Hooker Furnishings Reports 2nd Quarter Results

September 5, 2024  by Karen Parrish in Business Strategy, Industry   

Fiscal 2025 Second Quarter overview and cost reduction details:

• Despite persistent, weak market conditions, sales in the second quarter, typically Hooker Furnishings’ slowest quarter, the Company outperformed the first quarter. The low-single-digit consolidated sales decrease in the second quarter versus the prior year period was a solid sequential improvement from last quarter’s double-digit sales reduction.
   
• Despite the losses in the second quarter, both operating and net losses improved compared to the first quarter’s losses of $5.2 million and $4.1 million, respectively. The Company reported a consolidated operating loss of $3.1 million, with a margin of (3.3%), driven by low sales volume and under-absorbed expenses. The consolidated net loss for the quarter was $2.0 million, or ($0.19) per diluted share.
   
• During the prolonged industry downturn, the Company continues to maintain a strong balance sheet and financial position by improving cash and cash equivalents to over $42 million, up $1.2 million from the first quarter ended in April 2024. In addition, the Company continues its 50-year-plus history of paying quarterly dividends.
   
• Hooker Furnishings reported consolidated net sales for the fiscal 2025 second quarter of $95.1 million, a decrease of $2.7 million, or 2.8%, compared to the same quarter last year, driven by ongoing sluggish demand in the home furnishings retail industry.
   
• During the fiscal 2025 six-month period, consolidated net sales decreased by $31.0 million, or 14.1%, compared to the same period last year, due to the persistent low demand for home furnishings driven by high interest rates and subdued housing activity. The absence of $11 million in revenue from the ACH product line, which the Company exited during fiscal 2024, accounted for approximately 35% of the consolidated sales decrease. The Company recorded a consolidated operating loss of $8.2 million and net loss of $6.0 million, or ($0.57) per diluted share.

Management Commentary

“Challenges in the macroeconomic and furniture retail environment have extended well beyond our expectations,” said Jeremy Hoff, CEO. “The combination of high interest rates, a housing shortage and elevated home prices have created a sustained housing downturn for over two years,” he added.

“While retail sales are doing well overall, most furniture retail is not. In response, we continue to focus on the things we can control to ensure we’re in the best possible position to grow when the macroenvironment improves.”

“In our cost reduction measures announced last quarter, we are focused on reducing non-strategic costs while continuing to invest in revenue and profit-generating initiatives,” he said.

The Company expects to realize 10% savings in fixed costs beginning in the second half of this fiscal year, for a total of a $10 million reduction. Approximately $5 million in savings is expected to come by the end of the fiscal year, split between the third and fourth quarters.

Reductions will come from the consolidation of certain operations and fixed cost reductions, including reducing the Company’s Savannah Warehouse footprint by half, restructuring the BOBO business into the Hooker Branded business, and eliminating BOBO’s retail store and separate warehouse, among other measures. In addition, the Company just completed an early retirement offer to qualifying employees and other workforce reductions. The Company expects to record approximately $3 million in severance expenses in its fiscal 2025 third quarter.

“Workforce reduction decisions like this are rare for our company and were incredibly difficult for us, as we’re acutely aware of the impact it will have on affected employees. We are committed to providing as much transition support as possible and are grateful for the contributions each of these individuals has made to Hooker,” Hoff said.

In April, industry veteran Caroline Hipple joined the Company in the new position of Chief Creative Officer to lead a remerchandising of Hooker Legacy Brands, which aims to position the Company as a more integrated, whole-home, consumer-centric resource with an elevated aesthetic and presentation.

“While early in this shift of our merchandising strategy, we have had a very positive reaction from customers in previews of new products targeted for the next High Point Market. Our partners’ positive feedback has given us the confidence to place initial cuttings prior to the October High Point Market launch. Essentially, this gives us a three-month head start on selling these products. This increased speed to market mentality helps strengthen our assortment for next year,” Hoff said.

“We remain confident that the strategies we are pursuing in operations, marketing and merchandising are transformative. Extended downturns present opportunities to recalibrate and reinvent aspects of our business,” he said.

Cash, Debt, and Inventory

Cash and cash equivalents were $42.1 million at the end of the second quarter, down $1.1 million from the fiscal 2024 year-end, but up $1.2 million from the first quarter ended in April 2024. Inventory levels decreased by $4.7 million from year-end.

During the six-month period, the Company used existing cash and $5.3 million cash generated from operating activities to fund $4.9 million in cash dividends to shareholders, $2.4 million for further development of cloud-based ERP system, and $1.4 million capital expenditures. In addition to cash balance, the Company had an aggregate of $28.3 million available under the existing revolver at quarter-end to fund working capital needs, as well as $29.4 million cash surrender value of company-owned life insurance.

Capital Allocation

“With focused inventory management and capital expenditures, as well as diligent expense management, we believe we have sufficient financial resources to support our business operations for the foreseeable future,” said Paul Huckfeldt, senior vice president and CFO.

“We are in the process of refinancing our credit facility and expect to have that completed in the near future. In addition, we plan to pay off $22 million in term debt during the third quarter, demonstrating our confidence in the Company’s future success,” he said.

Outlook

“We’re encouraged that inflation hit its lowest post-pandemic level in July, with the Consumer Price Index cooling to 2.9%, setting up a possible interest rate cut in September,” Hoff said.

“There’s been a recent surge in mortgage refinancing in August, which is another positive indicator,” he said. “We believe that if the Federal Reserve lowers interest rates, housing activity should accelerate.”

“While the U.S. Department of Commerce reported its 17^th consecutive month of lower home furnishings retail sales in July, overall retail sales rose about 3% during the same period, and the University of Michigan Consumer Sentiment Index rose in August for the first time since March. Additionally, existing-home sales grew in July ending a four-month sales decline.”

“Our strong balance sheet, financial condition and seasoned management team will well equip us to navigate the remaining downturn, as we focus on maximizing efficiencies with the planned cost reductions. We’ll continue investing in expansion strategies that will position us for improved profitability and revenue growth when demand returns,” Hoff said.

Conference Call Details

Hooker Furnishings will present its fiscal 2025 second quarter financial results via teleconference and live internet webcast. A live webcast of the call will be available on the Investor Relations page of the Company’s website at https://investors.hookerfurnishings.com/events and archived for replay.