HOFT

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Transcript Summary

Hooker Furnishings concluded fiscal 2026 with a strategic pivot toward a leaner, more profitable business model. The company reported fourth-quarter net income of $536,000, recovering from previous losses despite a 21% decline in sales caused by a shorter fiscal week, weather disruptions, and the divestiture of the Pulaski and Samuel Lawrence brands. A primary highlight was the successful reduction of $26.3 million in fixed costs, with $17.5 million of those savings benefiting continuing operations. The Hooker Branded segment outperformed, while Domestic Upholstery showed significant improvement through the consolidation of brands into the 'Hooker Custom Upholstery' line. Management expressed high optimism for the upcoming Margaritaville collection, which has secured over 50 gallery commitments and is expected to drive growth in 2027. Despite macro headwinds like weak housing starts and high interest rates, the company bolstered its financial position by reducing inventory by $17.5 million and paying down $18 million in debt. Additionally, the company is seeking material tariff refunds following a Supreme Court ruling. With a new share repurchase program and a recalibrated dividend, Hooker Furnishings enters fiscal 2027 focused on its core 'better-to-best' furniture portfolio.

5-year share-count history (top 10 holders by peak, incl. exited) + price

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HOOKER FURNISHINGS (HOFT): Massive Impairments and Aggressive Cost Capitalization Mask Structural Decay

Full Earnings Call Transcript — Q4 • 2026-04-16

Operator: Good day, and thank you for standing by. Welcome to the Hooker Furnishings Corporation Fourth Quarter 2026 Earnings Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Earl Armstrong, Senior Vice President and Chief Financial Officer. Please go ahead.
Earl Armstrong: Thank you, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 fourth quarter and full year. Our 2026 fiscal year began on 02/03/2025, and the fourth quarter began on 11/03/2025, both periods ending on 02/01/2026. Joining me today is Jeremy Hoff, our chief executive officer. We appreciate your participation today. During our call, we may make forward-looking statements which are subject to risks and uncertainties. A discussion of the factors that could cause our actual results to differ materially from our expectations is contained in our press release and SEC filing announcing our fiscal 2026 results. Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. During the fourth quarter, we completed the previously announced sale of the Pulaski Furniture and Samuel Lawrence Furniture Casegoods brands, part of our former Home Meridian segment. Consolidated net sales from continuing operations were $67 million, a decrease of $17.2 million, or 21%, compared to the prior-year period. The decline was partially attributable to the current fourth quarter being one week shorter than the prior-year period, which reduced net sales by approximately $5.5 million based on average daily sales. The decrease also reflects lower sales in our Hospitality business due to its project-based nature, as several large projects shipped in the prior year did not recur in the current year. Additionally, we estimate severe winter weather experienced in January 2026 in a significant part of the United States and in most of our largest markets reduced net sales for the quarter by $3 million to $4 million. Despite lower net sales, we reported operating income of $629,000 for the quarter. This was driven by operating income of $1.2 million in Hooker Branded and $617,000 in All Other, partially offset by an operating loss of $1.2 million in Domestic Upholstery. Notably, despite one week less of sales and severe winter weather, Domestic Upholstery reduced its operating loss by more than half compared to a $2.5 million loss in the prior-year fourth quarter. Hooker Branded operating income was consistent with the prior-year period despite fewer selling days and the weather disruptions. Net income from continuing operations for the fourth quarter was $874,000, or $0.08 per diluted share. Following the divestiture of Pulaski and Samuel Lawrence on 12/12/2025, results of these businesses are reported through that date. Discontinued operations incurred a net loss of $330,000 in the quarter. Consolidated net income for the fourth quarter was $536,000, or $0.05 per diluted share. For the full fiscal year of 2026, net sales from continuing operations were $278.1 million, a decrease of $39.2 million, or 12.4%, compared to the prior year. This decline was primarily driven by lower sales in the Hospitality business within All Other and, to a lesser extent, a shorter fiscal year and the severe winter weather we mentioned earlier. Gross profit declined in absolute dollars due to lower sales; however, gross margin improved by 180 basis points, reflecting margin improvements in the Hooker Branded and Domestic Upholstery segments. Continuing operations reported an operating loss of $16.5 million for fiscal 2026, primarily due to $15.6 million in noncash intangible asset impairment charges reported in the third quarter triggered by our stock price as of the end of the third quarter. These included $14.5 million related to goodwill in the Sunset West division and $556,000 related to the Braddington-Young trade name, both within Domestic Upholstery, as well as $558,000 related to the remaining HMI business in All Other. Additionally, continuing operations incurred approximately $2 million in restructuring costs primarily related to severance and, to a lesser extent, warehouse consolidation, all as part of our completed cost reduction initiatives. Net loss from continuing operations was $12.8 million, or $1.20 per diluted share. Discontinued operations included approximately ten months of activity in fiscal 2026. Sales declined due to ongoing macro pressures and tariff-related purchasing hesitancy among its customers, particularly large furniture retailers. Discontinued operations incurred a pretax loss of $19 million, including $3.9 million in restructuring costs, of which $2.4 million related to the Savannah warehouse exit, a $6.9 million loss from classification as held for sale, which included $2.6 million of trade name impairment, $3.5 million in fair value write-downs, and $735,000 in selling costs. Discontinued operations also incurred $1 million in bad debt expense related to a customer bankruptcy. Consolidated net loss for fiscal 2026 was $27 million, or $2.54 per diluted share. Now I will turn the call over to Jeremy for his comments on our fiscal 2026 fourth quarter and full year results.
Jeremy Hoff: Thank you, Earl, and good morning, everyone. We are encouraged to report net income of $536,000 for the quarter. Fiscal 2026 was incredibly transformative as we navigated significant disruptive tariffs on our imports, opened a successful fulfillment warehouse in Asia, and exited two unprofitable divisions, all while reducing fixed costs by about $26.3 million, or 25%, of which approximately $17.5 million in fixed cost savings is related to continuing operations. At the same time, we delivered slight market share growth overall with key strength in key businesses offsetting isolated softness and launched our Margaritaville line, which is delivering on our expectations to be the most impactful product launch in company history. Today, we move forward as a leaner, higher margin business with a much lower breakeven point and the potential for significant profitability as demand returns. We believe we are positioned for a significant improvement in earnings in fiscal 2027, with our expectations bolstered by the early indications of strength within our Margaritaville product line, and we see a clear path to sustain profitable growth by focusing on our core expertise of better-to-best home furnishings. Despite significant headwinds, we are encouraged to report that the Hooker Branded segment reported $1.9 million in operating income for the year compared to a prior-year operating loss of $433,000. Additionally, despite a significant charge in the third quarter, the Domestic Upholstery segment showed improvements in the fourth quarter, reducing its operating loss by more than 50% as compared to the prior-year quarter due to cost reduction initiatives and operational improvements. I would like to also comment on import tariffs, which were a significant disruptor for Hooker and the industry in fiscal 2026. After our fiscal year-end in February 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act were not authorized by statute. In March 2026, the U.S. Court of International Trade directed U.S. Customs and Border Protection to implement a refund process for previously collected duties. We are evaluating the potential recovery of these amounts. Additionally, the administration appears poised to pivot to new tariffs under different legal authority within the next few months. We continue to monitor developments in this area. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments along with our cash, debt, inventory, and capital allocation strategies.
Earl Armstrong: Thank you, Jeremy. At Hooker Branded, net sales decreased 2.9% for fiscal 2026, with the decline entirely driven by a $5.5 million decrease in the fourth quarter, primarily due to one fewer selling week as well as supplier delays and weather-related shipping disruptions. Unit volume declined, partially offset by a 5.7% increase in average selling price implemented to mitigate higher costs and tariffs. Despite lower sales, full-year gross margin expanded by 200 basis points, driven primarily by lower freight costs and pricing actions. Operating income improved to $1.9 million for the year compared to an operating loss in the prior year. Our fourth quarter operating income of $1.2 million was consistent with the prior year despite reduced selling days. Incoming orders were flat year over year, while backlog increased nearly 26%. Domestic Upholstery net sales decreased 2.7% for fiscal 2026, reflecting lower unit volumes in certain divisions, partially offset by growth in contract, private label, and outdoor channels. Gross margin improved by 230 basis points for the full year, driven by lower material costs, reduced labor and overhead expenses, and benefits from cost reduction initiatives. The segment reported an operating loss of $16.9 million for the year, largely due to $15 million in noncash impairment charges, compared to an operating loss of $5.4 million in the prior year. In the fourth quarter, operating loss was $1.2 million, reduced by more than half from the prior year, reflecting cost reduction actions despite lower sales. Incoming orders decreased slightly by about 2%, while backlog increased about 8% year over year. Regarding cash, debt, and inventory, as of the fiscal year-end, cash and cash equivalents stood at $1.1 million, a decrease of $5.2 million from prior year-end. However, amounts due under our revolver decreased by $18 million to $3.6 million at year-end. Cash generated from operations was used to repay $18.5 million of our former term loan, distribute $8.8 million in cash dividends, and fund $3.2 million in capital expenditures. Inventory levels decreased by $17.5 million from $66.2 million at prior year-end to $48.7 million at fiscal year-end. We received approximately $5.5 million in cash proceeds from the sale of the discontinued operations. Despite these outflows, we have maintained financial flexibility with $62.8 million available in borrowing capacity under our amended and restated loan agreement as of fiscal year-end; this is net of standby letters of credit. As of yesterday, we had over $12 million in cash on hand with over $64 million in available borrowing capacity, net of standby letters of credit, with $0 outstanding on our credit facility. Regarding capital allocation, late last year, we announced that our board authorized a new share repurchase program under which the company intends to repurchase up to $5 million of our outstanding common shares beginning in fiscal 2027. In connection with the repurchase authorization, the board recalibrated the annual dividend to $0.46 per share, which began with the company's 12/31/2025 dividend payment. As Hooker Furnishings Corporation transitions to a more focused growth-oriented company, the new share repurchase program together with the adjusted dividend enables us to return capital to shareholders while maintaining the balance sheet flexibility needed to invest in the business. We believe these actions appropriately balance capital returns with liquidity while supporting long-term shareholder value. I will turn the discussion back to Jeremy for his outlook.
Jeremy Hoff: In the Hooker Branded and Domestic Upholstery segments, incoming orders have increased year over year for three consecutive quarters, adjusted for the extra week in last year's fourth quarter. Housing activity and consumer confidence remain weak, and the Department of Commerce's February advanced monthly estimates reflect that reality, showing that retail sales for furniture and home furnishings decreased by 5.6% as compared to the prior year and were lower than January 2026. We do not anticipate near-term meaningful improvement in conditions; however, with a more efficient cost structure and a streamlined portfolio, we believe we are positioned to report improved results even if current market conditions persist. Our advantage is a clear focus on our core businesses with the organization fully aligned to drive organic growth and deliver more consistent, sustainable earnings over time. Margaritaville product and gallery commitments continue to scale, with shipments expected to begin in 2027. This ends the formal part of our discussion, and at this time, I will turn the call back over to our operator for questions.
Operator: We will now open the call for questions. Certainly. Press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. And our first question will come from the line of Anthony Lebiedzinski of Sidoti. Your line is open.
Anthony Lebiedzinski: Thank you, and good morning, everyone. Thanks for taking the questions. It is certainly nice to see the return to profitability in the fourth quarter. So first, looking at the Hooker Branded segment, you had a gross margin of over 39%, which was certainly much better than what we had expected. Was there anything unusual that helped the quarter in terms of the gross margin, and how should we think about the sustainability of your gross margin at Hooker Branded?
Earl Armstrong: On sustainability, I believe we said in the call just now gross margin was 200 basis points better year over year. So your question was how do we look at it going forward?
Anthony Lebiedzinski: You are saying the 39% was—was there anything unusual in the fourth quarter, 39% versus 32% a year ago for the quarter?
Earl Armstrong: No. We cannot think of anything unusual for the quarter that would be driving that, other than the things we have mentioned.
Anthony Lebiedzinski: And then going forward, it sounds like you expect continued strong margins at Hooker Branded, right?
Earl Armstrong: Yes.
Anthony Lebiedzinski: Okay. Sounds good. Switching gears to the Domestic Upholstery segment, you had a nice year-over-year improvement there, though it was lower than what it was in the third quarter. Maybe if you could talk about the various puts and takes impacting the gross margin in Domestic Upholstery, and are you seeing any increases in cost there? There has been some talk of foam prices going up. Please touch on what you are seeing as it relates to foam and other raw material costs.
Jeremy Hoff: On the foam—when we talk about Domestic Upholstery, I am going to talk about Bedford and Hickory, which has been Sam Moore and Braddington-Young. Shenandoah is a different part of that, of course, and then you get Sunset West, which is under that same reporting name. Regarding Braddington-Young and Sam Moore, we announced recently that we are combining both of those to become Hooker Custom Upholstery, which is part of a larger strategic initiative that is part of collective living, which means putting everything together and showing all of our strengths in one collection, for example. We believe we have figured out this is a much more powerful stance moving forward. As we have done that, we are combining things like frames that can cross over from fabric to leather across different factories. So factories have become a capability that can be utilized for the strength of the Hooker Custom line versus a silo here that makes leather and another that makes fabric. It is a very powerful unified message. In doing that, we have changed such a big part of that strategic direction that, with the timing of revenue and what is going on macro, revenue is really our only challenge in those divisions. The efficiencies of those factories are significantly improved, which is why you are seeing the improvements in the profit. We are not there yet, and we need more revenue, which we are working on, and that is why we are executing the entire strategy I just described. We feel really good about the direction, and we feel as good as we have felt about that part of our Domestic Upholstery since we purchased them. The additional costs are definitely coming at the industry. Foam, specifically, has seen some disruption. There was a fire in a major Texas facility that affected much of the industry supplied by that provider. There are things driving costs up in that way. And then, of course, the Middle East war has driven different chemicals and oil up, which flow through to raw materials, and that affects not just foam but overseas as well. There are a lot of moving parts with different costs that are rising, but we do not have enough data right now to tell you exactly what that could be, though it is definitely a factor.
Anthony Lebiedzinski: Understood. With respect to Margaritaville, it sounds like you are still on track to start shipments in the back half of the year. Can you expand on the interest level you are seeing from retailers since your last call? Has it increased or been as expected, and could placements be even better than originally expected?
Earl Armstrong: I believe we reported that we had over 50 committed galleries last call, and that number has grown, so we feel even better than we did about where it is positioned and how it is going to impact our organic growth in the second half and beyond of this year. When you think about the fact that at High Point Market not all dealers come to every market—it is probably a little over half who come to each market—a good number have not even seen Margaritaville yet in our showroom. We continue to be even more optimistic about where that is going to go and how it is going to help our growth.
Anthony Lebiedzinski: Sounds good. Best of luck, and thank you very much.
Jeremy Hoff: We appreciate it, Anthony. Thank you.
Operator: And our next question will come from the line of Dave Storms of Stonegate. Your line is open, Dave.
Dave Storms: Good morning, and thank you for taking my questions. I want to start with the weather disruptions that you mentioned. How much of that is recoverable, or does it just change the timing and maybe make Q1 look a little stronger than it normally would seasonally?
Earl Armstrong: We had the same experience in Q1, unfortunately, in early February with a storm that was a little more severe than this. I would expect by the end of Q1 that backlog should be mostly caught up—the shipping backlog at least.
Dave Storms: Great, thank you. And with shipping, given all the conflicts, are you seeing any second-order impacts to your shipping lanes, and any commentary around the general supply chain environment?
Jeremy Hoff: We really are not.
Dave Storms: Thank you. Lastly, on tariffs—you touched on this in your prepared remarks. With some of these Section 301/IEEPA-related tariffs, my understanding is they only have a 150-day runway. Are you seeing participants in the industry look through this, or did you see a bunch of ordering ahead? Any thoughts on what you saw on the ground regarding this change in the tariff environment?
Jeremy Hoff: Due to the somewhat obvious nature of what has happened, people unfortunately have become used to the up and down. Our industry is somewhat used to disruption, if that makes sense. It is what it is, so we are managing through it as an industry, and none of us pretend to know what is going to happen next. We think something is brewing for how they will replace the tariffs that the Supreme Court shot down, but obviously no one knows what that is.
Dave Storms: Understood. Thank you for taking my questions.
Jeremy Hoff: Thank you.
Operator: As a reminder, if you would like to ask a question, please press *11. Our next question will come from the line of Analyst from Pinnacle. Your line is open.
Analyst: Good morning. Thanks for taking my questions. It seems like a lot of heavy lifting was done over the past year or so. Is there any other potential divestiture, plant closure, or warehouse closure that might be forthcoming in the future?
Jeremy Hoff: Thank you. No. We feel very good about our position and the companies that we have at this point and the capabilities that we have. When you look at our overall strategic focus on better-to-best in the home furnishings industry, the companies we have are exactly that. We feel good about where we are. We do not feel like we have anything that is not eventually sustainably profitable and a great part of our strategic direction.
Analyst: Regarding the tariffs, some companies have disclosed the amount of the rebate they are seeking. Could you put a number on the rebate that you might be attempting to recoup?
Jeremy Hoff: It is material. We are not going to disclose that at this point.
Analyst: Finally, what was the backlog at the end of the year, and what was the total number of orders for the year versus a year ago?
Earl Armstrong: Order backlog at the end of the year was roughly $36 million. What was the second question?
Analyst: Total orders for the year versus a year ago.
Earl Armstrong: I do not have that in front of me.
Analyst: Do you have orders for this order?
Earl Armstrong: Actually, yes. Total orders in 2026 were $256 million, just slightly lower than the prior year at approximately $257 million.
Analyst: Great. Thank you, and good luck.
Earl Armstrong: Thank you.
Operator: I am showing no further questions at this time. I would now like to turn the conference back over to Jeremy Hoff for closing remarks.
Jeremy Hoff: I would like to thank everyone on the call for their interest in Hooker Furnishings Corporation. We look forward to sharing our fiscal 2027 first quarter results in June. Take care.
Operator: This concludes today's program. Thank you for participating. You may now disconnect.