Martinsville, Va. - Hooker Furniture (Nasdaq:HOFT) today reported net sales of $59.1 million and net income of $2.1 million, or $0.20 per share, for its fiscal 2014 third quarter ended November 3, 2013. Sales increased $2.3 million, or 4.1%, while net income decreased $317,000, or 13.0%, compared to last year's third quarter. Earnings per share decreased to $0.20 from $0.23 in the comparable period a year ago.
For the fiscal 2014 first nine months, net sales increased 7.6%, or $12 million, to $170.7 million, and net income increased 20.3%, or $1 million, to $5.9 million, or $0.55 per share, compared to $0.46 in the prior-year period.
"We're pleased with our year-to-date sales performance and the strength of incoming orders and backlogs as we enter a historically strong retail furniture-selling season," said Paul B. Toms Jr., chairman and chief executive officer. "This was one of our strongest shipping quarters in the last five years, and demand is up for both casegoods and upholstery compared to a year ago," he said. "We had our second largest shipping quarter in five years, exceeded only slightly by last year's fourth quarter, which had an extra week. Our written business at the October High Point Market was the best in the last three years," he added.
The net sales gain for the third quarter was driven by higher average selling prices in both casegoods and upholstery due to changes in product mix. For the nine months, sales increases were also driven by higher average selling prices in both operating segments, along with increased unit volume in the upholstery segment.
Toms attributed the decline in net income for the fiscal 2014 third quarter to previously announced increased discounting in casegoods to dispose of slow-moving casegoods inventory, start-up costs for the new H Contract and Homeware brands and production ramp-up costs at Sam Moore. "Our casegoods inventories are still above targeted levels, and we've had higher discounts, primarily related to groups and product lines we are discontinuing. With Homeware and H Contract, we anticipated start-up costs and spending would come before revenues on both these long-term strategic initiatives. Our profitability challenges at Sam Moore revolve around the ramp-up of production and higher labor costs to meet demand that's increased 15% to 20% per year during the last two-and-a-half years," he said.
Fiscal 2014 third quarter highlights (compared to fiscal 2013 third quarter):
• Gross profit remained essentially flat in absolute terms at $13.6 million in both quarters, but decreased slightly as a percentage of net sales to 23.0%, compared to 23.9% in the prior-year quarter. The improvements in net sales were offset by increased discounting in the casegoods segment and higher cost of sales in the upholstery segment.
• Selling and administrative expenses increased $662,000 to $10.4 million, or 17.7% of net sales, from $9.8 million, or 17.2% of net sales, in last year's quarter primarily due to start-up costs for the H Contract and Homeware brands.
• Operating income decreased $624,000, or 16.5%, to $3.2 million, or 5.3% of net sales, from $3.8 million, or 6.7% of net sales.
• Net income decreased $317,000, or 13.0%, to $2.1 million, or 3.6% of net sales, from $2.4 million, or 4.3% of net sales.
Fiscal 2014 first nine months highlights (compared to fiscal 2013 first nine months):
• Gross profit increased $5 million, or 14.1%, to $40.8 million, or 23.9% of net sales, from $35.7 million, or 22.5% of net sales. These changes were primarily due to:
- higher sales volume in both segments;
- slightly reduced cost of sales as a percentage of net sales and lower distribution costs in our casegoods segment, the latter being due to the closure of several Asian warehouses; and
- to a lesser extent, reduced upholstery segment cost of sales as a percentage of net sales.
• Selling and administrative expenses increased $3.6 million, or 12.9%, to $31.7 million, or 18.6% of net sales, from $28.1 million, or 17.7% of net sales, due to start-up costs from H Contract and Homeware and additional factors including increases in professional services expense, benefits expense and bad debts expense.
• Operating income increased as a percentage of net sales to 5.3%, from 4.8%, and in absolute terms by $1.4 million, or 18.4%, from $7.6 million to $9.0 million.
• Net income increased as a percentage of net sales to 3.5%, from 3.1%, and in absolute terms by 20.3%, or $1 million, to $5.9 million, or $0.55 per share, compared to $4.9 million, or $0.46 per share, in the prior year.
Cash, Inventory and Debt
Cash and cash equivalents increased $3.6 million to $30 million as of November 3, 2013, from $26.3 million on February 3, 2013, due principally to:
• a $1.7 million decrease in accounts receivable; and
• an $878,000 decrease in inventories, as a result of our efforts to reduce levels of slow moving and discontinued inventory.
"Our inventories are currently about 10% above targeted levels," Toms said. "We have adjusted our ordering, but expect that it will be the first quarter of our next fiscal year before we experience the impact of those adjustments. The inventory composition is improving, with a higher percentage of active, in-line and best-selling items and less pre-discontinued and discontinued product," Toms said, adding that he expects the current level of discounting to continue through the fourth quarter.
The Company had no long-term debt at November 3, 2013 and had $12.9 million available on its $15.0 million revolving credit facility, net of $2.1 million reserved for standby letters of credit.
Business Outlook
"Business has been reasonably steady all year, with sales up each quarter on a year-over-year basis," Toms said. "We have solid economic fundamentals on our side, including conditions for an improved housing market, and a stock market pushing all-time highs. There are some negatives, including political gridlock in Washington, D.C. and recent slight declines in consumer confidence, but we are generally still bullish on both a short and long-term basis. We realize we are going up against an outstanding fourth quarter last year that included an extra week. However, based on current revenue and earnings momentum, a very successful October High Point Market and the strength of our product line, we believe we can continue to grow and gain market share in our segments of the home furnishings industry."
Dividends
On November 26, 2013, the Company's board of directors declared a quarterly cash dividend of $0.10 per share, payable on December 27, 2013, to shareholders of record at December 12, 2013.
| Table I | ||||
| HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | ||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||
| (In thousands, except per share data) | ||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||
| November 3, | October 28 | November 3, | October 28 | |
| 2013 | 2012 | 2013 | 2012 | |
| Net sales | $ 59,125 | $ 56,803 | $ 170,721 | $ 158,718 |
| Cost of sales | 45,527 | 43,243 | 129,950 | 122,971 |
| Gross profit | 13,598 | 13,560 | 40,771 | 35,747 |
| Selling and administrative expenses | 10,443 | 9,781 | 31,742 | 28,118 |
| Operating income | 3,155 | 3,779 | 9,029 | 7,629 |
| Other income (expense), net | 9 | 34 | (45) | 98 |
| Income before income taxes | 3,164 | 3,813 | 8,984 | 7,727 |
| Income tax expense | 1,048 | 1,379 | 3,054 | 2,799 |
| Net income | $ 2,116 | $ 2,434 | $ 5,930 | $ 4,928 |
| Earnings per share: | ||||
| Basic | $ 0.20 | $ 0.23 | $ 0.55 | $ 0.46 |
| Diluted | $ 0.20 | $ 0.23 | $ 0.55 | $ 0.46 |
| Weighted average shares outstanding: | ||||
| Basic | 10,724 | 10,723 | 10,721 | 10,755 |
| Diluted | 10,753 | 10,742 | 10,748 | 10,787 |
| Table II | ||||
| HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
| (In thousands) | ||||
| (Unaudited) | ||||
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||
| November 3, | October 28, | November 3, | October 28, | |
| 2013 | 2012 | 2013 | 2012 | |
| Net Income | $ 2,116 | $ 2,434 | $ 5,930 | $ 4,928 |
| Other comprehensive income: | ||||
| Amortization of actuarial gain | (27) | (14) | (81) | (43) |
| Income tax effect on amortization of actuarial gains | 10 | 5 | 30 | 16 |
| Adjustments to net periodic benefit cost | (17) | (9) | (51) | (27) |
| Comprehensive Income | $ 2,099 | $ 2,425 | $ 5,879 | $ 4,901 |
| Table III | ||
| HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | ||
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| (In thousands, including share data) | ||
| November 3, | February 3, | |
| 2013 | 2013 | |
| Assets | ||
| Current assets | ||
| Cash and cash equivalents | $29,946 | $26,342 |
| Accounts receivable, less allowance for doubtful accounts of $1,082 and $1,249, respectively | 26,545 | 28,272 |
| Inventories | 48,995 | 49,872 |
| Prepaid expenses and other current assets | 5,146 | 5,181 |
| Total current assets | 110,632 | 109,667 |
| Property, plant and equipment, net | 23,594 | 22,829 |
| Intangible assets | 1,382 | 1,257 |
| Cash surrender value of life insurance policies | 18,501 | 17,360 |
| Other assets | 4,653 | 4,710 |
| Total assets | $158,762 | $155,823 |
| Liabilities and Shareholders' Equity | ||
| Current liabilities | ||
| Trade accounts payable | $12,271 | $11,620 |
| Accrued salaries, wages and benefits | 3,068 | 3,316 |
| Other accrued expenses | 1,695 | 2,531 |
| Total current liabilities | 17,034 | 17,467 |
| Deferred compensation | 7,851 | 7,311 |
| Total liabilities | 24,885 | 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 | 17,528 | 17,360 |
| Retained earnings | 116,197 | 113,483 |
| Accumulated other comprehensive income | 152 | 202 |
| Total shareholders' equity | 133,877 | 131,045 |
| Total liabilities and shareholders' equity | $158,762 | $155,823 |
| Table IV | ||
| HOOKER FURNITURE CORPORATION AND SUBSIDIARIES | ||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| Thirty-Nine Weeks Ended | ||
| November 3, | October 28, | |
| 2013 | 2012 | |
| Cash flows from operating activities | ||
| Cash received from customers | $ 172,409 | $ 155,192 |
| Cash paid to suppliers and employees | (158,704) | (153,368) |
| Income taxes paid, net | (3,904) | (900) |
| Interest paid, net | (14) | (28) |
| Net cash provided by operating activities | 9,787 | 896 |
| Cash flows from investing activities | ||
| Purchase of property, plant and equipment | (2,608) | (3,850) |
| Proceeds received on notes issued for the sale of property | 30 | 24 |
| Proceeds from the sale of property and equipment | 31 | 403 |
| Purchase of Homeware.com URL | (125) | -- |
| Premiums paid on life insurance policies | (802) | (870) |
| Proceeds received on life insurance policies | 516 | -- |
| Net cash used in investing activities | (2,958) | (4,293) |
| Cash flows from financing activities | ||
| Cash dividends paid | (3,225) | (3,235) |
| Purchase and retirement of common stock | -- | (671) |
| Net cash used in financing activities | (3,225) | (3,906) |
| Net increase in cash and cash equivalents | 3,604 | (7,303) |
| Cash and cash equivalents at beginning of period | 26,342 | 40,355 |
| Cash and cash equivalents at end of period | $ 29,946 | $ 33,052 |
| Reconciliation of net income to net cash provided | ||
| by operating activities: | ||
| Net income | $ 5,930 | $ 4,928 |
| Depreciation and amortization | 1,818 | 2,248 |
| Non-cash restricted stock awards and performance grants | 500 | 300 |
| Provision for doubtful accounts | (191) | (87) |
| Deferred income taxes | (331) | 260 |
| (Gain) on disposal of property | (6) | (45) |
| (Gain) on insurance policies | (480) | (545) |
| Changes in assets and liabilities: | ||
| Accounts receivable | 1,918 | (3,562) |
| Inventories | 877 | (4,718) |
| Prepaid expenses and other current assets | 46 | 160 |
| Trade accounts payable | 651 | 171 |
| Accrued salaries, wages and benefits | (248) | (270) |
| Accrued income taxes | (519) | 1,636 |
| Other accrued expenses | (317) | 303 |
| Deferred compensation | 139 | 117 |
| Net cash provided by operating activities | $ 9,787 | $ 896 |
|
|
||
Source: Hooker Furniture
Have something to say? Share your thoughts with us in the comments below.