Hooker Furniture Reports First Quarter Sales, Earnings Declines

Furniture World Magazine

Hooker Furniture Corporation reported net sales of $71.0 million and net income of $2.6 million, or $0.23 per share, for the quarter ended May 4, 2008. Fiscal 2009 first quarter net sales of $71.0 million decreased $6.3 million, or 8.1%, compared to the fiscal 2008 first quarter net sales of $77.3 million. 2009 first quarter net income of $2.6 million decreased $1.7 million, or 39.2%, compared to the 2008 quarter net income of $4.3 million. Earnings per share of $0.23 decreased $0.10, or 30.3%, when compared to the 2008 quarter earnings per share of $0.33. Operating income for the 2009 first quarter decreased to $4.0 million, or 5.6% of net sales, compared to operating income of $6.2 million, or 8.0% of net sales, in the 2008 quarter. The primary contributors to the decrease in net income, earnings per share and operating income were: - A decline in net sales by $6.3 million, or 8.1%, and, - a $1.3 million, or 8.4% increase in selling and administrative costs to $17.3 million, or 24.4% of net sales, compared to $16.0 million, or 20.7% of net sales in the fiscal 2008 first quarter, principally due to the additional selling and administrative costs for Sam Moore, which was acquired at the close of the fiscal 2008 first quarter; partially offset by - lower selling costs related to the Company's wood and Bradington-Young upholstery operations; and - an improvement in gross profit margin to 30.0% compared with 28.6% in the prior year quarter, principally as a result of significantly lower net sales of heavily discounted, discontinued, domestically produced wood furniture compared to the fiscal 2008 first quarter. "We're disappointed that this quarter's profitability performance is below what we've historically and recently achieved at Hooker Furniture," said Paul B. Toms Jr., chairman, chief executive officer and president. "These results are driven almost totally by the continuing and significant decline year-over-year in sales in this difficult retail environment. We still believe we have the right business model, and that all the operational initiatives we're working on are the right ones. We demonstrated during our recently completed 2008 fiscal year that our business model should enable us to produce strong operating margins. However, before that can happen, sales have to improve, so we are looking at ways to try and stimulate demand for our products. Also we need to further reduce our operating costs and we are looking for meaningful opportunities to accomplish that without sacrificing service, quality and initiatives that support growth when the economy finally rebounds." Net sales decreased, versus the 2008 comparable quarter, across all product lines including wood, metal and leather upholstered furniture, partially offset by $6.9 million in net sales from Sam Moore Furniture's upholstery operation, which was acquired by Hooker on April 28, 2007. Product mix drove the Company's improvement in gross profit margin to 30% of net sales in the fiscal 2009 first quarter compared with 28.6% in the prior year quarter. "We're pleased with the gross margin performance in the first quarter," said Toms. "We're seeing less of an impact from sales of the remaining lower margin domestically-produced wood furniture inventory each month. However, our gross margin improvement is somewhat offset by our domestic manufacturing upholstery operations running reduced work schedules due to lower demand," Toms said. "We expect their performance will improve when demand increases." Hooker continues to report improvements in its inventory and cash positions. At the end of the 2009 first quarter, inventories of $42.3 million (excluding $3.8 million in inventory related to Sam Moore), decreased 8.8% from $46.4 million at February 3, 2008. The Company's cash position increased 16.9% from $33.1 million at the end of the 2008 fiscal year to $38.7 million at the end of the fiscal 2009 first quarter. During the first three months of fiscal 2009, the Company generated $8.8 million in cash flow from operations. The Company used this cash flow during the 2009 three-month period to fund: 1) an increase of cash and cash equivalents ($5.6 million); 2) dividends ($1.2 million); 3) common stock repurchases ($856,000); 4) a scheduled debt repayment ($655,000); and 5) capital expenditures ($473,000). Business Outlook "We expect retail conditions to be sluggish for the rest of the year," Toms said. "We are implementing measures to defer, reduce, or eliminate certain spending plans in response to lower sales volume, continuing to progress in managing our supply chain, warehousing and distribution operations, adjusting our inventory levels to current business conditions and evaluating the Company's domestic upholstery manufacturing work schedules and facilities for optimal capacity utilization and operational efficiencies. Our biggest opportunities presently are to work with our retailers to stimulate demand and look for additional ways to reduce costs without compromising product quality or service. We don't want to overreact in our cost cutting, because we believe the economic downturn is temporary. We continue to make investments in our business that will pay dividends when demand improves." Ranked among the nation's top 10 largest publicly traded furniture sources based on 2007 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.