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Management Commentary

“Despite the charges recorded in Q3 and the sustained macro-economic and furniture retail challenges, we’re encouraged by the sequential quarterly improvement in our core business profitability and by the progress of our cost reduction efforts, which will be more fully realized beginning in the 4th quarter,” said Jeremy Hoff, Chief Executive Officer at Hooker Furnishings. “This progress is a reflection of our team’s focus on managing our controllables and reducing non-strategic costs in a very challenging environment, while investing in impactful initiatives, including our recently announced global licensing agreement with Margaritaville, all of which we expect will benefit us when demand normalizes,” Hoff said.

“There are positive developments in the macro-economic environment, such as cooling inflation and recent interest rate cuts in September and November, which should begin to increase demand for furnishings as lower mortgage rates boost the housing market,” Hoff said.

“While early in our new merchandising strategy, our October High Point Market introductions were positively received with significant placements across the board at Hooker Legacy and HMI,” Hoff said. “In addition, we had the best retail placement market to date at outdoor furniture specialist Sunset West.”

“Early customer feedback of three major casegoods collections for Hooker Branded gave us the confidence to place initial cuttings early before these groups were officially introduced in October. As a result, the collections will ship this month with a second cutting in January, increasing our speed-to-market by six months,” Hoff said. “This puts us in a strong position for the coming fiscal year on our available product assortment.”

“In anticipation of increased demand and the typically strong fall selling season, Hooker Branded’s inventories increased nearly $11 million or 40% during the quarter compared to the previous quarter-end,” Hoff said. In addition, “We are aggressively producing our top collections to ensure we will be in stock during the first quarter of fiscal 2026,” Hoff said, adding that, “these inventories are high-quality assortments, centered on our best-selling and most-profitable SKUs.”

Segment Reporting: Hooker Branded

The Hooker Branded segment net sales decreased by $4.2 million, or 10.7%, in the third quarter of fiscal 2025 versus the prior year period due primarily to lower average selling prices. While the gross revenue in this segment decreased by 6.7% compared to the previous year’s third quarter, discounts increased by 390 bps, primarily due to higher discounting on excess inventories to re-balance inventory mix and levels. Unit volume decreased by a modest 2.1% compared to the prior year’s third quarter but exceeded the first and second quarters of this fiscal year.

For the quarter, the segment reported an operating loss of $1.7 million, on historically low third quarter net sales. The result included approximately $1.0 million in severance charges related to the Company’s previously announced cost reduction plan.

Incoming orders decreased by 13.3% year-over-year. The quarter-end order backlog was 30% lower than at the end of the prior year’s third quarter but remained 18% higher than pre-pandemic levels at the end of the fiscal 2020 third quarter.

For the nine-month period, net sales decreased by $13.9 million, or 11.7%, also due to 5.9% lower average selling prices resulting from the price reductions implemented in the previous year in response to reduced ocean freight costs. Unit volume was essentially flat, decreasing by about 1% compared to the prior year nine-month period.

Segment Reporting: Home Meridian (HMI)

The Home Meridian segment’s net sales decreased by $5.1 million, or 11.8%, in the third quarter of fiscal 2025 versus the prior year period due to reduced unit volume. Over 40% of the sales decrease was attributable to the loss of a major customer following its bankruptcy. Sales through major furniture chains and independent furniture stores decreased, though these decreases were partially offset by an 8% increase in sales within the hospitality business, marking two consecutive quarters of higher revenues. Incoming orders increased by 8.1% compared to the previous year’s third quarter, while decreasing modestly by 2.9% for the nine-month period, despite the absence of orders from the discontinued ACH product line and the loss of the same customer. The quarter-end backlog was 32.2% higher than the prior year’s third quarter end.

“Our strategic focus to support sustained profitability through restructuring Home Meridian’s business is yielding meaningful results, including significantly reduced allowances, improved product margins, and lower fixed costs across nearly all areas of this segment. We are encouraged that Home Meridian achieved a gross margin of 20.5% in the fiscal 2025 third quarter despite decreased net sales, its highest level since the acquisition in 2016.”

For the quarter, the segment reported an operating loss of $3.7 million, driven by a total of $4.6 million in charges, including the $2.4 million in bad debt charges due to the previously mentioned customer bankruptcy, $2.0 million in non-cash intangible asset impairment charges, and $233,000 in severance charges related to the Company’s previously announced cost reduction plan.

For the nine-month period, net sales decreased by $19 million, or 16.6%, largely due to the absence of $11 million in ACH liquidation sales, which accounted for approximately 60% of the sales decrease and 75% of the unit volume decrease. Sales decreased in nearly all channels during the period, except for hospitality business, which experienced a 23% increase.

Segment Reporting: Domestic Upholstery

Domestic Upholstery segment net sales decreased by $3.2 million, or 9.9%, compared to the prior year third quarter, due to decreased sales at Shenandoah, Bradington-Young and HF Custom, attributed to persistent low demand. This decrease was partially offset by a 9.1% increase in sales at Sunset West, which has delivered year-over-year quarterly sales growth for three consecutive quarters this fiscal year. Gross profit decreased due to lower net sales, but the gross margin remained stable. For the quarter, the segment reported an operating loss of $281,000, a sequential improvement versus $1.3 million in operating losses recorded in each of the fiscal 2025 first and second quarters. The current quarter’s operating loss included approximately $560,000 in severance charges related to the Company’s previously announced cost reduction plan.

Incoming orders decreased by 4.8% during the quarter, and the quarter-end backlog was 29.9% lower than at the end of the prior year’s third quarter. Excluding Sunset West, the order backlog remained consistent with pre-pandemic levels at the end of the fiscal 2020 third quarter.

For the nine-month period, net sales decreased by $10.6 million, or 10.8%, also due to decreased sales at Bradington-Young, Shenandoah, and HF Custom, partially offset by a 10.1% increase in Sunset West net sales.

Cash, Debt, and Inventory

Cash and cash equivalents were $20.4 million at the end of the third quarter, a decrease of $22.7 million for the year-end in January. Inventory levels increased by $4.7 million from year-end, primarily driven by a $6.2 million increase in Hooker Branded inventories.

During the nine-month period, we used cash and cash equivalents on hand to fund $7.4 million in cash dividends to our shareholders, $2.8 million for further development of our cloud-based ERP system, and $2.7 million in capital expenditures. In addition to our cash balance, we had an aggregate of $28.3 million available under our existing revolver at quarter-end to fund working capital needs, as well as $29.0 million cash surrender value of company-owned life insurance. “With strategic inventory management, reasonable capital expenditures, and prudent expense management, we believe we have sufficient financial resources to support our business operations for the foreseeable future,” said Paul A. Huckfeldt, Senior Vice President and Chief Financial Officer.

Capital Allocation

“As Jeremy mentioned, we are aggressively building inventory to support three new major casegoods collections and our best-selling and most profitable SKUs to accelerate speed to market and product availability for both the current and next fiscal year,” said Huckfeldt. “The inventory build is also driven by what is expected to be a longer than typical lunar new year holiday in Vietnam, an expected longer post-holiday ramp up period there driven by both the extended holiday and by lower production demand in Vietnam, and a possible US port strike in January 2025,” he said.

“We expect to finalize the refinancing of our credit facility and plan to pay off our term debt in the coming days. In addition, we announced the payment of our regular quarterly dividend in December demonstrating our confidence in the Company’s future success,” Huckfeldt continued.

Outlook

“Over the last few months, the key economic indicators that impact furniture sales have been trending positively,” said Hoff.

Namely:

• Interest rates, which drive home mortgage rates, were cut by the Federal Reserve in September and November.

• Since summer, inflation has been cooling to levels closer to the Federal Reserve’s 2% target: at 2.9% in July, 2.5% in August, 2.4% in September and 2.6% in October.

• In November, a leading real estate industry group stated its belief that the worst of the housing inventory shortage is ending and forecast an approximate 10% increase in home sales for 2025, with mortgage rates stabilizing around 6%.

• Consumer sentiment rose in November to 71.8, its highest level since April, and the stock market continues near all-time highs.

“While the macro-economic outlook is improving, our team will continue to focus on the controllables and improvements already underway at Hooker Furnishings,” Hoff said. “Our balance sheet, financial condition and seasoned management team should well equip us to navigate any remaining challenges as we focus on maximizing efficiencies with the cost reductions while simultaneously investing in expansion strategies that will position us for revenue and profitability growth when demand fully returns,” he said.

Conference Call Details

Hooker Furnishings will present its fiscal 2025 third quarter financial results via teleconference and live internet webcast on Thursday morning, December 5^th, 2024 at 9:00 AM Eastern Time. A live webcast of the call will be available on the Investor Relations page of the Company’s website at https://investors.hookerfurnishings.com/events and archived for replay. To access the call by phone, participants should go to this link (registration link) and you will be provided with dial in details. To avoid delays, participants are encouraged to dial into the conference call fifteen minutes ahead of the scheduled start time.

Hooker Furnishings Corporation, in its 100th year of business, is a 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 and custom fabric-upholstered furniture and outdoor furniture. 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, HF Custom (formerly Sam Moore), a specialist in fashion forward custom upholstery offering a selection of chairs, sofas, sectionals, recliners and a variety of accent upholstery pieces, 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 Furnishings divisions or brands. Home Meridian’s brands include Pulaski Furniture, 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, value-conscious offerings in bedroom, dining room, home office and youth furnishings, Prime Resources International, value-conscious imported leather upholstered furniture, and Samuel Lawrence Hospitality, a designer and supplier of hotel furnishings. The Sunset West division is a designer and manufacturer of comfortable, stylish and high-quality outdoor furniture. Hooker Furnishings Corporation’s corporate offices and upholstery manufacturing facilities are located in Virginia, North Carolina and California, with showrooms in High Point, N.C., Las Vegas, N.V., Atlanta, G.A. and Ho Chi Minh City, Vietnam. The company operates distribution centers in Virginia, Georgia, and Vietnam. Please visit our websites hookerfurnishings.com, hookerfurniture.com, bradington-young.com, hfcustomfurniture.com, hcontractfurniture.com, homemeridian.com, pulaskifurniture.com, slh-co.com, and sunsetwestusa.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, including the current macro-economic uncertainties and challenges to the retail environment for home furnishings along with instability in the financial and credit markets, in part due to inflation and high interest rates, including their potential impact on (i) our sales and operating costs and access to financing, (ii) customers, and (iii) suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses; (2) 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; (3) risks associated with the ultimate outcome of our planned cost reduction plans, including the amounts and timing of savings realized; (4) risks associated with the outcome of the HMI segment restructuring which we expect to complete in fiscal 2025, including whether we can return the segment to consistent profitability; (5) risks associated with our reliance on offshore sourcing and the cost of imported goods, including fluctuation in the prices of purchased finished goods, customs issues, freight costs, including the price and availability of shipping containers, ocean vessels, domestic trucking, and warehousing costs and the risk that a disruption in our offshore suppliers or the transportation and handling industries, including labor stoppages, strikes, or slowdowns, could adversely affect our ability to timely fill customer orders; (6) the impairment of our long-lived assets, which can result in reduced earnings and net worth; (7) difficulties in forecasting demand for our imported products and raw materials used in our domestic operations; (8) 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; (9) our inability to collect amounts owed to us or significant delays in collecting such amounts; (10) the interruption, inadequacy, security breaches or integration failure of our information systems or information technology infrastructure, related service providers or the internet or other related issues including unauthorized disclosures of confidential information, hacking or other cyber-security threats or inadequate levels of cyber-insurance or risks not covered by cyber-insurance; (11) 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, availability of skilled labor, and environmental compliance and remediation costs; (12) disruptions and damage (including those due to weather) affecting our Virginia or Georgia warehouses, our Virginia, North Carolina or California administrative facilities, our High Point, Las Vegas, and Atlanta showrooms or our representative offices or warehouses in Vietnam and China; (13) changes in U.S. and foreign government regulations and in the political, social and economic climates of the countries from which we source our products; (14) risks associated with product defects, including higher than expected costs associated with product quality and safety, regulatory compliance costs (such as the costs associated with the US Consumer Product Safety Commission’s new mandatory furniture tip-over standard, STURDY) related to the sale of consumer products and costs related to defective or non-compliant products, product liability claims and costs to recall defective products and the adverse effects of negative media coverage; (15) the risks specifically related to the concentrations of a material part of our sales and accounts receivable in only a few customers, including the loss of several large customers through business consolidations, failures or other reasons, or the loss of significant sales programs with major customers; (16) the direct and indirect costs and time spent by our associates associated with the implementation of our Enterprise Resource Planning system (“ERP”), including costs resulting from unanticipated disruptions to our business; (17) achieving and managing growth and change, and the risks associated with new business lines, acquisitions, including the selection of suitable acquisition targets, restructurings, strategic alliances and international operations; (18) risks associated with securing a suitable credit facility, which may include restrictive covenants that could limit our ability to pursue our business strategies; (19) risks associated with distribution through third-party retailers, such as non-binding dealership arrangements; (20) the cost and difficulty of marketing and selling our products in foreign markets; (21) changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials; (22) price competition in the furniture industry; (23) changes in consumer preferences, including increased demand for lower-priced furniture. and (24) 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 28, 2024. 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.

For more information, contact:
Paul A. Huckfeldt, Senior Vice President & Chief Financial Officer, Phone: (276) 666-3949