Hooker Furnishings Corporation

Good day and thank you for standing by. Welcome to Hooker Furnishings Corp. Third Quarter 2026 Earnings Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Earl Armstrong. Please go ahead.

Thank you, Kevin, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 third quarter, which began August 4 and ended November 2, 2025. Joining me this morning 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 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 third 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. For the third quarter, consolidated net sales from continuing operations were 70.7 million, a decrease of 11.9 million or 14.4% compared to the prior year period. The decline was largely due to the timing of shipments in our hospitality business, where several large projects shipped in last year's third quarter. These impacts were partially offset by solid sales in our core operations, with domestic upholstery up 3% and hooker branded up 1.1%. Gross profit decreased by $2.4 million, which was expected given the lower sales volume. However, gross margin improved to 25.6% up from 24.8% last year, reflecting margin expansion at Hooker Branded and stable performance in domestic upholstery, which helped offset the volume-driven margin pressure within our hospitality business. Our operating results for this quarter also reflect a $22.1 million or $16.7 million net of tax and non-cash impairment charges. These charges included $14.5 million on Sunset West Goodwill, $3.2 million for certain Home Ready and Trade names, of which $2.6 million related to the discontinued businesses, and $558,000 to the remaining. and $556,000 for Braddington Young trade name. The non-cash impairment charges also include $3.9 million associated with the sale of the discontinued operations. Similar to the volatility experienced in 2020, today's macroeconomic environment is creating unusual pressure across the home furnishings and the broader consumer discretionary sectors. These pressures contributed to a sustained decline in our share price during third quarter, which dropped to a low not seen in quite some time. This triggered an interim impairment analysis under US GAAP. The market-based valuation inputs, including trading multiples and discount rates, were adversely affected, and this resulted in the impairment. Importantly, these are non-cash accounting charges. They do not change our strategic view of these brands or businesses, nor affect our liquidity or ongoing operations. Additionally, we recorded approximately $600,000 in restructuring costs this quarter, primarily severance associated with our cost reduction initiatives. After incorporating these items, operating loss from continuing operations totaled $16.3 million, and net loss from continuing operations was $12.5 million, or $1.18 per diluted share. Turning to the year-to-date results, Consolidated net sales from continuing ops for the first nine months were 211.1 million, down 22 million, or 9.4%, compared to the prior year. Similar to the quarterly trend, the decline was driven by lower hospitality shipments following unusually large project activity in the prior fiscal year. This was partially offset by a 1.1% increase in hooker branded sales, while domestic upholstery remained essentially flat for the nine-month period. Gross profit for the nine-month period decreased 2.9 million, but consolidated gross margin improved to 25 percent, up from 23.9 percent in the prior year period. This margin expansion reflects meaningful improvements in domestic upholstery supported by lower direct labor, warehousing labor, and material costs, while margins at Hooker Branden remained stable. Operating loss from continuing operations was $17.4 million, which includes the same $15.6 million impairment charge and $1.7 million in restructuring costs. Net loss from continuing ops for the nine-month period was $13.6 million, or $1.29 per diluted share. Also, as previously disclosed on December 1, 2025, the company announced a strategic divestiture of value-priced home furnishings brands Pulaski Furniture and Samuel Lawrence Furniture, formerly held within the Home Meridian segment. These brands are being reported for the fiscal 26 third quarter as discontinued operations and held for sale. The remaining former division of HMI, Samuel Lawrence Hospitality, will be redesignated to the all-other category within our segment reporting. We expect to close on this transaction later this month. Speaking to discontinued operations, combined net sales for PFC and SLF declined, down 11.3 million in the third quarter and 22.5 million year-to-date, driven by significantly lower unit volume as macroeconomic pressures and tariff-related hesitation continued to weigh on value-oriented consumers. We also incurred 2.6 million in restructuring charges for the quarter in 4.1 million year-to-date tied to the exit of our Savannah warehouse in the third quarter. Now I'll turn the call over to Jeremy for his comments on our fiscal 2026 third quarter results.

Thank you, Earl, and good morning, everyone. During one of the most persistent downturns in industry history, we've spent the past two years taking disciplined actions to reshape Hooker Furnishings into a higher margin, design-driven company. As part of this strategy, it became increasingly apparent we needed to exit low-margin, more tariff-sensitive categories and direct our focus towards our strongest brands. At the same time, our multi-phase cost reduction measures have reset our expense structure, driving over $25 million in annualized savings through structural improvements that we believe will result in profitability even in a sustained, tough environment. With our stronger balance sheet, $7.5 million returned through dividends and $63.8 million of available borrowing capacity at quarter end were also enhancing shareholder returns through a new share repurchase authorization and a recalibrated dividend that preserves flexibility today while building long-term shareholder value. Our operations delivered modest sales and margin improvements this quarter in hooker-branded and domestic upholstery. We are encouraged by commitments to our new Margaritaville license collection at the recent fall High Point Market. Margaritaville represents a significant organic growth opportunity supported by the immersive 14,000 square foot showroom experience we debuted at High Point Market and the 55 committed retail galleries across the U.S. The excitement for this launch and the initial purchase commitments we've received are beyond historic levels For any Hooker product line, the company has launched by about three to four times. We believe Margaritaville home furnishings will drive meaningful incremental revenue across the business, especially moving into the second half of next year when the collection is shipped and placed at retail. We also believe that Margaritaville's growth will be truly incremental, not cannibalizing existing product placements, and will be a profitability driver as well. We think we have essentially created a whole new business for Hooker. We believe the launch of Margaritaville together with the recently announced expected sale of Pulaski and Samuel Lawrence furniture enables us to realign our portfolio around our strongest brands and position hooker furnishings for consistent long-term performance. At the same time, we have made significant strides with our cost reduction initiatives to achieve higher than anticipated savings and have completed our new expense structure, which will provide continued savings in fiscal 27. Together with the major shift in our warehousing strategy, we've also been able to mitigate tariff exposure and better serve customers by allowing collections from our various suppliers to be mixable in single containers and provide six to 10 week fulfillment to our customer's door. We are more confident today that Hooker has the potential to shift from a cost reduction story to an organic growth story, and we see a clear path to profitable growth by focusing on our core expertise of better to best home furnishings. I'd also like to comment on our adjustments to import tariff increases and uncertainties. Over 40% of our net sales are produced or assembled domestically, significantly reducing our tariff exposure. We believe the tariff environment has largely stabilized with a 20% tariff on case kit imports from Vietnam and a 30% lumber tariff on all imported upholstered furniture implemented November 1st. In addition, since tariffs disproportionately affect the more value-priced HMI lines that are held for sale, the divestiture will be beneficial in mitigating current or future tariffs. Coupled with targeted pricing actions and strong vendor partnerships, we have largely mitigated the tariff impact. Now I want to turn the discussion back over to Earl. We'll discuss highlights in each of our segments along with our cash, debt, inventory, and capital allocation strategies.