Industry-wide decreased demand for home furniture, as well as the planned exits of Hooker Furnishings Corp.'s unprofitable operations within its Home Meridian segment were two reasons Hooker's financials to be in decline.

Still, the company expects things to improve in the second half of the year as the company "continue(s) to strengthen our balance sheet and reduce overhead and costs while focusing on executing our strategic growth initiatives,” said Jeremy Hoff, CEO and director.

Stock fell 18% Friday after the company announced consolidated second-quarter net sales were down 36% compared with the same time last year. Hooker is an FDMC300 company, ranking #27 on sales of $593.6 million in sales.

Hooker, headquartered in Martinsville, attributed the decline to a decreased demand for home furniture, not only across it's own line of product, but across the industry.

"We believe the softer demand seen currently industry-wide is driven by retailers continuing to sell through over-inventories positions and a short-term glut of heavily discounted home furnishings in the market," said Hoff.

Net sales for the quarter that ended July 30 were $97.8 million, down from $152.9 million a year ago. Operating income dropped more than 82% from $7.2 million to $1.2 million and net income was down nearly 86% from $5.5 million to $785,000. Earnings per share of stock saw a decline of almost 85% from 46 cents to 7 cents per share.

Sales fell in all three of the company’s segments. In Hooker Branded, net sales fell 34.3% due to decreased shipments and unit volume, the company said. Order backlog is continuing to decline but is still 40% higher than pre-pandemic levels. Positively, incoming orders increased by 18.6% compared with the prior year. Gross margin is also up, the company said, “due primarily to favorable product costs from lower freight rates and to a lesser extent, decreased warehousing costs.”

Segment Reporting: Hooker Branded

Hooker Branded net sales decreased by $18.1 million, or 34.3% in the fiscal 2024 second quarter due to decreased shipments and unit volume. Furthermore, discounting was 240 basis points higher than the prior year quarter. For the fiscal 2024 first half, Hooker Branded net sales decreased by $18.5 million, or 19.4% compared to the prior-year six-month period. Sales decreases in both periods underscore the aforementioned softer demand for home furnishings.

Despite a decrease in net sales, gross margin increased due primarily to favorable product costs from lower freight rates, and to a lesser extent, decreased warehousing costs. The segment reported operating income of $3.2 million and an operating margin of 9.3%, compared to $6.1 million and 11.5% in the prior-year second quarter.

While order backlog was lower than the prior-year quarter end, it remained about 40% higher than pre-pandemic levels at the end of the fiscal 2020 second quarter. Incoming orders increased by 18.6% as compared to the prior-year quarter. A significant portion of Hooker Branded’s backlog consists of orders received late last year and earlier this year, which are expected to ship in the second half of this year and position the segment positively for the upcoming quarters.

Segment Reporting: Home Meridian (HMI)

Home Meridian net sales decreased by $30.1 million, or 51% in the fiscal 2024 second quarter due to reduced home furnishings demand and the absence of sales from exited higher-risk, unprofitable operations. Sales decreases in the major furniture chains and e-commerce channel accounted for approximately 70% and 15% of the total decrease in this segment, respectively.

Gross profit and margin both decreased in the fiscal 2024 second quarter, resulting from the net sales decline and under-absorbed fixed costs. Product costs decreased as a percentage of net sales due to lower freight costs, but fixed costs such as warehousing rent and labor expenses adversely impacted the gross margin due to significantly lower net sales.

“We reduced our Georgia warehouse footprint by 200,000 square feet during the quarter and expect to further reduce it by another 100,000 to 200,000 square feet in early calendar 2024. Right sizing our footprint to align with our current demand resulting from no longer stocking significant volumes of inventory for ACH will not only reduce costs, but will improve liquidity and working capital levels,” said Paul Huckfeldt, senior vice president and chief financial officer.

Due to the significant sales decline and resulting under-absorbed fixed costs, Home Meridian reported a $3.3 million operating loss for the quarter. For the fiscal 2024 six-month period, Home Meridian net sales decreased due to the same factors above, including a sales decrease with mass merchants, resulting in a $5.5 million operating loss, which was in line with management’s expectations.

Quarter-end backlog was significantly lower than the previous year's quarter and the fiscal 2020 second quarter. This decline is attributed to the absence of orders from exited operations, as well as a reduction of incoming orders from our retail customers, who are still carrying excess inventories ordered during the previous year.

Segment Reporting: Domestic Upholstery

Domestic Upholstery net sales decreased by $7.4 million, or 19.4% in the fiscal 2024 second quarter due to sales decreases at Shenandoah and HF Custom (formerly Sam Moore), partially offset by a 10% increase at Sunset West. Bradington-Young net sales were the same as in the prior year second quarter.

Despite the sales decrease, gross margin was 200 basis points higher than the prior-year quarter due to decreased direct costs, including more stable raw material costs and lower direct labor costs due to reduced production at HF Custom and Shenandoah, partially offset by under-absorbed indirect costs.

For the fiscal 2024 first half, net sales decreased at HF Custom, Shenandoah, and Sunset West. Bradington-Young reported a small sales increase for the six-month period.

Incoming orders increased by 36.7% compared to prior-year quarter; however, orders in the prior-year period were relatively low due to higher backlog and longer lead times. Quarter-end backlog for Bradington-Young remained three times that of pre-pandemic levels at fiscal 2020 second quarter end, while the backlogs for HF Custom and Shenandoah decreased to levels similar to fiscal 2020.

In Home Meridian, the company reported a loss of $3.3 million, with sales falling 51%. Sales dips in the major furniture chains and the e-commerce channel accounted for 70% and 15% of the total decrease in this segment, respectively. Product costs are down in the segment due to lower freight costs, but fixed costs like warehousing rent and labor adversely impacted gross margin due to significantly lower sales, the company said. The company has plans to reduce its Georgia warehouse footprint, which it says will reduce costs.

In Domestic Upholstery, sales fell 19.4% due to sales dips at Shenandoah and HF Custom. Sales at Sunset West partially offset the decline with a 10% gain. Incoming orders are up 36.7% over last year, but that’s from a relatively weak time due to higher backlog and longer lead times.

Strategy-wise, the company is aiming to strengthen its financial position. Hoff touted the benefits of its new High Point, Atlanta and Vegas showrooms, which he says have increased the company’s customer contacts from 3,000 to 14,000 annually.

“While we expect the full benefit of this investment will have a mostly longer-term impact, we have already opened a thousand new accounts in the first half as visibility and engagement have increased,” he said.

He also highlighted Hooker’s acquisition of Atlanta-based BOBO, which allows the company to add lighting, décor, textiles and wall art to its product offering.

Overall, Hoff expressed optimism.

“We believe there are conflicting signals in the economy,” he said. “A housing shortage and the over 20-year high on fixed mortgage rates has slowed down housing activity. The continued rise in interest rates has suppressed consumer confidence. However, overall retail spending and activity in the manufacturing sector and new business start-ups is healthy, while the unemployment rate remains near a 30-year low.

“As we anticipated, the first half of the year was difficult as the industry worked through bloated inventories and consumers’ spending habits changed,” Hoff continued. “We expect demand and business to pick up in the second half for several reasons. First, consolidated orders are up in mid-double-digits over this time a year ago, with orders trending up in each segment for the past few months. Secondly, a significant portion of Hooker Branded’s backlog consists of orders for new products launched at the High Point market and are expected to ship in the second half of this year. Thirdly, in the second half, Home Meridian expects to ship to over a thousand retail floors in what we believe to be the largest number of new product placements in its history.