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HOFT > SEC Filings for HOFT > Form 10-Q on 12-Jun-2013All Recent SEC Filings

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Form 10-Q for HOOKER FURNITURE CORP


12-Jun-2013

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 February 4, 2013 and ended May 5, 2013. This report discusses our results of operations for this period compared to the 2013 fiscal year thirteen-week period that began January 30, 2012 and ended April 29, 2012; and our financial condition as of May 5, 2013 compared to February 3, 2013.

We encourage users of this report to familiarize themselves with all of our recent public filings made with the SEC, especially our 2013 annual report on Form 10-K ("2013 Annual Report") filed with the SEC on April 19, 2013. Our 2013 Annual Report contains critical information regarding known risks and uncertainties that we face, critical accounting policies and information on commitments and contractual obligations that are not reflected in our consolidated financial statements, as well as a more thorough and detailed discussion of our corporate strategy and new business initiatives. Our 2013 Annual Report and our other public filings made with the SEC are available at www.sec.gov and at http://investors.hookerfurniture.com.

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

References in this report to:

the 2014 fiscal year and comparable terminology mean the fiscal year that began February 4, 2013 and will end February 2, 2014; and

the 2013 fiscal year and comparable terminology mean the fiscal year that began January 30, 2012 and ended February 3, 2013.

Dollar amounts presented in the tables below are in thousands.

Nature of Operations

Hooker Furniture Corporation is a home furnishings marketing and logistics company offering worldwide sourcing of residential casegoods and upholstery, as well as domestically-produced custom leather and fabric-upholstered furniture. We were incorporated in Virginia in 1924 and are ranked among the nation's top 10 largest publicly traded furniture sources, based on 2011 shipments to U.S. retailers, according to a 2012 survey published 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. 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 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 resource for residential furniture retailers, primarily targeting the upper-medium price range. Our principal customers are retailers of residential home furnishings that are broadly dispersed throughout the United States. Our customers also include home furniture retailers in Canada and in over 20 other countries internationally. Our customers include independent furniture stores, specialty retailers, department stores, catalog and internet merchants, interior designers and national and regional chains.


Table of Contents

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;

household formation and turnover; and

family size.

Current economic and economic-related factors, such as high unemployment and changing consumer priorities have resulted in a somewhat depressed retail environment for discretionary home furnishings and related purchases since 2008. However, the extended weakness in housing and housing-related industries is beginning to show signs of sustained recovery and recent positive news on housing and consumer confidence is especially encouraging.

Our lower overhead, variable-cost import operations have driven our profitability over the last few years and provide us with more flexibility to respond to changing demand by adjusting inventory purchases from suppliers. On the other hand, our import model 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.

Results for 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 experienced operating losses or low operating profitability since our fiscal 2009 second quarter. Extensive cost reduction efforts over that time have mitigated the effect of the weakness in demand and have resulted in our upholstery segment returning to operating profitability for fiscal 2013 and for the fiscal 2014 first quarter.

The following are the primary factors that affected our consolidated fiscal 2014 first quarter results of operations:

Consolidated net sales increased in the high single digits due to:

o lower product discounting in our casegoods segment; and

o higher average selling prices in both operating segments, partially offset by lower unit volume in our casegoods segment.

Gross profit increased due to increased sales volume in both segments, as well as:

o lower product discounting and lower cost of goods sold due to moderating product costs; and

o lower domestic manufacturing costs as a percent of sales in our upholstery segment, due to cost reduction initiatives and improved overhead utilization resulting from increased sales volume.

Selling and administrative expenses increased due to increased sales and a variety of other factors, including start-up costs for our H Contract and Homeware divisions; and

Our casegoods segment nearly doubled operating profitability from $1.4 million in the 2013 first quarter to $2.6 million in the fiscal 2014 first quarter.

Our upholstery segment reported operating profitability of $668,000 for the fiscal 2014 first quarter compared to an operating profit of $152,000 for the fiscal 2013 first quarter.


Table of Contents

Results of Operations

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

                                          Thirteen Weeks Ended
                                        May 5,           April 29,
                                         2013              2012
Net sales                                   100.0 %           100.0 %
Cost of sales                                75.3              78.9
Gross profit                                 24.7              21.1
Selling and administrative expenses          19.0              18.2
Operating income                              5.7               3.0
Other (expense) income, net                   0.0               0.1
Income before income taxes                    5.7               3.0
Income tax expense                            1.9               1.1
Net income                                    3.8               2.0

Fiscal 2014 First Quarter Compared to Fiscal 2013 First Quarter

                                   Net Sales


                                                     Thirteen Weeks Ended
                 May 5, 2013                     April 29, 2012                      $ Change        % Change
                                    % Net                              % Net
                                    Sales                              Sales
Casegoods       $      35,444           63.0 %   $        32,745           63.3 %   $     2,699             8.2 %
Upholstery             20,851           37.0 %            18,985           36.7 %   $     1,866             9.8 %
 Consolidated   $      56,295          100.0 %   $        51,730          100.0 %   $     4,565             8.8 %

                      FY14 Q1 %                                       FY14 Q1 %
Unit Volume     Increase vs. FY13 Q1    Average Selling Price   Increase vs. FY13 Q1

Casegoods                        -4.7 % Casegoods                                13.3 %
Upholstery                        1.0 % Upholstery                                8.8 %
 Consolidated                    -3.0 %  Consolidated                            12.0 %

The increase in consolidated net sales for the fiscal 2014 first quarter was principally due to higher average selling prices in both segments, partially offset by lower unit volume in our casegoods segment. Higher average selling prices were primarily the result of lower product discounting in our casegoods segment and for both segments, a shift in the mix of products sold toward some of our higher priced items. The decrease in unit volume was primarily due to reduced promotional discounting activity in both segments compared to the prior year quarter.


Table of Contents

                            Gross Income and Margin

                                                Thirteen weeks ended
                 May 5, 2013                 April 29, 2012                  $ Change       % Change
                                  % Net                          % Net
                                  Sales                          Sales
Casegoods       $       9,998       28.2 %   $         7,448       22.8 %   $    2,550           34.2 %
Upholstery              3,918       18.8 %             3,474       18.3 %          444           12.8 %
 Consolidated   $      13,916       24.7 %   $        10,922       21.1 %   $    2,994           27.4 %

Consolidated gross profit increased in the fiscal 2014 first quarter, as compared to the fiscal 2013 first quarter, primarily due to decreased discounting in our casegoods segment, lower domestic upholstery costs as a percentage of net sales and higher sales volume in both segments.

                      Selling and Administrative Expenses

                                                      Thirteen weeks ended
                 May 5, 2013                      April 29, 2012                      $ Change        % Change
                                    % Net                               % Net
                                    Sales                               Sales

Casegoods       $       7,432           21.0 %   $          6,072           18.5 %   $     1,360            22.4 %
Upholstery              3,250           15.6 %              3,322           17.5 %           (72 )          -2.2 %
 Consolidated   $      10,682           19.0 %   $          9,394           18.2 %   $     1,288            13.7 %

Consolidated selling and administrative expenses increased both in absolute terms and as a percentage of net sales in the fiscal 2014 first quarter compared to the same prior-year period.

Casegoods selling and administrative expenses increased primarily due to:

start-up costs for our H Contract and Homeware divisions;

an increase in bonus expense due to improved earnings performance as compared to the prior-year quarter;

an increase in furniture disposals eligible to be deducted as contributions for income tax purposes; and

a smaller decrease in bad debt expense as a result of the reduction of our allowance for doubtful accounts in the prior year quarter because of favorable collections experience.

Upholstery selling and administrative expenses decreased both as a percentage of net sales and in absolute terms in the fiscal 2014 first quarter compared to the same prior-year period, primarily due to decreased salaries and wages and benefits, partially offset by increased commissions and selling expenses due to increased sales.


Table of Contents

                          Operating Profit and Margin

                                                       Thirteen weeks ended
                 May 5, 2013                       April 29, 2012                       $ Change        % Change
                                     % Net                                % Net
                                     Sales                                Sales
Casegoods       $       2,566             7.2 %   $          1,376             4.2 %   $     1,190            86.5 %
Upholstery                668             3.2 %                152             0.8 %           516           339.5 %
 Consolidated   $       3,234             5.7 %   $          1,528             3.0 %   $     1,706           111.6 %

Operating profitability increased for the fiscal 2014 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.

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