by Company may look to major cost cuts to stem further losses moving forward
MARTINSVILLE, Va. — Hooker Furnishings reported a drop in its consolidated net sales and a net loss for its first quarter ended April 28.
Facing an industrywide downturn that could result in major cost cuts moving forward, the company said that consolidated net sales fell to $93.6 million, down 23.2% from the $121.8 million reported the same period last year.
It reported a net loss of $4.9 million, or 39 cents per share, compared to net income of $1.9 million, or 13 cents per share, last year.
CEO Jeremy Hoff said that the current environment has necessitated an adjustment of its costs to current and expected medium-term demand, “through a realignment of operations, which we expect will lead to a 10% overall reduction in overall fixed costs, the largest cut in our history, but one necessitated by current industry conditions.”
He noted that planned actions include consolidating the Bobo Intriguing Objects brand into Hooker Branded, further reducing its Georgia warehouse footprint and consolidating other operations as well as additional fixed cost reductions.
“We’re still finalizing those plans and expect to have more information in the current fiscal quarter,” he added. “We’re intensely focused on creating an appropriate expense structure, while not jeopardizing the pace and impact of our strategic initiatives, which we believe will have a significant positive impact on Hooker once demand normalizes. We expect to be profitable in the current fiscal year and beyond.”
The company said that about 25% of its fiscal Q1 sales decrease is because of the absence of sales from divisions the company exited in the prior year in its Home Meridian segment. In addition, year-over-year overall industry furniture sales have continued to fall, according to data from the U.S. Department of Commerce.
Gross profit totaled $19.2 million, down 31% from the $27.9 million reported last year. The company said this was related to lower sales volume across all segments of its business. In addition, it noted, that an unfavorable customer and product mix in its Home Meridian segment drove reduced gross profit, combined with under-absorbed costs in its Domestic Upholstery segment, resulting from lower production and sales.
It also reported a consolidated operating loss of $5.2 million, compared to operating income of nearly $2 million last year and a 1.6% margin the same period last year.
“The ongoing weak demand that’s adversely impacting the furniture industry made our first quarter challenging,” Hoff said. “However, we remain confident that the strategies we are pursuing in operations, marketing and merchandising are transformative. Times like these present an opportunity to recalibrate and even reinvent aspects of our business.”
“While we are disappointed to report a rare operating loss this quarter, the loss was almost entirely driven by the sales reductions in each segment, and we strongly believe we’ll return to profitability once demand and revenues rebound,” Hoff added. “We do, however, expect some short-term volatility in earnings until the industrywide downturn ends.”
By segment, the results were as follows:
+ In its Hooker Branded segment, the company reported net sales of $35.4 million, compared to $43.4 million last year, an 18.6% decrease. The segment also reported operating income of $7,000, compared to operating income of $2.7 million last year. The company said the sales decrease was related to decreased unit volume and to a lesser extent, lower average selling prices that resulted from price reductions implemented late last year because of lower ocean freight costs. It added that soft demand across the industry led to a 13% decrease in incoming orders during the quarter with a corresponding 14% decrease in backlog compared to the same period last year. The backlog was also 40% higher than pre-pandemic levels at the end of the first quarter of 2020.
+ The Home Meridian segment reported net sales of $26.4 million, down 37% from the $41.9 million reported last year. It reported an operating loss of $3.4 million, compared to a loss of $2.1 million last year. The company said that nearly half of its revenue decline was attributed to the absence of its Accentrics Home liquidation sales after the company exited the business last year. The remaining decreases, it said, were because of lower sales through major furniture chains, independent furniture stores and the hospitality business. It also noted, however, that fixed costs decreased by $2 million, related to business repositioning, including redeploying space at its Georgia warehouse to support the Sunset West outdoor furniture division’s East Coast expansion.
Incoming orders in the Home Meridian division also rose by 6.4% compared to the same period last year, with orders more than tripling at SLH. The division’s quarter-end backlog was also 22% higher than the same period last year and 37% higher than its fiscal 2024 year end in January, the company said.
+ Sales in the Domestic Upholstery segment totaled $30 million, down 14.5% from $35.1 million reported the same period last year. It also reported a $446,000 operating loss, compared to operating income of $48,000 last year. The company said the sales decrease was because of decreased volume at Bradington-Young, HF Custom and Shenandoah. Meanwhile, Sunset West reported a 20% sales increase that is related to the expansion of its East Coast distribution and the stabilization of its new ERP system during the quarter. The company said Sunset West also had a 9% increase in incoming orders compared to last year’s first quarter.
“For much of last year, Sunset West experienced some speed bumps related to onboarding a new operating system and building out the resources and personnel needed to expand its distribution,” Hoff said, adding, “Sunset West is now beginning to hit its stride for a positive trajectory going forward.”
For the Domestic Upholstery segment, incoming orders rose by 2.8%. However, its quarter-end backlog also decreased compared to the end of the prior-year quarter, while increasing from the end of fiscal year 2024. Excluding Sunset West, the company said that the order backlog in the segment was 38% higher than the end of the pre-pandemic fiscal 2020 first quarter.
Other highlights from the report are as follows:
+ The company reported cash and cash equivalents of $40.9 million, down $2.3 million from the end of fiscal 2024. During the first quarter, it said, cash and cash equivalents on hand and some $1.5 million generated from operating activities were used to fund $2.5 million in cash dividends to shareholders, $1.3 million for further development of its cloud-based ERP system and $843,000 for capital expenditures.
+ In addition to the cash balance, the company said, an aggregate of $28.3 million was available under the existing revolver and $28.7 million in cash surrender value of company-owned life insurance policies was outstanding at quarter end.
“Much remains unsettled on the macroeconomic front,” Hoff said, adding, “Economic indicators remain mixed with unemployment continuing under 4% and inflation easing slightly in April, leading to record stock market performance in mid-May. However, the consumer sentiment index fell nearly 10% in May after holding steady for months, indicating a deterioration in optimism across age, income and education levels.”
“Additionally, in both March and April, existing home sales decreased year-over-year. Because the Federal Reserve has yet to cut interest rates this year, we believe home sales may be ‘stuck.’ As long as interest rates remain high, we believe the housing industry — and therefore home furnishings demand — will remain subdued.”
