MARTINSVILLE, Va. – Hooker Furnishings reported $97.8 million in consolidated second quarter net sales, a decrease of $55.1 million, or 36% compared with the same time last year.
Compared with last quarter, which also saw a 17.3% dip from last year, sales fell $24 million. The company’s stock price fell 18% Friday morning after earnings were revealed.
The company attributed the decline to industry-wide decreased demand for home furniture, as well as the planned exits of its unprofitable operations within its Home Meridian segment.
“Despite a tough business climate and our team’s focus on navigating the last phases of liquidating excess inventories related to higher risk, unprofitable operations that were exited in the Home Meridian segment, we continue to strengthen our balance sheet and reduce overhead and costs while focusing on executing our strategic growth initiatives,” said Jeremy Hoff, CEO and director.
“We believe the softer demand seen currently industry-wide is driven by retailers continuing to sell through over-inventoried positions and a short-term glut of heavily discounted home furnishings in the market,” Hoff said.
Sales fell in all three of the company’s segments. In Hooker Branded, net sales fell 34.3% due to decreased shipments and unit volume, the company said. Order backlog is continuing to decline but is still 40% higher than pre-pandemic levels. Positively, incoming orders increased by 18.6% compared with the prior year. Gross margin is also up, the company said, “due primarily to favorable product costs from lower freight rates and to a lesser extent, decreased warehousing costs.”
In Home Meridian, the company reported a loss of $3.3 million, with sales falling 51%. Sales dips in the major furniture chains and the e-commerce channel accounted for 70% and 15% of the total decrease in this segment, respectively. Product costs are down in the segment due to lower freight costs, but fixed costs like warehousing rent and labor adversely impacted gross margin due to significantly lower sales, the company said. The company has plans to reduce its Georgia warehouse footprint, which it says will reduce costs.
In Domestic Upholstery, sales fell 19.4% due to sales dips at Shenandoah and HF Custom. Sales at Sunset West partially offset the decline with a 10% gain. Incoming orders are up 36.7% over last year, but that’s from a relatively weak time due to higher backlog and longer lead times.
Strategy-wise, the company is aiming to strengthen its financial position. Hoff touted the benefits of its new High Point, Atlanta and Vegas showrooms, which he says have increased the company’s customer contacts from 3,000 to 14,000 annually.
“While we expect the full benefit of this investment will have a mostly longer-term impact, we have already opened a thousand new accounts in the first half as visibility and engagement have increased,” he said.
He also highlighted Hooker’s acquisition of Atlanta-based BOBO, which allows the company to add lighting, décor, textiles and wall art to its product offering.
Overall, Hoff expressed optimism.
“We believe there are conflicting signals in the economy,” he said. “A housing shortage and the over 20-year high on fixed mortgage rates has slowed down housing activity. The continued rise in interest rates has suppressed consumer confidence. However, overall retail spending and activity in the manufacturing sector and new business start-ups is healthy, while the unemployment rate remains near a 30-year low.
“As we anticipated, the first half of the year was difficult as the industry worked through bloated inventories and consumers’ spending habits changed,” Hoff continued. “We expect demand and business to pick up in the second half for several reasons. First, consolidated orders are up in mid-double-digits over this time a year ago, with orders trending up in each segment for the past few months. Secondly, a significant portion of Hooker Branded’s backlog consists of orders for new products launched at the High Point market and are expected to ship in the second half of this year. Thirdly, in the second half, Home Meridian expects to ship to over a thousand retail floors in what we believe to be the largest number of new product placements in its history.
“We believe all the right pieces are in place for Home Meridian to achieve sustainable profitability in the second half of the year.
“While we’re focused on reducing overhead costs, keeping our balance sheet strong and judiciously deploying capital, we have continued to invest significantly in initiatives that promote higher visibility amongst potential customers and future growth and believe these things will put us in the strongest possible position when demand improves,” Hoff concluded.