by Lower sales, earnings in Q4 are related to challenges with supply chain, rising materials costs
MARTINSVILLE, Va. — Hooker Furnishings reported increases in sales and earnings for its 2022 fiscal year ended Jan. 30.
Consolidated sales were $593.6 million, up 9.9% from the $540.1 million reported in the prior fiscal year. It reported net income of $11.7 million, or 97 cents per share, compared to a loss of $10.4 million, or 88 cents per share, in the prior year.
The company said the increase in sales was driven by a 23% increase in sales for both its Hooker Branded and Domestic upholstery segments. The company’s Home Meridian segment experienced a 1.2% drop in sales for the year.
“We successfully mitigated a multitude of macroeconomic challenges for much of the year on the Hooker legacy side of the business and for the first half at Home Meridian,” said Jeremy Hoff, CEO. “We were able to grow sales, remain profitable and undertake transformative strategic initiatives for the long-term expansion of the business. Particularly during the first half of the year, when all segments achieved double-digit sales increases, we were able to better meet historical levels of demand with the right products and inventory readiness.”
He noted that HMI “was more quickly and severely impacted by rising freight costs, reduced vessel space and the Covid-related factory shutdowns which began in August.”
Supply chain challenges, including rising material and freight costs and shipping bottlenecks, combined with the aforementioned Covid-related shutdowns of factories in Asia over the summer also impacted the company’s performance in the last quarter.
Consolidated sales in the fourth quarter fell 13.2%, to $134.8 million from $155.3 million in the same quarter for the year earlier period. It reported a loss of nearly $4 million, or 33 cents per share, compared to net income of $8.5 million, or 71 cents per share, for the same period a year earlier.
The company said the decline was driven by a 23.7%, or $18.9 million decrease in revenues at Home Meridian and an 11.8% or $5.8 million decline in revenues in the Hooker Branded segment. The company also noted that this was partially offset by a 13.5% or $3.2 million increase in revenues in the domestic upholstery segment during the fourth quarter.
“Over the course of the last 18 months, transportation costs have roughly tripled, substantially increasing our cost of imported goods sold,” Hoff said, adding, “We were able to mitigate many of these dynamics until late summer, when the unexpected COVID-related shutdown of our Asian factories began and continued through most of the rest of the fiscal year. While incoming orders and backlogs remained historically high, this loss of production capacity substantially reduced our supply of imported products, which impacted Home Meridian immediately and even began to cause out of stock issues and low inventory receipts at Hooker Branded in the fourth quarter, despite that segment’s U.S. warehousing model.”
On a positive note, Hoff noted that over the last few months, Asian suppliers have begun to ramp up production and are now operating at between 85% to 90% capacity, with weekly improvements.
“While we anticipate that production of imported goods will reach 100% capacity sometime during the first quarter of fiscal 2023, as we forecasted last quarter, we won’t feel the full impact of higher production until the second quarter,” Hoff said.
Other highlights of the annual report are as follows:
+ In Q4, the company reported a consolidated operating loss of $5.3 million. This compares to operating income of $10.5 million in the same period for the prior year. This was driven by a $12 million operating loss at HMI.
+ Contributing factors included unavailability of inventory due to the Asian factory shutdowns, combined with higher freight costs and a decline in e-commerce and hospitality furniture sales. It also was related to the company’s planned exit from unprofitable businesses and channels such as its RTA segment.
“Chargebacks from the Clubs channel that we are exiting and one-time order cancellation costs as we wind down our ready-to-assemble (RTA) furniture business at HMI had a combined cost of over $5 million,” Hoff said.
By segment the company reported the following:
+ In the Hooker Branded division, net sales for the year rose 24%, to $200.7 million, from $162.4 million. Operating income was $30.7 million, compared to $22.8 million in the prior year, a 34.3% increase. For the quarter, the division had sales of $43.4 million, down 11.7% from the $49.2 million reported a year earlier. Operating income was $5.6 million, compared to $7.7 million the year before, down 27.2%.
+ Net sales for the year in the Home Meridian segment fell 1.2%, to $278.9 million, from $282.4 million. It had an operating loss of $21.3 million, compared to an operating loss of $26 million the year before. For the quarter, it reported net sales of $60.9 million, down 22.4% from $79.8 million the year before. For the quarter it also had an operating loss of nearly $12 million compared to operating income of $683,000 in the year earlier period.
+ The domestic upholstery segment reported yearly sales of $102.3 million, up 22.2% from $83.7 million the year before. Operating income was $4.3 million, compared to a loss of $12.4 million a year earlier. For the quarter, the segment reported $27.3 million in sales, up 13.8% from the $24 million reported in the year earlier quarter. Meanwhile, it had operating income of $715,000, compared to nearly $2 million in operating income the year before.
