MARTINSVILLE, VA-- Hooker Furniture today reported net sales of $215.4 million and a net income of $3.2 million, or $0.30 per share, for its fifty-two week fiscal year ending January 30, 2011. Net sales for 2011 increased $12.1 million or 5.9% compared to $203.3 million for fiscal 2010 as unit volume grew across all divisions.
Net income for fiscal 2011 increased 7.7% to $3.2 million compared to $3.0 million in the 2010 fiscal year. Earnings per share were $0.30 compared to $0.28 for the prior year.
Net sales for the fiscal 2011 fourth quarter increased $2.3 million to $55.0 million, or 4.3% compared to net sales of $52.7 million recorded in the fiscal 2010 fourth quarter. "We're pleased to have grown sales across all divisions this year in a business environment that was still very challenging," said Paul B. Toms Jr., chairman, chief executive officer and president of Hooker Furniture. "We finished the year with momentum, as the fiscal 2011 fourth quarter represented the third consecutive quarter of year-over-year sales increases. While we are disappointed we weren't able to leverage higher sales into higher profits, this year's accomplishments in many areas have positioned us to improve profitability going forward."
For the year's top line performance, the upholstery division led the way with a nearly 15% overall increase in net sales, including a 47% increase in imported leather upholstery unit volume compared to last year. Bradington-Young's domestically produced leather seating line also achieved growth with a 12% increase, marking the first year-over-year sales increase for domestic leather seating since 2005, said Alan Cole, president of Hooker Upholstery. Casegoods net sales increased $2.8 million, or 2.0%, during the fiscal year. Two noteworthy areas of growth for casegoods were the Envision line of casual, affordable furnishings targeted at younger consumers and sales to international customers. "Envision sales and international sales each roughly doubled compared to last year," Toms said.
Higher freight costs on imported products compared to the same period last year, along with both a restructuring and an intangible asset impairment charge, resulted in a net loss of $182,000 or $0.02 per share for the fiscal fourth quarter. "We can't overstate the negative impact on casegoods profitability of inflation driven by higher freight rates," Toms said. "The inventory we shipped in the fourth quarter reflected the unusually higher freight rates on products we received during mid year. Dramatic swings in shipping capacity out of Asia over the last two years resulted in a 10 percentage point variance in casegoods gross margins from the fiscal 2011 fourth quarter compared to the fiscal 2010 fourth quarter. All things considered, we expect to see the effect of more normal freight rates beginning in the first half of fiscal 2012, with low to mid-single digit improvement in margins as a result."
Profitability was also negatively impacted during the fourth quarter by a restructuring charge of $1.4 million ($874,000 after tax, or $0.08 per share) related to the consolidation of the Bradington-Young domestic upholstery division from Cherryville to Hickory, NC. In addition to the restructuring charge, there were "significant disruptions in December and January in preparation for the actual move in late January," said Cole. "While some of the disruptions related directly to the move, we also had some severe weather, the holidays and material supply delays, which greatly reduced our manufacturing efficiency during much of the quarter," he said.
Along with the restructuring expense, Hooker also recorded a $396,000 ($247,000 after tax or $0.02 per share) intangible asset impairment charge related to the write-off of the Opus Designs by Hooker Furniture trade name. The restructuring and asset impairment charges were a combined $1.8 million ($1.1 million after tax, or $0.10 per share) in the fourth quarter.
For the 2011 fiscal year, gross profit declined $1.5 million to $46.9 million, compared to $48.4 million in the same period a year ago. As a percent of sales, gross profit margin decreased to 21.8% compared to 23.8% of net sales in fiscal 2010. Higher freight costs on imported products shipped during the period were the primary driver of the lower gross margins for the year. Another factor was a $500,000 charge related to a fire at one of the company's distribution facilities during the fiscal 2011 first quarter. These higher costs were partially offset by higher margins in the Company's upholstery division, due to better efficiencies from increased upholstery sales and cost reduction initiatives.
For the fiscal 2011 fourth quarter, gross profit decreased in both absolute terms and as a percentage of net sales to $10.9 million or 19.8% of net sales as compared to $14.8 million or 28.1% of net sales in the prior year period. The decrease was due principally to higher freight costs on imported furniture and higher upholstery raw material and manufacturing costs as a percentage of sales due to changes in product mix and lower domestic sales volume in the quarter.
Selling and administrative expenses decreased by $934,000 to $41.0 million or 19.0% of net sales, during the 2011 fiscal year. For the fourth quarter, selling and administrative expenses increased $335,000 to $10.0 million, or 18.1% of net sales. In comparison, selling and administrative expenses were $42.0 million, or 20.6% of net sales, in the 2010 annual period and $9.6 million or 18.3% of net sales in the 2010 fourth quarter. "We continued to do a good job of whittling away at costs, deferring non-essential spending and keeping our cost structure down during the year," Toms said. "A particular bright spot was the significant improvement in product and packaging quality, resulting in a reduction of quality-related costs of over $1 million dollars compared to last year." Lower bad debts also contributed to lower expenses during the fiscal year. These decreases were partially offset by increased commissions and design fees due to increased sales.
The unfavorable fourth quarter comparison for selling and administrative expenses is primarily due to lower compensation expense in the fiscal 2010 fourth quarter, due to favorable adjustments in our workers compensation accrual in the prior year fiscal quarter.
Operating income decreased in the 2011 fiscal year, primarily due to the inflationary impact of increased freight costs on imported product shipped during the year, restructuring and intangible asset impairment charges and a $500,000 casualty loss charge for a warehouse fire. These expenses were partially offset by improved upholstery margins and lower selling and administrative expenses. For fiscal 2011, the Company reported operating income of $4.1 million or 1.9% of net sales, a decline of $1.1 million from $5.2 million or 2.6% of net sales in fiscal 2010.
The Company reported an operating loss of $879,000, or 1.6% in the 2011 fiscal fourth quarter as compared to an operating income of $4.5 million, or 8.6% of net sales in the comparable prior year period. Excluding the effects of intangible asset impairment and restructuring charges, operating income decreased in the 2011 fiscal fourth quarter to 1.7% of net sales as compared to 9.8% of net sales in the comparable period a year ago.
For the 2011 fiscal year, operating income decreased to 2.8% of net sales as compared to 3.2% of net sales in the comparable prior year period, excluding the impairment and restructuring charges. The following table reconciles operating income as a percentage of net sales ("operating margin") to operating margin excluding these special items ("restructuring and special charges") as a percentage of net sales for each period.
Cash, Inventory and Debt Levels
Cash and cash equivalents stood at $16.6 million at January 30, 2011, a decrease of $21.4 million from $38.0 million at January 31, 2010, due principally to increased inventory purchases to fund increased sales. Consolidated inventories increased $21.3 million to $57.4 million at January 30, 2011. Commenting on trends in inventory and cash levels, Toms said, "Inventory levels peaked in December, and have trended down in each of the last three months. Accordingly, cash is starting to build. We should begin to see a positive trend in cash levels in the first quarter of 2012, which we'll report on in June. Part of our inventory build was intentional as we made a conscious effort to improve our inventory position on best sellers. We now believe we are in an excellent inventory position with best selling products."
The Company had no long-term debt at January 30, 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, and had $15.0 million available to borrow against the cash surrender value of Company owned life insurance.
Business Outlook
"Consumer demand is improving, especially in casegoods, with significant double digit percentage increases for incoming orders during the first two months of the fiscal year," Toms said. "The momentum we've had for the last 11 months received another boost last week at the April High Point Market, where we introduced three major collections on the wood side that were all equally well-received. Strategically, we did the best job we've done to date in integrating our upholstery and wood furniture in room settings and in major collections, which mutually benefited both the wood and upholstery lines. We found retailers to be generally upbeat and eager to freshen their floors to prepare for improving business. The remerchandising and updating of our line over the last couple of years has helped us grow share of market and share of customer, as we've aligned with some of the largest and healthiest retailers, who have also gained market share during the downturn. Freight rates have stabilized, and are having less of an impact each month. We should work through the inventory that reflects higher freight costs by the end of the first quarter. We're experiencing additional inflationary pressure with significant cost increases from wood and upholstery suppliers which we will offset with a price increase to our customers. By and large, our upper income consumer demographic is feeling more secure financially and is returning to the market. We're relatively optimistic, expecting modest improvements through the year with some bumps, but an overall positive trend."
Dividends
At its April 12, 2011 meeting, our board of directors declared a quarterly cash dividend of $0.10 per share, payable on May 27, 2011 to shareholders of record at May 13, 2011.
Conference Call Details
Hooker Furniture will present its fiscal 2011 annual and fourth quarter results via teleconference and live internet web cast on Wednesday morning, April 13th, 2011 at 9:00 AM Eastern Time. The dial-in number for domestic callers is 877-665-2466, and 678-894-3031 is the number for international callers. The call will be simultaneously web cast and archived for replay on the Company's web site in the Investor Relations section.
Ranked among the nation's top 10 largest publicly traded furniture sources based on 2009 shipments to U.S. retailers, Hooker Furniture Corporation is an 87-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 occasional chairs with an emphasis on cover-to-frame customization.
SOURCE: Hooker Furniture
Net income for fiscal 2011 increased 7.7% to $3.2 million compared to $3.0 million in the 2010 fiscal year. Earnings per share were $0.30 compared to $0.28 for the prior year.
Net sales for the fiscal 2011 fourth quarter increased $2.3 million to $55.0 million, or 4.3% compared to net sales of $52.7 million recorded in the fiscal 2010 fourth quarter. "We're pleased to have grown sales across all divisions this year in a business environment that was still very challenging," said Paul B. Toms Jr., chairman, chief executive officer and president of Hooker Furniture. "We finished the year with momentum, as the fiscal 2011 fourth quarter represented the third consecutive quarter of year-over-year sales increases. While we are disappointed we weren't able to leverage higher sales into higher profits, this year's accomplishments in many areas have positioned us to improve profitability going forward."
For the year's top line performance, the upholstery division led the way with a nearly 15% overall increase in net sales, including a 47% increase in imported leather upholstery unit volume compared to last year. Bradington-Young's domestically produced leather seating line also achieved growth with a 12% increase, marking the first year-over-year sales increase for domestic leather seating since 2005, said Alan Cole, president of Hooker Upholstery. Casegoods net sales increased $2.8 million, or 2.0%, during the fiscal year. Two noteworthy areas of growth for casegoods were the Envision line of casual, affordable furnishings targeted at younger consumers and sales to international customers. "Envision sales and international sales each roughly doubled compared to last year," Toms said.
Higher freight costs on imported products compared to the same period last year, along with both a restructuring and an intangible asset impairment charge, resulted in a net loss of $182,000 or $0.02 per share for the fiscal fourth quarter. "We can't overstate the negative impact on casegoods profitability of inflation driven by higher freight rates," Toms said. "The inventory we shipped in the fourth quarter reflected the unusually higher freight rates on products we received during mid year. Dramatic swings in shipping capacity out of Asia over the last two years resulted in a 10 percentage point variance in casegoods gross margins from the fiscal 2011 fourth quarter compared to the fiscal 2010 fourth quarter. All things considered, we expect to see the effect of more normal freight rates beginning in the first half of fiscal 2012, with low to mid-single digit improvement in margins as a result."
Profitability was also negatively impacted during the fourth quarter by a restructuring charge of $1.4 million ($874,000 after tax, or $0.08 per share) related to the consolidation of the Bradington-Young domestic upholstery division from Cherryville to Hickory, NC. In addition to the restructuring charge, there were "significant disruptions in December and January in preparation for the actual move in late January," said Cole. "While some of the disruptions related directly to the move, we also had some severe weather, the holidays and material supply delays, which greatly reduced our manufacturing efficiency during much of the quarter," he said.
Along with the restructuring expense, Hooker also recorded a $396,000 ($247,000 after tax or $0.02 per share) intangible asset impairment charge related to the write-off of the Opus Designs by Hooker Furniture trade name. The restructuring and asset impairment charges were a combined $1.8 million ($1.1 million after tax, or $0.10 per share) in the fourth quarter.
For the 2011 fiscal year, gross profit declined $1.5 million to $46.9 million, compared to $48.4 million in the same period a year ago. As a percent of sales, gross profit margin decreased to 21.8% compared to 23.8% of net sales in fiscal 2010. Higher freight costs on imported products shipped during the period were the primary driver of the lower gross margins for the year. Another factor was a $500,000 charge related to a fire at one of the company's distribution facilities during the fiscal 2011 first quarter. These higher costs were partially offset by higher margins in the Company's upholstery division, due to better efficiencies from increased upholstery sales and cost reduction initiatives.
For the fiscal 2011 fourth quarter, gross profit decreased in both absolute terms and as a percentage of net sales to $10.9 million or 19.8% of net sales as compared to $14.8 million or 28.1% of net sales in the prior year period. The decrease was due principally to higher freight costs on imported furniture and higher upholstery raw material and manufacturing costs as a percentage of sales due to changes in product mix and lower domestic sales volume in the quarter.
Selling and administrative expenses decreased by $934,000 to $41.0 million or 19.0% of net sales, during the 2011 fiscal year. For the fourth quarter, selling and administrative expenses increased $335,000 to $10.0 million, or 18.1% of net sales. In comparison, selling and administrative expenses were $42.0 million, or 20.6% of net sales, in the 2010 annual period and $9.6 million or 18.3% of net sales in the 2010 fourth quarter. "We continued to do a good job of whittling away at costs, deferring non-essential spending and keeping our cost structure down during the year," Toms said. "A particular bright spot was the significant improvement in product and packaging quality, resulting in a reduction of quality-related costs of over $1 million dollars compared to last year." Lower bad debts also contributed to lower expenses during the fiscal year. These decreases were partially offset by increased commissions and design fees due to increased sales.
The unfavorable fourth quarter comparison for selling and administrative expenses is primarily due to lower compensation expense in the fiscal 2010 fourth quarter, due to favorable adjustments in our workers compensation accrual in the prior year fiscal quarter.
Operating income decreased in the 2011 fiscal year, primarily due to the inflationary impact of increased freight costs on imported product shipped during the year, restructuring and intangible asset impairment charges and a $500,000 casualty loss charge for a warehouse fire. These expenses were partially offset by improved upholstery margins and lower selling and administrative expenses. For fiscal 2011, the Company reported operating income of $4.1 million or 1.9% of net sales, a decline of $1.1 million from $5.2 million or 2.6% of net sales in fiscal 2010.
The Company reported an operating loss of $879,000, or 1.6% in the 2011 fiscal fourth quarter as compared to an operating income of $4.5 million, or 8.6% of net sales in the comparable prior year period. Excluding the effects of intangible asset impairment and restructuring charges, operating income decreased in the 2011 fiscal fourth quarter to 1.7% of net sales as compared to 9.8% of net sales in the comparable period a year ago.
For the 2011 fiscal year, operating income decreased to 2.8% of net sales as compared to 3.2% of net sales in the comparable prior year period, excluding the impairment and restructuring charges. The following table reconciles operating income as a percentage of net sales ("operating margin") to operating margin excluding these special items ("restructuring and special charges") as a percentage of net sales for each period.
Cash, Inventory and Debt Levels
Cash and cash equivalents stood at $16.6 million at January 30, 2011, a decrease of $21.4 million from $38.0 million at January 31, 2010, due principally to increased inventory purchases to fund increased sales. Consolidated inventories increased $21.3 million to $57.4 million at January 30, 2011. Commenting on trends in inventory and cash levels, Toms said, "Inventory levels peaked in December, and have trended down in each of the last three months. Accordingly, cash is starting to build. We should begin to see a positive trend in cash levels in the first quarter of 2012, which we'll report on in June. Part of our inventory build was intentional as we made a conscious effort to improve our inventory position on best sellers. We now believe we are in an excellent inventory position with best selling products."
The Company had no long-term debt at January 30, 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, and had $15.0 million available to borrow against the cash surrender value of Company owned life insurance.
Business Outlook
"Consumer demand is improving, especially in casegoods, with significant double digit percentage increases for incoming orders during the first two months of the fiscal year," Toms said. "The momentum we've had for the last 11 months received another boost last week at the April High Point Market, where we introduced three major collections on the wood side that were all equally well-received. Strategically, we did the best job we've done to date in integrating our upholstery and wood furniture in room settings and in major collections, which mutually benefited both the wood and upholstery lines. We found retailers to be generally upbeat and eager to freshen their floors to prepare for improving business. The remerchandising and updating of our line over the last couple of years has helped us grow share of market and share of customer, as we've aligned with some of the largest and healthiest retailers, who have also gained market share during the downturn. Freight rates have stabilized, and are having less of an impact each month. We should work through the inventory that reflects higher freight costs by the end of the first quarter. We're experiencing additional inflationary pressure with significant cost increases from wood and upholstery suppliers which we will offset with a price increase to our customers. By and large, our upper income consumer demographic is feeling more secure financially and is returning to the market. We're relatively optimistic, expecting modest improvements through the year with some bumps, but an overall positive trend."
Dividends
At its April 12, 2011 meeting, our board of directors declared a quarterly cash dividend of $0.10 per share, payable on May 27, 2011 to shareholders of record at May 13, 2011.
Conference Call Details
Hooker Furniture will present its fiscal 2011 annual and fourth quarter results via teleconference and live internet web cast on Wednesday morning, April 13th, 2011 at 9:00 AM Eastern Time. The dial-in number for domestic callers is 877-665-2466, and 678-894-3031 is the number for international callers. The call will be simultaneously web cast and archived for replay on the Company's web site in the Investor Relations section.
Ranked among the nation's top 10 largest publicly traded furniture sources based on 2009 shipments to U.S. retailers, Hooker Furniture Corporation is an 87-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 occasional chairs with an emphasis on cover-to-frame customization.
SOURCE: Hooker Furniture
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