Hooker Reports 5.8% Sales Decline For Shortened Reporting Period
Furniture World Magazine
Hooker Furniture reported net sales of $49.1 million for its two-month transition period of December 1, 2006 to January 28, 2007. The short reporting period was the result of the Company's transition from a fiscal year ending on November 30th to a fiscal year ending on the Sunday closest to January 31st each year. The Company's next fiscal year began January 29, 2007 and will end February 3, 2008.
As expected, the Company reported a net loss during the transition period. The net loss of $18.4 million, or $1.52 per share, was due to two large special charges:
- An $18.4 million non-cash, non-tax deductible charge related to the termination of the Company's Employee Stock Ownership Plan ("ESOP") effective January 26, 2007, which amounted to 37.6% of net sales. In connection with the ESOP termination, the Company wrote-off the related deferred tax asset in the amount of $855,000; and
-$3.0 million in restructuring charges, which amounted to 6.1% of net sales, principally for severance and termination benefits related to the announced decision to close the Company's last domestic wood furniture manufacturing plant, located in Martinsville, Va., by the end of this month.
The charges were partially offset by an improvement in gross profit margin to 27.8% of net sales for the 2007 two-month transition period, compared to 26.9% of net sales for the 2006 first quarter and a decline in selling and administrative expenses as a percentage of net sales to 19.3% in the 2007 transition period compared to 19.9% during the 2006 first quarter. Gross profit margin improved primarily as a result of an increased proportion of sales of higher margin imported wood and upholstered furniture. The reduction in selling and administrative costs as a percentage of net sales was primarily the result of lower port storage and temporary warehousing costs for imported wood furniture purchases.
"The net loss in our two-month transition period, resulting from a combined $21.4 million in restructuring and ESOP termination charges, should be viewed as an anomaly," said Paul B. Toms Jr., chairman, chief executive officer and president. "In fact, the termination of the ESOP and closing of the Martinsville facility, combined with declining warehousing and distribution costs, should position us forimproved profitability in our 2008 fiscal year, that began January 29, 2007." Toms added that "a clearer indicator of our outlook for bottom line performance can be seen in our gross profit margin improvement and the decline in selling and administrative expenses as a percentage of net sales during the period," he said.
Excluding the effect of the ESOP termination and restructuring and asset impairment charges, operating profitability as a percentage of net sales during the transition period improved when compared to the three month first quarter of fiscal 2006 ended February 28, 2006. The following table reconciles operating results as a percentage of net sales ("operating margin") to operating margin excluding ESOP termination charges and restructuring and asset impairment charges ("restructuring charges") for each period:
The Company had net sales of $49.1 million for the two-month transition period compared to $85.3 million for the three-month first quarter of 2006. Based on actual shipping days in each period, average daily net sales were $1,258,000 during the 39 day 2007 transition period, a 5.8% decline compared to $1,335,400 for the 42 day operating period from December 1, 2005 through January 31, 2006 and an 8.6% decline from $1,376,400 for the 62 day 2006 first quarter.
The decline in daily net sales mirrors the year-over-year decline in incoming order rates the Company has experienced since the 2006 third quarter resulting from the industry-wide slow down in business at retail. "As we indicated in our business outlook last quarter, sales activity continues to be challenging during the early going of this year," Toms said.
During the transition period, Hooker continued to make progress in its cash position and inventory levels. The Company generated over $16.2 million in cash flow from operating activities during the transition period. As of January 28, 2007, cash and cash equivalents were $47.1 million, a 48% increase compared to $31.9 million at the 2006 fiscal year end.
Finished goods inventory levels continued to decline and stood at $62.8 million on January 28, 2007. That represents a 7.8% decrease compared to $68.1 million at November 30, 2006 and a 25.0% decline compared to the peak inventory levels the Company reported at the end of August 31, 2006 of $83.8 million.
On February 13, 2007, Hooker Furniture announced that it has signed a letter of intent to purchase Sam Moore Furniture, a Bedford, Va.-based manufacturer of upscale occasional chairs with an emphasis on fabric-to-frame customization, from La-Z-Boy Incorporated in a strategic move to further diversify into fabric-covered upholstered seating.
At its March 15, 2007 meeting, the Hooker Furniture Board of Directors declared a dividend of $0.10 per share, payable on May 31, 2007 to shareholders of record May 17, 2007.
"Our business outlook has not changed, and we still expect retail conditions to remain challenging at least through the first half of 2007," Toms said. "Under current business conditions, we still expect improved financial performance because of the cost-cutting measures we have implemented and the continued progress in our supply chain management and warehousing and distribution operations," he said.
Ranked among the nation's top 10 largest publicly traded furniture sources based on 2005 shipments to U.S. retailers, Hooker Furniture is an 82-year old importer and manufacturer of residential wood, metal and upholstered furniture. The Company's principal customers are home furnishings retailers who are broadly dispersed throughout North America. Major furniture categories include home entertainment and wall units, home office, casual and formal dining, bedroom, bath furnishings, accent, occasional and motion and stationary leather and fabric upholstered furniture. With approximately 1,000 employees, the Company operates manufacturing plants and supply plants, several distribution centers, warehouses and showrooms and a corporate office in Virginia and North Carolina. Please visit our websites at www.hookerfurniture.com and www.bradington-young.com .