Hooker Furnishings Corporation (HOFT) Q2 2027 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Hooker Furnishings Corp second Quarter 27 Earnings Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *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, Tanya, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 27 second quarter. Which began on 05/04/2026 and ended on 08/02/2026. Joining me today is Jeremy R. Hoff, our chief executive officer. We appreciate your participation. During our call, we may make forward looking statements, which are subject to risk 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 have 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 recovery significantly and favorably impacted our Q2 results. However, it is important to note that tariff costs significantly and adversely affected our prior year results too. Prior to the US Supreme Court's February 2026 decision, invalidating IEPA tariffs, We incurred an estimated 10.3 million of cumulative pretax 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 AIPA tariffs, beginning in April 2025, 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 1 of many factors considered. Onto results. Despite continued weaknesses in the housing market, soft retail demand for furniture and home furnishings, and persistent macroeconomic challenges, delivered 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 will turn the call over to Jeremy for his comments on fiscal 2027 second quarter results.

Thank you, Earl. Good morning, everyone. The significant cost we incurred due to the AIPA tariffs significantly and adversely affected our prior year results and we are grateful to have recovered some of those costs in our fiscal 27 second quarter. The substantial administrative burden of 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 IEPE tariffs, including increased customs bond cost, legal and professional fees, financing and working capital cost, 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 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 cost 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 is 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 strategies.

Thank you, Jeremy. Starting with Hooker Branded, net sales decreased $1 million or 4.5% in the second quarter, primarily due to lower unit volume, higher promotional discounts and key SKU out-of-stocks due to significantly longer lead times out of Asia. These headwinds were partially offset by higher average selling prices. Inventory constraints in imported upholstery that began in the first quarter had largely eased by quarter end. Despite the decrease in sales, Hooker Branded gross profit increased $3.2 million and gross margin improved by 1.05 thousand basis points to nearly 40%. The improvement primarily reflected tariff recoveries and higher selling prices. Partially offset by promotional discounting and higher warehousing and distribution costs. This segment generated $0.87 million of operating income for the quarter, compared with approximately breakeven results in the prior year period. Backlog increased nearly 35% compared to the prior year second quarter. Turning now to domestic upholstery. Net sales decreased $1.5 million or 5.3% in the second quarter. His lower sales of upscale leather and custom fabric upholstery were partially offset by double digit growth in private label and outdoor furnishings. Gross profit increased $928 thousand and gross margin improved 450 basis points to 23%. Supported by tariff recoveries on imported materials, lower imported material costs, and improved overhead absorption. Segment generated operating income of $833 thousand compared with an operating loss of $408 thousand in the prior year quarter. Reflecting the improved gross margin as well as the benefit of previously implemented cost reduction actions. Domestic upholstery's backlog increased nearly 5% compared to the prior year quarter. Primarily reflecting higher private label orders. In all other, net sales decreased $2.8 million or about 66% in the second quarter, primarily due to project timing in its hospitality business with approximately 80% of first half shipment occurring during the first quarter. Lower second quarter shipments resulted in an operating loss for the quarter. However, the business remained profitable for the first 6 months of fiscal 27. Turning to disc ops. Although the divestiture was completed in the prior fiscal year, disc ops generated second quarter pretax income of $587 thousand reflecting tariff recoveries customer related adjustments and other post divestiture activity. Results included approximately $1.6 million of tariff recoveries recognized as a reduction of cost of sales partially offset by approximately $0.6 million of customer credits recorded as a reduction of revenue. Current period activity also included approximately $0.5 million of additional charges arising from a net settlement of various divestiture related balances with the buyer. Turning now to cash, debt, and inventory. Cash and cash equivalents stood at $18.7 million at quarter end. An increase of $8.1 million from the end of the first quarter and $17.5 million from the fiscal 26 year end. Cash generated from operations during the first 6 months was $24 million. Cash was used to repay $3.6 million on our credit facility, distribute $0.5 million in cash dividends, repurchase $1.3 million of our common shares, and fund $1.1 million in CapEx. Inventory levels decreased by $5.3 million from 48.7 million at fiscal 26 year end to $43.4 million at the end of the second quarter. We maintained our financial flexibility with $1.8 million in available borrowing capacity under our amended and restated loan agreement at quarter-end net of standby letters of credit. And no outstanding balances on the facility. As of yesterday, we had approximately $21 million in cash on hand. Finally, I will discuss our capital allocation strategy. During the first 6 months of fiscal 27, we repurchased 92.4 thousand shares of our common stock for approximately $1.3 million at an average price of $13.68 per share. At quarter end, approximately $3.7 million remained available for future purchases under our $5 million share repurchase authorization. As we position the company for sustainable growth, the share repurchase program and adjusted dividend continue to provide a balanced framework for returning capital to shareholders. While preserving flexibility to invest in strategic priorities. We believe this approach supports both near term returns and long term shareholder value. Now I will turn the discussion back to Jeremy for his outlook.

Thank you, Earl. Looking to the second half of fiscal 27, consumer spending remains selective. Housing turnover and big ticket discretionary demand remain weak, and we do not expect meaningful near term improvement in market conditions. At the same time, the changes we have made to our cost structure and portfolio are delivering tangible benefits and should help position us to deliver improved results compared with the prior year period even if current conditions persist. With the major cost reduction initiatives behind us our focus is on disciplined execution across our core businesses Consolidated backlog increased 6.2% compared to prior year second quarter and 8.4% sequentially led by Hooker Branded and Domestic Upholstery. We are also encouraged by the continued retailer response to Margaritaville. We now have commitments for approximately 100 in-store galleries and 10 freestanding retail stores, Shipments began in the second quarter and are expected to build through the second half of fiscal 27 and into fiscal 28. We believe we are well positioned to capitalize on opportunities as demand recovers. This ends the formal part of our discussion and at this time, I will turn the call back over to our operator, Tanya, for questions.

Thank you. *1 on your telephone and wait for your name to be announced. To withdraw your question, please And our first question will be coming from the line of Anthony Lebiedzinski of Sidoti. Your line is open.

Thank you, and good morning, everyone, and thanks for taking the questions. Certainly nice to see the improved profitability in the quarter. First, just wanted to ask, as far as the impact of the key SKU out of stocks at Hooker Branded, How significant was this? I mean, it sounds like it is no longer an issue, but, just wanted to see if you could, comment further on that topic, please.

You know, I cannot comment. Further specifically, but it was definitely a headwind for us. And it had a lot to do with lead times overseas, which extended unpredictably. So as I mentioned in the script, you know, the July, we feel like we started to get through that you know, once we reach July and you know, our results in that month of the quarter you know, gave us pretty positive view of where we can be in the second half.

Okay. Thanks. And then, you know, as far as domestic upholstery, just curious, you know, what is the mix of business nowadays between private label and outdoor products and, custom upholstery. I mean, kind of where is that business nowadays, and how do you see that going forward?

We tend to look at it at the segment level, Anthony. And I think that is basically all we can say at this point. I think we are seeing strength in outdoor furnishings especially given the seasonality And like we mentioned, private label too. Is doing well.

Yeah. I will mention too with outdoor, this year, we do not have a warehouse move from Savannah, for example, for Sunset West. We do not have, early in earlier in the game, they had an ERP conversion with D365. So they have got, as clear of a path as they have had you know, due to us not having those type of movements going on. So it is it is a it is really good business for us, and the category is strong. So we are we are excited about the opportunity.

that is good to hear. Okay. And then just curious you mentioned that shipments of Margaritaville started late in the quarter. Just wondering if you could comment on the revenue from Margaritaville and how should we think about the second half of the year as it relates to Margaritaville?

We cannot get specific on that, but I will tell you that, you know, a big part of it is gonna be in the second half. Which we are in now. And, many of those galleries are opening throughout the country. So that is probably all I could say on that.

Okay. And then just to follow-up on the galleries. You know, as far as those are concerned, I know you talked about 100 of those being open. But as far as, you know, the cost to do those galleries, is that being done by you guys or by the retailers and, like-- I know you-- just wondering about if you could comment on that and, you know, if you could share more details That will not be significant.

To our capital allocation.

Okay. Gotcha. Okay. And lastly for me, I mean, so we just had Labor Day, which is an important holiday for the home furnishings industry. I know it is only been a few days since the holiday, but you know, if you can share any comments as to what you have heard from your retail customers about Labor Day, even in small anecdotes would be helpful.

I think that, I mean, the feedback that we have received has been you know, fairly positive. You know, I have been in this, I think, 30 years. And I think every 1 of those 30 years, retailers, our partners are always grateful to be at the end of summer and actually to a point where you can start the fall. So I think there is a lot of optimism for just getting into that fall selling season. And I think Labor Day was reasonably good. Okay. Thanks very much, and best of luck. Yeah. Appreciate it, Anthony. Thank you.

And our next question will be coming from the line of Dave Storms of Stonegate. Your line is open, Dave.

Morning, and appreciate you taking my questions. Wanted to maybe start with your comments around promotions expected to come down in the second half here. In light of the challenging macro environment, how should we be thinking about maybe your confidence to bring down promotions despite the macro environment?

High confidence that because we already we are already mentioned July, and you know, you do that in the summer months, You just simply do not balance it enough with enough regular business. So we are confident that is not gonna be a trend moving forward.

Understood. So then looking into the second half here, should that follow pretty regular seasonality with maybe a little bit of Margaritaville input? Or, I guess, maybe a kind of different way, how should we think about price and mix and volume discounting in the second half?

I think you should think about it as, where we would normalize more and have-- we are we are pretty optimistic on the second half.

Understood. And I gotta imagine the strong backlog that you have gives you a healthy dose of confidence there. Is there anything more you can tell us about the backlog? Maybe the texture of the margins, how much of that is Margaritaville, anything in that vein?

cannot get that specific, but there is-- we are encouraged by our backlog, and we feel good about the second half.

Understood. And then maybe just 1 more on Margaritaville. I know you have mentioned it. A couple times here. You know, very excited to see how that develops over the next 6 to 12 months. But how should we be thinking about the sales funnel evolving from last quarter to this quarter? Are you seeing more firm commitments? Is you know, I know you started shipping a little bit. Just anything more there would be great.

You know, overall, with Margaritaville, we just continue to be really encouraged by the amount of support participation that our partners are giving us. There is a as excited about the brand as we are. And there is gonna be a significant amount of what if you think about 100 gallery commitments and 10 retail stores, that is that is real estate that we did not have before. So we feel really good about our position in that and our ability to gain some market share in a different way than Hooker. 1 thing that is encouraging for us is that is not taking you know, Hooker's position in the marketplace. So it is it is real-- it could-- it has a chance to be really accretive to our business and give us a real chance of growth in those categories. Understood. No. We are really looking forward to see how that shakes Thank you for taking our questions, and good luck on the next quarter. Yeah. Thank you. We appreciate it.

And I would now like to turn the call back to Jeremy for closing remarks.

Thank you. I would like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal 2027 third quarter results in December. Take care.

And this concludes today's conference call. Thank you for participating. You may now disconnect.