Item 1. Business
ITEM 1. BUSINESS
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 decor for the residential, hospitality and contract markets. We also domestically manufacture
premium residential custom leather, custom fabric-upholstered furniture and outdoor furniture.
Reportable Segments
Furnishings sales account for all of our net sales.
For financial reporting purposes and as described further below, we are organized into three reportable segments, Hooker Branded, Home
Meridian and Domestic Upholstery. Our other businesses are aggregated into “All Other”. See Note 18 -Segment Information to
our Consolidated Financial Statements for additional financial information regarding our operating segments.
Products
Our product lines cover the design spectrum of
residential furnishings: traditional, contemporary and transitional. Further, our product lines are in the “good”, “better”
and “best” product categories, which carry medium and upper price points. Hooker Furnishings Corporation consists of the following
three operating segments and “All Other”:
◾ The Hooker Branded segment which includes two
businesses:
☐ Hooker Casegoods, which covers a wide range of design categories and includes home entertainment, home
office, accent, dining and bedroom furniture in the upper-medium price points sold under the Hooker Furniture brand; and
☐ Hooker Upholstery, imported upholstered furniture targeted at the upper-medium
price range.
◾ The Home Meridian segment which includes the
following brands/marketing units:
☐ Pulaski Furniture, casegoods covering the complete design spectrum in a wide range of bedroom, dining
room, accent and display cabinets at medium price points;
☐ Samuel Lawrence Furniture, value-conscious offerings in bedroom, dining room, home office and youth furnishings;
☐ Samuel Lawrence Hospitality, a designer and supplier of hotel furnishings
targeted toward four-and five-star hotels; and
☐ Prime Resources International (PRI), value-conscious imported leather motion upholstery.
◾ The Domestic Upholstery segment which includes
the following operations:
☐ Bradington-Young, a seating specialist in upscale motion and stationary leather furniture;
☐ HF Custom (formerly Sam Moore Furniture), a specialist in fashion forward
custom fabric upholstery offering a selection of chairs, sofas, sectionals, recliners and a variety of accent upholstery pieces;
☐ Shenandoah Furniture, an upscale upholstered furniture business specializing in private label sectionals,
modulars, sofas, chairs, ottomans, benches, beds and dining chairs in the upper-medium price points for lifestyle specialty retailers;
and
☐ Sunset West, a designer and manufacturer of comfortable, stylish and high-quality outdoor furniture.
◾ All Other consisting of:
☐ The H Contract product line which supplies upholstered seating and casegoods to upscale senior living
and assisted living facilities through designers, design firms, industry dealers and distributors that service that market; and
☐ BOBO Intriguing Objects (BOBO), a lighting, accessories and home décor source acquired in fiscal
2024 that offers a variety of one-of-a-kind designs.
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Sourcing
Imported Products
We have sourced products from foreign manufacturers
for over thirty years, predominantly from Asia. Imported casegoods and upholstered furniture together accounted for approximately 71%,
70%, and 72% of our net sales in fiscal 2025, fiscal 2024, and fiscal 2023, respectively.
Our imported furniture business is subject to
inherent risks in importing products manufactured abroad, including, but not limited to: supply disruptions and delays due to a variety
of reasons, including our foreign suppliers’ factory capacities, factory shutdowns and delays, fluctuations in ocean freight costs,
container and vessel space availability, currency exchange rate fluctuations, economic and political developments and instability, as
well as the laws, policies and actions of foreign governments and the United States. These laws, policies and actions may include regulations
affecting trade or the application of tariffs, such as the current ten percent tariff and the potential additional reciprocal tariffs
on imports imposed by the current U.S. administration , affecting the countries from which we source imported home furnishings and components,
including the possible adverse effects on our sales, earnings, and liquidity.
Because of the large number and diverse nature
of the foreign suppliers in Vietnam, China, Mexico, India, and Malaysia from which we source our imported products, we have flexibility
in the sourcing of products among any particular supplier or country. However, a disruption in our supply chain from a major supplier
or from Vietnam in general, could significantly compromise our ability to fill customer orders for products manufactured at that factory
or in that country. Supply disruptions and delays on selected items could occur for six months or longer. If we were to be unsuccessful
in obtaining those products from other sources or at a comparable cost, a disruption in our supply chain from a major furniture supplier,
or from Vietnam in general, could decrease our sales, earnings and liquidity.
Given the sourcing capacity available in Vietnam
and other low-cost producing countries such as China, Mexico, Malaysia, and India, as well as our supply chain diversification efforts,
we believe the risks from these potential supply disruptions are manageable in the long-term. However, our insight into the probability
of a wide scale global or regional disruption or pandemic, like the COVID-19 pandemic, remains limited. See Item 1A, “Risk Factors”
for additional information on our risks related to imported products.
For imported products, we generally negotiate
firm pricing with foreign suppliers in U.S. Dollars, typically for a term of at least one year. However, under certain circumstances,
we may re-negotiate pricing during the year. We accept the exposure to exchange rate movements during these negotiated periods. We do
not use derivative financial instruments to manage this risk but could choose to do so in the future. Since we transact our imported product
purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar compared to the currencies from which we obtain our imported
products could increase the price we pay for imported products beyond the negotiated periods. We generally expect to reflect substantially
all of the effects of any price increases from suppliers in the prices we charge for imported products. However, these price changes could
adversely impact sales volume and profit margin during the affected periods, and potential competitive pricing pressures could limit the
company’s ability to pass cost increases to vendors or customers. Additionally, we generally do not apply price increases on order
backlog, which could adversely affect our earnings. Conversely, a relative increase in the value of the U.S. Dollar compared to the currencies
from which we obtain our imported products could decrease the cost of imported products and favorably impact net sales and profit margins
during the affected period. However, due to other factors, such as inflationary pressure, we may not fully realize savings when exchange
rates fall. Therefore, lower exchange rates may only have a tempering effect on future price increases by merely delaying cost increases
on imported products. See also Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”
Raw Materials
Significant materials used in manufacturing our domestic upholstered
furniture products include leather, fabric, foam, wooden and metal frames and electronic mechanisms. Most of the leather is imported from
Italy and South America and is purchased as full hides and cut and sewn in our facilities or is purchased as pre-cut and sewn kits processed
by our vendors to our pattern specifications. We believe our sources for raw materials are adequate and that we are not overly dependent
on any one supplier. Our five largest domestic upholstery suppliers accounted for 31% of our raw materials purchases for domestic upholstered
furniture manufacturing operations in fiscal 2025. Should disruptions with these suppliers occur, other than macro disruptions affecting
all such suppliers, we believe we could successfully source these products from other suppliers without significant disruption to our
operations. After the implementation of the initial reciprocal tariffs in April 2025, we have observed price increases in imported raw
materials, including fabrics, steel, and hides. Generally, we engage in negotiations with our suppliers to share a portion of the tariff
burden. However, if we are unable to offset the tariff costs on these imported materials, it may lead to increased product costs, potentially
adversely affecting net sales and profit margins.
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Customers
Our home furnishings products are sold through
a variety of retailers including independent furniture stores, department stores, mass merchants, national chains, catalog merchants,
interior designers, and e-commerce retailers. No single customer accounted for more than 7% of our consolidated sales in fiscal 2025.
Our top five customers accounted for approximately 24% of our fiscal 2025 consolidated sales. The loss of any one or more of these customers
would have a material adverse impact on our business. Less than 2% of our sales in fiscal 2025 were to international customers. We define
sales to international customers as sales to customers outside of the United States and Canada since our independent domestic sales force
services both countries.
Competition
The furniture industry is highly competitive and
includes a large number of foreign and domestic manufacturers and importers, none of which dominates the market in our price points. While
the markets in which we compete include a large number of relatively small and medium-sized manufacturers, certain competitors have substantially
greater sales volumes and financial resources than we do. U.S. imports of furniture produced overseas, such as from Vietnam and China,
have stabilized in recent years. The primary competitive factors for home furnishings in our price points include price, style, availability,
service, quality and durability. Competitive factors in the hospitality and contract furniture markets include product value and utility,
lead times, on-time delivery and the ability to respond to requests for special and non-standard products. We believe our design capabilities,
ability to import and/or manufacture upholstered furniture, product value, longstanding customer and supplier relationships, significant
sales, distribution and inventory capabilities, ease of ordering, financial strength, experienced management and customer support are
significant competitive advantages.
Warehousing and Distribution
We distribute furniture to retailers directly from factories and warehouses
in Asia via our container direct programs and from our facilities in Virginia, North Carolina, Georgia and California, and in limited
cases, from customer operated warehouses in strategic locations. Due to our exit from the Accentrics Home (“ACH”) business
unit which demanded significant amounts of inventory to meet the quick shipping requirements of its e-commerce model, we reduced the physical
footprint of the Georgia warehouse by 400,000 square feet over the course of fiscal 2024. In March 2025, we announced the planned exit
from our Georgia warehouse. The exit strategy involves several risks, including the timely execution of the exit, costs and availability
of temporary warehousing, expenses related to relocation and start-up, and potential challenges with ERP and technology systems. Additional
considerations include the timing and magnitude of restructuring charges, anticipated cost savings, and the potential for disruptions
to sales, earnings, and revenue. See additional information in Management’s Discussion and Analysis and Note 22 Subsequent Events
on page 23 and F-33.
Working Capital Practices
Inventory
We generally import casegoods inventory and certain
upholstery items in amounts that enable us to meet the delivery requirements of our customers, our internal in-stock goals and minimum
purchase requirements from our sourcing partners. The majority of products in the Hooker Branded segment are shipped from our U.S. warehouses,
while a large percentage of products sold at our Home Meridian segment are not warehoused by us but ship directly to our customers and
thus are not included in our inventory. Our Domestic Upholstery segment products are made to order and shipped shortly after they are
produced; however, this segment carries significant amounts of raw materials for production. We do not carry significant amounts of hospitality
products, as most of these products are built to order and are shipped shortly after their manufacture directly to the customer.
Accounts receivable
Substantially all of our trade accounts receivable
are due from retailers and dealers that sell residential home furnishings or commercial purchasers of our hospitality and senior living
products, which consist of a large number of entities with a broad geographic dispersion. We perform credit evaluations of our customers
and generally do not require collateral. For qualified customers, we offer payment terms, generally requiring payment 30 days from shipment.
However, we may offer extended payment terms in certain circumstances, including to promote sales of our product. We purchase accounts
receivable insurance on certain customers if their risk profile warrants it and the insurance is available. Due to the highly customized
nature of our hospitality products, we typically require a 50% deposit upon order, a 40% deposit before goods reach a U.S. port and the
remaining 10% balance due within 30 days of the receipt of goods by the customer. For our outdoor furnishings, smaller orders require
full prepayment and most larger orders require a 50% deposit upon order and the balance when production is started. Additionally, some
customers request and qualify for payment terms.
Accounts payable
Payment for our imported products warehoused first
in Asia is due 10 to 14 days after our quality audit inspections are complete and the vendor invoice is presented. Payment for goods which
are shipped to our U.S. warehouses or container direct to our customers FOB Origin (free on board origin, which means the buyer is responsible
for the costs and liability of the freight during transport) is generally due upon proof of lading onto a U.S.-bound vessel and invoice
presentation; however, payment terms, depending on the supplier, can stretch up to 45 days from invoice date. Payment terms for domestic
raw materials and non-inventory related charges vary but are generally 30 days from invoice date.
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Order Backlog
At February 2, 2025, our backlog of unshipped
orders was as follows:
Order Backlog
(Dollars in 000s)
February 2, 2025
January 28, 2024
*February 2, 2020
Reporting Segment
Dollars
Weeks
Dollars
Weeks
Dollars
Weeks
Hooker Branded
$ 11,984
4.3
$ 15,416
5.1
$ 10,979
3.5
Home Meridian
21,002
8.5
36,013
13
85,556
13.1
Domestic Upholstery
18,123
8.4
18,920
7.8
14,705
8
All Other
1,527
13.6
1,475
12.2
2,520
10.5
Consolidated
$ 52,636
7.0
$ 71,824
8.6
$ 113,760
9.7
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 or has requested that we ship the order “in-full”, meaning all products ordered for the end-user
must ship together. 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. Additionally, our hospitality products are highly customized and are generally not
cancellable. Similarly, for our outdoor furnishings, most orders require a deposit upon order and the balance before production is started,
and hence are generally not 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. 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 Meridien segment’s order backlog tends to be larger.
There have been exceptions to the general predictive
nature of our orders and backlogs noted in this 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. As a result, backlogs were significantly elevated and reached historical levels
at the end of fiscal 2021 and 2022.
At the end of fiscal 2025, our consolidated order
backlog decreased by $19.2 million as compared to the prior year-end, representing a 27% decrease year-over-year. This decrease was primarily
driven by a $15 million reduction in the Home Meridian backlog and a $3.4 million reduction in the Hooker Branded backlog, both due to
weak demand in the home furnishings market.
* For comparison purposes, we included order backlog
as of fiscal 2020 year-end, the year before the COVID crisis. At fiscal 2020 year-end, Home Meridian backlog included approximately $18
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 year-end, Sunset West had approximately $1.6 million in backlog.
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Seasonality
Generally, sales in our fiscal first quarter are
lower than our other fiscal quarters due to the post-Lunar New Year shipping lag and sales in our fiscal fourth quarter are generally
stronger due to the pre-Lunar New Year surge in shipments from Asia.
Environmental Matters
As a part of our business operations, our manufacturing
sites generate both non-hazardous and hazardous waste; the treatment, storage, transportation and disposal of which are subject to various
local, state and federal laws relating to environmental protection. Our policy is to record monitoring commitments and environmental liabilities
when expenses are probable and can be reasonably estimated. The costs associated with our environmental responsibilities, compliance with
federal, state and local laws regulating the discharge of materials into the environment, or costs otherwise relating to the protection
of the environment, have not had and are not expected to have a material effect on our financial position, results of operations, capital
expenditures or competitive position.
We are actively working to refine and align our
environmental stewardship based on current best practices, shareholder expectations and regulatory developments through our Environmental,
Social and Governance (ESG) focused employee committee called CARE (Community Action & Responsibility for our Environment). It regularly
updates management and updates the Board at least quarterly on these initiatives. We note the following recent and ongoing activities
and new developments:
◾
We have put in place several initiatives focused on promoting sustainability and preserving natural resources. We maintain an annual Greenhouse Gas (GHG) emissions inventory and verification. The third-party verification of GHG emissions issued in calendar year 2024 stated that we have established appropriate systems for the collection, aggregation and analysis of quantitative data for determination of these GHG emissions for the stated period and boundaries.
◾
Since 2021, we have started projects to reduce our carbon footprint
by investment in renewable energy and in projects to reduce energy consumption. We have purchased renewable energy from solar farms for
several domestic manufacturing facilities since 2022. Sunset West is operating on 100% renewable energy; HF Custom (formerly Sam Moore)
is operating on 100% renewable energy; and the Savannah distribution center is operating on 30% renewable energy. All remaining facilities
will be added as renewable energy programs are available in those locations. We are recognized as an Appalachian Power 2024 Top Performer
for energy efficiency in the Martinsville area.
◾
We continue to partner with the Arbor Day Foundation, the Sustainable Furnishings Council, and the Eco Ambassador Council for their commitment to environmental responsibility and sustainability, including financial assistance, educating employees on the necessity of preserving and replenishing resources, and supporting various projects within the Dan River Basin area. We also support the Virginia Museum of Natural History’s Cultural Heritage Monitoring lab, which provides global monitoring capability for cultural heritage sites threatened by armed conflict and natural disaster.
Human Capital Resources
As of February 2, 2025, we had 1,034 full-time
employees, of which 233 were employed in our Hooker Branded segment, 173 were employed in our Home Meridian segment, 623 were employed
in our Domestic Upholstery segment and 5 were employed in All Other. By geographical area, 895 employees were located in the United States
and 139 were located in Asia. None of our employees are represented by a labor union. We consider our relations with our employees to
be good.
Our employees are critical to our success, and
we are committed to attracting, developing, and retaining top talent to drive our business forward. The core values of our Company include
integrity, caring and inclusivity that affirms every individual. Our leadership team is committed to fostering an environment where everyone
is welcomed, respected, listened to and valued for their unique contributions to the organization, and to providing a work environment
that is free from all forms of harassment, discrimination and inequality. We recruit, employ, train, promote and compensate our employees
without regard to race, ethnicity, age, gender, gender identity, religion, national origin, citizenship, marital status, veteran’s
status or disability. All facilities have established human resource departments with formal hiring processes and controls in place to
ensure ethical and fair hiring practices. Some of the action steps we have taken recently or are working on currently include:
◾ We carefully evaluate the overall compensation and benefits packages regularly
to ensure the economic security, health, and safety of our employees, including;
ο compensating employees competitively relative to the industry and local labor markets, and in accordance
with all applicable federal, state, and local wage, work hour, overtime, and benefits laws; and
ο providing affordable and comprehensive health benefits to employees focused on financial, emotional, and
physical health and well-being, including a standardized process of reporting worker’s compensation claims which we believe promotes
the health and safety of our employees.
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◾ We maintain standardized safety procedures and
training at all locations including established safety committees, under the leadership of our Director of Facilities & Safety, which
consist of management and employee representatives, with tasks of identifying and reporting hazards and unsafe work practices, removing
obstacles to accident prevention, and minimizing the risks of accidents, injury and impacts on health. We are committed to implementing
and improving safety measures to achieve a safe, healthy, secure, and productive workplace;
◾
We are committed to employees’ professional success and growth by providing extensive safety training, on-the-job coaching, formal training sessions, and online learning resources. The Company also provides continuing education opportunities, including an independently operated educational foundation originally funded by the Company, comprehensive leadership development programs, and a renewable tuition reimbursement program to children and spouses of all employees, excluding family members of current and former executive officers and board directors;
◾ We are committed to fostering a culture of opportunity
and respect for all members of our team. We have done this by:
ο Expanding Talent Pipelines
● We expanded our Furniture Market Internship, providing aspiring professionals with hands-on experience
and exposure to the furniture industry in areas such as customer service, hospitality, marketing, and sales.
● We established a formal summer internship program aligned with roles of interest for recent graduates.
During the summer of 2024, the program focused on marketing, with three interns contributing to various aspects of the department and
gaining valuable experience.
● We strengthened our partnerships with local HBCUs and participated in the State of North Carolina’s
HBCU Internship Program, hosting a supply chain intern to support skill development in key roles.
ο Enhancing Employee Training
● We introduced feedback training and conflict management training for people leaders to improve workplace
communication and foster a collaborative environment.
● We developed plans for future training initiatives, including programs focused on mental health awareness,
boundary-spanning skills, and change management to support employee growth, adaptability, and well-being.
ο Strengthening Community Partnerships
● We continue to maintain and grow community partnerships in the communities where our employees live and
work. For example, we deepened our collaboration with the Resource Access Network in Lynchburg, which led to receiving the Champions of
Disability Employment Award for our efforts to create meaningful employment opportunities for individuals with disabilities.
● In calendar 2024, we participated in job fairs, workshops, and university events, offering resume reviews,
mock interviews, and insights into careers at Hooker Furnishings to strengthen community ties and support workforce development.
◾ We
maintain a Code of Business Conduct and Ethics. All employees are required to sign off on the Code at hiring and reaffirm their understanding
and compliance with the Code, as well as anti-corruption and anti-bribery training on an annual basis. In addition, the Company has both
import and domestic suppliers to sign a Vendor Code of Conduct. The Company also has audits in place for both Environmental Social and
Governance (ESG) and the US Customs Trade Partnership Against Terrorism certification (CTPAT) and conducts them every 6 months and produces
a scorecard that can be used in future purchasing decisions based upon the vendor’s performance. The CTPAT audit process involves
a comprehensive self-assessment of our supply chain covering facilities, logistics, and personnel, IT, etc., and the implementation of
security best practices, to ensure our entire supply chain is secure. This self-assessment is ultimately audited by US Customs and Border
Protection. Adherence to this program allows for quicker processing of shipments through US Customs. Our ESG audit involves a systematic
evaluation of our performance across the ESG spectrum aiming to identify strengths, weaknesses, opportunities, and risks, and to provide
stakeholders with a comprehensive view of our sustainability efforts and adherence to ESG principles
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Patents and Trademarks
The Hooker Furnishings, Hooker Furniture, Bradington-Young,
Sam Moore, Pulaski Furniture, Samuel Lawrence Furniture, Samuel Lawrence Hospitality, Home Meridian International, Prime Resources International,
Shenandoah, H Contract, Sunset West, HF Custom and BOBO trade names represent many years of continued business. We believe these
trade names are well-recognized and associated with quality and service in the furnishings industry. We also own a number of patents and
trademarks, both domestically and internationally, none of which is considered to be material.
Governmental Regulations
Our company is subject to U.S. federal, state
and local laws and regulations in the areas of safety, health, employment and environmental pollution controls, as well as U.S. and international
trade laws and regulations, including tariffs. We are also subject to foreign laws and regulations. In the past, compliance with these
laws and regulations has not had any material effect on our earnings, capital expenditures or competitive position in excess of those
affecting others in our industry; however, the effect of compliance in the future cannot be predicted. We believe we are in material compliance
with applicable U.S. and international laws and regulations.
Additional Information
You may visit us online at hookerfurnishings.com,
hookerfurniture.com, bradington-young.com, hfcustomfurniture.com, shenandoahfurniture.com, mfurnishings.com, sunsetwestusa.com, homemeridian.com,
pulaskifurniture.com, slf-co.com, slh-co.com, hcontractfurniture.com, and bobointriguingobjects.com. We make available, free of charge
through our Hooker Furnishings website hookerfurnishings.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, amendments to those reports, and other documents as soon as practical after they are filed with or furnished to the
Securities and Exchange Commission (“SEC”). A free copy of our annual report on Form 10-K may also be obtained by contacting
Earl Armstrong, Chief Financial Officer, Senior Vice-President Finance and Corporate Secretary at CorpSec@hookerfurnishings.com or by
calling 276-632-2133.