Hooker Reports Operating Results For Quarter One 2025

June 7, 2024  by HFBusiness Staff in Business Strategy, Industry   

Fiscal 2025 first quarter overview and expected cost reductions:

• Consolidated net sales for the quarter were $93.6 million, a decrease of $28.2 million, or 23.2%, compared to the prior year’s first quarter. All three reporting segments experienced sales decreases driven mostly by continuing weak demand for home furnishings which is adversely affecting much of the industry. Additionally, about 25% of the quarterly decrease is due to absence of sales from divisions exited in the prior year in the Company’s Home Meridian segment. Year-over-year industry-wide U.S. furniture store sales fell compared to the prior year same months for the 14th consecutive month, according to the U.S. Census Bureau.
• Gross profit decreased primarily due to lower sales volume across all segments. Unfavorable customer and product mix in the Home Meridian segment drove reduced gross profit, along with under-absorbed costs in the Domestic Upholstery segment as a result of lower production and sales. Consequently, the Company recorded a consolidated operating loss of $5.2 million, with a negative margin of (5.5%), compared to $2.0 million in operating income and 1.6% margin reported in the previous year's quarter. The consolidated net loss was $4.1 million or ($0.39) per diluted share, compared to net income of $1.5 million or $0.13 per diluted share in the prior year quarter.
• As the extended industry downturn continues, the Company is focused on maintaining a healthy financial position and balance sheet. Cash levels remain strong at approximately $41 million, and inventory levels are well-aligned to current demand, down $5.2 million to $56.6 million compared to $61.8 million at year end.
• During this sustained downturn in retail and consumer demand, Hooker Furnishings continues to focus on both the execution of its organic growth initiatives and the continued pursuit of its long-range strategic initiatives that it believes will ideally position the Company for growth when business rebounds. Now HFC is beginning a remerchandising of its Hooker Legacy Brands to position the Company as a more integrated, whole-home, consumer-centric resource with an elevated aesthetic and presentation. This strategy is being led by the Company’s Chief Creative Officer, who joined the Company at the April High Point Market in the newly created position.
• In addition to the pursuit of its long-term strategic initiatives and while the Company expects to be profitable in the current fiscal year and beyond, Hooker Furnishings expects to finalize and implement cost reduction plans in the fiscal 2025 second quarter. It expects to realize a 10% reduction in fixed costs beginning in the second half of fiscal 2025. The cost savings are expected to come from a combination of the consolidation of certain operations and other fixed cost reduction.

Management Commentary

“The ongoing weak demand that’s adversely impacting the furniture industry made our first quarter challenging,” said Jeremy Hoff, chief executive officer. “However, we remain confident that the strategies we are pursuing in operations, marketing and merchandising are transformative. Times like these present an opportunity to recalibrate and even reinvent aspects of our business,” he said.

“While we are disappointed to report a rare operating loss this quarter, the loss was almost entirely driven by the sales reductions in each segment, and we strongly believe we’ll return to profitability once demand and revenues rebound,” Hoff said. “We do, however, expect some short-term volatility in earnings until the industry-wide downturn ends.”

Outlook

“Much remains unsettled on the macroeconomic front. Economic indicators remain mixed with unemployment continuing under 4% and inflation easing slightly in April, leading to record stock market performance in mid-May. However, consumer sentiment index fell nearly 10% in May after

holding steady for months, indicating a deterioration in optimism across age, income and education levels,” Hoff said.

“Additionally, in both March and April, existing home sales decreased year-over-year. Because the Federal Reserve has yet to cut interest rates this year, we believe home sales may be ‘stuck.’ As long as interest rates remain high, we believe the housing industry – and therefore home furnishings demand - will remain subdued.”

“This environment has necessitated the adjustment of our cost footprint to current and expected medium-term demand through a realignment of operations which we expect will lead to a 10% reduction in overall fixed costs, the largest cut in our history, but one necessitated by current industry conditions. Planned actions include consolidating BOBO into Hooker Branded, further reducing our Georgia warehouse footprint, and consolidating certain other operations and additional fixed cost reductions. We’re still finalizing those plans and expect to have more information in the current fiscal quarter. We’re intensely focused on creating an appropriate expense structure, while not jeopardizing the pace and impact of our strategic initiatives, which we believe will have a significant positive impact on Hooker once demand normalizes. We expect to be profitable in the current fiscal year and beyond.”

“Despite the current environment, we believe our investments in new showrooms and expanding our addressable customer base and our focus on our strategic initiatives, will help us gain market share. Already we’ve seen a nearly 400% increase in traffic and visibility through our expanded showroom footprints. We see tremendous upside potential to take our flagship Hooker Legacy Brands product lines from good to great. The addition of Caroline Hipple to the new position of Chief Creative Officer was extremely well-received by our retailers, designers and sales representatives at the recent High Point Market. She has significant credibility in the industry and her ability to pull people together for collaboration is powerful. As part of the executive leadership team, she will direct a collaborative merchandising approach across our brands that integrates case goods, import and domestic upholstery and outdoor furnishings, as well as lighting, accessories and accents. As we bring our divisions into full alignment and move forward in the same creative direction, inspired by consumer trends in style, materials, color and aesthetics, we can become whole-home resource offering a more forward-facing product line and presentation,” he said.

“We continue to believe the investments and process improvements we made in the past year, such as the comprehensive repositioning of Home Meridian with the ultimate goal of sustainable profitability when demand returns to normal levels, along with the continued refinement of our strategy, as well as the transformative approach to merchandising we plan to launch across Hooker Legacy Brands will be a springboard to higher sales and profitability. Since many fundamentals of the economy are solid and our company is well-positioned, we believe an upturn in consumer confidence, demand and industry-wide business will be significant when it occurs,” he continued.

“Compared to fiscal year-end in late January, our consolidated backlog is up approximately 19% through the first quarter, and consolidated orders increased by 11%, with orders up across every segment as compared to the previous quarter,” Hoff said. “We are encouraged by these increases,” he concluded.

Conference Call Details

A live webcast of the conference call will be available on the Investor Relations page of the Company’s website at https://investors.hookerfurnishings.com/events and archived for replay.