MARTINSVILLE, VA -- Hooker Furniture today reported net sales of $55.6 million, a 4.1% year- over -year increase for its fiscal 2012 second quarter which began on May 2, 2011 and ended July 31, 2011. The Company increased net sales by $2.2 million from $53.4 million during the same period last year, marking the fifth consecutive quarter of year-over-year quarterly sales increases as unit volume grew across all divisions.
For the fiscal 2012 first half, which began on January 31, 2011 and ended July 31, net sales increased $9.2 million, or 8.8% to $114.0 million compared to $104.7 million for the fiscal 2011 first half.
Net income for the fiscal 2012 second quarter increased $468,000 to $1.6 million, or $0.15 per share, compared to net income of $1.2 million, or $0.11 per share, for the comparable period last year. The Company reported net income for the 2012 first half of $2.2 million, or $0.20 per share, compared with net income of $2.3 million, or $0.21 per share, in the fiscal 2011 six-month period.
"Given the environment we're operating in and the softer sales we typically experience during the summer months, we're quite pleased to have grown revenues this quarter, even though growth moderated compared to last quarter," said Paul B. Toms Jr., chairman and chief executive officer. "While business has been more challenging since mid-April, we have continued to post positive year-over-year comps in quarterly net sales in two of our three businesses, Hooker casegoods and Sam Moore fabric upholstery. At Bradington-Young, we have struggled with a combination of reduced demand for leather and motion furniture and significant increases in raw material costs."
Toms said Hooker is positioned well for the historically strong fall season. "We are in stock on best sellers, the products we introduced at the Spring High Point Market are in the pipeline, and the demand has remained relatively strong versus the prior-year periods. Consolidated incoming orders are up 9.3% year to date, with casegoods incoming orders again leading the way, up approximately 12% in the most recent completed quarter compared to a year ago."
Gross profit decreased as a percentage of net sales to 21.9% from 22.4% for the fiscal 2012 second quarter, primarily due to increased product discounting and higher returns and allowance costs during the quarter.
"Discounting was still fairly heavy, but less severe towards the end of the quarter," Toms said. "As Hooker continues to rationalize its product line and move excess inventory during the upcoming quarter, discounting will still be heavier than the prior year period, but it should have diminishing impact compared to the first and second quarters," Toms said. "We believe the worst of the discounting is behind us and that we should work through most of the excess inventory by the end of the fiscal year. In addition, Hooker turned the corner this quarter by shipping out the last of our inventory that reflected higher freight costs," Toms said. "Both quality-related and health care costs continue to remain elevated over prior-year and expected amounts. During the quarter, we exited the Chinese factory that was our worst performing in quality terms and have stepped up our quality auditing processes at our other Asian suppliers' operations," he added.
Selling and administrative expenses of $9.7 million, or 17.4% of net sales, decreased in actual dollars and as a percentage of net sales, compared to $10.4 million, or 19.5% of net sales for last year's second quarter. The decrease in spending was principally due to:
* Lower bad debt expense due to adjustments in our accounts receivable reserves to reflect favorable collection trends;
* Lower salary expense, due to realignments in our officer group; and
* Lower depreciation and amortization expense primarily due to decreased spending on our legacy information systems in anticipation of launching a unified Enterprise Resource Planning software system this fall.
These decreased expenses were partially offset by:
* Higher commissions due to increased sales; and
* Higher advertising supplies expense to support sales growth.
"The improvements in our selling and administrative expenses are the result of our diligence in removing costs from the business, particularly in upholstery operations, during the last few years," said Toms. "However the real improvement has come from leveraging our sales increases and spreading our costs over higher revenues," he added.
Operating income for the fiscal 2012 second quarter was favorably impacted by lower selling and administrative expenses, increasing to $2.5 million, or 4.5% of net sales as compared to $1.6 million, or 2.9% of net sales, during the comparable 2011 quarterly period.
For the first half of fiscal 2012, the Company's operating income decreased to $3.2 million, or 2.8% of net sales, compared to $3.3 million, or 3.1% of net sales, in the first six months of fiscal 2011. The Company reported net income for the 2012 first half of $2.2 million, or $0.20 per share, compared to $2.3 million, or $0.21 per share, in the fiscal 2011 six-month period. Fiscal year 2011 first half results include a $500,000 charge ($312,000, or $0.03 per share, after tax), representing the Company's insurance deductible for a fire at one of its distribution facilities during the fiscal 2011 first quarter.
Cash, Inventory and Debt
Cash and cash equivalents increased $13.8 million to $30.4 million as of July 31, 2011 from $16.6 million on January 30, 2011, due principally to decreased inventories. Inventories decreased as a result of increased sales and a focused effort to reduce excess and obsolete inventory levels.
"Since late last year, we've reduced our finished goods inventory nearly 30% while maintaining our service levels to our customers and converting most of the reduced inventory to cash," Toms said. "We are now close to our targeted inventory levels and believe we have the right mix of product to service the fall selling season," he added.
The Company had no long-term debt at July 31, 2011 and had $13.1 million available on its $15.0 million revolving credit facility, net of $1.9 million reserved for standby letters of credit. The Company also had $15.5 million available to borrow against the cash surrender value of Company-owned life insurance.
"While we expect the fall to be better than this summer, we believe we're in for a prolonged period of economic challenges," Toms said. "The issues impacting consumer confidence, such as stock market volatility, depressed real estate values and ongoing high unemployment, are not likely to be quickly resolved. However, I'm confident we have the right business model, the right product line, the right people and the right distribution to be as successful as possible given the environment. While we know we are in for tough times, we expect to do better than most, and I'm bullish on our prospects versus overall industry prospects."
Over the weekend of August 8, 2011, an automatic fire protection sprinkler accidently operated and flooded a section of one of our leased warehouse facilities in Martinsville, Va. Repair and restoration efforts are essentially complete and we estimate the costs associated with this loss will approximate $250,000. We expect to record a casualty loss for this amount during our fiscal 2012 third quarter.
At its September 6, 2011 meeting, our board of directors declared a quarterly cash dividend of $0.10 per share, payable on November 25, 2011 to shareholders of record at November 10, 2011.
Ranked among the nation's top 10 largest publicly traded furniture sources based on 2010 shipments to U.S. retailers, Hooker Furniture Corporation is an 88-year old residential wood, metal and upholstered furniture resource. Major wood furniture product categories include home entertainment, home office, accent, dining, and bedroom furniture in the upper-medium price points sold under the Hooker Furniture brand, and sold at moderate price points under the Envision Lifestyle Collections by Hooker Furniture brand. Youth bedroom furniture is sold under the Opus Designs by Hooker Furniture brand. Hooker's residential upholstered seating companies include Hickory, N.C.-based Bradington-Young LLC, a specialist in upscale motion and stationary leather furniture, and Bedford, Va.-based Sam Moore Furniture LLC, a specialist in upscale fabric occasional chairs with an emphasis on cover-to-frame customization.
SOURCE: Hooker Furniture Corp.
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