What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-09-06 compared with 2024-06-07 · 265 added, 202 removed, 526 unchanged (47% of the section changed)

42 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Cost of sales

5 unchanged sentences

(Loss) / income before income taxes

Income tax (benefit) / expense

Income tax expense / (benefit)

Net (loss) / income

7 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Net (loss) / income

8 unchanged sentences

(In thousands)

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Operating Activities:

1 unchanged sentence

Adjustments to reconcile net income to net cash

provided by operating activities:

(used in) / provided by operating activities:

Depreciation and amortization

3 unchanged sentences

Gain on life insurance policies

(Gain) / loss on disposal of assets

Changes in assets and liabilities:

12 unchanged sentences

Premiums paid on life insurance policies

Proceeds received on life insurance policies

Proceeds from sales of assets

Net cash used in investing activities

11 unchanged sentences

Non-cash transactions:

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

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

Increase in property and equipment through accrued purchases

5 unchanged sentences

Shareholders'

Balance at January 29, 2023

Net income for the 13 weeks ended April 30, 2023

Balance at April 30, 2023

Net income for the 13 weeks ended July 30, 2023

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

4 unchanged sentences

Performance-based restricted stock units cost

Balance at July 30, 2023

Balance at April 28, 2024

Balance at January 28, 2024

Net loss for the 13 weeks ended April 28, 2024

Net loss for the 13 weeks ended July 28, 2024

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

3 unchanged sentences

Performance-based restricted stock units cost

Balance at April 28, 2024

Balance at July 28, 2024

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 26 weeks ended July 30, 2023

Actuarial adjustments on defined benefit plan, net of tax of $ 34

Cash dividends paid ($ 0.44 per share)

Purchase and retirement of common stock

Restricted stock grants, net of forfeitures

Restricted stock compensation cost

Performance-based restricted stock units costs

Balance at July 30, 2023

Balance at January 28, 2024

Net loss for the 26 weeks ended July 28, 2024

Actuarial adjustments on defined benefit plan, net of tax of $ 28

Cash dividends paid ($ 0.46 per share)

Restricted stock grants, net of forfeitures

Restricted stock compensation cost

Performance-based restricted stock units costs

Balance at July 28, 2024

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

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

For the Thirteen Weeks Ended April 28, 2024

For the Twenty-Six Weeks Ended July 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.

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.

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,” “second quarter” or “quarterly period”) that began April 29, 2024, and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began January 29, 2024, which both ended July 28, 2024.

This report discusses our results of operations for these periods compared to the 2024 fiscal year thirteen-week period that began May 1, 2023, and the twenty-six-week period that began January 30, 2023, which both ended July 30, 2023;

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

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

26 unchanged sentences

Buildings and land improvements

Computer software and hardware

Machinery and equipment

Computer software and hardware

Leasehold improvements

7 unchanged sentences

Cloud Computing Hosting Arrangement

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.

We implemented a common Enterprise Resource Planning (ERP) system across all legacy Hooker divisions in fiscal 2023 and 2024.

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.

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.

We amortize on a straight-line basis over a 10 -year term as the system went live.

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

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

Implementation costs and interest expense of $ 1.2 million and $ 1.4 million were capitalized in the second quarters of fiscal 2025 and fiscal 2024, respectively.

Implementation costs and interest expense of $ 2.6 million and $ 2.8 million were capitalized in the fiscal 2025 and fiscal 2024 six-month periods, respectively.

Amortization expenses of $ 292,000 and $ 18,000 were recorded in the second quarters of fiscal 2025 and fiscal 2024, respectively.

Amortization expenses of $ 582,000 and $ 38,000 were recorded in the fiscal 2025 and fiscal 2024 six-month periods, respectively.

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

July 28, 2024

January 28, 2024

12 unchanged sentences

Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

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

As of July 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 April 28, 2024 and January 28, 2024, were as follows:

Fair value at April 28, 2024

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

Fair value at July 28, 2024

Fair value at January 28, 2024

8 unchanged sentences

Details of our intangible assets are as follows:

April 28, 2024

July 28, 2024

January 28, 2024

Gross carrying amount

Accumulated Amortization

Gross carrying amount

Accumulated Amortization

Gross carrying

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 $ 883 ,000 for the first quarters of fiscal 2025 and 2024, respectively.

Amortization expenses for intangible assets with definite lives were $ 924,000 and $ 1.8 million for the second quarter and first half of fiscal 2025 and 2024, respectively.

For the remainder of fiscal 2025, amortization expense is expected to be approximately $ 1.8 million.

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

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:

We recognized sub-lease income of $ 18,000 and $ 71,000 for the second quarter and first half of fiscal 2025, respectively.

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

The components of lease cost and supplemental cash flow information for leases for the three-months and six-months ended July 28, 2024 and July 30, 2023 were:

Thirteen Weeks Ended

April 28, 2024

April 30, 2023

Twenty-Six Weeks Ended

July 28, 2024

July 30, 2023

July 28, 2024

July 30, 2023

Operating lease cost

3 unchanged sentences

Operating cash outflows

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

April 28, 2024

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

July 28, 2024

January 28, 2024

6 unchanged sentences

The weighted-average remaining lease term is 6.6 years.

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

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 28, 2024:

Undiscounted Future

28 unchanged sentences

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

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

As of July 28, 2024, $ 4.2 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 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.

As of July 28, 2024, unamortized loan costs of $ 22,500 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.

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.

Due to our first half results, we were not in compliance with the Existing Loan Agreement’s basic fixed charge ratio covenant in either fiscal 2025 quarterly period;

however, subsequent to the end of both quarterly periods, we obtained covenant waivers from BofA.

Based on the risk of future non-compliance and according to U.S.

GAAP, we have classified all of the debt as current in our consolidated balance sheets.

We have sufficient cash and investments on hand to retire the debt if necessary.

However, we expect to finalize a new credit facility with BofA during the fiscal 2025 third quarter.

Consequently, we expect to be in compliance with our revised financial covenants beginning in our fiscal 2025 third quarter and for the foreseeable future.

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

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

Earnings Per Share

4 unchanged sentences

We have issued restricted stock units (“RSUs”) to certain senior executives since fiscal 2012 under the Company’s Stock Incentive Plan.

Each RSU entitles an executive to receive one share of the Company’s common stock if the executive remains continuously employed with the Company through the end of a three-year service period.

Each RSU entitles an executive to receive one share of the Company’s common stock if the executive remains continuously employed with the Company subject to a three-year vesting schedule.

The RSUs may be paid in shares of our common stock, cash or both at the discretion of the Compensation Committee of our board of directors.

2 unchanged sentences

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.

For the PSUs issued under the Company’s 2024 Stock Incentive Plan in fiscal 2025, one target is the Company’s annual EPS growth over the performance period and the other target is the Company’s total shareholder return during the performance period compared to the Company’s peer group.

The payout or settlement of the PSUs will be made in shares of our common stock.

6 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Net (loss) / income

7 unchanged sentences

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.

Due to net losses in the fiscal 2025 second quarter and first half, approximately 169,000 and 176,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share, respectively.

During the second quarters of fiscal 2025 and 2024, we recorded income tax expenses of $ 85,000 and $ 191,000 , respectively.

The effective tax rates for these periods were ( 4.5 %) and 19.6 %, respectively.

Due to the annualization method, we recognized income tax expenses on a loss before income tax in fiscal 2025 second quarter.

For the fiscal 2025 first half, we recorded income tax benefits of $ 731,000 compared to the income tax expense of $ 593,000 for the previous year’s first half.

The effective tax rates for the fiscal 2025 and 2024 first half periods were 10.8 % and 21.0 %, respectively.

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

19 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Hooker Branded

12 unchanged sentences

Domestic Upholstery

Depreciation & Amortization

& Amortization

Hooker Branded

1 unchanged sentence

Domestic Upholstery

As of April 28,

As of July 28,

As of January 28,

8 unchanged sentences

Thirteen Weeks Ended

April 28, 2024

April 30, 2023

Twenty-Six Weeks Ended

July 28, 2024

July 30, 2023

July 28, 2024

July 30, 2023

Subsequent Events

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 .

On September 3, 2024 , our board of directors declared a quarterly cash dividend of $ 0.23 per share which will be paid on September 30, 2024 to shareholders of record at September 13, 2024 .

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

13 unchanged sentences

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;

risks associated with the outcome of the HMI segment restructuring which we expect to complete in fiscal 2025, including whether we can return the segment to consistent profitability;

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;

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;

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.

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;

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

the interruption, inadequacy, security breaches or integration failure of our information systems or information technology infrastructure, related service providers or the internet or other related issues including unauthorized disclosures of confidential information, hacking or other cyber-security threats or inadequate levels of cyber-insurance or risks not covered by cyber-insurance;

1 unchanged sentence

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;

disruptions and damage (including those due to weather) affecting our Virginia or Georgia warehouses, our Virginia, North Carolina or California administrative facilities, our High Point, Las Vegas, and Atlanta showrooms or our representative offices or warehouses in Vietnam and China;

changes in U.S.

1 unchanged sentence

risks associated with product defects, including higher than expected costs associated with product quality and safety, regulatory compliance costs (such as the costs associated with the US Consumer Product Safety Commission’s new mandatory furniture tip-over standard, STURDY) related to the sale of consumer products and costs related to defective or non-compliant products, product liability claims and costs to recall defective products and the adverse effects of negative media coverage;

the risks specifically related to the concentrations of a material part of our sales and accounts receivable in only a few customers, including the loss of several large customers through business consolidations, failures or other reasons, or the loss of significant sales programs with major customers;

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

achieving and managing growth and change, and the risks associated with new business lines, acquisitions, including the selection of suitable acquisition targets, restructurings, strategic alliances and international operations;

capital requirements and costs;

risks associated with securing a suitable credit facility, which may include restrictive covenants that could limit our ability to pursue our business strategies;

risks associated with distribution through third-party retailers, such as non-binding dealership arrangements;

12 unchanged sentences

Quarterly Reporting

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.

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,” “second quarter” or “quarterly period”) that began April 29, 2024 and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began January 29, 2024, which both ended July 28, 2024.

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

References in this report to:

3 unchanged sentences

The following discussion should be read in conjunction with the condensed consolidated financial statements, including the related notes, contained elsewhere in this quarterly report.

We also encourage users of this report to familiarize themselves with all of our recent public filings made with the SEC, especially our 2024 Annual Report.

We also encourage users of this report to familiarize themselves with all our recent public filings made with the SEC, especially our 2024 Annual Report.

Our 2024 Annual Report contains critical information regarding known risks and uncertainties that we face, critical accounting policies and information on commitments and contractual obligations that are not reflected in our condensed consolidated financial statements, as well as a more thorough and detailed discussion of our corporate strategy and new business initiatives.

19 unchanged sentences

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

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

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

Order Backlog

1 unchanged sentence

Reporting Segment

April 28, 2024

July 28, 2024

January 28, 2024

April 30, 2023

July 30, 2023

*August 4, 2019

Hooker Branded

1 unchanged sentence

Domestic Upholstery

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.

Consolidated order backlog decreased compared to the end of the second quarter of the prior year but increased from year-end in January 2024, driven by a higher backlog in Home Meridian’s hospitality business.

Order backlog in the Hooker Branded and Domestic Upholstery segments decreased slightly from year-end but remained above pre-COVID levels in calendar 2019.

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

At fiscal 2020 second quarter end, Home Meridian backlog included approximately $14 million orders from the unprofitable ready-to-assemble (RTA), Clubs and Accentrics Home e-commerce (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.

At fiscal 2020 second quarter end, Sunset West had approximately $3 million in backlog.

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

Executive Summary-Results of Operations

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.

Our fiscal 2025 second quarter and first half results were adversely affected by continued anemic demand for home furnishings which is impacting most of home furnishings industry.

Additionally, in the prior year’s second quarter and first half, the $3.5 million and $11 million in liquidation sales from the unprofitable businesses we exited were not present in the current year periods.

Year-over-year industry-wide U.S.

furniture store sales fell compared to the prior year same months for 17 consecutive months, according to the U.S.

Census Bureau.

During the fiscal 2025 second quarter, consolidated net sales decreased by $2.7 million, or 2.8%, compared to the same quarter last year.

Net sales decreased by $2.3 million at Domestic Upholstery and $1.6 million at Hooker Branded, while Home Meridian saw a $1.6 million increase, driven by strong sales in its hospitality business.

Consolidated gross profit and margin decreased for the quarter, primarily due to decreased profitability in the Hooker Branded and Domestic Upholstery segments, which were attributed to lower sales and higher product costs, as well as under-absorbed indirect costs.

This decrease was partially offset by improved profitability in the Home Meridian segment.

The Company reported a quarterly consolidated operating loss of $3.1 million, with a margin of (3.3%), driven by low sales volume and under-absorbed expenses, compared to an operating income of $1.3 million and a 1.3% margin in the prior year’s second quarter.

The consolidated net loss for the quarter was $2.0 million, or ($0.19) per diluted share, compared to net income of $785,000, or $0.07 per diluted share, in the same quarter last year.

During the fiscal 2025 first half, consolidated net sales decreased by $31.0 million, or 14.1%, compared to the same period last year, also due to the persistent low demand for home furnishings driven by macroeconomic uncertainties.

All three segments experienced sales decreases during the six-month period.

Consolidated gross profit and margin decreased, impacted by lower overall sales, higher product costs in the Hooker Branded and Domestic Upholstery segments, and an unfavorable customer mix in the Home Meridian segment.

However, these decreases were partially offset by strong profitability in the hospitality business.

The company reported an operating loss of $8.2 million, with a margin of (4.3%), compared to an operating income of $3.2 million and a 1.5% margin in the same period last year.

The consolidated net loss for the six-month period was $6.0 million, or ($0.57) per diluted share, compared to $2.2 million, or $0.20 per diluted share, in the prior year period.

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

The softness in the macroeconomic environment and ongoing challenges in the home furnishings industry, which we observed in the previous quarters, have extended beyond our initial expectations.

In response to this downturn, we have focused on maintaining a strong balance sheet while protecting our 50-plus year history of quarterly dividends.

We have continued to grow our profitable businesses, including driving Home Meridian’s gross margin to one of the highest levels since its acquisition in 2016.

We continue to invest in growth initiatives, including the addition of new talent in areas like merchandising, interior design sales and support, increased showroom footprint as well as the continued expansion of Sunset West, all of which we believe will position us for improved profitability when demand returns.

Additionally, we are in the process of implementing cost reduction measures including the consolidation of certain operations and other fixed cost reductions.

In the fiscal 2025 second quarter, we reported a modest 2.8% decrease in revenue compared to the same period last year.

However, sales volumes remained insufficient to reach breakeven.

Despite the quarterly operating loss, we strongly believe in our strategic positioning and expect profitability to resume once the market recovers and sales volumes rebound.

The Hooker Branded segment ’ s net sales decreased by $1.6 million, or 4.5%, compared to the second quarter of the prior year, driven by the lower average selling prices due to the price reductions we implemented on orders after August of the prior year to align with reduced ocean freight costs.

Incoming orders decreased by 6.8% during the quarter, reflecting the persistent industry-wide weak demand for home furnishings.

Although unit volume exceeded both the prior year's second quarter and the current fiscal year's first quarter, it was still among the lowest quarters in recent history.

On a more positive note, the quarter-end order backlog remained 20% higher than pre-pandemic levels at the end of the fiscal 2020 second quarter.

Gross profit and gross margin both decreased during the quarter due to reduced net sales and higher product costs, driven by the recent increase in freight costs.

The prior period's gross margin benefited from lower freight costs and price increases implemented two years ago, making the current quarter's comparison more challenging.

Additionally, warehousing and distribution costs increased during the quarter, largely due to increased labor costs.

Despite achieving a 30% gross margin, the segment recorded a small operating loss of $406,000 for the quarter, driven by under-absorbed selling and administrative (S&A) expenses due to low sales, compared to a $3.9 million operating income in the prior quarter.

S&A expenses were higher as a percentage of sales due to the impact of lower sales on the mostly fixed nature of these expenses.

Additionally, S&A expenses increased in part because this segment assumes the majority of expenses associated with the Company’s growth and strategic initiatives, including investments in talent, ERP implementation expenses, professional services expenses, and other sales and marketing expenses.

Given that much of the increased spending is in growth initiatives, we believe the additional spending is warranted.

Notably, management remains committed to optimizing spending and expects to see significant fixed cost reductions beginning in the second half of fiscal 2025 and beyond.

The Home Meridian segment reported a $1.6 million, or 5.6%, increase in net sales for the fiscal 2025 second quarter, despite the absence of $3.5 million ACH liquidation sales that were in the prior period.

This marks the first year-over-year quarterly sales increase for the segment in two years.

The growth was primarily driven by strong sales at Samuel Lawrence Hospitality (SLH).

Additionally, we saw a sales uptick with major furniture chains and mass merchants during the quarter.

However, these increases were partially offset by decreased sales to independent furniture stores and e-commerce channels.

Home Meridian reported an increase in gross profit, achieving a gross margin of 19.5%, one of the highest levels since the acquisition of the business in 2016.

This was driven by strong profitability at SLH, along with reduced Georgia warehouse costs and lower expenses in Asian operations, though it was partially offset by sales of some lower-margin products and customer mix.

The segment recorded a quarterly operating loss of $896,000 due to sales volume deficit;

however, it improved from a $3.3 million operating loss in the same quarter last year and a $3.4 million loss in the first quarter of the current fiscal year.

This result was in line with management's expectations given the current industry conditions.

While incoming orders decreased during the second quarter, the quarter-end backlog was 2.1% higher than the same period last year and 22% higher than the fiscal 2024 year-end in January.

The Domestic Upholstery segment ’ s net sales decreased by $2.3 million, or 7.6%, compared to the prior year second quarter due to decreased sales at Bradington-Young and HF Custom, partially offset by increased sales at Sunset West and Shenandoah.

Industry weakness affected order rates and backlog levels, leading to reduced production at Bradington-Young and HF Custom during the quarter.

On a more positive note, excluding Sunset West, the order backlog remained 20% higher than the pre-pandemic levels at the end of the fiscal 2020 second quarter.

Gross profit and margin both decreased during the quarter due to increased direct material costs and under-absorbed indirect costs attributed to lower sales and resulting reduced production efficiencies at these domestic facilities, which negatively impacted margins by 150 bps and 180 bps, respectively.

Additionally, warehousing costs increased due to higher labor costs and increased warehouse rent expenses, as Sunset West has expanded into a portion of the Georgia warehouse for its growing East Coast footprint.

S&A expenses also increased by 240 bps during the quarter.

As a result, the segment recorded an operating loss of $1.3 million, compared to operating income of $724,000 in the prior year period.

Cash and cash equivalents were $42.1 million at the end of the second quarter, down $1.1 million from the fiscal 2024 year-end, but up $1.2 million from the first quarter ended in April 2024.

Inventory levels decreased by $4.7 million from year-end.

During the six-month period, we used cash and cash equivalents on hand and $5.3 million cash generated from operating activities to fund $4.9 million in cash dividends to our shareholders, $2.4 million for further development of our cloud-based ERP system, and $1.4 million in 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 $29.4 million cash surrender value of company-owned life insurance.

3 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Cost of sales

5 unchanged sentences

(Loss)/income before income taxes

(Loss)/income tax expense

Income tax expense / (benefit)

Net (loss)/income

Fiscal 2025 First Quarter Compared to Fiscal 2024 First Quarter

Fiscal 2025 Second Quarter and First Half Compared to Fiscal 2024 Second Quarter and First Half

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Hooker Branded

1 unchanged sentence

Domestic Upholstery

FY25 Q1 % Increase

Average Selling Price (“ASP”)

FY25 Q1 % Increase

Hooker Branded

4 unchanged sentences

Domestic Upholstery

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.

Consolidated net sales decreased in the second quarter of fiscal 2025, primarily due to decreases in the Domestic Upholstery and Hooker Branded segments, partially offset by an increase in net sales at Home Meridian.

For the first half of fiscal 2025, consolidated net sales decreased as all three segments experienced a downturn in sales.

The Hooker Branded segment’s net sales decreased by $1.6 million, or 4.5%, in the second quarter of fiscal 2025, primarily due to lower average selling prices following price reductions implemented in the second half of previous year, driven by reduced ocean freight costs.

While unit volume exceeded both the previous year's second quarter and the current fiscal year's first quarter, the price reductions had a more significant impact on overall revenue.

For the six-month period, net sales decreased by $9.7 million, or 12.2%, driven by the same decrease in average selling prices and, to a lesser extent, decreased unit volume in the first quarter, reflecting the ongoing industry headwinds.

The Home Meridian segment’s net sales increased by $1.6 million, or 5.6%, in the second quarter of fiscal 2025, primarily driven by strong performance in its hospitality business.

Additionally, sales through major furniture chains and mass merchants increased during the quarter.

These gains were partially offset by decreases in sales to independent furniture stores and through e-commerce channels.

In the previous year's second quarter, ACH liquidation sales accounted for $3.5 million, or 34% of unit volume.

For the six-month period, net sales decreased by $13.9 million, or 19.6%, largely due to the absence of $11 million in liquidation sales, which accounted for 39% of total unit volume in the first half of the prior year.

The remaining decrease was attributed to lower sales through independent furniture stores and e-commerce, while partially offset by increased sales in its hospitality business.

The average selling price increased significantly in the second quarter and first half of fiscal 2025 due to the absence of liquidation sales.

The Domestic Upholstery segment’s net sales decreased by $2.3 million, or 7.6%, in the second quarter of fiscal 2025, primarily due to lower unit volume at Bradington-Young and HF Custom.

Sunset West and Shenandoah each reported single-digit sales increases.

Over the six-month period, net sales decreased by $7.4 million, or 11.2%, with Bradington-Young, HF Custom, and Shenandoah experiencing sales decreases, while Sunset West reported a 10.7% sales growth.

This growth was attributed to the Company's efforts to expand its distribution along the East Coast and the stabilization of its ERP system over the past year.

Gross Profit and Margin

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Hooker Branded

1 unchanged sentence

Domestic Upholstery

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.

Consolidated gross profit decreased in the fiscal 2025 second quarter and first half primarily due to overall lower net sales, while consolidated gross margin decreased in both periods due to reduced margins in the Hooker Branded and Domestic Upholstery segments, partially offset by increased gross margin at Home Meridian.

The Hooker Branded segment’s profit and gross margin both decreased in fiscal 2025 second quarter, due to lower net sales and increased product costs.

The gross margin in the previous year's second quarter had been elevated by a combination of reduced ocean freight costs and price increases implemented during the post-COVID years to mitigate higher freight costs.

Warehousing and distribution expenses also increased during the quarter, driven by higher labor costs.

For the six-month period, gross profit decreased due to lower net sales, while gross margin decreased due to increased product costs and warehousing and distribution expenses.

The Home Meridian segment’s gross profit increased in the second quarter of fiscal 2025, driven by strong sales in the hospitality business, but decreased over the six-month period due to lower overall net sales.

Gross margin increased in both periods, due to higher profitability at SLH as well as reduced Georgia warehouse and Asian operation costs.

However, these gains were partially offset by an unfavorable customer and product mix.

The Domestic Upholstery segment’s gross profit and margin both decreased in the second quarter and first half of fiscal 2025.

Direct material costs increased by 150 bps in the quarter and 130 bps over the six-month period, driven by increased raw material costs.

Indirect costs increased by 180 bps and 150 bps, respectively, for both periods due to lower net sales resulting in under-absorbed fixed overhead costs.

Although direct labor costs decreased in absolute terms, they remained unchanged as a percentage of net sales, as Bradington-Young and HF Custom operated on reduced schedules to align production with lower backlog levels.

Additionally, warehousing and distribution expenses increased in both periods due to higher labor costs and increased rent expenses, as a portion of the Georgia warehouse was redeployed to support Sunset West’s East Coast expansion.

Selling and Administrative Expenses (S&A)

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Hooker Branded

1 unchanged sentence

Domestic Upholstery

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.

Consolidated selling and administrative (“S&A”) expenses increased both in absolute terms and as a percentage of net sales in the fiscal 2025 second quarter and the six-month period.

The Hooker Branded segment’s S&A expenses increased in absolute terms in both the second quarter and first half of fiscal 2025.

This increase was attributed to higher compensation costs due to wage inflation and investment in talent, higher bad debt, increased ERP system implementation expenses, and increased costs to support strategic growth initiatives.

S&A expenses increased as a percentage of net sales in the second quarter and the first half, primarily due to low sales, caused by the ongoing challenges in the home furnishings industry, as well as increased spending.

The Home Meridian segment’s S&A expenses increased slightly in absolute terms during fiscal 2025 second quarter but remained unchanged as a percentage of net sales.

Increased compensation costs, higher bad debt, and increased selling costs associated with higher net sales contributed to the uptick, partially offset by reduced spending in other areas.

For the fiscal 2025 first half, S&A expenses decreased due to lower selling costs on reduced net sales, decreased compensation expenses from personnel changes, and other cost-saving initiatives.

S&A expenses increased as a percentage of net sales due to lower net sales over the six-month period.

The Domestic Upholstery segment’s S&A expenses increased both in absolute terms and as a percentage of net sales during the second quarter and first half of fiscal 2025.

This increase was primarily driven by higher professional services expenses, as well as increased selling expenses.

These increases were partially offset by lower compensation expenses and other cost reductions.

Intangible Asset Amortization

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Intangible asset amortization

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

Intangible asset amortization expense remained unchanged in the second quarter of fiscal 2025 but increased slightly over the six-month period due to the reassessment and subsequent amortization of the Sam Moore trade name, which began in April of the previous year.

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

1 unchanged sentence

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Hooker Branded

1 unchanged sentence

Domestic Upholstery

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

The Company reported operating losses in the fiscal 2025 second quarter and first half due to the factors discussed above.

Thirteen Weeks Ended

Consolidated income tax (benefits)/expense

Twenty-Six Weeks Ended

Consolidated income tax expense / (benefits)

Effective Tax Rate

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.

During the second quarters of fiscal 2025 and 2024, we recorded income tax expenses of $85,000 and $191,000, respectively.

The effective tax rates for these periods were (4.5%) and 19.6%, respectively.

Due to the annualization method, we recognized income tax expenses on a loss before income tax in fiscal 2025 second quarter.

For the fiscal 2025 first half, we recorded income tax benefits of $731,000 compared to the income tax expense of $593,000 for the previous year’s first half.

The effective tax rates for the fiscal 2025 and 2024 first half periods were 10.8% and 21.0%, respectively.

Net (Loss) / Income

Thirteen Weeks Ended

Twenty-Six Weeks Ended

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.

We are encouraged that inflation hit its lowest post-pandemic level in July, with the Consumer Price Index cooling to 2.9%, setting up a possible interest rate cut in September.

There has been a recent surge in mortgage refinancing in August, which is a positive indicator.

We believe, if the Federal Reserve lowers interest rates, housing activity will accelerate.

While the U.S.

Department of Commerce reported its 17th consecutive month of lower home furnishings retail sales in July, overall retail sales rose about 3% during the same period, and the University of Michigan Consumer Sentiment Index rose in early August for the first time since March.

Additionally, existing-home sales grew in July ending a four-month sales decline.

Our strong balance sheet, financial condition and seasoned management team will well equip us to navigate the remaining downturn, as we focus on maximizing efficiencies with the planned cost reductions.

We are in the process of refinancing our credit facility and expect to have that completed in the near future.

In addition, we plan to pay off $22 million in term debt during the third quarter, demonstrating our confidence in our future.

We will continue investing in expansion strategies that will position us for improved profitability and revenue growth when demand returns.

Financial Condition, Liquidity and Capital Resources

Cash Flows – Operating, Investing and Financing Activities

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Net cash provided by operating activities

2 unchanged sentences

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.

During fiscal 2025 first half ended July 28, 2024, we used existing cash and cash equivalent on hand, $5.3 million cash generated from operations and $936,000 life insurance proceeds to fund $4.9 million in cash dividends to our shareholders, $2.4 million for further development of our cloud-based ERP system, $1.4 million capital expenditures and $326,000 in life insurance premiums on Company-owned life insurance policies.

In comparison, 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.

Liquidity, Financial Resources and Capital Expenditures

31 unchanged sentences

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.

As of July 28, 2024, $4.2 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 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.

As of July 28, 2024, unamortized loan costs of $22,500 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

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.