Hooker Furnishings Corporation (HOFT) Earnings Call Transcript & Summary

Thanks, Tanya, and good morning to all of you. I appreciate everyone joining our quarterly conference call, where we'll go over the financial results for fiscal 2026's fourth quarter and the full year. Fiscal 2026 got underway on February 3rd, 2025, while the fourth quarter started on November 3rd, 2025, with both periods wrapping up on February 1st, 2026. With me on the call is Jeremy Hoff, our Chief Executive Officer, and we're grateful you're taking part today. As part of this call, we might share forward-looking statements, and those carry risks and uncertainties. You can find a discussion of the factors that might cause actual results to differ materially from what we expect in our press release and the SEC filing that announces our fiscal 2026 results. Any forward-looking statement reflects only today's perspective, and we assume no duty to update or revise any forward-looking statement to account for events or circumstances arising after today's call. In the fourth quarter, we closed the previously announced divestiture of the Pulaski Furniture and Samuel Lawrence Furniture case goods brands, which had been part of our former Home Meridian segment. Consolidated net sales from continuing operations came to $67 million, down $17.2 million, or roughly 21%, from the prior year period. Part of that decline stems from the current fourth quarter having one week less than the prior year period, which cut net sales by about $5.5 million, calculated on average daily sales. The drop also reflects weaker sales in our hospitality business, given its project-based nature, since several large projects that shipped a year ago didn't repeat this year. On top of that, we estimate that severe winter weather across a significant part of the United States in January 2026, including most of our largest markets, lowered net sales for the quarter by $3 million-$4 million. Even with lower net sales, we posted operating income of $629,000 for the quarter. That came from operating income of $1.2 million in Hooker Branded and $617,000 in all other, partly offset by an operating loss of $1.2 million in domestic upholstery. Notably, even with one week less of sales and severe winter weather, domestic upholstery cut its operating loss by more than half, compared with a $2.5 million loss in the prior year fourth quarter. Hooker Branded operating income matched the prior year period, despite fewer selling days and the weather disruptions. Net income from continuing operations for the fourth quarter was $874,000, or $0.08 per diluted share. After the divestiture of Pulaski and Samuel Lawrence on December 12th of last year, these businesses' results are reported through that date. Discontinued operations recorded a net loss of $338,000 in the quarter. Consolidated net income for the fourth quarter was $536,000, or $0.05 per diluted share. Looking at the complete 2026 fiscal year, net sales from continuing operations came in at $278.1 million. That represents a drop of $39.2 million, or 12.4%, versus the previous year. The main factor behind this was weaker sales in the hospitality business within all other, and to a smaller degree, a fiscal year that was shorter along with the harsh winter conditions we referenced earlier. Gross profit fell in absolute dollars because sales were lower. Even so, gross margin rose 180 basis points, which shows margin gains in the Hooker Branded and domestic upholstery segments. For fiscal 2026, continuing operations posted an operating loss of $16.5 million. That was largely the result of $15.6 million in non-cash intangible asset impairment charges recorded in the third quarter, which were set off by our stock price at the close of the third quarter. Those charges consisted of $14.5 million tied to goodwill in the Sunset West division and $556 thousand tied to the Bradington-Young trade name, both within domestic upholstery, plus $558 thousand tied to the remaining HMI business in all other. On top of that, continuing operations took on roughly $2 million in restructuring costs, mostly for severance and, to a lesser degree, warehouse consolidation, all tied to our completed cost reduction initiatives. Continuing operations produced a net loss of $12.8 million, or $1.20 per diluted share. Discontinued operations covered about 10 months of activity in fiscal 2026. Sales were down because of sustained macro pressures and customers holding back on purchases tied to tariffs, especially large furniture retailers. Discontinued ops recorded a pre-tax loss of $19 million, which included $3.9 million in restructuring costs, with $2.4 million of that tied to the Savannah warehouse exit. There was a $6.9 million loss from classifications held for sale, made up of $2.6 million of trade name impairment, $3.5 million in fair value write-downs, and $735,000 in selling costs. Discontinued operations also absorbed $1 million in bad debt expense stemming from a customer bankruptcy. The consolidated net loss for fiscal 2026 reached $27 million, or $2.54 per diluted share; at this point I'll hand the call to Jeremy so he can share his remarks on our fiscal 2026 fourth quarter and full year results.

Thanks, Earl, and good morning to all of you. We're pleased to share that net income came in at $536,000 for the quarter. Fiscal 2026 proved remarkably transformative, as we dealt with substantial tariff disruptions affecting our imports, got a successful fulfillment warehouse up and running in Asia, and closed out two unprofitable divisions — and through it all we cut fixed costs by roughly $26.3 million, which works out to 25%, with about $17.5 million of those fixed cost savings tied to continuing operations. Alongside that, we achieved modest overall market share gains, as strength in key businesses made up for isolated softness, and we introduced our Margaritaville line, which is meeting our expectations of being the most impactful product launch in the company's history. As of today, we operate as a leaner business with higher margins, a much lower break-even point, and the potential for substantial profitability once demand comes back. We think we're set up for a meaningful earnings improvement in fiscal 2027, and early signs of strength in our Margaritaville product line reinforce that expectation. By concentrating on what we do best — better to best home furnishings — we see an obvious route to sustained profitable growth. Even with considerable headwinds, we're pleased to report that the Hooker Branded segment generated $1.9 million in operating income for the year, versus an operating loss of $433,000 in the prior period. On top of that, notwithstanding a sizable impairment charge in the third quarter, the Domestic Upholstery segment improved in the fourth quarter, cutting its operating loss by over 50% relative to the prior year quarter thanks to cost reduction initiatives and operational improvements. I'd also like to address import tariffs, which caused major disruption for Hooker and the industry during fiscal 2026. Following our fiscal year-end in February 2026, the U.S. Supreme Court decided that certain tariffs imposed under the International Emergency Economic Powers Act lacked statutory authorization; then in March 2026, the U.S. Court of International Trade instructed U.S. Customs and Border Protection to set up a refund process for duties already collected. We're assessing the possibility of recovering those amounts. Beyond that, the administration looks ready to shift toward new tariffs under a different legal authority in the coming months; we'll keep watching how this develops. At this point I'd like to hand things back to Earl, who will go over highlights for each of our segments, as well as our cash, debt, inventory, and capital allocation strategies.

Thanks, Jeremy. Over at Hooker Branded, net sales were down 2.9% in fiscal 2026, and that entire drop came from a $5.5 million decline in the fourth quarter, mainly because there was one less selling week, along with supplier delays and shipping disruptions tied to weather. Unit volume fell, though that was partly offset by a 5.7% rise in average selling price, which we put in place to counter higher costs and tariffs. Even with softer sales, full year gross margin grew by 200 basis points, mostly on lower freight costs and pricing moves. Operating income for the year came to $1.9 million, an improvement over an operating loss a year earlier, and fourth quarter operating income of $1.2 million matched the prior year, even with fewer selling days. Incoming orders held steady versus last year, and backlog was up almost 26%. At Domestic Upholstery, net sales fell 2.7% for fiscal 2026, reflecting weaker unit volumes in some divisions, partly offset by gains in contract, private label, and outdoor channels. Gross margin rose 230 basis points for the full year, helped by lower material costs, less spending on labor and overhead, and savings from cost reduction efforts. The segment posted an operating loss of $16.9 million for the year, driven largely by $15 million in non-cash impairment charges, versus an operating loss of $5.4 million a year ago. For the fourth quarter, the operating loss was $1.2 million, more than halved from the prior year, as cost reduction steps paid off despite weaker sales. Incoming orders dipped slightly, around 2%, while backlog was up roughly 8% year-over-year. Turning to cash, debt, and inventory, at fiscal year-end, cash and cash equivalents were $1.1 million, down $5.2 million from the prior year-end; however, amounts due under our revolver fell by $18.5 million — $3.6 million at year-end. Cash from operations went toward repaying $18.5 million of our former term loan, paying $8.8 million in cash dividends, and funding $3.2 million in capital expenditures. Inventory dropped by $17.5 million, from $66.2 million at year-end to $48.7 million at fiscal year-end. We collected roughly $5.5 million in cash proceeds from the sale of the discontinued ops. Even with those outflows, we kept financial flexibility, with $62.8 million of borrowing capacity available under our amended and restated loan agreement as of fiscal year-end; that figure is net of standby letters of credit. As of yesterday, we held over $12 million in cash, with more than $64 million in available borrowing capacity net of standby letters of credit, and $0 drawn on our credit facility. On capital allocation, late last year we announced that our board approved a new share repurchase program, under which the company plans to buy back as much as 5 million of its outstanding common shares starting in fiscal 2027; alongside that repurchase authorization, the board reset the annual dividend to $0.46 per share, effective with the company's December 31st, 2025 dividend payment. Hooker Furnishings is moving toward becoming a more focused, growth-oriented company. This fresh buyback authorization, combined with our revised dividend, lets us give capital back to investors and still keep the balance sheet flexibility required for investing in the business; in our view, these moves strike the right balance between returning capital and preserving liquidity, all while backing long-term value for shareholders. At this point I'll hand things back over to Jeremy so he can share his outlook.

For both Hooker Branded and Domestic Upholstery, incoming orders rose compared to the same period a year earlier across three straight quarters, once you account for the additional week that fell in last year's fourth quarter. Housing activity and consumer confidence are still soft, and the February advanced monthly estimates from the Department of Commerce capture that picture, indicating a 5.6% drop in retail sales for furniture and home furnishings versus the prior year and below January of 2026; we are not expecting any meaningful near-term improvement in conditions. That said, thanks to a more efficient cost structure and a streamlined portfolio, we think we are positioned to deliver improved results even if market conditions stay as they are now. What sets us apart is a clear focus on our core businesses, with the organization fully aligned to drive organic growth and deliver more consistent, sustainable earnings over time. Commitments for Margaritaville product and gallery keep scaling, and shipments are expected to start in the second half of fiscal 2027; that brings the formal portion of our discussion to a close, and at this point, I will hand the call back to our operator, Tanya, for questions.

Thanks, and good morning to all of you. I appreciate your taking my questions. It's definitely encouraging to see profitability come back in Q4. So, to start, when we look at the Hooker Branded segment, your gross margin came in above 39%, which was definitely far stronger than our expectations. Did anything out of the ordinary contribute to that margin performance during the quarter? And how should we view whether that gross margin at Hooker Branded can be sustained?

On sustainability—I think we mentioned during the call a moment ago—gross margin improved by 200 basis points. Your question was about how we think of it moving forward?

He's referring to that 39%—

Right. Did anything out of the ordinary show up in Q4, with 39% compared with 32% during the same quarter last year?

Nothing comes to mind that stood out in Q4 and would be causing that, really—

Okay.

Other than the things we've mentioned.

All right, all right, that's great to hear. Looking ahead, it seems your expectation is that Hooker Branded will keep posting robust margins, is that correct?

That's right.

All right, that sounds great. Let's shift over to the Domestic Upholstery segment — you posted a solid gain compared with the same period last year, even though it came in below the level from the third quarter. Could you walk us through the different factors affecting gross margin in Domestic Upholstery? Are costs rising anywhere in particular? There's been some chatter about foam pricing moving higher. Perhaps you could comment on what you're observing with foam and other raw materials.

Sure. When it comes to Domestic Upholstery, I'll be referring to Bedford and Hickory, which have been Sam Moore and Bradington-Young. Shenandoah, naturally, sits in a separate piece of that. And then Sunset West falls under that same reporting name. As for BY and Sam Moore, we recently made an announcement that the two are being merged into Hooker Custom Upholstery, and that fits within a broader strategic push tied to Collected Living — essentially bringing absolutely everything together and displaying all of our strengths within a single collection, which, as we see it, gives us a far more potent position going forward. Along those lines, we're merging elements such as frames that can move between fabric and leather, and across different factories. Rather than one silo producing leather and another producing fabric, factories have turned into a capability that can be leveraged for the benefit of the Hooker Custom line. That's a highly compelling, unified message. In the process, we've altered such a substantial piece of that strategic course that, given how revenue timing lines up with the macro picture, revenue is truly our sole difficulty in those divisions. The factories' efficiencies have gotten considerably better, which explains the profit gains you're seeing; we aren't there yet, and we require additional revenue, which we're pursuing, and that's precisely why we're carrying out the whole strategy I just laid out; our confidence in this direction is strong, and honestly, our feeling about that portion of Domestic Upholstery is as positive as it has been since the day we bought them.

Understood. Alright, moving on to a follow-up — regarding that petroleum increase you mentioned, is that something you're seeing?

My apologies — you mean the foam piece. Yes, sorry about that. Added expenses are certainly hitting the industry. Specifically with foam, some disruption has occurred. A fire broke out at a large Texas plant, and that impacted the whole industry. I shouldn't say the whole industry, but a substantial portion of it felt the effects from that supplier where the fire happened. Certain factors are at play that push costs higher in that regard. Naturally, the war in the Middle East has pushed various chemicals and oil upward, along with other items moving through raw materials. That impacts not only foam and what you brought up, but it also has an effect overseas. Many uncertainties exist around various rising costs, yet at this moment we lack sufficient data to give you a precise figure on what that might amount to; but it certainly is.

That's encouraging to hear. Regarding Margaritaville, it appears you remain firmly on schedule to begin shipping during the second half of this year. Could you perhaps elaborate a bit further on the degree of interest you've been receiving from retailers since the previous call? Has it gone up, or has it stayed roughly in line with your expectations? I'm simply curious about that in terms of placements, and whether this might turn out even stronger than what you initially anticipated.

Yes. I think we shared that we had more than 50 committed galleries on the last call, and that figure has increased. Our confidence is even greater than before regarding its positioning and the way it will drive our organic growth in the second half and beyond of next year—or rather, this year. Consider the reality that at High Point market, not every dealer attends every market; in fact, likely slightly more than half show up at each market. Quite a few still haven't laid eyes on Margaritaville at all, as far as within our showroom is concerned. We remain increasingly optimistic about where this is headed and how it will support our growth.

Okay, that all makes sense. Wishing you the best of luck, and thanks so much.

Thanks, Anthony — we really appreciate it.

Good morning, and I appreciate you fielding my questions. I'd like to begin by asking about a few of those weather-related interruptions you brought up. What portion of that can be made up, and does it perhaps simply shift the schedule, possibly causing Q1 to appear somewhat better than it typically would given seasonal patterns?

Sadly, we went through the same thing in Q1, back in early February, when a storm hit that was slightly worse than this one. My expectation is that by the time Q1 ends, that accumulated work should largely be cleared, at least the shipping side of it.

Excellent. That's great, thanks. Regarding shipping, considering all the conflicts, are you noticing any secondary effects on your routes? Perhaps any thoughts on the broader supply chain situation.