Hooker Reports Higher Profits on Lower Sales

Furniture World Magazine

Hooker Furniture's Profitability Gains Continue in 2008 Third Hooker Furniture Corporation reported net sales of $83.8 million and net income of $5.9 million, or $0.48 per share (which is net of $260,000, or $0.02 per share, in after-tax restructuring charges), for the quarter ended October 28, 2007. Due to a change in Hooker Furniture's fiscal year, the Company's 2008 fiscal year began January 29, 2007 and will end February 3, 2008. The Company will compare its operating results for the thirteen-week third quarter of fiscal 2008 with the 2006 three-month fourth quarter that ended November 30, 2006 (the 2006 quarter''). Third quarter 2008 net sales of $83.8 million decreased $7.2 million, or 7.9%, compared to the 2006 quarter net sales of $91.0 million. Based on actual shipping days in each period, average daily net sales declined 9.4% on a per day basis during the 64 operating days in the 2008 third quarter compared to the 63 operating days in the 2006 quarter. 2008 third quarter net income of $5.9 million increased $2.4 million, or 67.2%, compared to the 2006 quarter net income of $3.5 million. Earnings per share of $0.48 increased $0.19, or 65.5%, when compared to the 2006 quarter earnings per share of $0.29. Operating income for the 2008 third quarter increased to $8.9 million, or 10.6% of net sales, compared to operating income of $5.6 million, or 6.2% of net sales, in the 2006 quarter. The primary contributors to the increase in net income, earnings per share and operatingincome were: Due to a change in Hooker Furniture's fiscal year, the Company's 2008 fiscal year began January 29, 2007 and will end February 3, 2008. The Company will compare its operating results for the thirteen-week third quarter of fiscal 2008 with the 2006 three-month fourth quarter that ended November 30, 2006 (the 2006 quarter''). Third quarter 2008 net sales of $83.8 million decreased $7.2 million, or 7.9%, compared to the 2006 quarter net sales of $91.0 million. Based on actual shipping days in each period, average daily net sales declined 9.4% on a per day basis during the 64 operating days in the 2008 third quarter compared to the 63 operating days in the 2006 quarter. 2008 third quarter net income of $5.9 million increased $2.4 million, or 67.2%, compared to the 2006 quarter net income of $3.5 million. Earnings per share of $0.48 increased $0.19, or 65.5%, when compared to the 2006 quarter earnings per share of $0.29. Operating income for the 2008 third quarter increased to $8.9 million, or 10.6% of net sales, compared to operating income of $5.6 million, or 6.2% of net sales, in the 2006 quarter. The primary contributors to the increase in net income, earnings per share and operatingincome were: - A $3.3 million, or 88.8%, decrease in restructuring and asset impairment costs; - An improvement in gross profit margin to 31.8% of net sales compared with 30.7% in the 2006 quarter, principally as a result of the higher proportion of imported wood and metal products sold, and the lower delivered cost of those imported products (primarily due to lower inbound freight and delivery costs) as a percentage of net sales; and, - A $1.3 million, or 7.0%, decline in selling and administrative costs. However, these expenses increased slightly as a percentage of net sales due to the decline in net sales. The $1.3 million decrease in selling and administrative costs was driven primarily by reductions in temporary warehousing and storage costs for imported wood furniture products, lower early retirement and non-cash employee stock ownership plan ("ESOP") costs (the ESOP was terminated in January 2007) and lower selling expenses, partially offset by the selling and administrative expenses incurred by Sam Moore Furniture LLC (acquired in April 2007). Earnings per share improvements resulting from higher net income were reduced by a net increase in weighted average shares outstanding resulting from: - 1.2 million shares released to employees in the January 2007 termination of the ESOP; - partially offset by the weighted average effect of common stock repurchases since February 2007. "We're performing relatively well in a difficult environment and demonstrating that our profitability improvements are sustainable,'' said Paul B. Toms Jr., chairman, president and chief executive officer. ``We're pleased to have delivered operating margins above 10% for the second consecutive quarter, as well as with our ability to generate strong operating cash flow. We're continuing to do a good job of reducing costs and streamlining our wood furniture operations as we realize the benefits of lower inventories, increased inventory turns, reduced warehouse space and lower handling costs.'' Net sales decreased, versus the 2006 comparable quarter, across all established product lines including wood, metal and leather upholstered furniture, partially offset by $7.2 million in net sales from Sam Moore Furniture's fabric upholstery operation, which was acquired by Hooker on April 28, 2007. Commenting on the 7.9% sales decrease for the quarter, Toms said, ``Given how challenging it is at retail, I think we're faring better compared to the 11.5% decrease we experienced in the most recent second quarter. In the current quarter,the top line decline resulting from our discontinued domestic wood furniture operations was substantially offset by the additional sales of Sam Moore, acquired in April. Our ongoing imported wood and Bradington-Young leather upholstered furniture sales, which are fueling our profitability, declined percentage-wise in the high-single digits.'' Toms added that in Hooker's upholstery businesses, Bradington-Young and Sam Moore, ``orders have trended higher since the fiscal 2008 second quarter.'' Hooker continues to report improvements in its inventory and cash positions. At the end of the 2008 third quarter, inventories of $46.5 million (excluding $4.8 million in inventory related to Sam Moore), decreased 31.7% from $68.1 million at November 30, 2006. During the first nine months of fiscal 2008, the Company generated $32.7 million in cash flows from operations. The Company used this cash flow, an additional $9.7 million in cash and cash equivalents and $2.1 million from the sale of property, plant and equipment during the 2008 nine-month period to fund: 1) common stock repurchases ($26.8 million); 2) the acquisition of Sam Moore ($10.6 million); 3) dividends ($3.8 million); 4) scheduled debt repayments ($1.9 million); and 5) capital expenditures ($1.5 million). Cash and cash equivalents were $37.4 million at the end of the 2008 third quarter compared to $37.2 million at the end of the 2008 second quarter. The October 28, 2007 cash position represents a 17.2% increase from $31.9 million at the 2006 fiscal year-end on November 30. Business Outlook "We believe business conditions will remain challenging for another year,'' said Toms. "All our planning assumes the current downturn will last through fall of 2008. We expect to make progress in our efforts to open new accounts and expand our product offerings through the pending acquisition of Opus Designs Furniture, and we are also focused on making internal improvements and becoming more efficient at our current sales levels. Given these efforts and improvements, we expect that our profitability performance can be sustained for the foreseeable future.'' Announcements On October 24, 2007, Hooker Furniture announced it has signed a letter of intent to purchase the assets of Opus Designs Furniture, LLC, a specialist in moderately-priced youth bedroom furniture. The transaction is expected to close by the end of January 2008, subject to, among other things, completion of due diligence and negotiation of a definitive acquisition agreement. "The acquisition would provide a solid foundation for Hooker to build a strong youth bedroom program at more moderate price points, with a more comprehensive product line and superior sourcing arrangements compared to the Company's current SmartKids youth furniture line,'' said Toms. Opus is expected to have about $5 million in sales in calender year 2007. Also in October 2007, the Company sold the machinery, equipment and certain other personal property of the Martinsville, Va. manufacturing facility for $2.1 million, net of related selling costs. The Company has entered into an agreement to sell the real property at the Martinsville, Va. facility. The sale is expected to close by the end of December 2007. During November, the Company completed a $30 million stock repurchase program, previously authorized by the Board of Directors. Since February 2007, the Company has repurchased in open market transactions a total of 1.4 million shares of Company common stock under this authorization at an average price of $21.36 per share, excluding commissions. The Board of Directors announced that it approved a new authorization of an additional $10 million to repurchase the Company's stock. "Today's Board action continues to demonstrate our confidence in the Company's strategy, growth opportunities and financial strength,'' said Toms. "We continue to believe that the purchase of Hooker's shares is a wise use of the Company's cash and enhances shareholder value.'' Also, the Company's Board of Directors today declared a quarterly cash dividend of $0.10 per share, payable on February 28, 2008 to shareholders of record February 14, 2008. Ranked among the nation's top 10 largest publicly traded furniture sources based on 2006 shipments to U.S. retailers, Hooker Furniture Corporation is an 83-year old residential wood, metal and upholstered furniture resource. The Company's principal customers are home furnishings retailers who are broadly dispersed throughout North America. Major wood furniture product categories include home entertainment, home office, accent, dining, bedroom and bath furniture. Hooker's residential upholstered seating companies include Cherryville, 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 fabric-to-frame customization. Please visit our websites at http://www.hookerfurniture.com, http://www.bradington-young.com and http://www.sammoore.com.