Hooker Furniture(HOFT) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited financial statements show a significant decline in performance, a net loss, and a debt covenant breach Condensed Consolidated Balance Sheets Total assets and shareholders' equity declined, with long-term debt reclassified to current due to a covenant breach Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 28, 2024 | January 28, 2024 | | :--- | :--- | :--- | | Total Current Assets | $156,936 | $164,798 | | Total Assets | $335,530 | $343,586 | | Total Current Liabilities | $62,912 | $41,409 | | Long term debt | $0 | $21,481 | | Total Liabilities | $115,938 | $117,611 | | Total Shareholders' Equity | $219,592 | $225,975 | - Long-term debt of $21.5 million was reclassified to the current portion of long-term debt, which increased to $22.5 million[8][40] Condensed Consolidated Statements of Operations The company reported a net loss of $4.1 million for the quarter, driven by a 23.2% decline in net sales and lower gross margin Q1 Fiscal 2025 vs Q1 Fiscal 2024 Performance (in thousands, except per share data) | Metric | Thirteen Weeks Ended April 28, 2024 | Thirteen Weeks Ended April 30, 2023 | | :--- | :--- | :--- | | Net sales | $93,571 | $121,815 | | Gross profit | $19,221 | $27,906 | | Operating (loss) / income | $(5,170) | $1,975 | | Net (loss) / income | $(4,091) | $1,450 | | Diluted (loss) / earnings per share | $(0.39) | $0.13 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased significantly to $1.5 million from $22.4 million in the prior-year period Cash Flow Summary (in thousands) | Activity | Thirteen Weeks Ended April 28, 2024 | Thirteen Weeks Ended April 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,477 | $22,350 | | Net cash used in investing activities | $(959) | $(3,265) | | Net cash used in financing activities | $(2,802) | $(7,111) | | Net (decrease) / increase in cash | $(2,284) | $11,974 | Notes to Condensed Consolidated Financial Statements Notes detail the ERP system implementation, debt covenant non-compliance, and sales declines across all three reportable segments - The company is implementing a new ERP system, with capitalized implementation costs totaling $15.0 million as of April 28, 2024[27][28] - Due to first quarter results, the company was not in compliance with its basic fixed charge ratio covenant and obtained a waiver[40] Segment Net Sales (in thousands) | Segment | Q1 FY2025 | Q1 FY2024 | % Change | | :--- | :--- | :--- | :--- | | Hooker Branded | $35,353 | $43,432 | -18.6% | | Home Meridian | $26,424 | $41,921 | -37.0% | | Domestic Upholstery | $30,027 | $35,104 | -14.5% | | All Other | $1,767 | $1,358 | +30.1% | | Consolidated | $93,571 | $121,815 | -23.2% | - On June 4, 2024, the board of directors declared a quarterly cash dividend of $0.23 per share[55] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 23.2% sales decrease, operating loss, and strategic initiatives amid lower industry-wide demand Results of Operations Consolidated net sales fell across all segments, compressing gross margin and resulting in a $5.2 million operating loss - The Home Meridian segment's sales decline of $15.5 million was impacted by the absence of $7.5 million in sales from the exited ACH product line[74][77] - The Domestic Upholstery segment's sales decline was partially offset by 20% sales growth at Sunset West[78][84] Operating (Loss) / Profit by Segment (in thousands) | Segment | Q1 FY2025 | Q1 FY2024 | $ Change | | :--- | :--- | :--- | :--- | | Hooker Branded | $7 | $2,718 | $(2,711) | | Home Meridian | $(3,423) | $(2,119) | $(1,304) | | Domestic Upholstery | $(1,308) | $1,328 | $(2,636) | | Consolidated | $(5,170) | $1,975 | $(7,145) | Outlook Management expects subdued demand to continue but is implementing a cost reduction plan and anticipates future profitability - The company is planning a major cost reduction initiative, aiming for a 10% cut in overall fixed costs[95] - Management is encouraged by a 19% increase in consolidated backlog and an 11% increase in consolidated orders during the first quarter[98] Financial Condition, Liquidity and Capital Resources The company maintains adequate liquidity despite a covenant violation for which a waiver was obtained - The company was not in compliance with its fixed charge ratio covenant but obtained a waiver from BofA after the quarter ended[109] - As of April 28, 2024, the company had $40.9 million in cash, $28.3 million available under its revolver, and $22.5 million outstanding under its term loans[79][110][116] - The company anticipates spending approximately $3.0 million in fiscal 2025 to continue its new ERP system implementation[112] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from interest rates, raw material prices, and foreign currency fluctuations - The company is exposed to interest rate risk on its $22.5 million in outstanding variable-rate term loans[116] - The company faces raw materials price risk for wood, fabric, and petroleum-based foam products in its domestic manufacturing[117] - Currency risk is present as most imports are from Vietnam and China, though purchases are transacted in U.S. Dollars[118][119] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures are effective[120] - The company is implementing its internal control structure at the newly acquired BOBO business, expected to be completed in fiscal 2025[121] PART II. OTHER INFORMATION Other Information This section notes the covenant waiver obtained from Bank of America and the absence of new Rule 10b5-1 trading plans - The company entered into a covenant waiver with Bank of America on June 5, 2024, related to its loan agreement[125] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and the covenant waiver letter - Lists the exhibits filed with the quarterly report, including the Covenant Waiver Letter (Exhibit 10.2) and officer certifications[126]