Hooker Furnishings Corporation

and welcome to the Hooker Furnishings Corp First Quarter 2026 Earnings Webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Earl Armstrong, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, Michelle, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 first quarter, which ended May 4, 2025. Joining me this morning is our Chief Executive Officer, Jeremy Hoff. We appreciate your participation today. During our call, we may make forward-looking statements which are subject to risks and uncertainties, a discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2026 first quarter 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. Earlier today, we reported consolidated net sales of 85.3 million for the first quarter, a decrease of 8.3 million, or 8.8%, compared to the same period last year. Despite the decrease in net sales, we reduced our operating loss by 1.6 million, or 31%, to 3.6 million, reflecting the impact of cost reduction initiatives implemented in the second half of the prior fiscal year. Comparing to the prior year first quarter, we reduced operating expenses by 2.2 million. This reduction occurred despite first quarter results, which included 523,000 in restructuring costs, primarily severance. Hooker Brand did achieve break even for the quarter, while Domestic Upholstery and Home Meridian significantly reduced their operating losses by 55% and 17% respectively. Inclusive of this work, we improved gross margins by 190 basis points driven by improved margins of home rating and domestic upholstery. We recorded a net loss of 3.1 million, or 29 cents per diluted share, and improvement from the prior year's first quarter's net loss of 4.1 million, or 39 cents per diluted share. Hooker's legacy brand sales were stable during the quarter, with Hooker branded net sales increasing slightly, driven by higher unit volume, while the domestic upholstery segment saw a slight sales decrease compared to the prior year first quarter. The overall decrease in consolidated sales was driven primarily by a double-digit sales decrease at HMI, which is positioned in the mid-price segment where import tariffs have more sharply curtailed demand. In a key development during this quarter, we expanded our multi-pronged cost reduction strategy aimed at achieving approximately $25 million in annualized savings by our next fiscal year. As part of our logistics and operations consolidation, we opened a new Vietnam warehouse facility last month, which we expect will enhance supply chain efficiency and reduce lead times from about six months to four to six weeks. Initial customer feedback has been very favorable, and we believe this initiative has the potential to improve sales. We'll have more details on our overall cost reduction strategy later in the call. Now I'll turn the call over to Jeremy for his comments on our fiscal 2026 first quarter results.

Thank you, Earl, and good morning, everyone. We continue to take significant and deliberate actions to stabilize the company, drive improved sales, and deliver strong gross margins as we execute on our accelerated cost savings program. At the same time, we are determined not to lose focus on developing quality and innovative products, servicing our customers, enacting our strategic vision and increasing shareholder value. This was our eighth consecutive quarter of consistent market share gains within Hooker's legacy brands, which includes Hooker branded and domestic upholstery. The spring high point market was exceptional for the company, especially with two new case good collections in our collected living format. In addition, We had significant placements on the debut of our Living Your Way modular upholstery program offered from our Hooker branded upholstery segment brand in both stationary and motion seating and multiple scale and cover options. We are continuing to achieve significant cost savings through our ongoing programs. Our year-over-year operating and gross margin improvements during the first quarter were driven by the $2.2 million in cost savings from our initial round of cost reductions we announced a year ago. Since the initial announcement, we have expanded our cost reduction initiatives through the exit of the Savannah warehouse and opening of a leased Vietnam warehouse. These moves, particularly our strategic shift to the Vietnam warehouse, will result in accelerated savings and improvements as the current fiscal year progresses. By enhancing supply chain efficiency, enabling our retail customers to mix a variety of collections on containers and reducing lead time from about six months to four to six weeks, we see the Vietnam Warehouse as a game changer and win-win for us and our customers. In total, from the June 2024 start of our initiative, we anticipate reducing our total annual spend rate by approximately 25%. These savings alone will substantially improve profitability. And as conditions improve, our position for growth strengthens accordingly, as will our ability to drive value for shareholders through disciplined execution and capital stewardship. Our progress is steady, and we are executing within all aspects of the business that we're able to control. Notwithstanding our progress, the home furnishings industry continues to navigate a challenging environment driven by persistent softness in the housing market, higher mortgage rates, and declining consumer sentiment. Existing home sales remain well below pre-pandemic levels, and the sharp rise in borrowing cost has dampened housing mobility, which traditionally fuels furniture demand. At the same time, tariff uncertainties are negatively impacting consumer confidence, which has dropped to near-historic lows, with many households pulling back on discretionary spending. These macroeconomic headwinds are weighing heavily on our industry, and we remain focused on adapting to the realities of today's market. I'd like to take a minute to specifically address the import tariff increases and uncertainties that impact the entire furniture industry. We believe we've successfully mitigated the across-the-board 10% tariff through participation by our source factories and through a 5% price increase effective last month. Like everyone else, we are waiting to hear in July what the final tariff may be for Vietnam, where we source over 80% of our products. We will act responsibly, not reactively, in our position with a solid financial foundation and balance sheet that are built to navigate challenging times. Now I want to turn the discussion back over to Earl, who will outline the details of our multi-phase cost reduction strategy, as well as discuss highlights in each of our segments.

Thank you, Jeremy. As I referenced earlier, Hooker Furnishings is executing a phased cost reduction strategy aimed at achieving approximately $25 million in annualized savings by next year. We'll discuss these initiatives in two phases. Phase one of this plan, which began last year, included the following actions, impacts, and achievements. Phase one actions, we reduced fixed costs by over $10 million through facility downsizing workforce and fixed cost reductions. Phase one financial impact. We incurred 4.1, 4.9 million in restructuring charges, including 3.6 million in severance. Phase one savings. We achieved over three million in fiscal 25 and expect to realize over 10 million annually this fiscal year. Phase two is the logistics and operations consolidation aspect of our plan. It began this current year and continues to the end of our current fiscal year. Phase two actions. We initiated and expect full closure and release for the Savannah Warehouse by October 31st, 2025. Vietnam Warehouse. We opened a new facility in May 25 to enhance supply chain efficiency and reduce lead times from about six months to four to six weeks. We expect this will have a significant positive impact on cash utilization overall. Going forward, we expect further cost savings opportunities will be realized through operational streamlining. Phase two financial impact. We are expecting two to three million in net charges in fiscal 26. Phase two savings. We anticipate net savings of 3.4 million in fiscal 26, net of expected charges and other offsets. We are projecting net savings of about $14 million annually beginning in fiscal 2027. In total, we expect to eliminate approximately $25 million, or roughly 25% of our fixed costs, with about an $11 million impact to warehouse and distributions, which we include in cost of sales, and about $14 million impact in selling and administration expenses. In fiscal 26, Hooker expects to realize about 14 million cost savings net of offsets and special charges. By fiscal 27, Hooker expects to realize 25 million in net annualized savings through these phased initiatives, which should enhance profitability, operational efficiency, and long-term shareholder value. Importantly, our cost reduction should not impact our strategic growth priorities, including our collected living merchandising platform the Vietnam Warehouse Advantage, and our upcoming Margaritaville license collection. Now I'll highlight quarterly performance of each of our segments. In Hooker Branded, the segment experienced a modest increase in sales driven by a higher unit volume but tempered by lower average selling prices and increased discounts. Gross profit and margin increased by 393,000 and 130 basis points respectively. primarily due to reduced margins on discounted items, partially mitigated by reduced warehousing and distribution expenses. Hooker branded achieved break even for the quarter. Incoming orders grew by 2.4% year over year. The quarter end backlog was 21.3% lower than the previous year's first quarter, primarily due to better inventory position, which resulted in quicker shipments. Quarter end order backlog increased by nearly 3% from year end. At Home Meridian, that segment's net sales decreased by 7.6 million, or about 29% in the first quarter of fiscal 26, primarily due to a significant reduction in unit volume. Approximately 30% of the net sales decrease resulted from the loss of a major customer due to its bankruptcy in the prior year, with the remainder attributed to reduced sales due to tariff-related buying hesitancy among HMI's customers. most of whom are situated in the mid-priced and commercial segment of the market. This decrease was partially offset by a $1.7 million increase in sales in the hospitality business. Despite the significant sales decrease, gross profit only decreased by $568,000 with a 200 basis point increase in gross margin, driven by improved product margins and reduced allowances. These decreases were partially offset by lower warehousing and distribution costs from restructuring efforts that ultimately reduced the operating loss from 3.4 million to 2.8 million. Incoming orders and backlog decreased due to reduced demand from traditional channels and the loss of a major customer last fiscal year due to its bankruptcy, compounded by fewer orders in the project-based hospitality business. In domestic upholstery, this segment's net sales decreased by about a million, or about 3.7%, in the first quarter, primarily due to reduced demand for indoor residential home furnishings. This decrease was partially offset by a 12.7% sales increase in the outdoor furnishings business, Sunset West, following its bi-coastal expansion. Despite the sales decrease, gross profit increased by $575,000, in gross margin increase by 260 basis points, driven by 80 basis point decrease in direct material cost and 100 basis point decrease in direct labor cost, both from the cost reduction plan and reduced work hours. Warehouse and distribution expenses also decreased. Domestic upholstery segments significantly reduced operating losses by 713,000, or 55%, despite the sales decrease. Incoming orders fell 2.6%, with quarter-end backlog unchanged from the prior year's first quarter, but up 7.1% from year-end. Turning now to cash debt and inventory, cash and cash equivalents stood at $18 million, an increase of $11.7 million from year-end, due primarily to accounts receivable collections. Inventory levels decreased from about $71 million at year-end to about $64 million at quarter-end. The company utilized cash for several key expenditures during the fiscal 26 first quarter, including $2.5 million in cash dividends to shareholders and about $850,000 in capital expenditures. Despite these outflows, the company maintained its financial flexibility with about $40 million in available borrowing capacity under its revolving credit facility as of quarter end. Subsequent to the end of our first quarter, we paid down all outstanding borrowings on our revolving credit facility. As of yesterday, we had approximately $3 million in cash on hand, with about $63 million in available borrowing capacity, net of standby letters of credit. Last week, we announced our regular quarterly dividend, reflecting our ongoing confidence in our outlook and extending our over 50-year track record of uninterrupted dividend payments. We are focused on disciplined capital deployment that supports both shareholder returns and operational resilience. The significant progress we've made in reducing debt, even while returning capital through dividends, reflects the structural cost savings initiatives we've implemented across the business. These actions are not only improving near-term liquidity, but also positioning us to pursue strategic growth with a stronger or efficient balance sheet. As we move through the year, we remain committed to capital allocation decisions that enhance long-term value creation through a combination of our cost savings initiatives and our strategic growth priorities. Now I'll turn the discussion back to Jeremy for his outlook.

According to U.S. Census Bureau Monthly Retail Trade Survey, furniture retail sales have shown modest improvement in recent months. April sales were slightly higher compared to January to March period and increased 5.6% year-over-year. However, existing home sales remain subdued, currently operating at approximately 75% of typical free pandemic levels for the third consecutive year. Despite these headwinds, inflation and employment indicators have remained relatively stable. To navigate the ongoing economic challenges, we continue to prioritize product innovation, cost optimization, and operational excellence. These strategic imperatives position us to capitalize on emerging opportunities as economic conditions improve, ultimately driving long-term shareholder value. Key initiatives include the launch of our new Margaritaville licensing program, a best-in-class international warehouse that enables us to reduce domestic safety stock, preserve working capital, and shorten lead times, and our collective livings whole-home merchandising approach. which received strong validation at the April high point market. We are very encouraged by fiscal May orders at Hooker Legacy, which were the highest since February fiscal 23. On the Hooker Legacy side, May orders were up nearly 33% as compared to the prior year. Hooker branded orders were up nearly 40% and domestic upholstery orders were up 25%, both as compared to fiscal May of the prior year. Additionally, We are preparing to launch a redesigned corporate website in October, which we expect will enhance digital customer experience, improve lead generation, and support omnichannel growth. Also, drive consumer engagement, streamline e-commerce navigation, and support our retail partners, and serve as a hub for product education and lifestyle inspiration, increasing time on site and conversion rates. Within our Hooker-branded segment, the newly introduced Live Your Way strategy is designed to deliver customizable, lifestyle-oriented solutions tailored to evolving consumer preferences, offer tailored upholstery options that align with today's diverse lifestyles and consumer expectations, focus on modularity, flexibility, and personalized comfort meeting the needs of design-savvy customers, and it emphasizes customization, and quality craftsmanship reinforcing our leadership in the upscale upholstery segment. We are simultaneously driving operational efficiencies across the segment and are beginning to observe measurable improvements in performance. Putting it all together, we are actively transforming the profile of the company while maintaining stability. The initiatives underway are broad reaching across the entire organization and touch all aspects of our business from production and enhanced lead times to realigning our cost structure to better meet the realities of the operating environment. While there is more to do, we have been able to undertake significant steps without sacrificing quality or service. The end result is our expectation that we are well positioned for an upturn in the market and poised to create value for our shareholders. This ends the formal part of our discussion, and at this time, I will turn the call back over to our operator, Michelle, for questions.

Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from Anthony Lebedinsky with Sidoti & Company. Your line is open.

Good morning, and thank you for taking the questions. So first, looking back at the first quarter, can you comment on the cadence of shipments from February through April? And I'm particularly interested as to how was the last month of the quarter after Liberation Day?

I can definitely tell you that the cadence changed pretty drastically for us with the tariffs. It definitely affects what we call the mega customer, which is really the HMI customer, more so than the many customers we have that are very different on the Hooker-branded and domestic upholstery side of our business.

Thanks, Jeremy. Okay, and then, you know, as far as gross margins, so you did show some nice improvement on a year-over-year basis. Looks like there was some impact from discounting that hurt margins at Hooker-branded. Any way that you guys can quantify how much that was as far as the impact of the discounting at Hooker-branded?

No, we don't have that in front of us, Anthony.

Okay, I could follow up with you about that. Okay. And then just switching gears to the commentary about the current quarter. So what's driving the higher orders at the Hooker Legacy brands in May? It's a pretty notable increase. So maybe you could share with us as to what's driving that in May. And also, conversely, just wanted to get an update on HMI, whether you've seen any changes since April.

I would say what's driving the order rate that I just talked about is really that we significantly broadened our merchandising strategy with collected living and the things we've talked about. It's starting, we believe it's starting to have a positive effect. So really what you're, if you think about it, you're comparing to orders, you know, last year, of course, and last year would have been following a market where we had not implemented those new strategies. And I believe they've really kicked in and I think it's showing.

Gotcha. And as far as HMI, any comments as to what you're seeing so far in May and early June?

Yeah, we're still seeing significant uncertainty due to tariffs because there really hasn't been other than we know the 10%, but there's a July 9th date out there that until there's clarification, that definitely hurts.

Gotcha, okay. I guess my last question before I pass it on to others. Memorial Day, as you guys know, is a big holiday event for the furniture industry. Just wondering what you've seen or heard from your retail partners as to how the holiday went for them.

You know, we do a lot of checking on what you just asked, and the overall sentiment that we found was that it was relatively positive for most retailers for Memorial Day, and there was a lot of pretty decent news.

That's good to hear. Well, thank you very much, and best of luck.

You're welcome, Anthony. Thank you.

Thank you. As a reminder, to ask a question, please press star 1-1. Our next question comes from Dave Storms with Stonegate. Your line is open.

Good morning. Good morning. Just wanted to start with the cost savings initiatives and see if you had – if you could tell us maybe how the cadence would go for that for the rest of the year. It looks like the severance costs you've incurred have only been about 15% of your total expected for the year. And I just wanted to see if that would ramp more, if that would be steady through the year, and maybe just any other thoughts around that.

You know, for the rest of the year, we would expect, due to phase one, the $10 million cost savings initiative from last year, we'd expect about $2.5 million less in cost compared to last year. With phase two and these new cost initiatives, we'd expect probably a $250,000 net impact, positive impact in Q2. probably the opposite of that in Q3. I think the phase two initiatives we expect really to hit pretty significantly in Q4 to the tune of about three and a half million. All that's still yet to be seen, but that's what we expect right now.

Understood, that's very helpful, thank you. And then just thinking about your capital allocation, and correct me if I'm wrong, but I think it's fair to say that your priorities go dividend, debt, And then just trying to think about what your priorities are after that. Could there be share buybacks on the horizon? You know, is it just strengthening the balance sheet? How should we be thinking about your priorities there?

I would say, you know, strengthening the balance sheet right now is priority one. And you're right on dividends being a very high priority for us. And, you know, I don't really have anything further to say on share buybacks. buybacks, but the main message is our number one focus is to make that balance sheet as strong as possible, and we believe we're on the way to doing that.

Understood. Thank you. And then just one more for me, if I could. Thinking about the seasonality for the year, you had a really strong May, and great to hear that it was positive for most retailers. Do you believe that this is... strong momentum to carry over into the rest of the year, and we'll see the typical 45 to 55 split in revenue between first half and second half, or is this going to be maybe a weird year from a seasonal standpoint?

I believe the second half will be stronger than the first half, and I'm mainly saying that based on that's been what we have pretty much for our company kind of every year for a pretty long time. So that's a historical trend that I'm fairly confident in, I'm not as confident to say that our May trend will continue and, you know, that that's real momentum starting for the rest of the year because I just don't know. I mean, I guess it's a terrible strategy, but I'm hoping.

Yeah. Understood. Okay, that is perfect. I appreciate the caller, and good luck.

Okay, thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Jeremy Hoff for closing remarks.

I'd like to thank everyone on the call for their interest in hooker furnishings. We look forward to sharing our fiscal 26 second quarter results in September. Take care.

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.