Hooker Furniture (HOFT) Tops Q3 EPS by 14c, Revenues Miss

Hooker Furniture (NASDAQ: HOFT) reported Q3 EPS of $0.48, $0.14 better than the analyst estimate of $0.34. Revenue for the quarter came in at $130.5 million versus the consensus estimate of $153.17 million.

“While the COVID-19 pandemic continued to impact the economy and our operations, our business began to rebound in mid-May and hasn’t let up since,” said Paul B. Toms Jr. chairman and chief executive officer. “Fiscal July consolidated incoming orders were up 34% compared to a year ago, and backlogs were up 35%. Based on this unusually robust order rate for the summer months, we continue to believe that furniture is an advantaged sector during the pandemic-related economic downturn and ‘safer-at-home’ practices, due to pent-up demand, a robust housing market and less competition from other discretionary spending such as travel, dining out and sporting events.”

“Some HFC divisions were able to capitalize on the surge in demand sooner than others,” Toms said. “We were able to better capitalize on the exceptional demand for our products in those divisions that ship stock from our warehouses, including Hooker Branded Casegoods and Upholstery and some Home Meridian (HMI) divisions such as Accentrics Home,” he said. The positive impact of higher demand was not felt as immediately in the Domestic Upholstery segment and in the HMI units that service customers via direct container. “After our upholstery factories shut down for four weeks in the spring, production slowly ramped up during the summer to near capacity by the end of Q2,” Toms said. “Sales will also lag demand in our container-direct businesses at HMI. Container-direct orders cancelled by large customers in March and April were reinstated in the summer months and will have more of a positive impact on revenues in the second half of our fiscal year as production begins to flow through the pipeline,” Toms said.

Consolidated operating income increased by $1.7 million or 30.2% as compared to the prior-year second quarter. The Home Meridian segment reported $1.1 million in operating income compared to a small operating loss in the prior year second quarter. Hooker Branded segment operating margin performance continued at a high level, and the Domestic Upholstery segment reported essentially breakeven operating income for the second quarter despite decreased net sales and inefficiencies from operating at significantly reduced production volumes and lower capacities early in the COVID-19 crisis.

“Reduction of spending in response to the economic shutdown had a significant positive impact on profitability in the quarter, as did lower costs of goods sold, as we have steadily shifted offshore production to non-tariff countries since last year,” Toms said. ”Year to date, approximately 22% of our casegoods and imported upholstery products have been subject to the 25% tariff on finished goods imported from China, a significant reduction compared to 35% of imported goods subject to tariffs during the same period a year ago,” he said.

“Some of our cost-cutting was temporary, such as furloughs and reductions in executives’ salaries and directors’ fees, which have now been reinstated. Other cuts will stay in place until higher volume warrants more spending. The flexibility of our variable cost model has been proven again during this crisis by our ability to scale our business correctly to demand,” Toms said.

Outlook

“Given the robust housing market, strong demand since mid-May, and order backlogs up 35% at the end of the second quarter, we enter the fall with momentum and optimism,” said Toms. “We used the shutdown period to improve efficiencies and effectiveness in our business, from cost-cutting to long-range strategic planning to focusing our efforts and resources on the items driving our business. We believe all of these initiatives will yield long-term positive results.”

“We are concerned about the human and economic toll of COVID, both currently, and the future possibility of additional surges of the virus that may delay re-openings and have adverse effects in certain regions or states. However, we have a very strong team, and are in excellent financial condition. We weathered the disruption of tariffs last year and the pandemic this year. We are well-prepared to face an uncertain future, and well-positioned to benefit from furniture’s current emergence as an advantaged category,” Toms concluded.

For earnings history and earnings-related data on Hooker Furniture (HOFT) click here.

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