Hooker Furniture Corporation reported net sales of $77.3 million and net income of $4.3 million, or $0.33 per share, for the quarter ended April 29, 2007.
Due to a change in Hooker Furniture’s fiscal year, the Company’s 2008 fiscal year began January 29, 2007 and will end February 3, 2008. The Company will compare its operating results for the thirteen-week first quarter of fiscal year 2008 with the 2006 three-month second quarter that ended May 31, 2006 (the “2006 quarter”).
First quarter 2008 net sales of $77.3 million decreased $13.4 million, or 14.8%, compared to the 2006 quarter net sales of $90.7 million. Based on actual shipping days in each period, average daily net sales declined 13.4% to $1.2 million per day during the 64 operating days in the 2008 first quarter compared to $1.4 million per day during the 65 operating days in the 2006 quarter.
2008 first quarter net income of $4.3 million decreased $1.5 million, or 26.5%, compared to the 2006 quarter net income of $5.8 million. Earnings per share of $0.33 decreased $0.16, or 32.7%, when compared to the 2006 quarter earnings per share of $0.49. Contributing to the decrease in earnings per share was a net increase of 1.2 million shares primarily resulting from the termination of the Company’s Employee Stock Ownership Plan in January 2007, partially offset by stock repurchased since February 2007.
“We knew that the top line would be our biggest challenge this quarter because of continuing weakness at retail,” said Paul B. Toms Jr., chairman, chief executive officer and president. “Even though the sales slump is industry-wide, our double-digit decrease in revenues is greater than anticipated and disappointing. While we are on track with many of our operational improvements and cost-cutting goals, the resulting savings were not apparent due to lower than expected sales volume.”
Toms added that Hooker continues to make progress in “positioning the Company to be more profitable even in a flat sales environment. Our cost structure improvements are underway and should be more evident in the second half of the year.”
Operating income for the first quarter 2008 was $6.2 million, or 8.0% of net sales. This compares to operating income of $9.4 million, or 10.3% of net sales in the 2006 quarter. “The fact that we were down nearly 15% in net sales and were still able to achieve a respectable 8% operating margin is evidence of the costs we’ve taken out of the business,” Toms said.
Operating margin was favorably impacted by the elimination of non-cash ESOP cost resulting from the January 2007 termination of that benefit plan and decreases in temporary warehousing and storage costs for imported wood furniture products. However, these cost improvements were not sufficient to offset the larger than expected decline in year-over-year net sales for two primary reasons:
1. Production costs increased as a percentage of sales for domestically produced wood and upholstered furniture principally due to lower production levels and higher production costs incurred in connection with closing the Martinsville wood furniture manufacturing facility.
2. Although selling and administrative expenses declined during the 2008 fiscal first quarter compared to the 2006 period, these expenses increased as a percentage of net sales to 20.7% compared to 19.1% in the prior year period.
Reflecting its cost-cutting efforts, Hooker reduced selling and administrative expenses by 7.6% to $16.0 million in the fiscal year 2008 first quarter from $17.3 million in the 2006 second quarter. The reduction resulted from lower selling expenses, principally advertising and lower warehousing and distribution costs.
“We are gratified by continuing reductions in our inventories and our strong cash position,” said Toms. At the end of the fiscal 2008 first quarter inventories, which includes $4.8 million from the Sam Moore acquisition, were $54.6 million, a 13.1% decrease from $62.8 million at the end of the two-month transition period ended January 28, 2007, a 19.9% decrease from $68.1 million at November 30, 2006 and a 34% decrease from $83.1 million at the end of the 2006 quarter.
During the 2008 first quarter, the Company generated $19.6 million in cash flow from operations benefited by the “sell-down” in inventories. Operating cash flow during the current year quarter principally funded the acquisition of Sam Moore ($10.2 million), common stock repurchases ($7.3 million), dividends, capital expenditures and debt repayments. Cash and cash equivalents were $46.7 million at the end of the 2008 first quarter. That cash position represents a 46.5% increase from $31.9 million at the 2006 fiscal year-end on November 30, and a 269% increase when compared to the cash position of $12.6 million at the end of the 2006 quarter.
“We expect sluggish retail conditions to continue at least through the summer months,” Toms said. “We’re in the challenging position of needing to replace revenues lost from domestically produced wood furniture sales from last year, due to the closing of our domestic wood furniture plants, in a very difficult retail environment. However, upholstery sales from Sam Moore will begin to replace sales levels lost by our exit from domestic wood manufacturing. We expect that profitability for fiscal 2008 should improve even in the face of weak business due to the cost-cutting measures the Company has implemented and the continued progress in managing our supply chain, warehousing and distribution operations. In addition, a number of expenses that occurred in the second half of the previous year have been eliminated and are not expected to recur in 2008, including restructuring costs, early retirement costs and non-cash ESOP cost.”
Ranked among the nation's top 10 largest publicly traded furniture sources based on 2006 shipments to U.S. retailers, Hooker Furniture is an 83-year old residential wood, metal and upholstered furniture resource. The Company’s principal customers are home furnishings retailers who are broadly dispersed throughout North America. Major wood furniture product categories include home entertainment, home office, accent, dining, bedroom and bath furniture. Hooker’s residential upholstered seating companies include Cherryville, N.C.-based Bradington-Young, a specialist in upscale motion and stationary leather furniture, and Bedford, Va.-based Sam Moore Furniture, a specialist in upscale occasional chairs with an emphasis on fabric-to-frame customization. Please visit our websites at www.hookerfurniture.com, www.bradington-young.com and www.sammoore.com.
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