HOOKER FURNISHINGS Corp 10-Q

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 former 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 intercompany eliminations and operating segments that are not individually reportable. 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) adverse political acts or developments in, or affecting, the international markets from which we import products and some components used in our Domestic Upholstery segment, including duties or tariffs imposed on those products or product components by foreign governments or the U.S. government, such as the current twenty percent tariff, potential additional higher reciprocal tariffs on imports from key sourcing countries, U.S. Department of Commerce’s Section 232 investigation into timber, lumber, and their derivative products, including furniture, affecting the countries from which we source imported home furnishings and components, including the possible adverse effects on our sales, earnings, and liquidity; (2) general economic or business conditions, both domestically and internationally, including the current macroeconomic uncertainties and challenges to the retail environment for home furnishings along with instability in the financial and credit markets, in part due to fluctuating interest rates and housing market volatility, which can affect consumer spending patterns, existing home sales, and demand for home furnishings, 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; (3) the impairment of our long-lived assets, which can result in reduced earnings and net worth; (4) 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; (5) future actions by activist stockholders that could divert management attention, create uncertainty around our strategic direction, disrupt relationships with key shareholders, increase our costs, drive stock price volatility, and otherwise materially impact our business, financial condition, results of operations, and cash flows; (6) risks associated with the ultimate outcome of our cost reduction plans, including the amounts and timing of savings realized and the ability to scale the business appropriately as customer demand increases or decreases based on the macroeconomic environment; (7) risks associated with our ability to satisfy the necessary conditions to consummate the sale of Pulaski Furniture and Samuel Lawrence casegoods brands on a timely basis or at all; 22 Table of Contents (8) risks associated with our new warehouse facility in Vietnam, including our ability to execute the planned shift of inventories from domestic facilities to Vietnam without increasing overall inventories and adversely affecting working capital levels and start-up risks including technology-related risks or disruption in our offshore suppliers or the transportation and handling industries, including labor stoppages, strikes, or slowdowns, and the ability to timely fulfill customer orders; (9) 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; (10) 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 supply chain or the transportation and handling industries, including labor stoppages, strikes, or slowdowns, could adversely affect our ability to timely fulfill customer orders; (11) 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 cybersecurity threats or inadequate levels of cyber insurance or risks not covered by cyber insurance; (12) difficulties in forecasting demand for our imported products and raw materials used in our domestic operations; (13) our inability to collect amounts owed to us or significant delays in collecting such amounts; (14) the risks associated with our Amended and Restated Loan Agreement, including the fact that our asset-based lending facility is secured by substantially all of our assets and contains provisions which limit the amount of our future borrowings under the facility, as well as financial and negative covenants that, among other things, may limit our ability to incur additional indebtedness; (15) 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; (16) risks associated with our self-insured healthcare and workers compensation plans, which utilize stop-loss insurance for aggregate claims above specified thresholds and can be impacted by higher healthcare inflation and expenditures, all of which may cause our healthcare and workers compensation costs to rise unexpectedly, adversely affecting our earnings, financial condition, and liquidity; (17) disruptions and damage (including those due to weather) affecting our Virginia or North Carolina warehouses, our Virginia, North Carolina or California administrative and manufacturing facilities, our High Point, Las Vegas, and Atlanta showrooms or our representative office or warehouse in Vietnam; (18) 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; (19) risks associated with product defects, including higher than expected costs associated with product quality and safety, regulatory compliance costs 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; (20) the direct and indirect costs and time spent by our associates related to the implementation of our Enterprise Resource Planning system (“ERP”), including costs resulting from unanticipated disruptions to our business; (21) 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; (22) risks associated with distribution through third-party retailers, such as non-binding dealership arrangements; 23 Table of Contents (23) changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials; (24) price competition in the furniture industry; (25) changes in consumer preferences, including increased demand for lower-priced furniture, especially in light of recently imposed tariffs on imported furniture; and (26) decisions concerning the allocation of capital including the extent to which we repurchase shares of our common stock which will affect shares outstanding and EPS. 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 2025 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. Quarterly Reporting This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2026 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 4, 2025 and the thirty-nine-week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began February 3, 2025, which both ended November 2, 2025. This report discusses our results of operations for these periods compared to the 2025 fiscal year thirteen-week period that began July 29, 2024, and the thirty-nine-week period that began January 29, 2024, which both ended October 27, 2024; and our financial condition as of November 2, 2025 compared to February 2, 2025. References in this report to: ■ the 2026 fiscal year and comparable terminology mean the fiscal year that began February 3, 2025, and will end February 1, 2026; and ■ the 2025 fiscal year and comparable terminology mean the fiscal year that began January 29, 2024, and ended February 2, 2025. 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 2025 Annual Report. Our 2025 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 2025 Annual Report and other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com. 24 Table of Contents 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. During fiscal 2026, management determined that the Pulaski Furniture (“PFC”) and Samuel Lawrence Furniture (“SLF”) brands within the Home Meridian segment no longer aligned with the Company’s long-term strategic direction. As a result, the Company initiated a formal process to sell these businesses. In recent years, the value-priced PFC and SLF businesses have faced substantial sales declines due to adverse macroeconomic conditions, including elevated housing prices and mortgage rates that have weakened the housing market, reduced consumer discretionary spending, inflationary pressures, and ongoing tariffs. These uncontrollable factors disproportionately impacted the higher-volume, low-margin business model under which these brands operate. Despite implementing organizational restructuring and cost-reduction initiatives, the model no longer supports the Company’s strategy of achieving sustainable, long-term profitability. We believe that divesting the PFC and SLF businesses will allow management to realign our portfolio around our strongest brands and position the Company for consistent, long-term performance. For the nine-month period of fiscal 2026, the combined net sales of PFC and SLF accounted for approximately 75% of the Home Meridian segment’s net sales and 15% of consolidated net sales. Following their sale, the Home Meridian segment will be eliminated, with its remaining Samuel Lawrence Hospitality brand reclassified into the “All Other” category. This divestiture represents a strategic shift and will result in a significant change to the Company’s operations and financial reporting. An active buyer was identified, and a letter of intent was executed before the end of the third quarter. Accordingly, management concluded that the PFC and SLF businesses met the criteria to be classified as held for sale and reported as discontinued operations. On December 1, 2025, the Company entered into an Asset Purchase Agreement with the buyer. Pursuant to the terms of the Agreement, a preliminary purchase price was established at execution. Following closing, the purchase price will be adjusted to reflect the final net book value of the assets sold as of the closing date. See Note 3 to the Condensed Consolidated Financial Statements for additional information. The following analysis excludes discontinued operations except as otherwise indicated. 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 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, 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. 25 Table of Contents At November 2, 2025, our backlog of unshipped orders was as follows: Order Backlog (Dollars in 000s) Reporting Segment November 2, 2025 February 2, 2025 October 27, 2024 Hooker Branded $ 15,364 $ 13,108 $ 14,242 Domestic Upholstery 16,147 18,123 15,018 All Other 1,224 5,259 13,678 Consolidated $ 32,735 $ 36,490 $ 42,938 At the end of the third quarter of fiscal 2026, consolidated order backlog decreased 10.3% compared to the fiscal year-end on February 2, 2025, and 23.8% compared to the prior year third quarter end. These decreases were primarily driven by the absence of large projects in the hospitality business during the current period, reflecting the project-based nature and inherent variability of that business. Hooker Branded’s backlog increased 17.2% compared to fiscal year-end and 7.9% compared to the prior-year third quarter, supported by a 4.1% increase in incoming orders during the quarter. Domestic Upholstery’s backlog decreased 10.9% from year-end but increased 7.5% compared to the prior-year quarter-end, driven by a 3.5% increase in incoming orders. Both Hooker Branded and Domestic Upholstery experienced year-over-year increases in incoming orders for two consecutive quarters. Executive Summary Fiscal 2026 third quarter: Consolidated net sales from continuing operations for the third quarter of fiscal 2026 decreased $11.9 million, or 14.4%, to $70.7 million compared to $82.7million in the prior-year period. The decline was primarily attributable to the timing of shipments in the hospitality business, as several large projects were shipped in the prior-year quarter. The decrease was partially offset by a 3.0% increase in net sales at Domestic Upholstery and a 1.1% increase at Hooker Branded. Gross profit from continuing operations decreased $2.4 million, consistent with the lower sales volume; however, gross margin increased slightly to 25.6% compared to 24.8% in the prior-year period. Margin improvement at Hooker Branded offset margin declines within All Other due to lower sales volume in the hospitality business. Domestic Upholstery gross margin remained consistent with the prior-year quarter. Consolidated operating loss from continuing operations for the quarter was $16.3 million driven by the $15.6 million non-cash impairment charges to certain intangible assets within the Domestic Upholstery segment and All Other. The challenging macroeconomic environment has created significant pressure across the home furnishings and broader consumer discretionary sectors, which adversely affected our near-term results and contributed to a sustained decline in our share price during the third quarter. These conditions triggered an interim impairment analysis under U.S. GAAP. Market-based valuation inputs, including trading multiples and discount rates, were negatively impacted, resulting in non-cash impairments of certain goodwill and indefinite-lived intangible assets. These accounting charges are not expected to affect our liquidity, ongoing operations, or strategic view of the related brands and businesses. Additionally, approximately $600,000 of restructuring costs, primarily severance associated with cost-reduction initiatives, were recorded in the current quarter. Net loss from continuing operations for the quarter was $12.5 million, or ($1.18) per diluted share. Fiscal 2026 nine months: Consolidated net sales from continuing operations for the first nine months of fiscal 2026 decreased $22.0 million, or 9.4%, to $211.1 million compared to $233.1 million in the prior-year period. The decline was also driven by lower hospitality net sales, as several large projects shipped during the third quarter, and to a lesser extent, the second quarter, of the prior fiscal year. This decline was partially offset by a $1.2 million, or 1.1%, increase in net sales at Hooker Branded. Domestic Upholstery net sales were essentially flat for the period. Gross profit decreased $2.9 million, largely reflecting the reduction in hospitality volume. Despite the lower sales, consolidated gross margin improved to 25.0% from 23.9% in the prior-year period, primarily due to increased profitability at Domestic Upholstery resulting from modest decreases in direct labor, warehousing labor, and material costs. Hooker Branded gross margin remained essentially unchanged. 26 Table of Contents Consolidated operating loss from continuing operations for the nine-month period was $17.4 million, which included the $15.6 million non-cash impairment charges discussed above to certain intangible assets within the Domestic Upholstery segment and All Other, as well as the $1.7 million of restructuring costs related to severance and warehousing consolidation costs. The Company reported a net loss of $13.6 million, or ($1.29) per diluted share. Multi-Phased Cost Reduction Initiatives Through our multi-phased cost reduction initiatives, we have exceeded our initial goal to reduce our fixed costs by approximately $25 million by the end of the fiscal 2026 third quarter. We now have our new cost structure in place, which we projected to be complete by the end of this quarter. Our fiscal 2026 third quarter and first nine months performance is discussed in greater detail below under “Results of Operations – Continuing Operations” and “Results of Operations – Discontinued Operations”. Results of Operations – Continuing 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 November 2, October 27, November 2, October 27, 2025 2024 2025 2024 Net sales 100 % 100 % 100 % 100 % Cost of sales 74.4 75.2 75.0 76.1 Gross profit 25.6 24.8 25.0 23.9 Selling and administrative expenses 25.7 29.2 24.9 26.8 Goodwill and trade name impairment charges 22.0 0.9 7.4 0.3 Intangible asset amortization 0.9 0.8 0.9 0.9 Operating (loss)/income (23.1 ) (6.2 ) (8.2 ) (4.1 ) Other income, net 0.4 0.7 0.2 1.1 Interest expense 0.1 0.4 0.3 0.4 (Loss)/income from continuing operations before income taxes (22.8 ) (5.8 ) (8.3 ) (3.4 ) Income tax (benefit) / expense (5.1 ) (1.5 ) (1.9 ) (0.9 ) Net (loss)/income from continuing operations (17.7 ) (4.3 ) (6.5 ) (2.5 ) Fiscal 2026 Third Quarter and First Nine Months Compared to Fiscal 2025 Third Quarter and First Nine Months Net Sales Thirteen Weeks Ended Thirty-Nine Weeks Ended November 2, October 27, November 2, October 27, 2025 2024 2025 2024 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 36,492 51.6 % $ 36,107 43.7 % $ 385 1.1 % $ 109,851 52.0 % $ 108,700 46.6 % $ 1,151 1.1 % Domestic Upholstery 30,197 42.7 % 29,327 35.5 % 870 3.0 % 87,787 41.6 % 87,910 37.7 % (123 ) -0.1 % All Other 4,041 5.7 % 17,236 20.8 % (13,195 ) -76.6 % 13,519 6.4 % 36,518 15.7 % (22,999 ) -63.0 % Consolidated $ 70,730 100 % $ 82,670 100 % $ (11,940 ) -14.4 % $ 211,157 100 % $ 233,128 100 % $ (21,971 ) -9.4 % 27 Table of Contents Unit Volume FY26 Q3 vs. FY25 Q3 Change FY26 YTD vs. FY25 YTD Change Average Selling Price (“ASP”) FY26 Q3 vs. FY25 Q3 Change FY26 YTD vs. FY25 YTD Change Hooker Branded -9.3 % -1.3 % Hooker Branded 10.8 % 2.3 % Domestic Upholstery 1.5 % 0.5 % Domestic Upholstery 0.8 % -1.0 % All Other -63.4 % -52.5 % All Other -17.4 % 3.9 % Consolidated -18.0 % -9.8 % Consolidated 11.9 % 5.9 % Consolidated net sales decreased $11.9 million, or 14.4%, for the third quarter of fiscal 2026, and $22.0 million, or 9.4%, for the nine-month period, primarily due to a significant decline in hospitality net sales under All Other. ■ The Hooker Branded segment’s net sales increased 1.1% for both the third quarter and the nine-month period, driven by higher average selling prices in both periods, partially offset by lower unit volume. Gross revenue remained essentially unchanged; however, reduced discounts and, to a lesser extent, lower returns and allowances, reflecting higher handling charges in the prior year, resulted in a slight increase in net sales. ■ The Domestic Upholstery segment’s net sales increased $870,000, or 3.0%, in the third quarter and remained essentially flat for the nine-month period. Performance varied across the segment’s divisions. Shenandoah Furniture, which serves the private-label market, reported net sales increases of 7.2% for the quarter and 2.2% for the nine-month period, supported by strong incoming orders in the second and third quarters. Sam Moore net sales increased 6.8% in the third quarter, following a 10% increase in the second quarter, driven by improved capacity and operational efficiency; however, Sam Moore’s net sales decreased 1.7% for the nine-month period. Sunset West, the outdoor furnishings division, reported flat net sales for both periods, while Bradington-Young experienced slight decreases of 1.8% in the third quarter and 1.6% for the nine-month period. ■ All Other net sales decreased significantly in both periods, primarily due to the decrease in hospitality net sales resulting from the timing of shipments of several large projects in the prior fiscal year. Gross Profit / (Loss) and Margin Thirteen Weeks Ended Thirty-Nine Weeks Ended November 2, October 27, November 2, October 27, 2025 2024 2025 2024 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 12,030 33.0 % $ 10,818 30.0 % $ 1,211 11.2 % $ 33,636 30.6 % $ 32,983 30.3 % $ 652 2.0 % Domestic Upholstery 6,009 19.9 % 5,748 19.6 % 261 4.5 % 16,594 18.9 % 15,099 17.2 % 1,495 9.9 % All Other 49 1.2 % 3,898 22.6 % (3,849 ) 98.7 % 2,506 18.5 % 7,599 20.8 % (5,093 ) 67.0 % Consolidated $ 18,088 25.6 % $ 20,464 24.8 % $ (2,377 ) -11.6 % $ 52,736 25.0 % $ 55,681 23.9 % $ (2,946 ) -5.3 % Consolidated gross profit decreased for both periods due to lower net sales, while consolidated gross margin increased in each period. ■ The Hooker Branded segment’s gross profit increased $1.2 million, and gross margin improved 300 bps in the third quarter, benefiting from price increases implemented to offset tariffs and higher costs, as well as reduced discounts. Warehousing costs decreased modestly during the quarter due to decreased freight expenses, while partially offset by higher rent and labor expenses associated with warehouse consolidation. For the nine-month period, gross profit increased $652,000, driven by higher net sales, while gross margin remained essentially flat. Price increases and lower returns and allowances were offset by reduced margins on discounted products used to balance the inventory mix earlier this year. Warehousing expenses increased slightly for the period also due to higher rent and labor costs related to warehouse consolidation, along with increased medical claims. Restructuring costs of $47,000 and $258,000 were recorded for the third quarter and nine-month period, respectively, compared to $47,000 recorded in the prior-year period. ■ The Domestic Upholstery segment’s gross profit increased $261,000 in the third quarter, while gross margin remained consistent with the prior-year period. Direct material, direct labor, and indirect costs remained relatively flat as a percentage of net sales compared to last year’s third quarter. For the nine-month period, gross profit increased $1.5 million and gross margin improved 170 bps. Direct material costs decreased slightly as a percentage of net sales, and direct labor costs also decreased due to cost-reduction initiatives. Indirect costs were modestly lower than the prior-year period, reflecting improved absorption driven by increased production efficiency at Sam Moore. Restructuring costs of $26,000 and $63,000 were recorded in the third quarter and nine-month period, respectively, related to relocating Sunset West inventory from the former Savannah warehouse. 28 Table of Contents ■ All Other gross profit and gross margin decreased in both periods, driven by lower net sales in the hospitality business. Selling and Administrative Expenses (S&A) Thirteen Weeks Ended Thirty-Nine Weeks Ended November 2, October 27, November 2, October 27, 2025 2024 2025 2024 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 11,318 31.0 % $ 12,308 34.1 % $ (990 ) -8.0 % $ 32,886 29.9 % $ 34,623 31.9 % $ (1,736 ) -5.0 % Domestic Upholstery 5,172 17.1 % 5,435 18.5 % (263 ) -4.8 % 15,631 17.8 % 16,191 18.4 % (560 ) -3.5 % All Other 1,714 42.4 % 6,357 36.9 % (4,643 ) -73.0 % 4,150 30.7 % 11,594 31.7 % (7,443 ) -64.2 % Consolidated $ 18,204 25.7 % $ 24,100 29.2 % $ (5,896 ) -24.5 % $ 52,667 24.9 % $ 62,408 26.8 % $ (9,739 ) -15.6 % Consolidated selling and administrative (“S&A”) expenses decreased $5.9 million in the third quarter and $9.7 million for the nine-month period. The reduction was primarily due to the exit of the PRI business, including the recognition of bad debt associated with the bankruptcy of its major customer, as well as lower restructuring costs related to the cost-reduction initiatives that began in the prior-year third quarter. The decreases also reflect reduced spending associated with the cost-reduction and restructuring efforts. ■ The Hooker Branded segment’s S&A expenses decreased $990,000, or 310 bps, in the third quarter. Restructuring costs totaled $390,000 in the current-year quarter compared to $950,000 in the prior-year third quarter. Excluding commissions and restructuring costs, S&A expenses were approximately $450,000 lower than the prior-year period. For the nine-month period, S&A expenses decreased $1.7 million. Restructuring costs were $961,000 in the current-year period compared to $950,000 in the prior-year period. Excluding commissions and restructuring costs, S&A expenses were $1.8 million lower than the prior-year nine-month period. These decreases were driven primarily by lower compensation and other spending, partially offset by higher professional services costs, largely attributable to increased IT-related licensing and contract fees and, to a lesser extent, higher accounting-related fees. ■ The Domestic Upholstery segment’s S&A expenses decreased $263,000, or 140 bps, in the third quarter. Restructuring costs totaled $127,000 in the current-year quarter compared to $559,000 in the prior-year third quarter. Excluding commissions and restructuring costs, S&A expenses increased, driven by higher rent expense, increased compensation costs resulting from higher medical claims, and a higher bonus accrual reflecting improved profitability, partially offset by reductions in other discretionary spending. For the nine-month period, S&A expenses decreased $560,000, or 60 basis points. Restructuring costs were $356,000 in the current-year period compared to $559,000 in the prior-year period. Excluding commissions and restructuring costs, S&A expenses decreased slightly, primarily due to lower professional service fees, elevated in the prior year, and reduced spending on advertising supplies and other operating expenses. These decreases were largely offset by higher compensation costs, rent, sample and product development expenses, and banking fees. ■ All Other S&A expenses decreased in both periods due primarily to the absence of bad debt from a major customer bankruptcy in the prior year third quarter and the related exit of the PRI business, as well as the absence of BOBO consolidation costs. 29 Table of Contents Intangible Asset Impairment and Amortization Thirteen Weeks Ended Thirty-Nine Weeks Ended November 2, October 27, November 2, October 27, 2025 2024 2025 2024 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Goodwill impairment $ 14,462 20.4 % $ - 0.0 % $ 14,462 $ 14,462 6.8 % $ - 0.0 % $ 14,462 Tradenames impairment 1,114 1.6 % 781 1.9 % 333 42.6 % 1,114 0.5 % 781 0.7 % 333 42.6 % Intangible asset amortization 623 0.9 % 687 0.9 % -64 -9.3 % 1,911 0.9 % 2,073 0.9 % -162 -7.8 % We recorded $15.6 million of non-cash impairment charges during the third quarter and nine-month period. These costs included $14.5 million to write down goodwill in the Sunset West division, $556,000 to write down the Bradington-Young trade name, both within the Domestic Upholstery segment, and $558,000 to the remaining HMI business classified in All Other. See Note 9 to our Condensed Consolidated Financial Statements for additional information. Operating Profit / (Loss) and Margin Thirteen Weeks Ended Thirty-Nine Weeks Ended November 2, October 27, November 2, October 27, 2025 2024 2025 2024 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 711 1.9 % $ (1,490 ) -4.1 % $ 2,201 147.7 % $ 748 0.7 % $ (1,640 ) -1.5 % $ 2,388 145.6 % Domestic Upholstery (14,725 ) -48.8 % (281 ) -1.0 % (14,444 ) -5140.2 % (15,729 ) -0.8 % (2,875 ) -3.3 % (12,854 ) -447.1 % All Other (2,301 ) -56.9 % (3,333 ) -19.3 % 1,032 -31.0 % (2,437 ) -18.0 % (5,067 ) -13.9 % 2,630 -51.9 % Consolidated $ (16,315 ) -23.1 % $ (5,104 ) -6.2 % $ (11,211 ) 219.7 % $ (17,418 ) -8.2 % $ (9,582 ) -4.1 % $ (7,836 ) 81.8 % We recorded operating loss of $16.3 million for the fiscal 2026 third quarter, driven primarily by a $15.6 million non-cash intangible impairment charge and $597,000 in restructuring costs. For the nine-month period, operating loss was $17.4 million likewise reflects the impact of the $15.6 million impairment and $1.7 million in restructuring charges. Income taxes Thirteen Weeks Ended Thirty-Nine Weeks Ended November 2, October 27, November 2, October 27, 2025 2024 2025 2024 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Consolidated income tax (benefit) / expense $ (3,604 ) -5.1 % $ (1,230 ) -1.5 % $ (2,374 ) -193.0 % $ (3,924 ) -1.9 % $ (2,017 ) -0.9 % $ (1,907 ) 94.5 % Effective Tax Rate 22.3 % 25.6 % 22.3 % 25.6 % 30 Table of Contents For the third quarters of fiscal 2026 and fiscal 2025, we recorded income tax benefits of $3.6 million and $1.2 million on the pretax loss from continuing operations. For the nine-month periods of fiscal 2026 and fiscal 2025, we recorded income tax benefits of $3.9 million and $2.0 million on the pretax loss from continuing operations. The effective tax rates for these periods were 22.3% and 25.6%, respectively. The fiscal 2025 effective tax rate was higher due to the impact of favorable tax adjustments including the cash surrender value gain on company-owned life insurance applied to a lower pretax loss. Net (Loss) / Income from Continuing Operations Thirteen Weeks Ended Thirty-Nine Weeks Ended November 2, October 27, November 2, October 27, 2025 2024 2025 2024 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Net (loss) / income from Continuing Operations $ (12,534 ) -17.7 % $ (3,581 ) -4.3 % $ (8,953 ) -250.0 % $ (13,648 ) -6.5 % $ (5,875 ) -2.5 % $ (7,773 ) 132.3 % Diluted (loss) / earnings from continuing operations per share $ (1.18 ) $ (0.34 ) $ (1.29 ) $ (0.56 ) Results of Operations – Discontinued 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. For the Thirteen Weeks Ended Thirty-Nine Weeks Ended November 2, October 27, November 2, October 27, 2025 2024 2025 2024 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Net sales $ 10,341 100.0 % $ 21,683 100.0 % $ (11,342 ) -52.3 % $ 37,379 100.0 % $ 59,877 100.0 % $ (22,498 ) -37.6 % Cost of sales 12,081 116.8 % 18,122 83.6 % 37,929 101.5 % 51,240 85.6 % (13,311 ) -26.0 % Gross profit (1,740 ) -16.8 % 3,561 16.4 % (5,301 ) -148.9 % (550 ) -1.5 % 8,637 14.4 % (9,187 ) -106.4 % S&A expenses 4,042 39.1 % 4,316 19.9 % (274 ) -6.3 % 11,597 31.0 % 12,623 21.1 % (1,026 ) -8.1 % Tradename impairment - 0.0 % 1,172 5.4 % (1,172 ) -100.0 % - 0.0 % 1,175 2.0 % (1,175 ) -100.0 % Intangible asset amortization 248 2.4 % 229 1.1 % 19 8.3 % 745 2.0 % 688 1.1 % 57 8.3 % Other income itmes that are not major (665 ) -6.4 % - 0.0 % (665 ) (665 ) -1.8 % - 0.0 % (665 ) Pretax loss of discontinued oprations related to major classes (5,365 ) -51.9 % (2,156 ) -9.9 % (3,209 ) -148.8 % (12,227 ) -32.7 % (5,849 ) -9.8 % (6,378 ) -109.0 % Pretax loss from classification to held-for-sale 6,544 63.3 % - 0.0 % 6,544 6,544 17.5 % - 0.0 % 6,544 (Loss) / income from discontinued operations before income taxes (11,909 ) -115.2 % (2,156 ) -9.9 % (9,753 ) -452.4 % (18,771 ) -50.2 % (5,849 ) -9.8 % (12,922 ) -220.9 % Income tax benefits (3,269 ) -31.6 % (1,606 ) -7.4 % (1,663 ) -103.5 % (4,916 ) -13.2 % (1,550 ) -2.6 % (3,366 ) -217.2 % Net loss from discontinued operations (8,640 ) -83.6 % (550 ) -2.5 % (8,090 ) -1470.9 % (13,855 ) -37.1 % (4,299 ) -7.2 % (9,556 ) -222.3 % 31 Table of Contents Unit Volume FY26 Q3 vs. FY25 Q3 Change FY26 YTD vs. FY25 YTD Change Average Selling Price (“ASP”) FY26 Q3 vs. FY25 Q3 Change FY26 YTD vs. FY25 YTD Change Discontinued Operations -59.1 % -44.1 % Discontinued Operations 2.7 % -5.5 % Combined net sales for PFC and SLF decreased $11.3 million, or 52.3%, in the third quarter and $22.5 million, or 37.6%, for the nine-month period due to significantly lower unit volume. These declines were primarily driven by continued macroeconomic pressures and tariff-related buying hesitancy among their value-oriented customers, particularly major furniture chains. We recorded restructuring costs of $2.6 million in the third quarter and $4.1 million year-to-date associated with the exit of the Savannah warehouse, which primarily supported the PFC and SLF businesses These costs included fixed-asset write-offs, inventory liquidation, severance, and relocation expenses. Low sales volumes resulted in under-absorption of warehouse and international operating costs, which also adversely impacted gross profitability. Persistently low sales volume, unfavorable product and customer mix, restructuring costs, and approximately $1 million of bad debt related to a recent customer bankruptcy resulted in significant operating losses for both periods. Additionally, valuation allowance of $6.5 million was recorded in the third quarter against held for sale assets. Outlook Incoming orders for Hooker branded and Domestic Upholstery segments have increased year-over-year for two consecutive quarters. While macroeconomic headwinds, including elevated housing prices, inflation, low consumer confidence and ongoing tariffs, remain largely unchanged, these challenges were most acute in our higher-volume, lower-margin discontinued business. With a more efficient cost structure and sharper portfolio, we believe we are better positioned to improve profitability even in a prolonged downturn. The advantage going forward is focus, and our team is now fully aligned around our core businesses, which we believe will allow us to drive organic growth and build sustainable profitability. Financial Condition, Liquidity and Capital Resources Cash Flows – Operating, Investing and Financing Activities Thirty-Nine Weeks Ended November 2, October 27, 2025 2024 Net cash provided by operating activities $ 22,903 $ (11,870 ) Net cash used in investing activities (2,870 ) (1,825 ) Net cash used in financing activities (25,511 ) (8,311 ) Net cash provided by / (used in) discontinued operations 537 (743 ) Net decrease in cash and cash equivalents $ (4,941 ) $ (22,749 ) 32 Table of Contents During the nine-month period of fiscal 2026, cash decreased by $4.9 million from the prior fiscal year-end. Cash used in financing activities, primarily related to repayments on the term loan and revolving credit facility, together with cash used in investing activities, was largely offset by cash provided by operating activities, which was driven by favorable changes in working capital and non-cash items. ● Cash generated from operating activities totaled $22.9 million compared to $11.9 million used in operations for the same period in the prior year. Key drivers of operating cash flow increase: ○ Although net loss from continuing operations was $13.6 million, compared to $5.9 million in the prior-year period, the increase was primarily attributable to the $15.6 million of non-cash tradename impairment charges, which were added back to net income in the reconciliation to net cash provided by operating activities. ○ Trade receivables: Collections of trade accounts receivable generated $13.6 million of cash inflows, compared to $1.4 million outflows in the prior-year period, primarily due to large, project-based receipts. ○ Inventories: Reductions in inventory levels provided $14.1 million cash inflows, compared to $7.8 million outflows in the prior-year period. The decrease was concentrated in the Hooker Branded segment, where inventory transitioned from previously elevated seasonal build-up to active sell-through. ○ Prepaid expenses and other assets: Cash inflows totaled $1.8 million, compared to $3.9 million outflows in the prior-year period, primarily reflecting the reduced spending on the ERP system implementation. ○ Accrued salaries, wages, and benefits: Accrued compensation increased by $0.9 million, compared to a $463,000 outflow in the prior-year period, due to the timing of related cash disbursement. ● Offsetting factors ○ These cash inflows were partially offset by a $4 million decline in accounts payable, as we paid down outstanding payables, compared to a $6.6 million cash inflow in the prior year same period, as we reduced purchasing activity and did not continue building inventory levels during the current period. Cash used in investing activities totaled $2.9 million, compared to $1.8 million in the prior-year period. The increase was primarily due to $936,000 life insurance proceeds received in the prior year that did not recur in the current period. Cash used in financing activities was $25.5 million, compared to $8.3 million in the prior-year period, primarily due to $17.9 million of repayments on the revolving credit facility during the current period. Cash provided by discontinued operations was $537,000, compared to $743,000 used in the prior-year period. Favorable adjustments including non-cash valuation allowance and asset disposals were added back to the net loss, and $6.8 million inflow from collections of trade accounts receivable led to $722,000 cash generated from operating activities. 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. 33 Table of Contents The most significant components of our working capital are inventory, accounts receivable and cash and cash equivalents reduced by accounts payable and accrued expenses. 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 December 5, 2024, 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”). The outstanding principal amount of loans and letters of credit issued under the Existing Loan Agreement and used to collateralize certain insurance arrangements and for imported product purchases 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 a 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 were 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. Outstanding loans under the Amended and Restated Loan Agreement 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. 34 Table of Contents 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. We incurred $480,000 in fiscal 2025 and an additional $33,000 in fiscal 2026 first half in debt issuance costs in connection with our term loans. As of November 2, 2025, unamortized loan costs of $426,000 were netted against the carrying value of our term loans on our consolidated balance sheet. As of November 2, 2025, we had $4.1 million principal amount of outstanding loans and $2.1 million face amount of letters of credit. We had $63.8 million of Availability based on the current Borrowing Base. Capital Expenditures We expect to spend approximately $1 million in capital expenditures over the remainder of fiscal 2026 to maintain and enhance our operating systems and facilities, excluding any possible spending decreases resulting from the cost reduction plan discussed above. Dividends On December 11, 2025, our board of directors declared a quarterly cash dividend of $0.115 per share which will be paid on December 31, 2025, to shareholders of record at December 21, 2025. 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 2025 Annual Report. 35 Table of Contents