FinanceLooker

Excrept from filing document 2025-02-02

State the aggregate market value of the voting and non voting common equity held by non affiliates computed by reference to the price at which the common equity was last sold or the average bid and asked price of such common equity as of the last business day of the registrant s most recently completed second fiscal quarter 164 7 million
All references to 2025 2024 2023 2022 and 2021 or other years are referring to our fiscal years unless otherwise stated Our fiscal years end on the Sunday closest to January 31 with fiscal 2025 ending on February 2 2025 Our quarterly periods are based on thirteen week reporting periods which end on a Sunday rather than quarterly periods consisting of three calendar months As a result each quarterly period generally is thirteen weeks or 91 days long except as noted below In some years generally once every six years the fourth quarter will be fourteen weeks long and the fiscal year will consist of fifty three weeks The 2025 fiscal year that ended on February 2 2025 was a 53 week fiscal year
All references to the Company we us and our in this document refer to Hooker Furnishings Corporation and its consolidated subsidiaries unless specifically referring to segment information All references to the Hooker Hooker Division s Hooker Legacy Brands or traditional Hooker divisions or companies refer to all current business units and brands except for those in the Home Meridian segment The Hooker Branded segment includes Hooker Casegoods and Hooker Upholstery The Domestic Upholstery segment includes Bradington Young HF Custom formerly Sam Moore Shenandoah Furniture and Sunset West All Other includes H Contract and BOBO Intriguing Objects a business acquired during fiscal 2024
Certain statements made in this report including statements under Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations and in the notes to the consolidated financial statements included in this report are not based on historical facts but are forward looking statements These statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward looking terminology such as believes expects projects intends plans may will should would could or anticipates or the negative thereof or other variations thereon or comparable terminology or by discussions of strategy Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements Those risks and uncertainties include but are not limited to
1 general economic or business conditions both domestically and internationally including the current macro economic uncertainties and challenges to the retail environment for home furnishings along with instability in the financial and credit markets in part due to inflation and high interest rates including their potential impact on i our sales and operating costs and access to financing ii customers and iii suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses
2 adverse political acts or developments in or affecting the international markets from which we import products and some components used in our Domestic Upholstery segment including duties or tariffs imposed on those products by foreign governments or the U S government such as the current ten percent tariff and potential additional reciprocal tariffs on imports imposed by the current U S administration affecting the countries from which we source imported home furnishings and components including the possible adverse effects on our sales earnings and liquidity
6 risk associated with the planned exit of our Savannah Georgia warehouse including executing the exit in a timely manner the costs and availability of temporary warehousing moving and start up costs ERP and technology related risks the timing and amounts of related restructuring charges and expected cost savings as well as possible related disruptions to sales earnings revenue
7 risks associated with our new warehouse facility in Vietnam including our ability to execute the planned shift of inventories from domestic facilities to Vietnam without increasing overall inventories and adversely affecting working capital levels and start up risks including technology related risks or disruption in our offshore suppliers or the transportation and handling industries including labor stoppages strikes or slowdowns and the ability to timely fulfill customer orders
8 the risks specifically related to the concentrations of a material part of our sales and accounts receivable in only a few customers including the loss of several large customers through business consolidations failures or other reasons or the loss of significant sales programs with major customers
9 risks associated with our reliance on offshore sourcing and the cost of imported goods including fluctuation in the prices of purchased finished goods customs issues freight costs including the price and availability of shipping containers ocean vessels domestic trucking and warehousing costs and the risk that a disruption in our supply chain or the transportation and handling industries including labor stoppages strikes or slowdowns could adversely affect our ability to timely fulfill customer orders
13 the risks associated with our Amended and Restated Loan Agreement including the fact that our asset based lending facility is secured by substantially all of our assets and contains provisions which limit the amount of our future borrowings under the facility as well as financial and negative covenants that among other things may limit our ability to incur additional indebtedness
14 interruption inadequacy security breaches or integration failure of our information systems or information technology infrastructure related service providers or the internet or other related issues including unauthorized disclosures of confidential information hacking or other cybersecurity threats or inadequate levels of cyber insurance or risks not covered by cyber insurance
15 risks associated with domestic manufacturing operations including fluctuations in capacity utilization and the prices and availability of key raw materials as well as changes in transportation warehousing and domestic labor costs availability of skilled labor and environmental compliance and remediation costs
16 disruptions and damage including those due to weather affecting our Virginia North Carolina or Georgia warehouses our Virginia North Carolina or California administrative and manufacturing facilities our High Point Las Vegas and Atlanta showrooms or our representative offices or warehouses in Vietnam and China
18 risks associated with product defects including higher than expected costs associated with product quality and safety regulatory compliance costs related to the sale of consumer products and costs related to defective or non compliant products product liability claims and costs to recall defective products and the adverse effects of negative media coverage
Our forward looking statements could be wrong in light of these and other risks uncertainties and assumptions The future events developments or results described in this report could turn out to be materially different Any forward looking statement we make speaks only as of the date of that statement and we undertake no obligation except as required by law to update any forward looking statements whether as a result of new information future events or otherwise and you should not expect us to do so
Also our business is subject to a number of significant risks and uncertainties any of which can adversely affect our business results of operations financial condition or future prospects For a discussion of risks and uncertainties that we face see the Forward Looking Statements detailed above and Item 1A Risk Factors below
Investors should also be aware that while we occasionally communicate with securities analysts and others it is against our policy to selectively disclose to them any material nonpublic information or other confidential commercial information Accordingly investors should not assume that we agree with any projection forecast or report issued by any analyst regardless of the content of the statement or report as we have a policy against confirming information issued by others
Hooker Furnishings Corporation incorporated in Virginia in 1924 is a designer marketer and importer of casegoods wooden and metal furniture leather furniture fabric upholstered furniture lighting accessories and home decor for the residential hospitality and contract markets We also domestically manufacture premium residential custom leather custom fabric upholstered furniture and outdoor furniture
Furnishings sales account for all of our net sales For financial reporting purposes and as described further below we are organized into three reportable segments Hooker Branded Home Meridian and Domestic Upholstery Our other businesses are aggregated into All Other See Note 18 Segment Information to our Consolidated Financial Statements for additional financial information regarding our operating segments
Our product lines cover the design spectrum of residential furnishings traditional contemporary and transitional Further our product lines are in the good better and best product categories which carry medium and upper price points Hooker Furnishings Corporation consists of the following three operating segments and All Other
Our imported furniture business is subject to inherent risks in importing products manufactured abroad including but not limited to supply disruptions and delays due to a variety of reasons including our foreign suppliers factory capacities factory shutdowns and delays fluctuations in ocean freight costs container and vessel space availability currency exchange rate fluctuations economic and political developments and instability as well as the laws policies and actions of foreign governments and the United States These laws policies and actions may include regulations affecting trade or the application of tariffs such as the current ten percent tariff and the potential additional reciprocal tariffs on imports imposed by the current U S administration affecting the countries from which we source imported home furnishings and components including the possible adverse effects on our sales earnings and liquidity
Because of the large number and diverse nature of the foreign suppliers in Vietnam China Mexico India and Malaysia from which we source our imported products we have flexibility in the sourcing of products among any particular supplier or country However a disruption in our supply chain from a major supplier or from Vietnam in general could significantly compromise our ability to fill customer orders for products manufactured at that factory or in that country Supply disruptions and delays on selected items could occur for six months or longer If we were to be unsuccessful in obtaining those products from other sources or at a comparable cost a disruption in our supply chain from a major furniture supplier or from Vietnam in general could decrease our sales earnings and liquidity
Given the sourcing capacity available in Vietnam and other low cost producing countries such as China Mexico Malaysia and India as well as our supply chain diversification efforts we believe the risks from these potential supply disruptions are manageable in the long term However our insight into the probability of a wide scale global or regional disruption or pandemic like the COVID 19 pandemic remains limited See Item 1A Risk Factors for additional information on our risks related to imported products
For imported products we generally negotiate firm pricing with foreign suppliers in U S Dollars typically for a term of at least one year However under certain circumstances we may re negotiate pricing during the year We accept the exposure to exchange rate movements during these negotiated periods We do not use derivative financial instruments to manage this risk but could choose to do so in the future Since we transact our imported product purchases in U S Dollars a relative decline in the value of the U S Dollar compared to the currencies from which we obtain our imported products could increase the price we pay for imported products beyond the negotiated periods We generally expect to reflect substantially all of the effects of any price increases from suppliers in the prices we charge for imported products However these price changes could adversely impact sales volume and profit margin during the affected periods and potential competitive pricing pressures could limit the company s ability to pass cost increases to vendors or customers Additionally we generally do not apply price increases on order backlog which could adversely affect our earnings Conversely a relative increase in the value of the U S Dollar compared to the currencies from which we obtain our imported products could decrease the cost of imported products and favorably impact net sales and profit margins during the affected period However due to other factors such as inflationary pressure we may not fully realize savings when exchange rates fall Therefore lower exchange rates may only have a tempering effect on future price increases by merely delaying cost increases on imported products See also Item 7A Quantitative and Qualitative Disclosures About Market Risk
Significant materials used in manufacturing our domestic upholstered furniture products include leather fabric foam wooden and metal frames and electronic mechanisms Most of the leather is imported from Italy and South America and is purchased as full hides and cut and sewn in our facilities or is purchased as pre cut and sewn kits processed by our vendors to our pattern specifications We believe our sources for raw materials are adequate and that we are not overly dependent on any one supplier Our five largest domestic upholstery suppliers accounted for 31 of our raw materials purchases for domestic upholstered furniture manufacturing operations in fiscal 2025 Should disruptions with these suppliers occur other than macro disruptions affecting all such suppliers we believe we could successfully source these products from other suppliers without significant disruption to our operations After the implementation of the initial reciprocal tariffs in April 2025 we have observed price increases in imported raw materials including fabrics steel and hides Generally we engage in negotiations with our suppliers to share a portion of the tariff burden However if we are unable to offset the tariff costs on these imported materials it may lead to increased product costs potentially adversely affecting net sales and profit margins
Our home furnishings products are sold through a variety of retailers including independent furniture stores department stores mass merchants national chains catalog merchants interior designers and e commerce retailers No single customer accounted for more than 7 of our consolidated sales in fiscal 2025 Our top five customers accounted for approximately 24 of our fiscal 2025 consolidated sales The loss of any one or more of these customers would have a material adverse impact on our business Less than 2 of our sales in fiscal 2025 were to international customers We define sales to international customers as sales to customers outside of the United States and Canada since our independent domestic sales force services both countries
The furniture industry is highly competitive and includes a large number of foreign and domestic manufacturers and importers none of which dominates the market in our price points While the markets in which we compete include a large number of relatively small and medium sized manufacturers certain competitors have substantially greater sales volumes and financial resources than we do U S imports of furniture produced overseas such as from Vietnam and China have stabilized in recent years The primary competitive factors for home furnishings in our price points include price style availability service quality and durability Competitive factors in the hospitality and contract furniture markets include product value and utility lead times on time delivery and the ability to respond to requests for special and non standard products We believe our design capabilities ability to import and or manufacture upholstered furniture product value longstanding customer and supplier relationships significant sales distribution and inventory capabilities ease of ordering financial strength experienced management and customer support are significant competitive advantages
We distribute furniture to retailers directly from factories and warehouses in Asia via our container direct programs and from our facilities in Virginia North Carolina Georgia and California and in limited cases from customer operated warehouses in strategic locations Due to our exit from the Accentrics Home ACH business unit which demanded significant amounts of inventory to meet the quick shipping requirements of its e commerce model we reduced the physical footprint of the Georgia warehouse by 400 000 square feet over the course of fiscal 2024 In March 2025 we announced the planned exit from our Georgia warehouse The exit strategy involves several risks including the timely execution of the exit costs and availability of temporary warehousing expenses related to relocation and start up and potential challenges with ERP and technology systems Additional considerations include the timing and magnitude of restructuring charges anticipated cost savings and the potential for disruptions to sales earnings and revenue See additional information in Management s Discussion and Analysis and Note 22 Subsequent Events on page 23 and F 33
We generally import casegoods inventory and certain upholstery items in amounts that enable us to meet the delivery requirements of our customers our internal in stock goals and minimum purchase requirements from our sourcing partners The majority of products in the Hooker Branded segment are shipped from our U S warehouses while a large percentage of products sold at our Home Meridian segment are not warehoused by us but ship directly to our customers and thus are not included in our inventory Our Domestic Upholstery segment products are made to order and shipped shortly after they are produced however this segment carries significant amounts of raw materials for production We do not carry significant amounts of hospitality products as most of these products are built to order and are shipped shortly after their manufacture directly to the customer
Substantially all of our trade accounts receivable are due from retailers and dealers that sell residential home furnishings or commercial purchasers of our hospitality and senior living products which consist of a large number of entities with a broad geographic dispersion We perform credit evaluations of our customers and generally do not require collateral For qualified customers we offer payment terms generally requiring payment 30 days from shipment However we may offer extended payment terms in certain circumstances including to promote sales of our product We purchase accounts receivable insurance on certain customers if their risk profile warrants it and the insurance is available Due to the highly customized nature of our hospitality products we typically require a 50 deposit upon order a 40 deposit before goods reach a U S port and the remaining 10 balance due within 30 days of the receipt of goods by the customer For our outdoor furnishings smaller orders require full prepayment and most larger orders require a 50 deposit upon order and the balance when production is started Additionally some customers request and qualify for payment terms
Payment for our imported products warehoused first in Asia is due 10 to 14 days after our quality audit inspections are complete and the vendor invoice is presented Payment for goods which are shipped to our U S warehouses or container direct to our customers FOB Origin free on board origin which means the buyer is responsible for the costs and liability of the freight during transport is generally due upon proof of lading onto a U S bound vessel and invoice presentation however payment terms depending on the supplier can stretch up to 45 days from invoice date Payment terms for domestic raw materials and non inventory related charges vary but are generally 30 days from invoice date
In the discussion below and herein we reference changes in sales orders or orders and sales order backlog unshipped orders at a point in time or backlog over and compared to certain periods of time and changes discussed are in sales dollars and not units of inventory unless stated otherwise We believe orders are generally good current indicators of sales momentum and business conditions If the items ordered are in stock and the customer has requested immediate delivery we generally ship products in about seven days or less from receipt of order however orders may be shipped later if they are out of stock or there are production or shipping delays or the customer has requested the order to be shipped at a later date or has requested that we ship the order in full meaning all products ordered for the end user must ship together It is our policy and industry practice to allow order cancellation for casegoods up to the time of shipment or in the case of container direct orders up until the time the container is booked with the ocean freight carrier therefore customer orders for casegoods are not firm However domestically produced upholstered products are predominantly custom built and consequently cannot be cancelled once the leather or fabric has been cut Additionally our hospitality products are highly customized and are generally not cancellable Similarly for our outdoor furnishings most orders require a deposit upon order and the balance before production is started and hence are generally not cancellable
For the Hooker Branded and Domestic Upholstery segments and All Other we generally consider backlogs to be one helpful indicator of sales for the upcoming 30 day period but because of our relatively quick delivery and our cancellation policies we do not consider order backlogs to be a reliable indicator of expected long term sales We generally consider the Home Meridian segment s backlog to be one helpful indicator of that segment s sales for the upcoming 90 day period Due to i the average sales order sizes of its mass and mega account channels of distribution ii the proprietary nature of many of its products and iii the project nature of its hospitality business for which average order sizes tend to be larger and consequently the Home Meridien segment s order backlog tends to be larger
There have been exceptions to the general predictive nature of our orders and backlogs noted in this paragraph such as during times of extremely high demand and supply chain challenges as experienced during the immediate aftermath of the initial COVID 19 crisis and subsequent recovery Orders were not being converted to shipments as quickly as would be expected compared to the pre pandemic environment due to the lack and cost of shipping containers and vessel space as well as limited overseas vendor capacity As a result backlogs were significantly elevated and reached historical levels at the end of fiscal 2021 and 2022
At the end of fiscal 2025 our consolidated order backlog decreased by 19 2 million as compared to the prior year end representing a 27 decrease year over year This decrease was primarily driven by a 15 million reduction in the Home Meridian backlog and a 3 4 million reduction in the Hooker Branded backlog both due to weak demand in the home furnishings market
For comparison purposes we included order backlog as of fiscal 2020 year end the year before the COVID crisis At fiscal 2020 year end Home Meridian backlog included approximately 18 million orders from the unprofitable Clubs and Accentrics Home e commerce ACH businesses which we decided to exit in fiscal 2022 and fiscal 2023 respectively Domestic Upholstery backlog did not include Sunset West the business we acquired in the beginning of fiscal 2023 At fiscal 2020 year end Sunset West had approximately 1 6 million in backlog
As a part of our business operations our manufacturing sites generate both non hazardous and hazardous waste the treatment storage transportation and disposal of which are subject to various local state and federal laws relating to environmental protection Our policy is to record monitoring commitments and environmental liabilities when expenses are probable and can be reasonably estimated The costs associated with our environmental responsibilities compliance with federal state and local laws regulating the discharge of materials into the environment or costs otherwise relating to the protection of the environment have not had and are not expected to have a material effect on our financial position results of operations capital expenditures or competitive position
We are actively working to refine and align our environmental stewardship based on current best practices shareholder expectations and regulatory developments through our Environmental Social and Governance ESG focused employee committee called CARE Community Action Responsibility for our Environment It regularly updates management and updates the Board at least quarterly on these initiatives We note the following recent and ongoing activities and new developments
As of February 2 2025 we had 1 034 full time employees of which 233 were employed in our Hooker Branded segment 173 were employed in our Home Meridian segment 623 were employed in our Domestic Upholstery segment and 5 were employed in All Other By geographical area 895 employees were located in the United States and 139 were located in Asia None of our employees are represented by a labor union We consider our relations with our employees to be good
Our employees are critical to our success and we are committed to attracting developing and retaining top talent to drive our business forward The core values of our Company include integrity caring and inclusivity that affirms every individual Our leadership team is committed to fostering an environment where everyone is welcomed respected listened to and valued for their unique contributions to the organization and to providing a work environment that is free from all forms of harassment discrimination and inequality We recruit employ train promote and compensate our employees without regard to race ethnicity age gender gender identity religion national origin citizenship marital status veteran s status or disability All facilities have established human resource departments with formal hiring processes and controls in place to ensure ethical and fair hiring practices Some of the action steps we have taken recently or are working on currently include
The Hooker Furnishings Hooker Furniture Bradington Young Sam Moore Pulaski Furniture Samuel Lawrence Furniture Samuel Lawrence Hospitality Home Meridian International Prime Resources International Shenandoah H Contract Sunset West HF Custom and BOBO trade names represent many years of continued business We believe these trade names are well recognized and associated with quality and service in the furnishings industry We also own a number of patents and trademarks both domestically and internationally none of which is considered to be material
Our company is subject to U S federal state and local laws and regulations in the areas of safety health employment and environmental pollution controls as well as U S and international trade laws and regulations including tariffs We are also subject to foreign laws and regulations In the past compliance with these laws and regulations has not had any material effect on our earnings capital expenditures or competitive position in excess of those affecting others in our industry however the effect of compliance in the future cannot be predicted We believe we are in material compliance with applicable U S and international laws and regulations
You may visit us online at hookerfurnishings com hookerfurniture com bradington young com hfcustomfurniture com shenandoahfurniture com mfurnishings com sunsetwestusa com homemeridian com pulaskifurniture com slf co com slh co com hcontractfurniture com and bobointriguingobjects com We make available free of charge through our Hooker Furnishings website hookerfurnishings com our annual report on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K amendments to those reports and other documents as soon as practical after they are filed with or furnished to the Securities and Exchange Commission SEC A free copy of our annual report on Form 10 K may also be obtained by contacting Earl Armstrong Chief Financial Officer Senior Vice President Finance and Corporate Secretary at CorpSec hookerfurnishings com or by calling 276 632 2133
Our business is subject to a variety of risks The risk factors discussed below should be considered in conjunction with the other information contained in this annual report on Form 10 K If any of these risks actually materialize our business results of operations financial condition or future prospects could be negatively impacted These risks are not the only ones we face There may be additional risks that are presently unknown to us or that we currently believe to be immaterial that could affect us
The furniture industry is particularly sensitive to cyclical variations in the general economy and the current macro economic uncertainties including the current sustained economic downturn caused by persistent inflation and higher interest rates the slow housing market and after effects of COVID 19 Home furnishings are generally considered a discretionary and postponable purchase by most consumers Economic downturns could affect consumer spending habits by decreasing the overall demand for home furnishings Changes in interest rates consumer confidence new housing starts existing home sales the availability of consumer credit and broader national or geopolitical factors have particularly significant effects on our business We have seen negative effects on all of these measures due to the COVID 19 pandemic and persistent macroeconomic headwinds of the last few years A recovery in our sales could lag significantly behind a general recovery in the economy after an economic downturn due to among other things the nature and relatively significant cost of home furnishings purchases resulting in a temporary shift in consumer discretionary spending away from home furnishings or scarcity of transportation and Asian manufacturing capacity during times of increased demand Additionally most of our sales are of wooden or metal Casegoods products which have a slower replacement cycle than our upholstered home furnishings products These factors also impact retailers who are our primary customers possibly adversely affecting our sales earnings financial condition and liquidity
There is a potential that the current U S administration will impose additional reciprocal tariffs on nearly all the countries from which we source our product including Vietnam and China which accounted for 76 and 13 of our total imports in fiscal 2025 respectively Inability to reduce product costs pass through price increases or find other suitable manufacturing sources may have a material adverse impact on sales volume earnings and liquidity In addition the tariffs and our responses to the tariffs may cause our products to become less competitive due to price increases or less profitable due to lower margins Our inability to effectively manage the negative impacts of changing U S and foreign trade policies could adversely affect our business and financial results
Manufacturing and delivery lead times for our imported products necessitate that we make forecasts and assumptions regarding current and future demand for these products If our forecasts and assumptions are inaccurate we may purchase excess or insufficient amounts of inventory If we purchase too much or the wrong mix of inventory we may be forced to sell it at lower margins which could adversely affect our sales earnings financial condition and liquidity If we purchase too little or the wrong mix of inventory we may not be able to fill customer orders and may lose market share and weaken or damage customer relationships which also could adversely affect our sales earnings financial condition and liquidity
In fiscal 2025 imported products sourced from Vietnam accounted for 76 of our import purchases and our top five suppliers in Vietnam accounted for 62 of our fiscal 2025 import purchases Our supply chain could be adversely impacted by the uncertainties of health concerns such as COVID 19 or similar pandemics and governmental restrictions A disruption in our supply chain or from Vietnam in general such as the COVID 19 related lockdown in certain parts of Asia in the Summer of calendar 2021 could significantly impact our ability to fill customer orders for products manufactured in those countries In some cases we believe we would have sufficient inventory on hand and in transit or be able to provide substitutions from our domestic warehouses but may not be enough to entirely mitigate the lost sales Supply disruptions and delays on selected items could occur for six months or longer before the impact of remedial measures would be reflected in our results If we are unsuccessful in obtaining those products from other sources or at comparable cost a disruption in our supply chain from our largest import furniture suppliers or from Vietnam in general could adversely affect our sales earnings financial condition and liquidity
Transportation costs on our imported products are affected by a myriad of factors including the global economy petroleum prices and ocean freight carrier capacity In the recent past especially after the COVID 19 pandemic transportation costs including ocean freight costs and domestic trucking costs on imported products represented a significant portion of the cost of those products We saw a significant spike in these costs during that time and our profitability was materially impacted To mitigate the increased costs we implemented price increases and surcharges however there can be no assurance that we will be successful in increasing prices or receiving freight surcharges in the future or that we can do it quickly enough to offset increased costs Increased transportation costs both domestically and internationally in the future would likely adversely affect our earnings financial condition and liquidity
We rely heavily on suppliers we do not own or control including a large number of non U S suppliers All of our suppliers may not provide goods that meet our quality design or other specifications in a timely manner and at a competitive price If our suppliers do not meet our specifications we may need to find alternative suppliers potentially at a higher cost or may be forced to discontinue products Also delivery of goods from non U S suppliers may be delayed for reasons not typically encountered for domestically manufactured furniture such as shipment delays caused by customs issues labor issues port related issues such as weather congestion or port equipment decreased availability of shipping containers and or the inability to secure space aboard shipping vessels to transport our products Our failure to timely fill customer orders due to an extended business interruption for a major supplier or due to transportation issues could negatively impact existing customer relationships and adversely affect our sales earnings financial condition and liquidity
Changes in political economic and social conditions as well as in the laws and regulations in the foreign countries from which we source our products could adversely affect our sales earnings financial condition and liquidity These changes could make it more difficult to provide products and service to our customers or could increase the cost of those products International trade regulations and policies of the United States and the countries from which we source finished products could adversely affect us Imposition of trade sanctions relating to imports taxes import duties and other charges on imports affecting our products could increase our costs and decrease our earnings
For imported products we generally negotiate firm pricing with our foreign suppliers in U S Dollars typically for periods of at least one year We accept the exposure to exchange rate movements during these negotiated periods We do not use derivative financial instruments to manage this risk but could choose to do so in the future Since we transact our imported product purchases in U S Dollars a relative decline in the value of the U S Dollar could increase the price we must pay for imported products beyond the negotiated periods These price changes could decrease our sales earnings financial condition and liquidity during the periods affected
In the past inflation concerns and to a lesser extent quality and supplier viability concerns affecting some of our imported product suppliers located in China prompted us to source more of our products from lower cost suppliers located in other countries such as Vietnam Additionally in the past we transitioned a significant portion of our imported product purchases from China to Vietnam due to the imposition of tariffs in 2018 on most furniture and component parts imported from China As conditions dictate we could be forced to make similar transitions in the future When undertaken transitions of this type involve significant planning and coordination by and between us and our new suppliers in these countries Despite our best efforts and those of our new sourcing partners these transition efforts are likely to result in longer lead times and shipping delays over the short term Risks associated with product defects including higher than expected costs associated with product quality and safety and regulatory compliance costs related to the sale of consumer products and costs related to defective or non compliant products including product liability claims and costs to recall defective products One or a combination of these issues could adversely affect our sales earnings financial condition and liquidity
During the fourth quarter of fiscal 2023 management approved a plan to exit the Accentrics Home ACH e commerce brand of the HMI segment along with repositioning the PRI brand as a direct container only business model We recorded a 24 4 million charge in the fiscal 2023 fourth quarter to write down certain segment inventories to market and also recorded severance expenses We also reduced the physical footprints at our Savannah GA warehouse and High Point NC administrative office over the course of the 2024 fiscal year with a concurrent reduction in lease warehouse and related expenses In March 2025 we announced the planned exit of our Savannah GA warehouse and the consolidation of warehouse operations at existing and temporary facilities We recorded 1 3 million in inventory reserves on end of life and near end of life cycle products that we don t plan to move to these existing or temporary facilities due to the moving costs involved We expect to record between 3 million to 4 million in exit charges in the fiscal 2026 first half consisting of a combination of severance and fixed asset impairment We expect these actions will return the HMI segment to future profitability assuming demand improves to more normalized levels However we may be unable to realize these cost savings in a timely manner or at all If these efforts are unsuccessful in whole or in part our ongoing business and financial results may be adversely affected which could adversely affect our sales earnings financial condition and liquidity
Our domestic manufacturing operations make only upholstered furniture A decline in demand for our domestically produced upholstered furniture could result in the realignment of our domestic manufacturing operations and capabilities and the implementation of cost saving measures These programs could include the consolidation and integration of facilities functions systems and procedures We may decide to source certain products from other suppliers instead of continuing to manufacture them These realignments and cost saving measures typically involve initial upfront costs and could result in decreases in our near term earnings before the expected cost savings are realized if they are realized at all We may not always accomplish these actions as quickly as anticipated and may not achieve the expected cost savings which could adversely affect our sales earnings financial condition and liquidity
The facilities in which we store our inventory in Virginia North Carolina Georgia and California are critical to our success Our corporate and divisional headquarters which house our administration sourcing sales finance merchandising customer service and logistics functions for our imported and domestic products are located in Virginia North Carolina and California Additionally our primary showrooms are located in North Carolina
Our domestic upholstery manufacturing facilities are located in Virginia North Carolina and California Furniture manufacturing creates large amounts of highly flammable wood dust and may utilize other highly flammable materials such as foam varnishes and solvents in its manufacturing processes and is therefore subject to the risk of losses arising from explosions and fires Additionally our domestic operations could be negatively affected by natural disasters such as hurricanes and floods and public health events such as the COVID 19 pandemic Any disruption affecting our domestic facilities even for a relatively short period of time could adversely affect our ability to ship our furniture products and disrupt our business which could adversely affect our sales earnings financial condition and liquidity
We use various types of wood leather fabric foam and other filling material high carbon spring steel bar and wire stock and other raw materials in manufacturing upholstered furniture We depend on outside suppliers for raw materials and must obtain sufficient quantities of quality raw materials from these suppliers at acceptable prices and in a timely manner We do not have long term supply contracts with our suppliers Unfavorable fluctuations in the price including those due to the potential implementation of additional reciprocal tariffs quality or availability of required raw materials could negatively affect our ability to meet the demands of our customers We may not always be able to pass price increases on raw materials through to our customers due to competition and other market pressures In addition the price increases are frequently implemented on future orders instead of existing order backlogs Considering our lead times during periods of high demand the benefits of new pricing could be offset by continued price increases from our suppliers which could impact us before we realize the benefit from our price increases The inability to meet customers demands or recover higher costs could adversely affect our sales earnings financial condition and liquidity
We implemented a common ERP system across all Hooker Legacy divisions in 2022 and 2023 Due to our cost reduction initiatives we have temporarily paused the ERP project in the Home Meridian segment beginning in the third quarter of fiscal 2025 The risk in pausing this effort is that HMI s current version of SAP will no longer be supported after December 2025 We expect to mitigate this risk by engaging a third party who supports end of life SAP instances Although we currently expect the ERP implementation to increase efficiencies by leveraging a common cloud based system throughout all divisions and standardizing processes and reporting our ERP system implementation may not result in improvements that outweigh its costs and may disrupt our operations Our inability to mitigate existing and future disruptions could adversely affect our sales earnings financial condition and liquidity When the ERP system went live at Sunset West and legacy Hooker divisions the conversion process significantly impacted shipping activities and negatively impacted sales and profitability in the respective periods due to longer than expected post implementation stabilization The ERP system implementation subjects us to substantial costs and inherent risks associated with migrating from our legacy systems These costs and risks could include but are not limited to
Competitive and market forces could prohibit or delay future successful price increases for our products in order to offset increased costs of labor finished goods raw materials freight and other product related costs on a timely basis which could adversely affect our sales earnings financial condition and liquidity
At February 2 2025 we had 65 3 million in net long lived assets consisting primarily of property plant and equipment trademarks trade names and goodwill Our goodwill some trademarks and tradenames have indefinite useful lives and consequently are not subject to amortization for financial reporting purposes but are tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired Our definite lived assets consist of property plant and equipment and certain intangible assets related to our recent acquisitions and are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable The outcome of impairment testing could result in the write down of all or a portion of the value of these assets A write down of our assets would in turn reduce our earnings and net worth
During fiscal 2025 we reviewed triggering events under ASU 2021 03 Intangibles Goodwill and Other Topic 350 Due to the decline in revenue driven by the downturn in the furniture industry increased freight costs changes in management s strategy and the bankruptcy of a key customer we identified triggering events that necessitated a valuation of the indefinite lived trade names and trademarks in the Home Meridian segment Consequently we performed a valuation using the discounted cash flow method This methodology involved cash flow projections and growth rates for each trade name over the next five years provided by management along with a royalty rate benchmark for companies engaged in similar activities Based on this analysis we recorded non cash impairment charges of 2 8 million for certain indefinite lived trade names within the Home Meridian segment See Note 10 to our Consolidated Financial Statements for additional information
If our product offerings do not meet applicable safety standards or consumers expectations regarding safety we could experience decreased sales increased costs and or be exposed to legal and reputational risk Events that give rise to actual potential or perceived product safety concerns could expose us to regulatory enforcement action and or private litigation While we carry general and umbrella liability insurance for such events settlements or jury awards could exceed our policy limits Reputational damage caused by real or perceived product safety concerns or failure to prevail in private litigation against us could adversely affect our business sales earnings financial condition and liquidity
A material part of our sales and accounts receivable are concentrated in a few customers The loss of several large customers through business consolidations or otherwise the loss of a major customer or significant sales programs with major customers failures or other reasons including economic downturn and the adverse economic effects of a future pandemic or similar events could adversely affect our business
One customer accounted for approximately 6 of our consolidated sales in fiscal 2025 and our top five customers accounted for about 24 of our fiscal 2025 consolidated sales Approximately 36 of our consolidated accounts receivable is concentrated in our top five customers Should any one of these receivables become uncollectible it would have an immediate and material adverse impact on our financial condition and liquidity The loss of any one or more of these customers could adversely affect our sales earnings financial condition and liquidity The loss of several of our major customers through business consolidations the loss of major product placements failures or otherwise could adversely affect our sales earnings financial condition and liquidity and the resulting loss in sales may be difficult or impossible to replace Amounts owed to us by a customer whose business fails or is failing may become uncollectible in whole or in part and we could lose future sales any of which could adversely affect our sales earnings financial condition and liquidity In fiscal 2025 we recorded 3 1 million in bad debt expense due to a large customer s bankruptcy
We grant payment terms to most customers ranging from 30 to 60 days and do not generally require collateral However in some instances we provide longer payment terms We purchase credit insurance on certain customers receivables and factor certain other customer accounts Some of our customers have experienced and may in the future experience credit related issues Were an economic downturn pandemic or another major unexpected event with negative economic effects occur we may not be able to collect amounts owed to us or such payment may only occur after significant delay While we perform credit evaluations of our customers those evaluations may not prevent uncollectible trade accounts receivable Credit evaluations involve significant management diligence and judgment especially in the current environment We may be unable to obtain sufficient credit insurance on certain customers receivable balances Should more customers than we anticipate experience liquidity issues if payment is not received on a timely basis or if a customer declares bankruptcy or closes stores we may have difficulty collecting amounts owed to us by these customers which could adversely affect our sales earnings financial condition and liquidity
Our Amended and Restated Loan Agreement consisting of an asset based lending facility of up to 70 million from Bank of America is secured by substantially all of our assets and contains provisions that limit the amount of our future borrowings under that facility Moreover the terms of our Amended and Restated Loan Agreement also include financial and negative covenants that among other things may limit our ability to incur additional indebtedness If we violate any loan covenants and do not obtain a waiver from our lender our indebtedness under this arrangement would become immediately due and payable and the lender could foreclose on its security which could materially adversely affect our business and future financial condition and could require us to curtail or otherwise cease our existing operations
At times especially during the post COVID 19 demand surge we have experienced difficulties in recruiting skilled labor into our domestic upholstery plants and warehouses and in some skilled or professional positions Lack of qualified workers and high turnover in a variety of positions caused increased training costs and adversely affected our production schedules and our ability to ship our furniture products Furthermore we experienced higher labor costs and persistent inflationary pressure Should these issues re occur or increase due to future pandemics or for other reasons our sales earnings financial condition and liquidity could again be adversely affected
We may engage in acquisitions and investments in companies form strategic alliances and pursue new business lines These activities could disrupt our business divert management attention from our current business pose integration concerns or difficulties dilute our earnings per share decrease the value of our common stock and decrease our earnings and liquidity
Growth by acquisition is highly dependent upon finding attractive targets and there can be no assurance those targets will be found We may acquire or invest in businesses such as those that offer complementary products or that we believe offer competitive advantages However we may fail to identify significant liabilities or risks that could negatively affect us or result in our paying more for the acquired company or assets than they are worth We may also have difficulty assimilating and integrating the operations and personnel of an acquired business into our current operations Acquisitions or strategic alliances may disrupt or distract management from our ongoing business We may pay for future acquisitions using cash stock the assumption of debt or a combination of these Future acquisitions could result in dilution to existing shareholders and to earnings per share and decrease the value of our common stock We may pursue new business lines in which we have limited or no prior experience or expertise These pursuits may require substantial investment of capital personnel and management attention New business initiatives may fail outright or fail to produce an adequate return which could adversely affect our earnings financial condition and liquidity
Some large furniture retailers are sourcing directly from non U S furniture factories Over time this practice may expand to smaller retailers As a result we are continually subject to the risk of losing market share to these non U S furnishings sources which could adversely affect our sales earnings financial condition and liquidity
Furniture is a styled product and is subject to rapidly changing fashion trends and consumer tastes as well as to increasingly shorter product life cycles If we fail to anticipate or promptly respond to these changes we may lose market share or be faced with the decision of whether to sell excess inventory at reduced prices This could adversely affect our sales earnings financial condition and liquidity
Home furnishings sales fluctuate from quarter to quarter due to factors such as changes in economic and competitive conditions seasonality weather conditions availability of raw materials and finished inventory and changes in consumer order patterns From time to time we have experienced and may continue to experience volatility with respect to availability of and demand for our home furnishing products Accordingly our results of operations for any quarter are not necessarily indicative of the results of operations to be expected for a full year or the next quarter
Our information systems software and information technology hardware infrastructure platforms and those of third parties who provide these services to us including internet service providers and third parties who store data for us on their servers the cloud facilitate and support every facet of our business including the sourcing of raw materials and finished goods planning manufacturing warehousing customer service shipping accounting payroll and human resources Our systems and those of third parties who provide services to us are vulnerable to disruption or damage caused by a variety of factors including but not limited to power disruptions or outages natural disasters or other so called Acts of God computer system or network failures viruses or malware physical or electronic break ins the theft of computers tablets and smart phones utilized by our employees or contractors unauthorized access phishing and cyber attacks The risk of cyberattacks also includes attempted breaches of contractors business partners vendors and other third parties We have a cybersecurity program designed to protect and preserve the integrity of our information systems Additionally we implemented a multi factor authentication process in order to enhance the security of our remote work environment We have experienced and expect to continue to experience actual or attempted cyberattacks of our information systems or networks however none of these actual or attempted cyberattacks had a material impact on our operations or financial condition Additionally while we carry cyber insurance including insurance for social engineering fraud the amounts of insurance we carry may be inadequate due either to inadequate limits available from the insurance markets or inadequate coverage purchased Because cyberthreat scenarios are inherently difficult to predict and can take many forms cyber insurance may not cover certain risks Further legislative or regulatory action in these areas is evolving and we may be unable to adapt our information systems or to manage the information systems of third parties to accommodate these changes If these information systems or technologies are interrupted or fail or we are unable to adapt our systems or those of third parties as a result of legislative or regulatory actions our operations and reputation may be adversely affected we may be subject to legal proceedings including regulatory investigations and actions which could diminish investor and customer confidence which could adversely affect our sales earnings financial condition and liquidity
We rely on the internet and other electronic methods to transmit confidential information and we store confidential information on our networks If there was a disclosure of confidential information by our employees or contractors including accidental loss inadvertent disclosure or unapproved dissemination of information or if a third party were to gain access to the confidential information we possess our reputation could be harmed and we could be subject to civil or criminal liability and regulatory actions A claim that is brought against us successful or unsuccessful that is uninsured or under insured could harm our business result in substantial costs divert management attention and adversely affect our sales earnings financial condition and liquidity
The Company s cybersecurity risk management program is integrated into the overall risk management framework including risk identification assessment and mitigation across all business areas We have collaborated with third party consultants and built a cybersecurity program designed to protect and safeguard the integrity of our information systems which aligns with industry standards and regulatory requirements Key components of our cybersecurity risk management and strategy include
We have previously experienced actual or attempted cyber attacks on our information systems or networks however none of these incidents had a material impact on our operations or financial condition For additional information on the impact of cyber risks refer to Part I Item 1A Risk Factors on page 12
The board of directors oversees the Company s practice for assessing identifying and managing material risks from cybersecurity threats The Audit Committee consisting of all of the board s independent directors with one member holding the CERT Certificate in Cybersecurity Oversight reviews and discusses with management and the independent auditor on the Company s significant financial risk exposures for matters related to cybersecurity risk including the steps management has taken to monitor and manage such exposures
The Company s VP of enterprise systems and applications leads the overall cybersecurity strategy and risk management program This role oversees development and execution of risk assessments implementation of security policies and procedures regular cybersecurity training for our employees and leadership of the IT security team and coordination with third party consultants
Senior executives including the Company s CEO and CFO integrate cybersecurity risks into the overall business strategy and financial planning The VP and IT security team provide regular reports to senior management on the Company s identified vulnerabilities progress on cybersecurity initiatives and remediation efforts and details of ongoing incidents Management notifies the board of directors when significant incidents occur and provides the Audit Committee with quarterly updates on the Company s cybersecurity practices
Set forth below is information with respect to our principal properties on April 18 2025 In March 2025 we announced the decision to exit the warehouse in Midway Georgia We expect to complete the exit in the second half of fiscal 2026 however the timing of the completion of the exit could differ from preliminary estimate We believe all of these properties are well maintained and in good condition During fiscal 2025 we estimate our upholstery plants operated at approximately 60 of capacity on a one shift basis All our production facilities are equipped with automatic sprinkler systems All facilities maintain modern fire and spark detection systems which we believe are adequate We have leased certain warehouse facilities for our distribution and import operations typically on a short or medium term basis We expect that we will be able to renew or extend these leases or find alternative facilities to meet our warehousing and distribution needs at a reasonable cost All facilities set forth below are active and operational representing in the aggregate approximately 3 3 million square feet of owned space leased space or properties utilized under third party operating agreements
Jeremy R Hoff has been Chief Executive Officer and Director since February 2021 Mr Hoff served as President of Hooker Legacy Brands from February 2020 to January 2021 President of the Hooker Branded segment from April 2018 to January 2020 Mr Hoff joined the Company in August of 2017 as President of Hooker Upholstery Prior to that Mr Hoff served as President of Theodore Alexander USA from December 2015 to August 2017
C Earl Armstrong III became the Company s Chief Financial Officer effective February 3 2025 and in such role he serves as the Company s principal financial officer and principal accounting officer Mr Armstrong has served as Senior Vice President Finance Corporate Secretary since April 2024 Mr Armstrong joined Hooker in 2009 as the Company s Manager of Financial Reporting through January 2013 He served as Director of Accounting from January 2013 to January 2016 Corporate Controller from February 2017 to June 2019 and Corporate Controller and Secretary from June 2019 through April 2024 In February 2021 through the end of January 2025 he also served as Chief Financial Officer of the Company s Home Meridian segment
Anne J Smith has been Chief Administration Officer and President Domestic Upholstery since February 2021 Ms Smith served as Chief Administration Officer from July 2018 to January 2021 Senior Vice President Administration from January 2014 to June 2018 Vice President HR and Administration from January 2011 to January 2014 and Vice President Human Resources from November 2008 to January 2011 Ms Smith joined the Company in January of 2008 as Director of Human Resources
Our stock is traded on the NASDAQ Global Select Market under the symbol HOFT As of February 2 2025 we had approximately 6 500 beneficial shareholders As we have done in the past we currently expect that future regular quarterly dividends will be declared and paid in the months of March June September and December Although we presently intend to continue to declare regular cash dividends on a quarterly basis for the foreseeable future the determination as to the payment and the amount of any future dividends will be made by the Board of Directors on a quarterly basis and will depend on our then current financial condition capital requirements results of operations and any other factors then deemed relevant by the Board of Directors
In Management s Discussion and Analysis we analyze and explain the annual changes in some specific line items in the consolidated financial statements for fiscal 2025 compared to fiscal 2024 We also provide information regarding the performance of each of our operating segments and All Other The analysis and discussions of fiscal 2024 compared to fiscal 2023 results are in our 2024 Form 10K available through Hooker Furnishings and SEC websites
Unless otherwise indicated references to the Company we our or us refer to Hooker Furnishings Corporation and its consolidated subsidiaries unless specifically referring to segment information All references to the Hooker Hooker Division Hooker Legacy Brands or traditional Hooker divisions or companies refer to the current components of our Hooker Branded segment the Domestic Upholstery segment including Bradington Young HF Custom Shenandoah Furniture and Sunset West and All Other which includes H Contract and BOBO
Furnishings sales account for all of our net sales For financial reporting purposes we are organized into three reportable segments Hooker Branded Home Meridian and Domestic Upholstery with our other businesses included in All Other We regularly monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary See Note 16 to our consolidated financial statements for additional financial information regarding our segments
Fiscal 2025 consolidated net sales totaled 397 5 million reflecting a decrease of 35 8 million or 8 3 compared to the previous fiscal year All three reportable segments experienced sales decreases driven by weak demand a depressed housing market and broader macroeconomic uncertainties impacting the broader home furnishings industry The Company reported a consolidated operating loss of 18 1 million primarily due to lower sales volumes 4 9 million in restructuring costs related to its cost reduction plan 3 1 million in bad debt expense from a major customer s bankruptcy and 2 8 million in a non cash tradename impairment Consolidated net loss amounted to 12 5 million or 1 19 per diluted share
Despite the operating loss the Company achieved significant milestones in fiscal 2025 These included the Margaritaville licensing agreement the launch of Hooker Branded s new merchandising strategy Sunset West s east coast expansion key inventory investments and market share gains amid a tough market Additionally the Company secured a new credit agreement ensuring sufficient financial resources to sustain operations and pursue growth initiatives
Consolidated gross profit and margin decreased primarily due to decreases in the Hooker Branded and Domestic Upholstery segments as well as approximately 1 2 million inventory write downs and restructuring costs at All Other related to the consolidation of the BOBO business However this decrease was partially offset by improved gross profit and margin at Home Meridian
Intangible asset amortization expense stayed flat in fiscal 2025 The 2 8 million non cash impairment charge was related to certain indefinite lived trade names in the Home Meridian segment See Note 10 Intangible Assets and Goodwill to our Consolidated Financial Statements for additional information about the impairment charges and our amortizable intangible assets
We recorded income tax benefit of 3 9 million for fiscal 2025 compared to income tax expense of 2 6 million for fiscal 2024 The effective tax rates for fiscal 2025 and fiscal 2024 were 23 9 and 20 7 respectively The effective tax rate was higher in fiscal 2025 due to the impact of state tax benefits and the cash surrender value of company owned life insurance which were added to the favorable tax impact of the pretax loss versus a subtraction from tax expense in the case of a pretax profit in the previous year See Note 17 Income Taxes to our Consolidated Financial Statements for additional information about our income taxes
During fiscal 2025 we used cash on hand and 936 000 life insurance proceeds to fund 9 9 million in cash dividends to shareholders 8 9 million increase in inventory levels 3 2 million capital expenditures 3 0 million toward the development of the ERP system 480 000 debt issuance cost and 395 000 in life insurance premiums on Company owned life insurance policies Company owned life insurance policies are in place to compensate us for the loss of key employees and to facilitate business continuity
During fiscal 2024 we used a portion of the 55 5 million cash generated from operations and 1 0 million life insurance proceeds to fund 11 7 million share repurchases 9 7 million in cash dividends to our shareholders 6 8 million capital expenditures including investments in our new showrooms 5 1 million for development of our cloud based ERP system 2 4 million on the BOBO acquisition and 406 000 in life insurance premiums on Company owned life insurance policies
During fiscal 2023 we used a portion of the 25 million term loan proceeds and existing cash and cash equivalents on hand to fund the 25 million Sunset Acquisition pay 13 3 million in purchases and retirement of common stock build up inventory levels by 12 million 9 6 million in cash dividends 5 4 million for the development of our new cloud based ERP system 4 2 million capital expenditures to enhance our business systems and facilities and 492 000 in life insurance premiums on Company owned life insurance policies
Our most significant ongoing short term cash requirements relate primarily to funding operations including expenditures for inventory lease payments and payroll quarterly dividend payments and capital expenditures related primarily to showroom renovations and upgrading systems buildings and equipment The timing of our working capital needs can vary greatly depending on demand for and availability of raw materials and imported finished goods but is generally the greatest in the mid summer as a result of inventory build up for the traditional fall selling season Long term cash requirements relate primarily to repayment of long term debt and funding lease payments
On December 5 2024 the Company and its wholly owned subsidiaries Bradington Young LLC Sam Moore Furniture LLC and Home Meridian Group LLC together with the Company the Borrowers entered into an Amended and Restated Loan and Security Agreement the Amended and Restated Loan Agreement with Bank of America N A BofA as lender The Amended and Restated Loan Agreement amends restates and replaces the Second Amended and Restated Loan Agreement dated as of September 29 2017 between the Borrowers and BofA as amended the Existing Loan Agreement The outstanding principal amount of loans and letters of credit issued under the Existing Loan Agreement and used to collateralize certain insurance arrangements and for imported product purchases will remain outstanding as loans and letters of credit under the Amended and Restated Loan Agreement
The Amended and Restated Loan Agreement provides for a revolving credit facility in a committed principal amount of up to 70 000 000 the Revolving Commitment including subline of 8 000 000 for letters of credit and an option to increase the Revolving Commitment by up to 30 000 000 upon meeting certain conditions including agreement by BofA to increase the Revolving Commitment by such amount Proceeds of loans and letters of credit under the Amended and Restated Loan Agreement are available for general working capital and other corporate purposes of the Borrower
Availability of loans and letters of credit under the Revolving Commitment is capped by a borrowing base formula calculated as of any date as the sum for the Borrowers of a the value of their accounts receivable b the value of their inventory c the value of their in transit inventory and d the life insurance cash surrender value of company owned life insurance policies in each case subject to eligibility requirements advance rates valuation metrics reductions for write offs and other dilutive items and reserves the Borrowing Base The lesser of the Revolving Commitment and the Borrowing Base in each case net of the principal amount of outstanding loans and the face amount of letters of credit constitutes Availability under the Amended and Restated Credit Agreement
Outstanding loans under the Amended and Restated Loan Agreement will bear interest at a rate per annum equal to the then current Term SOFR Rate for a period of one month plus 0 10 plus a margin of 1 75 The Term SOFR Rate will be adjusted on a monthly basis Letters of credit are subject to a letter of credit fee equal to the actual daily amount of undrawn letters of credit multiplied by a per annum rate of 1 75 and a fronting fee equal to the actual daily amount of undrawn letters of credit multiplied by a per annum rate of 0 125 We must also pay a monthly unused commitment fee that is based on the average daily unused amount of Revolving Commitment multiplied by a per annum rate of 0 25 All accrued interest and fees are payable in cash monthly in arrears
We may prepay any outstanding principal amounts borrowed under the Amended and Restated Loan Agreement at any time without penalty provided that any payment is accompanied by all accrued interest owed Subject to the Borrowers having sufficient borrowing base capacity and customary conditions precedent to borrowing amounts repaid may be reborrowed The Revolving Commitment will terminate and all amounts outstanding thereunder will be due and payable on December 5 2029
The obligations under the Amended and Restated Loan Agreement are secured by a first priority security interest in substantially all of the assets of the Borrowers other than real estate including all Company owned life insurance policies all accounts receivable all inventory all intellectual property all equipment and all other personal property
The Amended and Restated Loan Agreement includes customary representations and warranties and requires the Borrowers to comply with customary affirmative and negative covenants including among other things a financial covenant requiring the maintenance of a ratio of x EBITDA net of capital expenditures to the extent not paid using Borrowed Money to y the sum of debt service and dividends paid in each case as of the last day of each month for the trailing twelve month period ending on such day of at least 1 0 to 1 0 if an event of default has occurred and is continuing or Availability has fallen below 10 of the Revolving Commitment at any time until such time as both Availability is 10 or greater and no event of default exists for the 30 consecutive days prior to such month end
The Amended and Restated Loan Agreement also limits the Borrowers right to incur other indebtedness make certain investments and create liens upon our assets subject to certain exceptions among other restrictions The Amended and Restated Loan Agreement does not restrict the Company s ability to pay cash dividends on or repurchase shares of its common stock subject to a no default existing prior to or resulting from such dividend or repurchase b Availability is not less than 15 of the Revolving Commitment for each of the preceding 45 days prior to announcement of such dividend or repurchase and after giving pro forma effect to such dividend or repurchase and c if Availability is less than 20 of the Revolving Commitment on any day in such 45 day period the Borrowers are in compliance with the financial covenant described above after giving effect to such dividend or repurchase
As of February 2 2025 we had 22 1 million principal amount of outstanding loans and 6 7 million face amount of letters of credit We had 41 2 million of Availability based on the current Borrowing Base There were no additional borrowings outstanding under the Amended and Restated Loan Agreement as of February 2 2025
In fiscal 2023 our Board of Directors authorized the repurchase of up to 20 million of the Company s common shares The authorization did not obligate us to acquire a specific number of shares during any period and did not have an expiration date but it could be modified suspended or discontinued at any time at the discretion of our Board of Directors Repurchases could 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 our cash requirements for other purposes compliance with the covenants under the loan agreement for our revolving credit facility and other factors we deem relevant In fiscal 2024 second quarter our Board of Directors approved an additional 5 million for the repurchase of our common shares adding to the 20 million authorization it approved in fiscal 2023
During calendar 2021 our Board of Directors approved an upgrade to our current ERP system and implementation efforts began shortly thereafter The ERP system went live at Sunset West in December 2022 and in the legacy Hooker divisions in early September 2023 Due to our cost reduction initiatives we have temporarily paused the ERP project in the Home Meridian segment
We lease office space warehousing facilities showroom space and office equipment under leases expiring over the next five years As of February 2 2025 future minimum annual commitments under leases and operating agreements are 10 0 million in fiscal 2026 10 1 million in fiscal 2027 8 4 million in fiscal 2028 7 7 million in fiscal 2029 and 7 3 million in fiscal 2030 In March 2025 we announced the decision to exit the Savannah Georgia distribution center This will reduce lease payments and our future commitments by approximately 10 million over the next five years with a total of 14 5 million over the remaining lease term See Note 22 Subsequent Events for additional information
On March 24 2025 we announced our decision to exit its Savannah Georgia distribution center and consolidate operations in the existing facilities The Company commenced operations at the Savannah facility in October 2021 for its Home Meridian segment s HMI Accentrics Home ACH brand However shortly after opening the facility ACH s competitive position was severely eroded by a sharp rise in post COVID container freight rates from Asia In 2024 we liquidated its inventory and closed ACH part of a larger plan to exit unprofitable businesses at HMI We began reducing our footprint in Savannah shortly after that through a series of sub leases and lease amendments with our landlord continued to utilize remaining space for other brands in our Home Meridian segment and for the Sunset West division of our Domestic Upholstery segment We recorded net charges of between 1 3 million in fiscal 2025 and expect to record between 3 0 million to 4 0 million in fiscal 2026 related to the Savannah exit We further expect preliminary savings of between 750 000 1 0 million in net operating expenses in fiscal 2026 Also preliminarily we expect to realize annualized savings of between 4 0 million to 5 7 million beginning in fiscal 2027 These costs and benefits are largely dependent on the timing of the completion of the exit and could differ from these preliminary estimates
There is currently significant economic uncertainty and volatility We are evaluating a range of strategies to mitigate the current economic environment including a 50 year low in existing home sales and the possible impact of additional reciprocal tariffs on our operations and profitability Tariffs add tremendous complexity and uncertainty that require us to look at our cost structure more aggressively particularly on the lower margin direct container side of our business We continue to identify additional opportunities to gain efficiency by consolidating operations While evaluation of our cost footprint and implementation of further cuts are both ongoing we continue to invest in the highest growth potential areas of our business as growing profitable sales remains an intense focus
On the positive side the inflation cooled in February and March falling to the levels experienced last summer and fall before it rose from November 2024 to January 2025 Additionally according to the U S Census Bureau year over year monthly furniture sales have increased for 5 straight months beginning in September 2024
The methods estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations Specific areas requiring the application of management s estimates and judgments include among others revenue recognition inventory valuation assumptions pertaining to valuation of goodwill and intangible assets and useful lives of long lived assets Accordingly a different financial presentation could result depending on the judgments estimates or assumptions that are used However we do not believe that actual results will deviate materially from our estimates related to our accounting policies described below but because application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties actual results could differ materially from these estimates Therefore we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results
We recognize revenue pursuant to Accounting Standards Codification 606 which requires revenue to be recognized at an amount that reflects the consideration we expect to be entitled to receive in exchange for transferring goods or services to our customers Our policy is to record revenue when control of the goods transfers to the customer We have a present right to payment at the time of shipment as customers are invoiced at that time We believe the customer obtains control of goods at the time of shipment which is typically when title passes While the customer may not enjoy immediate physical possession of the products the customer s right to re direct shipment indicates control In the very limited instances when products are sold under consignment arrangements we do not recognize revenue until control over such products has transferred to the end consumer Orders are generally non cancellable once loaded into a shipping trailer or container
The transaction price for each contract is the stated price of the product reduced by any stated discounts or allowances at that point in time We do not engage in sales of products that attach a future material right which could result in a separate performance obligation for the purchase of goods in the future at a material discount The implicit contract with the customer as reflected in the order acknowledgement and invoice states the final terms of the sale including the description quantity and price of each product purchased The transaction price reflects the amount of estimated consideration to which we expect to be entitled This amount of variable consideration included in the transaction price and measurement of net sales is included in net sales only to the extent that it is probable that there will be no significant reversal in a future period
Net sales are comprised of gross revenues from sales of home furnishings and hospitality furniture products and are recorded net of allowances for trade promotions estimated product returns rebate advertising programs and other discounts Physical product returns are very rare due to the high probability of damages to our products in return transit Other revenues primarily royalties are immaterial to our overall results Payment is typically due within 30 60 days of shipment for customers qualifying for payment terms Collectability is reasonably assured since we extend credit to customers for whom we have performed credit evaluations and or from whom we have received a down payment or deposit Due to the highly customized nature of our hospitality products we typically require substantial prepayments on these orders with the balance due within 30 days of delivery
When an indicator of impairment is present the impairment test for our property plant and equipment requires us to assess the recoverability of the value of the assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and arising from use and eventual disposition of the assets We principally use our internal forecasts to estimate the undiscounted future cash flows used in our impairment analyses These forecasts are subjective and are largely based on management s judgment primarily due to the changing industry in which we compete changing consumer tastes trends and demographics and the current economic environment We monitor changes in these factors as part of the quarter end review of these assets While our forecasts have been reasonably accurate in the past during periods of economic instability uncertainty or rapid change within our industry we may not be able to accurately forecast future cash flows from our long lived assets and our future cash flows may be diminished Therefore our estimates and assumptions related to the viability of our long lived assets may change and are reasonably likely to change in future periods These changes could adversely affect our consolidated statements of operations and consolidated balance sheets
When we conclude that any of these assets are impaired the asset is written down to its fair value Any impaired assets that we expect to dispose of by sale are measured at the lower of their carrying amount or fair value less estimated cost to sell are no longer depreciated and are reported separately as assets held for sale in the consolidated balance sheets if we expect to dispose of the assets in one year or less
The fair value of our trademarks and trade names is determined based on the estimated earnings and cash flow capacity of those assets The impairment test consists of a comparison of the fair value of the indefinite lived intangible assets with their carrying amount If the carrying amount of the indefinite lived intangible assets exceeds their fair value an impairment loss is recognized in an amount equal to that excess During fiscal 2025 due to the decline in revenue driven by the downturn in the furniture industry increased freight costs changes in management s strategy and the bankruptcy of a key customer we identified triggering events that necessitated a valuation of the indefinite lived trade names and trademarks in the Home Meridian segment Consequently we performed a valuation using the discounted cash flow method This methodology involved cash flow projections and growth rates for each trade name over the next five years provided by management along with a royalty rate benchmark for companies engaged in similar activities Based on this analysis we recorded non cash impairment charges of 2 8 million for certain indefinite lived trade names within the Home Meridian segment At February 2 2025 based on our internal valuation the fair values of our Bradington Young remaining Home Meridian and BOBO non amortizable trademarks and trade names exceeded their carrying values
Upon the adoption of ASU 2017 04 we perform our annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount Management judgment is a significant factor in the goodwill impairment evaluation process The computations require management to make estimates and assumptions the most critical of which are potential future cash flows and the appropriate discount rate Based on our internal goodwill impairment analysis as described above we have concluded that Shenandoah and Sunset West goodwill in the Domestic Upholstery segment and BOBO goodwill in All Other is not impaired as of February 2 2025
The assumptions used to determine the fair value of our intangible assets are highly subjective and judgmental and include long term growth rates sales volumes projected revenues assumed royalty rates and factors used to develop an applied discount rate If the assumptions that we use in these calculations differ from actual results we may realize impairment on our intangible assets that may have a material adverse effect on our results of operations and financial condition
Inventories consisting of finished furniture for sale raw materials manufacturing supplies and furniture in process are stated at the lower of cost or market value with cost determined using the last in first out LIFO method Under this method inventory is valued at cost which is determined by applying a cumulative index to current year inventory dollars
We review inventories on hand and record an allowance for slow moving and obsolete inventory based on historic experience current sales trends and market conditions expected sales and other factors When we identify inventory that is unlikely to be sold or that has a cost basis in excess of its net realizable value we record a write down to reduce the carrying amount of inventory to its estimated net realizable value In March 2025 we announced the planned exit of our Savannah GA warehouse and the consolidation of warehouse operations at existing and temporary facilities In fiscal 2025 we recorded 1 3 million in inventory reserves on end of life and near end of life cycle products that we don t plan to move to these existing or temporary facilities due to the moving costs involved
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures The new guidance requires enhanced effective tax rate reconciliation and income taxes paid disclosures ASU 2023 09 is effective for annual periods beginning after December 15 2024 our fiscal 2026 We are currently evaluating the impact that the adoption of this new guidance will have on our Consolidated Financial Statements if any and will add necessary disclosures upon adoption
In fiscal 2025 imported products sourced from Vietnam accounted for 76 of our import purchases and our top five suppliers in Vietnam accounted for 62 of our fiscal 2025 import purchases A disruption in our supply chain or from Vietnam in general could significantly impact our ability to fill customer orders for products manufactured in those countries Our supply chain could be adversely impacted by the uncertainties of health concerns and governmental restrictions In some cases we may be able to provide substitutions using inventory on hand in transit and from our domestic warehouses but not enough to entirely mitigate the lost sales Supply disruptions and delays on selected items could occur for six months or longer before the impact of remedial measures would be reflected in our results If we are unsuccessful in obtaining those products from other sources or at comparable cost a disruption in our supply chain from our largest import furniture suppliers or from Vietnam in general could adversely affect our sales earnings financial condition and liquidity
We are exposed to various types of market risk in the normal course of our business including the impact of interest rate changes raw materials price risk and changes in foreign currency exchange rates which could impact our results of operations or financial condition We manage our exposure to this risk through our normal operating activities
Borrowings under the Amended and Restated Loan Agreement will bear interest at a rate per annum equal to the then current Term SOFR Rate for a period of one month plus 0 10 plus a margin of 1 75 The Term SOFR Rate will be adjusted on a monthly basis As such these debt instruments expose us to market risk for changes in interest rates As of February 2 2025 we had 22 1 million principal amount of outstanding loans At current borrowing levels a 1 increase in the SOFR rate would result in an annual increase in interest expenses of approximately 221 000 There were no additional borrowings outstanding under the Amended and Restated Loan Agreement as of February 2 2025
We are exposed to market risk from changes in the cost of raw materials used in our domestic upholstery manufacturing processes principally wood fabric and foam products Increases in home construction activity could result in increases in wood and fabric costs Additionally the cost of petroleum based foam products we utilize are sensitive to crude oil prices which vary due to supply demand and geo political factors
For imported products we generally negotiate firm pricing denominated in U S Dollars with our foreign suppliers typically for periods of at least one year We accept the exposure to exchange rate movements beyond these negotiated periods We do not use derivative financial instruments to manage this risk but could choose to do so in the future Most of our imports are purchased from suppliers located in Vietnam
Since we transact our imported product purchases in U S Dollars a relative decline in the value of the U S Dollar could increase the price we pay for imported products beyond the negotiated periods We generally expect to reflect substantially all of the effect of any price increases from suppliers in the prices we charge for imported products However these changes could adversely impact sales volume or profit margins during affected periods
Our management with the participation of our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal year ended February 2 2025 Based on this evaluation our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of February 2 2025 the end of the period covered by this annual report to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 as amended is accumulated and communicated to the Company s management including our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded processed summarized and reported within the time periods specified in the Securities and Exchange Commission s rules and forms
In accordance with Section 404 of the Sarbanes Oxley Act and SEC rules thereunder management has conducted an assessment of our internal control over financial reporting as of February 2 2025 based on the framework in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission Management s report regarding that assessment is included on page F 2 of this report with our consolidated financial statements and is incorporated herein by reference
Our independent registered public accounting firm KPMG LLP audited the consolidated financial statements included in this annual report on Form 10 K and has issued an audit report on the effectiveness of our internal control over financial reporting KPMG s report is included on page F 3 and F 4 of this report with our consolidated financial statements and is incorporated herein by reference
In accordance with General Instruction G 3 of Form 10 K most of the information called for by Items 10 11 12 13 and 14 of Part III will be incorporated by reference to the Company s definitive Proxy Statement for its Annual Meeting of Shareholders scheduled to be held June 3 2025 the 2025 Proxy Statement as set forth below
Information relating to the code of ethics that applies to our principal executive officer principal financial officer principal accounting officer or controller or persons performing similar functions will be set forth under the caption Code of Business Conduct and Ethics in the 2025 Proxy Statement and is incorporated herein by reference
Information relating to material changes if any in the procedures by which shareholders may recommend nominees for our Board of Directors will be set forth under the caption Procedures for Shareholder Recommendations of Director Nominees in the 2025 Proxy Statement and is incorporated herein by reference
Information relating to the Audit Committee of our Board of Directors including the composition of the Audit Committee and the Board s determinations concerning whether certain members of the Audit Committee are financial experts as that term is defined under Item 407 d 5 of Regulation S K will be set forth under the captions Corporate Governance and Audit Committee in the 2025 Proxy Statement and is incorporated herein by reference
Information relating to this item will be set forth under the captions Report of the Compensation Committee Compensation Discussion and Analysis CD A Executive Compensation including the executive compensation tables and disclosures following the CD A and Director Compensation in the 2025 Proxy Statement and is incorporated herein by reference
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Securities Exchange Act Rule 13a 15 f Under the supervision and with the participation of management including the principal executive officer and principal financial officer the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO Based on the Company s evaluation under that framework management concluded that the Company s internal control over financial reporting was effective as of February 2 2025
We have audited the accompanying consolidated balance sheets of Hooker Furnishings Corporation and subsidiaries the Company as of February 2 2025 and January 28 2024 the related consolidated statements of operations comprehensive loss income cash flows and shareholders equity for each of the years in the three year period ended February 2 2025 and the related notes collectively the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company as of February 2 2025 and January 28 2024 and the results of its operations and its cash flows for each of the years in the three year period ended February 2 2025 in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of February 2 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 18 2025 expressed an unqualified opinion on the effectiveness of the Company s internal control over financial reporting
These consolidated financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on these consolidated financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the consolidated financial statements and 2 involved our especially challenging subjective or complex judgments The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As discussed in Note 1 to the consolidated financial statements the Company generates revenue primarily through the sale of home furnishings and hospitality furniture products Revenue is recognized by the Company at the time of shipment to the customer The Company recorded 397 5 million of net sales for the fiscal year ended February 2 2025
We identified the evaluation of the sufficiency of audit evidence over revenue as a critical audit matter Subjective auditor judgment was required due to the highly automated nature of certain processes to record revenue that involved interfacing data across multiple information technology IT systems and the overall volume of transactions Additionally IT professionals with specialized skills and knowledge were required to evaluate the nature and extent of evidence obtained over revenue
The following are the primary procedures we performed to address this critical audit matter We applied auditor judgment to determine the nature and extent of procedures to be performed over processing and recording of revenue We involved IT professionals with specialized skills and knowledge who assisted in 1 gaining an understanding of the systems used in the Company s recognition of revenue and 2 evaluating the design and testing the operating effectiveness of certain internal controls over the revenue process This included general IT and certain application controls interacting within the Company s revenue recognition process For a sample of revenue transactions we assessed the recorded amount by comparing to underlying documentation including invoices cash receipts bills of lading and contracts with customers We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed including the appropriateness of the nature and extent of such evidence
We have audited Hooker Furnishings Corporation and subsidiaries the Company internal control over financial reporting as of February 2 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission In our opinion the Company maintained in all material respects effective internal control over financial reporting as of February 2 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated balance sheets of the Company as of February 2 2025 and January 28 2024 the related consolidated statements of operations comprehensive loss income cash flows and shareholders equity for each of the years in the three year period ended February 2 2025 and the related notes collectively the consolidated financial statements and our report dated April 18 2025 expressed an unqualified opinion on those consolidated financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audit also included performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The consolidated financial statements include the accounts of Hooker Furnishings Corporation and our wholly owned subsidiaries All material intercompany accounts and transactions have been eliminated in consolidation All references to the Company refer to the Company and our consolidated subsidiaries unless specifically referring to segment information
As a public entity we are required to present disaggregated information by segment using the management approach The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company s business units or segments The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments ASC 280 which are to allow the users of our financial statements to
We define our segments as those operations our chief operating decision maker CODM regularly reviews to analyze performance and allocate resources We measure the results of our segments using among other measures each segment s net sales gross profit and operating income as determined by the information regularly reviewed by the CODM
Substantially all of our trade accounts receivable are due from retailers and dealers that sell residential home furnishings or commercial purchasers of our hospitality and senior living products and consist of a large number of entities with a broad geographic dispersion We perform credit evaluations of our customers and generally do not require collateral
Reserves for customer allowances comprise the majority of the reduction of our gross trade accounts receivable to the estimated fair value reported on the face of our financial statements We regularly review and revise customer allowances based on unprocessed claims received and current and historical activity and any agreements made with specific customers Historically in the Home Meridian segment Clubs channel customers drove most of the customer allowance activity due to their consumer facing product return policies We based anticipated future claims on historical experience with these customers
We regularly review and revise accounts receivable for doubtful accounts based upon historical bad debts If the financial condition of a customer or customers were to deteriorate resulting in an impairment of their ability to make payments additional bad debt allowances may be required In the event a receivable is determined to be potentially uncollectible we engage collection agencies or law firms to attempt to collect amounts owed to us after all internal collection attempts have ended Once we have determined the receivable is uncollectible it is charged against the allowance for doubtful accounts
We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible We determine fair value based on assumptions that we believe market participants would use in pricing an asset or liability in the principal or most advantageous market When considering market participant assumptions in fair value measurements the following fair value hierarchy distinguishes between observable and unobservable inputs which are categorized in one of the following levels
The carrying value of certain of our financial instruments cash and cash equivalents trade accounts receivable and payable and accrued liabilities approximates fair value because of the short term nature of those instruments The carrying value of Company owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period See Note 9 for details
Inventories consisting of finished furniture for sale raw materials manufacturing supplies and furniture in process are stated at the lower of cost or market value with cost determined using the last in first out LIFO method Under this method inventory is valued at cost which is determined by applying a cumulative index to current year inventory dollars We believe the use of the LIFO method results in a better matching of costs and revenues We review inventories on hand and record an allowance for slow moving and obsolete inventory based on historic experience and expected sales
Operating lease right of use ROU assets and liabilities are recognized on the adoption date based on the present value of lease payments over the remaining lease term As interest rates are not explicitly stated or implicit in any of our leases we utilized our collateralized incremental borrowing rate based on our outstanding loans agreement which bear interest at a rate per annum equal to the then current Term SOFR plus a margin of 1 85 Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option
At the inception of a lease we allocate the consideration in the contract to each lease and non lease component based on the component s relative stand alone price to determine the lease payments Lease and non lease components are accounted for separately Lease expense for operating leases is recognized on a straight line basis over the lease term Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability Some of our real estate leases contain variable lease payments including payments based on the percentage increase in the Consumer Price Index for Urban Consumers CPI U We used February 2019 CPI U issued by the US Department of Labor s Bureau of Labor Statistics to measure lease payments and calculate lease liabilities upon adoption of this standard Additional payments based on the change in an index or rate or payments based on a change in our portion of the operating expenses including real estate taxes and insurance are recorded when incurred
We have a sub lease at one of our warehouses In accordance with the provisions of Topic 842 since we have not been relieved as the primary obligor of the warehouse lease we cannot net the sublease income against our lease payment to calculate the lease liability and ROU asset Our practice is to straight line the sub lease income over the term of the sublease
Our leases have remaining lease terms of less than one year to ten years some of which include options to extend the leases for up to ten years We have elected not to recognize ROU assets and lease liabilities that arise from short term leases for any class of underlying asset Short term leases are leases with lease terms of 12 months or less with either a no renewal option or b a renewal option which we are not reasonably certain to exercise
Long lived assets such as property plant and equipment and definite lived assets are evaluated for impairment annually or more frequently when events or changes in circumstances indicate that the carrying amount of the assets or asset groups may not be recoverable through the estimated undiscounted future cash flows from the use of those assets When any such impairment exists the related assets are written down to fair value Long lived assets subject to disposal by sale are measured at the lower of their carrying amount or fair value less estimated cost to sell are no longer depreciated and are reported separately as assets held for sale in the consolidated balance sheets
We own both definite lived amortizable assets and indefinite lived intangible assets Our amortizable intangible assets are related to the Shenandoah Sunset West and Home Meridian acquisitions as well as the rebranding of the Sam Moore product line and includes customer relationships and trademarks Our indefinite lived assets include goodwill related to the Shenandoah Sunset West and BOBO acquisitions as well as the Bradington Young Home Meridian and BOBO tradenames We may acquire additional amortizable assets and or indefinite lived intangible assets in the future Our indefinite lived intangible assets are not amortized but are tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired
In accordance with ASC 350 Intangibles Goodwill and Other our goodwill trademarks and trade names are tested for impairment annually as of the first day of our fourth quarter or more frequently if events or changes in circumstances indicate that the asset might be impaired Circumstances that could indicate a potential impairment include but are not limited to
The assumptions used to determine the fair value of our intangible assets are highly subjective and judgmental and include long term growth rates sales volumes projected revenues assumed royalty rates and factors used to develop an applied discount rate If the assumptions that we use in these calculations differ from actual results we may realize additional impairment on our intangible assets that may have a material adverse effect on our results of operations and financial condition
We own seventy one life insurance policies on certain of our current and former executives and other key employees These policies had a carrying value of 29 2 million at February 2 2025 and have a face value of approximately 53 million as of that date Proceeds from the policies are used to fund certain employee benefits and for other general corporate purposes We account for life insurance as a component of employee benefits cost Consequently the cost of the coverage and any resulting gains or losses related to those insurance policies are recorded as a decrease or increase to operating income Cash payments that increase the cash surrender value of these policies are classified as investing outflows on the Consolidated Statements of Cash Flows with amounts paid in excess of the increase in cash surrender value included in operating activities Gains on life insurance policies which typically occur at the time a policy is redeemed are included in the reconciliation of net income to net cash used in or provided by operating activities
We recognize revenue pursuant to Accounting Standards Codification 606 which requires revenue to be recognized at an amount that reflects the consideration we expect to be entitled to receive in exchange for transferring goods or services to our customers Our policy is to record revenue when control of the goods transfers to the customer We have a present right to payment at the time of shipment as customers are invoiced at that time We believe the customer obtains control of goods at the time of shipment which is typically when title passes While the customer may not enjoy immediate physical possession of the products the customers right to re direct shipment indicates control In the very limited instances when products are sold under consignment arrangements we do not recognize revenue until control over such products has transferred to the end consumer Orders are generally non cancellable once loaded into a shipping trailer or container
The transaction price for each contract is the stated price of the product reduced by any stated discounts or allowances at that point in time We do not engage in sales of products that attach a future material right which could result in a separate performance obligation for the purchase of goods in the future at a material discount The implicit contract with the customer as reflected in the order acknowledgement and invoice states the final terms of the sale including the description quantity and price of each product purchased The transaction price reflects the amount of estimated consideration to which we expect to be entitled This amount of variable consideration included in the transaction price and measurement of net sales is included in net sales only to the extent that it is probable that there will be no significant reversal in a future period
Net sales are comprised of gross revenues from sales of home furnishings and hospitality furniture products and are recorded net of allowances for trade promotions estimated product returns rebate advertising programs and other discounts Physical product returns are very rare due to the high probability of damages to our products in return transit Other revenues primarily royalties are immaterial to our overall results Payment is typically due within 30 60 days of shipment for customers qualifying for payment terms Collectability is reasonably assured since we extend credit to customers for whom we have performed credit evaluations and or from whom we have received a down payment or deposit Due to the highly customized nature of our hospitality products we typically require substantial prepayments on these orders with the balance due within 30 days of delivery For our outdoor furnishings most orders require a 50 deposit upon order and the balance when production is started
We offer advertising programs to qualified dealers under which we may provide signage catalogs and other marketing support to our dealers and may reimburse some advertising and other costs incurred by our dealers in connection with promoting our products The cost of these programs does not exceed the fair value of the benefit received We charge the cost of point of purchase materials including signage catalogs and fabric and leather swatches to selling and administrative expense as incurred Advertising costs charged to selling and administrative expense for fiscal years 2025 2024 and 2023 were 2 6 million 2 6 million and 2 0 million respectively The costs for other advertising allowance programs are charged against net sales We also have arrangements with some dealers to reimburse them for a portion of their advertising costs which provides advertising benefits to us Costs for these arrangements are expensed as incurred and are netted against net sales in our consolidated statements of operations and comprehensive income
We use the two class method to compute basic earnings per share Under this method we allocate earnings to common shares and participating securities according to their participation rights in dividends declared and undistributed earnings and divide the income available to each class by the weighted average number of common shares for the period in each class Unvested restricted stock grants made to our non employee directors and certain employees are considered participating securities because the shares have the right to receive non forfeitable dividends Because the participating shares have no obligation to share in net losses we do not allocate losses to our common shares in this calculation
Diluted earnings per share reflect the potential dilutive effect of securities that could share in our earnings Restricted stock awarded to non employee directors and certain employees and restricted stock units granted to employees that have not yet vested are considered when computing diluted earnings per share We use the treasury stock method to determine the dilutive effect of both unvested restricted stock and unvested restricted stock units Shares of unvested restricted stock and unvested restricted stock units under a stock based compensation arrangement are considered options for purposes of computing diluted earnings per share and are considered outstanding shares as of the grant date for purposes of computing diluted earnings per share even though their exercise may be contingent upon vesting Those stock based awards are included in the diluted earnings per share computation even if the non employee director may be required to forfeit the stock at some future date or no shares may ever be issued to the employees Unvested restricted stock and unvested restricted stock units are not included in outstanding common shares in computing basic earnings per share
The preparation of financial statements in conformity with U S generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of i assets and liabilities including disclosures regarding contingent assets and liabilities at the dates of the financial statements and ii revenue and expenses during the reported periods Significant items subject to such estimates and assumptions include inventory reserves useful lives of fixed and intangible assets allowance for doubtful accounts deferred tax assets the valuation of fixed assets and goodwill our pension and supplemental retirement income plans and stock based compensation These estimates and assumptions are based on our best judgments We evaluate these estimates and assumptions on an ongoing basis using historic experience and other factors including the current economic environment which we believe to be reasonable under the circumstances We adjust our estimates and assumptions as facts and circumstances dictate Actual results could differ from our estimates
In November 2023 the FASB issued ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures The new guidance requires enhanced reportable segment disclosures to include significant segment expenses The Company adopted this ASU on January 29 2024 The adoption did not have an impact on our Consolidated Financial Statements See Note 18 Segment Information
Our fiscal years end on the Sunday closest to January 31 In some years generally once every six years the fourth quarter will be fourteen weeks long and the fiscal year will consist of fifty three weeks Our quarterly periods are based on thirteen week reporting periods which end on Sundays As a result each quarterly period generally will be thirteen weeks or 91 days long except during a 53 week fiscal year which will have 14 weeks in the fourth quarter The 2025 fiscal year that ended on February 2 2025 was a 53 week fiscal year
We recorded inventory valuation charges of 622 000 1 8 million and 28 8 million respectively in fiscal 2025 2024 and 2023 for slow moving and obsolete inventory During the fourth quarter of fiscal 2023 we recorded net inventory valuation charges of approximately 24 4 million to write down the value of ACH and PRI inventories and other excess inventories to market including excess Samuel Lawrence Furniture brand inventories Management approved a plan to exit the Accentrics Home ACH e commerce brand of the Home Meridian segment along with repositioning the Prime Resources International PRI at the end of fiscal 2023 Due to historically high freight costs on these inventories high handling costs current demand and industry discounting levels as well as our current inventory levels management determined that a viable and profitable market for these products didn t exist and was unwilling to continue to incur additional lease warehouse labor and other costs to store and sell aging inventory below cost These inventory valuation charges were included as a separate line item below cost of goods sold in the Consolidated Statement of Operations
On January 31 2022 the first day of our 2023 fiscal year we entered into an Asset Purchase Agreement the Asset Purchase Agreement with Sunset HWM LLC Sunset West and its three members to acquire substantially all the assets of Sunset West the Sunset Acquisition Simultaneously we closed on the transaction by paying 23 9 million in cash and 2 million subject to an escrow arrangement In the fourth quarter of fiscal 2023 we received 639 000 from the seller for the final working capital adjustments Under the Asset Purchase Agreement the Company also assumed specified liabilities of Sunset West
In accordance with FASB Accounting Standards Codification Topic 805 Business Combinations ASC 805 the Sunset Acquisition has been accounted for using the acquisition method of accounting We recorded assets acquired including identifiable intangible assets and liabilities assumed from Sunset West at their respective fair values at the date of completion of the Sunset Acquisition The excess of the purchase price over the net fair value of such assets and liabilities was recorded as goodwill
We incurred Sunset Acquisition related costs of 414 000 in fiscal 2022 and 69 000 in fiscal 2023 These expenses were recorded as a component of selling and administrative expenses in our fiscal 2022 and fiscal 2023 consolidated statements of operations Sunset West s results are included in the Domestic Upholstery segment s results beginning with the fiscal 2023 first quarter
Certain costs incurred in connection with developing or obtaining computer software for internal use are capitalized These costs are amortized over periods of ten years or less Capitalized software is reported as a component of computer software and hardware above and on the property plant and equipment line of our consolidated balance sheets The activity in capitalized software costs was
We are implementing a common Enterprise Resource Planning ERP system across all divisions The ERP system went live at Sunset West in December 2022 and in the legacy Hooker divisions and for consolidated reporting in early September 2023 Due to our cost reduction initiatives we have temporarily paused the ERP project in the Home Meridian segment beginning in the third quarter of fiscal 2025 Based on the provisions of ASU 2018 15 Intangibles Goodwill and Other Internal Use Software we capitalize implementation costs associated with hosting arrangements that are service contracts These costs are recorded in other noncurrent assets of our consolidated balance sheets We amortize on a straight line basis over 10 years term as the system went live at Sunset West and the legacy Hooker divisions The amortization expenses are recorded as a component of selling and administrative expenses in our consolidated statements of operations
Implementation costs of 3 0 million and interest expense of 239 000 were capitalized in fiscal 2025 Implementation costs of 5 1 million and interest expense of 273 000 were capitalized in fiscal 2024 Implementation costs of 5 4 million and interest expense of 84 000 were capitalized in fiscal 2023 Amortization expenses of 1 2 million 410 000 and 12 000 were recorded in fiscal 2025 2024 and 2023 respectively The capitalized implementation costs at February 2 2025 and January 28 2024 were as follows
In accordance with ASC 350 Intangibles Goodwill and Other we perform our annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount Management judgment is a significant factor in the goodwill impairment evaluation process The computations require management to make estimates and assumptions the most critical of which are potential future cash flows and the appropriate discount rate Based on our internal analyses at February 2 2025 we concluded Shenandoah Sunset West and BOBO goodwill is not impaired
In conjunction with our evaluation of the cash flows generated by the Home Meridian Bradington Young and BOBO reporting units we evaluated the carrying value of trademarks and trade names using the income approach specifically the relief from royalty method which values the trademarks and trade names by estimating the savings achieved by ownership of the trademarks and trade name when compared to licensing the trademarks and trade names from an independent owner The inputs used in the trademarks and trade names analyses are considered Level 3 fair value measurements During fiscal 2025 we reviewed triggering events under ASU 2021 03 Intangibles Goodwill and Other Topic 350 Due to the decline in revenue driven by the downturn in the furniture industry changes in management s strategy and the bankruptcy of a key customer we identified triggering events that necessitated a valuation of the indefinite lived trade names and trademarks in the Home Meridian segment Consequently we performed a valuation using the income approach method This methodology involved cash flow projections and growth rates for each trade name over the next five years provided by management along with a royalty rate benchmark for companies engaged in similar activities Based on this analysis we recorded non cash impairment charges of 2 8 million for certain indefinite lived trade names within the Home Meridian segment At February 2 2025 we concluded the Bradington Young the remaining Home Meridian and BOBO non amortizable trade names are not impaired
Our amortizable intangible assets are recorded in the Home Meridian and in Domestic Upholstery segments During the fiscal 2024 first quarter we announced the rebranding of the Sam Moore product line to HF Custom As a result we reassessed the characteristics of the Sam Moore trade name and the roll out process and determined it qualified for amortization Consequently we began amortizing the Sam Moore trade name over a 24 month period using the straight line method beginning mid April 2023
Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability an exit price in an orderly transaction between market participants on the applicable measurement date We use a three tier fair value hierarchy which prioritizes the inputs used in measuring fair value These tiers include
As of February 2 2025 and January 28 2024 Company owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs The fair value of the Company owned life insurance is determined by inputs that are readily available in public markets or can be derived from information available in publicly quoted markets Additionally the fair value of the Company owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period
In fiscal 2020 we adopted Accounting Standards Codification Topic 842 Leases See Leases under Note 1 for a discussion of our accounting policies and elections under Topic 842 We have a sub lease at one of our warehouses and we recognized sub lease income of 125 000 146 000 and 445 000 in fiscal 2025 2024 and 2023 respectively
In March 2025 the Company announced the decision to exit the Savannah Georgia distribution center See Note 22 Subsequent Events for additional information The termination of the Georgia warehouse lease will reduce lease right of use assets and liabilities by approximately 11 million and decrease lease payments by 10 million over the next five years totaling a 14 5 million reduction over the remaining lease term
On December 5 2024 the Company and its wholly owned subsidiaries Bradington Young LLC Sam Moore Furniture LLC and Home Meridian Group LLC together with the Company the Borrowers entered into an Amended and Restated Loan and Security Agreement the Amended and Restated Loan Agreement with Bank of America N A BofA as lender The Amended and Restated Loan Agreement amends restates and replaces the Second Amended and Restated Loan Agreement dated as of September 29 2017 between the Borrowers and BofA as amended the Existing Loan Agreement The outstanding principal amount of loans and letters of credit issued under the Existing Loan Agreement and used to collateralize certain insurance arrangements and for imported product purchases will remain outstanding as loans and letters of credit under the Amended and Restated Loan Agreement
The Amended and Restated Loan Agreement provides for a revolving credit facility in a committed principal amount of up to 70 000 000 the Revolving Commitment including subline of 8 000 000 for letters of credit and an option to increase the Revolving Commitment by up to 30 000 000 upon meeting certain conditions including agreement by BofA to increase the Revolving Commitment by such amount Proceeds of loans and letters of credit under the Amended and Restated Loan Agreement are available for general working capital and other corporate purposes of the Borrower
Availability of loans and letters of credit under the Revolving Commitment is capped by a borrowing base formula calculated as of any date as the sum for the Borrowers of a the value of their accounts receivable b the value of their inventory c the value of their in transit inventory and d the life insurance cash surrender value of company owned life insurance policies in each case subject to eligibility requirements advance rates valuation metrics reductions for write offs and other dilutive items and reserves the Borrowing Base The lesser of the Revolving Commitment and the Borrowing Base in each case net of the principal amount of outstanding loans and the face amount of letters of credit constitutes Availability under the Amended and Restated Credit Agreement
Outstanding loans under the Amended and Restated Loan Agreement will bear interest at a rate per annum equal to the then current Term SOFR Rate for a period of one month plus 0 10 plus a margin of 1 75 The Term SOFR Rate will be adjusted on a monthly basis Letters of credit are subject to a letter of credit fee equal to the actual daily amount of undrawn letters of credit multiplied by a per annum rate of 1 75 and a fronting fee equal to the actual daily amount of undrawn letters of credit multiplied by a per annum rate of 0 125 We must also pay a monthly unused commitment fee that is based on the average daily unused amount of Revolving Commitment multiplied by a per annum rate of 0 25 All accrued interest and fees are payable in cash monthly in arrears
We may prepay any outstanding principal amounts borrowed under the Amended and Restated Loan Agreement at any time without penalty provided that any payment is accompanied by all accrued interest owed Subject to the Borrowers having sufficient borrowing base capacity and customary conditions precedent to borrowing amounts repaid may be reborrowed The Revolving Commitment will terminate and all amounts outstanding thereunder will be due and payable on December 5 2029
The obligations under the Amended and Restated Loan Agreement are secured by a first priority security interest in substantially all of the assets of the Borrowers other than real estate including all Company owned life insurance policies all accounts receivable all inventory all intellectual property all equipment and all other personal property
The Amended and Restated Loan Agreement includes customary representations and warranties and requires the Borrowers to comply with customary affirmative and negative covenants including among other things a financial covenant requiring the maintenance of a ratio of x EBITDA net of capital expenditures to the extent not paid using Borrowed Money to y the sum of debt service and dividends paid in each case as of the last day of each month for the trailing twelve month period ending on such day of at least 1 0 to 1 0 if an event of default has occurred and is continuing or Availability has fallen below 10 of the Revolving Commitment at any time until such time as both Availability is 10 or greater and no event of default exists for the 30 consecutive days prior to such month end
The Amended and Restated Loan Agreement also limits the Borrowers right to incur other indebtedness make certain investments and create liens upon our assets subject to certain exceptions among other restrictions The Amended and Restated Loan Agreement does not restrict the Company s ability to pay cash dividends on or repurchase shares of its common stock subject to a no default existing prior to or resulting from such dividend or repurchase b Availability is not less than 15 of the Revolving Commitment for each of the preceding 45 days prior to announcement of such dividend or repurchase and after giving pro forma effect to such dividend or repurchase and c if Availability is less than 20 of the Revolving Commitment on any day in such 45 day period the Borrowers are in compliance with the financial covenant described above after giving effect to such dividend or repurchase
As of February 2 2025 we had 22 1 million principal amount of outstanding loans and 6 7 million face amount of letters of credit We had 41 2 million of Availability based on the current Borrowing Base There were no additional borrowings outstanding under the Amended and Restated Loan Agreement as of February 2 2025
We sponsor a tax qualified 401 k retirement plan covering substantially all employees This plan assists employees in meeting their savings and retirement planning goals through employee salary deferrals and discretionary employer matching contributions Our contributions to the plan amounted to 1 8 million in fiscal 2025 and 2024 and 1 5 million in fiscal 2023
The SRIP provides monthly payments to participants or their designated beneficiaries based on a participant s final average monthly earnings and specified percentage participation level as defined in the plan subject to a vesting schedule that may vary for each participant The benefit is payable for a 15 year period following the participant s termination of employment due to retirement disability or death In addition the monthly retirement benefit for each participant regardless of age becomes fully vested and the present value of that benefit is paid to each participant in a lump sum upon a change in control of the Company as defined in the plan The SRIP is unfunded and all benefits are payable solely from our general assets The plan liability is based on the aggregate actuarial present value of the vested benefits to which participating employees are currently entitled but based on the employees expected dates of separation or retirement No employees have been added to the plan since 2008 and we do not expect to add additional employees in the future due to changes in our compensation philosophy which emphasizes more performance based compensation measures in total management compensation
The SERP provides monthly payments to eight retirees or their designated beneficiaries based on a defined benefit formula as defined in the plan The benefit is payable for the life of the retiree with the following forms available as a reduced monthly benefit Ten year Certain and Life 50 or 100 Joint and Survivor Annuity The SERP is unfunded and all benefits are payable solely from our general assets The plan liability is based on the aggregate actuarial present value of the benefits to which retired employees are currently entitled No employees have been added to the plan since 2006 and we do not expect to add additional employees in the future
For the SRIP the discount rate used to determine the fiscal 2025 net periodic cost was 5 05 based on the Mercer yield curve and the plan s expected benefit payments At February 2 2025 combining the Mercer yield curve and the plan s expected benefit payments resulted in a rate of 5 30 This rate was used to value the ending benefit obligations
At February 2 2025 the actuarial gain related to the SRIP amounted to 64 000 net of tax of 15 000 At January 28 2024 the actuarial gain related to the SRIP amounted to 150 000 net of tax of 41 000 At January 29 2023 the actuarial gain related to the SRIP amounted to 1 million net of tax of 288 000 The estimated actuarial gain that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the 2026 fiscal year is 178 845 There is no expected prior service cost or credit amortization
For the SERP the discount rate assumption used to measure the projected benefit obligations is set by reference to a certain hypothetical AA rated corporate bond spot rate yield curve constructed by our actuary Aon Aon and the plan s projected cash flows rounded to the nearest 10 bps At February 2 2025 combining the Aon AA Above Median yield curve and the plan s expected benefit payments created a rate of 5 40 This rate was used to value the ending benefit obligations At January 28 2024 combining the Aon AA Above Median yield curve and the plan s expected benefit payments created a rate of 4 90 This rate was used to determine the fiscal 2025 net periodic cost
Our Stock Incentive Plan permits incentive awards of restricted stock restricted stock units stock appreciation rights and performance grants to key employees The Stock Incentive Plan also provides for annual restricted stock awards to non employee directors We have issued restricted stock awards to our non employee directors since January 2006 and certain other management employees since 2014 The Company s 2024 Amendment and Restatement of the Hooker Furnishings Corporation Stock Incentive Plan the 2024 Plan was approved by shareholders on June 4 2024 at the annual shareholders meeting The 2024 plan preserves key elements and historical award practices while reserving 900 000 new shares of the Company s common stock
We account for restricted stock awards as non vested equity shares until the awards vest or are forfeited Restricted stock awards to non employee directors and certain other management employees vest if the director employee remains on the board employed generally over 1 to 3 years Annual restricted stock awards for non employee directors do not vest unless the director remains in service to the next annual meeting following annual shareholder meeting The fair value of each share of restricted stock is the market price of our common shares on the grant date
We have awarded time based restricted stock units to certain senior executives since 2011 Each restricted stock unit or RSU entitles the executive to receive one share of the Company s common stock if he or she remains continuously employed with the Company through the end of a three year service period Under the 2024 Plan each RSU grant vests one third annually on the anniversary date provided the executive officer remains continuously employed with the Company through each vesting date The RSUs may be paid in shares of the Company s common stock cash or both at the discretion of the Compensation Committee The RSUs are accounted for as non vested stock grants Similar to the restricted stock grants issued to our non employee directors RSU compensation expense is recognized ratably over the applicable service period However unlike restricted stock grants no shares are issued or other payment made until the end of the applicable vesting date commonly referred to as cliff vesting Historically grantees are not entitled to receive dividends on their RSUs during that time The fair value of each RSU is the market price of a share of our common stock on the grant date reduced by the present value of the dividends expected to be paid on a share of our common stock during the applicable service period discounted at the appropriate risk free rate Under the 2024 Plan dividends declared on unvested RSU awards accumulate in cash and are paid out only upon vesting of the underlying shares
We have issued Performance based Restricted Stock Units PSUs to our named executive officers since fiscal 2019 Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three year performance period Historically one target is based on our annual average growth in our EPS over the performance period and the other target is based on EPS growth over the performance period compared to our peers For the PSU issued under the 2024 Plan one target is the Company s absolute EPS compound annual growth rate and the other target is the relative Total Shareholder Return as measured against the Company s compensation peer group The payout or settlement of the PSUs will be made in shares of our common stock Dividends declared on unvested PSU awards accumulate in cash and are paid out only upon vesting of the underlying shares
Share based compensation expense related to restricted stock RSU and PSU is included in the selling and administrative expenses on the consolidated statements of operations The following tables summarize stock awards activity including the number and weighted average grant date fair value compensation expense recognized unrecognized compensation expenses and weighted average vesting periods of the unvested shares for each grant as of February 2 2025 values are in thousands number of shares and per share amounts are in whole numbers
All stock awards are designed to encourage retention and to provide an incentive for increasing shareholder value We have issued restricted stock awards to non employee members of the board of directors since 2006 and to certain non executive employees since 2014 We have issued RSUs to certain senior executives since fiscal 2012 under the Company s Stock Incentive Plan Each RSU entitles an executive to receive one share of the Company s common stock if the executive remains continuously employed with the Company through the end of a three year service period The RSUs may be paid in shares of our common stock cash or both at the discretion of the Compensation Committee of our board of directors We have issued PSUs to certain senior executives since fiscal 2019 under the Company s Stock Incentive Plan Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three year performance period One target is based on our annual average growth in our EPS over the performance period and the other target is based on EPS growth over the performance period compared to our peers For the PSUs issued under the Company s 2024 Plan in fiscal 2025 one target is the Company s annual EPS growth over the performance period and the other target is the Company s total shareholder return during the performance period compared to the Company s peer group The payout or settlement of the PSUs will be made in shares of our common stock
During fiscal 2024 we purchased and retired 620 634 shares of our common stock at an average price of 18 79 per share under the 20 million share repurchase authorization approved by our board of directors in fiscal 2023 and the additional 5 million share repurchase authorization approved by our board of directors in the second quarter of fiscal 2024 These repurchases reduced our total outstanding shares and consequently reduced the weighted outstanding shares used in our calculation of earnings per share for fiscal 2024 shown below The share repurchase program was completed during the fiscal 2024 third quarter
Total tax benefit for fiscal 2025 was 4 0 million of which 3 9 million benefit was allocated to continuing operations and 51 000 tax benefit was allocated to other comprehensive income Total tax expense for fiscal 2024 was 2 6 million of which 2 6 million expense was allocated to continuing operations and 41 000 tax benefit was allocated to other comprehensive income Total tax benefit for fiscal 2023 was 1 5 million of which 1 8 million benefit was allocated to continuing operations and 288 000 tax expense was allocated to other comprehensive income
At February 2 2025 and January 28 2024 our net deferred tax assets were 16 1 million and 12 0 million respectively The increase in the valuation allowance of 122 000 was due to additional foreign tax credit carryforward and a portion of state loss carryforwards We expect to fully realize the benefit of the deferred tax assets with the exception of a portion of the foreign tax credit carryforward in future periods when the amounts become deductible
We have federal and state net operating loss carryforwards of 41 8 million and 28 6 million respectively which have various expiration dates beginning in fiscal 2039 through fiscal 2045 with some having an indefinite carryforward period We have foreign tax credit carryforwards of 188 000 which expire beginning in fiscal 2029 through fiscal 2034 We also have charitable contribution carry forwards of 4 5 million which expire in fiscal 2028 and fiscal 2030
Current accounting standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return The guidance also addresses de recognition classification interest and penalties accounting in interim periods and disclosure We do not have unrecognized tax benefits as of February 2 2025
As a public entity we are required to present disaggregated information by segment using the management approach The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company s business units or segments The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments ASC 280 which are to allow the users of our financial statements to
We define our segments as those operations our chief operating decision maker CODM regularly reviews to analyze performance and allocate resources We measure the results of our segments using among other measures each segment s net sales gross profit key operating expenses and operating income as determined by the information regularly reviewed by the CODM The Company s CODM is the Chief Executive Officer
No significant long lived assets were held outside the United States at either February 2 2025 or January 28 2024 International customers accounted for less than 2 of consolidated invoiced sales in fiscal 2025 2024 and 2023 We define international sales as sales outside of the United States and Canada
In the ordinary course of our business we may become involved in legal proceedings involving contractual and employment relationships product liability claims intellectual property rights and a variety of other matters We do not believe that any pending legal proceedings will have a material impact on our financial position or results of operations
Factories located in Vietnam are a critical resource for Hooker Furnishings In fiscal 2025 imported products sourced from Vietnam accounted for 76 of our import purchases and our top five suppliers accounted for 63 of our fiscal 2025 import purchases A disruption in our supply chain from Vietnam could significantly impact our ability to fill customer orders for products manufactured at that factory or in that country
Our five largest domestic upholstery suppliers accounted for 31 of our raw materials supply purchases for domestic upholstered furniture manufacturing operations in fiscal 2025 One supplier accounted for 7 of our raw material purchases in fiscal 2025 Should disruptions with these suppliers occur we believe we could successfully source these products from other suppliers without significant disruption to our operations
One customer accounted for approximately 6 of our consolidated sales in fiscal 2025 Our top five customers accounted for 24 of our fiscal 2025 consolidated sales The loss of any one or more of these customers could adversely affect our earnings financial condition and liquidity At February 2 2025 36 of our consolidated accounts receivable is concentrated in our top five customers
We lease the four properties utilized in Shenandoah s operations One of our employees has an ownership interest in the entities that own these properties The leases commenced on September 29 2017 with an option to renew each for an additional seven years All four leases include annual rent escalation clauses with respect to minimum lease payments after the initial 84 month term of the lease is completed In addition to monthly lease payments we also incur expenses for property taxes routine repairs and maintenance and other operating expenses The total amount of the lease expenses and other expenses do not have a material effect on our consolidated financial statements
On March 24 2025 we announced our planned exit of our Savannah Georgia warehouse facility and the consolidation of warehousing operations in existing facilities We recorded 1 3 million in non cash related charges in fiscal 2025 and currently expect to record between 3 0 4 0 million in non cash related charges in fiscal 2026 in connection with this exit Amounts recorded in fiscal 2025 consist of inventory reserves for items at or near the end of their product life cycles that would incur significant costs to move to our existing facilities Amounts expected to be recorded in fiscal 2026 consist of fixed asset impairment severance and moving costs net of an expected gain upon lease termination The amounts of expected fiscal 2026 non cash charges and savings are largely dependent on the timing of the completion of the exit and could differ from these preliminary estimates

Company Name	HOOKER FURNISHINGS Corp Vist SEC web-site
Category	HOUSEHOLD FURNITURE
Trading Symbol	HOFT