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

(Registrants 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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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  

 

 

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  

 

 

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.

 

 

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.

 

 

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:

 

 

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

 

 

2022 Secured Term Loan. The Amendment provided us with 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

 

 

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.

 

 

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

 

 

Maintain a ratio of funded debt to EBITDA not exceeding:

 

 

o

2.25:1.0 through July 30, 2024; and

 

 

o

2.00:1.00 thereafter.

 

 

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

 

 

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

 

 

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:

 

 

better understand our performance;

 

better assess our prospects for future net cash flows; and

 

make more informed judgments about us as a whole.

 

We define our segments as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM.

 

 

For financial reporting purposes, we are organized into three 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, HF Custom (formerly Sam Moore), Shenandoah Furniture and Sunset West, a business acquired at the beginning of fiscal 2023; and

 

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          

 

 

   

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.

 

 

Item 2.          Managements 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:

 

 

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;

 

 

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;

 

 

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;

 

 

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

 

 

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;

 

 

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;

 

 

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;

 

 

 

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

 

 

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

 

 

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

 

 

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;

 

 

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;

 

 

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;

 

 

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;

 

 

capital requirements and costs;