HOOKER FURNISHINGS Corp 10-Q

Item 1. Financial Statements HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) As of October 27, January 28, 2024 2024 (unaudited) Assets Current assets Cash and cash equivalents $ 20,410 $ 43,159 Trade accounts receivable, net 51,773 51,280 Inventories 66,493 61,815 Income tax recoverable 3,005 3,014 Prepaid expenses and other current assets 9,038 5,530 Total current assets 150,719 164,798 Property, plant and equipment, net 28,524 29,142 Cash surrender value of life insurance policies 28,984 28,528 Deferred taxes 15,575 12,005 Operating leases right-of-use assets 47,435 50,801 Intangible assets, net 23,904 28,622 Goodwill 15,036 15,036 Other assets 16,687 14,654 Total non-current assets 176,145 178,788 Total assets $ 326,864 $ 343,586 Liabilities and Shareholders ’ Equity Current liabilities Current portion of long-term debt $ 1,393 $ 1,393 Trade accounts payable 23,240 16,470 Accrued salaries, wages and benefits 6,937 7,400 Customer deposits 5,799 5,920 Current portion of operating lease liabilities 7,612 6,964 Other accrued expenses 2,785 3,262 Total current liabilities 47,766 41,409 Long term debt 20,553 21,481 Deferred compensation 6,989 7,418 Operating lease liabilities 42,785 46,414 Other long-term liabilities - 889 Total long-term liabilities 70,327 76,202 Total liabilities 118,093 117,611 Shareholders’ equity Common stock, no par value, 20,000 shares authorized, 10,710 and 10,672 shares issued and outstanding on each date 50,026 49,524 Retained earnings 158,146 175,717 Accumulated other comprehensive income 599 734 Total shareholders’ equity 208,771 225,975 Total liabilities and shareholders’ equity $ 326,864 $ 343,586 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 3 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) For the Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 Net sales $ 104,352 $ 116,831 $ 293,005 $ 336,452 Cost of sales 80,327 83,121 228,687 251,495 Gross profit 24,025 33,710 64,318 84,957 Selling and administrative expenses 28,416 24,016 75,030 70,207 Trade name impairment charges 1,953 - 1,953 - Intangible asset amortization 916 924 2,765 2,732 Operating (loss) / income ( 7,260 ) 8,770 ( 15,430 ) 12,018 Other income, net 612 659 2,575 1,071 Interest expense, net 319 364 886 1,197 (Loss) / income before income taxes ( 6,967 ) 9,065 ( 13,741 ) 11,892 Income tax (benefit) / expense ( 2,836 ) 2,027 ( 3,567 ) 2,620 Net (loss) / income $ ( 4,131 ) $ 7,038 $ ( 10,174 ) $ 9,272 (Loss) / earnings per share Basic $ ( 0.39 ) $ 0.66 $ ( 0.97 ) $ 0.85 Diluted $ ( 0.39 ) $ 0.65 $ ( 0.97 ) $ 0.85 Weighted average shares outstanding: Basic 10,541 10,536 10,519 10,748 Diluted 10,541 10,676 10,519 10,878 Cash dividends declared per share $ 0.23 $ 0.22 $ 0.69 $ 0.66 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 4 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME (In thousands) (Unaudited) For the Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 Net (loss) / income $ ( 4,131 ) $ 7,038 $ ( 10,174 ) $ 9,272 Other comprehensive income: Actuarial adjustments ( 59 ) ( 70 ) ( 177 ) ( 209 ) Income tax effect on adjustments 14 17 42 50 Adjustments to net periodic benefit cost ( 45 ) ( 53 ) ( 135 ) ( 159 ) Total comprehensive (loss) / income $ ( 4,176 ) $ 6,985 $ ( 10,309 ) $ 9,113 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 5 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) For the Thirty-Nine Weeks Ended October 27, October 29, 2024 2023 Operating Activities: Net (loss) / income $ ( 10,174 ) $ 9,272 Adjustments to reconcile net (loss) / income to net cash (used in) / provided by operating activities: Depreciation and amortization 6,930 6,626 Deferred income tax (benefit) / expense ( 3,532 ) 2,575 Tradename impairment 1,953 - Noncash restricted stock and performance awards 502 1,685 Provision for doubtful accounts and sales allowances 272 ( 270 ) Gain on life insurance policies ( 1,060 ) ( 784 ) (Gain) / loss on disposal of assets ( 2 ) 29 Changes in assets and liabilities: Trade accounts receivable ( 765 ) 3,334 Inventories ( 4,678 ) 33,264 Income tax recoverable 9 5 Prepaid expenses and other assets ( 6,361 ) ( 3,400 ) Trade accounts payable 6,757 7,169 Accrued salaries, wages, and benefits ( 463 ) ( 2,574 ) Customer deposits ( 122 ) ( 3,477 ) Operating lease assets and liabilities 385 366 Other accrued expenses ( 1,384 ) ( 4,400 ) Deferred compensation ( 601 ) ( 650 ) Net cash (used in) / provided by operating activities $ ( 12,334 ) $ 48,770 Investing Activities: Purchases of property and equipment ( 2,656 ) ( 5,718 ) Premiums paid on life insurance policies ( 387 ) ( 378 ) Proceeds received on life insurance policies 936 444 Proceeds from sales of assets 3 - Acquisitions - ( 2,373 ) Net cash used in investing activities $ ( 2,104 ) $ ( 8,025 ) Financing Activities: Purchase and retirement of common stock - ( 11,674 ) Cash dividends paid ( 7,378 ) ( 7,228 ) Payments for long-term loans ( 933 ) ( 1,050 ) Net cash used in financing activities $ ( 8,311 ) $ ( 19,952 ) Net (decrease) / increase in cash and cash equivalents ( 22,749 ) 20,793 Cash and cash equivalents - beginning of year 43,159 19,002 Cash and cash equivalents - end of quarter $ 20,410 $ 39,795 Supplemental disclosure of cash flow information: Cash paid for income taxes, net of refund $ 82 $ 74 Cash paid for interest, net 970 1,375 Non-cash transactions: Increase / (decrease) in lease liabilities arising from changes in right-of-use assets $ 2,263 $ ( 8,987 ) Increase in property and equipment through accrued purchases 13 35 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 6 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except per share data) (Unaudited) Accumulated Other Total Common Stock Retained Comprehensive Shareholders' Shares Amount Earnings Income Equity Balance at July 30, 2023 10,819 $ 49,561 $ 175,348 $ 759 $ 225,668 Net income for the 13 weeks ended October 29, 2023 7,038 7,038 Actuarial adjustments on defined benefit plan, net of tax of $ 17 ( 53 ) ( 53 ) Cash dividends paid ($ 0.22 per share) ( 2,373 ) ( 2,373 ) Purchase and retirement of common stock ( 147 ) $ ( 700 ) ( 2,434 ) ( 3,134 ) Restricted stock grants, net of forfeitures - - Restricted stock compensation cost 449 449 Performance-based restricted stock units cost 193 193 Balance at October 29, 2023 10,672 $ 49,503 $ 177,579 $ 706 $ 227,788 Balance at July 28, 2024 10,714 $ 49,950 $ 164,745 $ 644 $ 215,339 Net loss for the 13 weeks ended October 27, 2024 ( 4,131 ) ( 4,131 ) Actuarial adjustments on defined benefit plan, net of tax of $ 14 ( 45 ) ( 45 ) Cash dividends paid ($ 0.23 per share) ( 2,468 ) ( 2,468 ) Restricted stock grants, net of forfeitures ( 4 ) ( 66 ) ( 66 ) Restricted stock compensation cost 473 473 Performance-based restricted stock units cost ( 331 ) ( 331 ) Balance at October 27, 2024 10,710 $ 50,026 $ 158,146 $ 599 $ 208,771 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 7 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONT.) (In thousands, except per share data) (Unaudited) Accumulated Other Total Common Stock Retained Comprehensive Shareholders' Shares Amount Earnings Income (loss) Equity Balance at January 29, 2023 11,197 $ 50,770 $ 184,386 $ 865 $ 236,021 Net income for the 39 weeks ended October 29, 2023 9,272 9,272 Actuarial adjustments on defined benefit plan, net of tax of $ 50 ( 159 ) ( 159 ) Cash dividends paid ($ 0.66 per share) ( 7,228 ) ( 7,228 ) Purchase and retirement of common stock ( 620 ) ( 2,952 ) ( 8,851 ) ( 11,803 ) Restricted stock grants, net of forfeitures 95 ( 150 ) ( 150 ) Restricted stock compensation cost 1,255 1,255 Performance-based restricted stock units costs 580 580 Balance at October 29, 2023 10,672 $ 49,503 $ 177,579 $ 706 $ 227,788 Balance at January 28, 2024 10,672 $ 49,524 $ 175,717 $ 734 $ 225,975 Net loss for the 39 weeks ended October 27, 2024 ( 10,174 ) ( 10,174 ) Actuarial adjustments on defined benefit plan, net of tax of $ 42 ( 135 ) ( 135 ) Cash dividends paid ($ 0.69 per share) ( 7,397 ) ( 7,397 ) Restricted stock grants, net of forfeitures 38 ( 404 ) ( 404 ) Restricted stock compensation cost 1,237 1,237 Performance-based restricted stock units costs ( 331 ) ( 331 ) Balance at October 27, 2024 10,710 $ 50,026 $ 158,146 $ 599 $ 208,771 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 8 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated) (Unaudited) For the Thirty-Nine Weeks Ended October 27, 2024 1. Preparation of Interim Financial Statements The condensed consolidated financial statements of Hooker Furnishings Corporation and subsidiaries (referred to as “we,” “us,” “our,” “Hooker” or the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management these statements include all adjustments necessary for a fair statement of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) are condensed or omitted pursuant to SEC rules and regulations. However, we believe that the disclosures made are adequate for a fair presentation of our results of operations and financial position. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended January 28, 2024 (“2024 Annual Report”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect both the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from our estimates. Operating results for the interim periods reported herein may not be indicative of the results expected for the fiscal year. The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 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: ■ the 2025 fiscal year and comparable terminology mean the fifty-three-week fiscal year that began January 29, 2024 and will end February 2, 2025; and ■ the 2024 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began January 30, 2023 and ended January 28, 2024. 2. Recently Adopted Accounting Policies In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. The new guidance requires enhanced reportable segment disclosures to include significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 (our fiscal 2025) and interim periods beginning after December 15, 2024 (our fiscal 2026). We are currently evaluating the impact that the adoption of this new guidance will have on our consolidated financial statements and will add necessary disclosures upon adoption. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The new guidance requires enhanced effective tax rate reconciliation and income taxes paid disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 (our fiscal 2026). We are currently evaluating the impact that the adoption of this new guidance will have on our consolidated financial statements and will add necessary disclosures upon adoption. We reviewed all other newly issued accounting pronouncements and concluded that they are either not applicable to our business or are not expected to have a material effect on our consolidated financial statements as a result of future adoption. 9 Table of Contents 3. Accounts Receivable October 27, January 28, 2024 2024 Gross accounts receivable $ 56,911 $ 54,897 Customer allowances ( 984 ) ( 1,800 ) Allowance for doubtful accounts ( 4,154 ) ( 1,817 ) Trade accounts receivable $ 51,773 $ 51,280 4. Inventories October 27, January 28, 2024 2024 Finished furniture $ 79,174 $ 75,354 Furniture in process 1,664 1,702 Materials and supplies 11,513 10,538 Inventories at FIFO 92,351 87,594 Reduction to LIFO basis ( 25,858 ) ( 25,779 ) Inventories $ 66,493 $ 61,815 5. Property, Plant and Equipment Depreciable Lives October 27, January 28, (In years) 2024 2024 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 Other 5 702 698 Total depreciable property at cost 76,590 74,877 Less accumulated depreciation ( 50,431 ) ( 47,700 ) Total depreciable property, net 26,159 27,177 Land 1,077 1,077 Construction-in-progress 1,288 888 Property, plant and equipment, net $ 28,524 $ 29,142 6. Cloud Computing Hosting Arrangement 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. 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 the term loans in July 2022. 10 Table of Contents 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 Implementation Costs $ 16,565 $ ( 1,274 ) $ 13,736 $ ( 414 ) Interest Expenses 534 ( 22 ) 357 ( 8 ) 7. Fair Value Measurements Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability (an exit price) in an orderly transaction between market participants on the applicable measurement date. We use a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: ■ Level 1, defined as observable inputs such as quoted prices in active markets for identical assets and liabilities; ■ Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and ■ Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. As of 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 October 27, 2024 and January 28, 2024, were as follows: Fair value at October 27, 2024 Fair value at January 28, 2024 Description Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (In thousands) Assets measured at fair value Company-owned life insurance $ - $ 28,984 $ - $ 28,984 $ - $ 28,528 $ - $ 28,528 11 Table of Contents 8. Intangible Assets Our intangible assets with indefinite lives consist of: goodwill related to the Shenandoah, Sunset West and BOBO Intriguing Objects acquisitions; and trademarks and tradenames related to the acquisitions of Bradington-Young, Home Meridian and BOBO Intriguing Objects. Our intangible assets with definite lives are recorded in our Home Meridian and Domestic Upholstery segments. Details of our intangible assets are as follows: October 27, 2024 January 28, 2024 Gross carrying amount Impairment / Accumulated Amortization Gross carrying amount Impairment / Accumulated Amortization Intangible assets with indefinite lives: Goodwill Domestic Upholstery - Shenandoah * 490 - 490 - Domestic Upholstery - Sunset West 14,462 - 14,462 - All Other - BOBO Intriguing Objects 84 - 84 - Goodwill 15,036 - 15,036 - Trademarks and Trade names * 8,011 ( 1,953 ) 8,011 - Intangible assets with definite lives: Customer Relations 38,001 ( 21,507 ) 38,001 ( 18,982 ) Trademarks and Trade names 2,334 ( 982 ) 2,334 ( 741 ) Intangible assets, net 48,346 ( 24,442 ) 48,346 ( 19,723 ) * 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. 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 . 12 Table of Contents 9. Leases We have operating leases for warehouses, showrooms, manufacturing facilities, offices and equipment. 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 Thirty-Nine Weeks Ended October 27, 2024 October 29, 2023 October 27, 2024 October 29, 2023 Operating lease cost $ 2,550 $ 2,715 $ 7,610 $ 8,414 Variable lease cost 73 50 262 202 Short-term lease cost 68 119 270 282 Total operating lease cost $ 2,691 $ 2,884 $ 8,142 $ 8,898 Operating cash outflows $ 2,590 $ 2,668 $ 7,756 $ 8,033 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 Real estate $ 46,427 $ 49,968 Property and equipment 1,008 833 Total operating leases right-of-use assets $ 47,435 $ 50,801 Current portion of operating lease liabilities $ 7,612 $ 6,964 Long term operating lease liabilities 42,785 46,414 Total operating lease liabilities $ 50,397 $ 53,378 The weighted-average discount rate is 5.44 %. 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 October 27, 2024: Undiscounted Future Operating Lease Payments Remainder of fiscal 2025 $ 2,531 2026 10,204 2027 10,068 2028 8,309 2029 7,605 2030 and thereafter 21,725 Total lease payments $ 60,442 Less: impact of discounting ( 10,045 ) Present value of lease payments $ 50,397 13 Table of Contents 10. Long-Term Debt On July 26, 2022, we entered into the Fourth Amendment (the “amendment”) to the Second Amended and Restated Loan Agreement with Bank of America, N.A. (“BofA”) to replenish cash used to make the acquisition of substantially all of the assets of Sunset West (which closed at the beginning of the first quarter of fiscal 2023) (the “Sunset Acquisition”). The Second Amended and Restated Loan Agreement dated as of September 29, 2017, had previously been amended by a First Amendment to Second Amended and Restated Loan Agreement dated as of January 31, 2019, a Second Amendment to Second Amended and Restated Loan Agreement dated as of November 4, 2020, and a Third Amendment to Second Amended and Restated Loan Agreement dated as of January 27, 2021 (as so amended, the “Existing Loan Agreement”). Details of the individual credit facilities provided for in the Amendment are as follows: ■ Unsecured Revolving Credit Facility. Under the Amendment, the expiration date of the existing $ 35 million Unsecured Revolving Credit Facility (the “Existing Revolver”) was extended to July 26, 2027. Any amounts outstanding will bear interest at a rate per annum, equal to the then current Bloomberg Short-Term Bank Yield Index (“BSBY”) (adjusted periodically) plus 1.00 %. The interest rate will be adjusted on a monthly basis. The actual daily amount of undrawn letters of credit is subject to a quarterly fee equal to a per annum rate of 1 %. We must also pay a quarterly unused commitment fee that is based on the average daily amount of the facility utilized during the applicable quarter; ■ 2022 Secured Term Loan. The Amendment provided us with an $ 18 million term loan (the “Secured Term Loan”), which was disbursed to us on July 26, 2022. We are required to pay monthly interest only payments at a rate per annum equal to the then current BSBY rate (adjusted periodically) plus 0.90 % on the outstanding balance until the principal is paid in full. The interest rate will be adjusted on a monthly basis. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. The Secured Term Loan is secured by certain company-owned life insurance policies under a Security Agreement (Assignment of Life Insurance Policy as Collateral) dated July 26, 2022, by and between the Company and BofA; and ■ 2022 Unsecured Term Loan. The Amendment provided us with a $ 7 million unsecured term loan (the “Unsecured Term Loan”), which was disbursed to us on July 26, 2022. We are required to make monthly principal payments of $ 116,667 and monthly interest payments at a rate per annum equal to the then current BSBY (adjusted periodically) plus 1.40 % on the outstanding balance until paid in full. The interest rate will be adjusted monthly. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed. As of 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 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: ■ Maintain a ratio of funded debt to EBITDA not exceeding: o 2.25:1.0 through July 30, 2024; and o 2.00:1.00 thereafter. ■ A basic fixed charge coverage ratio of at least 1.25:1.00; and ■ Limit capital expenditures to no more than $15.0 million during any fiscal year. The Existing Loan Agreement also limits our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions. The Existing Loan Agreement does not restrict our ability to pay cash dividends on, or repurchase, shares of our common stock, subject to our compliance with the financial covenants discussed above if we are not otherwise in default under the Existing Loan Agreement. 14 Table of Contents 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. 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. 11. Earnings Per Share We refer you to the discussion of Earnings Per Share in Note 1. Summary of Significant Accounting Policies, in the financial statements included in our 2024 Annual Report, for additional information concerning the calculation of earnings per share (EPS). All stock awards are designed to encourage retention and to provide an incentive for increasing shareholder value. We have issued restricted stock awards to non-employee members of the board of directors since 2006 and to certain non-executive employees since 2014. We have issued restricted stock units (“RSUs”) to certain senior executives since fiscal 2012 under the Company’s Stock Incentive Plan. Each RSU entitles an executive to receive one share of the Company’s common stock if the executive remains continuously employed with the Company 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. We have issued Performance-based Restricted Stock Units (“PSUs”) to certain senior executives since fiscal 2019 under the Company’s Stock Incentive Plan. Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three-year performance period. 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. We expect to continue to grant these types of awards annually in the future. The following table sets forth the number of outstanding restricted stock awards and RSUs and PSUs, net of forfeitures and vested shares, as of the fiscal period-end dates indicated: October 27, January 28, 2024 2024 Restricted shares 169 182 RSUs and PSUs 141 140 310 322 All restricted shares, RSUs and PSUs awarded that have not yet vested are considered when computing diluted earnings per share. 15 Table of Contents The following table sets forth the computation of basic and diluted earnings per share: Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 Net (loss) / income $ ( 4,131 ) $ 7,038 $ ( 10,174 ) $ 9,272 Less: Unvested participating restricted stock dividends 38 40 120 111 Net earnings allocated to unvested participating restricted stock - 120 - 143 (Loss) / Earnings available for common shareholders ( 4,169 ) 6,878 ( 10,294 ) 9,018 Weighted average shares outstanding for basic earnings per share 10,541 10,536 10,519 10,748 Dilutive effect of unvested restricted stock, RSU and PSU awards - 140 - 130 Weighted average shares outstanding for diluted earnings per share 10,541 10,676 10,519 10,878 Basic (loss) / earnings per share $ ( 0.39 ) $ 0.66 $ ( 0.97 ) $ 0.85 Diluted (loss) / earnings per share $ ( 0.39 ) $ 0.65 $ ( 0.97 ) $ 0.85 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. 12. Income Taxes 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. Tax years ending January 31, 2021 through January 28, 2024 remain subject to examination by federal and state taxing authorities. 13. Segment Information As a public entity, we are required to present disaggregated information by segment using the management approach. The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions. The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company’s business units or segments. The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments (“ASC 280”), which are to allow the users of our financial statements to: ■ better understand our performance; ■ better assess our prospects for future net cash flows; and ■ make more informed judgments about us as a whole. We define our segments as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM. 16 Table of Contents For financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses: ■ Hooker Branded , consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses; ■ Home Meridian , is a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins; ■ Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, HF Custom (formerly Sam Moore), Shenandoah Furniture and Sunset West; and ■ All Other , consisting of H Contract, Lifestyle Brands and BOBO Intriguing Objects. None of these operating segments were individually reportable; therefore, we combined them in “All Other” in accordance with ASC 280. The following table presents segment information for the periods, and as of the dates, indicated. Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 % Net % Net % Net % Net Net Sales Sales Sales Sales Sales Hooker Branded $ 34,940 33.5 % $ 39,122 33.5 % $ 105,049 35.9 % $ 118,936 35.4 % Home Meridian 38,553 36.9 % 43,692 37.4 % 95,493 32.6 % 114,524 34.0 % Domestic Upholstery 29,327 28.1 % 32,559 27.9 % 87,910 30.0 % 98,555 29.3 % All Other 1,532 1.5 % 1,458 1.2 % 4,553 1.6 % 4,437 1.3 % Consolidated $ 104,352 100 % $ 116,831 100 % $ 293,005 100 % $ 336,452 100 % Gross Profit Hooker Branded $ 10,404 29.8 % $ 17,935 45.8 % $ 31,867 30.3 % $ 44,556 37.5 % Home Meridian 7,910 20.5 % 8,803 20.1 % 17,308 18.1 % 18,726 16.4 % Domestic Upholstery 5,748 19.6 % 6,485 19.9 % 15,099 17.2 % 19,872 20.2 % All Other ( 37 ) - 2.4 % 487 33.4 % 44 1.0 % 1,803 40.6 % Consolidated $ 24,025 23.0 % $ 33,710 28.9 % $ 64,318 22.0 % $ 84,957 25.3 % Operating (Loss) / Income Hooker Branded $ ( 1,694 ) - 4.9 % $ 7,399 18.9 % $ ( 2,094 ) - 2.0 % $ 14,014 11.8 % Home Meridian ( 3,681 ) - 9.5 % 923 2.1 % ( 7,850 ) - 8.2 % ( 4,532 ) - 4.0 % Domestic Upholstery ( 281 ) - 1.0 % 688 2.1 % ( 2,875 ) - 3.3 % 2,739 2.8 % All Other ( 1,604 ) - 104.7 % ( 240 ) - 16.5 % ( 2,611 ) - 57.4 % ( 203 ) - 4.6 % Consolidated $ ( 7,260 ) - 7.0 % $ 8,770 7.5 % $ ( 15,430 ) - 5.3 % $ 12,018 3.6 % Capital Expenditures (net of disposals) Hooker Branded $ 587 $ 747 $ 1,032 $ 4,156 Home Meridian 29 827 280 1,065 Domestic Upholstery 619 179 1,334 436 All Other - - 11 61 Consolidated $ 1,235 $ 1,753 $ 2,657 $ 5,718 Depreciation & Amortization Hooker Branded $ 562 $ 467 $ 1,676 $ 1,461 Home Meridian 651 670 1,935 2,047 Domestic Upholstery 1,074 1,100 3,239 3,092 All Other 27 17 80 26 Consolidated $ 2,314 $ 2,254 $ 6,930 $ 6,626 17 Table of Contents As of October 27, As of January 28, 2024 %Total 2024 %Total Identifiable Assets Assets Assets Hooker Branded $ 166,224 57.7 % $ 168,832 56.3 % Home Meridian 57,373 19.9 % 58,799 19.6 % Domestic Upholstery 60,161 20.9 % 67,230 22.4 % All Other 4,166 1.4 % 5,067 1.7 % Consolidated $ 287,924 100 % $ 299,928 100 % Consolidated Goodwill and Intangibles 38,940 43,658 Total Consolidated Assets $ 326,864 $ 343,586 Sales by product type are as follows: Net Sales (in thousands) Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, 2024 %Total October 29, 2023 %Total October 27, 2024 %Total October 29, 2023 %Total Casegoods $ 64,765 62 % $ 71,787 61 % $ 158,632 54 % $ 191,825 57 % Upholstery 39,587 38 % 45,044 39 % 134,373 46 % 144,627 43 % $ 104,352 100 % $ 116,831 100 % $ 293,005 100 % $ 336,452 100 % 14. Subsequent Events Dividends 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. 18 Table of Contents 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. 19 Table of Contents Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations All references to the “ Company, ” “ we, ” “ us ” and “ our ” in this document refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information. All references to the “ Hooker, ” “ Hooker Division(s), ” “ Hooker Legacy Brands ” or “ traditional Hooker ” divisions or companies refer to all current business units and brands except for those in the Home Meridian segment. The Hooker Branded segment includes Hooker Casegoods and Hooker Upholstery. The Domestic Upholstery segment includes Bradington-Young, HF Custom (formerly Sam Moore), Shenandoah Furniture and Sunset West. All Other includes H Contract, Lifestyle Brands, and BOBO Intriguing Objects. Forward-Looking Statements Certain statements made in this report, including statements under Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the notes to the consolidated financial statements included in this report, are not based on historical facts, but are forward-looking statements. These statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking terminology such as “believes,” “expects,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “would,” “could” or “anticipates,” or the negatives thereof, or other variations thereof, or comparable terminology, or by discussions of strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Those risks and uncertainties include but are not limited to: 1) general economic or business conditions, both domestically and internationally, including the current macro-economic uncertainties and challenges to the retail environment for home furnishings along with instability in the financial and credit markets, in part due to inflation and high interest rates, including their potential impact on (i) our sales and operating costs and access to financing, (ii) customers, and (iii) suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses; 2) the cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers’ income available for discretionary purchases, and the availability and terms of consumer credit; 3) risks associated with the ultimate outcome of our planned cost reduction plans, including the amounts and timing of savings realized; 4) 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; 5) 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; 6) the impairment of our long-lived assets, which can result in reduced earnings and net worth; 7) difficulties in forecasting demand for our imported products and raw materials used in our domestic operations; 8) adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products by foreign governments or the U.S. government; 9) our inability to collect amounts owed to us or significant delays in collecting such amounts; 10) 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; 20 Table of Contents 11) 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; 12) 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; 13) changes in U.S. and foreign government regulations and in the political, social and economic climates of the countries from which we source our products; 14) 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; 15) 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; 16) 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; 17) 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; 18) risks associated with securing a suitable credit facility, which may include restrictive covenants that could limit our ability to pursue our business strategies; 19) risks associated with distribution through third-party retailers, such as non-binding dealership arrangements; 20) the cost and difficulty of marketing and selling our products in foreign markets; 21) changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials; 22) price competition in the furniture industry; and 23) changes in consumer preferences, including increased demand for lower-priced furniture. Our forward-looking statements could be wrong considering these and other risks, uncertainties and assumptions. The future events, developments or results described in this report could turn out to be materially different. Any forward-looking statement we make speaks only as of the date of that statement, and we undertake no obligation, except as required by law, to update any forward-looking statements whether as a result of new information, future events or otherwise and you should not expect us to do so. Also, our business is subject to significant risks and uncertainties, any of which can adversely affect our business, results of operations, financial condition or future prospects. For a discussion of risks and uncertainties that we face, see the Forward-Looking Statements detailed above and Item 1A, “Risk Factors” in our 2024 Annual Report. Investors should also be aware that while we occasionally communicate with securities analysts and others, it is against our policy to selectively disclose to them any material nonpublic information or other confidential commercial information. Accordingly, investors should not assume that we agree with any projection, forecast or report issued by any analyst regardless of the content of the statement or report, as we have a policy against confirming information issued by others. 21 Table of Contents 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,” “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 this report to: ■ the 2025 fiscal year and comparable terminology mean the fiscal year that began January 29, 2024, and will end February 2, 2025; and ■ the 2024 fiscal year and comparable terminology mean the fiscal year that began January 30, 2023, and ended January 28, 2024. Dollar amounts presented in the tables below are in thousands except for per share data. The following discussion should be read in conjunction with the condensed consolidated financial statements, including the related notes, contained elsewhere in this quarterly report. We also encourage users of this report to familiarize themselves with all 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. Our 2024 Annual Report and other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com. Overview Hooker Furnishings Corporation, incorporated in Virginia in 1924, is a designer, marketer, and importer of casegoods (wooden and metal furniture), leather furniture, fabric-upholstered furniture, lighting, accessories, and home décor for the residential, hospitality and contract markets. We also domestically manufacture premium residential custom leather, custom fabric-upholstered furniture and outdoor furniture. Orders and Backlog In the discussion below and herein, we reference changes in sales orders or “orders” and sales order backlog (unshipped orders at a point in time) or “backlog” over and compared to certain periods of time and changes discussed are in sales dollars and not units of inventory, unless stated otherwise. We believe orders are generally good current indicators of sales momentum and business conditions. If the items ordered are in stock and the customer has requested immediate delivery, we generally ship products in about seven days or less from receipt of order; however, orders may be shipped later if they are out of stock or there are production or shipping delays or the customer has requested the order to be shipped at a later date. It is our policy and industry practice to allow order cancellation for casegoods up to the time of shipment or, in the case of container direct orders, up until the time the container is booked with the ocean freight carrier; therefore, customer orders for casegoods are not firm. However, domestically produced upholstered products are predominantly custom-built and consequently, cannot be cancelled once the leather or fabric has been cut. Our hospitality products are highly customized and are generally non-cancellable. For our outdoor furnishings, most orders require a deposit upon order and the balance before production is started, and hence are generally non-cancellable. For the Hooker Branded and Domestic Upholstery segments and All Other, we generally consider backlogs to be one helpful indicator of sales for the upcoming 30-day period, but because of our relatively quick delivery and our cancellation policies, we do not consider order backlogs to be a reliable indicator of expected long-term sales. At times, the ratio of new products to currently available inventory items can affect the amount of the backlog that can be converted to shipments in the short-term. We generally consider the Home Meridian segment’s backlog to be one helpful indicator of that segment’s sales for the upcoming 90-day period. Due to (i) the average sales order sizes of its mass and mega account channels of distribution, (ii) the proprietary nature of many of its products and (iii) the project nature of its hospitality business, for which average order sizes tend to be larger and consequently, the Home Meridian segment’s order backlog tends to be larger. 22 Table of Contents There have been exceptions to the general predictive nature of our orders and backlogs noted in the above paragraph, such as during times of extremely high demand and supply chain challenges as experienced during the immediate aftermath of the initial COVID-19 crisis and subsequent recovery. Orders were not being converted to shipments as quickly as would be expected compared to the pre-pandemic environment due to the lack and cost of shipping containers and vessel space as well as limited overseas vendor capacity and our domestic production capacity. As a result, backlogs were significantly elevated and reached historical levels in the prior two years. At October 27, 2024, our backlog of unshipped orders was as follows: Order Backlog (Dollars in 000s) Reporting Segment October 27, 2024 January 28, 2024 October 29, 2023 *November 3, 2019 Hooker Branded $ 13,049 $ 15,416 $ 18,646 $ 11,058 Home Meridian 36,506 36,013 27,611 103,467 Domestic Upholstery 15,018 18,920 21,418 12,206 All Other 1,194 1,475 1,760 2,250 Consolidated $ 65,767 $ 71,824 $ 69,435 $ 128,981 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 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 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.” 23 Table of Contents Results of Operations The following table sets forth the percentage relationship to net sales of certain items included in the condensed consolidated statements of income included in this report. Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 Net sales 100 % 100 % 100 % 100 % Cost of sales 77.0 71.1 78.0 74.7 Gross profit 23.0 28.9 22.0 25.3 Selling and administrative expenses 27.2 20.6 25.6 20.9 Trade name impairment charges 1.9 - 0.7 - Intangible asset amortization 0.9 0.8 0.9 0.8 Operating (loss)/income (7.0 ) 7.5 (5.3 ) 3.6 Other income, net 0.6 0.6 0.9 0.3 Interest expense 0.3 0.3 0.3 0.4 (Loss)/income before income taxes (6.7 ) 7.8 (4.7 ) 3.5 Income tax (benefit) / expense (2.7 ) 1.7 (1.2 ) 0.8 Net (loss)/income (4.0 ) 6.0 (3.5 ) 2.8 Fiscal 2025 Third Quarter and Nine Months Compared to Fiscal 2024 Third Quarter and Nine Months Net Sales Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 34,940 33.5 % $ 39,122 33.5 % $ (4,182 ) -10.7 % $ 105,049 35.9 % $ 118,936 35.4 % $ (13,887 ) -11.7 % Home Meridian 38,553 36.9 % 43,692 37.4 % (5,139 ) -11.8 % 95,493 32.6 % 114,524 34.0 % (19,031 ) -16.6 % Domestic Upholstery 29,327 28.1 % 32,559 27.9 % (3,232 ) -9.9 % 87,910 30.0 % 98,555 29.3 % (10,645 ) -10.8 % All Other 1,532 1.5 % 1,458 1.2 % 74 5.1 % 4,553 1.6 % 4,437 1.3 % 116 2.6 % Consolidated $ 104,352 100 % $ 116,831 100 % $ (12,479 ) -10.7 % $ 293,005 100 % $ 336,452 100 % $ (43,447 ) -12.9 % Unit Volume FY25 Q3 vs. FY24 Q3 Change FY25 YTD vs. FY24 YTD Change Average Selling Price (“ASP”) FY25 Q3 vs. FY24 Q3 Change FY25 YTD vs. FY24 YTD Change Hooker Branded -2.1 % -1.1 % Hooker Branded -5.6 % -5.9 % Home Meridian -19.1 % -36.6 % Home Meridian 1.1 % 26.7 % Domestic Upholstery -9.9 % -8.4 % Domestic Upholstery 0.5 % -1.4 % All Other -37.8 % -40.3 % All Other -24.2 % -30.0 % Consolidated -15.0 % -27.9 % Consolidated 2.5 % 20.2 % 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. 24 Table of Contents ■ 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 Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 10,404 29.8 % $ 17,935 45.8 % $ (7,531 ) -42.0 % $ 31,867 30.3 % $ 44,556 37.5 % $ (12,689 ) -28.5 % Home Meridian 7,910 20.5 % 8,803 20.1 % (893 ) -10.1 % 17,308 18.1 % 18,726 16.4 % (1,418 ) -7.6 % Domestic Upholstery 5,748 19.6 % 6,485 19.9 % (737 ) -11.4 % 15,099 17.2 % 19,872 20.2 % (4,773 ) -24.0 % All Other (37 ) -2.4 % 487 33.4 % (524 ) -107.6 % 44 1.0 % 1,803 40.6 % (1,759 ) -97.6 % Consolidated $ 24,025 23.0 % $ 33,710 28.9 % $ (9,685 ) -28.7 % $ 64,318 22.0 % $ 84,957 25.3 % $ (20,639 ) -24.3 % 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. 25 Table of Contents Selling and Administrative Expenses (S&A) Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 12,098 34.6 % $ 10,535 26.9 % $ 1,563 14.8 % $ 33,962 32.3 % $ 30,542 25.7 % $ 3,420 11.2 % Home Meridian 9,316 24.2 % 7,550 17.3 % 1,766 23.4 % 22,221 23.3 % 22,267 19.4 % (46 ) -0.2 % Domestic Upholstery 5,435 18.5 % 5,203 16.0 % 232 4.5 % 16,191 18.4 % 15,392 15.6 % 799 5.2 % All Other 1,567 102.3 % 728 49.9 % 839 115.2 % 2,656 58.3 % 2,006 45.2 % 650 32.4 % Consolidated $ 28,416 27.2 % $ 24,016 20.6 % $ 4,400 18.3 % $ 75,030 25.6 % $ 70,207 20.9 % $ 4,823 6.9 % 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 Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Tradenames impairment $ 1,953 1.9 % $ - 0.0 % $ 1,953 - $ 1,953 0.7 % $ - 0.0 % $ 1,953 - Intangible asset amortization 916 0.9 % 924 0.8 % -8 -0.9 % 2,765 0.9 % 2,732 0.8 % 33 1.2 % See Note 8 to our Condensed Consolidated Financial Statements for additional information. 26 Table of Contents Operating (Loss) / Profit and Margin Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ (1,694 ) -4.9 % $ 7,399 18.9 % $ (9,093 ) -122.9 % $ (2,094 ) -2.0 % $ 14,014 11.8 % $ (16,108 ) -114.9 % Home Meridian (3,681 ) -9.5 % 923 2.1 % (4,604 ) -498.8 % (7,850 ) -8.2 % (4,532 ) -4.0 % (3,318 ) -73.2 % Domestic Upholstery (281 ) -1.0 % 688 2.1 % (969 ) -140.8 % (2,875 ) -3.3 % 2,739 2.8 % (5,614 ) -205.0 % All Other (1,604 ) -104.7 % (240 ) -16.5 % (1,364 ) -568.3 % (2,611 ) -57.4 % (203 ) -4.6 % (2,408 ) -1186.2 % Consolidated $ (7,260 ) -7.0 % $ 8,770 7.5 % $ (16,030 ) -182.8 % $ (15,430 ) -5.3 % $ 12,018 3.6 % $ (27,448 ) -228.4 % 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. Income taxes Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Consolidated income tax (benefit) / expense $ (2,836 ) -2.7 % $ 2,027 1.7 % $ (4,863 ) -239.9 % $ (3,567 ) -1.2 % $ 2,620 0.8 % $ (6,187 ) -236.1 % Effective Tax Rate 40.7 % 22.4 % 26.0 % 22.0 % 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 Thirteen Weeks Ended Thirty-Nine Weeks Ended October 27, October 29, October 27, October 29, 2024 2023 2024 2023 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Consolidated net (loss) / income $ (4,131 ) -4.0 % $ 7,038 6.0 % $ (11,169 ) -158.7 % $ (10,174 ) -3.5 % $ 9,272 2.8 % $ (19,446 ) -209.7 % Diluted (loss) / earnings per share $ (0.39 ) $ 0.65 $ (0.97 ) $ 0.85 27 Table of Contents Outlook 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 Thirty-Nine Weeks Ended October 27, October 29, 2024 2023 Net cash (used in) / provided by operating activities $ (12,334 ) $ 48,770 Net cash used in investing activities (2,104 ) (8,025 ) Net cash used in financing activities (8,311 ) (19,952 ) Net (decrease)/increase in cash and cash equivalents $ (22,749 ) $ 20,793 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 Our financial resources include: ■ available cash and cash equivalents, which are highly dependent on incoming order rates and our operating performance; ■ expected cash flow from operations; ■ available lines of credit; and ■ cash surrender value of Company-owned life insurance. The most significant components of our working capital are inventory, accounts receivable and cash and cash equivalents reduced by accounts payable and accrued expenses. 28 Table of Contents Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for inventory, lease payments and payroll), quarterly dividend payments and capital expenditures related primarily to our ERP project, showroom renovations and upgrading systems, buildings and equipment. The timing of our working capital needs can vary greatly depending on demand for and availability of raw materials and imported finished goods but is generally the greatest in mid-summer because of inventory build-up for the traditional fall selling season. Long term cash requirements relate primarily to funding lease payments and repayment of long-term debt. Loan Agreements and Revolving Credit Facility On July 26, 2022, we entered into the Fourth Amendment to the Second Amended and Restated Loan Agreement (the “Amendment”) with Bank of America, N.A. (“BofA”) to replenish cash used to make the Sunset Acquisition. The Second Amended and Restated Loan Agreement dated as of September 29, 2017, had previously been amended by a First Amendment to Second Amended and Restated Loan Agreement dated as of January 31, 2019, a Second Amendment to Second Amended and Restated Loan Agreement dated as of November 4, 2020, and a Third Amendment to Second Amended and Restated Loan Agreement dated as of January 27, 2021 (as so amended, the “Existing Loan Agreement”). Details of the individual credit facilities provided for in the Amendment are as follows: ■ Unsecured Revolving Credit Facility. Under the Amendment, the expiration date of the existing $35 million Unsecured Revolving Credit Facility (the “Existing Revolver”) was extended to July 26, 2027. Any amounts outstanding will bear interest at a rate per annum, equal to the then current Bloomberg Short-Term Bank Yield Index (“BSBY”) (adjusted periodically) plus 1.00%. The interest rate will be adjusted on a monthly basis. The actual daily amount of undrawn letters of credit is subject to a quarterly fee equal to a per annum rate of 1%. We must also pay a quarterly unused commitment fee that is based on the average daily amount of the facility utilized during the applicable quarter; ■ 2022 Secured Term Loan. The Amendment provided us with an $18 million term loan (the “Secured Term Loan”), which was disbursed to us on July 26, 2022. We are required to pay monthly interest only payments at a rate per annum equal to the then current BSBY rate (adjusted periodically) plus 0.90% on the outstanding balance until the principal is paid in full. The interest rate will be adjusted on a monthly basis. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. The Secured Term Loan is secured by certain company-owned life insurance policies under a Security Agreement (Assignment of Life Insurance Policy as Collateral) dated July 26, 2022, by and between the Company and BofA; and ■ 2022 Unsecured Term Loan. The Amendment provided us with a $7 million unsecured term loan (the “Unsecured Term Loan”), which was disbursed to us on July 26, 2022. We are required to make monthly principal payments of $116,667 and monthly interest payments at a rate per annum equal to the then current BSBY (adjusted periodically) plus 1.40% on the outstanding balance until paid in full. The interest rate will be adjusted monthly. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed. As of 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 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: ■ Maintain a ratio of funded debt to EBITDA not exceeding: o 2.25:1.0 through July 30, 2024; and o 2.00:1.00 thereafter. ■ A basic fixed charge coverage ratio of at least 1.25:1.00; and ■ Limit capital expenditures to no more than $15.0 million during any fiscal year. 29 Table of Contents The Existing Loan Agreement also limits our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions. The Existing Loan Agreement does not restrict our ability to pay cash dividends on, or repurchase, shares of our common stock, subject to our compliance with the financial covenants discussed above if we are not otherwise in default under the Existing Loan Agreement. 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 $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 During calendar 2021, our Board of Directors approved an upgrade to our current ERP system and implementation efforts begun shortly thereafter. 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 temporarily paused the ERP project in the Home Meridian segment. We do not anticipate further significant ERP spending in fiscal 2025. Dividends 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 There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2024 Annual Report. 30 Table of Contents