Hooker Furnishings - Earnings Call - Q4 24/25

Executive Summary

• Fiscal Q4 2025 net sales were $104.46M, up 8% YoY aided by a 14-week quarter; diluted EPS was -$0.22 vs $0.06 prior-year, reflecting $3.1M of charges (inventory write-downs, tradename impairment, bad debt, severance).
• Revenue modestly beat S&P Global consensus ($104.46M actual vs $101.16M estimate*), but EPS missed materially (-$0.22 actual vs $0.155 estimate*) as non-cash/tranched charges weighed; operating margin improved sequentially to -2.5% from -7.0% in Q3.
• Management announced an additional $8–$10M annualized cost savings, bringing total programs to $18–$20M when fully annualized in FY2027; Savannah DC exit expected to yield $0.8–$1.0M in FY2026 and $4.0–$5.7M annual beginning FY2027, with $3.0–$4.0M of net charges in FY2026.
• Segment dynamics: Hooker Branded unit volume +14% with orders +15% YoY; Home Meridian gross margin reached 22.9% (best since 2016) despite charges; Domestic Upholstery orders +13% but posted a $2.5M operating loss on lower volume.
• Potential stock catalysts: execution on cost-reduction ramp and Vietnam warehouse start-up, tariff-policy clarity, and continued market-share gains from the “collective living” merchandising strategy.

What Went Well and What Went Wrong

What Went Well

• Hooker Branded and Home Meridian delivered underlying sales increases even after normalizing for the extra week; unit volumes improved and orders rose (+15% at Hooker Branded).
• HMI gross margin reached 22.9%—highest since 2016—supported by focus on profitable lines and hospitality strength; strategic exit of low-margin businesses improving mix.
• Cost-out program expanded: cumulative $18–$20M annualized savings targeted by FY2027; Vietnam warehouse expected to enhance product flow, container mixing, and margins.

What Went Wrong

• Consolidated EPS swung to -$0.22 vs $0.06 prior-year due to $3.1M of Q4 charges, including bad-debt tied to a large customer bankruptcy and tradename impairment.
• Domestic Upholstery softness drove a $2.5M operating loss on lower volume and under-absorbed overhead; backlog declined YoY (down 4%).
• Macro headwinds persisted—weak housing, lower consumer confidence, tariff uncertainty—pressuring demand and elevating operating complexity (direct-container margin risk).

Transcript

Operator (participant)

Good day, and welcome to the Hooker Furnishings Corporation Fourth Quarter 2025 Earnings Webcast Call. At this time, all participants are on a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Earl Armstrong, Senior Vice President and Chief Financial Officer. Please go ahead.

Earl Armstrong (SVP and CFO)

Thank you, Sherry, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2025 fourth quarter and full year, both of which ended February 2, 2025. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation today. 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 2025 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. Consolidated net sales for the fourth quarter increased by $7.7 million at approximate 8% gain over the previous year's fourth quarter.

The current quarter included 14 weeks compared to 13 weeks of the prior year's fourth quarter. On a consolidated basis, the additional week in the current period drove the increase, contributing approximately $7.7 million to consolidated net sales. However, Hooker Branded and Home Meridian sales increased by 2% and 13% respectively, based on average net sales per shipping day. These gains were partially offset by a $2 million or 7% decrease in sales at Domestic Upholstery. Significant charges in the fourth quarter included $1.3 million in end-of-life inventory write-downs related to the planned exit of our Savannah facility, $878,000 in non-cash trade name impairment charges, $718,000 in bad debt expense related to a large customer bankruptcy. That's in addition to $2.4 million recorded in the third quarter and about $200,000 related to our previously announced cost reduction plan.

These $3.1 million in charges drove a consolidated operating loss of $2.7 million and a net loss of $2.3 million, or about $0.22 per diluted share for the fourth quarter. For fiscal 2025, consolidated net sales were $397.5 million, a decrease of $35.8 million, or 8.3% compared to the previous fiscal year. All three reportable segments experienced sales decreases driven by continued weak demand, a depressed housing market, and broader macroeconomic uncertainties impacting nearly the entire home furnishings industry. Consolidated operating loss was $18.1 million for the year, primarily due to lower sales volumes and $10.8 million in charges, including $4.9 million in restructuring costs related to our cost reduction plan, $3.1 million in bad debt expense from a major customer's bankruptcy, and $2.8 million in non-cash trade name impairment charges. Consolidated net loss amounted to $12.5 million, or $1.19 per share.

We expect fiscal 2026 cost savings of about $1 million from the Savannah warehouse exit announced last month, net of associated transition cost. We expect annualized cost savings of $4-$5.7 million beginning in fiscal 2027. The exact amount of savings is dependent upon the ultimate timing of the exit. At the same time, we are finalizing the estimates of the potential financial impact of the Savannah warehouse exit. Currently, we expect to record net charges of between $3-$4 million in fiscal 2026. In addition to the $10 million in annualized cost savings in fiscal 2025 and expected to be realized in fiscal 2026, we expect additional annualized cost savings of between $8-$10 million, which we anticipate will be realized over the next fiscal year, with full benefits being felt in fiscal 2027.

The completion of our cost reduction plans is expected by the second half of fiscal 2026. The total of these two initiatives are expected to save the company between $18-$20 million. Now I'll turn the call over to Jeremy to comment on our fiscal 2025 fourth quarter and full year results.

Jeremy Hoff (CEO)

Thank you, Earl, and good morning, everyone. Hooker Furnishings demonstrated resilience this year with important accomplishments despite extremely difficult conditions in the home furnishing space that persist with few signs of improvement in the near impossible medium term. We are focused on gaining market share and creating a pathway for profitability regardless of how long the furniture retail downturn persists. Despite the operating loss, our milestones in fiscal 2025 included the Margaritaville licensing agreement, the launch of Hooker Branded's new merchandising strategy, Sunset West East Coast expansion, key inventory investments, and share gains amid a tough market. We were encouraged to report improved sales in the fourth quarter. Even considering the extra week, Hooker Branded and Home Meridian sales increased.

According to an independent industry analysis, we had year-over-year market share growth of 3-15 basis points in each of the first three quarters of fiscal 2025 in Hooker's legacy divisions, with fourth quarter data still pending. These gains build on a consistent trend of sequential market share gains in every quarter of fiscal 2024. This consistent share growth, despite a contracting high-end segment, reinforces the competitive advantages we've built and our readiness to capitalize when demand rebounds. While macroeconomic headwinds, including the weakest housing market in 50 years, lower consumer confidence, and tariff uncertainty persist, we remain focused on what we can control. Excluding the charges Earl just mentioned, our financial performance improves sequentially each quarter of the year. Due to the continued economic environment, we've accelerated cost reduction initiatives, which we believe will improve operating income and cash flow.

These include our planned exit of the Savannah warehouse, which is expected to save $4-$5.7 million annually beginning in fiscal 2027, and the opening of a new leased facility in Vietnam this May. When fully operational, the Vietnam warehouse will reduce domestic safety stock needs, improve product flow, enable container mixing, support margin expansion, and enable a speedier return on investment. Combined with other efforts, we expect to begin to realize a portion of the $18-$20 million in total annual operating expense savings in fiscal 2026, with full annualized expected cost savings beginning in fiscal 2027. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments.

Earl Armstrong (SVP and CFO)

Thank you, Jeremy. At Hooker Branded, fourth quarter net sales rose $3.8 million, or 10% from the prior quarter, driven by a 14% increase in unit volume. Operating income was $1.1 million, down from $3.5 million a year ago, but improved from losses in the first three quarters of fiscal 2025. For fiscal 2025, net sales decreased $10.1 million, or 6.5%, due to a 5.7% drop in average selling prices and increased discounting, partially offset by a nearly 3% rise in volume. Fourth quarter orders rose 15% year-over-year, reversing the trend of three quarters of decreases. Year-end backlog fell 22%, driven mostly by a significantly improved in-stock position, which helped us ship goods faster. Turning to Home Meridian, fourth quarter net sales increased $6.3 million, or 21.7% year-over-year, driven by strong hospitality sales, offsetting softness in traditional channels.

Gross profit for the quarter rose $2.4 million to $8.1 million, with gross margin reaching nearly 23%, the highest since 2016, despite the $618,000 inventory write-down tied to the Savannah exit. The segment reported a $500,000 operating loss, despite $2.2 million in charges recorded, comprised of the $618,000 inventory write-down we mentioned, $718,000 in additional bad debt, and $878,000 in trade name impairment. Fiscal 2025 net sales decreased $12.7 million, or around 9%, due to a nearly 30% drop in volume, with 78% of the decrease tied to the exit of unprofitable lines. Orders and backlog also decreased amid continued pressure in mega and traditional channels. In the domestic upholstery segment, fourth quarter net sales decreased $2 million, or about 7% year-over-year, due to soft demand across HF Custom, Bradington-Young, and Shenandoah, as well as seasonal softness at Sunset West.

Fiscal 2025 net sales were down $12.6 million, or about 10%, with decreases across most divisions, partly offset by a 6.8% increase at Sunset West. The segment posted a $2.5 million operating loss, driven by lower volume, under-absorbed overhead, and $80,000 in severance cost. Fourth quarter orders rose 13%, with double-digit growth at Bradington-Young, HF Custom, and Sunset West. Sunset West has now posted four consecutive quarters of order growth, driven by the expansion of its East Coast distribution. Year-end backlog was 4% below last year, but 3% above pre-pandemic levels when excluding Sunset West since they were acquired after that time. Cash and cash equivalents stood at $6.3 million, a decrease of $36.9 million from the previous year-end. This decrease was largely due to an increase in accounts receivable and a strategic increase in inventory levels, with Hooker Branded accounting for most of that inventory increase.

Additionally, we utilized our cash reserves for several key expenditures during fiscal 2025: cash dividends to shareholders, development of our cloud-based ERP system, and other capital expenditures. As of yesterday, our cash stood at nearly $19 million, with $41 million in available borrowing capacity under our new amended and restated loan agreement. We strategically increased inventory in the fourth quarter to support three major new case goods collections and replenish our most profitable high-velocity items. This positioned us to improve product availability and speed to market in the second half of fiscal 2025 and early fiscal 2026, while also mitigating expected supply disruptions from potential port strikes in the U.S. and an extended Lunar New Year in Vietnam. We also refinanced our credit facility in the fourth quarter, which increased our borrowing capacity.

In March, we announced our regular quarterly dividend, reflecting our ongoing confidence in the company's outlook and extending our over 50-year track record of uninterrupted dividend payments. Now I'll turn the discussion back to Jeremy for his outlook.

Jeremy Hoff (CEO)

There's a lot of economic uncertainty and volatility right now. We are currently evaluating a range of strategies to mitigate the current economic environment, including a 50-year low in existing home sales and the possible impact of potential additional reciprocal tariffs on our operations and profitability. Tariffs add tremendous complexity and uncertainty that require us to look at our cost structure more aggressively, particularly on the lower margin direct container side of our business. Consequently, in addition to the cost savings we previously announced and those we covered today, we continue to identify additional opportunities to gain efficiency by consolidating operations and will provide more information in the coming weeks. While evaluation of our cost footprint and implementation of further cuts are both ongoing, we continue to invest in the highest growth potential areas of our business as growing profitable sales remains an intense focus.

On a positive note, inflation cooled in February and March, falling to the levels experienced last summer and fall before it rose from November 2024 to January 2025. Additionally, according to the U.S. Census Bureau, year-over-year monthly furniture sales increased beginning in September 2024. While the current environment is challenging, we believe we have positioned the company to continue gaining market share and maximizing revenues through our merchandising efforts, speed to market initiatives, and in-stock position on top-selling products. This ends the formal part of our discussion, and at this time, I will turn the call back over to our operator, Sherry, for questions.

Operator (participant)

Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one again. One moment while we compile the Q&A roster. Our first question will come from the line of Anthony Lebedinsky with Sidoti & Co. Your line is open.

Anthony Lebiedzinski (Senior Equity Analyst)

Good morning, Jeremy, and good morning, Earl. Thank you for taking the questions. It's certainly nice to see the sales improvements at Hooker Branded and HMI. I know you guys talked about HMI benefiting from strong hospitality sales. I am just wondering if you could further comment on the Hooker Branded, whether you're seeing any additional traction from some new collections, maybe just give some more insight into what drove the unit volume increase at Hooker Branded. We'd love to get your take on what you're seeing so far in Q1, as you now have only about two weeks left in the first quarter.

Jeremy Hoff (CEO)

First of all, the part about Hooker Branded and what's driving some of the momentum, definitely October market had a significant positive impact, particularly on Hooker case goods. We brought out two new collections that really performed well in the early parts with placements and early orders and early sell-throughs. We are very encouraged by that, especially in the environment we've been in. To have that type of impact with two new collections, we were encouraged. I don't believe I can get into more of the first quarter yet. Sorry, Anthony.

Anthony Lebiedzinski (Senior Equity Analyst)

Okay. Okay. As far as domestic upholstery, I know you guys said that that was down. As far as given the tariff announcements two weeks ago, just wondering how you guys think about the opportunities there as some retailers look to perhaps shift their sources to domestic manufacturing. Just wondering how you guys think about the potential opportunity for domestic upholstery.

Jeremy Hoff (CEO)

We think it's a tremendous opportunity on the domestic upholstery side for obvious reasons that you've pretty much just stated. We have really quite a bit of capacity if we need it in the BY and also in Bedford, HF Custom. We are in a position that we could definitely, we are in a position to grow, and we're doing some things product-wise, program-wise that I believe are going to be well-timed with that momentum coming their way.

Anthony Lebiedzinski (Senior Equity Analyst)

Gotcha. Okay. As far as HMI, you guys have done a nice job there repositioning that business. Gross margin was up nicely. I suppose that the tariffs now add a wrinkle, but just kind of thinking about how do you think the gross margins in that segment will go from here? Just a separate question on the backlog for HMI. I know there's been a lot of changes to that business over the last couple of years with product lines changing and sales channels. I guess on a like-to-like basis, what would be the backlog? If you strip out all the noise in terms of the changes, how would that compare to pre-pandemic levels for the backlog?

Jeremy Hoff (CEO)

Yeah, I don't believe we have that. I can answer the first part of that, which is there's a lot of focus on the right things at HMI, which I think is showing through in the margin expansion. There's an intense focus on growing Pulaski and on growing Samuel Lawrence furniture. We don't have any focus on the clubs we got out of and the ACH business, Eccentrics home business that we got out of. We're not focused on loading up the warehouse with inexpensive, low-margin, cheap accents at this point. There's a lot of really good focus, and candidly, that's why we're able to save between $4-$5.7 million on getting out of Savannah because 80% of that need in Savannah was based on storing or warehousing inexpensive, low-margin accents. We're able to really more utilize CDC One, CDC Two, and Martinsville.

We talked about the Vietnam warehouse as well that we're working on. Our logistics and our warehousing, we believe, will substantially go down from a financial footprint, but serve us better than it has.

Anthony Lebiedzinski (Senior Equity Analyst)

Understood. Okay. Thank you very much and best of luck.

Jeremy Hoff (CEO)

Yeah. Thank you, Anthony. We appreciate it.

Operator (participant)

Thank you. One moment for our next question. That will come from the line of Dave Storms with Stonegate. Your line is open.

Dave Storms (Director of Equity Research)

Good morning, and thank you for taking my questions. Just wanted to start with the current 90-day tariff pause. Does this open up an ability or give you any desire to be maybe a little more nimble and continue to do a strategic inventory build?

Jeremy Hoff (CEO)

Good question. Because we had, as we said, we had taken our inventories, particularly up in Hooker Branded, which is, call it an 85-90% domestic warehouse footprint. We had already strategically increased that inventory, and that was a little bit lucky and well-timed for the situation. We also are able to manage this a little easier with the Vietnam footprint we talked about because we can hold product there depending on where this goes and be ready to fill our warehouse in four to six weeks lead time versus a six-month lead time once we're able to see what actually happens next.

Dave Storms (Director of Equity Research)

Understood. Very helpful. I also just wanted to talk—you mentioned a couple of times in the prep remarks, the press release mentioned it—just the strong market share gain you have had over the last year. Any main drivers really look at this and additionally going forward, the ability to kind of keep growing at this 3-15 basis points pace?

Jeremy Hoff (CEO)

We expect that we believe that will improve, meaning those are fairly small numbers. They are improvement, but we believe we can do better than that. We were pleased that we were not going backwards in this environment, which is why we started tracking market share in the first place. In an environment like this, it is very difficult to know, are you doing well? Are you not doing well? Where is your business? Because when things are down like they are, everything seems bad, and you cannot see what is actually going on. We are pleased to have that information so that we can address what we need to address. I think we continue with the merchandising strategy, this Collective Living that we are doing, which really just means our legacy companies working together with one powerful presentation versus just a wood bedroom or a dining room showing by itself.

You have upholstery that goes with it, occasional that goes with it. We have all of those capabilities, which is also what makes Margaritaville, that is upcoming October market, so powerful because that is really where our strengths are is when you combine everything together. That really showed through—I mentioned the two collections we did very well in October. Those were two of our first true collective living launches, which showed that when you have—I will just give you an example.

When you have a sofa that perfectly goes with a collection, it makes it very easy for our retail partners to say, "Yeah, I'll take that just like it is, and I'll put it on my floor," whereas they don't have to figure out, "Okay, what can I put this with?" A lot of times, if you leave it up to the partner, they're going to put something that's not our company because they'll find something else outside of Hooker Legacy companies to put with it. It really is that, to me, is a very powerful direction for us, and it somewhat proved that in October.

Dave Storms (Director of Equity Research)

Understood. That's great, Coller. Thank you. Maybe just one more modeling question. With the new cost savings announced and the anticipation that they will be fully up and running by fiscal 2027, any sense of the pacing for this? Is it going to be kind of gradual till then or fits and starts? Any color there would be great.

Jeremy Hoff (CEO)

Hey, we were not sure. I could not understand your question. Can you please ask that one more time? I'm sorry.

Dave Storms (Director of Equity Research)

Yeah. Apologies. Just around the pacing of the cost savings plan to 2027, should we expect a gradual?

Jeremy Hoff (CEO)

Oh, you're asking about the pace of the cost savings plan. Is that what you're asking about?

Dave Storms (Director of Equity Research)

Yes. Yes.

Jeremy Hoff (CEO)

Okay. I think the way to look at it, I think if you back up and say, "Okay, total company spend was $109 million going into two years ago budgeted." Our $10 million savings we achieved throughout last year takes us to where we're budgeted $99 million in overall spend. Over this year, if you include Savannah and everything we're talking about, we're working on getting towards that $8-$10 million, which puts us in more of a $89-$91 million overall spend, which is really back to equivalent to what fiscal 2022 roughly was. We're pretty encouraged by that, especially being that we have, with the Savannah exit, minimum $4 million of that already taken care of, and we're working on the rest of that pretty hard.

I mentioned we're looking at other things to become more efficient company-wide, and we'll have more information on that in the coming weeks. Does that help?

Anthony Lebiedzinski (Senior Equity Analyst)

That's very helpful. Thank you for taking my questions, and good luck.

Jeremy Hoff (CEO)

Absolutely. Thank you.

Operator (participant)

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Jeremy Hoff for any closing remarks.

Jeremy Hoff (CEO)

I would like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal 2026 first quarter results in June. Take care.

Operator (participant)

Thank you all for participating. This concludes today's program. You may now disconnect.