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Hooker Furniture Reports Income Gains on Higher Sales for Fiscal Year 2018

MARTINSVILLE, Va., April 05, 2018 (GLOBE NEWSWIRE) -- Hooker Furniture (NASDAQ:HOFT) today reported consolidated net sales of $620.6 million and net income of $28.6 million, or $2.44 per diluted share, for its fifty-two-week fiscal year that ended on January 28, 2018.

Consolidated net sales increased $43.4 million, or 7.5%, from the prior year. Net income increased $3.3 million, or 12.9%. Earnings per diluted share increased 11.9% from $2.18 in the prior year. 

“We’re pleased with our performance for the fiscal year, with solid sales growth, double-digit gains in profitability and strong cash flow generation,” said Paul B. Toms Jr., chairman and chief executive officer.

Higher sales in all reportable segments contributed to the annual consolidated revenue increase, driven by a 6% increase in the Home Meridian segment and a 20% sales increase in the All Other Segment. Nearly 80% of the All Other segment net sales increase was due to the inclusion of four months of revenues from the business of Shenandoah Furniture, which was acquired on September 29, 2017.

“Over the last few years, our strategy has been to leverage the financial strength of our traditional businesses to grow profitably, both organically and through acquisitions,” said Toms. “That strategy has helped us build a more diverse and robust portfolio of brands yielding strong results, as we focus our resources and management around winning distribution channels, products and price-points.”

For the fiscal 2018 fourth quarter, consolidated net sales were $175.5 million, with net income of $8.8 million, or $0.75 per diluted share. Net sales increased $1.6 million, or roughly 1%, compared to last year’s fourth quarter, while net income decreased 19.5%, primarily due to the $1.8 million charge recorded to adjust the value of the Company’s deferred tax assets, resulting from the tax rate reduction under the recently-enacted Tax Cuts and Jobs Act of 2017.

Earnings per diluted share decreased 21% from $0.95 in the prior year fourth quarter. “While income and earnings per share were unfavorably impacted by about $0.15 per share in the fourth quarter due to the federal tax rate adjustment, we anticipate approximately $6 million in additional net income in the 2019 fiscal year from tax reform,” Toms said.

The Home Meridian segment’s strong sales results for the year were tempered somewhat by a fourth quarter sales decrease compared to the prior year’s record fourth-quarter shipments. In addition, the All Other Segment experienced some unfavorable impact on margins from raw materials inflation and excess capacity in two domestic-manufacturing divisions in that segment.

During the fiscal year, higher revenues helped boost consolidated operating income by $6.7 million, or 17%. The improvement came despite approximately $800,000 in costs related to the Shenandoah acquisition and amortization of intangibles with shorter economic lives from that acquisition. Also contributing to the higher operating income was $1.8 million less in intangible asset amortization in the Home Meridian segment for the current fiscal year and the absence of $1.2 million in acquisition-related expenses for the Home Meridian acquisition. 

Segment Reporting: Hooker Branded

Hooker Branded segment revenues grew $8.1 million or 5.1% in fiscal 2018, primarily due to dramatic growth at Hooker Upholstery. “The strength of Hooker Upholstery’s recovery, after significant vendor quality issues last year, demonstrates the future potential of that business unit and the value it offers to our customers. After two previous years of flat or modestly-declining sales, our casegoods business stabilized throughout the year, finishing with solid growth in the fourth quarter,” said Toms.

“The segment continues to trend in the right direction, with sales and incoming orders up approximately 8.6% in the first two months of the current fiscal year versus the similar period in fiscal 2018. Hooker Branded is a significant earnings engine for the company that has allowed us to fund many of our growth initiatives. Our strategy to align our resources around winning and emerging channels of distribution while continuing to support the traditional channels that have been Hooker’s bread and butter over the years is yielding positive results.”

Segment operating margin remained a solid 13.0% for the fiscal year. For the quarter, the operating margin was 15.3%, reflecting the leverage gained from the uptick in sales.

Segment Reporting: Home Meridian

“For the fiscal year, the Home Meridian segment grew its net sales 6%, its operating profit nearly 30%, and met its financial goals” said George Revington, chief operating officer of Hooker Furniture.  “For the quarter, net sales were down 8.8% compared to the prior year’s record 4th quarter shipments, and operating income was down 4.8%.  For the year, sales in our Accentrics Home eCommerce division were up 57.4% and Samuel Lawrence Furniture, our largest division, was up 12.8%.  In the fourth quarter, these increases were offset by a decline in shipments in our hospitality group.  The 30% growth in operating income for the year resulted from a favorable reduction in cost of goods, improved expense management, and further leveraging our current infrastructure.  Intangible amortization expense was also down in fiscal 2018, due primarily to the short amortization period of some of Home Meridian’s acquisition-related intangible assets in the prior year.”

“Fourth quarter orders were up 2% and backlog was down 8%.  However, as of the end of fiscal 2019 March period, Home Meridian’s current backlog is up 19.3% over prior year and orders fiscal year to date are up 12.2%.  While some of these orders are scheduled out over the next several quarters and will not affect our first quarter, this is a positive trend.  Our emerging channels of distribution for the year grew at 2.5 times the rate of our traditional channels, led again by our sales to eCommerce customers, which grew 46%,” Revington said

Segment Reporting: “All Other”

“The All Other segment increased sales by about 20% on the strength of the addition of Shenandoah’s revenues for the last four months of the year, and to a lesser extent, sales increases at Bradington-Young and H Contract. “Specializing in upscale furnishings for senior living facilities and retirement centers, H Contract contributed over one million dollars to operating income,” Toms said. Toms noted that strong upholstery sales and profitability “were tempered somewhat in the fourth quarter by price increases in raw materials and some excess capacity at Sam Moore and Shenandoah, but we expect those factors to be temporary. Overall, the upholstery businesses  performed very well for the year,” he concluded.

Cash, Debt and Inventory

The Company finished the fiscal 2018 year with $30.9 million in cash and cash equivalents and $53.4 million in acquisition-related debt. Additionally, $28.5 million was available on its $30.0 million revolving credit facility, net of $1.5 million reserved for standby letters of credit. Consolidated inventories stood at $84.9 million.

“Because of our strong cash flow, we were able to make an unscheduled, additional payment on our debt of $10 million last week,” Toms said. Also, as a result of cash generated from operations, Hooker increased its dividend nearly 17% per share in December 2017.

/EIN News/ -- Outlook

“Both current retail conditions and our business results can be best described as mixed,” said Toms. “Business during the President’s Day promotions at retail was very good for most retailers and for us, but overall activity varies by region of the country, by region of the world and by distribution channel. Our businesses cross various home furnishings product segments, price points and distribution channels, so at any given time we have winners and losers. Currently, our Hooker branded business in the higher price points is faring well, with orders up about 9% compared to this time last year. While Home Meridian’s orders are up 12% over prior year, its hospitality business, their smallest marketing group, remains weak and their suppliers’ post-Chinese New Year’s recovery has been slower than normal.  We expect these situations will be temporary. With our diverse portfolio and strategy to focus on winning channels, we are well-positioned to grow sales and income in the coming year, thanks to the solid foundation of our traditional business and our initiatives to create new opportunities,” Toms concluded.

Dividends

On March 5, 2018, the Company’s board of directors declared a quarterly cash dividend of $0.14 per share, payable on March 30, 2018 to shareholders of record at March 19, 2018.

Conference Call Details

Hooker Furniture will present its fiscal 2018 fourth quarter results via teleconference and live internet web cast on Thursday afternoon, April 5, 2018, at 2:00 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 conference ID number is 2827969. 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.

Hooker Furniture Corporation, in its 93rd year of business, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture and fabric-upholstered furniture for the residential, hospitality and contract markets. The Company also domestically manufactures premium residential custom leather and custom fabric-upholstered furniture. It is ranked among the nation’s largest publicly traded furniture sources, based on 2016 shipments to U.S. retailers, according to a 2017 survey by a leading trade publication. Major casegoods product categories include home entertainment, home office, accent, dining, and bedroom furniture in the upper-medium price points sold under the Hooker Furniture brand.  Hooker’s residential upholstered seating product lines include Bradington-Young, a specialist in upscale motion and stationary leather furniture, Sam Moore Furniture, a specialist in upscale occasional chairs, settees, sofas and sectional seating with an emphasis on cover-to-frame customization, Hooker Upholstery, imported upholstered furniture targeted at the upper-medium price-range and Shenandoah Furniture, an upscale upholstered furniture company specializing in private label sectionals, modulars, sofas, chairs, ottomans, benches, beds and dining chairs in the upper-medium price points for lifestyle specialty retailers.  The H Contract product line supplies upholstered seating and casegoods to upscale senior living facilities. The Home Meridian division addresses more moderate price points and channels of distribution not currently served by other Hooker Furniture divisions or brands. Home Meridian’s brands include Accentrics Home, home furnishings centered around an eclectic mix of unique pieces and materials that offer a fresh take on home fashion, Pulaski Furniture, specializing in casegoods covering the complete design spectrum in a wide range of bedroom, dining room, accent and display cabinets at medium price points, Samuel Lawrence Furniture, specializing in value-conscious offerings in bedroom, dining room, home office and youth furnishings, Prime Resources, value-conscious imported leather upholstered furniture, and Samuel Lawrence Hospitality, a designer and supplier of hotel furnishings. Hooker Furniture Corporation’s corporate offices and upholstery manufacturing facilities are located in Virginia and North Carolina, with showrooms in High Point, N.C. and Ho Chi Minh City, Vietnam. The company operates eight distribution centers in North Carolina, Virginia, California and Vietnam. Please visit our websites hookerfurniture.com, bradington-young.com, sammoore.com, hcontractfurniture.com, homemeridian.com, pulaskifurniture.com, accentricshome.com and slh-co.com.

Certain statements made in this release, other than those based on historical facts, may be forward-looking statements. Forward-looking statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking terminology such as “believes,” “expects,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “would,” “could”  or “anticipates,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy.  Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.  Those risks and uncertainties include but are not limited to: (1) general economic or business conditions, both domestically and internationally, and instability in the financial and credit markets, including their potential impact on our (i) sales and operating costs and access to financing or (ii) customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses; (2) the risks specifically related to the concentrations of a material part of our of sales and accounts receivable in only a few customers; (3) achieving and managing growth and change, including the recent Shenandoah acquisition, and the risks associated with new business lines, acquisitions, restructurings, strategic alliances and international operations; (4) risks associated with our reliance on offshore sourcing and the cost of imported goods, including fluctuation in the prices of purchased finished goods and transportation and warehousing costs; (5) adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products by foreign governments or the U.S. government, including the implementation of a possible border-adjustment tax; (6) our ability to successfully implement our business plan to increase sales and improve financial performance; (7) changes in actuarial assumptions, the interest rate environment, the return on plan assets and future funding obligations related to the Home Meridian segment’s legacy Pension Plan, which can affect future funding obligations, costs and plan liabilities; (8) the possible impairment of our long-lived assets, which can result in reduced earnings and net worth; (9) the cost and difficulty of marketing and selling our products in foreign markets; (10) disruptions involving our vendors or the transportation and handling industries, particularly those affecting imported products from Vietnam and China, including customs issues, labor stoppages, strikes or slowdowns and the availability of shipping containers and cargo ships; (11) the interruption, inadequacy, security breaches or integration failure of our information systems or information technology infrastructure, related service providers or the internet; (12) disruptions affecting our Virginia, North Carolina or California warehouses, our Virginia or North Carolina administrative facilities or our representative offices in Vietnam and China; (13) price competition in the furniture industry; (14) changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials; (15) the cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers’ income available for discretionary purchases, and the availability and terms of consumer credit; (16) risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices and availability of key raw materials, as well as changes in transportation, warehousing and domestic labor costs and environmental compliance and remediation costs; (17) risks associated with distribution through third-party retailers, such as non-binding dealership arrangements; (18) capital requirements and costs, including the servicing of our floating-rate term loans; (19) competition from non-traditional outlets, such as catalog and internet retailers and home improvement centers; (20) changes in consumer preferences, including increased demand for lower-quality, lower-priced furniture due to, among other things, declines in consumer confidence, amounts of discretionary income available for furniture purchases and the availability of consumer credit; and (21) higher than expected costs associated with product quality and safety, including regulatory compliance costs related to the sale of consumer products and costs related to defective or non-compliant products; (22) higher than expected employee medical and workers’ compensation costs that may increase the cost of our self-insured healthcare and workers compensation plans; and (23) other risks and uncertainties described under Part I, Item 1A. "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2017 and the Company’s Quarterly Report on Form 10-Q for the quarter ended October 29, 2017. Any forward-looking statement that we make speaks only as of the date of that statement, and we undertake no obligation, except as required by law, to update any forward-looking statements whether as a result of new information, future events or otherwise and you should not expect us to do so.

 
Table I
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)


          Thirteen Weeks Ended     Fifty-Two Weeks Ended
          January 28,   January 29,     January 28,   January 29,
          2018   2017     2018   2017
                         
Net sales         $    175,519   $   173,927     $    620,632   $   577,219
                         
  Cost of sales           135,800       133,809         485,376       451,098
                         
     Gross profit           39,719       40,118         135,256       126,121
                         
Selling and administrative expenses       23,140       22,728         87,279       83,767
Intangible asset amortization         793       334         2,084       3,134
                         
       Operating income         15,786       17,056         45,893       39,220
                         
Other income, net           483       294         1,536       930
Interest expense, net         388       199         1,248       954
                         
     Income before income taxes       15,881       17,151         46,181       39,196
                         
Income tax expense           7,046       6,172         17,620       13,909
                         
     Net income       $    8,835   $   10,979     $    28,561   $   25,287
                         
Earnings per share                      
     Basic       $    0.75   $   0.95     $    2.45   $   2.19
     Diluted       $    0.75   $   0.95     $    2.44   $   2.18
                         
Weighted average shares outstanding:                  
     Basic           11,747       11,537         11,633       11,531
     Diluted           11,771       11,564         11,663       11,563
                         
Cash dividends declared per share   $    0.14   $   0.12     $    0.50   $   0.42
                         


 
Table II
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES  
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
(In thousands)  


    Thirteen Weeks Ended   Fifty-Two Weeks Ended  
    January 28,   January 29,   January 28,   January 29,  
    2018   2017   2018   2017  
                   
Net Income   $    8,835     $   10,979     $    28,561     $   25,287    
     Other comprehensive income (loss):                  
       Amortization of actuarial (loss) gain       (190 )       605         (144 )       551    
          Income tax effect on amortization       43         (223 )       26         (204 )  
     Adjustments to net periodic benefit cost       (147 )       382         (118 )       347    
                   
Total comprehensive Income   $    8,688     $   11,361     $    28,443     $   25,634    
                   


 
Table III
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)


           
 As of   January 28,   January 29,  
    2018   2017  
    (unaudited)      
 Assets          
 Current assets          
    Cash and cash equivalents   $    30,915   $   39,792  
    Trade accounts receivable, net       92,461       92,578  
    Inventories       84,898       75,303  
    Prepaid expenses and other current assets       5,314       4,244  
       Total current assets       213,588       211,917  
 Property, plant and equipment, net       29,249       25,803  
 Cash surrender value of life insurance policies       23,622       22,366  
 Deferred taxes       3,168       7,264  
 Intangible assets, net       38,139       25,923  
 Goodwill       40,058       23,187  
 Other assets       2,234       2,236  
       Total non-current assets       136,470       106,779  
           Total assets   $    350,058   $   318,696  
           
 Liabilities and Shareholders’ Equity          
 Current liabilities          
    Current portion of term loan   $    7,528   $   5,817  
    Trade accounts payable       32,685       36,552  
    Accrued salaries, wages and benefits       9,248       8,394  
    Income tax accrual       3,713       4,323  
    Customer deposits       3,951       5,605  
    Other accrued expenses       2,893       3,369  
       Total current liabilities       60,018       64,060  
 Long term debt       45,778       41,772  
 Deferred compensation       11,164       10,849  
 Pension plan       2,441       3,499  
 Other long-term liabilities       886       589  
 Total long-term liabilities       60,269       56,709  
           Total liabilities       120,287       120,769  
           
Shareholders’ equity          
    Common stock, no par value, 20,000 shares authorized,          
      11,762 and 11,563 shares issued and outstanding on each date     48,970       39,753  
    Retained earnings        180,433       157,688  
    Accumulated other comprehensive income       368       486  
       Total shareholders’ equity       229,771       197,927  
            Total liabilities and shareholders’ equity   $    350,058   $   318,696  
           
           


Table IV
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Unaudited 


            Fifty-Two Weeks Ended
            January 28,   January 29,
            2018   2017
Operating Activities:              
Net income           $    28,561     $   25,287  
Adjustments to reconcile net income to net cash          
provided by operating activities:            
 Depreciation and amortization           6,647         8,000  
 Loss/(Gain) on disposal of assets           571         (72 )
 Deferred income tax expense (benefit)         4,207         (2,224 )
 Noncash restricted stock and performance awards       1,175         1,157  
 Provision for doubtful accounts           (531 )       2,188  
 Gain on life insurance policies           (582 )       (964 )
 Changes in assets and liabilities:            
Trade accounts receivable           4,224         (21,507 )
Inventories             (7,215 )       6,016  
Prepaid expenses and other current assets         (1,067 )       (115 )
Trade accounts payable           (4,623 )       4,662  
Accrued salaries, wages, and benefits         159         1,950  
Accrued income taxes           (611 )       3,966  
Customer deposits             (1,655 )       2,187  
Other accrued  expenses            (696 )       2,303  
Deferred compensation           (1,151 )       (1,715 )
Other long-term liabilities           333         121  
             Net cash provided by operating activities      $    27,746     $   31,240  
                 
Investing Activities:              
 Acquisitions         $    (32,773 )   $   (86,062 )
 Purchases of property and equipment         (3,166 )       (2,454 )
 Proceeds received on notes receivable         120         146  
 Proceeds from sale of property and equipment       9         2  
 Premiums paid on life insurance policies         (673 )       (715 )
 Proceeds received on life insurance policies         -          1,022  
             Net cash used in investing activities          (36,483 )       (88,061 )
                 
Financing Activities:              
 Proceeds from long-term debt       $    12,000     $   60,000  
 Payments for long-term debt           (6,286 )       (12,290 )
 Debt issuance cost             (39 )       (165 )
 Cash dividends paid             (5,815 )       (4,854 )
             Net cash (used in) provided by financing activities        (140 )       42,691  
                 
Net decrease in cash and cash equivalents         (8,877 )       (14,130 )
Cash and cash equivalents - beginning of year         39,792         53,922  
Cash and cash equivalents - end of year     $    30,915     $   39,792  
                 
Supplemental disclosure of cash flow information:        
Cash paid for interest, net       $    1,135     $   848  
Cash paid for income taxes, net           14,122         12,164  
Non-cash transactions:              
Acquisition cost paid in common stock     $    8,396     $   20,267  
Increase in property and equipment through accrued purchases       58         -   
                 


       
  Table V    
  HOOKER FURNITURE CORPORATION AND SUBSIDIARIES    
  NET SALES AND OPERATING INCOME BY SEGMENT*    
  (In thousands)    
  Unaudited    
                       
    Thirteen Weeks Ended   Fifty-Two Weeks Ended  
    January 28,   January 29,     January 28,   January 29,    
    2018   2017     2018   2017    
      % Net   % Net     % Net   % Net  
Net Sales     Sales   Sales     Sales   Sales  
   Hooker Branded $    45,821 26.1 % $   43,212 24.8 %   $    166,754 26.9 % $   158,685 27.5 %  
   Home Meridian       103,299 58.9 %     113,244 65.1 %       365,472 58.9 %     344,635 59.7 %  
   All other       26,399 15.0 %     17,471 10.0 %       88,406 14.2 %     73,899 12.8 %  
Consolidated   $    175,519 100 % $   173,927 100 %   $    620,632 100 % $   577,219 100 %  
                       
                       
                       
                       
Operating Income                    
   Hooker Branded $   6,990 15.3 % $   7,722 17.9 %   $    21,732 13.0 % $   20,203 12.7 %  
   Home Meridian       8,016 7.8 %     8,421 7.4 %       18,674 5.1 %     14,375 4.2 %  
   All other     780 3.0 %     913 5.2 %       5,487 6.2 %     4,642 6.3 %  
Consolidated   $    15,786 9.0 % $   17,056 9.8 %   $    45,893 7.4 % $   39,220 6.8 %  
                       

*The Company continually monitors its reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary.  In the fourth quarter of FY2018, the Company updated its reportable segments as follows:  Hooker Upholstery was aggregated with Hooker Casegoods and reported as the Hooker Branded segment. The domestic upholstery operations of Shenandoah Furniture, Sam Moore and Bradington-Young were moved into the All Other segment with Company’s H Contract business and the remains on the Company’s Homeware division, which was shuttered earlier in the year. The Home Meridian segment remains unchanged.

For more information, contact:
Paul B. Toms Jr.
Chairman and Chief Executive Officer
Phone: (276) 632-2133, or
Paul A. Huckfeldt, Senior Vice President, Finance & Accounting & Chief Financial Officer
Phone: (276) 666-3949

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