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HOFT > SEC Filings for HOFT > Form 10-Q on 6-Jun-2012All Recent SEC Filings

Show all filings for HOOKER FURNITURE CORP

Form 10-Q for HOOKER FURNITURE CORP


6-Jun-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the thirteen-week period (also referred to as "three months," "three-month period," "quarter" "first quarter" or "quarterly period") that began January 30, 2012 and ended on April 29, 2012. This report discusses our results of operations for these periods compared to the fiscal year 2012 thirteen-week period that began January 31, 2011 and ended on May 1, 2011; and our financial condition as of April 29, 2012 compared to January 29, 2012.

For financial reporting purposes, we are organized into two operating segments - casegoods furniture and upholstered furniture. References in this report to the Company refer to the Company and our consolidated subsidiaries, unless specifically referring to segment information.

References in this report to:

the 2013 fiscal year and comparable terminology mean the fiscal year that began January 30, 2012 and will end February 3, 2013; and

the 2012 fiscal year and comparable terminology mean the fiscal year that began January 31, 2011 and ended January 29, 2012.

Dollar amounts presented in the tables below are in thousands.

Nature of Operations

Incorporated in Virginia in 1924, Hooker Furniture Corporation (the "Company," "we," "us," and "our") is a home furnishings marketing and logistics company offering imported residential casegoods and upholstery, as well as domestically-produced custom leather and fabric upholstery. We are ranked among the nation's top 10 largest publicly traded furniture sources, based on 2011 shipments to U.S. retailers, according to a survey released in May 2012 by Furniture/Today, a leading trade publication. We are a key resource for residential wood and metal furniture, commonly referred to as casegoods, and upholstered furniture. Our major casegoods product categories include home entertainment, home office, accent, dining and bedroom furniture under the Hooker Furniture brand, and youth furniture sold under the Opus Designs by Hooker brand. Our residential upholstered seating companies include Hickory, N.C.-based Bradington-Young, LLC, a specialist in upscale motion and stationary leather furniture, and Bedford, Va.-based Sam Moore Furniture LLC, a specialist in upscale occasional chairs, settees and sectional seating with an emphasis on cover-to-frame customization. An extensive selection of designs and formats along with finish and cover options in each of these product categories makes us a comprehensive residential furniture resource for retailers, primarily targeting the upper-medium price range. Our principal customers are retailers of residential home furnishings who are broadly dispersed throughout the United States and Canada, as well as an important, growing international customer base. Customers include independent furniture stores, specialty retailers, department stores, catalog and internet merchants, interior designers and national and regional chains.

Overview

Consumer home furnishings purchases are driven by an array of factors, including general economic conditions such as:
consumer confidence;

fashion trends;

availability of consumer credit;

energy and other commodity prices; and

housing and mortgage markets;


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as well as lifestyle-driven factors such as changes in:
disposable income;

housing; and

family size.

Our industry has been impacted by low levels of consumer confidence and a weak housing market since the fall of 2006. 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 experienced a significant and persistent decline in demand for its products. Discretionary purchases of furniture have been highly affected by low consumer confidence. Current economic factors, such as high unemployment and difficult housing and mortgage markets and changing consumer priorities have resulted in a weak retail environment for home furnishings and related purchases.

Our domestic upholstery operations, which have significantly higher overhead and fixed costs than our import operations, have been particularly affected by the decline in demand for home furnishings and have experienced operating losses since our fiscal 2009 second quarter. Extensive cost reduction efforts over that time have mitigated the losses and have resulted in our upholstery segment returning to operating profitability during the fiscal 2013 first quarter. Our lower overhead, variable-cost import operations have driven our profitability over the last few years and provide us with the flexibility to respond to changing demand by adjusting inventory purchases from suppliers. Our import model also requires that we transition sourcing to other suppliers, often located in different countries or regions, when quality concerns or inflationary pressures diminish the value proposition offered by our current suppliers.

The following are the primary factors that affected our consolidated fiscal 2013 first quarter results of operations.

Out-of-stock positions on several key items, groups and collections negatively impacted sales and profitability.

The sourcing transition from some of our vendors in China to vendors in other Asian countries resulted in longer lead times and shipping delays negatively impacting sales and profitability.

Decreased product discounting negatively impacted sales and volume in both casegoods and upholstery segments, but drove gross margin improvement. Product discounting was higher in the comparable prior-year quarter in order to reduce excess and slow-moving inventory.

Selling and administrative expenses increased as a percentage of net sales, primarily as a result of lower sales, but decreased in absolute terms due to the lower sales volumes and certain other factors.

Our upholstery segment returned to profitability after reporting operating losses since the fiscal 2009 second quarter.


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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
included in this report.

                                                   Thirteen Weeks Ended
                                                  April 29,        May 1,
                                                    2012            2011
           Net sales                                   100.0 %       100.0 %
           Cost of sales                                78.9          81.1
           Gross profit                                 21.1          18.9
           Selling and administrative expenses          18.2          17.6
           Operating income                              3.0           1.3
           Other income, net                             0.1           0.1
           Income before income taxes                    3.0           1.4
           Income tax expense                            1.1           0.5
           Net income                                    2.0           0.9

Fiscal 2013 First Quarter Compared to Fiscal 2012 First Quarter

Net Sales

                                                      Net Sales
                                                        Thirteen Weeks Ended
                April 29, 2012      % Net Sales        May 1, 2011      % Net Sales        $ Change        % Change

Casegoods       $        32,745              63.3 %   $      39,739              68.1 %   $    (6,994 )         -17.6 %
Upholstery               18,985              36.7 %          18,654              31.9 %   $       331             1.8 %
 Consolidated   $        51,730             100.0 %   $      58,393             100.0 %   $    (6,663 )         -11.4 %



                                                       Thirteen Weeks Ended
                                  FY13 Q1 %                                            FY13 Q1 %
                                 Increase vs.                                      Increase vs. FY12
Unit Volume                        FY12 Q1          Average Selling Price                 Q1

Casegoods                                 -28.8 %   Casegoods                                   15.4 %
Upholstery                                 -2.0 %   Upholstery                                  11.4 %
 Consolidated                             -22.1 %    Consolidated                               16.2 %

The decrease in consolidated net sales for the fiscal 2013 first quarter, as compared to the fiscal 2012 first quarter, was principally due to lower unit volume, particularly in our casegoods segment, partially offset by higher average selling prices in both segments. The casegoods sales decrease was driven by out-of-stock positions on several key items, groups and collections and decreased discounting. The out-of-stock positions were primarily due to aggressive inventory reductions that began in fiscal 2012 and continued into the fiscal 2013 first quarter. To a lesser extent and consistent with our fiscal 2012 fourth quarter, vendor shifts from China to other Asian countries resulted in the delay of several well-placed new casegoods collections and negatively impacted fiscal 2013 first quarter sales. These vendor shifts contributed to the out-of-stock positions and increased the demand for our best-selling, in-stock products. This accelerated demand cycle hastened the out-of-stock position on best sellers. Upholstery net sales were essentially flat to the same prior-year period. Lower sales volume was partially offset by increased average selling prices for both segments, due primarily to lower discounting.


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Gross Income and Margin

                                               Gross Income and Margin
                                                        Thirteen weeks ended
                April 29, 2012       % Net Sales       May 1, 2011       % Net Sales       $ Change        % Change

Casegoods       $         7,448              22.8 %   $       8,626              21.7 %   $    (1,178 )         -13.7 %
Upholstery                3,474              18.3 %           2,407              12.9 %         1,067            44.3 %
 Consolidated   $        10,922              21.1 %   $      11,033              18.9 %   $      (111 )          -1.0 %

Consolidated gross profit as a percentage of net sales increased for the fiscal 2013 first quarter, as compared to the fiscal 2012 first quarter, primarily due to decreased discounting in both segments and lower domestic upholstery costs as a percentage of net sales. Fiscal 2013 first quarter discounting in the casegoods and upholstery segments decreased approximately 360 and 280 basis points, respectively, as compared to the same prior-year period. The higher levels of product discounting in the fiscal 2012 first quarter were primarily due to efforts to reduce inventory levels. Consolidated fiscal 2013 first quarter gross income was essentially flat to the fiscal 2012 first quarter, primarily due to the decline in net sales discussed above, which offset margin improvements.

Selling and Administrative Expenses

                                         Selling and Administrative Expenses
                                                         Thirteen weeks ended
                 April 29, 2012       % Net Sales       May 1, 2011       % Net Sales       $ Change        % Change

Casegoods       $          6,072              18.5 %   $       6,813              17.1 %   $      (741 )         -10.9 %
Upholstery                 3,322              17.5 %           3,473              18.6 %          (151 )          -4.3 %
 Consolidated   $          9,394              18.2 %   $      10,286              17.6 %   $      (892 )          -8.7 %

Consolidated selling and administrative expenses decreased in absolute terms but increased as a percentage of net sales in the fiscal 2013 first quarter compared to the same prior-year period.

Casegoods selling and administrative expenses increased as a percentage of net sales in the fiscal 2013 first quarter compared to the same prior-year period, primarily due to the casegoods net sales decrease discussed above. In absolute terms, casegoods selling and administrative expenses decreased due to:

a decrease in sales and design commissions due to lower net sales;

a decrease in contribution expense;

amounts billed to our imported upholstery division for its share of operating costs;

a decrease in bad debt expense due to lower accounts receivable balances due to lower sales and a decrease in amounts expensed to bad debts due to favorable collection trends; and

a decrease in sample expense due to cost cutting measures.


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These decreases in expenses were partially offset by:

an increase in bonus expense due to the reversal of an accrual for officers' long-term performance grant awards in the comparable prior-year period;

an increase in benefits expense due primarily to lower benefits expense in the prior year due to an insurance gain on Company-owned life insurance due to the death of a former executive;

an increase in salary expense primarily due to the promotion of an upholstery executive to a corporate executive position during the fiscal 2012 third quarter and also due to other salary increases;

Upholstery selling and administrative expenses decreased both as a percentage of net sales and in absolute terms in the fiscal 2013 first quarter compared to the same prior-year period, primarily due to:

a decrease in salaries expense due to the promotion of an officer from our upholstery segment to our casegoods segment and due to cost reduction efforts undertaken in fiscal 2012;

a decrease in benefits expense due to decreased headcount and lower health claims; and

a decrease in sample expense and advertising expense due to cost cutting measures.

These decreases were partially offset by an increase in the upholstery segment's share of corporate administrative costs.

Operating Income and Margin

                                             Operating Profit and Margin
                                                         Thirteen weeks ended
                 April 29, 2012       % Net Sales       May 1, 2011       % Net Sales       $ Change        % Change

Casegoods       $          1,376               4.2 %   $       1,814               4.6 %   $      (438 )         -24.1 %
Upholstery                   152               0.8 %          (1,067 )            -5.7 %         1,219           114.2 %
 Consolidated   $          1,528               3.0 %   $         747               1.3 %   $       781           104.6 %

Operating profitability increased for the fiscal 2013 first quarter as compared to the same prior-year period, both as a percentage of net sales and in absolute terms due to the factors discussed above. Our upholstery segment returned to operating profitability this quarter due to operational improvements and, to a lesser extent, a sales increase.

Other income, net

Other income, net Thirteen weeks ended April 29, 2012 % Net Sales May 1, 2012 % Net Sales $ Change % Change

Consolidated $ 44 0.1 % $ 54 0.1 % $ (10 ) -18.5 %

Other income, net is essentially flat to prior year.


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