Hooker Furniture Corporation — Q1 FY2021 Form 10-Q
Reporting period: Thirteen weeks ended May 3, 2020; comparisons are to the thirteen weeks ended May 5, 2019. The company delayed filing under SEC COVID-19 relief, citing pandemic-related disruption and additional time needed to complete impairment valuations.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Net sales | $104.6 million | $135.5 million |
| Gross profit / margin | $18.7 million / 17.8% | $25.5 million / 18.8% |
| Operating income (loss) | $(45.4) million | $2.9 million |
| Net income (loss) | $(34.8) million | $2.0 million |
| Diluted EPS | $(2.95) | $0.17 |
| Cash from operating activities | $18.9 million | $20.3 million |
Sales fell 22.8% year over year. Gross margin declined 1.0 percentage point; selling and administrative expenses fell to $19.2 million from $22.0 million but increased as a share of sales, to 18.3% from 16.2%. The quarterly loss included $44.3 million of non-cash impairments: $39.6 million of goodwill and $4.8 million of Home Meridian trade names. The tax benefit was $10.9 million, including $10.6 million related to impairments and an additional $4.0 million recognized following early adoption of ASU 2019-12.
Segments and material changes
- Hooker Branded: Sales decreased 31.4% to $27.2 million; operating income was $1.3 million versus $5.2 million.
- Home Meridian: Sales decreased 14.7% to $57.7 million; operating loss was $30.3 million, including $27.9 million of goodwill and trade-name impairments. E-commerce represented 35% of segment sales; hospitality sales increased 22.6%.
- Domestic Upholstery: Sales decreased 33.7% to $16.8 million; operating loss was $16.8 million, including $16.4 million goodwill impairment. Plant closures and reduced production caused under-absorbed costs.
- All Other: Sales were essentially flat at $3.0 million; operating income was $0.4 million.
COVID-19 drove sharp order declines and customer cancellations. Orders fell more than 70% year over year in March and about 65% in April; May was down about 5%, while June and orders through July were above comparable prior-year levels, according to management. Segment disclosures were recast following a reporting-segment change in the prior fiscal year.
Cash, debt and liquidity
- Cash was $51.2 million at May 3, up $15.2 million from fiscal year-end. Management reported a further $31.0 million increase in cash by July 23.
- Operating cash flow was $18.9 million; investing activities provided $0.1 million and financing activities used $3.8 million. The company paid $1.9 million in dividends.
- Term loans totaled $28.2 million, classified as current and due February 1, 2021. No revolver borrowings were outstanding; stated availability was $25.7 million, with $4.3 million of standby letters of credit outstanding.
- Current assets were $204.3 million and current liabilities $57.5 million. Operating lease liabilities totaled $38.7 million.
- The company was in compliance with its debt covenants at quarter-end and had begun refinancing discussions. Management expected to refinance but noted that prolonged pandemic effects could make refinancing harder or more costly.
Outlook, risks and other items
Management was cautiously optimistic that business would improve through summer and fall as orders recovered, stores reopened and domestic upholstery production ramped back toward capacity. It cited limited visibility and did not provide formal numerical earnings or sales guidance. Management expected liquidity to remain sufficient, while anticipating cash could decline as inventories and receivables rose with sales. It planned to continue cautious cash management and expected $1.0–$2.0 million of capital expenditures for the remainder of FY2021 after indefinitely delaying about $3 million of non-critical spending.
Key risks include renewed or extended COVID-related disruption, unemployment and weak consumer demand, customer concentration and collection risk, offshore sourcing and shipping interruptions, tariffs, raw-material and freight costs, and floating-rate debt and refinancing. The board declared a $0.16-per-share dividend in June, paid June 30, but said future dividend decisions would reflect performance and economic conditions. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification priorities
- Track post-quarter orders, shipments, cancellations and backlog to test whether the reported recovery continued.
- Review the assumptions and valuations behind the $44.3 million impairment and the remaining goodwill and trade-name balances.
- Verify refinancing progress and the company’s ability to meet the February 2021 term-loan maturity and covenant requirements.
- Monitor cash conversion as inventories and receivables rebuild, and assess liquidity under a renewed downturn.
- Assess whether the $0.16 quarterly dividend remains sustainable amid uncertain earnings and cash needs.