HOOKER FURNISHINGS Corp [HOFT] Filings

10-Q 1 hoft20231029_10q.htm FORM 10-Q hoft20231029_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 29, 2023

Commission file number 000-25349

HOOKER FURNISHINGS 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’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, 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 1, 2023, there were 10,671,812 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	18

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30

Item 4.	Controls and Procedures	31

PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

Signature		34

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

As of	October 29,		January 29,
	2023		2023
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	39,795	$	19,002
Trade accounts receivable, net		59,065		62,129
Inventories		65,156		96,675
Income tax recoverable		3,073		3,079
Prepaid expenses and other current assets		5,934		6,418
Total current assets		173,023		187,303
Property, plant and equipment, net		29,079		27,010
Cash surrender value of life insurance policies		28,264		27,576
Deferred taxes		11,959		14,484
Operating leases right-of-use assets		54,202		68,949
Intangible assets, net		29,547		31,779
Goodwill		15,036		14,952
Other assets		13,388		9,663
Total non-current assets		181,475		194,413
Total assets	$	354,498	$	381,716

Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long-term debt	$	1,393	$	1,393
Trade accounts payable		23,294		16,090
Accrued salaries, wages and benefits		6,716		9,290
Customer deposits		5,033		8,511
Current portion of operating lease liabilities		7,045		7,316
Other accrued expenses		3,135		7,438
Total current liabilities		46,616		50,038
Long term debt		21,829		22,874
Deferred compensation		7,737		8,178
Operating lease liabilities		49,651		63,762
Other long-term liabilities		877		843
Total long-term liabilities		80,094		95,657
Total liabilities		126,710		145,695

Shareholders’ equity
Common stock, no par value, 20,000 shares authorized, 10,672 and 11,197 shares issued and outstanding on each date		49,503		50,770
Retained earnings		177,579		184,386
Accumulated other comprehensive income		706		865
Total shareholders’ equity		227,788		236,021
Total liabilities and shareholders’ equity	$	354,498	$	381,716

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

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HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	For the
	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29,		October 30,		October 29,		October 30,
	2023		2022		2023		2022

Net sales	$	116,831	$	151,580	$	336,452	$	451,803

Cost of sales		83,121		119,572		251,495		359,281

Gross profit		33,710		32,008		84,957		92,522

Selling and administrative expenses		24,016		24,712		70,207		72,255
Intangible asset amortization		924		878		2,732		2,634

Operating income		8,770		6,418		12,018		17,633

Other income, net		659		191		1,071		425
Interest expense, net		364		434		1,197		546

Income before income taxes		9,065		6,175		11,892		17,512

Income tax expense		2,027		1,334		2,620		3,946

Net income	$	7,038	$	4,841	$	9,272	$	13,566

Earnings per share
Basic	$	0.66	$	0.42	$	0.85	$	1.16
Diluted	$	0.65	$	0.42	$	0.85	$	1.14

Weighted average shares outstanding:
Basic		10,536		11,465		10,748		11,736
Diluted		10,676		11,525		10,878		11,838

Cash dividends declared per share	$	0.22	$	0.20	$	0.66	$	0.60

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

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HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	For the
	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 29,			October 30,			October 29,			October 30,
	2023			2022			2023			2022

Net income	$	7,038		$	4,841		$	9,272		$	13,566
Other comprehensive income:
Amortization of actuarial (gain)/loss		(70	)		21			(209	)		62
Income tax effect on amortization		17			(5	)		50			(15	)
Adjustments to net periodic benefit cost		(53	)		16			(159	)		47

Total comprehensive income	$	6,985		$	4,857		$	9,113		$	13,613

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

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HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the
	Thirty-Nine Weeks Ended
	October 29,			October 30,
	2023			2022
Operating Activities:
Net income	$	9,272		$	13,566
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization		6,626			6,578
Deferred income tax expense		2,575			1,650
Noncash restricted stock and performance awards		1,685			1,323
Provision for doubtful accounts and sales allowances		(270	)		(3,831	)
Gain on life insurance policies		(784	)		(744	)
Loss/(Gain) on disposal of assets		29			-
Changes in assets and liabilities:
Trade accounts receivable		3,334			3,069
Inventories		33,264			(56,343	)
Income tax recoverable		5			2,357
Prepaid expenses and other assets		(3,400	)		(5,863	)
Trade accounts payable		7,169			(1,522	)
Accrued salaries, wages, and benefits		(2,574	)		936
Customer deposits		(3,477	)		(1,277	)
Operating lease assets and liabilities		366			(238	)
Other accrued expenses		(4,400	)		(391	)
Deferred compensation		(650	)		(419	)
Net cash provided by/(used in) operating activities	$	48,770		$	(41,149	)

Investing Activities:
Acquisitions		(2,373	)		(25,912	)
Purchases of property and equipment		(5,718	)		(3,469	)
Premiums paid on life insurance policies		(378	)		(464	)
Proceeds received on life insurance policies		444			-
Net cash used in investing activities		(8,025	)		(29,845	)

Financing Activities:
Purchase and retirement of common stock		(11,674	)		(9,359	)
Cash dividends paid		(7,228	)		(7,117	)
Payments for long-term loans		(1,050	)		(350	)
Proceeds from long-term loans		-			25,000
Proceeds from revolving credit facility		-			36,190
Payments for revolving credit facility		-			(36,190	)
Debt issuance cost		-			(38	)
Net cash (used in)/provided by financing activities		(19,952	)		8,136

Net increase/(decrease) in cash and cash equivalents		20,793			(62,858	)
Cash and cash equivalents - beginning of year		19,002			69,366
Cash and cash equivalents - end of quarter	$	39,795		$	6,508

Supplemental disclosure of cash flow information:
Cash paid/(refund) for income taxes	$	74		$	(1	)
Cash paid for interest, net		1,375			293

Non-cash transactions:
(Decrease)/Increase in lease liabilities arising from changes in right-of-use assets	$	(8,987	)	$	7,402
Increase in property and equipment through accrued purchases		35			112

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

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HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except per share data)

(Unaudited)

										Accumulated
										Other			Total
	Common Stock						Retained			Comprehensive			Shareholders'
	Shares			Amount			Earnings			Income (loss)			Equity
Balance at July 31, 2022		11,959		$	53,853		$	210,994		$	(19	)	$	264,828
Net income for the 13 weeks ended October 30, 2022								4,841						4,841
Unrealized loss on defined benefit plan, net of tax of $5											15			15
Cash dividends paid ($0.20 per share)								(2,323	)					(2,323	)
Purchase and retirement of common stock		(530	)	$	(2,436	)		(5,787	)					(8,223	)
Restricted stock grants, net of forfeitures		(8	)		-									-
Restricted stock compensation cost					297									297
Performance-based restricted stock units cost					154									154
Balance at October 30, 2022		11,421		$	51,868		$	207,725		$	(4	)	$	259,589




Balance at July 30, 2023		10,819		$	49,561		$	175,348		$	759		$	225,668
Net income for the 13 weeks ended October 29, 2023								7,038						7,038
Unrealized loss on defined benefit plan, net of tax of $17											(53	)		(53	)
Cash dividends paid ($0.22 per share)								(2,373	)					(2,373	)
Purchase and retirement of common stock		(147	)	$	(700	)		(2,434	)					(3,134	)
Restricted stock grants, net of forfeitures														-
Restricted stock compensation cost					449									449
Performance-based restricted stock units cost					193									193
Balance at October 29, 2023		10,672		$	49,503		$	177,579		$	706		$	227,788

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

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HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONT.)

(In thousands, except per share data)

(Unaudited)

										Accumulated
										Other			Total
	Common Stock						Retained			Comprehensive			Shareholders'
	Shares			Amount			Earnings			Income (loss)			Equity
Balance at January 30, 2022		11,922		$	53,295		$	207,884		$	(51	)	$	261,128
Net income for the 39 weeks ended October 30, 2022								13,566						13,566
Unrealized loss on defined benefit plan, net of tax of $15											47			47
Cash dividends paid ($0.60 per share)								(7,117	)					(7,117	)
Purchase and retirement of common stock		(598	)		(2,751	)		(6,608	)					(9,359	)
Restricted stock grants, net of forfeitures		97			(102	)								(102	)
Restricted stock compensation cost					963									963
Performance-based restricted stock units costs					463									463
Balance at October 30, 2022		11,421		$	51,868		$	207,725		$	(4	)	$	259,589




Balance at January 29, 2023		11,197		$	50,770		$	184,386		$	865		$	236,021
Net income for the 39 weeks ended October 29, 2023								9,272						9,272
Unrealized loss on defined benefit plan, net of tax of $50											(159	)		(159	)
Cash dividends paid ($0.66 per share)								(7,228	)					(7,228	)
Purchase and retirement of common stock		(620	)		(2,952	)		(8,851	)					(11,803	)
Restricted stock grants, net of forfeitures		95			(150	)								(150	)
Restricted stock compensation cost					1,255									1,255
Performance-based restricted stock units costs					580									580
Balance at October 29, 2023		10,672		$	49,503		$	177,579		$	706		$	227,788

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

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HOOKER FURNISHINGS 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-Nine Weeks Ended October 29, 2023

1. Preparation of Interim Financial Statements

The condensed consolidated financial statements of Hooker Furnishings 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 January 29, 2023 (“2023 Annual Report”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect both the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from our estimates. Operating results for the interim periods reported herein may not be indicative of the results expected for the fiscal year.

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 2024 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began July 31, 2023, and the thirty-nine week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began January 30, 2023, which both ended October 29, 2023. This report discusses our results of operations for these periods compared to the 2023 fiscal year thirteen-week period that began August 1, 2022, and the thirty-nine-week period that began January 31, 2022, which both ended October 30, 2022; and our financial condition as of October 29, 2023 compared to January 29, 2023.

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

■

the 2024 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began January 30, 2023 and will end January 28, 2024; and

■

the 2023 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began January 31, 2022 and ended January 29, 2023.

2. Recently Adopted Accounting Policies

No new accounting pronouncements have been adopted in the 2024 fiscal year. We reviewed newly issued accounting pronouncements and concluded they are either not applicable to our business or are not expected to have a material effect on our consolidated financial statements as a result of future adoption.

3. Accounts Receivable

	October 29,			January 29,
	2023			2023

Gross accounts receivable	$	62,770		$	67,600
Customer allowances		(1,853	)		(3,702	)
Allowance for doubtful accounts		(1,852	)		(1,769	)
Trade accounts receivable	$	59,065		$	62,129

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4. Inventories

	October 29,			January 29,
	2023			2023
Finished furniture	$	78,037		$	115,015
Furniture in process		1,561			1,943
Materials and supplies		12,737			13,509
Inventories at FIFO		92,335			130,467
Reduction to LIFO basis		(27,179	)		(33,792	)
Inventories	$	65,156		$	96,675

5. Property, Plant and Equipment

	Depreciable Lives	October 29,			January 29,
	(In years)	2023			2023

Buildings and land improvements	15 - 30	$	33,671		$	32,723
Computer software and hardware	3 - 10		8,907			15,887
Machinery and equipment	10		11,651			11,013
Leasehold improvements	Term of lease		12,445			11,894
Furniture and fixtures	3 - 10		6,377			5,991
Other	5		697			694
Total depreciable property at cost			73,748			78,202
Less accumulated depreciation			(46,590	)		(53,427	)
Total depreciable property, net			27,158			24,775
Land			1,077			1,077
Construction-in-progress			844			1,158
Property, plant and equipment, net		$	29,079		$	27,010

6. Cloud Computing Hosting Arrangement

We are in the process of implementing a common Enterprise Resource Planning system (ERP) across all divisions. The ERP system went live at Sunset West in December 2022 and in the legacy Hooker divisions in early September 2023. We expect the new ERP system to go live in the Home Meridian segment during fiscal 2025.

Based on the provisions of ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software, we capitalize implementation costs associated with hosting arrangements that are service contracts. In addition, based on the provisions of ASC 835 Interest, we capitalize interest associated with this ERP project by applying the interest rate on our unsecured term loan to the amount of the accumulated expenditures for the ERP asset. Both these costs are recorded on the “Other assets” line of our condensed consolidated balance sheets. Amortization expense commenced when the ERP system went live at Sunset West in the fourth quarter of fiscal 2023. Capitalized implementation costs and interest are amortized over ten years on a straight-line basis. The capitalized implementation costs and interest expenses at October 29, 2023 and January 29, 2023 were as follows:

	Capitalized Implementation Costs			Capitalized interest expenses

Balance at January 29, 2023	$	8,598		$	84
Costs capitalized during the period		3,818			225
Accumulated amortization during the period		(187	)		(4	)
Balance at October 29, 2023	$	12,229		$	305

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7. 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 October 29, 2023 and January 29, 2023, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs. The fair value of the Company-owned life insurance is determined by inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Additionally, the fair value of the Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period.

Our assets measured at fair value on a recurring basis at October 29, 2023 and January 29, 2023, were as follows:

	Fair value at October 29, 2023								Fair value at January 29, 2023
Description	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(In thousands)
Assets measured at fair value
Company-owned life insurance	$	-	$	28,264	$	-	$	28,264	$	-	$	27,576	$	-	$	27,576

8. Intangible Assets

Our intangible assets with indefinite lives consist of: goodwill related to the Shenandoah, Sunset West and BOBO Intriguing Objects acquisitions; and trademarks and tradenames related to the acquisitions of Bradington-Young, Home Meridian and BOBO Intriguing Objects. During the fiscal 2024 second quarter, we recorded the preliminary estimates of $500,000 trademarks with indefinite lives and $124,000 goodwill as a result of the BOBO acquisition. The preliminary estimates of fair value of identifiable assets acquired and liabilities assumed are subject to revision, which may result in adjustments to the preliminary values presented below, when management’s appraisals and estimates are finalized. In the third quarter of fiscal 2024, we recorded additional fixed assets and revised goodwill to $84,000.

During the fiscal 2024 first quarter, we announced the rebranding of the Sam Moore product line to “HF Custom.” As a result, we reassessed the characteristics of the Sam Moore trade name and the roll-out process, and determined it qualified for amortization; consequently, we began amortizing the Sam Moore trade name over a 24-month period using the straight-line method beginning mid-April 2023. Our intangible assets with definite lives are recorded in our Home Meridian and Domestic Upholstery segments. Details of our intangible assets are as follows:

	October 29, 2023					January 29, 2023
	Gross carrying amount		Accumulated Amortization			Gross carrying amount		Accumulated Amortization
Intangible assets with indefinite lives:
Goodwill
Domestic Upholstery - Shenandoah *		490		-			490		-
Domestic Upholstery - Sunset West		14,462		-			14,462		-
All Other - BOBO Intriguing Objects		84		-			-		-
Goodwill		15,036		-			14,952		-

Trademarks and Trade names *		8,011		-			7,907		-

Intangible assets with definite lives:
Customer Relations		38,001		(18,141	)		38,001		(15,618	)
Trademarks and Trade names		2,334		(658	)		1,938		(449	)

Intangible assets, net		48,346		(18,799	)		47,846		(16,067	)

*: The amounts are net of impairment charges of $16.4 million related to Shenandoah goodwill and $4.8 million related to certain Home Meridian segment trade names, which were recorded in fiscal 2021.

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Amortization expenses for intangible assets with definite lives were $924,000 and $2.7 million for the third quarter and nine-month period of fiscal 2024, respectively. Amortization expenses for intangible assets with definite lives were $878,000 and $2.6 million for the fiscal 2023 third quarter and nine-month period, respectively. For the remainder of fiscal 2024, amortization expense is expected to be approximately $924,000.

9. Leases

We have operating leases for warehouses, showrooms, manufacturing facilities, offices and equipment. We recognized sub-lease income of $27,000 and $101,000 for the third quarter and nine-month period of fiscal 2024, respectively. We recognized sub-lease income of $34,000 and $415,000 for the third quarter and nine-month period of fiscal 2023, respectively.

The components of lease cost and supplemental cash flow information for leases for the three-months and nine-months ended October 29, 2023 and October 30, 2022 were:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2023		October 30, 2022		October 29, 2023		October 30, 2022
Operating lease cost	$	2,715	$	2,291	$	8,414	$	7,089
Variable lease cost		50		62		202		172
Short-term lease cost		119		79		282		246
Total operating lease cost	$	2,884	$	2,432	$	8,898	$	7,507


Operating cash outflows	$	2,668	$	2,518	$	8,033	$	7,745

During fiscal 2024 second quarter, we reduced our footprint by 200,000 square feet in the Georgia warehouse. During the third quarter, we entered into an agreement to further reduce our footprint by 200,000 square feet by early calendar 2024. These modifications resulted in an approximate $13 million decrease in the lease right-of-use assets and liabilities. The right-of-use assets and lease liabilities recorded on our condensed consolidated balance sheets as of October 29, 2023 and January 29, 2023 were as follows:

	October 29, 2023		January 29, 2023
Real estate	$	53,374	$	68,212
Property and equipment		828		737
Total operating leases right-of-use assets	$	54,202	$	68,949


Current portion of operating lease liabilities	$	7,045	$	7,316
Long term operating lease liabilities		49,651		63,762
Total operating lease liabilities	$	56,696	$	71,078

For leases that commenced before July 2022, we used our incremental borrowing rate which was LIBOR plus 1.5%. When we entered into the new loan agreement (described in Note 10 below), our incremental borrowing rate became the current BSBY rate plus 1.40%. We use this rate as the discount rate for leases commenced in July 2022 and thereafter. The weighted-average discount rate is 5.05%. The weighted-average remaining lease term is 7 years.

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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 October 29, 2023:

	Undiscounted Future Operating Lease Payments
Remainder of fiscal 2024	$	2,424
2025		9,732
2026		9,797
2027		9,635
2028		8,010
2029 and thereafter		29,166
Total lease payments	$	68,764
Less: impact of discounting		(12,068	)
Present value of lease payments	$	56,696

10. Long-Term Debt

On July 26, 2022, we entered into the Fourth Amendment (the “amendment”) to the Second Amended and Restated Loan Agreement with Bank of America, N.A. (“BofA”) to replenish cash used to make the acquisition of substantially all of the assets of Sunset West (which closed at the beginning of the first quarter of fiscal 2023) (the “Sunset Acquisition”). The Second Amended and Restated Loan Agreement dated as of September 29, 2017, had previously been amended by a First Amendment to Second Amended and Restated Loan Agreement dated as of January 31, 2019, a Second Amendment to Second Amended and Restated Loan Agreement dated as of November 4, 2020, and a Third Amendment to Second Amended and Restated Loan Agreement dated as of January 27, 2021 (as so amended, the “Existing Loan Agreement”). Details of the individual credit facilities provided for in the Amendment are as follows:

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Unsecured Revolving Credit Facility. Under the Amendment, the expiration date of the existing $35 million Unsecured Revolving Credit Facility (the “Existing Revolver”) was extended to July 26, 2027. Any amounts outstanding will bear interest at a rate per annum, equal to the then current Bloomberg Short-Term Bank Yield Index (“BSBY”) (adjusted periodically) plus 1.00%. The interest rate will be adjusted on a monthly basis. The actual daily amount of undrawn letters of credit is subject to a quarterly fee equal to a per annum rate of 1%. We must also pay a quarterly unused commitment fee that is based on the average daily amount of the facility utilized during the applicable quarter;

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2022 Secured Term Loan. The Amendment provided us with an $18 million Secured Term Loan (the “Secured Term Loan”), which was disbursed to us on July 26, 2022. We are required to pay monthly interest only payments at a rate per annum equal to the then current BSBY rate (adjusted periodically) plus 0.90% on the outstanding balance until the principal is paid in full. The interest rate will be adjusted on a monthly basis. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest. The Secured Term Loan is secured by certain company-owned life insurance policies under a Security Agreement (Assignment of Life Insurance Policy as Collateral) dated July 26, 2022, by and between the Company and BofA; and

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2022 Unsecured Term Loan. The Amendment provided us with a $7 million Unsecured Term Loan (the “Unsecured Term Loan”), which was disbursed to us on July 26, 2022. We are required to pay monthly principal payments of $116,667 and monthly interest payments at a rate per annum equal to the then current BSBY (adjusted periodically) plus 1.40% on the outstanding balance until paid in full. The interest rate will be adjusted monthly. On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest.

We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed. As of October 29, 2023, $5.2 million was outstanding under the Unsecured Term Loan, and $18 million was outstanding under the Secured Term Loan.

We incurred $37,500 in debt issuance costs in connection with our term loans. As of October 29, 2023, unamortized loan costs of $28,125 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.

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The Amendment also included customary representations and warranties and requires us to comply with customary covenants, including, among other things, the following financial covenants:

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Maintain a ratio of funded debt to EBITDA not exceeding:

2.25:1.0 through July 30, 2024; and

2.00:1.00 thereafter.

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

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

The Existing Loan Agreement also limits our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions. The Existing Loan Agreement does not restrict our ability to pay cash dividends on, or repurchase, shares of our common stock, subject to our compliance with the financial covenants discussed above if we are not otherwise in default under the Existing Loan Agreement.

We were in compliance with each of these financial covenants at October 29, 2023 and expect to remain in compliance with existing covenants for the foreseeable future.

As of October 29, 2023, we had $27.2 million available under our $35 million Existing Revolver to fund working capital needs. Standby letters of credit in the aggregate amount of $7.8 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of October 29, 2023. There were no additional borrowings outstanding under the Existing Revolver as of October 29, 2023.

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 2023 Annual Report, for additional information concerning the calculation of earnings per share (EPS).

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:

	October 29,		January 29,
	2023		2023

Restricted shares		182		132
RSUs and PSUs		156		101
		338		233

All restricted shares, RSUs and PSUs awarded that have not yet vested are considered when computing diluted earnings per share.

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During the fiscal 2024 nine-month period, we purchased and retired 620,634 shares of our common stock (at an average price of $18.79 per share) under the $20 million share repurchase authorization approved by our board of directors in fiscal 2023 and the additional $5 million share repurchase authorization approved by our board of directors in the second quarter of this year. These repurchases reduced our total outstanding shares and, consequently, reduced the weighted outstanding shares used in our calculation of earnings per share for the fiscal 2024 third quarter and nine-month period shown below. The share repurchase program was completed during the fiscal 2024 third quarter.

The following table sets forth the computation of basic and diluted earnings per share:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29,		October 30,		October 29,		October 30,
	2023		2022		2023		2022

Net income	$	7,038	$	4,841	$	9,272	$	13,566
Less: Unvested participating restricted stock dividends		40		28		111		74
Net earnings allocated to unvested participating restricted stock		120		58		143		141
Earnings available for common shareholders		6,878		4,755		9,018		13,351

Weighted average shares outstanding for basic earnings per share		10,536		11,465		10,748		11,736
Dilutive effect of unvested restricted stock, RSU and PSU awards		140		60		130		102
Weighted average shares outstanding for diluted earnings per share		10,676		11,525		10,878		11,838

Basic earnings per share	$	0.66	$	0.42	$	0.85	$	1.16

Diluted earnings per share	$	0.65	$	0.42	$	0.85	$	1.14

12. Income Taxes

We recorded income tax expense of $2.0 million for the fiscal 2024 third quarter compared to $1.3 million for the comparable prior year quarter. The effective tax rates for the fiscal 2024 and 2023 third quarters were 22.4% and 21.6%, respectively. For the fiscal 2024 nine-month period, we recorded income tax expense of $2.6 million, compared to $3.9 million for the comparable prior year period. The effective tax rates for the fiscal 2024 and 2023 nine-month periods were 22.0% and 22.5%, respectively.

No material and non-routine positions have been identified that are uncertain tax positions.

Tax years ending February 2, 2020 through January 29, 2023 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:

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better understand our performance;

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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.

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For financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses:

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

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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;

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Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, HF Custom (formerly Sam Moore), Shenandoah Furniture and Sunset West, a business acquired at the beginning of fiscal 2023; and

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All Other, consisting of H Contract, Lifestyle Brands and BOBO Intriguing Objects. None of these operating segments were individually reportable; therefore, we combined them in “All Other” in accordance with ASC 280.

Changes to segment reporting for fiscal 2024

During the second quarter of fiscal 2024, we acquired substantially all the assets of BOBO Intriguing Objects. Based on the requirements of ASC 280: Segment Reporting, BOBO’s results are included in All Other on a prospective basis.

We regularly monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary. Before the fiscal 2024 third quarter, H Contract’s results included sales of products sourced from the Hooker Branded segment and Sunset West. Due to a change in the way management internally evaluates operating performance, beginning with fiscal 2024 third quarter, Hooker Branded and Domestic Upholstery segments’ results now include sales of products formerly included in H Contract’s results. Fiscal 2024 year-to-date period and fiscal 2023 results discussed below have been recast to reflect this change. The Home Meridian segment is unchanged.

The following table presents segment information for the periods, and as of the dates, indicated.

	Thirteen Weeks Ended												Thirty-Nine Weeks Ended
	October 29,						October 30,						October 29,						October 30,
	2023						2022						2023						2022
				% Net						% Net						% Net						% Net
Net Sales				Sales						Sales						Sales						Sales
Hooker Branded	$	39,122			33.5	%	$	56,632			37.4	%	$	118,936			35.4	%	$	154,133			34.1	%
Home Meridian		43,692			37.4	%		50,588			33.4	%		114,524			34.0	%		171,721			38.0	%
Domestic Upholstery		32,559			27.9	%		43,436			28.7	%		98,555			29.3	%		122,982			27.2	%
All Other		1,458			1.2	%		924			0.5	%		4,437			1.3	%		2,967			0.7	%
Consolidated	$	116,831			100	%	$	151,580			100	%	$	336,452			100	%	$	451,803			100	%

Gross Profit
Hooker Branded	$	17,823			45.6	%	$	16,156			28.5	%	$	43,840			36.9	%	$	45,357			29.4	%
Home Meridian		8,803			20.1	%		5,431			10.7	%		18,726			16.4	%		19,057			11.1	%
Domestic Upholstery		6,485			19.9	%		9,918			22.8	%		19,872			20.2	%		26,400			21.5	%
All Other		599			41.1	%		503			54.4	%		2,519			56.8	%		1,708			57.6	%
Consolidated	$	33,710			28.9	%	$	32,008			21.1	%	$	84,957			25.3	%	$	92,522			20.5	%

Operating Income/(Loss)
Hooker Branded	$	7,287			18.6	%	$	5,860			10.3	%	$	13,298			11.2	%	$	16,423			10.7	%
Home Meridian		923			2.1	%		(3,205	)		-6.3	%		(4,532	)		-4.0	%		(7,290	)		-4.2	%
Domestic Upholstery		688			2.1	%		3,823			8.8	%		2,739			2.8	%		8,288			6.7	%
All Other		(128	)		-8.8	%		(60	)		-6.5	%		513			11.6	%		212			7.1	%
Consolidated	$	8,770			7.5	%	$	6,418			4.2	%	$	12,018			3.6	%	$	17,633			3.9	%

Capital Expenditures (net of disposals)
Hooker Branded	$	747					$	589					$	4,156					$	1,295
Home Meridian		827						589						1,065						1,221
Domestic Upholstery		179						344						436						953
All Other		-						-						61						-
Consolidated	$	1,753					$	1,522					$	5,718					$	3,469

Depreciation & Amortization
Hooker Branded	$	467					$	479					$	1,461					$	1,600
Home Meridian		670						724						2,047						2,110
Domestic Upholstery		1,100						963						3,092						2,860
All Other		17						3						26						8
Consolidated	$	2,254					$	2,169					$	6,626					$	6,578

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	As of October 29,					As of January 29,
	2023		%Total			2023		%Total
Identifiable Assets			Assets					Assets
Hooker Branded	$	178,435		57.6	%	$	174,523		52.1	%
Home Meridian		63,310		20.4	%		92,469		27.6	%
Domestic Upholstery		63,179		20.4	%		66,435		19.8	%
All Other		4,991		1.6	%		1,558		0.5	%
Consolidated	$	309,915		100	%	$	334,985		100	%
Consolidated Goodwill and Intangibles		44,583					46,731
Total Consolidated Assets	$	354,498				$	381,716

Sales by product type are as follows:

	Net Sales (in thousands)
	Thirteen Weeks Ended										Thirty-Nine Weeks Ended
	October 29, 2023		%Total			October 30, 2022		%Total			October 29, 2023		%Total			October 30, 2022		%Total
Casegoods	$	71,787		61	%	$	86,717		57	%	$	191,825		57	%	$	253,748		56	%
Upholstery		45,044		39	%		64,863		43	%		144,627		43	%		198,055		44	%
	$	116,831		100	%	$	151,580		100	%	$	336,452		100	%	$	451,803		100	%

14. Subsequent Events

Dividends

On December 5, 2023, our board of directors declared a quarterly cash dividend of $0.23 per share which will be paid on December 29, 2023 to shareholders of record at December 15, 2023. This represents a $0.01 per share or 4.5% increase over the previous quarterly dividend and the eighth consecutive annual dividend increase.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

All references to the “Company,” “we,” “us” and “our” in this document refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information. All references to the “Hooker,” “Hooker Division(s),” “Hooker Legacy Brands” or “traditional Hooker” divisions or companies refer to all current business units and brands except for those in the Home Meridian segment. The Hooker Branded segment includes Hooker Casegoods and Hooker Upholstery. The Domestic Upholstery segment includes Bradington-Young, HF Custom (formerly Sam Moore), Shenandoah Furniture and Sunset West. All Other includes H Contract, Lifestyle Brands, and BOBO Intriguing Objects.

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:

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general economic or business conditions, both domestically and internationally, including the current macro-economic uncertainties and challenges to the retail environment for home furnishings along with instability in the financial and credit markets, in part due to inflation and rising interest rates, including their potential impact on (i) our sales and operating costs and access to financing, (ii) customers, and (iii) suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses;

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

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the cyclical nature of the furnishings 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;

■

changes in consumer preferences, including increased demand for lower-priced furniture;

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difficulties in forecasting demand for our imported products and raw materials used in our domestic operations;

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

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risks associated with Home Meridian segment restructuring and cost-savings efforts, including our ability to timely reduce expenses and return the segment to profitability;

■

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

■

adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products by foreign governments or the U.S. government and possible future U.S. conflict with China;

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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, hacking or other cyber-security threats or inadequate levels of cyber-insurance or risks not covered by cyber-insurance;

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risks associated with our Georgia warehouse including the inability to realize anticipated cost savings and subleasing excess space on favorable terms;

■

risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices and availability of key raw materials, as well as changes in transportation, warehousing and domestic labor costs, availability of skilled labor, and environmental compliance and remediation costs;

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the risks related to the Sunset Acquisition including integration costs, maintaining Sunset West’s existing customer relationships, debt service costs, interest rate volatility, the use of operating cash flows to service debt to the detriment of other corporate initiatives or strategic opportunities, the loss of key employees from Sunset West, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies across the business which could adversely affect our internal control or information systems and the costs of bringing them into compliance and failure to realize benefits anticipated from the Sunset Acquisition;

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the risks related to the BOBO Intriguing Objects acquisition, including the loss of a key BOBO employee, inconsistencies in standards, controls, procedures and policies across the business which could adversely affect our internal control or information systems and failure to realize benefits anticipated from the BOBO acquisition;

■

changes in U.S. and foreign government regulations and in the political, social and economic climates of the countries from which we source our products;

■

risks associated with product defects, including higher than expected costs associated with product quality and safety, regulatory compliance costs (such as the costs associated with the US Consumer Product Safety Commission’s new mandatory furniture tip-over standard, STURDY) related to the sale of consumer products and costs related to defective or non-compliant products, product liability claims and costs to recall defective products and the adverse effects of negative media coverage;

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disruptions and damage (including those due to weather) affecting our Virginia or Georgia warehouses, our Virginia, North Carolina or California administrative facilities, our High Point, Las Vegas, and Atlanta showrooms or our representative offices or warehouses in Vietnam and China;

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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;

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

■

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

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capital requirements and costs;