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," "second quarter" or "quarterly period") that began April 30, 2012 and the twenty-six week period (also referred to as "six months," "six-month period" or "first half") that began January 30, 2012, and which both ended July 29, 2012. This report discusses our results of operations for these periods compared to the fiscal year 2012 thirteen-week period that began May 2, 2011 and the twenty-six week period that began January 31, 2011, which both ended July 31, 2011, and our financial condition as of July 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 Bradington-Young, a specialist in upscale motion and stationary leather furniture, and Sam Moore Furniture, 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;

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, except for the first quarter of the current fiscal year, 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 for the first half of fiscal 2013. 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 among 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 results of operations for the three and six-month periods ended July 29, 2012 compared to prior-year periods:

††† Out-of-stock positions on several key imported 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 which negatively impacted sales and profitability;

††† Decreased product discounting negatively impacted sales and volume in both the casegoods and upholstery segments, but drove gross margin improvement. Product discounting was higher in the comparable prior-year periods 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 a variety of other factors.

††† Our upholstery segment, which returned to operating profitability in the fiscal 2013 first quarter after reporting operating losses since the fiscal 2009 second quarter, reported a small operating loss in the fiscal 2013 second quarter, but remained profitable on an operating profit basis for the fiscal 2013 first half, with a $1.4 million improvement over the fiscal 2012 first half.

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             Twenty-Six Weeks Ended
                                       July 29,          July 31,        July 29,          July 31,
                                         2012              2011            2012              2011
Net sales                                   100.0 %           100.0 %         100.0 %           100.0 %
Cost of sales                                77.6              78.1            78.2              79.6
Gross profit                                 22.5              21.9            21.8              20.4
Selling and administrative expenses          17.8              17.4            18.0              17.5
Operating income                              4.6               4.5             3.8               2.8
Other income, net                             0.1                 -             0.1               0.1
Income before income taxes                    4.7               4.5             3.8               2.9
Income tax expense                            1.7               1.6             1.4               1.0
Net income                                    2.9               3.0             2.5               1.9

Fiscal 2013 Second Quarter Compared to Fiscal 2012 Second Quarter

Net Sales

                                                         Thirteen Weeks Ended
                 July 29, 2012                         July 31, 2011                         $ Change        % Change
                                     % Net Sales                           % Net Sales
Casegoods       $        32,195              64.2 %   $        36,489              65.7 %   $    (4,294 )         -11.8 %
Upholstery               17,990              35.8 %            19,085              34.3 %   $    (1,095 )          -5.7 %
 Consolidated   $        50,185             100.0 %   $        55,574             100.0 %   $    (5,389 )          -9.7 %



                                  FY13 Q2 %                                            FY13 Q2 %
                                 Increase vs.                                      Increase vs. FY12
Unit Volume                        FY12 Q2          Average Selling Price                 Q2

Casegoods                                 -26.1 %   Casegoods                                   18.0 %
Upholstery                                -13.5 %   Upholstery                                   8.8 %
 Consolidated                             -22.8 %    Consolidated                               16.1 %

The decrease in consolidated net sales for the fiscal 2013 second quarter, as compared to the fiscal 2012 second 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 overly-aggressive inventory reductions that began in fiscal 2012, the effects of which were felt into the fiscal 2013 second 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 second 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 decreased as compared 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 in our casegoods segment.

Gross Profit

                                                         Thirteen Weeks Ended
                 July 29, 2012                         July 31, 2011                         $ Change        % Change
                                     % Net Sales                           % Net Sales
Casegoods       $         8,126              25.2 %   $         9,006              24.7 %   $      (880 )          -9.8 %
Upholstery                3,139              17.4 %             3,157              16.5 %           (18 )          -0.6 %
 Consolidated   $        11,265              22.5 %   $        12,163              21.9 %   $      (898 )          -7.4 %

Consolidated gross profit as a percentage of net sales increased for the fiscal 2013 second quarter, as compared to the fiscal 2012 second quarter, primarily due to decreased discounting in the casegoods segment and reduced manufacturing costs in our upholstery segment. Fiscal 2013 second quarter casegoods segment discounting decreased 545 basis points as compared to the same prior-year period. The higher levels of casegoods segment discounting in the fiscal 2012 second quarter were primarily due to efforts to reduce slow-moving inventory levels.

Selling and Administrative Expenses

                                                         Thirteen Weeks Ended
                 July 29, 2012                         July 31, 2011                         $ Change        % Change
                                     % Net Sales                           % Net Sales
Casegoods       $         5,754              17.9 %   $         6,264              17.2 %   $      (510 )          -8.1 %
Upholstery                3,189              17.7 %             3,405              17.8 %          (216 )          -6.3 %
 Consolidated   $         8,943              17.8 %   $         9,669              17.4 %   $      (726 )          -7.5 %

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

Casegoods selling and administrative expenses increased as a percentage of net sales in the fiscal 2013 second 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 decreases in:

§ sales and design commissions due to lower net sales; § amounts billed to our imported upholstery division for its share of operating costs;
§ advertising expense due to cost cutting measures; § accrued bonus expense; and
§ contribution expense due to lower levels of distressed inventory.

These decreases in expenses were partially offset by increases in:

§ bad debt expense, net of recoveries; § professional services due to additional consulting fees for several corporate initiatives; and
§ salary expense primarily due to the promotion of an upholstery executive to a casegoods 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 second quarter compared to the same prior-year period, primarily due to decreases in:

§ salary expense due to the previously mentioned executive promotion of an officer from our upholstery segment to a casegoods management position and due to cost reduction efforts undertaken in fiscal 2012; § benefits expense due to decreased headcount and lower health claims; § sales commissions due to lower sales; and § advertising expense as a result of cost cutting measures.

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

Operating Income

                                                         Thirteen Weeks Ended
                 July 29, 2012                         July 31, 2011                         $ Change        % Change
                                     % Net Sales                           % Net Sales
Casegoods       $         2,372               7.4 %   $         2,742               7.5 %   $      (370 )         -13.5 %
Upholstery                  (50 )            -0.3 %              (248 )            -1.3 %           198            79.8 %
 Consolidated   $         2,322               4.6 %   $         2,494               4.5 %   $      (172 )          -6.9 %

As a percentage of net sales, operating profitability increased for the fiscal 2013 second quarter as compared to the same prior-year period, but decreased in absolute terms, due to the factors discussed above.