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 NovemberAugust 1, 20202021

 

Commission file number 000-25349

 

HOOKER FURNITURE 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’sRegistrants 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, every Interactive Data File required to be submitted 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 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”, “smaller reporting 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 Act:

 

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 December 4, 2020,September 3, 2021, there were 11,887,272 11,923,986 shares of the registrant’s common stock outstanding.

 


 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1816

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

3528

Item 4.

Controls and Procedures

3628

PART II. OTHER INFORMATION

Item 6.

Exhibits

3729

Signature

3830

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

As of

 

November 1,

  

February 2,

  

August 1,

  

January 31,

 
 

2020

  

2020

  

2021

  

2021

 
 

(unaudited)

      

(unaudited)

     

Assets

                

Current assets

                

Cash and cash equivalents

 $93,874  $36,031  $37,411  $65,841 

Trade accounts receivable, net

  75,297   87,653   98,294   83,290 

Inventories

  64,083   92,813   103,595   70,159 

Income tax recoverable

  0   751 

Prepaid expenses and other current assets

  4,543   4,719   7,783   4,432 

Total current assets

  237,797   221,967   247,083   223,722 

Property, plant and equipment, net

  27,315   29,907   27,965   26,780 

Cash surrender value of life insurance policies

  25,104   24,888   26,332   25,365 

Deferred taxes

  14,152   2,880   12,504   14,173 

Operating leases right-of-use assets

  36,322   39,512   26,176   34,613 

Intangible assets, net

  26,833   33,371   25,045   26,237 

Goodwill

  490   40,058   490   490 

Other assets

  1,244   1,125   2,413   893 

Total non-current assets

  131,460   171,741   120,925   128,551 

Total assets

 $369,257  $393,708  $368,008  $352,273 
                

Liabilities and Shareholders’ Equity

        

Liabilities and ShareholdersEquity

        

Current liabilities

                

Current portion of term loans

 $25,741  $5,834 

Trade accounts payable

  28,452   25,493  $40,685  $32,213 

Accrued salaries, wages and benefits

  4,491   4,933   6,979   7,136 

Income tax payable

  2,015   0 

Income tax accrual

  917   501 

Customer deposits

  4,319   3,351   7,557   4,256 

Current portion of lease liabilities

  6,772   6,307   5,942   6,650 

Other accrued expenses

  3,045   4,211   2,848   3,354 

Total current liabilities

  74,835   50,129   64,928   54,110 

Long term debt

  0   24,282 

Deferred compensation

  11,162   11,382   10,848   11,219 

Lease liabilities

  30,937   33,794   21,801   29,441 

Other long-term liabilities

  1,187   0 

Total long-term liabilities

  43,286   69,458   32,649   40,660 

Total liabilities

  118,121   119,587   97,577   94,770 
                

Shareholders’ equity

                

Common stock, no par value, 20,000 shares authorized,

11,887 and 11,838 shares issued and outstanding on each date

  53,055   51,582 

Common stock, no par value, 20,000 shares authorized,

11,924 and 11,888 shares issued and outstanding on each date

  53,473   53,323 

Retained earnings

  198,601   223,252   217,613   204,988 

Accumulated other comprehensive loss

  (520)  (713)  (655)  (808)

Total shareholders’ equity

  251,136   274,121   270,431   257,503 

Total liabilities and shareholders’ equity

 $369,257  $393,708  $368,008  $352,273 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

3

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

For the

  

For the

 
 

Thirteen Weeks Ended

  

Thirty-Nine Weeks Ended

  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
 

Nov 1,

  

Nov 3,

  

Nov 1,

  

Nov 3,

  

August 1,

  

August 2,

  

August 1,

  

August 2,

 
 

2020

  

2019

  

2020

  

2019

  

2021

  

2020

  

2021

  

2020

 
                                

Net sales

 $149,687  $158,176  $384,821  $445,942  $162,519  $130,537  $325,379  $235,134 
                                

Cost of sales

  116,204   129,777   305,684   363,201   130,802   103,537   260,080   189,480 
                                

Gross profit

  33,483   28,399   79,137   82,741   31,717   27,000   65,299   45,654 
                                

Selling and administrative expenses

  19,850   22,810   57,920   67,286   21,460   18,892   42,204   38,070 

Goodwill impairment charges

  0   0   39,568   0   0   0   0   39,568 

Trade name impairment charges

  0   0   4,750   0   0   0   0   4,750 

Intangible asset amortization

  596   596   1,788   1,788   596   596   1,192   1,192 
                                

Operating income / (loss)

  13,037   4,993   (24,889)  13,667 

Operating income/(loss)

  9,661   7,512   21,903   (37,926)
                                

Other income, net

  158   309   107   215 

Other income/(expense), net

  21   (10)  27   (51)

Interest expense, net

  106   316   433   986   23   118   54   327 
                                

Income/(loss) before income taxes

  13,089   4,986   (25,215)  12,896   9,659   7,384   21,876   (38,304)
                                

Income tax expense / (benefit)

  2,996   1,066   (6,263)  2,829 

Income tax expense/(benefit)

  2,192   1,610   4,966   (9,259)
                                

Net income/(loss)

 $10,093  $3,920  $(18,952) $10,067  $7,467  $5,774  $16,910  $(29,045)
                                

Earnings/(Loss) per share

                

Earnings/(loss) per share

                

Basic

 $0.85  $0.33  $(1.61) $0.85  $0.63  $0.49  $1.42  $(2.46)

Diluted

 $0.84  $0.33  $(1.61) $0.85  $0.62  $0.48  $1.40  $(2.46)
                                

Weighted average shares outstanding:

                                

Basic

  11,833   11,789   11,818   11,782   11,850   11,824   11,842   11,811 

Diluted

  11,939   11,816   11,818   11,821   11,993   11,853   11,985   11,811 
                                

Cash dividends declared per share

 $0.16  $0.15  $0.48  $0.45  $0.18  $0.16  $0.36  $0.32 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

4

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

(Unaudited)

  

For the

 
  

Thirteen Weeks Ended

  

Thirty-Nine Weeks Ended

 
  

Nov 1,

  

Nov 3,

  

Nov 1,

  

Nov 3,

 
  

2020

  

2019

  

2020

  

2019

 
                 

Net income/(loss)

 $10,093  $3,920  $(18,952) $10,067 

       Other comprehensive income (loss):

                

                Gain on pension plan settlement

  0   (520)  0   (520)

                 Income tax effect on settlement

  0   124   0   124 

                 Amortization of actuarial loss

  84   37   253   111 

                 Income tax effect on amortization

  (20)  (9)  (60)  (27)

        Adjustments to net periodic benefit cost

  64   (368)  193   (312)
                 

Total Comprehensive Income/(Loss)

 $10,157  $3,552  $(18,759) $9,755 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

(Unaudited)

  

For the

 
  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
  

August 1,

  

August 2,

  

August 1,

  

August 2,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Net Income/(Loss)

 $7,467  $5,774  $16,910  $(29,045)

Other comprehensive income (loss):

                

Amortization of actuarial loss

  100   84   201   168 

Income tax effect on amortization

  (24)  (20)  (48)  (40)

Adjustments to net periodic benefit cost

  76   64   153   128 
                 

Total Comprehensive Income/(Loss)

 $7,543  $5,838  $17,063  $(28,917)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

For the

  

For the

 
 

Thirty-Nine Weeks Ended

  

Twenty-Six Weeks Ended

 
 

Nov 1,

  

Nov 3,

  

August 1,

  

August 2,

 
 

2020

  

2019

  

2021

  

2020

 

Operating Activities:

                

Net (loss)/income

 $(18,952) $10,067 

Net income/(loss)

 $16,910  $(29,045)

Adjustments to reconcile net income to net cash

provided by operating activities:

                

Goodwill and intangible asset impairment charges

  44,318   0   0   44,318 

Depreciation and amortization

  5,052   5,260   3,583   3,365 

Gain on pension settlement

  0   (520)

Gain on disposal of assets

  0   (271)

Deferred income tax (benefit) / expense

  (10,143)  1,461 

Deferred income tax expense/(benefit)

  1,621   (10,665)

Noncash restricted stock and performance awards

  1,473   891   150   1,046 

Provision for doubtful accounts and sales allowances

  4,527   1,365   (340)  3,396 

Gain on life insurance policies

  (1,750)  (715)  (704)  (651)

Changes in assets and liabilities:

                

Trade accounts receivable

  7,829   18,589   (14,663)  17,142 

Inventories

  28,730   1,589   (33,435)  25,106 

Income tax recoverable

  751   (2,348)  0   751 

Prepaid expenses and other current assets

  620   (638)  (4,663)  (1,261)

Trade accounts payable

  2,947   (13,456)  8,362   (1,391)

Accrued salaries, wages, and benefits

  (441)  (2,553)  (158)  (726)

Accrued income taxes

  2,015   (3,159)  417   975 

Customer deposits

  967   10,006   3,302   977 

Operating lease liabilities

  797   536   89   678 

Other accrued expenses

  (1,165)  350   (507)  (867)

Deferred compensation

  32   156   (171)  20 

Net cash provided by operating activities

 $67,607  $26,610 

Net cash (used in)/provided by operating activities

 $(20,207) $53,168 
                

Investing Activities:

                

Purchases of property and equipment

  (642)  (4,745)  (3,465)  (484)

Proceeds received on notes from sale of assets

  0   1,465 

Premiums paid on life insurance policies

  (519)  (558)  (473)  (453)

Proceeds received on life insurance policies

  1,489   0   0   673 

Net cash provided by/(used in) investing activities

  328   (3,838)

Net cash used in investing activities

  (3,938)  (264)
                

Financing Activities:

                

Cash dividends paid

  (4,285)  (3,796)

Payments for long-term debt

  (4,393)  (4,393)  0   (2,929)

Cash dividends paid

  (5,699)  (5,316)

Cash used in financing activities

  (10,092)  (9,709)  (4,285)  (6,725)
                

Net increase in cash and cash equivalents

  57,843   13,063 

Net (decrease)/increase in cash and cash equivalents

  (28,430)  46,179 

Cash and cash equivalents - beginning of year

  36,031   11,435   65,841   36,031 

Cash and cash equivalents - end of quarter

 $93,874  $24,498  $37,411  $82,210 
                

Supplemental disclosure of cash flow information:

                

Cash paid for income taxes

 $2,301  $6,754  $2,929  $220 

Cash paid for interest, net

  365   852   1   295 
                

Non-cash transactions:

                

Increase in lease liabilities arising from obtaining right-of-use assets

 $2,103  $272 
Decrease in lease liabilities arising from changes in right-of-use assets $(4,919) $(1,987)

Increase in property and equipment through accrued purchases

  12   25   111   41 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except per share data)

HOOKER FURNITURE 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 February 3, 2019

  11,785  $49,549  $213,380  $247  $263,176 

Net income

          10,067       10,067 

Gain on pension settlement, net of tax of $124

              (396)  (396)

Unrealized loss on defined benefit plan, net of tax of $27

              84   84 

Cash dividends paid and accrued ($0.15 per share)

          (5,316)      (5,316)

Restricted stock grants, net of forfeitures

  53   344           344 

Restricted stock compensation cost

      600           600 

Recognition of PSUs as equity-based awards

      684           684 

      Balance at November 3, 2019

  11,838  $51,177  $218,131  $(65) $269,243 
                     
                     
                     

      Balance at February 2, 2020

  11,838  $51,582  $223,252  $(713) $274,121 

Net loss

          (18,952)      (18,952)

Unrealized loss on defined benefit plan, net of tax of $60

              193   193 

Cash dividends paid and accrued ($0.16 per share)

          (5,699)      (5,699)

Restricted stock grants, net of forfeitures

  49   169           169 

Restricted stock compensation cost

      651           651 

Performance-based restricted stock units cost

      653           653 

      Balance at November 1, 2020

  11,887  $53,055  $198,601  $(520) $251,136 
              

Accumulated

     
              

Other

  

Total

 
  

Common Stock

  

Retained

  

Comprehensive

  

Shareholders'

 
  

Shares

  

Amount

  

Earnings

  

Income (loss)

  

Equity

 

Balance at February 2, 2020

  11,838  $51,582  $223,252  $(713) $274,121 

Net loss

          (29,045)      (29,045)

Unrealized loss on defined benefit plan, net of tax of $40

              128   128 

Cash dividends paid and accrued ($0.16 per share)

          (3,796)      (3,796)

Restricted stock grants, net of forfeitures

  52   169           169 

Restricted stock compensation cost

      442           442 

Performance-based restricted stock units costs

      435           435 

Balance at August 2, 2020

  11,890  $52,628  $190,411  $(585) $242,454 
                     
                     
                     
                     

Balance at January 31, 2021

  11,888  $53,323  $204,988  $(808) $257,503 

Net income

          16,910       16,910 

Unrealized loss on defined benefit plan, net of tax of $48

              153   153 

Cash dividends paid and accrued ($0.18 per share)

          (4,285)      (4,285)

Restricted stock grants, net of forfeitures

  36               - 

Restricted stock compensation cost

      597           597 

Performance-based restricted stock units costs

      293           293 

PSU awards

      (740)          (740)

Balance at August 1, 2021

  11,924  $53,473  $217,613  $(655) $270,431 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

HOOKER FURNITURE 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-NineTwenty-Six Weeks Ended NovemberAugust 1, 20202021

 

1.Preparation of Interim Financial Statements

 

The condensed consolidated financial statements of Hooker Furniture 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”). 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 February 2, 2020January 31, 2021 (“20202021 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 20212022 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third“second quarter” or “quarterly period”) that began AugustMay 3, 2020,2021, and the thirty-ninetwenty-six week period (also referred to as “nine“six months”, “nine-month“six-month period” or “year-to-date period”“first half”) that began February 1, 2021, which both ended August 1, 2021. This report discusses our results of operations for these periods compared to the 2021 fiscal year thirteen-week period that began May 4, 2020, and the twenty-six-week period that began February 3, 2020, which both ended November 1, 2020. This report discusses our results of operations for this period compared to the 2020 fiscal year thirteen-week period that began August 5, 2019 and the thirty-nine week period that began February 4, 2019, which both ended November 3, 2019;2, 2020; and our financial condition as of November 1, 2020August 1,2021 compared to February 2, 2020.January 31, 2021.

 

References in these notes to the condensed consolidated financial statements of the Company to:

 

 

the 2022 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 1, 2021 and will end January 30, 2022; and

the 2021 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 3, 2020 and will endended January 31, 2021; and2021.

the 2020 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 4, 2019 and ended February 2, 2020.

We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary. In the fourth quarter of fiscal 2020, we updated our reportable segments. Consequently, the segment disclosures in this filing have been recast to reflect these changes and therefore differ from prior year quarterly filings. See Note 13 Segment Information for additional details.

 

2. Recently Adopted Accounting Policies

 

In June 2016,August 2018, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). This update seeksNo. 2018-14, Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date.Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). The amendments require an entity to replacein this update change the incurred loss impairment methodology in current GAAP with a methodologydisclosure requirements for employers that reflects current expected credit lossessponsor defined benefit pension and/or other post-retirement benefit plans. It eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.new disclosures that the FASB considers pertinent. The amendments areguidance is effective for fiscal years and interim periods within those fiscal years, beginningending after December 15, 2019.2020. We adopted this guidance in the provisions of Topic 326 on February 3, 2020, thefiscal 2022 first day of our 2021 fiscal year.quarter. The adoption of this standardASU 2018-14 did not have a material effectimpact on our condensed consolidated financial statements or results of operations. We will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.disclosures.

3.Accounts Receivable

 

  

August 1,

  

January 31,

 
  

2021

  

2021

 
         

Trade accounts receivable

 $107,672  $92,621 

Other accounts receivable allowances

  (6,771)  (6,993)

Allowance for doubtful accounts

  (2,607)  (2,338)

Accounts receivable

 $98,294  $83,290 

8

 

In December 2019, the FASB issued ASU 2019-12, Income Tax (Topic 740) – Simplifying the Accounting4. Inventories

  

August 1,

  

January 31,

 
  

2021

  

2021

 

Finished furniture

 $111,920  $81,290 

Furniture in process

  1,892   1,397 

Materials and supplies

  13,119   9,639 

Inventories at FIFO

  126,931   92,326 

Reduction to LIFO basis

  (23,336)  (22,167)

Inventories

 $103,595  $70,159 

5.Property, Plant and Equipment

  

Depreciable Lives

  

August 1,

  

January 31,

 
  

(In years)

  

2021

  

2021

 
            

Buildings and land improvements

 15 - 30  $31,930  $31,316 

Computer software and hardware

 3 - 10   15,232   15,012 

Machinery and equipment

 10   10,047   9,314 

Leasehold improvements

 

Term of lease

   10,471   10,005 

Furniture and fixtures

 3 - 10   2,679   2,614 

Other

 5   674   651 

Total depreciable property at cost

     71,033   68,912 

Less accumulated depreciation

     46,415   44,098 

Total depreciable property, net

     24,618   24,814 

Land

     1,077   1,077 

Construction-in-progress

     2,270   889 

Property, plant and equipment, net

    $27,965  $26,780 

The increase in construction-in-progress (“CIP”) is primarily due to (1) assets purchased for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions for intra-period tax allocation, the recognition of deferred tax liabilities after an investment in a foreign entity transitionsour leased Georgia distribution facility which are expected to or from the equity method, and the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments also introduce new guidance on determining how to apply the income tax guidance to franchise taxes that are partially based on income, clarifying the accounting for transactions that result in a step-upbe placed into service in the tax basissecond half of goodwill,the current fiscal year and (2) lower prior year CIP balances due to cash preservation efforts at the effectonset of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We elected to adopt ASU 2019-12 on February 3, 2020, the first day of our 2021 fiscal year. The adoption of this standard resulted in additional $4.0 million of income tax benefit upon adoption. See Note 12 Income Taxes for additional details.COVID-19 crisis.

 

3.     Accounts Receivable

  

November 1,

  

February 2,

 
  

2020

  

2020

 
         

Trade accounts receivable

 $84,467  $91,261 

Receivable from factor

  0   788 

Other accounts receivable allowances

  (7,503)  (3,493)

Allowance for doubtful accounts

  (1,667)  (903)

   Accounts receivable

 $75,297  $87,653 

“Receivable from factor” represented amounts due with respect to factored accounts receivable. The agreement was discontinued in early fiscal 2021.

4.     Inventories

  

November 1,

  

February 2,

 
  

2020

  

2020

 

Finished furniture

 $76,943  $106,495 

Furniture in process

  1,297   1,304 

Materials and supplies

  7,585   8,479 

   Inventories at FIFO

  85,825   116,278 

Reduction to LIFO basis

  (21,742)  (23,465)

   Inventories

 $64,083  $92,813 

5.     Property, Plant and Equipment

  

Depreciable Lives

 

November 1,

  

February 2,

 
  

(In years)

 

2020

  

2020

 
           

Buildings and land improvements

 15 - 30 $31,316  $31,316 

Computer software and hardware

 3 - 10  19,294   19,166 

Machinery and equipment

 10  9,348   9,271 

Leasehold improvements

 

Term of lease

  9,882   9,737 

Furniture and fixtures

 3 - 10  2,617   2,597 

Other

 5  651   651 

   Total depreciable property at cost

    73,108   72,738 

Less accumulated depreciation

    47,335   44,089 

   Total depreciable property, net

    25,773   28,649 

Land

    1,077   1,077 

Construction-in-progress

    465   181 

   Property, plant and equipment, net

   $27,315  $29,907 

6. Fair Value Measurements

 

Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability (an 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 NovemberAugust 1, 20202021 and February 2, 2020,January 31, 2021, 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 November 1, 2020 and February 2, 2020, were as follows:

  

Fair value at November 1, 2020

  

Fair value at February 2, 2020

 

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

 $0  $25,104  $0  $25,104  $0  $24,888  $0  $24,888 

 

7.     Intangible AssetsOur assets measured at fair value on a recurring basis at August 1, 2021 and January 31, 2021, were as follows:

 

  

Fair value at August 1, 2021

  

Fair value at January 31, 2021

 

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

 $0  $26,332  $0  $26,332  $0  $25,365  $0  $25,365 

The adverse economic effects brought on by the COVID-19 pandemic, including reductions in our sales, earnings and market value, as well as other changing market dynamics, required that we perform a valuation of our intangible assets.

7.Intangible Assets

 

The calculation methodology for the fair value of our Home Meridian segment and the Shenandoah division of our Domestic Upholstery segment included three approaches: the Discounted Cash Flow Method (DCF) which was given the largest weighting, the Guideline Public Company Method (GPCM) based on the consideration of the facts of the Company’s peer competitors and the Guideline Transaction Method (GTM) based on consideration of transactions with varying risk profiles, geographies and market conditions.

The income approach, specifically the relief from royalty method, was used as the valuation methodology for our trade names and trademarks, based on cash flow projections and growth rates for each trade name for five years in the future provided by management, and a royalty rate benchmark for companies with similar activities.

As a result of our intangible asset valuation analysis, in the first quarter of fiscal 2021, we recorded $44.3 million non-cash impairment charges including $23.2 million to Home Meridian goodwill, $16.4 million to Shenandoah goodwill and $4.8 million to certain of Home Meridian segment’s trade names.

   Thirty-Nine Weeks Ended   
   

November 1, 2020

  

February 2, 2020

    

January 31, 2021

      

August 1, 2021

 

Non-amortizable Intangible Assets

 

Segment

 

Beginning Balance

  

Impairment Charges

  

Net Book Value

  

Beginning Balance

  

Impairment Charges

  

Net Book Value

  

Segment

 

Beginning Balance

  

Impairment Charges

  

Net Book Value

 

Goodwill

 

Home Meridian

 $23,187  $(23,187) $0  $23,187  $0  $23,187  

Domestic Upholstery

 $490  $0  $490 

Goodwill

 

Domestic Upholstery

  16,871   (16,381)  490   16,871   0   16,871 

Total Goodwill

  40,058   (39,568)  490   40,058   0   40,058 
                                        

Trademarks and trade names - Home Meridian

 

Home Meridian

  11,400   (4,750)  6,650   11,400   0   11,400  

Home Meridian

  6,650   0   6,650 

Trademarks and trade names - Bradington-Young

 

Domestic Upholstery

  861   0   861   861   0   861  

Domestic Upholstery

  861   0   861 

Trademarks and trade names - Sam Moore

 

Domestic Upholstery

  396   0   396   396   0   396  

Domestic Upholstery

  396   0   396 

Total Trademarks and trade names

Total Trademarks and trade names

 $12,657  $(4,750) $7,907  $12,657  $0  $12,657 

Total Trademarks and trade names

 $7,907  $0  $7,907 
                                        

Total non-amortizable assets

Total non-amortizable assets

 $52,715  $(44,318) $8,397  $52,715  $0  $52,715 

Total non-amortizable assets

 $8,397  $0  $8,397 

 

Our amortizable intangible assets are recorded in our Home Meridian and Domestic Upholstery segments. The carrying amounts and changes therein of those amortizable intangible assets were as follows:

 

  

Amortizable Intangible Assets

 
  

Customer

         
  

Relationships

  

Trademarks

  

Totals

 
             

Balance at February 2, 2020

 $19,996  $718  $20,714 

Amortization

  (1,743)  (45)  (1,788)

Balance at November 1, 2020

 $18,253  $673  $18,926 
  

Amortizable Intangible Assets

 
  

Customer

         
  

Relationships

  

Trademarks

  

Totals

 
             

Balance at January 31, 2021

 $17,672  $658  $18,330 

Amortization

  (1,162)  (30)  (1,192)

Balance at August 1, 2021

 $16,510  $628  $17,138 

 

For the remainder of fiscal 2021,2022, amortization expense is expected to be approximately $596,000.$1.2 million.

 

8. Leases

 

In fiscal 2020, we adopted Accounting Standards Codification Topic 842 Leases.We recognized sub-lease income of $144,000$150,000 for the three-month period and $432,000$296,000 for the nine-monthsix-month period, both ended NovemberAugust 1, 2020.2021. The components of lease cost and supplemental cash flow information for leases for the three-monththree-months and nine-monthsix-months ended NovemberAugust 1, 20202021 were:

 

 

Thirteen Weeks Ended

  

Thirty-Nine Weeks Ended

  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
 

November 1, 2020

  

November 3, 2019

  

November 1, 2020

  

November 3, 2019

  

August 1, 2021

  

August 2, 2020

  

August 1, 2021

  

August 2, 2020

 

Operating lease cost

 $2,061  $2,090  $6,319  $6,289  $1,906  $2,153  $3,919  $4,253 

Variable lease cost

  37   0   105   0   65   22   109   69 

Short-term lease cost

  70   173   272   467   19   67   28   186 

Total operating lease cost

 $2,168  $2,263  $6,696  $6,756  $1,990  $2,242  $4,056  $4,508 
                                
                                

Operating cash outflows

 $2,056  $1,918  $5,908  $6,255  $1,954  $1,931  $3,936  $3,833 

 

The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheets as of November 1, 2020 were:August 1,2021 and January 31,2021 were as follows:

 

 

November 1, 2020

  

February 2, 2020

  

August 1, 2021

  

January 31, 2021

 

Real estate

 $35,374  $38,175  $25,251  $33,651 

Property and equipment

  948   1,337   925   962 

Total operating leases right-of-use assets

 $36,322  $39,512  $26,176  $34,613 
                
                

Current portion of operating lease liabilities

 $6,772  $6,307  $5,942  $6,650 

Long term operating lease liabilities

  30,937   33,794   21,801   29,441 

Total operating lease liabilities

 $37,709  $40,101  $27,743  $36,091 

 

The weighted-average remaining lease term is 6.86.5 years. We used our incremental borrowing rate which is LIBOR plus 1.5% at the adoption date. The weighted-average discount rate is 2.3%. Due to the COVID-19 pandemic, we received concessions on several of our leases, including changes in lease terms and deferred rent payments. We accounted for the concessions as lease modifications and used current LIBOR plus 1.5% for those leases. The weighted-average discount rate decreased due to a decrease in LIBOR.

None of the modifications had a material effect on our condensed consolidated financial statements or results of operations.

 

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 NovemberAugust 1, 2020:2021:

 

 

Undiscounted Future Operating Lease Payments

  

Undiscounted Future

Operating Lease Payments

 

Remainder of 2020

 $1,949 

2021

  7,329 

2022

  5,557 

Remainder of 2022

 $3,523 

2023

  5,629   5,341 

2024

  5,253   4,109 

2025 and thereafter

  15,145 

2025

  3,996 

2026

  3,975 

2027 and thereafter

  9,114 

Total lease payments

 $40,862  $30,058 

Less: impact of discounting

  (3,153)  (2,315)

Present value of lease payments

 $37,709  $27,743 

 

As of NovemberAugust 1, 2020,2021, the Company has an additional leasehad leases for a warehouse in Georgia and a showroom in North Carolina that had not yet commenced with estimated future minimum rental commitments of approximately $28$51 million. ThisBoth leases have an initial lease isterm of 10 years, with the warehouse lease expected to commence in DecemberFall of 2021 withand the showroom lease termexpected to commence in Fall of up to 10 years.2022. Since the lease hasleases have not yet commenced, the undiscounted amounts are not included in the table above.

 

9.Long-Term Debt

 

As of NovemberAugust 1, 2020,2021, we had an aggregate $25.7$28.7 million available under the Existing Revolverour $35 million revolving credit facility (the “Existing Revolver”) to fund working capital needs. Standby letters of credit in the aggregate amount of $4.3$6.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facility as of NovemberAugust 1, 2020.2021. There were no additional borrowings outstanding under the Existing Revolver as of NovemberAugust 1, 2020.2021.

 

11

We currently have one unsecured term loan and one secured term loan outstanding and a revolving credit facility. The term loans are related to the Home Meridian acquisition. The full remaining principal amounts


 

10. Employee Benefit Plans

 

We maintain two “frozen” retirement plans, which are paying benefits and may include active employees among the participants. We do not expect to add participants to these plans in the future. The two plans include:

 

 

a supplemental retirement income plan (“SRIP”) for certain former and current executives of Hooker Furniture Corporation; and

 

the Pulaski Furniture Corporation Supplemental Executive Retirement Plan (“SERP”) for certain former executives.

 

 

Thirteen Weeks Ended

  

Thirty-Nine Weeks Ended

  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
 

November 1,

  

November 3,

  

November 1,

  

November 3,

  

August 1,

  

August 2,

  

August 1,

  

August 2,

 
 

2020

  

2019

  

2020

  

2019

  

2021

  

2020

  

2021

  

2020

 

Net periodic benefit costs

                                

Service cost

  32   26   96   78   33   32   66   64 

Interest cost

  74   204   222   613   53   74   106   148 

Actuarial loss

  84   37   253   111   100   84   201   169 

Expected return on pension plan assets

  0   (101)  0   (304)

Pension plan administrative expenses

  0   98   0   293 
                

Consolidated net periodic benefit costs

 $190  $264  $571  $791  $186  $190  $373  $381 

 

The SRIP and SERP plans are unfunded plans. In fiscal 2021,2022, we paid $179,000$365,000 in the thirdsecond quarter and $538,000$544,000 in the first nine monthshalf and expect to pay a total of approximately $191,000$489,000 in benefit payments from our general assets during the remainder of fiscal 20212022 to fund SRIP and SERP payments.

 

11.Earnings Per Share

 

We refer you to the discussion of Earnings Per Share in Note 2. Summary of Significant Accounting Policies, in the financial statements included in our 20202021 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:

 

 

November 1,

  

February 2,

  

August 1,

  

January 31,

 
 

2020

  

2020

  

2021

  

2021

 
                

Restricted shares

  55   46   64   55 

RSUs and PSUs

  159   76   150   141 
  214   122   214   196 

 

The number

 

All restricted shares, RSUs and PSUs 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

  

Thirty-Nine Weeks Ended

 
  

November 1,

  

November 3,

  

November 1,

  

November 3,

 
  

2020

  

2019

  

2020

  

2019

 
                 

Net income/(loss)

 $10,093  $3,920  $(18,952) $10,067 

   Less: Unvested participating restricted stock dividends

  9   7   26   18 

            Net earnings allocated to unvested participating restricted stock

  47   16   0   33 

Earnings/(loss) available for common shareholders

  10,037   3,897   (18,978)  10,016 
                 

Weighted average shares outstanding for basic earnings per share

  11,833   11,789   11,818   11,782 

Dilutive effect of unvested restricted stock, RSU and PSU awards

  106   27   
*
   39 

   Weighted average shares outstanding for diluted earnings per share

  11,939   11,816   11,818   11,821 
                 

Basic earnings/(loss) per share

 $0.85  $0.33  $(1.61) $0.85 
                 

Diluted earnings/(loss) per share

 $0.84  $0.33  $(1.61) $0.85 

*Due to the fiscal 2021 year-to-date net loss, approximately 92,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share for the thirty-nine weeks ended November 1, 2020.

  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
  

August 1,

  

August 2,

  

August 1,

  

August 2,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Net income/(loss)

 $7,467  $5,774  $16,910  $(29,045)

Less: Unvested participating restricted stock dividends

  12   9   23   17 

Net earnings allocated to unvested participating restricted stock

  43   28   92   0 

Earnings/(loss) available for common shareholders

  7,412   5,737   16,795   (29,062)
                 

Weighted average shares outstanding for basic earnings per share

  11,850   11,824   11,842   11,811 

Dilutive effect of unvested restricted stock, RSU and PSU awards

  143   29   143   0 

Weighted average shares outstanding for diluted earnings per share

  11,993   11,853   11,985   11,811 
                 

Basic earnings/(loss) per share

 $0.63  $0.49  $1.42  $(2.46)
                 

Diluted earnings/(loss) per share

 $0.62  $0.48  $1.40  $(2.46)

 

12. Income Taxes

 

We recorded income tax expense of $3.0$2.2 million for the fiscal 2021 third2022 second quarter compared to $1.1$1.6 million for the comparable prior year period.quarter. The effective tax rates for the fiscal 2022 and 2021 and 2020 thirdsecond quarters were 22.9%22.7% and 21.4%21.8%, respectively. WeFor the fiscal 2022 first half, we recorded income tax expense of $5.0 million, compared to income tax benefit of $6.3$9.3 million for the fiscal 2021 first nine months,comparable prior year period, of which income tax benefit of $10.7 million was recorded related to goodwill and trade name impairment charges, compared to $2.8 million income tax expense for the comparable prior year period.charges. The effective tax rates for the fiscal 2022 and 2021 first nine months of fiscal 2021half periods were 22.7% and 2020 were 24.8% and 21.9%24.2%, respectively.

 

An entity is required to make its best estimate of the annual effectiveNo material and non-routine positions have been identified that are uncertain tax rate for the full fiscal year at the end of each interim period and to use this rate to calculate its income taxes on a year-to-date basis. Under the current income tax guidance, there is an exception that when the year-to-date loss for an interim period exceeds the projected loss for the full fiscal year, the income tax benefit recognized year-to-date is limited to the amount of benefit that would be recognized if the year-to-date loss were the anticipated loss for the full fiscal year. ASU 2019-12 removes this exception and no longer limits the computed benefit. We elected to early adopt ASU 2019-12 in the first quarter of fiscal 2021 and recognized an additional $4.0 million of income tax benefits upon adoption. In the nine months period, we recognized additional $2.4 million of income tax benefit.

The net unrecognized tax benefits as of November 1, 2020 and February 2, 2020, which, if recognized, would affect our effective tax rate are $3,000.positions.

 

Tax years ending January 29, 201728, 2018 through February 2, 2020January 31, 2021 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 ASC 280 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.

We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary.  In the fourth quarter of fiscal 2020, we updated our reportable segments as follows: domestic upholstery producers Bradington-Young, Sam Moore and Shenandoah Furniture were moved from All Other and aggregated into a new reportable segment called “Domestic Upholstery.” All Other now consists of H Contract and Lifestyle Brands. Lifestyle Brands is a business in its start-up phase targeted at the interior design channel. The Hooker Branded and Home Meridian segments were unchanged. Therefore, forFor financial reporting purposes, we are organized into 3 reportable segments and “All Other”, which includes the remainder of our businesses:

 

 

Hooker Branded, consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses;  

 

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, Sam Moore and Shenandoah Furniture; and

 

All Other, consisting of H Contract and Lifestyle Brands, a new business started in late fiscal 2019. Neither of these operating segments were individually reportable; therefore, we combined them in “All Other” in accordance with ASC 280.

 

The following table presents segment information for the periods, and as of the dates, indicated. Prior-year information has been recast to reflect the changes in segments discussed above:

 

 

Thirteen Weeks Ended

  

Thirty-Nine Weeks Ended

  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
 

November 1, 2020

      

November 3, 2019

      

November 1, 2020

      

November 3, 2019

      

August 1, 2021

      

August 2, 2020

      

August 1, 2021

      

August 2, 2020

     
     

% Net

      

% Net

      

% Net

      

% Net

      

% Net

      

% Net

      

% Net

      

% Net

 

Net Sales

     

Sales

      

Sales

      

Sales

      

Sales

      

Sales

      

Sales

      

Sales

      

Sales

 

Hooker Branded

 $47,287   31.6% $43,703   27.6% $113,268   29.4% $122,707   27.5% $49,929   30.7% $38,820   29.7% $101,268   31.1% $65,982   28.1%

Home Meridian

  73,727   49.3%  85,776   54.2%  202,560   52.6%  240,594   54.0%  87,323   53.7%  71,168   54.6%  171,732   52.8%  128,833   54.7%

Domestic Upholstery

  25,350   16.9%  25,029   15.9%  59,640   15.6%  73,016   16.3%  22,532   13.9%  17,507   13.4%  47,025   14.5%  34,290   14.6%

All Other

  3,323   2.2%  3,668   2.3%  9,353   2.4%  9,625   2.2%  2,735   1.7%  3,042   2.3%  5,354   1.6%  6,029   2.6%

Consolidated

 $149,687   100.0% $158,176   100.0% $384,821   100.0% $445,942   100.0% $162,519   100% $130,537   100.0% $325,379   100.0% $235,134   100.0%
                                                                

Gross Profit

                                                                

Hooker Branded

 $15,446   32.7% $13,947   31.9% $35,894   31.7% $38,323   31.2% $17,060   34.2% $12,443   32.1% $34,273   33.8% $20,448   31.0%

Home Meridian

  11,169   15.1%  7,286   8.5%  28,489   14.1%  24,139   10.0%  9,607   11.0%  10,510   14.8%  19,742   11.5%  17,320   13.4%

Domestic Upholstery

  5,751   22.7%  5,847   23.4%  11,555   19.4%  16,766   23.0%  4,171   18.5%  3,021   17.3%  9,526   20.3%  5,804   16.9%

All Other

  1,117   33.6%  1,319   36.0%  3,199   34.2%  3,513   36.5%  879   32.1%  1,026   33.7%  1,758   32.8%  2,082   34.5%

Consolidated

 $33,483   22.4% $28,399   18.0% $79,137   20.6% $82,741   18.6% $31,717   19.5% $27,000  ��20.7% $65,299   20.1% $45,654   19.4%
                                                                

Operating Income/(Loss)

                                                                

Hooker Branded

 $7,686   16.3% $6,188   14.2% $15,108   13.3% $15,453   12.6% $8,929   17.9% $6,090   15.7% $18,371   18.1% $7,423   11.2%

Home Meridian

  2,510   3.4%  (3,955)  -4.6%  (26,754)  -13.2%  (9,013)  -3.7%  43   0.0%  1,083   1.5%  908   0.5%  (29,265)  -22.7%

Domestic Upholstery

  2,421   9.6%  2,278   9.1%  (14,399)  -24.1%  5,830   8.0%  457   2.0%  (10)  -0.1%  2,145   4.6%  (16,820)  -49.1%

All Other

  420   12.6%  482   13.2%  1,156   12.4%  1,397   14.5%  232   8.5%  349   11.5%  479   8.9%  736   12.2%

Consolidated

 $13,037   8.7% $4,993   3.2% $(24,889)  -6.5% $13,667   3.1% $9,661   5.9% $7,512   5.8% $21,903   6.7% $(37,926)  -16.1%
                                                                

Capital Expenditures

                                                                

Hooker Branded

 $60      $89      $173      $600      $38      $29      $121      $82     

Home Meridian

  27       126       137       300       1,109       20       2,455       108     

Domestic Upholstery

  82       871       332       3,835       130       54       889       294     

All Other

  0       0       0       10       0       0       0       0     

Consolidated

 $169      $1,086      $642      $4,745      $1,277      $103      $3,465      $484     
                                                                

Depreciation

& Amortization

                                                                

Hooker Branded

 $444      $471      $1,338      $1,453      $750      $445      $1,200      $894     

Home Meridian

  540       549       1,608       1,627       567       533       1,068       1,068     

Domestic Upholstery

  700       765       2,097       2,170       549       700       1,309       1,397     

All Other

  3       3       9       10       2       3       6       6     

Consolidated

 $1,687      $1,788      $5,052      $5,260      $1,868      $1,681      $3,583      $3,365     

 

  

As of November 1,

      

As of February 2,

     
  

2020

  

%Total

  

2020

  

%Total

 

Identifiable Assets

     

Assets

      

Assets

 

   Hooker Branded

 $201,158   58.8% $144,112   45.0%

   Home Meridian

  91,547   26.8%  138,313   43.2%

   Domestic Upholstery

  47,775   14.0%  36,085   11.3%

   All Other

  1,454   0.4%  1,769   0.5%

Consolidated

 $341,934   100.0% $320,279   100.0%

   Consolidated Goodwill and Intangibles

  27,323       73,429     

Total Consolidated Assets

 $369,257      $393,708     

  

As of August 1,

      

As of January 31,

      
  

2021

  

%Total

  

2021

  

%Total

  

Identifiable Assets

     

Assets

      

Assets

  

   Hooker Branded

 $153,253   44.8% $174,475   53.5% 

   Home Meridian

  138,730   40.5%  100,497   30.9% 

   Domestic Upholstery

  49,720   14.5%  49,370   15.2% 

   All Other

  770   0.2%  1,204   0.4% 

Consolidated

 $342,473   100% $325,546   100% 

   Consolidated Goodwill and Intangibles

  25,535       26,727      

Total Consolidated Assets

 $368,008      $352,273      

 

Sales by product type are as follows:

 

  

Net Sales (in thousands)

 
  

Thirteen Weeks Ended

  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

  

%Total

  

November 3, 2019

  

%Total

  

November 1, 2020

  

%Total

  

November 3, 2019

  

%Total

 

Casegoods

 $91,457   61% $105,018   66% $234,905   61% $288,470   65%

Upholstery

  58,230   39%  53,158   34%  149,916   39%  157,472   35%
  $149,687   100% $158,176   100% $384,821   100% $445,942   100%

  

Net Sales (in thousands)

 
  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
  

August 1, 2021

  

%Total

  

August 2, 2020

  

%Total

  

August 1, 2021

  

%Total

  

August 2, 2020

  

%Total

 

Casegoods

 $96,494   59% $79,181   61% $193,590   59% $142,373   61%

Upholstery

  66,025   41%  51,356   39%  131,789   41%  92,761   39%
  $162,519   100% $130,537   100% $325,379   100% $235,134   100%

 

14. Subsequent Events

 

Loan agreement

On November 4, 2020, we entered the Second Amendment to the Second Amended and Restated Loan Agreement (the “Agreement”) to amend certain provisions of the Existing Loan Agreement. The Agreement was amended to increase the sublimit of the facility available for the issuance of letters of credit from $4 million to $10 million in order to support import purchases.

Dividends

 

On DecemberSeptember 2, 2020,2021, our board of directors declared a quarterly cash dividend of $0.18 per share, payablewhich will be paid on December 31, 2020September 30, 2021 to shareholders of record at DecemberSeptember 16, 2020. This represents a 12.5% increase over the previous quarterly dividend and the fifth consecutive annual dividend increase.

2021.

 

 

Item 2. Management’sManagements 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 Furniture Corporation and its consolidated subsidiaries, unless specifically referring to segment information. All references to the “Hooker”, “Hooker Division”, “Hooker Legacy Brands” or “traditional Hooker” divisions or companies refer to the current components of our Hooker Branded segment, the Domestic Upholstery Segment including Bradington-Young, Sam Moore, and Shenandoah Furniture, and All Other which includes H Contract and Lifestyle Brands.

References to the “Shenandoah acquisition” refer to the acquisition of substantially all of the assets of Shenandoah Furniture, Inc. on September 29, 2017. References to the “HMI acquisition” refer to the acquisition of substantially all of the assets of Home Meridian International, Inc. on February 1, 2016.

 

Forward-Looking Statements

 

Certain statements made in this report, including statements 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 negatives thereof, or other variations 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:

 

 

Thedisruptions involving our vendors or the transportation and handling industries, particularly those affecting imported products from Vietnam and China, including customs issues, labor stoppages, strikes or slowdowns and the availability of shipping containers and cargo ships;

the effect and consequences of the coronavirus (COVID-19) pandemic or future pandemics on a wide range of matters including but not limited to U.S. and local economies; our business operations and continuity; the health and productivity of our employees; and the impact on our global supply chain, inflation, the retail environment and our customer base;

 

 

general economic or business conditions, both domestically and internationally, and instability in the financial and credit markets, including their potential impact on our (i) sales and operating costs and access to financing or (ii) customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses;

 

 

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, such as the currentprior U.S. administration’s imposingimposition of a 25% tariff on certain goods imported into the United States from China including almost all furniture and furniture components manufactured in China, which is still in effect, with the potential for additional or increased tariffs in the future;

sourcing transitions away from China, including the lack of adequate manufacturing capacity and skilled labor and longer lead times, due to competition and increased demand for resources in those countries;

 

 

risks associated with our reliance on offshore sourcing and the cost of imported goods, including fluctuation in the prices of purchased finished goods, ocean freight costs, including the price and availability of shipping containers, vessels and domestic trucking, and warehousing costs and the risk that a disruption in our offshore suppliers could adversely affect our ability to timely fill customer orders;

 

 

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;

 

 

disruptions involving our vendors or the transportation and handling industries, particularly those affecting imported products from Vietnam and China, including customs issues, labor stoppages, strikes or slowdowns and the availability of shipping containers and cargo ships;

difficulties in forecasting demand for our imported products;

 

 

risks associated with product defects, including higher than expected costs associated with product quality and safety, and regulatory compliance costs related to the sale of consumer products and costs related to defective or non-compliant products, including product liability claims and costs to recall defective products;products and the adverse effects of negative media coverage;

 

 

disruptions and damage (including those due to weather) affecting our Virginia, North Carolina or California warehouses (and our new Georgia warehouse when occupied), our Virginia or North Carolina administrative facilities or our representative offices or warehouses in Vietnam and China;

risks associated with our newly leased warehouse space in Georgia, including delays in construction and occupancy and risks associated with our move to the facility, including information systems, access to warehouse labor and the inability to realize anticipated cost savings;

 

 

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 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 other reasons, or the loss of significant sales programs with major customers;

 

 

our inability to collect amounts owed to us or significant delays in collecting such amounts;

 

 

the interruption, inadequacy, security breaches or integration failure of our information systems or information technology infrastructure, related service providers or the internet or other related issues including unauthorized disclosures of confidential information or inadequate levels of cyber-insurance or risks not covered by cyber insurance;

 

 

the direct and indirect costs and time spent by our associates associated with the implementation of our Enterprise Resource Planning system, including costs resulting from unanticipated disruptions to our business;

achieving and managing growth and change, and the risks associated with new business lines, acquisitions, including the selection of suitable acquisition targets, restructurings, strategic alliances and international operations;

 

 

the impairment of our long-lived assets, which can result in reduced earnings and net worth;

 

 

capital requirements and costs, including the servicing of our floating-rate term loans;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 the furniture industry;

 

 

competition from non-traditional outlets, such as internet and catalog retailers; and

 

 

changes in consumer preferences, including increased demand for lower-quality, lower-priced furniture due to, among other things, fluctuating consumer confidence, amounts of discretionary income available for furniture purchases and the availability of consumer credit.furniture.

 

Our forward-looking statements could be wrong in light of 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-Looking Statements detailed above and Item 1A, “Risk Factors” in our 20202021 annual report on Form 10-K (the “2020“2021 Annual Report”).

 

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 20212022 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third“second quarter” or “quarterly period”) that began AugustMay 3, 2020,2021, and the thirty-ninetwenty-six week period (also referred to as “nine months”“six-months”, “nine-month“six-month period” or “year-to-date period”“first half”) that began February 1, 2021, which both ended August 1, 2021. This report discusses our results of operations for these periods compared to the 2021 fiscal year thirteen-week period that began May 4, 2020 and the twenty-six week period that began February 3, 2020, which both ended November 1, 2020. This report discusses our results of operations for this period compared to the 2020 fiscal year thirteen-week period that began August 5, 2019 and the thirty-nine week period that began February 4, 2019, which both ended November 3, 2019;2, 2020; and our financial condition as of NovemberAugust 1, 20202021 compared to February 2, 2020.January 31, 2021.

 

References in this report to:

the 2022 fiscal year and comparable terminology mean the fiscal year that began February 1, 2021 and will end January 30, 2022; and

 

 

the 2021 fiscal year and comparable terminology mean the fiscal year that began February 3, 2020 and will endended January 31, 2021; and

the 2020 fiscal year and comparable terminology mean the fiscal year that began February 4, 2019 and ended February 2, 2020.2021.

 

Dollar amounts presented in the tables below are in thousands except for per share data.

 

In the discussion below and herein we reference changes in sales orders, or “orders”“orders,” and sales order backlog (unshipped orders at a point in time), or “backlog”“backlog,” over and compared to certain periods of time and changes discussed are in sales dollars and not units of inventory, unless stated otherwise. In a normal environment, weWe believe orders are generally good current indicators of sales momentum and business conditions. However, except for custom or proprietary products, orders may be cancelled before shipment. If the items ordered are in stock and the customer has requested immediate delivery, we generally ship products in about 7seven days or less from receipt of order; however, orders may be shipped later if they are out of stock or there are production or shipping delays or the customer has requested the order to be shipped at a later date. In a normal environment, forFor the Hooker Branded segment,and Domestic Upholstery segmentsegments and All Other, we generally consider unshipped order backlogs to be one helpful indicator of sales for the upcoming 30-day period, but because of our relatively quick delivery and our cancellation policies, we do not consider order backlogs to be a reliable indicator of expected long-term sales. In a normal environment, weWe generally consider the Home Meridian segment’s backlog to be one helpful indicator of that segment’s sales for the upcoming 90-day period. Due to (i) Home Meridian’s sales volume, (ii) the average sales order sizes of its mass, club and mega account channels of distribution, (iii) the proprietary nature of many of its products and (iv) the project nature of its hospitality business, for which average order sizes tend to be larger and consequently, its order backlog tends to be larger. There are exceptions to the general predictive nature of our orders and backlogs noted in this paragraph due to current demand and supply chain challenges related to the COVID-19 Pandemic.pandemic. They are discussed in greater detail below and are essential to understanding our prospects.

At August 1, 2021, our backlog of unshipped orders was as follows:

  

Order Backlog

 
  

(Dollars in 000s)

 
             

Reporting Segment

 

August 1, 2021

  

January 31, 2021

  

August 2, 2020

 
             

Hooker Branded

 $54,041  $34,776  $18,065 

Home Meridian

  201,060   180,188   123,849 

Domestic Upholstery

  60,570   30,271   17,594 

All Other

  4,701   2,845   2,994 
             

Consolidated

 $320,372  $248,080  $162,502 

At the end of fiscal 2022 first half, order backlog increased $72.3 million or 29% as compared to the end of fiscal 2021 and increased $157.9 million or 97% as compared to the prior-year six months end, due to increased incoming orders in all three reportable segments as well as longer delivery times resulting from the supply chain disruptions in the Home Meridian and, to a lesser degree, Hooker Branded segments and production delays in the Domestic Upholstery segment. We are very encouraged by the current historic levels of orders and backlogs; however, due to the current supply chain issues including the lack of shipping containers and vessel space and limited overseas vendor capacity, orders are not converting to shipments as quickly as could be expected compared to the pre-pandemic environment and we expect that to continue through the second half of fiscal 2022. The current logistics challenges are slowing order fulfillment, particularly for Home Meridian whose average order sizes tend to be larger and more episodic versus orders for the traditional Hooker businesses, which tend to be smaller and more predictable. Additionally, Home Meridian orders are programmed out and scheduled for delivery to its larger accounts further into the future than usual, which is also contributing to the increased backlog.

 

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”), especially our 20202021 Annual Report. Our 20202021 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 20202021 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.

 

Overview

 

Hooker Furniture Corporation, incorporated in Virginia in 1924, is a designer, marketer and importer of case goodscasegoods (wooden and metal furniture), leather-andleather 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. We are ranked among the nation’s top five largest publicly traded furniture sources, based on 20192020 shipments to U.S. retailers, according to a 20202021 survey by a leading trade publication.

We believe that consumer tastes and buying habitschannels in which they shop for furniture are evolving at a rapid pace and we continue to change to meet these demands.

 

Our strategy is to leverage the financial strength afforded us by Hooker’s slower-growing but highly profitable traditional businesses in order to boost revenues and earnings both organically and by acquiring companies selling in faster-growing channels of distribution in which our traditional businesses are under-represented. Consequently, Hooker acquired the business of Home Meridian on February 1, 2016 and Shenandoah Furniture on September 29, 2017.

We believe our acquisition of Home Meridian has better positioned us in some of the fastest growing and advantaged channels of distribution, including e-commerce, warehouse membership clubs and hospitality furniture. While growing faster than industry average, these channels tend to operate at lower margins.

We also believe our acquisition of Shenandoah Furniture, a North Carolina-based domestic upholsterer, has better positioned us in the “lifestyle specialty” retail distribution channel. In that channel, domestically- produced, customizable upholstery is viable product preferred by the end consumers who shop at retailers in that channel.

COVID-19

During the fiscal 2021 first quarter, COVID-19 was recognized as a global pandemic. Federal, state and local governments in the U.S and elsewhere have imposed restrictions on travel and business operations and have advised or required individuals to limit or eliminate time outside of their homes. Temporary closures of certain businesses were also ordered in certain jurisdictions and other businesses temporarily closed voluntarily. Consequently, the COVID-19 outbreak severely restricted the level of economic activity in the U.S. and around the world and demand for our products plummeted, and orders decreased 40.5% in the fiscal 2021 first quarter as compared to the same prior-year period. Cancellations of stock orders by large customers and deferred orders from retailers who closed their stores during the shutdown partially drove the steep declines in the fiscal 2021 first quarter.

To address the financial impact of the virus felt in the first quarter, we delayed non-essential capital spending and implemented other cost-cutting measures, including abbreviated shifts, furloughs, the temporary closure of our domestic manufacturing plants, staff reductions, temporary fee reductions for our Board of Directors, temporary salary reductions for officers and other managers, rationalizing current import purchase orders and collaborating with our vendors to cut costs and extend payment terms where possible.

While we continue to spend cautiously, business has improved steadily beginning in May 2020 and we’ve seen greatly increased demand for our products compared to the prior-year period and the first quarter of fiscal 2021. Fiscal 2021 third quarter consolidated orders increased 34% compared to the same prior-year period and year-to-date orders increased 8.3% as compared to the same prior-year period, despite abysmal first quarter orders. All three domestic upholstery divisions were operating at current full capacity at the end of the third quarter. Most furloughs of our associates have ended, and temporary salary and fee reductions have been rescinded. We are in the process of re-building inventory to meet increased customer demand.

We monitor information on COVID-19 from the Centers for Disease Control and Prevention (“CDC”) and believe we are adhering to their recommendations regarding the health and safety of our personnel. To address the potential human impact of the virus, most of our administrative staff are still telecommuting. For those administrative staff not telecommuting and our warehouse and domestic manufacturing employees, we have implemented social distancing and mask policies, instituted daily temperature checks and have stepped-up facility cleaning at each location. Non-essential domestic travel for our employees has ceased and international travel has been prohibited outright. Testing and treatment for COVID-19 is covered 100% under our medical plan and counseling is available through our employee assistance plan to assist employees with financial, mental and emotional stress related to the virus and other issues. In addition, for employees diagnosed with the virus (and those associates with another diagnosed person or persons in their household) we are offering work-from-home arrangements where feasible and are working to accommodate associates with child-care issues related to school or day-care closures and anticipated re-openings. The safety and health of our employees remains a top priority.

As of early December 2020, the average daily cases of COVID-19 and associated hospitalizations and deaths have been increasing since September. Governments have been implementing a range of measures in response to the second round of the pandemic. The extent to which these recent developments may adversely affect our sales, earnings and liquidity during the remainder of fiscal 2021 and into fiscal 2022 is unknown.

Executive Summary-Results of Operations

 

Consolidated net sales for fiscal 2021 third quarter decreased by $8.5 million or 5.4%, partially recovering from 22.8% and 14.3% net sales decreases, respectively, in the first and second quarters of fiscal 2021, all compared to their respective prior year periods. The net sales declines were principally driven by decreased sales at Home Meridian due to inventory availability challenges partially offset by increased Hooker Branded sales. Consolidated operating income increased by $8.0 million or 161% versus the prior year period with our three reportable segments and All Other reporting operating profit for the third quarter of fiscal 2021. Increased operating income was driven by the non-recurrence of certain expenses at Home Meridian in the current year, lower overall consolidated spending due to COVID-19 and increased sales in the Hooker Branded segment.

Consolidated net sales for the fiscal 2022 second quarter increased by $32.0 million or 24.5% as compared to the prior year period, from $130.5 million to $162.5 million, as all three reportable segments had net sales increases over 20%. For the fiscal 2022 first half, consolidated net sales increased by $90.2 million or 38.4% as compared to the prior year period, due to 53.5% net sales increase in the Hooker Branded segment and over 30% sales increases in both Home Meridian and Domestic Upholstery segments. All Other net sales decreased by over 10% in the fiscal 2022 second quarter and first half as compared to the prior year periods, as the senior living industry which comprises the majority of H Contract’s business, has not yet recovered from certain impacts of the COVID-19 pandemic.

 

For the first nine months, consolidated net sales decreased $61.1 million or 13.7% from $445.9 million to $384.8 million as compared to the prior year period due to sales decreases in all three reportable segments as well as All Other driven by significantly reduced sales volume during the COVID-19 pandemic.

Consolidated gross profit for the fiscal 2022 second quarter increased due to increased gross profit and margin at Hooker Branded and Domestic Upholstery segments, while margin decreased due to decreased gross profit and margin at Home Meridian as this segment was heavily impacted by higher freight costs which largely offset the gross profit gains from its sales increase. For the fiscal 2022 first half, consolidated gross profit and margin increased as compared to the prior year period, due to increased gross profit in all three reportable segments, partially offset by decreased gross margin in the Home Meridian segment due to higher freight costs. All Other’s gross profit and margin decreased in the fiscal 2022 second quarter and first half as compared to the respective prior year periods due to decreased net sales.

 

Consolidated net income during the current quarter increased by $6.2 million or 158% and quarterly earnings

Consolidated operating income for the fiscal 2022 second quarter was $9.7 million as compared to $7.5 million in the prior year period and operating margin was essentially flat due to the adverse impact of higher freight costs. Consolidated net income for the quarter was $7.5 million or $0.62 per diluted share, as compared to $5.8 million or $0.48 per diluted share in the prior year quarter. For the fiscal 2022 first half, consolidated operating income was $21.9 million compared to a $37.9 million operating loss in the prior year period, which was largely attributable to $44.3 million in non-cash impairment charges on certain of our intangible assets due to the impact of the Covid crisis on the Company’s share price in the prior year. Consolidated net income for the fiscal 2022 first half was $16.9 million or $1.40 per diluted share, as compared to net loss of $29.0 million or $(2.46) per diluted share was $0.84 as compared to $0.33 in the prior year third quarter. The net loss reported in the year-to-date period was due principally to $44.3 million non-cash impairment charges on our goodwill and trade names, $33.7 million net of tax, driven largely by our depressed stock price which occurred at the depth of the crisis and which was a primary input in the valuation analysis that necessitated the write-off. First nine months of fiscal 2021 loss per share was $1.61 as compared to earnings per share of $0.85 in the comparable period.

 

Our fiscal 2021 third2022 second quarter and first nine monthsfirst-half performance isare discussed in greater detail below under “Review” and “Results of Operations.”

 

Review

 

The economic recovery continued in our fiscal 2022 second quarter as furniture and home furnishings sales outperformed many other retail categories. We are pleased to report encouraging results for the third quarter of fiscal 2021, which showedover 20% net sales increases in all three reportable segments and solid improvements from the initial pandemic conditions encountered earlier in the fiscal year. We believe that higher levels of consumer confidence and home salesconsolidated operating margins as compared to earlier in the prior year quarter despite the continued adverse impact of high ocean freight costs and more time spent at home have led to increased spending on home furnishings.industry-wide logistics challenges.

 

The Hooker Branded segment’s net sales increased by $3.6$11.1 million, or 8.2%28.6%, as compared to the prior year third quarter due to higher sales volume and diminished the year-to-date sales decrease to 7.7%, compared to 16.5% decrease for the six-month period. Incoming orders have been trending upward for five consecutive monthslower discounting driven by increased demand fordemand. The majority of Hooker Branded sales are shipped out of U.S. warehouses and because we source product on a consistent weekly basis, we are better able to flow imports from Asia. These factors helped reduce some of the unfavorable impacts of shortages of vessel space and shipping containers and domestic trucking availability. Thanks to our products.strategy of focusing on keeping our best sellers in stock, we were able to limit order cancellation rates in this segment. Additionally, the Hooker Casegoods incomingBranded segment was able to increase prices to mitigate increased product costs from higher ocean freight and inflation on goods sourced from Asia. As a result, the segment remained highly profitable and contributed over 90% of our consolidated operating profit during the quarter. Incoming orders increased by over 30% and Hooker Upholstery incoming orders increased by over 50%, both38% as compared to the prior year third quarter. Thissecond quarter and 10% as compared to fiscal 2022 first quarter and the segment reported $7.7 million operating income or 16.3% operating margin and finished the quarter with an ordera backlog 1.5 timestripled versus the comparable prior year period.second quarter end.

 

 

The Home Meridian segment’s net sales decreased $12increased by $16.2 million or 14%22.7% in the fiscal 2021 third2022 second quarter as compared to the prior year period due to decreasesincreased sales with major furniture chains and retail stores, partially offset by decreased sales in the e-commerce, hospitality, and clubs channels. The Pulaski Furniture, Samuel Lawrence Furniture and Prime Resources International divisions reported significantly increased net sales driven by increased sales volume. However, profits on these increased sales were largely offset by higher freight costs as the result of continued global supply chain challenges. The Accentrics Home (“ACH”), Pulaski Furniture (“PFC”)division, which focuses on the e-commerce channel, reported a 20% net sales decrease due to lack of inventory brought on by current logistics challenges. Higher freight costs adversely impacted the profitability in this division and resulted in an operating loss in the second quarter. The HMidea division also reported a 20% sales decline due to decreased sales with club accounts. On a positive note for that division, product chargebacks decreased by 400 bps in the second quarter largely as a result of favorable product mix and better quality experience in the clubs channel; however, sales volumes were not sufficient to fully cover fixed costs at the relatively lower margins in this channel. The Samuel Lawrence Hospitality (“SLH”), partially offset by increased sales indivision was also unprofitable during the Prime Resources International (“PRI”) and HMidea divisions. Samuel Lawrence Furniture (“SLF”) net sales stayed flat for the quarter. ACH, the division focused on e-commerce channels with a shorter selling cycle, PFC and SLF all experienced inventory availability issuesquarter due to container availability and production capacity constraints with import suppliers. These issues led to reduced netvery low sales at ACH and PFC, especially with large furniture chains and e-commerce customers. We are in the process of re-building our inventory and we have large orders in production to fulfill expected demand in the Winter selling season and beyond. The COVID-19 pandemic severely impacted the hospitality business beginning in the fiscal 2021 second quarter and, consequently, SLH’s sales decreased significantly. Division management is exploring new channels of distributionvolume as the hospitality industry is expectedhas not yet recovered from the COVID crisis. The Home Meridian segment recorded $43,000 in operating income in the fiscal 2022 second quarter due to only partially recover inthe factors discussed above. Freight surcharges and price increases were imposed during the quarter; however, they did not fully mitigate increased costs as larger customers required advanced notice ahead of price increases. Incoming orders increased by about 4% as compared to the fiscal 2021. On a more positive note, PRI and HMidea net sales saw double-digit increases2022 first quarter but decreased by 35% as compared to prior year thirdsecond quarter driven by increased sales inwhen business rebounded dramatically after the mass merchant and clubs channels. Despite decreased net sales,height of the segment reported $2.5 million in operating income compared to a $4.0 million operating loss in the prior year third quarter due principally to chargebacks with one major customer, excess inventory carrying costs due to customer returns and excess inventory, and inventory write-downs – all of which did not repeat in the current year. Home Meridian incoming orders increased by 36% with four out of six divisions reporting increases compared to the prior year period and the segment finished the quarter with backlog 80%initial COVID crisis. Backlog was 62% higher than prior year second quarter end. However, current order backlog may not be a helpful indicator of sales for the fourth quarterend and the first half ofwe built inventory about $20 million higher than fiscal 2022 due to supply chain challenges discussed above.2021 year- end.

 

The Domestic Upholstery segment’s net sales increased $321,000by $5.0 million or 1.3%28.7% in the fiscal 2021 third2022 second quarter as compared to the prior year period due to significant sales increases at Bradington-Young and Shenandoah and to a lesser extent at Sam Moore. In the prior year period, both Bradington-Young and Shenandoah temporarily closed their factories due to COVID and thus operated at reduced capacities. Although foam allocation and certain other raw materials shortages impacted production levels in May 2021, Bradington-Young and Shenandoah returned to normal levels in July 2021, while Sam Moore recovered at a slower pace as this division experienced labor retention and productivity issues, which represented solid recovery after two quartersadversely impacted sales volume during the second quarter of fiscal 2022. Other manufacturing constraints adversely impacted our profitability, including the inflation in raw materials such as foam, lumber, plywood, fabric and mechanisms, and supply chain disruptions such as domestic truck availability. We are increasing prices to our customers where possible to offset increased raw material inflation. Incoming orders continued to grow as compared to the fiscal 2022 first quarter and the prior year second quarter. At the end of fiscal 2022 second quarter, backlog was at historic levels for all three divisions and managements’ priorities continue to focus on servicing the backlog, with double-digit percentagequality and speed of delivery.

All Other’s net sales declines. Thirddecreased by $307,000 or 10.1% in the fiscal 2022 second quarter incoming orders increased by over 30% as compared to the prior year period. In response to the COVID-19 pandemic and reduced orders early this year, we temporarily closed our manufacturing plants at Bradington-Young and Shenandoah in April and significantly reduced production at Sam Moore. We gradually resumed their operations in the second quarter. By the end of the third quarter, all three divisions were operating at current full capacity and their order backlogs had fully recovered and increased substantially over the prior year. Bradington-Young, Shenandoah, and Sam Moore order backlog was 251%, 74%, and 57% higher than the prior year third quarter end, respectively. However, given the current circumstances, the unshipped order backlog may not be a helpful indicator of this segment’s sales for the fourth quarter and beyondperiod due to production delays including labor shortages and scarcity of some raw materials and components. This segment has incurred higher labor costs as division management has increased capacity by hiring new associates to ramp up production in order to reduce backlogs. Domestic Upholstery reported $2.4 million in operating income or 9.6% operating margin in the third quarter of fiscal 2021, improvements compared to both prior year and operating losses experienced at the heights of the initial COVID crisis in the first and second quarters of the current fiscal year.

All Other netan 11.3% sales decreased by 9.4% compared to prior year third quarter due primarily to sales declinesdecrease at H Contract. Incoming orders decreased by over 30% in the third quarter, as senior-living facilities,The senior living industry, which comprisecomprises the majority of H Contract’s business, have decreased projecthas been severely impacted by the pandemic and has reduced capital spending due to increased costs and uncertain revenues. Although we are encouraged by a 6.4% increase in incoming orders during the COVID-19 pandemic. Postponement of new facility construction, lower occupancy rates,quarter and increased operating expenses related to COVID-19 resulted in reduced spending on furnishings. H Contract’snearly 50% higher backlog was 9.1% lower than the prior year third quarter.quarter, our Domestic Upholstery production capacity limited H Contract’s shipments as it sold more domestically manufactured products. Despite the sale decline, All Other still reported $420,000 inan 8.5% operating income inmargin for the fiscal 2021 third quarter which was attributable to H Contract’s performance, despite unfavorable product mix having a modest adverse impact on the gross margin.quarter.

 

We are very encouraged by the current historic levelsCash and cash equivalents stood at $37.4 million at fiscal 2022 second quarter-end, a decrease of orders and backlogs; however, due$28.4 million compared to the current supply chain issues orders are not convertingbalance at fiscal 2021 year-end due primarily to shipmentsa $33.4 million increase in inventory as quicklywe continue to build inventories to meet increased customer demand and prepare for the holiday selling season. Accounts receivable balances increased by $15 million as could be expected in the pre-Pandemic environment and we expect that to continue at least intoresult of increased net sales. During the first six months of fiscal 2022, first quarter.we used existing cash on hand to pay $4.3 million in cash dividends to our shareholders and $3.5 million of capital expenditures to enhance our business systems and facilities including $2.1 million in our new Georgia distribution center. In a normal environment, we’d expect backlogaddition to be one helpful indicatorour cash balance, we have an aggregate of sales$28.7 million available under our existing revolver to fund working capital needs. We believe we have the financial resources to fund our business operations for the Hooker Branded, Domestic Upholsteryforeseeable future, including weathering an extended impact of COVID-19 pandemic as well as the logistics issues, cost increases and All Other for the upcoming 30-day period and for the upcoming 90-day period for the Home Meridian segment. However, the current logistics challengesproduction capacity constraints which are slowing order fulfillment, particularly for Home Meridian whose average order sizes tend to be larger and more episodic versus orders for the traditional Hooker businesses, which tend to be smaller and more predictable. Additionally, Home Meridian orders are programmed out and scheduled for delivery to its larger accounts further into the future than usual, which is also contributing to the increased backlog. We expect these challenges will continue to negatively impact us andcurrently impacting our sales in the fiscal 2021 fourth quarter, with steady improvements beginning in mid-February 2021 after the new year holidays in China and Vietnam.industry.

 

 

To address the financial impact of the COVID-19 pandemic, we implemented certain measures to preserve cash and reduce operating expenses. Despite the operating loss for the nine-month period, which was driven by the non-cash impairment charges, we generated $67.6 million in cash from operating activities, distributed $5.7 million in cash dividends to our shareholders, and paid $4.8 million in principal and interest on our term loans. Cash and cash equivalents stood at $93.9 million at fiscal 2021 third quarter-end, an increase of $57.8 million compared to the balance at fiscal 2020 year-end. We are in the process of re-building our inventories to meet current demand and given current lead times with our Asian partners, we have and may continue to experience out-of-stocks with respect to certain imported products. We are confident that our strong financial condition can weather the expected short-term impacts of COVID-19; however, an extended impact may continue to materially and adversely affect our sales, earnings and liquidity.

Results of Operations

 

The following table sets forth the percentage relationship to net sales of certain items included in the condensed consolidated statements of income included in this report.

 

 

Thirteen Weeks Ended

  

Thirty-Nine Weeks Ended

  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
 

November 1,

  

November 3,

  

November 1,

  

November 3,

  

August 1,

  

August 2,

  

August 1,

  

August 2,

 
 

2020

  

2019

  

2020

  

2019

  

2021

  

2020

  

2021

  

2020

 

Net sales

  100.0%  100.0%  100.0%  100.0%  100%  100%  100%  100%

Cost of sales

  77.6   82.0   79.4   81.4   80.5   79.3   79.9   80.6 

Gross profit

  22.4   18.0   20.6   18.6   19.5   20.7   20.1   19.4 

Selling and administrative expenses

  13.3   14.4   15.1   15.1   13.2   14.5   13.0   16.2 

Goodwill impairment charges

  -   -   10.3   -   -   -   -   16.8 

Trade name impairment charges

  -   -   1.2   -   -   -   -   2.0 

Intangible asset amortization

  0.4   0.4   0.5   0.4   0.4   0.5   0.4   0.5 

Operating income/(loss)

  8.7   3.2   (6.5)  3.1   5.9   5.8   6.7   (16.1)

Other income, net

  0.1   0.2   -   - 

Interest expense, net

  0.1   0.2   0.1   0.2   -   0.1   -   0.1 

Income/(loss) before income taxes

  8.7   3.2   (6.6)  2.9 

Income tax expense/(benefit)

  2.0   0.7   (1.6)  0.6 

Income/(Loss) before income taxes

  5.9   5.7   6.7   (16.3)

Income tax expense

  1.3   1.2   1.5   (3.9)

Net income/(loss)

  6.7   2.5   (4.9)  2.3   4.6   4.4   5.2   (12.4)

 

Fiscal 2020 results have been recast based on the re-composition of our reportable segments during the fiscal 2020 fourth quarter. See Note 13 Segment Information for additional details regarding the re-composition of our operating segments.2022 Second Quarter and First-Half Compared to Fiscal 2021 Second Quarter and First-Half

 

  

Net Sales

 
  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
  

August 1,

     

August 2,

            

August 1,

     

August 2,

           
  

2021

     

2020

            

2021

     

2020

           
      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

 

Hooker Branded

 $49,929  30.7% $38,820  29.7% $11,109  28.6% $101,268  31.1% $65,982  28.1% $35,286  53.5%

Home Meridian

  87,323  53.7%  71,168  54.6%  16,155  22.7%  171,732  52.8%  128,833  54.7%  42,899  33.3%

Domestic Upholstery

  22,532  13.9%  17,507  13.4%  5,025  28.7%  47,025  14.5%  34,290  14.6%  12,735  37.1%

All Other

  2,735  1.7%  3,042  2.3%  (307) -10.1%  5,354  1.6%  6,029  2.6%  (675) -11.2%

Consolidated

 $162,519  100% $130,537  100% $31,982  24.5% $325,379  100% $235,134  100% $90,245  38.4%

Fiscal 2021 Third Quarter Compared

Unit Volume

 

FY22 Q2 %

Increase vs.

FY21 Q2

  

FY22 YTD %

Increase vs.

FY21 YTD

  

Average Selling Price (ASP)

 

FY22 Q2 %

Increase vs.

FY21 Q2

  

FY22 YTD %

Increase vs.

FY21 YTD

 
                   

Hooker Branded

  9.3%  34.6% 

Hooker Branded

  17.3%  13.2%

Home Meridian

  3.2%  22.7% 

Home Meridian

  7.2%  1.0%

Domestic Upholstery

  14.0%  28.2% 

Domestic Upholstery

  11.9%  6.2%

All Other

  -11.3%  -16.0% 

All Other

  0.9%  3.5%

Consolidated

  4.4%  24.2% 

Consolidated

  12.2%  6.6%

Consolidated net sales increased significantly in the fiscal 2022 second quarter and first half due to Fiscal 2020 Third Quarterstrong sales in all three reportable segments as compared to the prior year periods.

 

  

Net Sales

 
  

Thirteen Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Hooker Branded

 $47,287   31.6% $43,703   27.6% $3,584   8.2%

Home Meridian

  73,727   49.3%  85,776   54.2%  (12,049)  -14.0%

Domestic Upholstery

  25,350   16.9%  25,029   15.9%  321   1.3%

All Other

  3,323   2.2%  3,668   2.3%  (345)  -9.4%

Consolidated

 $149,687   100% $158,176   100% $(8,489)  -5.4%

The Hooker Branded segment’s net sales increased in the fiscal 2022 second quarter and first half, as compared to the prior year periods respectively, due to both increased unit volume and ASP, driven by increased demand, lower discounting, and price increases in response to higher freight costs and product inflation.

 

Unit Volume

 

FY21 Q3 % Increase vs. FY20 Q3

  

Average Selling Price (ASP)

 

FY21 Q3 % Increase vs. FY20 Q3

 
           

Hooker Branded

  6.2% 

Hooker Branded

  0.9%

Home Meridian

  -20.7% 

Home Meridian

  7.9%

Domestic Upholstery

  -3.0% 

Domestic Upholstery

  4.7%

All Other

  -10.2% 

All Other

  3.4%

Consolidated

  -16.3% 

Consolidated

  12.3%

The Home Meridian segment’s net sales increased in the fiscal 2022 second quarter and first half due to increased sales volume with major furniture chains and retail stores as the result of strong demand, partially offset by decreased net sales and unit volume in e-commerce channel, Samuel Lawrence Hospitality, and the clubs business. The ASP increase was attributable to price increases to mitigate higher freight costs; however, the increases were not sufficient to cover increased product costs driven by higher freight.

 

 

Consolidated net sales decreased due primarily to the sales decline in the Home Meridian segment, partially offset by increased net sales in the Hooker Branded segment.

 

Hooker Branded segmentThe Domestic Upholstery segment’s net sales increased in the fiscal 2021 third2022 second quarter and first half due to significant sales increases at Bradington-Young and Shenandoah as compared to the prior year period,periods when these two divisions experienced temporary factory shutdowns. ASP increased at all three divisions in this segment in response to the inflation of material costs. Sam Moore net sales increased by single digit in fiscal 2022 second quarter due to increased unit volume and, to a lesser extent, increased ASP.

Net sales decreased in the Home Meridian segment due to inventory availability in the ACH and PFC divisions, as well as sales decline in the hospitality business which has been severely impacted by the pandemic. The decreases wereASP, partially offset by increased salesits decreased unit volume due to production constraints. Foam allocation and certain material shortages impacted all three divisions early in the mass merchantsfiscal 2022 second quarter. Bradington-Young and Clubs sales channels. ASP increased in four of six divisions; however, it was not enough to offset the volume loss in these divisions.

Domestic Upholstery segment net sales increased due to net sales increasesShenandoah resumed normal production level late in the Bradington-Young andquarter while Sam Moore divisions, partially offset by lower sales in the Shenandoah division due to reduced unit volume. During the fiscal 2021 third quarter, Bradington-Young and Sam Moore restored operations to full capacity. Shenandoah ramped up production and shippingrecovered at a slower pace but was at current full capacity at quarter-end. ASP increased due to increases in the Sam Moorelabor retention and Shenandoah divisions as well as increased mix of higher-priced Bradington-Young leather products.productivity issues.

 

 

All OtherOther’s net sales decreased by 9.4% in the fiscal 2021 third2022 second quarter and first half as compared to the prior year periodperiods due principally to decreasedreduced unit volume inat H Contract, which was adversely impactedas this division has not yet recovered from the impact of reduced capital spending by the pandemic.senior living industry in response to increased costs and uncertain revenues as a result of COVID.

 

 

Gross Profit and Margin

 
 

Gross Income and Margin

  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
 

Thirteen Weeks Ended

  

August 1,

     

August 2,

            

August 1,

     

August 2,

           
 

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

  

2021

     

2020

            

2021

     

2020

           
     

% Net Sales

      

% Net Sales

              

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

 

Hooker Branded

 $15,446   32.7% $13,947   31.9% $1,499   10.7% $17,060  34.2% $12,443  32.1% $4,617  37.1% $34,273  33.8% $20,448  31.0% $13,825  67.6%

Home Meridian

  11,169   15.1%  7,286   8.5%  3,883   53.3%  9,607  11.0%  10,510  14.8%  (903) -8.6%  19,742  11.5%  17,320  13.4%  2,422  14.0%

Domestic Upholstery

  5,751   22.7%  5,847   23.4%  (96)  -1.6%  4,171  18.5%  3,021  17.3%  1,150  38.1%  9,526  20.3%  5,804  16.9%  3,722  64.1%

All Other

  1,117   33.6%  1,319   36.0%  (202)  -15.3%  879  32.1%  1,026  33.7%  (147) -14.3%  1,758  32.8%  2,082  34.5%  (324) -15.6%

Consolidated

 $33,483   22.4% $28,399   18.0% $5,084   17.9% $31,717  19.5% $27,000  20.7% $4,717  17.5% $65,299  20.1% $45,654  19.4% $19,645  43.0%

 

ConsolidatedFor the fiscal 2022 second quarter, consolidated gross profit increased in absolute terms and margin decreased as a percentage of net sales due primarilycompared to increased gross margin in the Home Meridian segment and to a lesser in the Hooker Branded segment inprior year quarter. For the fiscal 2021 third quarter2022 first half, consolidated gross profit and margin both increased as compared to the prior year period.

 

 

The Hooker Branded segment’s gross profit and margin both increased in the fiscal 2022 second quarter and first half, due primarily to the net sales increase was attributableas well as lower discounting due to increased sales but was partially offsethigher demand. However, product costs have begun to be negatively impacted by inflation and higher ocean freight costs and increased product costs at Hooker Upholstery due to a higher mix of product sourced from China which carried higher costs.in this segment.

 

 

The Home Meridian segmentsegment’s gross profit and margin decreased in the fiscal 2022 second quarter as compared to the prior year period despite a net sales increase, due primarily to significantly increased freight costs which negatively impacted gross margin by 550 bps. For the fiscal 2022 first half, Home Meridian gross profit increased significantly in absolute terms and as a percentage ofdue to net sales despite a 14% net sales decline. Grossgrowth while margin benefitted from the absence of higher customer chargebacks, write-downs of quality-related returns, and warehousing and distribution costsdecreased as compared to handle excess inventory in the prior year third quarter, as well asperiod. Freight costs increased about 400 bps, which was the primary driver of product cost increase in fiscal 2022 first half. On a more positive note, chargebacks which adversely impacted Home Meridian profits in prior years were at much lower product costslevels due to favorable product mix and better-quality experience in the sourcing transition from China to non-tariff countries.clubs channel.

 

 

The Domestic Upholstery segment’s gross profit decreased slightlyand margin increased in absolute termsthe fiscal 2022 second quarter and as a percentage offirst half due to net sales increases and production efficiencies from operating near full capacity due to decreasedhistoric levels of backlog. In the prior year first and early second quarters, this segment experienced reduced sales volumes and operating inefficiencies due to temporary factory shutdowns, which led to lower gross profit and margin for both the fiscal 2021 second quarter and first half. Foam allocations and certain other raw material shortages which impacted Domestic Upholstery production in the Shenandoah division as the result of net sales decline, partially offsetfiscal 2022 first quarter improved significantly by increased gross income and marginlate in the Bradington Young and Sam Moore divisions. All three divisions experienced increasedsecond quarter. However, inflation of raw material costs due to inflationdrove increased product costs in this segment and increased direct labor costs to service excess backlog but benefited from lower indirect costs as three divisions were at full capacityadversely impacted gross margin by quarter-end and were better able to absorb the indirect and fixed costs.about 200 bps in fiscal 2022 second quarter.

 

All Other’s gross profit and margin decreased in the fiscal 2022 second quarter and first half due principally to net sales declines and to a lesser extent unfavorable product mix as more product sold was manufactured domestically.

  

Selling and Administrative Expenses (S&A)

 
  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
  

August 1,

     

August 2,

            

August 1,

     

August 2,

           
  

2021

     

2020

            

2021

     

2020

           
      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

 

Hooker Branded

 $8,132  16.3% $6,353  16.4% $1,779  28.0% $15,902  15.7% $13,025  19.7% $2,877  22.1%

Home Meridian

  9,230  10.6%  9,094  12.8%  136  1.5%  18,167  10.6%  17,981  14.0%  186  1.0%

Domestic Upholstery

  3,451  15.3%  2,769  15.8%  682  24.6%  6,856  14.6%  5,718  16.7%  1,138  19.9%

All Other

  647  23.7%  676  22.2%  (29) -4.3%  1,279  23.9%  1,346  22.3%  (67) -5.0%

Consolidated

 $21,460  13.2% $18,892  14.5% $2,568  13.6% $42,204  13.0% $38,070  16.2% $4,134  10.9%

Consolidated selling and administrative (“S&A”) expenses increased in absolute terms while decreased as a percentage of net sales in the fiscal 2022 second quarter and first half versus the prior year periods.

 

 

All Other’s gross profit decreasedThe Hooker Branded segment’s S&A expenses increased in absolute terms and stayed essentially flat as a percentage of net sales in fiscal 2022 second quarter. The increases were driven by increased selling costs as the result of higher net sales, increased salaries and wages due to net sales declinethe absence of salary reductions and unfavorable product mix atfurloughs seen in the H Contract division.

  

Selling and Administrative Expenses (S&A)

 
  

Thirteen Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Hooker Branded

 $7,762   16.4% $7,760   17.8% $2   0.0%

Home Meridian

  8,325   11.3%  10,907   12.7%  (2,582)  -23.7%

Domestic Upholstery

  3,067   12.1%  3,307   13.2%  (240)  -7.3%

All Other

  696   21.0%  836   22.8%  (140)  -16.7%

Consolidated

 $19,850   13.3% $22,810   14.4% $(2,960)  -13.0%

Consolidated selling and administrative (“S&A”) expenses decreased in absolute terms and as a percentage of net sales in the fiscal 2021 third quarter as compared to prior year period.

Theprior year period, increased selling expenses due to Spring High Point Furniture Market which was held in June 2021, and to a lesser extent increased expenses incurred as part of our ERP upgrade project. For the fiscal 2022 first half, Hooker Branded segment’ssegment S&A expenses stayed essentially flatincreased in absolute terms. Increased selling expenses wereterms due to the factors discussed above, partially offset by lower bad debt expenses due to a customer write-off in the cost reduction initiatives, lower October Market costs and spending concessions granted, all related to the COVID-19 pandemic.prior year. S&A expenses decreased as a percentage of net sales in fiscal 2022 first half due to increased net sales.

 

 

The Home Meridian segment’s S&A expenses decreasedincreased slightly in absolute terms andbut decreased as a percentage of net sales in the fiscal 2022 second quarter and first half. The increases were attributable to severance expenses due to lower sellingpersonnel changes, the absence of employee furloughs in the prior year period, and increased market expenses on decreased net sales and overallother spending reductions in responseas business returned to the COVID-19 crisis,more normal levels, partially offset by increased allowances for doubtful accounts.lower professional expenses, decreased compensation expense on lower profits, and decreased advertising supply expense.

 

 

The Domestic Upholstery segment’s S&A expenses decreasedincreased in absolute terms in fiscal 2022 second quarter and as a percentage of net salesfirst half due to the cost reduction efforts as well as decreased advertising supply and sample expenses due to fewer new product introductions, partially offset by increased selling expenses on higher net sales, increased net sales.salaries and wages due to the absence of a number of employees furloughed due to factory shutdowns in the prior year period, and increased depreciation expenses due to the accelerated depreciation of our existing ERP system due to the expected implementation of an upgraded cloud-based ERP solution in fiscal 2023.

 

 

All Other S&A expenses decreased in absolute terms in the fiscal 2022 second quarter and first half due to decreased selling expenses, partially offset by increased advertising supply expenses in the current second quarter due to the postponement of the High Point Furniture Market. S&A expenses increased as a percentage of net sales due to lower selling expenses on decreased net sales as well as cost reduction initiatives related to the pandemic.sales.

 

  

Intangible Asset Amortization

 
  

Thirteen Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Intangible asset amortization

 $596   0.4% $596   0.4% $-   0.0%

In the prior year first quarter, we recorded $23.2 million and $16.4 million in non-cash impairment charges to write down goodwill in Home Meridian segment and the Shenandoah division under Domestic Upholstery segment, respectively. We also recorded $4.8 million non-cash impairment charges to write down tradenames in the Home Meridian segment.

  

Intangible Asset Amortization

 
  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
  

August 1,

     

August 2,

            

August 1,

     

August 2,

           
  

2021

     

2020

            

2021

     

2020

           
      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

 

Intangible asset amortization

 $596  0.4% $596  0.5% $-  0.0% $1,192  0.4% $1,192  0.5% $-  0.0%

 

Intangible asset amortization expense stayed the same compared to the prior year third quarter.periods.

 

 

Operating Profit/(Loss) and Margin

 
 

Operating Profit/(Loss) and Margin

  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
 

Thirteen Weeks Ended

  

August 1,

     

August 2,

            

August 1,

     

August 2,

           
 

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

  

2021

     

2020

            

2021

     

2020

           
     

% Net Sales

      

% Net Sales

              

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

 

Hooker Branded

 $7,686   16.3% $6,188   14.2% $1,498   24.2% $8,929  17.9% $6,090  15.7% $2,839  46.6% $18,371  18.1% $7,423  11.2% $10,948  147.5%

Home Meridian

  2,510   3.4%  (3,955)  -4.6%  6,465   163.5%  43  0.0%  1,083  1.5%  (1,040) -96.0%  908  0.5%  (29,265) -22.7%  30,173  103.1%

Domestic Upholstery

  2,421   9.6%  2,278   9.1%  143   6.3%  457  2.0%  (10) -0.1%  467  4670.0%  2,145  4.6%  (16,820) -49.1%  18,965  112.8%

All Other

  420   12.6%  482   13.2%  (62)  -12.9%  232  8.5%  349  11.5%  (117) -33.5%  479  8.9%  736  12.2%  (257) -34.9%

Consolidated

 $13,037   8.7% $4,993   3.2% $8,044   161.1% $9,661  5.9% $7,512  5.8% $2,149  28.6% $21,903  6.7% $(37,926) -16.1% $59,829  157.8%

 

Operating profitprofitability increased in absolute terms and as a percentage of net sales, due to the factors discussed above.

 

 

  

Interest Expense, net

 
  

Thirteen Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Consolidated interest expense, net

 $106   0.1% $316   0.2% $(210)  -66.5%
  

Interest Expense, net

 
  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
  

August 1,

     

August 2,

            

August 1,

     

August 2,

           
  

2021

     

2020

            

2021

     

2020

           
      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

 

Consolidated interest expense, net

 $23  0.0% $118  0.1% $(95) -80.5% $54  0.0% $327  0.1% $(273) -83.5%

 

Consolidated interest expense decreased in both the second quarter and first half of fiscal 2022 due to the payoff of our term loans in fiscal 2021 third quarter primarily due to lower interest rates on our variable-rate term loans, as well as lower principal balances.fourth quarter.

 

 

Income taxes

  

Income taxes

 
 

Thirteen Weeks Ended

  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
 

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

  

August 1,

     

August 2,

            

August 1,

     

August 2,

           
     

% Net Sales

      

% Net Sales

          

2021

     

2020

            

2021

     

2020

           

Consolidated income tax expense

 $2,996   2.0% $1,066   0.7% $1,930   181.1%
     

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

 

Consolidated income tax expense/(benefit)

 $2,192  1.3% $1,610  1.2% $582  36.1% $4,966  1.5% $(9,259) -3.9% $14,225  153.6%
                                                                  

Effective Tax Rate

  22.9%      21.4%              22.7%     21.8            22.7%     24.2          

 

We recorded income tax expense of $3.0$2.2 million for the fiscal 2021 third2022 second quarter compared to $1.1$1.6 million for the comparable prior year period.quarter. The effective tax rates for the fiscal 2022 and 2021 and 2020 thirdsecond quarters were 22.9%22.7% and 21.4%21.8%, respectively.

  

Net Income

 
  

Thirteen Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 

Net income

     

% Net Sales

      

% Net Sales

         

Consolidated

 $10,093   6.7% $3,920   2.5% $6,173   157.5%
                         

Diluted earnings per share

 $0.84      $0.33             

Fiscal 2021 First Nine Months Compared to Fiscal 2020 First Nine Months

  

Net Sales

 
  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Hooker Branded

 $113,268   29.4% $122,707   27.5% $(9,439)  -7.7%

Home Meridian

  202,560   52.6%  240,594   54.0%  (38,034)  -15.8%

Domestic Upholstery

  59,640   15.6%  73,016   16.3%  (13,376)  -18.3%

All Other

  9,353   2.4%  9,625   2.2%  (272)  -2.8%

Consolidated

 $384,821   100% $445,942   100% $(61,121)  -13.7%

Unit Volume

 

FY21 YTD % Increase vs. FY20 YTD

  

Average Selling Price (ASP)

 

FY21 YTD % Increase vs. FY20 YTD

 
           

Hooker Branded

  -9.6% 

Hooker Branded

  1.4%

Home Meridian

  -17.7% 

Home Meridian

  4.1%

Domestic Upholstery

  -17.3% 

Domestic Upholstery

  -1.2%

All Other

  -4.5% 

All Other

  1.2%

Consolidated

  -16.5% 

Consolidated

  4.1%

Consolidated net sales decreased due to significantly reduced sales volume in all three reportable segments as compared to the prior year period. Much of the unit volume decline in all segments is attributable to order cancelations and reduced ordering by our customers in immediate response to the COVID-19 pandemic, which caused many of our customers, particularly traditional furniture retailers which were deemed non-essential businesses, to face state-mandated temporary store closures to help reduce the spread of COVID-19.

The net sales decrease in the Hooker Branded segment was attributable to decreased net sales in the Hooker Casegoods division driven by reduced unit volume. Hooker Upholstery division reported increased net sales in the second and third quarters, while nine-month net sales stayed essentially flat as compared to the prior year period. ASP increased in the Hooker Branded segment due to increased ASP in Hooker Casegoods, partially offset by decreased ASP in Hooker Upholstery driven by higher discounting on e-commerce sales and unfavorable product mix.

Home Meridian segment net sales decreased due to decreased unit volume in five of six divisions as the result of reduced sales volume with large retailers and regional furniture chains, sales declines in its hospitality business, and inventory availability issues in the e-commence channel, while partially offset by increased sales in its clubs channel. The ASP increase was attributable to increased ASP in SLH due to product mix.

Domestic Upholstery segment net sales decreased due to decreased unit volume in all three divisions. Early this year, in response to COVID-19 pandemic restrictions and a decline in orders, we temporarily shut down Bradington-Young’s and Shenandoah’s manufacturing plants while we kept Sam Moore division operating at 50% capacity, which adversely impacted net sales in this segment. We resumed operations in the second quarter and operated at current full capacity for all three divisions by the end of the third quarter. The Domestic Upholstery segment’s ASP decreased due to a reduced proportion of higher-priced leather products sold.

All Other net sales decreased due to sales declines at H Contract, which was adversely impacted by the pandemic, partially offset by increased in sales at Lifestyle Brands.

  

Gross Income and Margin

 
  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Hooker Branded

 $35,894   31.7% $38,323   31.2% $(2,429)  -6.3%

Home Meridian

  28,489   14.1%  24,139   10.0%  4,350   18.0%

Domestic Upholstery

  11,555   19.4%  16,766   23.0%  (5,211)  -31.1%

All Other

  3,199   34.2%  3,513   36.5%  (314)  -8.9%

Consolidated

 $79,137   20.6% $82,741   18.6% $(3,604)  -4.4%

Consolidated gross profit decreased in absolute terms but increased as a percentage of net sales in For the fiscal 20212022 first nine months versus the prior year period.

The Hooker Branded segment’s gross profit decreased in absolute terms due to the net sales decline. Gross margin increased as a percentage of net sales as compared to the prior year period due principally to a higher percentage of sales sourced from non-tariff countries and lower warehousing and distribution spending, partially offset by higher discounting.

Home Meridian segment gross margin increased in absolute terms and as a percentage of net sales despite net sales decline. In the prior year period, this segment was heavily impacted by increased product costs due to excess tariffs, higher chargebacks of product with quality-related issues, increased warehousing and distribution costs to handle excess inventory, and some lower-margin programs due to customer mix. These issues either did not re-occur in fiscal 2021 or re-occurred at much lower or near normal levels.

Domestic Upholstery segment’s gross profit decreased significantly in absolute terms and as a percentage of net sales due primarily to the net sales decline and inefficiencies of operating at reduced production volumes during the first and second quarters. Indirect fixed costs adversely impacted gross margin by 310 basis points in this segment.

All Other’s gross profit and margin decreased in absolute terms and as a percentage of net sales due to sales decline and unfavorable product mix in H Contract division, partially offset by the addition of Lifestyle Brands.

  

Selling and Administrative Expenses (S&A)

 
  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Hooker Branded

 $20,788   18.4% $22,870   18.6% $(2,082)  -9.1%

Home Meridian

  26,305   13.0%  32,152   13.4%  (5,847)  -18.2%

Domestic Upholstery

  8,785   14.7%  10,149   13.9%  (1,364)  -13.4%

All Other

  2,042   21.8%  2,115   22.0%  (73)  -3.5%

Consolidated

 $57,920   15.1% $67,286   15.1% $(9,366)  -13.9%

Consolidated S&A expenses decreased in absolute terms but stayed unchanged as a percentage of net sales in the fiscal 2021 first nine months versus the prior year period.

The Hooker Branded segment’s S&A expenses decreased in absolute terms and as a percentage of net sales in the fiscal 2021 first nine months due primarily to decreased selling expenses on lower net sales, cost-cutting measures implemented to address the COVID-19 crisis, lower advertising supplies and sample expenses due to fewer new product introductions, as well as lower travel expenses due to pandemic-related restrictions. The decreases were partially offset by higher bad debt expense due to a customer write-off during the first quarter unrelated to COVID-19 and an increase in reserves to recognize expected future credit losses under ASC 326 requirements, which we adopted during the first quarter of fiscal 2021.

The Home Meridian segment’s S&A expenses decreased in absolute terms and as a percentage of net sales, attributable to lower selling expenses on lower net sales and overall spending reductions implemented in response to the COVID-19 crisis, as well as the absence of the resourcing transition costs in the prior year period.

The Domestic Upholstery segment’s S&A expenses decreased in absolute terms due to decreased selling expenses on lower net sales, decreased advertising supply expenses, as well as the overall cost reductions on operating expenses. S&A expenses increased as a percentage of net sales due to lower net sales.

All Other S&A expenses decreased in absolute terms and as a percentage of net sales driven by lower selling expenses and advertising supply expenses.

  

Goodwill impairment charges

 
  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Home Meridian

 $23,187   11.4% $-   0.0% $23,187     

Domestic Upholstery

  16,381   27.5%  -   0.0%  16,381     

Consolidated

  39,568   10.3%  -       39,568     

  

Trade name impairment charges

 
  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Home Meridian

 $4,750   2.3% $-      $4,750     

  Consolidated

 $4,750   1.2% $-       4,750     

In the first quarter of fiscal 2021,half, we recorded $23.2income tax expense of $5.0 million, and $16.4 million in non-cash impairment charges to write down goodwill in the Home Meridian segment and the Shenandoah division of the Domestic Upholstery segment, respectively. We also recorded $4.8 million in non-cash impairment charges to write down tradenames in the Home Meridian segment.

  

Intangible Asset Amortization

 
  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Intangible asset amortization

 $1,788   0.5% $1,788   0.4% $-   0.0%

Intangible asset amortization expense stayed the same compared to the prior year first nine months.

  

Operating (Loss)/Profit and Margin

 
  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Hooker Branded

 $15,108   13.3% $15,453   12.6% $(345)  -2.2%

Home Meridian

  (26,754)  -13.2%  (9,013)  -3.7%  (17,741)  -196.8%

Domestic Upholstery

  (14,399)  -24.1%  5,830   8.0%  (20,229)  347.0%

All Other

  1,156   12.4%  1,397   14.5%  (241)  -17.3%

Consolidated

 $(24,889)  -6.5% $13,667   3.1% $(38,556)  -282.1%

Operating profitability decreased in absolute terms and as a percentage of net sales, due to the factors discussed above.

  

Interest Expense, net

 
  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Consolidated interest expense, net

 $433   0.1% $986   0.2% $(553)  -56.1%

Consolidated interest expense decreased in the fiscal 2021 first nine months primarily due to lower interest rates on our variable-rate term loans, as well as lower principal balances.

  

Income taxes

 
  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 
      

% Net Sales

      

% Net Sales

         

Consolidated income tax (benefit)/expense

 $(6,263)  -1.6% $2,829   0.6% $(9,092)  -321.4%
                         

Effective Tax Rate

  24.8%      21.9%            

We recorded income tax benefit of $6.3$9.3 million for the fiscal 2021 first nine months,comparable prior year period, of which $10.7 million was recorded related to goodwill and trade name impairment charges, compared to $2.8 million income tax expense for the comparable prior year period.charges. The effective tax rates for the fiscal 2022 and 2021 and 2020 first nine monthshalf periods were 24.8%22.7% and 21.9%24.2%, respectively.

 

  

Net (Loss)/Income

 
  

Thirty-Nine Weeks Ended

 
  

November 1, 2020

      

November 3, 2019

      

$ Change

  

% Change

 

Net (loss) / income

     

% Net Sales

      

% Net Sales

         

Consolidated

 $(18,952)  -4.9% $10,067   2.3% $(29,019)  -288.3%
                         

Diluted (loss) / earnings per share

 $(1.61)     $0.85             
  

Net Income/(Loss)

 
  

Thirteen Weeks Ended

  

Twenty-Six Weeks Ended

 
  

August 1,

     

August 2,

            

August 1,

     

August 2,

           
  

2021

     

2020

            

2021

     

2020

           
      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

      

% Net

Sales

      

% Net

Sales

  

$ Change

  

% Change

 

Net income/(loss) Consolidated

 $7,467  4.6% $5,774  4.4% $1,693  -29.3% $16,910  5.2% $(29,045) -12.4% $45,955  158.2%
                                           

Diluted earnings/(loss) per share

 $0.62     $0.48            $1.40     $(2.46          

COVID-19

We monitor information on COVID-19 from the CDC and believe we are adhering to their recommendations regarding the health and safety of our personnel. To address the potential human impact of the virus, many of our administrative staff are telecommuting for at least part of their work-week. For those administrative staff not telecommuting and our warehouse and domestic manufacturing employees, we have implemented appropriate social distancing policies and have stepped-up facility cleaning at each location. Non-essential domestic travel for our employees has ceased and international travel has been prohibited out-right. Testing, treatment and vaccinations for COVID-19 are covered 100% under our medical plan and counseling is available through our employee assistance plan to assist employees with financial, mental and emotional stress related to the virus and other issues. In addition, we are offering temporary paid leave to employees diagnosed with the virus (and those associates with another diagnosed person or persons in their household) and are working to accommodate associates with child-care issues related to school or day-care closures.

As more state and local governments have eased restrictions on retail activities, we have seen a significant improvement in our business conditions, including order rates, profitability, and financial condition. However, we continue to cautiously make decisions regarding our financial resources to weather and adapt to changes in market conditions, including any further impacts of COVID-19, including certain COVID variants and possible future pandemics.

 

 

Outlook

 

As we head intoConsumer and retail demand remain historically strong, with consolidated backlogs nearly double and incoming orders up 27% over last year as of the fourth quarter and nextend of the fiscal year,2022 second quarter. However, we are encouraged by ourfacing significant backlog and robust demand from all residential channels. We believeheadwinds on the supply side that furniture will be an advantaged sectorimpact us in the short-term. The surge of the economy, benefitting from a renewed consumer focus on the home, a strong housing marketDelta variant of COVID-19 has caused factories in our source countries of Vietnam and less discretionary spending competition from travel, dining outMalaysia to close temporarily, with reopening prospects uncertain. In addition, global logistics challenges with higher freight and entertainment.transit costs and lower transportation capacity, along with raw materials inflation and some labor shortages continue.

 

Currently, supply chain bottlenecksOur Hooker Branded and Domestic Upholstery segments, where we have more of an ability to keep product flowing and to ship from our significant US and Asia warehousing capacity, is less challenged than Home Meridian, since Home Meridian ships primarily to larger customers via direct container and is more impacted by shipping costs and capacity, especially in an environment of surging demand arethe short-term. Consequently, we expect our greatest business challenge. Limitations on supply include scarcity of some raw materialssecond-half net sales and components, limited availability of shipping containers and ocean vessel space and production delays from some import suppliers. We are making progress withincome to be adversely affected by these challenges, as our overseas suppliers and own factories ramp up production to allow us to begin to meet the strong demand. However, we expect short-term unfavorable impacts to our fiscal 2021 fourth quarter sales and earnings, especiallyparticularly in our Home Meridian segment.

 

We are concerned about the human and economic toll of COVID-19, both currently and prospectively, especially the recent surge in COVID infections and hospitalizations. We continue to maintain rigorous safety protocolsmanage our logistics issues, with the goal of minimizing costs and maximizing delivery however there is no indication that ocean freight container rates will return to pre-COVID-19 levels in all our workplaces and are encouraged thatthe near term. We believe we have had essentiallymitigated these dynamics as much as possible through surcharges and price increases, but these increases can trail price increases received from logistics partners and suppliers for up to ninety days. Additionally, these supply-side factors are unpredictable and often involve frequent, unexpected changes with little or no workplace spread in any location thus far.notice.

 

Despite these challenges,Longer-term, we believe that several macroeconomic factors provide a path for growth such as the strong housing market and favorable demographics with the large Millennial generation becoming highly engaged in household formation and home furnishings purchases. While we look forwardexpect the extraordinary levels of demand for home furnishings to the next two to three quarters,diminish somewhat, we also expect that demand for home furnishings will settle into a higher level of demand than pre-pandemic. We believe we are optimisticwell positioned to help consumers enhance their homes with comfortable, stylish and believe we have the backlog, order velocity and momentum to deliver strong results when our supply chain challenges subside. However, we have limited visibility of how the economic and health crises may fluctuate in the coming months.quality home furnishings.

 

We believe we are utilizing all available levers to help mitigate these headwinds, and we remain in exceptional financial condition with aoptimistic about our long-term position as we work our way through these transitory disruptions. Our strong balance sheet. Assheet and variable cost business model give us confidence that we can weather this current industry-wide challenge and will allow us to take advantage of the end of our fiscal 2021 third quarter, our cash position was nearly $94 million, an increase of about $58 million over the end of the 2020 fiscal year on February 2, 2020. Additionally, we have access to about $26 million under our existing revolver to fund working capital requirementshealthy consumer demand environment and to an additional $25 million in cash surrender value of Company-owned life insurance policies. Whilelong-term positive economic indicators and demographic trends for home-related industries. However, we expect our cash balances to decline somewhat overincreased competition for consumer discretionary income from industries such as travel, apparel, dining out and in-person events as vaccination rates increase. Additionally, potential adverse effects of new COVID-19 variants on the remainder of the year as we rebuild inventoriesUS and as trade receivables increase, both to accommodate increased sales, we expect our liquidity to be sufficient.

Discussions with lenders to refinance our credit facility which expires in February 2021 are nearing completion and we expect to be successful in refinancing our debt; however, we believe we have enough financial resources to continue to operate effectively even without refinancing our debt. Due to our strong cash position and expected working capital needs, we expect to pay off the balance of our term loans on or before closing of the New Credit Facility. If we were unable to enter into the new credit facility, we believe we have enough cash on hand to pay off our term loans and fund our operations in the near future. We expect to continue managing cash and spending cautiously as we move through the coming months.

We face many significant risks and uncertainties, as more fully discussed in Item 1A, “Risk Factors” in our 2020 Annual Report.global economies remains uncertain.

 

Financial Condition, Liquidity and Capital Resources

 

Cash Flows Operating, Investing and Financing Activities

 

  

Thirty-Nine Weeks Ended

 
  

November 1,

  

November 3,

 
  

2020

  

2019

 

Net cash provided by operating activities

 $67,607  $26,610 

Net cash provided by / (used in) investing activities

  328   (3,838)

Cash used in financing activities

  (10,092)  (9,709)

Net increase in cash and cash equivalents

 $57,843  $13,063 

  

Twenty-Six Weeks Ended

 
  

August 1,

  

August 2,

 
  

2021

  

2020

 

Net cash (used in)/provided by operating activities

 $(20,207) $53,168 

Net cash used in investing activities

  (3,938)  (264)

Cash used in financing activities

  (4,285)  (6,725)

Net (decrease)/increase in cash and cash equivalents

 $(28,430) $46,179 

 

During the ninesix months ended NovemberAugust 1, 2020,2021, we used a portion of the $67.6 millionexisting cash generated from operations and $1.5 million life insurance proceedscash equivalent on hand to pay $5.7$3.5 million in cash dividends, $4.8 million in principal and interest payments on our term loans, $642,000of capital expenditures to enhance our business systems and facilities, $4.3 million in cash dividends, and $519,000$473,000 in life insurance premiums on Company-owned life insurance policies.

 

In comparison, during the ninesix months ended November 3, 2019,August 2, 2020, we used somea portion of the $26.6$53.2 million of cash generated from operations and $1.4 million of$673,000 life insurance proceeds on a note receivable to pay for $5.3$3.8 million in cash dividends, $4.7 million of capital expenditures to expand our domestic manufacturing capacities and to enhance our business systems and facilities, $4.4$3.2 million in principal and interest payments on our term loans, payments, and $558,000$453,000 in life insurance premiums.premiums on Company-owned life insurance policies.

 

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 credit; and

 

cash surrender value of Company-owned life insurance.

 

We believe these resources are sufficient to meet our business requirements and the payment of dividends through fiscal 20212022 and for the foreseeable future, including:including expected capital expenditures and working capital needs.

capital expenditures;

working capital; and

the servicing of our acquisition-related debt.

 

Loan Agreements and Revolving Credit Facility

 

We currently have one unsecured term loan and one secured term loan outstanding and a revolving credit facility. The term loans are related to the HMI acquisition. Details of our loan agreements and$35 million revolving credit facility are outlined below.

Original Loan Agreement

On February 1, 2016, we entered into an amended and restated loan agreement (the “Original Loan Agreement”“Existing Revolver”) with Bank of America, N.A.N. A. (“BofA”) in connection with, which we entered into on January 27, 2021. The credit facility is based on successive past amendments to previous BofA banking agreements which are collectively referred to as the closing of the Home Meridian acquisition. Also, on February 1, 2016, we borrowed in full the amounts available under the Unsecured Term Loan (the “Unsecured Term Loan”) and the Secured Term Loan (the “Secured Term Loan”) in connection with the completion of the HMI acquisition.

“Previous Agreements.” Details of the individual credit facilities referenced in the Original Loan Agreementour Existing Revolver are as follows:outlined below:

 

 

Unsecured revolvingThe facility is available between January 27, 2021 and February 1, 2026 or such earlier date as the availability may terminate or such later date as BofA may from time to time in its sole discretion designate in any extension notice;

During the availability period, BofA will provide a line of credit facility.to the maximum amount of the Existing Revolver;

The Original Loan Agreement increasedinitial amount of the amount available under our existing unsecured revolving credit facility from $15 million to $30 million and increased theExisting Revolver is $35 million;

The sublimit of the facility available for the issuance of letters of credit from $3 million to $4 million (subsequently revisedwas increased to $10 million in the 2021 fiscal fourth quarter). Amounts outstanding under the revolving facility bear interest at a rate, adjusted monthly, equal to the then-current LIBOR monthly rate plus 1.50%. 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;million;

 

 

Unsecured Term Loan.The Original Loan Agreement provided us withactual daily amount of undrawn letters of credit is subject to a $41 million Unsecured Term Loan. Any amount borrowed under the Unsecured Term Loan bears interest at a rate, adjusted monthly,quarterly fee equal to the then-current LIBOR monthlya per annum rate plus 1.50%. We must repay any principal amount borrowed under the Unsecured Term Loan in monthly installments of approximately $490,000, together with any accrued interest, until the full amount borrowed is repaid or until February 1, 2021, at which time all amounts outstanding under the Unsecured Term Loan will become due and payable; and1%;

 

 

Secured Term Loan. The Original Loan Agreement provided us with a $19 million term loan secured by a security interest in certain Company-owned life insurance policies granted to BofA under a security agreement, dated as of February 1, 2016 (the “Security Agreement”). Any amount borrowed under the Secured Term Loan bears interest at a rate, adjusted monthly, equal to the then-current LIBOR monthly rate plus 0.50%. We must pay the interest accrued on any principal amounts borrowed under the Secured Term Loanmay, on a monthlyone-time basis, untilrequest an increase in the full principalExisting Revolver by an amount borrowed is repaid or until February 1, 2021, at which time all amounts outstanding under the Secured Term Loan will become due and payable. BofA’s rights under the Security Agreement are enforceable upon the occurrence of an event of default under the Original Loan Agreement.

New Loan Agreement

On September 29, 2017, we entered into a second amended and restated loan agreement (the “New Loan Agreement”) with BofA in connection with the completion of the Shenandoah acquisition.  The New Loan Agreement:

amends and restates the Original Loan Agreement detailed above such that our existingnot to exceed $30 million unsecured revolving credit facility (the “Existing Revolver”), Unsecured Term Loan, and Secured Term Loan all remain outstanding under the New Loan Agreement;at BofA’s discretion; and

 

 

provided us withAny amounts outstanding under the Existing Revolver bear interest at a new $12 million unsecured term loan (the “New Unsecured Term Loan”), which we subsequently paid off in full.rate, equal to the then current LIBOR monthly rate (adjusted periodically) plus 1.00%. We must also pay a quarterly unused commitment fee at a rate of 0.15% determined by the actual daily amount of credit outstanding during the applicable quarter.

 

The New Loan Agreement also includedloan covenants agreed to under the Previous Agreements continue to apply to us. They include 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 2.00:1.00.

Maintain a ratio of funded debt to EBITDA not exceeding:

 

o

2.50:1.0 through August 31, 2018;

o

2.25:1.0 through August 31, 2019; and

o

2.00:1.00 thereafter.

o

A basic fixed charge coverage ratio of at least 1.25:1.00; and

 

o

Limit capital expenditures to no more than $15.0 million during any fiscal year beginning in fiscal 2020.year.

 

The New Loan AgreementThey also limitslimit our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions. The New Loan Agreement doesThey do 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 New Loan Agreement. We paid off the New Unsecured Term Loan in fiscal 2019.agreements.

 

We were in compliance with each of these financial covenants at November 1, 2020 August 1,2021,and expect to remain in compliance with existing covenants for the foreseeable future. We believe we have the financial resources to weatherfund our business operations, including weathering the expected short-term impactslogistics issues, cost increases and production capacity constraints which are currently impacting our industry.

 

As of NovemberAugust 1, 2020, $8.6 million was outstanding under the Unsecured Term Loan, and $17.1 million was outstanding under the Secured Term Loan.

Revolving Credit Facility Availability

As of November 1, 2020,2021, we had an aggregate $25.7$28.7 million available under our revolving credit facilityExisting Revolver to fund working capital needs. Standby letters of credit in the aggregate amount of $4.3$6.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facilityExisting Revolver as of NovemberAugust 1, 2020.2021. There were no additional borrowings outstanding under the revolving credit facility as of NovemberAugust 1, 2020.

Loan agreement2021.

 

On November 4, 2020, we entered the Second Amendment to the Second Amended and Restated Loan Agreement to amend certain provisions of the Existing Loan Agreement. The following provisions of the Existing Loan Agreement are amended as: the Bank may from time to time issue letters of credit for the Company; the amount of any letters of credit outstanding at any one time (including the drawn and unreimbursed amounts of the letters of credit) may not exceed $10 million in the aggregate.

Expected New Credit Facility and Term Loan Payoff in Fiscal 2021

All amounts outstanding on our term loans and revolving credit facility are due and payable on the first day of fiscal 2022, February 1, 2021 and discussions with lenders about refinancing are concluding. We expect to enter into a new credit facility on or before the expiration of the current agreement. Due to our strong cash position and expected working capital needs, we expect to pay off the balance of our term loans on or before closing of the New Credit Facility. In the unlikely event that we are unable to enter into the new credit facility as expected, we believe we have enough cash on hand to pay off our term loans and fund our operations in the near future.

Given current market dynamics, credit could be more costly than our current lending arrangements. If the negative economic effects of COVID-19 persist or further deteriorate, it would likely have a material adverse effect on our sales, earnings and liquidity. Consequently, our credit rating may decrease, or the availability of loans may be limited and refinancing our debt may be more difficult and loans more costly.

Capital Expenditures

 

Prior to the COVID-19 crisis, we expectedWe expect to spend between $2.5approximately $4 million to $4.5 million forin capital projects inexpenditures over the remainder of fiscal 20212022 to maintain and enhance our operating systems and facilities. However, due to the negative economic effects of COVID-19,Of those amounts, we have delayed indefinitely about $3 million in non-critical capital spending. We expect to spend about $500,000 during the remainder of the 2021 fiscal year to maintain and enhance our operating systems and facilities.approximately:

$1.5 million outfitting a newly built leased warehouse space in Savannah, Georgia. Hiring of staff is in process and we expect to commence operations at the new facility in October 2021. The facility will consolidate several older, less efficient Home Meridian segment warehouses into a single strategically located distribution facility near the port of Savannah and major interstate highways. We believe this is critical to servicing customers and is expected to reduce transportation costs and increase operating efficiencies; and

$1.5 million on implementation costs for a new common, cloud-based Enterprise Resource Planning (“ERP”) platform which we expect to be online in our Hooker Branded segment and certain divisions under Domestic Upholstery segment by mid-calendar 2022, with other segments following thereafter.

Enterprise Resource Planning

 

COVID-19 Cost Cutting and Cash Preservation Measures

During theIn early fiscal 2021 first quarter, we initiated certain measures to reduce operating expenses and preserve cash which include temporary fee reductions for2022, our Board of Directors temporary salary reductions for officersapproved an upgrade to our current ERP system and implementation efforts began shortly thereafter. We expect to implement the ERP upgrade in our Hooker Branded segment and certain other managers, strategic staff reductions,divisions under Domestic Upholstery segment by mid calendar 2022, with Home Meridian and Shenandoah divisions following afterwards. To complete the temporary closure of our domestic manufacturing plantsERP system implementation as anticipated, we will be required to expend significant financial and the furlough of manufacturing, warehouse and administrative associates.human resources. We also delayed all non-critical capitalanticipate spending rationalized our import purchase orders and accepted certain accommodations from our vendors to cut costs and extend payment terms where possible.

While we continue to spend cautiously, business has improved steadily beginning in May 2020 and we’ve seen greatly increased demand for our products. Consequently, during the 2021 second quarter, our domestic manufacturing plants reopened and are currently operating at current capacity. During the fiscal 2021 third quarter, temporary salary and fee reductions were rescinded and as of early December 2020 furloughs of our associates have ended. We are in the process of re-building inventory to meet increased customer demand.

As of the end of our fiscal 2021 third quarter of November 1, 2020, our cash position had increased by about $58approximately $5.5 million over the endcourse of this project, with a significant amount of time invested by our associates. We spent approximately $1.5 million on this project in the 2020first half of fiscal year on February 2, 2020. We expect these cash balances to decrease as we build inventories to meet increased customer demand and pay off the balance of our term loans.2022.

 

Dividends

 

On DecemberSeptember 2, 2020,2021, our board of directors declared a quarterly cash dividend of $0.18 per share, payablewhich will be paid on December 31, 2020September 30, 2021 to shareholders of record at DecemberSeptember 16, 2020. This represents a 12.5% increase over the previous quarterly dividend and the fifth consecutive annual dividend increase.

We expect our low fixed cost business model, which served us well during the Great Recession, to help us navigate the current disruption. Our cash position has remained strong and has continued to improve since our fiscal year-end in early February, with additional availability under our revolving credit facility if needed. Consequently, while we are confident in our future and are proud of our fifty-plus year history of consistently paying dividends, we have limited visibility into future economic conditions.2021. The Board will continue to evaluate the appropriateness of the current dividend rate considering our performance and economic conditions in future quarters.

 

Critical Accounting Policies

 

Except as discussed below, 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 20202021 Annual Report.

 

On the first day of the current fiscal year, we adopted the accounting standards outlined in Part 1, Notes to Condensed Consolidated Financial Statements, “Note 2. Recently Adopted Accounting Policies” (“Note 2”). See Note 2 for additional information related to the impact of adopting thesethis accounting standards.standard.

 

Item 3. Quantitative and Qualitative Disclosures About 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 changes 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 ourthe revolving credit facility and the Unsecured Term Loan bearbears interest based on LIBOR plus 1.5% and borrowings under the Secured Term Loan bear interest based on LIBOR plus 0.5%1.0%. As such, thesethis debt instruments exposeinstrument exposes us to market risk for changes in interest rates. There was no outstanding balance under our revolving credit facility as of NovemberAugust 1, 2020,2021, other than amounts reserved for standby letters of credit in the amount of $4.3 million; however, as of November 1, 2020, $25.7 million was outstanding under our term loans. A 1% increase in the LIBOR rate would result in an annual increase in interest expenses on our terms loans of approximately $62,000.$6.3 million.

 

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; principally, wood, leather, 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 geo-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.

 

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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 NovemberAugust 1, 2020.2021. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective as of NovemberAugust 1, 20202021 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

 

There have been no changes in our internal control over financial reporting during the fiscal quarter ended NovemberAugust 1, 2020,2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

Item 6. Exhibits

 

3.1

Amended and Restated Articles of Incorporation of the Company, as amended March 28, 2003 (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q (SEC File No. 000-25349) for the quarter ended February 28, 2003)

  

3.2

Amended and Restated Bylaws of the Company, as amended December 10, 2013 (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K (SEC File No. 000-25349) for the year ended February 2, 2014)

  

4.1

Amended and Restated 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)

  

10.1

Second Amendment to the Second Amended and Restated Loan Agreement, dated as of November 4, 2020, between Bank of America, N.A. and Hooker Furniture Corporation, a Virginia corporation, Bradington-Young, LLC, a Virginia limited liability company, Sam Moore Furniture LLC, a Virginia limited liability company, and Home Meridian Group, LLC, a Virginia limited liability company.

31.1*

Rule 13a-14(a) Certification of the Company’s principal executive officer

  

31.2*

Rule 13a-14(a) Certification of the Company’s principal financial officer

  

32.1**

Rule 13a-14(b) Certification of the Company’s principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

101*

The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended November 1, 2020, formatted inInteractive Data Files (formatted as Inline Extensible Business Reporting Language (“XBRL”): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of income, (iii) condensed consolidated statements of comprehensive income, (iv) condensed consolidated statements of cash flows, and (v) the notes to the condensed consolidated financial statementsXBRL)

  

104104*

Cover page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

 


*Filed herewith

** Furnished 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 FURNITURE CORPORATION

   

Date: December 10, 2020 September 9, 2021

 

By: /s/Paul A. Huckfeldt                                           

  

Paul A. Huckfeldt 

Chief Financial Officer and

Senior Vice President – Finance and Accounting

   

 

 

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