Hooker Sees Red Ink as COVID Closes Its Asian Furniture Makers

Martinsville, VA—Rising sales in its U.S.-made lines couldn’t help Hooker Furnishings avoid a $12.7 million third-quarter loss, as it ended sales of an imported RTA furniture line shut down by its suppliers in Vietnam and Malaysia due to COVID-19.

Hooker (NASDAQ-GS: HOFT) reported net sales of $133.4 million for its third quarter ended October 31, 2021, down 11 percent from the year prior. The mostly Hooker Branded and Hooker Upholstered revenues from sales of U.S. and imported furniture were roughly $87 million, some 75 percent of sales. The Asian-sourced Home Meridian lines were 35 percent, about $46 million—down from $73 million a year ago.

“Despite favorable demand for home furnishings and a historically strong order backlog triple typical levels for Hooker Furnishings, we were challenged by ongoing supply chain disruptions, especially the slower-than-expected reopening of Vietnam and Malaysia factories,” says Jeremy Hoff, CEO. He became CEO in October when Paul B. Toms, Jr. retired after 28 years.

The third quarter revenue decline follows two consecutive quarters of double-digit sales and income gains at Hooker. Hooker Branded and Domestic Upholstery segments have reported five consecutive quarters of higher net sales.

“The COVID-related factory closings in Vietnam and Malaysia began around August 1st and did not begin reopening until late in the quarter, and then at only about 25 percent capacity,” Hoff says. “We expect the factories will begin to approach 50 percent capacity in the near future.”

Hooker also says it had three unusual charges during the period: a $2.6 million, one-time order cancellation cost to exit the ready-to-assemble (RTA) furniture category; and . And higher than expected chargebacks with two “club” (companies like Costco or Sam’s Club are “clubs”) customers that cut net sales and operating income by $1.9 million.

“Industry-wide inflationary pressures also were a factor in reduced income,” Hoff says. Exiting the HMidea RTA category will save an additional $10 million in product and freight costs related to RTA products “and help us focus our resources in the areas where we can be most competitive and profitable,” he says.

In October, Hooker Furnishings Home Meridian International business opened an 800,000-sq.-ft. distribution center, investing $23.5 million. The facility is a short distance from the Port of Savannah allowing Hooker to reach nearly all of the U.S. population within 36 hours. The location’s proximity to the Port of Savannah played a major role in the location of the warehouse, as Hooker imported more than 8,000 cargo container units last year.

Profits overall are also being dampened by materials costs. “We continued to be challenged by raw materials shortages, but we saw a lot of improvements later in the quarter, and we expect these positive trends to continue,” Hoff says. Another niche for Hooker is contract furniture sales, including retirement homes and four- and five-star hotels such as Westin and Sofitel.

COVID-19 dampened sales at H Contract as well, but Hooker says that as vaccination rates increase, especially among the senior population, incoming orders have increased three consecutive quarters in fiscal 2022 and that it finished the quarter with a backlog 150 percent higher than the prior year third quarter end.

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