Hooker Furniture Reports First Quarter Loss

Furniture World Magazine

Hooker Furniture reported net sales of $52.1 million and a net loss of $456,000, or $0.04 per share, for its fiscal 2010 first quarter that began February 2 and ended May 3, 2009. Net sales for the first quarter of fiscal 2010 decreased $19.0 million, or 26.7%, compared to $71.0 million for the first quarter of fiscal 2009. Net income for the quarter decreased $3.1 million, compared to net income of $2.6 million, or $0.27 per share, for the fiscal 2009 first quarter. Operating margins decreased in the 2010 quarter to a loss of $627,000 or (1.2%) of net sales, from income of $4.0 million or 5.6% of net sales in the 2009 quarter principally due to lower net sales, higher overhead and operating expenses as a percent of net sales and a trademark-related impairment charge for Bradington-Young of $673,000. "We're not satisfied with our results on any level, but realize we are being impacted by the worst economic downturn in anyone's memory. We remain focused on addressing those aspects of our business we can control," said Paul B. Toms Jr., chairman, chief executive officer and president. "We continue to successfully manage our balance sheet, reducing inventories and increasing cash. We are also focused on controlling costs, improving product quality and maintaining service levels. We're thankful to have posted a small operating profit before impairment charges despite steepening sales declines across the Company and significant excess capacity and fixed costs in our upholstery divisions." Gross profit declined $5.5 million from $16.7 million, or 23.6% of net sales, in the fiscal 2009 quarter to $11.2 million, or 21.6% of net sales in the fiscal 2010 first quarter. The primary driver of lower gross profit margin was higher fixed overhead as a percentage of net sales for domestically produced upholstered furniture due to significantly lower sales volume. Initiatives at the upholstery divisions to reduce fixed costs have not kept pace with the steep sales declines experienced in the past year. "Gross profit margins at Hooker's wood furniture division have remained steady because unit product costs are relatively fixed compared to volume with our importing business model," Toms said. Selling and administrative expenses decreased by $1.6 million to $11.2 million, or 21.5% of net sales, in the 2010 first quarter. In comparison, selling and administrative expenses were $12.8 million, or 18% of net sales, in the fiscal 2009 first quarter. The decrease in selling and administrative expenses was due primarily to: • lower selling expenses on lower sales, • lower compensation, benefits and other expenses as a result of workforce reductions implemented during fiscal 2009, the favorable impact, which is now being fully reflected in financial results, and • other actions to curtail spending in response to the expected lower sales volumes. These cost decreases were partially offset by higher bad debt expense recorded in the 2010 quarter. "Through the workforce reductions at Hooker and Bradington-Young last year and the recently announced management consolidation at Sam Moore, we are reducing the cost structure of the business, adjusting to the lower sales levels," Toms said. Cash, Inventory and Debt Levels Cash and cash equivalents increased by $14.4 million to $26.2 million as of May 3, 2009 from $11.8 million on February 1, 2009 due principally to inventory reductions during the quarter in response to reduced incoming orders and shipments. "We're in an environment where conservation of cash is paramount, and we've been able to grow cash and reduce inventories, which positions us well to weather the balance of the downturn. We have very little debt, with our total long and short term debt of less than $5 million," Toms said. Inventories declined to $47.1 million as of May 3, 2009 compared to $60.2 million at the end of fiscal 2009. "We reduced our inventory levels by over 20% compared to last quarter," Toms said. "We expect to reduce them another 5% before we see a slight increase as we prepare for the usual uptick in business around Labor Day." Business Outlook The trend of declines in incoming orders compared to the prior year quarter, which began in late 2006, continued during the fiscal 2010 first quarter. "We expect the upcoming quarter will also be very challenging, but we continue to believe that business will improve marginally this fall," Toms said. "We are actually more confident in an uptick later this year than we were eight weeks ago due to improvements in consumer confidence, solid gains in the stock market and increased housing activity. While there is still the cloud of rising unemployment and continued declines in real estate values, the news is generally more positive than it has been since September 2008. We have received more favorable reports from several retail customers about business since early May. As we see a recovery in sales, the moves we made to reduce costs and better position the Company will lead to improved profitability." Announcements: In late May, Hooker Furniture's Sam Moore upholstery division announced a consolidation of executive functions to reduce its cost and overhead structure and increase efficiencies and competitiveness. Steve Shelor assumed the new position of Vice President-Operations and General Manager of Sam Moore, responsible for the day to day operation of the Company. As part of the management consolidation, two executive positions were eliminated and one executive announced his retirement. In mid-May, Hooker Furniture announced that Bruce Cohenour was promoted to the new position of executive vice president of marketing, responsible for charting the overall product and merchandising direction and for positioning the Company's Hooker, Opus Designs and Envision brands.