Hooker Furnishings Corporation (HOFT) Earnings Call Transcript & Summary

Thanks, Sherry, and good morning to all of you. This is our quarterly conference call, and we're here to go over the financial results for fiscal 2025's fourth quarter along with the full year — the period closed on February 2, 2025. With me this morning is Jeremy Hoff, who serves as our Chief Executive Officer. We're grateful you could join us today. As part of this call, forward-looking statements may be made, and those carry risks as well as uncertainties. You can find a discussion of the factors that might cause actual results to diverge materially from what management expects in the press release and SEC filing that announce our fiscal 2025 results. Any forward-looking statement reflects only today's perspective, and we take on no duty to update or revise such statements as events or circumstances arise after this call. For the fourth quarter, consolidated net sales rose by $7.7 million, which works out to roughly an 8% improvement versus the fourth quarter a year earlier. This quarter had 14 weeks, while last year's fourth quarter had 13 weeks. Looking at it on a consolidated basis, that extra week is what pushed the increase, adding about $7.7 million to consolidated net sales. Even so, Hooker Branded and Home Meridian each posted sales gains of 2% and 13%, respectively, when measured by average net sales per shipping day; those improvements were partly offset by a $2 million, or 7%, sales decline at Domestic Upholstery. Notable charges during the fourth quarter included $1.3 million of end-of-life inventory write-downs tied to the planned exit of our Savannah facility, $878,000 in non-cash trade name impairment charges, and $718,000 in bad debt expense stemming from a large customer bankruptcy — that comes on top of $2.4 million booked in the third quarter — plus about $200,000 connected to the cost reduction plan we previously announced. Those $3.1 million in charges produced a consolidated operating loss of $2.7 million and a net loss of $2.3 million, or roughly $0.22 per diluted share, for the fourth quarter. Turning to fiscal 2025, consolidated net sales came in at $397.5 million, down $35.8 million, or 8.3%, from the prior fiscal year. Sales fell across all three reportable segments, held back by persistently soft demand, a housing market that remains depressed, and wider macroeconomic uncertainty weighing on virtually the whole home furnishings sector. For the year, the consolidated operating loss was $18.1 million, largely the result of lower sales volumes along with $10.8 million in charges — among them $4.9 million in restructuring costs tied to our cost reduction plan, $3.1 million in bad debt expense from a major customer's bankruptcy, and $2.8 million of non-cash trade name impairment charges. Consolidated net loss totaled $12.5 million, or $1.19 per share. For fiscal 2026, we anticipate cost savings of roughly $1 million tied to the Savannah warehouse exit we announced last month, net of related transition cost; then, starting in fiscal 2027, we expect annualized cost savings of $4 to $5.7 million. How much we ultimately save hinges on when the exit is completed. Meanwhile, we're wrapping up our estimates of how the Savannah warehouse exit could affect us financially. At this point, we anticipate net charges falling somewhere in the range of $3 million to $4 million during fiscal 2026. On top of the $10 million in annualized cost savings from fiscal 2025 that we expect to realize in fiscal 2026, we're looking at an extra $8 million to $10 million in annualized cost savings, which should come through over the coming fiscal year, with the full benefits being felt in fiscal 2027. We expect our cost reduction plans to wrap up by the second half of fiscal 2026. 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 2025 fourth quarter and full year results.

Thanks, Earl, and good morning to all of you. Hooker Furnishings showed its ability to weather challenges during this year, achieving significant milestones even as the home furnishing sector faces tremendously tough circumstances that continue with almost no indication of getting better over the near-impossible medium term. Our attention is fixed on taking more market share and forging a route toward profitability no matter how long this furniture retail slump lasts. Even with the operating loss, our fiscal 2025 achievements featured the Margaritaville licensing deal, the rollout of Hooker Branded's fresh merchandising approach, Sunset West's East Coast growth, strategic inventory commitments, and market share gains in a challenging environment; we felt good about reporting higher sales for the fourth quarter. Even factoring in that additional week, sales for Hooker Branded and Home Meridian rose. Based on an independent industry study, we achieved year-over-year market share increases of 3 to 15 basis points during each of the first three quarters of fiscal 2025 within Hooker's legacy divisions, while fourth quarter figures remain outstanding. Such gains extend a steady pattern of sequential market share improvements across every quarter of fiscal 2024. This ongoing share expansion, even as the high-end segment shrinks, underscores the competitive strengths we've established and our preparedness to seize opportunities when demand recovers. Although macroeconomic challenges, such as the worst housing market in 50 years, declining consumer confidence, and tariff ambiguity continue, we stay concentrated on the elements within our control. Apart from the charges Earl referenced earlier, our financial results strengthen sequentially in each quarter of the year. Given the ongoing economic climate, we've sped up cost-cutting measures, which we think will boost operating income and cash flow. These encompass our intended departure from the Savannah warehouse, anticipated to yield $4 -$5.7 million in yearly savings starting in fiscal 2027, plus the launch of a new leased site in Vietnam this May. Once fully up and running, the Vietnam warehouse will cut domestic safety stock requirements, enhance product movement, allow container mixing, assist margin growth, and facilitate a quicker return on investment. Along with other initiatives, we anticipate starting to see part of the $18 -$20 million in overall yearly operating expense reductions in fiscal 2026, with the complete annualized cost savings projected to commence in fiscal 2027. Now I'd like to hand things back to Earl, who will go over highlights for each of our segments.

Thanks, Jeremy. Over at Hooker Branded, net sales for the fourth quarter climbed $3.8 million, which works out to 10% higher than the prior quarter, and that came from a 14% gain in unit volume. Operating income came in at $1.1 million, lower than the $3.5 million posted a year ago, yet it marked an improvement over the losses seen during the first three quarters of fiscal 2025. For all of fiscal 2025, net sales dropped $10.1 million, a 6.5% decline, which reflected a 5.7% reduction in average selling prices along with heavier discounting, partly made up for by volume growth of almost 3%. Orders in the fourth quarter were up 15% versus the same period last year, breaking a string of three straight quarters of declines. Backlog at year-end was down 22%, mostly because our in-stock position improved considerably, letting us get goods out the door more quickly. Now to Home Meridian: fourth quarter net sales grew $6.3 million, up 21.7% from a year earlier, powered by robust hospitality sales that more than compensated for weakness in traditional channels. Gross profit for the quarter was up $2.4 million, reaching $8.1 million, and gross margin hit almost 23%, the best it has been since 2016, even with the $618,000 inventory write-down related to leaving Savannah. This segment showed a $500,000 operating loss, even after $2.2 million of charges were booked, made up of the $618,000 inventory write-down just mentioned, $718,000 more in bad debt, and $878,000 of trade name impairment. Net sales for fiscal 2025 fell $12.7 million, roughly 9%, on a volume decline of nearly 30%, and 78% of that decrease came from exiting unprofitable lines. Orders and backlog likewise declined as mega and traditional channels remained under pressure. Moving to domestic upholstery, fourth quarter net sales were down $2 million, about 7% compared with a year ago, reflecting weak demand at HF Custom, Bradington-Young, and Shenandoah, plus the usual seasonal slowdown at Sunset West. Fiscal 2025 net sales declined $12.6 million, approximately 10%, with most divisions posting decreases that were partly offset by a 6.8% gain at Sunset West. This segment recorded a $2.5 million operating loss, caused by reduced volume, under-absorbed overhead, and $80,000 of severance expense. Fourth quarter orders increased 13%, including double-digit growth at Bradington-Young, HF Custom, and Sunset West. Sunset West has now delivered four quarters in a row of order growth, thanks to the build-out of its East Coast distribution. Backlog at year-end ran 4% under last year, yet 3% higher than pre-pandemic levels if you leave out Sunset West, since that business was acquired afterward. Cash and cash equivalents totaled $6.3 million, down $36.9 million compared with the prior year-end. That decline stemmed mainly from higher accounts receivable and a deliberate build-up in inventory, with Hooker Branded responsible for the bulk of that inventory increase. On top of that, we drew on our cash reserves for a number of important expenditures during fiscal 2025: dividends paid to shareholders, work on our cloud-based ERP system, and other capital expenditures. Yesterday, our cash balance was just about $19 million, and we had $41 million of borrowing availability through the new amended and restated loan agreement. During the fourth quarter, we deliberately built up inventory to back three significant new case goods collections and to restock our highest-margin, fastest-selling products. That move put us in position to enhance product availability and speed to market during the second half of fiscal 2025 and early fiscal 2026, and it also helped cushion anticipated supply interruptions from possible port strikes in the U.S. and a longer Lunar New Year in Vietnam. We refinanced our credit facility in the fourth quarter as well, which gave us more borrowing capacity. In March, we declared our regular quarterly dividend, a sign of our continued confidence in the company's outlook and an extension of our more than 50-year record of uninterrupted dividend payments. Now I'll hand things back to Jeremy for his outlook.

Economic conditions are quite uncertain and volatile at the moment. Right now, we're assessing various approaches to lessen the effects of the present economic climate, such as existing home sales sitting at a 50-year low and how possible extra reciprocal tariffs might affect both our profitability and our operations. Tariffs bring enormous complexity and unpredictability, which force us to examine our cost structure in a more aggressive manner, especially within the lower margin direct container portion of the business. So, on top of the cost savings we announced earlier and the ones discussed today, we keep finding further chances to achieve efficiency through consolidating operations, and we'll share additional details in the weeks ahead. Although both the review of our cost footprint and the rollout of additional cuts are still underway, we're still putting money into the areas of our business with the greatest growth potential, since growing profitable sales stays a major priority; on a brighter note, inflation eased during February and March, dropping to the levels seen last summer and fall before it climbed from November 2024 to January 2025. Also, as reported by the U.S. Census Bureau, monthly furniture sales on a year-over-year basis rose starting in September 2024. Even though the present situation is difficult, we think we've positioned the company to keep capturing market share and maximizing revenues via our merchandising efforts, speed to market initiatives, and in-stock position on top-selling products; that concludes the formal portion of our discussion, and now I'll hand the call back to our operator, Sherry, for questions.

Morning, Jeremy, and morning, Earl. Thanks for fielding the questions; it's definitely good to watch the sales gains at Hooker Branded and HMI. I'm aware you both mentioned HMI getting a lift from robust hospitality sales. What I'd like is for you to expand a bit more on Hooker Branded — are additional new collections providing any extra momentum? Perhaps share a little more detail on what caused the unit volume to rise at Hooker Branded; we'd appreciate your perspective on what you've observed in Q1 so far, since only roughly 2 weeks remain in the first quarter.

To start, regarding Hooker Branded and what's behind some of that momentum, October market certainly had a big favorable effect, especially for Hooker case goods. We introduced 2 new collections that did really well early on with placements plus early orders and early sell-throughs. That has us quite encouraged, particularly given the conditions we've been operating in. Seeing that kind of result from 2 new collections left us encouraged. I don't think I'm able to say more about the first quarter at this point. Sorry, Anthony.

All right. All right. Regarding upholstery made here at home, I realize you mentioned that it had declined. Given what was announced about tariffs 2 weeks back, I'm just curious how you're viewing what's possible there, since certain retailers may be considering moving where they source things toward manufacturing within the country. I'm just curious how you're viewing what might be possible for upholstery produced domestically.

For reasons that are clear and that you basically just mentioned, we see an enormous chance on the side of domestic upholstery. Should we require it, we truly have a fair amount of capacity in the BY and as well in Bedford, HF Custom; we're positioned such that we certainly could, we're positioned to expand, and we're undertaking certain efforts on products and on programs that I think will line up nicely with that momentum heading our way.

Understood. All right. Regarding HMI, you folks have done a solid job repositioning that operation. Gross margin improved well. I imagine tariffs introduce a complication now, but thinking about how the gross margins in that segment will move going forward? Then a separate question about HMI's backlog. I realize there have been many shifts in that business across the last 2 years with product lines and sales channels changing. On a like-to-like basis, what would the backlog be? If you remove all that noise regarding the changes, how would it stack up against pre-pandemic backlog levels?

Yeah, I don't think we have that. I can address the first portion, which is there's significant focus on the correct things at HMI, which I believe is coming through in the margin expansion. There's a strong focus on growing Pulaski and on growing Samuel Lawrence furniture. We have no focus on the clubs we exited and the ACH business, Eccentrics home business that we exited; we're not focused on filling the warehouse with inexpensive, low-margin, cheap accents right now. There's a lot of truly good focus, and frankly, that's why we can save between $4- $5.7 million from getting out of Savannah because 80% of that need in Savannah was based on storing or warehousing inexpensive, low-margin accents. We can really better utilize CDC One, CDC Two, and Martinsville. We discussed the Vietnam warehouse too that we're working on. Our logistics and our warehousing, we believe, will significantly decrease from a financial footprint, yet serve us better than it has.

Got it. All right, thanks so much, and good luck out there.

Yes, thanks, Anthony. We appreciate that.

Morning, and thanks for fielding my questions. I'd like to begin by asking about the 90-day tariff pause that's currently in effect. Does that create an opportunity, or give you any appetite, to perhaps act a bit more nimbly and keep pursuing a deliberate inventory build?