Hooker Reports Net Sales Decrease of 17.6%

Furniture World Magazine

Hooker Furniture Corporation reported net sales of $69.0 million and net income of $3.0 million, or $0.27 per share, for the quarter ended November 2, 2008. Fiscal 2009 third quarter net sales of $69.0 million decreased $14.8 million, or 17.6%, compared to the fiscal 2008 third quarter net sales of $83.8 million. Third quarter 2009 net income of $3.0 million decreased 50.1%, from net income of $5.9 million in the same 2008 period. Earnings per share of $0.27 decreased $0.21, or 43.8%, when compared to the 2008 quarter earnings per share of $0.48. Operating income for the 2009 third quarter decreased to $4.7 million, or 6.8% of net sales, compared to operating income of $8.9 million, or 10.6% of net sales, in the same quarter a year ago. However, operating income margin improved compared to the 2009 second quarter and first half, principally as a result of higher net sales versus the 2009 second quarter, along with cost cutting measures taken by the Company and higher restructuring credits recorded during the 2009 third quarter. The 2009 third quarter operating margin of 6.8% improved compared to 4.8% for the 2009 second quarter and 5.2% for the 2009 first half. "Given the unprecedented economic stress and historically low levels of consumer confidence, we're modestly pleased with our third quarter results,'' said Paul B. Toms Jr., chairman, chief executive officer and president. "In this environment, we're gratified not only that we've remained profitable, but also to have improved our operating income margin compared to the second quarter and first half. Obviously we're disappointed that we weren't able to stabilize sales and operate at historical profit levels. We believe our business model has proven once again the ability to keep us competitive, well-positioned and profitable despite economic adversity.'' The year-over-year decrease in income and profitability was driven primarily by the net sales reduction, along with other factors including: -- a decline in gross profit margin to 28.7% compared with 31.8% in the prior year quarter, principally due to the rising cost of imported wood products and higher raw material costs for upholstered products and increased overhead absorption as a percentage of net sales for domestically-produced upholstered furniture; and -- an increase in selling and administrative expenses as a percentage of net sales to 22.7% compared with 20.7% of sales for the prior year quarter through the effect of declining year-over-year net sales. While selling and administrative expenses increased as a percentage of net sales, actual selling and administrative expenses declined 9.5% to $15.7 million in the 2009 third quarter compared to $17.3 million in the same period a year ago. The declines in year-over-year income were partially mitigated by actions taken by Hooker to improve profitability and reduce costs. During the 2009 fiscal third quarter, the Company continued to address profitability by (i) increasing selling prices on most of its products; (ii) deferring, reducing or eliminating certain spending plans; and, (iii) reducing its work force by approximately 80 employees at its wood and upholstered furniture divisions. The decline in year-over-year profitability was also partially offset by a restructuring credit of $561,000 ($350,000 after tax, or $0.03 per share) recorded in the 2009 third quarter for previously accrued health care benefits that are not expected to be paid for terminated employees at the former Roanoke and Martinsville, Va. manufacturing facilities. During the same 2008 quarter, the Company recorded restructuring charges of $419,000 ($260,000 after tax, or $0.02 per share) principally for asset impairment and disassembly costs related to the closure of the Martinsville, Va. manufacturing facility. The net sales decline for the 2009 third quarter was driven by lower unit volume attributed to the nation-wide business slump, lower shipments of discontinued domestically-produced wood furniture and lower average selling prices. Factors driving the lower average selling prices included a higher proportion of lower-priced imported wood furniture in the product mix and sales discounts extended to dealers to promote sales. Excluding discontinued domestically-produced wood furniture, net sales declined 16.3% year-over-year. Third quarter 2009 unit volume decreased compared to the same 2008 period across most wood and upholstery product categories, but increased for: -- youth bedroom products due to the addition of the Opus Designs product line; and upholstered seating manufactured by Sam Moore. Cash and Inventory Levels Cash and cash equivalents declined by $20.7 million to $12.4 million as of November 2, 2008 from $33.1 million on February 3, 2008. The Company deployed cash of $14.1 million to repurchase approximately 800,000 shares of its common stock during the 2009 nine-month period under authorizations approved by its Board of Directors since late last year. Repurchases under those authorizations were completed early in the 2009 third quarter. Additionally, a $5.5 million increase in inventory levels accounts for substantially all of the remaining expenditure of the cash and cash equivalents used during the 2009 nine-month period. ``Our progress in working down inventory levels is taking longer than expected because the downturn in sales has been more pronounced than we hoped; however, inventories have declined by $1.8 million since our last report at the end of July,'' Toms said. "We have now modified our inventory planning in reaction to this lower demand and will continue to work on managing to lower inventory levels.'' Business Outlook Over the course of the last several months, the economy has worsened with continued business closings, cutbacks and layoffs across many industries, including the home furnishings industry. Consumer confidence levels are at historical lows. With continued instability in the real estate, financial and credit markets prospects for a near-term economic recovery appear dim. During the third quarter however, the Company experienced a modest increase in incoming order rates compared to the 2009 second quarter. Toms stated, ``This stayed true to the historical upward trend in order rates following the Labor Day holiday. Also, while attendance at the recent October 2008 High Point, N.C. furniture market was significantly lower than at the last several semi-annual markets, order writing was generally consistent with recent markets. We were especially gratified at our ability to gain strong retail placements on a comprehensive new product collection at higher than average price points as well as our ability to sell a new bedroom collection in more transitional styling at lower than average price points. The beauty of sourcing in plants around the globe is that we have more flexibility to offer a wide range of styles and price points to a variety of retailers positioned at different price levels and with different consumer bases. Because of our broad factory network and strength in product development, we have the flexibility to be whatever the customer needs.'' "Until we start to see the real estate and financial markets stabilize and some improvement in credit availability and consumer confidence, we believe the consumer will continue to stay on the sidelines,'' said Toms. "We've seen a significant decline in year-over-year incoming order rates over the past two months. We could possibly have to operate in this current environment for another nine to twelve months. That being said, we do see reassuring signs of progress and strength across our Company that keep us optimistic about our business model and long term future,'' Toms continued. Announcements -- On November 6, 2008, Bradington-Young announced a permanent layoff of 54 employees in operations and administration at its plants in Cherryville and Hickory, NC. The reduction of approximately 15% of Bradington-Young's workforce was necessary because of the prolonged economic slump in the furniture industry and the impact on sales of its leather upholstered furniture. (In August 2008, the Company also announced permanent layoffs affecting 25 employees in operations, warehousing and administration at its wood furniture division based in Martinsville, Va.) 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. Visit http://www.hookerfurniture.com, http://www.bradington-young.com, http://www.sammoore.com and http://www.opusdesigns.com.