Hooker Furniture reported net sales of $52.6 million and a net income of $957,000, or $0.09 per share, for its fiscal 2010 third quarter that began August 3rd and ended November 1st, 2009.
Net sales for the third quarter of fiscal 2010 decreased $16.4 million, or 23.8%, compared to $69.0 million for the third quarter of fiscal 2009. Net income for the quarter decreased by $2.0 million, to $957,000, or $0.09 per share, compared to net income of $3.0 million, or $0.27 per share, for the fiscal 2008 third quarter.
"With our return to profitability and a 14% increase in sales this quarter compared to the second quarter, we are moving in the right direction and beginning to achieve some momentum we can build on," said Paul B. Toms Jr., chairman and chief executive officer and president. "Our single greatest focus for the third quarter was to reverse the decline in sales. Although we weren't able to grow sales versus the prior year, we were able to slow the decline.
In addition, the upward trend in incoming orders we reported last quarter has continued. In fact, this October we experienced the highest per-week incoming order rate since August 2008. The uptick in orders has been particularly strong at our upholstery divisions during the last 90 days. While encouraged by the improvements, we remain keenly focused on increasing sales, controlling costs and positioning ourselves for improved profitability."
Operating profitability decreased in the 2010 quarter to $1.8 million or 3.4% of net sales, from income of $4.7 million or 6.8% of net sales in the 2009 quarter due to lower net sales, higher discounting and higher overhead and operating expenses as a percent of net sales.
Gross profit declined $3.0 million to $12.7 million, compared to $15.7 million in the same period a year ago. Gross profit margin increased to 24.1% of net sales in the current quarter compared to 22.7% of net sales in the same period last year mainly as a result of lower freight costs on imported wood and metal furniture. "We are encouraged to have been able to improve gross margin this quarter in spite of a 24% sales decline and excess capacity in our upholstery divisions," Toms said. "During the year, we've adjusted our upholstery production capacity and work force to the lower level of business, along with aggressively updating and expanding our product line to stimulate sales. Now, as the uptick in orders and backlogs at Bradington-Young and Sam Moore translates into shipments and improved overhead absorption, the upholstery divisions are better positioned to return to profitability," Toms said.
Selling and administrative expenses decreased by $637,000 to $10.9 million, or 20.7% of net sales, in the 2010 third quarter. In comparison, selling and administrative expenses were $11.5 million, or 16.7% of net sales, in the fiscal 2009 third quarter. The decrease in selling and administrative expenses was due primarily to lower selling expenses on lower sales volume, lower compensation, benefits and other expenses as a result of workforce reductions implemented during fiscal 2009, and other actions to curtail spending in reaction to lower sales volume. These decreases, however, were partially offset by $152,000 in increased marketing and sample expenses in the upholstery division to support extensive new product introductions for the recent Fall High Point Market.
Additional expenses recorded in the third quarter included severance costs of $521,000, and $385,000 in charges to write down certain supplier-pledged collateral to its net realizable value.
Fiscal Year 2010 First Nine Month Results
Net sales for the fiscal year 2010 first nine months declined $54.0 million, or 26.4% to $150.6 million compared to $204.7 million for the fiscal 2009 first nine months. The Company's operating income for the first nine months of fiscal 2010 decreased to $657,000, or 0.4% of net sales, compared to operating income of $11.8 million, or 5.7% of net sales, in the first nine months of fiscal 2009. The Company reported net income for the 2010 first nine months of $38,000, or less than one cent per share, compared with net income of $7.6 million, or $0.68 per share, in the fiscal 2009 nine-month period.
Cash, Inventory and Debt Levels
Cash and cash equivalents increased by $22.9 million to $34.7 million as of November 1, 2009 from $11.8 million on February 1, 2009 due principally to inventory reductions in response to reduced incoming orders and shipments.
Inventories declined 44% to $33.5 million as of November 1, 2009 compared to $60.2 million at the end of fiscal 2009. "During the quarter, we reduced inventories 19% compared to the previous quarter and maintained our strong cash position while growing receivables and eliminating all long term debt," Toms said. "Our strong balance sheet continues to serve us well as we have navigated the severe economic downturn," Toms said. "We are leveraging our financial strength to invest in systems, people, inventory and expansion of our product lines." Regarding the Company's inventory position, Toms said, "We are in a reasonably good inventory and service position. As business has improved, it has put a little more stress on our supply chain. However, we began ordering more aggressively in August and are working with our suppliers to ensure we have the necessary inventory to support the uptick in sales."
The Company has no long-term debt at November 1, 2009 and has $13.3 million available on its revolving line of credit at quarter-end.
Business Outlook
"We believe the worst is behind us, but there is still a headwind in the recovery," Toms said. "Unemployment alone is significant. While we are encouraged by strong increases in existing home sales the last two months, new home construction is still sluggish, and consumer confidence is still subdued. Until we see people feeling more secure in their jobs and an improvement in employment, we will continue to see downward pressure on discretionary spending for large ticket items like furniture. We expect a large part of our growth will come from market share gains as we expand our product line and price point range to reach new consumers. We do see retail conditions improving somewhat, and believe that we can build on the progress we have made this quarter."
Announcements
On October 26, the Company announced that its Executive Vice President of Operations, Sekar Sundararajan, is leaving the firm to return to private consulting, effective November 30, 2009.
Sundararajan has been working with the company since early 2007 in a consulting capacity, and joined Hooker in the new position of Executive Vice President of Operations in 2008.
"We're very appreciative of Sekar's involvement with Hooker Furniture," said Toms. "He helped us improve significantly in multiple operational areas. We are a better performing company due to the time he spent with us." Toms added, "We look forward to continuing to work with him on a consulting basis on several current and future initiatives."
Ranked among the nation's top 10 largest publicly traded furniture sources based on 2008 shipments to U.S. retailers, Hooker Furniture Corporation is an 85-year old residential wood, metal and upholstered furniture resource. Major wood furniture product categories include home entertainment, home office, accent, dining, and bedroom furniture in the upper-medium price points sold under the Hooker Furniture brand , and sold at moderate price points under the Envision Lifestyle Collections by Hooker Furniture brand. Youth bedroom furniture is sold under the Opus Designs by Hooker Furniture brand. Hooker's residential upholstered seating companies include Cherryville, N.C.-based Bradington-Young LLC, a specialist in upscale motion and stationary leather furniture, and Bedford, Va.-based Sam Moore Furniture LLC, a specialist in upscale occasional chairs with an emphasis on cover-to-frame customization. Please visit our websites at www.hookerfurniture.com, www.envisionfurniture.com, www.bradington-young.com, www.sammoore.com and www.opusdesigns.com.