Hooker Furniture Reports Net Sales Increase Of 2.3% For Quarter

Furniture World Magazine

Hooker Furniture Corporation reported net sales of $90.7 million for the quarter ended May 31, 2006, representing a $2.0 million, or 2.3% increase, from $88.7 million in the prior year quarter. Second quarter 2006 net income of $5.8 million, or $0.49 per share, increased 20.0% from $4.9 million or $0.41 per share in the prior year period. "We managed a strong finish during the last two weeks of the quarter that propelled our top line increase," said Paul B. Toms Jr., chairman and chief executive officer. "The late-quarter shipments surge was driven primarily by product availability," he said. "We were able to ship roughly $3.0 million of container direct imported product sooner than expected, resulting in a record shipping month in May for container direct items." The Company translated higher sales into a 20% increase in net income, and income before income taxes improved to 10.5% of net sales compared to 9.1% in the prior-year second quarter. "Profitability was positively impacted by increased volume and by product mix," said Toms. For the year-to-date six months, Hooker Furniture achieved net sales of $176.0 million, representing a $6.8 million, or 4.0% increase, from $169.2 million in the same period last year. Year-to-date 2006 net income of $9.4 million or $0.79 per share increased 20.3% from $7.8 million or $0.66 per share in the prior year period. In both the quarterly and six-month periods, the Company's revenue gains were driven by sales increases of just under 25% for Hooker's imported wood and metal furniture. During the just-completed second quarter, sales of Hooker's imported wood and metal furniture increased 24.2% or $11.9 million, to $61.5 million from $49.6 million in the 2005 second quarter, while imported wood and metal sales grew 24.8% for the first six months of 2006. For both the 2006 three and six-month periods, the year-over-year gain in imported wood and metal furniture sales was offset by a decline in shipments of the Company's domestically produced wood furniture. For the second quarter, sales of domestically produced wood furniture declined $9.2 million or 43.4%, to $12.1 million, from $21.3 million in the prior year period. For the first six months of 2006, domestically-produced wood furniture sales declined 36.2%. "The rate of sales decline in domestically produced wood furniture has accelerated and necessitated the announced closing of our Roanoke Va. plant," Toms said. "Aggressive pricing and discounting, reduced production schedules and the under absorption of overhead have reduced profitability for domestically manufactured products over the last several years. Going forward, we expect overall profitability to improve as sales of domestically produced wood furniture become a smaller piece of the total business. We are committed to maintaining domestic wood furniture production through our Martinsville facility and anticipate improving operating performance there by late this year," he said. During the late summer and fall periods, "the Company plans to transfer products from the Roanoke plant to Martinsville and begin production of a higher-end, solid wood bedroom that was well received at the Spring International Home Furnishings Market in High Point," he added. Even with the steeper decline in domestic wood furniture sales, the double-digit sales increase in imported wood furniture spurred an overall net sales increase for Hooker's wood and metal furniture of $2.7 million or 3.8%, to $73.6 million in the 2006 quarterly period compared to sales of $70.9 million in the 2005 second quarter. Year to date, overall wood and metal furniture sales increased 5.6%, to $143.1 million compared to sales of $135.5 million for the first six months of 2005. Net sales of Bradington-Young's upholstered leather furniture experienced a decline for both the quarterly and six-month periods. For the second quarter, Bradington-Young sales declined 4.0% or $718,000, to $17.1 million compared to 2005 sales of $17.8 million. During the first six months of 2006, Bradington-Young sales were $32.9 million, 2.4% below sales of $33.7 million for the same period in 2005. During both the quarter and first half, Bradington-Young's sales decreases resulted from lower orders for domestically produced upholstered furniture, partially offset by double-digit growth in imported upholstered furniture. "Soft business at retail is impacting Bradington-Young's business," Toms said. "On the positive side, Bradington-Young had a strong April market. Prior to the Spring 2006 market we moved Bradington-Young's showroom into a space near our wood furniture showroom, which offered greater visibility to dealers for our upholstered furniture products." As a result of the improvement in net sales and gross profit, operating income as a percentage of net sales improved to 10.3% in the current year quarter, compared to 9.4% for the 2005 second quarter. Operating income as a percentage of net sales increased to 8.6% in the year-to-date period, compared to 7.9% for the same 2005 period, principally due to improved gross profit margin. The improvements in operating income in the 2006 periods were partially offset by increases in selling and administrative expenses primarily resulting from higher warehousing and distribution costs. Contributing to these costs were "record receipts of imported product, which exceeded our receiving capacity, resulting in higher costs," Toms said. Noting that the Company currently has record amounts of finished goods inventory and warehouse space utilization, he added, "Improvements in forecasting and supply chain management currently being implemented should enable us to operate with less inventory and warehouse space without compromising timely product shipments to our customers. We expect to see inventories stabilize over the next few months and then begin to decline." On June 7, 2006, Hooker Furniture announced that it plans to close its Roanoke production facility by the end of August 2006. The move results from declining demand for the Company's domestically produced wood furniture and increased demand for and sales of its imported wood and metal furniture, and parallels the shift of furniture production offshore throughout the industry. As reported last month, the Company expects to record restructuring and related asset impairment charges of $4.5 to $5.0 million pretax ($2.8 to $3.1 million after tax, or $0.23 to $0.26 per share) to write-down certain assets, and for severance benefits and other related restructuring and disassembly costs. Hooker expects to record approximately 85% to 95% of these charges and expenses in the 2006 third quarter. The Company expects to reduce fixed operating expenses by $2.0 to $2.5 million annually by closing the Roanoke facility. In May 2006, Hooker completed the sale of substantially all of the Pleasant Garden, N.C. real property and remaining equipment for an aggregate consideration, including proceeds from an equipment auction held in December 2005, of $1.4 million ($1.0 million in cash and a note for $400,000), net of selling expenses. Hooker Furniture continues to maintain a strong balance sheet. Working capital increased by $6.3 million or 5.8%, to $116.0 million at May 31, 2006, from $109.7 million at the end of fiscal 2005, while long-term debt decreased to $12.2 million at May 31, 2006, from $13.3 million at its November 30, 2005 year end. Looking forward to the second half of the year, "we expect business conditions to remain very challenging for the near term," Toms said. "We believe a number of factors, including rising interest rates, a slowdown in housing activity, higher energy costs and a weak stock market are causing consumers to stay on the sidelines. We don't expect conditions to improve until late in the third quarter at best, at which time we will be in a strong inventory position to quickly take advantage of the upturn." Ranked as the nation's sixth largest publicly traded furniture producer based on 2005 shipments to U.S. retailers, Hooker Furniture is an 82-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, bath furnishings, accent, occasional, game table and motion and stationary leather and fabric upholstered furniture. With approximately 1,400 employees, the Company operates four manufacturing plants, two supply plants, six distribution centers and warehouses, four showrooms and a corporate office in Virginia and North Carolina. The Company also utilizes a distribution center and two warehouses in China. The Company's stock is listed on the NASDAQ Capital Market under the symbol HOFT, and closed at $16.10 per share on July 6, 2006. Please visit our websites at www.hookerfurniture.com and www.bradington-young.com.