Hooker Furniture Reports Record Sales

Furniture World Magazine

Hooker Furniture announced record annual net sales of $350.0 million for its year ended November 30, 2006, an $8.3 million or 2.4% increase from 2005 net sales of $341.8 million. Annual net income of $14.1 million, or $1.18 per share, increased $1.6 million, or 12.8%, compared to 2005 net income of approximately $12.5 million, or $1.06 per share. "2006 was a year of positive momentum for Hooker Furniture as we performed better operationally, achieved record annual net sales and made significant progress toward our long-term strategic goal of transforming into a home furnishings design, marketing and logistics company with world-wide sourcing capabilities," said Paul B. Toms Jr., chairman, chief executive officer and president. "We were gratified with our operating and net income improvement for the year despite large restructuring and asset impairment charges and higher warehousing and distribution costs, which we expect to decline going forward," he said. For the fourth quarter of 2006, net sales of $91.0 million increased 0.9% from net sales of $90.2 million in the same quarter a year ago. Fourth quarter net income of $3.5 million, or $0.29 per share, decreased 13.3% from $4.0 million, or $0.34 per share, in the same quarter last year, primarily due to asset impairment charges related to the closing of Hooker's Martinsville, Va. wood furniture plant. Hooker announced on January 17, 2007 that it plans to close its last remaining wood furniture facility by the end of March 2007, marking the Company's exit from domestic wood furniture manufacturing. Operating income for 2006 increased to $22.8 million, or 6.5% of net sales, compared to $21.2 million, or 6.2% of net sales, in 2005. For the 2006 fourth quarter, operating income declined to $5.6 million, or 6.2% of net sales, versus $6.6 million, or 7.3% of net sales, in the 2005 fourth quarter. However, excluding the effect of restructuring and asset impairment charges, operating profitability in the 2006 quarterly and annual periods improved significantly year over year compared to the same 2005 periods, principally as a result of increased net sales volume and improving gross profit margins on the Company's imported wood and upholstered furniture. The following table reconciles operating income as a percentage of net sales ("operating margin") to operating margin excluding restructuring and asset impairment charges ("restructuring charges") for each period: Restructuring and asset impairment charges amounted to $3.7 million ($2.3 million after tax, or $0.19 per share) in the 2006 fourth quarter compared with $211,000 ($131,000 after tax, or $0.01 per share) in the same 2005 three-month period. For the year, restructuring and asset impairment charges amounted to $6.9 million ($4.3 million after tax, or $0.36 per share) compared to $5.3 million ($3.3 million after tax, or $0.28 per share) for 2005. Hooker also improved its balance sheet during 2006. During the just completed fourth quarter, the Company's cash position and inventory levels improved significantly. Cash and cash equivalents increased by 203%, to $31.9 million at fiscal year end 2006 from $10.5 million at August 31, 2006 and by 94.7% from $16.4 million as of November 30, 2005. Since August 31, 2006, Hooker has decreased finished goods inventories by $15.6 million, or 18.7%, and approached the targeted inventory level the Company believes it needs to support current business. "We made good headway in bringing down our inventory item count and finished goods inventory levels during the fourth quarter," Toms said. "While we struggled with increased warehousing and distribution costs during 2006, going forward, we believe there is good potential to reduce warehousing and distribution costs further as we refine our supply chain management and logistics," he said. Announcements On January 29, 2007, the Company announced it had discontinued its Employee Stock Ownership Plan ("ESOP") effective January 26, 2007, in a move to reduce costs, increase competitiveness and better align employee benefits with its new business model. The termination will result in a $18.4 million, non-cash, non-tax deductible charge to earnings in January, during the Company's two-month transition period resulting from the change to a January year-end from the Company's previous November 30 year-end. The first full year under the new fiscal calendar began January 29, 2007, and will end February 3, 2008. In a separate announcement on February 7, 2007, the Company's Board of Directors authorized the repurchase of up to $20.0 million of the Company's common stock. These repurchases may be made from time to time in the open market, in privately negotiated transactions, or otherwise, at prices that the Company deems appropriate. Also on February 7, 2007, the Board declared an increased quarterly cash dividend, from the previous rate of $0.08 per share to $0.10 per share. The dividend is payable February 28, 2007, to shareholders of record February 19, 2007. "The Board's actions demonstrate its confidence in the Company's strategy, growth opportunities and financial strength," Toms said. "We believe that purchasing Hooker's shares represents a prudent use of the Company's cash and enhances shareholder value. Our strong financial condition and improved cash flow will allow us to simultaneously take advantage of opportunities to purchase our stock at attractive prices while continuing our investment in the Company's future growth." Business Outlook "We think business conditions will remain challenging at least through the first half of 2007 based on industry forecasts for a lower growth rate in furniture shipments and a decline in our own incoming orders during the 2006 fourth quarter, which declined 5% to 6% compared to the 2005 fourth quarter for Hooker and Bradington-Young combined," Toms said. "While the top line will be challenging, we expect improved financial performance even in the face of flat sales because of the steps we have taken to reduce costs and the progress we are making in our supply chain management and warehousing and distribution functions." Ranked among the nation's top 10 largest publicly traded furniture sources 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 home furnishings retailers 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 and motion and stationary leather and fabric upholstered furniture. With approximately 1,000 employees, the Company operates three manufacturing plants, two supply plants, several distribution centers, warehouses and showrooms and a corporate office in Virginia and North Carolina. The Company's stock is listed on the NASDAQ Capital Market under the symbol HOFT, and closed at $15.65 per share on February 8, 2007. Please visit our websites atwww.hookerfurniture.com and www.bradington-young.com.