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

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Form 10-Q for HOOKER FURNITURE CORP


12-Sep-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," "second quarter" or "quarterly period") that began May 6, 2013, and the twenty-six week period (also referred to as "six months," "six-month period" or "first half") that began February 4, 2013, and which both ended August 4, 2013. This report discusses our results of operations for these periods compared to the fiscal year 2013 thirteen-week period that began April 30, 2012 and the twenty-six week period that began January 30, 2012, which both ended July 29, 2012 and our financial condition as of August 4, 2013 compared to February 4, 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. Results from our new business initiatives, H Contract and Homeware, are aggregated with the results from our casegoods operating segment. Our upholstery segment includes the Bradington-Young, Sam Moore and Seven Seas upholstery product lines. References in this report to "we," "us," "our," "Hooker," or "the Company" refer to the Hooker Furniture Corporation 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 2012 shipments to U.S. retailers, according to a 2013 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.


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We launched two new initiatives in fiscal 2014, which are designed to help us reach a broader consumer base: H Contract- which will supply upholstered seating and casegoods to upscale senior living facilities throughout the country and Homeware- featuring customer-assembled, modular upholstered and casegoods products designed for younger and more mobile furniture customers.

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 mostly positive news on housing and consumer confidence is 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 a larger investment in inventory and longer production lead times. In addition, we must constantly evaluate our imported furniture suppliers and 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 first half of fiscal 2014.

The following are the primary factors that affected our consolidated results of operations for the three and six-month periods ended August 4, 2013:

Consolidated net sales increased approximately 10% in both periods, primarily due to:

o higher average selling prices in both operating segments both periods;

o increased unit volume in our upholstery segment in both periods; and

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

o lower cost of goods sold as a percentage of net sales for our casegoods segment, primarily due to decreased warehousing and distribution expense in the fiscal 2014 second quarter; and

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


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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 upholstery segment reported operating profitability of:

o $834,000 for the fiscal 2014 second quarter compared to an operating loss of $50,000 for the fiscal 2013 second quarter; and

o $1.5 million for the fiscal 2014 first half compared to operating income of $101,000 for the fiscal 2013 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 income
included in this report.

                                          Thirteen Weeks Ended             Twenty-Six Weeks Ended
                                       August 4,         July 29,        August 4,         July 29,
                                         2013              2012            2013              2012
Net sales                                   100.0 %           100.0 %         100.0 %           100.0 %
Cost of sales                                76.0              77.6            75.7              78.2
Gross profit                                 24.0              22.5            24.3              21.8
Selling and administrative expenses          19.2              17.8            19.1              18.0
Operating income                              4.8               4.6             5.3               3.8
Other (expense) income, net                     -               0.1               -               0.1
Income before income taxes                    4.7               4.7             5.2               3.8
Income tax expense                            1.7               1.7             1.8               1.4
Net income                                    3.1               2.9             3.4               2.5

Fiscal 2014 Second Quarter Compared to Fiscal 2013 Second Quarter

                                   Net Sales

                                                         Thirteen Weeks Ended
                August 4, 2013                         July 29, 2012                         $ Change        % Change
                                      % Net Sales                           % Net Sales
Casegoods       $        34,839              63.0 %   $        32,195              64.2 %   $     2,644             8.2 %
Upholstery               20,462              37.0 %            17,990              35.8 %   $     2,472            13.7 %
 Consolidated   $        55,301             100.0 %   $        50,185             100.0 %   $     5,116            10.2 %



                           FY14 Q2 %                                                    FY14 Q2 %
                       Increase vs. FY13                                            Increase vs. FY13
Unit Volume                   Q2                            Average Selling Price           Q2

Casegoods                            0.0 %                  Casegoods                              7.4 %
Upholstery                          11.1 %                  Upholstery                             2.2 %
 Consolidated                        3.2 %                   Consolidated                          6.2 %


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The increase in consolidated net sales for the fiscal 2014 second quarter was principally due to higher average selling prices in both segments and increased unit volume in our upholstery segment. Higher average selling prices were primarily the result of a shift in the mix of products sold toward some of our higher-priced items in both segments. The higher average selling prices were partially offset by increased discounting in our casegoods segment, due to an effort to decrease levels of slow moving and obsolete inventory. During the fiscal 2014 second quarter, we became more aggressive in reducing our inventories of older, slower moving products to make room for new introductions and best sellers.

                                  Gross Profit

                                                         Thirteen Weeks Ended
                August 4, 2013                         July 29, 2012                         $ Change        % Change
                                      % Net Sales                           % Net Sales
Casegoods       $         9,148              26.3 %   $         8,126              25.2 %   $     1,022            12.6 %
Upholstery                4,109              20.1 %             3,139              17.4 %           970            30.9 %
 Consolidated   $        13,257              24.0 %   $        11,265              22.5 %   $     1,992            17.7 %

Consolidated gross profit increased in the fiscal 2014 second quarter, as compared to the fiscal 2013 second quarter, primarily due to:

higher average selling prices in both segments;

lower cost of goods sold as a percentage of net sales in our casegoods segment due to decreased warehousing and distribution expense; and

lower domestic upholstery manufacturing costs as a percentage of net sales, due to cost reduction initiatives and improved overhead utilization resulting from increased sales volume, partially offset by higher labor costs to train new production workers in order to meet demand.

                      Selling and Administrative Expenses

                                                         Thirteen Weeks Ended
                August 4, 2013                         July 29, 2012                         $ Change        % Change
                                      % Net Sales                           % Net Sales
Casegoods       $         7,342              21.1 %   $         5,754              17.9 %   $     1,588            27.6 %
Upholstery                3,275              16.0 %             3,189              17.7 %            86             2.7 %
 Consolidated   $        10,617              19.2 %   $         8,943              17.8 %   $     1,674            18.7 %

Consolidated selling and administrative expenses increased both in absolute terms and as a percentage of net sales in the fiscal 2014 second 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 initiatives;

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

an increase in professional service expense due to increased compliance and regulatory costs; and

increased selling expenses due to increased sales.


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Upholstery selling and administrative expenses increased in absolute terms in the fiscal 2014 second quarter compared to the same prior-year period, primarily due to increased commissions due to increased sales, partially offset by decreased samples expense.

                                Operating Income

                                                          Thirteen Weeks Ended
                 August 4, 2013                         July 29, 2012                         $ Change        % Change
                                       % Net Sales                           % Net Sales
Casegoods       $          1,806               5.2 %   $         2,372               7.4 %   $      (566 )         -23.9 %
Upholstery                   834               4.1 %               (50 )            -0.3 %           884          1768.0 %
 Consolidated   $          2,640               4.8 %   $         2,322               4.6 %   $       318            13.7 %

Consolidated operating profitability increased for the fiscal 2014 second 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, in addition to improved upholstery operating performance. Startup costs of our new initiatives are reported in the Casegoods segment and account for substantially all of the decrease from the prior year, on an absolute basis.

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