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," "third quarter" or "quarterly period") that began July 30, 2012 and the thirty-nine week period (also referred to as "nine months," "nine-month period") that began January 30, 2012, and which both ended October 28, 2012. This report discusses our results of operations for these periods compared to the fiscal year 2012 thirteen-week period that began August 1, 2011 and the thirty-nine week period that began January 31, 2011, which both ended October 30, 2011, and our financial condition as of October 28, 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, sofas and sectional seating with an emphasis on fabric 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 experienced a significant and persistent decline in demand for its products from 2008-2010. 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 relatively weak retail environment for home furnishings and related purchases. The extended weakness in housing and housing related industries is beginning to shows signs of recovery; however, any recovery in home furnishings is expected to be slow and cautious due to the relatively high cost and postponable nature of many home furnishing product 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 and third 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 nine-months 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 nine-month periods ended October 28, 2012 compared to the same prior-year periods:

††† Out-of-stock positions on several key imported items, groups and collections negatively impacted sales and profitability, but to a lesser extent during the fiscal 2013 third quarter;

††† 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 impacted sales and profitability, but to a lesser extent during the fiscal 2013 third quarter;

††† Decreased product discounting negatively impacted sales and unit 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 decreased in absolute terms in both the fiscal 2013 third quarter and first nine months due to a variety of factors, including lower net sales in the nine-month period. As a percentage of net sales, selling and administrative expenses decreased in the fiscal 2013 third quarter primarily due to higher net sales, while remaining essentially flat for the 2013 nine-month period; and

††† Our upholstery segment first returned to operating profitability in the fiscal 2013 first quarter after reporting operating losses since the fiscal 2009 second quarter. After reporting a small loss in the fiscal 2013 second quarter, the upholstery segment reported operating profits of $567,000 and $669,000, respectively, for the three and nine-month periods just ended.

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               Thirty-nine Weeks Ended
                                      October 28,         October 30,      October 28,        October 30,
                                          2012               2011              2012               2011
Net sales                                    100.0 %             100.0 %          100.0 %            100.0 %
Cost of sales                                 76.1                76.5             77.5               78.6
Gross profit                                  23.9                23.5             22.5               21.4
Selling and administrative expenses           17.2                18.5             17.7               17.8
Operating income                               6.7                 5.0              4.8                3.5
Other income, net                              0.1                 0.2              0.1                0.1
Income before income taxes                     6.7                 5.2              4.9                3.7
Income tax expense                             2.4                 1.0              1.8                1.0
Net income                                     4.3                 4.2              3.1                2.6

Fiscal 2013 Third Quarter Compared to Fiscal 2012 Third Quarter

Net Sales

                                                   Thirteen Weeks Ended
                October 28,                     October 30,
                    2012                            2011                         $ Change        % Change
                                   % Net                           % Net
                                   Sales                           Sales
Casegoods       $     36,508           64.3 %   $     35,476           65.5 %   $     1,032             2.9 %
Upholstery            20,295           35.7 %         18,704           34.5 %   $     1,591             8.5 %
 Consolidated   $     56,803          100.0 %   $     54,180          100.0 %   $     2,623             4.8 %



                                  FY13 Q3 %                                          FY13 Q3 %
                                Increase vs.                                       Increase vs.
Unit Volume                        FY12 Q3         Average Selling Price              FY12 Q3

Casegoods                                -10.2 %   Casegoods                                 13.9 %
Upholstery                                 1.2 %   Upholstery                                 6.7 %
 Consolidated                             -7.1 %    Consolidated                             12.3 %

The increase in consolidated net sales for the fiscal 2013 third quarter, as compared to the fiscal 2012 third quarter, was principally due to higher average selling prices, particularly in both segments, partially offset by lower unit volume in our casegoods segment. The casegoods sales increase was primarily driven by product mix and decreased discounting, partially offset by lower unit volume. Upholstery net sales increased as compared to the same prior-year period due to increased average selling prices and sales volume.

Gross Profit

                                                   Thirteen Weeks Ended
                October 28,                     October 30,
                    2012                            2011                         $ Change        % Change
                                   % Net                           % Net
                                   Sales                           Sales
Casegoods       $      9,580           26.2 %   $     10,011           28.2 %   $      (431 )          -4.3 %
Upholstery             3,980           19.6 %          2,726           14.6 %         1,254            46.0 %
 Consolidated   $     13,560           23.9 %   $     12,737           23.5 %   $       823             6.5 %

Consolidated gross margin increased for the fiscal 2013 third quarter, as compared to the fiscal 2012 third quarter, primarily due to decreased discounting in the casegoods segment and reduced manufacturing costs in our upholstery segment, partially offset by higher costs on some of our imported products. The higher levels of casegoods segment discounting in the fiscal 2012 third quarter were primarily due to efforts to reduce excess and slow-moving inventory levels. Manufacturing costs in our domestic upholstery operations increased modestly in absolute terms due to higher sales, but decreased as a percentage of net sales due to the favorable impact of higher sales on the fixed costs and extensive cost reduction initiatives undertaken over the past several years.

Selling and Administrative Expenses

                                                   Thirteen Weeks Ended
                October 28,                     October 30,
                    2012                            2011                         $ Change        % Change
                                   % Net                           % Net
                                   Sales                           Sales
Casegoods       $      6,369           17.4 %   $      6,551           18.5 %   $      (182 )          -2.8 %
Upholstery             3,412           16.8 %          3,480           18.6 %           (68 )          -2.0 %
 Consolidated   $      9,781           17.2 %   $     10,031           18.5 %   $      (250 )          -2.5 %

Casegoods selling and administrative expenses decreased both as a percentage of net sales and in absolute terms in the fiscal 2013 third quarter compared to the same prior-year period. These decreases were primarily due to the casegoods net sales increase discussed above and cost improvements due to:

††† lower contribution expense due to lower levels of distressed inventory;

††† increased amounts billed to our imported upholstery division compared to the prior periods for its share of administrative costs; and

††† decreased bad debt expense due to favorable collections experience.

These improvements were partially offset by increases in

††† bonus expense, due to the accrual of annual profit sharing bonuses and the payment of project-related performance bonuses for our Enterprise Resource Planning (ERP) implementation;

††† 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; and

††† advertising expense due to additional advertising and marketing initiatives aimed at increasing sales.

Upholstery selling and administrative expenses decreased both as a percentage of net sales and in absolute terms in the fiscal 2013 third 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;

††† depreciation expense due to accelerated depreciation expense recorded in fiscal 2012 in conjunction with our move to a new showroom; and

††† benefits expense due to decreased headcount and lower health claims.

These decreases were partially offset by increases in:

††† the upholstery segment's share of Company-wide administrative costs; and

††† advertising expense due to increased swatch and catalog expense.

Operating Income

                                                    Thirteen Weeks Ended
                October 28,                      October 30,
                    2012                             2011                         $ Change        % Change
                                    % Net                           % Net
                                    Sales                           Sales
Casegoods       $      3,212             8.8 %   $      3,460            9.8 %   $      (248 )          -7.2 %
Upholstery               567             2.8 %           (754 )         -4.0 %         1,321           175.2 %
 Consolidated   $      3,779             6.7 %   $      2,706            5.0 %   $     1,073            39.7 %

Operating profitability increased for the fiscal 2013 third quarter as compared to the same prior-year period as a percentage of net sales and in absolute terms, due to the factors discussed above.