by A decline in inventories and a lowering of loss at Home Meridian show the company is moving in the right direction
MARTINSVILLE, Va. — In many ways, Hooker Furnishings’ latest financials for its first fiscal quarter illustrate the ongoing challenges many companies are facing in the current business environment, namely a slowdown in retail.
For one, it experienced a sales decline in its Home Meridian segment to the tune of $20 million. This was due largely to slower retail business, combined with high inventories that delayed some orders, plus the exit from its Accentrics Home division. Lower selling prices due to liquidation sales were another major factor in the decline.
And despite an increase at Bradington-Young, it also saw overall lower sales in domestic upholstery, reversing 10 quarters of consecutive sales growth.
The company’s overall net income also decreased to $1.5 million from $3.2 million the same period last year, while operating income totaled $2 million compared to $3.9 million last year.
Despite these perceived negatives, the report had plenty of positives, namely that the company overall remains profitable including in its case goods and domestic upholstery segments. Home Meridian is the exception, but even it reduced its loss by about $1 million to $2.1 million. This shows the headway the company has made because of tough decisions made at the top, namely exiting unprofitable businesses that have dragged down not just the results of the division, but the entire company.
“Our transition to a new business model at HMI will continue into this year as we move away from higher-risk businesses to focus on our core strengths and core businesses — Pulaski, Samuel Lawrence Furniture, Samuel Lawrence Hospitality and Prime Resources International (which is transitioning to a container-direct-only model). We believe we are on track to achieve profitability in this segment by the end of the fiscal year,” said CEO and director Jeremy Hoff in the company’s earnings release last week.
A conference call that same day highlighted other positives that are moving the company in the right direction. Here are some takeaways from that call:
+ The company’s liquidation of inventories in Accentrics Home and other obsolete inventories at HMI is about 80% complete, Hoff noted during the call. This is allowing the company to reduce its Savannah, Georgia, warehouse footprint to about 800,000 square feet from 1 million. It expects to further reduce this to 500,000 square feet by the end of the fiscal year or soon after.
+ Inventory levels decreased by $23 million during the quarter, which Hoff said puts the company well on its way to reducing inventories by $30 million before the end of the fiscal year. This includes $14 million in inventory from Hooker Branded and $9 million from HMI.
Paul Huckfeldt, senior vice president and chief financial officer, added, “We are actively working to reduce inventory levels to align with current demand; however, our inventory management process is working well, so we’re in stock on most bestselling items and inventory obsolescence is not an issue.”
+ The reduction in inventories also helped the company’s cash position. During the call, Huckfeldt noted that the company generated $22 million in cash from operations during the quarter, which it used to fund $4.3 million in share repurchases, $4.5 million in capital expenditures — including investments in its new High Point showroom and a new ERP system — and a $2.4 million cash dividend to shareholders.
+ In addition to its cash balance, Huckfeldt said that the company has an aggregate of $27.2 million available under its existing revolver to fund other working capital needs. “We believe that our liquidity and capital investments will be further improved through the liquidation sales of the remaining excess HMI inventory,” he said.
The inventory situation mirrors some of what the company is seeing at retail as well, as Hoff noted during the call.
“While retail conditions remain mixed along with some economic uncertainties, we have begun to see some more positive trends for consolidated incoming orders in May, and that is holding up so far in June,” he said. “We believe the industry is getting through some of the elevated inventory challenges and we may be seeing some breakthrough in that area.”
Of course the company still faces challenges including bringing the HMI segment to profitability. But here, too, Hoff was optimistic.
“While we expect some short-term volatility in sales and earnings at HMI, we continue to expect the segment to achieve quarterly profitability by the end of the 2024 fiscal year,” he said, adding, “The Hooker Furnishings team continues to focus on organic growth opportunities through expanded visibility, strategic product development, operational improvements and costs reductions. By focusing on these controllables, we will be in the strongest position possible as the demand environment continues to improve.”
