Hooker Reports Imported Wood Sales Increase, Domestic Production Drops

Furniture World Magazine

Hooker Furniture Corporation (NASDAQ: HOFT) today reported net sales of $80.5 million for the quarter ended February 28, 2005, representing a $2.3 million, or 2.9% increase, from $78.2 million in the same period last year. "We are pleased to report our 13th consecutive quarter of increased sales compared to the same prior year quarter," said Paul B. Toms Jr., chairman and chief executive officer. Sales increases in the 2005 first quarter are attributed primarily to increased sales of Bradington-Young upholstered leather furniture (up $3.6 million or 29.3%) and of imported wood and metal furniture (up $4.8 million or 12.5%) compared to the prior year period. Shipments from leather upholstery specialist Bradington-Young accounted for $15.9 million in net sales during the 2005 three-month period compared to $12.3 million during the prior year period. Shipments of imported wood furniture increased to $43.4 million in the 2005 first quarter compared with $38.6 million in the same 2004 period. Sales of imported furniture under the Company's Container Direct Program (included in the imported wood furniture shipment figures) increased significantly in the first quarter, fueled by the Company's inventory investment in a warehouse and distribution center located in China. Shipments of the Company's domestically produced wood furniture declined 22.4% to $21.2 million from $27.3 million in the year earlier quarter. "Hooker made significant progress during the quarter in shipping products to its customers more quickly," said Toms. "We are in the process of implementing a state-of-the-art supply chain planning and management system. This investment, along with our investments in warehouse and distribution infrastructure, management, personnel, and inventory, should enable us to ship product faster. This means that our customers can receive products on a more timely basis resulting in better service and reduced inventory carrying cost." Net income for the 2005 first quarter was $3.0 million, or $0.25 per share. That compares to net income of $4.0 million, or $0.35 per share for the 2004 first quarter. Operating margins declined to 6.3% in the current quarter, from 8.7% in the first quarter of 2004. The decline in the first quarter 2005 operating margin compared to the same 2004 period was due to higher selling and administrative expenses as a percentage of sales, an additional restructuring charge related to the previously announced Maiden, N.C. plant closing and a slight decrease in gross profit margin. Selling and administrative expenses increased to 19.2% of net sales in the 2005 first quarter from 17.4% in the same 2004 period. The increase in these expenses as a percentage of sales is principally attributed to higher professional expenses and a one-time charge to depreciation expense of $520,000 for leasehold improvements at its High Point, N.C. showroom corresponding to the remaining term of the related lease. The impact of this depreciation error was immaterial to 2004 results and is expected to be immaterial to 2005 results. The Company incurred higher professional expenses during the 2005 first quarter in order to comply with the corporate governance mandates brought about by the Sarbanes-Oxley Act of 2002. The Company expects these compliance costs to decline during the remainder of 2005. During the 2005 first quarter, the Company recorded an additional pretax restructuring and asset impairment charge of $366,000 ($227,000 after tax, or $0.02 per share) related to the previously announced closing and sale of its Maiden, N.C. manufacturing facility. The charge consisted principally of anticipated factory disassembly costs, additional health care benefits for terminated employees and an additional asset impairment charge based on the final sale and valuation of the Maiden, N.C. real property and equipment. In the 2005 first quarter, Hooker completed the sale of substantially all of the Maiden property and equipment for an aggregate consideration of $5.2 million, net of selling expenses. Gross profit margin improved for upholstered leather furniture and imported wood and metal furniture, but declined for domestically produced wood furniture. The gross profit margin for domestically produced wood furniture was negatively impacted during the 2005 first quarter compared with the same 2004 period by higher discounting principally for the sale of discontinued and slow moving product shipped during the period and higher raw material, labor and overhead costs as a percentage of sales. Production costs as a percentage of sales at the Company's domestic wood furniture operations were higher in the 2005 period than in the 2004 period principally as a result of temporary inefficiencies created in transferring and manufacturing products, previously produced at the Maiden, N.C. manufacturing facility, for the first time at different facilities. Concurrent with successfully transferring products and patterns, the Company discontinued certain slow-moving domestic wood products, gaining efficiencies in current demand for warehouse space. There was an $871,000 increase in obsolescence discounts in the first quarter versus the prior year quarter, as these additional discontinued items were sold or written down. Additionally, the Company experienced price increases in lumber and wood products, finishing material and fuel. The Company generated strong, positive cash flow during the 2005 first quarter, primarily as a result of reduced inventory, the sale of the Maiden, N.C. property and lower accounts receivable; partially offset by lower trade accounts payable and other current liabilities. Cash and cash equivalents have more than doubled since the 2004 year end. "As we look toward the second quarter the outlook is positive for continued near term growth in the upholstered leather business and imported wood and metal furniture business as a result of past investments in sales and marketing, as well as in warehousing and distribution capabilities," Toms said. Overall, Hooker has a "cautiously optimistic outlook for the second quarter, based on mixed results at retail," Toms said. "Retail is continuing to recover slowly. In the meantime, recent incoming order rates have been flat compared to last year's rates. We expect net sales to be on par with last year's record second quarter." Ranked among the nation's top 10 publicly traded furniture producers based on furniture shipments to U.S. retailers, Hooker Furniture is an 80-year old manufacturer and importer of home theater, wall units, home office, bedroom and youth bedroom, casual and formal dining, accent and occasional pieces, and upholstered leather and fabric-covered furniture. With approximately 1,700 employees, the Company operates seven manufacturing facilities, a supply plant, three showrooms, a corporate headquarters and five distribution centers and warehouses in Virginia and North Carolina. The Company also utilizes a distribution center and warehouse in China. The Company's stock is listed on the NASDAQ SmallCap Market under the symbol HOFT, and closed at $23.91 on March 29, 2005. Please visit our websites at www.hookerfurniture.com and www.bradington-young.com.