This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the thirteen week (also referred to as "three months," "three-month period," "quarter" or "quarterly period") period ended May 3, 2009. This report discusses our results of operations for the period compared to the fiscal year 2009 thirteen-week first quarter that ended May 4, 2008 and our financial condition as of May 3, 2009. References in this report to the 2010 fiscal year or comparable terminology refer to the fiscal year that began February 2, 2009 and will end January 31, 2010.

In the fiscal year 2009 fourth quarter we reclassified shipping and warehousing costs from selling and administrative expenses to cost of sales in our condensed consolidated financial statements and accompanying notes. Accordingly, these costs have also been reclassified for prior periods to conform to the new method of presentation. We reclassified $4.6 million for the 2009 first quarter.

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 focus 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 fiscal year 2008 first quarter and completed the sale of all manufacturing assets no longer needed in the business in December 2007. As a result, 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. We are now focused on imported wood and metal furniture, as well as both domestically produced and imported upholstered home furnishings. Maintaining domestic upholstered furniture manufacturing allows us to offer four to six week turnaround on orders for custom leather and fabric upholstered seating and remains an important part of our strategy.

Since the fall of 2006, our business has been impacted by low levels of consumer confidence and a weakening housing market. By late 2008, this 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. Steepening year-over-year declines in net sales have continued through the fiscal year 2010 first quarter.

Results of operations for the thirteen-week first quarter ended May 3, 2009 reflect the continuing deterioration in the retail environment for home furnishings. Discretionary purchases of furniture, particularly at the upper-middle price points where we compete, have been highly affected by consumer confidence. Current economic factors, such as rising unemployment, high energy and food costs and a difficult housing and mortgage market, have resulted in a weak retail environment. We believe however, that our business model provides us with the flexibility necessary to adjust to changing market conditions by controlling inventory purchases from suppliers. We also believe that the current economic downturn is temporary and upon economic recovery, we will be well positioned to respond quickly to increased demand.

Following are the principal factors that impacted the Company's results of operations during the quarterly period ended May 3, 2009:

· Net sales declined by $19.0 million, or 26.7%, to $52.1 million during the fiscal year 2010 first quarter compared to net sales of $71.0 million during the fiscal year 2009 first quarter. This decline reflects the continuing year-over-year declines in incoming order rates we have experienced in all operating units since the fiscal 2006 third quarter, resulting from the industry-wide slow down in business at retail.

· Operating loss for the fiscal year 2010 first quarter was $627,000, or 1.2% of net sales, compared to operating income of $4.0 million, or 5.6% of net sales, in the fiscal 2009 first quarter principally due to lower net sales, higher fixed operating and domestic upholstery overhead costs as a percent of net sales, as well as an impairment charge of $673,000 for the value of the Bradington-Young trade name.

Results of Operations

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

                                                   Thirteen Weeks Ended
                                                   May 3,          May 4,
                                                    2009            2008
           Net sales                                   100.0 %       100.0 %
           Cost of sales                                78.4          76.4
           Gross profit                                 21.6          23.6
           Selling and administrative expenses          21.5          18.0
           Intangible asset impairment charge            1.3
           Operating (loss) income                      (1.2 )         5.6
           Other (expense) income, net                                 0.3
           (Loss) income before income taxes            (1.2 )         5.8
           Income tax (benefit) expense                 (0.3 )         2.2
           Net (loss) income                            (0.9 )         3.7

Net sales for the fiscal year 2010 first quarter declined to $52.1 million compared to $71.0 million for the fiscal 2009 first quarter, principally due to lower unit volume attributed to the continued industry-wide slow down in business at retail. Almost every product line and category reported lower sales in the 2010 first quarter compared to the 2009 first quarter, with the exception of Opus Designs by Hooker youth bedroom and our new Envision product line, which was recently introduced to address the needs of a younger consumer.

Unit volume decreased for Hooker imported and domestically produced wood and metal furniture, Bradington-Young domestic and imported leather upholstered furniture and Sam Moore domestic and imported upholstered furniture compared to the fiscal 2009 first quarter. Sales of imported wood and metal furniture and upholstery declined approximately 25% from the prior year quarter, while domestic upholstery sales declined approximately 30% in the same period.

Overall, average selling prices increased during the fiscal year 2010 first quarter compared to the fiscal year 2009 first quarter primarily due to selling price increases implemented during fiscal year 2009 in reaction to cost increases for imported finished goods and raw materials. Imported wood and metal furniture average selling prices increased as a result of price increases partially offset by higher discounting, while selling prices of imported upholstery declined slightly due to heavier discounting and the mix of products shipped. Domestic leather upholstered furniture average selling prices increased slightly principally due to an overall increase in per unit pricing, however overall domestic upholstery prices declined due to the mix of leather and fabric products shipped. The modest decline in imported leather upholstery prices was due to the mix of products shipped and higher discounting on slower-moving products.

Overall, gross profit margin decreased to 21.6% of net sales in the fiscal year 2010 first quarter compared to 23.6% in the fiscal 2009 first quarter, mainly as a result of higher fixed overhead as a percentage of net sales due to significantly lower unit volume for domestically produced upholstered products. While gross margins for wood and metal furniture improved slightly in the fiscal year 2010 first quarter compared to the fiscal 2009 first quarter, margins for upholstered furniture declined.

Selling and administrative expenses decreased to $11.2 million, or 21.5% of net sales for the fiscal year 2010 first quarter, compared to $12.8 million, or 18.0% of net sales for the fiscal year 2009 first quarter. The decrease in spending was principally due to lower selling expenses attributed to lower sales volume as well as to certain cost reduction initiatives undertaken in response to lower sales volume, partially offset by a higher provision for bad debts. Selling and administrative expenses increased as a percentage of net sales, from 18.0% for the fiscal year 2009 first quarter to 21.5% for the fiscal year 2010 first quarter due to lower net sales.

In evaluating the carrying value of our trade names using the relief from royalty method, we determined that the Bradington-Young trade name was further impaired compared to the adjusted carrying value we recorded for that trade name as of February 1, 2009. As a result we recorded an additional intangible asset impairment charge of $673,000 ($419,000 or $0.04 per share, after tax) during the 2010 first quarter.

Excluding the effect of the intangible asset impairment charge, operating profitability for the fiscal 2010 first quarter still declined year over year compared to the fiscal 2009 first quarter, primarily as a result of lower gross profit margins and higher fixed costs as a percent of sales due to lower sales volumes. The following table reconciles operating income as a percentage of net sales ("operating margin") to operating margin excluding this charge as a percentage of net sales for each period:

                                                            Thirteen Weeks Ended
                                                           May 3,           May 4,
                                                            2009             2008
   Operating margin, including asset impairment charge         (1.2 )%          5.6 %
   Intangible asset impairment charge                           1.3
   Operating margin, excluding asset impairment charge          0.1 %           5.6 %

The operating margin excluding the impact of the asset impairment charge 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 of limited usefulness in evaluating our overall financial results presented in accordance with GAAP and should be considered in conjunction with the consolidated condensed financial statements, including the related notes included elsewhere in this report.

As a result of the above, we realized an operating loss for the fiscal year 2010 first quarter of $627,000, or 1.2% of net sales, compared to operating income of $4.0 million, or 5.6% of net sales in the fiscal year 2009 first quarter.

Other (expense) income, net amounted to a $3,000 loss for the fiscal year 2010 first quarter compared to income of $187,000 for the fiscal year 2009 first quarter. This decline was the result of a decrease in interest income, due to lower cash and cash equivalent balances and lower rates of return earned on those balances in the fiscal year 2010 first quarter.

We recorded an income tax benefit of $174,000 for the fiscal year 2010 first quarter and $1.5 million expense for the fiscal year 2009 first quarter. Our effective tax rate decreased to 27.6% for the fiscal year 2010 first quarter from 37.0% during the fiscal year 2009 first quarter. The effective rate decreased in the fiscal year 2010 first quarter principally due to an increase in the non-taxable cash surrender value growth of our life insurance policies and non-cash charitable contributions of appreciated finished goods inventory as a percentage of pretax income, although the dollar amount of these items remained relatively stable year-over-year.

Fiscal year 2010 first quarter net loss was $456,000, or $0.04 per share, compared to net income of $2.6 million, or $0.23 per share, in the fiscal year 2009 first quarter.

Outlook

The year over year declines in quarterly incoming orders, which began in the Fall of 2006, continued during the fiscal year 2010 first quarter. We expect that retail conditions will continue to be sluggish for the second quarter of the fiscal year but we expect to see the typical improvement in business during the second half of 2010. However, general economic conditions will continue to have an impact on our performance. We are taking the following actions to address near term challenges to our profitability:

· deferring, reducing or eliminating certain spending plans;

· continuing to refine the management of our supply chain, warehousing and distribution operations; and

· also continuing to reduce our inventory levels to reflect current business conditions and lower sales volumes.

· pursuing additional distribution channels and offering an array of new products and designs that we believe will generate additional sales growth;

· taking actions to streamline our domestic upholstery operating organization and reduce operating expenses at our Sam Moore Furniture operations; and,

· continuing to evaluate our manufacturing capacity utilization, work schedules and operating costs to better match costs to current sales volume levels.

Balance Sheet and Working Capital

As of May 3, 2009, assets totaled $149.4 million, decreasing from $153.5 million at February 1, 2009, principally due to decreases in inventories, accounts receivable, prepaid expenses and other current assets, and intangible assets, partially offset by increases in cash and cash equivalents and cash surrender value of life insurance policies. Shareholders' equity at May 3, 2009 decreased slightly to $127.1 million, compared to $129.7 million at February 1, 2009, due to the net loss for the quarter and dividends paid or accrued. Long-term debt, including current maturities, decreased to $4.5 million at May 3, 2009 from $5.2 million at February 1, 2009, as a result of a scheduled debt repayment.

Working capital decreased by $3.1 million, or 3.4%, to $88.2 million as of May 3, 2009, from $91.3 million at the end of fiscal 2009, as a result of a $4.0 million decrease in current assets, partially offset by a $1.0 million decline in current liabilities. Our working capital ratio (the relationship between our current assets and current liabilities) was 7:1 at May 3, 2009.

The decrease in current assets is principally due to decreases of $13.1 million in inventories, $4.7 million in accounts receivable and $832,000 in prepaid expenses and other current assets, partially offset by an increase of $14.4 million in cash and cash equivalents. Accounts receivable decreased primarily due to lower sales.

Inventories decreased 21.8%, to $47.1 million as of May 3, 2009, from $60.2 million at February 1, 2009, mainly due to lower imported wood inventories, resulting from reduced purchases of finished goods inventory in response to lower incoming order rates.

The decrease in current liabilities is attributed to decreases of $1.8 million in accounts payable partially offset by an increase of $695,000 in other accrued expenses.

Cash Flows - Operating, Investing and Financing Activities

During the three months ended May 3, 2009, cash generated from operations ($16.7 million) and proceeds received on certain life insurance policies ($374,000) funded an increase in cash and cash equivalents ($14.4 million), payment of cash dividends ($1.1 million), a scheduled principal payment on long-term debt ($705,000), capital expenditures to maintain and enhance our business operating systems and facilities ($602,000) and premiums paid on life insurance policies ($280,000).

During the three months ended May 4, 2008, cash generated from operations ($8.6 million) and proceeds received on certain life insurance policies ($357,000) funded an increase in cash and cash equivalents ($5.6 million), payment of cash dividends ($1.2 million), the purchase and retirement of common stock ($856,000), a scheduled principal payment on long-term debt ($655,000), capital expenditures to maintain and enhance the Company's business operating systems and facilities ($473,000) and premiums paid on life insurance policies ($283,000).

We used $499,000 of cash for investing activities during the first three months of fiscal year 2009 compared to $399,000 during the three-month period ended May 4, 2008. During the fiscal year 2010 three-month period, we used $602,000 to purchase property, plant and equipment and paid premiums of $280,000 and received proceeds of $374,000 from company-owned life insurance. In the fiscal year 2009 three-month period, we used $473,000 to purchase property, plant and equipment and paid premiums of $283,000 and received proceeds of $357,000 from company-owned life insurance.

We used $1.8 million of cash for financing activities during the first three months of fiscal year 2010 compared to $2.7 million in the three-month period ended May 4, 2008. During the first three months of fiscal year 2010, we paid cash dividends of $1.1 million, and made payments of $705,000 on our term loan. During the first quarter of fiscal year 2009 we paid cash dividends of $1.2 million, used $856,000 to purchase and retire common stock and made a scheduled principal repayment of $655,000 on our term loan.

Swap Agreements

We may enter into swap agreements to hedge against the potential impact of increases in interest rates on our debt instruments. By using swap agreements to hedge exposures to changes in interest rates, we expose ourselves to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the swap agreement. We attempt to minimize this credit risk by entering into transactions with high-quality counterparties. Market risk is the adverse effect on the value of the swap agreement that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

We are party to an interest rate swap agreement that in effect provides for a fixed interest rate of 4.1% through 2010 on our term loan. In addition in 2003, we terminated a similar swap agreement, which in effect provided a fixed interest rate of approximately 7.4% on that term loan. We made a $3.0 million payment to terminate that former swap agreement, which is being amortized over the remaining repayment period of the loan, resulting in an effective fixed interest rate of approximately 7.4% on the term loan. We account for our interest rate swap agreements as a cash flow hedges and recognize the fair value of our existing agreement and the unamortized portion of the termination payment on the balance sheet in shareholders' equity under the caption "accumulated other comprehensive income". The related gains or losses on these instruments are recorded through comprehensive income and accordingly are included in accumulated other comprehensive income on the balance sheet until recognized in net income. The gains or losses on these transactions are recognized in net income in the periods in which interest expense on our term note (the related hedged item) is recognized in net income.

The aggregate fair market value of our interest rate swap agreements decreases when interest rates decline and increases when interest rates rise. Overall, interest rates have declined since the inception of our swap agreements. The aggregate decrease in the fair market value of the effective portion of the existing agreement and the unamortized balance of the termination payment of $116,000 ($187,000 pretax) as of May 3, 2009 and $142,000 ($229,000 pretax) as of February 1, 2009 is reflected under the caption "accumulated other comprehensive income" in the condensed consolidated balance sheets. The aggregate fair value of the active swap is $98,000 as of May 3, 2009. The current portion of the swap is reported as Other Accrued Expenses on our balance sheet ($80,000) and the non-current portion is reported as Other Long-Term Liabilities ($18,000). See "Note 5 - Other Comprehensive Income" to the condensed consolidated financial statements included in this report. Substantially all of the aggregate pre-tax decrease in fair market value of the agreement is expected to be reclassified into interest expense during the next twelve months.

Debt Covenant Compliance

The credit agreement for our revolving credit facility and outstanding term loan includes, among other requirements, financial covenants as to minimum tangible net worth, debt service coverage, the ratio of funded debt to earnings before interest, taxes, depreciation and amortization, and maximum capital expenditures. We were in compliance with these covenants as of May 3, 2009.

Liquidity, Financial Resources and Capital Expenditures

As of May 3, 2009, we had an aggregate $12.6 million available under our revolving credit facility to fund working capital needs. Standby letters of credit in the aggregate amount of $2.4 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under our revolving credit facility as of May 3, 2009. There were no additional borrowings outstanding under the revolving credit line on May 3, 2009. Any principal outstanding under the credit line is due March 1, 2011.

We believe that we have the financial resources (including available cash and cash equivalents, expected cash flow from operations, and lines of credit) needed to meet business requirements for the foreseeable future, including capital expenditures, working capital and repayments of outstanding debt. Cash flow from operations is highly dependent on incoming order rates and our operating performance. We expect to spend an additional $2.4 to $3.4 million in capital expenditures during the remainder of fiscal year 2010 to maintain and enhance our operating systems and facilities.

During the three months that ended May 3, 2009, we reduced outstanding long-term debt, including current maturities by $705,000, through scheduled debt payments.

Dividends

At its June 9, 2009 meeting, our board of directors declared a quarterly cash dividend of $0.10 per share, payable on August 28, 2009 to shareholders of record August 14, 2009.

Accounting Pronouncements

During the fiscal year 2010 first quarter, the Company adopted two new accounting pronouncements, neither of which had a material impact on the Company's financial position or results of operations. See "Note 6 - Accounting Pronouncements" to the condensed consolidated financial statements.

Forward-Looking Statements

Certain statements made in this report, including under "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations," are not based on historical facts, but are forward-looking statements. These statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking terminology such as "believes," "expects," "projects," "intends," "plans," "may," "will," "should," "would," "could" or "anticipates," or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Those risks and uncertainties include but are not limited to:

· current economic conditions and instability in the financial and credit markets including their potential impact on our (i) sales and operating costs and access to financing, (ii) customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their business;

· general economic or business conditions, both domestically and internationally;

· price competition in the furniture industry;

· changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials;

· the cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers' income available for discretionary purchases, and the availability and terms of consumer credit;

· risks associated with the cost of imported goods, including fluctuations in the prices of purchased finished goods and transportation and warehousing costs;

· supply, transportation and distribution disruptions, particularly those affecting imported products;

· adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products;

· risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices of key raw materials, transportation and warehousing costs, domestic labor costs and environmental compliance and remediation costs;

· our ability to successfully implement our business plan to increase sales and improve financial performance;

· achieving and managing growth and change, and the risks associated with acquisitions, restructurings, strategic alliances and international operations;

· risks associated with distribution through retailers, such as non-binding dealership arrangements;

· capital requirements and costs;

· competition from non-traditional outlets, such as catalog and internet retailers and home improvement centers;

· changes in consumer preferences, including increased demand for lower quality, lower priced furniture due to declines in consumer confidence and/or discretionary income available for furniture purchases and the availability of consumer credit; and

· higher than expected costs associated with product quality and safety, including regulatory compliance costs related to the sale of consumer products and costs related to defective products.

Any forward looking statement that we make speaks only as of the date of that statement, and we undertake no obligation to update any forward-looking statements whether as a result of new information, future events, or otherwise.