Hooker Furniture Corporation Reports First Quarter Sales and Earnings
Net sales decreased 5.2%, or
“Our disappointing earnings performance in the first quarter was driven primarily by several cost-related issues in our Home Meridian (“HMI”) segment. In addition, for our business as a whole reduced demand and soft retail conditions across the home furnishings industry were the primary drivers of the sales decrease which also weighed on our earnings for the quarter,” said
“Cost issues at Home Meridian included a large quality-related chargeback, higher freight and demurrage costs and costs associated with higher inventories,” Toms said. “In addition, Home Meridian’s margins were more affected by the tariff than our other business units due to the nature of its customer base, as many of its customers had large orders already in the pipeline at lower, pre-tariff prices. However, increased pricing and re-sourcing strategies are in place and we continue to adjust pricing and to rationalize sourcing to attempt to offset the increased tariffs. Our planned shift of production for certain products out of
“As we reported in our fourth quarter earnings release in mid-April, orders and backlogs were down in February and March, and they continued to be down throughout April,” Toms said. “Reduced demand is negatively impacting sales across all our business units, and is consistent across the industry, according to the reporting of most public furniture companies and what we’re hearing from our retail customers." Toms continued, “However, orders in the fiscal second quarter are up in the high single digits quarter-to-date in the Hooker Branded segment. We believe HMI’s orders remain below prior-year levels due to many of their larger customers delaying receipt of orders to re-balance their inventory levels but believe that has mostly played out by now. We expect to see HMI performance compared to the prior year start to improve during the fiscal 2020 second quarter and for its second half comps to be much better.”
Gross profit and operating income both decreased approximately
“We are addressing all these challenges with strategies to improve profitably in all our businesses. We expect the challenges to persist throughout the summer, but are optimistic about the fall selling season,” Toms said.
“The issues negatively impacting profitability at HMI during the first quarter are being addressed,” Toms said. “These include the quality-related chargeback, which was confined to a single customer and limited product, the demurrage costs, excess freight costs at year end, the delayed recovery from the tariff-prompted price increases, and the postponed receipt of shipments to a few large retailers.”
Finished furniture and component parts shipped from
- At HMI, the company’s PRI value-priced upholstery division is re-sourcing production away from
China , projecting that 90% of production will be in non-tariff countries by the fall. Other divisions are moving production to non-tariff countries to a lesser degree. HMI is also receiving vendor price concessions and raising prices where possible. Hooker Casegoods and Hooker Upholstery are passing on most of the increased tariff costs after vendor participation in the form of a surcharge that can be reversed if tariffs are dropped or reduced.Hooker Upholstery is moving a significant portion of its production outside ofChina during the next six months.- At Hooker Casegoods, a long-term relationship and the specialized craftsmanship of the company’s main Chinese vendor factory makes moving entirely away from
China a less desirable action for the present time being. However, tariffs will be priced into all new items, and the vendor is opening a factory inVietnam , where some production is expected to be shifted over the remainder of the fiscal year. The company is continuing to develop production in alternative countries and is receiving vendor price concessions. - Domestic upholstery divisions in All Other are enacting selected price increases and receiving vendor concessions to help mitigate the impact of tariffs on component parts imported from
China . The Company currently operates five upholstery manufacturing plants inthe United States which employ approximately 630 associates.
Assuming the tariffs persist, the Company is expected to re-source a significant portion of its current Chinese imports by the end of the fiscal year, primarily from
Segment Reporting: Hooker Branded
Net sales for the Hooker Branded segment decreased
Segment Reporting: Home Meridian
HMI’s sales decreased
A higher-than-expected quality-related chargeback in the quarter negatively impacted sales by
“The reduced demand and soft retail conditions we experienced during the quarter were concentrated in our traditional channels of distribution,” said
Segment Reporting: All Other
All Other, which includes domestically-produced upholstery divisions Bradington-Young,
“Profitability performance in All Other was solid, with an operating income margin of approximately 10% for the quarter,” Toms said.
A new
Cash, Debt and Inventory
The Company ended the fiscal 2020 first quarter with
Outlook
“While we’re encouraged to see some improvement, the current order activity is inconsistent across divisions, and we expect many of the current challenges to persist throughout the summer, a traditionally slower selling season for home furnishings,” said Toms. “Overall, the residential furniture industry is experiencing deflated demand and sluggish retail conditions, and we expect the newly-enacted 25% tariff on Chinese imports to cause business disruptions in the industry throughout the next several months.”
Toms added that the Company is more optimistic about the second half of the year. “We expect demand to increase to normal or above-average levels beginning around
“Both short term and long term, we are addressing these challenges. We have active strategies to expand our business beyond the current product line and customer base. We remain confident in our business model and strategies and in our strategic execution and are making the necessary investments to perform at a high level.”
Dividends
On
Conference Call Details
Certain statements made in this release, other than those based on historical facts, may be forward-looking statements. Forward-looking statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking terminology such as “believes,” “expects,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “would,” “could” or “anticipates,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Those risks and uncertainties include but are not limited to: (1) general economic or business conditions, both domestically and internationally, and instability in the financial and credit markets, including their potential impact on our (i) sales and operating costs and access to financing or (ii) customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses; (2) adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products by foreign governments or the U.S. government, such as the current U.S. administration imposing a 25% tariff on certain goods imported into
Table I | |||||||||||
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | |||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||
(In thousands, except per share data) | |||||||||||
(Unaudited) | |||||||||||
Thirteen Weeks Ended | |||||||||||
May 5, | April 29, | ||||||||||
2019 | 2018 | ||||||||||
Net sales | $ | 135,518 | $ | 142,892 | |||||||
Cost of sales | 110,001 | 110,926 | |||||||||
Gross profit | 25,517 | 31,966 | |||||||||
Selling and administrative expenses | 22,016 | 21,990 | |||||||||
Intangible asset amortization | 596 | 596 | |||||||||
Operating income | 2,905 | 9,380 | |||||||||
Other (expense)/income, net | (62 | ) | 5 | ||||||||
Interest expense, net | 341 | 382 | |||||||||
Income before income taxes | 2,502 | 9,003 | |||||||||
Income tax expense | 515 | 1,849 | |||||||||
Net income | $ | 1,987 | $ | 7,154 | |||||||
Earnings per share | |||||||||||
Basic | $ | 0.17 | $ | 0.61 | |||||||
Diluted | $ | 0.17 | $ | 0.61 | |||||||
Weighted average shares outstanding: | |||||||||||
Basic | 11,769 | 11,750 | |||||||||
Diluted | 11,805 | 11,773 | |||||||||
Cash dividends declared per share | $ | 0.15 | $ | 0.14 | |||||||
Table II | |||||||||||||||||||
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | |||||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||||||||||
(In thousands) | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
Thirteen Weeks Ended | |||||||||||||||||||
May 5, | April 29, | ||||||||||||||||||
2019 | 2018 | ||||||||||||||||||
Net Income | $ | 1,987 | $ | 7,154 | |||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||
Amortization of actuarial loss | 37 | 43 | |||||||||||||||||
Income tax effect on amortization | (9 | ) | (11 | ) | |||||||||||||||
Adjustments to net periodic benefit cost | 28 | 32 | |||||||||||||||||
Reclassification of tax effects due to the adoption of | |||||||||||||||||||
ASU 2018-02 | - | 111 | |||||||||||||||||
Total Comprehensive Income | $ | 2,015 | $ | 7,297 | |||||||||||||||
Table III | |||||||
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(In thousands) | |||||||
As of | May 5, | February 3, | |||||
2019 | 2019 | ||||||
(unaudited) | |||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 28,254 | $ | 11,435 | |||
Trade accounts receivable, net | 78,244 | 112,557 | |||||
Inventories | 110,765 | 105,204 | |||||
Prepaid expenses and other current assets | 6,957 | 5,735 | |||||
Total current assets | 224,220 | 234,931 | |||||
Property, plant and equipment, net | 30,638 | 29,482 | |||||
Cash surrender value of life insurance policies | 24,533 | 23,816 | |||||
Deferred taxes | 2,170 | 4,522 | |||||
Operating leases right-of-use assets | 43,894 | - | |||||
Intangible assets, net | 35,159 | 35,755 | |||||
Goodwill | 40,058 | 40,058 | |||||
Other assets | 1,247 | 1,152 | |||||
Total non-current assets | 177,699 | 134,785 | |||||
Total assets | $ | 401,919 | $ | 369,716 | |||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities | |||||||
Current portion of term loans | $ | 5,829 | $ | 5,829 | |||
Trade accounts payable | 33,416 | 40,838 | |||||
Accrued salaries, wages and benefits | 4,736 | 8,002 | |||||
Income tax accrual | 1,292 | 3,159 | |||||
Customer deposits | 6,140 | 3,023 | |||||
Current portion of lease liabilities | 5,847 | - | |||||
Other accrued expenses | 2,901 | 3,564 | |||||
Total current liabilities | 60,161 | 64,415 | |||||
Long term debt | 28,171 | 29,628 | |||||
Deferred compensation | 10,791 | 11,513 | |||||
Lease liabilities | 38,171 | - | |||||
Other long-term liabilities | 3 | 984 | |||||
Total long-term liabilities | 77,136 | 42,125 | |||||
Total liabilities | 137,297 | 106,540 | |||||
Shareholders’ equity | |||||||
Common stock, no par value, 20,000 shares authorized, | |||||||
11,816 and 11,785 shares issued and outstanding on each date | 50,748 | 49,549 | |||||
Retained earnings | 213,599 | 213,380 | |||||
Accumulated other comprehensive income | 275 | 247 | |||||
Total shareholders’ equity | 264,622 | 263,176 | |||||
Total liabilities and shareholders’ equity | $ | 401,919 | $ | 369,716 | |||
Table IV | |||||||||
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | |||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
(In thousands) | |||||||||
(Unaudited) | |||||||||
Thirteen Weeks Ended | |||||||||
May 5, | April 29, | ||||||||
2019 | 2018 | ||||||||
Operating Activities: | |||||||||
Net income | $ | 1,987 | $ | 7,154 | |||||
Adjustments to reconcile net income to net cash | |||||||||
provided by operating activities: | |||||||||
Depreciation and amortization | 1,716 | 1,828 | |||||||
Gain on disposal of assets | (274 | ) | (19 | ) | |||||
Deferred income tax expense | 2,344 | 1,638 | |||||||
Non-cash restricted stock and performance awards | 463 | 343 | |||||||
Provision for doubtful accounts and sales allowances | 862 | (1,990 | ) | ||||||
Gain on life insurance policies | (555 | ) | (508 | ) | |||||
Changes in assets and liabilities | |||||||||
Trade accounts receivable | 33,451 | 20,611 | |||||||
Inventories | (5,561 | ) | (321 | ) | |||||
Prepaid expenses and other current assets | (3,186 | ) | (190 | ) | |||||
Trade accounts payable | (8,165 | ) | 2,042 | ||||||
Accrued salaries, wages and benefits | (3,266 | ) | (3,005 | ) | |||||
Accrued income taxes | (1,867 | ) | 189 | ||||||
Customer deposits | 3,117 | 387 | |||||||
Operating lease liabilities | (167 | ) | - | ||||||
Other accrued expenses | (664 | ) | 424 | ||||||
Deferred compensation | 51 | (43 | ) | ||||||
Other long-term liabilities | - | 39 | |||||||
Net cash provided by operating activities | 20,286 | 28,579 | |||||||
Investing Activities: | |||||||||
Purchases of property, plant and equipment | (1,527 | ) | (370 | ) | |||||
Proceeds received on notes receivable | 1,449 | 30 | |||||||
Premiums paid on life insurance policies | - | 1,099 | |||||||
Proceeds received on life insurance policies | (157 | ) | (155 | ) | |||||
Net cash (used in)/provided by investing activities | (235 | ) | 604 | ||||||
Financing Activities: | |||||||||
Payments for long-term debt | (1,464 | ) | (11,893 | ) | |||||
Cash dividends paid | (1,768 | ) | (1,647 | ) | |||||
Net cash used in financing activities | (3,232 | ) | (13,540 | ) | |||||
Net increase in cash and cash equivalents | 16,819 | 15,643 | |||||||
Cash and cash equivalents at the beginning of year | 11,435 | 30,915 | |||||||
Cash and cash equivalents at the end of year | $ | 28,254 | $ | 46,558 | |||||
Supplemental schedule of cash flow information: | |||||||||
Interest paid, net | $ | 329 | $ | 324 | |||||
Income taxes paid, net | 38 | 23 | |||||||
Supplemental schedule of noncash investing activities: | |||||||||
Increase in property and equipment through accrued purchases | $ | 743 | $ | 166 | |||||
Table V | ||||||||||||||||
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | ||||||||||||||||
NET SALES AND OPERATING INCOME BY SEGMENT | ||||||||||||||||
(In thousands) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Thirteen Weeks Ended | ||||||||||||||||
May 5, | April 29, | |||||||||||||||
2019 | 2018 | |||||||||||||||
% Net | % Net | |||||||||||||||
Net Sales | Sales | Sales | ||||||||||||||
Hooker Branded | $ | 39,600 | 29.2 | % | $ | 42,772 | 29.9 | % | ||||||||
Home Meridian | 67,630 | 49.9 | % | 70,596 | 49.4 | % | ||||||||||
All Other | 28,288 | 20.9 | % | 29,524 | 20.7 | % | ||||||||||
Consolidated | $ | 135,518 | 100 | % | $ | 142,892 | 100 | % | ||||||||
Operating Income | ||||||||||||||||
Hooker Branded | $ | 5,177 | 13.1 | % | $ | 6,726 | 15.7 | % | ||||||||
Home Meridian | (4,993 | ) | -7.4 | % | (288 | ) | -0.4 | % | ||||||||
All Other | 2,721 | 9.6 | % | 2,942 | 10.0 | % | ||||||||||
Consolidated | $ | 2,905 | 2.1 | % | $ | 9,380 | 6.6 | % | ||||||||
For more information, contact:
Chairman and Chief Executive Officer
Phone: (276) 632-2133, or
Phone: (276) 666-3949
Source: Hooker Furniture Corporation