Hooker Furniture Corporation reported net sales of $73.4 million and net income of $4.9 million, or $0.39 per share (net of $293,000, or $0.02 per share in after-tax restructuring charges), for the quarter ended July 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 second quarter of fiscal year 2008 with the 2006 three-month third quarter that ended August 31, 2006 (the "2006 quarter").
Second quarter 2008 net sales of $73.4 million decreased $9.6 million, or 11.5%, compared to the 2006 quarter net sales of $83.0 million. Based on actual shipping days in each period, average daily net sales declined 10.1% to $1.15 million per day during the 64 operating days in the 2008 second quarter compared to $1.28 million per day during the 65 operating days in the 2006 quarter.
2008 second quarter net income of $4.9 million increased $3.6 million, or 301.4%, compared to the 2006 quarter net income of $1.2 million. Earnings per share of $0.39 increased $0.29, or 290%, when compared to the 2006 quarter earnings per share of $0.10. Operating income for the 2008 second quarter increased to $7.5 million, or 10.2% of net sales, compared to operating income of $2.0 million, or 2.5% of net sales, in the 2006 quarter. The primary contributors to the increase in net income, earnings per share and operating income were:
- An improvement in gross profit margin to 31.3% of net sales compared with 28.3% in the prior year quarter, principally as a result of the higher proportion of imported wood and metal products sold and lower delivered cost of those imported products (primarily lower inbound freight and delivery costs) as a percentage of net sales; and,
- a $3.5 million, or 18.9% decline in selling and administrative costs, driven primarily by reductions in temporary warehousing and port storage costs for imported wood furniture products, lower early retirement and non-cash employee stock ownership plan ("ESOP") costs (the ESOP was terminated in January 2007), lower selling expenses and a gain on corporate owned life insurance in connection with the death of a former executive of the Company, partially offset by the selling and administrative expenses incurred by Sam Moore Furniture (acquired in April 2007); and,
- a $2.4 million, or 83.3% decrease in restructuring and asset impairment costs.
Earnings per share improvements resulting from higher net income were reduced by a net increase in weighted average shares outstanding resulting from:
- 1.2 million shares released to employees in the January 2007 termination of the ESOP;
- partially offset by the weighted average effect of common stock repurchases since February 2007.
"We're pleased with our improved profitability and operational performance this quarter, even in the face of lower sales," said Paul B. Toms Jr., Hooker's chairman, chief executive officer and president. "Our increased profitability confirms the opportunity we've seen for some time to improve financial and operational performance even in a difficult retail environment, by realizing the efficiencies of our new business model. Our improved operating margin for the current quarter reflects the cost cutting initiatives we've had underway and the absence of significant restructuring charges," he said.
"While sales this quarter were negatively impacted by the industry-wide sales slump, much of the shortfall is the result of our exit from domestic wood furniture manufacturing, which will have a smaller negative impact on both our top and bottom lines moving forward," he continued. Net sales decreased across all established product lines including wood, metal and leather upholstered furniture, partially offset by $6.7 million in net sales from Sam Moore Furniture's fabric upholstery operations, which were acquired by Hooker on April 28, 2007.
"We also are gratified by our continued progress in managing our finished goods inventories and believe we're adequately inventoried for the sales up-tick we typically see in the fall," Toms said. "In addition, we've been able to generate good cash flow and maintain a strong cash position." At the end of the 2008 second quarter, inventories of $51.6 million (excluding $5.0 million in inventory related to Sam Moore), decreased 24.3% from $68.1 million at November 30, 2006, and 38.4% from $83.8 million at the end of the 2006 third quarter.
During the 2008 first half, the Company generated $23.8 million in cash flows from operations. The Company used this cash flow and an additional $9.9 million in cash and cash equivalents during the 2008 six-month period to fund: 1) common stock repurchases ($18.4 million); 2) the acquisition of Sam Moore ($10.6 million); 3) dividends ($2.6 million); 4) capital expenditures ($1.0 million, net of disposals); and 5) scheduled debt repayments ($1.2 million). Cash and cash equivalents were $37.2 million at the end of the 2008 second quarter compared to $46.7 million at the end of the 2008 first quarter. The July 29, 2007 cash position represents a 9.9% increase from $31.9 million at the 2006 fiscal year-end on November 30, and a 253.4% increase when compared to the cash position of $10.5 million at the end of the 2006 third quarter.
"While retail conditions continue to be challenging, we expect the typical increase for furniture sales as we enter the fall," said Toms. "If we see a flat to moderately reduced sales environment, financial performance for the remainder of this fiscal year should continue to compare favorably year-over-year as a result of our ongoing cost-cutting measures, continued progress in managing our supply chain and the elimination of major restructuring and ESOP costs. We expect continued year-over-year declines in warehousing and distribution costs due to better management of our finished goods inventories and lower temporary warehousing and port storage costs resulting from the continuing consolidation of our domestic warehousing operations."
During the recently completed second quarter, Hooker appointed veteran furniture executive Alan D. Cole to the new senior management position of Executive Vice President of Upholstery. In that capacity, he will oversee the operations of Bradington-Young and Sam Moore. Cole served on Hooker's Board of Directors from December 2002 to March 2004and has held senior management positions at other leading upholstered furniture companies. "Alan has the expertise in upholstery to help us realize our strategic objective to become a more important and complete upholstered furniture resource," added Toms.
The Company's Board of Directors previously authorized the repurchase of up to $30 million of the Company's common stock. "The Board's actions demonstrate its continued confidence in the Company's strategy, growth opportunities and financial strength," said Toms. "We continue to see the purchase of Hooker's shares as a wise use of the Company's cash and a way to enhance shareholder value." Through July 29, 2007, the Company has repurchased approximately 832,000 shares of Company common stock at a total cost, excluding commissions, of approximately $18.3 million, or an average of $22.03 per share, under the authorization.
Also, the Company's Board of Directors today declared a quarterly cash dividend of $0.10 per share, payable on November 30, 2007 to shareholders of record November 15, 2007.
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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