What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-04-17 compared with 2025-04-18 · 335 added, 327 removed, 293 unchanged (69% of the section changed)

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

As you read Management’s Discussion and Analysis,

please refer to the consolidated financial statements, including the related notes, contained elsewhere in this annual report.

We especially

encourage you to familiarize yourself with:

As you read Management’s Discussion and

Analysis, please refer to the consolidated financial statements, including the related notes, contained elsewhere in this annual report.

We especially encourage you to familiarize yourself with:

◾ All of our recent public filings made with the

SEC which are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com;

The forward-looking statements disclaimer contained prior to Item 1 of this report, which describes the significant risks and uncertainties that could cause actual results to differ materially from those forward-looking statements made in this report, including those contained in this section of our annual report on Form 10-K;

◾ The forward-looking statements disclaimer contained

prior to Item 1 of this report, which describe the significant risks and uncertainties that could cause actual results to differ materially

from those forward-looking statements made in this report, including those contained in this section of our annual report on Form 10-K;

◾ The company-specific risks found in Item 1A.

2 unchanged sentences

If any of these risks materialize, our business, financial condition and future prospects could be adversely impacted;

Our commitments and contractual obligations and off-balance sheet arrangements described on page 30 and in Note 17 to our Consolidated Financial Statements on page F-29 of this report.

This note describes commitments, contractual obligations and off-balance sheet arrangements, some of which are not reflected in our consolidated financial statements.

◾ Our commitments and contractual obligations and off-balance sheet arrangements

described on page 28 and in Note 18 to our Consolidated Financial Statements on page F-30 of this report.

This note describes commitments,

contractual obligations and off-balance sheet arrangements, some of which are not reflected in our consolidated financial statements.

In Management’s Discussion and Analysis,

2 unchanged sentences

We also provide information regarding the performance of each of our operating segments and All Other.

The analysis and

discussions of fiscal 2024 compared to fiscal 2023 results are in our 2024 Form-10K available through Hooker Furnishings and SEC websites.

The discussion

below comparing fiscal 2026 to fiscal 2025 excludes discontinued operations, except where otherwise noted.

The analysis and discussions

of fiscal 2025 compared to fiscal 2024 results are in our 2025 Form-10K available through Hooker Furnishings and SEC websites.

Unless otherwise indicated, references to the

“Company,” “we,” “our” or “us” refer to Hooker Furnishings Corporation and its consolidated

“Company,” “we,” “us” and “our” refer to Hooker Furnishings Corporation and its consolidated

subsidiaries, unless specifically referring to segment information.

All references to the “Hooker,” “Hooker Division,”

“Hooker Legacy Brands” or “traditional Hooker” divisions or companies refer to the current components of our Hooker

Branded segment, the Domestic Upholstery segment including Bradington-Young, HF Custom, Shenandoah Furniture and Sunset West, and All

Other which includes H Contract, and BOBO.

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.

includes intercompany eliminations and operating segments that are not individually reportable.

Furnishings sales account for all of our net sales.

For financial reporting purposes, we are organized into three reportable segments- Hooker Branded, Home Meridian and Domestic Upholstery,

with our other businesses included in All Other.

We regularly monitor our reportable segments for changes in facts and circumstances to

determine whether changes in the identification or aggregation of operating segments are necessary.

See Note 16 to our consolidated financial

statements for additional financial information regarding our segments.

Executive Summary- Fiscal 2025 Results of Operations

Fiscal 2025 consolidated net sales totaled $397.5

million, reflecting a decrease of $35.8 million, or 8.3%, compared to the previous fiscal year.

All three reportable segments experienced

sales decreases, driven by weak demand, a depressed housing market, and broader macroeconomic uncertainties impacting the broader home

furnishings industry.

The Company reported a consolidated operating loss of $18.1 million, primarily due to lower sales volumes, $4.9

million in restructuring costs related to its cost reduction plan, $3.1 million in bad debt expense from a major customer’s bankruptcy,

and $2.8 million in a non-cash tradename impairment.

Consolidated net loss amounted to $12.5 million, or $1.19 per diluted share.

Despite the operating loss, the Company achieved significant

milestones in fiscal 2025.

These included the Margaritaville licensing agreement, the launch of Hooker Branded’s new merchandising

strategy, Sunset West’s east coast expansion, key inventory investments, and market share gains amid a tough market.

Additionally,

the Company secured a new credit agreement, ensuring sufficient financial resources to sustain operations and pursue growth initiatives.

For financial reporting purposes, we are organized into two reportable segments - Hooker Branded and Domestic Upholstery.

Our other businesses

that are not individually reportable and intercompany eliminations are aggregated into “All Other”.

We regularly monitor our

reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating

segments are necessary.

See Note 17 to our consolidated financial statements for additional financial information regarding our segments.

Executive Summary - Fiscal 2026 Results of

During fiscal 2026, we continued to operate in

a challenging macroeconomic environment, including a slow housing market, soft demand for home furnishings, reduced consumer discretionary

spending, and the impact of tariffs.

In response, we focused on initiatives within our control, including the near completion of a multi-phase

cost reduction program, the divestiture of certain underperforming businesses, the launch of the Margaritaville licensed collection at

the High Point Market, and the opening of a new Vietnam warehouse, representing a shift in our warehousing strategy.

We continued to focus

on improving operating performance within our core Hooker Branded and Domestic Upholstery segments, with the Hooker Branded segment reporting

operating income of $1.9 million compared to an operating loss in the prior year, and, the Domestic Upholstery segment reporting an operating

loss of $16.9 million, driven by $15.0 million non-cash impairment charges, compared to an operating loss of $5.4 million in the prior

Net sales from continuing operations totaled $278.1

million for fiscal 2026, a decrease of $39.2 million, or 12.4%, compared to the prior fiscal year.

The decrease was primarily attributable

to the former Home Meridian segment’s hospitality business, which has been reclassified within All Other, due to the project-based

nature of that business.

Net sales in the Hooker Branded and Domestic Upholstery segments decreased modestly by 2.9% and 2.7%, respectively,

partially due to the current fiscal year containing one fewer week than the prior year.

Gross margin improved in both segments, and selling

and administrative expenses decreased, due in part to cost reduction initiatives.

The Company reported a operating loss of $16.5 million,

primarily driven by $15.6 million of non-cash intangible asset impairment charges triggered by our stock price during the year, as well

as operating losses within All Other due to lower sales volumes.

Net loss from continuing operations was $12.8 million, or ($1.20) per

diluted share.

Despite the operating and net losses, we maintained

liquidity and financial flexibility.

We reduced the outstanding principal balance of our term loan during the year to $3.6 million at

fiscal year-end, compared to $21.7 million at the prior year-end.

We also reduced our cash dividend by 50% per share, and our Board of

Directors authorized a new $5 million share repurchase program as part of our capital allocation strategy.

These actions enhanced our

near-term liquidity and financial flexibility, enabling continued investment in key inventory, support for growth initiatives, and the

ability to navigate ongoing macroeconomic uncertainty while maintaining a focus on long-term shareholder value.

Subsequent to fiscal year-end, in February 2026,

Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act were not authorized by

In March 2026, the U.S.

Court of International Trade directed U.S.

Customs and Border Protection to implement a refund process

for previously collected duties.

We are evaluating the potential recovery of these amounts, and potential new tariffs under different

legal authorities.

Our fiscal 2026 performance is discussed in greater

detail below under “Results of Operations”.

Results of Operations

Results of Operations – Continuing Operations

The following table sets forth the percentage

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Selling and administrative expenses

Trade name impairment charges

Goodwill and trade name impairment charges

Intangible asset amortization

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Interest expense, net

(Loss) / income before income taxes

(Loss) / income from continuing operations before income taxes

Income tax (benefit) / expense

Net (loss) / income

Net (loss) / income from continuing operations

Fiscal 2026 Compared to Fiscal 2025

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February 2, 2025

January 28, 2024

Hooker Branded

Home Meridian

Domestic Upholstery

Unit Volume and Average Selling Price (“ASP”)

FY25 % Increase / (Decrease)

Average Selling Price

FY25 % Increase / (Decrease)

Hooker Branded

Home Meridian

Domestic Upholstery

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Because we report on a fiscal year that ends on

the Sunday closest to January 31 st of each year, the 2025 fiscal year was one week longer than the comparable 2024 fiscal year.

the Sunday closest to January 31 st of each year, the 2026 fiscal year was one week shorter than the comparable 2025 fiscal

The following table presents average net sales per shipping day in thousands for the 2026 and 2025 fiscal years:

Average Net Sales Per Shipping Day

Average Net Sales

Per Shipping Day

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Hooker Branded

Home Meridian

Domestic Upholstery

Shipping Days

Consolidated net sales decreased year-over-year

due to the ongoing soft market conditions affecting all segments.

Consolidated net sales decreased by $39.2 million,

or 12.4%, year-over-year, driven primarily by lower sales in the hospitality business within All Other and, to a lesser extent, a shorter

◾ Hooker Branded segment’s net sales decreased

by $4.3 million, or 2.9%, compared to the prior fiscal year.

This decrease was primarily driven by a 5.7% decrease in ASP, which was

partially offset by a 2.9% increase in unit volume.

Net sales decreased during the first three quarters but recovered with a 10% increase

in the fourth quarter, partially due to one additional week, though this recovery was not enough to reverse the annual decrease.

ASP resulted from price reductions implemented to align with decreased freight costs compared to the historic high in the prior two years.

In addition, discounts increased by 140 bps compared to the prior year due to the effort to rebalance our inventory mix and levels.

unit volume increased by 2.9% for the year, driven by a 14% surge in the fourth quarter, this increase was insufficient to fully offset

the impact of the lower ASP.

◾ Home Meridian segment’s net sales decreased

by $12.7 million, or 8.9%, compared to the prior fiscal year, primarily due to a 29.9% decrease in unit volume.

The absence of sales from

previously exited unprofitable product lines accounted for $11.5 million, representing 78% of the total unit volume decrease.

channels, including mass merchants, independent furniture stores, and major furniture chains, all experienced sales decreases due to challenges

in the home furnishings industry driven by the sustained industry downturn attributed to macroeconomic headwinds.

The loss of a major

customer due to its bankruptcy accounted for approximately 22% of the sales decrease in these channels.

These channel decreases were partially

offset by a 58% increase in hospitality sales, driven by double-digit growth in both unit volume and ASP, as a result of the continued

growth in the hospitality industry.

The segment’s ASP increased by 24.4%, as discounts decreased by 1,190 bps due to the absence

of liquidation sales from the previously exited businesses.

Domestic Upholstery’s net sales decreased by $12.6 million, or 9.9%, compared to the prior year.

This decrease was driven by sales decreases at Bradington Young, Shenandoah, and HF Custom, partially offset by a 6.8% sales increase at Sunset West.

Sunset West’s sales growth was driven by its expansion on the East Coast, which helped support a 15.6% increase in orders for the year.

In addition, Sunset West also benefited from the stabilization of its ERP system.

While the ASP remained relatively stable across all four divisions, unit volume decreased at Bradington Young, HF Custom and Shenandoah, but increased by 9.6% at Sunset West.

The entire decrease occurred in the fourth quarter, with net sales down $5.5

million, offsetting modest increases recorded during the first three quarters of the fiscal year.

The decrease was primarily attributable

to the fourth quarter of the current fiscal year being one week shorter than the prior year period, which reduced net sales by approximately

$2.9 million based on average daily sales, and, to a lesser extent, supplier production delays that limited product availability for shipment,

as well as temporary weather-related shipping disruptions.

Unit volume decreased by 8.8%, primarily due to a 27% decrease in fourth quarter

volume versus the prior year, marking the lowest quarterly level in two years.

This decrease was partially offset by a 5.7% increase in

average selling price, implemented in August 2025 to mitigate higher product costs and tariffs.

◾ Domestic Upholstery segment’s net sales

decreased by $3.0 million, or 2.7%, compared to the prior year.

Results varied across divisions, with sales decreases in divisions focused

on upscale leather and custom fabric furniture due in part to a shorter fiscal period and lower incoming orders, while divisions serving

private label, contract and senior living, and outdoor furniture channels reported sales growth.

Average selling prices remained relatively

stable across all divisions.

The overall decrease in net sales was primarily driven by lower unit volume in the underperforming divisions,

partially offset by higher unit volume in the divisions with sales growth.

◾ All Other’s net sales decreased by $31.9

million, or 61.5%, compared to the prior year.

The decrease was entirely attributable to lower sales in the hospitality business, reflecting

the project-based nature of this business, in which certain large projects shipped in the prior year did not recur in the current year.

Gross Profit and Margin

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January 28, 2024

Hooker Branded

Home Meridian

Domestic Upholstery

Consolidated gross profit and margin decreased,

primarily due to decreases in the Hooker Branded and Domestic Upholstery segments, as well as approximately $1.2 million inventory write-downs

and restructuring costs at All Other related to the consolidation of the BOBO business.

However, this decrease was partially offset by

improved gross profit and margin at Home Meridian.

Consolidated gross profit decreased by $4.6 million,

primarily due to lower sales at All Other, partially offset by increased gross profit in the Hooker Branded and Domestic Upholstery segments.

Consolidated gross margin increased, reflecting margin improvements in the Hooker Branded and Domestic Upholstery segments.

◾ The Hooker Branded segment’s gross profit

decreased by $13.2 million compared to the previous fiscal year, primarily due to a $10.1 million decrease in net sales.

Additionally,

the cost of goods sold (COGS) increased by $3.1 million, or 570 bps, largely because the prior year’s COGS were unusually low, benefiting

from the combination of higher selling prices and lower ocean freight costs.

This made the year-over-year comparison more significant.

To a lesser extent, reduced profit on discounted sales also contributed to the decrease in gross margin.

While warehousing and distribution

expenses remained unchanged in absolute terms, they increased by 70 bps due to the decrease in net sales.

◾ The Home Meridian segment’s gross profit

increased by $1.0 million, and its gross margin improved by 240 bps, despite a decrease in net sales.

This progress reflected years of

restructuring efforts aimed at achieving sustainable profitability in this segment.

The improvement was primarily driven by a $3.0 million

reduction in warehousing and distribution expenses, including $2.3 million in cost savings at the Georgia warehouse driven by a reduction

in footprint and $800,000 from international operations, increasing gross margin by 180 bps.

Additionally, COGS decreased by 60 bps, supported

by strong performance in the hospitality business.

However, this was partially offset by lower margins in traditional channels and $618,000

in inventory write-downs related to the planned exit of the Georgia warehouse.

◾ Domestic Upholstery segment gross profit decreased

by $5.8 million, primarily due to lower net sales, while its gross margin decreased by 300 bps, due to the under-absorption of overhead

caused by reduced net sales and higher warehousing and distribution expenses.

Weak demand for home furnishings led to decreased incoming

orders and reduced production schedules at Bradington Young, HF Custom and Shenandoah to align with backlog levels.

As a result, direct

labor costs decreased in absolute terms but remained flat as a percentage of net sales.

Indirect costs also decreased in absolute terms,

driven by lower headcount and other cost-saving measures, but increased by 120 bps due to the sales decrease.

Direct material costs fluctuated

across divisions but remained steady for the segment.

Warehousing and distribution expenses increased by 160 bps 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.

increased by $1.6 million, and gross margin increased by 200 basis points compared to the prior fiscal year, despite a slight decrease

in net sales.

The margin improvement was primarily driven by a 210 basis point reduction in cost of goods sold as a percentage of net

sales, largely due to favorable freight costs, and to a lesser extent, pricing actions.

Tariffs are expected to have a greater impact

on margins in future periods.

◾ Domestic Upholstery segment’s gross profit

increased by $2.1 million, and gross margin increased by 230 basis points compared to the prior fiscal year.

The margin improvement was

primarily driven by lower direct material costs, which decreased by 150 basis points.

Direct labor, indirect, and warehousing and distribution

costs each decreased by approximately 20 to 40 basis points, reflecting reduced headcount and the exit of the Savannah warehouse, partially

offset by costs associated with Sunset West inventory relocation to Virginia.

◾ All Other’s gross profit and gross margin

both decreased compared to the prior year, primarily due to a 61.5% decrease in net sales in the hospitality business, as discussed above.

Selling and Administrative Expenses (“S&A”)

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February 2, 2025

January 28, 2024

Hooker Branded

Home Meridian

Domestic Upholstery

Consolidated S&A expenses increased by $7.5

million or 380 bps compared to the previous year due to increases in all three segments and All Other.

Consolidated S&A expenses increased

as a percentage of net sales also due to a decrease in net sales.

Hooker Branded segment’s S&A expenses increased by $5.3 million, or 540 bps, compared to the previous year.

This increase was driven by several key factors:

approximately $1.4 million in severance costs associated with the Company’s cost reduction plan;

additionally, this segment assumes a significant portion of the Company’s S&A expenses, which include compensation for corporate staff and executives, professional service fees such as consulting and compliance costs, and IT-related expenses.

These costs totaled approximately $17 million for the current year, an increase of $1.6 million over the prior year, primarily due to wage inflation, investment in talent, IT maintenance, and investments to support strategic growth, including international expansion.

Other factors contributing to the increase included higher bad debt provision, travel expenses, and banking fees.

These increases were partially offset by lower variable compensation expense due to the Company not meeting its profit targets, as well as decreased rent and other expenses resulting from cost saving measures.

◾ Home Meridian segment’s S&A expenses

increased by $1.0 million, or 270 bps, compared to the previous year.

This increase was primarily due to a $3.1 million bad debt expense

resulting from the bankruptcy of a major customer.

Additionally, the segment incurred $233,000 in severance costs related to the company’s

cost reduction plan.

However, these increases were partially offset by several factors:

a $1.2 million decrease in compensation expenses

due to organizational restructuring and personnel changes, a $400,000 reduction in selling costs due to lower sales, a $300,000 decrease

in insurance costs due to reduced inventory levels, and savings from other cost reduction initiatives.

Consolidated S&A expenses decreased by $11.9

million, or 50 basis points, compared to the prior year, primarily driven by the Company’s restructuring efforts, including the

exit of unprofitable businesses at All Other, as well as cost reductions across the other segments.

◾ Hooker Branded segment’s S&A expenses

decreased by $776,000 compared to the prior year.

The decrease was primarily driven by cost reduction initiatives, which resulted in approximately

$3.3 million in savings, including lower compensation costs due to reduced headcount, as well as reductions in showroom and rent expenses,

bad debt, banking fees, and other operating costs.

These reductions were largely offset by higher professional services and maintenance

expenses, including a $2.1 million increase in IT-related maintenance driven by higher software licensing fees and post-implementation

support and maintenance costs associated with the Company’s ERP system, as well as additional consulting fees related to compliance,

corporate strategy, and investor relations activities.

◾ Domestic Upholstery segment’s S&A expenses

increased by $705,000, or 240 bps, compared to the previous year.

This increase included approximately $640,000 in severance costs, as

well as higher compliance costs and showroom rent expenses.

These increases were partially offset by reductions in variable compensation

expense, medical claims, and selling costs.

◾ All Other’s S&A expenses increased

by $494,000 compared to the previous year, primarily due to approximately $850,000 in restructuring costs associated with the consolidation

of the BOBO business.

Intangible Asset Impairment and Amortization

decreased by $1.3 million, or 60 basis points, compared to the prior year.

The decrease was primarily driven by approximately $665,000

lower operating expenses, including reductions in advertising and supplies, compensation costs, and compliance expenses related to a non-recurring

item in the prior year, as well as other cost savings.

The decrease also reflects lower restructuring and selling costs.

◾ All Other’s S&A expenses decreased

by $9.9 million compared to the prior year, primarily due to the absence of $7.2 million of operating expenses associated with a previously

exited HMI business classified in All Other, including $3.1 million of bad debt expense related to the bankruptcy of its major customer.

The decrease also reflects, to a lesser extent, absence of $1.7 million in restructuring costs incurred in the prior year related to another

previously exited lighting and home décor business.

Intangible Asset Impairment

and Amortization

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February 2, 2025

January 28, 2024

Goodwill impairment

Tradenames impairment

Intangible asset amortization

Intangible asset amortization expense stayed flat

in fiscal 2025.

The $2.8 million non-cash impairment charge was related to certain indefinite-lived trade names in the Home Meridian segment.

See Note 10 Intangible Assets and Goodwill to our Consolidated Financial Statements for additional information about the impairment charges

and our amortizable intangible assets.

The Company recorded $15.6 million of non-cash

impairment charges during fiscal 2026.

These charges included $14.5 million related to goodwill in the Sunset West division and $556,000

related to the Bradington-Young trade name, both within the Domestic Upholstery segment, as well as $558,000 related to the remaining

HMI-related business classified in All Other.

Intangible asset amortization expense decreased

slightly in fiscal 2026, primarily due to the absence of amortization related to the Sam Moore trade name and reduced amortization associated

with the remaining HMI business classified in All Other.

See Note 9, Intangible Assets and Goodwill, to the Consolidated Financial Statements

for additional information regarding impairment charges and amortizable intangible assets.

Operating (Loss) / Income and Margin

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53 weeks ended

February 2, 2025

January 28, 2024

Hooker Branded

Home Meridian

Domestic Upholstery

The Company reported an operating loss of $16.5

million in fiscal 2025 due to decreased sales volume, $4.9 million in restructuring costs, $3.1 million in bad debt, and $2.8 million

in intangible asset impairment, as well as other factors discussed above.

million in fiscal 2026 due to $15.6 million non-cash impairment charge, decreased overall net sales, approximately $2.0 million in restructuring

costs, as well as other factors discussed above.

Interest Expense, net

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February 2, 2025

January 28, 2024

Consolidated interest expense

Consolidated interest expense decreased slightly

in fiscal 2025 due to decreased principal balance, as well as reduced interest rates in the second half of the year.

Consolidated interest expense decreased in fiscal

2026, primarily due to a significantly lower average principal balance throughout the year compared to the prior fiscal year.

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February 2, 2025

January 28, 2024

Consolidated income tax (benefit) / expense

Effective Tax Rate

We recorded income tax benefit of $3.9 million for

fiscal 2025, compared to income tax expense of $2.6 million for fiscal 2024.

The effective tax rates for fiscal 2025 and fiscal 2024 were

23.9% and 20.7%, respectively.

The effective tax rate was higher in fiscal 2025 due to the impact of state tax benefits and the cash surrender

value of company-owned life insurance which were added to the favorable tax impact of the pretax loss, versus a subtraction from tax expense

in the case of a pretax profit in the previous year.

See Note 17 Income Taxes to our Consolidated Financial Statements for additional

information about our income taxes.

Net (Loss) / Income and (Loss) / Earnings Per

Income tax benefit from continuing operations

was $4.3 million for fiscal 2026, compared to $1.9 million for fiscal 2025.

The effective tax rates were 25.0% and 23.6% for fiscal 2026

and fiscal 2025, respectively.

The increase in the effective tax rate in fiscal 2026 was primarily due to higher state tax benefits.

Note 16 Income Taxes to our Consolidated Financial Statements for additional information about our income taxes.

Net (Loss) from Continuing Operations and Earnings

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February 2, 2025

January 28, 2024

Net (loss) / income

Diluted (loss) / earnings per share

Net (loss) / income from continuing operations

Diluted (loss) / earnings from continuing operations per

Results of Operations – Discontinued

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53 Weeks Ended

Cost of sales

Tradename impairment

Intangible asset amortization

Other income items that are not major

Pretax loss of discontinued operations related to major classes

Loss on sale of the discontinued operations

(Loss) / income from discontinued operations before income taxes

Income tax benefits

Net loss from discontinued operations

Selling Price

Discontinued Operations

Combined net sales for PFC and SLF decreased by

$37.3 million, or 87.2%, in fiscal 2026, primarily due to 52.6% lower unit volume.

The decrease also reflects the divestiture of these

businesses in early December 2025, resulting in approximately ten months of sales being recognized in fiscal 2026.

Lower unit volume was

driven by continued macroeconomic pressures and tariff-related purchasing hesitancy among value-oriented customers, particularly major

furniture chains.

The Company recorded restructuring costs of $3.9

million in fiscal 2026, including $2.4 million 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 and relocation expenses, and severance.

In connection

with the divestiture, the Company recorded a $6.9 million loss on sale of the discontinued businesses, including $2.6 million related

to trade name impairments, approximately $3.5 million related to write-downs of accounts receivable, inventory, and other fixed and intangible

assets, and approximately $735,000 of selling costs.

In addition, these businesses incurred approximately $1.0 million of bad debt expense

related to a customer bankruptcy.

The operating losses for fiscal 2026 were primarily

attributable to the significant decline in sales volume and unfavorable product and customer mix, as well as restructuring costs and valuation

adjustments associated with the divestiture.

These impacts are not expected to recur following the divestiture.

The analysis and discussion of fiscal 2025 compared to fiscal 2024

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52 Weeks Ended

Net cash (used in) / provided by operating activities

Net cash used in investing activities

Net cash (used in) / provided by financing activities

Net cash provided by / (used in) operating activities

Net cash provided by / (used in) investing activities

Net cash used in financing activities

Net cash provided by / (used in) discontinued operations

Net (decrease) / increase in cash and cash equivalents

During fiscal 2025, we used cash on hand and $936,000

life insurance proceeds to fund $9.9 million in cash dividends to shareholders, $8.9 million increase in inventory levels, $3.2 million

capital expenditures, $3.0 million toward the development of the ERP system, $480,000 debt issuance cost and $395,000 in life insurance

premiums on Company-owned life insurance policies.

Company-owned life insurance policies are in place to compensate us for the loss of

key employees and to facilitate business continuity.

During fiscal 2024, we used a portion of the $55.5

million cash generated from operations and $1.0 million life insurance proceeds to fund $11.7 million share repurchases, $9.7 million

in cash dividends to our shareholders, $6.8 million capital expenditures including investments in our new showrooms, $5.1 million for

development of our cloud-based ERP system, $2.4 million on the BOBO acquisition, and $406,000 in life insurance premiums on Company-owned

life insurance policies.

During fiscal 2023, we used a portion of the $25

million term-loan proceeds and existing cash and cash equivalents on hand to fund the $25 million Sunset Acquisition, pay $13.3 million

in purchases and retirement of common stock, build up inventory levels by $12 million, $9.6 million in cash dividends, $5.4 million for

the development of our new cloud-based ERP system, $4.2 million capital expenditures to enhance our business systems and facilities, and

$492,000 in life insurance premiums on Company-owned life insurance policies.

During fiscal 2026, cash decreased by $5.2 million

compared to the prior fiscal year.

Cash used in financing activities, primarily related to repayments on the term loan and revolving credit

facility, as well as dividend payments, was largely offset by cash provided by operating activities and, to a lesser extent, cash provided

by investing activities, which benefited from proceeds from the sale of discontinued operations.

provided by operating activities totaled $18.3 million in fiscal 2026, compared to $22.0 million used in the prior fiscal year.

The improvement

was driven primarily by favorable changes in working capital and non-cash adjustments.

Key drivers of operating cash flow increase:

o Despite a higher net loss from continuing operations of $12.8 million, compared to $6.2 million in the

prior year, operating cash flow benefited from significant non-cash adjustments, including $15.6 million of trade name impairment charges,

which were added back in the reconciliation to operating cash flow.

o Trade receivables:

Collections of trade accounts receivable generated $8.1 million of cash inflows, compared

to $11.3 million outflows in the prior fiscal year, primarily due to improved collections, including large, project-based receipts.

o Inventories:

Generated $17.5 million of cash inflows, compared to a use of $13.2 million outflows in the

prior year, reflecting deliberate inventory reduction efforts.

The decrease was concentrated in the Hooker Branded segment as inventory

levels normalized following prior elevated build-ups.

o A $5.8 million decrease in accounts payable, representing a use of cash compared to a $4.8 million source

in the prior year, as we reduced purchasing activity and did not continue building inventory levels during the current fiscal year.

Cash provided by investing activities totaled

$2.0 million, compared to $2.5 million used in the prior fiscal year.

The increase was primarily due to $5.5 million proceeds from the

sale of discontinued operations, partially offset by capital expenditure.

Cash used in financing activities was $27.4 million,

compared to $11.1 million in the prior fiscal year, primarily due to $18.5 million of repayments on the revolving credit facility during

the current fiscal year.

Cash provided by discontinued operations was $1.9

million, compared to $1.1 million used in the prior fiscal year, primarily due to favorable operating adjustments, including non-cash

valuation allowance and asset disposal impacts added back to net loss.

Liquidity, Financial Resources and Capital

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relate primarily to funding operations (including expenditures for inventory, lease payments and payroll), quarterly dividend payments

and capital expenditures related primarily to 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

and capital expenditures related primarily to our 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 the mid-summer as a result of inventory build-up for the traditional fall selling season.

Long-term cash requirements

relate primarily to repayment of long-term debt and funding lease payments.

relate primarily to funding lease payments.

Loan Agreements and Revolving Credit Facility

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after giving effect to such dividend or repurchase.

We incurred $480,000 in debt issuance costs in

connection with our term loans.

As of February 2, 2025, unamortized loan costs of $464,000 were netted against the carrying value of our

term loans on our consolidated balance sheets.

We incurred $480,000 in fiscal 2025 and an additional

$118,000 in fiscal 2026 in debt issuance costs in connection with our term loans.

As of February 1, 2026, unamortized loan costs of $476,000

were netted against the carrying value of our term loans on our consolidated balance sheets.

As of February 1, 2026, we had $3.6 million principal

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There were no additional borrowings outstanding under the Amended and Restated Loan Agreement as of February 1, 2026.

We believe that our existing liquidity and capital resources are sufficient to meet our anticipated needs over the next 12 months.

Share Repurchase Authorization

In fiscal 2023, our Board of Directors authorized

the repurchase of up to $20 million of the Company’s common shares.

The authorization did not obligate us to acquire a specific

number of shares during any period and did not have an expiration date, but it could be modified, suspended, or discontinued at any time

at the discretion of our Board of Directors.

Repurchases could be made from time to time in the open market, or through privately negotiated

transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to our cash requirements for other purposes,

compliance with the covenants under the loan agreement for our revolving credit facility and other factors we deem relevant.

2024 second quarter, our Board of Directors approved an additional $5 million for the repurchase of our common shares, adding to the $20

million authorization it approved in fiscal 2023.

During fiscal 2024, we had used approximately

$11.7 million of the authorization to purchase 620,634 of our common shares at an average price of $18.79 per share.

The share repurchase

program was completed during the fiscal 2024 third quarter.

In fiscal 2026 fourth quarter, our Board of Directors

authorized the repurchase of up to $5 million of the Company’s common shares.

The authorization did not obligate us to acquire a

specific number of shares during any period and did not have an expiration date, but it could be modified, suspended, or discontinued

at any time at the discretion of our Board of Directors.

Repurchases could be made from time to time in the open market, or through privately

negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to our cash requirements

for other purposes, compliance with the covenants under the Amended and Restated Loan Agreement and other factors we deem relevant.

did not repurchase any of our common shares during fiscal 2026.

Capital Expenditures

We expect to spend between $2 million to $3 million

in capital expenditures in fiscal 2026 to maintain and enhance our operating systems and facilities.

Enterprise Resource Planning

During calendar 2021, our Board of Directors approved

an upgrade to our current ERP system and implementation efforts began 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 expect to spend approximately $3 million in

capital expenditures in fiscal 2027 to maintain and enhance our operating systems and facilities.

Material Capital Commitments

Our material capital commitments primarily consist

of lease payments.

We lease office space, warehousing facilities,

showroom space and office equipment under leases expiring over the next five years.

As of February 2, 2025, future minimum annual commitments

under leases and operating agreements are $10.0 million in fiscal 2026, $10.1 million in fiscal 2027, $8.4 million in fiscal 2028, $7.7

million in fiscal 2029, and $7.3 million in fiscal 2030.

In March 2025, we announced the decision to exit the Savannah, Georgia distribution

This will reduce lease payments and our future commitments by approximately $10 million over the next five years, with a total

of $14.5 million over the remaining lease term.

See Note 22 Subsequent Events for additional information.

of lease payments, obligations for leased space or properties under third-party operating agreements, and future benefit payments under

two retirement plans.

As of February 1, 2026, future minimum annual

commitments under leases and operating agreements are $8.7 million in fiscal 2027, $6.8 million in fiscal 2028, $6.1 million in each of

fiscal 2029 and 2030, and $5.4 million in fiscal 2031.

Additionally, the Revolving Commitment will terminate,

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We declared and paid dividends of $0.805 per share

or approximately $9.9 million in fiscal 2025, an increase of 3.4% or $0.03 per share compared to $0.89 per share or approximately $9.7

or approximately $8.8 million in fiscal 2026, a decrease of 12.5% or $0.115 per share compared to $0.92 per share or approximately $9.9

million in fiscal 2025.

During the third quarter of fiscal 2026, the Board approved a reduction of the annual dividend to $0.46 per share,

or 50%, effective beginning with the December 31, 2025 dividend payment.

This action reflects a recalibration of our capital allocation

strategy to align with current operating conditions, liquidity requirements, and our strategic transition to a leaner, growth-oriented

business model.

The reduced dividend, together with the share repurchase program, is intended to preserve financial flexibility and support

ongoing investment in the business while continuing to return capital to shareholders.

On March 5, 2026, our Board of Directors declared

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section of Note 1 to our Consolidated Financial Statements for further details of recent accounting pronouncements.

Savannah warehouse exit

On March 24, 2025, we announced our decision to exit

its Savannah, Georgia distribution center and consolidate operations in the existing facilities.

The Company commenced operations at the

Savannah facility in October 2021 for its Home Meridian segment’s (“HMI”) Accentrics Home (“ACH”) brand.

However, shortly after opening the facility, ACH’s competitive position was severely eroded by a sharp rise in post-COVID container

freight rates from Asia.

In 2024, we liquidated its inventory and closed ACH, part of a larger plan to exit unprofitable businesses at

We began reducing our footprint in Savannah shortly after that through a series of sub-leases and lease amendments with our landlord,

continued to utilize remaining space for other brands in our Home Meridian segment and for the Sunset West division of our Domestic Upholstery

We recorded net charges of between $1.3 million in fiscal 2025 and expect to record between $3.0 million to $4.0 million in fiscal

2026, related to the Savannah exit.

We further expect preliminary savings of between $750,000-$1.0 million in net operating expenses in

Also preliminarily, we expect to realize annualized savings of between $4.0 million to $5.7 million beginning in fiscal 2027.

These costs and benefits are largely dependent on the timing of the completion of the exit and could differ from these preliminary estimates.

There is currently significant economic uncertainty

and volatility.

We are evaluating a range of strategies to mitigate the current economic environment, including a 50-year low in existing

home sales, and the possible impact of additional reciprocal tariffs on our operations and profitability.

Tariffs add tremendous complexity

and uncertainty that require us to look at our cost structure more aggressively, particularly on the lower margin, direct container side

of our business.

We continue to identify additional opportunities to gain efficiency by consolidating operations.

While evaluation of

our cost footprint and implementation of further cuts are both ongoing, we continue to invest in the highest growth-potential areas of

our business, as growing profitable sales remains an intense focus.

On the positive side, the inflation cooled in

February and March, falling to the levels experienced last summer and fall before it rose from November 2024 to January 2025.

Additionally,

according to the U.S.

Census Bureau year-over-year monthly furniture sales have increased for 5 straight months, beginning in September

However, the Index of Consumer Sentiment and existing home sales continue

to be low, which reflects the uncertainty.

While the current environment is challenging,

we believe we have positioned the company to continue gaining market share and maximizing revenues through our merchandising efforts,

speed-to-market initiatives and in-stock position on top-selling products.

In the Hooker Branded and Domestic Upholstery

segments, incoming orders have increased year-over-year for three consecutive quarters, adjusted for the extra week in last year’s

fourth quarter.

Housing activity and consumer confidence remain

weak and the Department of Commerce’s February advance monthly estimates reflect that reality, showing that retail sales for furniture

and home furnishings decreased by 5.6% as compared to the prior year and lower than January 2026.We don’t anticipate near-term meaningful

improvement in conditions;

however, with a more efficient cost structure and a streamlined portfolio, we believe we are positioned to

report much improved results if current market conditions persist.

Our advantage is a clear focus on our core businesses,

with the organization fully aligned to drive organic growth and deliver more consistent, sustainable earnings over time.

Margaritaville

product and gallery commitments continue to scale, with shipments expected to begin in the second half of fiscal 2027.

Critical Accounting Policies and Estimates

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Revenue Recognition

We recognize revenue pursuant to Accounting Standards Codification

606, which requires revenue to be recognized at an amount that reflects the consideration we expect to be entitled to receive in exchange

for transferring goods or services to our customers.

Our policy is to record revenue when control of the goods transfers to the customer.

We recognize revenue pursuant to Accounting Standards

Codification 606, which requires revenue to be recognized at an amount that reflects the consideration we expect to be entitled to receive

in exchange for transferring goods or services to our customers.

Our policy is to record revenue when control of the goods transfers to

the customer.

We have a present right to payment at the time of shipment as customers are invoiced at that time.

We believe the customer obtains control

of goods at the time of shipment, which is typically when title passes.

While the customer may not enjoy immediate physical possession

of the products, the customer’s right to re-direct shipment indicates control.

In the very limited instances when products are sold

under consignment arrangements, we do not recognize revenue until control over such products has transferred to the end consumer.

are generally non-cancellable once loaded into a shipping trailer or container.

We believe the customer

obtains control of goods at the time of shipment, which is typically when title passes.

While the customer may not enjoy immediate physical

possession of the products, the customer’s right to re-direct shipment indicates control.

In the very limited instances when products

are sold under consignment arrangements, we do not recognize revenue until control over such products has transferred to the end consumer.

Orders are generally non-cancellable once loaded into a shipping trailer or container.

The transaction price for each contract is the

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Tangible and Definite Lived Intangible Assets

We regularly review our property, plant and equipment and definite-lived

intangible assets for indicators of impairment, as specified in the Accounting Standards Codification.

We regularly review our property, plant and equipment

and definite-lived intangible assets for indicators of impairment, as specified in the Accounting Standards Codification.

When an indicator of impairment is present, the

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the asset might be impaired.

The fair value of our trademarks and trade names is determined based

on the estimated earnings and cash flow capacity of those assets.

The impairment test consists of a comparison of the fair value of the

indefinite-lived intangible assets with their carrying amount.

If the carrying amount of the indefinite-lived intangible assets exceeds

their fair value, an impairment loss is recognized in an amount equal to that excess.

During fiscal 2025, due to the decline in revenue

driven by the downturn in the furniture industry, increased freight costs, changes in management’s 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 $2.8 million for certain

indefinite-lived trade names within the Home Meridian segment.

At February 2, 2025, based on our internal valuation, the fair values of

our Bradington-Young, remaining Home Meridian and BOBO non-amortizable trademarks and trade names exceeded their carrying values.

The fair value of our trademarks and trade names

is determined based on the estimated earnings and cash flow capacity of those assets.

The impairment test consists of a comparison of

the fair value of the indefinite-lived intangible assets with their carrying amount.

If the carrying amount of the indefinite-lived intangible

assets exceeds their fair value, an impairment loss is recognized in an amount equal to that excess.

Upon the adoption of ASU 2017-04, we perform our

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critical of which are potential future cash flows and the appropriate discount rate.

Based on our internal goodwill impairment analysis

as described above, we have concluded that Shenandoah and Sunset West goodwill in the Domestic Upholstery segment and BOBO goodwill in

All Other is not impaired as of February 2, 2025.

During the third quarter of fiscal 2026, adverse

economic conditions, including declines in our market value, as well as other changes in market dynamics, triggered an interim impairment

assessment of goodwill and intangible assets.

We engaged an independent third-party valuation firm to assist in performing this assessment.

The valuation procedures were performed with consideration of applicable accounting guidance, including Accounting Standards Codification

(“ASC”) Topic 350, Goodwill and Other Intangible Assets and ASC Topic 820, Fair Value Measurement.

The fair value of the Home

Meridian and Domestic Upholstery reporting units was determined using a combination of the discounted cash flow method, guideline public

company method, and guideline transaction method.

Based on this analysis, we recorded aggregate non-cash impairment charges of $15.6 million,

including $14.5 million related to Sunset West goodwill within the Domestic Upholstery segment, $0.6 million related to the HMI trade

name within All Other, and $0.6 million related to the Bradington-Young trade name within the Domestic Upholstery segment.

Intangible Assets and Goodwill, to the Consolidated Financial Statements for additional information regarding impairment charges and amortizable

intangible assets.

Based on our internal valuation and goodwill impairment

analysis as described above, we have concluded that Shenandoah goodwill in the Domestic Upholstery segment is not impaired, and the fair

values of remaining Bradington Young, Home Meridian and BOBO non-amortizable trade names exceeded their carrying values as of February

The assumptions used to determine the fair value

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a write-down to reduce the carrying amount of inventory to its estimated net realizable value.

In March 2025, we announced the planned

exit of our Savannah, GA warehouse and the consolidation of warehouse operations at existing and temporary facilities.

In fiscal 2025,

we recorded $1.3 million in inventory reserves on end-of-life and near-end of life cycle products that we don’t plan to move to

these existing or temporary facilities due to the moving costs involved.

Our other significant accounting policies are

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Recently Issued Accounting Standards Not Yet

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

We are currently evaluating the impact that the adoption of this new guidance will have on our Consolidated Financial Statements,

if any, and will add necessary disclosures upon adoption.

In November 2024, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Disaggregation of Income Statement Expenses

(Subtopic 220-40), which requires public entities to provide additional disclosures disaggregating certain expense captions presented

on the consolidated statements of operations.

The guidance requires disclosure, in tabular format, of specified expense categories, including

employee compensation, depreciation and amortization, and inventory-related costs, within relevant income statement captions.

is effective for annual reporting periods beginning after December 15, 2026, which will be our fiscal 2028, and interim periods thereafter,

with early adoption permitted.

The Company is currently evaluating the impact of this guidance on its consolidated financial statements

and related disclosures.

Adoption is expected to result in expanded disclosures, but is not expected to have a material impact on the

Company’s consolidated financial position, results of operations, or cash flows.

Concentrations of Sourcing Risk

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

What changed 10-K

Item 7. Management’s Discussion and Analysis