Hooker Furniture reported net sales of $58.4 million and net income of $523,000, or $0.05 per share, for its fiscal 2012 first quarter which began on January 31, 2011 and ended May 1, 2011.
Net sales for the first quarter of fiscal 2012 increased $7.0 million, or 13.7% compared to $51.4 million for the same period a year ago, marking the fourth consecutive quarter of year-over-year sales increases as unit volume grew across all divisions. Casegoods unit volume led the way with a nearly 26% increase, while upholstered fabric and upholstered leather seating unit sales increased 7% and 4%, respectively.
Net income for the quarter decreased to $523,000, compared to a net income of $1.1 million, or $0.10 per share, for the comparable period last year. The lower net income was the result of increased product discounting from a focused effort to reduce slow-moving, excess inventory. Other factors contributing to decreased profitability for the quarter included:
- higher freight costs on imported casegoods inventory that was shipped during the quarter compared to the prior-year quarter;
- continuing but smaller operating losses in domestically produced upholstery;
- higher returns and allowances expense;
- and elevated health care costs.
"We're pleased to report a healthy top line gain in casegoods for the quarter," said Paul B. Toms Jr., chairman, chief executive officer and president. "Although we've had positive sales comps during the previous three quarters, over the past six months we've started to see significant growth in casegoods. This kind of growth is vital for achieving the high profitability performance objectives we've set for ourselves."
Noting that the significance of the sales gains is tempered due to somewhat depressed sales during the prior year quarter because of production and shipping bottlenecks, Toms added that the demand environment is also strong. "Consolidated orders are up almost 14% and backlogs are healthy, which bodes well for shipments through the second quarter," he said.
"Given the sales growth we had this quarter, we're disappointed in our inability to generate higher profits," Toms said. "We've moved a lot of slow-selling, excess inventory but still have additional work to do and expect discounting to impact profitability over the next two quarters. It's difficult to say how much of a factor the discounting will be due to other unknown variables, such as retail demand and the amount of full-price furniture we're able to ship to offset the discounting of slower selling items."
Gross profit decreased $736,000 to $11.0 million, or 18.9% of net sales in the fiscal 2012 first quarter, compared to $11.8 million, or 22.9% of net sales in the same period a year ago mainly as a result of the increased product discounting, high freight costs on case goods inventory shipped during the quarter, upholstery manufacturing inefficiencies and higher returns and allowances.
Selling and administrative expenses increased in absolute terms by $223,000, but decreased as a percentage of net sales, to $10.3 million, or 17.6% of net sales for the fiscal year 2012 first quarter, compared to $10.1 million, or 19.6% of net sales for the fiscal year 2011 first quarter. The spending increases were due to increased commissions due to increased sales and higher contribution expense due to increased furniture donations to qualified charities. These increases were partially offset by decreased salary expense due to realignments in our officer group, decreased benefits expense benefits expense due to an insurance gain of $610,000 on Company-owned life insurance proceeds and lower compensation expense due to a reduction to the accrual for officers' long-term performance grant awards.
"We remain focused on managing selling and administrative expenses," Toms said, "and were able to leverage increased revenues to drive down selling and administrative costs 200 basis points as a percentage of sales during the quarter."
Operating income for the fiscal 2012 first quarter decreased to $747,000, or 1.3% of net sales as compared to $1.7 million, or 3.3% of net sales during the comparable 2011 quarterly period, primarily as a result of lower gross profit margins due to the increased product discounting and returns and allowances during the quarter. Last year's first quarter included a $500,000 charge ($312,000 or $0.03 per share, after tax), representing the Company's insurance deductible for a fire at one of its distribution facilities.
Cash, Inventory and Debt Levels
Cash and cash equivalents increased by $3.4 million to $20.0 million as of May 1, 2011 from $16.6 million on January 30, 2011 due principally to lower inventories due to higher sales during the quarter. Inventories decreased approximately $8.0 million during the quarter.
"We've seen cash build and expect additional opportunities to convert inventory to cash over the summer months," Toms said. "In addition to reducing excess inventory, we've also done well servicing our best-selling product. We're committed to continued progress in inventory management by improving demand forecasting and ongoing sales efforts related to excess inventory over the next two quarters."
The Company had no long-term debt at May 1, 2011 and had $13.1 million available on its $15.0 million revolving credit facility, net of $1.9 million reserved for standby letters of credit, and had $14.9 million available to borrow against the cash surrender value of Company owned life insurance.
"Since early April, business has slowed for most of our customers. Having said that, we've seen relatively strong orders because we are aligned with the healthiest retailers, enjoying retail success with product introductions over the past eighteen months and are gaining market share," Toms said. "While business isn't robust, we are holding our own and faring better than retail in general.
"We expect our margins to be impacted through the fiscal 2012 third quarter by additional discounting as we rationalize our product line and work to move excess inventory. Additionally, we expect inflation on imported goods from China over the remainder of the fiscal year, which will be mitigated with price increases to our customers.
"While consumer confidence continues to be stifled by declining home values, high unemployment, high consumer debt loads and rising inflation, we expect to grow through continued market share gains, even if the sales environment remains less than optimum."
Ranked among the nation's top 10 largest publicly traded furniture sources based on 2010 shipments to U.S. retailers, Hooker Furniture Corporation is an 87-year old residential wood, metal and upholstered furniture resource. Major wood furniture product categories include home entertainment, home office, accent, dining, and bedroom furniture in the upper-medium price points sold under the Hooker Furniture brand, and sold at moderate price points under the Envision Lifestyle Collections by Hooker Furniture brand. Youth bedroom furniture is sold under the Opus Designs by Hooker Furniture brand. Hooker's residential upholstered seating companies include Hickory, N.C.-based Bradington-Young LLC, a specialist in upscale motion and stationary leather furniture, and Bedford, Va.-based Sam Moore Furniture LLC, a specialist in upscale occasional chairs with an emphasis on cover-to-frame customization. Please visit our websites at www.hookerfurniture.com, www.envisionfurniture.com, www.bradington-young.com, www.sammoore.com and www.opusdesigns.com.