Hooker Furnishings Corporation (HOFT) Earnings Call Transcript & Summary

Thanks, Kevin, 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 fiscal 2026's third quarter, a period that started on August 4th and wrapped up on November 2nd, 2025. With me this morning is Jeremy Hoff, who serves as our Chief Executive Officer. We're grateful that you're taking part today. As part of this call, forward-looking statements may be made, and those carry risks and 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 we issued about our fiscal 2026 third quarter results. Any forward-looking statement reflects only today's perspective, and we assume no duty to update or revise any such statement to account for events or circumstances arising after today's call. Looking at the third quarter, consolidated net sales from continuing operations came in at $70.7 million, which is a drop of $11.9 million, or 14.4%, from the same period a year ago. That decrease stemmed mostly from shipment timing in our hospitality business, since a number of large projects went out during last year's third quarter. Those effects were partly offset by healthy sales in our core operations, as Domestic Upholstery rose 3% and Hooker Branded gained 1.1%. Gross profit fell by $2.4 million, which we anticipated because of the softer sales volume. Still, gross margin rose to 25.6%, compared with 24.8% a year earlier, driven by margin improvement at Hooker Branded and steady results in Domestic Upholstery, which helped counter the margin pressure from lower volume in our hospitality business. Our operating results for this quarter also include non-cash impairment charges of $22.1 million, or $16.7 million after tax; among these were $14.5 million tied to Sunset West goodwill, $3.2 million for certain home décor and trade names — $2.6 million of which was linked to the discontinued businesses — plus $558,000 for the remaining portion and $556,000 for the Bradington-Young trade name. The non-cash impairment charges also take in $3.9 million connected to the sale of the discontinued operations. Much like the turbulence we saw in 2020, the current macroeconomic climate is putting exceptional strain on home furnishings and the wider consumer discretionary sectors. Those strains played a part in a prolonged slide in our share price during the third quarter, which fell to a level we hadn't seen in a long while. That set off an interim impairment analysis in accordance with U.S. GAAP. Market-based valuation inputs, such as trading multiples and discount rates, took a negative turn, and that produced the impairment. It's worth stressing that these are non-cash accounting charges; they don't alter our strategic assessment of these brands or businesses, and they have no impact on our liquidity or continuing operations. On top of that, we booked roughly $600,000 in restructuring costs this quarter, mostly severance tied to our cost reduction initiatives. Once these items are factored in, operating loss from continuing operations came to $16.3 million, while net loss from continuing operations was $12.5 million, or $1.18 per diluted share. Moving to the year-to-date figures, consolidated net sales from continuing ops across the first nine months reached $211.1 million, a decline of $22 million, or 9.4%, versus the prior year. Just like what we saw over the quarter, the drop came from reduced hospitality shipments after unusually big project activity during the previous fiscal year; partly making up for that was a 1.1% gain in Hooker Branded sales, and Domestic Upholstery was basically level across the nine-month period. For those nine months, gross profit fell $2.9 million, yet consolidated gross margin rose to 25% from 23.9% a year earlier. That improvement in margin comes from real gains in Domestic Upholstery, helped by reduced direct labor, warehousing labor, and material costs, and margins at Hooker Branded held steady. Our operating loss from continuing operations reached $17.4 million, and that figure includes the same $15.6 million impairment charge plus $1.7 million of restructuring costs. For the nine-month period, net loss from continuing ops came to $13.6 million, or $1.29 per diluted share. Additionally, as we shared earlier on December 1st, 2025, the company announced a strategic divestiture of value-priced home furnishings brands Pulaski Furniture and Samuel Lawrence Furniture, which had previously sat inside the Hooker Branded segment; for the fiscal 2026 third quarter these brands are reported as discontinued operations and held for sale. Samuel Lawrence Hospitality, what remains of the former HMI division, will be moved into the all other category in our segment reporting. We anticipate completing this transaction later this month. Turning to discontinued operations, combined net sales for PFC and SLF were lower, falling $11.3 million in the third quarter and $22.5 million year-to-date, pushed down by much weaker unit volume as macroeconomic pressures and tariff-related hesitation kept weighing on value-oriented consumers. We also recorded $2.6 million of restructuring charges in the quarter and $4.1 million year to date, related to exiting our Savannah warehouse during the third quarter; with that, I'll hand the call to Jeremy so he can share his comments on our fiscal 2026 third quarter results.

Thanks, Earl, and hello everyone. Throughout one of the longest-lasting slumps this industry has ever seen, we've used the last 2 years to take disciplined steps aimed at transforming Hooker Furnishings into a company built around design with stronger margins. As part of that plan, it grew clearer and clearer that we had to leave behind categories carrying lower margins and greater tariff sensitivity, pointing our attention instead at our best-performing brands. Meanwhile, our cost-cutting efforts, carried out in multiple phases, have rebuilt how we spend, generating more than $25 million in yearly savings via structural changes that we expect to keep us profitable even if tough conditions persist. Thanks to a stronger balance sheet, $7.5 million given back via dividends, and $63.8 million in borrowing capacity available when the quarter closed, we're also boosting shareholder returns with a fresh share repurchase authorization and a dividend that's been recalibrated to keep flexibility now while creating long-term shareholder value. Our operations showed modest gains in sales and margin this quarter within Hooker Branded and Domestic Upholstery. We're heartened by the commitments made to our new Margaritaville license collection during the recent fall High Point Market. Margaritaville stands as a major organic growth opportunity, backed by the immersive 14,000 sq ft showroom experience we unveiled at High Point Market along with the 55 committed retail galleries throughout the U.S. The enthusiasm surrounding this launch, plus the initial purchase commitments we've gotten, exceed historic levels for any Hooker product line the company has introduced by roughly three to four times. We expect Margaritaville Home Furnishings to generate meaningful incremental revenue throughout the business, particularly as we move into the second half of next year, when the collection ships and gets placed at retail. We also expect Margaritaville's growth to be genuinely incremental rather than cannibalizing product placements that already exist, and to serve as a profitability driver too. In our view, we've essentially built an entirely new business for Hooker. We believe launching Margaritaville, alongside the recently announced expected sale of Pulaski and Samuel Lawrence Furniture, lets us realign our portfolio around our strongest brands and positions Hooker Furnishings for consistent long-term performance. At the same time, we've made significant progress on our cost reduction initiatives, achieving savings higher than anticipated, and have finished building our new expense structure, which will deliver continued savings in fiscal 2027. Along with the major shift in our warehousing strategy, we've also managed to mitigate tariff exposure and serve customers better by letting collections from our various suppliers be mixable in single containers and offering six to 10-week fulfillment to our customers' door. We're more confident today that Hooker can potentially move from a cost reduction story to an organic growth story, and we see a clear path to profitable growth by concentrating on our core expertise of better-to-best home furnishings. I'd also like to comment on our adjustments to import tariff increases and uncertainties. A little more than 40% of what we sell net is made here or put together here, which cuts down our exposure to tariffs quite a bit. In our view, things on the tariff front have mostly settled: a 20% levy applies to case goods brought in from Vietnam, and a 30% tariff on lumber hits all upholstered furniture that's imported, effective November 1st. On top of that, because tariffs hit the lower-priced HMI lines being held for sale harder than others, getting rid of that business will help us soften the blow from tariffs now or down the road. Along with specific price increases and solid relationships with our vendors, we've mostly offset what tariffs have cost us. At this point I'd like to hand things back to Earl, who'll walk through the highlights for each of our segments as well as what we're doing with cash, debt, inventory, and capital allocation.

Appreciate that, Jeremy. To begin with Hooker Branded, our net sales increased 1.1% during the third quarter, and the same was true across the nine-month period. That gain resulted from higher average selling prices, despite a decline in unit volume. Gross revenue was essentially level, although reduced discounting, together with fewer returns and allowances, provided a small boost to net sales. Gross profit rose by $1.2 million in the quarter, while margin gained 300 basis points, supported by higher prices and less discounting. Warehousing expenses increased slightly, which reflected greater rent and labor tied to consolidation efforts. For the nine-month stretch, gross profit increased by $653,000, and gross margin stayed level because higher prices and fewer returns got offset by thinner margins from discounted inventory balancing along with somewhat greater warehousing expenses. In the quarter, SG&A expenses fell by $990,000, which equals 310 basis points, and restructuring cost came to $390,000 this year compared with $950,000 a year earlier. Over the nine months, SG&A declined by $1.7 million, since reduced compensation and spending were partly canceled out by other costs. For the third quarter, the segment reported GAAP operating income of $711,000, versus a loss of $1.5 million. Hooker Branded backlog rose 17.2% relative to fiscal year end and 7.9% versus the prior quarter, aided by a 4.1% gain in incoming orders. Turning to Domestic Upholstery, net sales rose by $870,000, which works out to 3%, during the third quarter, while the nine-month figure was basically unchanged. Third-quarter gross profit climbed $261,000, and gross margin held at the same level as a year earlier since the main cost inputs remained stable. Across the nine-month stretch, gross profit grew $1.5 million and gross margin gained 170 basis points, helped by reduced direct material and labor costs along with improved production efficiencies. In the third quarter, SG&A expenses for this segment fell $263,000, as restructuring costs were far below the prior year. For the nine-month period, SG&A expenses dropped $560,000. For the third quarter, this segment posted a GAAP operating loss amounting to $14.7 million, and that figure stems completely from the $15.6 million non-cash charge for intangible impairment. Backlog in Domestic Upholstery came in lower than where it stood at year end, yet it improved versus the same period last year thanks to orders rising 3.5%. Turning to discontinued operations, net sales for PFC and SLF combined were down, falling $11.3 million during the third quarter and $22.5 million across the nine-month span. Profitability in that area absorbed additional damage from a $2.5 million write-off of fixed assets connected to exiting the Savannah warehouse, along with higher freight expenses and weak sales volumes, which caused underabsorption of warehouse and international operating expenses. Weak demand that wouldn't let up, a product and customer mix that worked against us, costs tied to restructuring, plus a $2.6 million hit to our trade name, all played into the heavy operating losses we saw in each period. Now for cash, debt, and inventory: cash and cash equivalents stood at $1.4 million, falling to $4.9 million compared with year end, since money brought in by operations went toward paying down $17.9 million on the term loan, sending out $7.5 million as cash dividends, and covering $2.4 million of capital expenditures. Inventory came down to $52.1 million by quarter end, versus $66.2 million at year end. Even with those outflows, we kept our financial flexibility intact, with $63.8 million available to borrow under our amended and restated loan agreement at quarter end; that figure is net of standby letters of credit. On December 9th, 2025, our cash position stood at about $2 million, and we had $63.7 million in borrowing capacity available, again net of standby letters of credit. We also shared today that a new share repurchase program has been authorized by our Board, permitting us to buy back as much as $5 million of our outstanding common shares. In connection with that repurchase authorization, the Board is recalibrating the annual dividend, bringing a 50% reduction to $0.46 per share annually, beginning with the $0.115 per share dividend payment we expect on December 31st, 2025. In our view, these moves strike the right balance between returning capital and meeting liquidity needs, and we will enhance long-term shareholder value. As we move toward becoming a more streamlined company focused on growth, this fresh buyback plan, along with a smaller dividend, allows us to continue delivering returns to shareholders while also providing more flexibility on our balance sheet so we can keep putting money into the business; this move also reflects what shareholders told us directly regarding the dividend and how we approach capital allocation more broadly. Under this repurchase authorization, we aren't obligated to acquire any particular amount of stock within any given timeframe. It has no set end date, though the Board has the discretion to change, pause, or end it whenever it chooses. Buybacks could happen every so often on the open market, by way of privately arranged deals, or by other means, all in line with the laws, rules, and regulations that apply. They'd also depend on how much cash the company needs for other uses, staying within the covenants in our loan agreements, and any other considerations it finds important. With that, I'll turn things back over to Jeremy for his outlook.

For branded segments, incoming orders are up quarter over quarter, and that marks 2 quarters in a row of sequential gains. Macroeconomic headwinds — elevated housing prices, inflation, low consumer confidence, and ongoing tariffs — are largely unchanged, but those pressures hit hardest in the higher volume, lower margin discontinued business; with a more efficient cost structure and a sharper portfolio, we believe our positioning is better for improving profitability even if a downturn drags on. Focus is our real advantage going forward. Our team is now fully aligned around our core businesses, which lets us drive organic growth and build sustainable profitability. That concludes the formal portion of our discussion, and now I'll hand the call back to our operator, Kevin, for questions.

Morning, everyone, and thanks for letting me ask. To start, I'd like to dig into when shipments went out in the hospitality segment. You mentioned that this hurt sales. Could you quantify it at all — how big a hit was it to the quarter?

We haven't generally broken that out on a brand-by-brand basis. What I can say is that this brand had the good luck a year ago to be involved in a big way with 2 of the biggest hotel builds in the U.S. This is a business built around projects, and sadly, they simply don't come around again in that same way each time.

Okay, understood. Thanks, Earl. All right. So you folks have definitely taken significant steps to better the company, especially through every one of these strategic adjustments; therefore when we consider the main business, Hooker Branded along with Domestic Upholstery each recorded sales increases, which was encouraging to witness during this quarter. In what way ought we to view your capacity to keep up those sales improvements moving forward? I'd really like to hear what you think regarding that.

Anthony, what I'd say is that with regard to both Domestic Upholstery and Hooker Branded, we sense a certain momentum when it comes to products in each of those segments. And within our sector, winning comes down to product. Thus we've assembled multiple consecutive markets featuring major product launches. And naturally, the most recent one we just mentioned, that being arguably the largest we've ever experienced in terms of the volume of commitments we emerged from a market with. So given all of that, there's essentially nothing we can do regarding the macroeconomic conditions surrounding us, yet I feel just as confident about those portions of our operation when it comes to our ability to compete and our ability to contend for market share, without a doubt.

Understood. I'm just wondering — regarding Black Friday sales and the foot traffic in their stores, what have you been told by your retail partners? Could you share any kind of feedback of that nature that's come your way from your customers?

Well, there's still — from what I'm picking up, our customers are expressing a fair amount of positivity during these busy retail periods. For Labor Day, that's what we picked up. Black Friday, I'd say, is shaping up as reasonably solid, though in the markets where we operate, more consistency is what everybody requires. Demand needs to be steadier, and honestly, that observation probably applies to any business you could name. So the peaks look fairly decent to me, but the remaining periods simply have to improve compared with where they stand right now.

Got it. Understood. Okay then. Turning to the discontinued operations, could you help us understand what amount of revenue those 2 brands generated for HMI during the previous fiscal year, or perhaps across the trailing 12 months? Also, how big a drag did they represent on operating income, since we're trying to recalibrate our models?

I'll take your second question first. The drag on operating income was significant, and I think the statements you'll find in the 10-Q — which we anticipate filing on schedule, by the end of the day Friday — will show that, plus there's a related 8-K that will include some pro forma financial information. I believe that will be helpful. Right now we can't provide those figures, since we're still completing quality checks and finalizing them to ensure they're exactly right.

Got it. All right. Understood. All right, I suppose this is my final question. Let's consider where the business stands over a longer horizon. So clearly, you're aware that conditions right now remain uneven and difficult, but looking back at the history prior to the acquisition of HMI, which was nearly 10 years ago — I believe 9 years ago — when we think about what the company looked like at that time, you were reporting operating margins in the high single digits, actually nearing 10%, I believe in a single year. So given all the modifications to the business that you have implemented, is it fair to expect that once conditions improve, you would return to that historical level of operating margins?

Yes.

Alright, that's wonderful to hear. Sounds good. Well, wishing you the best, and I'll hand it over to somebody else. Thanks a lot.

Thank you, Anthony.