Hooker Furnishings Corporation Price & Performance (HOFT)

Welcome to our quarterly conference call to review financial results for fiscal twenty twenty five fourth quarter and full year. Both of which ended 02/02/2025. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation today. During our call, we may make forward looking statements, which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal twenty twenty five results. Any forward looking statement speaks only as of today. And we undertake no obligation to update or revise any forward looking statement to reflect events or circumstances after today's call. Consolidated net sales for the fourth quarter increased by 7,700,000.0 an approximate 8% gain over the previous year's fourth quarter. The current quarter included fourteen weeks compared to thirteen weeks of the prior year's fourth quarter. On a consolidated basis, the additional week in the current period drove the increase, contributing approximately $7,700,000 to consolidated net sales. However, Hooker branded and Home Meridian sales increased by 213% respectively, based on average net sales per shipping day. These gains were partially offset by a $2,000,000 or 7% decrease in sales at domestic upholstery.

Significant charges in the fourth quarter included $1,300,000 in end of life inventory write downs, related to the planned exit of our Savannah facility dollars 878,000 in non cash trade name impairment charges, dollars 718,000 in bad debt expense related to a large customer bankruptcy. That's in addition to $2,400,000 recorded in the third quarter and about $200,000 related to our previously announced cost reduction plan. These $3,100,000 in charges drove a consolidated operating loss of $2,700,000 and a net loss of $2,300,000 or about $0.22 per diluted share for the fourth quarter. For fiscal twenty five, consolidated net sales were $397.5 a decrease of $35,800,000 or 8.3% compared to the previous fiscal year. All three reportable segments experienced sales decreases driven by continued weak demand a depressed housing market, and broader macroeconomic uncertainties impacting nearly the entire home furnishings industry. Consolidated operating loss was $18,100,000 for the year, primarily due to 10.8 due to lower sales volumes and $10,800,000 in charges including $4,900,000 in restructuring costs related to our cost reduction plan dollars 3,100,000.0 in bad debt expense from a major customer's bankruptcy, and $2,800,000 in non cash trade name impairment charges. Consolidated net loss amounted to $12,500,000 or $1.19 per share.

We expect fiscal twenty six cost savings of about $1,000,000 from the Savannah warehouse exit announced last month. Net of associated transition cost. We expect annualized cost savings of $4 to $5,700,000 beginning in fiscal twenty twenty seven. The exact amount of savings is dependent upon the ultimate timing of the exit. At the same time, we are finalizing the estimates of the potential financial impact of the Savannah warehouse exit. Currently, we expect to record net charges of between $3,000,000 to $4,000,000 in fiscal twenty six. In addition to the $10,000,000 in annualized cost savings in fiscal twenty five. And expected to be realized in fiscal 'twenty six, we expect additional annualized cost savings of between 8,000,000 to 10,000,000 which we anticipate will be realized over the next fiscal year. With full benefits being felt in fiscal twenty seven. Completion of our cost reduction plans is expected by the second half of fiscal twenty six. Total of these two initiatives are expected to save the company between 18,000,000 and $20,000,000 I'll turn the call over to Jeremy to comment on our fiscal twenty twenty five fourth quarter and full year results. Thank you, Earl, and good morning, everyone. Hooker Furnishings demonstrated resilience this year with important accomplishments despite extremely difficult conditions in the home furnishing space, that persist with few signs of improvement in the near and possibly medium term.

We are focused on gaining market share and creating a pathway for profitability regardless of how long the furniture retail downturn persist. Despite the operating loss, our milestones in fiscal 'twenty five included the Margaritaville licensing agreement, the launch of Hooker Branded's new merchandising strategy, Sunset West East Coast expansion key inventory investments and share gains amid a tough market. We were encouraged to report improved sales in the fourth quarter, even considering the extra week Hooker Branded and Home Meridian sales increased according to an independent industry analysis, we had year over year market share growth of three to 15 basis points in each of the first three quarters of twenty five in Hooker's legacy divisions. With fourth quarter data still pending. These gains build on a consistent trend of sequential market share gains in every quarter of fiscal twenty twenty four. This consistent share growth, despite a contracting high end segment, reinforces the competitive advantages we've built in our readiness to capitalize when demand rebounds. While macroeconomic headwinds, including the weakest housing market in fifty years, lower consumer confidence and tariff uncertainty persist, we remain focused on what we can control. Excluding the charges Earl just mentioned, our financial performance improved sequentially each quarter of the year.

Due to the continued economic environment, we've accelerated cost reduction initiatives which we believe will improve operating income and cash flow. These include our planned exit of the Savannah warehouse, which is expected to save $4,000,000 to $5,700,000 annually beginning in fiscal twenty twenty seven, and the opening of a new leased facility in Vietnam this May. When fully operational, the Vietnam warehouse will reduce domestic safety stock needs improve product flow enable container mixing, support margin expansion and enable a speeder speedier return on investment. Combined with other efforts, we expect to begin to realize a portion of the 18,000,000 to $20,000,000 in total annual operating expense savings in fiscal twenty twenty six with full annualized expected cost savings beginning in fiscal twenty twenty seven. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments. Thank you, Jeremy. At Hooker Branded, fourth quarter net sales rose $3,800,000 or 10 from the prior quarter, driven by a 14% increase in unit volume. Operating income was $1,100,000 down from $3,500,000 a year ago but improved from losses in the first three quarters of fiscal twenty five. For fiscal twenty five, sales decreased $10,100,000 or point 5% due to a 5.7% drop in average selling prices and increased discounting.

Partially offset by a nearly 3% rise in volume. Fourth quarter orders rose 15% year over year reversing the trend of three quarters of decreases, Year end backlog fell 22% driven mostly by a significantly improved in stock position, which helped us ship goods faster. Turning to Home Meridian, fourth quarter net sales increased $6,300,000 or 21.7% year over year driven by strong hospitality sales offsetting softness in traditional channels. Gross profit for the quarter rose $2,400,000 to $8,100,000 with gross margin reaching nearly 23% the highest since 2016. Despite $618,000 inventory write down tied to the Savannah exit. Segment reported a $500,000 operating loss despite $2,200,000 in charges recorded comprised of the $618,000 inventory write down we mentioned dollars 718,000 in additional bad debt, and $878,000 in trade name impairment. Fiscal twenty five net sales decreased 12,700,000.0 or around 9% to a nearly 30% drop in volume, with 78 of the decrease tied to the exit of unprofitable lines. Orders in backlog also decreased amid continued pressure in mega and traditional channels. In the domestic upholstery segment, fourth quarter net sales decreased $2,000,000 or about seven year over year due to soft demand across HF Custom Bradenton Young, and Shenandoah, as well as seasonal softness at Sunset West.

Fiscal 'twenty five net sales were down $12,600,000 or about 10% with decreases across most divisions, partly offset by a 6.8% increase at Sunset West. The segment posted a $2,500,000 operating loss driven by lower volume under absorbed overhead, and $80,000 in severance cost. Fourth quarter orders rose 13% with double digit growth at Bradenton Young, HF Custom and Sunset West. Sunset West has now posted four consecutive quarters of order growth driven by the expansion of its East Coast distribution. Year end backlog was 4% below last year but 3% above pre pandemic levels when excluding Sunset West since they were acquired after that time. Cash and cash equivalents stood at $6,300,000 a decrease of $36,900,000 from the previous year end This decrease was largely due to an increase in accounts receivable, a strategic increase in inventory levels with Hooker Branded accounting for most of that inventory increase. Additionally, we utilized our cash reserves for several key expenditures during fiscal twenty five, cash dividends to shareholders, development of our cloud based ERP system, and other capital expenditures. As of yesterday, our cash stood at nearly $19,000,000 with $41,000,000 in available borrowing capacity under our new amended and restated loan agreement.

We strategically increased inventory in the fourth quarter to support three major new case goods collections and replenish our most profitable high velocity items. This positioned us to improve product availability and speed to market in the second half of fiscal twenty five and early fiscal twenty six. While also mitigating expected supply disruption from potential port strikes in The United States and an extended Lunar New Year in Vietnam. We also refinanced our credit facility in the fourth quarter which increased our borrowing capacity. In March, we announced our regular quarterly dividend reflecting our ongoing confidence in the company's outlook and extending our over fifty year track record of uninterrupted dividend payments. Now I'll turn the discussion back to Jeremy for his outlook. There's a lot of economic uncertainty and volatility right now. We are currently evaluating a range of strategies to mitigate the the current economic environment, including a fifty year low in existing home sales and the possible impact of potential additional reciprocal tariffs on our operations and profitability. Tariffs add tremendous complexity and uncertainty that require us to look at our cost structure more aggressively aggressively, particularly on the lower margin direct container side of our business.

Consequently, in addition to the cost savings we previously announced and those we covered today, we continue to identify additional opportunities to gain efficiency by consolidating operations and we'll provide more information in the coming weeks. While evaluation of our cost footprint and implementation of further cuts are both ongoing, we continue to invest in the highest growth potential areas of our business as growing profitable sales remains an intense focus. On a positive note, inflation cooled in February and March falling to the levels experienced last summer and fall before it rose from November 24 to January 25. Additionally, according to the US Census Bureau, year over year monthly sales increased beginning in September 24. While the current environment is challenging, we believe we have positioned the company to continue gaining market share and maximizing revenues through our merchandising efforts speed to market initiatives and in stock position on top selling products. This ends the formal part of our discussion. And at this time, I will turn the call back over to our operator, Sherif, for questions.

Thank you. Star one one on your telephone and wait for your name to be announced. And our first question will come from the line of Anthony Lebiedzinski with Sidoti and Co. Your line is open.

Good morning, Jeremy, and good morning, Earl. Thank you for taking the questions. So it's certainly nice to see the sales improvements at Hooker Branded and HMI.

I know you guys talked about the HMI benefiting from strong hospitality sales. Just wondering if you could further comment on the Hooker Branded, whether you're seeing any additional traction from some new collections, maybe just give some more insight into what drove the unit volume increase at Hooker Branded? And would love to get your take on what you're seeing so far in Q1 as you now have only about two weeks left in the first quarter?

So first of all, the part about Hooker Branded and what's driving some of the momentum Definitely October market had a significant positive impact particularly on Hooker case goods. We brought out two new collections that really performed well in the early parts with placements and early orders. And early sell through. So we're very encouraged by that. Especially in the environment we've been in to have that type impact with two new collections, we were encouraged. I don't believe I can get into more of the first quarter yet. Sorry, Anthony.

Okay.

Okay.

And and then as far as, you know, domestic upholstery, so I know you guys, you know, said that that was down. As far as, you know, given the the tariff announcements two weeks ago, just wondering how you guys think about the opportunities there as some retailers look to perhaps shift their sources to, the domestic manufacturing, Just wondering how you guys think about the potential opportunity for domestic upholstery?

We we think it's a tremendous opportunity on the domestic upholstery side. For obvious reasons that you pretty much just stated. We have really quite a bit of capacity if we need it in the BY and we also embed for HF Customs. So we're in a position that we could definitely know, we're in position to grow. We're doing some things product wise, program wise that I believe are going to be well timed with that momentum coming their way.

Gotcha. Okay. And then you know, as far as HMI, you know, so obviously, you guys have done a nice job there repositioning that business, growth margin was up nicely. I suppose that the tariffs now add a wrinkle, but just just kind of thinking about like how do you think the the gross margins in that segment will go from here? And then just a separate question on the backlog. For HMI. I know there's been a lot of changes to that business. Over the last couple of years with the product lines changing and sales channels. So I guess on the like to like basis, know, what would be the backlog if you strip out all the noise and terms of the changes? How would that compare to pre pandemic levels for the backlog?

I don't believe we have that. I can answer the first part of that, which is there's a lot of focus on the right things at HMI, which I think is showing through in margin expansion. There's an intense focus on growing Pulaski and on growing Samuel Lawrence furniture We don't have any focus on like the clubs we've got out of and the ACH business eccentric home business that we got out of and we're not focused on loading up the warehouse with inexpensive low margin cheap accents. At this point. So there's a lot of really good focus. And candidly, that's why we're able to save between 4,000,000 and $5,700,000 on getting out of Savannah because 80% of that need in Savannah was based on storing or warehousing inexpensive low margin accents. So we're able to really more utilize CDC one, CDC two and Martinsville and And we talked about the Vietnam warehouse as well that we're working on So our logistics and our warehousing we believe will substantially go down from a financial footprint, but serve us better than it has.

Understood. Okay. Well, thank you very much and best of luck.

Yeah. Thank you, Anthony. We appreciate it.

Thank you. One moment for our next question. That will come from the line of Dave Storms with Stonegate. Your line is open.

Good morning and thank you for taking my questions. Just wanted to start with the current ninety day tariff pause. Does this open up an ability or give you any desire to be maybe a little more nimble and continue to do strategic inventory build?

Good question. We were in because we had as we said, we had taken our inventories, particularly up in Hooker Brand, which is call it an 85% to 90% domestic warehouse footprint. We had already strategically increased that inventory and that was a little bit lucky and well timed for the situation. But we also are able to manage this a little easier with Vietnam footprint we talked about because we can hold product there. Depending on where this goes and be ready to fill our warehouse in four to six weeks lead time versus a six month lead time we're able to see what actually happens next.

Understood. Very helpful. And then I also just wanna talk a couple times in the prepared remarks, the press release mentioned it. You know, just the strong market share gain you've had over the last year. Any main drivers really look at this and like, additionally going forward, the ability to kinda keep growing? At this, you know, three to 15 basis points pace?

Well, we expect that we believe that will improve, meaning those are fairly small numbers. They are improvement. But we believe it's you know, we can do better than that. We were pleased that we weren't going backwards in this environment, which is why we started tracking market share in the first place. In an environment like this, it's very difficult to know are you doing well? Are you not doing well? Where's your business? Because when things are down like they are, everything seems bad and you can't see what's actually going on. So we're pleased to have that information so that we can address what we need to address But I think we continue with the merchandising strategy, this collective living that we're doing, which really just means our legacy companies working together with one powerful presentation versus just a wood bedroom or a dining room shown by itself. You have upholstery that goes with it, occasionally goes with it. We have all those capabilities which is also what makes Margaritaville that's upcoming October market so powerful because that's really where our strengths are is when you combine everything together that really showed through I mentioned the two collections we did very well in October.

Well, were two of our first true collective living launches, which showed that, I'll just give you an example, when you have a sofa that perfectly goes with a collection, it makes it very easy for our retail partners to say, yes, I'll take that just like it is and I'll put it on my floor. Whereas don't have to figure out, okay, what can I put this with? And a lot of times if you leave it up to the partner, they're going to put something that's not our company, because they'll find something else outside of Hooker legacy companies to put with it. So it's really a that to me is a very powerful direction for us and it somewhat proved that in October.

Understood, that's great color. Thank you. Then maybe just one more modeling question. With the new cost savings announced, and the anticipation that they will be fully up and running by 2027. Any sense of the pacing for this? Is it going to be kinda gradual till then or fits and starts? Any color there would be great.

Hey, we weren't sure. I couldn't understand your question. Can you please ask that one more time? I'm sorry.

Yeah, apologies. Just around the pacing of the cost savings plan to 2027. Should we expect price of the cost savings plan?

What you're asking about?

Yes. Yes.

Please. Okay. So I think the way to look at it, I think if you back up and say, okay, total company spend was $109,000,000 going into two years ago budgeted, Our $10,000,000 savings we achieved throughout last year takes us to where we're a budgeted $99,000,000 in overall spend And then over this year, if you include Savannah and everything we're talking about, we're working on getting towards that 8,000,000 to $10,000,000 which puts us in more of 89 to $91,000,000 overall spend, which is really back to equivalent to what fiscal 'twenty two roughly was. So we're pretty encouraged by that, especially being that we have with the Savannah exit minimum 4,000,000 of that already already taken care of and working on the rest of that pretty hard. And then, I mentioned we're looking at other things to become more efficient company wide and we'll have more information on that in the coming weeks. That help?

That's very helpful. Thank you for taking my questions, and good luck. Absolutely. Thank you.

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Jeremy Hawk for any closing remarks.

Would like to thank everyone on the call for their interest in Hooker Furnishings. Look forward to sharing our fiscal twenty twenty six first quarter results in June. Take care.

Thank you all for participating. This concludes today's program. You may now disconnect.