HOOKER FURNISHINGS Corp - Annual Report: 2013 (Form 10-K)

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Virginia	54-0251350
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No x

 

 

 

 

Large accelerated Filer o

Accelerated Filer x

Non-accelerated Filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

 

§	To offer world-class style, quality and product value as a complete residential wood, metal and upholstered furniture resource through excellence in product design, manufacturing, global sourcing, marketing, logistics, sales and customer service.

 

§	To be an industry leader in sales growth and profitability performance, providing an outstanding investment for our shareholders and contributing to the well-being of our customers, employees, suppliers and community.

 

§	To nurture the relationship-focused, team-oriented and honor-driven corporate culture that has distinguished our company for nearly 90 years.

 

 

Products

 

§	the ability to offer customized upholstery combinations to the upscale consumer and interior design trade; and

§	the ability to offer quick four to six-week product delivery of custom products.

We believe that our sources for raw materials are adequate and that we are not dependent on any one supplier.  Hooker’s five largest suppliers accounted for approximately 40% of our raw materials supply purchases for domestic upholstered furniture manufacturing operations in fiscal 2013. One supplier accounted for approximately 14% of our raw material purchases. Should disruptions with this supplier occur, we believe we could successfully source these products from other suppliers without significant disruptions to our operations.

 

 

 

 

 

 

 

 

 

§	consumer confidence;

§	availability of consumer credit;

§	energy and other commodity prices; and

§	housing and mortgage markets;

§	fashion trends;

§	disposable income; and

§	household formation and turnover.

 
 Forward-Looking Statements

§

general economic or business conditions, both domestically and internationally, and instability in the financial and credit markets, including their potential impact on our (i) sales and operating costs and access to financing or (ii) customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses;

 

§	disruptions involving our vendors or the transportation and handling industries, particularly those affecting imported products, including customs issues, labor stoppages, strikes or slowdowns and the availability of shipping containers and cargo ships;

§	disruptions affecting our Henry County, Virginia warehouses and corporate headquarters facilities;

§	price competition in the furniture industry;

 

 

§	changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials;

 

§	the cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers’ income available for discretionary purchases, and the availability and terms of consumer credit;

 

§	risks associated with the cost of imported goods, including fluctuation in the prices of purchased finished goods and transportation and warehousing costs;

 

§	adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products;

 

§	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 and environmental compliance and remediation costs;

 

§	our ability to successfully implement our business plan to increase sales and improve financial performance;

 

§	the direct and indirect costs associated with the implementation of our Enterprise Resource Planning system, including costs resulting from unanticipated disruptions to our business;

§	achieving and managing growth and change, and the risks associated with new business lines, acquisitions, restructurings, strategic alliances and international operations;

 

§	risks associated with distribution through third-party retailers, such as non-binding dealership arrangements;

 

§	capital requirements and costs;

 

§	competition from non-traditional outlets, such as catalog and internet retailers and home improvement centers;

 

§	changes in consumer preferences, including increased demand for lower-quality, lower-priced furniture due to declines in consumer confidence and/or discretionary income available for furniture purchases and the availability of consumer credit;  and

 

§	higher than expected costs associated with product quality and safety, including regulatory compliance costs related to the sale of consumer products and costs related to defective or non-compliant products.

 

 

 

 

 

§	A disruption in supply from China or from our most significant Chinese supplier could adversely affect our ability to timely fill customer orders for these products and decrease our sales, earnings and liquidity.

 

 

 

§	Our dependence on non-U.S. suppliers could, over time, adversely affect our ability to service customers, which could decrease our sales, earnings and liquidity.

 

 

§	Our inability to accurately forecast demand for our imported products could cause us to purchase too much, too little or the wrong mix of inventory, which could decrease our sales, earnings and liquidity.

 

 

§	Supplier transitions due to cost or quality competitiveness could result in longer lead times and shipping delays, which could decrease our sales, earnings and liquidity.

 

 

§	Changes in the value of the U.S. Dollar compared to the currencies for the countries from which we obtain our products could adversely affect our sales, earnings and liquidity.

 

 

§	We are subject to changes in foreign government regulations and in the political, social and economic climates of the countries from which we source our products, which could decrease our sales, earnings and liquidity.

 

 

 

 

 

 

 

 

 

 

 

 

 

§	A significant decrease in the market value of a long-lived asset;

§	A significant adverse change in the extent or manner in which a long-lived asset group is being used, or in its physical condition;

§	A significant adverse change in the legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;

§	An accumulation of costs significantly in excess of the amount originally expected to acquire or construct a long-lived asset;

§	A current period operating or cash flow loss or a projection or forecast that demonstrates continuing losses associated with a long-lived asset’s use; and

§	A current expectation that more-likely-than-not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Lease expires March 31, 2014. May be expanded or contracted by 100,000 square feet on a month-to-month basis.

(2) Lease expires October 31, 2016.

(3) Comprise the principal properties of Bradington-Young LLC.

(4) Lease expires December 15, 2014 and provides for 2 one-year extensions at our election.

(5) Comprise the principal properties of Sam Moore Furniture LLC.

 

 

ITEM 3.   LEGAL PROCEEDINGS

 

Paul B. Toms, Jr. has been Chairman and Chief Executive Officer since December 2000 and also served as President for most of the period from November 2006 to August 2011.  Mr. Toms was President and Chief Operating Officer from December 1999 to December 2000, Executive Vice President - Marketing from 1994 to December 1999, Senior Vice President - Sales and Marketing from 1993 to 1994, and Vice President - Sales from 1987 to 1993.  Mr. Toms joined the Company in 1983 and has been a Director since 1993.

 

 

As of February 3, 2013, we had approximately 2,800 beneficial shareholders.  In the past, we generally paid dividends on our common stock on or about the last day of February, May, August and November, when declared by the Board of Directors, to shareholders of record approximately two weeks earlier.  However, beginning in fiscal 2014, we expect that any future regular quarterly dividends will be paid and declared in the months of March, June, September, and December, in order to more closely coincide with our fiscal quarters. Although we presently intend to continue to declare 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 from time to time 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.

 

(1)	The graph shows the cumulative total return on $100 invested at the beginning of the measurement period in our common stock or the specified index, including reinvestment of dividends.

 

(2)	The Russell 2000® Index, prepared by Frank Russell Company, measures the performance of the 2,000 smallest companies out of the 3,000 largest U.S. companies based on total market capitalization.

(3)

Household Furniture Index as prepared by Zacks Investment Research, Inc. consists of SIC Codes 2510 and 2511.  At April 9, 2013, Zacks Investment Research, Inc. reported that these two SIC Codes consisted of Bassett Furniture Industries, Inc., Bestar, Inc., Chromcraft Revington, Inc., Dorel Industries, Inc.,   Ethan Allen Interiors, Inc., First Choice Products Inc,, Flexsteel Industries, Inc., Furniture Brands International, Inc., Hooker Furniture Corporation,  La-Z-Boy, Inc., Leggett & Platt, Inc., Rowe Companies, Sealy Corp., Select Comfort Corp., Stanley Furniture Company, Inc. and Tempur Pedic International, Inc.

 

(1)	Our fiscal years end on the Sunday closest to January 31. The fiscal years presented above all had 52 weeks, except for the fiscal year ended February 3, 2013, which had 53 weeks.

(2)

We have closed facilities in order to reduce and ultimately eliminate our domestic wood furniture manufacturing capacity and to consolidate our domestic leather upholstered furniture operations.  As a result, we recorded restructuring charges and credits, principally for severance and asset impairment, as follows:

a)	in fiscal 2011 we recorded a charge of $1.4 million pretax ($874,000 after tax, or $0.08 per share) related to the consolidation and transfer of Bradington-Young’s Cherryville, NC manufacturing facility and offices to Hickory, NC; and

b)	in fiscal 2009 we recorded credits of $951,000 pretax ($592,000 after tax, or $0.05 per share) to reverse previously accrued employee benefits and environmental costs not expected to be paid with respect to the closing and sale of our Martinsville, VA casegoods manufacturing facility.

 

(3)	Based on our annual impairment analyses, we have recorded the following goodwill and intangible asset impairment charges:

a)	in fiscal 2012, we recorded intangible asset charges of $1.8 million pretax ($1.1 million after tax or $0.10 per share) on our Bradington-Young trade name;

b)	in fiscal 2011, we recorded intangible asset impairment charges of $396,000 pretax ($247,000 after tax, or $0.02 per share) on our Opus Designs by Hooker Furniture trade name;

c)	in fiscal 2010, we recorded intangible asset impairment charges of $661,000 pretax ($412,000 after tax, or $0.04 per share) on our Opus Designs by Hooker Furniture trade name and $613,000 pretax ($382,000 after tax, or $0.04 per share) on our Bradington-Young trade name; and

d)

in fiscal 2009, we recorded intangible asset impairment charges of $3.8 million pretax ($2.5 million  after tax, or $0.22 per share), primarily related to the write-off of goodwill resulting from the acquisition of Opus Designs in 2007 and of Bradington-Young in 2003, and $1.1 million ($685,000 after tax, or $0.06 per share) to write down the Bradington-Young trade name.

(4)	Net book value per share is derived by dividing “shareholders’ equity” by the number of common shares issued and outstanding, excluding unvested restricted shares, all determined as of the end of each fiscal period.

§	fifty-three week period that began January 30, 2012 and ended on February 3, 2013 (fiscal 2013);

§	fifty-two week period that began January 31, 2011 and ended on January 29, 2012 (fiscal 2012); and

§	fifty-two week period that began February 1, 2010 and ended on January 30, 2011 (fiscal 2011).

 

§	consumer confidence;

§	fashion trends;

§	availability of consumer credit;

§	energy and other commodity prices; and

§	housing and mortgage markets;

§	disposable income;

§	household formation and turnover; and

§	family size.

§	Out-of-stock positions on several key imported items, groups and collections negatively impacted sales and profitability, especially during the  first half of fiscal 2013;

§	The sourcing transition from some of our vendors in China to vendors in other Asian countries resulted in longer lead times.  Related shipping delays negatively impacted sales and profitability in the first-half of fiscal 2013, and to a lesser extent during the second half of fiscal 2013;

§	Decreased product discounting negatively impacted sales and unit volume in both segments, but drove gross margin improvement. Product discounting and sales volume was higher in the comparable prior-year periods in order to reduce excess and slow-moving inventory;

§	Selling and administrative expenses decreased in absolute terms during fiscal 2013 and were flat as a percentage of net sales due to the factors described below; and

§	Our upholstery segment returned to operating profitability in fiscal 2013 after reporting operating losses since the fiscal 2009 second quarter.

 

 

Fiscal 2013 Compared to Fiscal 2012

The decrease in consolidated net sales was principally due to lower unit volume, particularly in our casegoods segment, partially offset by higher average selling prices in both segments. The casegoods sales decrease was driven by out-of-stock positions on several key items, groups and collections in the first half of the 2013 fiscal year and decreased discounting. The out-of-stock positions were primarily due to overly-aggressive inventory reductions that began in fiscal 2012 and continued into the fiscal 2013 first six months. To a lesser extent and consistent with our fiscal 2012 fourth quarter, vendor shifts from China to other Asian countries resulted in the delay of several well-placed new casegoods collections and negatively impacted fiscal 2013 first six month sales. These vendor shifts contributed to the out-of-stock positions and increased the demand for our best-selling, in-stock products. This accelerated demand cycle hastened the out-of-stock position on best sellers. Sales of imported products in fiscal 2012 were driven by heavy discounting, intended to reduce inventory of slow selling and discontinued products. Upholstery net sales increased compared to the same prior-year period, primarily due to increased average selling prices, partially offset by lower unit volume.

Casegoods selling and administrative expenses increased as a percentage of net sales primarily due to the net sales decrease discussed above, but decreased in absolute terms, primarily due to:

 

§	increased amounts billed to our imported upholstery division for its share of administrative costs compared to prior periods;

§	lower contribution expense, due to lower levels of distressed inventory;

§	lower bad debt expense due to favorable collections experience;

§	reduced advertising and sample expenses, due to cost-cutting measures; and

§	lower sales and design commissions, due to lower net sales.

§	bonus expense, due to the reversal of an accrual for long-term performance grant awards in the comparable prior-year period;

§	salary expense, primarily due to an executive promotion and other salary increases; and

§	fees for professional services, due to additional fees for several corporate initiatives.

§	salary expense, due to an executive promotion to a corporate  position and cost reduction efforts undertaken in fiscal 2012;

§	benefits expense due to decreased headcount and lower health claims; and

§	sample and advertising expenses, due to cost-cutting measures.