UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 31, 2022April 30, 2023
Commission file number 000-25349
HOOKER FURNISHINGS CORPORATION
(Exact name of registrant as specified in its charter)
Virginia | 54-0251350 |
(State or other jurisdiction of incorporation or organization) | (IRS employer identification no.) |
440 East Commonwealth Boulevard, Martinsville, VA 24112
(Address of principal executive offices, zip code)
(276) 632-2133
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer ☐ | Accelerated filer ☒ |
Non-accelerated Filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | HOFT | NASDAQ Global Select Market |
As of SeptemberJune 2, 2022,2023, there were 11,689,05210,916,369 shares of the registrant’s common stock outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | ||
Item 1. | 3 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. OTHER INFORMATION | ||
Item 2. | 29 | |
Item 6. |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(In thousands) |
As of | July 31, | January 30, | April 30, | January 29, | ||||||||||||
2022 | 2022 | 2023 | 2023 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 11,653 | $ | 69,366 | $ | 30,976 | $ | 19,002 | ||||||||
Trade accounts receivable, net | 81,662 | 73,727 | 54,528 | 62,129 | ||||||||||||
Inventories | 131,088 | 75,023 | 73,188 | 96,675 | ||||||||||||
Income tax recoverable | 3,574 | 4,361 | 2,985 | 3,079 | ||||||||||||
Prepaid expenses and other current assets | 9,014 | 5,237 | 7,551 | 6,418 | ||||||||||||
Total current assets | 236,991 | 227,714 | 169,228 | 187,303 | ||||||||||||
Property, plant and equipment, net | 27,565 | 28,058 | 29,070 | 27,010 | ||||||||||||
Cash surrender value of life insurance policies | 27,332 | 26,479 | 27,899 | 27,576 | ||||||||||||
Deferred taxes | 9,763 | 11,612 | 14,208 | 14,484 | ||||||||||||
Operating lease right-of-use assets | 54,734 | 51,854 | ||||||||||||||
Operating leases right-of-use assets | 66,806 | 68,949 | ||||||||||||||
Intangible assets, net | 33,547 | 23,853 | 30,895 | 31,779 | ||||||||||||
Goodwill | 15,591 | 490 | 14,952 | 14,952 | ||||||||||||
Other assets | 7,108 | 4,499 | 11,010 | 9,663 | ||||||||||||
Total non-current assets | 175,640 | 146,845 | 194,840 | 194,413 | ||||||||||||
Total assets | $ | 412,631 | $ | 374,559 | $ | 364,068 | $ | 381,716 | ||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Current portion of long-term debt | $ | 1,393 | $ | - | $ | 1,393 | $ | 1,393 | ||||||||
Trade accounts payable | 36,628 | 30,916 | 15,991 | 16,090 | ||||||||||||
Accrued salaries, wages and benefits | 5,662 | 7,141 | 5,743 | 9,290 | ||||||||||||
Customer deposits | 10,448 | 7,145 | 6,582 | 8,511 | ||||||||||||
Current portion of operating lease liabilities | 7,254 | 7,471 | ||||||||||||||
Current portion of lease liabilities | 7,363 | 7,316 | ||||||||||||||
Other accrued expenses | 2,969 | 4,264 | 2,685 | 7,438 | ||||||||||||
Total current liabilities | 64,354 | 56,937 | 39,757 | 50,038 | ||||||||||||
Long term debt | 23,570 | - | 22,526 | 22,874 | ||||||||||||
Deferred compensation | 9,599 | 9,924 | 8,022 | 8,178 | ||||||||||||
Operating lease liabilities | 49,514 | 46,570 | 61,877 | 63,762 | ||||||||||||
Other long-term liabilities | 766 | - | 855 | 843 | ||||||||||||
Total long-term liabilities | 83,449 | 56,494 | 93,280 | 95,657 | ||||||||||||
Total liabilities | 147,803 | 113,431 | 133,037 | 145,695 | ||||||||||||
Shareholders’ equity | ||||||||||||||||
Common stock, no par value, 20,000 shares authorized, 11,959 and 11,922 shares issued and outstanding on each date | 53,853 | 53,295 | ||||||||||||||
Common stock, no par value, 20,000 shares authorized, 11,029 and 11,197 shares issued and outstanding on each date | 50,067 | 50,770 | ||||||||||||||
Retained earnings | 210,994 | 207,884 | 180,152 | 184,386 | ||||||||||||
Accumulated other comprehensive loss | (19 | ) | (51 | ) | ||||||||||||
Accumulated other comprehensive income | 812 | 865 | ||||||||||||||
Total shareholders’ equity | 264,828 | 261,128 | 231,031 | 236,021 | ||||||||||||
Total liabilities and shareholders’ equity | $ | 412,631 | $ | 374,559 | $ | 364,068 | $ | 381,716 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the | For the | |||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | April 30, | May 1, | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Net sales | $ | 152,908 | $ | 162,519 | $ | 300,223 | $ | 325,379 | $ | 121,815 | $ | 147,314 | ||||||||||||
Cost of sales | 121,853 | 130,802 | 239,709 | 260,080 | 93,909 | 117,855 | ||||||||||||||||||
Gross profit | 31,055 | 31,717 | 60,514 | 65,299 | 27,906 | 29,459 | ||||||||||||||||||
Selling and administrative expenses | 22,886 | 21,460 | 47,543 | 42,204 | 25,048 | 24,658 | ||||||||||||||||||
Intangible asset amortization | 878 | 596 | 1,756 | 1,192 | 883 | 878 | ||||||||||||||||||
Operating income | 7,291 | 9,661 | 11,215 | 21,903 | 1,975 | 3,923 | ||||||||||||||||||
Other (expense)/income, net | (44 | ) | 21 | 234 | 27 | |||||||||||||||||||
Other income, net | 56 | 278 | ||||||||||||||||||||||
Interest expense, net | 83 | 23 | 111 | 54 | 179 | 28 | ||||||||||||||||||
Income before income taxes | 7,164 | 9,659 | 11,338 | 21,876 | 1,852 | 4,173 | ||||||||||||||||||
Income tax expense | 1,621 | 2,192 | 2,612 | 4,966 | 402 | 991 | ||||||||||||||||||
Net income | $ | 5,543 | $ | 7,467 | $ | 8,726 | $ | 16,910 | $ | 1,450 | $ | 3,182 | ||||||||||||
Earnings per share | ||||||||||||||||||||||||
Basic | $ | 0.47 | $ | 0.63 | $ | 0.74 | $ | 1.42 | $ | 0.13 | $ | 0.27 | ||||||||||||
Diluted | $ | 0.46 | $ | 0.62 | $ | 0.73 | $ | 1.40 | $ | 0.13 | $ | 0.26 | ||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||
Basic | 11,876 | 11,850 | 11,871 | 11,842 | 10,976 | 11,866 | ||||||||||||||||||
Diluted | 11,935 | 11,993 | 11,960 | 11,985 | 11,077 | 11,949 | ||||||||||||||||||
Cash dividends declared per share | $ | 0.20 | $ | 0.18 | $ | 0.40 | $ | 0.36 | $ | 0.22 | $ | 0.20 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited)
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For the | ||||||||
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2023 | 2022 | |||||||
Net income | $ | 1,450 | $ | 3,182 | ||||
Other comprehensive income: | ||||||||
Amortization of actuarial (loss) / gain | (70 | ) | (18 | ) | ||||
Income tax effect on amortization | 17 | 4 | ||||||
Adjustments to net periodic benefit cost | (53 | ) | (14 | ) | ||||
Total comprehensive income | $ | 1,397 | $ | 3,168 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the | ||||||||
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2023 | 2022 | |||||||
Operating Activities: | ||||||||
Net income | $ | 1,450 | $ | 3,182 | ||||
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | ||||||||
Depreciation and amortization | 2,147 | 2,287 | ||||||
Deferred income tax expense | 293 | 1,838 | ||||||
Noncash restricted stock and performance awards | 371 | 354 | ||||||
Provision for doubtful accounts and sales allowances | 37 | (349 | ) | |||||
Gain on life insurance policies | (634 | ) | (568 | ) | ||||
Changes in assets and liabilities: | ||||||||
Trade accounts receivable | 7,564 | (7,386 | ) | |||||
Inventories | 23,487 | (30,082 | ) | |||||
Income tax recoverable | 93 | (762 | ) | |||||
Prepaid expenses and other assets | (2,080 | ) | (4,145 | ) | ||||
Trade accounts payable | (240 | ) | 10,493 | |||||
Accrued salaries, wages, and benefits | (3,547 | ) | (1,827 | ) | ||||
Customer deposits | (1,928 | ) | (906 | ) | ||||
Operating lease assets and liabilities | 305 | (168 | ) | |||||
Other accrued expenses | (4,743 | ) | (1,830 | ) | ||||
Deferred compensation | (225 | ) | (149 | ) | ||||
Net cash provided by/(used in) operating activities | $ | 22,350 | $ | (30,018 | ) | |||
Investing Activities: | ||||||||
Acquisitions | - | (25,912 | ) | |||||
Purchases of property and equipment | (3,158 | ) | (830 | ) | ||||
Premiums paid on life insurance policies | (107 | ) | (118 | ) | ||||
Net cash used in investing activities | (3,265 | ) | (26,860 | ) | ||||
Financing Activities: | ||||||||
Purchase and retirement of common stock | (4,317 | ) | - | |||||
Payments for long-term loans | (350 | ) | - | |||||
Cash dividends paid | (2,444 | ) | (2,388 | ) | ||||
Cash used in financing activities | (7,111 | ) | (2,388 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | 11,974 | (59,266 | ) | |||||
Cash and cash equivalents - beginning of year | 19,002 | 69,366 | ||||||
Cash and cash equivalents - end of quarter | $ | 30,976 | $ | 10,100 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid/(refund) for income taxes | $ | 16 | $ | (85 | ) | |||
Cash paid for interest, net | 202 | - | ||||||
Non-cash transactions: | ||||||||
Increase in lease liabilities arising from changes in right-of-use assets | $ | - | $ | 3,689 | ||||
Increase in property and equipment through accrued purchases | 145 | 47 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited)
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Accumulated | ||||||||||||||||||||
Other | Total | |||||||||||||||||||
Common Stock | Retained | Comprehensive | Shareholders' | |||||||||||||||||
Shares | Amount | Earnings | Income (loss) | Equity | ||||||||||||||||
Balance at January 30, 2022 | 11,922 | $ | 53,295 | $ | 207,884 | $ | (51 | ) | $ | 261,128 | ||||||||||
Net income | 3,182 | 3,182 | ||||||||||||||||||
Unrealized loss on defined benefit plan, net of tax of $4 | (14 | ) | (14 | ) | ||||||||||||||||
Cash dividends paid and accrued ($0.20 per share) | (2,388 | ) | (2,388 | ) | ||||||||||||||||
Restricted stock grants, net of forfeitures | 80 | (96 | ) | (96 | ) | |||||||||||||||
Restricted stock compensation cost | 296 | 296 | ||||||||||||||||||
Performance-based restricted stock units costs | 154 | 154 | ||||||||||||||||||
Balance at May 1, 2022 | 12,002 | $ | 53,649 | $ | 208,678 | $ | (65 | ) | $ | 262,262 | ||||||||||
Balance at January 29, 2023 | 11,197 | $ | 50,770 | $ | 184,386 | $ | 865 | $ | 236,021 | |||||||||||
Net income | 1,450 | 1,450 | ||||||||||||||||||
Unrealized loss on defined benefit plan, net of tax of $17 | (53 | ) | (53 | ) | ||||||||||||||||
Cash dividends paid and accrued ($0.22 per share) | (2,444 | ) | (2,444 | ) | ||||||||||||||||
Purchase and retirement of common stock | (227 | ) | $ | (1,081 | ) | (3,240 | ) | (4,321 | ) | |||||||||||
Restricted stock grants, net of forfeitures | 59 | (150 | ) | (150 | ) | |||||||||||||||
Restricted stock compensation cost | 335 | 335 | ||||||||||||||||||
Performance-based restricted stock units costs | 193 | 193 | ||||||||||||||||||
Balance at April 30, 2023 | 11,029 | $ | 50,067 | $ | 180,152 | $ | 812 | $ | 231,031 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONT.)
(In thousands, except per share data)
(Unaudited)
Accumulated | ||||||||||||||||||||
Other | Total | |||||||||||||||||||
Common Stock | Retained | Comprehensive | Shareholders' | |||||||||||||||||
Shares | Amount | Earnings | Income (loss) | Equity | ||||||||||||||||
Balance at January 31, 2021 | 11,888 | $ | 53,323 | $ | 204,988 | $ | (808 | ) | $ | 257,503 | ||||||||||
Net income for the 26 weeks ended August 1, 2021 | 16,910 | 16,910 | ||||||||||||||||||
Unrealized loss on defined benefit plan, net of tax of $48 | 153 | 153 | ||||||||||||||||||
Cash dividends paid and accrued ($0.36 per share) | (4,285 | ) | (4,285 | ) | ||||||||||||||||
Restricted stock grants, net of forfeitures | 36 | - | - | |||||||||||||||||
Restricted stock compensation cost | 597 | 597 | ||||||||||||||||||
Performance-based restricted stock units costs | 293 | 293 | ||||||||||||||||||
PSU awards | (740 | ) | (740 | ) | ||||||||||||||||
Balance at August 1, 2021 | 11,924 | $ | 53,473 | $ | 217,613 | $ | (655 | ) | $ | 270,431 | ||||||||||
Balance at January 30, 2022 | 11,922 | $ | 53,295 | $ | 207,884 | $ | (51 | ) | $ | 261,128 | ||||||||||
Net income for the 26 weeks ended July 31, 2022 | 8,726 | 8,726 | ||||||||||||||||||
Unrealized loss on defined benefit plan, net of tax of $10 | 32 | 32 | ||||||||||||||||||
Cash dividends paid and accrued ($0.40 per share) | (4,794 | ) | (4,794 | ) | ||||||||||||||||
Purchase and retirement of common stock | (68 | ) | (315 | ) | (822 | ) | (1,137 | ) | ||||||||||||
Restricted stock grants, net of forfeitures | 105 | (102 | ) | (102 | ) | |||||||||||||||
Restricted stock compensation cost | 667 | 667 | ||||||||||||||||||
Performance-based restricted stock units costs | 308 | 308 | ||||||||||||||||||
Balance at July 31, 2022 | 11,959 | $ | 53,853 | $ | 210,994 | $ | (19 | ) | $ | 264,828 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated)
(Unaudited)
For the Twenty-SixThirteen Weeks Ended July 31, 2022April 30, 2023
1. Preparation of Interim Financial Statements
The condensed consolidated financial statements of Hooker Furnishings Corporation and subsidiaries (referred to as “we,” “us,” “our,” “Hooker” or the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these statements include all adjustments necessary for a fair statement of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) are condensed or omitted pursuant to SEC rules and regulations. However, we believe that the disclosures made are adequate for a fair presentation of our results of operations and financial position. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended January 30, 202229, 2023 (“20222023 Annual Report”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect both the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from our estimates. Operating results for the interim periods reported herein may not be indicative of the results expected for the fiscal year.
The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 20232024 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “second“first quarter” or “quarterly period”) that began May 2, 2022,January 30, 2023 and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began January 31, 2022, which both ended July 31, 2022.April 30, 2023. This report discusses our results of operations for these periodsthis period compared to the 20222023 fiscal year thirteen-week period that began January 31, 2022 and ended May 3, 2021, and the twenty-six-week period that began February 1, 2021, which both ended August 1, 2021;2022; and our financial condition as of July 31, 2022April 30, 2023 compared to January 30, 2022.29, 2023.
References in these notes to the condensed consolidated financial statements of the Company to:
■ | the 2024 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began January 30, 2023 and will end January 28, 2024; and |
■ | the 2023 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began January 31, 2022 and |
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On January 31, 2022, the first day of our 2023 fiscal year, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sunset HWM, LLC (“Sunset West”) and its three members (the “Sunset West Members”) to acquire substantially all of the assets of Sunset West (the “Sunset Acquisition”). Simultaneously, we closed on the transaction by paying $23.9 million in cash and $2 million subject to an escrow arrangement and possible earn-out payments to the Sunset West Members up to an aggregate of $4 million with the closing cash consideration subject to adjustment for customary working capital estimates. Under the Asset Purchase Agreement, the Company also assumed specified liabilities of Sunset West.
Sunset West’s results are included in the Domestic Upholstery segment’s results beginning with the fiscal 2023 first quarter. Consequently, comparable prior-year information for Sunset West is not included in the financial statements presented in this report. The acquisition is discussed in greater detail below in Note 3 Acquisition.
2. Recently Adopted Accounting Policies
No new accounting pronouncements have been adopted in the 20232024 fiscal year. We reviewed newly issued accounting pronouncements and concluded they are either not applicable to our business or are not expected to have a material effect on our consolidated financial statements as a result of future adoption.
3. Acquisition
In accordance with FASB Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”), the Acquisition has been accounted for using the acquisition method of accounting. We recorded assets acquired, including identifiable intangible assets, and liabilities assumed, from Sunset West at their respective fair values at the date of completion of the Acquisition. The excess of the purchase price over the net fair value of such assets and liabilities was recorded as goodwill.
The following table summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Acquisition as of July 31, 2022. The preliminary estimates of fair value of identifiable assets acquired and liabilities assumed are subject to revision, which may result in adjustments to the preliminary values presented below, when management’s appraisals and estimates are finalized. Normal post-closing contingencies remain to be resolved, including the final working capital adjustment and any changes due to deviations from the seller’s representations and warranties at closing.
Fair Value Estimates of Assets Acquired and Liabilities Assumed
The consideration and components of our initial fair value allocation of the purchase price paid at closing and in the subsequent net working capital adjustment consisted of the following:
Purchase price consideration
Fair value estimates of assets acquired and liabilities assumed | ||||
Purchase price consideration | ||||
Cash paid for assets acquired | $ | 23,909 | ||
Escrow | 2,003 | |||
Fair value of earnout | 766 | |||
Total purchase price | $ | 26,678 | ||
Accounts receivable | $ | 1,560 | ||
Inventory | 2,577 | |||
Prepaid expenses and other current assets | 90 | |||
Property | 7 | |||
Intangible assets | 11,451 | |||
Goodwill | 15,101 | |||
Customer deposits | (3,276 | ) | ||
Accounts payable | (816 | ) | ||
Accrued expenses | (16 | ) | ||
Total purchase price | $ | 26,678 |
Property was recorded at fair value and primarily consists of machinery and equipment. Property and equipment will be amortized over their estimated useful lives.
Goodwill is calculated as the excess of the purchase price over the net assets acquired. The goodwill recognized is attributable to growth opportunities and expected synergies. All goodwill is expected to be deductible for income tax purposes.
Intangible assets, consist of two separately identified assets:
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We incurred Acquisition-related costs of $414,000 in fiscal 2022 and $63,000 in the first six months of fiscal 2023. These expenses were included in the “Selling and administrative expenses” line of our fiscal 2022 and fiscal 2023 condensed consolidated statements of operations. Sunset West’s results are included in the Domestic Upholstery segment’s results beginning with the fiscal 2023 first quarter, which include $6.9 million in net sales and $150,000 of operating income, including $282,000 in intangible amortization expense for the fiscal 2023 second quarter and $14.8 million in net sales and $1.0 million of operating income, including $564,000 in intangible amortization expense for the fiscal 2023 first half.
4.Accounts Receivable
April 30, | January 29, | |||||||
2023 | 2023 | |||||||
Gross accounts receivable | $ | 59,941 | $ | 67,600 | ||||
Customer allowances | (3,461 | ) | (3,702 | ) | ||||
Allowance for doubtful accounts | (1,952 | ) | (1,769 | ) | ||||
Trade accounts receivable | $ | 54,528 | $ | 62,129 |
July 31, | January 30, | |||||||
2022 | 2022 | |||||||
Gross accounts receivable | $ | 89,316 | $ | 83,027 | ||||
Customer allowances | (5,902 | ) | (7,284 | ) | ||||
Allowance for doubtful accounts | (1,752 | ) | (2,016 | ) | ||||
Trade accounts receivable | $ | 81,662 | $ | 73,727 |
4. Inventories
April 30, | January 29, | |||||||
2023 | 2023 | |||||||
Finished furniture | $ | 89,658 | $ | 115,015 | ||||
Furniture in process | 1,766 | 1,943 | ||||||
Materials and supplies | 13,391 | 13,509 | ||||||
Inventories at FIFO | 104,815 | 130,467 | ||||||
Reduction to LIFO basis | (31,627 | ) | (33,792 | ) | ||||
Inventories | $ | 73,188 | $ | 96,675 |
5.Inventories
July 31, | January 30, | |||||||
2022 | 2022 | |||||||
Finished furniture | $ | 145,092 | $ | 89,066 | ||||
Furniture in process | 2,793 | 2,314 | ||||||
Materials and supplies | 15,299 | 13,179 | ||||||
Inventories at FIFO | 163,184 | 104,559 | ||||||
Reduction to LIFO basis | (32,096 | ) | (29,536 | ) | ||||
Inventories | $ | 131,088 | $ | 75,023 |
6. Property, Plant and Equipment
Depreciable Lives | April 30, | January 29, | |||||||||
(In years) | 2023 | 2023 | |||||||||
Buildings and land improvements | 15 - 30 | $ | 32,783 | $ | 32,723 | ||||||
Computer software and hardware | 3 - 10 | 16,000 | 15,887 | ||||||||
Machinery and equipment | 10 | 11,335 | 11,013 | ||||||||
Leasehold improvements | Term of lease | 15,064 | 11,894 | ||||||||
Furniture and fixtures | 3 - 10 | 6,313 | 5,991 | ||||||||
Other | 5 | 695 | 694 | ||||||||
Total depreciable property at cost | 82,190 | 78,202 | |||||||||
Less accumulated depreciation | (54,663 | ) | (53,427 | ) | |||||||
Total depreciable property, net | 27,527 | 24,775 | |||||||||
Land | 1,077 | 1,077 | |||||||||
Construction-in-progress | 466 | 1,158 | |||||||||
Property, plant and equipment, net | $ | 29,070 | $ | 27,010 |
Depreciable Lives | July 31, | January 30, | |||||||||
(In years) | 2022 | 2022 | |||||||||
Buildings and land improvements | 15 - 30 | $ | 32,262 | $ | 32,030 | ||||||
Computer software and hardware | 3 - 10 | 15,773 | 15,648 | ||||||||
Machinery and equipment | 10 | 10,900 | 10,390 | ||||||||
Leasehold improvements | Term of lease | 10,684 | 10,984 | ||||||||
Furniture and fixtures | 3 - 10 | 5,871 | 5,829 | ||||||||
Other | 5 | 694 | 676 | ||||||||
Total depreciable property at cost | 76,184 | 75,557 | |||||||||
Less accumulated depreciation | (51,039 | ) | (49,077 | ) | |||||||
Total depreciable property, net | 25,145 | 26,480 | |||||||||
Land | 1,077 | 1,077 | |||||||||
Construction-in-progress | 1,343 | 501 | |||||||||
Property, plant and equipment, net | $ | 27,565 | $ | 28,058 |
6. Cloud Computing Hosting Arrangement
We are in the process of implementing a common Enterprise Resource Planning system (ERP) across all divisions. The ERP went live at Sunset West in December 2022 and is expected to go-live in other legacy Hooker divisions during fiscal 2024, with the Home Meridian segment following afterwards.
Based on the provisions of ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software, we capitalize implementation costs associated with hosting arrangements that are service contracts. In addition, based on the provisions of ASC 835 Interest, we capitalize interest associated with this ERP project by applying the interest rate on our unsecured term loan to the amount of the accumulated expenditures for the ERP asset. Both these costs are recorded on the “Other noncurrent assets” line of our condensed consolidated balance sheets. Amortization expense commenced when the ERP went live at Sunset West in the fourth quarter of fiscal 2023. Capitalized implementation costs and interest are amortized over ten years on a straight-line basis. The capitalized implementation costs and interest expenses at April 30, 2023 and January 29, 2023 were as follows:
Capitalized Implementation Costs | Capitalized interest expenses | |||||||
Balance at January 29, 2023 | $ | 8,598 | $ | 84 | ||||
Costs capitalized during the period | 1,298 | 66 | ||||||
Accumulated amortization | (19 | ) | (1 | ) | ||||
Balance at April 30, 2023 | $ | 9,877 | $ | 149 |
7. Cloud Computing Hosting Arrangement
We are in the process of implementing a common Enterprise Resource Planning (ERP) system across all divisions and expect to go-live with this system in Sunset West in the second half of fiscal 2023 and in our legacy Hooker divisions in fiscal 2024, with other segments and divisions following thereafter. Based on the provisions of ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software, we capitalize implementation costs incurred to develop internal-use software associated with hosting arrangements that are service contracts. These costs are recorded on “Other noncurrent assets” line of our condensed consolidated balance sheets. Amortization expense is expected to commence at system go-live in the second half of fiscal 2023. The capitalized implementation costs at July 31, 2022 and January 30, 2022 were as follows:
Capitalized Implementation Costs | ||||
Balance at January 30, 2022 | $ | 3,228 | ||
Costs capitalized during the period | 3,045 | |||
Balance at July 31, 2022 | $ | 6,273 |
8. Fair Value Measurements
Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability (an exit price) in an orderly transaction between market participants on the applicable measurement date. We use a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
■ | Level 1, defined as observable inputs such as quoted prices in active markets for identical assets and liabilities; |
■ | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and |
■ | Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
As of July 31, 2022April 30, 2023 and January 30, 2022,29, 2023, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs. The fair value of the Company-owned life insurance is determined by inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Additionally, the fair value of the Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period.
Our assets measured at fair value on a recurring basis at July 31, 2022April 30, 2023 and January 30, 2022,29, 2023, were as follows:
Fair value at July 31, 2022 | Fair value at January 30, 2022 | Fair value at April 30, 2023 | Fair value at January 29, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Description | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets measured at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company-owned life insurance | $ | - | $ | 27,332 | $ | - | $ | 27,332 | $ | - | $ | 26,479 | $ | - | $ | 26,479 | $ | - | $ | 27,899 | $ | - | $ | 27,899 | $ | - | $ | 27,576 | $ | - | $ | 27,576 |
8.Intangible Assets
Our intangible assets with indefinite lives consist of goodwill related to the Shenandoah and Sunset West acquisitions and trademarks and tradenames related to the acquisitions of Bradington-Young, Sam Moore and Home Meridian. During the fiscal 2024 first quarter, we announced the rebranding of the Sam Moore product line to “HF Custom”. As a result, we reassessed the characteristics of the Sam Moore trade name and the roll-out process, and determined it qualified for amortization. We will amortize the value of Sam Moore trade name over a 24-month period using the straight-line method, starting from mid-April. Our intangible assets with definite lives are recorded in our Home Meridian and Domestic Upholstery segments. Details of our intangible assets are as follows:
April 30, 2023 | January 29, 2023 | |||||||||||||||
Gross carrying amount | Accumulated Amortization | Gross carrying amount | Accumulated Amortization | |||||||||||||
Intangible assets with indefinite lives: | ||||||||||||||||
Goodwill | ||||||||||||||||
Domestic Upholstery - Shenandoah * | 490 | - | 490 | - | ||||||||||||
Domestic Upholstery - Sunset West | 14,462 | - | 14,462 | - | ||||||||||||
Goodwill | 14,952 | - | 14,952 | - | ||||||||||||
Trademarks and Trade names * | 7,511 | - | 7,907 | - | ||||||||||||
Intangible assets with definite lives: | ||||||||||||||||
Customer Relations | 38,001 | (16,460 | ) | 38,001 | (15,618 | ) | ||||||||||
Trademarks and Trade names | 2,334 | (491 | ) | 1,938 | (449 | ) | ||||||||||
Intangible assets, net | 47,846 | (16,951 | ) | 47,846 | (16,067 | ) |
*: The amounts are net of impairment charges of $16.4 million related to Shenandoah goodwill and $4.8 million related to certain Home Meridian segment trade names, which were recorded in fiscal 2021.
9.Intangible Assets
During the fiscal 2023 first half, we recorded both non-amortizable and amortizableAmortization expenses for intangible assets as a resultwith definite lives were $883,000 and $878,000 for the first quarters of the Acquisition. Details of these new intangible assets, as well as previously recorded intangible assets assigned to our Domestic Upholsteryfiscal 2024 and Home Meridian segments, are shown in the following two tables:
January 30, 2022 | July 31, 2022 | |||||||||||||
Non-amortizable Intangible Assets | Segment | Beginning Balance | Acquisition | Net Book Value | ||||||||||
Goodwill - Shenandoah Furniture | Domestic Upholstery | $ | 490 | $ | - | $ | 490 | |||||||
Goodwill - Sunset West | Domestic Upholstery | - | 15,101 | 15,101 | ||||||||||
Total Goodwill | $ | 490 | $ | 15,101 | $ | 15,591 | ||||||||
Trademarks and trade names - Home Meridian | Home Meridian | 6,650 | - | 6,650 | ||||||||||
Trademarks and trade names - Bradington-Young | Domestic Upholstery | 861 | - | 861 | ||||||||||
Trademarks and trade names - Sam Moore | Domestic Upholstery | 396 | - | 396 | ||||||||||
Total Trademarks and trade names | $ | 7,907 | $ | - | $ | 7,907 | ||||||||
Total non-amortizable assets | $ | 8,397 | $ | 15,101 | $ | 23,498 |
Our amortizable intangible assets are recorded in our Home Meridian and Domestic Upholstery segments. The carrying amounts and changes therein of those amortizable intangible assets were as follows:
Amortizable Intangible Assets | ||||||||||||
Customer | ||||||||||||
Relationships | Trademarks | Totals | ||||||||||
Balance at January 30, 2022 | $ | 15,348 | $ | 598 | $ | 15,946 | ||||||
Acquisition | 10,401 | 1,050 | 11,451 | |||||||||
Amortization | (1,682 | ) | (74 | ) | (1,756 | ) | ||||||
Balance at July 31, 2022 | $ | 24,067 | $ | 1,574 | $ | 25,641 |
2023, respectively. For the remainder of fiscal 2023,2024, amortization expense is expected to be approximately $1.8$2.8 million.
10.9. Leases
We have operating leases for warehouses, showrooms, manufacturing facilities, offices and equipment. We recognized sub-leasesublease income of $34,000 for$29,000 and $348,000 in the three-month periodfirst quarters of fiscal 2024 and $381,000 for the six-month period, both ended July 31, 2022. We recognized sub-lease income of $150,000 for the three-month period and $296,000 for the six-month period, both ended August 1, 2021.2023, respectively.
The components of lease cost and supplemental cash flow information for leases forin the three-monthsfirst quarters of fiscal 2024 and six-months ended July 31, 2022 and August 1, 20212023 were:
Thirteen Weeks Ended | Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||
July 31, 2022 | August 1, 2021 | July 31, 2022 | August 1, 2021 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||
Operating lease cost | $ | 2,270 | $ | 1,906 | $ | 4,797 | $ | 3,919 | $ | 2,838 | $ | 2,527 | ||||||||||||
Variable lease cost | 56 | 65 | 111 | 109 | 82 | 55 | ||||||||||||||||||
Short-term lease cost | 78 | 19 | 164 | 28 | 79 | 80 | ||||||||||||||||||
Total lease cost | $ | 2,404 | $ | 1,990 | $ | 5,072 | $ | 4,056 | ||||||||||||||||
Total operating lease cost | $ | 2,999 | $ | 2,662 | ||||||||||||||||||||
Operating lease cash outflows | $ | 2,389 | $ | 1,954 | $ | 5,224 | $ | 3,936 | ||||||||||||||||
Operating cash outflows | $ | 2,694 | $ | 2,829 |
The right-of-use assets and lease liabilities recorded on our condensed consolidated balance sheets as of July 31, 2022April 30, 2023 and January 30, 202229, 2023 were as follows:
July 31, 2022 | January 30, 2022 | April 30, 2023 | January 29, 2023 | |||||||||||||
Real estate | $ | 53,787 | $ | 50,749 | $ | 66,173 | $ | 68,212 | ||||||||
Property and equipment | 947 | 1,105 | 633 | 737 | ||||||||||||
Total leases right-of-use assets | $ | 54,734 | $ | 51,854 | ||||||||||||
Total operating leases right-of-use assets | $ | 66,806 | $ | 68,949 | ||||||||||||
Current portion of operating lease liabilities | $ | 7,254 | $ | 7,471 | $ | 7,363 | $ | 7,316 | ||||||||
Long term operating lease liabilities | 49,514 | 46,570 | 61,877 | 63,762 | ||||||||||||
Total lease liabilities | $ | 56,768 | $ | 54,041 | ||||||||||||
Total operating lease liabilities | $ | 69,240 | $ | 71,078 |
For leases that commenced before July 2022, we used our incremental borrowing rate which was LIBOR plus 1.5%. When we entered into the new loan agreement (described in Note 10 below), our incremental borrowing rate for unsecured term loan became the current BSBY rate plus 1.40%. We use this rate as discount rate for leases commenced in July 2022 and thereafter. The weighted-average discount rate is 3.02%4.01%. The weighted-average remaining lease term is 7.97.8 years.
The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on July 31, 2022:April 30, 2023:
Undiscounted Future Operating Lease Payments | ||||
Remainder of fiscal 2024 | $ | 7,463 | ||
2025 | 10,102 | |||
2026 | 10,182 | |||
2027 | 10,267 | |||
2028 | 8,931 | |||
2029 and thereafter | 35,130 | |||
Total lease payments | $ | 82,075 | ||
Less: impact of discounting | (12,835 | ) | ||
Present value of lease payments | $ | 69,240 |
Undiscounted Future Operating Lease Payments | ||||
Remainder of 2023 | $ | 4,590 | ||
2024 | 8,523 | |||
2025 | 8,549 | |||
2026 | 8,516 | |||
2027 | 8,167 | |||
2028 and thereafter | 26,217 | |||
Total lease payments | $ | 64,562 | ||
Less: impact of discounting | (7,794 | ) | ||
Present value of lease payments | $ | 56,768 |
As of July 31, 2022,April 30, 2023, the Company had an additional lease for a showroom in High Point, North Carolina.Atlanta, Georgia. This lease is expected to commencecommenced in the FallMay of calendar 20222023 with an initial lease term of 103 years and estimated future minimum rental commitments of approximately $23.7$1.0 million. Since the lease hashad not yet commenced at quarter end, the undiscounted amounts are not included in the table above. Subsequent to the fiscal 2024 first quarter, we entered into an agreement to reduce our financial statements orfootprint in the Georgia warehouse. This amendment results in an approximate $6 million decrease in rental payments over the remaining lease term. Since the agreement had not yet commenced, the modification is not reflected in the table above.
11.10. Long-Term Debt
On July 26, 2022, we entered into the Fourth Amendment to the Second Amended and Restated Loan Agreement (the “Amendment”) with Bank of America, N.A. (“BofA”) in order to replenish cash used to make the Acquisition.acquisition of substantially all of the assets of Sunset West (which closed at the beginning of the first quarter of fiscal 2023) (the “Sunset Acquisition”). The Second Amended and Restated Loan Agreement dated as of September 29, 2017, had previously been amended by a First Amendment to Second Amended and Restated Loan Agreement dated as of January 31, 2019, a Second Amendment to Second Amended and Restated Loan Agreement dated as of November 4, 2020, and a Third Amendment to Second Amended and Restated Loan Agreement dated as of January 27, 2021 (as so amended, the “Existing Loan Agreement”).
Details of the individual credit facilities provided for in the Amendment are as follows:
| Unsecured Revolving Credit Facility. Under |
| 2022 Secured Term Loan. The Amendment provided us with a $18 million term loan (the “Secured Term Loan”), which was disbursed to us on July 26, 2022. We are required to pay monthly interest only payments at a rate per annum equal to the then current BSBY rate (adjusted periodically) plus 0.90% on the outstanding balance until the principal is paid in full. The interest rate will be adjusted on a monthly basis. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. The Secured Term Loan is secured by certain company-owned life insurance policies under a Security Agreement (Assignment of Life Insurance Policy as Collateral) dated July 26, 2022, by and between the Company and BofA; and |
| 2022 Unsecured Term Loan. The Amendment provided us with a $7 million unsecured term loan (the “Unsecured Term Loan”), which was disbursed to us on July 26, 2022. We are required to pay monthly principal payments of $116,667 and monthly interest payments at a rate per annum equal to the then current BSBY (adjusted periodically) plus 1.40% on the outstanding balance until paid in full. The interest rate will be adjusted monthly. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. |
We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed. As of April 30, 2023, $5.9 million was outstanding under the Unsecured Term Loan, and $18 million was outstanding under the Secured Term Loan.
We incurred $37,500 in debt issuance costs in connection with our term loans. As of July 31, 2022,April 30, 2023, unamortized loan costs of $37,500$31,875 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.
The Amendment also included customary representations and warranties and requires us to comply with customary covenants, including, among other things, the following financial covenants:
| Maintain a ratio of funded debt to EBITDA not exceeding: |
o | 2.50:1.0 through July 30, 2023; |
o | 2.25:1.0 through July 30, 2024; and |
o | 2.00:1.00 thereafter. |
■ | A basic fixed charge coverage ratio of at least 1.25:1.00; and |
■ | Limit capital expenditures to no more than $15.0 million during any fiscal year. |
The other financial covenants under the Existing Loan Agreement continue to apply to us, including a basic fixed charge coverage ratio
The Existing Loan Agreement also limits our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions. The Existing Loan Agreement does not restrict our ability to pay cash dividends on, or repurchase, shares of our common stock, subject to our compliance with the financial covenants discussed above if we are not otherwise in default under the Existing Loan Agreement.
We were in compliance with each of these financial covenants at July 31, 2022April 30, 2023 and expect to remain in compliance with existing covenants through fiscal 2023 and for the foreseeable future.
During the fiscal 2023 second quarter, we drew $30.3 million under our $35 million Existing Revolver to cover working capital needs driven by finished goods inventory purchases from our Asian suppliers but had repaid such amounts by the end of the quarter due in part to receiving the proceeds from the Secured Term Loan and Unsecured Term Loan. As of July 31, 2022,April 30, 2023, we had $27.9$27.2 million available under our $35 million Existing Revolver to fund working capital needs. Standby letters of credit in the aggregate amount of $7.1$7.8 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of July 31, 2022.April 30, 2023. There were no additional borrowings outstanding under the Existing Revolver as of July 31, 2022.April 30, 2023.
12. 11.Earnings Per Share
We refer you to the discussion of Earnings Per Share in Note 2. Summary of Significant Accounting Policies, in the financial statements included in our 20222023 Annual Report, for additional information concerning the calculation of earnings per share.share (EPS).
All stock awards are designed to encourage retention and to provide an incentive for increasing shareholder value. We have issued restricted stock awards to non-employee members of the board of directors since 2006 and to certain non-executive employees since 2014. We have issued restricted stock units (“RSUs”) to certain senior executives since fiscal 2012 under the Company’s Stock Incentive Plan. Each RSU entitles an executive to receive one share of the Company’s common stock if the executive remains continuously employed with the Company through the end of a three-year service period. The RSUs may be paid in shares of our common stock, cash or both at the discretion of the Compensation Committee of our board of directors. We have issued Performance-based Restricted Stock Units (“PSUs”) to certain senior executives since fiscal 2019 under the Company’s Stock Incentive Plan. Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three-year performance period. One target is based on our annual average growth in our EPS over the performance period and the other target is based on EPS growth over the performance period compared to our peers. The payout or settlement of the PSUs will be made in shares of our common stock.
We expect to continue to grant these types of awards annually in the future. The following table sets forth the number of outstanding restricted stock awards and RSUs and PSUs, net of forfeitures and vested shares, as of the fiscal period-end dates indicated:
July 31, | January 30, | April 30, | January 29, | |||||||||||||
2022 | 2022 | 2023 | 2023 | |||||||||||||
Restricted shares | 143 | 60 | 175 | 132 | ||||||||||||
RSUs and PSUs | 139 | 78 | 156 | 101 | ||||||||||||
282 | 138 | 331 | 233 |
All restricted shares, RSUs and PSUs awarded that have not yet vested are considered when computing diluted earnings per share.
During the fiscal 2023 second quarter, we purchased and retired 68,400 shares of our common stock (at an average price of $16.59 per share) under the $20 million share repurchase authorization approved by our board of directors earlier this quarter. These repurchases reduced our total outstanding shares and, consequently, reduced the weighted outstanding shares used in our calculation of earnings per share for the fiscal 2023 second quarter and year-to-date periods shown below. Through September 7, 2022, we have purchased a total of 362,000 shares at a total cost of $5.9 million.
The following table sets forth the computation of basic and diluted earnings per share:
Thirteen Weeks Ended | Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | April 30, | May 1, | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Net income | $ | 5,543 | $ | 7,467 | $ | 8,726 | $ | 16,910 | $ | 1,450 | $ | 3,182 | ||||||||||||
Less: Unvested participating restricted stock dividends | 27 | 12 | 46 | 23 | 30 | 19 | ||||||||||||||||||
Net earnings allocated to unvested participating restricted stock | 63 | 43 | 85 | 92 | 18 | 25 | ||||||||||||||||||
Earnings available for common shareholders | 5,453 | 7,412 | 8,595 | 16,795 | 1,402 | 3,138 | ||||||||||||||||||
Weighted average shares outstanding for basic earnings per share | 11,876 | 11,850 | 11,871 | 11,842 | 10,976 | 11,866 | ||||||||||||||||||
Dilutive effect of unvested restricted stock, RSU and PSU awards | 59 | 143 | 89 | 143 | 101 | 83 | ||||||||||||||||||
Weighted average shares outstanding for diluted earnings per share | 11,935 | 11,993 | 11,960 | 11,985 | 11,077 | 11,949 | ||||||||||||||||||
Basic earnings per share | $ | 0.47 | $ | 0.63 | $ | 0.74 | $ | 1.42 | $ | 0.13 | $ | 0.27 | ||||||||||||
Diluted earnings per share | $ | 0.46 | $ | 0.62 | $ | 0.73 | $ | 1.40 | $ | 0.13 | $ | 0.26 |
13.12. Income Taxes
We recorded income tax expenseexpenses of $1.6 million$402,000 and $991,000 for the fiscal 2024 and fiscal 2023 second quarter compared to $2.2 million for the comparable prior year quarter.first quarters, respectively. The effective tax rates for the fiscal 2024 and 2023 and 2022 secondfirst quarters were 22.6%21.7% and 22.7%, respectively. For the fiscal 2023 first half, we recorded income tax expense of $2.6 million, compared to $5.0 million for the comparable prior year period. The effective tax rates for the fiscal 2023 and 2022 first half periods were 23.0% and 22.7%23.7%, respectively.
No material and non-routine positions have been identified that are uncertain tax positions.
Tax years ending February 3, 20192, 2020 through January 30, 202229, 2023 remain subject to examination by federal and state taxing authorities.
14. 13. Segment Information
As a public entity, we are required to present disaggregated information by segment using the management approach. The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions. The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company’s business units or segments. The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments (“ASC 280”), which are to allow the users of our financial statements to:
■ | better understand our performance; |
■ | better assess our prospects for future net cash flows; and |
■ | make more informed judgments about us as a whole. |
We define our segments as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM.
For financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses:
■ | Hooker Branded, consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses; |
■ | Home Meridian, a business acquired at the beginning of fiscal 2017, is a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins; |
■ | Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, HF Custom (formerly Sam Moore Furniture), Shenandoah Furniture and |
■ | All Other, consisting of H Contract and Lifestyle Brands. Neither of these operating segments were individually reportable; therefore, we combined them in “All Other” in accordance with ASC 280. |
Changes to segment reporting for fiscal 2023
We regularly monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary.
Before the fiscal 2023 first quarter, H Contract’s results included sales of seating products sourced from Sam Moore. Due to a change in the way management internally evaluates operating performance, beginning with fiscal 2023 first quarter Sam Moore’s results now include sales of seating products formerly included in H Contract’s results. Fiscal 2022 results discussed below have been recast to reflect this change. The Hooker Branded and Home Meridian segments are unchanged.
As discussed in Note 3 above, we acquired substantially all the assets of Sunset West on the first day of the 2023 fiscal year. Based on our analysis and the requirements of ASC 280: Segment Reporting, Sunset West’s results are included in the Domestic Upholstery segment on a prospective basis.
The following table presents segment information for the periods, and as of the dates, indicated. Prior-year information has been recast to reflect the change discussed above.
Thirteen Weeks Ended | Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||||||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | April 30, | May 1, | |||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||
% Net | % Net | % Net | % Net | % Net | % Net | |||||||||||||||||||||||||||||||||||||||||||
Net Sales | Sales | Sales | Sales | Sales | Sales | Sales | ||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 52,817 | 34.5 | % | $ | 49,929 | 30.7 | % | $ | 95,047 | 31.7 | % | $ | 101,268 | 31.1 | % | $ | 41,891 | 34.4 | % | $ | 42,230 | 28.7 | % | ||||||||||||||||||||||||
Home Meridian | 59,048 | 38.6 | % | 87,323 | 53.7 | % | 121,133 | 40.3 | % | 171,732 | 52.8 | % | 41,921 | 34.4 | % | 62,085 | 42.1 | % | ||||||||||||||||||||||||||||||
Domestic Upholstery | 38,326 | 25.1 | % | 23,665 | 14.6 | % | 79,546 | 26.5 | % | 49,086 | 15.1 | % | 35,104 | 28.8 | % | 41,220 | 28.0 | % | ||||||||||||||||||||||||||||||
All Other | 2,717 | 1.8 | % | 1,602 | 1.0 | % | 4,497 | 1.5 | % | 3,293 | 1.0 | % | 2,899 | 2.4 | % | 1,779 | 1.2 | % | ||||||||||||||||||||||||||||||
Consolidated | $ | 152,908 | 100 | % | $ | 162,519 | 100.0 | % | $ | 300,223 | 100.0 | % | $ | 325,379 | 100.0 | % | $ | 121,815 | 100 | % | $ | 147,314 | 100.0 | % | ||||||||||||||||||||||||
Gross Profit | ||||||||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 15,598 | 29.5 | % | $ | 17,060 | 34.2 | % | $ | 28,837 | 30.3 | % | $ | 34,273 | 33.8 | % | $ | 13,091 | 31.3 | % | $ | 13,240 | 31.4 | % | ||||||||||||||||||||||||
Home Meridian | 7,321 | 12.4 | % | 9,607 | 11.0 | % | 13,626 | 11.2 | % | 19,742 | 11.5 | % | 6,713 | 16.0 | % | 6,305 | 10.2 | % | ||||||||||||||||||||||||||||||
Domestic Upholstery | 7,128 | 18.6 | % | 4,517 | 19.1 | % | 16,483 | 20.7 | % | 10,154 | 20.7 | % | 7,023 | 20.0 | % | 9,354 | 22.7 | % | ||||||||||||||||||||||||||||||
All Other | 1,008 | 37.1 | % | 533 | 33.3 | % | 1,568 | 34.9 | % | 1,130 | 34.3 | % | 1,079 | 37.2 | % | 560 | 31.5 | % | ||||||||||||||||||||||||||||||
Consolidated | $ | 31,055 | 20.3 | % | $ | 31,717 | 19.5 | % | $ | 60,514 | 20.2 | % | $ | 65,299 | 20.1 | % | $ | 27,906 | 22.9 | % | $ | 29,459 | 20.0 | % | ||||||||||||||||||||||||
Operating Income/(Loss) | ||||||||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 6,072 | 11.5 | % | $ | 8,929 | 17.9 | % | $ | 10,214 | 10.7 | % | $ | 18,371 | 18.1 | % | $ | 2,300 | 5.5 | % | $ | 4,142 | 9.8 | % | ||||||||||||||||||||||||
Home Meridian | (991 | ) | -1.7 | % | 43 | 0.0 | % | (4,085 | ) | -3.4 | % | 908 | 0.5 | % | (2,119 | ) | -5.1 | % | (3,095 | ) | -5.0 | % | ||||||||||||||||||||||||||
Domestic Upholstery | 1,713 | 4.5 | % | 569 | 2.4 | % | 4,465 | 5.6 | % | 2,300 | 4.7 | % | 1,328 | 3.8 | % | 2,752 | 6.7 | % | ||||||||||||||||||||||||||||||
All Other | 497 | 18.3 | % | 120 | 7.5 | % | 621 | 13.8 | % | 324 | 9.8 | % | 466 | 16.1 | % | 124 | 7.0 | % | ||||||||||||||||||||||||||||||
Consolidated | $ | 7,291 | 4.8 | % | $ | 9,661 | 5.9 | % | $ | 11,215 | 3.7 | % | $ | 21,903 | 6.7 | % | $ | 1,975 | 1.6 | % | $ | 3,923 | 2.7 | % | ||||||||||||||||||||||||
Capital Expenditures | Capital Expenditures | |||||||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 239 | $ | 38 | $ | 706 | $ | 121 | $ | 2,787 | $ | 468 | ||||||||||||||||||||||||||||||||||||
Home Meridian | 592 | 1,109 | 632 | 2,455 | 227 | 40 | ||||||||||||||||||||||||||||||||||||||||||
Domestic Upholstery | 286 | 130 | 609 | 889 | 116 | 322 | ||||||||||||||||||||||||||||||||||||||||||
All Other | - | - | - | - | 28 | - | ||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 1,117 | $ | 1,277 | $ | 1,947 | $ | 3,465 | $ | 3,158 | $ | 830 | ||||||||||||||||||||||||||||||||||||
Depreciation & Amortization | ||||||||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 437 | $ | 750 | $ | 1,122 | $ | 1,200 | $ | 491 | $ | 684 | ||||||||||||||||||||||||||||||||||||
Home Meridian | 725 | 567 | 1,386 | 1,068 | 687 | 662 | ||||||||||||||||||||||||||||||||||||||||||
Domestic Upholstery | 957 | 549 | 1,896 | 1,309 | 947 | 938 | ||||||||||||||||||||||||||||||||||||||||||
All Other | 3 | 2 | 5 | 6 | 22 | 3 | ||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 2,122 | $ | 1,868 | $ | 4,409 | $ | 3,583 | $ | 2,147 | $ | 2,287 | ||||||||||||||||||||||||||||||||||||
As of July 31, | As of January 30, | As of April 30, | As of January 29, | |||||||||||||||||||||||||||||||||||||||||||||
2022 | %Total | 2022 | %Total | 2023 | %Total | 2023 | %Total | |||||||||||||||||||||||||||||||||||||||||
Identifiable Assets | Assets | Assets | Assets | Assets | ||||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 151,444 | 41.7 | % | $ | 170,968 | 48.8 | % | $ | 172,499 | 54.2 | % | $ | 174,523 | 52.1 | % | ||||||||||||||||||||||||||||||||
Home Meridian | 144,674 | 39.8 | % | 130,890 | 37.4 | % | 80,709 | 25.4 | % | 92,469 | 27.6 | % | ||||||||||||||||||||||||||||||||||||
Domestic Upholstery | 64,554 | 17.7 | % | 47,232 | 13.5 | % | 63,307 | 19.9 | % | 66,435 | 19.8 | % | ||||||||||||||||||||||||||||||||||||
All Other | 2,821 | 0.8 | % | 1,126 | 0.3 | % | 1,706 | 0.5 | % | 1,558 | 0.5 | % | ||||||||||||||||||||||||||||||||||||
Consolidated | $ | 363,493 | 100 | % | $ | 350,216 | 100 | % | $ | 318,221 | 100 | % | $ | 334,985 | 100 | % | ||||||||||||||||||||||||||||||||
Consolidated Goodwill and Intangibles | 49,138 | 24,343 | 45,847 | 46,731 | ||||||||||||||||||||||||||||||||||||||||||||
Total Consolidated Assets | $ | 412,631 | $ | 374,559 | $ | 364,068 | $ | 381,716 |
Sales by product type are as follows:
Net Sales (in thousands) | Net Sales (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||||||||||||||||||||||||||
July 31, 2022 | %Total | August 1, 2021 | %Total | July 31, 2022 | %Total | August 1, 2021 | %Total | April 30, 2023 | %Total | May 1, 2022 | %Total | |||||||||||||||||||||||||||||||||||||
Casegoods | $ | 92,869 | 61 | % | $ | 96,494 | 59 | % | $ | 167,313 | 56 | % | $ | 193,590 | 59 | % | $ | 67,975 | 56 | % | $ | 74,192 | 50 | % | ||||||||||||||||||||||||
Upholstery | 60,039 | 39 | % | 66,025 | 41 | % | 132,910 | 44 | % | 131,789 | 41 | % | 53,840 | 44 | % | 73,122 | 50 | % | ||||||||||||||||||||||||||||||
$ | 152,908 | 100 | % | $ | 162,519 | 100 | % | $ | 300,223 | 100 | % | $ | 325,379 | 100 | % | $ | 121,815 | 100 | % | $ | 147,314 | 100 | % |
15.14. Subsequent Events
Dividends
On September 7, 2022,June 5, 2023, our board of directors declared a quarterly cash dividend of $0.20$0.22 per share which will be paid on SeptemberJune 30, 20222023 to shareholders of record at September 19,June 16, 2023.
Additional Share Repurchase Authorization
On June 5, 2023 our Board of Directors approved an additional $5 million for the repurchase of our common shares, adding to the $20 million authorization it approved in June 2022. As of the filing date of this report, approximately $5.5 million remains available for the repurchase of our shares under these authorizations.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
All references to the “Company,” “we,” “us” and “our” in this document refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information. ReferencesAll references to the “AcquisitionHooker,” “Hooker Division(s),”“Hooker Legacy Brands” or “traditional Hooker” divisions or companies refer to all current business units and brands except for those in the recently completed acquisition of substantially all of the assets ofHome Meridian segment. The Hooker Branded segment includes Hooker Casegoods and Hooker Upholstery. The Domestic Upholstery segment includes Bradington-Young, HF Custom (formerly Sam Moore), Shenandoah Furniture and Sunset West on January 31, 2022.West. All Other includes H Contract and Lifestyle Brands.
Forward-Looking Statements
Certain statements made in this report, including statements under Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the notes to the consolidated financial statements included in this report, are not based on historical facts, but are forward-looking statements. These 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 negatives thereof, or other variations thereof, 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:
■ | general economic or business conditions, both domestically and internationally, including the current macro-economic uncertainties and challenges to the retail environment for home furnishings along with instability in the financial and credit markets, in part due to inflation and rising interest rates, including their potential impact on (i) our sales and operating costs and access to financing, (ii) customers, and (iii) suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses; |
■ | difficulties in forecasting demand for our imported products and raw materials used in our domestic operations; |
■ | risks associated with our reliance on offshore sourcing and the cost of imported goods, including fluctuation in the prices of purchased finished goods, customs issues, freight costs, including the price and availability of shipping containers, ocean vessels, ocean and domestic trucking, and warehousing costs and the risk that a disruption in our offshore suppliers or the transportation and handling industries, including labor stoppages, strikes, or slowdowns, could adversely affect our ability to timely fill customer orders; |
■ | risks associated with HMI segment restructuring and cost-savings efforts, including our ability to timely dispose of excess inventories, reduce expenses and return the |
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■ | 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 |
■ | the |
■ | the interruption, inadequacy, security breaches or |
■ | risks associated with our Georgia warehouse including the inability to realize anticipated cost savings and subleasing excess space on favorable terms; |
■ | risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices and availability of key raw materials, as well as changes in transportation, warehousing and domestic labor costs, availability of skilled labor, and environmental compliance and remediation costs; |
■ | the risks related to the |
■ | changes in U.S. and foreign government regulations and in the political, social and economic climates of the countries from which we source our products; |
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| risks associated with product defects, including higher than expected costs associated with product quality and safety, |
■ | disruptions and damage (including those due to weather) affecting our Virginia or Georgia warehouses, our Virginia, |
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■ | the risks specifically related to the concentrations of a material part of our sales and accounts receivable in only a few customers, including the loss of several large customers through business consolidations, failures or other reasons, or the loss of significant sales programs with major customers; |
■ | our inability to collect amounts owed to us or significant delays in collecting such amounts; |
■ |
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| achieving and managing growth and change, and the risks associated with new business lines, acquisitions, including the selection of suitable acquisition targets, restructurings, strategic alliances and international operations; |
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■ | capital requirements and costs; |
■ | risks associated with distribution through third-party retailers, such as non-binding dealership arrangements; |
■ | the cost and difficulty of marketing and selling our products in foreign markets; |
■ | changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials; |
■ | the cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers’ income available for discretionary purchases, and the availability and terms of consumer credit; |
■ | price competition in the furniture industry; |
■ | competition from non-traditional outlets, such as internet and catalog retailers; and |
■ | changes in consumer preferences, including increased demand for |
Our forward-looking statements could be wrong considering these and other risks, uncertainties and assumptions. The future events, developments or results described in this report could turn out to be materially different. Any forward-looking statement we make speaks only as of the date of that statement, and we undertake no obligation, except as required by law, to update any forward-looking statements whether as a result of new information, future events or otherwise and you should not expect us to do so.
Also, our business is subject to significant risks and uncertainties any of which can adversely affect our business, results of operations, financial condition or future prospects. For a discussion of risks and uncertainties that we face, see the Forward-Looking Statements detailed above and Item 1A, “Risk Factors” in our 20222023 Annual Report.
Investors should also be aware that while we occasionally communicate with securities analysts and others, it is against our policy to selectively disclose to them any material nonpublic information or other confidential commercial information. Accordingly, investors should not assume that we agree with any projection, forecast or report issued by any analyst regardless of the content of the statement or report, as we have a policy against confirming information issued by others.
Quarterly Reporting
This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 20232024 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “second“first quarter” or “quarterly period”) that began May 2, 2022,January 30, 2023 and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began January 31, 2022, which both ended July 31, 2022.April 30, 2023. This report discusses our results of operations for these periodsthis period compared to the 20222023 fiscal year thirteen-week period that began January 31, 2022 and ended May 3, 2021, and the twenty-six-week period that began February 1, 2021, which both ended August 1, 2021;2022; and our financial condition as of July 31, 2022April 30, 2023 compared to January 30, 2022.29, 2023.
References in this report to:
■ | the 2024 fiscal year and comparable terminology mean the fiscal year that began January 30, 2023 and will end January 28, 2024; and |
■ | the 2023 fiscal year and comparable terminology mean the fiscal year that began January 31, 2022 and |
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Dollar amounts presented in the tables below are in thousands except for per share data.
The following discussion should be read in conjunction with the condensed consolidated financial statements, including the related notes, contained elsewhere in this quarterly report. We also encourage users of this report to familiarize themselves with all of our recent public filings made with the SEC, especially our 20222023 Annual Report. Our 20222023 Annual Report contains critical information regarding known risks and uncertainties that we face, critical accounting policies and information on commitments and contractual obligations that are not reflected in our condensed consolidated financial statements, as well as a more thorough and detailed discussion of our corporate strategy and new business initiatives.
Our 20222023 Annual Report and other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com.
Overview
Hooker Furnishings Corporation, incorporated in Virginia in 1924, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture, and fabric-upholstered furniture for the residential, hospitality and contract markets. We also domestically manufacture premium residential custom leather, custom fabric-upholstered furniture and outdoor furniture. We believe that consumer tastes and channels in which they shop for furniture are evolving at a rapid pace and we continue to change to meet these demands.
Changes to segment reporting for fiscal 2023
We regularly monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary.
Before the fiscal 2023 first quarter, H Contract’s results included sales of seating products sourced from Sam Moore. Due to a change in the way management internally evaluates operating performance, beginning with fiscal 2023 first quarter Sam Moore’s results now include sales of seating products formerly included in H Contract’s results. Fiscal 2022 results discussed below have been recast to reflect this change. The Hooker Branded and Home Meridian segments are unchanged.
As discussed in Note 3 above, we acquired substantially all the assets of Sunset West on the first day of the 2023 fiscal year. Based on our analysis and the requirements of ASC 280: Segment Reporting, Sunset West’s results are included in the Domestic Upholstery segment on a prospective basis.
Orders and Backlog
In the discussion below and herein, we reference changes in sales orders or “orders” and sales order backlog (unshipped orders at a point in time) or “backlog” over and compared to certain periods of time and changes discussed are in sales dollars and not units of inventory, unless stated otherwise. We believe orders are generally good current indicators of sales momentum and business conditions. If the items ordered are in stock and the customer has requested immediate delivery, we generally ship products in about seven days or less from receipt of order; however, orders may be shipped later if they are out of stock or there are production or shipping delays or the customer has requested the order to be shipped at a later date. It is our policy and industry practice to allow order cancellation for casegoods up to the time of shipment or, in the case of container direct orders, up until the time the container is booked with the ocean freight carrier; therefore, customer orders for casegoods are not firm. However, domestically produced upholstered products are predominantly custom-built and consequently, cannot be cancelled once the leather or fabric has been cut. Additionally, ourOur hospitality products are highly customized and are generally not cancellable. For our outdoor furnishings, most orders require a deposit upon order and the balance before production is started, and hence are generally non-cancellable.
For the Hooker Branded and Domestic Upholstery segments and All Other, we generally consider backlogs to be one helpful indicator of sales for the upcoming 30-day period, but because of our relatively quick delivery and our cancellation policies, we do not consider order backlogs to be a reliable indicator of expected long-term sales. We generally consider the Home Meridian segment’s backlog to be one helpful indicator of that segment’s sales for the upcoming 90-day period. Due to (i) Home Meridian’s sales volume, (ii) the average sales order sizes of its mass and mega account channels of distribution, (iii)(ii) the proprietary nature of many of its products and (iv)(iii) the project nature of its hospitality business, for which average order sizes tend to be larger and consequently, itsthe Home Meridian segment’s order backlog tends to be larger.
There arehave been exceptions to the general predictive nature of our orders and backlogs noted in this paragraph, due to currentsuch as during times of extremely high demand and supply chain challenges related toas experienced during the immediate aftermath of the initial COVID-19 pandemiccrisis and subsequent recovery. They are discussed in greater detail below and are essential to understanding our prospects. During fiscal 2022, ordersOrders were not convertingbeing converted to shipments as quickly as would be expected compared to the pre-pandemic environment due to the lack and cost of shipping containers and vessel space as well as limited overseas vendor capacity and our domestic production capacity. As a result, backlogs were significantly elevated toand reached historical high levels. levels in the prior two years.
At July 31, 2022,April 30, 2023, our backlog of unshipped orders was as follows and a further discussion of our current backlog by segment is discussed below under “Review”:follows:
Order Backlog | Order Backlog | |||||||||||||||||||||||
(Dollars in 000s) | (Dollars in 000s) | |||||||||||||||||||||||
Reporting Segment | July 31, 2022 | January 30, 2022 | August 1, 2021 | April 30, 2023 | January 29, 2023 | May 1, 2022 | ||||||||||||||||||
Hooker Branded | $ | 54,168 | $ | 68,925 | $ | 54,041 | $ | 17,357 | $ | 19,276 | $ | 76,562 | ||||||||||||
Home Meridian | 80,087 | 167,968 | 201,060 | 40,413 | 43,052 | 120,844 | ||||||||||||||||||
Domestic Upholstery | 61,849 | 67,068 | 60,570 | 24,402 | 28,404 | 79,018 | ||||||||||||||||||
All Other | 5,333 | 6,148 | 4,701 | 5,188 | 4,654 | 6,153 | ||||||||||||||||||
Consolidated | $ | 201,437 | $ | 310,109 | $ | 320,372 | $ | 87,360 | $ | 95,386 | $ | 282,577 |
At the end of fiscal 2024 first quarter, order backlog decreased as compared to the fiscal 2023 year-end and the prior year first quarter end. The decrease was attributable to more normalized levels of shipping and lower incoming orders driven by a decrease in overall demand.
Executive Summary-Results of Operations
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Our fiscal 2023 second2024 first quarter and first-half performance areis discussed in greater detail below under “Review” and “Results of Operations.”
Review
In the second quarter and first half of fiscal 2023, consolidated net sales and profitability bothThe home furnishings industry continues to experience decreased as compared to the corresponding periods in the prior year. In the first half of the prior year, sales and profitability were favorably impacted by the demand surge that followed the initial Covid crisis and a return to more normal factory production, which benefitted home furnishingssluggish retail environment, as well as other economic uncertainties such as increased inflation and other industries, before new Covid variants resulted in new lockdowns at many of our Asian suppliers in the second half ofrising interest rates. We remain cautious yet positive for fiscal 2022. Effects of these lockdowns continued into the fiscal 2023 first quarter, however factory production improved substantially2024 as during the secondfirst quarter of fiscal 2024 we managed to strengthen our financial position by building up cash by $12 million from the 2023 fiscal year ended in January, reducing inventory levels by $23 million, and helped us exceed our internal expectationsmaintaining profitability in the Hooker Branded and Domestic Upholstery segments. The Home Meridian segment’s operating loss was lower than prior year quarter’s result and better than management expected for the current year considering the current retail environment and the significant amount of closeout sales recorded in the first quarter.
The Hooker Branded segment’s net sales increasedwere essentially flat, decreasing slightly by $2.9 million,0.8% or 5.8%, as$339,000 compared to the prior year quarter when sales were already elevated,period. Discounting increased by 230 bps from abnormally low levels in the prior year due to sales increases at both Hooker Casegoods and Hooker Upholstery. The unexpected COVID-related lockdown at our suppliers in Vietnam last summer and their slow re-openings caused low inventory receipts in our U.S. warehouses and resulted in a sales declinesoftened demand in the second half of fiscal 2022quarter. In addition, returns and allowances increased by 140 bps compared to the fiscal 2023 first quarter. As these suppliers resumed production and shipments after the Lunar New Year, inventory receipts at our U.S. warehouses have increased each month, allowing us to fulfill orders and reduce backlogs.prior year period. At the end of fiscal 2023 secondthe first quarter, inventory levels for this segment increaseddecreased by $33 million as compared to fiscal 2022 year-end and $15$14 million as compared to fiscal 2023 year-end but were still elevated and much higher than pre-pandemic levels in fiscal 2020. We are actively working to reduce inventory levels to align with current demand. This segment reported an operating income of $2.3 million and an operating margin of 5.5%, compared to $4.1 million and 9.8%, respectively, in the prior year period. The decrease was due to higher professional services fees and increased marketing and advertising expenses to support the growth and expansion strategies. Additionally, compensation expenses also increased due to wage inflation and higher benefits expenses. Quarter-end backlog was much lower than the prior year first quarter end including $24 million of in-transit inventory. The majority of Hooker Branded sales are shipped out of U.S. warehouses, so we believe our investment in inventory is essential to keep our best sellers in stock, support our inventory positioning, help reduce impacts of the ongoing supply chain disruptions, flow imports from Asia, and prepare for the fall and holiday selling seasons. Additionally, a large percentage of this inventory is designated for sales orders in our backlog and carries the price increases we implemented last year and earlier this year to mitigatebut remained 50% higher freight and product costs. This segment reported $6.1 million operating income and a 11.5% operating margin for thethan pre-pandemic levels at fiscal 2023 second quarter.2020 first quarter end. Incoming orders decreased by 16.6% as compared to the prior year quarter and approached levels similar to fiscal 2020 first quarter, reflecting more normalized demand after the quarter-end backlog was at a comparable level to the prior year second quarter end but was 21% lower than at fiscal 2022 year-end due to increased shipments during the quarter. Hooker Branded backlog was still about four times higher than pre-pandemic levels in fiscal 2020.pandemic.
The Home Meridian segment’s net sales decreased by $28.3$20.2 million, or 32.4%32.5% in the fiscal 2024 first quarter versus the prior year first quarter. In addition, this segment recorded an operating loss of $2.1 million resulting from sales volume losses. Sales of inventory that was written down in the fiscal 2023 fourth quarter totaled $12.2 million in the fiscal 2024 first quarter. Sales of previously written-down or written-off inventory had an immaterial impact on gross profit in the quarter. While the results were disappointing, the operating loss improved by $1 million as compared to prior year first quarter. The sales declines were attributed to decreases with major furniture chains and mass merchants, due to a slower retail environment for home furnishings and slower order rates and delayed orders from our retail customers as they continue to reduce their inventory levels. Prime Resources International and Samuel Lawrence Furniture accounted for nearly all the net sales decreases and about 70% of the operating loss, while Pulaski Furniture’s net sales decreased by $1.2 million. Meanwhile, at the Accentrics Home business unit (ACH), which focused on e-commerce customers, net sales remained flat as compared to the prior year quarter. Sales with mass merchantsquarter, and major furniture chains decreased due to retailers accelerating orders in the prior year and rationalizing their inventory levels in the current year. In addition, our exitaccounted for 30% of the unprofitable Clubs channel, which accounted for about 40% of the sales decline. E-commerce sales decreased as salesoperating loss in this channel returned to pre-pandemic levels and growth rates. These decreases were partially offset by the continued recovery of hospitality business and the launch of the Pulaski Upholstery division. Despite significant sales declines, Home Meridian gross margin improved in fiscal 2023 second quartersegment due to the fact that most shipments carried price increases and freight surcharges to help mitigate higher freight costs and lower allowances as a resultliquidation of our exit from the Clubs channel. Profitability was negatively impacted by a large quality-related chargeback and transition and start-up costs at the new Georgia warehouse.ACH business. On a more positive note, during the quarter we completed the exit from all three older warehouses and leased additional space at our new Georgia warehouse to support HMI’s expansion into higher-margin channels of distribution. This segment reported an operating loss of $991,000, asSamuel Lawrence Hospitality’s net sales more than doubled compared to breakeven in the prior year quarter; however, it improved from $3.1 million operating lossquarter indicating a strong recovery in the hospitality industry after the COVID pandemic. Additionally, freight costs improved by approximately 300 bps versus the prior year first quarter due to the stabilization of fiscal 2023. Quarter-endocean freight rates. Incoming orders and quarter-end backlog waswere lower than the prior year second quarter end and fiscal 2022 year-end2020 first quarter, due to the absence of orders from Clubs channel and the ACH business, as well as decreased incoming orders with mass merchants, as these customers continue to rationalize their inventories to match current demand levels, andfrom the absence of Clubs channel orders but was at about the same levels the segment experienced in fiscal 2020.retail customers.
The Domestic Upholstery segment’s net sales increaseddecreased by $14.7$6.1 million, or 62.0%, as compared to the prior year quarter due to organic sales growth at Bradington Young, Sam Moore and Shenandoah, as well as the addition of Sunset West results. Despite strong sales, gross margins decreased14.8% in the fiscal 2023 second2024 first quarter, due to significantly increased raw material costs,following a streak of sales growth for the past two years. HF Custom, Sunset West and Shenandoah experienced sales decreases. These decreases were partially offset by overhead absorption onincreased net sales at Bradington-Young. The sales decline at HF Custom resulted from decreased incoming orders. Sales decreases at Sunset West were attributed to slowed shipping in February and March caused by the December 2022 conversion to our new ERP system. Additionally, during the expansion of our outdoor furniture business to the east coast, we experienced transition issues and start-up delays in the Georgia warehouse, which affected shipping activities at Sunset West. These issues were mostly resolved by the end of the first quarter. Profitability in the segment was negatively impacted by higher medical claims across all divisions and under-absorbed indirect costs at HF Custom due to sales volume loss and higher grossreduced working hours. Gross margin atbenefited from the Shenandoah division whose production was impacted by a foam shortage issue inprice increases we implemented last year to help mitigate materials cost inflation. Despite the prior year period. Thissales decline and disruptions, this segment reported an operating income of $1.7$1.3 million and a 4.5%an operating margin of 3.8%. Quarter-end backlog for Bradington-Young remained over three times of the pre-pandemic levels at fiscal 2023 second quarter.2020 first quarter end, while the backlogs for HF Custom and Shenandoah decreased to levels similar to fiscal 2020. Incoming orders decreased due to current lead timesat Bradington-Young and high backlogs. Quarter-end backlog wasShenandoah were at the same level as prior year quarter, but was 7.8% lower than at fiscal 2022 year-end as higher shipments reduced backlog. Domestic Upholstery backlog was almost five times pre-pandemicsimilar levels in the first quarter of fiscal 2020.2020, while HF Custom experienced lower orders compared to this period.
Cash and cash equivalents stood at $11.7$31 million at fiscal 2023 second2024 first quarter-end, down $57.7an increase of $12 million as compared tofrom the balance at the fiscal 2022 year-end due principally to a $56.1 million increase in inventory. At fiscal 2023 second quarter end, inventory stood at $131.1 million, $27.5 million higher than prior year second quarter end and $38.3 million higher than pre-pandemic level at fiscal 2020 year-end. During the fiscal 2023 secondfirst quarter, we received $25used a portion of the $22.4 million cash generated from operating activities to fund $4.3 million share repurchases, $3.2 million capital expenditures including investments in term loan proceeds to replenish cash used to make the Sunset West Acquisition. We also paid $4.8our new showroom, $2.4 million in cash dividends to our shareholders, and spent $3$1.3 million for development of our new cloud-based ERP system. In addition to our cash balance, we had $27.9an aggregate of $27.2 million available under our existing revolver at quarter-end to fund working capital needs. We believe that our liquidity and capital requirements will be further improved through the liquidation sales of excess inventories at Home Meridian, as discussed above. With strategic inventory management, and cautiousreasonable capital expenditures, and prudent expense management, we believe we have thesufficient financial resources to support our business operations for the foreseeable future.
Results of Operations
The following table sets forth the percentage relationship to net sales of certain items included in the condensed consolidated statements of incomeoperations included in this report.
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
July 31, | August 1, | July 31, | August 1, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost of sales | 79.7 | 80.5 | 79.8 | 79.9 | ||||||||||||
Gross profit | 20.3 | 19.5 | 20.2 | 20.1 | ||||||||||||
Selling and administrative expenses | 15.0 | 13.2 | 15.8 | 13.0 | ||||||||||||
Intangible asset amortization | 0.6 | 0.4 | 0.6 | 0.4 | ||||||||||||
Operating income | 4.8 | 5.9 | 3.7 | 6.7 | ||||||||||||
Other (expense)/income, net | (0.1 | ) | - | 0.1 | - | |||||||||||
Income before income taxes | 4.7 | 5.9 | 3.8 | 6.7 | ||||||||||||
Income tax expense | 1.1 | 1.3 | 0.9 | 1.5 | ||||||||||||
Net income | 3.6 | 4.6 | 2.9 | 5.2 |
Fiscal 2023 Second Quarter and First-Half Compared to Fiscal 2022 Second Quarter and First-Half
Net Sales | ||||||||||||||||||||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | |||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 52,817 | 34.5 | % | $ | 49,929 | 30.7 | % | $ | 2,888 | 5.8 | % | $ | 95,047 | 31.7 | % | $ | 101,268 | 31.1 | % | $ | (6,221 | ) | -6.1 | % | |||||||||||||||||||||||
Home Meridian | 59,048 | 38.6 | % | 87,323 | 53.7 | % | (28,275 | ) | -32.4 | % | 121,133 | 40.3 | % | 171,732 | 52.8 | % | (50,599 | ) | -29.5 | % | ||||||||||||||||||||||||||||
Domestic Upholstery | 38,326 | 25.1 | % | 23,665 | 14.6 | % | 14,661 | 62.0 | % | 79,546 | 26.5 | % | 49,086 | 15.1 | % | 30,460 | 62.1 | % | ||||||||||||||||||||||||||||||
All Other | 2,717 | 1.8 | % | 1,602 | 1.0 | % | 1,115 | 69.6 | % | 4,497 | 1.5 | % | 3,293 | 1.0 | % | 1,204 | 36.6 | % | ||||||||||||||||||||||||||||||
Consolidated | $ | 152,908 | 100 | % | $ | 162,519 | 100 | % | $ | (9,611 | ) | -5.9 | % | $ | 300,223 | 100 | % | $ | 325,379 | 100 | % | $ | (25,156 | ) | -7.7 | % |
Unit Volume | FY23 Q2 % Increase vs. FY22 Q2 | FY23 YTD % Increase vs. FY22 YTD | Average Selling Price ("ASP") | FY23 Q2 % Increase vs. FY22 Q2 | FY23 YTD % Increase vs. FY22 YTD | ||||||||||||
Hooker Branded | -7.7 | % | -18.5 | % | Hooker Branded | 14.0 | % | 14.8 | % | ||||||||
Home Meridian | -34.6 | % | -33.1 | % | Home Meridian | -0.9 | % | 1.9 | % | ||||||||
Domestic Upholstery * | 10.8 | % | 7.5 | % | Domestic Upholstery * | 22.1 | % | 23.2 | % | ||||||||
All Other | 56.2 | % | 33.7 | % | All Other | 7.0 | % | 1.8 | % | ||||||||
Consolidated | -27.9 | % | -28.4 | % | Consolidated | 22.5 | % | 20.5 | % |
*Sunset West is excluded from the Domestic Upholstery segment in the Unit Volume and ASP portions of the table above since it was not a part of our fiscal 2022 results. Consequently, we believe including their fiscal 2023 results would skew Domestic Upholstery results and reduce the usefulness of those portions of the table.
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2023 | 2022 | |||||||
Net sales | 100 | % | 100 | % | ||||
Cost of sales | 77.1 | 80.0 | ||||||
Gross profit | 22.9 | 20.0 | ||||||
Selling and administrative expenses |
| 20.6 | 16.7 | |||||
Intangible asset amortization | 0.7 | 0.6 | ||||||
Operating income | 1.6 | 2.7 | ||||||
Other income, net | 0.1 | 0.2 | ||||||
Interest expense | 0.1 | - | ||||||
Income before income taxes | 1.5 | 2.9 | ||||||
Income tax expense | 0.3 | 0.7 | ||||||
Net income | 1.2 | 2.2 |
Fiscal 2024 First Quarter Compared to Fiscal 2023 First Quarter
Net Sales | ||||||||||||||||||||||||
Thirteen Weeks Ended | ||||||||||||||||||||||||
April 30, | May 1, | |||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||
Hooker Branded | $ | 41,891 | 34.4 | % | $ | 42,230 | 28.7 | % | $ | (339 | ) | -0.8 | % | |||||||||||
Home Meridian | 41,921 | 34.4 | % | 62,085 | 42.1 | % | (20,164 | ) | -32.5 | % | ||||||||||||||
Domestic Upholstery | 35,104 | 28.8 | % | 41,220 | 28.0 | % | (6,116 | ) | -14.8 | % | ||||||||||||||
All Other | 2,899 | 2.4 | % | 1,779 | 1.2 | % | 1,120 | 63.0 | % | |||||||||||||||
Consolidated | $ | 121,815 | 100 | % | $ | 147,314 | 100 | % | $ | (25,499 | ) | -17.3 | % |
Unit Volume | FY24 Q1 % Increase vs. FY23 Q1 | Average Selling Price (“ASP”) | FY24 Q1 % Increase vs. FY23 Q1 | |||||||
Hooker Branded | -6.3 | % | Hooker Branded | 8.2 | % | |||||
Home Meridian | -10.5 | % | Home Meridian | -24.4 | % | |||||
Domestic Upholstery | -25.0 | % | Domestic Upholstery | 13.2 | % | |||||
All Other | 55.1 | % | All Other | 4.7 | % | |||||
Consolidated | -11.1 | % | Consolidated | -6.1 | % |
Consolidated net sales decreased in the fiscal 2023 second2024 first quarter due to sales declines in the Home Meridian segment, partially offset by increasedand Domestic Upholstery segments, while net sales in the Domestic Upholsteryat All Other were up $1.1 million and Hooker Branded segments. Consolidated net sales decreased in the fiscal 2023 first half due to sales declines in the Home Meridian and Hooker Branded segments, partially offset by increased net sales in the Domestic Upholstery segment.slightly.
■ | The Hooker Branded segment’s net sales |
■ | The Home Meridian segment’s net sales decreased by 32.5% in the fiscal |
■ | The Domestic Upholstery |
■ | All Other’s net sales increased significantly in the fiscal |
Gross Profit and Margin | Gross Profit and Margin | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | April 30, | May 1, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 15,598 | 29.5 | % | $ | 17,060 | 34.2 | % | $ | (1,462 | ) | -8.6 | % | $ | 28,837 | 30.3 | % | $ | 34,273 | 33.8 | % | $ | (5,436 | ) | -15.9 | % | $ | 13,091 | 31.3 | % | $ | 13,240 | 31.4 | % | $ | (149 | ) | -1.1 | % | |||||||||||||||||||||||||||||||||
Home Meridian | 7,321 | 12.4 | % | 9,607 | 11.0 | % | (2,286 | ) | -23.8 | % | 13,626 | 11.2 | % | 19,742 | 11.5 | % | (6,116 | ) | -31.0 | % | 6,713 | 16.0 | % | 6,305 | 10.2 | % | 408 | 6.5 | % | |||||||||||||||||||||||||||||||||||||||||||
Domestic Upholstery | 7,128 | 18.6 | % | 4,517 | 19.1 | % | 2,611 | 57.8 | % | 16,483 | 20.7 | % | 10,154 | 20.7 | % | 6,329 | 62.3 | % | 7,023 | 20.0 | % | 9,354 | 22.7 | % | (2,331 | ) | -24.9 | % | ||||||||||||||||||||||||||||||||||||||||||||
All Other | 1,008 | 37.1 | % | 533 | 33.3 | % | 475 | 89.1 | % | 1,568 | 34.9 | % | 1,130 | 34.3 | % | 438 | 38.8 | % | 1,079 | 37.2 | % | 560 | 31.5 | % | 519 | 92.7 | % | |||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 31,055 | 20.3 | % | $ | 31,717 | 19.5 | % | $ | (662 | ) | -2.1 | % | $ | 60,514 | 20.2 | % | $ | 65,299 | 20.1 | % | $ | (4,785 | ) | -7.3 | % | $ | 27,906 | 22.9 | % | $ | 29,459 | 20.0 | % | $ | (1,553 | ) | -5.3 | % |
Consolidated gross profit decreased while margin increased in the fiscal 2023 second quarter. For2024 first quarter due to a decrease in the fiscal 2023 first half, consolidatedDomestic Upholstery segment, partially offset by increases in gross profit decreasedat Home Meridian and All Other. Consolidated gross margin stayed aboutincreased due to lower net sales and improved gross margin in the same as compared to prior year period.traditionally lower margin Home Meridian segment.
■ | The Hooker Branded segment’s gross profit and gross margin both |
■ | The Home Meridian segment’s gross profit |
■ | The Domestic Upholstery segment’s gross profit |
■ | All Other’s gross profit and margin both increased in the fiscal |
Selling and Administrative Expenses (S&A) | Selling and Administrative Expenses (S&A) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | April 30, | May 1, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 9,526 | 18.0 | % | $ | 8,132 | 16.3 | % | $ | 1,394 | 17.1 | % | $ | 18,624 | 19.6 | % | $ | 15,902 | 15.7 | % | $ | 2,722 | 17.1 | % | $ | 10,791 | 25.8 | % | $ | 9,098 | 21.5 | % | $ | 1,693 | 18.6 | % | ||||||||||||||||||||||||||||||||||||
Home Meridian | 7,978 | 13.5 | % | 9,230 | 10.6 | % | (1,252 | ) | -13.6 | % | 17,043 | 14.1 | % | 18,167 | 10.6 | % | (1,124 | ) | -6.2 | % | 8,502 | 20.3 | % | 9,066 | 14.6 | % | (564 | ) | -6.2 | % | ||||||||||||||||||||||||||||||||||||||||||
Domestic Upholstery | 4,871 | 12.7 | % | 3,685 | 15.6 | % | 1,186 | 32.2 | % | 10,929 | 13.7 | % | 7,329 | 14.9 | % | 3,600 | 49.1 | % | 5,142 | 14.6 | % | 6,058 | 14.7 | % | (916 | ) | -15.1 | % | ||||||||||||||||||||||||||||||||||||||||||||
All Other | 511 | 18.8 | % | 413 | 25.8 | % | 98 | 23.7 | % | 947 | 21.1 | % | 806 | 24.5 | % | 141 | 17.5 | % | 613 | 21.1 | % | 436 | 24.5 | % | 177 | 40.6 | % | |||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 22,886 | 15.0 | % | $ | 21,460 | 13.2 | % | $ | 1,426 | 6.6 | % | $ | 47,543 | 15.8 | % | $ | 42,204 | 13.0 | % | $ | 5,339 | 12.7 | % | $ | 25,048 | 20.6 | % | $ | 24,658 | 16.7 | % | $ | 390 | 1.6 | % |
Consolidated selling and administrative (“S&A”) expenses increased slightly in absolute terms due to the increase in the Hooker Branded segment, which was offset by decreases in the Home Meridian and Domestic Upholstery segments. Consolidated S&A expenses increased significantly as a percentage of net sales in the fiscal 2023 second quarter and first half.due to overall decreased net sales.
■ | The Hooker Branded segment’s S&A expenses increased both in absolute terms and as a percentage of net sales in the fiscal |
■ | The Home Meridian segment’s S&A expenses decreased in absolute terms in the fiscal |
■ | The Domestic Upholstery segment’s S&A expenses |
■ | All Other S&A expenses increased in |
Intangible Asset Amortization | ||||||||||||||||||||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | |||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||
Intangible asset amortization | $ | 878 | 0.6 | % | $ | 596 | 0.4 | % | $ | 282 | 47.3 | % | $ | 1,756 | 0.6 | % | $ | 1,192 | 0.4 | % | $ | 564 | 47.3 | % |
Intangible Asset Amortization | ||||||||||||||||||||||||
Thirteen Weeks Ended | ||||||||||||||||||||||||
April 30, | May 1, | |||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||
Intangible asset amortization | $ | 883 | 0.7 | % | $ | 878 | 0.6 | % | $ | 5 | 0.6 | % |
Intangible asset amortization expense was higherincreased slightly in fiscal 2023 second2024 first quarter and first half due to Acquisition-relatedthe reassessment and amortization expense.of Sam Moore trade name. See Note 8 to our Condensed Consolidated Financial Statements for additional information.
Operating Profit/(Loss) and Margin | Operating Profit/(Loss) and Margin | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | April 30, | May 1, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 6,072 | 11.5 | % | $ | 8,929 | 17.9 | % | $ | (2,857 | ) | -32.0 | % | $ | 10,214 | 10.7 | % | $ | 18,371 | 18.1 | % | $ | (8,157 | ) | -44.4 | % | $ | 2,300 | 5.5 | % | $ | 4,142 | 9.8 | % | $ | (1,842 | ) | -44.5 | % | |||||||||||||||||||||||||||||||||
Home Meridian | (991 | ) | -1.7 | % | 43 | 0.0 | % | (1,034 | ) | -2404.7 | % | (4,085 | ) | -3.4 | % | 908 | 0.5 | % | (4,993 | ) | -549.9 | % | (2,119 | ) | -5.1 | % | (3,095 | ) | -5.0 | % | 976 | 31.5 | % | |||||||||||||||||||||||||||||||||||||||
Domestic Upholstery | 1,713 | 4.5 | % | 569 | 2.4 | % | 1,144 | 201.1 | % | 4,465 | 5.6 | % | 2,300 | 4.7 | % | 2,165 | 94.1 | % | 1,328 | 3.8 | % | 2,752 | 6.7 | % | (1,424 | ) | -51.7 | % | ||||||||||||||||||||||||||||||||||||||||||||
All Other | 497 | 18.3 | % | 120 | 7.5 | % | 377 | 314.2 | % | 621 | 13.8 | % | 324 | 9.8 | % | 297 | 91.7 | % | 466 | 16.1 | % | 124 | 7.0 | % | 342 | 275.8 | % | |||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 7,291 | 4.8 | % | $ | 9,661 | 5.9 | % | $ | (2,370 | ) | -24.5 | % | $ | 11,215 | 3.7 | % | $ | 21,903 | 6.7 | % | $ | (10,688 | ) | -48.8 | % | $ | 1,975 | 1.6 | % | $ | 3,923 | 2.7 | % | $ | (1,948 | ) | -49.7 | % |
Operating profit and margin decreased as compared to the prior year quarter due to the factors discussed above. Sunset West operating profit of $150,000 and $1.0 million for the fiscal 2023 second quarter and first half, respectively, net of $282,000 and $564,000 in intangible asset amortization expense on Acquisition-related intangibles, is included in the Domestic Upholstery segment’s results.
Interest Expense, net | ||||||||||||||||||||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | |||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||
Consolidated interest expense, net | $ | 83 | 0.1 | % | $ | 23 | 0.0 | % | $ | 60 | 260.9 | % | $ | 111 | 0.0 | % | $ | 54 | 0.0 | % | $ | 57 | 105.6 | % |
Interest Expense, net | ||||||||||||||||||||||||
Thirteen Weeks Ended | ||||||||||||||||||||||||
April 30, | May 1, | |||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||
Consolidated interest expense, net | $ | 179 | 0.1 | % | $ | 28 | 0.0 | % | $ | 151 | 539.3 | % |
Consolidated interest expense was higher in fiscal 2023 second2024 first quarter and first half due to interest on the amounts drawn on the revolving credit facilityterm loans, which we entered into in the second quarter.July 2022.
Income taxes | Income taxes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | April 30, | May 1, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated income tax expense | $ | 1,621 | 1.1 | % | $ | 2,192 | 1.3 | % | $ | (571 | ) | -26.0 | % | $ | 2,612 | 0.9 | % | $ | 4,966 | 1.5 | % | $ | (2,354 | ) | -47.4 | % | $ | 402 | 0.3 | % | $ | 991 | 0.7 | % | $ | (589 | ) | -59.4 | % | |||||||||||||||||||||||||||||||||
Effective Tax Rate | 22.6 | % | 22.7 | % | 23.0 | % | 22.7 | % | 21.7 | % | 23.7 | % |
We recorded income tax expenses of $402,000 and $991,000 for the fiscal 2024 and fiscal 2023 first quarters, respectively. The effective tax rates for the fiscal 2024 and 2021 first quarters were 21.7% and 23.7%, respectively.
Net Income | ||||||||||||||||||||||||
Thirteen Weeks Ended | ||||||||||||||||||||||||
April 30, | May 1, | |||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||
Consolidated net income | $ | 1,450 | 1.2 | % | $ | 3,182 | 2.2 | % | $ | (1,732 | ) | -54.4 | % | |||||||||||
Diluted earnings per share | $ | 0.13 | $ | 0.26 |
Consolidated income tax expense was $1.6 million for the fiscal 2023 second quarter compared to $2.2 million for the prior year quarter. The effective tax rates for the fiscal 2023 and 2022 second quarters were 22.6% and 22.7%, respectively. For the fiscal 2023 first half, consolidated income tax expense was $2.6 million, compared to $5.0 million for the prior year period. The effective tax rates for the fiscal 2023 and 2022 first half periods were 23.0% and 22.7%, respectively.Outlook
Net Income | ||||||||||||||||||||||||||||||||||||||||||||||||
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||||
July 31, | August 1, | July 31, | August 1, | |||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | % Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||
Consolidated Net Income | $ | 5,543 | 3.6 | % | $ | 7,467 | 4.6 | % | $ | (1,924 | ) | -25.8 | % | $ | 8,726 | 2.9 | % | $ | 16,910 | 5.2 | % | $ | (8,184 | ) | -48.4 | % | ||||||||||||||||||||||
Diluted earnings per share | $ | 0.46 | $ | 0.62 | $ | 0.73 | $ | 1.40 |
While retail conditions remain mixed and economic uncertainties continue, we saw increases in consolidated incoming orders in fiscal May. We believe the industry is steadily working through excess inventory and believe incoming order trends are indicative of that progress. Furthermore, we are encouraged by reports from customers about strong Memorial Day sales.
COVID-19Following Hooker Legacy Brands’ successful new showroom grand opening at the Spring High Point Market, we expect to continue initiatives to enhance visibility and addressable market reach this summer such as debuting a new showroom at the Atlanta Market for Hooker Legacy brands and showing at our fourth Las Vegas Market this summer. Sunset West will debut a new showroom at the Atlanta Market, which is the new sponsor of the Casual Market for outdoor furniture, recently relocated from Chicago. At HMI, we expect the previously announced inventory liquidations to be substantially completed by the end of the fiscal 2024 second quarter. While we expect some short-term volatility in sales and earnings at HMI, we continue to expect the segment to achieve profitability by the end of the 2024 fiscal year.
We continue to monitor informationfocus on COVID-19 from the CDCorganic growth opportunities through expanded visibility, strategic product development, operational improvements, and believe we are adhering to their recommendations regarding the health and safety of our personnel. We have adjusted social distancing and masking protocols to recently updated CDC guidelines. Testing, treatment, and vaccinations for COVID-19 are covered 100% under our medical plan and counseling is available through our employee assistance plan to assist employees with financial, mental, and emotional stress related to the virus and other issues.
Outlook
We are closely monitoring economic disrupters like inflation, rising interest rates, and a slowing housing market. At the same time, we see many reasons for optimism as the U.S. enjoys strong levels of employment, rising household incomes, continuing strength in consumer spending and watching as yet another sizeable generation enters into their prime furniture purchasing years.
While incoming orders are down from pandemic highs, we have substantial backlogs to ship and we believe the reduction of incoming orders from retailers may be temporary, and more a result of right-sizing their inventories than a significant decline in normalized consumer demand.
We expect that the fall and holiday season sales activity will align more closely with the pre-pandemic ordering environment that we have become accustomed to. We are preparing for a strong second half of the year, and based on our backlogs and solid inventory position, we are on track to increase sales in all three segments as compared to the prior fiscal year.
cost reductions. We believe organic growthby focusing on these controllables, we will be buoyed by several new strategic initiatives including our recent entry into outdoor furniture, expansion of our presence in the interior design channel in all segments along withstrongest possible position when the post pandemic recovery within the hospitality and contract businesses. HMI’s portfolio program launches at the upcoming October High Point market which we believe will accelerate the expansion of HMI’s customer base.demand environment improves.
Financial Condition, Liquidity and Capital Resources
Cash Flows – Operating, Investing and Financing Activities
Twenty-Six Weeks Ended | ||||||||
July 31, | August 1, | |||||||
2022 | 2021 | |||||||
Net cash used in operating activities | $ | (48,481 | ) | $ | (20,207 | ) | ||
Net cash used in investing activities | (28,263 | ) | (3,938 | ) | ||||
Cash provided by/(used in) financing activities | 19,031 | (4,285 | ) | |||||
Net decrease in cash and cash equivalents | $ | (57,713 | ) | $ | (28,430 | ) |
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2023 | 2022 | |||||||
Net cash provided by/(used in) operating activities | $ | 22,350 | $ | (30,018 | ) | |||
Net cash used in investing activities | (3,265 | ) | (26,860 | ) | ||||
Cash used in financing activities | (7,111 | ) | (2,388 | ) | ||||
Net increase / (decrease) in cash and cash equivalents | $ | 11,974 | $ | (59,266 | ) |
During the sixthree months ended July 31, 2022,April 30, 2023, we used a portion of the $25$22.4 million term-loan proceeds and existing cash and cash equivalents on handgenerated from operations to build up inventory levels, fund the Acquisition, pay $4.8$4.3 million share repurchases, $3.2 million capital expenditures including investments in our new showroom, $2.4 million in cash dividends $1.9to our shareholders, $1.3 million capital expenditures to enhancefor development of our business systemscloud-based ERP system, and facilities, $1.1 million in purchases and retirement of common stock, and $404,000$107,000 in life insurance premiums on Company-owned life insurance policies.
In comparison, during the sixthree months ended AugustMay 1, 2021,2022, we used a portion of the existing cash and cash equivalentequivalents on hand to build up inventory levels, fund the Acquisition, pay $3.5$2.4 million ofin cash dividends, $830,000 capital expenditures to enhance our business systems and facilities, $4.3 million in cash dividends, and $473,000$118,000 in life insurance premiums on Company-owned life insurance policies.
Liquidity, Financial Resources and Capital Expenditures
Our financial resources include:
■ | available cash and cash equivalents, which are highly dependent on incoming order rates and our operating performance; |
■ | expected cash flow from operations; |
■ | available lines of credit; and |
■ | cash surrender value of Company-owned life insurance. |
We believe these resourcesThe most significant components of our working capital are sufficientinventory, accounts receivable and cash and cash equivalents reduced by accounts payable and accrued expenses.
Our most significant ongoing short-term cash requirements relate primarily to meetfunding operations (including expenditures for inventory, lease payments and payroll), quarterly dividend payments and capital expenditures related primarily to our business requirementsERP project, showroom renovations and upgrading systems, buildings and equipment. The timing of our working capital needs can vary greatly depending on demand for and availability of raw materials and imported finished goods but is generally the paymentgreatest in the mid-summer as a result of dividends through fiscal 2023 andinventory build-up for the foreseeable future, including expected capital expenditurestraditional fall selling season. Long term cash requirements relate primarily to funding lease payments and working capital needs.repayment of long-term debt.
Loan Agreements and Revolving Credit Facility
On July 26, 2022, we entered into athe Fourth Amendment to the Second Amended and Restated Loan Agreement (the “Amendment”) with Bank of America, N.A. (“BofA”) in order to replenish cash for all or a portion ofused to make the purchase price and other costs associated with the acquisition of substantially all of the assets of Sunset West.Acquisition. The Second Amended and Restated Loan Agreement dated as of September 29, 2017, had previously been amended by a First Amendment to Second Amended and Restated Loan Agreement dated as of January 31, 2019, a Second Amendment to Second Amended and Restated Loan Agreement dated as of November 4, 2020, and a Third Amendment to Second Amended and Restated Loan Agreement dated as of January 27, 2021 (as so amended, the “Existing Loan Agreement”).
Details of the individual credit facilities provided for in the Amendment are as follows:
| Unsecured Revolving Credit Facility. Under |
| 2022 Secured Term Loan. The Amendment provided us with a $18 million term loan (the “Secured Term Loan”), which was disbursed to us on July 26, 2022. We are required to pay monthly interest only payments at a rate per annum equal to the then current BSBY rate (adjusted periodically) plus 0.90% on the outstanding balance until the principal is paid in full. The interest rate will be adjusted |
| 2022 Unsecured Term Loan. The Amendment provided us with a $7 million unsecured term loan (the “Unsecured Term Loan”), which was disbursed to us on July 26, 2022. We are required to pay monthly principal payments of $116,667 and monthly interest payments at a rate per annum equal to the then current BSBY (adjusted periodically) plus 1.40% on the outstanding balance until paid in full. The interest rate will be adjusted |
We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed. As of April 30, 2023, $5.9 million was outstanding under the Unsecured Term Loan, and $18 million was outstanding under the Secured Term Loan.
We incurred $37,500 in debt issuance costs in connection with our term loans. As of July 31, 2022,April 30, 2023, unamortized loan costs of $37,500$31,875 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.
The Amendment also included customary representations and warranties and requires us to comply with customary covenants, including, among other things, the following financial covenants:
| Maintain a ratio of funded debt to EBITDA not exceeding: |
o | 2.50:1.0 through July 30, 2023; |
o | 2.25:1.0 through July 30, 2024; and |
o | 2.00:1.00 thereafter. |
The other financial covenants under the Existing Loan Agreement continue to apply to us, including a
■ | A basic fixed charge coverage ratio of at least 1.25:1.00; and |
■ | Limit capital expenditures to no more than $15.0 million during any fiscal year. |
The Existing Loan Agreement also limits our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions. The Existing Loan Agreement does not restrict our ability to pay cash dividends on, or repurchase, shares of our common stock, subject to our compliance with the financial covenants discussed above if we are not otherwise in default under the Existing Loan Agreement.
We were in compliance with each of these financial covenants at July 31, 2022April 30, 2023 and expect to remain in compliance with existing covenants through fiscal 2023 and for the foreseeable future.
As of July 31, 2022,April 30, 2023, we had $27.9$27.2 million available under our $35 million Existing Revolver to fund working capital needs. Standby letters of credit in the aggregate amount of $7.1$7.8 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of July 31, 2022.April 30, 2023. There were no additional borrowings outstanding under the Existing Revolver as of July 31, 2022.April 30, 2023.
Share Repurchase Authorization
On June 6, 2022,In fiscal 2023, our Board of Directors authorized the repurchase of up to $20 million of the Company’s common shares. The authorization does not obligate us to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of our Board of Directors. Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to our cash requirements for other purposes, compliance with the covenants under the loan agreement for our revolving credit facility and other factors we deem relevant.
During the secondfirst quarter of fiscal 2023,2024, we had used approximately $1.1$4.3 million of the authorization to purchase 68,400227,330 of our common shares (at an average price of $16.59$18.99 per share), with approximately $18.9$2.3 million remaining available for future purchases under the authorization as of the end of the fiscal 2023 second2024 first quarter. Through September 7, 2022, we have purchased a total of 362,000 shares at a total cost of $5.9 million.See Note 14 to our Condensed Consolidated Financial Statement “Additional Share Repurchase Authorization” herein for an update on our share repurchase program.
Capital Expenditures
We expect to spend approximately $4$2.0-3.0 million in capital expenditures over the remainder of fiscal 20232024 to maintain and enhance our operating systems and facilities. We expect about $2.5 million of this amount will be spent on the High Point showroom renovations for both legacy Hooker divisions and the Home Meridian segment. The showroom for the Hooker legacy will be moved to a location to maximize interior design traffic and to showcase Sunset West products in an outdoor setting. The Home Meridian renovation will support new initiatives including the new ‘Portfolio’ sales program aimed at retailers who prefer to buy from our warehouse rather than container direct. The majority of current Home Meridian sales are container direct, proprietary products which are typically at lower margins than are warehouse sales, since sales from our warehouse require less inventory investment and risk by customers and, therefore, command higher margins. The Portfolio program is designed to broaden and strengthen Home Meridian’s customer base and improve average margins over time.
Enterprise Resource Planning Project
During calendar 2021, our Board of Directors approved an upgrade to our current ERP system and implementation efforts began shortly thereafter. We expectThe ERP system went live at Sunset West in December 2022 and is expected to implement the ERP upgradego live in ourother legacy Hooker divisions in the first quarter of fiscal 2024, with the Home Meridian segment following afterwards. To complete the ERP system implementation as anticipated, we will be required to expend significant financial and human resources. In addition to the capital expenditures discussed in the section immediately above, weWe anticipate spending approximately $3$2.5 million over the remainder of the year,fiscal 2024, with a significant amount of time invested by our associates.
Dividends
On September 7, 2022,June 5, 2023, our board of directors declared a quarterly cash dividend of $0.20$0.22 per share which will be paid on SeptemberJune 30, 20222023 to shareholders of record at September 19, 2022.June 16, 2023.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 20222023 Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various types of market risk in the normal course of our business, including the impact of interest rate changes, raw materials price risk and changes in foreign currency exchange rates, which could impact our results of operations or financial condition. We manage our exposure to this risk through our normal operating activities.
Interest Rate Risk
Borrowings under our revolving credit facility, the Secured Term Loan and the Unsecured Term loan bear interest based on BSBY plus 1.00%, BSBY plus 0.90% and BSBY plus 1.40%, respectively. As such, these debt instruments expose us to market risk for changes in interest rates. There was no outstanding balance under our revolving credit facility as of July 31, 2022April 30, 2023 other than standby letters of credit in the amount of $7.1$7.8 million. However, asAs of July 31, 2022, $25April 30, 2023, $23.9 million was outstanding under our term loans. A 1% increase in the BSBY rate would result in an annual increase in interest expenses on our terms loans of approximately $244,000.$233,000.
Raw Materials Price Risk
We are exposed to market risk from changes in the cost of raw materials used in our domestic upholstery manufacturing processes; principally, wood, fabric, and foam products. Increases in home construction activity could result in increases in wood and fabric costs. Additionally, the cost of petroleum-based foam products we utilize are sensitive to crude oil prices, which vary due to supply, demand, and geo-political factors. Due to the Russian Invasion of Ukraine, there is a shortage of Russian Birch which was the third largest source of US hardwood plywood imports in 2021. A large portion of the plywood used at one division of our Domestic Upholstery segment is Russian Birch. We have been able to find an alternative plywood source at a higher cost.
Currency Risk
For imported products, we generally negotiate firm pricing denominated in U.S. Dollars with our foreign suppliers, typically for periods of at least one year. We accept the exposure to exchange rate movements beyond these negotiated periods. We do not use derivative financial instruments to manage this risk but could choose to do so in the future. Most of our imports are purchased from suppliers located in Vietnam and China. The Chinese currency floats within a limited range in relation to the U.S. Dollar, resulting in exposure to foreign currency exchange rate fluctuations.
Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar could increase the price we pay for imported products beyond the negotiated periods. We generally expect to reflect substantially all of the effect of any price increases from suppliers in the prices we charge for imported products. However, these changes could adversely impact sales volume or profit margins during affected periods.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended July 31, 2022.April 30, 2023. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective as of July 31, 2022April 30, 2023 to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
On January 31, 2022, we closed on the acquisition of substantially all of the assets of Sunset HWM, LLC (“Sunset West"). As permitted by SEC guidance for newly acquired businesses, we intend to excludeexcluded Sunset West’s operations from the scope of our Sarbanes-Oxley Section 404 report on internal controls over financial reporting for the year ending January 29, 2023. We are in the process of implementing our internal control structure at Sunset West and expect that this effort will be completed in fiscal 2023.2024.
There have been no changes in our internal control over financial reporting during the fiscal quarter ended July 31, 2022,April 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds (1).
Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased As Part of Publicly Announced Program | Maximum Dollar Value of Shares That May Yet Be Purchased Under The Program | |||||||||||||
May 2, 2022 - June 5, 2022 | - | $ | - | $ | - | |||||||||||
June 6, 2022 - July 3, 2022 | - | - | - | |||||||||||||
July 4, 2022 - July 31, 2022 | 68,409 | 16.59 | 68,409 | 18,865,161 | ||||||||||||
Total | 68,409 | $ | 16.59 | 68,409 |
Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased As Part of Publicly Announced Program | Maximum Dollar Value of Shares That May Yet Be Purchased Under The Program | |||||||||||||
$ | 6,646,127 | |||||||||||||||
January 30, 2023 - March 5, 2023 | 57,772 | 20.94 | 57,772 | 5,435,040 | ||||||||||||
March 6, 2023 - April 2, 2023 | 58,216 | 19.79 | 58,216 | 4,281,603 | ||||||||||||
April 3, 2023 - April 30, 2023 | 111,342 | 17.55 | 111,342 | 2,325,293 | ||||||||||||
Total | 227,330 | $ | 18.99 | 227,330 |
(1) | On June 6, 2022, our Board of Directors authorized the repurchase of up to $20 million of the Company’s common shares. The authorization does not obligate us to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of our Board of Directors. Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to our cash requirements for other purposes, compliance with the covenants under the loan agreement for our revolving credit facility and other factors we deem relevant. During the first quarter of fiscal 2024, we used approximately $4.3 million of the authorization to purchase 227,330 of our common shares (at an average price of $18.99 per share), with approximately $2.3 million remaining available for future purchases under the authorization as of the end of the fiscal 2024 first quarter. See Note 14 to our Condensed Consolidated Financial Statement “Additional Share Repurchase Authorization” herein for an update on our share repurchase program. |
Item 6.Exhibits
3.1 | |
3.2 | |
4.1 | Articles of Incorporation of the Company, as amended (See Exhibit 3.1) |
4.2 | Amended and Restated Bylaws of the Company, as amended (See Exhibit 3.2) |
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31.1* | Rule 13a-14(a) Certification of the Company’s principal executive officer |
31.2* | Rule 13a-14(a) Certification of the Company’s principal financial officer |
32.1** | |
101* | Interactive Data Files (formatted as Inline XBRL) |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
*Filed herewith
** Furnished herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HOOKER FURNISHINGS CORPORATION | ||||
Date: | By: |
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Paul A. Huckfeldt | ||||
Chief Financial Officer and Senior Vice President – Finance and Accounting | ||||