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Hooker 2Q earnings quadruple as sales slide 11.5%

Better gross margins, lower costs boost profits despite tough retail environment

By Furniture Today Staff -- Furniture Today, September 6, 2007

MARTINSVILLE, Va. — Hooker Furniture said an improved gross profit margin and lower costs led to a four-fold increase in net income in its second quarter ended July 29. Earnings were $4.9 million, or 39 cents per share, up from $1.2 million, or 10 cents per share, in the comparable period a year earlier.

Hooker’s profit gain came despite an 11.5% decline in sales to $73.4 million.

“Our increased profitability confirms the opportunity we’ve seen for some time to improve financial and operational performance, even in a difficult retail environment, by realizing the efficiencies of our new business model,” said Paul Toms Jr., the company’s chairman, CEO and president. “Our improved operating margin for the current quarter reflects the cost-cutting initiatives we’ve had under way and the absence of significant restructuring charges.”

A higher proportion of imported wood and metal products sold, and some lower costs, lifted the gross profit margin to 31.3% of sales from 28.3% a year earlier, the company said. Hooker closed its last domestic wood furniture plant in March, although it still sells U.S.-made product from its Bradington-Young and Sam Moore upholstery operations.

Selling, general and administrative costs were down by 18.9% or $3.5 million. One factor was the company’s termination of its employee stock ownership plan in January.

Pretax restructuring costs also fell sharply, to $473,000 in the latest period from $2.8 million a year earlier.

This year’s quarter had 64 shipping days, one fewer than the year-ago period, so sales per day actually declined 10.1%, a bit less than the 11.5% quarter-to-quarter drop, Hooker said.

“While sales this quarter were negatively impacted by the industry-wide sales slump, much of the shortfall is the result of our exit from domestic wood furniture manufacturing, which will have a smaller negative impact on both our top and bottom lines moving forward,” Toms said.

Sales fell across all product lines, partly offset by the $6.7 million in sales from Sam Moore, which Hooker acquired on April 28 of this year.

For the first half, earnings of $9.1 million, or 71 cents per share, were up 29.8% from a year earlier, and sales of $150.7 million were down 13.2%.

Looking ahead, Toms said retail conditions remain challenging, but the company expects to see the usual seasonal gain in furniture sales this fall.

“If we see a flat to moderately reduced sales environment, financial performance for the remainder of this fiscal year should continue to compare favorably year-over-year as a result of our ongoing cost-cutting measures, continued progress in managing our supply chain and the elimination of major restructuring and ESOP costs,” he added.

“We expect continued year-over-year declines in warehousing and distribution costs due to better management of our finished goods inventories and lower temporary warehousing and port storage costs resulting from the continuing consolidation of our domestic warehousing operations.”

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Hooker profits up sharply

Sep 9, 2007

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