HOOKER FURNISHINGS Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations All references to the “Company,” “we,” “us” and “our” in this document refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information. 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 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 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) 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; (12) 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; (13) 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; 20 Table of Contents (14) 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; (15) 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; (16) risks associated with our self-insured healthcare and workers compensation plans, which utilize stop-loss insurance for aggregate claims above specified thresholds and can be impacted by higher healthcare inflation and expenditures, all of which may cause our healthcare and workers compensation costs to rise unexpectedly, adversely affecting our earnings, financial condition, and liquidity; (17) 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; (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; (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); and (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 cash flows. 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. 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. 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. 21 Table of Contents 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,” “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. This report 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. 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; and ● 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. 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. 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. Overview Hooker Furnishings Corporation, incorporated in Virginia in 1924, is a designer, marketer, and importer of casegoods (wooden and metal furniture), leather furniture, fabric-upholstered furniture, lighting, accessories, and home décor for the residential, hospitality and contract markets. We also domestically manufacture premium residential custom leather, custom fabric-upholstered furniture and outdoor furniture. Orders and Backlog In the discussion below and herein, we reference changes in sales orders or “orders” and sales order backlog (unshipped orders at a point in time) or “backlog” over and compared to certain periods of time and changes discussed are in sales dollars and not units of inventory, unless stated otherwise. We believe orders are generally good current indicators of sales momentum and business conditions. If the items ordered are in stock and the customer has requested immediate delivery, we generally ship products in about seven days or less from receipt of order; however, orders may be shipped later if they are out of stock or there are production or shipping delays or the customer has requested the order to be shipped at a later date or has requested that we ship the order “in-full”, meaning all products ordered for the end-user must ship together. It is our policy and industry practice to allow order cancellation for casegoods up to the time of shipment or, in the case of container direct orders, up until the time the container is booked with the ocean freight carrier; therefore, customer orders for casegoods are not firm. However, domestically produced upholstered products are predominantly custom-built and consequently, cannot be cancelled once the leather or fabric has been cut. Additionally, our hospitality products are highly customized and are generally not cancellable. Similarly, for our outdoor furnishings, most orders require a deposit upon order and the balance before production is started and hence are generally not cancellable. For the Hooker Branded and Domestic Upholstery segments, we generally consider backlogs to be one helpful indicator of sales for the upcoming 30-day period, but because of our relatively quick delivery and our cancellation policies, we do not consider order backlogs to be a reliable indicator of expected long-term sales. At August 2, 2026, our backlog of unshipped orders was as follows: Order Backlog (Dollars in 000s) Reporting Segment August 2, 2026 February 1, 2026 August 3, 2025 Hooker Branded $ 21,150 $ 16,490 $ 15,701 Domestic Upholstery 20,230 19,557 19,313 All Other 1,036 7,807 4,912 Consolidated $ 42,416 $ 43,854 $ 39,926 22 Table of Contents Consolidated 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. Executive Summary Tariff-related matters: In 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 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. During 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. Results of Operations and Financial Position During 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. During 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. Consolidated 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. Our 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”. 23 Table of Contents 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 Twenty-Six Weeks Ended August 2, August 3, August 2, August 3, 2026 2025 2026 2025 Net sales 100 % 100 % 100 % 100 % Cost of sales 68.2 75.1 69.3 74.9 Gross profit 31.8 24.9 30.7 25.1 Selling and administrative expenses 28.9 24.7 27.7 24.8 Intangible asset amortization 0.9 0.9 0.8 0.9 Operating income / (loss) 2.0 (0.7 ) 2.2 (0.7 ) Other income 0.6 - 0.3 0.1 Interest expense 0.2 0.2 0.2 0.4 Income / (Loss) from continuing operations before income taxes 2.4 (1.0 ) 2.2 (1.0 ) Income tax expense / (benefit) 0.5 (0.2 ) 0.5 (0.2 ) Net income / (loss) from continuing operations 1.9 (0.8 ) 1.7 (0.8 ) Fiscal 2027 Second Quarter and First Half Compared to Fiscal 2026 Second Quarter and First Half Net Sales Thirteen Weeks Ended Twenty-Six Weeks Ended August 2, August 3, August 2, August 3, 2026 2025 2026 2025 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 34,620 54.7 % $ 36,250 52.4 % $ (1,630 ) -4.5 % $ 69,950 52.7 % $ 73,359 52.2 % $ (3,409 ) -4.6 % Domestic Upholstery 27,152 42.9 % 28,677 41.4 % (1,525 ) -5.3 % 55,506 41.8 % 57,590 41.0 % (2,084 ) -3.6 % All Other 1,478 2.3 % 4,316 6.2 % (2,838 ) -65.8 % 7,246 5.5 % 9,478 6.7 % (2,232 ) -23.5 % Consolidated $ 63,250 100 % $ 69,243 100 % $ (5,993 ) -8.7 % $ 132,702 100 % $ 140,427 100 % $ (7,725 ) -5.5 % Unit Volume FY27 Q2 vs. FY26 Q2 Change FY27 YTD vs. FY26 YTD Change Average Selling Price ("ASP") FY27 Q2 vs. FY26 Q2 Change FY27 YTD vs. FY26 YTD Change Hooker Branded -11.9 % -15.3 % Hooker Branded 9.9 % 11.9 % Domestic Upholstery -6.9 % -6.4 % Domestic Upholstery 1.5 % 2.7 % All Other -21.9 % 53.6 % All Other -17.0 % -31.5 % Consolidated -10.8 % -5.8 % Consolidated 6.3 % 1.7 % Consolidated 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. 24 Table of Contents ● The 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. ● All 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 customers. Gross Profit and Margin Thirteen Weeks Ended Twenty-Six Weeks Ended August 2, August 3, August 2, August 3, 2026 2025 2026 2025 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 13,722 39.6 % $ 10,541 29.1 % $ 3,181 30.2 % $ 27,639 39.5 % $ 21,605 29.5 % $ 6,034 27.9 % Domestic Upholstery 6,233 23.0 % 5,305 18.5 % 928 17.5 % 11,198 20.2 % 10,585 18.4 % 613 5.8 % All Other 144 9.7 % 1,396 32.3 % (1,252 ) -89.7 % 1,854 25.6 % 2,987 31.5 % (1,133 ) -37.9 % Consolidated $ 20,099 31.8 % $ 17,242 24.9 % $ 2,857 16.6 % $ 40,691 30.7 % $ 35,177 25.1 % $ 5,514 15.7 % Consolidated 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. ● The 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 costs. ● The 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. During 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. Performance 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 businesses. ● All 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 customers. This benefit was insufficient to offset the impact of significantly lower shipment volume during the quarter, primarily due to the timing of hospitality projects. 25 Table of Contents Selling and Administrative Expenses (S&A) Thirteen Weeks Ended Twenty-Six Weeks Ended August 2, August 3, August 2, August 3, 2026 2025 2026 2025 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 12,852 37.1 % $ 10,532 29.1 % $ 2,320 22.0 % $ 25,563 36.5 % $ 21,569 29.4 % $ 3,994 18.5 % Domestic Upholstery 4,856 17.9 % 5,169 18.0 % (313 ) -6.1 % 9,966 18.0 % 10,458 18.2 % (492 ) -4.7 % All Other 564 38.2 % 1,426 33.0 % (862 ) -60.4 % 1,212 16.7 % 2,867 30.2 % (1,655 ) -57.7 % Consolidated $ 18,272 28.9 % $ 17,127 24.7 % $ 1,145 6.7 % $ 36,741 27.7 % $ 34,894 24.8 % $ 1,847 5.3 % Consolidated 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. ● The 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 rates; lower bad debt expense due to reduced accounts receivable balances; and lower severance expense. ● 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. ● All 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. Intangible Asset Amortization Thirteen Weeks Ended Twenty-Six Weeks Ended August 2, August 3, August 2, August 3, 2026 2025 2026 2025 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Intangible asset amortization 544 0.9 % 625 0.9 % $ (81 ) -13.0 % 1,089 0.8 % 1,292 0.9 % $ (203 ) -15.7 % Intangible 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. 26 Table of Contents Operating Profit / (Loss) and Margin Thirteen Weeks Ended Twenty-Six Weeks Ended August 2, August 3, August 2, August 3, 2026 2025 2026 2025 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Hooker Branded $ 870 2.5 % $ 10 0.0 % $ 860 8600.0 % $ 2,076 3.0 % $ 37 0.0 % $ 2,039 5510.8 % Domestic Upholstery 833 3.1 % (408 ) -1.4 % 1,241 304.2 % 144 0.3 % (1,004 ) -1.7 % 1,148 114.3 % All Other (420 ) -28.4 % (112 ) -2.6 % (308 ) -275.0 % 641 8.8 % (42 ) -0.4 % 683 1626.2 % Consolidated $ 1,283 2.0 % $ (510 ) -0.7 % $ 1,793 351.6 % $ 2,861 2.2 % $ (1,009 ) -0.7 % $ 3,870 383.5 % The 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 taxes Thirteen Weeks Ended Twenty-Six Weeks Ended August 2, August 3, August 2, August 3, 2026 2025 2026 2025 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Consolidated income tax expense / (benefit) $ 338 0.5 % $ (114 ) -0.2 % $ 452 396.5 % $ 664 0.5 % $ (278 ) -0.2 % $ 942 338.8 % Effective Tax Rate 21.3 % 17.3 % 22.3 % 19.3 % For 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. For 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 operations. 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. The 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. Net Income / (Loss) from Continuing Operations Thirteen Weeks Ended Twenty-Six Weeks Ended August 2, August 3, August 2, August 3, 2026 2025 2026 2025 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Net income / (loss) from Continuing Operations $ 1,205 1.9 % $ (545 ) -0.8 % $ 1,750 321.1 % $ 2,309 1.7 % $ (1,160 ) -0.8 % $ 3,469 299.1 % Diluted earnings / (loss) from continuing operations per share $ 0.11 $ (0.06 ) $ 0.21 $ (0.11 ) 27 Table of Contents Results of Operations – Discontinued Operations The following table sets forth the percentage relationship to net sales of certain items included in the condensed consolidated statements of income included in this report. For the Thirteen Weeks Ended Twenty-Six Weeks Ended August 2, August 3, August 2, August 3, 2026 2025 2026 2025 % Net Sales % Net Sales $ Change % Change % Net Sales % Net Sales $ Change % Change Net sales $ (939 ) 100.0 % $ 12,905 100.0 % $ (13,844 ) -107.3 % $ (939 ) 100.0 % $ 27,038 100.0 % $ (27,977 ) -103.5 % Cost of sales (1,546 ) 164.6 % 13,095 101.5 % (14,641 ) -111.8 % (1,503 ) 160.1 % 25,945 96.0 % (27,448 ) -105.8 % Gross profit / (loss) 607 -64.6 % (190 ) -1.5 % 797 419.5 % 564 -60.1 % 1,093 4.0 % (529 ) -48.4 % S&A expenses - 0.0 % 3,455 26.8 % (3,455 ) -100.0 % - 0.0 % 7,557 27.9 % (7,557 ) -100.0 % Intangible asset amortization - 0.0 % 246 1.9 % (246 ) -100.0 % - 0.0 % 492 1.8 % (492 ) -100.0 % Other income items that are not major (54 ) 5.8 % (70 ) -0.5 % 16 22.9 % (54 ) 5.8 % (98 ) -0.4 % 44 44.9 % Pretax income / (loss) of discontinued operations related to major classes 661 -70.4 % (3,821 ) -29.6 % 4,482 117.3 % 618 -65.8 % (6,858 ) -25.4 % 7,476 109.0 % Loss on sale of the discontinued operations 74 -7.9 % - 0.0 % 74 100 % 74 -7.9 % - 0.0 % 74 100 % Income / (Loss) from discontinued operations before income taxes 587 -62.5 % (3,821 ) -29.6 % 4,408 115.4 % 544 -57.9 % (6,858 ) -25.4 % 7,402 107.9 % Income tax expense / (benefit) 122 -13.0 % (1,089 ) -8.4 % 1,211 111.2 % 122 -13.0 % (1,689 ) -6.2 % 1,811 107.2 % Net income / (loss) from discontinued operations 465 -49.5 % (2,732 ) -21.2 % 3,197 117.0 % 422 -44.9 % (5,169 ) -19.1 % 5,591 108.2 % 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 sales. 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. Outlook 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. With 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. Retailer 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. 28 Table of Contents Financial Condition, Liquidity and Capital Resources Summary Cash Flow Information – Operating, Investing and Financing Activities Twenty-Six Weeks Ended August 2, August 3, 2026 2025 Net cash provided by operating activities 24,037 20,924 Net cash used in investing activities (873 ) (1,896 ) Net cash used in financing activities (7,305 ) (21,560 ) Net cash provided by / (used in) discontinued operations 1,689 (2,942 ) Net increase / (decrease) in cash and cash equivalents $ 17,548 $ (5,474 ) 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. The increase 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. ● Cash 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: ○ Accounts receivable: 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. ○ Prepaid 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. ○ Accounts payable: 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. ○ Accrued 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. ● Cash 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. ● Cash 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. 29 Table of Contents Liquidity, Financial Resources and Capital Expenditures 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; and ● 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 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%. 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. 30 Table of Contents The obligations under the Amended and Restated Loan Agreement are secured by a first priority security interest in substantially all of the assets of the Borrowers, other than real estate, including all Company-owned life insurance policies, all accounts receivable, all inventory, all intellectual property, all equipment and all other personal property. The Amended and Restated Loan Agreement includes customary representations and warranties and requires the Borrowers to comply with customary affirmative and negative covenants, including, among other things, a financial covenant requiring the maintenance of a ratio of (x) EBITDA net of capital expenditures (to the extent not paid using Borrowed Money) to (y) the sum of debt service and dividends paid, in each case as of the last day of each month for the trailing twelve-month period ending on such day, of at least 1.0 to 1.0, if an event of default has occurred and is continuing or Availability has fallen below 10% of the Revolving Commitment at any time (until such time as both Availability is 10% or greater and no event of default exists, for the 30 consecutive days prior to such month end). The Amended and Restated Loan Agreement also limits the Borrowers’ right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions. The Amended and Restated Loan Agreement does not restrict the Company’s ability to pay cash dividends on, or repurchase, shares of its common stock, subject to (a) no default existing prior to or resulting from such dividend or repurchase, (b) Availability is not less than 15% of the Revolving Commitment for each of the preceding 45 days prior to announcement of such dividend or repurchase and after giving pro forma effect to such dividend or repurchase and (c) if Availability is less than 20% of the Revolving Commitment on any day in such 45-day period, the Borrowers are in compliance with the financial covenant described above after giving effect to such dividend or repurchase. We incurred $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. As 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. 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 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. Capital Expenditures We 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. Dividends On 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. 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. 31 Table of Contents