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.