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From Home Furnishing Business

Hooker Furniture Approves Plan to Exit e-Commerce Business Unit

March 19, 2023  by HFBusiness Staff in Business Strategy, Industry   

Concurrent with that exit, the Company expects to record an approximate $34 million non-cash charge related to the exit. The charge includes inventory write downs expected to be recorded in the fourth fiscal quarter of its recently ended 2023 fiscal year on both ACH inventories and other excess inventories along with severance of about $250,000.

“Although unfavorable in the near-term, we believe these actions are in the best interests of the Company and its shareholders. The operational costs related to these low-priced and lower-margin items do not allow a path of consistent profitability,” said Jeremy Hoff, CEO.

“The historically high freight costs as a percentage of cost on these products, and the high relative cost of handling these items reinforces this direction. ACH’s value-proposition and competitive advantage have eroded, and its current and projected financial performance are unacceptable.”

Continuing to sell ACH inventory at or near cost given current inventory levels, industry discounting levels and current demand, would negatively impact our operating results for a protracted period and would obscure the underlying momentum and expected profitability of Home Meridian’s other business units.”

“Changing the PRI model minimizes both cash and inventory risks and eliminates unnecessary margin erosion from costs related to maintaining domestic inventory,” Hoff continued.

“Our overall capital requirements will decrease as a result of these changes which we believe will positively impact our cash flow return on investment,” said Paul Huckfeldt, chief financial officer.

“ACH’s model was one that required significant amounts of inventory investment to support its quick ship requirements. This contrasts with the majority container direct model of Home Meridian’s other business units.”

“We’ve recently implemented Hooker Branded’s inventory management processes at Home Meridian which we believe will reduce the potential for significant inventory excesses in the future. We expect this will drive further improvement in working capital and inventory metrics, including turns and obsolescence reserves,” said Huckfeldt.

“In addition to these actions, the Company expects to reduce the physical footprints at its Savannah, Ga warehouse and High Point, NC administrative office over the course of the current 2024 fiscal year with a concurrent reduction in lease, warehouse, and related expenses,” Huckfeldt continued.

“Despite these actions, given current inventory levels, rates of sale and the time needed to reduce these footprints and related expenses, we expect Home Meridian will record a loss in fiscal 2024, but at a much lower level than experienced in fiscal 2022 and expected to be recorded in fiscal 2023.”

“However, we expect Home Meridian to begin to show profitability in the second half of fiscal 2024 and to be on a solid financial footing going into fiscal 2025,” he continued.

“While our year-end financial close is still in process, we’re currently estimating ACH’s operating loss will account for over 60% of HMI’s total operating loss while accounting for only 13% of its overall revenue for the 2023 fiscal year. These actions coincide with overhead reduction efforts that began with HMI’s exit from the Clubs and RTA channels in calendar 2021.”

“Once completed by the end of the 2024 fiscal year, we expect to have reduced HMI’s overhead by about 28% in what will be a 2-year period. We have completed the difficult but necessary staff reductions, and during fiscal 2024 we will focus on exiting several third-party warehouse programs and a number of smaller initiatives as well as the warehouse and office space reductions noted earlier.”

“We expect the actions we’ve undertaken over these last two years will reduce HMI’s breakeven by an estimated $100 million from a revenue standpoint,” Huckfeldt concluded.

“We continue to face the headwinds of retailers delaying shipments due to temporarily high inventory levels, and regulatory uncertainly with respect to anti-tipping standards. However, there is significant momentum at Home Meridian with meaningful new placements with major customers.”

“We expect the product commitments made by customers will positively affect fiscal 2024. Our focus continues to be on developing meaningful products for our customers and driving efficiencies within our organization that we believe will provide margin improvement. We believe these actions will put Home Meridian on the path for solid and sustainable profitability,” Hoff concluded.

The Company currently expects to report its full fiscal 2023 results on or about April 13, 2023.