HOFT - NASDAQ

Good day. Thank you for standing by. Welcome to the Hooker Furnishings Corporation's Second Quarter 2026 Earnings Webcast. At this time, 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 star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference may be recorded. I will now hand the conference over to your speaker host, Earl Armstrong, the company's CFO. Please go ahead, sir.

Thank you, Olivia, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 second quarter, which began May 5 and ended August 3, 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 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. The results across segments were mixed for the fiscal 2026 second quarter. On the Hooker legacy side, Hooker branded net sales were 1.3% year over year, and domestic upholstery net sales were consistent with the prior year second quarter. Hooker Brand had reached breakeven compared to a $329,000 loss in the same quarter last year, despite absorbing $655,000 in restructuring costs, primarily related to severance. Domestic upholstery recorded a $152,000 restructuring cost this quarter, reducing its operating loss from $1,300,000 to $408,000. These improvements reflect the progress of our cost reduction and restructuring initiatives. In contrast, Home Meridian net sales were down 44.5% compared to the prior year second quarter, as this segment was heavily impacted by tariff-related buying hesitancy and persistent macroeconomic pressures among its value-focused customer base. Additionally, shipments in its hospitality business declined compared to the prior year second quarter due to the timing associated with the project-based nature of this business. The loss of a major customer due to its bankruptcy last year accounted for about 25% of Home Meridian's sales decrease. As a result, consolidated net sales for the second quarter were $82,100,000, down $13,000,000 or 13.6% from the same period last year, driven primarily by sales declines at Home Meridian. Consolidated operating loss was $4,400,000 compared to $3,100,000 in the prior year quarter, reflecting lower sales volume and unfavorable customer mix at Home Meridian, as well as $2,000,000 in total restructuring costs. The consolidated net loss was $3,300,000 or 31¢ per share. During the first six months of fiscal 2026, consolidated net sales declined by $21,000,000 or 11.2% compared to the same period last year. The decrease was also driven primarily by lower sales at Home Meridian due to the factors just discussed, along with a modest 1.7% decline in domestic upholstery, reflecting soft demand. Including $2,500,000 in restructuring costs recorded during the period and significant sales volume decline, the consolidated operating loss of $8,000,000 remained consistent with the prior year period, reflecting improvements on the legacy Hooker side. Net loss for the six-month period was $6,300,000 or 60¢ per diluted share. Now I'll turn the call over to Jeremy for his comments on our fiscal 2026 second quarter results.

Thank you, Earl, and good morning, everyone. Hooker Furnishings is taking decisive steps to return the business to profitability. Our cost reduction efforts and focus on growth initiatives will position the company to maintain resilience in today's challenging environment and to strategically capture growth when demand returns. As Earl mentioned, Hooker Branded broke even in the quarter despite weak demand and $655,000 in restructuring charges. Domestic upholstery reduced its operating loss nearly 70% even including $152,000 of restructuring cost. At HMI, we have de-risked it significantly over the last several years and continue to further that effort. These actions have been obscured by weak demand in the home furnishing industry due to an extremely weak housing environment and tariff hesitancy in the market segment in which HMI competes. By the end of our fiscal 2026 third quarter, we believe HMI's fixed cost structure will be aligned to support what we believe to be a sustainable business and one in which sales can be significantly scaled from current levels when demand returns. Barring additional tariffs or other significant disruptive events, we expect HMI's performance to be significantly enhanced by the end of the current fiscal year. We are confident that the actions we've taken scaling fixed cost, reducing debt, and launching compelling new product lines provide the foundation for long-term value creation. Importantly, we are on track to have our new expense structure largely in place by the end of the third quarter, supporting a path to profitability even at current revenue levels. Our multi-phase plan to scale our fixed cost structure for sustained profitability in a downturn is on track and beginning to yield results. While HMI results were challenged by tariff concerns and unfavorable customer and product mix, we had a $1,200,000 improvement in operational results at Hooker Branded and Domestic Upholstery during the second quarter despite the inclusion of about $800,000 in restructuring costs in the results. We are becoming leaner and more efficient, underscored by efforts within domestic upholstery, where our focus on improving labor to revenue ratios is showing early progress and already reflected in stronger factory performance metrics. We are on target for our new expense structure, which reduces our fixed cost from fiscal 2025 by 25%, mostly in place by the end of the fiscal 2026 third quarter. We believe our enhanced operating discipline will support a path back to profitability in future periods even as macroeconomic challenges and uncertainties persist. Critically, the thoughtful and deliberate way in which we are implementing restructuring will not limit our ability to grow or fulfill orders and serve customers as market conditions improve. While our comprehensive restructuring efforts continue across all three segments, we continue to adapt to the changing industry and invest in the highest growth opportunities. Our upcoming Margaritaville launch at the October '27 ahead of the launch and expected benefit our new Vietnam fulfillment warehouse is already delivering on its promise of shortening container lead times from six months to roughly four to six weeks and creating new opportunities for customers to mix product collections on containers. Additionally, we believe these efficiencies will lower our overall global inventory. Finally, I'd like to comment on our adjustments to tariffs on imported furniture and components. In late July, the US government announced a 20% tariff rate on imports from Vietnam, the main source country for Hooker and the home furnishings industry, effective August 1, 2025. Each of our segments is taking a different approach to mitigating the Vietnam tariffs. For domestic upholstery, the impact is on component parts and fabrics, and we are able to mitigate through incremental measures such as new fabric sourcing. For Hooker Branded, we remerchandised the line to manage the impact of the 20% tariff, evaluating pricing on a SKU by SKU basis rather than a blanket price increase. At HMI, we believe we have implemented near-term mitigation efforts to balance the value equation in the more price-sensitive and competitive segment. Now I want to turn the discussion back over to Earl, who will outline the details of our cost reduction strategy as well as discuss highlights in each of our segments.

Thank you, Jeremy. We are well into our multiphase cost reduction plan to eliminate $25,000,000 or 25% of our fixed cost. This includes an estimated $11,000,000 in warehousing and distribution expenses, which is reported in cost of sales, and $14,000,000 in selling and administrative expenses. In fiscal 2025, we identified $10,000,000 in expense reductions and were able to achieve $3,000,000 in savings in that fiscal year. In fiscal 2026, we identified an additional $15,000,000 expense reductions. In the '26, we achieved $3,700,000 in expense reductions despite having recorded $1,700,000 in restructuring charges. We expect to achieve additional savings in the second half of the year from both initiatives, and we believe we are on track to achieve $25,000,000 in annualized cost savings beginning in fiscal 2027, which should largely be in place by the end of the fiscal 2026 third quarter. Now I'd like to review our segment reporting versus prior year periods. Hooker Branded. The Hooker Branded segment posted modest growth in the '26 with net sales up $465,000 or 1.3%. Higher average selling prices drove the increase, partly offset by higher discounting. For the first six months, sales rose $766,000 or 1.1%, reflecting higher unit volume partially offset by discounting the balance inventory mix and levels. Gross profit declined $167,000 in the quarter with gross margins down 80 basis points, mainly due to lower margins and discounted items, and to a lesser extent tariff-related product costs. For the six-month period, gross profit decreased $560,000 with margin down 100 basis points due to the same factors. Hooker Branded achieved breakeven operating results for the quarter and six-month period. Restructuring costs of $655,000 and $782,000 were recorded in these periods respectively. Incoming orders grew by nearly 11% during the quarter. The quarter-end backlog remained consistent with the previous year's second quarter end but increased by nearly 20% from fiscal year end. Home Meridian. The Home Meridian segment's net sales declined $13,600,000 or about 44.5% in the '26. About 40% of the decline came from the project-based hospitality business where two large projects entered the shipping phase in the second quarter of last year. 35% of the decline came from traditional furniture channels due to macroeconomic pressures and tariff-related hesitancy. And 25% of the decline came from the loss of a major customer that filed for bankruptcy last year. Average selling prices also dropped sharply due to unfavorable product mix, inventory liquidation at the Georgia warehouse ahead of its closure. For the six-month period, net sales fell $21,200,000 or 37.2%. Gross profit decreased $4,900,000 in the second quarter, primarily due to lower net sales. Gross margin decreased driven by unfavorable customer and product mix, higher warehousing consolidation expenses, severance costs, and losses from inventory liquidation at the Georgia warehouse. For the six-month period, gross profit decreased $5,600,000 while gross margin contracted 590 basis points. Home Meridian incurred operating losses of $3,900,000 for the second quarter and $6,800,000 for the first half. Restructuring costs of $1,200,000 and $1,400,000 were recorded for the quarter and the six-month period, respectively. Incoming orders and backlog decreased significantly due to reduced demand from traditional channels and the loss of a major customer due to its bankruptcy. Reduced demand was compounded by fewer orders in the project-based hospitality business. Domestic Upholstery. The domestic upholstery segment's net sales were essentially flat in the second quarter compared to last year. Three divisions in the segment posted sales increases, while the Outdoor brand saw sales fall around 10% due to supply chain disruption in Vietnam and China, which stabilized after quarter end. For the six-month period, segment sales declined $1,000,000 or about 17%. Gross profit for the segment rose $659,000 in the second quarter and $1,200,000 year to date, with margins expanding by 220 and 240 basis points, respectively. Direct material cost remained steady, while labor and indirect cost declined supported by improved absorption from higher sales and increased production capacity. Warehousing and distribution expenses also decreased across most categories, further strengthening profitability. Our domestic upholstery divisions are making strides in operational efficiency. We are focused on improving labor to revenue ratios and early progress is already reflected in stronger performance. Domestic upholstery significantly reduced operating losses by $877,000 or 68% and $1.6 million or 61% compared to the second quarter and first half of last year, respectively. Restructuring costs of $152,000 and $265,000 were recorded for the quarter and six-month period, respectively. Incoming orders in that segment increased by 1.6% with quarter-end backlog increasing by about 7% from the prior year second quarter and year end. I'd like to conclude my remarks with comments on our capital allocation strategy. Over the past year, we reduced debt, strengthened liquidity, and continued returning capital to shareholders through dividends. Supported by the extensive cost-saving measures we've embedded throughout the organization. These efforts are enhancing near-term liquidity and creating a foundation for strategic growth. As of yesterday, the company had approximately $1,900,000 in cash on hand, no outstanding amounts due under its credit facility, with $67,900,000 in available borrowing capacity, net of standby letters of credit. As we progress through the year, our focus will remain on the capital allocation strategies that drive long-term value creation, and balancing our cost initiatives with key growth priorities. Now I'll turn the discussion back to Jeremy for his outlook.

At the beginning and end of the quarter, we saw encouraging momentum in Hooker legacy orders with July orders up 24% year over year at both Hooker Branded and Domestic Upholstery. For the quarter, Hooker Branded orders were up nearly 11% and Domestic Upholstery were up 1.6%. That said, the home furnishings industry continues to face headwinds from low existing home sales, elevated mortgage rates, and persistent inflation, all of which are weighing on consumer confidence and demand. We remain focused on factors within our control, scaling our cost structure for profitability, preparing for the October debut of the Margaritaville Collection, and pursuing growth in hospitality contract and outdoor channels supported by the new Vietnam warehouse. These initiatives position us well to navigate near-term challenges and capitalize on opportunities when the market recovers, creating long-term value for our shareholders. This ends the formal part of our discussion, and at this time, I will turn the call back over to our operator, Olivia, for questions.

Star 11 on your telephone and wait for your name to be announced. To withdraw your questions, simply press star 11 again. Please stand by while we compile the Q&A roster. Now first question coming from the line of Anthony Lebiedzinski with Sidoti. Your line is now open.

Good morning, and thank you for taking the questions. Morning. First, hi. Good morning, Jeremy and Earl. So my first question is what's driving the increased orders or the momentum that you're seeing at Hooker Branded and Domestic Upholstery?

I think there's some subtle macro improvements happening at the retail level. We heard from a lot of our partners that, you know, Labor Day was very good for a lot of our customers. And I think there's some, like I said, somewhat subtle momentum. I don't, you know, no one knows if, you know, that's gonna continue, but it seems to have, you know, been a pretty good push at least that time of the year.

Gotcha. Okay. Yeah. So Labor Day is an important holiday. So was this kind of across the board that you heard this, holiday momentum here, in September, or, or did you see any sort of pockets of, you know, particular strength in some markets versus others?

It really was pretty consistent. We make a habit of talking to as many as we can, you know, across the country to get a read on whether it's regionalized or more of an overall push, and it seemed to be pretty consistent across the board.

Gotcha. Okay. That's definitely encouraging to hear. So you've done a lot with HMI to improve the business. You know, it's still, unfortunately, still your kind of biggest weak spot. So how do we think about just getting that segment back to profitability? I don't know if it's an easy answer for you guys to say, but, I mean, how much annual revenue do you guys need to get that segment to at least breakeven?

I'm gonna generalize because I have to, but, you know, the main driver to getting to short-term profitability, meaning, you know, call it getting to that end of the third quarter when we've said that our cost savings will really be mostly intact, which is, you know, a 25% reduction from fiscal 2025 until the end of the third quarter. That's how much we will have saved in our overall spending. Much of that has come out of the HMI overhead picture. So really, right now, for us, that's a big key to what you're asking. And once we're there, I believe we have really good ways of growing that business too. And that really comes down to a lot of focus on the customers that we drive that business with and really focusing more on what matters to driving the revenue at that company.

Gotcha. Okay. Understood. And I guess, you know, last question, just to clarify some of the restructuring impact. So it looks like it was overall $2,000,000 for the quarter. Just roughly speaking, how much is that cost of goods versus selling and administrative costs in terms of how we think about the impact that had on the quarter?

Impact on the quarter, about two-thirds was in COGS and one-third in SG&A roughly. And that would apply for the six-month period as well.

That's very helpful, Earl. Well, thank you very much, and best of luck.

Thank you, Anthony.

Thank you. Our next question coming from the line Dave Storms with Stonegate. Your line is now open.

Good morning. Just wanted to start maybe with Margaritaville, you know, great to have that on the horizon. Anything more you can tell us about maybe the logistics remaining before the reveal or any early indicators of interest there?

Sorry. I missed part of your question. Did you say the logistics?

Yeah. Both the logistics to launch remaining and maybe any early indicators of interest before the launch.

You know, it's been a massive undertaking from a product development standpoint. Mainly because we see it as such a large opportunity for the company. So, you know, it's gonna be a significant number of SKUs. It's gonna be a really significant presence in our showroom, this October market for Hooker. Hooker Legacy and really Sunset West as well. So yeah, we're really excited. I'd say it's been an eighteen-month progression as far as when we started this to now and, you know, we've had some really positive early indicators from, you know, our partners that we're close with and talk to frequently about the direction, the name, how much that brand means, and how much, you know, people recognize that it's a really different level for us from a brand perspective than really what we've ever experienced. I mean, Hooker's a good furniture brand, but it's not a consumer brand. And I think that has the potential to be pretty large for us. Dave Storms: Understood. That's very helpful. Thank you. And then I was also hoping to get your thoughts around the price increases. I know you mentioned that you're evaluating pricing on a SKU by SKU basis. Just curious as to when you think you'll maybe have your arms fully around that, or is that gonna be more macro-driven?

I would say that anything additional coming out that stays at the 20% I would say our arms are clear around it at this point, and, you know, we went through the industry went through so many gyrations of costing because, you know, you go back to the pandemic, you had all the ocean freight increases and everything that was so volatile for a pretty significant period of time. And a lot of companies, including us, did what I would call more of a, you know, peanut butter approach, you know, raising overall prices, lowering prices, and that's why on this particular thing, we went back and said, you know, over time, you lose some of your merchandising strategy if you don't really do the exercise SKU by SKU. So we really took that time. It took us a little longer than we usually like to take in these things, but I think, you know, in this situation, right is more important than fast, and we took the time to do what I feel was a great exercise for the company.

And are you seeing, understanding downstream of that? Or are you seeing any major sticking points for those increases?

We really aren't. You know, our company has a history, particularly on the hooker side of it, of honoring our backlog for our customers. So really, from our standpoint, the timing of increases coming in versus the timing of our price increase settling into our backlog and shipping is always a little off. But, due to the high percentage of what domestic warehouse shipment of that business, it can turn fairly quick compared to a container business overall. Because of the lead times being quicker. So you can turn your backlog quicker, so that's not as big of a factor on the hooker side as it is usually.

Understood. That's super helpful. One more for me, if I could, more of a modeling question. It was mentioned that you're expecting an additional $2,000,000 in charges in the '26. Is it safe to assume that those are going to be timed in 4Q to coincide with the Savannah warehouse exit? In October? Is there anything else we should maybe be keeping an eye out for there?

You're correct. It should be most all related to the closing of that warehouse.

That's perfect. Thank you for taking my questions, and good luck in the next quarter.

Thank you. And I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Hoff for any closing remarks.

I would like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal 2026 third quarter results in December. Take care.