Hooker Furniture Reports 2005 Third Quarter Net Sales Increase
Furniture World Magazine
Hooker Furniture Corporation reported net sales of $82.4 million for its 2005 third quarter ended August 31, a 2.3% decline compared to 2004 third quarter net sales of $84.3 million. For the first nine months of fiscal 2005, net sales were $251.6 million, representing a decrease of 0.9% from record year-to-date sales of $254.0 million for the same 2004 period.
The Company recorded restructuring and asset impairment charges of $4.7 million pre-tax ($2.9 million after tax, or $0.25 per share) during the 2005 three-month period and $5.0 million pre-tax ($3.1 million after tax, or $0.27 per share) during the 2005 year-to-date period principally related to the previously announced closing of the Pleasant Garden, N.C. facility, scheduled for October 2005. Profitability in the 2004 periods was also impacted by restructuring charges. In the 2004 third quarter, the Company recorded $2.0 million pretax ($1.2 million after tax, or $0.10 per share) of restructuring and related asset impairment charges principally related to the October 2004 closing of the Company's Maiden, N.C. facility.
Primarily as a result of the 2005 restructuring charges net income for the 2005 third quarter declined to $664,000, or $0.06 per share, compared to net income of $3.2 million, or $0.27 per share for the same prior year period. The Company reported year-to-date 2005 net income of $8.5 million, or $0.72 per share, a 33.6% decrease from prior year-to-date net income of $12.8 million, or $1.09 per share. In addition to the impact of the restructuring charges and lower net sales, lower gross profit margins on domestically produced wood furniture and higher warehousing and distribution costs for imported wood furniture products also contributed to the decline in net income in the 2005 quarterly and year-to-date periods compared to the same 2004 periods.
During the 2005 third quarter, net sales of Bradington-Young upholstered leather furniture increased $882,000, or 6.3%, to $14.8 million from $13.9 million during the prior year period. Net sales of Hooker's wood and metal furniture decreased $2.8 million, or 4.0%, to $67.6 million in the 2005 quarterly period from $70.4 million in the 2004 third quarter.
Net sales of Hooker's imported wood and metal furniture during the 2005 third quarter increased $4.8 million, or 10.5%, to $50.7 million from $45.9 million in the 2004 third quarter. These sales gains were more than offset by a decline in shipments of the Company's domestically produced wood furniture of $7.6 million, or 30.9%, to $16.9 million in the 2005 third quarter from $24.5 million in the prior year period. For the first nine months of 2005 shipments of domestic wood products accounted for 23% of total revenues compared with 30% of total revenues for the 2004 fiscal year.
"As we forecasted in the second quarter, we've seen continuing strength in demand for our imported products as the year has progressed, along with more modest growth in our upholstered furniture sales," said Paul B. Toms Jr., Chairman and CEO. "Unfortunately these gains have been more than offset by the continuing challenges for domestic wood furniture orders, leading to our recently announced Pleasant Garden plant closing."
For several years, the Company has experienced decreased order and shipment rates for its domestically produced wood furniture, reflecting an industry-wide trend, and increased demand and sales for its imported wood and metal furniture. The continued decline in demand for domestically produced wood furniture necessitated the Pleasant Garden plant closing. "By closing the Pleasant Garden plant, we believe that our domestic wood furniture manufacturing capacity is better aligned with current demand," Toms said. Hooker expects to reduce production costs by $2.0 to $2.5 million annually, once the transfer of Pleasant Garden production to the Company's two remaining wood furniture plants is complete. The Company also anticipates recording $400,000 to $600,000 of additional restructuring charges in subsequent periods for other associated costs as the Pleasant Garden facility is prepared for sale following the plant's shut down.
"While disappointed in the short-term financial impact of the restructuring costs associated with the plant closing, we continue to have an optimistic long-term outlook as we employ our strategies to improve our logistics, marketing and systems," Toms said. "Two recently introduced, well-received whole-home collections - Preston Ridge and Casa del Sol - are shipping now to dealers, which should have a positive impact on sales through the fall."
The Company is also progressing in its strategy to gain more product display space with its dealers. Hooker is on target to open several in-store display galleries with existing retailers by year-end, featuring a broad assortment of its products under both the Hooker and Bradington-Young brands. Over 60 in-store boutiques dedicated to Hooker's Intimate Home furniture collection are scheduled to be in place this fall with retailers across the country.
Operating income as a percentage of net sales declined to 1.5% in the 2005 quarterly period, compared to 6.4% for the 2004 third quarter. For the year-to-date period, operating income margin declined to 5.8% from 8.5% in the comparable 2004 period.
The declines in operating income margin for the 2005 periods were driven primarily by:
- Restructuring charges causing reductions equal to 5.7% of net sales in the 2005 quarterly period and 2.0% of net sales in the 2005 nine-month period (restructuring charges recorded in the 2004 periods reduced operating income margin by 2.3% of net sales in the 2004 three-month period and 0.8% of net sales in the 2004 year-to-date period);
- Lower gross profit margins on domestically produced wood furniture attributed to inefficiencies from operating at lower production levels coupled with aggressive pricing and discounting; and
- Higher warehousing and distribution costs associated with imported wood and metal products.
In the third quarter of 2005, selling and administrative expenses decreased $440,000, or 2.8%, to $15.4 million from $15.8 million in the 2004 period. The decline in the 2005 third quarter is principally due to lower compliance costs related to corporate governance and financial reporting mandates under the Sarbanes-Oxley Act and lower selling costs, partially offset by higher warehousing and distribution costs associated with increased inventory of new multi-category collections and existing entertainment and office furniture designs. Selling and administrative expenses as a percentage of net sales was 18.6% in the 2005 third quarter compared to 18.7% in the same 2004 period.
In the first nine months of fiscal 2005, selling and administrative expenses increased by $1.25 million, or 2.7%, to $46.8 million from $45.5 million in the 2004 period, principally as a result of the higher warehousing and distribution costs described above. "This increase in expenses reflects our investment in supply chain management, warehousing facilities and distribution programs, which we expect will provide the Company and its retail customers with enhanced opportunities to exceed consumer expectations," Toms said.
Hooker Furniture continues to maintain a strong balance sheet and cash flow. During the first nine months of fiscal 2005, the Company increased its working capital by $8.0 million, or 8.2%, to $105.1 million from $97.1 million. Also during the year, the Company paid down $9.3 million in long-term debt, repurchased 50,000 shares of common stock for an aggregate cash payment of $930,000, or $18.60 per share, and increased the quarterly dividend to $0.07 per share compared to $0.06 per share paid last year. On September 28, 2005, the Board of Directors declared a dividend of $0.07 per share, payable on November 30, 2005 to shareholders of record November 15, 2005.
"We are concerned about retail conditions heading into the fall," Toms said. "Business at retail has been choppy, at best, with some regions of the country experiencing better demand than others. The recent hurricanes affecting the gulf and southeastern regions of the U. S. have also taken their toll on business. Our thoughts and prayers are with the people and families displaced by the storms," he added.
"Energy costs are the wildcard, with no one able to accurately predict where these costs will settle and thereby the impact they will have on consumer confidence and spending. Hooker Furniture Corporation is well positioned with a strong product line, in the right retail locations, and ample inventory if demand materializes. Noting these concerns, the Company is forecasting a decline in net sales of 3% to 7% for the 2005 fourth quarter compared to the record quarterly net sales reported for the 2004 quarterly period," Toms said.
Ranked as the nation's sixth largest publicly traded furniture producer based on 2004 shipments to U.S. retailers, Hooker Furniture is an 81-year old manufacturer and importer of home entertainment furniture and wall units, home office, bedroom and youth bedroom, casual and formal dining, accent, occasional and game table pieces, and leather and fabric upholstered residential furniture. With approximately 1,700 employees, the Company operates six manufacturing facilities, one supply plant, six distribution centers and warehouses, three showrooms and a corporate office in Virginia and North Carolina. The Company also utilizes a distribution center and warehouse in China. The Company's stock is listed on the NASDAQ Capital Market under the symbol HOFT, and closed at $16.57 per share on September 29, 2005. Please visit our websites at www.hookerfurniture.com and www.bradington-young.com.