OREANDA-NEWS. Hooker Furniture (NASDAQ:HOFT) today reported consolidated net sales of $121.8 million and net income of $2.5 million, or $0.22 per diluted share, for its fiscal 2017 first quarter ended May 1, 2016. Included in fiscal 2017 first quarter results are $1.7 million in acquisition-related intangible amortization expense, which was elevated in the first quarter due to the five-month amortization period of the Company’s acquired profit in order backlog asset and approximately $1.0 million in non-recurring acquisition-related costs.

This is the first quarter to include consolidated financial results from Hooker’s acquisition of the business of Home Meridian International (“Home Meridian”), which was completed on February 1, 2016, the first day of its 2017 fiscal year. As such, Home Meridian’s results are not included in the Company’s prior fiscal-year results.

For the quarter, consolidated net sales doubled compared to a year ago, primarily due to the Home Meridian acquisition.  This increase was partially offset by a 7% sales decrease in Hooker Furniture’s legacy business, driven by lower sales in the Hooker Casegoods segment.

Earnings per share decreased to $0.22 per share compared to $0.32 in the prior year quarter.

“As expected, the first quarter was impacted by the weaker casegoods demand we, and our industry, have experienced since late last year,” said Paul B. Toms, chief executive officer. “Yet, in spite of lower sales and about $1 million in acquisition-related costs, we were able to deliver nearly a 7% operating income margin in our legacy business.”

Toms added, “Since the end of our first quarter, we have seen improvement in the incoming order rate for both Hooker and Home Meridian casegoods versus the first quarter. During this same period, there’s been an uptick in consumer spending, stabilization of the stock market and an uptick in housing. We expect these factors will result in an improved furniture retail environment, with less hesitation on the part of consumers to invest in larger-ticket purchases like case goods,” he said.

During the quarter, consolidated gross profit increased 62.4%, or $10.2 million, over the prior year quarter primarily due to the Home Meridian acquisition. Also contributing to the increase were higher sales and improved operating efficiencies in the Company’s Upholstery segment, along with higher gross profit in the All Other segment due to increased net sales at H Contract. These improvements were partially offset by a decline in the Hooker Casegoods segment profitability due to lower net sales. However, the Hooker Casegoods segment gross profit as a percentage of net sales increased primarily due to lower ocean freight costs.   

Consolidated operating income decreased $1.2 million, or 23.7% to $4.0 million. The decrease was driven primarily by decreased Hooker Casegoods segment operating profit. Included in Hooker Casegoods segment results are approximately $1 million in non-recurring acquisition-related costs recorded during the quarter. Additionally, the Home Meridian segment recorded $1.7 million in amortization expense on acquisition-related intangibles.  Amortization expense is expected to decline to $814,000 in the fiscal 2017 second quarter and to $334,000 in each of the fiscal 2017 third and fourth quarters.

Segment Reporting: Hooker Casegoods

“High-ticket, deferrable product categories like case goods appear to have been hardest hit during the retail slowdown, beginning late last year and through Q1 this year. We believe reduced retail activity was driven by lower consumer confidence, volatility in the stock market, a pause in housing activity and depressed oil prices that negatively affected certain regions of the country where several of our largest customers are located,” Toms said. “As these conditions improve, we expect a better retail sales environment for casegoods. In addition, we are taking aggressive actions to stimulate demand such as national sales promotions on various parts of our product line, working with major retailers to tailor promotions specifically to their market and successfully launching our Cynthia Rowley brand at retail.”

Segment Reporting: Home Meridian

“We are very excited to now have Home Meridian as part of our Company,” Toms said. “Long term, we believe our expansion into lower price points and additional channels of distribution will be extremely beneficial to our company and are confident Home Meridian will be a significant contributor to both top and bottom line growth. While Home Meridian, like Hooker, was impacted by weaker demand this quarter, they met our internal expectations. Seasonality is more of a factor in their business, with the first quarter of the year historically representing only 20% of their annual volume, due to their business model and the impact of Chinese New Year on production and shipping. Consequently, we expect better leveraging of fixed costs later in the fiscal year. Amortization of intangible assets, in particular the profit in acquired order backlog which will be amortized over the first half of fiscal 2017, had a significant impact on HMI’s first quarter results.” 

Segment Reporting: Upholstery

“Upholstery outperformed case goods both in our Company and the industry as a whole during the last two quarters,” Toms said. “Overall, our upholstery segment reported a low-single-digit sales increase, and we were particularly gratified to see a robust increase in our imported upholstery sales. Bradington-Young, our domestically-produced premium leather line, continued the trend of low-single-digit sales increases and good operating profitability. Sam Moore, our custom upholstery brand, reported an operating income improvement of nearly 50% during the quarter, despite a 5% net sales decrease due primarily to exiting low or unprofitable sales in the prior-year.”

Segment Reporting: “All Other”

“H Contract continues to grow, with shipments up 82% over last year and a three-fold improvement in operating income compared to last year,” Toms said. “We have not yet felt the impact of the repositioning of Homeware, as that is still in process. While sales were down, Homeware cut operating losses in half. Overall, Homeware had minimal impact on our results.”

Cash, Debt and Inventory

The Company finished the fiscal 2017 first quarter with $32.4 million in cash and cash equivalents and $52 million in acquisition-related debt. Additionally, $28.2 million was available on its $30.0 million revolving credit facility, net of $1.8 million reserved for standby letters of credit. Consolidated inventories stood at $77.7 million.

“We are pleased with our cash balance, even after using $26 million in cash on hand to partially fund the acquisition of Home Meridian,” Toms said. “In addition to our regular debt service payment, we have already paid an additional $6.8 million to lower debt. We’re also satisfied with our inventory levels and are keeping obsolescence at a minimum, as is evidenced by continued lower Hooker Casegoods discounting. We still expect an uptick at retail in the late summer and are planning our inventory levels accordingly.”

Outlook

"Beginning in the second half of last year through the first quarter of this fiscal year, we’ve experienced lower demand for most of our products compared to the same period a year ago. We believe our situation is generally consistent with that of the overall home furnishings industry. Several economic factors have put consumers on the sidelines, postponing big-ticket purchases such as case goods. However, in May we have seen an improvement in consumer spending, significant increases in new and existing home sales as well as other positive factors, resulting in an uptick in incoming case goods orders. While the summer months are historically the weakest at retail in the furniture industry, we expect an improving environment and are preparing for an expected upturn in business during the late summer. We are also working with our vendors to accelerate delivery of our top April market introductions to retail floors early in the third quarter so they will be in place at retail for the important Labor Day weekend that opens the fall selling season," Toms concluded

Conference Call Details

Hooker Furniture will present its fiscal 2017 first quarter results via teleconference and live internet web cast on Tuesday afternoon, June 7, 2016, at 4:00 PM Eastern Time.  The dial-in number for domestic callers is 877-665-2466, and 678-894-3031 is the number for international callers.  The call will be simultaneously web cast and archived for replay on the Company's web site at www.hookerfurniture.com in the Investor Relations section.

Dividends

On June 6, 2016, our board of directors declared a quarterly cash dividend of $0.10 per share, payable on June 30, 2016 to shareholders of record at June 16, 2016.