What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-09-11 compared with 2026-06-12 · 519 added, 491 removed, 35 unchanged (97% of the section changed)

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

All references to the “Company,”

“we,” “us” and “our” in this document refer to Hooker Furnishings Corporation and its consolidated

subsidiaries, unless specifically referring to segment information.

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.

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.

“All Other” includes Samuel Lawrence Hospitality, intercompany eliminations and operating segments

that are not individually reportable.

Forward-Looking

statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the 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 condensed consolidated financial statements included in this report, are not

based on historical facts, but are forward-looking statements.

These statements reflect our reasonable judgment with respect to

future events and typically can be identified by the use of forward-looking terminology such as “believes,” “expects,”

“projects,” “intends,” “plans,” “may,” “will,” “should,” “would,”

“could,” or “anticipates,” or the negatives thereof, or other variations thereof, or comparable terminology,

or by discussions of strategy.

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

to differ materially from those in the forward-looking statements.

Those risks and uncertainties include but are not limited to:

(1) adverse political acts or developments 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;

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;

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;

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;

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;

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;

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;

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;

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;

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;

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;

(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;

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;

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;

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 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;

price competition in the furniture industry;

(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:

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

on imported furniture;

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;

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);

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.

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.

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 2026 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 2027 fiscal year thirteen-week

period (also referred to as “three months,” “three-month period,” “quarter,” “second quarter”

or “quarterly period”) that began May 4, 2026 and the twenty-six-week period (also referred to as “six months”,

“six-month period”, or “first half”) that began February 2, 2026, which both ended August 2, 2026.

discusses our results of operations for these periods compared to the 2026 fiscal year thirteen-week period that began May 5, 2025, and

the twenty-six-week period that began February 3, 2025, which both ended August 3, 2025;

and our financial condition as of August 2,

2026 compared to February 1, 2026.

in this report to:

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

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

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 2026 Annual Report.

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.

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.

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.

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.

August 2, 2026, our backlog of unshipped orders was as follows:

Order Backlog

3 unchanged sentences

Domestic Upholstery

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.

backlog at the end of the second quarter of fiscal 2027 increased 6.2% compared with the end of the prior-year second quarter and 8.4%

from the end of the first quarter of fiscal 2027.

The increases were primarily driven by higher Hooker Branded backlog.

Domestic Upholstery

backlog also increased, primarily due to higher private-label orders.

All Other backlog decreased significantly during the six-month

period, primarily due to large hospitality shipments during the first quarter and the project-based nature of the hospitality business.

Tariff-related

February 2026, the U.S.

Supreme Court ruled that certain tariffs imposed pursuant to the International Emergency Economic Powers Act

(“IEEPA”) exceeded the authority granted under the 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.

Court of International Trade directed

Customs and Border Protection to establish a process for refunding tariffs previously collected under IEEPA.

Prior to the U.S.

Supreme Court’s February 2026 decision invalidating

the IEEPA tariffs, the Company incurred an estimated $10.3 million of cumulative pre-tax costs related to tariffs in fiscal year 2026,

which had a significant adverse impact on the fiscal 2026 results, and significantly exceeded the tariff recoveries the Company received.

Following the imposition of IEEPA tariffs beginning in April 2025, the Company elected to honor pricing on its existing customer backlog

and, for competitive and administrative reasons, did not immediately adjust pricing on certain other products.

The Company's pricing reflects

its total cost structure and the competitive and macro-economic environment in which it operates, with tariffs being only one of many

factors considered.

the second quarter of fiscal 2027, the Company received $7.9 million in recoveries related to tariffs imposed under the IEEPA on imported

products from the implementation of the tariffs through the U.S.

Supreme Court’s decision in early February 2026.

Most of the products

associated with these recoveries had been sold during fiscal 2026.

In continuing operations, the Company recorded $4.3 million as a reduction

of cost of sales and $201,000 as interest income in the second quarter of fiscal 2027, partially offset by a $522,000 reduction of revenue.

In discontinued operations, the Company recorded $1.6 million as a reduction of cost of sales and $54,000 interest income, partially

offset by a $612,000 reduction of revenue.

Additionally, approximately $1.8 million of the tariff recoveries had not yet impacted costs

of sales and was recorded as a reduction of the carrying value of inventories at quarter end.

The Company does not expect to receive

material additional tariff recoveries.

of Operations and Financial Position

the second quarter of fiscal 2027, consolidated net sales decreased by $6.0 million, or 8.7%, versus the prior year three-month period,

reflecting declines in our two reportable segments and All Other.

Hooker Branded was affected by lower unit volume and higher promotional

discounts, while Domestic Upholstery declines in upscale leather and custom fabric were partially offset by growth in private-label and

outdoor furnishings.

All Other decreased primarily due to hospitality project timing.

Despite lower net sales, consolidated gross profit

increased by $2.9 million, and gross margin increased by 690 basis points, primarily due to tariff recoveries and higher average selling

prices at Hooker Branded.

The Company reported an operating income of $1.3 million, compared to a $0.5 million loss in the prior-year

second quarter.

Consolidated net income from continuing operations was $1.2 million, or $0.11 per diluted share.

the first six months of fiscal 2027, consolidated net sales decreased by $7.7 million, or 5.5%, versus the prior year six-month period.

The decrease reflected lower Hooker Branded unit volume, higher promotional discounts, and first-quarter inventory constraints in imported

upholstery, as well as continued weakness in Domestic Upholstery’s upscale leather and custom fabric businesses.

All Other was

affected by hospitality project timing, with approximately 80% of first-half shipments occurring during the first quarter.

gross profit increased by $5.5 million, and gross margin increased by 560 basis points, driven primarily by tariff recoveries, as well

as improvements in Hooker Branded and Domestic Upholstery.

The Company reported an operating income of $2.9 million, compared to a $1.0

million loss in the prior-year first half, representing $3.9 million improvement.

Consolidated net income from continuing operations

was $2.3 million, or $0.21 per diluted share.

In addition to improved profitability, the Company

significantly improved its liquidity and financial flexibility during the quarter.

Cash and cash equivalent increased to $18.7 million

at the end of second quarter, with no outstanding term loan balance, compared to $1.1 million cash on hand and $3.6 million term loan

balance at fiscal 2026 year-end, primarily reflecting tariff refund proceeds and accounts receivable collections.

For the six-month period,

$24.0 million in cash generated from operating activities funded the repayment of $3.6 million of principal amount of outstanding loans,

$2.5 million in cash dividends, $1.3 million for share repurchases under the previously authorized $5 million share repurchase program,

and $1.1 million capital expenditures.

fiscal 2027 second quarter and first-half performance is discussed in greater detail below under “Results of Operations –

Continuing Operations” and “Results of Operations – Discontinued Operations”.

of Operations – Continuing 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.

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Cost of sales

2 unchanged sentences

Operating income / (loss)

Other (expense) / income

Interest expense

2 unchanged sentences

Net income / (loss) from continuing operations

Fiscal 2027 First Quarter Compared to Fiscal

2026 First Quarter

2027 Second Quarter and First Half Compared to Fiscal 2026 Second Quarter and First Half

Thirteen Weeks Ended

Hooker Branded

Domestic Upholstery

Average Selling

Price (“ASP”)

Twenty-Six Weeks Ended

FY26 Q2 Change

FY26 YTD Change

Average Selling Price ("ASP")

FY26 Q2 Change

FY26 YTD Change

Hooker Branded

2 unchanged sentences

Domestic Upholstery

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

Hooker Branded

Domestic Upholstery

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)

net sales decreased by $6.0 million or 8.7%, and $7.7 million, or 5.5%, during the second quarter and first six months of fiscal 2027,

respectively, compared with the corresponding prior-year periods.

The decreases were attributable to lower net sales in our two reportable

segments and All Other.

The Hooker Branded segment’s net sales decreased by $1.6 million, or 4.5%, and $3.4 million, or 4.6%, during the second quarter and first six months of fiscal 2027, respectively.

The decreases were driven by lower unit volume, higher promotional discounts, and key SKU out-of-stocks, due to significantly longer lead times out of Asia, partially offset by higher average selling prices.

Discounts as a percentage of net sales were 1,170 and 670 basis points higher during the respective periods, with the quarterly increase primarily attributable to broad-based e-commerce promotions.

The imported upholstery product line accounted for approximately 47% of the six-month decrease due to first-quarter inventory constraints, including lower in-stock positions, production delays, and product-mix transitions, which have largely eased by the end of the second quarter.

Domestic Upholstery segment’s net sales decreased by $1.5 million, or 5.3%, and $2.1 million, or 3.6%, during the second quarter

and first six months of fiscal 2027, respectively.

Lower unit volume in the upscale leather furniture and the custom fabric upholstery

product lines was largely offset by double-digit net sales growth in the private-label and outdoor furnishings businesses.

Although average

selling prices increased in all divisions during both periods, the segment’s overall average selling price increased only modestly,

reflecting a lower proportion of higher-priced, upscale leather furniture sales.

Other’s net sales decreased by $2.8 million, or 65.8%, and $2.2 million, or 23.5%, during the second quarter and first six months

of fiscal 2027, respectively.

Due to the project-based nature of the hospitality business, quarterly net sales fluctuate based on project

timing and customer needs, with approximately 80% of first half of fiscal 2027 shipments occurring during the first quarter.

Second-quarter

net sales also included an approximately $0.5 million reduction in revenue for the portion of the tariff recoveries to be credited to

Profit and Margin

gross profit increased by $2.9 million and $5.5 million during the second quarter and first six months of fiscal 2027, respectively,

compared with the corresponding prior-year periods.

Gross margin increased by 690 and 560 basis points during the respective periods.

These improvements were primarily driven by Hooker Branded and, to a lesser extent, Domestic Upholstery, partially offset by lower gross

profit in All Other, primarily due to lower net sales.

Hooker Branded segment’s gross profit increased by $3.2 million and $6.0 million during

the second quarter and first six months of fiscal 2027, respectively, compared with the corresponding

prior-year periods.

Gross margin increased by 1,050 and 1,000 basis points during the respective

periods, primarily attributable to a $2.5 million tariff recoveries recorded as a reduction

of cost of sales, which increased gross margin by approximately 720 basis points during the

second quarter and 360 basis points during the six-month period.

Higher average selling prices

also contributed to the improvements.

These improvements more than offset the impact of increased

e-commerce promotional discounting and higher warehousing and distribution expenses, the

latter of which increased by 160 and 120 basis points during the second quarter and six-month

period, respectively.

The increases primarily reflected costs associated with the Company’s

Vietnam warehouse, which was launched during the prior-year second quarter, and higher compensation

Domestic Upholstery segment’s gross profit increased by $928,000 and $613,000 during

the second quarter and first six months of fiscal 2027, and gross margin increased by 450

and 180 basis points, respectively, compared with the corresponding prior-year periods.

the second quarter, the segment recorded an approximately $800,000 reduction of cost of sales

related to tariff recoveries on imported materials, which increased gross margin by approximately

300 basis points for the quarter and 150 basis points for the six-month period.

varied across the segment’s four divisions.

Gross profit and margin improved in the

outdoor furnishings and private-label businesses due to certain lower imported-material costs

and improved overhead absorption resulting from higher sales.

These improvements were partially

offset by higher cost of sales in the upscale leather furniture and custom fabric upholstery

Other’s gross profit included a net tariff recovery of approximately $0.5 million during

the second quarter, consisting of a $1.0 million reduction of cost of sales, partially offset

by a $0.5 million reduction of revenue for the portion of the recoveries to be credited to

This benefit was insufficient to offset the impact of significantly lower shipment

volume during the quarter, primarily due to the timing of hospitality projects.

and Administrative Expenses (S&A)

Thirteen Weeks Ended

1 unchanged sentence

Domestic Upholstery

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

Intangible asset amortization

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

selling and administrative (“S&A”) expenses increased in absolute terms and as a percentage of net sales during the second

quarter and first six months of fiscal 2027, driven by higher expenses in Hooker Branded and partially offset by decreases in Domestic

Upholstery and All Other.

Hooker Branded segment’s S&A expenses increased by $2.3 million and $4.0 million

during the second quarter and first six months of fiscal 2027, respectively, compared with

the corresponding prior-year periods.

The increases were primarily driven by administrative

costs retained following the Home Meridian segment divestiture and performance-based incentive

compensation accruals reflecting current-year profitability.

These administrative costs remained

below management’s expectations.

Compensation expenses accounted for more than 80% and 70% of the increases during the second quarter and six-month

period, respectively.

The remaining increases primarily reflected higher consulting and IT-related

expenses supporting the Company’s ERP system and amortization expense associated with

its new website.

These increases were partially offset by lower selling expenses resulting

from lower net sales, particularly discounted e-commerce sales that carry lower commission

lower bad debt expense due to reduced accounts receivable balances;

and lower severance

The Domestic Upholstery segment’s S&A expenses decreased by $313,000 and $492,000 during the second quarter and first six months of fiscal 2027, respectively, compared with the corresponding prior-year periods.

The decreases were primarily attributable to lower salary and rent expenses resulting from previously implemented cost-reduction actions.

Selling expenses decreased due to lower sales in the upscale leather and custom fabric upholstery businesses.

In addition, private-label sales and a significant portion of outdoor furnishings sales through the e-commerce channel carried lower commission rates, limiting selling expense growth despite higher sales in both businesses.

These decreases were partially offset by higher professional services expenses, advertising supplies, and increases in other operating expenses.

Other S&A expenses decreased in both periods due to lower operating expenses in the hospitality

business following the consolidation of certain operations and the absence of administrative

expense allocations from the former Home Meridian segment.

Asset Amortization

Intangible asset

asset amortization decreased compared to the prior-year second quarter, due to the absence of amortization related to the Home Meridian

trade name allocated to the hospitality business, which was reclassified to All Other.

The decrease during the six-month period also

reflected the absence of amortization expenses related to the Sam Moore trade name.

See Note 9 to our condensed consolidated financial

statements for additional information.

Profit / (Loss) and Margin

Hooker Branded

Domestic Upholstery

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

Consolidated income tax expense / (benefit)

Effective Tax Rate

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

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

Intangible asset amortization

Operating loss

Company reported operating income of $1.3 million and $2.9 million during the second quarter and first six months of fiscal 2027, respectively,

compared with operating losses of $0.5 million and $1.0 million in the corresponding prior-year periods.

Both reportable segments generated

operating income during both periods.

All Other reported a second-quarter operating loss due to lower hospitality sales but remained

profitable for the six-month period due to higher first-quarter shipments.

income tax expense / (benefit)

the second quarters of fiscal 2027 and fiscal 2026, we recorded income tax expense of $338,000 and income tax benefit of $114,000 under

continuing operations.

The effective tax rate for continuing operations was 21.3% for the second quarter of fiscal 2027 compared to 17.3%

for the second quarter of fiscal 2026.

the first half of fiscal 2027 and fiscal 2026, we recorded income tax expense of $664,000 and income tax benefit of $278,000 under continuing

The effective tax rate for continuing operations was 22.3% for the first six months of fiscal 2027 compared to 19.3% for

the first six months of fiscal 2026.

increase in both periods was primarily due to a prior-year state net operating loss valuation allowance adjustment, along with the shifting

tax impact of company-owned life insurance gains and restricted stock compensation relative to prior-year operating losses versus current-year

operating income.

Income / (Loss) from Continuing Operations

income / (loss) from Continuing Operations

earnings / (loss) 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.

asset amortization

items that are not major

income / (loss) of discontinued operations related to major classes

sale of the discontinued operations

/ (Loss) from discontinued operations before income taxes

Income tax benefits

Net loss from discontinued operations

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

tax expense / (benefit)

/ (loss) from discontinued operations

Although the divestiture was completed in the

prior fiscal year, current-period activities in discontinued operations primarily reflected tariff recoveries received by the Company.

The $612,000 of the recoveries to be credited to customers were recorded as a reduction of revenue to reflect the corresponding customer

reimbursement.

The $1.6 million refunds of tariff costs previously recognized in cost of sales were recorded as a reduction of cost of

Current-period activity also included approximately $0.5 million of additional charges arising from the net settlement of various

divestiture-related balances with the buyer.

See Note 3 to our condensed consolidated financial statements for additional information.

Market conditions remain challenging as consumers

continue to be selective and housing turnover and demand for big-ticket discretionary products remain weak.

In July, retail sales at furniture

and home furnishings stores were essentially flat sequentially but decreased 1.2% year over year, while existing-home sales declined 1.7%

month over month to a seasonally adjusted annual rate of 4.1 million, remaining at historically low levels.

Consumer sentiment decreased

6.3% in August, and July headline inflation remained elevated at 3.4%, although core inflation eased to 2.5%.

These factors, together

with elevated financing costs, continue to pressure discretionary purchasing power.

The Company also continues to monitor tariff developments.

Given these conditions, the Company does not expect

meaningful near-term improvement in market demand.

However, changes to the Company’s cost structure and portfolio are delivering

tangible benefits and are expected to support improved results compared with the prior-year period, even if current conditions persist.

the principal cost-reduction initiatives completed, the Company is focused on disciplined execution across its core businesses and converting

improved order momentum into sales.

Actions taken during the past 18 to 24 months have created a leaner and more disciplined operating

model designed to generate stronger and more consistent earnings over time.

response to Margaritaville remains encouraging, with commitments to approximately 100 in-store galleries and 10 free-standing retail

stores, roughly double the levels reported in December.

Shipments began during the second quarter and are expected to build through the

second half of fiscal 2027 and into fiscal 2028.

Together with Hooker Branded order momentum, the Margaritaville rollout positions the

Company to capitalize on opportunities as demand recovers.

Condition, Liquidity and Capital Resources

Cash Flow Information – Operating, Investing and Financing Activities

Twenty-Six Weeks Ended

Net cash provided by operating activities

Net cash provided by / (used in) investing activities

Net cash used in investing activities

Net cash used in financing activities

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.

Net cash provided by / (used in) discontinued operations

Net increase / (decrease) in cash and cash equivalents

Cash and cash equivalents increased by $17.5 million

during the first six months of fiscal 2027 to $18.7 million, compared with a $5.5 million decrease in the prior-year period.

primarily reflected $24.0 million provided by operating activities from continuing operations and $1.7 million provided by discontinued

operations, partially offset by $7.3 million used in financing activities and $873,000 used in investing activities.

Current-period cash

flows included $7.9 million of tariff recoveries, of which $1.7 million related to discontinued operations.

provided by operating activities under continuing operations increased to $24.0 million from

$20.9 million in the prior-year period.

The increase primarily reflected improved operating

results and tariff recoveries, partially offset by lower cash generated from working capital.

Significant working capital changes included:

provided $10.7 million of cash inflow, compared with $13.0 million in the prior-year period, reflecting collections of large

project-based receivables in both periods.

The smaller decrease provided $2.3 million less cash than in the prior-year period.

○ Inventories:

provided $5.3 million of cash inflow, compared with $10.2 million in the prior-year period.

The current-period decrease included a $1.8 million reduction in inventory carrying values

related to tariff recoveries;

however, the overall decrease provided $5.0 million less cash

than in the prior-year period.

expenses and other assets:

$0.8 million of cash outflow, compared with $2.6 million in the

prior-year period, primarily due to decreases in prepaid rent in previously terminated leases

and the absence of material ERP-related expenditures during the current period.

provided $0.6 million of cash inflow, compared with a $1.3 million use of cash in

the prior-year period, primarily due to the timing of inventory purchases and vendor payments.

compensation:

provided $1.2 million of cash inflow, compared with $0.6 million in the prior-year

period, primarily reflecting incentive compensation accruals and the timing of payments.

used in investing activities decreased to $873,000 from $1.9 million in the prior-year period,

primarily due to lower capital expenditures and $540,000 of proceeds from company-owned life

insurance policies.

used in financing activities decreased to $7.3 million from $21.6 million in the prior-year

period, primarily due to lower debt repayments and dividend payments, partially offset by

$1.3 million of share repurchases during the current period.

● Discontinued

operations provided $1.7 million of cash during the current period, compared with a $2.9

million use of cash in the prior-year period.

The current-period inflow reflected the portion

of the Company’s tariff recoveries related to discontinued operations.

Financial Resources and Capital Expenditures

sources of liquidity are:

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 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.

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.

(“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 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 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.

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.

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 will bear interest at a rate per annum equal to the then-current Term SOFR Rate for

a period of one month plus 0.10% plus a margin of 1.75%.

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

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

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

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

We must also pay a monthly unused commitment fee that

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

All accrued interest and

fees are payable in cash monthly in arrears.

We may prepay any outstanding principal amounts

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

interest owed.

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

repaid may be reborrowed.

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

December 5, 2029.

The obligations under the Amended and Restated

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

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

and all other personal property.

The Amended and Restated Loan Agreement includes

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

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

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

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

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

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

The Amended and Restated Loan Agreement also limits

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

exceptions, among other restrictions.

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

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

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

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

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

after giving effect to such dividend or repurchase.

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.

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 $598,000 in previous fiscal years in debt issuance costs in connection with our term loans.

As of August 2, 2026, unamortized

loan costs of $415,000 were recorded in other assets on our condensed consolidated balance sheets.

of August 2, 2026, there were no outstanding loans, other than $3.2 million face amount of letters of credit.

We had $51.8 million of

Availability based on the current Borrowing Base.

There were no additional borrowings outstanding under the Amended and Restated Loan

Agreement as of August 2, 2026.

Repurchase Authorization

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.

fiscal 2027 first half, we used approximately $1.3 million of the authorization to purchase 92,357 of our common shares (at an average

price of $13.68 per share), with approximately $3.7 million remaining available for future purchases under the authorization.

expect to spend approximately $2.0 million in capital expenditures in the remainder of fiscal 2027 to maintain and enhance our operating

systems and facilities.

September 3, 2026, our board of directors declared a quarterly cash dividend of $0.115 per share which will be paid on September 30,

2026, to shareholders of record at September 15, 2026.

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 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