Hooker Furniture Reports Reduced 2005 Sales and Earnings

Furniture World Magazine

Hooker Furniture Corporation reported net sales of $341.0 million for the year ended November 30, 2005, a 1.4% decline from record net sales of $345.9 million in 2004. Net income for 2005 of $11.8 million or $1.00 per share, declined 35.0% compared to 2004 net income of $18.2 million or $1.56 per share. For the fourth quarter of 2005, net sales of $89.4 million declined 2.8% from record net sales of $91.9 million in the 2004 fourth quarter. Fourth quarter 2005 net income of $3.4 million or $0.28 per share, declined 38.4% from $5.4 million or $0.46 per share in the prior year period. "We are not pleased with our recent sales and earnings, and are taking steps to improve both. We have identified targets for improvement in our product line-up, inventory requirements and vendor performance with the purpose of improving product flow, reducing inventory item count, enhancing systems, stimulating sales and reducing costs," said Paul B. Toms Jr., chairman and chief executive officer. "Additionally, several factors have taken a toll on our financial performance, including an environment of unprecedented change in our industry, steady declines in consumer confidence in the early fall, weak demand for our domestically produced furniture and 2005 restructuring charges of $5.3 million ($3.3 million or $0.28 per share after-tax) principally related to the closing of our Pleasant Garden, N.C. plant this fall," Toms said. "As our mix of imported products has grown to nearly 62% of total revenues from about 31% just four years ago in 2001, we have been challenged by the increased complexity of flowing products from a broad network of factories in the Pacific Rim, Central America and Mexico," he added. "To address this increasingly complex supply chain network, in 2005 we established a new department of Supply Chain Management, and activated comprehensive logistics software and distribution systems. While these and other measures will continue to be implemented through 2006, we expect to be better positioned to realize improvements in the timely flow of products and information, inventory management and vendor management this year and beyond," he said. During 2005, Hooker experienced sales gains in two major product lines. Bradington-Young upholstered leather furniture achieved record annual sales of $62.5 million, an increase of $5.0 million or 8.6%, from $57.5 million in 2004. In addition, annual net sales of Hooker's imported wood and metal furniture increased $16.3 million or 8.8%, to $201.7 million from $185.4 million in 2004. These sales gains were more than offset by a decline in shipments of the Company's domestically produced wood furniture of $26.2 million or 25.5%, to $76.8 million in 2005 from $103.0 million in the prior year, resulting in an overall sales decrease for wood and metal furniture of 3.4% or $9.9 million, to $278.5 million in 2005 from $288.4 million in 2004. Operating income for 2005 declined by $11.1 million or 35.4%, to $20.1 million from $31.2 million in the prior year. Operating income fell as a result of: -a $4.9 million or 1.4% decline in net sales; -a 1.0% decline in gross margin as a percentage of net sales principally as a result of an overcapacity in the Company's domestic wood facilities, as well as lower average selling prices and higher discounting for domestic wood furniture. Gross profit increased to record levels in 2005 for imported wood and metal furniture, reflecting record sales levels under the Company's Container Direct Program; however, this increase was more than offset by declining gross profit for domestically produced wood furniture; -a $2.8 million or 4.4% increase in selling and administrative expenses principally in distribution and marketing expenses in support of growing import shipments and new furniture collections; and -a $3.7 million increase in restructuring charges. During the just-completed fourth quarter, sales of Hooker's imported wood and metal furniture increased 10.9% or $5.7 million, to $58.1 million from $52.4 million in the 2004 fourth quarter. These sales gains were more than offset by a decline in shipments of the Company's domestically produced wood furniture of $6.2 million or 26.4%, to $17.3 million in the 2005 fourth quarter from $23.5 million in the prior year period. Overall, net sales of Hooker's wood and metal furniture decreased $504,000 or 0.7%, to $75.4 million in the 2005 quarterly period compared to sales of $75.9 million in the 2004 fourth quarter. Also in the fourth quarter, net sales of Bradington-Young upholstered leather furniture declined $2.0 million or 12.6%, to $14.0 million from 2004 fourth quarter sales of $16.0 million. Operating income for the 2005 fourth quarter declined by $4.0 million or 42.4%, to $5.6 million from $9.6 million in the prior year period. Operating income fell as a result of a $2.5 million or 2.8% decline in net sales, a 1.4% decline in gross margin as a percentage of net sales, a $1.5 million or 8.9% increase in selling and administrative expenses, and a $580,000 increase in restructuring charges compared to the 2004 fourth quarter. The restructuring charge in the 2005 fourth quarter consisted of $211,000 in expenses principally incurred to prepare the Pleasant Garden real property for sale, whereas in the 2004 fourth quarter, the Company recorded a $369,000 restructuring credit. "With the 2005 closing of the Pleasant Garden facility, Hooker's domestic manufacturing capacity is now better aligned with demand. The Company anticipates operating its two remaining wood factories in Roanoke and Martinsville, Va. on normal weekly work schedules, which should improve operating efficiency," Toms said. Hooker Furniture continues to maintain a strong balance sheet and cash flow. Cash increased by $7.2 million or 77.3%, to $16.4 million at year-end 2005 from $9.2 million in the prior year, while long-term debt decreased by $9.9 million or 42.6%, to $13.3 million at year-end 2005 from $23.2 million in the prior year, including final payments made during 2005 on industrial revenue bonds and a term loan. On January 11, 2006, the Board of Directors declared a dividend of $0.07 per share, payable on February 28, 2006 to shareholders of record February 14, 2006. "We are making progress in addressing the challenges before us, and continue to have an optimistic long term outlook for Hooker Furniture. We finished the year with Bradington-Young and imported wood and metal furniture each achieving record sales performance in 2005, and we're encouraged by our double-digit (10.9%) sales increase of imported wood and metal furniture in the 2005 fourth quarter." While Hooker expects first quarter sales to be 3-7% less than the strong first quarter of 2005, the Company experienced a slight improvement in incoming order rates in the late fall and early winter. That development, along with improved consumer confidence, gives Hooker a cautiously optimistic outlook for the remainder of 2006. Ranked as the nation's sixth largest publicly traded furniture producer based on 2004 shipments to U.S. retailers, Hooker Furniture is an 81-year old importer and manufacturer of residential wood, metal and upholstered furniture. The Company's principal customers are retailers of residential home furnishings who are broadly dispersed throughout North America. Major furniture categories include home entertainment and wall units, home office, casual and formal dining, bedroom and youth bedroom, bath furnishings, accent, occasional, game table and motion and stationary leather and fabric upholstered furniture. With approximately 1,400 employees, the Company operates five manufacturing plants, one supply plant, six distribution centers and warehouses, three showrooms and a corporate office in Virginia and North Carolina. The Company also utilizes a distribution center and a warehouse located in China.