MARTINSVILLE, Va. - Hooker Furniture Corporation (Nasdaq:HOFT) today reported net sales of $56.8 million for its fiscal 2013 third quarter, a 4.8%, or $2.6 million, increase over the same period a year ago. Net income rose 7.7%, or $175,000, to $2.4 million, or $0.23 per share compared to $0.21 per share in last year's third quarter.

Hooker's fiscal 2013 third quarter began July 30 and ended on October 28, 2012.

For the fiscal 2013 first nine months, net sales were $158.7 million and net income was $4.9 million, or $0.46 per share.

For the fiscal 2013 first nine months, sales decreased 5.6%, or $9.4 million, compared to the same period in fiscal 2012. However, net income increased 11.3%, or $499,000, compared to the prior-year period. Earnings per share for the fiscal 2013 first nine months increased to $0.46 per share compared to $0.41 per share in the same prior-year period.

Improved profitability in both 2013 fiscal periods was driven by lower sales discounting, reduced costs and greater domestic manufacturing efficiency. In casegoods, higher revenues were driven by improved shipments of backlogs and a better in-stock position. Upholstery sales improvements, especially at Sam Moore and at Bradington-Young's import division, were driven by higher demand.

"Across both segments in the company, orders and shipments increased this quarter over the prior year," said Paul B. Toms Jr., chairman and chief executive officer.

"We were able to increase net income over 11 percent for the first nine months of the year on lower sales, which indicates greater efficiency, particularly in upholstery manufacturing. We believe there's room for further improvement," Toms said.

In the upholstery segment, Bradington-Young has "achieved sustained profitability for several months as well as increased sales and order rates," said Michael Delgatti, president of Hooker Upholstery. "Sam Moore, on the other hand, came close to break-even as we work through a short-term profit challenge that relates directly to the most robust incoming order rate at Sam Moore in several years," he said. Brisk demand for Sam Moore's fully upholstered sofa line and other new product lines has necessitated a ramping up of production with accompanying higher labor rates and costs of goods sold. "We expect to have our incoming order rates and production capacity better aligned by the end of our fiscal fourth quarter," he added.

The Company's effective income tax rates were 36.2% and 20.0%, respectively, in the fiscal 2013 and fiscal 2012 third quarters and were 36.2% and 27.9%, respectively, for the fiscal 2013 and fiscal 2012 nine-month periods. The fiscal 2013 tax rates are in the range of what the Company expects for normal operations. The lower rates in the fiscal 2012 periods were due primarily to the convergence of several tax benefits during these periods which are not expected to re-occur.

Additional fiscal 2013 third quarter highlights (compared to the fiscal 2012 third quarter):

Gross profit increased as a percentage of net sales to 23.9%, from 23.5%, and increased in absolute terms by 6.5%, or $823,000, to $13.6 million. These changes were primarily due to higher average selling prices, decreased casegoods segment discounting and reduced upholstery segment manufacturing costs as a percentage of net sales.

Selling and administrative expenses decreased in absolute terms by 2.5%, or $250,000, to $9.8 million, and decreased as a percentage of net sales from 18.5% to 17.2%.

Operating income increased to 6.7% of net sales, from 5.0% and increased in absolute terms by 39.7%, or $1.1 million, to $3.8 million.

Net income increased as a percentage of net sales to 4.3% from 4.2% and increased in absolute terms by 7.7%, or $175,000, to $2.4 million, or $0.23 per share, compared to $2.3 million, or $0.21 per share, in the prior-year period.

Additional fiscal 2013 first nine-months highlights (compared to the fiscal 2012 first nine months):

Gross profit increased as a percentage of net sales to 22.5%, from 21.4%, primarily due to higher average selling prices, decreased casegoods and upholstery segment discounting and reduced upholstery segment manufacturing costs; however, gross profit decreased in absolute terms by 0.5%, or $186,000, to $35.7 million, primarily due to lower sales volume.

Selling and administrative expenses decreased in absolute terms by 6.2%, or $1.9 million, to $28.1 million and decreased as a percentage of net sales to 17.7% from 17.8%.

Operating income increased both as a percentage of net sales to 4.8%, from 3.5%, and in absolute terms by $1.7 million, or 28.3%, from $5.9 million to $7.6 million.

Net income increased both as a percentage of net sales to 3.1%, from 2.6%, and in absolute terms by 11.3%, or $499,000, to $4.9 million, or $0.46 per share, compared to $4.4 million, or $0.41 per share, in the prior-year period.

Cash, Inventory and Debt

Cash and cash equivalents decreased $7.3 million to $33.1 million as of October 28, 2012, from $40.4 million on January 29, 2012, due principally to:

a $4.7 million increase in inventories, due to case goods and imported upholstery restocking efforts; and

a $3.6 million increase in accounts receivable, due to increased sales.

"We're currently within our targeted inventory ranges, although we are still refining our product mix as we look to further improve our in-stock position on best sellers," said Toms. "Our cash has drawn down somewhat, primarily due to spending on inventories and increased accounts receivable, as well as our ERP system conversion and dividends. We do expect to rebuild cash from profitable operations moving forward," he said.

The Company had no long-term debt at October 28, 2012 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

"As service levels and in-stock position improved this quarter, we realized the kinds of top-line benefits we expect will continue from better flow of best-selling products and recent well-received introductions," said Toms. "Our improved in-stock position should also drive higher sales from special orders at retail. We've also been gratified that the Rhapsody Collection we introduced last spring has been performing very well at retail since it began shipping in September, and other collections are also retailing well.

"Demand is positive in every segment of our business, with our consolidated incoming order rate up just under 5 percent for the third quarter versus the same period last year.

"Our outlook is more bullish looking out to the second quarter of our next fiscal year and beyond than in the shorter term," Toms continued. "Longer term, there are many positive signs from the housing sector, with increased housing activity, prices stabilizing and the highest home builder sentiment in six years. Consumer confidence is improving to more historically healthy levels driven by improvements in housing and gains in the stock market this year. All this bodes well for our industry longer term. In the shorter term, we believe the uncertainty around negotiations in Washington, D.C. regarding the so-called 'fiscal cliff' may create enough uncertainty for consumers to postpone big-ticket purchases.

"We are bullish enough about the future to continue investing in people, systems, our manufacturing facilities and long-term strategies for growth.

"On the internal side of our business, we had a successful implementation of Phase 1 of our Enterprise Resource Planning (ERP) system over Labor Day weekend. While we are still working through numerous issues, we were pleased to have had a normal shipping month in September given the magnitude and scope of the project. We plan to begin Phase 2 in our upholstery segment in January with full implementation scheduled for late in the fourth quarter of fiscal 2014," Toms said.

 

 
Table I
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
         
         
  Thirteen Weeks Ended Thirty-nine Weeks Ended
  October 28, October 30, October 28, October 30,
  2012 2011 2012 2011
         
Net sales  $ 56,803  $ 54,180  $ 158,718  $ 168,147
         
Cost of sales  43,243  41,443  122,971  132,214
         
Gross profit  13,560  12,737  35,747  35,933
         
Selling and administrative expenses  9,781  10,031  28,118  29,986
         
Operating income  3,779  2,706  7,629  5,947
         
Other income, net  34  117  98  198
         
Income before income taxes  3,813  2,823  7,727  6,145
         
Income tax expense  1,379  563  2,799  1,716
         
Net income  $ 2,434  $ 2,260  $ 4,928  $ 4,429
         
Earnings per share:        
Basic  $ 0.23  $ 0.21  $ 0.46  $ 0.41
Diluted  $ 0.23  $ 0.21  $ 0.46  $ 0.41
         
Weighted average shares outstanding:        
Basic 10,723 10,762 10,755 10,762
Diluted 10,742 10,783 10,787 10,788
 
 
Table II
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
  Thirteen Weeks Ended Thirty-nine Weeks Ended
  October 28, October 30, October 28, October 30,
  2012 2011 2012 2011
         
Net Income  $ 2,434  $ 2,260  $ 4,928  $ 4,429
Other comprehensive income:        
Amortization of actuarial gains  (14)  (82)  (43)  (244)
Income tax effect on amortization of actuarial gains  5  31  16  92
Adjustments to net periodic benefit cost  (9)  (51)  (27)  (152)
         
Comprehensive Income  $ 2,425  $ 2,209  $ 4,901  $ 4,277
 
 
Table III
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, including share data)
  October 28, January 29,
  2012 2012
Assets    
Current assets    
Cash and cash equivalents  $ 33,052  $ 40,355
Accounts receivable, less allowance for doubtful accounts of $1,482 and $1,632, respectively 29,456  25,807
Inventories 38,854  34,136
Prepaid expenses and other current assets 4,593  4,194
Total current assets  105,955  104,492
Property, plant and equipment, net 22,913  21,669
Intangible assets 1,257  1,257
Cash surrender value of life insurance policies 17,495  16,217
Other assets  4,844  5,536
Total assets  $ 152,464  $ 149,171
     
Liabilities and Shareholders' Equity    
Current liabilities    
Trade accounts payable  $ 9,404  $ 9,233
Accrued salaries, wages and benefits 3,585  3,855
Other accrued expenses 2,728  792
Accrued dividends  1,075  1,078
Total current liabilities  16,792  14,958
Deferred compensation 7,425  7,100
Total liabilities  24,217  22,058
     
Shareholders' equity    
Common stock, no par value, 20,000 shares authorized, 10,746 and 10,793 shares issued and outstanding on each date 17,305  17,262
Retained earnings 110,860  109,742
Accumulated other comprehensive income  82  109
Total shareholders' equity  128,247  127,113
Total liabilities and shareholders' equity  $ 152,464  $ 149,171
 
 
 Table IV 
 HOOKER FURNITURE CORPORATION AND SUBSIDIARIES 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
 (In thousands) 
     
   Thirty-Nine Weeks Ended 
   October 28,   October 30, 
  2012 2011
 Cash flows from operating activities     
 Cash received from customers   $ 155,192  $ 169,581
 Cash paid to suppliers and employees  (153,461) (146,365)
 Income taxes (paid), net  (900) (1,079)
 Interest (paid)/received, net  (28) 17
 Net cash provided by operating activities  803 22,154
     
 Cash flows from investing activities     
 Purchase of property, plant and equipment  (3,850) (2,443)
 Proceeds received on notes issued for the sale of property  24  26
 Proceeds from the sale of property and equipment  403  125
 Premiums paid on life insurance policies  (870) (1,112)
 Proceeds received on life insurance policies   --  560
 Net cash used in investing activities  (4,293) (2,844)
     
 Cash flows from financing activities     
 Cash dividends paid  (3,235) (3,235)
 Purchase and retirement of common stock  (578)  -- 
 Net cash used in financing activities  (3,813) (3,235)
     
 Net (decrease) / increase in cash and cash equivalents  (7,303) 16,075
 Cash and cash equivalents at beginning of period  40,355 16,623
 Cash and cash equivalents at end of period   $ 33,052  $ 32,698
     
 Reconciliation of net income to net cash provided     
 by operating activities:     
 Net income   $ 4,928  $ 4,429
 Depreciation and amortization  2,248 1,926
 Non-cash restricted stock awards and performance grants  207 (70)
 Provision for doubtful accounts  (87) 170
 Deferred income taxes  260 16
 (Gain) / loss on disposal of property   (45)  108
 (Gain) on insurance policies   (545)  (461)
 Changes in assets and liabilities:     
 Accounts receivable  (3,562) 1,096
 Inventories  (4,718) 14,501
 Prepaid expenses and other current assets  160 264
 Trade accounts payable  171 (632)
 Accrued salaries, wages and benefits  (270) (41)
 Accrued income taxes  1,636 621
 Other accrued expenses  303 (164)
 Deferred compensation  117 391
 Net cash provided by operating activities   $ 803  $ 22,154

Source: Hooker Furniture

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