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 October 29, 2017 April 30, 2023
Commission file number 000-25349
HOOKER FURNITUREFURNISHINGS 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’sRegistrant’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, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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,”filer”, “smaller reporting company,”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 issuer’s classesAct:
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 June 2, 2023, there were 10,916,369 shares of the registrant’s common stock as of December 1, 2017:outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | ||
Item 1. | 3 | |
Item 2. | 17 | |
Item 3. | 28 | |
Item 4. | 28 | |
PART II. OTHER INFORMATION | ||
Item |
| 29 |
Item 6. | 29 | |
30 | ||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (In thousands) | ||||||||
| As of | October 29, | January 29, | ||||||
| 2017 | 2017 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 32,357 | $ | 39,792 | ||||
| Trade accounts receivable, net | 79,850 | 92,578 | ||||||
| Inventories | 83,550 | 75,303 | ||||||
| Income Tax Recoverable | 954 | - | ||||||
| Prepaid expenses and other current assets | 5,220 | 4,244 | ||||||
| Total current assets | 201,931 | 211,917 | ||||||
| Property, plant and equipment, net | 30,846 | 25,803 | ||||||
| Cash surrender value of life insurance policies | 23,322 | 22,366 | ||||||
| Deferred taxes | 5,512 | 7,264 | ||||||
| Intangible assets, net | 37,825 | 25,923 | ||||||
| Goodwill | 40,832 | 23,187 | ||||||
| Other assets | 2,249 | 2,236 | ||||||
| Total non-current assets | 140,586 | 106,779 | ||||||
| Total assets | $ | 342,517 | $ | 318,696 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Current portion of term loan | $ | 7,526 | $ | 5,817 | ||||
| Trade accounts payable | 33,748 | 36,552 | ||||||
| Accrued salaries, wages and benefits | 8,373 | 8,394 | ||||||
| Income tax accrual | - | 4,323 | ||||||
| Customer deposits | 4,290 | 5,605 | ||||||
| Other accrued expenses | 3,338 | 3,369 | ||||||
| Total current liabilities | 57,275 | 64,060 | ||||||
| Long term debt | 47,660 | 41,772 | ||||||
| Deferred compensation | 11,043 | 10,849 | ||||||
| Pension plan | 3,017 | 3,499 | ||||||
| Other long-term liabilities | 852 | 589 | ||||||
| Total long-term liabilities | 62,572 | 56,709 | ||||||
| Total liabilities | 119,847 | 120,769 | ||||||
| Shareholders’ equity | ||||||||
Common stock, no par value, 20,000 shares authorized, 11,762 and 11,563 shares issued and outstanding on each date | 48,910 | 39,753 | ||||||
| Retained earnings | 173,245 | 157,688 | ||||||
| Accumulated other comprehensive income | 515 | 486 | ||||||
| Total shareholders’ equity | 222,670 | 197,927 | ||||||
| Total liabilities and shareholders’ equity | $ | 342,517 | $ | 318,696 | ||||
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(In thousands) |
As of | April 30, | January 29, | ||||||
2023 | 2023 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 30,976 | $ | 19,002 | ||||
Trade accounts receivable, net | 54,528 | 62,129 | ||||||
Inventories | 73,188 | 96,675 | ||||||
Income tax recoverable | 2,985 | 3,079 | ||||||
Prepaid expenses and other current assets | 7,551 | 6,418 | ||||||
Total current assets | 169,228 | 187,303 | ||||||
Property, plant and equipment, net | 29,070 | 27,010 | ||||||
Cash surrender value of life insurance policies | 27,899 | 27,576 | ||||||
Deferred taxes | 14,208 | 14,484 | ||||||
Operating leases right-of-use assets | 66,806 | 68,949 | ||||||
Intangible assets, net | 30,895 | 31,779 | ||||||
Goodwill | 14,952 | 14,952 | ||||||
Other assets | 11,010 | 9,663 | ||||||
Total non-current assets | 194,840 | 194,413 | ||||||
Total assets | $ | 364,068 | $ | 381,716 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities | ||||||||
Current portion of long-term debt | $ | 1,393 | $ | 1,393 | ||||
Trade accounts payable | 15,991 | 16,090 | ||||||
Accrued salaries, wages and benefits | 5,743 | 9,290 | ||||||
Customer deposits | 6,582 | 8,511 | ||||||
Current portion of lease liabilities | 7,363 | 7,316 | ||||||
Other accrued expenses | 2,685 | 7,438 | ||||||
Total current liabilities | 39,757 | 50,038 | ||||||
Long term debt | 22,526 | 22,874 | ||||||
Deferred compensation | 8,022 | 8,178 | ||||||
Operating lease liabilities | 61,877 | 63,762 | ||||||
Other long-term liabilities | 855 | 843 | ||||||
Total long-term liabilities | 93,280 | 95,657 | ||||||
Total liabilities | 133,037 | 145,695 | ||||||
Shareholders’ equity | ||||||||
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 | 180,152 | 184,386 | ||||||
Accumulated other comprehensive income | 812 | 865 | ||||||
Total shareholders’ equity | 231,031 | 236,021 | ||||||
Total liabilities and shareholders’ equity | $ | 364,068 | $ | 381,716 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
HOOKER FURNITUREFURNISHINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(In thousands, except per share data)
(Unaudited)
For the | ||||||||||||||||||||||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||
| October 29, | October 30, | October 29, | October 30, | April 30, | May 1, | |||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2023 | 2022 | |||||||||||||||||||
| Net sales | $ | 157,934 | $ | 145,298 | $ | 445,114 | $ | 403,292 | $ | 121,815 | $ | 147,314 | ||||||||||||
| Cost of sales | 123,656 | 114,372 | 349,576 | 317,289 | 93,909 | 117,855 | ||||||||||||||||||
| Gross profit | 34,278 | 30,926 | 95,538 | 86,003 | 27,906 | 29,459 | ||||||||||||||||||
| Selling and administrative expenses | 22,449 | 20,653 | 64,139 | 61,038 | 25,048 | 24,658 | ||||||||||||||||||
| Intangible asset amortization | 624 | 334 | 1,291 | 2,801 | 883 | 878 | ||||||||||||||||||
| Operating income | 11,205 | 9,939 | 30,108 | 22,164 | 1,975 | 3,923 | ||||||||||||||||||
| Other income, net | 330 | 218 | 1,052 | 636 | 56 | 278 | ||||||||||||||||||
| Interest expense, net | 327 | 245 | 860 | 755 | 179 | 28 | ||||||||||||||||||
| Income before income taxes | 11,208 | 9,912 | 30,300 | 22,045 | 1,852 | 4,173 | ||||||||||||||||||
| Income tax expense | 4,006 | 3,453 | 10,574 | 7,737 | 402 | 991 | ||||||||||||||||||
| Net income | $ | 7,202 | $ | 6,459 | $ | 19,726 | $ | 14,308 | $ | 1,450 | $ | 3,182 | ||||||||||||
| Earnings per share | ||||||||||||||||||||||||
| Basic | $ | 0.62 | $ | 0.56 | $ | 1.70 | $ | 1.24 | $ | 0.13 | $ | 0.27 | ||||||||||||
| Diluted | $ | 0.61 | $ | 0.56 | $ | 1.69 | $ | 1.23 | $ | 0.13 | $ | 0.26 | ||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||
| Basic | 11,679 | 11,537 | 11,596 | 11,528 | 10,976 | 11,866 | ||||||||||||||||||
| Diluted | 11,700 | 11,559 | 11,626 | 11,556 | 11,077 | 11,949 | ||||||||||||||||||
| Cash dividends declared per share | $ | 0.12 | $ | 0.10 | $ | 0.36 | $ | 0.30 | $ | 0.22 | $ | 0.20 | ||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||
| (In thousands) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
| October 29, | October 30, | October 29, | October 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net Income | $ | 7,202 | $ | 6,459 | $ | 19,726 | $ | 14,308 | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Amortization of actuarial loss (gain) | 15 | (18 | ) | 46 | (53 | ) | ||||||||||
| Income tax effect on amortization | (5 | ) | 7 | (17 | ) | 19 | ||||||||||
| Adjustments to net periodic benefit cost | 10 | (11 | ) | 29 | (34 | ) | ||||||||||
| Total comprehensive Income | $ | 7,212 | $ | 6,448 | $ | 19,755 | $ | 14,274 | ||||||||
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
(In thousands) |
(Unaudited) |
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 FURNITUREFURNISHINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the | ||||||||||||||||
| Thirty-Nine Weeks Ended | Thirteen Weeks Ended | |||||||||||||||
| October 29, | October 30, | April 30, | May 1, | |||||||||||||
| 2017 | 2016 | 2023 | 2022 | |||||||||||||
| Operating Activities: | ||||||||||||||||
| Net income | $ | 19,726 | $ | 14,308 | $ | 1,450 | $ | 3,182 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | ||||||||||||||||
| Depreciation and amortization | 4,399 | 6,340 | 2,147 | 2,287 | ||||||||||||
| Gain on disposal of assets | (37 | ) | (60 | ) | ||||||||||||
| Deferred income tax expense (benefit) | 1,735 | (1,767 | ) | |||||||||||||
Deferred income tax expense | 293 | 1,838 | ||||||||||||||
| Noncash restricted stock and performance awards | 1,175 | 927 | 371 | 354 | ||||||||||||
| Provision for doubtful accounts | 125 | (168 | ) | |||||||||||||
Provision for doubtful accounts and sales allowances | 37 | (349 | ) | |||||||||||||
| Gain on life insurance policies | (453 | ) | (665 | ) | (634 | ) | (568 | ) | ||||||||
| Changes in assets and liabilities: | ||||||||||||||||
| Trade accounts receivable | 16,179 | (105 | ) | 7,564 | (7,386 | ) | ||||||||||
Inventories | 23,487 | (30,082 | ) | |||||||||||||
| Income tax recoverable | (954 | ) | - | 93 | (762 | ) | ||||||||||
| Inventories | (5,867 | ) | 6,597 | |||||||||||||
| Prepaid expenses and other current assets | (836 | ) | (306 | ) | ||||||||||||
Prepaid expenses and other assets | (2,080 | ) | (4,145 | ) | ||||||||||||
| Trade accounts payable | (3,529 | ) | (319 | ) | (240 | ) | 10,493 | |||||||||
| Accrued salaries, wages, and benefits | (539 | ) | (332 | ) | (3,547 | ) | (1,827 | ) | ||||||||
| Accrued income taxes | (4,323 | ) | 1,142 | |||||||||||||
| Customer deposits | (1,314 | ) | 4,485 | (1,928 | ) | (906 | ) | |||||||||
Operating lease assets and liabilities | 305 | (168 | ) | |||||||||||||
| Other accrued expenses | (254 | ) | 2,409 | (4,743 | ) | (1,830 | ) | |||||||||
| Deferred compensation | (435 | ) | (1,265 | ) | (225 | ) | (149 | ) | ||||||||
| Other long-term liabilities | 267 | 44 | ||||||||||||||
| Net cash provided by operating activities | $ | 25,065 | $ | 31,265 | ||||||||||||
Net cash provided by/(used in) operating activities | $ | 22,350 | $ | (30,018 | ) | |||||||||||
| Investing Activities: | ||||||||||||||||
| Acquisitions | $ | (32,650 | ) | $ | (86,062 | ) | - | (25,912 | ) | |||||||
| Purchases of property and equipment | (2,708 | ) | (1,905 | ) | (3,158 | ) | (830 | ) | ||||||||
| Proceeds received on notes from sale of assets | 98 | 116 | ||||||||||||||
| Proceeds received on life insurance policies | - | 908 | ||||||||||||||
| Premiums paid on life insurance policies | (639 | ) | (682 | ) | (107 | ) | (118 | ) | ||||||||
| Net cash used in investing activities | (35,899 | ) | (87,625 | ) | (3,265 | ) | (26,860 | ) | ||||||||
| Financing Activities: | ||||||||||||||||
| Proceeds from long-term debt | $ | 12,000 | $ | 60,000 | ||||||||||||
| Payments for long-term debt | (4,393 | ) | (10,825 | ) | ||||||||||||
| Debt issuance cost | (39 | ) | (165 | ) | ||||||||||||
Purchase and retirement of common stock | (4,317 | ) | - | |||||||||||||
Payments for long-term loans | (350 | ) | - | |||||||||||||
| Cash dividends paid | (4,169 | ) | (3,466 | ) | (2,444 | ) | (2,388 | ) | ||||||||
| Net cash provided by financing activities | 3,399 | 45,544 | ||||||||||||||
Cash used in financing activities | (7,111 | ) | (2,388 | ) | ||||||||||||
| Net decrease in cash and cash equivalents | (7,435 | ) | (10,816 | ) | ||||||||||||
Net increase/(decrease) in cash and cash equivalents | 11,974 | (59,266 | ) | |||||||||||||
| Cash and cash equivalents - beginning of year | 39,792 | 53,922 | 19,002 | 69,366 | ||||||||||||
| Cash and cash equivalents - end of quarter | $ | 32,357 | $ | 43,106 | $ | 30,976 | $ | 10,100 | ||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||||
| Cash paid for income taxes | $ | 14,103 | $ | 8,360 | ||||||||||||
Cash paid/(refund) for income taxes | $ | 16 | $ | (85 | ) | |||||||||||
| Cash paid for interest, net | 754 | 547 | 202 | - | ||||||||||||
| Non-cash transactions: | ||||||||||||||||
| Acquisition cost paid in common stock | $ | 8,396 | $ | 20,267 | ||||||||||||
Increase in lease liabilities arising from changes in right-of-use assets | $ | - | $ | 3,689 | ||||||||||||
| Increase in property and equipment through accrued purchases | 26 | 22 | 145 | 47 | ||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.statements.
HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
(In thousands, except per share data) |
(Unaudited) |
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 FURNITUREFURNISHINGS 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 Thirty-NineThirteen Weeks Ended October 29, 2017April 30, 2023
1.Preparation of Interim Financial Statements
The condensed consolidated financial statements of Hooker FurnitureFurnishings 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”). All references to the “Hooker”, “Hooker Division” or “traditional Hooker” divisions or companies refer to the current components of our Hooker Casegoods and Upholstery operating segments, including Shenandoah since its characteristics (e.g. management, price points, margins and domestic manufacturing base), are like that of the other components of what we previously defined as the “legacy Hooker” business. 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 29, 20172023 (“20172023 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 2024 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third“first quarter” or “quarterly period”) that began July 31, 2017, and the thirty-nine week period (also referred to as “nine months,” “nine-month period” or “year-to-date period”) that began January 30, 2017, which both2023 and ended October 29, 2017,April 30, 2023. This report discusses our results of operations for this period compared to the 2023 fiscal year thirteen-week period that began AugustJanuary 31, 2022 and ended May 1, 2016 and the thirty-nine week period that began February 1, 2016, which both ended October 30, 2016;2022; and our financial condition as of October 29, 2017April 30, 2023 compared to January 29, 2017.
References in these notes to the condensed consolidated financial statements of the Company to:
■ | the |
■ | the |
2. Recently Adopted Accounting Policies
No new accounting pronouncements have been adopted in the financial statements presented in this report. The acquisition is discussed in greater detail below in Note 2. “Acquisition.”
3.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 | ||||
| Fair value estimates of assets acquired and liabilities assumed | ||||
| Purchase price consideration | ||||
| Cash paid for assets acquired, including working capital adjustment | $ | 32,650 | ||
| Value of shares issued for assets acquired | 8,000 | |||
| Fair value adjustment to shares issued for assets acquired* | 396 | |||
| Total purchase price | $ | 41,046 | ||
| Accounts receivable | $ | 3,576 | ||
| Inventory | 2,380 | |||
| Prepaid expenses and other current assets | 52 | |||
| Property and equipment | 5,418 | |||
| Intangible assets | 13,193 | |||
| Goodwill | 17,645 | |||
| Accounts payable | (699 | ) | ||
| Accrued expenses | (519 | ) | ||
| Total purchase price | $ | 41,046 | ||
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.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 | |||||||
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 Asset Purchase Agreement, we calculatedinterest rate on our unsecured term loan to the numberamount of common shares issued to SFI by dividing $8 million by the mean closing price of our common stockaccumulated expenditures for the ten trading days immediately preceding the business day immediately preceding the closing date ($45.45). However, U.S. Generally Accepted Accounting Standards provide that we value stock consideration exchanged in the Acquisition at fair value. Consequently, we adjusted the purchase price by $396,000, which represents the difference in the mean closing price of our common shares described in this paragraph and the price on September 29, 2017, multiplied by the number of common shares issued (176,018.) No additional consideration was transferred to SFI as a result of this adjustment.
| 13 Weeks Ended | 39 Weeks Ended | |||||||
| October 30, 2016 | October 30, 2016 | |||||||
| (Pro forma) | (Pro forma) | |||||||
| Net Sales | $ | 156,570 | $ | 434,921 | ||||
| Net Income | $ | 7,268 | $ | 16,257 | ||||
| Basic EPS | $ | 0.63 | $ | 1.41 | ||||
| Diluted EPS | $ | 0.62 | $ | 1.39 | ||||
| Pro Forma - Unaudited | ||||||||
| 13 Weeks Ended | 39 Weeks Ended | |||||||
| October 29, 2017 | October 29, 2017 | |||||||
| (Pro forma) | (Pro forma) | |||||||
| Net Sales | $ | 165,777 | $ | 474,610 | ||||
| Net Income | $ | 9,218 | $ | 24,223 | ||||
| Basic EPS | $ | 0.79 | $ | 2.09 | ||||
| Diluted EPS | $ | 0.78 | $ | 2.06 | ||||
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 | ||||
| Common Stock | ||||||||
| Shares | Amount | |||||||
| Outstanding shares January 29, 2017 | 11,563 | $ | 39,753 | |||||
| Shares issued for Acquisition | 176 | 8,396 | ||||||
| Restricted share grants | 23 | 431 | ||||||
| Restricted stock compensation costs | - | 330 | ||||||
| Outstanding shares October 29, 2017 | 11,762 | $ | 48,910 | |||||
| October 29, | January 29, | |||||||
| 2017 | 2017 | |||||||
| Trade accounts receivable | $ | 86,409 | $ | 99,378 | ||||
| Receivable from factor | - | 6 | ||||||
| Other accounts receivable allowances | (5,630 | ) | (6,298 | ) | ||||
| Allowance for doubtful accounts | (929 | ) | (508 | ) | ||||
| Accounts receivable | $ | 79,850 | $ | 92,578 | ||||
| October 29, | January 29, | |||||||
| 2017 | 2017 | |||||||
| Finished furniture | $ | 91,624 | $ | 85,520 | ||||
| Furniture in process | 1,338 | 735 | ||||||
| Materials and supplies | 9,444 | 7,536 | ||||||
| Inventories at FIFO | 102,406 | 93,791 | ||||||
| Reduction to LIFO basis | (18,856 | ) | (18,488 | ) | ||||
| Inventories | $ | 83,550 | $ | 75,303 | ||||
| Depreciable Lives | October 29, | January 29, | |||||||||
| (In years) | 2017 | 2017 | |||||||||
| Buildings and land improvements | 15 - 30 | $ | 24,073 | $ | 23,392 | ||||||
| Computer software and hardware | 3 - 10 | 18,181 | 17,308 | ||||||||
| Machinery and equipment | 10 | 8,448 | 5,031 | ||||||||
| Leasehold improvements | Term of lease | 9,470 | 7,104 | ||||||||
| Furniture and fixtures | 3 - 8 | 2,181 | 1,903 | ||||||||
| Other | 5 | 660 | 562 | ||||||||
| Total depreciable property at cost | 63,013 | 55,300 | |||||||||
| Less accumulated depreciation | 34,160 | 31,167 | |||||||||
| Total depreciable property, net | 28,853 | 24,133 | |||||||||
| Land | 1,067 | 1,067 | |||||||||
| Construction-in-progress | 926 | 603 | |||||||||
| Property, plant and equipment, net | $ | 30,846 | $ | 25,803 | |||||||
7. Fair Value Measurements
Fair value is the price that would be received to sellupon the sale of an asset or paid toupon the transfer of a liability (an “exit price”)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 October 29, 2017April 30, 2023 and January 29, 2017,2023, 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 October 29, 2017April 30, 2023 and January 29, 2017,2023, were as follows:
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 | ||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Assets measured at fair value | ||||||||||||||||||||||||||||||||
Company-owned life insurance | $ | - | $ | 27,899 | $ | - | $ | 27,899 | $ | - | $ | 27,576 | $ | - | $ | 27,576 | ||||||||||||||||
| Fair value at October 29, 2017 | Fair value at January 29, 2017 | |||||||||||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
| Assets measured at fair value | ||||||||||||||||||||||||||||||||
| Company-owned life insurance | $ | - | $ | 23,322 | $ | - | $ | 23,322 | $ | - | $ | 22,366 | $ | - | $ | 22,366 | ||||||||||||||||
| Pension plan assets* | 13,881 | - | - | 13,881 | 13,881 | - | - | 13,881 | ||||||||||||||||||||||||
8.Intangible Assets
Our intangible assets with indefinite lives consist of January 29, 2017 for Pension Plan assets.
| October 29, | January 29, | ||||||||
| Segment | 2017 | 2017 | |||||||
| Non-amortizable Intangible Assets | |||||||||
| Goodwill | Home Meridian | $ | 23,187 | $ | 23,187 | ||||
| Goodwill | Upholstery | $ | 17,645 | - | |||||
| Trademarks and trade names - Home Meridian | Home Meridian | 11,400 | 11,400 | ||||||
| Trademarks and trade names - Bradington-Young | Upholstery | 861 | 861 | ||||||
| Trademarks and trade names - Shenandoah | Upholstery | 645 | - | ||||||
| Trademarks and trade names - Sam Moore | Upholstery | 396 | 396 | ||||||
| Total non-amortizable assets | $ | 54,134 | $ | 35,844 | |||||
| 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 estimatedamounts 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.
Amortization expenses for intangible assets with definite lives were $883,000 and $878,000 for the first quarters of fiscal 2024 and 2023, respectively. For the remainder of fiscal 2024, amortization expense associated with these assets is expected to be approximately $2.8 million.
9. Leases
We recognized sublease income of $29,000 and $348,000 in the first quarters of fiscal 2024 and 2023, respectively.
The components of lease cost and supplemental cash flow information for leases in the first quarters of fiscal 2024 and 2023 were:
Thirteen Weeks Ended | ||||||||
April 30, 2023 | May 1, 2022 | |||||||
Operating lease cost | $ | 2,838 | $ | 2,527 | ||||
Variable lease cost | 82 | 55 | ||||||
Short-term lease cost | 79 | 80 | ||||||
Total operating lease cost | $ | 2,999 | $ | 2,662 | ||||
Operating cash outflows | $ | 2,694 | $ | 2,829 | ||||
The right-of-use assets and lease liabilities recorded on our condensed consolidated balance sheets as follows:
| Fiscal Year | Amount | |||
| Remainder of 2018 | $ | 833 | ||
| 2019 | 2,263 | |||
| 2020 | 2,263 | |||
| 2021 | 2,263 | |||
| 2022 | 2,263 | |||
| Thereafter | 14,640 | |||
| $ | 24,525 | |||
April 30, 2023 | January 29, 2023 | |||||||
Real estate | $ | 66,173 | $ | 68,212 | ||||
Property and equipment | 633 | 737 | ||||||
Total operating leases right-of-use assets | $ | 66,806 | $ | 68,949 | ||||
Current portion of operating lease liabilities | $ | 7,363 | $ | 7,316 | ||||
Long term operating lease liabilities | 61,877 | 63,762 | ||||||
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 4.01%. The weighted-average remaining lease term is 7.8 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 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 | ||
As of April 30, 2023, the Company had an additional lease for a showroom in Atlanta, Georgia. This lease commenced in May of calendar 2023 with an initial lease term of 3 years and estimated future minimum rental commitments of approximately $1.0 million. Since the lease had 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 a loanan agreement (the “Loan Agreement”)to reduce our footprint 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.
10.Long-Term Debt
On July 26, 2022, we entered into the Fourth Amendment to the Second Amended and Restated Loan Agreement with Bank of America, N.A. (“BofA”) in connection withto replenish cash used to make the completionacquisition of substantially all of the Acquisition discussed in Note 2 Acquisition, above.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 amendsdated as of September 29, 2017, had previously been amended by a First Amendment to Second Amended and restates the amended and restated loan agreement that the Company entered into with BofA on February 1, 2016. TheRestated Loan Agreement provides us withdated 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 New“Existing Loan Agreement”). Details of the individual credit facilities provided for in the Amendment are as follows:
■ | Unsecured Revolving Credit Facility. Under the Amendment, the expiration date of the existing $35 million Unsecured Revolving Credit Facility (the “Existing Revolver”) was extended to July 26, 2027. Any amounts outstanding will bear interest at a rate per annum, equal to the then current Bloomberg Short-Term Bank Yield Index (“BSBY”) (adjusted periodically) plus 1.00%. The interest rate will be adjusted on a monthly basis. The actual daily amount of undrawn letters of credit is subject to a quarterly fee equal to a per annum rate of 1%. We must also pay a quarterly unused commitment fee that is based on the average daily amount of the facility utilized during the applicable quarter; |
■ | 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 $12 million.
We may prepay the outstanding principal amount under the New Unsecured Term Loan, in full or in part, on any interest payment date without penalty. On September 29, 2017, we borrowed the full $12 million available under the New Unsecured Term Loan.
The Loan AgreementAmendment 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 |
o | 2.25:1.0 through |
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 |
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 October 29, 2017April 30, 2023 and expect to remain in compliance with existing covenants through fiscal 2018 and for the foreseeable future.
As of October 29, 2017,April 30, 2023, we had an aggregate $28.5$27.2 million available under our $35 million Existing Revolver to fund working capital needs. Standby letters of credit in the aggregate amount of $1.5$7.8 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of October 29, 2017.April 30, 2023. There were no additional borrowings outstanding under the Existing Revolver on October 29, 2017.
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
| October 29, | October 30, | October 29, | October 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net periodic benefit costs | ||||||||||||||||
| Service cost | 76 | 94 | 228 | 282 | ||||||||||||
| Interest cost | 280 | 295 | 839 | 885 | ||||||||||||
| Actuarial loss (gain) | 15 | (18 | ) | 45 | (54 | ) | ||||||||||
| Expected return on pension plan assets | (234 | ) | (197 | ) | (700 | ) | (591 | ) | ||||||||
| Expected administrative expenses | 70 | 70 | 210 | 210 | ||||||||||||
| Consolidated net periodic benefit costs | $ | 207 | $ | 244 | $ | 622 | $ | 732 | ||||||||
11.Earnings Per Share
We refer you to the discussion of Earnings Per Share in Note 1 “Summary2. Summary of Significant Accounting Policies,” in the financial statements included in our 20172023 Annual Report, for additional information concerning the calculation of earnings per share.
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:
April 30, | January 29, | |||||||
2023 | 2023 | |||||||
Restricted shares | 175 | 132 | ||||||
RSUs and PSUs | 156 | 101 | ||||||
| 331 | 233 | |||||||
| October 29, | January 29, | |||||||
| 2017 | 2017 | |||||||
| Restricted shares | 16 | 26 | ||||||
| Restricted stock units | 19 | 20 | ||||||
| 35 | 46 | |||||||
All restricted shares, RSUs and RSUsPSUs awarded that have not yet vested are considered when computing diluted earnings per share. The following table sets forth the computation of basic and diluted earnings per share:
Thirteen Weeks Ended | ||||||||
April 30, | May 1, | |||||||
2023 | 2022 | |||||||
Net income | $ | 1,450 | $ | 3,182 | ||||
Less: Unvested participating restricted stock dividends | 30 | 19 | ||||||
Net earnings allocated to unvested participating restricted stock | 18 | 25 | ||||||
Earnings available for common shareholders | 1,402 | 3,138 | ||||||
Weighted average shares outstanding for basic earnings per share | 10,976 | 11,866 | ||||||
Dilutive effect of unvested restricted stock, RSU and PSU awards | 101 | 83 | ||||||
Weighted average shares outstanding for diluted earnings per share | 11,077 | 11,949 | ||||||
Basic earnings per share | $ | 0.13 | $ | 0.27 | ||||
Diluted earnings per share | $ | 0.13 | $ | 0.26 | ||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
| October 29, | October 30, | October 29, | October 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net income | $ | 7,202 | $ | 6,459 | $ | 19,726 | $ | 14,308 | ||||||||
| Less: Unvested participating restricted stock dividends | 2 | 3 | 8 | 8 | ||||||||||||
| Net earnings allocated to unvested participating restricted stock | 10 | 14 | 37 | 32 | ||||||||||||
| Earnings available for common shareholders | 7,190 | 6,442 | 19,681 | 14,268 | ||||||||||||
| Weighted average shares outstanding for basic earnings per share | 11,679 | 11,537 | 11,596 | 11,528 | ||||||||||||
| Dilutive effect of unvested restricted stock and RSU awards | 21 | 22 | 30 | 28 | ||||||||||||
| Weighted average shares outstanding for diluted earnings per share | 11,700 | 11,559 | 11,626 | 11,556 | ||||||||||||
| Basic earnings per share | $ | 0.62 | $ | 0.56 | $ | 1.70 | $ | 1.24 | ||||||||
| Diluted earnings per share | $ | 0.61 | $ | 0.56 | $ | 1.69 | $ | 1.23 | ||||||||
12. Income Taxes
We recorded income tax expenseexpenses of $4 million$402,000 and $991,000 for the fiscal 2018 third quarter compared to $3.5 million for the comparable prior year period.2024 and fiscal 2023 first quarters, respectively. The effective tax rates for the fiscal 20182024 and 2017 third quarter2023 first quarters were 35.7%21.7% and 34.8%23.7%, respectively. Our effective tax rate was higher in the fiscal 2018 third quarter primarily due to higher state tax expenses as the result of expanding territory.
No material and 2017 were 34.9% and 35.1%, respectively. The effective tax rate was lower in the 2018 first nine months due to the settlement of annon-routine positions have been identified that are uncertain tax position on captive insurance, excess tax benefits from share-based compensation and a state tax credit received during the first quarter of fiscal 2018.
Tax years ending February 2, 20142020 through January 29, 20172023 remain subject to examination by federal and state taxing authorities.
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 Accounting Standards Codification TopicASC 280 “Segment Reporting” (“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 fourthree reportable segments:
■ | Hooker |
■ | 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 Sunset West, a business acquired at the beginning of fiscal 2023; and |
■ | All Other, consisting of H Contract and |
The following table presents segment information for the periods, and as of the dates, indicated:indicated.
Thirteen Weeks Ended | ||||||||||||||||
April 30, | May 1, | |||||||||||||||
2023 | 2022 | |||||||||||||||
% Net | % Net | |||||||||||||||
Net Sales | Sales | Sales | ||||||||||||||
Hooker Branded | $ | 41,891 | 34.4 | % | $ | 42,230 | 28.7 | % | ||||||||
Home Meridian | 41,921 | 34.4 | % | 62,085 | 42.1 | % | ||||||||||
Domestic Upholstery | 35,104 | 28.8 | % | 41,220 | 28.0 | % | ||||||||||
All Other | 2,899 | 2.4 | % | 1,779 | 1.2 | % | ||||||||||
Consolidated | $ | 121,815 | 100 | % | $ | 147,314 | 100.0 | % | ||||||||
Gross Profit | ||||||||||||||||
Hooker Branded | $ | 13,091 | 31.3 | % | $ | 13,240 | 31.4 | % | ||||||||
Home Meridian | 6,713 | 16.0 | % | 6,305 | 10.2 | % | ||||||||||
Domestic Upholstery | 7,023 | 20.0 | % | 9,354 | 22.7 | % | ||||||||||
All Other | 1,079 | 37.2 | % | 560 | 31.5 | % | ||||||||||
Consolidated | $ | 27,906 | 22.9 | % | $ | 29,459 | 20.0 | % | ||||||||
Operating Income/(Loss) | ||||||||||||||||
Hooker Branded | $ | 2,300 | 5.5 | % | $ | 4,142 | 9.8 | % | ||||||||
Home Meridian | (2,119 | ) | -5.1 | % | (3,095 | ) | -5.0 | % | ||||||||
Domestic Upholstery | 1,328 | 3.8 | % | 2,752 | 6.7 | % | ||||||||||
All Other | 466 | 16.1 | % | 124 | 7.0 | % | ||||||||||
Consolidated | $ | 1,975 | 1.6 | % | $ | 3,923 | 2.7 | % | ||||||||
Capital Expenditures | ||||||||||||||||
Hooker Branded | $ | 2,787 | $ | 468 | ||||||||||||
Home Meridian | 227 | 40 | ||||||||||||||
Domestic Upholstery | 116 | 322 | ||||||||||||||
All Other | 28 | - | ||||||||||||||
Consolidated | $ | 3,158 | $ | 830 | ||||||||||||
Depreciation & Amortization | ||||||||||||||||
Hooker Branded | $ | 491 | $ | 684 | ||||||||||||
Home Meridian | 687 | 662 | ||||||||||||||
Domestic Upholstery | 947 | 938 | ||||||||||||||
All Other | 22 | 3 | ||||||||||||||
Consolidated | $ | 2,147 | $ | 2,287 | ||||||||||||
As of April 30, | As of January 29, | |||||||||||||||
2023 | %Total | 2023 | %Total | |||||||||||||
Identifiable Assets | Assets | Assets | ||||||||||||||
Hooker Branded | $ | 172,499 | 54.2 | % | $ | 174,523 | 52.1 | % | ||||||||
Home Meridian | 80,709 | 25.4 | % | 92,469 | 27.6 | % | ||||||||||
Domestic Upholstery | 63,307 | 19.9 | % | 66,435 | 19.8 | % | ||||||||||
All Other | 1,706 | 0.5 | % | 1,558 | 0.5 | % | ||||||||||
Consolidated | $ | 318,221 | 100 | % | $ | 334,985 | 100 | % | ||||||||
Consolidated Goodwill and Intangibles | 45,847 | 46,731 | ||||||||||||||
Total Consolidated Assets | $ | 364,068 | $ | 381,716 | ||||||||||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||||
| October 29, | October 30 | October 29, | October 30 | |||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||
| % Net | % Net | % Net | % Net | |||||||||||||||||||||||||||||
| Net Sales | Sales | Sales | Sales | Sales | ||||||||||||||||||||||||||||
| Hooker Casegoods | $ | 36,373 | 23.0 | % | $ | 36,861 | 25.4 | % | $ | 104,067 | 23.4 | % | $ | 103,372 | 25.6 | % | ||||||||||||||||
| Upholstery | 26,701 | 16.9 | % | 19,664 | 13.5 | % | 71,247 | 16.0 | % | 61,404 | 15.2 | % | ||||||||||||||||||||
| Home Meridian | 92,068 | 58.3 | % | 86,053 | 59.2 | % | 262,173 | 58.9 | % | 231,391 | 57.4 | % | ||||||||||||||||||||
| All other | 2,792 | 1.8 | % | 2,720 | 1.9 | % | 7,627 | 1.7 | % | 7,125 | 1.8 | % | ||||||||||||||||||||
| Intercompany eliminations | - | - | - | - | ||||||||||||||||||||||||||||
| Consolidated | $ | 157,934 | 100.0 | % | $ | 145,298 | 100 | % | $ | 445,114 | 100.0 | % | $ | 403,292 | 100 | % | ||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||||||||
| Hooker Casegoods | $ | 11,346 | 31.2 | % | $ | 12,081 | 32.8 | % | $ | 32,984 | �� | 31.7 | % | $ | 32,897 | 31.8 | % | |||||||||||||||
| Upholstery | 6,190 | 23.2 | % | 4,311 | 21.9 | % | 17,255 | 24.2 | % | 14,029 | 22.8 | % | ||||||||||||||||||||
| Home Meridian | 15,808 | 17.2 | % | 13,742 | 16.0 | % | 42,875 | 16.4 | % | 36,865 | 15.9 | % | ||||||||||||||||||||
| All other | 934 | 33.4 | % | 791 | 29.1 | % | 2,420 | 31.7 | % | 2,204 | 30.9 | % | ||||||||||||||||||||
| Intercompany eliminations | - | 1 | 4 | 8 | ||||||||||||||||||||||||||||
| Consolidated | $ | 34,278 | 21.7 | % | $ | 30,926 | 21.3 | % | $ | 95,538 | 21.5 | % | $ | 86,003 | 21.3 | % | ||||||||||||||||
| Operating Income | ||||||||||||||||||||||||||||||||
| Hooker Casegoods | $ | 3,990 | 11.0 | % | $ | 5,092 | 13.8 | % | $ | 11,918 | 11.5 | % | $ | 11,514 | 11.1 | % | ||||||||||||||||
| Upholstery | 2,199 | 8.2 | % | 1,178 | 6.0 | % | 6,807 | 9.6 | % | 4,256 | 6.9 | % | ||||||||||||||||||||
| Home Meridian | 4,607 | 5.0 | % | 3,503 | 4.1 | % | 10,658 | 4.1 | % | 5,956 | 2.6 | % | ||||||||||||||||||||
| All other | 409 | 14.6 | % | 165 | 6.1 | % | 721 | 9.5 | % | 430 | 6.0 | % | ||||||||||||||||||||
| Intercompany eliminations | - | 1 | 4 | 8 | ||||||||||||||||||||||||||||
| Consolidated | $ | 11,205 | 7.1 | % | $ | 9,939 | 6.8 | % | $ | 30,108 | 6.8 | % | $ | 22,164 | 5.5 | % | ||||||||||||||||
| Capital Expenditures | ||||||||||||||||||||||||||||||||
| Hooker Casegoods | $ | 268 | $ | 343 | $ | 1,259 | $ | 1,065 | ||||||||||||||||||||||||
| Upholstery | 145 | 430 | 359 | 638 | ||||||||||||||||||||||||||||
| Home Meridian | 580 | 122 | 1,090 | 193 | ||||||||||||||||||||||||||||
| All other | - | 9 | - | 9 | ||||||||||||||||||||||||||||
| Consolidated | $ | 993 | $ | 904 | $ | 2,708 | $ | 1,905 | ||||||||||||||||||||||||
| Depreciation & Amortization | ||||||||||||||||||||||||||||||||
| Hooker Casegoods | $ | 490 | $ | 566 | $ | 1,452 | $ | 1,650 | ||||||||||||||||||||||||
| Upholstery | 538 | 253 | 929 | 718 | ||||||||||||||||||||||||||||
| Home Meridian | 673 | 770 | 2,012 | 3,965 | ||||||||||||||||||||||||||||
| All other | 1 | 3 | 6 | 7 | ||||||||||||||||||||||||||||
| Consolidated | $ | 1,702 | $ | 1,592 | $ | 4,399 | $ | 6,340 | ||||||||||||||||||||||||
As of October 29, 2017 | %Total | As of January 29, 2017 | %Total | |||||||||||||
| Assets | Assets | Assets | ||||||||||||||
| Hooker Casegoods | $ | 125,232 | 47.5 | % | $ | 130,917 | 48.6 | % | ||||||||
| Upholstery | 42,636 | 16.2 | % | 31,018 | 11.5 | % | ||||||||||
| Home Meridian | 95,483 | 36.2 | % | 107,101 | 39.7 | % | ||||||||||
| All other | 509 | 0.2 | % | 554 | 0.2 | % | ||||||||||
| Intercompany eliminations | - | 0.0 | % | (4 | ) | 0.0 | % | |||||||||
| Consolidated assets | $ | 263,860 | 100.0 | % | $ | 269,586 | 100 | % | ||||||||
| Consolidated goodwill and intangibles | 78,657 | 49,110 | ||||||||||||||
| Total consolidated assets | $ | 342,517 | $ | 318,696 | ||||||||||||
Sales by product type are as follows:
Net Sales (in thousands) | ||||||||||||||||
Thirteen Weeks Ended | ||||||||||||||||
April 30, 2023 | %Total | May 1, 2022 | %Total | |||||||||||||
Casegoods | $ | 67,975 | 56 | % | $ | 74,192 | 50 | % | ||||||||
Upholstery | 53,840 | 44 | % | 73,122 | 50 | % | ||||||||||
| $ | 121,815 | 100 | % | $ | 147,314 | 100 | % | |||||||||
| Net Sales (in thousands) | ||||||||||||||||||||||||||||||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||||
| October 29, | October 30, | October 29, | October 30, | |||||||||||||||||||||||||||||
| 2017 | %Total | 2016 | %Total | 2017 | %Total | 2016 | %Total | |||||||||||||||||||||||||
| Casegoods | $ | 115,106 | 73 | % | $ | 107,994 | 74 | % | $ | 316,639 | 71 | % | $ | 286,039 | 71 | % | ||||||||||||||||
| Upholstery | 42,828 | 27 | % | 37,304 | 26 | % | 128,475 | 29 | % | 117,253 | 29 | % | ||||||||||||||||||||
| $ | 157,934 | 100 | % | $ | 145,298 | 100 | % | $ | 445,114 | 100 | % | $ | 403,292 | 100 | % | |||||||||||||||||
14. Related Party Transactions
Dividends
On December 7, 2017,June 5, 2023, our board of directors declared a quarterly cash dividend of $0.14$0.22 per share payablewhich will be paid on December 29, 2017June 30, 2023 to shareholders of record at December 18, 2017.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’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
All references to the “Company,“Company,” “we,“we,” “us”“us” and “our”“our” in this document refer to Hooker FurnitureFurnishings Corporation and its consolidated subsidiaries, unless specifically referring to operating segment information. All references to the “Hooker”“Hooker,”“Hooker Division(s), “Hooker Division””“Hooker Legacy Brands” or “traditional Hooker”“traditional Hooker” divisions or companies refer to all current business units and brands except for those in the current components of ourHome Meridian segment. The Hooker Branded segment includes Hooker Casegoods and Hooker Upholstery. The Domestic Upholstery operating segments, including Shenandoah since its characteristics (e.g. management, price points, margins and domestic manufacturing base)segment includes Bradington-Young, HF Custom (formerly Sam Moore), are like that of the other components of what we previously defined as the “legacy Hooker” business. References to the “Acquisition” refer to the recently completed acquisition of substantially all of the assets of Shenandoah Furniture Inc. on September 29, 2017.and Sunset West. All references to specific quarterly periods are referring to our fiscal quarters. Our quarterly periods are based on thirteen-week “reporting periods” (which end on a Sunday) rather than quarterly periods consisting of three calendar months. As a result, each quarterly period generally is thirteen weeks, or 91 days, long, except as noted below. All references to the years 2018, 2017Other includes H Contract and other years are referring to our fiscal years, unless otherwise stated. Our fiscal years end on the Sunday closest to January 31. In some years (generally once every six years) the fourth quarter will be fourteen weeks long and the fiscal year will consist of fifty-three weeks.Lifestyle Brands.
Forward-Looking Statements
Certain statements made in this report, including statements included 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 negativenegatives thereof, or other variations thereon,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 |
■ | difficulties in |
■ |
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 |
■ | risks associated with HMI segment restructuring and cost-savings efforts, including our ability to timely dispose of excess inventories, reduce expenses and return the segment to profitability; |
■ | the impairment of our long-lived assets, which can result in reduced earnings and net worth; |
■ | 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 direct and indirect costs and time spent by our associates associated with the implementation of |
■ |
the interruption, inadequacy, security breaches or integration failure of our information systems or information technology infrastructure, related service providers or the |
■ | 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 Sunset Acquisition including integration costs, maintaining Sunset West’s existing customer relationships, debt service costs, interest rate volatility, the use of operating cash flows to service debt to the detriment of other corporate initiatives or strategic opportunities, the loss of key employees from Sunset West, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies across the business which could adversely affect our internal control or information systems and the costs of bringing them into compliance and failure to realize benefits anticipated from the Sunset Acquisition; |
■ | 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; |
■ | risks associated with product defects, including higher than expected costs associated with product quality and safety, regulatory compliance costs (such as the costs associated with the US Consumer Product Safety Commission’s new mandatory furniture tip-over standard, STURDY) related to the sale of consumer products and costs related to defective or non-compliant products, product liability claims and costs to recall defective products and the adverse effects of negative media coverage; |
■ | disruptions and damage (including those due to weather) affecting our Virginia or Georgia warehouses, our Virginia, North Carolina or California |
■ | 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 |
■ | our inability to collect amounts owed to us or significant delays in collecting such amounts; |
■ | achieving and managing growth and change, and the risks associated with new business |
■ | 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 |
■ |
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 in light ofconsidering 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 a number of 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 LookingForward-Looking Statements detailed above and Item 1A, “Risk Factors” in our 2017 annual report on Form 10-K (the “20172023 Annual Report”), and Item 1AReport.
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.
This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2024 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third“first quarter” or “quarterly period”) that began July 31, 2017, and the thirty-nine week period (also referred to as “nine months,” or “nine-month period”) that began January 30, 2017, which both2023 and ended October 29, 2017.April 30, 2023. This report discusses our results of operations for this period compared to the 20172023 fiscal year thirteen-week period that began AugustJanuary 31, 2022 and ended May 1, 2016 and the thirty-nine week period that began February 1, 2016, which both ended October 30, 2016;2022; and our financial condition as of October 29, 2017April 30, 2023 compared to January 29, 2017.2023.
References in this report to:
■ | the |
■ | the |
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 Securities and Exchange Commission (“SEC”),SEC, especially our 20172023 Annual Report filed with the SEC on April 14, 2017.Report. Our 20172023 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 20172023 Annual Report and our other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurniture.com.investors.hookerfurnishings.com.
Overview
Hooker FurnitureFurnishings Corporation, (referred to as “we,” “us”, “our” “Hooker” or the “Company”), 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, and custom fabric-upholstered furniture and outdoor furniture.
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 ranked amonggenerally good current indicators of sales momentum and business conditions. If the nation’s top five largest publicly traded furniture sources, based on 2016 shipments to U.S. retailers, according to a 2017 survey by a leading trade publication.
For the Hooker Branded and Domestic Upholstery segments and All Other, we generally consider backlogs to be one helpful indicator of distribution in whichsales for the upcoming 30-day period, but because of our legacy businesses are under-represented. Consequently, Hooker acquired Home Meridian on February 1, 2016.
There have been exceptions to the salegeneral predictive nature of home furnishings,our orders and backlogs noted in this paragraph, such as during times of extremely high demand and supply chain challenges as experienced during the immediate aftermath of the initial COVID-19 crisis and subsequent recovery. Orders were not being 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 hospitalitylimited overseas vendor capacity and contract furniture. We believe that consumer home furnishings purchases are impacted by an arrayour domestic production capacity. As a result, backlogs were significantly elevated and reached historical levels in the prior two years.
At April 30, 2023, our backlog of factors, including general economic conditions (suchunshipped orders was as consumer confidence, availabilityfollows:
Order Backlog | ||||||||||||
(Dollars in 000s) | ||||||||||||
Reporting Segment | April 30, 2023 | January 29, 2023 | May 1, 2022 | |||||||||
Hooker Branded | $ | 17,357 | $ | 19,276 | $ | 76,562 | ||||||
Home Meridian | 40,413 | 43,052 | 120,844 | |||||||||
Domestic Upholstery | 24,402 | 28,404 | 79,018 | |||||||||
All Other | 5,188 | 4,654 | 6,153 | |||||||||
Consolidated | $ | 87,360 | $ | 95,386 | $ | 282,577 | ||||||
At the end of consumer credit, energy and other commodity prices), and housing and mortgage markets. These purchases are also impacted by lifestyle-driven factors suchfiscal 2024 first quarter, order backlog decreased as changes in fashion trends, disposable income, household formation and turnover, as well as competition with other discretionary purchases. Hospitality furniture sales are driven primarily by new hotel construction and hotel remodeling activity, which is linkedcompared to the strengthfiscal 2023 year-end and the prior year first quarter end. The decrease was attributable to more normalized levels of theshipping and lower incoming orders driven by a decrease in overall economy, including business and personal spending levels. Contract furniture sales are driven largely by senior living facility construction and remodeling activity, which is linked to the number of consumers entering retirement, which is partially related to the strength of the overall economy, including stock market performance.demand.
Executive Summary-Results of Operations
Consolidated net sales for the fiscal 2018 third2024 first quarter grew 8.7%decreased by $25.5 million, or 17.3% compared to $157.9 million and grew 10.4% to $445.1 millionthe prior year quarter, driven by a 32.5% sales decrease in the first nine months of fiscal 2018 due primarilyHome Meridian segment and to net sales increasesa lesser extent, a 14.8% decrease in the Domestic Upholstery and Home Meridian segments.segment. Despite being a smaller part of overall results, All Other contributed a $1.1 million sales increase. Net sales in the Hooker Branded segment remained relatively unchanged. Consolidated gross profit decreased mainly due to lower sales volume, while gross margin increased. Consolidated operating income was $2.0 million or 1.6% of net sales, compared to $3.9 million or 2.7% in the prior year period. Consolidated net income was $1.5 million or $0.13 per diluted share for the quarter, compared to a $3.2 million or $0.26 per diluted share in the prior year period.
Our fiscal 2024 first quarter performance is discussed in greater detail below under “Review” and “Results of Operations.”
Review
The home furnishings industry continues to experience decreased demand and a sluggish retail environment, as well as other economic uncertainties such as increased inflation and rising interest rates. We remain cautious yet positive for fiscal 2024 as during the first 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 maintaining 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 were essentially flat, decreasing slightly by 0.8% or $339,000 compared to the prior year period. Discounting increased by $7.0230 bps from abnormally low levels in the prior year due to softened demand in the quarter. In addition, returns and allowances increased by 140 bps compared to the prior year period. At the end of the first quarter, inventory levels decreased by $14 million or 35.8%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 but remained 50% higher than pre-pandemic levels at fiscal 2020 first quarter end. Incoming orders decreased by 16.6% as compared to the prior year quarter primarilyand approached levels similar to fiscal 2020 first quarter, reflecting more normalized demand after the pandemic.
The Home Meridian segment’s net sales decreased by $20.2 million, or 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 increases in the Hooker Upholstery divisiondecreases and the inclusion of Shenandoah’s sales for one monthabout 70% of the quarter. Home Meridian’soperating loss, while Pulaski Furniture’s net sales increased $6.0 million or 7%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 third quarter. Hooker Casegoodsquarter, and accounted for 30% of the operating loss in this segment due to the liquidation of the ACH business. On a more positive note, Samuel Lawrence Hospitality’s net sales decreased 1.3% while All other segment net sales increased 2.7% for the fiscal 2018 third quarter.
The Domestic Upholstery segment’s net sales decreased by $6.1 million, or 14.8% in the fiscal 2024 first quarter, 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 increased 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 reduced working hours. Gross margin benefited from the price increases we implemented last year to help mitigate materials cost inflation. Despite the sales decline and disruptions, this segment reported an operating income of $1.3 million and an operating margin of 3.8%. Quarter-end backlog for Bradington-Young remained over three times of the pre-pandemic levels at fiscal 2020 first quarter end, while the backlogs for HF Custom and Shenandoah decreased to levels similar to fiscal 2020. Incoming orders at Bradington-Young and Shenandoah were at similar levels in the first quarter of fiscal 2020, while HF Custom experienced lower orders compared to this period.
Cash and cash equivalents stood at $31 million at fiscal 2024 first quarter-end, an increase of $12 million from the prior year-end. During the first quarter, we used 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 our new showroom, $2.4 million in cash dividends to our shareholders, and $1.3 million for development of our cloud-based ERP system. In addition to our cash balance, we had an 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, acquisition-related costs that were incurred inas discussed above. With strategic inventory management, reasonable capital expenditures, and prudent expense management, we believe we have sufficient financial resources to support our business operations for the prior year and a $1.8 million decrease in amortization expense on Home Meridian acquisition-related intangibles.
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 | ||||||||
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 | ||||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
| October 29, | October 30, | October 29, | October 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Cost of sales | 78.3 | 78.7 | 78.5 | 78.7 | ||||||||||||
| Gross profit | 21.7 | 21.3 | 21.5 | 21.3 | ||||||||||||
| Selling and administrative expenses | 14.2 | 14.2 | 14.4 | 15.1 | ||||||||||||
| Intangible asset amortization | 0.4 | 0.2 | 0.3 | 0.7 | ||||||||||||
| Operating income | 7.1 | 6.8 | 6.8 | 5.5 | ||||||||||||
| Other income, net | 0.2 | 0.1 | 0.2 | 0.2 | ||||||||||||
| Interest expense, net | 0.2 | 0.2 | 0.2 | 0.2 | ||||||||||||
| Income before income taxes | 7.1 | 6.8 | 6.8 | 5.5 | ||||||||||||
| Income tax expense | 2.5 | 2.4 | 2.4 | 1.9 | ||||||||||||
| Net income | 4.6 | 4.4 | 4.4 | 3.5 | ||||||||||||
Fiscal 2018 Third2024 First Quarter Compared to Fiscal 2017 Third2023 First Quarter
| Net Sales | Net Sales | |||||||||||||||||||||||||||||||||||||||||||||||
| Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | April 30, | May 1, | |||||||||||||||||||||||||||||||||||||||||||
| % Net Sales | % Net Sales | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||
| Hooker Casegoods | $ | 36,373 | 23.0 | % | $ | 36,861 | 25.4 | % | $ | (488 | ) | -1.3 | % | |||||||||||||||||||||||||||||||||||
| Upholstery | 26,701 | 16.9 | % | 19,664 | 13.5 | % | 7,037 | 35.8 | % | |||||||||||||||||||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 41,891 | 34.4 | % | $ | 42,230 | 28.7 | % | $ | (339 | ) | -0.8 | % | |||||||||||||||||||||||||||||||||||
| Home Meridian | 92,068 | 58.3 | % | 86,053 | 59.2 | % | 6,015 | 7.0 | % | 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 | 2,792 | 1.8 | % | 2,720 | 1.9 | % | 72 | 2.6 | % | 2,899 | 2.4 | % | 1,779 | 1.2 | % | 1,120 | 63.0 | % | ||||||||||||||||||||||||||||||
| Consolidated | $ | 157,934 | 100 | % | $ | 145,298 | 100 | % | $ | 12,636 | 8.7 | % | $ | 121,815 | 100 | % | $ | 147,314 | 100 | % | $ | (25,499 | ) | -17.3 | % | |||||||||||||||||||||||
FY18 Q3 % Change vs. FY17 Q3 | Average Selling Price (ASP) | FY18 Q3 % Change vs. FY17 Q3 | ||||||||
| Hooker Casegoods | 0.3 | % | Hooker Casegoods | -0.7 | % | |||||
| Upholstery | 42.5 | % | Upholstery | -4.9 | % | |||||
| Home Meridian | 8.6 | % | Home Meridian | -1.7 | % | |||||
| All Other | -12.4 | % | All Other | 16.2 | % | |||||
| Consolidated | 9.1 | % | Consolidated | -0.3 | % | |||||
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 2024 first quarter due to sales declines in the Home Meridian and Domestic Upholstery segments, while net sales at All Other were up $1.1 million and Hooker Branded net sales decreased slightly.
■ | The Hooker Branded segment’s net sales decreased by 0.8% in the fiscal 2024 first quarter compared to the prior year quarter. Although ASP increased due to the price increases we implemented last year in response to product cost inflation, the favorable effect was offset by higher discounting and returns and allowances, which were 370 bps higher than prior year period, as well as decreased unit volume. |
■ | The Home Meridian segment’s net sales decreased by 32.5% in the fiscal 2024 first quarter attributed to lower sales in the major furniture chains and mass merchant channels due to a slow retail environment. These decreases were partially offset by strong sales in the hospitality business, which more than doubled as compared to the prior year period. ASP decreased significantly due to the increased volume of liquidation sales, which accounted for over 50% of the total units sold but less than 30% of total sales dollars. |
■ | The Domestic Upholstery segment’s net sales decreased by 14.8% in the fiscal 2024 first quarter compared to the prior year period. This decrease was driven by sales declines at HF Custom and Sunset West, and to a lesser extent, a sales decrease at Shenandoah. Bradington-Young reported a sales increase. ASP increased across all divisions due to the price increases we implemented in response to the inflation of raw material costs. However, it was not sufficient to offset the decrease in unit volume. |
■ | All Other’s net sales increased significantly in the fiscal 2024 first quarter driven by increased unit volume and ASP at H Contract due to continued recovery of the senior living industry after the COVID pandemic. |
Gross Profit and Margin | ||||||||||||||||||||||||
Thirteen Weeks Ended | ||||||||||||||||||||||||
April 30, | May 1, | |||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||
Hooker Branded | $ | 13,091 | 31.3 | % | $ | 13,240 | 31.4 | % | $ | (149 | ) | -1.1 | % | |||||||||||
Home Meridian | 6,713 | 16.0 | % | 6,305 | 10.2 | % | 408 | 6.5 | % | |||||||||||||||
Domestic Upholstery | 7,023 | 20.0 | % | 9,354 | 22.7 | % | (2,331 | ) | -24.9 | % | ||||||||||||||
All Other | 1,079 | 37.2 | % | 560 | 31.5 | % | 519 | 92.7 | % | |||||||||||||||
Consolidated | $ | 27,906 | 22.9 | % | $ | 29,459 | 20.0 | % | $ | (1,553 | ) | -5.3 | % | |||||||||||
Consolidated net sales increased primarilygross profit decreased in the fiscal 2024 first quarter due to higher net salesa decrease in the Domestic Upholstery and Home Meridian segments, as well as the addition of Shenandoah’s October sales of $3.1 million in the quarter. These increases weresegment, partially offset by a declineincreases in average selling prices (“ASP”) in those same segments. Upholstery segment unit volumegross profit at Home Meridian and All Other. Consolidated gross margin increased primarily due to increased sales at the Hooker Upholstery division and to a lesser extent at Bradington Young and Sam Moore. Upholstery segment ASP decreased primarily due to lower ASP at the Hooker Upholsterynet sales and Sam Moore divisions, partially offset by higher ASPimproved gross margin in the Bradington-Young division. Thetraditionally lower margin Home Meridian segment’s unit volumesegment.
■ | The Hooker Branded segment’s gross profit and gross margin both remained flat. Warehousing costs increased primarily due to higher demurrage and drayage expenses. Although these expenses have shown a downward trend in recent quarters, they were higher than the prior year first quarter. Additionally, operating and shipping supplies expenses, along with benefits expenses, also contributed to the increase in warehousing costs. These increases were partially offset by lower warehouse costs resulting from the exit of a leased warehouse in Asia and lower labor expenses due to reduced shipping activities. |
■ | The Home Meridian segment’s gross profit and margin both increased in the fiscal 2024 first quarter despite a net sales decline. Gross profit and margin increased due to lower ocean freight costs, the absence of warehouse transition and start-up costs incurred in the prior year period, and lower wage expenses due to organizational and personnel changes. Sales of previously written-down or written-off inventory had an immaterial impact on gross profit in the quarter. |
■ | The Domestic Upholstery segment’s gross profit and margin both decreased in the fiscal 2024 first quarter due to sales decline and increased benefits expense driven by higher medical claims, which were 310 bps higher than the prior year period. |
■ | All Other’s gross profit and margin both increased in the fiscal 2024 first quarter due to increased net sales. |
Selling and Administrative Expenses (S&A) | ||||||||||||||||||||||||
Thirteen Weeks Ended | ||||||||||||||||||||||||
April 30, | May 1, | |||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||
Hooker Branded | $ | 10,791 | 25.8 | % | $ | 9,098 | 21.5 | % | $ | 1,693 | 18.6 | % | ||||||||||||
Home Meridian | 8,502 | 20.3 | % | 9,066 | 14.6 | % | (564 | ) | -6.2 | % | ||||||||||||||
Domestic Upholstery | 5,142 | 14.6 | % | 6,058 | 14.7 | % | (916 | ) | -15.1 | % | ||||||||||||||
All Other | 613 | 21.1 | % | 436 | 24.5 | % | 177 | 40.6 | % | |||||||||||||||
Consolidated | $ | 25,048 | 20.6 | % | $ | 24,658 | 16.7 | % | $ | 390 | 1.6 | % | ||||||||||||
Consolidated selling and administrative (“S&A”) expenses increased primarily due to increased sales to emerging channels, especially e-commerce. The decreaseslightly in Home Meridian segment ASP was attributable to customer mix. Although a small part of our consolidated results, unit volume decreased and ASP increased in our All Other segmentabsolute terms due to the lack of Homeware net sales duringincrease in the quarter, as that business completed its wind-down duringHooker Branded segment, which was offset by decreases in the fiscal 2018 second quarter.
| Gross Profit and Margin | ||||||||||||||||||||||||
| Thirteen Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Hooker Casegoods | $ | 11,346 | 31.2 | % | $ | 12,081 | 32.8 | % | $ | (735 | ) | -6.1 | % | |||||||||||
| Upholstery | 6,190 | 23.2 | % | 4,311 | 21.9 | % | 1,879 | 43.6 | % | |||||||||||||||
| Home Meridian | 15,808 | 17.2 | % | 13,742 | 16.0 | % | 2,066 | 15.0 | % | |||||||||||||||
| All Other | 934 | 33.4 | % | 791 | 29.1 | % | 143 | 18.1 | % | |||||||||||||||
| Intercompany Eliminations | - | 1 | (1 | ) | -100.0 | % | ||||||||||||||||||
| Consolidated | $ | 34,278 | 21.7 | % | $ | 30,926 | 21.3 | % | $ | 3,352 | 10.8 | % | ||||||||||||
| Selling and Administrative Expenses | ||||||||||||||||||||||||
| Thirteen Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Hooker Casegoods | $ | 7,356 | 20.2 | % | $ | 6,988 | 19.0 | % | $ | 368 | 5.3 | % | ||||||||||||
| Upholstery | 3,701 | 13.9 | % | 3,133 | 15.9 | % | 568 | 18.1 | % | |||||||||||||||
| Home Meridian | 10,867 | 11.8 | % | 9,906 | 11.5 | % | 961 | 9.7 | % | |||||||||||||||
| All Other | 525 | 18.8 | % | 626 | 23.0 | % | (101 | ) | -16.1 | % | ||||||||||||||
| Consolidated | $ | 22,449 | 14.2 | % | $ | 20,653 | 14.2 | % | $ | 1,796 | 8.7 | % | ||||||||||||
■ | The Hooker Branded segment’s S&A expenses increased both in absolute terms and as a percentage of net sales in the fiscal 2024 first quarter. This increase was attributed to various factors, including higher compensation and benefits expense from salary inflation and higher medical claims, higher marketing costs and higher professional services fees. The increases were partially offset by a decrease in bad debt expense due to decreased AR balance. |
■ | The Home Meridian segment’s S&A expenses decreased in absolute terms in the fiscal 2024 first quarter due primarily to decreased salary expenses as the result of personnel changes, and to a lesser extent lower selling costs and product development cost. These decreases were partially offset by higher bad debt expense due to an increase in uninsured AR balance, return to more normalized travel expenses and higher compliance costs. S&A expenses increased as a percentage of net sales due to lower net sales. |
| Intangible Asset Amortization | ||||||||||||||||||||||||
| Thirteen Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Intangible asset amortization | $ | 624 | 0.4 | % | $ | 334 | 0.2 | % | $ | 290 | 86.8 | % | ||||||||||||
■ | The Domestic Upholstery segment’s S&A expenses decreased in absolute terms and remained flat as a percentage of net sales in the fiscal 2024 first quarter. The decrease was primarily due to lower selling costs resulting from decreased net sales, the absence of accelerated depreciation expense on its ERP system in the prior year period, as well as decreased wage expenses. The decrease was partially offset by increased benefits expense driven by higher medical claims, higher professional service fees, and other general spending. |
■ | All Other S&A expenses increased in the fiscal 2024 first quarter due to increased selling costs on over 60% net sales increase. |
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 the currentfiscal 2024 first quarter 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 and Margin | Operating Profit/(Loss) and Margin | |||||||||||||||||||||||||||||||||||||||||||||||
| Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | April 30, | May 1, | |||||||||||||||||||||||||||||||||||||||||||
| % Net Sales | % Net Sales | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||
| Hooker Casegoods | $ | 3,990 | 11.0 | % | $ | 5,092 | 13.8 | % | $ | (1,102 | ) | -21.6 | % | |||||||||||||||||||||||||||||||||||
| Upholstery | 2,199 | 8.2 | % | 1,178 | 6.0 | % | 1,021 | 86.7 | % | |||||||||||||||||||||||||||||||||||||||
% Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||
Hooker Branded | $ | 2,300 | 5.5 | % | $ | 4,142 | 9.8 | % | $ | (1,842 | ) | -44.5 | % | |||||||||||||||||||||||||||||||||||
| Home Meridian | 4,607 | 5.0 | % | 3,503 | 4.1 | % | 1,104 | 31.5 | % | (2,119 | ) | -5.1 | % | (3,095 | ) | -5.0 | % | 976 | 31.5 | % | ||||||||||||||||||||||||||||
Domestic Upholstery | 1,328 | 3.8 | % | 2,752 | 6.7 | % | (1,424 | ) | -51.7 | % | ||||||||||||||||||||||||||||||||||||||
| All Other | 409 | 14.6 | % | 165 | 6.1 | % | 244 | 147.9 | % | 466 | 16.1 | % | 124 | 7.0 | % | 342 | 275.8 | % | ||||||||||||||||||||||||||||||
| Intercompany Eliminations | - | 1 | (1 | ) | -100.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 11,205 | 7.1 | % | $ | 9,939 | 6.8 | % | $ | 1,266 | 12.7 | % | $ | 1,975 | 1.6 | % | $ | 3,923 | 2.7 | % | $ | (1,948 | ) | -49.7 | % | |||||||||||||||||||||||
Operating profitability increased for the fiscal 2018 third quarterprofit and margin decreased as compared to the prior year quarter both as a percentage of net sales and in absolute terms, due to the factors discussed above. Shenandoah’s October operating profitability of $197,000, net of $290,000 in intangible asset amortization expense on Acquisition-related intangibles, is included in the Upholstery segment’s results.
| Interest Expense, net | ||||||||||||||||||||||||
| Thirteen Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Consolidated interest expense, net | $ | 327 | 0.2 | % | $ | 245 | 0.2 | % | $ | 82 | 33.5 | % | ||||||||||||
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 increased primarilywas higher in fiscal 2024 first quarter due to increased interest rates on our variable-ratethe term loans, and the addition of the New Unsecured Term Loan during the quarter.which we entered into in July 2022.
Income taxes | ||||||||||||||||||||||||||||||||||||||||||||||||
| Income taxes | Thirteen Weeks Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| Thirteen Weeks Ended | April 30, | May 1, | ||||||||||||||||||||||||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||
| % Net Sales | % Net Sales | % Net Sales | % Net Sales | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Consolidated income tax expense | $ | 4,006 | 2.5 | % | $ | 3,453 | 2.4 | % | $ | 553 | 16.0 | % | $ | 402 | 0.3 | % | $ | 991 | 0.7 | % | $ | (589 | ) | -59.4 | % | |||||||||||||||||||||||
| Effective Tax Rate | 35.7 | % | 34.8 | % | 21.7 | % | 23.7 | % | ||||||||||||||||||||||||||||||||||||||||
We recorded income tax expenseexpenses of $4 million$402,000 and $991,000 for the fiscal 2018 third quarter compared to $3.5 million for the comparable prior year period.2024 and fiscal 2023 first quarters, respectively. The effective tax rates for the fiscal 20182024 and 2017 third quarter2021 first quarters were 35.7%21.7% and 34.8%23.7%, respectively. Our effective tax rate was higher in the fiscal 2018 third quarter primarily due to higher state tax expense. Higher state tax expense was due to tax nexus in an additional state during the quarter.
| Net Income | ||||||||||||||||||||||||
| Thirteen Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Consolidated | $ | 7,202 | 4.6 | % | $ | 6,459 | 4.4 | % | $ | 743 | 11.5 | % | ||||||||||||
| Basic earnings per share | $ | 0.62 | $ | 0.56 | ||||||||||||||||||||
| Diluted earnings per share | $ | 0.61 | $ | 0.56 | ||||||||||||||||||||
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 | ||||||||||||||||||||
| Net Sales | ||||||||||||||||||||||||
| Thirty-Nine Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Hooker Casegoods | $ | 104,067 | 23.4 | % | $ | 103,372 | 25.6 | % | $ | 695 | 0.7 | % | ||||||||||||
| Upholstery | 71,247 | 16.0 | % | 61,404 | 15.2 | % | 9,843 | 16.0 | % | |||||||||||||||
| Home Meridian | 262,173 | 58.9 | % | 231,391 | 57.4 | % | 30,782 | 13.3 | % | |||||||||||||||
| All Other | 7,627 | 1.7 | % | 7,125 | 1.8 | % | 502 | 7.0 | % | |||||||||||||||
| Consolidated | $ | 445,114 | 100 | % | $ | 403,292 | 100 | % | $ | 41,822 | 10.4 | % | ||||||||||||
Outlook
| Unit Volume | FY18 YTD % Change vs. FY17 YTD | Average Selling Price (ASP) | FY18 YTD % Change vs. FY17 YTD | |||||||
| Hooker Casegoods | 0.5 | % | Hooker Casegoods | 0.5 | % | |||||
| Upholstery | 19.1 | % | Upholstery | -2.9 | % | |||||
| Home Meridian | 19.3 | % | Home Meridian | -5.0 | % | |||||
| All Other | -4.9 | % | All Other | 12.2 | % | |||||
| Consolidated | 16.7 | % | Consolidated | -5.3 | % | |||||
While retail conditions remain mixed and economic uncertainties continue, we saw increases in consolidated net sales increasedincoming orders in all reporting segments, led by increases of $30.8 million in the Home Meridian segment and a $9.8 million in the Upholstery segment. The Home Meridian segment’s unit volume increased primarily due to increased sales to mega and e-commerce accounts. The decrease in Home Meridian segment ASP was attributable to customer mix. Hooker Casegoods segment unit volume and ASP slightly increased in the nine-month period.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.
Following Hooker Casegoods sales were flat dueLegacy 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 softening in retailnew 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, sales inrecently relocated from Chicago. At HMI, we expect the traditional furniture channels in which that segment competes, a trend which we believe is occurring throughout the industry. Unit volume in the Upholstery segment increased primarily duepreviously announced inventory liquidations to increased sales at Hooker Upholstery and due to the inclusion of Shenandoah’s October sales. Upholstery segment ASP decreased due to the increased proportion of lower priced Hooker Upholstery and Sam Moore products sold during the period. ASP increased in our All Other segment due to the increased H Contract sales and increased share of H Contract sales as a part of All Other sales, as the liquidation of Homeware inventory wasbe substantially completed atby the end of second quarter.
| Gross Profit and Margin | ||||||||||||||||||||||||
| Thirty-Nine Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Hooker Casegoods | $ | 32,984 | 31.7 | % | $ | 32,897 | 31.8 | % | $ | 87 | 0.3 | % | ||||||||||||
| Upholstery | 17,255 | 24.2 | % | 14,029 | 22.8 | % | 3,226 | 23.0 | % | |||||||||||||||
| Home Meridian | 42,875 | 16.4 | % | 36,865 | 15.9 | % | 6,010 | 16.3 | % | |||||||||||||||
| All Other | 2,420 | 31.7 | % | 2,204 | 30.9 | % | 216 | 9.8 | % | |||||||||||||||
| Intercompany Eliminations | 4 | 8 | (4 | ) | -50.0 | % | ||||||||||||||||||
| Consolidated | $ | 95,538 | 21.5 | % | $ | 86,003 | 21.3 | % | $ | 9,535 | 11.1 | % | ||||||||||||
| Selling and Administrative Expenses | ||||||||||||||||||||||||
| Thirty-Nine Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Hooker Casegoods | $ | 21,066 | 20.2 | % | $ | 21,383 | 20.7 | % | $ | (317 | ) | -1.5 | % | |||||||||||
| Upholstery | 10,158 | 14.3 | % | 9,773 | 15.9 | % | 385 | 3.9 | % | |||||||||||||||
| Home Meridian | 31,216 | 11.9 | % | 28,108 | 12.1 | % | 3,108 | 11.1 | % | |||||||||||||||
| All Other | 1,699 | 22.3 | % | 1,774 | 24.9 | % | (75 | ) | -4.2 | % | ||||||||||||||
| Consolidated | $ | 64,139 | 14.4 | % | $ | 61,038 | 15.1 | % | $ | 3,101 | 5.1 | % | ||||||||||||
| Intangible Asset Amortization | ||||||||||||||||||||||||
| Thirty-Nine Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Intangible asset amortization | $ | 1,291 | 0.3 | % | $ | 2,801 | 0.7 | % | $ | (1,510 | ) | -53.9 | % | |||||||||||
| Operating Profit and Margin | ||||||||||||||||||||||||
| Thirty-Nine Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Hooker Casegoods | $ | 11,918 | 11.5 | % | $ | 11,514 | 11.1 | % | $ | 404 | 3.5 | % | ||||||||||||
| Upholstery | 6,807 | 9.6 | % | 4,256 | 6.9 | % | 2,551 | 59.9 | % | |||||||||||||||
| Home Meridian | 10,658 | 4.1 | % | 5,956 | 2.6 | % | 4,702 | 78.9 | % | |||||||||||||||
| All Other | 721 | 9.5 | % | 430 | 6.0 | % | 291 | 67.7 | % | |||||||||||||||
| Intercompany Eliminations | 4 | 8 | (4 | ) | -50.0 | % | ||||||||||||||||||
| Consolidated | $ | 30,108 | 6.8 | % | $ | 22,164 | 5.5 | % | $ | 7,944 | 35.8 | % | ||||||||||||
| Interest Expense, net | ||||||||||||||||||||||||
| Thirty-Nine Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Consolidated interest expense, net | $ | 860 | 0.2 | % | $ | 755 | 0.2 | % | $ | 105 | 13.9 | % | ||||||||||||
| Income taxes | ||||||||||||||||||||||||
| Thirty-Nine Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Consolidated income tax expense | $ | 10,574 | 2.4 | % | $ | 7,737 | 1.9 | % | $ | 2,837 | 36.7 | % | ||||||||||||
| Effective Tax Rate | 34.9 | % | 35.1 | % | ||||||||||||||||||||
| Net Income | ||||||||||||||||||||||||
| Thirty-Nine Weeks Ended | ||||||||||||||||||||||||
| October 29, 2017 | October 30, 2016 | $ Change | % Change | |||||||||||||||||||||
| % Net Sales | % Net Sales | |||||||||||||||||||||||
| Consolidated | $ | 19,726 | 4.4 | % | $ | 14,308 | 3.5 | % | $ | 5,418 | 37.9 | % | ||||||||||||
| Basic earnings per share | $ | 1.70 | $ | 1.24 | ||||||||||||||||||||
| Diluted earnings per share | $ | 1.69 | $ | 1.23 | ||||||||||||||||||||
We continue to Part II Item 1A “Risk Factors” in this report for changes to our risk factors as a result of the Acquisition. For a complete discussion of our risk factors, you should carefully review the detailed discussionsfocus on organic growth opportunities through expanded visibility, strategic product development, operational improvements, and cost reductions. We believe by focusing on these controllables, we will be in the "Risk Factors" and "Business" section in our Annual Report on Form 10-K filed withstrongest possible position when the SEC on April 14, 2017.demand environment improves.
Financial Condition, Liquidity and Capital Resources
Cash Flows – Operating, Investing and Financing Activities
| Thirty-Nine Weeks Ended | ||||||||
| October 29, | October 30, | |||||||
| 2017 | 2016 | |||||||
| Net cash provided by operating activities | $ | 25,065 | $ | 31,265 | ||||
| Net cash used in investing activities | (35,899 | ) | (87,625 | ) | ||||
| Net cash provided by financing activities | 3,399 | 45,544 | ||||||
| Net decrease in cash and cash equivalents | $ | (7,435 | ) | $ | (10,816 | ) | ||
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 ninethree months period ended October 29, 2017,April 30, 2023, we used a portion of the $22.4 million cash generated from operations to fund $4.3 million share repurchases, $3.2 million capital expenditures including investments in our new showroom, $2.4 million in cash dividends to our shareholders, $1.3 million for development of our cloud-based ERP system, and $107,000 in life insurance premiums on Company-owned life insurance policies.
In comparison, during the three months ended May 1, 2022, we used a portion of the existing cash and cash equivalents on hand and $12 million term-loan proceeds helpedto build up inventory levels, fund the Acquisition, pay $4.4 million in long-term debt payments, cash dividends of $4.2 million and capital expenditures of $2.7 million to enhance our business systems and facilities.
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 |
■ | cash surrender value of Company-owned life insurance. |
The most significant components of our working capital are inventory, 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 requirements through fiscal 2018ERP 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 greatest in the mid-summer as a result of inventory build-up for the foreseeable future, including:traditional fall selling season. Long term cash requirements relate primarily to funding lease payments and repayment of long-term debt.
Loan AgreementAgreements and Revolving Credit Facility
On September 29, 2017,July 26, 2022, we entered into a second amendedthe Fourth Amendment to the Second Amended and restated loan agreementRestated Loan Agreement (the “Loan Agreement”“Amendment”) with Bank of America, N.A. (“BofA”) in connection withto replenish cash used to make the completion of the Acquisition Note 2. “Acquisition,” above.Sunset Acquisition. The Loan Agreement amends and restates the amended and restated loan agreement that the Company entered into with BofA on February 1, 2016. TheSecond Amended and Restated Loan Agreement provides us withdated as of September 29, 2017, had previously been amended by a new $12 million unsecured term loan (the “NewFirst 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 the Amendment, the expiration date of the existing $35 million Unsecured Revolving Credit Facility (the “Existing Revolver”) was extended to July 26, 2027. Any amounts outstanding will bear interest at a rate per annum, equal to the then current Bloomberg Short-Term Bank Yield Index (“BSBY”) (adjusted periodically) plus 1.00%. The interest rate will be adjusted on a monthly basis. The actual daily amount of undrawn letters of credit is subject to a quarterly fee equal to a per annum rate of 1%. We must also pay a quarterly unused commitment fee that is based on the average daily amount of the facility utilized during the applicable quarter; |
■ | 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”).
We may prepayincurred $37,500 in debt issuance costs in connection with our term loans. As of April 30, 2023, unamortized loan costs of $31,875 were netted against the outstanding principal amount under the New Unsecured Term Loan, in full or in part,carrying value of our term loans on any interest payment date without penalty. On September 29, 2017, we borrowed the full $12 million available under the New Unsecured Term Loan.our condensed consolidated balance sheets.
The Loan AgreementAmendment 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 |
o | 2.25:1.0 through |
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 |
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 October 29, 2017April 30, 2023 and expect to remain in compliance with existing covenants through fiscal 2018 and for the foreseeable future.
As of October 29, 2017,April 30, 2023, we had an aggregate $28.5$27.2 million available under our revolving credit facility$35 million Existing Revolver to fund working capital needs. Standby letters of credit in the aggregate amount of $1.5$7.8 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facilityExisting Revolver as of October 29, 2017.April 30, 2023. There were no additional borrowings outstanding under the revolving credit facility on October 29, 2017.
| Estimated Additional Cash Payments Due by Period (In thousands) | ||||||||||||||||||||
| Less than | More than | |||||||||||||||||||
| 1 Year | 1-3 Years | 3-5 Years | 5 years | Total | ||||||||||||||||
| Long-Term Debt Obligations (1) | $ | 1,716 | $ | 3,432 | $ | 6,852 | $ | - | $ | 12,000 | ||||||||||
| Operating leases (2) | 821 | 1,643 | 1,643 | 1,643 | 5,750 | |||||||||||||||
| Total contractual cash obligations | $ | 2,537 | $ | 5,075 | $ | 8,495 | $ | 1,643 | $ | 17,750 | ||||||||||
Share Repurchase Authorization
In fiscal 2013,2023, our boardBoard of directorsDirectors authorized the repurchase of up to $12.5$20 million of shares of the Company’s common stock.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 boardBoard of directors.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 Agreementloan agreement for our revolving credit facility and other factors we deem relevant. No shares have been repurchased since fiscal 2013. Approximately $11.8 million remained available for future repurchases under the authorization as of October 29, 2017.
During the first quarter of our 2020 fiscal year. We are currently evaluating the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and have not made any decision on the method of adoption with respect to the optional practical expedients.
Capital Expenditures
We expect to spend approximately $2.0-3.0 million in capital expenditures over the remainder of fiscal 2024 to maintain and enhance our operating systems and facilities.
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. The ERP system went live at Sunset West in December 2022 and is expected to go live in other legacy Hooker divisions in fiscal 2024, with the exceptionHome Meridian segment following afterwards. To complete the ERP system implementation as anticipated, we will be required to expend significant financial and human resources. We anticipate spending approximately $2.5 million over the remainder of the newly acquired operationsfiscal 2024, with a significant amount of Shenandoah, we estimatetime invested by our analysis is approximately fifty percent complete. Implementation matters remaining include completingassociates.
Dividends
On June 5, 2023, our analysis, assessing accounting policy elections and disclosures under the new guidance and evaluating the systems, processes and controlsboard of directors declared a quarterly cash dividend of $0.22 per share which will be paid on June 30, 2023 to support any possible changes to our revenue recognition practices. Based on our analysis to date, we do not believe the standard will have a material effect on our financial statements. However, our analysis is not yet complete and this preliminary conclusion is subject to change. We expect our evaluationshareholders of the impact of adopting ASU No. 2014-09 to be completed in the fourth quarter of our 2018 fiscal year, which ends January 28, 2018.record at 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 20172023 Annual Report.
Item 3. Quantitative and Qualitative Disclosures aboutAbout 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 fluctuationschanges 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 Loanloan bear interest based on LIBORBSBY plus 1.5%1.00%, BSBY plus 0.90% and borrowings under the Secured Term Loan bear interest based on LIBORBSBY plus 0.5%.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 October 29, 2017,April 30, 2023 other than standby letters of credit in the amount of $1.5$7.8 million. However, asAs of October 29, 2017, $55.2April 30, 2023, $23.9 million was outstanding under our term loans. A 1% increase in the LIBORBSBY rate would result in an annual increase in interest expenses on our terms loans of approximately $512,000.$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: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 geopoliticalgeo-political factors.
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 October 29, 2017.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 October 29, 2017April 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 September 29, 2017,January 31, 2022, we completedclosed on the acquisition of substantially all of the assets of Shenandoah Furniture, Inc.Sunset HWM, LLC (“Sunset West"). As permitted by SEC guidance for newly acquired businesses, we intend to exclude the Shenandoahexcluded Sunset West’s operations from the scope of our Sarbanes-Oxley Section 404 report on internal controls over financial reporting for the year endedending January 28, 2018.29, 2023. We are in the process of implementing our internal control in the Shenandoah operationsstructure at Sunset West and expect that this effort will be completed in fiscal 2019.2024.
There have been no changes in our internal control over financial reporting during the fiscal quarter ended October 29, 2017,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 1A. Risk Factors
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.
Exhibits4.1 | 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) |
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
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: | /s/Paul A. Huckfeldt | |
Paul A. Huckfeldt | |||
Chief Financial Officer and Senior Vice President – Finance and Accounting | |||