Hooker Furniture Corporation (NASDAQ:HOFT) reported a surprising third-quarter loss, with earnings per share (EPS) at -$0.39, missing the forecasted $0.31. The company's revenue was $104.35 million, slightly above the expected $101.59 million. The market reacted negatively, with the stock dropping over 10% in pre-market trading.
Key Takeaways
- Hooker Furniture's Q3 EPS was significantly below expectations.
- Despite revenue exceeding forecasts, the company reported a net loss.
- Stock price declined sharply following the earnings announcement.
Company Performance
Hooker Furniture's performance in Q3 Fiscal 2025 showed a decline, with consolidated net sales falling by 10.7% year-over-year to $104 million. The company reported a consolidated operating loss of $7.3 million and a net loss of $4.1 million. This downturn contrasts with industry trends, where furniture store sales have risen for the second consecutive month.
Financial Highlights
- Revenue: $104 million, down 10.7% YoY
- Earnings per share: -$0.39, missing the forecast of $0.31
- Operating loss: $7.3 million
- Key charges: $7.5 million, including restructuring costs and bad debt expense
Earnings vs. Forecast
Hooker Furniture's EPS of -$0.39 fell short of the forecasted $0.31, marking a significant miss. This represents a negative surprise percentage of approximately 225.8%. Historically, the company has not experienced such a large deviation from expectations, indicating a challenging quarter.
Market Reaction
Following the earnings release, Hooker Furniture's stock dropped by 10.38% to $16.06 in pre-market trading, a significant decline from its previous close of $17.92. This movement places the stock closer to its 52-week low of $13.09, reflecting investor concerns over the company's unexpected losses.
Company Outlook
Despite the current challenges, Hooker Furniture is optimistic about future demand, expecting improvements in fiscal 2026. The company is focusing on cost reduction, high-quality inventory investment, and preparing for a potential market recovery. It plans to maintain its quarterly dividend.
Executive Commentary
CEO Jeremy Hoff emphasized the strategic value of the Margaritaville licensing agreement, stating, "We believe the Margaritaville license... opens a lot of doors that would not be open otherwise." CFO Paul Huckfeld highlighted inventory management efforts, saying, "We're cleaning up the inventory, getting rid of slow-moving stuff to free up working capital."
Q&A
Analysts inquired about the impact of the Margaritaville licensing and the company's restructuring plans. The management reassured that no significant additional restructuring costs are expected and minimal additional discounting is anticipated.
Risks and Challenges
- Supply Chain Issues: Potential disruptions due to the Lunar New Year and port strikes.
- Market Saturation: The need to exit unprofitable product lines.
- Macroeconomic Pressures: Fluctuations in consumer sentiment and economic conditions.
- Competitive Landscape: Maintaining market position amid industry changes.
- Cost Management: Ensuring effective cost reduction strategies are in place.
Full transcript - Hooker Furniture Corporation (HOFT) Q3 2025:
Olivia, Conference Operator: Good day. Thank you for standing by. Welcome to Hooker Furniture Incorporation Third Quarter 20 24 Earnings Webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.
Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker host today, Paul Huckfeld, Chief Financial Officer. Please go ahead, sir.
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: Thank you, Olivia. Good morning, and welcome to our quarterly conference call to review our financial results for the fiscal 2025 Q3, which began July 29th and ended October 27th, 2024. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation today. During our call, we may make forward looking statements, which are subject to risks and uncertainties.
A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filings announcing our fiscal 2025 Q3 results. Any forward looking statement speaks only as of today, and we undertake no obligation to update or revise any forward looking statement to reflect events or circumstances after today's call. Our fiscal 2025 Q3 and 9 month results were adversely affected by the ongoing low demand in the home furnishings industry as well as charges totaling about $7,500,000 including approximately $3,100,000 of restructuring costs related to the company's previously announced cost savings plan. Dollars 2,400,000 of bad debt expense related to the bankruptcy of a single large customer and $2,000,000 of non cash impairment charges to certain trade names under the Home Meridian segment. These factors resulted in an operating loss of $7,300,000 and a consolidated net loss of $4,100,000 or $0.39 per diluted share for the 3rd quarter.
Consolidated net sales were $104,000,000 a decrease of $12,500,000 or 10.7 percent compared to the same quarter of the previous year. For the 9 month period, consolidated net sales were $293,000,000 a decrease of $43,000,000 or 12.9 percent compared to the same period of the previous year. This decrease was also due to low demand affecting the home furnishing industry and the absence of $11,000,000 of liquidation sales from the unprofitable ACH product line, which the company exited last year. The company reported a consolidated operating loss of $15,000,000 and a net loss of $10,200,000 or $0.97 per diluted share attributed to lower overall sales, higher ocean freight costs at Hooker Branded, under absorbed indirect costs at domestic upholstery as well as the $7,500,000 in charges mentioned earlier. Now I'll turn the call over to Jeremy to comment on our fiscal 2025 Q3 results.
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: Thank you, Paul, and good morning, everyone. Despite sustained macroeconomic challenges and the charges recorded in Q3, we are encouraged by the sequential quarterly improvement in our core business profitability and by the results of our cost reduction efforts, which will be more fully realized beginning Q4. These improvements reflect our team's focus on managing controllables and reducing non strategic costs in a difficult environment, while investing in impactful initiatives to expand our addressable market and growth opportunities, including our recently announced global licensing agreement with Margaritaville. We're also encouraged by positive developments in the macroeconomic environment such as cooling inflation and recent interest rate cuts in September November, which should begin to increase demand for furnishings. Our October High Point market introductions were positively received with significant placements across the board.
In addition, we had the best retail placement market to date at Outdoor Furniture Specialists Sunset West. The early feedback of 3 major case gigs collections for HOKA brand gave us the confidence to place initial cuttings early before these groups were officially introduced in October. As a result, the collections will ship this month with a second cutting in January, increasing our speed to market by 6 months. This puts us in a strong position for the coming fiscal year with our available product assortment. In anticipation of increased demand and the typically stronger fall selling season, we built up Hooker branded inventory by $11,000,000 or 40% compared to previous quarter end.
In addition, we are aggressively producing our top collections to ensure we will be in stock during the Q1 of fiscal 2026. These inventories are high quality assortments centered on our best selling and most profitable SKUs. Now I want to turn the discussion over to Paul, who will discuss highlights in each of our segments.
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: Thanks, Jeremy. Beginning with Hooker Branded, net sales decreased by $4,000,000 or 10.7 percent in the fiscal Q3 compared to the prior year period, due primarily to lower average selling price. While gross revenue in this segment decreased by 6.7% compared to the previous year's 3rd quarter, discount increased by 3.90 basis points, due mainly to higher discounting on excess inventory. Unit volume decreased by a modest 2.1% compared to the previous year's Q3, but exceeded the 1st and second quarters of this fiscal year. For the quarter, the segment reported an operating loss of $1,700,000 on historically low third quarter net sales.
This result included approximately $1,000,000 of severance charges related to our cost reduction plan. Incoming orders decreased by 13% year over year. The quarter end backlog was 30% lower than at the end of the prior year's Q3, but remained 18% higher than pre pandemic levels, which were at the end of fiscal 2023rd quarter. For the 9 month period, net sales decreased by 14,000,000 percent, also due primarily to lower average selling prices, resulting from the price reductions implemented in the previous year in response to reduced ocean freight costs. Unit volume was essentially flat, decreasing by about 1% compared to the prior year 9 month period.
Turning
Dave Storms, Analyst, Stonegate: to
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: the Home Meridian segment, net sales decreased by $5,100,000 or 11.8% in the Q3 compared to the prior year Q3 due to reduced unit volume. Over 40% of the sales decrease was attributable to the loss of a major customer following its bankruptcy. Sales through major furniture chains and independent furniture stores decreased, though these decreases were partially offset by an 8% increase in sales in our hospitality business, marking 2 consecutive quarters of higher revenues. Incoming orders increased by 8% compared to the previous year's Q3, while decreasing modestly by 2.9% for the 9 month period, despite the absence of orders from the discontinued ACH product line and the large customer bankruptcy. Quarter end backlog was 32% higher than the prior year's Q3 backlog.
Despite increased net sales decreased net sales, Home Meridian achieved a gross margin of 20.5%, its highest level since the acquisition in 2016. The restructuring efforts at Home Meridian over the recent years have shown meaningful results towards creating sustainable profitability, including significantly reduced allowances, improved product margins and lower fixed costs across nearly all of this segment. For the quarter, the segment reported an operating loss of $3,700,000 driven by $2,400,000 in bad debt charges due to the previously mentioned customer bankruptcy, dollars 2,000,000 in non cash intangible asset impairment charges and $233,000 of severance costs related to the cost reduction plan. For the 9 month period, net sales decreased by $19,000,000 or 16 percent, in large part due to the absence of $11,000,000 in ACH liquidation sales, which accounted for approximately 60% of the sales decrease and 75% of the unit volume decrease. Sales decreased in nearly all channels during the period except for the hospitality business, which experienced a 23% increase.
Lastly, the domestic upholstery segment net sales decreased by $3,200,000 or 10% compared to the prior year Q3 due to decreased sales at Shenandoah, Bradington Young and HF Custom attributable to the persistent low demand. This decrease was partially offset by a 9% increase in sales at Sunset West, which has delivered year over year quarterly sales growth for 3 consecutive quarters this fiscal year. Gross profit decreased due to lower net sales, but the gross margin remained stable. For the quarter, the segment reported an operating loss of $281,000 a sequential improvement compared to the $1,300,000 in operating losses recorded in each of the fiscal 2025 1st and second quarters. This result also included approximately $560,000 of severance costs related to the cost reduction plan.
Incoming orders decreased by 4.8% during the quarter and the quarter end backlog was 30% lower than the prior year Q3 backlog. Excluding Sunset West, the order backlog remained consistent with pre pandemic levels at the end of the fiscal 2023rd quarter. For the 9 month period, net sales decreased by $10,600,000 or 10.8 percent, also due to decreased sales at Brannigan Young, Shenandoah and HF Custom, partially offset by a 10% increase in Sunset West net sales. Turning now to cash, inventories and capital. Cash and cash equivalents were $20,400,000 at the end of the 3rd quarter, a decrease of $22,700,000 from the previous year end in January.
Inventory levels increased by $4,700,000 from year end, driven primarily by a $6,000,000 increase in Hooker Branded inventories. During the 9 month period, we used cash and cash equivalents on hand to fund $7,400,000 of dividends, dollars 2,800,000 to further develop our cloud based ERP system and $2,700,000 in capital expenditures. In addition to our cash balance, we had an aggregate of $28,300,000 available under our existing revolver at quarter end and as well as $29,000,000 in cash surrender value of company owned life insurance. We expect to finalize the refinancing of our credit facility and pay off our term debt in the coming days. As Jeremy mentioned, we're aggressively building inventory to support 3 new major case goods collection as well as our best selling and most profitable SKUs to accelerate speed to market and product availability for both current and next fiscal year.
The inventory build is also driven by what is expected to be a longer than typical Lunar New Year holiday in Vietnam and expected longer post holiday ramp up period resulting from the extended holiday and lower production demand in Vietnam, as well as potential U. S. East Coast port strike in January 2025. Earlier this week, we announced the payment of our regular quarterly dividend in December, which we believe demonstrates our confidence in the company's future success. Now I'll turn the conversation back to Jeremy for his outlook.
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: Over the last few months, the key economic indicators that impact furniture sales have been trending positively, such as interest rate cuts, which drive home mortgage rates and cooling inflation. Additionally, in November, a leading real estate industry group stated its belief that the worst of the housing inventory shortage is ending and forecast an approximately 10% increase in home sales for 2025 with mortgage rates stabilizing around 6%. In October year over year furniture store sales rose for the 2nd month in a row. Lastly, consumer sentiment rose in November to its highest level since April and the stock market continues near all time highs. While the macroeconomic outlook is improving, our team has continued to focus on the controllables and improvements already underway at Hooker Furnishings.
Our balance sheet, financial condition and management team should well equip us to navigate any remaining challenges as we focus on maximizing efficiencies with the cost reductions while simultaneously investing in expansion strategies that will position us for revenue and profitability growth when demand fully returns. This ends the formal part of our discussion. And at this time, I will turn the call back over to our operator, Olivia, for questions.
Olivia, Conference Operator: Thank you. And our first question coming from the line of Anthony Lipinski with Sidoti and Company. Your line is now open. Anthony, your line is open. Please check your mute button.
Anthony Lipinski, Analyst, Sidoti and Company: Can you hear me now?
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: Yes.
Anthony Lipinski, Analyst, Sidoti and Company: Yes. Sorry about that. Yes, I was on mute. So good morning to all of you and yes, thanks for taking the questions. So first, just curious, so since the election, have you guys seen any notable changes in demand from your customers?
It seems like just talking to others in the industry, they talked about the election being a certainly distraction for the end consumers. So curious to get your thoughts on what you've seen so far?
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: Yes. So we've noticed and we've had a noticeable positive bump in order rates since the election for sure.
Anthony Lipinski, Analyst, Sidoti and Company: That's good to hear, certainly encouraging. And then in terms of the 3 new case goods, the collections, you talked about speed to market certainly driving that. How impact I'm sorry, how impactful could that be for the Q4 as you look to get those products to retailers?
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: Well, it definitely gives us a better shot at some better shipments at Hooker Branded because we're going to ship 1st cutting in November, 2nd cutting in January, specifically to direct container customers that that will affect first. But I think the more significant part of it is the fact that we're putting those collections in position for the next fiscal year to gain the full benefit of those hitting floors for the entire year and not half of the
Anthony Lipinski, Analyst, Sidoti and Company: year. All right. That makes a lot of sense. And you've done a nice job improving the gross margin at the HMI. Do you think you can further improve from here?
What are your thoughts there, Jeremy?
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: I would say a little bit and just to stress most of that improvement was simply getting out of businesses we should not have been in, which obviously takes the average very positive compared to where we were when we had businesses losing money, low margin business like the ACH business, the fact that we're out of that, it's no longer a drag on the overall average. So that's been the biggest benefit for us. We do still think there's a little bit of room for improvement.
Anthony Lipinski, Analyst, Sidoti and Company: Got you. And so as far as the inventory situation here, so you talked about having excess inventories. Overall, your inventory was higher at the end of Q3 than we expected. So how would you describe your current inventory position and the quality of that inventory and any sort of goal for your inventory at the end of your fiscal year?
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: I would call our inventory position the best it's been probably, Paul, in probably 2 years.
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: I think so, yes.
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: And I say that not only because of the positive inventory we have on the Hooker branded side that are some of our best SKUs, but not having the drag of something like ACH on the other side, which negatively impacts the entire inventory as well. So we really don't have the problem inventory within our system anymore like we did with the ACH. We only our increase is in really good SKUs.
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: Yes. We talked I know it might sound a little inconsistent. We talked about discounting excess inventories and building inventory. And what we're doing is cleaning up the inventory, getting rid of slow moving stuff to free up the working capital to invest in better SKUs in the new products and in our best selling SKUs.
Anthony Lipinski, Analyst, Sidoti and Company: Yes. All right. Yes, that makes a lot of sense. Okay. And then lastly for me before I pass it on to others.
So Jeremy, I know you were very upbeat about the Margaritaville launch when you announced this, I believe in October. Can you provide any more details as to how impactful that deal could be for you guys?
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: Well, we believe it's going to be very impactful. What's interesting about the Margaritaville license from our standpoint is it really affects a lot of our divisions. It's not really just going to be a Hooker branded thing, for example, it's going to be Hooker legacy. That's going to really affect positively, we believe, our contract divisions. There's a lot of opportunity with hospitality and through each contract, that will give us an advantage, with a lot of those jobs, because Margaritaville is building a significant number of homes in areas that will be attached to in pricing those models and whatnot.
So there's just it opens a lot of doors that would not be open otherwise.
Anthony Lipinski, Analyst, Sidoti and Company: Got you. Well, thank you very much and best of luck.
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: Of course. Thank you, Anthony. Thank
Olivia, Conference Operator: you. And our next question coming from the line of Dave Storms with Stonegate. Your line is now open.
Dave Storms, Analyst, Stonegate: Good morning.
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: Good morning. Hey, Dave.
Dave Storms, Analyst, Stonegate: Good morning. Just wanted to ask my first question around the macro demand environment going into this holiday season. Is there any potential to see continued discounting through the back part of this year?
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: Can you repeat that, Dave? There was a little bit of static or something on the line.
Dave Storms, Analyst, Stonegate: Apologies. Just around the macro environment and the holiday season coming up, is there any potential for continued discounting as you go into the back quarter of the year?
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: We don't believe any more than normal.
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: Normal promotions, e comm in particular, we tend to run some specials, but it's targeted promotions.
Dave Storms, Analyst, Stonegate: Understood. Thank you. And then just wanted to touch on the bankruptcy. Are there any other customers that you're seeing as highly at risk? And is there any recourse to recover some of that write off?
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: Well, you probably know who that big customer is. And there's probably not a lot of recourse. We've done what we can to mitigate that business that loss. And that's really the only big customer that we there's always a small customer here or there that's bankrupt. We haven't really noticed a particularly significant change in the pace of bankruptcies or distressed receivables.
But that was one that was just it was a big customer and we got cost.
Dave Storms, Analyst, Stonegate: Understood. And then I did have another question around the licensing deal. I was hoping you could speak a little more around the logistics and next steps and maybe what early wins would look like. It looks like this is a decent amount of white space for you all.
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: Yes. And that's what you're mentioning is the reason we're going to launch in October. The temptation, of course, is to move faster than that and try to launch in April. But right is going to be much more important than fast for us and we want to get this right. So the logistics right now of everything are pulling that together from a Sunset West, our outdoor company is obviously heavily involved.
All of our domestic upholstery is involved, Hooker Brand is involved, contracts involved, hospitality. So right now, the biggest thing we're working on is pulling everything together, the way it needs to be pulled together in order to make to put our best foot forward on a launch. So and that will continue until we get there.
Dave Storms, Analyst, Stonegate: That's very helpful. And then just one last question for me, a 2 quarter around cost savings. Should we expect any further severance costs in 4Q? And then looking into the next year, should we expect the $10,000,000 to be evenly spread out? Or would we expect that to be more back end weighted as those cost savings ran?
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: We don't expect significant additional at this point anyway. We don't expect significant additional restructuring costs. We've got one more element, one more reasonably large element of our cost savings program that we still need to execute. But I would say that most of it's going to be in place for the better part of the year. We haven't started really we haven't fully realized a lot of those savings yet, but we expect to start seeing those in the Q4.
And I would say that most of the $10,000,000 will be evenly spread through next year.
Dave Storms, Analyst, Stonegate: Understood. That's all very
Paul Huckfeld, Chief Financial Officer, Hooker Furniture: helpful. So apologies.
Dave Storms, Analyst, Stonegate: That's all very helpful. Thank you for taking my questions and good luck in the Q4.
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: Thank you.
Olivia, Conference Operator: Thank you. And I am showing no further questions in the Q and A queue at this time. I will now turn the call back over to Mr. Jeremy Ho for any closing remarks.
Jeremy Hoff, Chief Executive Officer, Hooker Furniture: I would like to thank everyone on the call for their interest in Hooker Furnishings and wish you all a happy holiday season. We look forward to sharing our fiscal 2025 full year results in April next year. Take care.
Olivia, Conference Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and you may now disconnect.
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