Hooker Sales, Earnings up in 2Q

July 6, 2006  by in UnCategorized   

By Home Furnishings Business in Leather Upholstery on July 2006 Full-line supplier Hooker Furniture Corp. reported second-quarter 2006 sales of $90.7 million and net income of $5.8 million, increases of 2.3 percent and 20 percent, respectively over prior-year performance.

“We managed a strong finish during the last two weeks of the quarter that propelled our top line increase,” said Paul Toms Jr., chairman and chief executive officer. “The late-quarter shipments surge was driven primarily by product availability. We were able to ship roughly $3 million of container-direct imported product sooner than expected, resulting in a record shipping month in May for container direct items.”

Toms credited increased volume and product mix for the improvement in profits.

For the six months ended May 31, 2006, sales were up 4 percent to $176 million, while net income of $9.4 million was 20.3 percent ahead of the first half of 2005.

Rising sales for Hooker’s imported wood and metal furniture drove revenue increases for both the second quarter and first half. Second-quarter sales of those imports increased 24.2 percent to $61.5 million, compared to the same period in 2005; and were up 24.8% for the first six months of 2006.

A decline in sales of domestic wood product offset increased import sales for both the quarter and first half. For the second quarter, sales of domestic wood declined 43.4 percent to $12.1 million; and was down 36.2 percent for the first six months of 2006.

“The rate of sales decline in domestically produced wood furniture has accelerated and necessitated the announced closing of our Roanoke Va. plant,” Toms said. “Aggressive pricing and discounting, reduced production schedules and the under-absorption of overhead have reduced profitability for domestically manufactured products over the last several years. Going forward, we expect overall profitability to improve as sales of domestically produced wood furniture become a smaller piece of the total business. We are committed to maintaining domestic wood furniture production through our Martinsville facility and anticipate improving operating performance there by late this year.”

During the late summer and fall periods, Toms added, “the company plans to transfer products from the Roanoke plant to Martinsville and begin production of a higher-end, solid wood bedroom that was well received at the Spring International Home Furnishings Market in High Point.” he added.

Overall second-quarter 2006 net sales for Hooker’s wood and metal furniture rose 3.8 percent compared to the prior-year period to $73.6 million; and are up 5.6 percent year to date to $143.1 million.

Net sales of Bradington-Young’s upholstered leather furniture experienced a decline for both the quarterly and six-month periods. For the second quarter, Bradington-Young sales declined 4 percent to $17.1 million compared to 2005; and were down 2.4 percent in the first half of this year to $32.9 million.

Bradington-Young’s sales decreases resulted from lower orders for domestically produced upholstered furniture, partially offset by double-digit growth in imported upholstered furniture.

“Soft business at retail is impacting Bradington-Young’s business,” Toms said. “On the positive side, Bradington-Young had a strong April market. Prior to the Spring 2006 market we moved Bradington-Young’s showroom into a space near our wood furniture showroom, which offered greater visibility to dealers for our upholstered furniture products.”

The improvements in operating income in the 2006 periods were partially offset by increases in selling and administrative expenses primarily resulting from higher warehousing and distribution costs. Contributing to these costs were “record receipts of imported product, which exceeded our receiving capacity, resulting in higher costs,” Toms said. Noting that the Company currently has record amounts of finished goods inventory and warehouse space utilization, he added, “Improvements in forecasting and supply chain management currently being implemented should enable us to operate with less inventory and warehouse space without compromising timely product shipments to our customers. We expect to see inventories stabilize over the next few months and then begin to decline.”

On June 7, Hooker Furniture announced that it plans to close its Roanoke production facility by the end of August 2006. The move results from declining demand for the Company’s domestically produced wood furniture and increased demand for and sales of its imported wood and metal furniture, and parallels the shift of furniture production offshore throughout the industry. As reported last month, the Company expects to record restructuring and related asset impairment charges of $4.5 to $5.0 million pretax ($2.8 to $3.1 million after tax, or $0.23 to $0.26 per share) to write-down certain assets, and for severance benefits and other related restructuring and disassembly costs. Hooker expects to record approximately 85 percent to 95 percent of pre-tax charges and expenses of $4.5 million to $5 million related to the closure of its Roanoke plant in third-quarter 2006. That closure should reduce fixed operating expenses by $2 million to $2.5 million a year.

In May 2006, Hooker completed the sale of substantially all of its Pleasant Garden, N.C., real property and remaining equipment for an aggregate consideration, including proceeds from an equipment auction held in December 2005, of $1.4 million ($1 million in cash and a note for $400,000), net of selling expenses.

Looking forward to the second half of the year, “we expect business conditions to remain very challenging for the near term,” Toms said. “We believe a number of factors, including rising interest rates, a slowdown in housing activity, higher energy costs and a weak stock market are causing consumers to stay on the sidelines. We don’t expect conditions to improve until late in the third quarter at best, at which time we will be in a strong inventory position to quickly take advantage of the upturn.”