What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-06-12 compared with 2025-12-12 · 478 added, 549 removed, 48 unchanged (96% of the section changed)

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

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.

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.

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.

Other” includes Samuel Lawrence Hospitality product line, intercompany eliminations and operating segments that are not individually

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 condensed consolidated financial statements included in this report, are not based on historical facts, but are forward-looking

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 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

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially

from those in the forward-looking statements.

statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking

Those risks and uncertainties include but are not limited to:

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

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;

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;

the impairment of our long-lived assets, which can result in reduced earnings and net worth;

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;

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;

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;

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;

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;

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;

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;

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;

difficulties in forecasting demand for our imported products and raw materials used in our domestic operations;

our inability to collect amounts owed to us or significant delays in collecting such amounts;

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;

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;

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;

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;

(1) adverse political acts or developments affecting

the international markets from which we import products and certain components used in our Domestic Upholstery segment, including the

imposition of duties or tariffs by the U.S.

or foreign governments, such as the tariffs under Section 301, antidumping and countervailing

duty orders on raw materials like timber and lumber, the potential for additional or higher reciprocal tariffs on imports from key sourcing

countries, uncertainty regarding tariff refunds, and other trade restrictions, could affect our supply chain and increase our costs, and

adversely affect 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 elevated interest rates and housing market volatility,

which can affect consumer discretionary spending, existing home sales, and demand for home furnishings, including their potential impact

on (i) our sales, operating costs and access to financing, (ii) our customers, and (iii) our 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) achieving and managing growth and change,

and the risks associated with new business lines including the Margaritaville launch, acquisitions, the selection of suitable acquisition

targets, restructurings, strategic alliances and international operations;

(6) risks associated with the ultimate outcome

of our cost reduction efforts, 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 reliance on offshore

sourcing and the cost of imported goods, including fluctuation in the prices of purchased finished goods, customs issues, tariffs, freight

and fuel 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, slowdowns,

or geopolitical conflicts or instability affecting key global shipping routes and our suppliers, could adversely affect our ability to

timely fulfill customer orders;

(8) 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;

(9) difficulties in forecasting demand for our

imported products and raw materials used in our domestic operations;

(10) our inability to collect amounts owed to

us or significant delays in collecting such amounts;

(11) 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;

(12) 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;

(13) 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;

(14) 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;

(15) 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;

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;

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;

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;

risks associated with distribution through third-party retailers, such as non-binding dealership arrangements;

changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our

imported products and raw materials;

and foreign government regulations

and in the political, social and economic climates of the countries from which we source our products;

(16) 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;

(17) 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;

(18) risks associated with distribution through

third-party retailers, such as non-binding dealership arrangements;

(19) changes in domestic and international monetary

policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials;

(20) price competition in the furniture industry;

changes in consumer preferences, including increased demand for lower-priced furniture, especially in light of recently imposed tariffs

on imported furniture;

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.

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.

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.

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 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.

in this report to:

2026 fiscal year and comparable terminology mean the fiscal year that began February 3, 2025,

and will end February 1, 2026;

2025 fiscal year and comparable terminology mean the fiscal year that began January 29, 2024,

and ended February 2, 2025.

amounts presented in the tables below are in thousands except for per share data.

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.

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.

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

We also domestically manufacture premium residential custom leather, custom fabric-upholstered furniture and outdoor furniture.

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.

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

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.

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.

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.

following analysis excludes discontinued operations except as otherwise indicated.

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

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.

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.

November 2, 2025, our backlog of unshipped orders was as follows:

(21) changes in consumer preferences, including

increased demand for lower-priced furniture, especially in light of recently imposed tariffs on imported furniture;

(22) 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;

(23) decisions concerning the allocation of capital

including the extent to which we repurchase shares of our common stock which will affect shares outstanding and earnings per share (EPS);

(24) 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

Our forward-looking statements could be wrong

in light of 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.

a discussion of risks and uncertainties that we face, see the Forward-Looking Statements detailed above and Item 1A, “Risk Factors”

in our 2026 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 2027 fiscal year thirteen-week period (also referred to as “three

months,” “three-month period,” “quarter,” “first quarter” or “quarterly period”)

that began February 2, 2026 and ended May 3, 2026.

This report discusses our results of operations for this period compared to the 2026

fiscal year thirteen-week period that began February 3, 2025 and ended May 4, 2025;

and our financial condition as of May 3, 2026 compared

to February 1, 2026.

References in this report to:

◾ the 2027 fiscal year and comparable terminology

mean the fiscal year that began February 2, 2026, and will end January 31, 2027;

◾ the 2026 fiscal year and comparable terminology

mean the fiscal year that began February 3, 2025, and ended February 1, 2026.

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.

encourage users of this report to familiarize themselves with all our recent public filings made with the SEC, especially our 2026 Annual

Our 2026 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 2026 Annual Report and other public filings

made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com.

Hooker Furnishings Corporation, incorporated in

Virginia in 1924, is a designer, marketer, and importer of casegoods (wooden and metal furniture), leather furniture, fabric-upholstered

furniture, lighting, accessories, and home décor for the residential, hospitality and contract markets.

We also domestically manufacture

premium residential custom leather, custom fabric-upholstered furniture and outdoor furniture.

Orders and Backlog

In the discussion below and herein, we reference

changes in sales orders or “orders” and sales order backlog (unshipped orders at a point in time) or “backlog”

over and compared to certain periods of time and changes discussed are in sales dollars and not units of inventory, unless stated otherwise.

We believe orders are generally good current indicators of sales momentum and business conditions.

If the items ordered are in stock and

the customer has requested immediate delivery, we generally ship products in about seven days or less from receipt of order;

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

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.

At May 3, 2026, our backlog of unshipped orders

was as follows:

Order Backlog

1 unchanged sentence

Reporting Segment

November 2, 2025

February 2, 2025

October 27, 2024

Hooker Branded

Domestic Upholstery

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.

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.

2026 third quarter:

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.

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.

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.

2026 nine months:

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.

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.

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.

Cost Reduction Initiatives

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.

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”.

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.

Consolidated backlog at the end of the first quarter

of fiscal 2027 increased 4.5% compared to the prior-year first quarter.

The increase was primarily driven by higher backlog in Hooker

Domestic Upholstery backlog increased modestly compared to both the prior-year first quarter and fiscal 2026 year-end, driven

by higher private label orders.

All Other backlog decreased significantly compared to both periods, primarily due to large hospitality

shipments during the current quarter and the project-based nature of the hospitality business.

Executive Summary

Despite continued weakness in the housing market,

soft furniture and home furnishings retail sales, and persistent macroeconomic challenges, the Company generated operating income of $1.6

million in the first quarter of fiscal 2027, compared to an operating loss of $498,000 in the prior-year period.

This $2.1 million improvement

was achieved despite a 2.4% decrease in consolidated net sales and reflects the impact of improved gross margin and cost-reduction initiatives

implemented in prior periods, and the Company’s progress toward becoming a leaner, higher-margin business with a lower break-even

Consolidated net sales decreased $1.7 million,

or 2.4%, in the first quarter of fiscal 2027 due to lower sales in Hooker Branded and Domestic Upholstery, partially offset by higher

shipments in the All Other hospitality business.

Despite a decrease in net sales, consolidated gross profit increased $2.7 million and

gross margin improved 440 basis points, primarily driven by improved profitability in Hooker Branded.

The Company generated operating

income of $1.6 million for the quarter, driven by operating income in Hooker Branded and All Other, partially offset by an operating loss

in Domestic Upholstery.

Consolidated net income from continuing operations was $1.1 million, or $0.10 per diluted share.

In addition to improved profitability, the Company significantly improved

its liquidity and financial flexibility during the quarter.

Cash and cash equivalents increased to $10.6 million at quarter-end, with no

outstanding term loan balance, compared to $1.1 million of cash and $3.6 million outstanding under the term loan at prior fiscal year-end.

In April 2026, the Company began repurchasing shares under its previously authorized $5 million share repurchase program.

Tariff Update

In February 2026, the U.S.

Supreme Court ruled

that certain tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) were not authorized by statute.

In March 2026, the U.S.

Court of International Trade directed U.S.

Customs and Border Protection to implement a process for refunding

previously collected duties.

During the fiscal 2027 first quarter, the Company

submitted refund claims totaling approximately $8 million.

Due to uncertainty regarding the ultimate recoverability, timing and amount

of any refunds, the Company did not recognize a receivable or any reduction of cost of sales or inventory related to these claims in its

unaudited condensed consolidated financial statements for the first quarter of fiscal 2027.

GAAP, the Company is applying a

gain contingency model to evaluate potential tariff refunds, recognizing such amounts only when recovery is realized or realizable.

Company continues to monitor the recoverability of potential tariff refunds and the potential impact of any new or additional tariffs

imposed under other legal authorities.

Our fiscal 2027 first quarter 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

Cost of sales

Selling and administrative expenses

Goodwill and trade name impairment charges

Intangible asset amortization

Operating (loss)/income

Other income, net

Operating income / (loss)

Other (expense) / income

Interest expense

(Loss)/income from continuing operations before income taxes

Income tax (benefit) / expense

Net (loss)/income from continuing operations

2026 Third Quarter and First Nine Months Compared to Fiscal 2025 Third Quarter and First Nine Months

Income / (Loss) from continuing operations before income taxes

Income tax expense / (benefit)

Net income / (loss) from continuing operations

Fiscal 2027 First Quarter Compared to Fiscal

2026 First Quarter

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

6 unchanged sentences

Domestic Upholstery

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.

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.

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

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

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.

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

Consolidated net sales decreased $1.7 million,

or 2.4%, in the first quarter of fiscal 2027, driven primarily by lower net sales at Hooker Branded and, to a lesser extent, Domestic

These decreases were partially offset by increased net sales in All Other, primarily due to significantly higher shipments

during the quarter.

◾ The Hooker Branded segment’s net sales

decreased $1.8 million, or 4.8%, in the first quarter of fiscal 2027, driven by lower unit volume, partially offset by higher average

selling prices resulting from price increases implemented to mitigate higher product costs and tariffs.

Approximately 70% of the net sales

decrease was attributable to the imported upholstery line, primarily due to inventory constraints, including lower in-stock positions,

production delays, product mix transitions and softer retail demand.

The casegoods line also experienced production delays earlier in

the year, which improved by the end of the quarter.

◾ The Domestic Upholstery segment’s net sales

decreased $558,000, or 1.9%, in the first quarter of fiscal 2027.

Results varied by division, with a 28% increase in private-label sales,

supported by strong incoming orders that began in the prior fiscal year, and flat net sales in custom fabric upholstery.

These results

were more than offset by a 35% sales decrease in upscale leather furniture and a slight decrease in the outdoor furnishings business.

◾ All Other net sales increased $605,000, or 11.7%,

in the first quarter of fiscal 2027, primarily driven by a sales increase of more than 20% in the hospitality business due to higher shipments

during the current quarter.

Net sales in the project-based business vary based on the timing of shipments, which may cause fluctuations

between periods.

Gross Profit and Margin

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

Domestic Upholstery

gross profit decreased for both periods due to lower net sales, while consolidated gross margin increased in each period.

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

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.

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.

Other gross profit and gross margin decreased in both periods, driven by lower net sales

in the hospitality business.

Consolidated gross profit exceeded prior-year

period by $2.7 million or 440 basis points, driven by a significant increase at Hooker Branded.

The Hooker Branded segment’s gross profit increased $2.9 million in the first quarter of fiscal 2027, and gross margin increased 960 basis points, despite a 4.8% decrease in net sales.

The increases in gross profit and margin were primarily attributable to higher average selling prices.

The increase was partially offset by warehousing and distribution expenses, which increased by 90 basis points compared to the prior-year quarter, primarily due to costs associated with the Company’s Vietnam warehouse, which was launched during the second quarter of last year and not present in the comparable prior-year period.

The Domestic Upholstery segment’s gross profit decreased $315,000, and gross margin decreased 80 basis points, in the first quarter of fiscal 2027.

Gross profit and margin improved in three of the segment’s four divisions, primarily due to lower cost of sales.

These improvements were more than offset by lower gross profit and margin in the upscale leather furniture division, driven by higher material costs, increased standard labor rates and lower absorption of indirect costs resulting from a significant decline in its net sales.

Warehousing and distribution expenses increased $142,000, or 60 basis points, primarily due to higher overhead.

All Other gross profit increased $119,000 due to higher net sales in the hospitality business, while gross margin decreased 120 basis points due to higher freight-out expense.

Selling and Administrative Expenses (S&A)

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

Domestic Upholstery

selling and administrative (“S&A”) expenses decreased $5.9 million in the third quarter and $9.7 million for the nine-month

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

The decreases also reflect reduced spending associated with the cost-reduction and restructuring efforts.

Hooker Branded segment’s S&A expenses decreased $990,000, or 310 bps, in the third

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.

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.

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.

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.

Intangible Asset Impairment and Amortization

Consolidated selling and administrative (“S&A”)

expenses increased in absolute terms and as a percentage of net sales, driven by higher expenses in Hooker Branded and partially offset

by decreases in Domestic Upholstery and All Other.

◾ The Hooker Branded segment’s S&A expenses

increased $1.7 million, or 630 basis points, compared to the prior-year first quarter.

Higher compensation expense accounted for nearly

60% of the increase, primarily due to the planned retention and reassignment of certain former Home Meridian segment employees and, to

a lesser extent, bonus accruals based on current year’s profitability.

The remaining increase was primarily attributable to higher

consulting and IT-related expenses to support the ERP system, as well as amortization expense related to the Company’s new website.

These increases were partially offset by lower selling costs due to decreased net sales and lower severance expense compared to the prior-year

◾ The Domestic Upholstery segment’s S&A

expenses decreased slightly by $180,000, or 30 basis points, in the first quarter of fiscal 2027.

The decrease was primarily driven by

lower salary expenses resulting from previously implemented cost-reduction actions and, to a lesser extent, lower selling costs.

decreases were partially offset by bonus accruals based on current-year’s profitability, higher professional services expenses and

other operating expenses, including sample costs, new product development costs and travel expenses.

All Other S&A expenses decreased $791,000 due to lower operating expenses in the hospitality business following the consolidation of certain operations and the absence of S&A expense allocations from the former Home Meridian segment.

Intangible Asset Amortization

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Goodwill impairment

Tradenames impairment

Intangible asset amortization

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.

Intangible asset amortization decreased compared

to the prior-year first quarter, primarily due to the absence of amortization related to the Home Meridian trade name allocated to the

hospitality business, which was reclassified to All Other, and the Sam Moore trade name amortization.

See Note 9 to our condensed consolidated

financial statements for additional information.

Operating Profit / (Loss) and Margin

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

Domestic Upholstery

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.

In the first quarter of fiscal 2027, the Company

recorded operating income of $1.6 million, which included operating income of $1.2 million in the Hooker Branded segment, driven by improved

gross profit, and $1.1 million in All Other, driven by higher shipments in the hospitality business.

These results were partially offset

by an operating loss of $689,000 in the Domestic Upholstery segment, driven by its indoor residential furnishings businesses.

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Consolidated income tax (benefit) / expense

Consolidated income tax expense / (benefit)

Effective Tax Rate

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

Net (Loss) / Income from Continuing Operations

We recorded income tax expense of $326,000 and

tax benefit of $164,000 for the fiscal 2027 and 2026 first quarters from continuing operations.

The effective tax rates for the fiscal

2027 and 2026 first quarters were 23.5% and 21.1%, respectively.

The increase in the effective tax rate for the current fiscal quarter

was primarily due to the relative impact of restricted stock compensation when compared to operating profits in the current year period

and operating losses in the prior year period, as well as a change in valuation allowance recorded in the prior year period for a state

loss carryforward.

Net Income / (Loss) from Continuing Operations

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net (loss) / income from Continuing Operations

Diluted (loss) / earnings from continuing operations per share

of Operations – Discontinued Operations

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.

Net income / (loss) from Continuing Operations

Diluted earnings / (loss) from continuing operations per share

Results of Operations – Discontinued

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

Cost of sales

Tradename impairment

Intangible asset amortization

Other income itmes that are not major

Pretax loss of discontinued oprations related to major classes

Pretax loss from classification to held-for-sale

(Loss) / income from discontinued operations before income taxes

Operating loss

Loss from discontinued operations before income taxes

Income tax benefits

Net loss from discontinued operations

Average Selling

Price (“ASP”)

Discontinued Operations

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.

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.

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.

Condition, Liquidity and Capital Resources

Flows – Operating, Investing and Financing Activities

Thirty-Nine Weeks Ended

Consolidated incoming orders increased 8% in May

compared to the prior-year period, while backlog was up 14% year-over-year.

The improvement was primarily driven by Margaritaville orders,

which had its initial shipment in May.

However, housing activity remains pressured, and

recent consumer confidence readings continue to reflect a very cautious consumer environment.

The Department of Commerce’s April

advance monthly estimates showed retail sales for furniture and home furnishings stores declined 2.0% from March and 3.6% from the prior

Additionally, we continue to monitor tariff developments.

Based on currently available information, we expect certain tariffs to

be levied on our imported goods later this fiscal year, which will replace, at least in part, the tariffs overturned by the U.S.

Court earlier this year.

Our outlook for the fiscal 2027 second quarter

is cautious, given the current macro-economic pressures.

While we do not expect meaningful near-term improvement in market conditions,

our more efficient cost structure and streamlined portfolio should help us to deliver improved results versus the prior-year period, even

if current conditions persist.

Our advantage is a sharper focus on our core businesses,

a more disciplined operating model, and an organization aligned around profitable growth.

While macroeconomic conditions remain challenging

and tariff uncertainty persists, we believe the actions taken over the past year have positioned the Company to generate improved and

more consistent earnings as market conditions improve.

Retailer commitments to Margaritaville products, galleries, and free-standing

stores continue to exceed our expectations, with commitments to 100 in-store galleries and 10 free-standing retail stores to-date, as

compared with about half those numbers when we reported in December.

Meaningful shipments are expected to begin in the second half of

fiscal 2027 and expected to build through the end of the current fiscal year and beyond.

Combined with continued momentum in incoming

orders across our core businesses, we believe we are well positioned to capitalize on opportunities as demand recovers.

Financial Condition, Liquidity and Capital

Summary Cash Flow Information – Operating,

Investing and Financing Activities

Thirteen Weeks Ended

Net cash provided by operating activities

Net cash used in investing 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 in cash and cash equivalents

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:

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.

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

○ 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.

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.

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.

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.

Financial Resources and Capital Expenditures

financial resources include:

cash and cash equivalents, which are highly dependent on incoming order rates and our operating

cash flow from operations;

lines of credit;

surrender value of Company-owned life insurance.

most significant components of our working capital are inventory, accounts receivable and cash and cash equivalents reduced by accounts

payable and accrued expenses.

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

Agreements and Revolving Credit Facility

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.

Net cash used in discontinued operations

Net increase in cash and cash equivalents

During fiscal 2027 first quarter, cash increased

by $9.5 million, from $1.1 million at the beginning of the period to $10.6 million at period-end.

The increase in cash was primarily driven

by strong cash provided by operating activities, partially offset by cash used in financing activities.

● Cash provided by operating activities totaled

$14.4 million for the fiscal 2027 first quarter, compared to $19.2 million for the prior-year first quarter.

The decrease in operating

cash flow was primarily driven by less favorable working capital changes in the current-year period, partially offset by higher net income

from continuing operations and favorable non-cash adjustments.

o Trade receivables:

Collections of trade accounts

receivable provided cash inflows of $6.4 million and $12.8 million in the current-year and prior-year periods, respectively.

inflows in both periods were primarily due to collections of large, project-based receivables, with the higher cash inflow in the prior-year

period reflecting higher receivables outstanding at the beginning of that period.

o Inventories:

provided $3.7 million of cash inflows

in the current year period, compared to $5.3 million in the prior-year period.

The decrease in inventories continued to be a significant

source of cash;

however, the benefit was lower than in the prior-year period.

o Accrued salaries, wages and benefits:

cash inflows of $0.9 million in the current-year period, compared to $0.2 million in the prior-year period, primarily due to the timing

o Prepaid expenses and other assets:

million of cash in the current-year period, compared to $1.1 million in the prior-year period, primarily due to collections of miscellaneous

receivables that partially offset other cash uses.

Cash provided by investing activities totaled

$21,000 for the current quarter, compared to cash used in investing activities of $0.8 million in the prior-year period.

The change was

primarily due to $0.5 million of proceeds received on life insurance policies in the current-year period and lower purchases of property

and equipment.

Cash used in financing activities was $4.9 million compared to $2.0

million for the prior-year period.

Financing cash flows included proceeds from the revolving credit facility of $3.2 million, which were

more than offset by repayments of $6.7 million.

The Company also paid cash dividends of $1.3 million, compared to $2.5 million in the

prior-year period, and used $96,000 for the purchase and retirement of common stock.

Liquidity, Financial Resources and Capital

Our sources of liquidity are:

◾ 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;

◾ cash surrender value of Company-owned life insurance.

The most significant components of our working

capital are inventory, accounts receivable and cash and cash equivalents reduced by accounts payable and accrued expenses.

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 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 as a result of inventory build-up for the traditional fall selling season.

Long-term cash requirements relate

primarily to funding lease payments.

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.

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

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.

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

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.

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 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 will remain outstanding as loans and letters of credit under the Amended and

Restated Loan Agreement.

The Amended and Restated Loan Agreement provides

for a revolving credit facility in a committed principal amount of up to $70,000,000 (the “Revolving Commitment”), including

subline of $8,000,000 for letters of credit, and an option to increase the Revolving Commitment by up to $30,000,000 upon meeting certain

conditions, including agreement by BofA to increase the Revolving Commitment by such amount.

Proceeds of loans and letters of credit under

the Amended and Restated Loan Agreement will be available 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 will bear interest at a rate per annum equal to the then-current Term SOFR Rate for a period of one month plus 0.10% plus

a margin of 1.75%.

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

Letters of credit are

subject to a letter of credit fee equal to the actual daily amount of undrawn letters of credit multiplied by a per annum rate of 1.75%

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

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.

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.

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.

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).

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.

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

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.

of November 2, 2025, we had $4.1 million principal amount of outstanding loans and $2.1 million face amount of letters of credit.

had $63.8 million of Availability based on the current Borrowing Base.

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.

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.

Accounting Policies

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.

Letters of credit are subject to a letter of credit fee equal

to the actual daily amount of undrawn letters of credit multiplied by a per annum rate of 1.75% and a fronting fee equal to the actual

daily amount of undrawn letters of credit multiplied by a per annum rate of 0.125%.

We must also pay a monthly unused commitment fee that

is based on the average daily unused amount of Revolving Commitment multiplied by a per annum rate of 0.25%.

All accrued interest and

fees are payable in cash monthly in arrears.

We may prepay any outstanding principal amounts

borrowed under the Amended and Restated Loan Agreement at any time, without penalty provided that any payment is accompanied by all accrued

interest owed.

Subject to the Borrowers having sufficient borrowing base capacity and customary conditions precedent to borrowing, amounts

repaid may be reborrowed.

The Revolving Commitment will terminate, and all amounts outstanding thereunder will be due and payable, on

December 5, 2029.

The obligations under the Amended and Restated

Loan Agreement are secured by a first priority security interest in substantially all of the assets of the Borrowers, other than real

estate, including all Company-owned life insurance policies, all accounts receivable, all inventory, all intellectual property, all equipment

and all other personal property.

The Amended and Restated Loan Agreement includes

customary representations and warranties and requires the Borrowers to comply with customary affirmative and negative covenants, including,

among other things, a financial covenant requiring the maintenance of a ratio of (x) EBITDA net of capital expenditures (to the extent

not paid using Borrowed Money) to (y) the sum of debt service and dividends paid, in each case as of the last day of each month for the

trailing twelve-month period ending on such day, of at least 1.0 to 1.0, if an event of default has occurred and is continuing or Availability

has fallen below 10% of the Revolving Commitment at any time (until such time as both Availability is 10% or greater and no event of default

exists, for the 30 consecutive days prior to such month end).

The Amended and Restated Loan Agreement also limits

the Borrowers’ right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain

exceptions, among other restrictions.

The Amended and Restated Loan Agreement does not restrict the Company’s ability to pay cash

dividends on, or repurchase, shares of its common stock, subject to (a) no default existing prior to or resulting from such dividend or

repurchase, (b) Availability is not less than 15% of the Revolving Commitment for each of the preceding 45 days prior to announcement

of such dividend or repurchase and after giving pro forma effect to such dividend or repurchase and (c) if Availability is less than 20%

of the Revolving Commitment on any day in such 45-day period, the Borrowers are in compliance with the financial covenant described above

after giving effect to such dividend or repurchase.

We incurred $598,000 in previous fiscal years

in debt issuance costs in connection with our term loans.

As of May 3, 2026, unamortized loan costs of $444,000 were recorded in other

assets on our condensed consolidated balance sheets.

As of May 3, 2026, there were no outstanding loans,

other than $3.2 million face amount of letters of credit.

We had $54.2 million of Availability based on the current Borrowing Base.

were no additional borrowings outstanding under the Amended and Restated Loan Agreement as of May 3, 2026.

Share Repurchase Authorization

In fiscal 2026, 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.

During fiscal 2027 first quarter, we used approximately

$96,000 of the authorization to purchase 7,615 of our common shares (at an average price of $12.53 per share), with approximately $4.9

million remaining available for future purchases under the authorization.

Capital Expenditures

We expect to spend approximately $2.5 million

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

On June 9, 2026, our board of directors declared a

quarterly cash dividend of $0.115 per share which will be paid on June 30, 2026, to shareholders of record at June 19, 2026.

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 2026 Annual Report.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis