Hooker Furniture Sales Increase 13% in Third Quarter; Company Reports Restructuring Charge for Maiden Plant Closing

Business Wire, Oct 12, 2004

MARTINSVILLE, Va. -- Hooker Furniture (NASDAQ:HOFT) today reported net sales of $84.3 million for the quarter ended August 31, 2004, an increase of $9.6 million, or 12.8%, from $74.7 million in the 2003 third quarter, marking the eleventh consecutive quarter of increased sales compared with the same prior year periods. For the first nine months of fiscal 2004, the Company reported net sales of $254.0 million, an increase of $24.7 million, or 10.8%, compared to $229.3 million in the 2003 nine-month period.

Net income for the 2004 nine-month period improved to $12.8 million, or $1.09 per share, compared to $11.1 million, or $0.97 per share, in the same 2003 period. For the 2004 third quarter, net income was $3.2 million, or $0.27 per share, compared to $3.5 million, or $0.31 per share, in the 2003 quarterly period.

Profitability was impacted by restructuring charges related to plant closings affecting the 2004 periods and the 2003 nine-month period. In the 2004 third quarter, the Company recorded a $2.0 million pretax ($1.2 million after tax, or $0.10 per share) restructuring and related asset impairment charge principally related to the previously announced closing of the Company's Maiden, N.C. wood furniture manufacturing facility, scheduled for late October 2004. The 2003 nine-month period was impacted by a $1.5 million pretax ($911,000 after tax, or $0.08 per share) restructuring and related asset impairment charge related to the August 2003 closing of the Company's Kernersville, N.C. plant.

"We're pleased with our strong sales and operational performance this quarter, especially with the 32% increase in shipments from leather upholstery specialist Bradington-Young," said Paul B. Toms Jr., chairman and chief executive officer. Bradington-Young's shipments accounted for $13.9 million in net sales during the recently completed quarter, an increase of $3.4 million, or 32.1%, compared to $10.5 million in the 2003 third quarter. "We are now hitting our stride at Bradington-Young," Toms said, "We have successfully ramped up production to match the increase in incoming orders we've experienced over the last few quarters. We also believe Bradington-Young has gained market share as we have increased the number of sales representatives carrying the line."

In addition, shipments of imported wood furniture continued a robust growth pattern, with a 24.5% increase in sales to $45.9 million in the 2004 third quarter compared with $36.9 million in the same 2003 period.

"Competitive pressures have caused continuing declines in Hooker's shipments of domestically produced wood furniture, leading us to the decision in August to close our Maiden, N.C. production facility," Toms said. Third quarter 2004 shipments of the Company's domestically produced wood furniture declined $2.8 million, or 10.5%, to $24.5 million from $27.3 million in the year earlier quarter, principally due to lower unit volume.

Hooker expects to reduce production costs by $2.0 to $2.5 million annually, once the Maiden facility closes in late October 2004. Toms added, "After we close the Maiden plant and increase work schedules at our three remaining wood furniture plants, we expect to see profit margins improve for domestically produced wood furniture." The Company also anticipates recording $300,000 to $400,000 of additional restructuring charges in subsequent periods for other associated costs as the Maiden facility is prepared for sale following the plant's shut down.

Imported wood furniture shipments increased $23.0 million, or 20.8%, to $133.1 million compared to $110.1 million in the 2003 nine-month period. Shipments from Bradington-Young accounted for $41.4 million in net sales during the first nine months of 2004 compared to $31.5 million during the eight months following its acquisition by the Company at the beginning of January 2003. Shipments of the Company's domestically produced wood furniture during the 2004 nine-month period declined $8.2 million, or 9.3%, to $79.5 million from $87.7 million in the nine-month period of 2003.

Operating income was $5.4 million in the 2004 three-month period compared to $6.3 million in the 2003 quarterly period. For the nine-month periods, operating income was $21.5 million in 2004 and $19.6 million in 2003. Excluding the pretax restructuring charges of $2.0 million in the 2004 periods and $1.5 million in the 2003 nine-month period, operating income improved to $7.3 million, or 8.7% of net sales, in the 2004 third quarter, compared to $6.3 million, or 8.4% of net sales, in the 2003 quarterly period; and improved to $23.5 million, or 9.3% of net sales, in the 2004 nine-month period, compared to $21.0 million, or 9.2% of net sales, in the 2003 nine-month period.

The improvement in operating income excluding the pretax restructuring charges as a percentage of net sales for the 2004 periods compared to the 2003 periods is primarily attributed to the mix of products shipped (principally higher margin imported wood furniture shipments leveraged against lower selling, warehousing and distribution costs as a percentage of net sales on those shipments) and lower production costs as a percentage of sales resulting principally from higher unit volume for upholstered furniture products. These improvements were offset by higher selling and administrative expenses as a percentage of net sales principally reflecting the higher costs of complying with new regulatory mandates initiated by the Sarbanes-Oxley Act of 2002. The Company expects these compliance costs to decline during fiscal 2005.