MARTINSVILLE, Va. – Hooker Furniture reported a nearly 23% decline in net sales and a net loss of $34.8 million in the first quarter ended May 3, according to final results released this week.
Net sales totaled $104.6 million, compared to $135.5 million in the first quarter of 2019, a 22.8% decline. Meanwhile the net loss, which equated to $2.95 per share, compared to a net gain of nearly $2 million, or 17 cents per share, during last year’s first quarter.
The company reported preliminary results June 12. However, this did not include expected non-cash impairment charges on its intangible assets.
According to filing with the U.S. Securities and Exchange Commission, the final report was delayed due to circumstances related to the COVID-19 pandemic, which had adverse economic effects including a reduction in the company’s sales, earnings and market value.
In addition, the SEC noted, “other changing market dynamics triggered an interim impairment assessment and required the company to perform a valuation of its intangible assets, such as goodwill and trade names.”
Under SEC guidelines, companies had additional time to file final results due to circumstances related to COVID-19. Hooker Furniture’s July 27 filing reflects the company’s completed analysis.
“COVID-19 had a material impact on our financial performance in the fiscal 2021 first quarter and on the market valuations, discount rates and other inputs used in our intangibles valuation analysis,” said Paul B. Toms, Jr., chairman and CEO. “Consequently, and despite having completed a similar intangible asset valuation during our fiscal 2020 fourth quarter, we determined that another intangible asset valuation was appropriate given our performance and changing market dynamics. Given the effort and complexity involved in this project, we needed additional time to complete this analysis.”
Based on the company’s intangibles asset valuation analysis, it recorded $44.3 million in non-cash impairment charges to write down goodwill and certain tradenames in its Home Meridian segment and goodwill in the Shenandoah division of its Domestic Upholstery segment.
“Our stock price was near a six-year low at the impairment measurement date at the end of the fiscal 2021 first quarter, which was near the zenith of the COVID-19 crisis to that point,” said Paul A. Huckfeldt, chief financial officer. “Our deflated quarter-end market valuation was one of the primary inputs in the valuation analysis, and the analysis indicated these assets were impaired and it was appropriate to write them down. Unfortunately, we could not consider the 50% rebound in our share price since quarter-end in the valuation, which contributed to the magnitude of the charge.”
According to first quarter results, Hooker’s Domestic Upholstery division had the largest sales decline of 33.7%, with sales falling to $16.8 million, from $25.3 million in the first quarter of last year. Meanwhile, Hooker Branded case goods sales totaled $27.2 million, down 31.4% from the $39.6 million reported last year. Sales for the Home Meridian segment fell 14.7% to $57.7 million from $67.6 million last year.
The company said that FY 2021 started on a positive note as it experienced increased incoming orders in February compared with last year. However, it noted, the COVID-19 pandemic significantly impacted business in March and April, due largely to decreased demand for furniture resulting from the temporary closing of many of its customers’ stores and “continuing deterioration in the retail environment.” The operating and net losses were the company’s first in more than a decade.
Despite the challenges, it said, it saw growth in e-commerce sales, “which has proven the value of our strategy of pursuing multiple distribution channels at multiple price points.”
The decline in sales in the Hooker Branded segment was due to reduced demand, related to the store closures. This led to a nearly 30% drop in incoming order decline in the segment. Still, the company said, the segment had a 29.5% gross margin and a 4.9% operating income margin during the quarter, “which we believe to be excellent performance under current economic conditions.”
Sales in the Domestic Upholstery segment fell due to decreased sales volume and lower average selling prices. It also had a 40% decrease in incoming orders compared to last year’s first quarter. As a result, it temporarily closed its Bradington-Young and Shenandoah plants for about a month during the quarter and operated at about 50% capacity during the period. The company also noted that reduced order volume and unabsorbed costs contributed to operating inefficiencies and significantly impacted gross margin in the segment.
Home Meridian sales also fell due to lower sales volume during the pandemic. It experienced a spike in order cancellations in March and April, which resulted in a nearly 50% drop in incoming orders and a 25.3% decrease in backlog compared to last year’s first quarter.
The company also noted that the aforementioned intangible asset impairment charges in the segment of $27.9 million along with sales decline, lower margin sales program, promotion expenses and unexpected chargebacks also contributed to an overall $30.3 million operating loss.
The company also noted that cost-related issues that impacted Home Meridian last year, including China tariffs and higher than expected quality allowances, “are largely behind us” as a resourcing transition to non-tariff countries “is well along.”
The Samuel Lawrence division, it said, benefited from a Vietnam mixing warehouse program and reported a “marginally profitable quarter.” In addition, the division’s emerging distribution channels including e-commerce and hospitality “had solid performance during the quarter.” For example, e-commerce sales accounted for 35% of its total sales in the quarter and also maintained better margins compared to other Home Meridian distribution channels.
