Hooker Furnishings Corp

NASDAQ:HOFT

Earnings Call Transcript

[Operator]

Good day, and welcome to the Hooker Furnishings Corporation Fourth Quarter 2025 Earnings Webcast Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Earl Armstrong, Senior Vice President and Chief Financial Officer. Please go ahead.

[Earl Armstrong, executive]

Thank you, Sherry, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2025 fourth quarter and full year, both of which ended February 2, 2025. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation today.

During our call, we may make forward-looking statements, which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filings announcing our fiscal '25 results.

Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. Consolidated net sales for the fourth quarter increased by $7.7 million, an approximate 8% gain over the previous year's fourth quarter. The current quarter included 14 weeks compared to 13 weeks of the prior year's fourth quarter. On a consolidated basis, the additional week in the current period drove the increase, contributing approximately $7.7 million to consolidated net sales.

However, Hooker Branded and Home Meridian sales increased by 2% and 13%, respectively, based on average net sales per shipping day. These gains were partially offset by a $2 million or 7% decrease in sales at Domestic Upholstery. Significant charges in the fourth quarter included $1.3 million in end-of-life inventory write-downs related to the planned exit of our Savannah facility, $878,000 in noncash tradename impairment charges, $718,000 in bad debt expense related to a large customer bankruptcy. That's in addition to $2.4 million recorded in the third quarter and about $200,000 related to our previously announced cost reduction plan.

These $3.1 million in charges drove a consolidated operating loss of $2.7 million and a net loss of $2.3 million or about $0.22 per diluted share for the fourth quarter. For fiscal '25, consolidated net sales were $397.5 million, a decrease of $35.8 million or 8.3% compared to the previous fiscal year. All 3 reportable segments experienced sales decreases driven by continued weak demand, a depressed housing market and broader macroeconomic uncertainties impacting nearly the entire home furnishings industry.

Consolidated operating loss was $18.1 million for the year, primarily due to lower sales volumes and $10.8 million in charges, including $4.9 million in restructuring costs related to our cost reduction plan, $3.1 million in bad debt expense from a major customer's bankruptcy and $2.8 million in noncash tradename impairment charges. Consolidated net loss amounted to $12.5 million or $1.19 per share. We expect fiscal '26 cost savings of about $1 million from the Savannah warehouse exit announced last month, net of associated transition costs. We expect annualized cost savings of $4 million to $5.7 million beginning in fiscal '27. The exact amount of savings is dependent upon the ultimate timing of the exit.

At the same time, we are finalizing the estimates of the potential financial impact of the Savannah warehouse exit. Currently, we expect to record net charges of between $3 million to $4 million in fiscal '26. In addition to the $10 million in annualized cost savings in fiscal '25 and expected to be realized in fiscal '26, we expect additional annualized cost savings of between $8 million to $10 million, which we anticipate will be realized over the next fiscal year with full benefits being felt in fiscal '27. The completion of our cost reduction plans is expected by the second half of fiscal '26. The total of these 2 initiatives are expected to save the company between $18 million and $20 million.

Now I'll turn the call over to Jeremy to comment on our fiscal '25 fourth quarter and full year results.

[Jeremy Hoff, executive]

Thank you, Earl, and good morning, everyone. Hooker Furnishings demonstrated resilience this year with important accomplishments despite extremely difficult conditions in the home furnishing space that persist with few signs of improvement in the near and possibly medium term.

We are focused on gaining market share and creating a pathway for profitability regardless of how long the furniture retail downturn persists. Despite the operating loss, our milestones in fiscal '25 included the Margaritaville licensing agreement, the launch of Hooker Branded's new merchandising strategy, Sunset West's East Coast expansion, key inventory investments and share gains amid a tough market. We were encouraged to report improved sales in the fourth quarter. Even considering the extra week, Hooker Branded and Home Meridian sales increased.

According to an independent industry analysis, we had year-over-year market share growth of 3 to 15 basis points in each of the first 3 quarters of fiscal '25 in Hooker's Legacy divisions with fourth quarter data still pending. These gains build on a consistent trend of sequential market share gains in every quarter of fiscal '24. This consistent share growth despite a contracting high-end segment reinforces the competitive advantages we've built in our readiness to capitalize when demand rebounds. While macroeconomic headwinds, including the weakest housing market in 50 years, lower consumer confidence and tariff uncertainty persist, we remain focused on what we can control.

Excluding the charges Earl just mentioned, our financial performance improved sequentially each quarter of the year. Due to the continued economic environment, we've accelerated cost reduction initiatives, which we believe will improve operating income and cash flow. These include our planned exit of the Savannah warehouse, which is expected to save $4 million to $5.7 million annually beginning in fiscal '27 and the opening of a new leased facility in Vietnam this May. When fully operational, the Vietnam warehouse will reduce domestic safety stock needs, improve product flow, enable container mixing, support margin expansion and enable a speedier return on investment.

Combined with other efforts, we expect to begin to realize a portion of the $18 million to $20 million in total annual operating expense savings in fiscal '26 with full annualized expected cost savings beginning in fiscal '27.

Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments.

[Earl Armstrong, executive]

Thank you, Jeremy. At Hooker Branded, fourth quarter net sales rose $3.8 million or 10% from the prior quarter, driven by a 14% increase in unit volume. Operating income was $1.1 million, down from $3.5 million a year ago, but improved from losses in the first 3 quarters of fiscal '25. For fiscal '25, net sales decreased $10.1 million or 6.5% due to a 5.7% drop in average selling prices and increased discounting, partially offset by a nearly 3% rise in volume.

Fourth quarter orders rose 15% year-over-year, reversing the trend of 3 quarters of decreases. Year-end backlog fell 22%, driven mostly by a significantly improved in-stock position, which helped us ship goods faster.

Turning to Home Meridian. Fourth quarter net sales increased $6.3 million or 21.7% year-over-year, driven by strong hospitality sales, offsetting softness in traditional channels. Gross profit for the quarter rose $2.4 million to $8.1 million, with gross margin reaching nearly 23%, the highest since 2016, despite the $618,000 inventory write-down tied to the Savannah exit. The segment reported a $500,000 operating loss despite $2.2 million in charges recorded comprised of the $618,000 inventory write-down we mentioned, $718,000 in additional bad debt and $878,000 in tradename impairment. Fiscal '25 net sales decreased $12.7 million or around 9% due to a nearly 30% drop in volume, with 78% of the decrease tied to the exit of unprofitable lines.

Orders and backlog also decreased amid continued pressure in mega and traditional channels. In the Domestic Upholstery segment, Fourth quarter net sales decreased $2 million or about 7% year-over-year due to soft demand across HF Custom, Bradington-Young and Shenandoah as well as seasonal softness at Sunset West. Fiscal '25 net sales were down $12.6 million or about 10%, with decreases across most divisions, partly offset by a 6.8% increase at Sunset West. The segment posted a $2.5 million operating loss driven by lower volume, under-absorbed overhead and $80,000 in severance costs.

Fourth quarter orders rose 13% with double-digit growth at Bradington-Young, HF Custom and Sunset West. Sunset West has now posted 4 consecutive quarters of order growth, driven by the expansion of its East Coast distribution. Year-end backlog was 4% below last year, but 3% above pre-pandemic levels when excluding Sunset West since they were acquired after that time. Cash and cash equivalents stood at $6.3 million, a decrease of $36.9 million from the previous year-end. This decrease was largely due to an increase in accounts receivable and a strategic increase in inventory levels with Hooker Branded accounting for most of that inventory increase.

Additionally, we utilized our cash reserves for several key expenditures during fiscal '25, cash dividends to shareholders, development of our cloud-based ERP system and other capital expenditures. As of yesterday, our cash stood at nearly $19 million with $41 million in available borrowing capacity under our new amended and restated loan agreement. We strategically increased inventory in the fourth quarter to support 3 major new casegoods collections and replenish our most profitable high-velocity items.

This positioned us to improve product availability and speed-to-market in the second half of fiscal '25 and early fiscal '26, while also mitigating expected supply disruptions from potential port strikes in the United States and an extended Lunar New Year in Vietnam. We also refinanced our credit facility in the fourth quarter, which increased our borrowing capacity. In March, we announced our regular quarterly dividend, reflecting our ongoing confidence in the company's outlook and extending our over 50-year track record of uninterrupted dividend payments.

Now I'll turn the discussion back to Jeremy for his outlook.

[Jeremy Hoff, executive]

There's a lot of economic uncertainty and volatility right now. We are currently evaluating a range of strategies to mitigate the current economic environment, including a 50-year low in existing home sales and the possible impact of potential additional reciprocal tariffs on our operations and profitability. Tariffs add tremendous complexity and uncertainty that require us to look at our cost structure more aggressively, particularly on the lower-margin direct container side of our business.

Consequently, in addition to the cost savings we previously announced and those we covered today, we continue to identify additional opportunities to gain efficiency by consolidating operations and we'll provide more information in the coming weeks. While evaluation of our cost footprint and implementation of further cuts are both ongoing, we continue to invest in the highest growth potential areas of our business as growing profitable sales remains an intense focus. On a positive note, inflation cooled in February and March falling to the levels experienced last summer and fall before it rose from November '24 to January '25.

Additionally, according to the U.S. Census Bureau, year-over-year monthly furniture sales increased beginning in September '24.

While the current environment is challenging, we believe we have positioned the company to continue gaining market share and maximizing revenues through our merchandising efforts, speed-to-market initiatives and in-stock position on top-selling products. This ends the formal part of our discussion.

And at this time, I will turn the call back over to our operator, Sherry, for questions.

[Operator]

[Operator Instructions]. And our first question will come from the line of Anthony Lebiedzinski with Sidoti & Co.

[Anthony Lebiedzinski, analyst]

Jeremy, Earl, so certainly nice to see the sales improvements at Hooker Branded and HMI. I know you guys talked about the HMI benefiting from strong hospitality sales. Just wondering if you could further comment on the Hooker Branded, whether you're seeing any additional traction from some new collections? Maybe just give some more insight into what drove the unit volume increase at Hooker Branded? And I would love to get your take on what you're seeing so far in Q1 as you now have only about 2 weeks left in the first quarter.

[Jeremy Hoff, executive]

So first of all, the part about Hooker Branded and what's driving some of the momentum. Definitely, October market had a significant positive impact, particularly on Hooker casegoods. We brought out 2 new collections that really performed well in the early parts with placements and early orders and early sell-through. So we're very encouraged by that, especially in the environment we've been in to have that type of impact with 2 new collections, we were encouraged.

I don't believe I can get into more of the first quarter yet. Sorry, Anthony.

[Anthony Lebiedzinski, analyst]

Okay. Okay. And then as far as Domestic Upholstery, so I know you guys said that, that was down. As far as -- given the tariff announcements 2 weeks ago, just wondering how you guys think about the opportunities there as some retailers look to perhaps shift their sources to domestic manufacturing. Just wondering how you guys think about the potential opportunity for Domestic Upholstery?

[Jeremy Hoff, executive]

We think it's a tremendous opportunity on the Domestic Upholstery side for obvious reasons that you pretty much just stated. We have really quite a bit of capacity if we need it in the BY and also in Bedford, HF Custom. So we're in a position that we could definitely -- we're in position to grow. And we're doing some things product-wise, program-wise that I believe are going to be well timed with that momentum coming their way.

[Anthony Lebiedzinski, analyst]

Got you. Okay. And then as far as HMI, so obviously, you guys have done a nice job there repositioning that business. Gross margin was up nicely. I suppose that the tariffs now added wrinkle. But just kind of thinking about like how do you think the gross margins in that segment will go from here?

And then just a separate question on the backlog for HMI. I know there's been a lot of changes to that business over the last couple of years with product lines changing and sales channels. So I guess on a like-to-like basis, what would be the backlog if you strip out all the noise in terms of the changes, how would that compare to pre-pandemic levels for the backlog?

[Jeremy Hoff, executive]

I don't believe we have that. I can answer the first part of that, which is there's a lot of focus on the right things at HMI, which I think is showing through in the margin expansion. There's an intense focus on growing Pulaski and on growing Samuel Lawrence Furniture.

We don't have any focus on like the clubs we got out of and the ACH business, Accentrics Home business that we got out of, and we're not focused on loading up the warehouse with inexpensive, low-margin, cheap accents at this point. So there's a lot of really good focus. And candidly, that's why we're able to save between $4 million and $5.7 million on getting out of Savannah because 80% of that need in Savannah was based on storing or warehousing inexpensive low-margin accents.

So we're able to really more utilize CDC 1, CDC 2 in Martinsville, and we talked about the Vietnam warehouse as well that we're working on. So our logistics and our warehousing, we believe will substantially go down from a financial footprint, but serve us better than it has.

[Anthony Lebiedzinski, analyst]

Understood. Okay. Well, best of luck.

[Jeremy Hoff, executive]

Yes. Thank you, Anthony. We appreciate it.

[Operator]

One moment for our next question, and that will come from the line of Dave Storms with Stonegate.

[David Joseph Storms, analyst]

Just wanted to start with the current 90-day tariff pause. Does this open up an ability or give you any desire to be maybe a little more nimble and continue to do a strategic inventory build?

[Jeremy Hoff, executive]

Good question. We were in -- because we had -- as we said, we had taken our inventories, particularly up in Hooker Branded, which is call it, an 85% to 90% warehouse -- domestic warehouse footprint, we had already strategically increased that inventory, and that was a little bit lucky and well timed for the situation. But we also are able to manage this a little easier with the Vietnam footprint we talked about because we can hold product there depending on where this goes and be ready to fill our warehouse in 4- to 6-weeks lead time versus a 6-month lead time once we're able to see what actually happens next.

[David Joseph Storms, analyst]

Understood. Very helpful. And then I also just wanted to talk, you mentioned a couple of times in the prepared remarks, the press release mentioned it. Just the strong market share gain you've had over the last year. Any main drivers to really look at this and additionally going forward, the ability to kind of keep growing at this 3 to 15 basis points pace?

[Jeremy Hoff, executive]

Well, we expect that -- we believe that will improve, meaning those are fairly small numbers. They are improvement, but we believe it's -- we can do better than that. We were pleased that we weren't going backwards in this environment, which is why we started tracking market share in the first place. In an environment like this, it's very difficult to know, are you doing well? Are you not doing well? Where is your business? Because when things are down like they are, everything seems bad and you can't see what's actually going on.

So we're pleased to have that information so that we can address what we need to address. But I think we continue with the merchandising strategy, this collective living that we're doing, which really just means our legacy companies working together with one powerful presentation versus just a wood bedroom or a dining room showing by itself, you have upholstery that goes with it occasionally that goes with it. And we have all of those capabilities, which is also what makes Margaritaville that's upcoming in the October market so powerful because that's really where our strengths are when you combine everything together.

And that really showed through. I mentioned the 2 collections we did very well in October. Well, those were 2 of our first true collective living launches, which showed that when you have -- I'll just give you an example. When you have a sofa that perfectly goes with the collection, it makes it very easy for our retail partners to say, yes, I'll take that just like it is, and I'll put it on my floor. Whereas they don't have to figure out, okay, what can I put this with? And a lot of times, if you leave it up to the partner, they're going to put something that's not our company because they'll find something else outside of Hooker Legacy companies to put with it.

So it's really -- that, to me, is a very powerful direction for us, and it somewhat proved that in October.

[David Joseph Storms, analyst]

Understood. That's great color. And then maybe just one more modeling question. With the new cost savings announced and the anticipation that they will be fully up and running by fiscal 2027, any sense of the pacing for this? Is it going to be kind of gradual until then or fits and starts? Any color there would be great.

[Jeremy Hoff, executive]

We weren't sure. I didn't -- I couldn't understand your question. Can you please ask that one more time? I'm sorry.

[David Joseph Storms, analyst]

Yes. Apologies. Just around the pacing of the cost savings plan to 2027, should we expect kind of a gradual...

[Jeremy Hoff, executive]

You're asking about the pace of the cost savings plan. Is that what you're asking about?

[David Joseph Storms, analyst]

Yes, yes.

[Jeremy Hoff, executive]

Okay. So I think the way to look at it, I think if you back up and say, okay, total company spend was $109 million going into 2 years ago budgeted. We -- our $10 million savings we achieved throughout last year takes us to where we're a budgeted $99 million in overall spend. And then over this year, if you include Savannah and everything we're talking about, we're working on getting towards that $8 million to $10 million, which puts us in more of an $89 million to $91 million overall spend, which is really back to equivalent to what fiscal '22 roughly was.

So we're pretty encouraged by that, especially being that we have with the Savannah exit, minimum $4 million of that already taken care of, and we're working on the rest of that pretty hard.

And then I mentioned we're looking at other things to become more efficient company-wide, and we'll have more information on that in the coming weeks. Does that help?

[David Joseph Storms, analyst]

That's very helpful.

[Operator]

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Jeremy Hoff for any closing remarks.

[Jeremy Hoff, executive]

I would like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal '26 first quarter results in June. Take care.

[Operator]

Thank you all for participating. This concludes today's program. You may now disconnect.