cash used in investing activities

Net Cash (used in)/ provided by financing activities

Net increase / (decrease) in cash and cash equivalents

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.

Net cash used in financing activities

Net (decrease)/increase in cash and cash equivalents

During fiscal 2025 first quarter ended April 28, 2024, we used cash and cash equivalent on hand and the $1.5 million cash generated from operations to fund $2.5 million in cash dividends to our shareholders, $1.3 million for further development of our cloud-based ERP system, $843,000 capital expenditures and $116,000 in life insurance premiums on Company-owned life insurance policies.

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

Liquidity, Financial Resources and Capital Expenditures

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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.

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 mid-summer because 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.

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2022 Secured Term Loan.

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

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

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

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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.

We are required to make 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.

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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.

As of April 28, 2024, $4.5 million was outstanding under the Unsecured Term Loan and $18 million was outstanding under the Secured Term Loan.

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

As of October 29, 2023, unamortized loan costs of $28,125 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.

As of April 28, 2024, unamortized loan costs of $24,375 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.

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

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We were in compliance with each of these financial covenants at 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

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 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.

Due to our first quarter results, we were not in compliance with the Existing Loan Agreement’s basic fixed charge ratio covenant;

however, subsequent to the end of our fiscal 2025 first quarter, we obtained a covenant waiver from BofA.

Based on the risk of future non-compliance, we have classified all of the debt as current, and we have sufficient cash and investments on hand to retire the debt if necessary.

As of April 28, 2024, we had $28.3 million available under our $35 million Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $6.7 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of April 28, 2024.

There were no additional borrowings outstanding under the Existing Revolver as of April 28, 2024.

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.

We expect to spend approximately $4 million in capital expenditures over the remainder of fiscal 2025 to maintain and enhance our operating systems and facilities, excluding any possible spending decreases resulting from the cost reduction plan discussed above.

Enterprise Resource Planning Project

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

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

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.

We anticipate spending approximately $3.0 million in fiscal 2025, with a significant amount of time invested by our associates, excluding any possible spending decreases resulting from the cost reduction plan discussed above.

On June 4, 2024, our board of directors declared a quarterly cash dividend of $0.23 per share which will be paid on June 28, 2024 to shareholders of record at June 14, 2024.

Critical Accounting Policies

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements