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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-Q

 

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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended August 2, 2020

 

Commission file number 000-25349

 

HOOKER FURNITURE CORPORATION

(Exact name of registrant as specified in its charter)

 

Virginia	54-0251350
(State or other jurisdiction of incorporation or organization)	(IRS employer identification no.)

               

440 East Commonwealth Boulevard, Martinsville, VA 24112

(Address of principal executive offices, zip code)

 

(276) 632-2133

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated Filer ☐	Accelerated filer ☒
Non-accelerated Filer ☐	Smaller reporting company ☐
Emerging growth company ☐

          

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	HOFT	NASDAQ Global Select Market

 

As of September 4, 2020, there were 11,889,968 shares of the registrant’s common stock outstanding.

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4.	Controls and Procedures	35
PART II. OTHER INFORMATION
Item 6.	Exhibits	36
Signature		37

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

As of		August 2,				February 2,
		2020				2020
		(unaudited)
Assets
Current assets
Cash and cash equivalents		$	82,210			$	36,031
Trade accounts receivable, net			67,115				87,653
Inventories			67,707				92,813
Income tax recoverable			-				751
Prepaid expenses and other current assets			6,331				4,719
Total current assets			223,363				221,967
Property, plant and equipment, net			28,271				29,907
Cash surrender value of life insurance policies			24,904				24,888
Deferred taxes			14,044				2,880
Operating leases right-of-use assets			37,987				39,512
Intangible assets, net			27,429				33,371
Goodwill			490				40,058
Other assets			1,190				1,125
Total non-current assets			134,315				171,741
Total assets		$	357,678			$	393,708
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of term loans		$	27,200			$	5,834
Trade accounts payable			24,143				25,493
Accrued salaries, wages and benefits			4,206				4,933
Income tax payable			975				-
Customer deposits			4,328				3,351
Current portion of lease liabilities			6,844				6,307
Other accrued expenses			3,344				4,211
Total current liabilities			71,040				50,129
Long term debt			-				24,282
Deferred compensation			11,235				11,382
Lease liabilities			32,411				33,794
Other long-term liabilities			538				-
Total long-term liabilities			44,184				69,458
Total liabilities			115,224				119,587
Shareholders’ equity
Common stock, no par value, 20,000 shares authorized,       11,890 and 11,838 shares issued and outstanding on each date			52,628				51,582
Retained earnings			190,411				223,252
Accumulated other comprehensive loss			(585	)			(713	)
Total shareholders’ equity			242,454				274,121
Total liabilities and shareholders’ equity		$	357,678			$	393,708

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

		For the
		Thirteen Weeks Ended								Twenty-Six Weeks Ended
		Aug 2,				Aug 4,				Aug 2,				Aug 4,
		2020				2019				2020				2019
Net sales		$	130,537			$	152,248			$	235,134			$	287,766
Cost of sales			103,537				123,422				189,480				233,423
Gross profit			27,000				28,826				45,654				54,343
Selling and administrative expenses			18,892				22,462				38,070				44,478
Goodwill impairment charges			-				-				39,568				-
Trade name impairment charges			-				-				4,750				-
Intangible asset amortization			596				596				1,192				1,192
Operating income / (loss)			7,512				5,768				(37,926	)			8,673
Other expense, net			10				32				51				94
Interest expense, net			118				328				327				669
Income/(loss) before income taxes			7,384				5,408				(38,304	)			7,910
Income tax expense / (benefit)			1,610				1,248				(9,259	)			1,763
Net income/(loss)		$	5,774			$	4,160			$	(29,045	)		$	6,147
Earnings/(Loss) per share
Basic		$	0.49			$	0.35			$	(2.46	)		$	0.52
Diluted		$	0.48			$	0.35			$	(2.46	)		$	0.52
Weighted average shares outstanding:
Basic			11,824				11,787				11,811				11,778
Diluted			11,853				11,810				11,811				11,811
Cash dividends declared per share		$	0.16			$	0.15			$	0.32			$	0.30

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

(Unaudited)

 

		For the
		Thirteen Weeks Ended								Twenty-Six Weeks Ended
		Aug 2,				Aug 4,				Aug 2,				Aug 4,
		2020				2019				2020				2019
Net income/(loss)		$	5,774			$	4,160			$	(29,045	)		$	6,147
Other comprehensive income (loss):
Amortization of actuarial loss			84				37				168				74
Income tax effect on amortization			(20	)			(9	)			(40	)			(18	)
Adjustments to net periodic benefit cost			64				28				128				56
Total Comprehensive Income/(Loss)		$	5,838			$	4,188			$	(28,917	)		$	6,203

  

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited) 

 

		For the
		Twenty-Six Weeks Ended
		Aug 2,				Aug 4,
		2020				2019
Operating Activities:
Net (loss)/income		$	(29,045	)		$	6,147
Adjustments to reconcile net income to net cash provided by operating activities:
Goodwill and intangible asset impairment charges			44,318				-
Depreciation and amortization			3,365				3,471
Gain on disposal of assets			-				(285	)
Deferred income tax (benefit) / expense			(10,665	)			2,155
Noncash restricted stock and performance awards			1,046				558
Provision for doubtful accounts and sales allowances			3,396				1,053
Gain on life insurance policies			(651	)			(624	)
Changes in assets and liabilities:
Trade accounts receivable			17,142				25,206
Inventories			25,106				(8,389	)
Income tax recoverable			751				(3,856	)
Prepaid expenses and other current assets			(1,261	)			(3,191	)
Trade accounts payable			(1,391	)			(9,058	)
Accrued salaries, wages, and benefits			(726	)			(2,856	)
Accrued income taxes			975				(3,159	)
Customer deposits			977				2,475
Operating lease liabilities			678				187
Other accrued expenses			(867	)			1,033
Deferred compensation			20				145
Net cash provided by operating activities		$	53,168			$	11,012
Investing Activities:
Purchases of property and equipment			(484	)			(3,659	)
Proceeds received on notes from sale of assets			-				1,459
Premiums paid on life insurance policies			(453	)			(489	)
Proceeds received on life insurance policies			673				-
Net cash used in investing activities			(264	)			(2,689	)
Financing Activities:
Payments for long-term debt			(2,929	)			(2,928	)
Cash dividends paid			(3,796	)			(3,541	)
Cash used in financing activities			(6,725	)			(6,469	)
Net increase in cash and cash equivalents			46,179				1,854
Cash and cash equivalents - beginning of year			36,031				11,435
Cash and cash equivalents - end of quarter		$	82,210			$	13,289
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$	220			$	6,622
Cash paid for interest, net			295				599
Non-cash transactions:
Decrease in lease liabilities arising from obtaining right-of-use assets		$	1,987			$	266
Increase in property and equipment through accrued purchases			41				49

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except per share data)

(Unaudited)

 

														Accumulated
														Other				Total
		Common Stock								Retained				Comprehensive				Shareholders'
		Shares				Amount				Earnings				Income (loss)				Equity
Balance at February 3, 2019			11,785			$	49,549			$	213,380			$	247			$	263,176
Net income											6,147								6,147
Unrealized loss on defined benefit plan, net of tax of $18															56				56
Cash dividends paid and accrued ($0.15 per share)											(3,541	)							(3,541	)
Restricted stock grants, net of forfeitures			53				344												344
Restricted stock compensation cost							367												367
Recognition of PSUs as equity-based awards							584												584
Balance at August 4, 2019			11,838			$	50,844			$	215,986			$	303			$	267,133
Balance at February 2, 2020			11,838			$	51,582			$	223,252			$	(713	)		$	274,121
Net loss											(29,045	)							(29,045	)
Unrealized loss on defined benefit plan, net of tax of $40															128				128
Cash dividends paid and accrued ($0.16 per share)											(3,796	)							(3,796	)
Restricted stock grants, net of forfeitures			52				169												169
Restricted stock compensation cost							442												442
Performance-based restricted stock units cost							435												435
Balance at August 2, 2020			11,890			$	52,628			$	190,411			$	(585	)		$	242,454

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated)

(Unaudited)

For the Twenty-Six Weeks Ended August 2, 2020

 

 

1.     Preparation of Interim Financial Statements

 

The condensed consolidated financial statements of Hooker Furniture Corporation and subsidiaries (referred to as “we,” “us,” “our,” “Hooker” or the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these statements include all adjustments necessary for a fair statement of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) are condensed or omitted pursuant to SEC rules and regulations. However, we believe that the disclosures made are adequate for a fair presentation of our results of operations and financial position. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended February 2, 2020 (“2020 Annual Report”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect both the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from our estimates. Operating results for the interim periods reported herein may not be indicative of the results expected for the fiscal year.

 

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 2021 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “second quarter” or “quarterly period”) that began May 4, 2020, and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began February 3, 2020, which both ended August 2, 2020. This report discusses our results of operations for this period compared to the 2020 fiscal year thirteen-week period that began May 6, 2019 and the twenty-six week period that began February 4, 2019, which both ended August 4, 2019; and our financial condition as of August 2, 2020 compared to February 2, 2020.

 

References in these notes to the condensed consolidated financial statements of the Company to:

 

■

the 2021 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 3, 2020 and will end January 31, 2021; and

 

■

the 2020 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 4, 2019 and ended February 2, 2020.

 

We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary. In the fourth quarter of fiscal 2020, we updated our reportable segments. Consequently, the segment disclosures in this filing have been recast to reflect these changes and therefore differ from prior quarterly filings. See Note 13 Segment Information for additional details.

 

2.     Recently Adopted Accounting Policies

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). This update seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date. The amendments require an entity to replace the incurred loss impairment methodology in current GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We adopted the provisions of Topic 326 on February 3, 2020, the first day of our 2021 fiscal year. The adoption of this standard did not have a material effect on our condensed consolidated financial statements or results of operations. We will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.

 

 

In December 2019, the FASB issued ASU 2019-12, Income Tax (Topic 740) – Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions for intra-period tax allocation, the recognition of deferred tax liabilities after an investment in a foreign entity transitions to or from the equity method, and the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments also introduce new guidance on determining how to apply the income tax guidance to franchise taxes that are partially based on income, clarifying the accounting for transactions that result in a step-up in the tax basis of goodwill, and the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We elected to adopt ASU 2019-12 on February 3, 2020, the first day of our 2021 fiscal year. The adoption of this standard impacted our condensed consolidated balance sheets and statements of operations by $5.4 million. See Note 12 Income Taxes for additional details.

 

3.     Accounts Receivable

 

		August 2,				February 2,
		2020				2020
Trade accounts receivable		$	75,198			$	91,261
Receivable from factor			-				788
Other accounts receivable allowances			(6,526	)			(3,493	)
Allowance for doubtful accounts			(1,557	)			(903	)
Accounts receivable		$	67,115			$	87,653

 

“Receivable from factor” represented amounts due with respect to factored accounts receivable. The agreement was discontinued in early fiscal 2021.

 

4.     Inventories

 

		August 2,				February 2,
		2020				2020
Finished furniture		$	80,770			$	106,495
Furniture in process			1,278				1,304
Materials and supplies			8,151				8,479
Inventories at FIFO			90,199				116,278
Reduction to LIFO basis			(22,492	)			(23,465	)
Inventories		$	67,707			$	92,813

 

 

5.     Property, Plant and Equipment

 

		Depreciable Lives			August 2,				February 2,
		(In years)			2020				2020
Buildings and land improvements		15 - 30			$	31,316			$	31,316
Computer software and hardware		3 - 10				19,243				19,166
Machinery and equipment		10				9,317				9,271
Leasehold improvements		Term of lease				9,785				9,737
Furniture and fixtures		3 - 10				2,603				2,597
Other		5				651				651
Total depreciable property at cost						72,915				72,738
Less accumulated depreciation						46,250				44,089
Total depreciable property, net						26,665				28,649
Land						1,077				1,077
Construction-in-progress						529				181
Property, plant and equipment, net					$	28,271			$	29,907

 

6.      Fair Value Measurements

 

Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability (an exit price) in an orderly transaction between market participants on the applicable measurement date. We use a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

 

■

Level 1, defined as observable inputs such as quoted prices in active markets for identical assets and liabilities;

 

■

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

 

■

Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

As of August 2, 2020 and February 2, 2020, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs. The fair value of the Company-owned life insurance is determined by inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Additionally, the fair value of the Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period.

 

Our assets measured at fair value on a recurring basis at August 2, 2020 and February 2, 2020, were as follows:

 

		Fair value at August 2, 2020																Fair value at February 2, 2020
Description		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
		(In thousands)
Assets measured at fair value
Company-owned life insurance		$	-			$	24,904			$	-			$	24,904			$	-			$	24,888			$	-			$	24,888

 

 

7.     Intangible Assets

 

The adverse economic effects brought on by the COVID-19 pandemic, including reductions in our sales, earnings and market value, as well as other changing market dynamics, required that we perform a valuation of our intangible assets.

 

The calculation methodology for the fair value of our Home Meridian segment and the Shenandoah division of our Domestic Upholstery segment included three approaches: the Discounted Cash Flow Method (DCF) which was given the largest weighting, the Guideline Public Company Method (GPCM) based on the consideration of the facts of the Company’s peer competitors and the Guideline Transaction Method (GTM) based on consideration of transactions with varying risk profiles, geographies and market conditions.

 

The income approach, specifically the relief from royalty method, was used as the valuation methodology for our trade names and trademarks, based on cash flow projections and growth rates for each trade name for five years in the future provided by management, and a royalty rate benchmark for companies with similar activities.

 

As a result of our intangible asset valuation analysis, in the first quarter of fiscal 2021, we recorded $44.3 million non-cash impairment charges including $23.2 million to Home Meridian goodwill, $16.4 million to Shenandoah goodwill and $4.8 million to certain of Home Meridian segment’s trade names.

 

				Twenty-Six Weeks Ended August 2, 2020												February 2, 2020
Non-amortizable Intangible Assets		Segment		Beginning Balance				Impairment Charges				Net Book Value				Beginning Balance				Impairment Charges				Net Book Value
Goodwill		Home Meridian		$	23,187			$	(23,187	)		$	-			$	23,187			$	-			$	23,187
Goodwill		Domestic Upholstery			16,871				(16,381	)			490				16,871				-				16,871
Total Goodwill					40,058				(39,568	)			490				40,058				-				40,058
Trademarks and trade names - Home Meridian		Home Meridian			11,400				(4,750	)			6,650				11,400				-				11,400
Trademarks and trade names - Bradington-Young		Domestic Upholstery			861				-				861				861				-				861
Trademarks and trade names - Sam Moore		Domestic Upholstery			396				-				396				396				-				396
Total Trademarks and trade names				$	12,657			$	(4,750	)		$	7,907			$	12,657			$	-			$	12,657
Total non-amortizable assets				$	52,715			$	(44,318	)		$	8,397			$	52,715			$	-			$	52,715

 

Our amortizable intangible assets are recorded in our Home Meridian and Domestic Upholstery segments. The carrying amounts and changes therein of those amortizable intangible assets were as follows:

 

		Amortizable Intangible Assets
		Customer
		Relationships				Trademarks				Totals
Balance at February 2, 2020		$	19,996			$	718			$	20,714
Amortization			(1,162	)			(30	)			(1,192	)
Balance at August 2, 2020		$	18,834			$	688			$	19,522

 

For the remainder of fiscal 2021, amortization expense is expected to be approximately $1.2 million.

 

 

8.     Leases

 

In fiscal 2020, we adopted Accounting Standards Codification Topic 842 Leases. We recognized sub-lease income of $144,000 for the three-month period and $288,000 for the six-month period, both ended August 2, 2020. The components of lease cost and supplemental cash flow information for leases for the three-months and six-months ended August 2, 2020 were:

 

		Thirteen Weeks Ended								Twenty-Six Weeks Ended
		August 2, 2020				August 4, 2019				August 2, 2020				August 4, 2019
Operating lease cost		$	2,153			$	2,123			$	4,253			$	4,200
Variable lease cost			22				-				69				-
Short-term lease cost			67				178				186				291
Total operating lease cost		$	2,242			$	2,301			$	4,508			$	4,491
Operating cash outflows		$	1,931			$	1,948			$	3,833			$	4,334

 

The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheets as of August 2, 2020 were:

 

		August 2, 2020				February 2, 2020
Real estate		$	36,909			$	38,175
Property and equipment			1,078				1,337
Total operating leases right-of-use assets		$	37,987			$	39,512
Current portion of operating lease liabilities		$	6,844			$	6,307
Long term operating lease liabilities			32,411				33,794
Total operating lease liabilities		$	39,255			$	40,101

 

The weighted-average remaining lease term is 7.0 years. We used our incremental borrowing rate which is LIBOR plus 1.5% at the adoption date. The weighted-average discount rate is 2.75%. Due to the COVID-19 pandemic, we received concessions on several of our leases, including changes in lease terms and deferred rent payments. We accounted for the concessions as lease modifications and used current LIBOR plus 1.5% for those leases. The weighted-average discount rate decreased due to a decrease in LIBOR.

 

None of the modifications had a material effect on our condensed consolidated financial statements or results of operations.

 

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on August 2, 2020:

 

		Undiscounted Future Operating Lease Payments
Remainder of 2020		$	3,947
2021			7,451
2022			5,671
2023			5,726
2024			5,280
2025 and thereafter			15,205
Total lease payments		$	43,280
Less: impact of discounting			(4,025	)
Present value of lease payments		$	39,255

 

As of August 2, 2020, we did not have any additional operating or finance leases that had not yet commenced.

 

 

9.     Debt

 

As of August 2, 2020, we had an aggregate $25.7 million available under the Existing Revolver to fund working capital needs. Standby letters of credit in the aggregate amount of $4.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facility as of August 2, 2020. There were no additional borrowings outstanding under the Existing Revolver as of August 2, 2020.

 

We currently have one unsecured term loan and one secured term loan outstanding and a revolving credit facility. The term loans are related to the Home Meridian acquisition. The full remaining principal amounts of $27.2 million on our term loans are due on February 1, 2021. We expect to enter into a new credit facility on or before the expiration of the current agreement.

 

10.    Employee Benefit Plans

 

We maintain two “frozen” retirement plans, which are paying benefits and may include active employees among the participants. We do not expect to add participants to these plans in the future. The two plans include:

 

■

a supplemental retirement income plan (“SRIP”) for certain former and current executives of Hooker Furniture Corporation; and

■

the Pulaski Furniture Corporation Supplemental Executive Retirement Plan (“SERP”) for certain former executives.

 

		Thirteen Weeks Ended								Twenty-Six Weeks Ended
		August 2,				August 4,				August 2,				August 4,
		2020				2019				2020				2019
Net periodic benefit costs
Service cost			32				26				64				52
Interest cost			74				204				148				409
Actuarial loss			84				37				169				74
Expected return on pension plan assets			-				(101	)			-				(202	)
Expected administrative expenses			-				98				-				195
Consolidated net periodic benefit costs		$	190			$	264			$	381			$	528

 

The SRIP and SERP plans are unfunded plans. In fiscal 2021, we paid $181,000 in the second quarter and $359,000 in the first half and expect to pay a total of approximately $370,000 in benefit payments from our general assets during the remainder of fiscal 2021 to fund SRIP and SERP payments.

 

11.    Earnings Per Share

 

We refer you to the discussion of Earnings Per Share in Note 2. Summary of Significant Accounting Policies, in the financial statements included in our 2020 Annual Report, for additional information concerning the calculation of earnings per share.

 

All stock awards are designed to encourage retention and to provide an incentive for increasing shareholder value. We have issued restricted stock awards to non-employee members of the board of directors since 2006 and to certain non-executive employees since 2014. We have issued restricted stock units (“RSUs”) to certain senior executives since fiscal 2012 under the Company’s Stock Incentive Plan. Each RSU entitles an executive to receive one share of the Company’s common stock if the executive remains continuously employed with the Company through the end of a three-year service period. The RSUs may be paid in shares of our common stock, cash or both at the discretion of the Compensation Committee of our board of directors. We have issued Performance-based Restricted Stock Units (“PSUs”) to certain senior executives since fiscal 2019 under the Company’s Stock Incentive Plan. Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three-year performance period. One target is based on our annual average growth in our EPS over the performance period and the other target is based on EPS growth over the performance period compared to our peers. The payout or settlement of the PSUs will be made in shares of our common stock.

 

 

We expect to continue to grant these types of awards annually in the future. The following table sets forth the number of outstanding restricted stock awards and RSUs and PSUs, net of forfeitures and vested shares, as of the fiscal period-end dates indicated:

 

		August 2,				February 2,
		2020				2020
Restricted shares			57				46
RSUs and PSUs			159				76
			216				122

 

The number of outstanding restricted shares increased due primarily to grants of restricted shares to a larger population of our non-executive employees as an incentive for retention and alignment of individual performance to our goals.

 

All restricted shares, RSUs and PSUs awarded that have not yet vested are considered when computing diluted earnings per share. The following table sets forth the computation of basic and diluted earnings per share:

 

		Thirteen Weeks Ended								Twenty-Six Weeks Ended
		August 2,				August 4,				August 2,				August 4,
		2020				2019				2020				2019
Net income/(loss)		$	5,774			$	4,160			$	(29,045	)		$	6,147
Less: Unvested participating restricted stock dividends			9				7				17				10
Net earnings allocated to unvested participating restricted stock			28				15				-				18
Earnings/(loss) available for common shareholders			5,737				4,138				(29,062	)			6,119
Weighted average shares outstanding for basic earnings per share			11,824				11,787				11,811				11,778
Dilutive effect of unvested restricted stock, RSU and PSU awards			29				23				*				33
Weighted average shares outstanding for diluted earnings per share			11,853				11,810				11,811				11,811
Basic earnings/(loss) per share		$	0.49			$	0.35			$	(2.46	)		$	0.52
Diluted earnings/(loss) per share		$	0.48			$	0.35			$	(2.46	)		$	0.52

 

*Due to the fiscal 2021 year-to-date net loss, approximately 31,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share for the twenty-six weeks ended August 2, 2020. 

 

12.    Income Taxes

 

We recorded income tax expense of $1.6 million for the fiscal 2021 second quarter compared to $1.2 million for the comparable prior year period. The effective tax rates for the fiscal 2021 and 2020 second quarters were 21.8% and 23.1%, respectively. We recorded income tax benefit of $9.3 million for the fiscal 2021 first half, of which income tax benefit of $10.7 million was recorded related to goodwill and trade name impairment charges, compared to $1.8 million income tax expense for the comparable prior year period. respectively. The effective tax rates for the first half of fiscal 2021 and 2020 were 24.2% and 22.3%.

 

An entity is required to make its best estimate of the annual effective tax rate for the full fiscal year at the end of each interim period and to use this rate to calculate its income taxes on a year-to-date basis. Under the current income tax guidance, there is an exception that when the year-to-date loss for an interim period exceeds the projected loss for the full fiscal year, the income tax benefit recognized year-to-date is limited to the amount of benefit that would be recognized if the year-to-date loss were the anticipated loss for the full fiscal year. ASU 2019-12 removes this exception and no longer limits the computed benefit. We elected to early adopt ASU 2019-12 in the first quarter of fiscal 2021 and recognized an additional $5.4 million of tax benefit that exceeds our anticipated annual income tax benefit in the fiscal 2021 first half.

 

The net unrecognized tax benefits as of August 2, 2020 and February 2, 2020, which, if recognized, would affect our effective tax rate are $3,000.

 

 

Tax years ending January 29, 2017 through February 2, 2020 remain subject to examination by federal and state taxing authorities.

 

13.    Segment Information

 

As a public entity, we are required to present disaggregated information by segment using the management approach. The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions. The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company’s business units or segments. The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments (“ASC 280”), which are to allow the users of our financial statements to:

 

■

better understand our performance;

■

better assess our prospects for future net cash flows; and

■

make more informed judgments about us as a whole.

 

We define our segments as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM.

 

We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary. In the fourth quarter of fiscal 2020, we updated our reportable segments as follows: domestic upholstery producers Bradington-Young, Sam Moore and Shenandoah Furniture were moved from All Other and aggregated into a new reportable segment called “Domestic Upholstery.” All Other now consists of H Contract and Lifestyle Brands. Lifestyle Brands is a business in its start-up phase targeted at the interior design channel. The Hooker Branded and Home Meridian segments were unchanged. Therefore, for financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses:

 

■

Hooker Branded, consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses;

■

Home Meridian, a business acquired at the beginning of fiscal 2017, is a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins;

■

Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, Sam Moore and Shenandoah Furniture; and

■

All Other, consisting of H Contract and Lifestyle Brands, a new business started in late fiscal 2019. Neither of these operating segments were individually reportable; therefore, we combined them in “All Other” in accordance with ASC 280.

 

 

The following table presents segment information for the periods, and as of the dates, indicated. Prior-year information has been recast to reflect the changes in segments discussed above:

 

		Thirteen Weeks Ended																Twenty-Six Weeks Ended
		August 2, 2020								August 4, 2019								August 2, 2020								August 4, 2019
						% Net								% Net								% Net								% Net
Net Sales						Sales								Sales								Sales								Sales
Hooker Branded		$	38,820				29.7	%		$	39,405				25.9	%		$	65,982				28.1	%		$	79,004				27.5	%
Home Meridian			71,168				54.6	%			87,188				57.3	%			128,833				54.7	%			154,818				53.8	%
Domestic Upholstery			17,507				13.4	%			22,663				14.8	%			34,290				14.6	%			47,987				16.7	%
All Other			3,042				2.3	%			2,992				2.0	%			6,029				2.6	%			5,957				2.0	%
Consolidated		$	130,537				100.0	%		$	152,248				100.0	%		$	235,134				100.0	%		$	287,766				100.0	%
Gross Profit
Hooker Branded		$	12,443				32.1	%		$	11,820				30.0	%		$	20,448				31.0	%		$	24,376				30.9	%
Home Meridian			10,510				14.8	%			10,951				12.6	%			17,320				13.4	%			16,854				10.9	%
Domestic Upholstery			3,021				17.3	%			4,917				21.7	%			5,804				16.9	%			10,919				22.8	%
All Other			1,026				33.7	%			1,138				38.0	%			2,082				34.5	%			2,194				36.8	%
Consolidated		$	27,000				20.7	%		$	28,826				18.9	%		$	45,654				19.4	%		$	54,343				18.9	%
Operating Income/(Loss)
Hooker Branded		$	6,090				15.7	%		$	4,088				10.4	%		$	7,423				11.2	%		$	9,265				11.7	%
Home Meridian			1,083				1.5	%			(66	)			-0.1	%			(29,265	)			-22.7	%			(5,059	)			-3.3	%
Domestic Upholstery			(10	)			-0.1	%			1,260				5.6	%			(16,820	)			-49.1	%			3,552				7.4	%
All Other			349				11.5	%			486				16.3	%			736				12.2	%			915				15.4	%
Consolidated		$	7,512				5.8	%		$	5,768				3.8	%		$	(37,926	)			-16.1	%		$	8,673				3.0	%
Capital Expenditures
Hooker Branded		$	29							$	386							$	82							$	511
Home Meridian			20								57								108								173
Domestic Upholstery			54								1,680								294								2,965
All Other			-								10								-								10
Consolidated		$	103							$	2,133							$	484							$	3,659
Depreciation & Amortization
Hooker Branded		$	445							$	490							$	894							$	982
Home Meridian			533								547								1,068								1,078
Domestic Upholstery			700								715								1,397								1,404
All Other			3								3								6								7
Consolidated		$	1,681							$	1,755							$	3,365							$	3,471

 

		As of August 2,								As of February 2,
		2020				%Total				2020				%Total
Identifiable Assets						Assets								Assets
Hooker Branded		$	189,816				57.6	%		$	144,112				45.0	%
Home Meridian			93,216				28.3	%			138,313				43.2	%
Domestic Upholstery			45,485				13.7	%			36,085				11.3	%
All Other			1,242				0.4	%			1,769				0.5	%
Consolidated		$	329,759				100.0	%		$	320,279				100.0	%
Consolidated Goodwill and Intangibles			27,919								73,429
Total Consolidated Assets		$	357,678							$	393,708

 

 

Sales by product type are as follows:

 

		Net Sales (in thousands)
		Thirteen Weeks Ended																Twenty-Six Weeks Ended
		August 2, 2020				%Total				August 4, 2019				%Total				August 2, 2020				%Total				August 4, 2019				%Total
Casegoods		$	79,181				61	%		$	98,488				65	%		$	142,373				61	%		$	182,954				64	%
Upholstery			51,356				39	%			53,760				35	%			92,761				39	%			104,812				36	%
		$	130,537				100	%		$	152,248				100	%		$	235,134				100	%		$	287,766				100	%

 

14.     Subsequent Events

 

Dividends

 

On September 2, 2020, our board of directors declared a quarterly cash dividend of $0.16 per share, payable on September 30, 2020 to shareholders of record at September 18, 2020.

 

 

 

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 All references to the “Company,” “we,” “us” and “our” in this document refer to Hooker 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 including Bradington-Young, Sam Moore, and Shenandoah 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 of Shenandoah Furniture, Inc. on September 29, 2017. References to the “HMI acquisition” refer to the acquisition of substantially all of the assets of Home Meridian International, Inc. on February 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 but not limited to U.S. and local economies; our business operations and continuity; the health and productivity of our employees; and the impact on our global 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 U.S. government, such as the current U.S. administration’s imposing a 25% tariff on certain goods imported into the United States from China, including almost all furniture and furniture components manufactured in China, with the potential for additional 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 of imported 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 U.S. and foreign government regulations and in the political, 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 Vietnam and China, including customs issues, labor stoppages, strikes or slowdowns and the 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;

 

 

■

disruptions and damage (including those due to weather) affecting our Virginia, North Carolina or California warehouses, our Virginia or North Carolina administrative facilities or our representative offices or warehouses in Vietnam and China;

 

■

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;

 

■

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.

 

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 2021 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “second quarter” or “quarterly period”) that began May 4, 2020, and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began February 3, 2020, which both ended August 2, 2020. This report discusses our results of operations for this period compared to the 2020 fiscal year thirteen-week period that began May 6, 2019 and the twenty-six week period that began February 4, 2019, which both ended August 4, 2019; and our financial condition as of August 2, 2020 compared to February 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.

 

In the discussion below we reference changes in sales orders or “orders” and sales order backlog (unshipped orders at a point in time) or “backlog” over and compared to certain periods of time and changes discussed are in sales dollars and not units of inventory, unless stated otherwise. We believe orders are generally good current indicators of sales momentum and business conditions. However, except for custom or proprietary products, orders may be cancelled before shipment. If the items ordered are in stock and the customer has requested immediate delivery, we generally ship products in about 7 days or less from receipt of order; however, orders may be shipped later if they are out of stock or there are production or shipping delays or the customer has requested the order to be shipped at a later date. For the Hooker Branded segment, Domestic Upholstery segment and All Other, we consider unshipped order backlogs to be one helpful indicator of sales for the upcoming 30-day period, but because of our relatively quick delivery and our cancellation policies, we do not consider order backlogs to be a reliable indicator of expected long-term sales. We consider the Home Meridian segment’s backlog to be one helpful indicator of that segment’s sales for the upcoming 90-day period. Due to (i) Home Meridian’s sales volume, (ii) the average sales order sizes of its mass, club and mega account channels of distribution, (iii) the proprietary nature of many of its products and (iv) the project nature of its hospitality business, for which average order sizes tend to be larger and consequently, its order backlog tends to be larger.

 

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 the Securities 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 SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurniture.com.

 

Overview 

 

Hooker Furniture Corporation, incorporated in Virginia in 1924, is a designer, marketer and importer of case goods (wooden and metal furniture), leather-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 to U.S. retailers, according to a 2020 survey by a leading trade publication.

 

 

We believe that consumer tastes and buying habits 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 on February 1, 2016 and Shenandoah Furniture on September 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.

 

We also believe our acquisition of Shenandoah Furniture, a North Carolina-based domestic upholsterer, has better positioned us in the “lifestyle specialty” retail distribution channel. In that channel, domestically- produced, customizable upholstery is viable product 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 the U.S and elsewhere have imposed restrictions on travel and business operations and have advised or required 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 the U.S. and around the world and demand for our products plummeted, and orders decreased 40.5% in the fiscal 2021 first quarter as compared to the same prior-year period.

 

To address the financial impact of the virus, we delayed non-essential capital spending and 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 collaborating with our vendors to cut costs and extend payment terms where possible.

 

While we continue to spend cautiously, business has improved steadily beginning in May 2020 and we’ve seen greatly increased demand for our products compared to the prior-year period and the first quarter of fiscal 2021. Cancellations of stock orders by large customers and deferred orders from retailers who closed their stores during the shutdown partially drove the steep declines in the fiscal 2021 first quarter. Fiscal 2021 second quarter orders increased nearly 24% compared to the same prior-year period and year-to-date orders as of the end of the fiscal 2021 second quarter were down only 6.5% as compared to the same prior-year period, despite abysmal first quarter orders. (The favorable trend continued into fiscal August as orders increased over 50% which brought year-to-date orders up 3% as compared to the same prior-year period.) Consequently, during the 2021 second quarter, our domestic manufacturing plants reopened and are currently operating near capacity. Most furloughs of our associates have ended, and temporary salary and fee reductions have been rescinded. We are in the process of re-building inventory to meet increased customer demand.

 

We monitor information on COVID-19 from the Centers 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 still 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, for employees diagnosed with the virus (and those associates with another diagnosed person or persons in their household) we are offering work-from-home arrangements where feasible and are working to accommodate associates with child-care issues related to school or day-care closures and anticipated re-openings.

 

 

Executive Summary-Results of Operations

 

We began to recover from the depths of the initial COVID-19 crisis in the fiscal 2021 second quarter. Our results were greatly improved as compared to the first quarter of fiscal 2021, which was our worst quarterly performance recorded in over a decade. While second quarter net sales were lower than the prior year-quarter due to the lagging effects of the crisis, net income was up 39% and quarterly earnings per share was $0.48 as compared to $0.35 in the prior year second quarter. Fiscal 2021 first half results clearly show the adverse economic effects brought on by the initial severity of COVID-19 crisis conditions, which caused demand for our products to plummet. First half sales were down over 18% with nearly 60% of the consolidated net sales decrease occurring in the first quarter of fiscal 2021. The net loss reported in the first half was due principally to $44.3 million non-cash impairment charges on our goodwill and trade names ($33.7 million net of tax), driven largely by our depressed stock price which occurred at the depth of the crisis and which was a primary input in the valuation analysis that necessitated the write-off. First-half loss per share was $2.46 as compared to earnings per share of $0.52 in the comparable period.

 

Our fiscal 2021 second quarter and first-half performance is discussed in greater detail below under “Review” and “Results of Operations.”

 

Review

 

Although the COVID-19 pandemic continued to impact current economic conditions and our business, we are pleased to report encouraging results for the second quarter of fiscal 2021. Consolidated operating income increased by $1.7 million or 30.2% as compared to the prior year second quarter. The Home Meridian segment reported $1.1 million in operating income compared to a small operating loss in the prior year second quarter. Our Hooker Branded segment reported $6.1 million in operating income, with an increased operating margin of 15.7% of net sales compared to 10.4% net sales in the comparable prior-year period. The Domestic Upholstery segment reported essentially break-even operating results for the second quarter despite decreased net sales and inefficiencies from operating at reduced production volumes and lower capacities, which is a much better performance than initially expected under cr