by MARTINSVILLE, Va. — Hooker Furnishings reported a drop in sales and earnings for its first fiscal 2023 quarter ended May 1.
The company said that consolidated net sales fell 9.5% to $147.3 million, from $162.8 million a year earlier. Consolidated net income was $3.2 million, or 26 cents per share, compared to $9.4 million, or 78 cents per share, the same period last year.
Sales in the company’s Home Meridian segment that includes Pulaski Furniture, SLF and Prime Resources International, fell by $22.3 million, to $62.1 million, a 26.4% drop from a year earlier. The company said this was driven by lower sales in the e-commerce channel and an exit from the unprofitable Clubs channel. It was also driven by a lesser extent to ongoing supply chain disruptions, which the company said were partially offset by the launch of the Pulaski upholstery division.
“Order backlogs decreased in the Home Meridian segment due to our exit from the Clubs channel and adjustments to programmed orders by large customers, but backlogs were still about 50% higher compared to pre-pandemic levels in early 2020,” said CEO Jeremy Hoff. “We’ve shipped essentially all the remaining Clubs channel order backlog, which is a major milestone in our Clubs channel exit and a positive and much needed step towards segment profitability. While excess chargebacks are a risk as we complete our exit, this critical step allows us to focus on more profitable customers and channels.”
Sales in the Hooker Branded segment fell by $9.1 million, to $42.2 million, a 17.7% drop compared to last year, which the company attributed to unavailability of case goods inventory due to temporary factory shutdowns in Vietnam last summer. The company said this led to low inventory receipts in the second half of fiscal 2022 and during the first quarter.
“Due to its domestic warehousing business model, Hooker Casegoods was able to sustain shipments longer, but eventually our inventory became depleted,” Hoff said. “As of May, we are now moving into positive territory as our inventory levels have more than doubled compared to our fiscal year end with a record amount of inventory in transit from Asia. Additionally, a large percentage of these shipments carry the price increases we implemented in July 2021 to mitigate excess freight and logistics costs.”
The company noted that incoming orders in the Hooker Branded segment fell by nearly 13% from last year when business dramatically increased after the initial Covid outbreak and consumer demand was “exceptionally strong.” By the end of the quarter, the backlog was 11% higher than at fiscal 2022 year end and 87% higher than the end of the fiscal 2022 first quarter, remaining at “historical highs.”
The company’s domestic upholstery segment fared better, with $41.2 million in sales, which were up by $15.8 million, or 62.2%, due to strong performance of the Bradington Young, Sam Moore and Shenandoah brands. Incoming orders, the company said, fell by 5.4% during the quarter compared to the same period last year due to current lead times and “historically high backlogs.” The backlog at the end of the quarter was 18% higher than at fiscal 2022 year end and 80% higher than the end of the fiscal 2022 first quarter.
The company added that higher raw materials costs and freight surcharges increased the cost of finished product. This also partially offset the gains from increased sales, the company noted.
Overall, the quarterly performance illustrates the impact that the sustained standstill in the flow of imports from Asia had following the Covid shutdowns last summer — combined with a slow-ramp up of production through most of the fourth quarter and earlier this year.
Still, Hoff noted, sales were up 9% from the fourth quarter of fiscal 2022 and that the operating income in the first quarter was an improvement from the operating loss last quarter. He added that there has been an improvement in the flow of goods from Asia, with a record amount of inventory now shipping.
“Both sales and operating income for the quarter surpassed management expectations,” Hoff said. “As we expected, first quarter results continued to be hindered by the slow ramp-up of case goods production capacity in Asia following the factory shutdowns in the second half of last year. Backlogs have remained high throughout the two most recent quarters, but inventories were depleted and product unavailable to ship. In April at the end of the fiscal 2023 first quarter, Asian case goods production finally reached full capacity, so we expect improving conditions and results to continue as we work through our backlog. In addition, we have a record amount of inventory in transit now, and a high percentage of it is sold orders that will ship as soon as the shipments arrive in our domestic warehouses.”
