MARTINSVILLE, Va. - Hooker Furniture (Nasdaq:HOFT) today reported net sales of $55.3 million and net income of $1.7 million, or $0.16 per share, for its fiscal 2014 second quarter ended August 4, 2013. Sales increased 10.2%, or $5.1 million, and net income increased 14.4% or $213,000 compared to last year's second quarter. Earnings per share increased to $0.16 from $0.14 in the comparable period a year ago.
For the fiscal 2014 first half, net sales increased 9.5%, or $9.7 million, to $111.6 million, and net income increased 52.9%, or $1.3 million, to $3.8 million, or $0.35 per share compared to $0.23 in the prior-year period.
In the second quarter, the net sales gain was driven by higher average selling prices in casegoods and upholstery and increased unit volume and lower discounting in the upholstery segment. For the first half, sales increases were driven by higher average selling prices in both operating segments, along with increased unit volume in upholstery.
"Given the current business environment, we're gratified to have achieved sales increases this quarter in both upholstery and casegoods, and a 10% consolidated sales increase," said Paul B. Toms Jr., chairman and chief executive officer. "While we entered May with healthy demand and momentum, we saw demand and retail business progressively slow as we moved through the summer. We believe the reduction in demand and retail activity in the second half of the summer compared to the first was typical throughout the furniture industry," he added.
"Our ability to achieve a consolidated sales increase in the nine to ten percent range for the third consecutive quarter despite the softer demand this summer is a reflection of our solid inventory position on best-selling products, our increased upholstery manufacturing capacity and steady promotion of what we believe to be our strongest product line in several years," Toms said.
"We are optimistic about our longer-term future, both with our core business and our new ventures with the H Contract brand targeting retirement housing and senior living facilities, and the Homeware online-only brand." Start-up costs associated with the H Contract and Homeware brands were approximately $563,000 before tax and $363,000 after tax, or $0.03 per share, in the second quarter, Toms said. "For the first half, start- up costs were approximately $1.0 million before tax and $657,000 after tax, or $0.06 per share," he said. The Company projects start-up costs for the two new initiatives will account for $0.12 to $0.15 per share for the full 2014 fiscal year.
Fiscal 2014 second quarter highlights (compared to fiscal 2013 second quarter):
• Gross profit increased $2.0 million, or 17.7%, to $13.3 million, or 24.0% of net sales, from $11.3 million, or 22.5% of net sales. These improvements were primarily due to higher sales volume, reduced cost of sales as a percentage of net sales for casegoods and reduced upholstery manufacturing costs as a percentage of net sales.
• Selling and administrative expenses increased $1.7 million to $10.6 million, or 19.2% of net sales, from $8.9 million, or 17.8% of net sales due to start-up costs for the H Contract and Homeware brands, and increased:
- bonus expense, due to improved earnings performance;
- professional services due to increased compliance and regulatory costs; and
- commissions and selling expenses due to increased sales.
• Operating income increased to 4.8% of net sales, from 4.6%, and increased in absolute terms by 13.7%, or $317,000, to $2.6 million, from $2.3 million.
• Net income increased $213,000, or 14.4% to $1.7 million, or 3.1% of net sales, from $1.5 million, or 2.9% of net sales.
Fiscal 2014 first half highlights (compared to fiscal 2013 first half):
• Gross profit increased $5 million, or 22.5%, to $27.2 million, or 24.3% of net sales, from $22.2 million, or 21.8% of net sales. These changes were primarily due to higher sales volume, reduced cost of sales as a percentage of net sales for casegoods and reduced upholstery manufacturing costs as a percentage of net sales.
• Selling and administrative expenses increased $3 million, or 16.2%, to $21.3 million, or 19.1% of net sales, from $18.3 million, or 18.0% of net sales due to start-up costs from H Contract and Homeware and increased:
- bonus expense, due to improved earnings performance;
- professional services due to increased compliance and regulatory costs; and
- commissions and selling expenses due to increased sales.
• Operating income increased as a percentage of net sales to 5.3%, from 3.8%, and in absolute terms by $2 million or 52.6%, from $3.9 million to $5.9 million.
• Net income increased as a percentage of net sales to 3.4%, from 2.5%, and in absolute terms by 52.9%, or $1.3 million, to $3.8 million, or $0.35 per share, compared to $2.5 million, or $0.23 per share in the prior year.
Cash, Inventory and Debt
"Although inventory levels have been reduced, they are still a little above target as we head into the fall selling season," said Toms. "This is a result of improved delivery from our vendors and demand that has not materialized as fully as expected. During the second quarter, our level of discounting was higher than the first quarter, as we became more aggressive in reducing our inventories of older, slower moving products to make room for new introductions and best sellers. For the remainder of the fiscal year, we expect product discounting to be higher than we experienced in the second quarter. However, the ultimate effect on margins is largely dependent on the mix of discounted and non-discounted products that we're able to sell over the second-half of the fiscal year," Toms concluded.
Cash and cash equivalents increased $2.6 million to $29 million as of August 4, 2013, from $26.3 million on February 3, 2013, due principally to:
• a $2.0 million decrease in accounts receivable, due to higher sales in the 2013 fourth quarter; and
• a $1.4 million decrease in inventories due to efforts to match inventory to current demand.
The Company had no long-term debt at August 4, 2013 and had $13.0 million available on its $15.0 million revolving credit facility, net of $2.0 million reserved for standby letters of credit.
Business Outlook
"The decreased demand at retail as we moved through the summer has made us a little less bullish than we were coming out of the first quarter. The housing market has slowed somewhat with rising mortgage rates and housing costs, and we believe our industry is tied closer to housing than any other metric. However, other economic indicators are generally positive, with housing affordability still favorable from a recent historical perspective and with consumer confidence reaching its highest level since January 2008 in June of this year. We believe we are positioned well to capitalize quickly on any upturn in business through our strong inventory position on best-sellers, our increased production capacity in upholstery, our salable core product line and new business initiatives to expand our market reach," Toms concluded.
Dividends
At its September 4, 2013 meeting, the Company's board of directors declared a quarterly cash dividend of $0.10 per share, payable on September 27, 2013, to shareholders of record at September 13, 2013.
| Table I | ||||
| HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | ||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||
| (In thousands, except per share data) | ||||
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||
| August 4, 2013 |
July 29, 2012 |
August 4, 2013 |
July 29, 2012 |
|
| Net sales | $ 55,301 | $ 50,185 | $ 111,596 | $ 101,915 |
| Cost of sales | 42,044 | 38,920 | 84,423 | 79,728 |
| Gross profit | 13,257 | 11,265 | 27,173 | 22,187 |
| Selling and administrative expenses | 10,617 | 8,943 | 21,299 | 18,337 |
| Operating income | 2,640 | 2,322 | 5,874 | 3,850 |
| Other (expense) income, net | (22) | 20 | (54) | 64 |
| Income before income taxes | 2,618 | 2,342 | 5,820 | 3,914 |
| Income tax expense | 930 | 868 | 2,006 | 1,420 |
| Net income | $ 1,688 | $ 1,474 | $ 3,814 | $ 2,494 |
| Earnings per share: | ||||
| Basic | $ 0.16 | $ 0.14 | $ 0.35 | $ 0.23 |
| Diluted | $ 0.16 | $ 0.14 | $ 0.35 | $ 0.23 |
| Weighted average shares outstanding: | ||||
| Basic | 10,722 | 10,770 | 10,719 | 10,771 |
| Diluted | 10,753 | 10,789 | 10,749 | 10,800 |
| Table II | ||||
| HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | ||||
| UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
| (In thousands) | ||||
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||
| August 4, 2013 |
July 29, 2012 |
August 4, 2013 |
July 29, 2012 |
|
| Net Income | $ 1,688 | $ 1,474 | $ 3,814 | $ 2,494 |
| Other comprehensive income: | ||||
| Amortization of actuarial gains | (27) | (14) | (53) | (29) |
| Income tax effect on amortization of actuarial gains | 10 | 5 | 19 | 11 |
| Adjustments to net periodic benefit cost | (17) | (9) | (34) | (18) |
| Comprehensive Income | $ 1,671 | $ 1,465 | $ 3,780 | $ 2,476 |
| Table III | ||
| HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | ||
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| (In thousands, including share data) | ||
| August 4, 2013 |
February 3, 2013 |
|
| Assets | ||
| Current assets | ||
| Cash and cash equivalents | $ 28,974 | $ 26,342 |
| Accounts receivable, less allowance for doubtful accounts of $1,068 and $1,249, respectively | 26,234 | 28,272 |
| Inventories | 48,494 | 49,872 |
| Prepaid expenses and other current assets | 4,687 | 5,181 |
| Total current assets | 108,389 | 109,667 |
| Property, plant and equipment, net | 23,347 | 22,829 |
| Intangible assets | 1,257 | 1,257 |
| Cash surrender value of life insurance policies | 18,264 | 17,360 |
| Other assets | 4,631 | 4,710 |
| Total assets | $ 155,888 | $ 155,823 |
| Liabilities and Shareholders' Equity | ||
| Current liabilities | ||
| Trade accounts payable | $ 10,801 | $ 11,620 |
| Accrued salaries, wages and benefits | 3,073 | 3,316 |
| Other accrued expenses | 1,549 | 2,531 |
| Total current liabilities | 15,423 | 17,467 |
| Deferred compensation | 7,671 | 7,311 |
| Total liabilities | 23,094 | 24,778 |
| Shareholders' equity | ||
| Common stock, no par value, 20,000 shares authorized, 10,753 and 10,746 shares issued and outstanding on each date | 17,471 | 17,360 |
| Retained earnings | 115,155 | 113,483 |
| Accumulated other comprehensive income | 168 | 202 |
| Total shareholders' equity | 132,794 | 131,045 |
| Total liabilities and shareholders' equity | $ 155,888 | $ 155,823 |
| Table IV | ||
| HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | ||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| Twenty-Six Weeks Ended | ||
| August 4, 2013 |
July 29, 2012 |
|
| Cash flows from operating activities | ||
| Cash received from customers | $ 113,624 | $ 104,093 |
| Cash paid to suppliers and employees | (103,561) | (95,713) |
| Income taxes (paid)/received, net | (3,368) | 13 |
| Interest (paid)/received, net | (47) | (20) |
| Net cash provided by operating activities | 6,648 | 8,373 |
| Cash flows from investing activities | ||
| Purchase of property, plant and equipment | (1,726) | (2,935) |
| Proceeds received on notes issued for the sale of property | 28 | 18 |
| Proceeds from the sale of property and equipment | 31 | 598 |
| Premiums paid on life insurance policies | (715) | (783) |
| Proceeds received on life insurance policies | 516 | -- |
| Net cash used in investing activities | (1,866) | (3,102) |
| Cash flows from financing activities | ||
| Cash dividends paid | (2,150) | (2,159) |
| Purchase and retirement of common stock | -- | (142) |
| Net cash used in financing activities | (2,150) | (2,301) |
| Net increase in cash and cash equivalents | 2,632 | 2,970 |
| Cash and cash equivalents at beginning of period | 26,342 | 40,355 |
| Cash and cash equivalents at end of period | $ 28,974 | $ 43,325 |
| Reconciliation of net income to net cash provided by operating activities: | ||
| Net income | $ 3,814 | $ 2,494 |
| Depreciation and amortization | 1,186 | 1,475 |
| Non-cash restricted stock awards and performance grants | 333 | 160 |
| Provision for doubtful accounts | (33) | (13) |
| Deferred income taxes | (95) | 387 |
| (Gain) on disposal of property | (9) | (39) |
| (Gain) on insurance policies | (451) | (460) |
| Changes in assets and liabilities: | ||
| Accounts receivable | 2,071 | 2,109 |
| Inventories | 1,378 | (1,684) |
| Prepaid expenses and other current assets | 406 | 774 |
| Trade accounts payable | (819) | 3,427 |
| Accrued salaries, wages and benefits | (243) | (1,534) |
| Accrued income taxes | (751) | 1,046 |
| Other accrued expenses | (231) | 170 |
| Deferred compensation | 92 |
61 |
| Net cash provided by operating activities | $ 6,648 | $ 8,373 |
Source: Hooker Furniture
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