Hooker Furnishings Corporation (HOFT) on Q4 2021 Results - Earnings Call Transcript
Operator: Greetings, ladies and gentlemen and welcome to the Hooker Furniture Quarterly Investor Conference Call reporting its operating results for the Fourth Quarter 2021 period. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Paul Huckfeldt, Vice President, Finance and Chief Financial Officer for Hooker Furniture Corporation. Paul Huckfeldt: Thank you, Josh. Good morning and welcome to our quarterly conference call to review our financial results for the fiscal 2021 fourth quarter and full year, both of which ended on January 31, 2021. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We certainly appreciate your participation today. Jeremy Hoff: Thank you, Paul and good morning everyone. While the volatile economic environment driven by the COVID-19 pandemic resulted in one of the most challenging years in our 97-year history, we are very pleased with our recovery in the second half of the year and we believe that our company emerged stronger through adversity. Considering the once-in-a-century global health crisis that occurred during fiscal 2021 and how severe the downturn in our industry was during much of the first half of the year, our recovery in the second half was significant, particularly in the areas of profitability and demand. Our fourth quarter results included a 22% increase in net income and higher sales in two of our three reportable segments. Our solid profitability performance in the fourth quarter built on momentum from the third quarter in which we reported net income of $10 million, an increase of $6.2 million or 158% compared to the same period a year ago. Beginning in June, the company experienced historically high levels of demand and backlogs that continue to be strong. We believe this level of demand sets us up for a solid shipping year in fiscal 2022, assuming global logistics bottlenecks such as the scarcity of ocean vessels and containers, higher transportation costs, raw materials shortages and lowered worldwide production capacity improve. Another indicator of our strong second half recovery is that about 75% of the consolidated net sales decrease for the year occurred in the first half of fiscal 2021 caused by the initial severity of the COVID-19 related economic crisis to our company and the industry as a whole. During that time, many of our retail partners closed for weeks, global production was on hold, our Q1 orders plummeted by over 40% and we had to temporarily close 5 of our 6 upholstery plants for more than a month. After around 10 weeks of significantly lower demand, orders surged as furniture emerged as an advantaged sector during the economic downturn. Home furnishings benefited and continue to take advantage of pent-up demand, strength in the housing market and less competition from other discretionary spending such as travel, dining out, apparel and entertainment. Since summer of 2020, we have been working to ramp up production in our domestic factories and with our international suppliers to keep up with demand. As our company responded to multiple disruptions during the year, we believe our strategic adaptations placed the company in a stronger competitive position than the pre-pandemic. The scale of our company, strength of our balance sheet and the skills and dedication of our U.S. and international teams enabled us to successfully navigate a devastating macroeconomic event in a way we believe positions the company to take advantage of the positive momentum and favorable demographics for the home furnishings industry. Some of the enduring strategic adaptations Hooker Furniture Corporation made during the year, including reduced dependency on suppliers in China, a faster product-to-market strategy utilizing video for customer showroom tours and improved photography and the rationalization of our product line to maximize production capacity and capital utilization. Paul Huckfeldt: Thanks, Jeremy. Let’s look at highlights from each segment, beginning with Hooker Branded. The Hooker Branded segment recovered from the pandemic downturn at the fastest pace of all of our segments, with sales rebounding in the third and fourth quarters. In the fourth quarter, Hooker Branded sales were $49.2 million, up almost $10 million or 25% over the prior year. Net sales for the full fiscal year were essentially flat, increasing by about $450,000 or 0.3% despite the pandemic-related shortfalls during Q1 and Q2. Incoming orders increased at a double-digit rate starting in June, sustaining through year end and the segment finished the year with a backlog 3x the level of a year ago. The segment is in the process of rebuilding inventories to meet this current higher demand. For the year, the Hooker Branded segment reported $22.8 million of operating income, an increase of $1.3 million or about 6% compared to the prior year. Given the economic circumstances, we are especially pleased to have not only maintained, but improved Hooker Branded segment profitability compared to the pre-pandemic conditions a year ago. We believe increased sales and demand were driven by a few factors. In the second half of 2019, we preordered our 2020 introductions of the three collections that have been among our most well-received introductions in several years, with all three rising into the top 10 of our best sellers. Two of the collections fill style voids in our line in soft, modern and coastal design, representing incremental business for us. We never canceled production orders for these collections, which help with product flow and availability. We were disciplined in Hooker Taste Goods and Hooker Upholstery to rationalize our inventory and drive underperforming SKUs in order to maximize production capacity around top sellers. Reduced expenses and higher sales helped us make improvements on already solid profitability of Hooker Branded. Now, turning to Home Meridian segment, HMI Q4 sales were $80 million, down 20% from the prior year. The Q4 sales decline was a direct result of disrupted global logistics driven by the economic impact of COVID-19 on manufacturing capacities, raw materials and the cost and availability of shipping containers. Fourth quarter operating income was $683,000, a decrease of $1.2 million versus the prior year. The reduction in profit was caused by the smaller top line compared to a year ago as well as increased freight expenses and a bad debt accrual of about $600,000, which more than offset improved gross margin and operating cost reductions implemented during the year. Jeremy Hoff: Thank you, Paul. Hooker Furniture is entering fiscal ‘22 with confidence and a positive outlook for our company and our industry. Demand is strong with incoming orders up substantially in all segments and order backlogs more than double the prior year. Optimizing these high levels of demand and backlogs will be our operational priority in the near-term as we also work to continue the momentum of improved profitability during the last two quarters. Moving forward, we are confronted with what we believe to be temporary headwinds, including global manufacturing capacities, raw materials, logistics and upholstery foam issues, all of which we believe to be short-term to mid-term constraints. While competition for the consumer’s discretionary spending such as travel, restaurants and entertainment will increase as COVID vaccinations rollout, we see sustainable positive market conditions for home furnishings. We are optimistic about the economic and industry environment, and we are even more confident in our team’s ability to execute our strategies to grow profitably in each of our 12 businesses and adapt to the unexpected challenges. That ends the formal part of our discussion. And at this time, I will turn the call back over to our operator, Josh, for questions. Operator: Thank you. Our first question comes from Anthony Lebiedzinski with Sidoti & Company. You may proceed with your question. Anthony Lebiedzinski: Good morning and thank you for taking the questions. So, first I have a multipart question about Home Meridian. First, just curious as to whether you are seeing any improvements as far as ocean shipping container issues, how has that situation evolved in the last months? The second part of that question, in terms of the reduced overhead that you highlighted, can you give us a sense as to if you could quantify that? And then third part of my question is as far as the inflation comments, are you taking price increases to offset and whether those price increases will offset some of the inflationary issues? And then I have a couple of other questions after that as well. Thank you. Jeremy Hoff: So, the first part, Anthony, first of all good morning. Anthony Lebiedzinski: Good morning. Jeremy Hoff: I would say that we are seeing somewhat positive momentum towards an improvement in the constraint we have been having with containers and availability. It’s definitely not where we need it to be, but it’s showing improvement. We are looking at new contract rates and whatnot, and we are seeing some improvement, but we are not there yet, so definitely not trying to say that. And I am going to let Paul have those other two. Paul Huckfeldt: We made – across the company, we made cost reductions last year now some of those – many of those are temporary. And obviously, in response to this improved business environment, we – probably more of them were turned out to be temporary than we expected. We brought our – most of our staff back. We had – as we have disclosed in prior calls, we had a limited number of layoffs, about a dozen across the whole company. And we are pleased that it didn’t get any worse than that. So we are back to full staffing. The plants are generally operating at full speed with full staffing. In fact, trying to hire more, except right now, we are in a little bit of a temporary delay because of this foam situation. I would say that we have tightened up on things like travel went with, probably never going to go back to the level of travel we did in the past. If I was going to try to put a number on it, I would say probably reduced spending by $0.5 million to $1 million. I don’t think it’s any bigger than that because right now, business is good, so it’s hard to compare. But I would say that we have taken some overhead out, but I don’t think it’s not a huge number. Anthony Lebiedzinski: Got it. Okay. And then as far as to wrap up that multipart question, as far as inflationary issues, as you highlighted, how should we think about your ability to raise prices to offset that? Jeremy Hoff: Anthony, I would say that in this environment, we are on a – I would call at a level playing field with everything going on. So the things that are creating the inflation through the raw materials and increased logistics costs, everything we are talking about, competitors, the entire industry is going through all of those same things. So raising prices in that environment where you are not alone with what’s going on is definitely a lot easier than it would be otherwise. Anthony Lebiedzinski: Got it. Okay. And then switching gears to the Domestic Upholstery, just curious, other in the foam issues that you highlighted, and I know everyone in the industry be going through. Are you seeing any other issues? And as far as the foam issue, when would you expect that to get better? Jeremy Hoff: So first of all, on foam, foam allocations are easing with an expected return to near normal levels in May. And then the potential issue coming next is plywood, so that – we don’t know exactly what that means yet because we’re not in it, but we’re seeing it coming. But we don’t know what level that will be. But definitely, foam is already improving, and we see full improvement that we’re anticipating in May right now. Anthony Lebiedzinski: Got it. Alright. And just overall, looking at the company overall, I mean where would you say you are with as far as penetration to your – to e-commerce customers? I know it was about 15% to 20% of your sales, as you’ve highlighted before. Is that still the case? Jeremy Hoff: Yes. That’s pretty much still in that same area for sure. Anthony Lebiedzinski: Okay, got it. And a couple of questions – a couple more questions here. So as far as the overall SG&A came in higher than what I had modeled here. Was there anything unusual in the quarter, I think, Paul, you had something about a bad debt cost, but if you could just go over that, please? Paul Huckfeldt: Look, we reserved $600,000 of bad debt accrual. We’ve got a payment arrangement with that particular customer, but we – in the interest of caution, we accrued $600,000 there, which – I think that accounts for most of the $0.04 miss from your number by the time you tax affect that. Other than that, I think you probably modeled based on midyear costs. But like I said earlier, the – with volumes increasing and being so busy, we – except for travel, we’ve pretty much restored most of our regular costs. Everybody is working full time, layoffs and furloughs are all done. So it’s kind of back to business as usual. Jeremy Hoff: But I would also add that we did figure out that as many people as we were sending overseas don’t, for example, don’t need to go overseas. So there is things like that kind of all over the place that I would tell you that I’m not sure what that adds up to at this point as far as savings, but it’s a big deal. When we figured out a lot of ways to do product development virtually where you don’t have as many people traveling back and forth and marketing-wise, we’re doing better photography, but we’re doing it in a way that’s it really doesn’t cost us as much. We’re not doing it off-site. We’re not taking the products out of the showroom. All those little things add up, as you know. And again, I can’t put a number on it yet, but obviously, we will as time goes by. Anthony Lebiedzinski: Got it. Okay. And last question for me. How should we think about the tax rate and CapEx for this fiscal year now? Jeremy Hoff: Tax rate should be back to our sort of normal tax rate of 23%, 23.5%, barring, of course, a tax change. CapEx is going to be a little higher this year. We’re launching the CRP project. So I would say the $5 million to $7 million, depending on how things go with the ERP projects, still not a lot. Anthony Lebiedzinski: Yes, absolutely. Thanks very much and best of luck. Jeremy Hoff: Thank you, Anthony. Paul Huckfeldt: Thanks. Operator: Thank you. Our next question comes from Jeff Geygan from Global Value. You may proceed with your question. Jeff Geygan: Thank you. Hey, good morning gentlemen. Congratulations on a really solid year after a challenging start. Jeremy Hoff: Thank you, Jeff. Jeff Geygan: Can you talk a little bit about your balance sheet cash and what your thoughts are in terms of deploying that other than some obvious inventory rebuild? Paul Huckfeldt: Well, yes, inventory rebuild has got to be our highest priority. We would like to think of working capital in general. I’d like to think some of it is going to be invested in receivables, too. Beyond that, we – I think, again, getting – weathering a downturn, we’re really comfortable having what other people might say is too much cash on our balance sheet. Beyond that, we also – I think we’ve been, over the years, pretty clear that we intend to continue to grow by acquisition as we find appropriate whitespace acquisitions. And so I think that some of this is involved – is building a war chest for that opportunity. But again, I think we’ve been a pretty cautiously managed company. And I think we get pretty good reviews for being conservative. So I think that it’s building both cushion and acquisition resources are primary. Jeff Geygan: And I agree. I think you have been quite judicious over the years with your balance sheet. Can you talk a little bit more about your acquisition pipeline, what that looks like? What potential size segments or verticals that you might have more or less interest in? Jeremy Hoff: So I would tell you that our team has a profile that we follow as far as what would interest us as a company. And it really has a lot to do with white space that we’re currently not in, product-wise. One thing that we talk about is white space from a supply chain standpoint. So if there is a different avenue to getting products through a company that we could buy that would be attractive to us because it diversifies the company even more. So culturally, that’s a huge one for us. We really are not interested in buying something just to buy it. And if it’s not really our culture and we feel like it won’t be accretive to us, and we’re really – so we’re in a position where we would be very interested in the right company. We are not in a hurry for anything else. Paul Huckfeldt: Yes. I mean we have good borrowing capacity and so size is more a function of whether the company – whether it fits the rest of the profile. The – whether it’s a tuck-in like a product line acquisition or a bigger acquisition, I think we can scale that based on the rest of the – on how it fits the rest of the profile. Jeff Geygan: Great. That’s helpful. I appreciate it. And segueing a little bit on comments you made earlier, can you share with us your view of the future in terms of brick-and-mortar versus e-commerce and your outlook and the trends that you see affecting that? Jeremy Hoff: Well, we have a lot of really good partners in both channels, and it’s interesting. The pandemic showed the strength really of both. There is a lot of success going on in both channels at this point, and it doesn’t seem to have from what we can see an end in the short-term. So strategically, we – our goal is to win in any channel that we compete in. So we’re very focused on our strategies for each of the 12 businesses and how they approach the channels they are targeting. And if they are targeting brick-and-mortar, we want to be the best in brick-and-mortar for that product line and for that price point and what we are targeting, same thing with e-commerce. We want to be the best partner and the best of product, the best logistics that we can be for that channel as well. Jeff Geygan: Yes. Great, thank you. Last question a little bit curious about your labor and specifically the availability where we have seen many labor intensive businesses using skilled or semi-skilled labor having availability issues? And secondly, related to that, what type of wage inflation are you experiencing in attracting and retaining that labor? Thank you. Jeremy Hoff: So labor definitely is a challenge, particularly in our domestic manufacturing and also in our warehousing. We’ve got programs in place now that are different from what we even had last year to try and attract employees. It is working. We’re – I think we’re doing a relatively good job in our domestic facilities attracting new people. We actually have a person that we’ve added that’s the primary job is to search for good people that we could add to our teams. And that has shown improvement. And with the demand environment we’re in, you really have to – you’ve got to be on what you just asked every day. I mean it’s an everyday activity and it’s trying to figure out how do we need to change to make sure we not only attract new people, but we retain people and create an environment that they want to be in and stay. So it’s a challenge, but I feel like we’re meeting that. It’s not where we want it to be, but we have things in place, and we’re putting new things in place daily to get there. Jeff Geygan: And can you share anything on wage inflation? Jeremy Hoff: Paul, would you like to answer that? Paul Huckfeldt: Well, I think the industry is seeing inflation across all categories. And I think that we are going to see wage inflation. I think we’re going to be able to pass a lot of that along. I wouldn’t be surprised to say 3% to 5% wage inflation, but I think that that’s going to be – it’s going to be part of the overhead and subsequent price increases. We are seeing the same thing coming out of Asia and everything is being priced up. The whole industry is facing today. Jeremy Hoff: And currently, if we experience some wage inflation, but we do a better job with our capacity, it really does end up either canceling or it shows an improvement because our model, if we get more out the door, it makes a lot of those fixed costs up. Jeff Geygan: Thank you for the comments. Good luck. Jeremy Hoff: Thank you. Paul Huckfeldt: Thank you. Operator: Thank you. Our next question comes from Sandy Mehta with Evaluate Research. You may proceed with your question. Sandy Mehta: Yes. Congratulations on a strong quarter. Could you talk a little bit quantitatively or qualitatively about the backlog? And what trends you’re seeing in sort of incoming order rates? Is your backlog expanding? Because anecdotally, there seems to be a lot of news reports about strong demand for housing and furniture. Jeremy Hoff: Yes. So Sandy, you are exactly right. It’s an environment that we just – it kind of surprises us quite a bit on a daily, weekly, monthly and quarterly basis. And it really – we have not seen a slowdown from that at all. So backlogs continue to grow and as logistics continue to get better for us and the other constraints that we talked about earlier, again, we are optimistic. So – and what you just said about the housing market is obviously a major thing for our industry and then the demographics as well. There is a lot of things that stay in place, we believe as the discretionary spending model changes due to the vaccines rollout. We think we are in a really good position as an industry. Sandy Mehta: And there is a lot of news reports about people leaving big cities. People would say you’re fleeing the big cities. And people moving from cities, I would have to think they have a lot of purchasing power if they are moving to a suburban area or rural area, a lot of purchasing power to buy furniture. And would that and other factors, would you believe that this industry has legs for 1 or 2 years in terms of housing and furniture. It’s not just a short-term phenomena, but some of these things are a little bit more structural, at least for a few years? Thank you. Jeremy Hoff: Yes, I think you are absolutely right. And not only is there additional as you said money from moving from a bigger city out into the suburbs, but you also – typically, it’s a larger space, larger home, which is an advantage for selling more furniture as well. And when you get into a larger home, typically larger rooms, we saw a lot of big furniture in several of our brands. So that plays in for us as well. Sandy Mehta: Thank you. Jeremy Hoff: You are welcome. Operator: Thank you. I’m not showing any further questions at this time. I would now like to turn the call back over to Jeremy Hoff for any further remarks. Jeremy Hoff: Thank you, Josh. I appreciate it. We want to thank everyone for participating in the call and look forward to reporting our quarter next quarter. And thank you very much. Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.HOFT Ratings Summary
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Financial Performance of Hooker Furniture Corporation (NASDAQ:HOFT)
Hooker Furniture Corporation, trading as NASDAQ:HOFT, is a well-known furniture company that designs, imports, and markets residential furniture. The company has a diverse product range, including casegoods, leather furniture, and fabric-upholstered furniture.
Despite its established presence, HOFT faces competition from other furniture manufacturers and retailers, which can impact its financial performance. On June 12, 2025, HOFT reported an earnings per share (EPS) of -$0.29, which was below the estimated EPS of -$0.16. This quarterly loss was wider than the Zacks Consensus Estimate, as highlighted by Zacks. However, it marks an improvement from the previous year's loss of $0.39 per share.
This indicates some progress, although the company still struggles to meet market expectations. The company's actual revenue for the period was $85.3 million, falling short of the estimated $88.9 million. This shortfall in revenue highlights the challenges HOFT faces in achieving its sales targets.
The price-to-sales ratio of approximately 0.30 suggests that the stock is valued at 30 cents for every dollar of sales, indicating a low market valuation relative to its sales. HOFT's financial metrics reveal further insights into its current situation. The price-to-earnings (P/E) ratio of approximately -9.30 and an earnings yield of about -10.75% reflect negative earnings.
The enterprise value to sales ratio of 0.46 and the enterprise value to operating cash flow ratio of -7.91 indicate challenges in generating positive cash flow. Despite these challenges, the debt-to-equity ratio of 0.34 shows a moderate level of debt, and a current ratio of 3.53 suggests a strong ability to cover short-term liabilities.
