Hooker Furniture Reports Higher Gross Profit Margins

Furniture World Magazine

Hooker Furniture announced record annual net income of $19.7 million, or $1.58 per share, on annual net sales of $316.8 million for its fiscal year ended February 3, 2008. Annual net income increased $5.5 million, or 39.0%, compared to 2006 net income of $14.1 million, or $1.18 per share. Annual net sales decreased $33.2 million, or 9.5%, from fiscal year 2006 net sales of $350.0 million, reflecting the Company's exit from domestically produced wood furniture and the impact of the industry-wide slow down in business. Based on shipping days during each period, fiscal 2008 net sales were $1.24 million per day for the 255-day fiscal 2008 annual period, a 10.6% decline from net sales of $1.39 million per day for the 252-day 2006 fiscal year. "We're satisfied with our performance given how challenging the operating environment is for the furniture industry at retail,'' said Paul B. Toms Jr., chairman and chief executive officer. "Despite having a sales decrease, we were able to significantly increase profits and generate strong cash flow, validating both our strategy and business model." Due to a change in Hooker Furniture's fiscal year, the Company's 2008 fiscal year began January 29, 2007 and ended February 3, 2008. The Company is comparing its operating results for its: - 53-week 2008 fiscal year ("fiscal 2008") with its twelve-month 2006 fiscal year that began December 1, 2005 and ended November 30, 2006, and - fiscal 2008 14-week fourth quarter (the "2008 fourth quarter") that began October 29, 2007 and ended February 3, 2008 with the 2007 two-month transition period that began December 1, 2006 and ended January 28, 2007 (the "2007 transition period"). Because of the differences in comparative period length, several comparisons in this release are based on the number of shipping days in each period. Based on actual shipping days, net sales per day increased in the 2008 fourth quarter compared to the 2007 transition period. Net sales of $82.3 million, or $1.31 million per day, for the 63-day 2008 fourth quarter increased by 3.8%, on a per-day basis, compared to net sales of $49.1 million, or $1.26 million per day, for the 39-day 2007 transition period. 2008 fourth quarter net income was $4.6 million, or $0.39 per share compared to a net loss of $18.4 million, or $1.52 per share, for the 2007 transition period, which included the impact of pretax charges for the termination of the Company's employee stock ownership plan ("ESOP'') ($18.4 million) and the closing of the Martinsville production facility ($3.0 million). Fiscal 2008 operating income increased to $29.7 million, or 9.4% of net sales, compared to $22.8 million, or 6.5% of net sales, in 2006. Fourth quarter 2008 operating income was $7.1 million, or 8.7% of net sales, versus a net operating loss of $17.2 million, or 35.1% of net sales, during the 2007 transition period. Operating profitability also improved in both the 2008 annual and quarterly periods excluding the effect of restructuring and asset impairment charges, the January 2007 ESOP termination compensation charge and the December 2007 donation of two showrooms located in High Point, N.C. to a local university. The improvements were due principally to higher gross profit margin on the Company's imported wood and metal furniture. During the 2008 fourth quarter the Company recorded a net restructuring credit of $454,000 ($279,000 after tax, or $0.02 per share) compared to restructuring charges of $3.0 million ($1.8 million after tax, or $0.15 per share) in the 2007 transition period. Fiscal year 2008 restructuring and asset impairment charges were $309,000 ($190,000 after tax, or $0.02 per share) compared to $6.9 million ($4.3 million after tax, or $0.36 per share) for fiscal 2006. The primary contributors to the increase in annual net income, earnings per share and operating income for fiscal 2008 compared to fiscal 2006 were: - The $6.6 million, or 95.5%, decrease in restructuring and asset impairment costs; - An improvement in gross profit margin to 30.7% of net sales compared with 28.9% in fiscal 2006, principally as a result of a 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 netsales; and - A $4.3 million, or 6.0% decrease, in selling and administrative expenses to $67.2 million, compared to $71.5 million in 2006. However, as a percentage of net sales, selling and administrative expenses increased to 21.2% in 2008 from 20.4% in 2006 due to lower net sales in the current year. The decrease in selling and administrative expenses was driven primarily by: - reductions in temporary warehousing and storage costs for imported wood furniture products; - lower early retirement and non-cash ESOP costs; - lower selling expenses; - and a gain on the settlement of a corporate-owned life insurance policy in connection with the death of a former executive of the Company; partially offset by - selling and administrative expenses incurred by Sam Moore and the donation of two showrooms discussed previously. - Earnings per share improvements in fiscal 2008 resulting from higher net income were reduced by a net increase in weighted average shares outstanding resulting from: - The release of 1.2 million shares to employees in the January 2007 termination of the ESOP; partially offset by - The weighted average effect of repurchasing 1.7 million shares of common stock since February 2007. Fiscal 2008 net sales decreased versus fiscal 2006 across all established product lines, including wood, metal and leather upholstered furniture, partially offset by $20.8 million in net sales from Sam Moore Furniture's occasional seating operation in the nine months since its acquisition at the end of April 2007. Net sales for imported wood and metal furniture (excluding Opus products) and for the Bradington-Young leather upholstered product line declined 8.0% and 7.3%, respectively, on a per-day basis for fiscal year 2008 compared to fiscal 2006. "We're disappointed in our revenue decrease, but we recognize that much of the shortfall can be attributed to our exit from domestic wood furniture production and the challenging economic environment,'' said Toms. Hooker generated $43.7 million in cash flow from operations during the 53 weeks of fiscal 2008 representing a record high for the Company. "With the significant cash flow we generated, we were able to spend about $36 million for corporate stock repurchases and about $5 million for dividends for our shareholders in fiscal 2008,'' said Toms. During fiscal 2008, the Company used cash flow from operations ($43.7 million), an additional $14.0 million in cash and cash equivalents and $3.7 million from the sale of property, plant and equipment (principally the sale of the Martinsville property) to fund: 1) common stock repurchases ($36.0 million); 2) the acquisition of the assets of Sam Moore ($10.6 million) and Opus Designs ($5.3 million); 3) dividends ($5.0 million); 4) scheduled debt repayments ($2.5 million); and 6) capital expenditures ($1.9 million). Cash and cash equivalents were $33.1 million at February 3, 2008 compared to $37.4 million at the end of the 2008 third quarter. The February 3, 2008 cash position represents a 29.8% decrease from $47.1 million at January 28, 2007. Along with its positive cash flow, Hooker's inventory position improved significantly during the year. At 2008 fiscal year-end, inventories of $46.4 million (excluding $4.2 million in inventory for Sam Moore), decreased 26.1% from $62.8 million at January 28, 2007. "This was a year of important accomplishments positioning us for long-term growth and profitability,'' said Toms. "We were able to right-size our finished goods inventory and shrink our overall warehousing footprint, trim our cost structure, dispose of assets no longer needed in the business and diversify the Company while replacing some of the volume lost from domestic wood furniture through the acquisitions of both Sam Moore and Opus,'' he said. "In addition, we were able to hire key executives with vital skill sets to help us become a more important upholstery resource, develop more business with large national accounts and oversee our operations and supply chain in both the U.S. and abroad,'' he added. Announcements: In February, Hooker announced it had hired veteran sourcing, supply chain and logistics executive Sekar Sundararajan in the new senior management position of Executive Vice President - Operations. In this new position, Sundararajan will oversee warehousing and distribution, sourcing, vendor management, product quality, parts delivery, forecasting and supply chain management. In January, the Company announced the opening of its West Coast Distribution Center in Carson, California. The Company plans for this warehouse to stock over 500 of its best-selling products for quick shipment at reduced inland freight costs to customers in California, Arizona, New Mexico, Nevada, Oregon and Washington. In December 2007, the Company announced it had completed its acquisition of the assets of Opus Designs Furniture, a specialist in moderately-priced youth bedroom furniture. On April 1, 2008, the Company's Board of Directors declared a quarterly cash dividend of $0.10 per share, payable on May 30, 2008 to shareholders of record May 16, 2008. Business Outlook "We expect business to remain challenging well into fiscal 2009,'' Toms said. "We believe we've demonstrated we can be profitable in this environment, and we have numerous efforts underway to grow our business including an executive dedicated to increasing sales with targeted national accounts, entering new product categories through our recent acquisitions and opening the West Coast Distribution Center. Operationally, we have Lean Six Sigma initiatives underway throughout the Company to eliminate waste, create value and operate more efficiently in all of our processes. We believe we are well positioned to reap the benefits when the economy turns around.'' Conference Call Details Hooker Furniture will present its fiscal 2008 fourth quarter and annual earnings via teleconference and live internet web cast on Thursday morning April 3, 2008 at 9:00 AM Eastern Time. The dial-in number for domestic callers is 877-604-9665, and 719-325-4844 is the number for international callers. The call will be simultaneously web cast and archived for replay on the Company's web site at http://www.hookerfurniture.com in the Investor Relations section. 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 84-year old residential wood, metal and upholstered furniture resource. Major wood furniture product categories include home entertainment, home office, accent, dining, bedroom and bath furniture under the Hooker Furniture brand and youth bedroom furniture sold under the Opus Designs brand. 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 cover-to-frame customization. Please visit our websites at http://www.hookerfurniture.com, http://www.bradington-young.com, http://www.sammoore.com and http://www.opusdesigns.net.