MARTINSVILLE, Va. - Hooker Furniture (Nasdaq:HOFT) today reported net sales of $56.3 million and net income of $2.1 million, or $0.20 per share, for its fiscal 2014 first quarter, which began on February 4, 2013 and ended May 5, 2013, compared to $1.0 million, or $0.09 per share, during last year's first quarter. The 108% increase in net income was driven by higher sales across all operating units, decreased product discounting for casegoods, and lower product costs and higher operating profitability for the domestic upholstery operations of Bradington-Young and Sam Moore.

Net sales for the first quarter increased $4.6 million, or 8.8%, compared to $51.7 million for the same period a year ago. Average selling prices increased in both the Company's segments, casegoods and upholstery, and were partially offset by lower unit volume in the Company's casegoods segment. The casegoods unit volume decline was primarily due to lower promotional discounting compared to the prior-year quarter.

"The improvements we saw in the second half of last year continued into this quarter with year-over-year increases in orders, shipments and profits for both the casegoods and upholstery segments," said Paul B. Toms Jr., chairman and chief executive officer. "We're trending in the right direction on multiple levels. Our upholstery segment had the best performance in the last several years this quarter and our casegoods segment is beginning to grow again. We believe our inventory levels are in the optimum range and retail conditions are stronger than in recent years," he added.

"We were able to more than double consolidated net profit while absorbing start-up costs associated with two new business ventures we are launching to expand our business beyond our core customer demographic and reach additional consumers on each end of the age spectrum," Toms said. "Our new Homeware product line, which is set to launch on two eCommerce websites in late summer, targets young Millenials in the early stages of their careers. The Homeware line features fresh, fashionable furnishings that are parcel delivery shippable and easily assembled in the home with an innovative, patented connector system requiring no tools. On the other end of the age spectrum, our new H Contract brand, launched in April, caters to retirees moving into senior living facilities, whose ranks are projected to triple in the next 20 years."

"Start-up costs associated with both new product lines were approximately $440,000 before tax and $294,000 after tax, or $0.03 per share, in the first quarter," Toms said. The Company projects start-up costs will account for $0.12 to $0.15 per share for the full 2014 fiscal year.

"We're pleased with our overall direction in profitability, especially in the improving performance of our domestic upholstery operations," Toms said. Michael Delgatti, president of Hooker Upholstery, added, "We believe our upholstery companies are making progress in numerous areas, including market share growth and in our journey towards sustainable profitability."

Additional fiscal 2014 first quarter highlights (compared to the fiscal 2013 first quarter)

• Gross profit increased 27.4% to $13.9 million, or 24.7% of net sales, as compared to $10.9 million, or 21.1% of net sales, in the prior-year period, primarily due to:

• higher sales volume in both segments;

• decreased discounting in our casegoods segment; and

• lower domestic upholstery costs as a percentage of net sales.

• Selling and administrative expenses increased 13.7% to $10.7 million, or 19% of net sales, due to start-up costs for the Company's H Contract and Homeware product lines and increased:

• bonus expense, due to improved earnings performance;

• furniture disposals eligible to be deducted as contributions for income tax purposes; and

• bad debt expense, due to the reduction of our allowance for doubtful accounts in the prior year quarter because of favorable collections experience.

• Operating income increased 111.6% to $3.2 million, or 5.7% of net sales, from $1.5 million, or 3% of net sales, in the prior year period, due to the factors discussed previously.

• Income tax expense increased to $1.1 million, or 1.9% of net sales, from $552,000, or 1.1% of net sales, in the prior year period, primarily due to higher taxable income. The Company's effective tax rate decreased to 33.6% from 35.1%, primarily due to larger anticipated rate benefits from earnings on company owned life insurance policies and distributions from our former captive insurance arrangement.

• Net income increased 108.4% to $2.1 million (3.8% of net sales), or $0.20 per share, from $1.0 million (2% of net sales), or $0.09 per share, in the prior year period.

Cash, Inventory and Debt Levels

Cash and cash equivalents increased $2.4 million to $28.7 million as of May 5, 2013, from $26.3 million on February 3, 2013, due principally to:

• a $3.4 million decrease in inventories, due to increased sales and lower inventory purchases; and

• a $1.8 million decrease in accounts receivable, due to cash collections in excess of net sales during the quarter.

These decreases were partially offset by $2.1 million in income tax payments and $1.1 million in dividend payments during the quarter.

The Company had no long-term debt at May 5, 2013 and had $13.2 million available on its $15.0 million revolving credit facility, net of $1.8 million reserved for standby letters of credit.

Business Outlook

"With all the positive news surrounding housing and rising consumer confidence, it would be hard not to be optimistic about our prospects," said Toms. "We're bullish about our future, both with our core business and our new ventures. Internally, we believe we are well positioned to capitalize on the improving economy as we ramp up our manufacturing facilities, maintain a good inventory position and enjoy our strongest product line in several years. During the month of May, we have seen much stronger demand for our product than a year ago, which we attribute to the vitality of our freshened line up and better retail conditions. Although we are entering what is traditionally the slowest season of the year for furniture, we have considerable momentum."

Dividends

At its June 3, 2013 meeting, the Company's board of directors declared a quarterly cash dividend of $0.10 per share, payable on June 28, 2013 to shareholders of record at June 14, 2013.

 

Table I
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
   
  Thirteen Weeks Ended
  May 5,
2013
April 29,
2012
     
Net sales  $ 56,295  $ 51,730
     
Cost of sales  42,379  40,808
     
Gross profit  13,916  10,922
     
Selling and administrative expenses  10,682  9,394
     
Operating income  3,234  1,528
     
Other (expense) income, net  (32)  44
     
Income before income taxes  3,202  1,572
     
Income tax expense  1,076  552
     
Net income  $ 2,126  $ 1,020
     
Earnings per share:    
Basic  $ 0.20  $ 0.09
Diluted  $ 0.20  $ 0.09
     
Weighted average shares outstanding:  
Basic 10,717 10,772
Diluted 10,747 10,794
     
Cash dividends declared per share  $ 0.10  $ 0.10
 
Table II
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 (Unaudited)
     
  Thirteen Weeks Ended
  May 5,
2013
April 29,
2012
     
Net Income  $ 2,126  $ 1,020
 Other comprehensive income:    
 Amortization of actuarial gain net of tax of $10 and $6, respectively  (17)  (9)
 Adjustments to net periodic benefit cost  (17)  (9)
     
Comprehensive Income  $ 2,109  $ 1,011
     
 
Table III
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, including share data)
     
  May 5,
2013
February 3,
2013
  (unaudited)  
Assets    
Current Assets    
Cash and cash equivalents  $ 28,728  $ 26,342
Accounts receivable, less allowance for doubtful accounts of $1,085 and $1,249, respectively  26,435  28,272
Inventories  46,506  49,872
Prepaid expenses and other current assets  2,652  3,569
Deferred taxes  1,572  1,612
Total current assets  105,893  109,667
Property, plant and equipment, net  23,125  22,829
Intangible assets  1,257  1,257
Cash surrender value of life insurance policies  17,720  17,360
Deferred taxes  4,423  4,494
Other assets  342  216
Total assets  $ 152,760  $ 155,823
     
Liabilities and Shareholders' Equity    
Current Liabilities    
Trade accounts payable  $ 9,224  $ 11,620
Accrued salaries, wages and benefits  2,604  3,316
Other accrued expenses  1,241  2,531
Total current liabilities  13,069  17,467
Deferred compensation  7,557  7,311
Total liabilities  20,626  24,778
     
Shareholders' equity    
Common stock, no par value, 20,000 shares authorized, 10,746 shares issued and outstanding on each date, respectively  17,407  17,360
Retained earnings  114,542  113,483
Accumulated other comprehensive income  185  202
Total shareholders' equity  132,134  131,045
Total liabilities and shareholders' equity  $ 152,760  $ 155,823
 
 Table IV 
 HOOKER FURNITURE CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
 (In thousands) 
 (Unaudited) 
  Thirteen Weeks Ended
  May 5,
2013
April 29,
2012
Cash flows from operating activities    
Cash received from customers  $ 58,134  $ 53,631
Cash paid to suppliers and employees  (51,992)  (42,548)
Income taxes paid, net  (2,115)  (14)
Interest paid, net  (34)  (8)
Net cash provided by operating activities  3,993  11,061
     
Cash flows from investing activities    
Purchase of property, plant and equipment  (880)  (2,211)
Proceeds received on notes issued for the sale of property, plant and equipment  14  9
Proceeds from the sale of property and equipment  8  30
Premiums paid on company-owned life insurance  (190)  (187)
Proceeds received on company-owned life insurance  516  -- 
Net cash used in investing activities  (532)  (2,359)
     
Cash flows from financing activities    
Cash dividends paid  (1,075)  (1,079)
Net cash used in financing activities  (1,075)  (1,079)
     
Net increase in cash and cash equivalents  $ 2,386  $ 7,623
Cash and cash equivalents at the beginning of the period  26,342  40,355
Cash and cash equivalents at the end of the period  $ 28,728  $ 47,978
     
Reconciliation of net income to net cash provided by operating activities:    
Net income  $ 2,126  $ 1,020
Depreciation and amortization  584  595
Non-cash restricted stock awards and performance grants  229  58
Provision for doubtful accounts  75  160
Deferred income taxes  (5)  5
Gain on disposal of property  (8)  (13)
Gain on insurance policies  (135)  (126)
Changes in assets and liabilities:    
Trade accounts receivable  1,762  1,690
Inventories  3,366  3,612
Prepaid expenses and other current assets  832  450
Trade accounts payable  (2,876)  4,182
Accrued salaries, wages, and benefits  (712)  (1,199)
Accrued income taxes  (1,034)  533
Other accrued expenses  (256)  100
Deferred compensation  45  (6)
Net cash provided by operating activities  $ 3,993  $ 11,061

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