Hooker Furnishings Corporation (HOFT) Earnings Call Transcript & Summary

Good day, everyone, and welcome to Hooker Furnishings' webcast covering earnings for the first quarter of 2026. Right now, everyone joining is able to listen only. Once the presenter finishes, we'll open things up for questions and answers. Directions will be provided at that point. Just a note that recording of this call is possible. I'll now hand things over to Earl Armstrong, who serves as Senior Vice President and Chief Financial Officer. You may begin.

Thanks, Michelle, and good morning to all of you. We're glad you could join our quarterly conference call, where we'll go over the financial results for the first quarter of Fiscal 2026, a period that concluded on May 4, 2025. With me this morning is Jeremy Hoff, our Chief Executive Officer, and we're grateful for your participation today. As part of this call, we might make Forward-Looking Statements, which carry risks and uncertainties. Factors that could lead our actual results to differ materially from what management expects are discussed in our press release and SEC Filing that announced the results for the first quarter of Fiscal 2026. Any forward-looking statement reflects only today's perspective, and we assume no duty to update or revise any forward-looking statement in light of events or circumstances arising after today's call. We reported consolidated net sales of $85.3 million for the first quarter earlier today, which is a decline of $8.3 million, or 8.8%, from the same quarter a year ago. Even with that sales decline, we cut our operating loss by $1.6 million, or 31%, bringing it to $3.6 million, which shows the effect of the cost reduction initiatives put in place during the second half of the previous fiscal year. Relative to the first quarter of the prior year, we lowered operating expenses by $2.2 million; that decrease came even though first quarter results included $523,000 in restructuring costs, mostly severance. Hooker Branded reached break-even for the quarter, while Domestic Upholstery and Home Meridian each made significant cuts to their operating losses, by 55% and 17%, respectively. With this work included, we boosted gross margins by 190 basis points, thanks to better margins at Home Meridian and Domestic Upholstery; we posted a net loss of $3.1 million, or $0.29 per diluted share, an improvement over the prior year's first quarter net loss of $4.1 million, or $0.39 per diluted share. Sales of Hooker's legacy brand held steady during the quarter, with Hooker Branded net sales rising slightly on the strength of higher unit volume, while the Domestic Upholstery segment experienced a small sales decline versus the first quarter of the prior year. The decline in consolidated sales overall came mainly from a double-digit sales drop at HMI, which sits in the Mid-Price Segment, where import tariffs have cut demand more severely. One key development this quarter was our expansion of a multi-prong cost reduction strategy intended to deliver approximately $25 million in annualized savings by our next fiscal year. As part of consolidating our logistics and operations, we opened a new Vietnam warehouse facility last month, which we expect will improve Supply Chain efficiency and shorten Lead Times from roughly six months to four-six weeks. Initial customer feedback has been highly positive, and we think this initiative could potentially lift sales; we'll share more details on our overall cost reduction strategy later in the call. At this point, I'll hand the call over to Jeremy for his comments on our Fiscal 2026 first quarter results.

Thanks, Earl, and good morning to all of you. We're still taking meaningful, intentional steps to steady the business, boost sales, and produce robust gross margins as we carry out our faster cost-cutting plan. Meanwhile, we're committed to staying focused on creating quality, innovative products, serving our customers, bringing our strategic vision to life, and growing shareholder value. Within Hooker's legacy brands, which take in Hooker Branded and Domestic Upholstery, this marked our eighth straight quarter of steady market share gains. The spring High Point Market was outstanding for us, particularly with two new case good collections in our Collected Living format. On top of that, we saw significant placements at the debut of our Living Your Way modular upholstery program, offered from our Hooker Branded upholstery segment brand in both stationary and motion seating, along with multiple scale and cover options. Through our ongoing programs, we keep achieving substantial cost savings. Our year-over-year operating and gross margin gains in the first quarter came from the $2.2 million in savings generated by our initial round of cost reductions announced a year ago. Since that first announcement, we've broadened our cost reduction efforts by exiting the Savannah warehouse and opening a leased Vietnam warehouse. These steps, especially our strategic move to the Vietnam warehouse, will bring faster savings and improvements as the current fiscal year moves forward. By boosting Supply Chain efficiency, letting our retail customers mix various collections on containers, and cutting Lead Times from roughly six months down to four to six weeks, we view the Vietnam warehouse as a game changer and a win-win for both us and our customers. Altogether, starting from the June 2024 launch of our initiative, we expect to lower our total annual spend rate by about 25%. These savings by themselves will meaningfully lift profitability, and as conditions get better, our position for growth strengthens in turn, as will our capacity to drive shareholder value through disciplined execution and capital stewardship. Our progress is steady, and we're executing across every part of the business we can control. Despite this progress, the home furnishings industry keeps facing a difficult environment, driven by ongoing softness in housing, elevated mortgage rates, and weakening consumer sentiment. Existing home sales are still far under pre-pandemic levels, and the steep climb in borrowing cost has chilled housing mobility, which normally powers furniture demand. Meanwhile, tariff uncertainties are hurting consumer confidence, which has fallen to near historic lows, with many households cutting back on discretionary spending; these macroeconomic headwinds weigh heavily on our industry, and we stay focused on adjusting to the realities of today's market. I'd like to spend a minute speaking directly to the import tariff increases and uncertainties affecting the whole furniture industry. We think we've effectively offset the across-the-board 10% tariff through participation by our source factories and through a 5% price increase that took effect last month. Just as everyone is doing, we're waiting for July to bring word on what Vietnam's final tariff might be — and that's where more than 80% of the goods we source come from. Rather than reacting, we'll respond responsibly, and we stand positioned with a strong financial base and balance sheet designed to get through tough periods. At this point, I'd like to hand things back to Earl, who will walk through specifics of our cost reduction strategy across multiple phases and also talk about notable points in each of our segments.

Thanks, Jeremy. As I've said previously, Hooker Furnishings is executing a phased cost-reduction initiative aimed at achieving approximately $25 million in annual savings by next year. We'll walk through these efforts in two phases. The initial phase, which began last year, encompassed the actions, impacts, and outcomes listed below. Phase one actions: we reduced fixed costs by over $10 million through facility downsizing, workforce reductions, and decreases in fixed expenses. Phase one financial impact: restructuring charges totaling $4.9 million were booked, of which $3.6 million related to severance. Phase one savings: across Fiscal 2025 we achieved more than $3 million, and in this fiscal year we expect to realize over $10 million on an annualized basis. Phase two involves consolidating logistics and operations under our plan. It commenced in the current year and continues through the end of our present fiscal year. Phase two actions: we initiated the process and expect the Savannah warehouse to be completely shut down and released by October 31, 2025. Vietnam warehouse: the new facility opened in May 2025 to enhance Supply Chain efficiency and reduce Lead Times from approximately six months to four to six weeks. We think this will deliver a significant favorable impact on cash utilization overall. Going forward, we expect further cost-saving opportunities to arise from operational streamlining. Phase two financial impact: we forecast $2 million to $3 million in net charges in Fiscal 2026. Phase two savings: we anticipate net savings of $3.4 million in Fiscal 2026, after factoring in expected charges and other offsets. We project net savings of about $14 million annually beginning in Fiscal 2027. Overall, we expect to eliminate nearly $25 million, or roughly 25% of our fixed costs, with approximately an $11 million impact on warehouse and distributions, which falls within cost of sales, plus around a $14 million impact on selling and administration expenses. In Fiscal 2026, Hooker expects to achieve about $14 million in cost savings, net of offsets and special charges. By Fiscal 2027, Hooker expects to achieve $25 million in net annualized savings through these phased efforts, which should enhance profitability, operational efficiency, and long-term shareholder value. Importantly, our cost reductions should not impact our strategic growth priorities, including our Collected Living merchandising platform, the Vietnam warehouse advantage, and our upcoming Margaritaville license collection. Now, I'll review quarterly performance for each of our segments. Within Hooker Branded, the segment experienced a modest sales increase, driven by higher unit volume but constrained by lower average selling prices and deeper discounts. Gross profit and margin increased by $393,000 and 130 basis points, respectively, primarily due to reduced margins on discounted items, partially offset by lower warehousing and distribution expenses. Hooker Branded broke even for the quarter. Incoming orders rose 2.4% year over year. The quarter-end backlog was 21.3% below the prior year's first quarter, mainly due to an improved inventory position, which resulted in faster shipments. At quarter's close, our order backlog was up nearly 3% compared with where it stood at year-end. Looking at At Home Meridian, first-quarter Fiscal 2026 net sales came in $7.6 million lower, a drop of roughly 29%, driven mostly by a big slide in unit volume. Roughly 30% of that revenue decrease traced to the bankruptcy of a major customer during the prior year, and the remainder came from softer sales linked to tariff-related hesitancy among HMI's buyers, most of whom are in the mid-priced and commercial portion of the market; a $1.7 million sales gain in the Hospitality Business partly offset this decline. Despite such a large sales decline, gross profit slipped just $568,000, while gross margin improved 200 basis points, aided by stronger product margins and reduced allowances. Restructuring actions that lowered warehousing and distribution costs partly offset these declines, ultimately shrinking the operating loss from $3.4 million to $2.8 million. Incoming orders and backlog declined because of weaker demand from traditional channels plus the loss of a major customer last fiscal year from its bankruptcy, made worse by fewer orders in the project-based Hospitality Business; in domestic upholstery, segment net sales dropped about $1 million, or about 3.7%, in the first quarter, mainly from lower demand in Residential Home Furnishings. A 12.7% sales gain in the outdoor furnishings business, Sunset West, after its bi-coastal expansion partly offset this decrease. Even with lower sales, gross profit grew $575,000, and gross margin rose 260 basis points, helped by an 80 basis point drop in direct material cost and a 100 basis point drop in direct labor cost, both from the cost reduction plan and fewer work hours. Warehouse and distribution expenses declined as well. The Domestic Upholstery segment cut operating losses significantly, by $713,000, or 55%, despite lower sales. Incoming orders dropped 2.6%, with quarter-end backlog flat versus the prior year's first quarter, yet up 7.1% from year-end. Turning to cash, debt, and inventory: cash and cash equivalents were $18 million, up $11.7 million from year-end, mostly from accounts receivable collections. Inventory levels fell from about $71 million at year-end to about $64 million at quarter-end. During the Fiscal 2026 first quarter, the company used cash for several key expenditures, among them $2.5 million in cash Dividends to shareholders and about $850,000 in capital expenditures. Even with those outflows, the company kept its financial flexibility, with about $40 million in available borrowing capacity under its Revolving Credit Facility as of quarter-end. After our first quarter closed, we repaid all outstanding borrowings on our Revolving Credit Facility. As of yesterday, we held approximately $3 million in cash on hand, with about $63 million in available borrowing capacity, net of standby letters of credit. Last week, we announced our regular quarterly dividend, reflecting our ongoing confidence in our outlook and extending our over 50-year track record of uninterrupted dividend payments. Our priority is putting capital to work in a disciplined way that backs shareholder returns as well as operational resilience. We also expect $2 million to $3 million in net charges in fiscal '26. The significant progress we've made in bringing down our debt, even as we continue returning capital through Dividends, reflects the structural cost savings programs we've implemented across the organization; these actions aren't only improving near-term liquidity, they're also positioning us to pursue strategic growth from a balance sheet that's stronger and more efficient. Looking ahead, we remain committed to Capital Allocation decisions that create long-term value by combining our cost savings efforts with our strategic growth priorities, and we expect $2 million to $3 million in net charges in fiscal '26; and now, I'll turn it back over to Jeremy so he can share his outlook.

Based on the U.S. Census Bureau's monthly retail trade survey, furniture retail sales have picked up somewhat over the past few months. April sales came in a bit above the January to March stretch and rose 5.6% from a year earlier. Even so, existing home sales are still soft, running at roughly 75% of normal pre-pandemic levels for a third year in a row. Even with those headwinds, inflation and employment measures have stayed fairly steady. To work through the economic challenges that persist, we keep focusing on product innovation, cost optimization, and operational excellence. Those strategic priorities leave us ready to seize new opportunities as conditions get better, which in turn should build long-term shareholder value. Among the key initiatives: the debut of our new Margaritaville licensing program; a best-in-class international warehouse that lets us cut domestic safety stock, protect Working Capital, and reduce Lead Times; and our Collected Living whole-home merchandising approach, which earned strong validation at the April High Point Market. We're quite encouraged by fiscal May orders at Hooker Legacy, the strongest since February fiscal 2023. On the Hooker Legacy side, May orders climbed almost 33% versus the prior year. Hooker Branded orders rose almost 40%, and Domestic Upholstery orders gained 25%, each measured against fiscal May of the prior year. Beyond that, we're getting ready to roll out a redesigned corporate website in October, which we believe will sharpen the digital customer experience, boost lead generation, and back omnichannel growth. It should also lift consumer engagement, make e-commerce navigation smoother, support our retail partners, and act as a hub for product education and lifestyle inspiration, driving more time on site and higher conversion rates. Inside our Hooker Branded segment, the recently introduced Live Your Way strategy aims to provide customizable, lifestyle-oriented solutions suited to shifting consumer preferences; deliver tailored upholstery choices that match today's varied lifestyles and consumer expectations; emphasize modularity, flexibility, and personalized comfort to serve design-savvy customers; and spotlight customization and quality craftsmanship, strengthening our leadership in the upscale upholstery segment. At the same time, we're pushing operational efficiencies throughout the segment and starting to see measurable gains in performance. Taken together, we're actively reshaping the company's profile while keeping things stable. The initiatives now in motion reach broadly across the whole organization and affect every part of our business, from production and improved Lead Times to realigning our cost structure so it better fits the realities of the operating environment. While more remains to be done, we've managed to take significant steps without compromising quality or service. The upshot is our expectation that we're well-positioned for a market upturn and ready to create value for our shareholders. That concludes the formal portion of our discussion, and now I'll hand the call back to our operator, Michelle, for questions.

Morning, and thanks for fielding the questions. To start, if we look back on Q1, could you speak to how shipments flowed across February, March, and April? What I'd really like to know is how that final month of the quarter shaped up following Liberation Day.

What I can say for sure is that the tariffs made the cadence shift quite dramatically on our end. It hits what we refer to as the Mega Customer — really the HMI customer — harder than the numerous customers we serve, who are quite distinct on the Hooker Branded side and in Domestic Upholstery within our business.

Thanks, Jeremy. All right. Regarding gross margins, you did post fairly solid year-over-year improvement. It seems discounting had some effect that weighed on margins at Hooker Branded. Is there any way you can put a number on how much that was, in terms of what the discounting at Hooker Branded cost you?

No, Anthony, we don't have that available right now.

All right. I might have a follow-up question for you regarding that. All right. Let's shift topics to what you said about the current quarter. What is causing the increased orders in May for the Hooker Legacy brands? That's a fairly significant rise. Perhaps you can tell us what is behind that. And on the other hand, I just wanted an update on HMI, and whether anything has changed since April.

What I'd say is behind the order rate I mentioned earlier is essentially that we greatly expanded our merchandising approach with Collected Living and the items we've discussed. We think it's beginning to produce a favorable result. When you consider it, you are of course making a comparison with orders from last year. Last year would have come after a market in which those new strategies had not been put in place. I think they have truly taken hold, and I think that is becoming evident.

Understood. Regarding HMI, is there anything you can share about what's been observed so far in May and early June?

Yes. Tariffs continue to create a great deal of uncertainty, since beyond the 10% we're aware of, nothing has really been settled, and with a July 9th date looming, that lack of clarity is certainly causing harm.

Understood. Alright. I suppose the final thing I have before handing things over to other people. As all of you are aware, Memorial Day is a major holiday occasion for the furniture business. I'm just curious about what you've observed or been told by your retail partners regarding how that holiday turned out for them.

We've been doing quite a bit of investigation into exactly that topic. What we generally picked up was that for Memorial Day, conditions were fairly favorable for the majority of retailers, and in fact there was quite a bit, quite a lot of rather encouraging information.