What changed in this filing

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Item 1. Financial Statements

2024-12-06 compared with 2024-09-06 · 235 added, 238 removed, 553 unchanged (46% of the section changed)

42 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Cost of sales

Selling and administrative expenses

Trade name impairment charges

Intangible asset amortization

3 unchanged sentences

(Loss) / income before income taxes

Income tax expense / (benefit)

Income tax (benefit) / expense

Net (loss) / income

7 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Net (loss) / income

8 unchanged sentences

(In thousands)

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Operating Activities:

Net (loss) / income

Adjustments to reconcile net income to net cash

Adjustments to reconcile net (loss) / income to net cash

(used in) / provided by operating activities:

Depreciation and amortization

Deferred income tax expense

Deferred income tax (benefit) / expense

Tradename impairment

Noncash restricted stock and performance awards

12 unchanged sentences

Deferred compensation

Net cash provided by operating activities

Net cash (used in) / provided by operating activities

Investing Activities:

13 unchanged sentences

Supplemental disclosure of cash flow information:

Cash paid for income taxes

Cash paid for income taxes, net of refund

Cash paid for interest, net

8 unchanged sentences

Shareholders'

Balance at April 30, 2023

Net income for the 13 weeks ended July 30, 2023

Balance at July 30, 2023

Net income for the 13 weeks ended October 29, 2023

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

4 unchanged sentences

Performance-based restricted stock units cost

Balance at October 29, 2023

Balance at July 28, 2024

Balance at April 28, 2024

Net loss for the 13 weeks ended July 28, 2024

Net loss for the 13 weeks ended October 27, 2024

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

3 unchanged sentences

Performance-based restricted stock units cost

Balance at July 28, 2024

Balance at October 27, 2024

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

6 unchanged sentences

Balance at January 29, 2023

Net income for the 26 weeks ended July 30, 2023

Net income for the 39 weeks ended October 29, 2023

Actuarial adjustments on defined benefit plan, net of tax of $ 50

4 unchanged sentences

Performance-based restricted stock units costs

Balance at July 30, 2023

Balance at October 29, 2023

Balance at January 28, 2024

Net loss for the 26 weeks ended July 28, 2024

Net loss for the 39 weeks ended October 27, 2024

Actuarial adjustments on defined benefit plan, net of tax of $ 42

3 unchanged sentences

Performance-based restricted stock units costs

Balance at July 28, 2024

Balance at October 27, 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 Twenty-Six Weeks Ended July 28, 2024

For the Thirty-Nine Weeks Ended October 27, 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 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.

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,” “third quarter” or “quarterly period”) that began July 29, 2024, and the thirty-nine week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began January 29, 2024, which both ended October 27, 2024.

This report discusses our results of operations for these periods compared to the 2024 fiscal year thirteen-week period that began July 31, 2023, and the thirty-nine week period that began January 30, 2023, which both ended October 29, 2023;

and our financial condition as of October 27, 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

15 - 30 $ 34,406 $ 33,785

Machinery and equipment

10 12,170 11,708

Computer software and hardware

3 - 10 8,576 8,994

Leasehold improvements

Term of lease

13,249 12,436

Furniture and fixtures

3 - 10 7,487 7,256

Total depreciable property at cost

76,590 74,877

Less accumulated depreciation

( 50,431 ) ( 47,700 )

Total depreciable property, net

26,159 27,177

Construction-in-progress

Property, plant and equipment, net

$ 28,524 $ 29,142

Cloud Computing Hosting Arrangement

5 unchanged sentences

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

Due to our cost reduction initiatives, we have temporarily paused the ERP project in the Home Meridian segment beginning in the third quarter of fiscal 2025.

Implementation costs and interest expense of $ 451,000 and $ 1.3 million were capitalized in the third quarters of fiscal 2025 and fiscal 2024, respectively.

Implementation costs and interest expense of $ 3.0 million and $ 4.0 million were capitalized in the fiscal 2025 and fiscal 2024 nine-month periods, respectively.

Amortization expenses of $ 291,000 and $ 153,000 were recorded in the third quarters of fiscal 2025 and fiscal 2024, respectively.

Amortization expenses of $ 874,000 and $ 190,000 were recorded in the fiscal 2025 and fiscal 2024 nine-month periods, respectively.

The capitalized implementation costs at October 27, 2024 and January 28, 2024 were as follows:

October 27, 2024

January 28, 2024

Gross carrying amount

Accumulated amortization

Gross carrying amount

Accumulated amortization

Gross carrying

Implementation Costs

7 unchanged sentences

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

As of July 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 October 27, 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 July 28, 2024 and January 28, 2024, were as follows:

Fair value at July 28, 2024

Our assets measured at fair value on a recurring basis at October 27, 2024 and January 28, 2024, were as follows:

Fair value at October 27, 2024

Fair value at January 28, 2024

8 unchanged sentences

Details of our intangible assets are as follows:

July 28, 2024

October 27, 2024

January 28, 2024

Gross carrying

Impairment / Accumulated

Gross carrying

Impairment / Accumulated

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 $ 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.

During the third quarter of fiscal 2025, we reviewed triggering events under ASU 2021-03, Intangibles – Goodwill and Other (Topic 350) .

Due to the decline in revenue driven by the downturn in the furniture industry, increased freight costs, changes in management and strategy, and the bankruptcy of a key customer, we identified triggering events that necessitated a valuation of the indefinite-lived trade names and trademarks in the Home Meridian segment.

Consequently, we performed a valuation using the discounted cash flow method.

This methodology involved cash flow projections and growth rates for each trade name over the next five years, provided by management, along with a royalty rate benchmark for companies engaged in similar activities.

Based on this analysis, we recorded non-cash impairment charges of $ 2.0 million for certain indefinite-lived trade names within the Home Meridian segment.

Amortization expenses for intangible assets with definite lives were $ 916,000 and $ 924,000 for the third quarters of fiscal 2025 and 2024, respectively.

Amortization expenses for intangible assets with definite lives were $ 2.8 million and $ 2.7 million for the nine-month periods of fiscal 2025 and 2024, respectively.

For the remainder of fiscal 2025, amortization expense is expected to be approximately $ 921,000 .

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

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:

We recognized sub-lease income of $ 36,000 and $ 107,000 for the third quarter and nine-month period of fiscal 2025, respectively.

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

The components of lease cost and supplemental cash flow information for leases for the three-months and nine-months ended October 27, 2024 and October 29, 2023 were:

Thirteen Weeks Ended

Twenty-Six Weeks Ended

July 28, 2024

July 30, 2023

July 28, 2024

July 30, 2023

Thirty-Nine Weeks Ended

October 27, 2024

October 29, 2023

October 27, 2024

October 29, 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 July 28, 2024 and January 28, 2024 were as follows:

July 28, 2024

The right-of-use assets and lease liabilities recorded on our condensed consolidated balance sheets as of October 27, 2024 and January 28, 2024 were as follows:

October 27, 2024

January 28, 2024

6 unchanged sentences

The weighted-average remaining lease term is 6.4 years.

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on July 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 October 27, 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 July 28, 2024, $ 4.2 million was outstanding under the Unsecured Term Loan and $ 18 million was outstanding under the Secured Term Loan.

As of October 27, 2024, $ 4.0 million was outstanding under the Unsecured Term Loan and $ 18 million was outstanding under the Secured Term Loan.

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

As of July 28, 2024, unamortized loan costs of $ 22,500 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.

As of October 27, 2024, unamortized loan costs of $ 20,625 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 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.

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 July 28, 2024.

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

Due to our first nine months results, we were not in compliance with the Existing Loan Agreement’s basic fixed charge ratio covenant in the first three fiscal 2025 quarterly periods.

Additionally, we were not in compliance with the Funded Debt to EBITDA Ratio in the third quarter.

However, subsequent to the end of all three quarterly periods, we obtained covenant waivers from BofA.

Subsequent to the fiscal 2025 third quarter end, we finalized a new credit facility with BofA in December 2024.

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

We refer you to the discussion in Note 14 Subsequent Events.

As of October 27, 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 October 27, 2024.

Earnings Per Share

18 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Net (loss) / income

7 unchanged sentences

Diluted (loss) / earnings per share

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.

Due to net losses in the fiscal 2025 third quarter and nine-month period, approximately 174,000 and 184,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share, respectively.

We recorded income tax benefit of $ 2.8 million for the fiscal 2025 third quarter, compared to $ 2.0 million income tax expense in the comparable prior year quarter.

The effective tax rates for the fiscal 2025 and 2024 third quarters were 40.7 % and 22.4 %, respectively.

The increase in the fiscal 2025 third-quarter effective tax rate was primarily due to the annualization method, which resulted in the recognition of income tax benefits from previous quarters.

For the fiscal 2025 nine-month period, we recorded income tax benefit of $ 3.6 million compared to the income tax expense of $ 2.6 million for the previous year’s comparable period.

The effective tax rates for the fiscal 2025 and 2024 nine-month periods were 26.0 % and 22.0 %, respectively.

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

19 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

16 unchanged sentences

Domestic Upholstery

As of July 28,

As of October 27,

As of January 28,

8 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

July 28, 2024

July 30, 2023

July 28, 2024

July 30, 2023

Thirty-Nine Weeks Ended

October 27, 2024

October 29, 2023

October 27, 2024

October 29, 2023

Subsequent Events

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 .

On December 2, 2024 , our board of directors declared a quarterly cash dividend of $ 0.23 per share which will be paid on December 30, 2024 to shareholders of record at December 13, 2024 .

Material Definitive Agreement

On December 5, 2024, Hooker Furnishings Corporation (the “Company”) and its wholly owned subsidiaries, Bradington-Young, LLC, Sam Moore Furniture LLC and Home Meridian Group, LLC (together with the Company, the “Borrowers”), entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) with Bank of America, N.A.

(“BofA”), as lender.

The Amended and Restated Loan Agreement amends, restates and replaces the Second Amended and Restated Loan Agreement, dated as of September 29, 2017, between the Borrowers and BofA, as amended (the “Existing Loan Agreement”).

$ 21,733,333 in principal amount of loans outstanding and $ 6,730,000 in face amount of letters of credit issued under the Existing Loan Agreement and used to collateralize certain insurance arrangements and for imported product purchases will remain outstanding as loans and letters of credit under the Amended and Restated Loan Agreement.

The Amended and Restated Loan Agreement provides for a revolving credit facility in a committed principal amount of up to $ 70,000,000 (the “Revolving Commitment”), including subline of $ 8,000,000 for letters of credit, and an option to increase the Revolving Commitment by up to $ 30,000,000 upon meeting certain conditions, including agreement by BofA to increase the Revolving Commitment by such amount.

Proceeds of loans and letters of credit under the Amended and Restated Loan Agreement will be available (a) on entry into the Amended and Restated Loan Agreement to replace the outstanding loans and letters of credit outstanding under the Existing Loan Agreement and to pay fees and expenses related to entry into the Amended and Restated Loan Agreement and (b) from and after entry into the Amended and Restated Loan Agreement, for general working capital and other corporate purposes of the Borrower.

Availability of loans and letters of credit under the Revolving Commitment is capped by a borrowing base formula calculated as of any date as the sum for the Borrowers of (a) the value of their accounts receivable, (b) the value of their inventory, (c) the value of their in-transit inventory and (d) the life insurance cash surrender value of company-owned life insurance policies, in each case subject to eligibility requirements, advance rates, valuation metrics, reductions for write-offs and other dilutive items and reserves (the “Borrowing Base”).

The lesser of the Revolving Commitment and the Borrowing Base, in each case net of the principal amount of outstanding loans and the face amount of letters of credit, constitutes “Availability” under the Amended and Restated Credit Agreement.

As calculated immediately following entry into the Amended and Restated Loan Agreement, after giving effect to the incurrence of $ 28,870,207 of loans and letters of credit in respect of outstanding obligations under the Existing Loan Agreement and fees and expenses related to entry into the Amended and Restated Loan Agreement, the Borrowers have approximately $ 41,129,793 of Availability based on the current Borrowing Base.

Outstanding loans under the Amended and Restated Loan Agreement will bear interest at a rate per annum equal to the then-current Term SOFR Rate for a period of one month plus 0.10% plus a margin of 1.75%.

The Term SOFR Rate will be adjusted on a monthly basis.

Letters of credit are subject to a letter of credit fee equal to the actual daily amount of undrawn letters of credit multiplied by a per annum rate of 1.75% and a fronting fee equal to the actual daily amount of undrawn letters of credit multiplied by a per annum rate of 0.125%.

We must also pay a monthly unused commitment fee that is based on the average daily unused amount of Revolving Commitment multiplied by a per annum rate of 0.25 %.

All accrued interest and fees are payable in cash monthly in arrears.

We may prepay any outstanding principal amounts borrowed under the Amended and Restated Loan Agreement at any time, without penalty provided that any payment is accompanied by all accrued interest owed.

Subject to the Borrowers having sufficient borrowing base capacity and customary conditions precedent to borrowing, amounts repaid may be reborrowed.

The Revolving Commitment will terminate, and all amounts outstanding thereunder will be due and payable, on December 5, 2029 .

The obligations under the Amended and Restated Loan Agreement are secured by a first priority security interest in substantially all of the assets of the Borrowers, other than real estate, including all Company-owned life insurance policies, all accounts receivable, all inventory, all intellectual property, all equipment and all other personal property.

The Amended and Restated Loan Agreement includes customary representations and warranties and requires the Borrowers to comply with customary affirmative and negative covenants, including, among other things, a financial covenant requiring the maintenance of a ratio of (x) EBITDA net of capital expenditures (to the extent not paid using Borrowed Money) to (y) the sum of debt service and dividends paid, in each case as of the last day of each month for the trailing twelve-month period ending on such day, of at least 1.0 to 1.0, if an event of default has occurred and is continuing or Availability has fallen below 10% of the Revolving Commitment at any time (until such time as both Availability is 10% or greater and no event of default exists, for the 30 consecutive days prior to such month end).

The Amended and Restated Loan Agreement also limits the Borrowers’ right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions.

The Amended and Restated Loan Agreement does not restrict the Company’s ability to pay cash dividends on, or repurchase, shares of its common stock, subject to (a) no default existing prior to or resulting from such dividend or repurchase, (b) Availability is not less than 15% of the Revolving Commitment for each of the preceding 45 days prior to announcement of such dividend or repurchase and after giving pro forma effect to such dividend or repurchase and (c) if Availability is less than 20% of the Revolving Commitment on any day in such 45-day period, the Borrowers are in compliance with the financial covenant described above after giving effect to such dividend or repurchase.

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

21 unchanged sentences

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

the risks related to the Sunset 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;

10 unchanged sentences

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.

7 unchanged sentences

Quarterly Reporting

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.

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,” “third quarter” or “quarterly period”) that began July 29, 2024 and the thirty-nine week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began January 29, 2024, which both ended October 27, 2024.

and our financial condition as of October 27, 2024 compared to January 28, 2024.

References in this report to:

25 unchanged sentences

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

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

At October 27, 2024, our backlog of unshipped orders was as follows:

Order Backlog

1 unchanged sentence

Reporting Segment

July 28, 2024

October 27, 2024

January 28, 2024

July 30, 2023

*August 4, 2019

October 29, 2023

*November 3, 2019

Hooker Branded

1 unchanged sentence

Domestic Upholstery

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.

Consolidated order backlog decreased by 5.3% and 8.4% compared to the end of the previous year’s third quarter and the fiscal 2024 year-end in January, respectively.

Hooker Branded incoming orders decreased by 13.3% year-over-year.

The quarter-end order backlog was 30% lower than at the end of the prior year’s third quarter but remained 18% higher than pre-pandemic levels at the end of the fiscal 2020 third quarter.

Home Meridian incoming orders increased by 8.1% compared to the previous year’s third quarter.

The quarter-end backlog was 32.2% higher than the prior year’s third quarter end, primarily due to increased orders from the hospitality business.

Domestic Upholstery incoming orders decreased by 4.8% during the quarter, and the quarter-end backlog was 29.9% lower than at the end of the prior year’s third quarter.

Excluding Sunset West, the order backlog remained consistent with pre-pandemic levels at the end of the fiscal 2020 third quarter.

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

At fiscal 2020 third quarter end, Home Meridian backlog included approximately $17 million orders from the unprofitable 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 second quarter end, Sunset West had approximately $3 million in backlog.

At fiscal 2020 third quarter end, Sunset West had approximately $1.5 million in backlog.

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

Executive Summary-Results of Operations

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.

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.

Our fiscal 2025 third quarter and nine months results were adversely affected by macro-economic headwinds and challenging conditions which are impacting most of the home furnishings industry.

Consolidated net sales were $104.4 million, a decrease of $12.5 million, or 10.7%, compared to the same quarter of the previous year.

Additionally, we recorded $2.4 million in bad debt expense due to a large customer’s bankruptcy, which also triggered tradename impairment of $2.0 million.

On a positive note, we are starting to see benefits from our cost reduction plan announced in the second quarter;

however, we incurred $3.1 million in costs related to those measures in the third quarter.

The Company reported a consolidated operating loss of $7.3 million and a net loss of $4.1 million, or ($0.39) per diluted share.

For the nine-month period of fiscal 2025, consolidated net sales were $293.0 million, a decrease of $43.4 million or 12.9% compared to the same period of the previous year.

This decrease was also due to persistent low demand affecting the home furnishings industry, and the absence of $11 million in liquidation sales from the unprofitable ACH product line which the Company exited last year.

For the current nine-month period, the Company reported a consolidated operating loss of $15.4 million and a net loss of $10.2 million, or ($0.97) per diluted share, attributed to lower overall sales, higher ocean freight costs at Hooker Branded, under-absorbed indirect costs at Domestic Upholstery, as well as a total of $7.5 million charges mentioned earlier.

Our fiscal 2025 third quarter and nine months performance are discussed in greater detail below under “Results of Operations.”

Results of Operations

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Cost of sales

Selling and administrative expenses

Trade name impairment charges

Intangible asset amortization

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(Loss)/income before income taxes

Income tax expense / (benefit)

Income tax (benefit) / expense

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

Fiscal 2025 Third Quarter and Nine Months Compared to Fiscal 2024 Third Quarter and Nine Months

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Hooker Branded

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Domestic Upholstery

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.

Consolidated net sales decreased in both the third quarter and nine-month period of fiscal 2025, as all three segments reported lower sales due to the ongoing challenging environment for home furnishings.

The Hooker Branded segment’s net sales decreased by $4.2 million, or 10.7%, in the third quarter of fiscal 2025.

The average selling price decreased by 5.6%, reflecting price reductions implemented last year to align with lower ocean freight costs, as well as higher discounting on excess inventories due to re-balancing inventory mix and levels.

Additionally, returns and allowances increased by 110 bps driven by handling charges.

While unit volume decreased by a modest 2.1% compared to the prior year’s third quarter, it exceeded levels seen in the first and second quarters of this fiscal year.

For the nine-month period, net sales decreased by $13.9 million, or 11.7%, also due to lower average selling price and decreased unit volume.

The Home Meridian segment’s net sales decreased by $5.1 million, or 11.8%, in the third quarter of fiscal 2025, due to reduced unit volume.

Approximately 40% of this decrease was attributable to the loss of a significant customer following its bankruptcy.

Sales through major furniture chains and independent furniture stores decreased, though these decreases were partially offset by an 8% increase in sales within the hospitality business.

For the nine-month period, net sales decreased by $19 million, or 16.6%, largely due to the absence of $11 million in ACH liquidation sales, which accounted for approximately 60% of the sales decrease and 75% of the unit volume decrease.

Sales across nearly all channels experienced decreases during the period, except for the hospitality business which experienced a strong 23% increase.

The average selling price increased significantly over the nine-month period due to the absence of liquidation sales.

The Domestic Upholstery segment’s net sales decreased by $3.2 million, or 9.9%, in the third quarter of fiscal 2025, due to sales decreases at Shenandoah, Bradington-Young, and HF Custom, attributed to persistent low demand.

This decrease was partially offset by a 9.1% increase in sales at Sunset West, which has delivered year-over-year quarterly sales growth for three consecutive quarters this fiscal year, driven by its expansion on the East Coast and the stabilization of its ERP system.

For the nine-month period, net sales decreased by $10.6 million, or 10.8% due to the same factors.

Bradington-Young, HF Custom and Shenandoah have been operating on a reduced production schedule since summer of this year to align with lower backlog levels, leading to decreased unit volumes at these divisions for both the third quarter and the nine-month period.

Gross Profit and Margin

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Domestic Upholstery

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.

Consolidated gross profit and margin decreased in both the third quarter and nine-month period of fiscal 2025, primarily due to lower overall net sales and increased ocean freight costs at Hooker Branded, partially offset by increased gross margin at Home Meridian.

The Hooker Branded segment’s gross profit and margin decreased in both periods, impacted by lower net sales, higher product costs driven by increased ocean freight costs, and reduced margins on discounted products.

Additionally, the prior year quarter's gross margin was elevated by the combination of lower freight costs and higher selling prices, significantly impacting the year-over-year comparison.

Warehousing and distribution expenses increased by 180 and 150 bps compared to both the previous year’s periods, respectively, due to the decreases in net sales.

The Home Meridian segment’s gross profit decreased in both the third quarter and nine-month period of fiscal 2025, primarily driven by lower net sales.

Despite decreased net sales, Home Meridian achieved a gross margin of 20.5%, its highest level since the acquisition in 2016.

The restructuring efforts over recent years to support sustained profitability at Home Meridian have shown meaningful results, including significantly reduced allowances, improved product margins, and lower fixed costs across nearly all areas of this segment.

For the nine-month period, gross profit and margin benefited from strong sales and profitability in the hospitality business during the second quarter.

These favorable variances were partially offset by unfavorable customer mix, which included higher volume but lower margin accounts.

The Domestic Upholstery segment’s gross profit decreased in both periods due to lower net sales.

While gross margin remained relatively flat in the third quarter, it decreased by 300 bps in the nine-month period of fiscal 2025.

In the third quarter, direct material costs decreased by 150 bps primarily due to lower purchased inventory costs at Sunset West, partially offset by increased fabric costs at Shenandoah and higher freight expenses across four divisions.

Direct labor costs decreased by 60 bps due to reduced headcount and working hours.

For the nine-month period, direct material and direct labor costs remained unchanged as a percentage of net sales.

Indirect costs increased by 40 and 120 bps in the third quarter and nine-month period, respectively, due to lower net sales and production inefficiencies, partially mitigated by decreased indirect labor and benefits costs.

Warehousing and distribution expenses increased by 200 and 150 bps in these periods, respectively, primarily driven by higher rent expenses related to the redeploying of a portion of the Georgia warehouse to support Sunset West's East Coast expansion, as well as increased labor costs at this division.

All Other recorded approximately $470,000 in restructuring costs, primarily due to BOBO inventory write-downs and warehouse closure expenses, as a result of the consolidation of BOBO business into Hooker Branded operations.

Selling and Administrative Expenses (S&A)

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Domestic Upholstery

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

Consolidated selling and administrative (“S&A”) expenses increased in absolute terms in the fiscal 2025 third quarter and the nine-month period due to a $2.6 million restructuring costs and a $2.4 million bad debt expense recorded in the third quarter.

S&A increased as a percentage of net sales due to lower net sales and these charges.

The Hooker Branded segment’s S&A expenses increased by $1.6 million or 770 bps compared to the third quarter of the previous year.

Approximately $950,000 restructuring costs, primarily severance costs, were recorded in the third quarter.

Additional contributing factors included higher compensation costs due to wage inflation and investment in talent, as well as increased IT-related expenses.

For the nine-month period, S&A expenses increased due to these same factors, along with increased professional service expenses to support strategic growth initiatives, increased showroom expenses, higher bad debt and banking expenses, and compliance costs.

Despite decreases in net sales in both periods, commissions did not decrease significantly due to higher commission rates in the contract and interior design channels.

The Home Meridian segment’s S&A expenses increased by $1.8 million or 690 bps during fiscal 2025 third quarter, primarily driven by the $2.4 million bad debt expense resulting from the bankruptcy of a major customer, and to a lesser extent, $233,000 in severance costs.

Excluding these costs, S&A expenses would have been lower than in the previous year’s third quarter due to the cost reduction initiatives including personnel changes and reduced spending, as well as lower selling costs on decreased net sales.

For the nine-month period, S&A expenses were essentially flat as the increase in bad debt expense was offset by cost savings and lower selling costs on reduced net sales.

S&A expenses increased by 390 bps over the nine-month period due to decreased net sales.

The Domestic Upholstery segment’s S&A expenses increased both in absolute terms and as a percentage of net sales during the third quarter and the nine-month period of fiscal 2025, primarily due to approximately $560,000 in severance costs recorded in the third quarter.

This increase was largely offset by reductions in compensation expenses, driven by lower medical claims and bonus accruals, as well as decreased selling costs due to lower net sales and other cost-saving initiatives.

S&A expenses increased for the nine-month period also due to higher professional services expenses incurred earlier in the year.

Approximately $850,000 restructuring costs, primarily severance costs, were recorded in All Other resulting from the consolidation of BOBO business.

Intangible Asset Impairment and Amortization

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Tradenames impairment

Intangible asset amortization

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.

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Domestic Upholstery

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

The Company reported operating losses in the fiscal 2025 third quarter and the nine-month period due to the $3.1 million in restructuring costs, $2.4 million in bad debt, and $2.0 million in intangible asset impairment, as well as low sales volume.

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Effective Tax Rate

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.

We recorded income tax benefit of $2.8 million for the fiscal 2025 third quarter, compared to $2.0 million income tax expense in the comparable prior year quarter.

The effective tax rates for the fiscal 2025 and 2024 third quarters were 40.7% and 22.4%, respectively.

The increase in the fiscal 2025 third-quarter effective tax rate was primarily due to the annualization method, which resulted in the recognition of income tax benefits from previous quarters.

For the fiscal 2025 nine-month period, we recorded income tax benefit of $3.6 million compared to the income tax expense of $2.6 million for the previous year’s comparable period.

The effective tax rates for the fiscal 2025 and 2024 nine-month periods were 26.0% and 22.0%, respectively.

Net (Loss) / Income

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Diluted (loss) / earnings per share

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.

Over the last few months, the key economic indicators that impact furniture sales have been trending positively:

Interest rates, which drive home mortgage rates, were cut by the Federal Reserve in September and November.

Since summer, inflation has been cooling to levels closer to the Federal Reserve’s 2% target:

at 2.9% in July, 2.5% in August, 2.4% in September and 2.6% in October.

In November, a leading real estate industry group stated its belief that the worst of the US housing inventory shortage is ending and forecasted an approximate 10% increase in home sales for 2025, with mortgage rates stabilizing around 6%.

Consumer sentiment rose in November to 71.8, its highest level since April, and the stock market continues near all-time highs.

While the macro-economic outlook is improving, we continue to focus on the controllables and improvements already underway.

Our balance sheet, financial condition and seasoned management team should well equip us to navigate any remaining challenges as we focus on maximizing efficiencies with the cost reductions while simultaneously investing in expansion strategies that will position us for revenue and profitability growth when demand fully returns.

Financial Condition, Liquidity and Capital Resources

Cash Flows – Operating, Investing and Financing Activities

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Net cash (used in) / provided by operating activities

Net cash used in investing activities

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Net (decrease)/increase in cash and cash equivalents

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.

During fiscal 2025 nine-month period, we used existing cash and cash equivalents on hand and $936,000 life insurance proceeds to fund $7.4 million in cash dividends to our shareholders, $2.8 million for further development of our cloud-based ERP system, $2.7 million capital expenditures and $387,000 in life insurance premiums on Company-owned life insurance policies.

In comparison, during the fiscal 2024 nine-month period, 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.

Liquidity, Financial Resources and Capital Expenditures

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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.

As of October 27, 2024, $4.0 million was outstanding under the Unsecured Term Loan and $18 million was outstanding under the Secured Term Loan.

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

As of July 28, 2024, unamortized loan costs of $22,500 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.

As of October 27, 2024, unamortized loan costs of $20,625 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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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.

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 July 28, 2024.

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

Due to our first nine months results, we were not in compliance with the Existing Loan Agreement’s basic fixed charge ratio covenant in the first three fiscal 2025 quarterly periods.

Additionally, we were not in compliance with the Funded Debt to EBITDA Ratio in the third quarter.

However, subsequent to the end of all three quarterly periods, we obtained covenant waivers from BofA.

Subsequent to the fiscal 2025 third quarter end, we finalized a new credit facility with BofA.

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

We refer you to the discussion in Note 14 Subsequent Events.

As of October 27, 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 October 27, 2024.

There were no additional borrowings outstanding under the Existing Revolver as of October 27, 2024.

Capital Expenditures

We expect to spend approximately $1 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.

We expect to spend approximately $600,000 to $700,000 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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The ERP system went live at Sunset West in December 2022 and in the legacy Hooker divisions in early September 2023.

Due to our cost reduction initiatives, we have paused the ERP project in the Home Meridian segment.

Due to our cost reduction initiatives, we have temporarily paused the ERP project in the Home Meridian segment.

We do not anticipate further significant ERP spending in fiscal 2025.

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.

On December 2, 2024, our board of directors declared a quarterly cash dividend of $0.23 per share which will be paid on December 30, 2024, to shareholders of record at December 13, 2024.

Critical Accounting Policies

1 unchanged sentence

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

What changed 10-Q

Item 1. Financial Statements