The following discussion should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements, including the related Notes, contained elsewhere in this annual report.

On August 29, 2006, Hooker approved a change in our fiscal year. After the fiscal year that ended November 30, 2006, our fiscal year ends on the Sunday nearest to January 31. In addition, starting with the fiscal year that began January 29, 2007, we adopted quarterly periods based on thirteen-week "reporting periods" (which will end on a Sunday) rather than quarterly periods consisting of three calendar months. As a result, each quarterly period generally will be thirteen weeks, or 91 days, long. However, since our fiscal year will end on the Sunday closest to January 31, in some years (generally once every seven years) the fourth quarter will be fourteen weeks long and the fiscal year will consist of 53 weeks (e.g., the fiscal year that ended February 3, 2008 was 53 weeks). For more information about the changes in our fiscal year and quarterly periods, please refer to our Form 8-K filed with the Securities and Exchange Commission on September 1, 2006.

In connection with the change in our fiscal year, we completed a two-month transition period that began December 1, 2006 and ended January 28, 2007 and filed a transition report on Form 10-Q for that period on March 16, 2007. The financial statements filed as part of this annual report on Form 10-K include the:
· fifty-two week period that began February 4, 2008 and ended on February 1, 2009;

· fifty-three week period that began January 29, 2007 and ended on February 3, 2008;

· two-month transition period that began December 1, 2006 and ended January 28, 2007; and

· twelve-month period that ended November 30, 2006. We did not recast the financial statements for the twelve-month period ended November 30, 2006, principally because the financial reporting processes in place for that period included certain procedures that were completed only on a quarterly basis. Consequently, to recast that period would have been impractical and would not have been cost-justified.

For fiscal year 2009 we reclassified warehousing and distribution and operations management expenses from selling and administrative expenses to cost of sales in our consolidated financial statements and accompanying notes. Accordingly, these costs have also been reclassified for prior periods to conform to the current year's method of presentation. We reclassified $16.8 million for fiscal 2009 and $15.5 million for fiscal 2008.

Overview

We have seen a growing consumer preference for lower-priced, high-quality imported furniture products since 2001. Led by the change in consumer demand, from 2003 to 2008 we systematically increased our reliance on high-quality imported home furnishings with a coordinated exit from domestic wood furniture manufacturing. We closed our last domestic wood manufacturing plant during the 2008 first quarter. Following the sale of all manufacturing assets no longer needed in the business and the reduction in the workforce of approximately 2,000 wood manufacturing employees, we have replaced a domestic operating model for wood furniture, which had high overhead and high fixed costs, with a low overhead, variable cost import model.

Since 2006, our business has been impacted by low levels of consumer confidence and a weak housing market. By late 2008, the economic malaise, exacerbated by weak credit markets, had spread to the broader U.S. economy. As a result, the residential home furnishings industry has seen an unprecedented decline in demand for its products.

Results of operations for the 52 weeks ended February 1, 2009 and the fifty-three weeks ended February 3, 2008 reflect our transformation into a home furnishings design, marketing and logistics company with world-wide sourcing capabilities. We are now focused on imported wood and metal furniture, as well as both domestically produced and imported upholstered home furnishings.

In early 2007, we completed the acquisition of substantially all of the assets of Sam Moore Furniture Industries, Inc., a Bedford, Virginia manufacturer of upscale occasional chairs with an emphasis on fabric-to-frame customization in the upper-medium to high-end price niches. We began operating the business as Sam Moore Furniture LLC during the fiscal 2008 second quarter. On December 14, 2007, we completed our acquisition of certain assets of Opus Designs Furniture, LLC, a specialist in moderately-priced imported youth furniture. We have integrated this business with our existing imported wood and metal furniture business and now offer this brand to customers as Opus Designs by Hooker.

Because fiscal 2009 included four fewer shipping days than fiscal 2008, management's discussion of results of operations includes information regarding profitability performance as a percentage of net sales and daily average sales rates.

Following are the principal factors that impacted our results of operations during the 52-week period ended February 1, 2009:

· Based on operating days in each period and excluding discontinued, domestically produced wood furniture, average daily net sales declined 15.1% during the 251-day 2009 fiscal year compared to the 255-day 2008 fiscal year. The decline in average daily net sales mirrors the year-over-year decline in incoming order rates we have experienced since the fiscal 2006 third quarter resulting from an industry-wide slow down in business at retail.

· Operating margin during the 2009 fiscal year compared with the 2008 fiscal year was negatively impacted by a decrease in gross profit margin, an increase in selling and administrative expenses as a percentage of sales, and impairment charges incurred in fiscal 2009.

We experienced an erosion of gross profit margin to 23.1% of net sales compared with 25.8% in the prior fiscal year, largely due to an increase in direct costs as a percentage of net sales, resulting from:

· higher prices from virtually all suppliers of imported products,

· higher ocean freight costs, including fuel surcharges, higher upholstery material costs, and

· increased warehousing expense from the addition of two facilities in Asia, and the West Coast Service Center in California.

Selling and administrative expenses increased as a percentage of net sales, due to lower net sales. However, these expenses actually declined by $5.8 million, or 11.1%, driven primarily by:

· lower selling and compensation expenses, and

· lower professional fees and lower contributions expense, due to the donation of the High Point showrooms in fiscal 2008.

These cost reductions were partially offset by higher allowance for bad debts and costs incurred to introduce the Opus Designs by Hooker product line to our customer base.

Finally, we recorded $4.9 million in asset impairment charges during the 2009 fourth quarter, including
· the elimination of all goodwill related to Bradington-Young and Opus Designs by Hooker Youth Furniture lines and

· a partial write down the carrying value of the Bradington-Young trade name.

Results of Operations

The following table sets forth the percentage relationship to net sales of certain items for the annual periods included in the consolidated statements of income:

                                                         Fifty-Two         Fifty-Three          Twelve
                                                        Weeks Ended        Weeks Ended       Months Ended
                                                        February 1,        February 3,       November 30,
                                                            2009              2008               2006

Net sales                                                   100.0 %            100.0 %            100.0 %
Cost of sales                                                76.9               74.2               77.0
Gross profit                                                 23.1               25.8               23.0
Selling and administrative expenses                          17.6               16.3               14.5
Restructuring (credits) charges                              (0.4 )              0.1                2.0
Goodwill and intangible asset impairment charges              1.9
Operating income                                              4.0                9.4                6.5
Other income (expense), net                                   0.1                0.5
Income before income taxes                                    4.1                9.8                6.5
Income taxes                                                  1.5                3.6                2.5
Net income                                                    2.6                6.2                4.0

Fiscal 2009 Compared to Fiscal 2008

For fiscal 2009, Hooker Furniture reported net sales of $261.2 million, a decrease of $55.6 million, or 17.6%, compared to $316.8 million in fiscal 2008. Net sales of our wood and metal furniture decreased $48.7 million, or 20.6%, to $188.2 million during fiscal 2009 compared to net sales of $236.9 million in fiscal 2008, principally due to lower unit volume. The decline in wood and metal furniture unit volume was attributed to a sharp decline in sales as a result of the industry-wide slow down in business at retail and lower shipments of discontinued domestically produced wood furniture.

Based on operating days in each period, and excluding the impact of discontinued, domestically produced wood furniture, average daily net sales declined 15.1% to $1.0 million per day during the 251-day 2009 fiscal year, compared to $1.2 million per day during the 255-day 2008 fiscal year. We experienced lower average daily unit volume shipments overall and in every product category, except youth bedroom and upholstered seating, which increased due to the acquisition of Opus Designs in December 2007 and the inclusion of a full year of sales for Sam Moore, which was acquired in April 2007.

Overall, average selling prices declined significantly. The primary contributors to the overall decline were;
· the sharp drop in the average selling price of upholstered furniture. This drop was due to the increased proportion of upholstery sales of less expensive, predominantly fabric-covered products manufactured by Sam Moore, which was in its first full year as a Hooker subsidiary, and

· the impact of our exit from the domestic wood and metal furniture business.

The unit volume of higher priced domestically produced wood products was partially replaced by lower priced imports. The remaining domestic wood products were heavily discounted during fiscal 2009. The average selling price for imported wood and metal furniture decreased due to heavier discounting in a challenging market and the mix of products shipped. Bradington-Young's imported and domestically produced leather upholstered furniture showed higher average selling prices while Sam Moore's average prices declined in both categories.

Gross profit margin for fiscal 2009 decreased to 23.1% of net sales compared to 25.8% in fiscal 2008, primarily due to:
· increased product and shipping and warehousing costs,

· lower fixed cost absorption due to lower sales of domestically produced upholstered furniture, and

· higher warehousing and distribution expenses due to the addition of two facilities in China and one in California.

These costs were partially offset by lower salary and benefit expenses resulting from staff reductions at our Bradington-Young and domestic wood and metal furniture operations.

For fiscal 2009, selling and administrative expenses decreased $5.8 million, or 11.1%, to $46.0 million, compared with $51.7 million in 2008, due to:
· last year's donation of two former Bradington-Young's showrooms to a local university, and

· lower selling expenses, professional fees and administrative payroll costs.

These costs were partially offset by higher bad debt expenses.

As a percentage of net sales, selling and administrative expenses increased to 17.6% in fiscal 2009 from 16.3% in fiscal 2008, due to lower net sales in the current year.

During fiscal 2009, we recorded $4.9 million ($3.1million after tax, or $0.28 per share) in goodwill and intangible asset impairment charges, principally related to:

· a write-off of $1.4 million in goodwill resulting from the 2007 acquisition of Opus Designs

· a write-off of $2.4 million in goodwill remaining from the Company's purchase of Bradington-Young in 2003;

· an impairment charge of $1.1 million in the value of the Bradington-Young trade name.

We also recorded restructuring credits of $951,000 ($592,000 after tax or $0.05 per share) in fiscal 2009 for previously accrued employee benefits and environmental costs not expected to be paid.

During fiscal 2008, we recorded $309,000 ($190,000 after tax, or $0.02 per share) in restructuring and asset impairment charges (net of restructuring credits).

Our operating income margin for fiscal 2009 decreased to 4.0% of net sales, compared to operating income margin of 9.4% of net sales for fiscal 2008, principally due to:

· the $3.7 million increase in restructuring and goodwill and intangible asset impairment costs;

· the decrease in gross profit margin to 23.1% from 25.8%; and

· the increase in selling and administrative expenses as a percentage of net sales to 17.6% in 2009 compared to 16.3% in fiscal 2008, due to the decline in sales (although these costs decreased $5.8 million or 11.1%).

Excluding the effect of restructuring and goodwill and intangible asset impairment charges, operating profitability in fiscal 2009 still declined year over year compared to fiscal 2008, primarily as a result of lower gross profit margins on our imported wood and metal furniture and domestic and imported upholstered furniture. The following table reconciles operating income as a percentage of net sales ("operating margin") to operating margin excluding these charges ("restructuring and special charges") as a percentage of net sales for each period:

                                                                   Fifty-Two         Fifty-Three
                                                                  Weeks Ended        Weeks Ended
                                                                  February 1,        February 3,
                                                                      2009              2008
Operating margin, including restructuring and special charges            4.0 %             9.4 %
Goodwill and intangible asset impairment charges                         1.9
Donation of two showrooms                                                                  0.3
Restructuring (credits) charges                                         (0.4 )             0.1
Operating margin, excluding restructuring and special charges            5.5 %             9.8 %

The operating margin excluding the impact of restructuring charges and special charges is a "non-GAAP" financial measure. We provide this information because we believe it is useful to investors in evaluating our ongoing operations. Non-GAAP financial measures are intended to provide insight into selected financial information and should be evaluated in the context in which they are presented. These measures are not intended to reflect our overall financial results.

Other income, net was $323,000, or 0.1% of net sales, for fiscal 2009, compared to other income, net of $1.5 million for fiscal 2008, primarily the consequence of a decrease in interest income from lower interest rates and lower cash balances.

Our effective tax rate decreased to 35.2% for fiscal 2009, compared to 36.9% for fiscal 2008. The decrease was principally a result of an increase in non-cash charitable contributions of finished furniture as a percentage of pretax income and lower net cost related to our captive insurance program.

Net income for fiscal 2009 declined by 64.8%, or $12.8 million, to $6.9 million, or $0.62 per share, from $19.7 million, or $1.58 per share, for fiscal 2008. As a percent of net sales, net income decreased to 2.6% in fiscal 2009 compared to 6.2% for fiscal 2008.

Fiscal 2008 Compared to Fiscal 2006

For fiscal 2008, we reported net sales of $316.8 million, a decrease of $33.2 million, or 9.5%, compared to $350.0 million in fiscal 2006. Net sales of our wood and metal furniture decreased $50.2 million, or 17.5%, to $236.9 million during fiscal 2008 compared to net sales of $287.1 million in fiscal 2006, principally due to lower unit volume. The decline in wood and metal furniture unit volume was attributed to a sharp decline in discontinued domestically produced wood furniture sales and an industry-wide slow down in business at retail. We experienced lower average daily unit volume on shipments overall and in every product category except Bradington-Young imported leather upholstery, which experienced a slight increase in fiscal 2008, compared to fiscal 2006. Sam Moore fabric upholstery sales amounted to $20.8 million for the three quarters since it was acquired at the beginning of the fiscal 2008 second quarter.

Based on actual shipping days in each period, average daily net sales declined 10.6% to $1.2 million per day during the 255-day 2008 fiscal year compared to $1.4 million per day during the 252-day 2006 fiscal year.

Overall, average selling prices declined slightly. The primary contributor to the overall decline was the sharp decline in domestically produced wood furniture average selling prices, principally due to sharp discounting offered on these discontinued products. We experienced slight increases in average selling prices for imported wood and metal and Bradington-Young imported and domestically produced leather upholstered furniture. Average selling prices for imported wood and metal furniture during fiscal year 2008 increased in part due to the mix of products shipped and lower discounting, compared to fiscal year 2006. While average selling prices per unit for both Bradington-Young domestically produced and imported leather upholstered furniture increased, Bradington Young's overall per unit average selling price declined slightly, due to the higher proportion of imported products shipped.

Gross profit margin for fiscal 2008 increased to 25.8% of net sales compared to 23.0% in fiscal 2006, principally due to the larger proportion of sales of higher margin imported products and the lower delivered cost of those products as a percentage of net sales, as well as to reductions in temporary warehousing and storage costs for imported wood furniture products.

For fiscal 2008, selling and administrative expenses increased $1.1 million, or 2.1%, to $51.7 million compared with $50.7 million in 2006. The increase is principally due to the selling and administrative expenses incurred by Sam Moore and a $1.1 million charitable contribution for the donation of two former Bradington-Young showrooms to a local university. These cost increases were offset by lower early retirement and non-cash ESOP costs, lower selling expenses and a gain on the settlement of a corporate-owned life insurance policy in connection with the death of a former Hooker executive. As a percentage of net sales, selling and administrative expenses increased to 16.3% in fiscal 2008 from 14.5% in fiscal 2006, due to lower net sales in the current year.

During fiscal 2008, we recorded $309,000 ($190,000 after tax, or $0.02 per share) in restructuring and asset impairment charges (net of restructuring credits), including:

· $553,000 for additional asset impairment, disassembly and exit costs associated with the closing of the Martinsville, Va. domestic wood manufacturing facility in March 2007; net of

· a restructuring credit of $244,000, principally for previously accrued health care benefits for terminated employees at the former Pleasant Garden, N.C., Martinsville, Va. and Roanoke, Va. facilities that are not expected to be paid.

During fiscal 2006, we recorded $6.9 million ($4.3 million after tax, or $0.36 per share) in restructuring and asset impairment charges (net of restructuring credits).

Our operating income margin for fiscal 2008 increased to 9.4% of net sales, compared to operating income margin of 6.5% of net sales for fiscal 2006, principally due to:

· the $6.6 million, or 95.5%, decrease in restructuring and asset impairment costs;

· the increase in gross profit margin to 25.8% from 23.0%; partially offset by

· the increase in selling and administrative expenses as a percentage of net sales to 16.3% in 2008 compared to 14.5% in fiscal 2006, due to the decline in sales, but also to the addition of Sam Moore and the large donation of property to a local university.

Excluding the effect of restructuring and asset impairment charges and the December 2007 donation of the two former Bradington-Young showrooms, operating profitability in fiscal 2008 improved year over year compared to fiscal 2006, principally as a result of higher gross profit margins on our imported wood and metal furniture. The following table reconciles operating income as a percentage of net sales ("operating margin") to operating margin excluding these charges ("restructuring and special charges") as a percentage of net sales for each period:

                                                                  Fifty-Three      Twelve Months
                                                                  Weeks Ended          Ended
                                                                  February 3,       November 30,
                                                                     2008               2006
Operating margin, including restructuring and special charges           9.4 %              6.5 %
Donation of two showrooms                                               0.3
Restructuring charges                                                   0.1                2.0
Operating margin, excluding restructuring and special charges           9.8 %              8.5 %

The operating margin excluding the impact of restructuring charges and the showrooms donation is a "non-GAAP" financial measure. We provide this information because we believe it is useful to investors in evaluating our ongoing operations. Non-GAAP financial measures are intended to provide insight into selected financial information and should be evaluated in the context in which they are presented. These measures are not intended to reflect our overall financial results

Other income, net was $1.5 million, or 0.5% of net sales, for fiscal 2008 compared to other expense, net of $77,000 for fiscal 2006. This improvement was the result of an increase in interest income earned on higher cash and cash equivalent balances and a decrease in interest expense on lower debt levels.

Our effective tax rate decreased to 36.9% for fiscal 2008 compared to 37.7% for fiscal 2006. The effective rate declined in fiscal 2008 principally due to the tax effect of the ESOP. In fiscal 2008, we reversed previously recorded income tax expense related to our ESOP in connection with the settlement of an IRS audit. In addition, we recorded no ESOP compensation cost during the current year period after the termination of that plan in January 2007. The effective rate also declined during the current year period due to the non-taxable gain recorded on the settlement of a corporate owned life insurance policy discussed previously, and lower assessments under our captive insurance arrangement compared to fiscal 2006. These declines were partially offset by an increase in our effective state income tax rate, principally attributed to California state income taxes incurred as a result of opening the new West Coast distribution center.

Net income for fiscal 2008 rose by 39.0%, or $5.5 million, to $19.7 million, or $1.58 per share, from $14.1 million, or $1.18 per share, for fiscal 2006. As a percent of net sales, net income increased to 6.2% in fiscal 2008 compared to 4.0% for fiscal 2006.

Fiscal 2007 Two-Month Transition Period Compared to Fiscal 2006 First Quarter

The following table sets forth the percentage relationship to net sales of
certain items included in the consolidated statements of operations.

                                                        Two Months      Three Months
                                                           Ended           Ended
                                                        January 28,     February 28,
                                                           2007             2006

  Net sales                                                  100.0 %          100.0 %
  Cost of sales                                               77.2             78.8
  Gross profit                                                22.8             21.2
  Selling and administrative expenses                         14.2             14.2
  ESOP termination compensation charge                        37.6
  Restructuring and related asset impairment charges           6.1              0.2
  Operating (loss) income                                    (35.1 )            6.8
  Other income, net                                            0.3
  (Loss) income before income taxes                          (34.9 )            6.8
  Income taxes                                                 2.7              2.6
  Net (loss) income                                          (37.5 )            4.2

Net sales for the 2007 two-month transition period ended January 28, 2007 were $49.1 million and were $85.3 million for the fiscal 2006 three-month period. Based on actual shipping days in each period, average daily net sales declined 5.8% to $1,258,000 per day during the 39-day fiscal 2007 transition period compared to $1,335,400 per day during the 42-day operating period from December 1, 2005 through January 31, 2006 and 8.6% from $1,376,400 per day during the 62-day fiscal 2006 first quarter.

Average daily net sales increased for imported wood, metal and upholstered furniture for the 2007 transition period compared to the fiscal 2006 first quarter, principally due to slightly higher unit volume. This increase was offset by a continued decline in average daily net sales rates for domestically manufactured wood furniture and a moderate decline in average daily net sales rates for domestically produced upholstered furniture.

Overall average selling prices decreased slightly for wood, metal and upholstered furniture during the 2007 two-month transition period compared with the fiscal 2006 first quarter, principally due to higher sales discounting offered on overstocked and discontinued domestically produced wood furniture products, as well as a small decline in domestic upholstered furniture selling prices, partially offset by increases in imported wood and upholstered furniture average selling prices. Average number of units sold per day declined during the 2007 two-month transition period compared to the fiscal 2006 first quarter. Average per-day unit sales for imported wood and metal and upholstered furniture increased slightly, while average daily per unit sales for domestic upholstered furniture declined moderately and domestic wood and metal furniture average per-day unit sales declined sharply.

Gross profit margin increased to 22.8% of net sales in the 2007 two-month . . .