Hooker Furnishings (NASDAQ:HOFT) held its second-quarter earnings conference call on Friday. Below is the complete transcript from the call.

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The full earnings call is available at https://edge.media-server.com/mmc/p/pqux5p89/

Summary

Hooker Furnishings reported a consolidated net income of $1.7 million for the second quarter of fiscal 2027, marking the third consecutive profitable quarter, aided by tariff recoveries and cost-reduction initiatives.

Despite a 9% decline in net sales, gross profit increased by $2.9 million with a gross margin improvement of 690 basis points to 31.8%, and operating income rose to $1.3 million from a prior-year loss.

The company noted significant improvements in the Hooker Branded and Domestic Upholstery segments, with notable tariff recoveries and selling price increases, though sales decreased due to lower unit volumes and promotional discounts.

Cash and cash equivalents increased to $18.7 million, with cash generated from operations amounting to $24 million over six months, and the company maintained financial flexibility with $51.8 million in available borrowing capacity.

Looking forward, the company remains cautious about consumer spending and housing market conditions but is optimistic about improved results in the second half, driven by cost structure changes and the Margaritaville initiative.

Full Transcript

Tanya, Operator

Good day, and thank you for standing by. Welcome to the Hooker Furnishings second quarter 2027 earnings webcast. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again.

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Earl Armstrong, Senior Vice President and Chief Financial Officer. Please go ahead.

Earl Armstrong, CPA — Chief Financial Officer

Thank you, Tonya, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2027 second quarter, which began on May 4, 2026 and ended on August 2, 2026. Joining me today is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation. During our call, we may make forward-looking statements which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2027 second quarter results.

Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. Before we jump into results, we want to discuss tariffs. We've included a table in our earnings release showing the impacts of this quarter's tariff recoveries by operating segment and for the total company. Obviously, tariff recoveries significantly and favorably impacted our Q2 results.

However, it's important to note that tariff costs significantly and adversely affected our prior-year results too. Prior to the U.S. Supreme Court's February 2026 decision invalidating IPA tariffs, we incurred an estimated $10.3 million of cumulative pre-tax costs related to tariffs in our fiscal year 2026 results, which significantly exceeded the tariff recoveries we are reporting today. In fiscal '26, we reported a net loss of nearly $27 million following the imposition of IPA tariffs.

Beginning in April '25, we elected to honor pricing on existing customer backlog and, for competitive and administrative reasons, did not immediately adjust pricing on certain other products. Our pricing reflects our total cost structure in the competitive and macroeconomic environment in which we operate, with tariffs being only one of many factors considered. On to results. Despite continued weaknesses in the housing market, soft retail demand for furniture and home furnishings, and persistent macroeconomic challenges, we delivered consolidated net income of $1.7 million, marking our third consecutive profitable quarter.

Results benefited from tariff recoveries received during the quarter, the sustained impact of our prior cost-reduction initiatives, and improved profitability in our reportable segments. Consolidated net sales decreased $6 million, or about 9%, compared to the prior-year period, reflecting lower sales across each of our operating segments. Despite the sales decline, gross profit increased $2.9 million and gross margin improved 690 basis points to 31.8%, while operating income improved to $1.3 million compared to an operating loss of $0.5 million in the prior-year period.

Now I'll turn the call over to Jeremy for his comments on our fiscal 2027 second quarter results.

Jeremy Hoff — Chief Executive Officer

Thank you, Earl. Good morning, everyone. The significant costs we incurred due to the IPA tariff significantly and adversely affected our prior-year results, and we are grateful to have recovered some of those costs in our fiscal '27 second quarter. The substantial administrative burden these tariffs placed on our team over many months cannot be recovered. In addition to the tariffs paid, we incurred incremental costs associated with the IPA tariffs, including increased customs bond cost, legal and professional fees, financing and working capital costs, and other administrative and supply chain-related expenses.

Although we do not believe that the tariff recoveries make us whole for the significant costs incurred by us in fiscal '26, I am grateful to the Hooker team for their persistence and extraordinary effort in navigating an unprecedented and highly complex environment and ultimately securing these recoveries for our shareholders. We are also deeply appreciative of the commitment and partnership of our suppliers and customers as we navigated this period of extraordinary uncertainty for our industry.

We are encouraged to report $1.7 million in consolidated net income for the quarter, marking our third consecutive quarter of profitability and a $4.9 million improvement over the prior-year second quarter. These results were achieved despite continued weakness in housing activity, low consumer confidence, and the seasonally softer demand environment we typically experience in the first half of our fiscal year. The improvement reflects the benefit of tariff recoveries received during the quarter as well as the sustained impact of the $17.5 million in annualized fixed-cost reductions implemented in continuing operations in the prior year.

These actions have helped position us to remain profitable despite continued pressure on sales. From a segment perspective, Hooker Branded and Domestic Upholstery both delivered improved profitability compared to the prior-year quarter. Hooker Branded benefited from tariff recoveries and higher selling prices, while Domestic Upholstery benefited from tariff recoveries, lower imported material cost, and improved overhead absorption. In addition to tariff recoveries, Hooker Branded profitability was impacted by shifts in channel and sales mix dynamics during the quarter.

Seasonally softer summer shipments to brick-and-mortar retailers resulted in a greater mix of e-commerce sales along with targeted promotional activity designed to support consumer engagement. The combination of channel mix and elevated promotional activity pressured margins during the quarter. We expect promotional activity to normalize during the second half of the fiscal year, much like we saw in July, the last month of our fiscal second quarter.

It's important to note that our core fiscal July results, absent any tariff recoveries, showed significant improvement over prior year, as we had mitigated many of the supply challenges referenced earlier. We believe that positive momentum will continue into the second half of the fiscal year. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments along with our cash, debt, inventory, and capital allocation strategies.

Earl Armstrong, CPA — Chief Financial Officer

Thank you, Jeremy. Starting with Hooker Branded, net sales decreased $1.6 million, or 4.5%, in the second quarter primarily due to lower unit volume, higher promotional discounts, and key SKU out-of-stocks due to significantly longer lead times out of Asia. These headwinds were partially offset by higher average selling prices. Inventory constraints in imported upholstery that began in the first quarter had largely eased by quarter end. Despite the decrease in sales, Hooker Branded gross profit increased $3.2 million and gross margin improved by 1,050 basis points to nearly 40%.

The improvement primarily reflected tariff recoveries and higher selling prices, partially offset by promotional discounting and higher warehousing and distribution costs. The segment generated $870,000 of operating income for the quarter compared with approximately breakeven results in the prior-year period. Backlog increased nearly 35% compared to the prior-year second quarter. Turning now to Domestic Upholstery, net sales decreased $1.5 million, or 5.3%, in the second quarter, as lower sales of upscale leather and custom fabric upholstery were partially offset by double-digit growth in private label and outdoor furnishings.

Gross profit increased $928,000 and gross margin improved 450 basis points to 23%, supported by tariff recoveries on imported materials, lower imported material costs, and improved overhead absorption. The segment generated operating income of $833,000 compared with an operating loss of $408,000 in the prior-year quarter, reflecting the improved gross margin as well as the benefit of previously implemented cost-reduction actions. The Domestic Upholstery backlog increased nearly 5% compared to the prior-year quarter, primarily reflecting higher private label orders.

In All Other, net sales decreased $2.8 million, or 66%, in the second quarter, primarily due to its hospitality business, with approximately 80% of first-half shipments occurring during the first quarter. Lower second-quarter shipments resulted in an operating loss for the quarter; however, the business remained profitable for the first six months of fiscal 2027. Turning to DisOps, although the divestiture was completed in the prior fiscal year, DisOps generated second quarter pre-tax income of $587,000 reflecting tariff recoveries, customer-related adjustments, and other post-divestiture activity.

Results included approximately $1.6 million of tariff recoveries recognized as a reduction of cost of sales, partially offset by approximately $0.6 million of customer credits recorded as a reduction of revenue. Current-period activity also included approximately $0.5 million of additional charges arising from a net settlement of various divestiture-related balances with the buyer. Turning now to cash, debt, and inventory, cash and cash equivalents stood at $18.7 million at quarter end, an increase of $8.1 million from the end of the first quarter and $17.5 million from the fiscal '26 year end.

Cash generated from operations during the first six months was $24 million. Cash was used to repay $3.6 million on our credit facility, distribute $2.5 million in cash dividends, repurchase $1.3 million of our common shares, and fund $1.1 million in CapEx. Inventory levels decreased by $5.3 million from $48.7 million at fiscal '26 year end to $43.4 million at the end of the second quarter. We maintained our financial flexibility with $51.8 million in available borrowing capacity under our amended and restated loan agreement as of quarter end, net of standby letters of credit, and no outstanding balances on the facility.

As of yesterday, we had approximately $21 million in cash on hand. Finally, I'll discuss our capital allocation strategy. During the first six months of fiscal '27, we repurchased 92,357 shares of our common stock for approximately $1.3 million at an average price of $13.68 per share. At quarter end, approximately $3.7 million remained available for future purchases under our $5 million share repurchase authorization. As we position the company for sustainable growth, the share repurchase program and adjusted dividend continue to provide a balanced framework for returning capital to shareholders while preserving flexibility to invest in strategic priorities. We believe this approach supports both near-term returns and long-term shareholder value. Now I'll turn the discussion back to Jeremy for his outlook.

Jeremy Hoff — Chief Executive Officer

Thank you, Earl. Looking to the second half of fiscal '27, consumer spending remains selective. Housing turnover and big-ticket discretionary demand remain weak, and we do not expect meaningful near-term improvement in market conditions. At the same time, the changes we have made to our cost structure and portfolio are delivering tangible benefits and should help position us to deliver improved results compared with the prior-year period, even if current conditions persist.

With the major cost-reduction initiatives behind us, our focus is on disciplined execution across our core businesses. Consolidated backlog increased 6.2% compared to the prior-year second quarter and 8.4% sequentially, led by Hooker Branded and Domestic Upholstery. We are also encouraged by the continued retail response to Margaritaville. We now have commitments for approximately 100 in-store galleries and 10 freestanding retail stores. Shipments began in the second quarter and are expected to build through the second half of fiscal '27 and into fiscal '28.

We believe we are well positioned to capitalize on opportunities as demand recovers. This ends the formal part of our discussion, and at this time I will turn the call back over to our operator, Tanya, for questions.

Tanya, Operator

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile our Q&A roster. And our first question will be coming from the line of Anthony Lebedinski of Sidoti. Your line is open.

Anthony Lebedinski — Analyst, Sidoti

Thank you, and good morning, everyone, and thanks for taking the questions. Certainly nice to see the improved profitability. I just wanted to ask, as far as the impact of the key SKU out-of-stocks at Hooker Branded, how significant was this? I mean, it sounds like it's no longer an issue, but just wanted to see if you could comment further on that topic, please.

Jeremy Hoff — Chief Executive Officer

I can't comment further specifically, but it was definitely a headwind for us, and it had a lot to do with lead times overseas, which extended kind of unpredictably. So, as I mentioned in the script, July, we feel like we started to get through that once we reached July, and our results in that month of the quarter gave us a pretty positive view of where we can be in the second half.

Anthony Lebedinski — Analyst, Sidoti

Okay, thanks. And then, you know, as far as Domestic Upholstery, just curious, you know, what's the mix of business nowadays between private label and outdoor products and custom upholstery? I mean, kind of where is that business nowadays, and how do you see that going forward?

Jeremy Hoff — Chief Executive Officer

We tend to look at it at the segment level, Anthony, and I think that's basically all we can say at this point. I think we're seeing strength in outdoor furnishings, especially given the seasonality, and like we mentioned, private label, too, is doing well. I'll mention, too, with outdoor this year, we don't have a warehouse move from Savannah, for example, for Sunset West. Earlier in the game, they had an ERP conversion with D365. So they've got as clear of a path as they've had due to us not having those type of movements going on.

So it's really good business for us. And the category is strong, so we're excited about the opportunity.

Anthony Lebedinski — Analyst, Sidoti

That's good to hear. Okay. And then just curious, you mentioned that shipments of Margaritaville started late in the quarter. Just wondering if you could comment on the revenue from Margaritaville and how do we think about the second half of the year as it relates to Margaritaville?

Jeremy Hoff — Chief Executive Officer

We can't get specific on that, but I will tell you that, you know, a big part of it is going to be in the second half, which we're in now. And many of those galleries are opening throughout the country, so that's probably all I could say on that.

Anthony Lebedinski — Analyst, Sidoti

Okay. And just to follow up on the galleries, as far as those are concerned, I know you talked about 100 of those being open, but as far as the cost to do those galleries, is that being done by you guys or by the retailers? Just wondering about if you could comment on that and if you could share more details.

Earl Armstrong, CPA — Chief Financial Officer

That won't be significant to our capital allocation.

Anthony Lebedinski — Analyst, Sidoti

Okay, gotcha. Okay. And lastly for me, I mean, so we just had Labor Day, which is an important holiday for the home furnishings industry. I know it's only been a few days since the holiday, but, you know, if you can, can you share any comments as to what you've heard from your retail customers about Labor Day? Even small anecdotes would be helpful.

Jeremy Hoff — Chief Executive Officer

I think that, I mean, the feedback that we've received has been fairly positive. I've been in this, I think, 30 years, and I think every one of those 30 years, retailers, our partners, are always grateful to be to the end of summer and actually to a point where you can start the fall. So I think there's a lot of optimism for just getting into that fall selling season. And I think, you know, Labor Day was reasonably good.

Anthony Lebedinski — Analyst, Sidoti

Okay, thanks very much, and best of luck.

Jeremy Hoff — Chief Executive Officer

Yeah. Appreciate it, Anthony. Thank you.

Tanya, Operator

And our next question will be coming from the line of Dave Storms of Stonegate. Your line is open. Dave, morning.

Dave Storms — Analyst, Stonegate

And appreciate you taking my questions. Just wanted to maybe start with your comments around promotions expected to come down in the second half here. In light of the challenging macro environment, how should we be thinking about maybe your confidence to bring down promotions despite the macro environment?

Jeremy Hoff — Chief Executive Officer

High confidence. Because we already—we mentioned July—and, you know, you do that in the summer months. You just simply don't balance it enough with enough regular business. So we're confident that that's not going to be a trend moving forward.

Dave Storms — Analyst, Stonegate

Understood. So then looking into the second half here, should that follow pretty regular seasonality with maybe a little bit of Margaritaville input? Or I guess maybe, kind of a different way, how should we think about price and mix and volume in the second half?

Jeremy Hoff — Chief Executive Officer

I think you should think about it as where we would normalize more and, you know, we're pretty optimistic on the second half.

Dave Storms — Analyst, Stonegate

Understood. And I got to imagine the strong backlog that you have gives you a healthy dose of confidence there. Is there anything more you can tell us about the backlog? Maybe the texture of the margins? How much of that is Margaritaville? Anything in that vein?

Jeremy Hoff — Chief Executive Officer

Can't get that specific. But we're encouraged by our backlog, and we feel good about the second half.

Dave Storms — Analyst, Stonegate

Understood. Appreciate that. And then maybe just one more on Margaritaville. I know you've mentioned it a couple times here. You know, very excited to see how that develops over the next six to 12 months. How should we be thinking about the sales funnel evolving from last quarter to this quarter? Are you seeing more firm commitments? I know you started shipping a little bit. Just anything more there would be great.

Jeremy Hoff — Chief Executive Officer

You know, overall with Margaritaville, we just continue to be really encouraged by the amount of support and participation that our partners are giving us. They're as excited about the brand as we are, and there's going to be a significant amount of—if you think about 100 gallery commitments and 10 retail stores—that's real estate that we didn't have before. We feel really good about our position in that and our ability to gain some market share in a different way than Hooker.

One thing that is encouraging for us is that that's not taking Hooker's position in the marketplace. So it has a chance to be really accretive to our business and give us a real chance of growth in those categories.

Dave Storms — Analyst, Stonegate

Understood. No, really looking forward to see how that shakes out. Thank you for taking our questions, and good luck on the next quarter.

Jeremy Hoff — Chief Executive Officer

Yeah, thank you. We appreciate it.

Tanya, Operator

And I would now like to turn the call back to Jeremy for closing remarks.

Jeremy Hoff — Chief Executive Officer

Thank you. I would like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal '27 third quarter results in December. Take care.

Tanya, Operator

And this concludes today's conference call. Thank you for participating. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.