Hooker Furnishings Corporation (HOFT) Earnings Call Transcript & Summary

Thank you, Michelle, and a good morning to each of you. I want to extend a welcome to everybody joining this quarterly conference call, during which we will review the financial results for the first quarter of fiscal 27. Our 2027 fiscal year's opening quarter began on February 2, 2020, and it wrapped up on May 3, 2026. Joining me today is Jeremy R. Hoff, our chief executive officer. We appreciate your presence. During this call, we may share forward-looking statements, and those come with risks and uncertainties. A discussion of the factors that could cause our actual results to differ materially from management's expectations can be found in our press release and SEC filing that announced the results for our fiscal 27 first quarter. Any forward-looking statement speaks only to the situation as of today, and we are under no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after today's call. Despite the housing market remaining weak, retail demand for furniture and home furnishings still soft, and macroeconomic challenges continuing, we delivered net income of $1.1 million for the quarter, which demonstrates the benefits of our cost reduction initiatives, improved gross margin performance, and the strides we keep making toward an operating model that is leaner with higher margins. Consolidated net sales declined $1.7 million, or 2.4%, compared with the prior year period. The primary driver of that decrease was lower sales in the Hooker branded and domestic upholstery segments, though these were partially offset by higher shipments in the all leather components hospitality business. Although sales declined, profitability improved substantially. Consolidated gross profit increased by $2.7 million, and gross margin rose 440 basis points versus the prior year period. The principal factor behind that improvement was stronger profitability in Hooker Branded; in the quarter, the company generated operating income of $1.6 million, while the prior year period recorded an operating loss of $498 thousand—an amount that, interestingly, is close to the $498,000 figure we sometimes cite as a benchmark. That equates to a $2.1 million improvement. Consolidated net income totaled $1.1 million, or $0.10 per diluted share. These results illustrate the value of better gross margin, earlier cost reduction initiatives, and our continued dedication to building a business model that is more efficient and more profitable. With that, I'll turn the call over to Jeremy so he can offer his comments on the results for our fiscal 27 first quarter.

Thanks, Earl, and good morning to all of you. We're pleased to share that consolidated net income for the quarter came in at $1.1 million, which represents a $4.1 million gain compared with the first quarter of the prior year. We delivered these results even as demand remained difficult, with housing activity soft and consumer confidence weak. The gain we posted shows the impact of the $17.5 million cut in fixed costs tied to continuing operations that we completed during the prior year, along with our ongoing movement toward a more efficient operating model. Turning to our segments, Hooker Branded turned in an outstanding performance even though sales came in below the prior year, helped by stronger gross margin results. At Domestic Upholstery, lower sales volume is still weighing on results, though operational efficiencies put in place late last year provided support. As we look ahead, retailer commitments for Margaritaville product galleries and freestanding stores keep surpassing what we expected, and we anticipate meaningful shipments starting in the second half of fiscal 27; we're likewise encouraged by the favorable retailer response and commitments to products that debuted at the April 2026 High Point Market. While at market, we rolled out Hooker Custom Upholstery, which unites the Sam Moore and Bradington-Young brands on a single platform. This revised market strategy brings these upscale lines together beneath one premium Hooker Custom Upholstery identity, backed by a refreshed showroom presentation, stronger marketing efforts, and a combination of new introductions and established products. Our new website, launched in February 2026, provides further support for this initiative. When market conditions get better, we believe this strategy will eventually generate higher sales by building a more cohesive brand narrative and showcasing every offering under the Hooker name, which holds the strongest brand recognition in our portfolio. At this point I'd like to hand the discussion back to Earl, who will go over highlights in each of our segments as well as our strategies for cash, debt, inventory and capital allocation.

Thanks, Jeremy. I'll start with Hooker Branded. Net sales there dropped $1.8 million in the first quarter of fiscal 27, which works out to a 4.8% decrease. About 70% of that decline came from lower volume in the imported upholstery side of the business. Higher average selling prices helped offset some of those headwinds — those came from price increases we put through to counter rising product costs. Despite the sales drop, gross profit for Hooker Branded increased $2.9 million, and gross margin improved 960 basis points. This segment contributed $1.2 million of the company's consolidated operating income of $1.6 million for the quarter. Backlog was up nearly 30% compared with the first quarter of last year, reflecting retailer commitments to new products, including Margaritaville. We expect significant shipments to begin in the back half of this fiscal year. Turning now to domestic upholstery. Net sales for the first quarter of fiscal 27 were down $558 thousand, or 1.9%. The primary cause was the continued soft demand environment. Gross profit declined $315 thousand, and gross margin fell 80 basis points, mainly due to weaker revenue and higher overhead. The segment recorded an operating loss of $689 thousand, driven largely by its indoor residential furnishings businesses. Domestic upholstery backlog grew modestly compared with both the first quarter of the prior year and fiscal 26 year end. In all other, results were mainly driven by stronger sales and operating income in the hospitality division. The improved operating income came from higher sales as well as lower costs resulting from cost cutting measures implemented during the prior fiscal year. Moving on to cash, debt and inventory. At quarter end, cash and cash equivalents came to $10.6 million, an increase of $9.5 million from the prior fiscal year end, and the company had no debt. Cash from operations went toward repaying $3.6 million in principal on our outstanding loans, paying $1.3 million in cash dividends, and funding $403 thousand of capital expenditures. Inventory declined by $3.7 million, from $48.7 million at fiscal 26 year end to $45 million at the close of the first quarter. Even with those outflows, the company maintained its financial flexibility, with $54.2 million of available borrowing capacity under its amended and restated loan agreement as of quarter end, net of standby letters of credit, and no balance outstanding on the credit facility. As of yesterday, the company had over $15 million in cash on hand. Finally, I'll cover our capital allocation strategy. Late in fiscal 26, we announced that our board had authorized a new share repurchase program, through which we intend to buy back up to $5 million of our outstanding common shares beginning in fiscal 27. Alongside that repurchase authorization, the board reset the annual dividend to $0.46 per share, starting with the company's December 31, 2025 dividend payment. We also expect to invest roughly $96,000 in related program administration during the coming year. The buyback effort began on April 21, 2026, following a structure set up so that it would comply with the safe harbor requirements found in Rules 10b5 to 1 and 10b-18, and included in that structure was a customary waiting period of 90 days before we could carry out any purchases. During the quarter, we repurchased approximately 7.6 thousand shares of company stock, spending around $96 thousand in total. That comes to an average of $12.53 for each share. As we position the business for growth that can be sustained, the new repurchase program, together with the revised dividend, gives us a well balanced way to return capital to shareholders while preserving room to put money into strategic priorities; in our judgment, this method strengthens returns in the near term as well as shareholder value over the long term. Having said that, I'll turn things back over to Jeremy so he can share his outlook.

Appreciate that, Earl. When we turn to the opening of the second quarter, consolidated incoming orders during May climbed 8% against the equivalent stretch a year before, while backlog increased by more than 14% relative to the previous year. Driving most of that improvement were Margaritaville orders, which went out for the first time in May. Retailer commitments for Margaritaville products, galleries, and freestanding stores continue to exceed our expectations. Right now, we hold commitments for 100 in store galleries and 10 freestanding retail stores, against approximately half those numbers when we last reported in December. We expect substantial shipments to begin in the back half of fiscal 27 and to build through the end of the present fiscal year and beyond. Even though these order and backlog patterns are encouraging, the broader demand landscape remains challenging. Housing activity continues to face pressure, and recent consumer confidence readings continue to reflect a highly cautious consumer environment. The Department of Commerce's April advance monthly estimate showed retail sales at furniture and home furnishing stores declining 2% from March and 3.6% from the prior year, with only a 3% share of that total coming from our own segment. Keeping these macroeconomic pressures in view, our second quarter fiscal 2027 outlook remains cautious, and while we do not expect meaningful near term improvement in market conditions, our more efficient cost structure and streamlined portfolio should help position us to deliver better results than the prior year period even if current conditions persist. What distinguishes us is a sharper focus on our core businesses, a more disciplined operating model, and an organization aligned around profitable growth. We believe the steps taken over the past year have positioned the company to produce improved and more consistent earnings as market conditions get better. Along with continued momentum in incoming orders across our core businesses, we believe we are well positioned to seize opportunities as demand recovers. That wraps up the formal portion of our discussion, and at this point, I will turn the call over to our operator, Michelle, for questions.

Thanks. Morning, everybody, and I appreciate you fielding these. It's definitely encouraging to see the better numbers on the bottom line; so I suppose, thinking back on the quarter that was just reported, I'm curious whether you noticed any meaningful month-to-month swings in revenue between February and April, what with all that JUUL geopolitical chatter going on, and also, I'm wondering, because normally, when you look at seasonality, fiscal Q1 is usually softer on revenue compared with fiscal Q4. So perhaps you could address how things moved across that stretch, again, February through April.

What I'd say is, the further away we get from what we were facing in the back half of last year, which you could fairly describe as turbulence around trying to sell the 2 businesses and all the steps we took, to get the company into its current position. I think that, in the early part of the quarter, we were still finding our footing. And as the quarter went on, we became increasingly focused, and I'd simply say that the more time passes, the better we become at. Putting ourselves where we're going. If that tracks.

All right, understood. Next, can you talk about how pricing compared with unit volumes? I realize this is usually included in your 10-Q, but would you perhaps be able to share just a broad outline of what pricing looked like relative to unit volumes for the quarter?

Anthony, we don't have those figures available with us right now. As you mentioned, they'll be in the queue for tomorrow, which we file tomorrow afternoon. I'd certainly say yes. Please continue.

All right. Mhmm. Please continue, Anthony. All right. No. No. So I'm aware there was some talk about pricing going up. Over the course of the quarter; so okay. So we'll hold off for the specifics in the 10-Q. That works. Okay; and then I suppose my following inquiry concerns gross margin, which rose by more than anticipated, particularly at Hooker Branded. Was there anything out of the ordinary worth mentioning? Or would you consider this level of gross margin something that can be maintained moving forward?

I'd point to 2 items. First, the mix of products plays a major role in determining where our gross margin lands. As always; so based on which items ship and which items don't, that dynamic can shift. But second, we operate on LIFO, as we do; and, depending on when that LIFO unfolds, it can alter things considerably; so those are truly the 2 elements.

Understood. All right. Then, to wrap up, could you share whatever you've observed or picked up from the retail partners you work with regarding Memorial Day shopper traffic? That holiday has traditionally been a major event for furniture sellers. So perhaps you could just describe what you've been told about your retail partners — specifically what they've mentioned concerning foot traffic and any purchasing that happened during that key holiday. Yeah.

I'd say that when we reached out to our customers and partners, they felt fairly positive about how things went across the Memorial Day holiday. On sales and the like, plus traffic, they described it as quite good. Given the situation we're in, with all the things we've discussed, that's the picture. So quite good sums up the overall mood regarding Memorial weekend.

Alright then, that's excellent. Thank you so much. I'll share that with them.

We're grateful for that.

Thank you, Anthony.

Hello, and I appreciate you answering my questions. I'd like to begin with Margaritaville. The count of commitments for galleries went from 50 up to 100 — you doubled it — and then the 10 freestanding retail stores were added; how are we supposed to view this moving forward? Once you begin shipping in a significant way during the second half here, should we anticipate that those in-store commitment figures will rise, or is it your view that things will flatten out and shift toward volumes and shipments?

I'll respond to that simply drawing on what I've learned from launches of that scale, and I'd have to say I've never participated in anything we consider that large, which, as I mentioned, I believe stands as the biggest 1 Hooker has ever had. Yet at the outset of a launch, you pick up some customers who get involved immediately, and afterward, more — provided the program is right and provided you execute, you're able to gain more and more participation, more and more galleries. So, in other words, I'm certainly viewing this as a glass half full situation. I'm hopeful that we'll continue growing what we've already achieved, and naturally, that's the objective. Got it. So some traction would be expected there.

And so, I suppose this sort of circles back to that earlier question about margins. Your backlog, as I understand it, is beginning to include some of those Margaritaville orders. Do we have any feel for what the margin texture of that backlog looks like? Would it be fair to think it might come in around the same as, or perhaps somewhat better than, what we just saw last quarter?