Hooker Furnishings Corporation (HOFT) Earnings Call Transcript & Summary

Thank you. I'm going to show you how to do it. on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Earl Armstrong, Senior Vice President and Chief Financial Officer. Sir, please go ahead. Thank you.

Thank you, Michelle, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2027 first quarter. Our 2027 first quarter began on February 2nd, 2026, and ended on May 3rd, 2026. Joining me today is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation. During our call, we may make forward-looking statements, which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2027 first quarter results. Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. Despite continued weakness in the housing market, soft retail demand for furniture and home furnishings, and persistent macroeconomic challenges, we delivered net income of 1.1 million for the quarter, reflecting the benefits of our cost reduction initiatives, improved gross margin performance, and ongoing progress toward a leaner, higher margin operating model. Consolidated net sales decreased 1.7 million, or 2.4%, compared to the prior year period. The decrease was primarily driven by lower sales in the hooker branded and domestic upholstery segments, partially offset by higher shipments in the all other components hospitality business. Despite the sales decrease, profitability improved significantly. Consolidated gross profit increased by 2.7 million, while gross margin improved 440 basis points compared to the prior year period. This improvement was primarily driven by stronger profitability in Hooker Branded. For the quarter, the company generated operating income of $1.6 million compared to an operating loss of $498,000 in the prior year period. presenting a $2.1 million improvement. Consolidated net income was $1.1 million, or $0.10 per diluted share. These results reflect the benefit of improved gross margin, prior cost reduction initiatives, and our continued focus on building a more efficient and profitable business model. Now I'll turn the call over to Jeremy for his comments on our fiscal 2027 first quarter results.

Thank you, Earl, and good morning, everyone. We are encouraged to report $1.1 million in consolidated net income for the quarter, marking a $4.1 million improvement over the prior year first quarter. These results were achieved despite a challenging demand environment characterized by depressed housing activity and low consumer confidence. confidence. The improvement reflects the benefit of the $17.5 million reduction in fixed costs related to continuing operations that we achieved in the prior year, as well as continued progress toward a more efficient operating model. From a segment perspective, Hooker Branded performed exceptionally well despite lower sales compared to the prior year, supported by stronger gross margin performance. Domestic upholstery's results continue to be impacted by lower sales volume, but were supported by operational efficiencies implemented late last year. Looking forward, retailer commitments to Margaritaville products, galleries, and freestanding stores continue to exceed our expectations with meaningful shipments expected to begin in the second half of fiscal 27. We are also encouraged by the positive retailer response and commitments to products debuted at the April 26 Hyatt Fair. During market, we introduced Hooker Custom Upholstery, bringing together the Sam Moore and Bradenton Young brands under a unified platform. This updated market approach combines these upscale product lines under a unified premium Hooker Custom Upholstery identity supported by a refreshing presentation, enhanced marketing efforts, and a mix of new introductions and established products. The initiative is further supported by the capabilities of our new website launched in February 26. Once market conditions improve, we believe this strategy will ultimately drive higher sales by creating a more cohesive brand narrative and presenting all offerings under the hooker name, which carries the strongest brand recognition across our portfolio. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments, along with our cash, debt, inventory, and capital allocation strategies. Thank you.

Thank you, Jeremy. Starting with Hooker Branded, net sales decreased 1.8 million, or 4.8 percent, in the first quarter of fiscal 27. Seventy percent of that decrease was primarily due to lower volume in the imported upholstery part of that business. These headwinds were partially offset by higher average selling prices from price increases implemented to mitigate higher product costs. Despite the decrease in sales, Hooker-branded gross profit increased $2.9 million, and gross margin increase improved 960 basis points. The segment contributed $1.2 million. of the operating income to the company's consolidated operating income of $1.6 million for the quarter. Backlog increased nearly 30% compared to the prior year first quarter, reflecting retailer commitments to new products, including Margaritaville, with meaningful shipments expected to begin in the second half of the current fiscal year. Turning to domestic upholstery, net sales decreased 558,000, or 1.9%, in the first quarter of fiscal 27, primarily due to the continued soft demand environment. Gross profit decreased 315,000, and gross margin decreased 80 basis points, driven primarily by lower revenue and higher overhead. The segment recorded an operating loss of $689,000, primarily driven by its indoor residential furnishings businesses. domestic upholstery backlog increased modestly compared to both the prior year first quarter and fiscal 2026 year end. In all other, performance was driven largely by increased sales and operating income in the hospitality division. Improved operating income reflected higher sales, as well as lower costs, resulting from cost-cutting measures implemented in the previous fiscal year. Turning now to cash, debt, and inventory. Cash and cash equivalents stood at $10.6 million at quarter end, an increase of $9.5 million from the prior year fiscal end, and the company had no debt. Cash generated from operations was used to repay $3.6 million, and the company and the principal amount of our outstanding loans, distribute $1.3 million in cash dividends, and fund $403,000 in capital expenditures. Inventory levels decreased by $3.7 million from $48.7 million at fiscal 2026 year-end to $45 million at the end of the first quarter. Despite these outflows, the company maintained its financial flexibility with $54.2 million in available borrowing capacity under its amended and restated loan agreement as of quarter end, net of standby letters of credit. and no outstanding balance on the credit facility. As of yesterday, the company had over 15 million dollars in cash on hand. Finally, I'll discuss our capital allocation strategy. In late fiscal 26, we announced that our board authorized a new share repurchase program under which we intend to repurchase up to $5 million of our outstanding common shares beginning in fiscal 2027. In connection with the repurchase authorization, the Board recalibrated the annual dividend to 46 cents per share, beginning with the company's December 31st, 2025 dividend payment. The share repurchase program began on April 21, 2026, pursuant to a plan structured to comply with the safe harbors of Rules 10B-5-1 and 10B-18, which included a customary 90-day waiting period before the first purchases were made. During the quarter, we purchased about 7,600 shares of our stock for approximately $96,000 at an average price of $12.53 per share. As we position the company for sustainable growth, the new share repurchase program and adjusted dividend provide a balanced framework for returning capital to shareholders shareholders while preserving flexibility to invest in strategic priorities. We believe this approach supports both near-term returns and long-term shareholder value.

I'll turn the discussion back to Jeremy for his outlook. Thank you, Earl. Looking at the early part of the second quarter, consolidated incoming orders increased 8% in May compared to the prior year period, while backlog was up more than 14% year over year. This improvement was primarily driven by Margaritaville orders, which had their initial shipment in May. Retailer commitments to Margaritaville products, galleries, and freestanding stores continue to exceed our expectations. Today, To date, we have commitments for 100 in-store galleries and 10 freestanding retail stores, compared with approximately half those numbers when we reported in December. Meaningful shipments are expected to begin in the second half of fiscal 27 and build through the end of the current fiscal year and beyond. While these order and backlog trends are encouraging, the broader demand environment remains challenging. Housing activity remains pressured, and recent consumer confidence readings continue to reflect a very cautious consumer environment. The Department of Commerce's April advance monthly estimates showed retail sales for furniture and home furnishing stores decreased 2% from March and 3%. 3.6% from the prior year. Given these macroeconomic pressures, our outlook for fiscal 27 second quarter remains cautious. While we do not expect meaningful near-term improvement in market conditions, our more efficient cost structure and streamlined portfolio should help position us to deliver improved results versus the prior year period, even if current conditions persist. Our advantage is a sharper focus on our core businesses, a more disciplined operating model, and an organization aligned around profitable growth. We believe the actions taken over the past year have positioned the company to generate improved and more consistent earnings as market conditions improve. Combined with continued mobilization minimum incoming orders across our core businesses, we believe we are well positioned to capitalize on opportunities as demand recovers. This ends the formal part of our discussion, and at this time, I will turn the call over to our operator, Michelle, for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question. Our first question is going to come from the line of Anthony Leibodzinski with.

Sedoti. Your line is open. Please go ahead. Thank you. Good morning, everyone, and thanks for taking the questions. Certainly nice to see the improved bottom line results here. So I guess as we look back at the just reported quarter, just wondering if you guys saw any significant monthly variations in revenue as you went from February to April, given all the geopolitical noise that we saw during the quarter and, um, uh, Yes, just wondering since typically, seasonally speaking, fiscal Q1 tends to be lower in terms of revenue than fiscal Q4. So maybe you could just speak to that as to how the quarter flowed earlier. during, again, from February through April.

You know, I would say that, you know, as we get further removed from what we dealt with in the latter part of last year, which was, you know, You could probably categorize as turmoil trying to sell the two companies and everything we did to position the company where we are. I think that earlier in the quarter we're getting our feet underneath us and as the quarter progressed we're getting more and more focused and I would just say that, you the further, the longer we have, the better I think we get at positioning ourselves to where we're headed, if that makes sense.

Mm-hmm. Okay. Got it. And then, could you just speak to pricing versus unit volumes? I know you guys typically put this in your 10Q, but if you could just maybe give us just general framework as to what pricing was versus unit volumes in the quarter. Sure.

Anthony, we don't have that in front of us. Like you said, it will be in the queue for tomorrow that we file tomorrow afternoon. I'd say definitely. Yes, go ahead.

Okay. Go ahead, Anthony. Okay. So, so, I know there was some notion of increased pricing during the quarter. All right, so we'll wait for the details in the 10-Q. That's fine. Okay, and then I guess my next question as far as the gross margin, it was up more than expected, especially at Hooker Branded. Was there anything unusual to speak of, or do you think this,.

type of gross margin is sustainable going forward? I would say two things. One is, you know, product mix has a lot to do with where gross margin ends up for us. know as usual so depending on certain things that ship and certain things that don't that can change that dynamic but number two you know we're on as you know we're on life oh and yes that can significantly change things depending on the timing of how that life plays out so those are the really the two factors.

Got you, okay. And lastly, can you talk about what you've seen or heard from your retail partners about Memorial Day traffic, which... is uh has historically been a big holiday event for the furniture industry so if you could just maybe maybe speak to what you've heard in regards to uh your uh retail partners as far as what they've talked about as far as traffic and any buying activity around the key holiday.

Yes, I'd say the contacts we made with our customers and partners were pretty optimistic about what they experienced over the Memorial Day holiday with sales and whatnot and traffic. They said it was pretty good considering what we're in with everything we talked about. So pretty good. Yes.

is the general general sentiment on Memorial weekend Well, all right, that sounds great. Well, thank you very much. I'll pass along.

We appreciate it. Thanks, Anthony. Thank you. And one moment for our next question.

Our next question comes from the line of Dave Storms with StoneGate. Your line is open. Please go ahead.

Good morning, and thank you for taking the questions. Sure. I wanted to start with Margaritaville. You know, you doubled the number of commitments from 50 to 100 in-store galleries and then added the 10 freestanding retail stores. But how should we think about that going forward? As you start to shift meaningfully in the second half here, would we expect to see those in-store commitment numbers to increase? increase or do you think it will level out and then it will be a pivot to volumes and.

Well, I'll answer that just based off of my experience with things that you launch, you know, with that type of magnitude, which I guess I'd have to say I've never been a part of something that we feel like is that that big, which I said, I think it's the largest one Hooker has had. But however, you know, when you first launch, you get some. people that, you know, customers that jump on right away. And then the more, if the program's right, and if you execute, you know, you can get more and more participation, more and more galleries. So, I mean, I would, I'm definitely taking a glass half full approach with it. I'm optimistic that we'll keep increasing.