Hooker Furnishings Corporation (HOFT) 2025 Q2 Earnings Call Summary

Optimistic Highlights

• Sequential Improvement in Sales

Second quarter sales outperformed the first quarter, showing a solid sequential improvement despite a 2.8% year-over-year decrease.

• Cost Reduction Plan

The company has initiated a cost reduction plan aimed at reducing fixed costs by 10%, expecting to exceed the $10 million target.

• Positive Customer Feedback

Positive reactions from customers to new products and strategies, particularly in the Hooker Legacy Brands, indicate potential future growth.

• Strong Performance in Hospitality Division

Home Meridian saw a 5.6% increase in net sales, driven by strong performance in the hospitality division.

• Improved Gross Margin

Home Meridian achieved a gross margin of 19.5%, one of the highest levels since its acquisition in 2016.

Pessimistic Highlights

• Consolidated Net Sales Decrease

Consolidated net sales decreased by $2.7 million or 2.8% compared to the previous year's second quarter.

• Operating and Net Losses

The company recorded a consolidated operating loss of $3.1 million and a net loss of $2 million for the second quarter.

• Persistent Low Demand

The ongoing low demand for home furnishings, driven by macroeconomic uncertainties, continues to impact sales.

• Decreased Sales in Domestic Upholstery

Domestic upholstery segment net sales decreased by $2.3 million or 7.6% in the second quarter.

• Inventory and Cash Decrease

Cash and cash equivalents decreased by $1.1 million from the fiscal year-end, and inventory levels decreased by $4.7 million.

Company Outlook

• Positive Indicators

Encouraged by the lowest post-pandemic inflation level in July and a possible interest rate cut in September, which could accelerate housing activity.

• Strong Balance Sheet

The company believes it has sufficient financial resources to support business operations and continue paying quarterly dividends.

• Focus on Efficiency and Growth

The company will continue to focus on maximizing efficiencies with planned cost reductions and investing in expansion strategies for improved profitability and revenue growth when demand returns.

Q & A Highlights

• Q: Can you comment on the monthly progression of shipments and orders during the quarter? (Anthony Lebiedzinski, from Sidoti)

A: It's pretty steady throughout the quarter. Business still has a lot to recover, and we are sort of bouncing along in terms of orders and shipments. (Paul Huckfeldt)

• Q: Did you see any notable regional or geographic differences in sales patterns? (Anthony Lebiedzinski, from Sidoti)

A: Not really. It seems to be equally tough everywhere, not as regional as usual. (Jeremy Hoff)

• Q: Can you expand on the cost cuts exceeding the $10 million target? (Anthony Lebiedzinski, from Sidoti)

A: We focused on eliminating non-personnel, non-strategic costs first, then moved to personnel costs while ensuring we didn't cut strategic costs. We are confident we will surpass the $10 million target. (Jeremy Hoff)

• Q: What would be a reasonable gross margin for HMI once business recovers? (Anthony Lebiedzinski, from Sidoti)

A: We believe 20% would be a reasonable goal for HMI. We have improved margins by exiting unprofitable businesses. (Jeremy Hoff and Paul Huckfeldt)

• Q: How did the Labor Day holiday impact the home furniture sector? (Anthony Lebiedzinski, from Sidoti)

A: Retailers reported a reasonably good holiday, and our order rate was really good right after the holiday weekend, indicating a positive impact. (Jeremy Hoff)

• Q: Are there any green shoots to look at for the next two to four quarters? (Dave Storms, from Stonegate)

A: We are focusing on improving product lines and speed to market. We aim to strengthen our backlog towards the end of the year, especially with the October market. (Jeremy Hoff and Paul Huckfeldt)

• Q: What caused the sizable jump in other income? (Dave Storms, from Stonegate)

A: The biggest item was reversing an accrual for a potential earn-out on an acquisition, which is a non-recurring item. (Paul Huckfeldt)

• Q: Will there be a reduction in maintenance CapEx spending along with cost savings? (Dave Storms, from Stonegate)

A: Yes, we are deferring a significant amount of CapEx to preserve cash, but we are not canceling projects. (Paul Huckfeldt)