Hooker Furnishings Corporation

Good day and thank you for standing by. Welcome to the Hooker Furnishings Corp second quarter 2027 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 will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 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.

Thank you, Tonya, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2027 second quarter, which began on May 4th, 2026 and ended on August 2nd, 2026. Joining me today is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation. 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 2027 second 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. Before we jump into results, we want to discuss tariffs. We've included a table in our earnings release showing the impacts of this quarter's tariff recoveries by operating segment and for the total company. Obviously, tariff recoveries significantly and favorably impacted our Q2 results. However, it's important to note that tariff costs significantly and adversely affected our prior year results too. Prior to the U.S. Supreme Court's February 2026 decision in validating IEPA tariffs, we incurred an estimated $10.3 million of cumulative free tax costs related to tariffs in our fiscal year 2026 results, which significantly exceeded the tariff recoveries we are reporting today. In fiscal 26, we reported a net loss of nearly $27 million. Following the imposition of IEPA tariffs beginning in April 25, we elected to honor pricing on existing customer backlog and for competitive and administrative reasons did not immediately adjust pricing on certain other products. Our pricing reflects our total cost structure and the competitive and macroeconomic environment in which we operate, with tariffs being only one of many factors considered. On to results. Despite continued weaknesses in the housing market, soft retail demand for furniture and home furnishings, and persistent macroeconomic challenges, we delivered a consolidated net income of $1.7 million, marking our third consecutive profitable quarter. Results benefited from tariff recoveries received during the quarter, the sustained impact of our prior cost reduction initiatives, and improved profitability in our reportable segments. Consolidated net sales decreased $6 million, or about 9%, compared to the prior year period, reflecting lower sales across each of our operating segments. Despite the sales decline, gross profit increased $2.9 million and gross margin improved 690 basis points to 31.8%, while operating income improved to $1.3 million compared to an operating loss of $0.5 million in the prior year period. Now I'll turn the call over to Jeremy for his comments on our fiscal 2027 second quarter results.

Thank you, Earl. Good morning, everyone. The significant costs we incurred due to the IEPA tariffs significantly and adversely affected our prior year results, and we are grateful to have recovered some of those costs in our fiscal 2027 second quarter. The substantial administrative burden these tariffs placed on our team over many months cannot be recovered. In addition to the tariffs paid, we incurred incremental costs associated with the IEPA tariffs, including increased customs bond costs, legal and professional fees, financing and working capital costs, and other administrative and supply chain related expenses. Although we do not believe that the tariff recoveries make us whole for the significant cost incurred by us in fiscal 26, I am grateful to the Hooker team for their persistence and extraordinary effort in navigating an unprecedented and highly complex environment and ultimately securing these recoveries for our shareholders. We are also deeply appreciative of the commitment and partnership of our suppliers and customers as we navigated this period of extraordinary uncertainty for our industry. We are encouraged to report $1.7 million in consolidated net income for the quarter, marking our third consecutive quarter of profitability and a $4.9 million improvement over the prior year's second quarter. These results were achieved despite continued weakness in the housing activity, low consumer confidence, and the seasonally softer demand environment we typically experience in the first half of our fiscal year. The improvement reflects the benefit of tariff recoveries received during the quarter. as well as the sustained impact of the $17.5 million in annualized fixed cost reductions implemented across continuing operations in the prior year. These actions have helped position us to remain profitable despite continued pressure on sales. From a segment perspective, Hooker Branded and Domestic Upholstery both delivered improved profitability compared to the prior year quarter. Hooker Branded benefited from tariff recoveries and higher selling prices, while domestic upholstery benefited from tariff recoveries, lower imported material costs, and improved overhead absorption. In addition to tariff recoveries, Hooker Branded profitability was impacted by shifts in channel and sales mix dynamics during the quarter. Seasonally softer summer shipments to brick and mortar retailers resulted in a greater mix of e-commerce sales along with targeted promotional activity designed to support consumer engagement. The combination of channel mix and elevated promotional activity pressured margins during the quarter. We expect promotional activity to normalize during the second half of the fiscal year, much like we saw in July, the last month of our fiscal second quarter. It's important to note that our core fiscal July results, absent any tariff recoveries, showed significant improvement over prior year as we had mitigated many of the supply challenges referenced earlier. We believe that positive momentum will continue into the second half of the fiscal year. 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 strategy.