Net sales for the first quarter of fiscal 2013 decreased $6.7 million, or 11.4% compared to $58.4 million for the same period a year ago.
Hooker Furniture reported net sales of $51.7 million and net income of $1.0 million, or $0.09 per share, for its fiscal 2013 first quarter which began on January 30, 2012 and ended April 29, 2012, compared to $523,000, or $0.05 per share, for the comparable period last year. The higher net income was the result of decreased discounting, lower selling and administrative costs and a $760,000 bottom-line improvement in upholstery segment results.
Net sales for the first quarter of fiscal 2013 decreased $6.7 million, or 11.4% compared to $58.4 million for the same period a year ago. Unit volume declined in both of the Company's operating segments compared to the prior year quarter. The sales decrease was driven by out-of-stock positions on some key products, decreased discounting and, to a lesser extent and consistent with the Company's fiscal 2012 fourth quarter, delayed shipments due to vendor shifts from China to other countries. Lower sales volume was partially offset by increased average selling prices for both segments, due primarily to lower discounting.
"This quarter's sales results are disappointing because stock-outs on key items and groups offset the progress we have made in so many other facets of our business," said Paul B. Toms Jr., chairman and chief executive officer. "We're extremely pleased to have recorded a small operating profit in the upholstery segment this quarter. In addition, we have successfully worked through the heavy product discounting that impacted the first three quarters of last year, and ocean freight rates have stabilized at more favorable levels. The freshening of our product line has been rewarded with strong retailer acceptance of recent product introductions."
In domestic upholstery, Hooker "reduced operating losses by about 90%," Toms said. "We turned around an over $1 million operating loss in last year's first quarter to a slight profit for the upholstery segment in the current quarter," he said. A year ago, upholstery profitability was negatively impacted by the transfer of Bradington-Young's manufacturing and corporate headquarters from an older, inefficient plant in Cherryville, N.C. to a newer and more efficient factory in Hickory, N.C.
In addition to reaping the benefits of more efficient domestic production at Bradington-Young, improvements in upholstery results have also been accomplished by "purging the business of non-value added costs," said Michael Delgatti, president of Hooker Upholstery. "The introduction of creative and innovative programs and products at higher gross margins and our sales growth at Seven Seas Seating and Sam Moore have also been factors," he said.
Sam Moore Furniture, the Company's custom fabric upholstery line, grew sales approximately 9% this quarter compared to the same period a year ago, marking the fifth consecutive quarter of year-over-year sales increases.
"We believe these improvements in upholstery profitability are sustainable and that our out-of-stock challenges in imported leather and case goods are manageable," Toms said. "We have already addressed these issues by strengthening our team in Asia, which we expect will result in improved vendor performance and alignment and improved quality and delivery times. We expect our best-selling and new product inventory availability to improve by the middle of the second quarter, which will position us to regain the momentum we've lost."
Gross profit decreased in absolute terms by $111,000 to $10.9 million, but increased as a percentage of net sales to 21.1% in the fiscal 2013 first quarter, compared to $11.0 million, or 18.9% of net sales in the same period a year ago mainly as a result of decreased net sales which were negatively impacted due to the best-seller out-of-stocks discussed earlier. The decrease in net sales was partially offset by lower discounting in both segments, as well as significantly lower domestic upholstery manufacturing costs. As a percentage of net sales, gross margins increased due primarily to lower freight costs, decreased discounting and improved upholstery segment results.
Selling and administrative expenses decreased in absolute terms by $892,000 to $9.4 million, but increased as a percentage of net sales to 18.2% for the fiscal year 2013 first quarter, compared to $10.3 million, or 17.6% of net sales for the fiscal year 2012 first quarter. The increase in selling and administrative expenses as a percentage of net sales is primarily due to the decline in net sales during the fiscal 2013 first quarter. In absolute terms, selling and administrative expenses decreased primarily due to lower charitable contribution expense, lower sales and design commissions, lower bad debts expense, lower sample expense and lower salaries expense.
Operating income for the fiscal 2013 first quarter increased to $1.5 million or 3.0% of net sales as compared to $747,000, or 1.3% of net sales during the comparable 2012 quarterly period.
Cash, Inventory and Debt Levels
Cash and cash equivalents increased by $7.6 million to $48.0 million as of April 29, 2012 from $40.4 million on January 29, 2012 due principally to lower inventories and accounts receivable, which together decreased approximately $5.5 million during the quarter and increased accounts payable.
"The Company's financial and cash position remains very strong," Toms said. "We will spend down some of that cash as we rebuild inventories over the remainder of the fiscal year and through our planned capital expenditures. We are leveraging our strong financial condition by continuing to pay cash dividends to our shareholders and through the share repurchase program we announced in April."
The Company had no long-term debt at April 29, 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.
"The spring furniture market was very strong for Hooker," Toms said. "Our attendance was up about 20% compared to a year ago, and there was a lot of excitement surrounding our new showroom. We had great reaction to many of our introductions, especially our Rhapsody casegoods and upholstery collection and our new Sam Moore fabric sofa program. However, retailers reported a marked slowing of business in March and April, which was reflected in weaker incoming orders during our first quarter. In the second quarter, we'll still be working through the temporary impact of not being able to convert our backlog into shipments, although we expect to begin shipping key collections in June. As the usually slower summer selling season progresses, we expect our in-stock position will improve steadily. It will take a little longer to regain the floor space we've lost, but we are positioning ourselves to recapture it and fully expect to in time. We don't expect a significant improvement in demand until fall, but are gratified by encouraging developments in the economy such as improvements in the housing market, stable employment and the adjustment of consumers to a 'new normal.' We expect the consumer will continue to regain confidence to spend on larger ticket, deferrable purchases but also believe the recovery will be slow and choppy."
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