Hooker Furniture reported net sales of $53.4 million, a 16.1% year- over -year increase for its fiscal 2011 second quarter which began on May 3, 2010 and ended August 1, 2010. The Company increased net sales $7.4 million from $46.0 million during the same period a year ago.
Net income for the second quarter increased $1.6 million to $1.2 million, or $0.11 per share, compared to a net loss of $463,000, or $0.04 per share, for the comparable period last year.
For the first half, which began on February 1, 2010 and ended August 1, net sales increased $6.7 million, or 6.8% to $104.7 million compared to $98.0 million for the fiscal 2010 first half. The Company reported net income for the 2011 first half of $2.3 million or $0.21 per share, compared with a net loss of $919,000, or $0.09 per share, in the fiscal 2010 six-month period.
"We're pleased to have grown sales in a difficult retail environment and during what is traditionally the weakest quarter for the furniture industry," said Paul B. Toms Jr., chairman and chief executive officer. "It was also gratifying to turn profitability around from the prior year quarter."
Increased sales were driven by higher unit volume as the Company made progress in reducing an order backlog swollen by production delays and shipping bottlenecks in the prior two quarters. Sourcing delays that negatively affected sales since last fall have eased somewhat. "Working closely with our vendor partners, we have made real progress this quarter flowing product," said Toms. "Order backlog levels came down sequentially, but are still slightly above prior-year levels." At the end of the second quarter, Hooker had approximately 6.6 weeks of order backlog as compared to an 8.2 week backlog at the end of the first quarter and a 5.7 week backlog at the same time a year ago. "While our manufacturing partners are not yet back to traditional lead times, we expect to continue to make progress in shipping our backlog and improving inventory availability to our customers during the third quarter," Toms said.
Gross profit increased $2.3 million to $12.0 million or 22.4% of net sales in the fiscal 2011 second quarter, compared to $9.7 million or 21.1% of net sales in the same period a year ago. Gross margins for wood and metal furniture improved slightly in the fiscal year 2011 second quarter compared to the fiscal 2010 second quarter, primarily due to decreased levels of product discounting and returns and allowances and the exit from the Company's California warehouse during fiscal 2010. Margins for upholstered and leather furniture improved moderately, due to lower fixed costs as a percentage of sales resulting from higher sales and cost reduction efforts, partially offset by higher raw material and manufacturing costs due to product mix and inefficiencies associated with initial production on April market introductions.
Selling and administrative expenses of $10.4 million, or 19.5% of net sales, decreased as a percentage of sales and increased slightly in actual dollars, compared to $10.3 million or 22.3% of net sales for last year's second quarter. The decrease in spending as a percentage of sales was principally due to higher sales for the quarter and the impact of cost reductions implemented in fiscal year 2010 as well as lower employee benefits expense, professional fees and selling expenses.
Operating income for the fiscal 2011 second quarter increased to $1.6 million or 2.9% of net sales as compared to an operating loss of $499,000 or 1.1% of net sales during the comparable 2010 quarterly period, primarily as a result of higher gross profit margins and lower fixed costs as a percentage of sales due to higher sales volumes at the Company's upholstery companies.
For the first half of fiscal 2011, the Company's operating income increased to $3.3 million, or 3.1% of net sales, compared to an operating loss of $1.1 million, or 1.2% of net sales, in the first six months of fiscal 2010. The Company reported net income for the 2011 first half of $2.3 million or $0.21 per share, compared with a net loss of $919,000, or $0.09 per share, in the fiscal 2010 six-month period. Fiscal year 2011 first half results include a $500,000 charge ($312,000 or $0.03 per share, after tax), representing the Company's insurance deductible for a fire at one of its distribution facilities during the fiscal 2011 first quarter. Fiscal year 2010 first half results include an intangible asset impairment charge on the Company's Bradington-Young trade name of $613,000 ($382,000 or $0.04 per share, after tax.)
Cash, Inventory and Debt
Cash and cash equivalents decreased $8.2 million to $29.8 million as of August 1, 2010 from $38.0 million on January 31, 2010 due principally to increased inventories, and increases in prepaid expenses and other current assets and trade receivables. These changes were partially offset by increases in trade accounts payable, and accrued wages, salaries and benefits. "We have intentionally grown our inventories," said Toms. "This was in response to increased upholstery orders, strong customer response to our recent product introductions and to prepare for the seasonal uptick in business we expect this fall. We also see this as a way to leverage our financial strength and differentiate our Company by being in-stock on best sellers and shipping our line quickly." The Company had no long-term debt at August 1, 2010. At quarter-end, it had $13.1 million available on its revolving line of credit and $14.2 million available to borrow on the cash surrender value of company-owned life insurance policies.
Business Outlook
"While we expect our performance to continue to improve next quarter due to the seasonal uptick, our expectations are tempered by continuing weakness in consumer demand for large ticket, discretionary purchases. Demand is particularly weak for wood furniture, with case goods orders tracking lower both on a sequential and year to date basis. However, as we enter what is traditionally the strongest selling season for furniture, there are several reasons to be encouraged. Overall business has improved at a slow but steady pace since the end of last year. We've made progress in shipping our backlog and have seen robust sales gains in upholstery throughout the year. In addition, some of our newer wood furniture lines like Sanctuary, Abbott Place and Envision are performing well at retail with strong initial response from the consumer despite the weak retail environment, which will help us grow our business through market share gains," Toms said.
Dividends
At its September 8, 2010 meeting, our board of directors declared a quarterly cash dividend of $0.10 per share, payable on November 26, 2010 to shareholders of record at November 12, 2010.
Announcements
Hooker Furniture's Chief Financial Officer and Executive Vice President of Finance & Administration, E. Larry Ryder, has informed the Board of Directors that he plans to retire effective January 31, 2011. Immediately upon his retirement, the CFO role will be assumed by Paul Huckfeldt, currently the Company's Chief Accounting Officer. "We will miss Larry's steady hand, brilliant mind, ability to bring consensus and cast a vision for the best of what is possible in our Company," said Toms. "During his 33 years with the Company, he has made vital contributions, including helping us change our business model and stay financially viable the entire way through, while building the strongest team in our Company's history in the areas of accounting and finance, information technology and human resources. Huckfeldt," said Toms, "is a vital member of that team who has been a great manager with a tremendous work ethic who is very capable and respected throughout the organization. He is ready to take on more responsibility. We are confident in him and anxious to advance him in the organization."
Ranked among the nation's top 10 largest publicly traded furniture sources based on 2009 shipments to U.S. retailers, Hooker Furniture Corporation is an 86-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.