Hooker Furnishings Corporation (NASDAQ:HOFT): A Dividend Stock Worth Considering Despite Near-Term Challenges

Published on September 24, 2024 | Ticker: HOFT

Hooker Furnishings Corporation (NASDAQ:HOFT) is a leading designer, marketer, and importer of casegoods (wooden and metal furniture), leather furniture, fabric-upholstered furniture, lighting, accessories, and home décor for the residential, hospitality and contract markets. The company also domestically manufactures premium residential custom leather, custom fabric-upholstered furniture and outdoor furniture.

Financials

In the fiscal year ended January 28, 2024, Hooker Furnishings reported annual net income of $9,865,000, annual revenue of $433,226,000, annual operating cash flow of $55,471,000, and annual free cash flow of $48,656,000. The company has a strong track record of returning capital to shareholders, having grown its dividend for 8 consecutive years.

For the first quarter of fiscal 2025, which ended on April 28, 2024, Hooker Furnishings reported consolidated net sales of $93,571,000, a decrease of 23.2% compared to the prior year's first quarter. All three of the company's reporting segments - Hooker Branded, Home Meridian, and Domestic Upholstery - experienced double-digit sales declines due to lower demand for home furnishings, which is adversely affecting the industry as a whole.

Segment Performance

The Hooker Branded segment's net sales decreased by 18.6% year-over-year, primarily due to reduced unit volume and lower average selling prices resulting from price reductions implemented in the second half of the prior fiscal year. The Home Meridian segment's net sales declined by 37%, with nearly half of the revenue decrease attributed to the absence of Accentrics Home liquidation sales. The Domestic Upholstery segment's net sales fell by 14.5%, though Sunset West, which the company acquired in fiscal 2023, reported a 20% sales increase.

Consolidated gross profit and margin both decreased in the first quarter, with the Home Meridian and Domestic Upholstery segments experiencing the most significant declines. The company reported a consolidated operating loss of $5,170,000 and a net loss of $4,091,000, or $0.39 per diluted share, for the quarter.

Outlook

Despite the challenging first quarter, Hooker Furnishings remains confident in its long-term prospects. The company is taking actions to align its cost structure with current and expected medium-term demand, including a planned 10% reduction in fixed costs through measures such as consolidating operations and other fixed cost reductions. Management believes these initiatives, combined with its strategic investments in new showrooms, expanding its customer base, and transforming its merchandising approach, will position the company to gain market share and return to profitability once demand normalizes.

Liquidity

Hooker Furnishings has $40,875,000 in cash and cash equivalents as of April 28, 2024, and $28,300,000 available under its existing revolving credit facility. The company also has $28,677,000 in cash surrender value of company-owned life insurance policies. While the company was not in compliance with a financial covenant in the first quarter, it has obtained a waiver from its lender and is working to reach a longer-term solution.

Recent Developments

Looking ahead, Hooker Furnishings expects some short-term volatility in earnings but remains confident in its ability to be profitable for the current fiscal year and beyond. The company's consolidated backlog increased by approximately 19% compared to the fiscal year-end, and consolidated orders increased by 11% compared to the previous quarter, with orders up across all segments.

Risks and Challenges

The furniture market is highly competitive, with many companies ranging from large corporations to smaller niche brands. This fragmentation limits market share growth and creates pricing pressure due to intense competition. Hooker Furnishings is also exposed to risks associated with its reliance on offshore sourcing, fluctuations in raw material and freight costs, and the cyclical nature of the furniture industry.

Conclusion

Despite the near-term challenges, Hooker Furnishings' long-term growth prospects remain promising. The company's focus on strategic initiatives, such as expanding its showroom footprint, enhancing its merchandising approach, and repositioning its Home Meridian segment, are expected to drive future success. Additionally, the company's cash position and history of dividend growth make it an attractive option for income-oriented investors.

In conclusion, Hooker Furnishings Corporation is a well-established player in the highly competitive furniture industry. While the company is currently navigating a challenging macroeconomic environment, its strategic initiatives, cost-cutting measures, and financial position position it well for long-term success. Investors should closely monitor the company's progress as it works to return to profitability and capitalize on the eventual recovery in the home furnishings market.

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