Hooker Furnishings Corporation (HOFT) Q3 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Hooker Furnishings Corp. Third Quarter 2026 Earnings Webcast. [Operator Instructions] 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 to 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 in noncash impairment charges. These charges included $14.5 million on Sunset West goodwill, $3.2 million for certain Home Meridian trade names, of which $2.6 million related to the discontinued businesses and $558,000 for the remaining and $556,000 for Bradington-Young trade name. The noncash 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 U.S. GAAP. The market-based valuation inputs, including trading multiples and discount rates were adversely affected, and this resulted in the impairment. Importantly, these are noncash accounting charges, they do not change our strategic view of these brands or businesses nor affect our liquidity in our 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 9 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% decrease -- increase in Hooker Branded sales, while Domestic Upholstery remained essentially flat for the 9-month period. Gross profit for the 9-month period decreased $2.9 million, but consolidated gross margin improved to 25%, up from 23.9% in the prior year period. This margin expansion reflects meaningful improvements in Domestic Upholstery supported by lower direct labor, warehousing labor and material cost, while margins at Hooker Branded 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 9-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 and $4.1 million year-to-date tied to the exit of our Savannah warehouse in the third quarter. Persistently low sales, and unfavorable product and customer mix, restructuring costs and $2.6 million trade name impairment contributed to the significant operating losses in both periods. 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 2 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 multiphase 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, we're 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 3 to 4 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 6- to 10-week fulfillment to our customers' 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 casegood imports from Vietnam and a 30% lumber tariff on all imported upholstery -- upholstered furniture implemented November 1. 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, who will discuss highlights in each of our segments, along with our cash, debt, inventory and capital allocation strategies.

Thank you, Jeremy. Beginning with Hooker Branded. Net sales increased 1.1% in both the third quarter and the 9-month period, driven by higher average selling prices despite lower unit volume. Gross revenue was essentially flat, but reduced discounts and lower returns and allowances slightly lifted net sales. Gross profit rose $1.2 million in the quarter with a 300 basis point margin improvement supported by price increases and reduced discounts. Warehousing cost increased modestly due to higher rent and labor tied to consolidation activities. For the 9-month period, gross profit increased $653,000 while gross margin stayed flat as price increases and lower returns were offset by reduced margins on discounted inventory balancing and slightly higher warehousing costs. S&A expenses decreased $990,000 in the quarter or 310 basis points with current year restructuring costs of $390,000 compared to $950,000 last year. Over 9 months, S&A fell by $1.7 million, with lower compensation and spending partly offset by other costs. The segment reported GAAP operating income of $711,000 for the third quarter compared to a loss of $1.5 million. Hooker Branded backlog grew 17.2% from fiscal year-end and 7.9% from the prior quarter, supported by a 4.1% increase in incoming orders.

On the Domestic Upholstery front, its net sales rose $870,000 or 3% in the third quarter and were essentially flat for the 9-month period. Gross profit increased $261,000 in the third quarter with gross margin remaining consistent year-over-year as major cost components held steady. For the 9-month period, gross profit rose $1.5 million and gross margin improved 170 basis points due to lower direct material and labor costs and improved production efficiencies. S&A expenses in that segment decreased $263,000 in the third quarter, with restructuring costs significantly lower than last year. Over 9 months, S&A expenses declined $560,000. The segment reported GAAP operating loss of $14.7 million for the third quarter, driven entirely by the $15.6 million in noncash intangible impairment charge. Domestic Upholstery backlog fell from year-end but rose year-over-year on a 3.5% increase in orders.

Concerning discontinued operations, combined net sales for PFC and SLF declined, falling $11.3 million in the third quarter and $22.5 million over the 9-month period. Profitability there was further impacted by a $2.5 million fixed asset write-off tied to the Savannah warehouse exit, elevated freight costs and low sales volumes that caused under-absorption of warehouse and international operating expenses. Persistently low sales, and unfavorable product and customer mix, restructuring costs and $2.6 million trade name impairment contributed to the significant operating losses in both periods.

Turning to cash, debt and inventory. Cash and cash equivalents stood at $1.4 million, a decrease of $4.9 million from year-end as cash generated from ops was used to repay $17.9 million of the term loan, distribute $7.5 million in cash dividends and fund $2.4 million in capital expenditures. Inventory levels decreased from $66.2 million at year-end to $52.1 million at quarter end. Despite these outflows, the company maintained its financial flexibility with $63.8 million in available borrowing capacity under its amended and restated loan agreement as of quarter end. This was net of standby letters of credit. As of December 9, 2025, the company had approximately $2 million in cash on hand with $63.7 million in available borrowing capacity, again, net of standby letters of credit.

We also announced today that our Board has authorized a new share repurchase program, under which we may repurchase up to $5 million of our -- $5 million of our outstanding common shares. In connection with the repurchase authorization, the Board is recalibrating the annual dividend, which will result in a 50% reduction to $0.46 per share annually beginning with our expected December 31, 2025 dividend payment of $0.115 per share. We believe these actions appropriately balance capital return and liquidity needs and will enhance long-term shareholder value. This repurchase authorization doesn't obligate us to acquire a specific number of shares during any period, does not have an expiration date, but it may be modified, suspended or discontinued at any time at the discretion of the Board. Repurchases may be made from time to time in the open market or through privately negotiated transactions or otherwise in compliance with applicable laws, rules and regulations and subject to the company's cash requirements for other purposes, compliance with covenants under our loan agreements and other factors that deems relevant. Now I'll turn the discussion back to Jeremy for his outlook.

Incoming orders for branded segments have increased quarter-over-quarter for 2 consecutive quarters. While macroeconomic headwinds, including elevated housing prices, inflation, low consumer confidence and ongoing tariffs remain largely unchanged. These challenges were most acute in the higher volume, lower-margin discontinued business. With our more efficient cost structure and sharper portfolio, we believe we are better positioned to improve profitability even in a prolonged downturn. Our real advantage going forward is focus. Our team is now fully aligned around our core businesses, enabling us to drive organic growth and build sustainable profitability. This ends the formal part of our discussion. And at this time, I will turn the call back over to our operator, Kevin, for questions.

[Operator Instructions] Our first question comes from Anthony Lebiedzinski with Sidoti.

So first, just wanted to go over some of the timing of shipments in your hospitality division. You did note that it impacted sales. Any way to put a number on that as far as how much of an impact that had on the quarter?

No, we've not really typically disclosed that individually for that brand. I can tell you that, that brand last year was fortunate enough to have a huge part in 2 of the largest hotel projects in the United States. It's a project-based business, and they just unfortunately, don't repeat like that every time.

Okay. Got you. All right. So you guys have certainly done a lot to improve the business certainly with these changes strategically. So as we think about the core business, Hooker Branded and Domestic Upholstery both had the sales gains, which was good to see in the quarter here. How should we think about your ability to sustain these sales gains kind of going forward? Would love to hear your thoughts on that.

I would -- Anthony, I would say that those -- both Domestic Upholstery and Hooker Branded, we feel some momentum from a product standpoint in both of those segments. And in our industry, it's -- product is what wins the game. So we've had -- we've put together several markets in a row of significant product introductions. And of course, this last one we just talked about that being the kind of the biggest ever that we've had as far as amount of commitments that we came out of the market with. So having said all of that, we can't really do anything about the environment we're in macroeconomic-wise. But I feel as good as I felt about those areas of our business as far as how we can compete and how we can compete for market share for sure.

Got you. And just curious, what have you guys heard from your retail partners about Black Friday sales and traffic to their stores? Any sort of -- can you give us any sort of commentary that you've heard from your customers?

I mean there's still -- I'm hearing relative positivity from our customers at these peak retail times. I mean we heard it for Labor Day. I think Black Friday is coming back as fairly good. But we just need in our markets, we just -- everyone needs more consistency. We need more consistent demand. And I think you could say that for every business out there. So we're -- I think these peaks are pretty good, but we just need the rest of the times to be better than they are currently.

Understood. Okay. Got you. Okay. And then -- so as we think about the discontinued operations, can you give us a sense as to how much revenue those 2 brands did for HMI for last fiscal year or maybe the trailing 12 months? And kind of how much of a drag was that on your operating income as we look to recalibrate our models?

Last question first, it was a significant drag on operating income. We're going to -- and I believe the statements that you'll see in the 10-Q which we expect to file on time in the day, Friday. And then there's also an associated 8-K that will have some pro forma financial information in there, I think that will that will help. I would tell you now, but we're still in the process of quality checks and finalizing those to make sure we're spot on.

Understood. Okay. Got you. I guess, Earl, last question, think about the business longer term. So obviously, you recognize that the current environment is still choppy or challenging. But as we look back historically before HMI was acquired approaching 10 years ago, I think, or 9 years ago. As we think about the company back then that you guys were posting operating margins in the high single digits, approaching 10% actually, I think, in 1 year. So with all these changes to the business that you've put in place, is it reasonable that when things get better, you guys could back to the historical type of operating margins?

Yes.

Okay. That's great to hear. All right. Well, best of luck, and I'll pass it on to others.

Thanks, Anthony.

Thank you.

Our next question comes from Dave Storms with Stonegate.

Appreciate you taking my questions. I want -- I did want to start with one check. I noticed on the announcement for the HMI sale that the lease for the High Point showroom, will be a part of that. Are you expecting to maintain your showrooms in Atlanta and Vegas? Or are those also operations that you're looking to exit in the near future?

We've already -- we exited Atlanta, I believe, last year, Earl. Is that correct?

Exactly.

And we have our flagship showroom, I'll call it at Showplace, which will, of course, remain. And we will keep probably a small presence in Las Vegas, which is really somewhat insignificant from a cost standpoint.

Understood. And excuse me for misspeaking around the Atlanta showroom.

That's okay.

Perfect. Appreciate that. My next question, I did want to touch on Margaritaville. There's obviously a lot of excitement around that going into next year. Is there anything you could do to help us understand maybe what the margin profile for that new line will look like maybe relative to your current margin profile or some of the other backlog that you're seeing right now?

I would say if you just simply look at historical Hooker Branded margins, and it's actually somewhat of a hybrid. So you have some Domestic Upholstery in there, too, and maybe look at it from a 60-40, which is our company makeup of percentage of casegoods to Domestic Upholstery. I think if you look at it kind of from that standpoint, you could come up with a pretty close answer.

That's perfect. And then I did want to ask one question around maybe cost cutting. I know you guys are well ahead of your targets there. It was mentioned that you're looking to see continued savings in fiscal '27. Any sense of maybe the magnitude of areas of focus there? Is that going to look like just regular corporate cost cutting? Or is there going to be a number put on it the way you did with this last round of cost cutting?

I would say we'll be able to better hone in on a number at our next -- when we announce next. And then if you think about the fact we just got out of the High Point -- we're getting out of the High Point showroom for HMI, that was a major expense. There are things that -- the reason -- one of the biggest reasons we're able to get additional savings is the divestiture of those brands. And that's going to create additional opportunity. Having said that, we did hit over the $25 million mark at the end of the third quarter, as we had said in the previous call, which we're really proud of, and it really puts us in a strong position in our cost structure to win. And I said in my comments that shifting from cost savings to organic growth story, I can tell you, I'm very excited about that. That's a lot more fun to talk about. So we're looking forward to getting into that mode.

No, perfectly reasonable. I appreciate that. One more question, if I could. We've seen the Fed has been cutting rates and the quantitative tightening. You mentioned the branded orders are improving. Are there any other green shoots that you're starting to see that might show demand coming back? I know you're well positioned for when demand does come back, but just anything that you're seeing that might indicate that time line for some of that demand to come back?

I wouldn't say that we're necessarily seeing green shoots. I would say that we're seeing a level of cautious optimism from our partners, our retailers, our -- you hear from designers. So the market was very optimistic. But it's not really necessarily from, as you stated, green shoots. So we're looking for those daily, and we're ready to see them. But on a really positive note, we feel really confident where we are from an expense structure standpoint and from a business standpoint to kind of weather whatever this is for a period of time.

Understood. That's all very helpful. I appreciate the time, and good luck in the next quarter.

Thank you.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Jeremy for any further remarks.

I'd like to thank everyone on the call for their interest in Hooker Furnishings. We wish everyone happy holidays and a prosperous and healthy new year. We look forward to sharing our fiscal 2026 full year results in April '26. Take care.

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.