Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
HOFT > SEC Filings for HOFT > Form 10-K on 18-Apr-2014All Recent SEC Filings

Show all filings for HOOKER FURNITURE CORP

Form 10-K for HOOKER FURNITURE CORP


18-Apr-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the selected financial data and the consolidated financial statements, including the related notes, contained elsewhere in this annual report. We especially encourage users of this report to familiarize themselves with:

All of our recent public filings made with the Securities and Exchange Commission ("SEC"). Our public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurniture.com;

The forward looking statements contained in Item 1 of this report, which describe the significant risks and uncertainties that could cause actual results to differ materially from those made in any forward-looking statements we make in this report, including those contained in this section of our annual report on Form 10-K;

The company-specific risks found in Item 1A "Risk Factors" of this report on Form 10-K. This section contains critical information regarding significant risks and uncertainties that we face. If any of these risks materialize, our business, financial condition and future prospects could be adversely impacted; and

Our commitments and contractual obligations and off-balance sheet arrangements described on page 31 and in Note 17 on page F-28 of this report. These sections describe commitments, contractual obligations and off-balance sheet arrangements, some of which are not reflected in our consolidated financial statements.

All references to the Company in this discussion refer to the Company and its consolidated subsidiaries, unless specifically referring to segment information. Unless otherwise indicated, amounts shown in tables are in thousands, except for share and per share data.

Our fiscal years end on the Sunday closest to January 31, in some years (generally once every six years) the fourth quarter will be fourteen weeks long and the fiscal year will consist of fifty-three weeks. For example, the 2013 fiscal year that ended on February 3, 2013 was a 53-week fiscal year. Our quarterly periods are based on thirteen-week "reporting periods" (which end on a Sunday) rather than quarterly periods consisting of three calendar months. As a result, each quarterly period generally is thirteen weeks, or 91 days, long, except as noted above.

The financial statements filed as part of this annual report on Form 10-K include the:

fifty-two week period that began February 4, 2013 and ended on February 2, 2014 (fiscal 2014);

fifty-three week period that began January 30, 2012 and ended on February 3, 2013 (fiscal 2013); and

fifty-two week period that began January 31, 2011 and ended on January 29, 2012 (fiscal 2012).

Nature of Operations

Hooker Furniture Corporation (the "Company", "we," "us" and "our") 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 accents, home office, dining, bedroom and home entertainment furniture under the Hooker Furniture brand. Our residential upholstered seating companies include Bradington-Young (acquired in 2003), a specialist in upscale motion and stationary leather furniture and Sam Moore Furniture (acquired in 2007), 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 10 other countries internationally. Other customers include independent furniture stores, specialty retailers, department stores, catalog and internet merchants, interior designers and national and regional chains. We launched two new initiatives during fiscal 2014, which are intended to help us reach a broader consumer base:

H Contract- which supplies upholstered seating and casegoods to upscale senior living facilities throughout the country; and

Homeware- which features customer-assembled, modular upholstered and casegoods products, as well as home accessories, designed for younger and more mobile furniture customers, marketed direct-to-consumer via the internet.


Table of Contents

Overview

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

consumer confidence;

availability of consumer credit;

energy and other commodity prices; and

housing and mortgage markets;

as well as lifestyle-driven factors such as changes in:

fashion trends;

disposable income;

household formation and turnover; and

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, when quality concerns or inflationary pressures diminish the value proposition offered by our current suppliers, transition sourcing to other suppliers, often located in different countries or regions.

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 beginning with our fiscal 2009 second quarter through the second quarter of fiscal 2013. We initiated extensive cost reduction efforts over that time, which mitigated the effect of the weakness in demand. Our upholstery segment operations have been profitable for the last two fiscal years.

The following are the primary factors that affected our consolidated results of operations for fiscal 2014.

Consolidated net sales increased, primarily due to higher average selling prices in both operating segments, partially offset by higher discounting and returns and allowances in our casegoods segment and five fewer shipping days in fiscal 2014 than in fiscal 2013.

Consolidated gross profit increased in absolute terms, due primarily to increased sales volume in both segments, but was essentially flat as a percentage of net sales.

Consolidated selling and administrative expenses increased in both absolute terms and as a percentage of net sales primarily due to start-up costs for our H Contract and Homeware business initiatives and a number of other factors such as higher marketing and professional expenses which are discussed in greater detail below ; and

Our upholstery segment nearly doubled operating profitability, primarily due to improvements in Bradington-Young's domestic leather operations due to increased sales due to higher selling prices, lower cost of sales due to improved material utilization and lower selling and administrative expenses due to lower marketing related costs.


Table of Contents

Results of Operations

The following table sets forth the percentage relationship to net sales of certain items for the annual periods included in the consolidated statements of income:

                                         Fifty-two        Fifty-three       Fifty-two
                                        weeks ended       weeks ended      weeks ended
                                        February 2,       February 3,      January 29,
                                            2014             2013              2012
  Net sales                                    100.0 %           100.0 %          100.0 %
  Cost of sales                                 76.0              75.9             78.0
  Gross profit                                  24.0              24.1             22.0
  Selling and administrative expenses           18.5              18.1             18.1
  Intangible asset impairment charges              -                 -              0.8
  Operating income                               5.5               5.9              3.0
  Other income, net                              0.0               0.1              0.1
  Income before income taxes                     5.5               6.0              3.1
  Income taxes                                   2.0               2.0              0.8
  Net income                                     3.5               4.0              2.3

Fiscal 2014 Compared to Fiscal 2013

                                   Net Sales

                     Fifty-two weeks ended              Fifty-three weeks ended
                February 2,                         February 3,
                    2014                                2013                              $ Change        % Change
                                   % Net Sales                          % Net Sales
Casegoods       $    145,266               63.6 %   $    141,064                64.6 %   $     4,202             3.0 %
Upholstery            83,027               36.4 %         77,295                35.4 %   $     5,732             7.4 %
 Consolidated   $    228,293              100.0 %   $    218,359               100.0 %   $     9,934             4.5 %

                     Unit Volume and Average Selling Price

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

   Casegoods                        -3.4 %   Casegoods                            5.9 %
   Upholstery                        1.2 %   Upholstery                           6.2 %
    Consolidated                    -2.0 %    Consolidated                        6.3 %

Because we report on a fiscal year that ends on the Sunday closest to January 31st of each year, the 2014 fiscal year was one week shorter than the comparable 2013 fiscal year which was 53 weeks long. The following table presents average net sales per shipping day in thousands for the 2014 and 2013 fiscal years:


Table of Contents

                           Net Sales per Shipping Day

                             Average Net Sales Per Shipping Day
                  Fifty-two weeks ended             Fifty-three weeks ended         %
                    February 2, 2014                   February 3, 2013           Change
 Casegoods       $                   581           $                     553          5.1 %
 Upholstery                          332                                 303          9.6 %
  Consolidated   $                   913           $                     856          6.6 %

 Shipping Days                       250                                 255



                                  Gross Profit

                     Fifty-two weeks ended               Fifty-three weeks ended
                February 2,                          February 3,
                    2014                                 2013                              $ Change        % Change
                                    % Net Sales                          % Net Sales
Casegoods       $     39,332                27.1 %   $     38,054                27.0 %   $     1,278             3.4 %
Upholstery            15,393                18.5 %         14,492                18.8 %           901             6.2 %
 Consolidated   $     54,725                24.0 %   $     52,546                24.1 %   $     2,179             4.1 %

Consolidated gross profit increased in absolute terms, but was essentially flat as percentage of net sales in fiscal 2014, as compared to the same prior-year period, primarily due to increased sales and higher average selling prices in both segments and lower distribution costs in our casegoods segment due to the closure of several Asian warehouses and lower payroll expenses.

                      Selling and Administrative Expenses

                     Fifty-two weeks ended               Fifty-three weeks ended
                February 2,                          February 3,
                    2014                                 2013                              $ Change        % Change
                                    % Net Sales                          % Net Sales
Casegoods       $     28,742                19.8 %   $     26,102                18.5 %   $     2,640            10.1 %
Upholstery            13,480                16.2 %         13,504                17.5 %           (24 )          -0.2 %
 Consolidated   $     42,222                18.5 %   $     39,606                18.1 %   $     2,616             6.6 %

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

Casegoods selling and administrative expenses increased both in absolute terms and as a percentage of net sales, primarily due to:

start-up costs for our H Contract and Homeware initiatives, startup costs which were $2.1 million pre-tax, ($1.4 million, or $0.13 per share after tax), in fiscal 2014;

an increase in bad debts expense due to a favorable adjustment in the comparable fiscal 2013 period;

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

an increase in salaries and wages due to hiring to fill open positions; and

an increase in selling expenses due to increased marketing and promotional activity.

Upholstery selling and administrative expenses decreased in absolute terms and as a percentage of net sales due to increased sales volume.


Table of Contents

                                Operating Income

                      Fifty-two weeks ended               Fifty-three weeks ended
                February 2,                           February 3,
                    2014                                  2013                              $ Change        % Change
                                    % Net Sales                           % Net Sales
Casegoods       $     10,590                  7.3 %   $     11,953                 8.5 %   $    (1,363 )         -11.4 %
Upholstery             1,913                  2.3 %            987                 1.3 %           926            93.8 %
 Consolidated   $     12,503                  5.5 %   $     12,940                 5.9 %   $      (437 )          -3.4 %

Operating income decreased for fiscal 2014 compared to the prior-year both as a percentage of net sales and in absolute terms, due to the factors discussed above. The operating loss for our H Contract and Homeware initiatives was $1.5 million, which is reported in our casegoods segment.

                                  Income Taxes

                    Fifty-two weeks ended               Fifty-three weeks ended
               February 2,                          February 3,
                   2014                                 2013                              $ Change        % Change
                                   % Net Sales                          % Net Sales
Consolidated
income tax
expense        $      4,539                 2.0 %   $      4,367                 2.0 %   $       172             3.9 %

Effective
Tax Rate               36.4 %                               33.6 %

We recorded income tax expense of $4.5 million during fiscal 2014, compared to $4.4 million for fiscal 2013, due primarily to our effective tax rate rising, which primarily resulted from a decrease in the favorable permanent difference attributable to the annual gain associated with Company-owned life insurance.

                       Net Income and Earnings Per Share

                          Fifty-two weeks ended               Fifty-three weeks ended
                     February 2,                          February 3,
                         2014                                 2013                              $ Change        % Change
                                         % Net Sales                          % Net Sales
 Consolidated        $      7,929                 3.5 %   $      8,626                 4.0 %   $      (697 )          -8.1 %

Earnings per share   $       0.74                         $       0.80


Table of Contents

Fiscal 2013 Compared to Fiscal 2012

                                   Net Sales

                    Fifty-three weeks ended               Fifty-two weeks ended
                February 3,                          January 29,
                    2013                                 2012                             $ Change        % Change
                                    % Net Sales                         % Net Sales
Casegoods       $    141,064                64.6 %   $    147,927               66.5 %   $    (6,863 )          -4.6 %
Upholstery            77,295                35.4 %         74,578               33.5 %   $     2,717             3.6 %
 Consolidated   $    218,359               100.0 %   $    222,505              100.0 %   $    (4,146 )          -1.9 %



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

   Casegoods                      -19.7 %   Casegoods                           17.8 %
   Upholstery                      -4.3 %   Upholstery                           7.9 %
    Consolidated                  -15.8 %    Consolidated                       15.7 %

The decrease in consolidated net sales 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 in the first half of the 2013 fiscal year and decreased discounting. The out-of-stock positions were primarily due to overly-aggressive inventory reductions that began in fiscal 2012 and continued into the fiscal 2013 first six months. 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 six month 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. Sales of imported products in fiscal 2012 were driven by heavy discounting, intended to reduce inventory of slow selling and discontinued products. Upholstery net sales increased compared to the same prior-year period, primarily due to increased average selling prices, partially offset by lower unit volume.

Because we report on a fiscal year that ends on the Sunday closest to January 31st of each year, the 2013 fiscal year was one week longer than the comparable 2012 fiscal year. The following table presents average net sales per shipping day in thousands for the 2013 and 2012 fiscal years:

                                   Average Net Sales Per Shipping Day
                 Fifty-three weeks ended             %             Fifty-two weeks ended
                    February 3, 2013              Change             January 29, 2012
Casegoods       $                     553              -6.1 %     $                   589
Upholstery                            303               1.9 %                         297
 Consolidated   $                     856              -3.8 %     $                   886

Shipping Days                         255                                             251


Table of Contents

                                  Gross Profit

                    Fifty-three weeks ended               Fifty-two weeks ended
                February 3,                          January 29,
                    2013                                 2012                               $ Change       % Change
                                    % Net Sales                          % Net Sales
Casegoods       $     38,054                27.0 %   $     37,550                25.4 %   $       504             1.3 %
Upholstery            14,492                18.8 %         11,313                15.2 %         3,179            28.1 %
 Consolidated   $     52,546                24.1 %   $     48,863                22.0 %   $     3,683             7.5 %

As a percentage of net sales, consolidated gross margin increased, primarily due to decreased discounting in both segments and lower domestic upholstery manufacturing costs as a percentage of net sales, partially offset by modestly higher costs on some of our imported products. The higher levels of product discounting in fiscal 2012 were primarily due to efforts to reduce slow-moving inventory levels. In absolute terms, consolidated gross profit increased, primarily due to improved upholstery segment performance, partially offset by the decline in casegoods net sales discussed above.

                      Selling and Administrative Expenses

                    Fifty-three weeks ended               Fifty-two weeks ended
                February 3,                          January 29,
                    2013                                 2012                              $ Change        % Change
                                    % Net Sales                          % Net Sales
Casegoods       $     26,102                18.5 %   $     26,905                18.2 %   $      (803 )          -3.0 %
Upholstery            13,504                17.5 %         13,470                18.1 %            34             0.3 %
 Consolidated   $     39,606                18.1 %   $     40,375                18.1 %   $      (769 )          -1.9 %

Casegoods selling and administrative expenses increased as a percentage of net sales primarily due to the net sales decrease discussed above, but decreased in absolute terms, primarily due to:

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

lower contributions expense, due to lower levels of distressed inventory;

lower bad debt expense, due to favorable collections experience;

reduced advertising and sample expenses, due to cost-cutting measures; and

lower sales and design commissions, due to lower net sales.

These expense improvements were partially offset by increases in:

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

salary expense, primarily due to an executive promotion and other salary increases; and

fees for professional services, due to additional fees for several corporate initiatives.

Upholstery selling and administrative expenses decreased as a percentage of net sales, primarily due to decreases in:

salary expense, due to an executive promotion to a corporate position and cost reduction efforts undertaken in fiscal 2012;

benefits expense, due to decreased headcount and lower health claims; and

sample and advertising expenses, due to cost-cutting measures.

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


Table of Contents

                                Operating Income

                    Fifty-three weeks ended               Fifty-two weeks ended
                February 3,                          January 29,
                    2013                                 2012                              $ Change        % Change
                                    % Net Sales                          % Net Sales
Casegoods       $     11,953                 8.5 %   $     10,644                 7.2 %   $     1,309            12.3 %
Upholstery               987                 1.3 %         (3,971 )              -5.3 %         4,958           124.9 %
 Consolidated   $     12,940                 5.9 %   $      6,673                 3.0 %   $     6,267            93.9 %

Operating profitability increased both as a percentage of net sales and in absolute terms, due to the factors discussed above. The upholstery segment returned to operating profitability during the 2013 fiscal first quarter and, despite a modest operating loss in the fiscal 2013 second quarter, posted an operating profit for fiscal 2013. The upholstery segment has returned to operating profitability due to operational improvements and the non-recurrence of intangible asset impairment charges in fiscal 2013. During the fourth quarter of fiscal 2012, our upholstery segment recorded a non-cash intangible asset impairment charge of $1.8 million ($1.1 million, or $0.10 per share, after tax) to write-down the value of the Bradington-Young trade name. We wrote down the carrying value of the Bradington-Young trade name because of operating losses incurred in that division through fiscal 2012.

                                  Income Taxes
. . .
  Add HOFT to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for HOFT - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.