HOOKER FURNISHINGS CORPORATION All references to the "Company," "we," "us" and "our" in this document refer toHooker Furniture 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 includingBradington-Young , Sam Moore, andShenandoah Furniture , and All Other which includes H Contract and Lifestyle Brands. References to the "Shenandoah acquisition" refer to the acquisition of substantially all of the assets ofShenandoah Furniture, Inc. onSeptember 29, 2017 . References to the "HMI acquisition" refer to the acquisition of substantially all of the assets ofHome Meridian International, Inc. onFebruary 1, 2016 . Forward-Looking Statements Certain statements made in this report, including statements under Item 2. "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 negatives thereof, or other variations thereof, 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:
? The effect and consequences of the coronavirus (COVID-19) pandemic or future
pandemics on a wide range of matters including
business operations and continuity; the health and productivity of our
employees; and the impact on our supply chain, the retail environment and our
customer base;
? 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;
? adverse political acts or developments in, or affecting, the international
markets from which we import products, including duties or tariffs imposed on
those products by foreign governments or the
current
into
furniture components manufactured in
or increased tariffs in the future;
? sourcing transitions away from China , including the lack of adequate
manufacturing capacity and skilled labor and longer lead times, due to
competition and increased demand for resources in those countries;
? risks associated with our reliance on offshore sourcing and the cost ofimported goods, including fluctuation in the prices of purchased finished
goods, ocean freight costs and warehousing costs and the risk that a
disruption in our offshore suppliers could adversely affect our ability to
timely fill customer orders;
? changes in
social and economic climates of the countries from which we source our
products;
? disruptions involving our vendors or the transportation and handling
industries, particularly those affecting imported products from
availability of shipping containers and cargo ships;
? difficulties in forecasting demand for our imported products;
? 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;
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? disruptions and damage (including due to weather) affecting our
administrative facilities or our representative offices or warehouses in
Vietnam andChina ; ? 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;
? the risks specifically related to the concentrations of a material part of our
sales and accounts receivable in only a few customers;
? our inability to collect amounts owed to us or significant delays in
collecting such amounts;
? the 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 or inadequate levels of
cyber-insurance or risks not covered by cyber insurance;
? achieving and managing growth and change, and the risks associated with new
business lines, acquisitions, restructurings, strategic alliances and
international operations;
? higher than expected employee medical and workers' compensation costs that may
increase the cost of our high-deductible healthcare and workers compensation
plans;
? product liability claims;
? risks related to our other defined benefit plans;
? the impairment of our long-lived assets, which can result in reduced earnings
and net worth;
? capital requirements and costs, including the servicing of our floating-rate
term loans;
? risks associated with distribution through third-party retailers, such as
non-binding dealership arrangements;
? the cost and difficulty of marketing and selling our products in foreign
markets;
? 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;
? price competition in the furniture industry;
? competition from non-traditional outlets, such as internet and catalog
retailers; and
? changes in consumer preferences, including increased demand for lower-quality,
lower-priced furniture due to, among other things, fluctuating consumer
confidence, amounts of discretionary income available for furniture purchases
and the availability of consumer credit.
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.
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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" in our 2020 annual report on Form 10-K (the "2020 Annual Report"). 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. This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the thirteen-week period (also referred to as "three months," "three-month period," "quarter," "first quarter" or "quarterly period") that beganFebruary 3, 2020 and endedMay 3, 2020 . This report discusses our results of operations for this period compared to the 2020 fiscal year thirteen-week period that beganFebruary 4, 2019 and endedMay 5, 2019 ; and our financial condition as ofMay 3, 2020 compared toFebruary 2, 2020 .
References in this report to:
? the 2021 fiscal year and comparable terminology mean the fiscal year that
began February 3, 2020 and will end January 31, 2021 ; and
? the 2020 fiscal year and comparable terminology mean the fiscal year that
began February 4, 2019 and ended February 2, 2020 .
Dollar amounts presented in the tables below are in thousands except for per share data.
The following discussion should be read in conjunction with the condensed consolidated financial statements, including the related notes, contained elsewhere in this quarterly report. We also encourage users of this report to familiarize themselves with all of our recent public filings made with theSecurities and Exchange Commission ("SEC"), especially our 2020 Annual Report. Our 2020 Annual Report contains critical information regarding known risks and uncertainties that we face, critical accounting policies and information on commitments and contractual obligations that are not reflected in our condensed consolidated financial statements, as well as a more thorough and detailed discussion of our corporate strategy and new business initiatives.
Our 2020 Annual Report and our other public filings made with the
OverviewHooker Furniture Corporation , incorporated inVirginia in 1924, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture and fabric-upholstered furniture for the residential, hospitality and contract markets. We also domestically manufacture premium residential custom leather and custom fabric-upholstered furniture. We are ranked among the nation's top five largest publicly traded furniture sources, based on 2019 shipments toU.S. retailers, according to a 2020 survey by a leading trade publication.
We believe that consumer tastes and channels in which they shop for furniture are evolving at a rapid pace and we continue to change to meet these demands.
Our strategy is to leverage the financial strength afforded us by Hooker's slower-growing but highly profitable traditional businesses in order to boost revenues and earnings both organically and by acquiring companies selling in faster-growing channels of distribution in which our traditional businesses are under-represented. Consequently, Hooker acquired the business of Home Meridian onFebruary 1, 2016 andShenandoah Furniture onSeptember 29, 2017 . We believe our acquisition of Home Meridian has better positioned us in some of the fastest growing and advantaged channels of distribution, including e-commerce, warehouse membership clubs and hospitality furniture. While growing faster than industry average, these channels tend to operate at lower margins. 21
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We also believe our acquisition ofShenandoah Furniture , aNorth Carolina -based domestic upholsterer has better positioned us in the "lifestyle specialty" retail distribution channel. For that channel, domestically- produced, customizable upholstery is extremely viable and preferred by the end consumers who shop at retailers in that channel. COVID-19 During the fiscal 2021 first quarter, COVID-19 was recognized as a global pandemic. Federal, state and local governments in theU.S and elsewhere have imposed restrictions on travel and business operations and are advising or requiring individuals to limit or eliminate time outside of their homes. Temporary closures of certain businesses were also ordered in certain jurisdictions and other businesses temporarily closed voluntarily. Consequently, the COVID-19 outbreak severely restricted the level of economic activity in theU.S. and around the world. We monitor information on COVID-19 from theCenters for Disease Control and Prevention ("CDC") and believe we are adhering to their recommendations regarding the health and safety of our personnel. To address the potential human impact of the virus, most of our administrative staff are telecommuting. For those administrative staff not telecommuting and our warehouse and domestic manufacturing employees, we have implemented social distancing and mask policies, instituted daily temperature checks and have stepped-up facility cleaning at each location. Non-essential domestic travel for our employees has ceased and international travel has been prohibited outright. Testing and treatment for COVID-19 is covered 100% under our medical plan and counseling is available through our employee assistance plan to assist employees with financial, mental and emotional stress related to the virus and other issues. In addition, we are offering temporary paid leave to employees diagnosed with the virus (and those associates with another diagnosed person or persons in their household) and are working to accommodate associates with child-care issues related to school or day-care closures and anticipated re-openings. To address the financial impact of the virus, we have delayed non-essential capital spending and have implemented other cost-cutting measures, including abbreviated shifts, furloughs, the temporary closure of our domestic manufacturing plants, staff reductions, temporary fee reductions for our Board of Directors, temporary salary reductions for officers and other managers, rationalizing current import purchase orders and we are working with our vendors to cut costs and extend payment terms where we can. Demand for home furnishings appears to be increasing as order rates in all divisions have increased. Orders plummeted over 70% year over year in March and approximately 65% year over year in April. Cancellations of stock orders by large customers and deferred orders from retailers who closed their stores during the shutdown partially drove the steep declines. Orders declined significantly during the first few weeks of May but then recovered resulting in an about a 5% overall reduction for the full month compared to the prior year. Fiscal June and July orders have continued this positive trend.
Executive Summary-Results of Operations
Consolidated net sales for the fiscal 2021 first quarter decreased by$30.9 million or 22.8% as compared to the prior year period, from$135.5 million to$104.6 million . Nearly 50% of the sales decrease occurred in April, the first full month we operated under COVID-19 crisis conditions, which caused greatly reduced demand for our products. We experienced significant sales decreases in all three reportable segments during the fiscal 2021 first quarter. Hooker Branded's net sales decreased by$12.4 million or 31.4%, Home Meridian's net sales decreased by$10.0 million or 14.7% andDomestic Upholstery's net sales decreased by$8.5 million or 33.7%. All Other net sales stayed essentially flat, all as compared to the fiscal 2020 first quarter. The adverse economic effects brought on by the COVID-19 pandemic triggered an interim intangible asset impairment analysis which required us to perform a valuation of our intangible assets. As a result of the valuation analysis, we recorded$44.3 million in non-cash impairment charges to write down goodwill and tradenames in our Home Meridian segment and goodwill in the Shenandoah division of ourDomestic Upholstery segment. Our stock price was near a six-year low at the impairment measurement date at the end of the fiscal 2021 first quarter, which was near the zenith of the COVID-19 crisis to that point. Our deflated quarter-end market valuation was one of the primary inputs in the valuation analysis and the analysis indicated these assets were impaired and it was appropriate to write them down. Primarily due to the impairment charge, but also due to lower sales, and despite cost cutting measures (described further on page 23), for the first time since the housing crisis over a decade ago, we reported quarterly operating and net losses in the fiscal 2021 first quarter. Consolidated net loss was$34.8 million compared to$2.0 million of net income reported in the fiscal 2020 first quarter. Loss per share was$2.95 as compared to earnings per share of$0.17 in the comparable prior year period. 22
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As discussed in greater detail under "Results of Operations" below, the following are the primary factors that affected our consolidated fiscal 2021 first quarter results of operations:
? Gross profit. Consolidated gross profit decreased both in absolute terms and
as a percentage of net sales, due to decreased gross profit at Hooker Branded
and
unabsorbed costs in
its domestic manufacturing operations in April. Home Meridian's gross profit
increased in absolute terms and as a percentage of net sales due to the
non-recurrence of several major prior-year costs including excess tariffs,
higher returns and allowances, and increased product costs. All Other's gross
profit stayed essentially flat in absolute terms and as a percentage of net
sales.
? Selling and administrative expenses. Consolidated selling and administrative
("S&A") expenses for fiscal 2021 first quarter decreased in absolute terms due
to decreased selling expenses on lower net sales and profitability, decreased
compensation expenses, and other decreased operating expenses, partially
offset by increased allowances for doubtful accounts and the absence of a
deferred gain recognized in the prior year period related to the sale of a
former distribution facility. S&A expenses increased as a percentage of net
sales due to lower net sales.
?
non-cash impairment charges during the quarter.
impairment charges were recorded in the Home Meridian segment and the Domestic
Upholstery segment.
recorded in the Home Meridian segment. We recorded income tax benefit of
million for the fiscal 2021 first quarter, of which income tax benefit of
$10.6 million was recorded related to these impairment charges.
? Operating loss. Consolidated operating loss was
first quarter, due to the factors discussed above and in greater detail in the
analysis below.
Review
Fiscal 2021 started on a positive note with increased incoming orders in
February as compared with the prior year; however, the COVID-19 pandemic
significantly impacted our business in March and April. Consolidated net sales
decreased by about 23% compared to prior year first quarter. Decreased demand
for home furnishings driven by the temporary closure of many of our customers'
stores and continuing deterioration in the retail environment were the primary
drivers of the decline in orders and sales. We reported operating and net losses
for the first time in over a decade. On a more positive note, our e-commerce
sales continued to grow even in the current muted retail environment, which has
proven the value of our strategy of pursuing multiple distribution channels at
multiple price points.
The Hooker Branded segment's net sales decreased $12.4 million or 31.4% in the
fiscal 2021 first quarter, driven by reduced demand. The majority of this
segment's customers are traditional furniture stores and small or regional
chains, most of which were closed since late March, leading to nearly 30%
incoming order decline in the segment. Despite the sales decline, this segment
was still highly profitable with a 29.5% gross margin and a 4.9% operating
income margin during the quarter, which we believe to be excellent performance
under current economic conditions.
The Home Meridian segment's net sales decreased $10.0 million or 14.7% in the
fiscal 2021 first quarter due primarily to lower sales volume due to the
COVID-19 pandemic. Current economic factors, such as high unemployment and low
consumer confidence, have resulted in a weak retail environment for home
furnishings and caused discretionary purchases of furniture to decline.
Consequently, Home Meridian experienced a spike in order cancellations in March
and April, which resulted in nearly 50% decrease in incoming orders and 25.3%
decrease in backlog compared to the prior year first quarter. In addition to the
aforementioned intangible asset impairment charges recorded in this segment of
$27.9 million and sales decline, lower margin sales programs, promotion expenses
and unexpected chargebacks also contributed to the $30.3 million operating loss.
On a more positive note, we believe the cost-related issues which negatively
impacted Home Meridian's sales and profitability in the prior year, such as
excess tariffs and higher than expected quality allowances, are largely behind
us. The resourcing transition to non-tariff countries is well along. Samuel
Lawrence Furniture benefited from the Vietnam mixing warehouse program and
reported a marginally profitable quarter. Home Meridian's emerging distribution
channels, including ecommerce and hospitality, had solid performance during the
quarter. Samuel Lawrence Hospitality's net sales increased by 22.6% as large
projects were already in the pipeline at year-end. E-commerce sales, which were
less impacted by retail shutdowns during the COVID-19 pandemic, continued to
grow at a steady pace and accounted for 35% of Home Meridian's total sales in
the quarter, while maintaining better margins compared to the other Home
Meridian channels.
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The Domestic Upholstery segment's net sales decreased by$8.5 million or 33.7% in the fiscal 2021 first quarter driven by decreased sales volume and lower average selling prices. The segment experienced a 40% decrease in incoming orders as compared to the same period from the prior year. In response to those reduced orders, we temporarily closed our manufacturing plants atBradington-Young and Shenandoah for about a month during the quarter, andSam Moore operated at about 50% capacity during that period. Reduced order volume and unabsorbed indirect costs contributed to operating inefficiencies and significantly impacted gross margin in this segment. All Other's net sales were essentially flat; however, it reported$387,000 in operating income in the fiscal 2021 first quarter driven by solid H Contract performance, with a 16% increase in incoming orders and 68% higher backlog compared to the prior year first quarter. Despite unfavorable product mix having a modest adverse impact on gross margin, H Contract margins remained strong. Lifestyle Brands, a new business started in fiscal 2019, also reported a profit for the quarter. To address the financial impact of COVID-19 pandemic, during the fiscal 2021 first quarter we implemented certain measures to reduce operating expenses and preserve cash which included temporary fee reductions for our Board of Directors, temporary salary reductions for officers and certain other managers, strategic staff reductions, the temporary closure of our domestic manufacturing plants and the furlough of manufacturing, warehouse and administrative associates, delaying all non-critical capital spending, rationalizing current import purchase orders, working with our vendors to cut costs and extend payment terms where we could. Despite the operating loss for the quarter, we generated$18.9 million in cash from operating activities, received$673,000 life insurance proceeds, paid$2.2 million in principal and interest on our term loans, and distributed$1.9 million in cash dividends to our shareholders. Cash and cash equivalents stood at$51.2 million at fiscal 2021 first quarter-end, an increase of$15.2 million compared to the balance at fiscal 2020 year-end. Along with an aggregate$25.7 million available under our existing revolver to fund working capital, we are confident in our financial condition and we believe we have financial resources to weather the expected short-term impacts of COVID-19; however, an extended impact may continue to materially and adversely affect our sales, earnings and liquidity. Results of Operations The following table sets forth the percentage relationship to net sales of certain items included in the condensed consolidated statements of income included in this report. Thirteen Weeks Ended May 3, May 5, 2020 2019 Net sales 100.0 % 100.0 % Cost of sales 82.2 81.2 Gross profit 17.8 18.8 Selling and administrative expenses 18.3 16.2 Goodwill impairment charges 37.8 - Trade name impairment charges 4.6 - Intangible asset amortization 0.6 0.4 Operating (loss)/income (43.4 ) 2.1 Interest expense, net 0.2 0.3 (Loss)/income before income taxes (43.7 ) 1.8 Income tax expense (10.4 ) 0.4 Net (loss)/income (33.3 ) 1.5 24
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Fiscal 2021 First Quarter Compared to Fiscal 2020 First Quarter
Fiscal 2020 results have been recast based on the re-composition of our
reportable segments during the fiscal 2020 fourth quarter. See Note 13 Segment
Information for additional details regarding the re-composition of our operating
segments.
Net Sales
Thirteen Weeks Ended
May 3, 2020 May 5, 2019 $ Change % Change
% Net Sales % Net Sales
Hooker Branded $ 27,162 26.0 % $ 39,600 29.2 % $ (12,438 ) -31.4 %
Home Meridian 57,665 55.1 % 67,630 49.9 % (9,965 ) -14.7 %
Domestic Upholstery 16,783 16.0 % 25,324 18.7 % (8,541 ) -33.7 %
All Other 2,987 2.9 % 2,964 2.2 % 23 0.8 %
Consolidated $ 104,597 100 % $ 135,518 100 % $ (30,921 ) -22.8 %
FY21 Q1 % FY21 Q1 %
Increase Average Selling Price Increase
Unit Volume vs. FY20 Q1 (ASP) vs. FY20 Q1
Hooker Branded -35.3 % Hooker Branded 5.6 %
Home Meridian -18.3 % Home Meridian 3.3 %
Domestic Upholstery -31.0 % Domestic Upholstery -4.4 %
All Other -5.1 % All Other 1.8 %
Consolidated -21.6 % Consolidated -2.1 %
Consolidated net sales decreased due to significantly reduced sales volume in all three reportable segments versus the prior year period.
? The net sales decrease in the Hooker Branded segment was attributable to
decreased unit volume in both
divisions. ASP increased in Hooker Branded segment due to increased ASP in
Hooker Casegoods, partially offset by decreased ASP in
driven by higher discounting and advertising allowances on e-commerce sales.
However, increased ASP was not sufficient to recover the steep volume loss.
? Net sales decreased in Home Meridian segment driven by decreased unit volume
with major furniture chains and mega accounts due to significantly reduced
orders, partially offset by increased sales in the Samuel Lawrence Hospitality
("SLH") business and to a lesser extent club and e-commerce sales at
Accentrics Home. ASP increase was attributable to increased ASP in SLH due to
the nature of its projects.
? Domestic Upholstery segment net sales decreased due to volume loss and
decreased ASP. In April, we temporarily shut down Bradington-Young andShenandoah manufacturing plants and kept the Sam Moore division operating at
50% capacity in response to COVID-19 pandemic restrictions as well as
decreased incoming orders. Thus,
did not report sales in April, while
of the prior year amount.
smaller mix of higher-priced Bradington-Young leather products.
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? All Other net sales increased slightly due to the addition of Lifestyle Brands
sales and increased H Contract ASP, partially offset by H Contract decreased
unit volume.
Gross Income and Margin
Thirteen Weeks Ended
May 3, 2020 May 5, 2019 $ Change % Change
% Net Sales % Net Sales
Hooker Branded $ 8,005 29.5 % $ 12,556 31.7 % $ (4,551 ) -36.2 %
Home Meridian 6,809 11.8 % 5,903 8.7 % 906 15.3 %
Domestic Upholstery 2,783 16.6 % 6,002 23.7 % (3,219 ) -53.6 %
All Other 1,056 35.4 % 1,056 35.6 % - 0.0 %
Consolidated $ 18,653 17.8 % $ 25,517 18.8 % $ (6,864 ) -26.9 %
Consolidated gross profit decreased in absolute terms and as a percentage of net sales in the fiscal 2021 first quarter versus the prior year period.
? The Hooker Branded segment's gross profit decreased
to the net sales decline. Gross margin decreased from 31.7% to 29.5% due to
the increase of fixed expenses as a percentage of net sales on lower net
sales. Product costs were negatively impacted in
higher mix of product sourced from China which carry higher costs.
? Home Meridian segment gross margin increased in absolute terms and as apercentage of net sales despite a net sales decline. In the prior year period,
this segment was heavily impacted by increased product costs due to excess
tariffs, unexpected quality allowances, and increased warehousing and
distribution costs to handle excess inventory. These issues did not re-occur
in the fiscal 2021 first quarter, which we believe is the result of the
resourcing transition to
the exit of temporary warehouses, which has reduced warehousing and handling
costs. Home Meridian gross margins were, however, negatively impacted by some
lower-margin sales programs.
?
terms and as a percentage of net sales due to the net sales decline and
inefficiencies of operating at reduced production volume. Unabsorbed indirect
and fixed costs adversely impacted gross margin by 6.5% in this segment.
? All Other's gross profit and margin stayed flat in absolute terms and as a
percentage of net sales.
Selling and Administrative Expenses (S&A)
Thirteen Weeks Ended
May 3, 2020 May 5, 2019 $ Change % Change
% Net Sales % Net Sales
Hooker Branded $ 6,672 24.6 % $ 7,379 18.6 % $ (707 ) -9.6 %
Home Meridian 8,886 15.4 % 10,562 15.6 % (1,676 ) -15.9 %
Domestic Upholstery 2,949 17.6 % 3,447 13.6 % (498 ) -14.4 %
All Other 670 22.4 % 628 21.2 % 42 6.7 %
Consolidated $ 19,177 18.3 % $ 22,016 16.2 % $ (2,839 ) -12.9 %
Consolidated selling and administrative ("S&A") expenses decreased in absolute terms while increased as a percentage of net sales in the fiscal 2021 first quarter versus the prior year period.
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? The Hooker Branded segment's S&A expenses decreased in absolute terms in the
fiscal 2021 first quarter due primarily to decreased selling costs as the
result of lower net sales, decreased employee compensation expenses related to
temporary salary reductions, furloughs and the elimination of positions due to
the COVID-19 pandemic and decreased travel and market expenses due also to
COVID-19. The decreases were partially offset by higher bad debt expenses due
to a customer write-off during the quarter unrelated to COVID-19 and an
increase in reserves to recognize expected future credit losses under the
aforementioned ASC 326 requirements effective for us during the current
quarter, increased advertising supply expenses for new product introductions,
and the absence of a deferred gain related to the sale of a former
distribution facility recorded in the prior year period. Hooker Branded
segment S&A expenses increased as a percentage of net sales due to lower net
sales.
? The Home Meridian segment's S&A expenses decreased in absolute terms while
staying relatively flat as a percentage of net sales. The decrease was
principally attributable to lower selling expenses due to net sales, and to a
lesser extent spending reductions, decreased travel and professional service
expenses which were higher in the prior year period due to the resourcing
transition. These expenses decreased in the current period as the resourcing
transition was in its final stages and business travel was also limited due to
COVID-19 pandemic.
?
to decreased selling expenses on lower net sales, partially offset by higher
medical claim costs.
? All Other S&A expenses increased slightly in absolute terms and as a
percentage of net sales due to internal personnel changes.
Goodwill impairment charges
Thirteen Weeks Ended
May 3, 2020 May 5, 2019 $ Change % Change
% Net Sales % Net Sales
Home Meridian $ 23,187 40.2 % $ - 0.0 % $ 23,187
Domestic Upholstery 16,381 97.6 % - 0.0 % 16,381
Consolidated 39,568 37.8 % - 39,568
Trade name impairment charges
Thirteen Weeks Ended
May 3, 2020 May 5, 2019 $ Change % Change
% Net Sales % Net Sales
Home Meridian $ 4,750 8.2 % $ - $ 4,750
Consolidated $ 4,750 4.6 % $ - 4,750
We recorded $23.2 million and $16.4 million in non-cash impairment charges to
write down goodwill in Home Meridian segment and the Shenandoah division under
Domestic Upholstery segment, respectively. We also recorded $4.8 million
non-cash impairment charges to write down tradenames in the Home Meridian
segment.
Intangible Asset Amortization
Thirteen Weeks Ended
May 3, 2020 May 5, 2019 $ Change % Change
% Net Sales % Net Sales
Intangible asset
amortization $ 596 0.6 % $ 596 0.4 % $ - 0.0 %
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Intangible asset amortization expense stayed the same compared to the prior year
first quarter.
Operating (Loss)/Profit and Margin
Thirteen Weeks Ended
May 3, 2020 May 5, 2019 $ Change % Change
% Net Sales % Net Sales
Hooker Branded $ 1,333 4.9 % $ 5,177 13.1 % $ (3,844 ) -74.3 %
Home Meridian (30,348 ) -52.6 % (4,993 ) -7.4 % (25,355 ) -507.8 %
Domestic Upholstery (16,810 ) -100.2 % 2,292 9.1 % (19,102 ) 833.4 %
All Other 387 12.9 % 429 14.5 % (42 ) -9.8 %
Consolidated $ (45,438 ) -43.4 % $ 2,905 2.1 % $ (48,343 ) -1664.1 %
Operating profitability decreased in absolute terms and as a percentage of net sales, due to the factors discussed above.
Interest Expense, net
Thirteen Weeks Ended
May 3, 2020 May 5, 2019 $ Change % Change
% Net Sales % Net Sales
Consolidated interest
expense, net $ 208 0.2 % $ 341 0.3 % $ (133 ) -39.0 %
Consolidated interest expense decreased in fiscal 2021 first quarter primarily
due to lower interest rates on our variable-rate term loans, as well as lower
principal balances.
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