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What changed in HOOKER FURNISHINGS Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HOOKER FURNISHINGS Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+279 added−298 removedSource: 10-K (2023-04-14) vs 10-K (2022-04-15)

Top changes in HOOKER FURNISHINGS Corp's 2023 10-K

279 paragraphs added · 298 removed · 158 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

43 edited+14 added−20 removed23 unchanged
Biggest changeWe note the following ongoing activities and new developments: ■ won the Sustainable Furnishings Council Green Ribbon Award for our Octavius Cocktail Table for design, aesthetics, sustainability, and ingenuity; ■ became EFEC (“Enhancing Furniture’s Environmental Culture”) certified at Hooker Branded, Sam Moore, and Bradington-Young facilities; ■ began using FSC (“Forest Stewardship Council”) compliant paper products and replaced Styrofoam packing with recyclable material for repacking in all distribution centers; ■ switched to LED lighting and cleaner-operating electric forklifts in many locations including our new distribution center in Georgia; ■ recycled, reused or repurposed substantially all of our pallets; ■ repurposed wood chips and sawdust from Bradington-Young and the Shenandoah Valdese and Mount Airy facilities for use in the farming industry; ■ disposed of eWaste using an EPA compliant eWaste recycling firm in all divisions; and ■ provided monetary support to the Sustainable Furnishings Council, the Arbor Day Foundation, the Eco-Council of the Dan River basin, and Foothills Conservancy to support various projects including reforestation in Florida and clean-up efforts in local counties.
Biggest changeWe note the following recent and ongoing activities and new developments: ■ we have put in place several initiatives focused on preserving natural resources and reducing our energy usage to lower our carbon footprint through optimizing our facilities including a multi-year project with the goal of switching to LED lighting and cleaner-operating electric forklifts in many locations including our new distribution center in Georgia, which is outfitted with energy-efficient lighting and electric vehicle charging stations; ■ by the end of fiscal 2023, all divisions were EFEC (“Enhancing Furniture’s Environmental Culture”) certified, except for the recently acquired Sunset West division; ■ we use FSC (“Forest Stewardship Council”) compliant paper products and replaced Styrofoam packing with recyclable material for repacking in all distribution centers; ■ we recycle, reuse or repurpose substantially all pallets; repurpose wood chips and sawdust from our Bradington-Young and the Shenandoah’s Valdese and Mount Airy facilities for use in the farming industry; repurpose leather for use in belts and boots, and in all divisions dispose of substantially all eWaste using an Environmental Protection Agency compliant eWaste recycling firm; ■ we provided monetary support by the Company and volunteer hours via employees to the Sustainable Furnishings Council, the Arbor Day Foundation, the Eco-Council of the Dan River basin, and Foothills Conservancy to support various projects including the cultivation of the Mayo River State Park in Henry County, Virginia, which opened for public use in 2022; and 11 Table of Contents ■ reached the following certifications for all wood products used within our Shenandoah production facilities: AHMI (Appalachian Hardwood Manufacturers, Inc.), CPA Certified (Composite Panel Association), ECO-Certified (Sustainable Use of Wood Fiber), FSC (Forest Stewardship Council), Rainforest Alliance Certified, and SFI (Sustainable Forestry Initiative).
ITEM 1. BUSINESS Hooker Furnishings Corporation, incorporated in Virginia in 1924, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture, fabric-upholstered furniture and outdoor furniture for the residential, hospitality and contract markets. We also domestically manufacture premium residential custom leather and custom fabric-upholstered furniture.
ITEM 1. BUSINESS Hooker Furnishings Corporation, incorporated in Virginia in 1924, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture, fabric-upholstered furniture and outdoor furniture for the residential, hospitality and contract markets. We also domestically manufacture premium residential custom leather, custom fabric-upholstered furniture and outdoor furniture.
Our imported furniture business is subject to inherent risks in importing products manufactured abroad, including, but not limited to, supply disruptions and delays due to a variety of reasons, including our foreign suppliers’ factory capacities, factory shutdowns, and delays caused by the COVID-19 pandemic and possible similar health-related issues, much higher ocean freight costs, container and vessel space availability, currency exchange rate fluctuations, economic and political developments and instability, as well as the laws, policies and actions of foreign governments and the United States.
Our imported furniture business is subject to inherent risks in importing products manufactured abroad, including, but not limited to, supply disruptions and delays due to a variety of reasons, including our foreign suppliers’ factory capacities, factory shutdowns, and delays including those caused by the COVID-19 pandemic and possible similar health-related issues, much higher ocean freight costs, container and vessel space availability, currency exchange rate fluctuations, economic and political developments and instability, as well as the laws, policies and actions of foreign governments and the United States.
Most of the leather is imported from Italy, South America and China, and is purchased as full hides and cut and sewn in our facilities or is purchased as pre-cut and sewn kits processed by our vendors to our pattern specifications. We believe our sources for raw materials are adequate and that we are not dependent on any one supplier.
Most of the leather is imported from Italy and South America, and is purchased as full hides and cut and sewn in our facilities or is purchased as pre-cut and sewn kits processed by our vendors to our pattern specifications. We believe our sources for raw materials are adequate and that we are not dependent on any one supplier.
We make available, free of charge through our Hooker Furnishings website hookerfurnishings.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports, and other documents as soon as practical after they are filed with or furnished to the Securities and Exchange Commission.
We make available, free of charge through our Hooker Furnishings website hookerfurnishings.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports, and other documents as soon as practical after they are filed with or furnished to the Securities and Exchange Commission (“SEC”).
However, a disruption in our supply chain from a major supplier or from Vietnam, China, or Malaysia in general, could significantly compromise our ability to fill customer orders for products manufactured at that factory or in that country. Supply disruptions and delays on selected items could occur for six months or longer.
However, a disruption in our supply chain from a major supplier or from Vietnam or China in general, could significantly compromise our ability to fill customer orders for products manufactured at that factory or in that country. Supply disruptions and delays on selected items could occur for six months or longer.
If we were to be unsuccessful in obtaining those products from other sources or at a comparable cost, a disruption in our supply chain from a major furniture supplier, or from Vietnam, China, or Malaysia in general, could decrease our sales, earnings and liquidity.
If we were to be unsuccessful in obtaining those products from other sources or at a comparable cost, a disruption in our supply chain from a major furniture supplier, or from Vietnam or China in general, could decrease our sales, earnings and liquidity.
Given the sourcing capacity available in Vietnam, China, Malaysia and other low-cost producing countries, we currently believe the risks from these potential supply disruptions are manageable; however, we have limited insight into the extent to which our business could be further impacted by COVID-19 and there are many unknowns including, how long we will be impacted, the severity of the impacts and the probability of a recurrence of COVID-19 or similar regional or global pandemics.
Given the sourcing capacity available in Vietnam, China and other low-cost producing countries, we currently believe the risks from these potential supply disruptions are manageable in the long-term; however, we have limited insight into the extent to which our business could be further impacted by COVID-19 or other possible pandemics, and there are many unknowns including, how long we will be impacted, the severity of the impacts and the probability of a recurrence of COVID-19 or similar regional or global pandemics.
Recent Sunset Acquisition On January 31, 2022, the first day of our 2023 fiscal year, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sunset HWM, LLC (“Sunset West”) and its three members (the “Sunset West Members”) to acquire substantially all of the assets of Sunset West (the “Sunset Acquisition”).
On January 31, 2022, the first day of our 2023 fiscal year, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sunset HWM, LLC (“Sunset West”) and its three members (the “Sunset West Members”) to acquire substantially all of the assets of Sunset West (the “Sunset Acquisition”).
Due to the highly customized nature of our hospitality products, we typically require a 50% deposit with order, a 40% deposit before goods reach a U.S. port and the remaining 10% balance due within 30 days of the receipt of goods by the customer.
Due to the highly customized nature of our hospitality products, we typically require a 50% deposit upon order, a 40% deposit before goods reach a U.S. port and the remaining 10% balance due within 30 days of the receipt of goods by the customer.
Warehousing and Distribution We distribute furniture to retailers directly from factories and warehouses in Asia via our container direct programs and from our distribution centers in Virginia, North Carolina, Georgia and California, and in limited cases, from customer operated warehouses in strategic locations.
Warehousing and Distribution We distribute furniture to retailers directly from factories and warehouses in Asia via our container direct programs and from our facilities in Virginia, North Carolina, Georgia and California, and in limited cases, from customer operated warehouses in strategic locations.
Seasonality Generally, sales in our fiscal first quarter are lower than our other fiscal quarters due to the post-Chinese New Year shipping lag and sales in our fiscal fourth quarter are generally stronger due to the pre-Chinese New Year surge in shipments from Asia.
Seasonality Generally, sales in our fiscal first quarter are lower than our other fiscal quarters due to the post-Lunar New Year shipping lag and sales in our fiscal fourth quarter are generally stronger due to the pre-Lunar New Year surge in shipments from Asia.
See Item 1A, “Risk Factors” for additional information on our risks related to imported products. 8 Table of Contents For imported products, we generally negotiate firm pricing with foreign suppliers in U.S. Dollars, typically for a term of at least one year. However, under certain circumstances, we may re-negotiate pricings during the year.
See Item 1A, “Risk Factors” for additional information on our risks related to imported products. For imported products, we generally negotiate firm pricing with foreign suppliers in U.S. Dollars, typically for a term of at least one year. However, under certain circumstances, we may re-negotiate pricing during the year.
Due to (i) Home Meridian’s sales volume, (ii) the average sales order sizes of its mass, 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.
Due to (i) the average sales order sizes of its mass and mega account channels of distribution, (ii) the proprietary nature of many of its products and (iii) the project nature of its hospitality business, for which average order sizes tend to be larger and consequently, the Home Meridien segment’s order backlog tends to be larger.
Hooker Furnishings Corporation consists of the following three operating segments and “All Other”: ■ The Hooker Branded segment which includes two businesses: □ Hooker Casegoods, which covers a wide range of design categories and includes home entertainment, home office, accent, dining and bedroom furniture in the upper-medium price points sold under the Hooker Furniture brand; and □ Hooker Upholstery, imported upholstered furniture targeted at the upper-medium price-range. ■ The Home Meridian segment which includes the following brands/marketing units: □ Accentrics Home, home furnishings centered around an eclectic mix of unique pieces and materials that offer a fresh take on home fashion; □ Pulaski Furniture, casegoods covering the complete design spectrum in a wide range of bedroom, dining room, accent and display cabinets at medium price points; □ Samuel Lawrence Furniture, value-conscious offerings in bedroom, dining room, home office and youth furnishings; □ Prime Resources International, value-conscious imported leather motion upholstery; □ Samuel Lawrence Hospitality, a designer and supplier of hotel furnishings targeted toward four and five-star hotels; and □ HMidea, ready-to-assemble (RTA) furniture category and Clubs channel in its wind-down phase.
Hooker Furnishings Corporation consists of the following three operating segments and “All Other”: ■ The Hooker Branded segment which includes two businesses: □ Hooker Casegoods, which covers a wide range of design categories and includes home entertainment, home office, accent, dining and bedroom furniture in the upper-medium price points sold under the Hooker Furniture brand; and □ Hooker Upholstery, imported upholstered furniture targeted at the upper-medium price-range. ■ The Home Meridian segment which includes the following brands/marketing units: □ Pulaski Furniture, casegoods covering the complete design spectrum in a wide range of bedroom, dining room, accent and display cabinets at medium price points; □ Samuel Lawrence Furniture, value-conscious offerings in bedroom, dining room, home office and youth furnishings; □ Prime Resources International, value-conscious imported leather motion upholstery; □ Samuel Lawrence Hospitality, a designer and supplier of hotel furnishings targeted toward four and five-star hotels; and □ Accentrics Home (“ACH”), home furnishings centered around an eclectic mix of unique pieces and materials that focused on e-commerce customers.
For the Hooker Branded and Domestic Upholstery segments and All Other, we generally consider 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.
Additionally, our hospitality products are highly customized and are generally not cancellable. 10 Table of Contents For the Hooker Branded and Domestic Upholstery segments and All Other, we generally consider 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.
However, domestically produced upholstered products are predominantly custom-built and consequently, cannot be cancelled once the leather or fabric has been cut. Additionally, our hospitality products are highly customized and are generally not cancellable.
However, domestically produced upholstered products are predominantly custom-built and consequently, cannot be cancelled once the leather or fabric has been cut.
The costs associated with our environmental responsibilities, compliance with federal, state and local laws regulating the discharge of materials into the environment, or costs otherwise relating to the protection of the environment, have not had and are not expected to have a material effect on our financial position, results of operations, capital expenditures or competitive position. 11 Table of Contents We are actively working to refine our environmental stewardship based on current best practices, shareholder expectations and regulatory developments.
The costs associated with our environmental responsibilities, compliance with federal, state and local laws regulating the discharge of materials into the environment, or costs otherwise relating to the protection of the environment, have not had and are not expected to have a material effect on our financial position, results of operations, capital expenditures or competitive position.
Order Backlog At January 30, 2022, our backlog of unshipped orders was as follows: Order Backlog (Dollars in 000s) January 30, 2022 January 31, 2021 Reporting Segment Dollars Weeks Dollars Weeks Hooker Branded $ 68,925 17.9 $ 34,776 11.1 Home Meridian 167,968 31.3 180,188 33.2 Domestic Upholstery 67,068 34.1 30,271 18.8 All Other 6,148 27.2 2,845 12.8 Consolidated $ 310,109 27.2 $ 248,080 23.9 10 Table of Contents In the discussion below and herein 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.
Order Backlog At January 29, 2023, our backlog of unshipped orders was as follows: Order Backlog (Dollars in 000s) January 29, 2023 January 30, 2022 Reporting Segment Dollars Weeks Dollars Weeks Hooker Branded $ 19,276 5.0 $ 68,925 17.9 Home Meridian 43,052 10.3 167,968 31.3 Domestic Upholstery 28,404 9.4 67,068 32.6 All Other 4,654 23.2 6,148 44.5 Consolidated $ 95,386 8.5 $ 310,109 27.2 In the discussion below and herein, 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.
During fiscal 2022, due to the global supply chain crisis and inflation pressure in Asia and the U.S., we were forced to re-negotiate prices multiple times during the year. We accept the exposure to exchange rate movements during these negotiated periods.
Due to the global supply chain crisis and inflation pressure in Asia and the U.S., we were forced to re-negotiate prices multiple times during fiscal 2023 and 2022. We accept the exposure to exchange rate movements during these negotiated periods. We do not use derivative financial instruments to manage this risk but could choose to do so in the future.
Due to low profitability, we began exiting the RTA furniture category and warehouse clubs (Clubs) channel in fiscal 2022. 7 Table of Contents ■ The Domestic Upholstery segment which includes the following operations: □ Bradington-Young, a seating specialist in upscale motion and stationary leather furniture; □ Sam Moore Furniture, a specialist in upscale occasional chairs, settees, sofas and sectional seating with an emphasis on cover-to-frame customization; and □ Shenandoah Furniture, an upscale upholstered furniture business specializing in private label sectionals, modulars, sofas, chairs, ottomans, benches, beds and dining chairs in the upper-medium price points for lifestyle specialty retailers. ■ All Other consisting of: □ The H Contract product line which supplies upholstered seating and casegoods to upscale senior living and assisted living facilities through designers, design firms, industry dealers and distributors that service that market; and □ Lifestyle Brands, a business started in fiscal 2019 targeted at the interior designer channel.
Due to low profitability, management decided to exit this channel at the end of fiscal 2023. ■ The Domestic Upholstery segment which includes the following operations: □ Bradington-Young, a seating specialist in upscale motion and stationary leather furniture; □ HF Custom (formerly Sam Moore Furniture), a specialist in fashion forward custom upholstery offering a selection of chairs , sofas, sectionals, recliners and a variety of accent upholstery pieces; □ Shenandoah Furniture, an upscale upholstered furniture business specializing in private label sectionals, modulars, sofas, chairs, ottomans, benches, beds and dining chairs in the upper-medium price points for lifestyle specialty retailers; and □ Sunset West, a designer and manufacturer of comfortable, stylish and high-quality outdoor furniture. 7 Table of Contents ■ All Other consisting of: □ The H Contract product line which supplies upholstered seating and casegoods to upscale senior living and assisted living facilities through designers, design firms, industry dealers and distributors that service that market; and □ Lifestyle Brands, a business started in fiscal 2019 targeted at the interior designer channel.
Further, our product lines are in the “good”, “better” and “best” product categories, which carry medium and upper price points.
Products Our product lines cover the design spectrum of residential furniture: traditional, contemporary and transitional. Further, our product lines are in the “good”, “better” and “best” product categories, which carry medium and upper price points.
Human Capital Resources As of January 30, 2022, we had 1,294 full-time employees, of which 242 were employed in our Hooker Branded segment, 371 were employed in our Home Meridian segment, 674 were employed in our Domestic Upholstery segment and 7 were employed in All Other. 1,091 employees were located in the United States and 203 were located in Asia.
Human Capital Resources As of January 29, 2023, we had 1,259 full-time employees, of which 292 were employed in our Hooker Branded segment, 246 were employed in our Home Meridian segment, 715 were employed in our Domestic Upholstery segment and 6 were employed in All Other. 1,070 employees were located in the United States and 189 were located in Asia.
For more information regarding the Sunset Acquisition, please see Note 20 Subsequent Events to our Consolidated Financial Statements on page F-31. Reportable Segments Furniture sales account for all of our net sales. For financial reporting purposes and as described further below, we are organized into three reportable segments, Hooker Branded, Home Meridian and Domestic Upholstery.
Reportable Segments Furniture sales account for all of our net sales. For financial reporting purposes and as described further below, we are organized into three reportable segments, Hooker Branded, Home Meridian and Domestic Upholstery. Our other businesses are aggregated into “All Other”. See Note 18 -Segment Information to our Consolidated Financial Statements for additional financial information regarding our operating segments.
In response to these tariffs, we began re-sourcing products from non-tariff countries, primarily Vietnam, and to a lesser extent Malaysia, and reduced our Chinese imports to less than 15% by the end of fiscal 2022.
In response to these tariffs, we began re-sourcing products from non-tariff countries, primarily Vietnam and reduced our Chinese imports to less than 10% of total imports by the end of fiscal 2023. Additionally, we are beginning to further diversify our sourcing footprint to include other countries, including Malaysia, Mexico and India.
Should disruptions with these suppliers occur, other than macro disruptions affecting all such suppliers, we believe we could successfully source these products from other suppliers without significant disruption to our operations.
Our five largest domestic upholstery suppliers accounted for 33% of our raw materials purchases for domestic upholstered furniture manufacturing operations in fiscal 2023. Should disruptions with these suppliers occur, other than macro disruptions affecting all such suppliers, we believe we could successfully source these products from other suppliers without significant disruption to our operations.
Accounts payable: Payment for our imported products warehoused first in Asia is due ten to fourteen days after our quality audit inspections are complete and the vendor invoice is presented.
For our outdoor furnishings, most orders require a 50% deposit upon order and the balance when production is started. Accounts payable: Payment for our imported products warehoused first in Asia is due 10 to 14 days after our quality audit inspections are complete and the vendor invoice is presented.
The loss of any one or more of these customers would have a material adverse impact on our business. Roughly 2% of our sales in fiscal 2022 were to international customers. We define sales to international customers as sales to customers outside of the United States and Canada since our independent domestic sales force services both countries.
Less than 2% of our sales in fiscal 2023 were to international customers. We define sales to international customers as sales to customers outside of the United States and Canada since our independent domestic sales force services both countries.
We do not carry significant amounts of hospitality products, as most of these products are built to order and are shipped shortly after their manufacture.
Our domestic upholstery segment products are made to order and shipped shortly after they are produced; however, this segment carries significant amounts of raw materials for production. We do not carry significant amounts of hospitality products, as most of these products are built to order and are shipped shortly after their manufacture directly to the customer.
However, these price changes could adversely impact sales volume and profit margin during the affected periods. Conversely, a relative increase in the value of the U.S. Dollar compared to the currencies from which we obtain our imported products could decrease the cost of imported products and favorably impact net sales and profit margins during the affected period.
We generally expect to reflect substantially all of the effects of any price increases from suppliers in the prices we charge for imported products. However, these price changes could adversely impact sales volume and profit margin during the affected periods. Conversely, a relative increase in the value of the U.S.
We believe that this strategically located facility near the Port of Savannah and major interstate highways will allow us to more efficiently service our customers, reduce transportation costs and better position us for future growth. 9 Table of Contents Working Capital Practices Inventory: We generally import casegoods inventory and certain upholstery items in amounts that enable us to meet the delivery requirements of our customers, our internal in-stock goals and minimum purchase requirements from our sourcing partners.
Working Capital Practices Inventory: We generally import casegoods inventory and certain upholstery items in amounts that enable us to meet the delivery requirements of our customers, our internal in-stock goals and minimum purchase requirements from our sourcing partners.
Imported casegoods and upholstered furniture together accounted for approximately 82% in fiscal 2022 and 83% of our net sales in both fiscal 2021 and fiscal 2020.
Sourcing Imported Products We have sourced products from foreign manufacturers for over thirty years, predominantly from Asia. Imported casegoods and upholstered furniture together accounted for approximately 72% of our net sales in fiscal 2023, 82% of our net sales in fiscal 2022 and 83% of our net sales in fiscal 2021.
The action steps that we have taken recently or are working on currently include: ■ formed a Diversity, Equity, and Inclusion (DEI) leadership team with over 15 senior executives representing all divisions of the Company meeting on a regular basis to guide both short- and long-term goals in addition to creating the overall strategic direction of DEI at the Company; ■ formed an employee-led Diversity Council consisting of a diverse group of employees; ■ partner with an outside DEI consultant to assist in crafting a plan to embed DEI culturally; ■ provide diversity, equity and inclusion training for all employees; and ■ formalized our Occupational Health and Safety Policy. 12 Table of Contents We compensate employees competitively relative to the industry and local labor market, and in accordance with all applicable federal, state and local wage, work hour, overtime and benefit laws.
The action steps we have taken recently or are working on currently include: ■ a Diversity, Equity, and Inclusion (“DEI”) leadership team with over 15 senior executives representing all divisions of the Company meeting on a regular basis to guide both short- and long-term goals in addition to creating the overall strategic direction of DEI at the Company; ■ an employee-led diversity council AIDE (Advancement of Inclusion, Diversity, and Equity) consisting of a diverse group of employees that meets monthly with the goal of increasing institutional awareness of issues relating to inclusivity and equality for a more diverse and welcoming workplace.
“Quantitative and Qualitative Disclosures About Market Risk.” Raw Materials Significant materials used in manufacturing our domestic upholstered furniture products include leather, fabric, foam, wooden and metal frames and electronic mechanisms.
Therefore, lower exchange rates may only have a tempering effect on future price increases by merely delaying cost increases on imported products. See also Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.” 8 Table of Contents Raw Materials Significant materials used in manufacturing our domestic upholstered furniture products include leather, fabric, foam, wooden and metal frames and electronic mechanisms.
Dollar compared to the currencies from which we obtain our imported products could increase the price we pay for imported products beyond the negotiated periods. We generally expect to reflect substantially all of the effects of any price increases from suppliers in the prices we charge for imported products.
Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar compared to the currencies from which we obtain our imported products could increase the price we pay for imported products beyond the negotiated periods.
In addition, we offer competitive benefits to support the well-being of all employees including health insurance, disability and life insurance, wellness credits, paid time off, a 401(k) savings plan with company-match, an employee assistance program, and educational stipends to children and spouses of our employees (excluding family members of officers and board directors of the Company).
In addition, we offer affordable and competitive benefits to support the well-being of all employees including health insurance, disability and life insurance, worker’s compensation, wellness credits, paid time off, a 401(k) savings plan with company-match, an employee assistance program, and training and educational opportunities for all employees, including educational stipends or renewable college scholarships to children and spouses of all employees, excluding family members of current and former officers and board directors of the Company. 12 Table of Contents Patents and Trademarks The Hooker Furnishings, Hooker Furniture, Bradington-Young, Sam Moore, Pulaski Furniture, Samuel Lawrence Furniture, Samuel Lawrence Hospitality, Room Gear, Right2Home, Home Meridian International, Prime Resources International, Accentrics Home, HMidea, Shenandoah, H Contract, Homeware, MARQ and Sunset West trade names represent many years of continued business.
Under the Asset Purchase Agreement, the Company also assumed specified liabilities of Sunset West. Sunset West is a leading West Coast-based manufacturer of outdoor furniture with its headquarters in Vista, California. The transaction enables us to immediately gain market share in the growing outdoor furniture segment of the industry with one of the most respected brands in the category.
Sunset West is a leading West Coast-based manufacturer of outdoor furniture with its headquarters in Vista, California. The acquisition enables us to immediately gain market share in the growing outdoor furniture segment of the industry. For more information regarding the Sunset Acquisition, please see Item 7 and Note 4 to our Consolidated Financial Statements on page F-15.
There are exceptions to the general predictive nature of our orders and backlogs noted in this paragraph due to current demand and supply chain challenges related to the COVID-19 pandemic. They are discussed in greater detail below and are essential to understanding our prospects.
There have been exceptions to the general predictive nature of our orders and backlogs noted in this paragraph, such as during times of extremely high demand and supply chain challenges as experienced during the immediate aftermath of the initial COVID-19 crisis and subsequent recovery.
Most of the Hooker Branded segment’s products are shipped from our US warehouses, while a large percentage of products sold at our Home Meridian segment are not warehoused by us but ship directly to our customers and thus not included as inventory.
These conditions improved throughout fiscal 2023, and inventory levels are now higher than usual, with plans to work them down over the course of the fiscal 2024 first half. 9 Table of Contents A large percentage of products sold at our Home Meridian segment are not warehoused by us but ship directly to our customers and thus are not included in our inventory.
Customers Our home furnishings products are sold through a variety of retailers including independent furniture stores, department stores, mass merchants, national chains, catalog merchants, interior designers, e-commerce retailers and warehouse clubs. No single customer accounted for more than 8% of our consolidated sales in fiscal 2022. Our top five customers accounted for approximately 26% of our fiscal 2022 consolidated sales.
We were able to find an alternative plywood source at a higher price during fiscal 2023 and this issue was mitigated as of early calendar 2023. Customers Our home furnishings products are sold through a variety of retailers including independent furniture stores, department stores, mass merchants, national chains, catalog merchants, interior designers, and e-commerce retailers.
However, due to other factors, such as inflationary pressure in China and other countries, we may not fully realize savings when exchange rates fall. Therefore, lower exchange rates may only have a tempering effect on future price increases by merely delaying cost increases on imported products. See also Item 7A.
Dollar compared to the currencies from which we obtain our imported products could decrease the cost of imported products and favorably impact net sales and profit margins during the affected period. However, due to other factors, such as inflationary pressure in China and other countries, we may not fully realize savings when exchange rates fall.
We are very encouraged by the current historic levels of orders and backlogs; however, due to the current supply chain issues including the lack and cost of shipping containers and vessel space and limited overseas vendor capacity, orders are not converting to shipments as quickly as would be expected compared to the pre-pandemic environment and we expect that to continue at some level through at least the fiscal 2023 second quarter.
They are discussed in greater detail below and in Item 7 and are essential to understanding our prospects. In the prior fiscal year, orders were not being converted to shipments as quickly as would be expected compared to the pre-pandemic environment due to the lack and cost of shipping containers and vessel space as well as limited overseas vendor capacity.
However, Home Meridian’s warehoused inventory increased $7 million as compared to the end of the prior fiscal year, due primarily to increased inventory in Home Meridian’s Accentrics Home division.
However, Home Meridian’s warehoused inventory increased significantly during fiscal 2023 due primarily to increased inventory in the ACH division, which is focused on the e-commerce channel.
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We are ranked among the nation’s top five largest publicly traded furniture sources, based on 2020 shipments to U.S. retailers, according to a 2021 survey by a leading trade publication.
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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.
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Simultaneously, we closed on the transaction by paying $23.5 million in cash and $2 million subject to an escrow arrangement and possible earn-out payments to the Sunset West Members up to an aggregate of $4 million with the closing cash consideration subject to adjustment for customary working capital estimates.
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For example, in calendar 2021, the COVID-19 related lockdown at our suppliers in Vietnam and Malaysia, along with constrained container and steamship availability as well as congestion at U.S. ports, negatively impacted our shipments and inventory levels in early calendar 2022.
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Our other businesses are aggregated into “All Other”. See Note 16 -Segment Information to our Consolidated Financial Statements for additional financial information regarding our operating segments. Products Our product lines cover the design spectrum of residential furniture: traditional, contemporary and transitional.
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For example, due to the Russian invasion of Ukraine, there is a shortage of Russian Birch which was the third largest source of US hardwood plywood imports in calendar 2021. Prior to the invasion, a large portion of the plywood used at one division of our Domestic Upholstery segment was Russian Birch.
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While we are still analyzing Sunset West’s operations and the requirements of ASC 280: Segment Reporting , we anticipate Sunset West will be included in the Domestic Upholstery segment. Sourcing Imported Products We have sourced products from foreign manufacturers for over thirty years, predominantly from Asia.
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No single customer accounted for more than 6% of our consolidated sales in fiscal 2023. Our top five customers accounted for approximately 22% of our fiscal 2023 consolidated sales. The loss of any one or more of these customers would have a material adverse impact on our business.
Removed
In the summer of calendar 2021, many of our Vietnam and Malaysia suppliers were temporarily closed or operating at reduced capacity due to a COVID-19-related lockdown and did not fully resume until after the Lunar New Year holidays in calendar 2022.
Added
Due to our exit from the ACH business unit which demanded significant amounts of inventory to meet the quick shipping requirements of its e-commerce model, we anticipate a reduction in the physical footprint of the Georgia warehouse over the course of fiscal 2024.
Removed
Slower-than expected re-openings and delays at the factories, along with constrained container and steamship availability, negatively impacted shipments and sales at our Home Meridian segment and the inventory levels at our Hooker Branded segment, which resulted in out-of-stock issues and decreased sales. Additionally, port congestion has led to delays in unloading furniture once it reaches U.S. ports.
Added
The majority of products in the Hooker Branded segment are shipped from our U.S. warehouses. In calendar 2021, the COVID-19 related lockdowns at our suppliers in Vietnam and Malaysia, along with the supply chain disruptions, resulted in low inventory levels within the Hooker Branded segment in early fiscal 2023.
Removed
All of these factors, combined with the production halt that regularly occurs at the Lunar New Year holidays, have significantly lengthened the time it takes to ship and receive goods and our order backlog is at historic levels.
Added
A slowing in the ecommerce business, coupled with an aggressive backlog reduction by our Asian suppliers after the end of COVID-19-related lockdowns in the late-summer of 2021, resulted in a substantial ACH inventory increase in fiscal 2023.
Removed
We do not use derivative financial instruments to manage this risk but could choose to do so in the future. Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S.
Added
Due to low profitability, low rates of sales and a general slowing of furniture sales in the e-commerce space, we decided to exit this division and recorded $24.4 million write-downs of ACH inventories and other excess inventories during the fourth quarter of fiscal 2023.
Removed
Our five largest domestic upholstery suppliers accounted for 32% of our raw materials purchases for domestic upholstered furniture manufacturing operations in fiscal 2022. In the first half of fiscal 2022, we experienced shortages of foam which had a short-term but material impact on production levels, sales volume and operating efficiencies for that same period.
Added
We expect the exit of the ACH business and the inventory write down will lead to improvements in working capital, inventory turns and obsolescence reserves.
Removed
For example, as of the date of this report, our SFI division is in the process of re-sourcing Russian Birch plywood as a result of possible tariffs and lack of availability due to the current conflict in Ukraine.
Added
As a result, backlogs were significantly elevated and reached historical levels. At the end of fiscal 2023, order backlog decreased by $214.7 million or 69%, as compared to the prior year end.
Removed
We are in the process of consolidating our Home Meridian segment’s North Carolina warehousing operations into an 800,000 square foot distribution center in Liberty County, Georgia, which we occupied in the Fall of 2021.
Added
The decrease was largely attributable to more normalized levels of shipping, especially in the Hooker legacy divisions, lower incoming orders in the Home Meridian segment, and to a lesser degree at Hooker Branded and Domestic Upholstery segments, driven by a decrease in overall demand when compared to the prior year’s surge in demand after the initial COVID crisis, absence of Clubs channel orders and decreased orders from retailer customers with high inventory levels delaying shipments.
Removed
In the summer of calendar 2021, factories in Vietnam and Malaysia were temporarily closed due to COVID-related lockdown. Slower than expected re-openings and factory delays led to low inventory receipts in the second half of the year in Hooker Branded segment, which ships the majority of its products from U.S. warehouses to customers.
Added
We are actively working to refine and align our environmental stewardship based on current best practices, shareholder expectations and regulatory developments through our ESG-focused committee called CARE (Community Action & Responsibility for our Environment). It regularly updates management and updates the Board at least quarterly on these initiatives.
Removed
Additionally, container availability and steamship capacity continued to be challenging. We expect these conditions to improve as we move through the second quarter of fiscal 2023.
Added
The AIDE Council initiatives include: o DEI training for managers, new employee on-boarding, and all employees; o monthly recruiting meetings between HR and AIDE liaison to work on attracting and sourcing more diverse candidates, assist in making the interview process welcoming to all, and create metrics to measure organizational progress; o addition of two company-wide floating holidays allowing employees to have time-off for holidays of their choosing; o campaigns to educate employees on diverse holidays and heritage months; and o DEI-focused section added to annual performance review for all employees and the Company’s Corporate Social Responsibility report; ■ has a formal Vendor Code of Conduct that requires vendors to conduct business in a fair and ethical manner; and ■ formalized our Occupational Health and Safety Policy.
Removed
Generally, our domestic upholstery segment products are made to order and shipped shortly after they are produced; however, due to the domestic truck driver shortage, shipments of this segment’s finished goods slowed somewhat in fiscal 2022.
Added
We compensate employees competitively relative to the industry and local labor market, and in accordance with all applicable federal, state and local wage, work hour, overtime and benefit laws.
Removed
The current logistics challenges are slowing order fulfillment, particularly for Home Meridian whose average order sizes tend to be larger and more project-based versus orders for the traditional Hooker businesses, which tend to be smaller and more predictable.
Removed
Additionally, Home Meridian orders are programmed out and scheduled for delivery to its larger accounts further into the future than usual, which is also contributing to its large backlog.
Removed
At the end of fiscal 2022, order backlog increased $62 million or 25% as compared to the prior year end due largely to increased incoming orders in the Hooker Branded and Domestic Upholstery segments, and to a lesser degree, continued supply chain disruptions and delays affecting those segments.
Removed
Our environmental steering committee meets at least monthly to discuss the development and implementation of environmental initiatives and our Board is updated at least quarterly on those initiatives.
Removed
Additionally, need and merit-based renewable undergraduate college scholarships are available through the Hooker Educational Scholarship Fund for children and spouses of full-time employees, excluding family members of current and former officers and board directors of the Company.
Removed
Patents and Trademarks The Hooker Furnishings, Hooker Furniture, Bradington-Young, Sam Moore, Pulaski Furniture, Samuel Lawrence Furniture, Samuel Lawrence Hospitality, Room Gear, Right2Home, Home Meridian International, Prime Resources International, Accentrics Home, HMidea, Shenandoah, H Contract, Homeware, MARQ and Sunset West trade names represent many years of continued business.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

51 edited+13 added−21 removed53 unchanged
Biggest changeConsequently, traffic to our customers’ stores and demand for our products significantly decreased at the initial height of the pandemic, our sales deteriorated and our earnings were negatively impacted. COVID-19 also impacted our Asian supply chain, particularly as a result of mandatory shutdowns in locations where our products are manufactured, and we experienced out-of-stocks and lost sales as a result.
Biggest changeCOVID-19 also impacted our Asian supply chain, particularly as a result of mandatory shutdowns in locations where our products are manufactured in the Summer of calendar 2021, and we experienced out-of-stocks and lost sales as a result. Additionally, the demand surge that occurred after the initial height of the pandemic caused supplier capacity constraints, shipping container and steamship space shortages.
Our corporate and divisional headquarters, which house our administration, sourcing, sales, finance, merchandising, customer service and logistics functions for our imported and domestic products are located in Virginia, North Carolina and California. Our domestic upholstery manufacturing facilities are located in Virginia and North Carolina.
Our corporate and divisional headquarters, which house our administration, sourcing, sales, finance, merchandising, customer service and logistics functions for our imported and domestic products are located in Virginia, North Carolina and California. Our domestic upholstery manufacturing facilities are located in Virginia, North Carolina and California.
Were the negative economic effects of COVID-19 to persist or a similar pandemic or another major, unexpected event with negative economic effects occur, we may not be able to collect amounts owed to us or such payment may only occur after significant delay. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable.
Were the COVID-19 or a similar pandemic or another major, unexpected event with negative economic effects occur, we may not be able to collect amounts owed to us or such payment may only occur after significant delay. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable.
Accordingly, our results of operations for any quarter are not necessarily indicative of the results of operations to be expected for a full year. ► Other general risk factors applicable to us and our business We may not be able to maintain, raise prices, or raise prices in a timely manner in response to inflation and increasing costs.
Accordingly, our results of operations for any quarter are not necessarily indicative of the results of operations to be expected for a full year or the next quarter. » Other general risk factors applicable to us and our business We may not be able to maintain, raise prices, or raise prices in a timely manner in response to inflation and increasing costs.
Consequently: ■ A disruption in supply from Vietnam, China or Malaysia or from our most significant suppliers in Asia could adversely affect our ability to timely fill customer orders for these products and decrease our sales, earnings and liquidity.
Consequently: ■ A disruption in supply from Vietnam or China or from our most significant suppliers in Asia could adversely affect our ability to timely fill customer orders for these products and decrease our sales, earnings and liquidity.
These costs and risks could include, but are not limited to: ● Significant capital and operating expenditures; ● Disruptions to our domestic and international supply chains; ● Inability to fill customer orders accurately and on a timely basis, or at all; ● Inability to process payments to suppliers, vendors and associates accurately and in a timely manner; ● Disruption to our system of internal controls; ● Inability to fulfill our SEC or other governmental reporting requirements in a timely or accurate manner; ● Inability to fulfill international, federal, state, or local tax filing requirements in a timely or accurate manner; and ● Increased demands on management and staff time to the detriment of other corporate initiatives.
These costs and risks could include, but are not limited to: ● Significant capital and operating expenditures; ● Disruptions to our domestic and international supply chains; 16 Table of Contents ● Inability to fill customer orders accurately and on a timely basis, or at all; ● Inability to process payments to suppliers, vendors and associates accurately and in a timely manner; ● Disruption to our system of internal controls; ● Inability to fulfill our SEC or other governmental reporting requirements in a timely or accurate manner; ● Inability to fulfill international, federal, state or local tax filing requirements in a timely or accurate manner; and ● Increased demands on management and staff time to the detriment of other corporate initiatives.
Increased transportation costs, both domestically and internationally, in the future would likely adversely affect earnings, financial condition and liquidity. ■ Our dependence on suppliers could, over time, adversely affect our ability to service customers. We rely heavily on suppliers we do not own or control, including a large number of non-US suppliers.
Increased transportation costs, both domestically and internationally, in the future would likely adversely affect earnings, financial condition and liquidity. ■ Our dependence on suppliers could, over time, adversely affect our ability to service customers. We rely heavily on suppliers we do not own or control, including a large number of non-U.S. suppliers.
In this case, none of the rates imposed have been of sufficient magnitude to alter our import strategy in any meaningful way; however, these and other tariffs are subject to review and could be increased or new tariffs implemented in the future. ■ Changes in the value of the U.S.
In this case, none of the rates imposed have been of sufficient magnitude to alter our import strategy in any meaningful way; however, these and other tariffs are subject to review and could be increased or new tariffs implemented in the future. 14 Table of Contents ■ Changes in the value of the U.S.
Amounts owed to us by a customer whose business fails, or is failing, may become uncollectible, and we could lose future sales, any of which could adversely affect our sales, earnings, financial condition and liquidity. We may not be able to collect amounts owed to us.
Amounts owed to us by a customer whose business fails, or is failing, may become uncollectible (in whole or in part), and we could lose future sales, any of which could adversely affect our sales, earnings, financial condition and liquidity. We may not be able to collect amounts owed to us.
The loss of several large customers through business consolidations, the loss of a major customer or significant sales programs with major customers, failures or other reasons, including the adverse economic effects of the COVID-19 pandemic or similar events, could adversely affect our business.
The loss of several large customers through business consolidations or otherwise, the loss of a major customer or significant sales programs with major customers, failures or other reasons, including economic downturn and the adverse economic effects of the COVID-19 pandemic or similar events, could adversely affect our business.
One or a combination of these issues could adversely affect our sales, earnings, financial condition and liquidity. 15 Table of Contents A disruption affecting our domestic facilities could disrupt our business. The warehouses in which we store our inventory in Virginia, North Carolina, Georgia and California are critical to our success.
One or a combination of these issues could adversely affect our sales, earnings, financial condition and liquidity. A disruption affecting our domestic facilities could disrupt our business. The facilities in which we store our inventory in Virginia, North Carolina, Georgia and California are critical to our success.
Should these issues persist or increase due to the COVID-19 pandemic or similar pandemics in the future, our sales, earnings, financial condition and liquidity could again be adversely affected.
Should these issues persist or increase due to the COVID-19 pandemic, similar future pandemics or for other reasons, our sales, earnings, financial condition and liquidity could again be adversely affected.
Over time, this practice may expand to smaller retailers. As a result, we are continually subject to the risk of losing market share to these non-U.S. furnishings sources, which could adversely affect our sales, earnings, financial condition and liquidity. Failure to anticipate or timely respond to changes in fashion and consumer tastes could adversely impact our business.
As a result, we are continually subject to the risk of losing market share to these non-U.S. furnishings sources, which could adversely affect our sales, earnings, financial condition and liquidity. Failure to anticipate or timely respond to changes in fashion and consumer tastes could adversely impact our business.
A claim that is brought against us, successful or unsuccessful, that is uninsured or under-insured could harm our business, result in substantial costs, divert management attention and adversely affect our sales, earnings, financial condition and liquidity.
A claim that is brought against us, successful or unsuccessful, that is uninsured or under-insured could harm our business, result in substantial costs, divert management attention and adversely affect our sales, earnings, financial condition and liquidity. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
In fiscal 2022, imported products sourced from Vietnam and China accounted for 88% of our import purchases and our top five suppliers in Vietnam and China accounted for 42% of our fiscal 2022 import purchases. Our supply chain could be adversely impacted by the uncertainties of health concerns and governmental restrictions.
In fiscal 2023, imported products sourced from Vietnam and China accounted for 91% of our import purchases and our top five suppliers in Vietnam and China accounted for 50% of our fiscal 2023 import purchases. Our supply chain could be adversely impacted by the uncertainties of health concerns and governmental restrictions.
While we believe the Sunset West acquisition will be accretive to our earnings per share beginning in fiscal 2023, this expectation is based on preliminary estimates which may materially change.
While we believe the Sunset Acquisition will be accretive to our earnings per share, this expectation is based on preliminary estimates which may materially change.
Any of the foregoing factors, or other cascading effects of this or other pandemics, could materially increase our costs, negatively impact our sales and damage the company’s results of operations and its liquidity, possibly to a significant degree.
Any of the foregoing factors, or other cascading effects of this or other pandemics, could materially increase our costs, negatively impact our sales and damage the Company’s results of operations and its liquidity, possibly to a significant degree. The duration of any such impacts also cannot be predicted.
If these information systems or technologies are interrupted or fail, or we are unable to adapt our systems or those of third parties as a result of legislative or regulatory actions, our operations and reputation may be adversely affected, we may be subject to legal proceedings, including regulatory investigations and actions, which could diminish investor and customer confidence which could adversely affect our sales, earnings, financial condition and liquidity.
If these information systems or technologies are interrupted or fail, or we are unable to adapt our systems or those of third parties as a result of legislative or regulatory actions, our operations and reputation may be adversely affected, we may be subject to legal proceedings, including regulatory investigations and actions, which could diminish investor and customer confidence which could adversely affect our sales, earnings, financial condition and liquidity. 19 Table of Contents Unauthorized disclosure of confidential information provided to us by our customers, employees, or third parties could harm our business.
Economic downturns could affect consumer spending habits by decreasing the overall demand for home furnishings. Changes in interest rates, consumer confidence, new housing starts, existing home sales, the availability of consumer credit and broader national or geopolitical factors have particularly significant effects on our business. We have seen negative effects on all of these measures due to the COVID-19 pandemic.
Changes in interest rates, consumer confidence, new housing starts, existing home sales, the availability of consumer credit and broader national or geopolitical factors have particularly significant effects on our business. We have seen negative effects on all of these measures due to the COVID-19 pandemic.
Transportation costs, including ocean freight costs and domestic trucking costs, on imported products currently represent a significant portion of the cost of those products. Transportation costs on our imported products are affected by a myriad of factors including the global economy, petroleum prices and ocean freight carrier capacity.
Transportation costs on our imported products are affected by a myriad of factors including the global economy, petroleum prices and ocean freight carrier capacity. In the recent past, especially during fiscal 2022, transportation costs, including ocean freight costs and domestic trucking costs, on imported products represented a significant portion of the cost of those products.
We incurred significant acquisition and acquisition-related costs in fiscal 2022 in connection with the Sunset West acquisition and expect to incur additional integration-related costs in fiscal 2023, but we may fail to realize all the anticipated benefits of the acquisition or they may take longer to realize than expected.
We incurred significant debt, acquisition and acquisition-related costs in connection with the Sunset Acquisition, but we may fail to realize all the anticipated benefits of the Sunset Acquisition or they may take longer to realize than expected.
Economic downturns could result in decreased sales, earnings and liquidity. The furniture industry is particularly sensitive to cyclical variations in the general economy and to uncertainty regarding future economic prospects, including those caused by pandemics such as COVID-19. Home furnishings are generally considered a postponable purchase by most consumers.
The furniture industry is particularly sensitive to cyclical variations in the general economy and to uncertainty regarding future economic prospects, including those caused by pandemics such as COVID-19. Home furnishings are generally considered a postponable purchase by most consumers. Economic downturns could affect consumer spending habits by decreasing the overall demand for home furnishings.
Furniture manufacturing creates large amounts of highly flammable wood dust and utilizes other highly flammable materials such as varnishes and solvents in its manufacturing processes and is therefore subject to the risk of losses arising from explosions and fires. Additionally, our domestic operations have been negatively affected by COVID-19 and we experienced some COVID-related employee absences.
Furniture manufacturing creates large amounts of highly flammable wood dust and utilizes other highly flammable materials such as varnishes and solvents in its manufacturing processes and is therefore subject to the risk of losses arising from explosions and fires. Additionally, our domestic operations could be negatively affected by public health events, such as the COVID-19 pandemic.
At January 30, 2022, we had $52.4 million in net long-lived assets, consisting primarily of property, plant and equipment, trademarks, trade names and goodwill.
At January 29, 2023, we had $73.7 million in net long-lived assets, consisting primarily of property, plant and equipment, trademarks, trade names and goodwill.
One customer accounted for approximately 8% of our consolidated sales in fiscal 2022, our top five customers accounted for about 26% of our fiscal 2022 consolidated sales. Approximately 25% of our consolidated accounts receivable is concentrated in our top five customers.
One customer accounted for approximately 6% of our consolidated sales in fiscal 2023, our top five customers accounted for about 22% of our fiscal 2023 consolidated sales. Approximately 20% of our consolidated accounts receivable is concentrated in our top five customers.
The risk of cyberattacks also includes attempted breaches of contractors, business partners, vendors and other third parties. We have a cybersecurity program designed to protect and preserve the integrity of our information systems.
The risk of cyberattacks also includes attempted breaches of contractors, business partners, vendors and other third parties. We have a cybersecurity program designed to protect and preserve the integrity of our information systems. Additionally, we implemented a multi-factor authentication process in order to enhance the security of our remote work environment.
The integration process could result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies.
The integration process in on-going and could result in the diversion of management attention to the detriment of other areas, the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies.
We do not have long-term supply contracts with our suppliers. Unfavorable fluctuations in the price, quality or availability of required raw materials could negatively affect our ability to meet the demands of our customers.
We do not have long-term supply contracts with our suppliers. Unfavorable fluctuations in the price, quality or availability of required raw materials could negatively affect our ability to meet the demands of our customers. We may not always be able to pass price increases on raw materials through to our customers due to competition and other market pressures.
Other pandemics are also possible with similar or worse public health outcomes. The sweeping nature of pandemics makes it extremely difficult to predict how our business and operations could be affected in the longer run.
The sweeping nature of pandemics makes it extremely difficult to predict how our business and operations could be affected in the longer run.
We have seen a significant spike in these costs over the past year and our profitability has been materially impacted. We have implemented price increases and surcharges; however, there can be no assurance that we will be successful in increasing prices or receiving freight surcharges in the future or that we can do it quickly enough to offset increased costs.
To mitigate the increased costs, we implemented price increases and surcharges; however, there can be no assurance that we will be successful in increasing prices or receiving freight surcharges in the future or that we can do it quickly enough to offset increased costs.
In fiscal 2022, lack of qualified workers and high turnover in a variety of positions caused increased training costs, adversely affected our production schedules and the ability to ship our furniture products, which adversely affected our sales, earnings and liquidity.
Lack of qualified workers and high turnover in a variety of positions caused increased training costs and adversely affected our production schedules and the ability to ship our furniture products. Furthermore, we experienced higher labor costs and ongoing inflationary pressure.
If we purchase too little or the wrong mix of inventory, we may not be able to fill customer orders and may lose market share and weaken or damage customer relationships, which also could adversely affect our sales, earnings, financial condition and liquidity. ■ Potential future increases in tariffs on manufactured goods imported from China or new tariffs imposed on other countries from which we source, including Vietnam, could adversely affect our business.
If we purchase too little or the wrong mix of inventory, we may not be able to fill customer orders and may lose market share and weaken or damage customer relationships, which also could adversely affect our sales, earnings, financial condition and liquidity. ■ Increased transportation costs, including freight costs on imported products could decrease earnings and liquidity.
A disruption in our supply chain, or from Vietnam, China or Malaysia in general, could significantly impact our ability to fill customer orders for products manufactured in those countries. For example, in the summer of calendar 2021, our suppliers in Vietnam and Malaysia were temporarily closed or operated at substantially reduced levels due to a COVID-related lockdown.
A disruption in our supply chain, or from Vietnam or China in general, such as the COVID-19 related lockdown in certain parts of Asia in the Summer of calendar 2021, could significantly impact our ability to fill customer orders for products manufactured in those countries.
We may pursue new business lines in which we have limited or no prior experience or expertise. These pursuits may require substantial investment of capital, personnel and management attention. New business initiatives may fail outright or fail to produce an adequate return, which could adversely affect our earnings, financial condition and liquidity.
We may pursue new business lines in which we have limited or no prior experience or expertise. These pursuits may require substantial investment of capital, personnel and management attention.
Our sales and operating results could be adversely affected by product safety concerns. If our product offerings do not meet applicable safety standards or consumers' expectations regarding safety, we could experience decreased sales, increased costs and/or be exposed to legal and reputational risk.
If our product offerings do not meet applicable safety standards or consumers' expectations regarding safety, we could experience decreased sales, increased costs and/or be exposed to legal and reputational risk. Events that give rise to actual, potential or perceived product safety concerns could expose us to regulatory enforcement action and/or private litigation.
Competitive and market forces could prohibit future successful price increases for our products in order to offset increased costs of labor, finished goods, raw materials, freight and other product-related costs, which could adversely affect our sales, earnings, financial condition and liquidity. 19 Table of Contents The interruption, inadequacy or security failure of our information systems or information technology infrastructure or the internet or inadequate levels of cyber-insurance could adversely impact our business, sales, earnings, financial condition and liquidity.
Competitive and market forces could prohibit or delay future successful price increases for our products in order to offset on a timely basis increased costs of labor, finished goods, raw materials, freight and other product-related costs, which could adversely affect our sales, earnings, financial condition and liquidity. 18 Table of Contents Economic downturns could result in decreased sales, earnings and liquidity.
We may not always accomplish these actions as quickly as anticipated and may not achieve the expected cost savings, which could adversely affect our sales, earnings, financial condition and liquidity. A material part of our sales and accounts receivable are concentrated in a few customers.
We may not always accomplish these actions as quickly as anticipated and may not achieve the expected cost savings, which could adversely affect our sales, earnings, financial condition and liquidity. We may experience impairment of our long-lived assets, which would decrease our earnings and net worth.
If we are unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain from our largest import furniture suppliers, or from Vietnam, China or Malaysia in general, could adversely affect our sales, earnings, financial condition and liquidity. ■ Increased transportation costs, including freight costs on imported products could decrease earnings and liquidity.
If we are unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain from our largest import furniture suppliers, or from Vietnam or China in general, could adversely affect our sales, earnings, financial condition and liquidity. 13 Table of Contents ■ Our inability to accurately forecast demand for our imported products could cause us to purchase too much, too little or the wrong mix of inventory.
If the integration is not completed as planned, our ongoing business and financial results may be adversely affected, which could adversely affect our sales, earnings, financial condition and liquidity. 18 Table of Contents We may experience impairment of our long-lived assets, which would decrease our earnings and net worth.
If the integration is not completed as planned, our ongoing business and financial results may be adversely affected, which could adversely affect our sales, earnings, financial condition and liquidity. We may fail to realize the benefits of HMI segment restructuring and cost-savings efforts.
Supply disruptions and delays on selected items could occur for six months or longer before the impact of remedial measures would be reflected in our results.
In some cases, we were able to provide substitutions using inventory on hand, in-transit and from our domestic warehouses, but not enough to entirely mitigate the lost sales. Supply disruptions and delays on selected items could occur for six months or longer before the impact of remedial measures would be reflected in our results.
Events that give rise to actual, potential or perceived product safety concerns could expose us to regulatory enforcement action and/or private litigation. While we carry general and umbrella liability insurance for such events, settlements or jury awards could exceed our policy limits.
While we carry general and umbrella liability insurance for such events, settlements or jury awards could exceed our policy limits. Reputational damage caused by real or perceived product safety concerns or failure to prevail in private litigation against us could adversely affect our business, sales, earnings, financial condition and liquidity.
If we are unable to find a suitable replacement for Russian Birch before we exhaust our supply, our sales, earnings and liquidity could be adversely affected. 16 Table of Contents If demand for our domestically manufactured upholstered furniture declines, we may respond by realigning manufacturing. Our domestic manufacturing operations make only upholstered furniture.
The inability to meet customers’ demands or recover higher costs could adversely affect our sales, earnings, financial condition and liquidity. 15 Table of Contents If demand for our domestically manufactured upholstered furniture declines, we may respond by realigning manufacturing. Our domestic manufacturing operations make only upholstered furniture.
These events could also impact retailers, who are our primary customers, possibly adversely affecting our sales, earnings, financial condition and liquidity. Unauthorized disclosure of confidential information provided to us by our customers, employees, or third parties could harm our business.
These events could also impact retailers, who are our primary customers, possibly adversely affecting our sales, earnings, financial condition and liquidity. The impact of future pandemics could adversely affect our business, results of operations, financial condition, liquidity and stock price.
Considering our lead times of five to six months, the benefits of new pricing could be offset by continued price increases from our suppliers that could impact us before we realize the benefit from our price increases. The inability to meet customers’ demands or recover higher costs could adversely affect our sales, earnings, financial condition and liquidity.
In addition, the price increases are frequently implemented on future orders instead of existing order backlogs. Considering our lead times of five to six months, the benefits of new pricing could be offset by continued price increases from our suppliers that could impact us before we realize the benefit from our price increases.
Alternatively, solving these issues may significantly diminish our profit margins if we are unable to offset these additional costs. 13 Table of Contents The extent of the continued impact of COVID-19 on our business and financial results depends on future developments, including the emergence of new and different strains of the virus and the effectiveness of vaccinations and other public health measures.
The extent of the continued impact of a pandemic or other global health crisis on our business and financial results depends on future developments, including the emergence of new and different strains of the virus and the effectiveness of vaccinations and other public health measures and could result in similar or worse public health outcomes compared to the Covid-19 pandemic.
The COVID-19 pandemic is a serious threat to health and economic well-being affecting our customers, our associates and our suppliers. Home furnishings purchases are largely postponable and heavily influenced by consumer confidence and most of our customers’ businesses are classified as non-essential.
At the initial height of the COVID-19 pandemic, home furnishings purchases are largely postponable and heavily influenced by consumer confidence and most of our customers’ businesses are classified as non-essential. Consequently, traffic to our customers’ stores and demand for our products significantly decreased, our sales deteriorated and our earnings were negatively impacted.
Our failure to timely fill customer orders due to an extended business interruption for a major supplier, or due to transportation issues, could negatively impact existing customer relationships and adversely affect our sales, earnings, financial condition and liquidity. 14 Table of Contents ■ Our inability to accurately forecast demand for our imported products could cause us to purchase too much, too little or the wrong mix of inventory.
Our failure to timely fill customer orders due to an extended business interruption for a major supplier, or due to transportation issues, could negatively impact existing customer relationships and adversely affect our sales, earnings, financial condition and liquidity. ■ Potential future increases in tariffs on manufactured goods imported from China or new tariffs imposed on other countries from which we source, including Vietnam, could adversely affect our business.
A write-down of our assets would, in turn, reduce our earnings and net worth. See Notes 7 and 8 to our Consolidated Financial Statements for additional information. We may lose market share due to furniture retailers by-passing us and sourcing directly from non-U.S. furnishings sources. Some large furniture retailers are sourcing directly from non-U.S. furniture factories.
We may lose market share due to furniture retailers by-passing us and sourcing directly from non-U.S. furnishings sources. Some large furniture retailers are sourcing directly from non-U.S. furniture factories. Over time, this practice may expand to smaller retailers.
There may be additional risks that are presently unknown to us or that we currently believe to be immaterial that could affect us. ► Risks related to COVID-19 and future pandemics The impact of COVID-19 and future pandemics could adversely affect our business, results of operations, financial condition and liquidity, and stock price.
These risks are not the only ones we face. There may be additional risks that are presently unknown to us or that we currently believe to be immaterial that could affect us. » Risks related to our business and industry We rely on offshore sourcing from Vietnam and China for most of our sales.
Additionally, the demand surge that occurred after the initial height of the pandemic continues to cause supplier capacity restraints, shipping container and steamship space shortages. These logistics issues have increased costs, led to out-of-stocks and adversely affected our sales and earnings.
These logistics issues increased costs, led to out-of-stocks and adversely affected our sales and earnings.
We are in the process of implementing a common Enterprise Resource Planning (ERP) system across all divisions and expect to go-live with this system in our Hooker Branded segment in the second half of our 2023 fiscal year, with other segments and divisions following thereafter.
The implementation of our Enterprise Resource Planning ( “ ERP ” ) system could disrupt our business. We are in the process of implementing a common ERP system across all divisions.
Removed
These risks are not the only ones we face.
Added
We saw a significant spike in these costs during that time and our profitability was materially impacted.
Removed
Our sales order backlog is at historic levels due to these factors, and we cannot assure that we will be able to convert this backlog into sales at a normal pace or at all.
Added
Labor shortages and rising labor costs could disrupt operations at our domestic warehousing and manufacturing facilities We observed a strong labor market after the COVID-19 pandemic. We continue to experience difficulties in recruiting skilled labor into our domestic upholstery plants and warehouses and in some skilled or professional positions.
Removed
We face the risk that current consumer demand could soften, or our customers could go elsewhere for products if our competitors are able to solve the current issues and we cannot.
Added
In fiscal 2023, we wrote off $12,500 representing the remaining value of the Right2Home trade name in the Home Meridian segment due to the decision to exit the ACH business unit in the fourth quarter of fiscal 2023.
Removed
The duration of any such impacts cannot be predicted. ► Risks related to our business and industry We rely on offshore sourcing from Vietnam, China and Malaysia for most of our sales.
Added
A write-down of our assets would, in turn, reduce our earnings and net worth. See Note 10 to our Consolidated Financial Statements for additional information. Our sales and operating results could be adversely affected by product safety concerns.
Removed
We faced supply chain constraints including but not limited to slower-than-expected re-openings, capacity limitations and production delays at some of our suppliers, along with the reduced shipping container and ocean vessel space availability. Home Meridian segment shipping and sales were immediately impacted as the majority of its business is container direct customers.
Added
The ERP system went live at Sunset West in the fourth quarter of fiscal 2023, and is expected to go-live in our legacy Hooker divisions in fiscal 2024, with Home Meridian segment following thereafter.
Removed
In the fourth quarter of fiscal 2022, Hooker Branded segment sales were also impacted due to low inventory receipts in the second half of fiscal 2022 which consequently resulted in out-of-stocks. In some cases, we were able to provide substitutions using inventory on hand, in-transit and from our domestic warehouses, but not enough to entirely mitigate the lost sales.
Added
For example, when the ERP system went live at Sunset West in December 2022, the conversion process significantly impacted its shipping activities and negatively impacted its sales and profitability in the fiscal 2023 fourth quarter due to longer than expected post-implementation stabilization. We expect these issues to be resolved in the first quarter of fiscal 2024.
Removed
Effective September 24, 2018, the prior U.S. administration imposed a 10% tariff on certain goods imported into the United States from China, including all furniture and furniture components manufactured in China, which increased to 25% in May 2019 and such tariffs have not been repealed.
Added
A material part of our sales and accounts receivable are concentrated in a few customers.
Removed
During the initial height of the COVID-19 crisis in early calendar 2020, we activated business continuity plans and many administrative employees telecommuted given recommendations for social distancing and most of our domestic manufacturing facilities temporarily closed or operated at reduced levels. We also instituted increased cleaning regimens and social distancing and masking protocols for office, manufacturing and warehousing associates.
Added
New business initiatives may fail outright or fail to produce an adequate return, which could adversely affect our earnings, financial condition and liquidity. 17 Table of Contents We may fail to realize all of the anticipated benefits of the Sunset Acquisition.
Removed
As COVID-infection rates have decreased, more administrative employees have returned to our offices and social distancing and masking protocols have adjusted to current public health guidelines.
Added
During the fourth quarter of fiscal 2023, management approved a plan to exit the Accentrics Home (ACH) e-commerce brand of the HMI segment along with repositioning the Prime Resources International (PRI) brand as a direct-container only business model.
Removed
Labor shortages could disrupt operations at our domestic warehousing and manufacturing facilities Demand for home furnishings rose after the COVID-19 pandemic and lead to higher-than-normal order rates and historic levels of order backlogs. We hired an increased number of employees in all three segments during fiscal 2022 in response to business growth.
Added
We recorded a $24.4 million charge in the fiscal 2023 fourth quarter to write-down certain segment inventories to market and also recorded severance expenses.
Removed
It has become increasingly difficult to recruit skilled labor into our domestic upholstery plants and training and turnover costs have increased.
Added
We expect to reduce the physical footprints at our Savannah, GA warehouse and High Point, NC administrative office over the course of the current 2024 fiscal year with a concurrent reduction in lease, warehouse, and related expenses. We expect these actions will return the HMI segment to profitability sometime in fiscal 2024.
Removed
For example, our domestic upholstery segment experienced foam allocations of between 60-75% of requested amounts in early fiscal 2022 which negatively impacted production efficiencies for several months. Later we experienced raw material cost inflation for nearly all of our raw materials and higher freight surcharges to bring in these materials.
Added
However, we may be unable to realize these cost savings in a timely manner or at all. If these efforts are unsuccessful, in whole or in part, our ongoing business and financial results may be adversely affected, which could adversely affect our sales, earnings, financial condition and liquidity.
Removed
We may not always be able to pass price increases on raw materials through to our customers due to competition and other market pressures. In addition, the price increases are frequently implemented on future orders instead of existing order backlogs.
Added
The interruption, inadequacy or security failure of our information systems or information technology infrastructure or the internet or inadequate levels of cyber-insurance could adversely impact our business, sales, earnings, financial condition and liquidity.
Removed
In 2021, Russia was the third largest source of US hardwood plywood imports. Due to the current Ukraine-Russia conflict, the U.S. House of Representatives voted to raise tariffs on some Russian imports, which could impose tariffs of 40% to 50% on Russian Birch. Currently, 50% - 60% of the plywood used at our Shenandoah (SFI) division is Russian birch.
Removed
Based on current rates of sale, we believe we have an adequate supply to support SFI manufacturing operations through mid-to-late summer 2022. SFI has begun the process of switching from the Russian Birch to another plywood species and are currently working with suppliers and testing those products.
Removed
Sales and earnings in the Clubs channel of our Home Meridian segment are subject to higher volatility than other distribution channels subject to our success or failure in developing suitable products at acceptable prices for this channel. The Clubs channel has proven to be a particularly difficult channel in which to do business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeDU Manufacturing Supply Plant 53,000 Owned Dongguan, China HB, HM Office, Warehouse and Distribution 213,426 Leased Ho Chi Minh City, VN HB, HM Office, Warehouse and Distribution 108,364 Leased HB=Hooker Branded, HM=Home Meridian, DU=Domestic Upholstery ITEM 3. LEGAL PROCEEDINGS None.
Biggest changeDU Manufacturing Supply Plant 53,000 Owned Vista, CA DU Manufacturing and Offices 38,353 Leased Las Vegas, NV HB, DU, AO Showrooms 14,428 Leased Ho Chi Minh City, VN HB, HM Office, Warehouse and Distribution 108,364 Leased Dongguan, China HB, HM Office 1,855 Leased HB=Hooker Branded, HM=Home Meridian, DU=Domestic Upholstery ITEM 3. LEGAL PROCEEDINGS None.
ITEM 2. PROPERTIES Set forth below is information with respect to our principal properties on April 15, 2022. We believe all of these properties are well-maintained and in good condition. During fiscal 2022, we estimate our upholstery plants operated at approximately 88% of capacity on a one-shift basis. All our production facilities are equipped with automatic sprinkler systems.
ITEM 2. PROPERTIES Set forth below is information with respect to our principal properties on April 14, 2023. We believe all of these properties are well-maintained and in good condition. During fiscal 2023, we estimate our upholstery plants operated at approximately 87% of capacity on a one-shift basis. All our production facilities are equipped with automatic sprinkler systems.
We expect that we will be able to renew or extend these leases or find alternative facilities to meet our warehousing and distribution needs at a reasonable cost. All facilities set forth below are active and operational, representing approximately 4.1 million square feet of owned space, leased space or properties utilized under third-party operating agreements.
We expect that we will be able to renew or extend these leases or find alternative facilities to meet our warehousing and distribution needs at a reasonable cost. All facilities set forth below are active and operational, representing in the aggregate approximately 3.8 million square feet of owned space, leased space or properties utilized under third-party operating agreements.
Location Segment Use Primary Use Approximate Size in Square Feet Owned or Leased Martinsville, Va. All segments Corporate Headquarters, Distribution, Manufacturing and Warehousing 1,489,766 Owned / Leased High Point, N.C. All segments Office, Showroom and Warehouse 216,505 Leased Madison, NC HM Warehouse 500,000 Leased Midway, GA HM Warehouse 798,560 Leased Bedford, VA DU Manufacturing and Offices 327,000 Owned Hickory, N.C.
Location Segment Use Primary Use Approximate Size in Square Feet Owned or Leased Martinsville, VA All segments Corporate Headquarters, Distribution, Manufacturing and Warehousing 1,595,151 Owned / Leased High Point, N.C. All segments Office and Showrooms 247,857 Leased Midway, GA HM, DU Warehouse 1,006,880 Leased Bedford, VA DU Manufacturing and Offices 327,000 Owned Hickory, N.C.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings 21 Item 4. Mine Safety Disclosures 21 Information about our Executive Officers 22 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23 Item 6. Selected Financial Data 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A.
Biggest changeItem 3. Legal Proceedings 20 Item 4. Mine Safety Disclosures 20 Information about our Executive Officers 21 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 22 Item 6. Selected Financial Data 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A.
Quantitative and Qualitative Disclosures About Market Risk 38 Item 8. Financial Statements and Supplementary Data 39
Quantitative and Qualitative Disclosures About Market Risk 36 Item 8. Financial Statements and Supplementary Data 37

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeHuckfeldt 64 Chief Financial Officer and 2004 Senior Vice President - Finance and Accounting Anne J. Smith 60 Chief Administration Officer and President-Domestic Upholstery 2008 Tod R. Phelps 53 Senior Vice President - Operations and Chief Information Officer 2017 Jeremy R. Hoff has been Chief Executive Officer and Director since February 2021. Mr.
Biggest changeHuckfeldt 65 Chief Financial Officer and Senior Vice President - Finance and Accounting 2004 Anne J. Smith 61 Chief Administration Officer and President - Domestic Upholstery 2008 Tod R. Phelps 54 Senior Vice President - Operations and Chief Information Officer 2017 Jeremy R. Hoff has been Chief Executive Officer and Director since February 2021. Mr.
From March 2014 to April 2017, he served as Chief Technology Officer of Heritage Home Group, LLC. 22 Table of Contents Hooker Furnishings Corporation Part II
From March 2014 to April 2017, he served as Chief Technology Officer of Heritage Home Group, LLC. 21 Table of Contents Hooker Furnishings Corporation Part II
ITEM 4. MINE SAFETY DISCLOSURES None. 21 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS Hooker Furnishings’ executive officers and their ages as of April 15, 2022 and the calendar year each joined the Company are as follows: Name Age Position Year Joined Company Jeremy R. Hoff 48 Chief Executive Officer and Director 2017 Paul A.
ITEM 4. MINE SAFETY DISCLOSURES None. 20 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS Hooker Furnishings’ executive officers and their ages as of April 14, 2023 and the calendar year each joined the Company are as follows: Name Age Position Year Joined Company Jeremy R. Hoff 49 Chief Executive Officer and Director 2017 Paul A.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+4 added−1 removed4 unchanged
Biggest changeAt January 30, 2022, Zacks Investment Research, Inc. reported that these two SIC Codes consisted of Nova Lifestyle, Inc., La-Z-Boy, Inc., Leggett & Platt, Inc., Flexsteel Industries, Inc., Hooker Furnishings Corporation, Sleep Number Corp., Kimball International, Inc., Luvu Brands, Inc., Tempur Sealy International, Inc., Compass Diversified Holdings, Natuzzi Spa, Purple Innovation, Inc., Casper Sleep Inc., Bassett Furniture Industries, Inc., Ethan Allen Interiors, Inc., Horrison Resources, Inc., The Rowe Companies, Dorel Industries, and Instadose Pharma Corp. 23 Table of Contents
Biggest changeAt January 29, 2023, Zacks Investment Research, Inc. reported that these two SIC Codes consisted of Bassett Furniture Industries, Inc., Compass Diversified Holdings, Dorel Industries, Ethan Allen Interiors, Inc., Flexsteel Industries, Inc., Hooker Furnishings Corporation, Horrison Resources Inc., Instadose Pharma Corp., Kimball International, Inc., La-Z-Boy, Inc., Leggett & Platt, Inc., Luvu Brands, Inc., MasterBrand, Inc., Natuzzi Spa, Nova Lifestyle, Inc., Purple Innovation, Inc., The Rowe Companies, Sleep Number Corp. and Tempur Sealy International, Inc. 23 Table of Contents
Comparison of Cumulative Total Return Hooker Furnishings Corporation (1) The graph shows the cumulative total return on $100 invested at the beginning of the measurement period in our common stock or the specified index, including reinvestment of dividends.
(1) The graph shows the cumulative total return on $100 invested at the beginning of the measurement period in our common stock or the specified index, including reinvestment of dividends.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our stock is traded on the NASDAQ Global Select Market under the symbol “HOFT”. As of January 30, 2022, we had approximately 9,600 beneficial shareholders.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our stock is traded on the NASDAQ Global Select Market under the symbol “HOFT”. As of January 29, 2023, we had approximately 11,500 beneficial shareholders.
Removed
Performance Graph (1) The following graph compares cumulative total shareholder return for the Company with a broad performance indicator, the Russell 2000® Index (2), and a published industry index, the Household Furniture Index (3), for the period from January 29, 2017 to January 30, 2022.
Added
Purchase of Equity Securities by the Issuer and Affiliated Purchasers On June 6, 2022, our Board of Directors authorized the repurchase of up to $20 million of the Company’s common shares.
Added
The authorization does not obligate us to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of our Board of Directors.
Added
Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to our cash requirements for other purposes, compliance with the covenants under the loan agreement for our revolving credit facility and other factors we deem relevant.
Added
The following table details the repurchase activities in the fourth quarter of fiscal 2023: Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased As Part of Publicly Announced Program Maximum Dollar Value of Shares That May Yet Be Purchased Under The Program $ 10,640,433 October 31, 2022 - December 4, 2022 88,975 17.34 88,975 9,095,935 December 5, 2022 - January 1, 2023 73,634 17.45 73,634 7,809,500 January 2, 2023 - January 29, 2023 58,858 19.75 58,858 6,646,127 Total 221,467 $ 18.02 221,467 Through fiscal 2023, we had used approximately $13.3 million of the authorization to purchase 819,632 of our common shares (at an average price of $16.27 per share), with approximately $6.6 million remaining available for future purchases under the authorization as of the end of fiscal 2023. 22 Table of Contents Performance Graph (1) The following graph compares cumulative total shareholder return for the Company with a broad performance indicator, the Russell 2000® Index (2), and a published industry index, the Household Furniture Index (3), for the period from January 28, 2018 to January 29, 2023.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFiscal Year Ended (1) January 30, January 31, February 2, February 3, January 28, 2022 2021 2020 2019 2018 (In thousands, except per share data) Income Statement Data: Net sales $ 593,612 $ 540,081 $ 610,824 $ 683,501 $ 620,632 Cost of sales 491,910 427,333 496,866 536,014 485,815 Casualty loss (2) - - - 500 - Gross profit 101,702 112,748 113,958 146,987 134,817 Selling and administrative expenses (3) 84,475 80,410 88,867 91,928 87,279 Goodwill impairment (4) - 39,568 - - - Trade names impairment (4) - 4,750 - - - Intangible asset amortization (4) 2,384 2,384 2,384 2,384 2,084 Operating income / (loss)(3) 14,843 (14,364 ) 22,707 52,675 45,454 Other income, net (3) 373 336 458 369 1,566 Interest Expense, net 110 540 1,238 1,454 1,248 Income / (loss) before income taxes 15,106 (14,568 ) 21,927 51,590 45,772 Income tax expense / (benefit) 3,388 (4,142 ) 4,844 11,717 17,522 Net income / (loss) 11,718 (10,426 ) 17,083 39,873 28,250 Per Share Data: Basic earnings/(loss) per share $ 0.99 $ (0.88 ) $ 1.44 $ 3.38 $ 2.42 Diluted earnings/(loss) per share 0.97 (0.88 ) 1.44 3.38 2.42 Cash dividends per share 0.74 0.66 0.61 0.57 0.50 Net book value per share (5) 22.01 21.76 23.25 22.37 19.53 Weighted average shares outstanding (basic) 11,852 11,822 11,784 11,759 11,633 Balance Sheet Data: Cash and cash equivalents $ 69,366 $ 65,841 $ 36,031 $ 11,435 $ 30,915 Trade accounts receivable 73,727 83,290 87,653 112,557 92,803 Inventories 75,023 70,159 92,813 105,204 84,459 Working capital 170,777 169,612 171,838 170,516 153,162 Total assets 374,559 352,273 393,708 369,716 350,058 Long-term debt (including current maturities) (6) - - 30,138 35,508 53,425 Shareholders' equity 261,128 257,503 274,121 263,176 229,460 (1) Our fiscal years end on the Sunday closest to January 31.
Biggest changeFiscal Year Ended (1) January 29, January 30, January 31, February 2, February 3, 2023 2022 2021 2020 2019 (In thousands, except per share data) Income Statement Data: Net sales $ 583,102 $ 593,612 $ 540,081 $ 610,824 $ 683,501 Cost of sales 461,056 488,508 426,810 494,365 535,172 Inventory valuation expense (2) 28,752 3,402 523 2,501 842 Casualty loss (3) - - - - 500 Gross profit 93,294 101,702 112,748 113,958 146,987 Selling and administrative expenses 95,815 84,475 80,410 88,867 91,928 Goodwill impairment (4) - - 39,568 - - Trade names impairment (4) 13 - 4,750 - - Intangible asset amortization (4) 3,512 2,384 2,384 2,384 2,384 Operating (loss)/income (6,046 ) 14,843 (14,364 ) 22,707 52,675 Other income, net 416 373 336 458 369 Interest Expense, net 519 110 540 1,238 1,454 (Loss)/income before income taxes (6,149 ) 15,106 (14,568 ) 21,927 51,590 Income tax (benefit)/expense (1,837 ) 3,388 (4,142 ) 4,844 11,717 Net (loss)/income (4,312 ) 11,718 (10,426 ) 17,083 39,873 Per Share Data: Basic (loss)/earnings per share $ (0.37 ) $ 0.99 $ (0.88 ) $ 1.44 $ 3.38 Diluted (loss)/earnings per share (0.37 ) 0.97 (0.88 ) 1.44 3.38 Cash dividends per share 0.82 0.74 0.66 0.61 0.57 Net book value per share (5) 21.33 22.01 21.76 23.25 22.37 Weighted average number of shares outstanding (basic) 11,593 11,852 11,822 11,784 11,759 Balance Sheet Data: Cash and cash equivalents $ 19,002 $ 69,366 $ 65,841 $ 36,031 $ 11,435 Trade accounts receivable 62,129 73,727 83,290 87,653 112,557 Inventories 96,675 75,023 70,159 92,813 105,204 Working capital 137,265 170,777 169,612 171,838 170,516 Total assets 381,716 374,559 352,273 393,708 369,716 Long-term debt (including current maturities) (6) 24,266 - - 30,138 35,508 Shareholders’ equity 236,021 261,128 257,503 274,121 263,176 (1) Our fiscal years end on the Sunday closest to January 31, with fiscal 2023 ending on January 29, 2023.
(6) Long-term debt (including current maturities) consisted of term loans incurred to fund a portion of the Home Meridian and Shenandoah acquisitions. We paid off the term loans in January 2021.
Prior periods shown consisted of term loans incurred to fund a portion of the Home Meridian and Shenandoah acquisitions, which were paid off in January 2021. 24 Table of Contents
See Note 8 to our Consolidated Financial Statements for additional information on our intangible assets. (5) Net book value per share is derived by dividing “shareholders’ equity” by the number of common shares issued and outstanding, excluding unvested restricted shares, all determined as of the end of each fiscal period.
(5) Net book value per share is derived by dividing “shareholders’ equity” by the number of common shares issued and outstanding, excluding unvested restricted shares, all determined as of the end of each fiscal period. (6) Long-term debt (including current maturities): Fiscal 2023 amounts consist of acquisition related term loans to fund the Sunset Acquisition.
The fiscal years presented above all had 52 weeks, except for the prior fiscal year ended February 3, 2019, which had 53 weeks. (2) Represents the insurance deductible for a casualty loss experienced at one of our Hooker Branded segment facilities in fiscal 2019.
The fiscal years presented above all had 52 weeks, except for the 2019 fiscal year that ended on February 3, 2019, was a 53-week fiscal year. (2) Represents the inventory write downs of ACH and other excess inventories related to the exit of ACH and repositioning of the PRI business in fiscal 2023.
Removed
(3) Amounts for fiscal 2018 have been adjusted to reflect the reclassifications from Selling and administrative expenses (“S&A”) to Other income (expense), net of certain benefits costs as a result of adopting ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
Added
See Note 3 to our Consolidated Financial Statements for additional information. (3) Represents the insurance deductible for a casualty loss experienced at one of our Hooker Branded segment facilities in fiscal 2019. (4) Represents impairment charges and amortization expense on acquisition-related intangibles. See Note 10 to our Consolidated Financial Statements for additional information on our intangible assets.
Removed
This accounting standard requires bifurcation of net benefit cost such that all benefit costs except service cost are reported outside of operating costs. Amounts reclassified from S&A to Other income (expense), net were ($30,000). 24 Table of Contents (4) Represents impairment charges and amortization expense on acquisition-related intangibles.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

45 edited+88 added−96 removed13 unchanged
Biggest changeNet Income/(Loss) and Earnings/(Loss) Per Share Fifty-two weeks ended January 30, 2022 January 31, 2021 $ Change % Change Net Income/(Loss) % Net Sales % Net Sales Consolidated $ 11,718 2.0 % $ (10,426 ) -1.9 % $ 22,144 212.4 % Diluted earnings/(loss) per share $ 0.97 $ (0.88 ) The analysis and discussion of fiscal 2021 compared to fiscal 2020 results is available in Item 7 of our 2021 Annual Report on Form-10K available through Hooker Furnishings and SEC websites. 32 Table of Contents Financial Condition, Liquidity and Capital Resources Summary Cash Flow Information – Operating, Investing and Financing Activities Fifty-Two Weeks Ended January 30, January 31, February 2, 2022 2021 2020 Net cash provided by operating activities $ 19,209 $ 68,263 $ 41,429 Net cash used in investing activities (6,862 ) (476 ) (4,254 ) Net cash used in financing activities (8,822 ) (37,977 ) (12,579 ) Net increase in cash and cash equivalents $ 3,525 $ 29,810 $ 24,596 During fiscal 2022, we used a portion of the $19.2 million generated from operations and $372,000 in life insurance proceeds to pay $8.8 million in cash dividends, $6.7 million in capital expenditures to enhance our systems and facilities and $560,000 for insurance premiums on Company-owned life insurance policies.
Biggest changeFinancial Condition, Liquidity and Capital Resources Summary Cash Flow Information – Operating, Investing and Financing Activities Fifty-Two Weeks Ended January 29, January 30, January 31, 2023 2022 2021 Net cash (used in)/provided by operating activities $ (21,718 ) $ 19,209 $ 68,263 Net cash used in investing activities (29,965 ) (6,862 ) (476 ) Net cash provided by/(used in) financing activities 1,319 (8,822 ) (37,977 ) Net (decrease)/increase in cash and cash equivalents $ (50,364 ) $ 3,525 $ 29,810 During fiscal 2023, we used a portion of the $25 million term-loan proceeds and existing cash and cash equivalents on hand to fund the $25 million Acquisition, build up inventory levels by $19 million, pay $13.3 million in purchases and retirement of common stock, $9.6 million in cash dividends, $5.4 million for the development of our new cloud-based ERP system, $4.2 million capital expenditures to enhance our business systems and facilities, and $492,000 in life insurance premiums on Company-owned life insurance policies.
Specific areas requiring the application of management’s estimates and judgments include, among others, revenue recognition, assumptions pertaining to valuation of goodwill and intangible assets and useful lives of long-lived assets. Accordingly, a different financial presentation could result depending on the judgments, estimates or assumptions that are used.
Specific areas requiring the application of management’s estimates and judgments include, among others, revenue recognition, inventory valuation, assumptions pertaining to valuation of goodwill and intangible assets and useful lives of long-lived assets. Accordingly, a different financial presentation could result depending on the judgments, estimates or assumptions that are used.
A disruption in our supply chain, or from Vietnam, China or Malaysia in general, could significantly impact our ability to fill customer orders for products manufactured in those countries. Our supply chain could be adversely impacted by the uncertainties of health concerns and governmental restrictions.
A disruption in our supply chain, or from Vietnam or China in general, could significantly impact our ability to fill customer orders for products manufactured in those countries. Our supply chain could be adversely impacted by the uncertainties of health concerns and governmental restrictions.
If we are unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain from our largest import furniture suppliers, or from Vietnam, China or Malaysia in general, could adversely affect our sales, earnings, financial condition and liquidity.
If we are unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain from our largest import furniture suppliers, or from Vietnam or China in general, could adversely affect our sales, earnings, financial condition and liquidity.
This note describes commitments, contractual obligations and off-balance sheet arrangements, some of which are not reflected in our consolidated financial statements. In Management’s Discussion and Analysis, we analyze and explain the annual changes in some specific line items in the consolidated financial statements for fiscal 2022 compared to fiscal 2021.
This note describes commitments, contractual obligations and off-balance sheet arrangements, some of which are not reflected in our consolidated financial statements. In Management’s Discussion and Analysis, we analyze and explain the annual changes in some specific line items in the consolidated financial statements for fiscal 2023 compared to fiscal 2022.
For financial reporting purposes, we are organized into three reportable segments- Hooker Branded, Home Meridian and Domestic Upholstery, with our other businesses included in All Other. 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.
For financial reporting purposes, we are organized into three reportable segments- Hooker Branded, Home Meridian and Domestic Upholstery, with our other businesses included in All Other. We regularly monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary.
We especially encourage you to familiarize yourself with: ■ All of our recent public filings made with the Securities and Exchange Commission (“SEC”) which are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com; ■ The forward-looking statements disclaimer contained prior to Item 1 of this report, which describe the significant risks and uncertainties that could cause actual results to differ materially from those forward-looking statements made in this report, including those contained in this section of our annual report on Form 10-K; ■ The company-specific risks found in Item 1A.
We especially encourage you to familiarize yourself with: ■ All of our recent public filings made with the SEC which are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com; ■ The forward-looking statements disclaimer contained prior to Item 1 of this report, which describe the significant risks and uncertainties that could cause actual results to differ materially from those forward-looking statements made in this report, including those contained in this section of our annual report on Form 10-K; ■ The company-specific risks found in Item 1A.
We also provide information regarding the performance of each of our operating segments and All Other. The analysis and discussions of fiscal 2021 compared to fiscal 2020 results are in our 2021 Form-10K available through Hooker Furnishings and SEC websites.
We also provide information regarding the performance of each of our operating segments and All Other. The analysis and discussions of fiscal 2022 compared to fiscal 2021 results are in our 2022 Form-10K available through Hooker Furnishings and SEC websites.
Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for inventory, lease payments and labor), quarterly dividend payments and capital expenditures related primarily to our ERP project, showroom renovations and upgrading systems, buildings and equipment.
Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for inventory, lease payments and payroll), quarterly dividend payments and capital expenditures related primarily to our ERP project, showroom renovations and upgrading systems, buildings and equipment.
If any of these risks materialize, our business, financial condition and future prospects could be adversely impacted; and ■ Our commitments and contractual obligations and off-balance sheet arrangements described in Note 17 to our Consolidated Financial Statements on page F-30 of this report.
If any of these risks materialize, our business, financial condition and future prospects could be adversely impacted; and ■ Our commitments and contractual obligations and off-balance sheet arrangements described on page 34 and in Note 19 to our Consolidated Financial Statements on page F-34 of this report.
See Note 8 Intangible Assets and Goodwill to our Consolidated Financial Statements for additional information about our amortizable intangible assets.
See Note 10 Intangible Assets and Goodwill to our Consolidated Financial Statements for additional information about our amortizable intangible assets.
See Note 15 Income Taxes to our Consolidated Financial Statements for additional information about our income taxes.
See Note 17 Income Taxes to our Consolidated Financial Statements for additional information about our income taxes.
During fiscal 2021, we used existing cash, a portion of the $68.3 million generated from operations and $1.3 million in life insurance proceeds to retire our $30.1 million in outstanding term loans related to the Home Meridian acquisition, pay $7.8 million in cash dividends, $1.2 million in capital expenditures to enhance our systems and facilities and to pay $555,000 for insurance premiums on Company-owned life insurance policies.
During fiscal 2022, we used a portion of the $19.2 million generated from operations and $372,000 in life insurance proceeds to pay $8.8 million in cash dividends, $6.7 million in capital expenditures to enhance our systems and facilities and $560,000 for insurance premiums on Company-owned life insurance policies. 31 Table of Contents During fiscal 2021, we used existing cash, a portion of the $68.3 million generated from operations and $1.3 million in life insurance proceeds to retire our $30.1 million in outstanding term loans related to the Home Meridian acquisition, pay $7.8 million in cash dividends, $1.2 million in capital expenditures to enhance our systems and facilities and to pay $555,000 for insurance premiums on Company-owned life insurance policies.
They do not restrict our ability to pay cash dividends on, or repurchase shares of our common stock, subject to our compliance with the financial covenants discussed above, if we are not otherwise in default under the agreements.
The Existing Loan Agreement does not restrict our ability to pay cash dividends on, or repurchase, shares of our common stock, subject to our compliance with the financial covenants discussed above, if we are not otherwise in default under the Existing Loan Agreement.
Consolidated net income was $11.7 million or $0.97 per diluted share, as compared to net loss of $10.4 million or ($0.88) per diluted share in the prior year period. Our fiscal 2022 performance is discussed in greater detail below under “Review” and “Results of Operations”.
Consolidated net loss was $4.3 million or ($0.37) per diluted share, as compared to net income of $11.7 million or $0.97 per diluted share in the prior year period. 25 Table of Contents Our fiscal 2023 performance is discussed in greater detail below under “Review” and “Results of Operations”.
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. Furniture sales account for all of our net sales.
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, HF Custom, Shenandoah Furniture and Sunset West, and All Other which includes H Contract and Lifestyle Brands. Furniture sales account for all of our net sales.
FY21 Average Selling Price FY22 % Increase / (Decrease) vs.
FY22 Average Selling Price FY23 % Increase / (Decrease) vs.
Concentrations of Sourcing Risk In fiscal 2022, imported products sourced from Vietnam and China accounted for 88% of our import purchases and our top five suppliers in Vietnam and China accounted for 42% of our fiscal 2022 import purchases.
Concentrations of Sourcing Risk In fiscal 2023, imported products sourced from Vietnam and China accounted for 91% of our import purchases and our top five suppliers in Vietnam and China accounted for 50% of our fiscal 2023 import purchases.
They include customary representations and warranties and require us to comply with customary covenants, including, among other things, the following financial covenants: ● Maintain a ratio of funded debt to EBITDA not exceeding 2.00:1.00. ● A basic fixed charge coverage ratio of at least 1.25:1.00; and ● Limit capital expenditures to no more than $15.0 million during any fiscal year.
The Amendment also included customary representations and warranties and requires us to comply with customary covenants, including, among other things, the following financial covenants: ● Maintain a ratio of funded debt to EBITDA not exceeding: o 2.50:1.0 through July 30, 2023; o 2.25:1.0 through July 30, 2024; and o 2.00:1.00 thereafter. ● A basic fixed charge coverage ratio of at least 1.25:1.00; and ● Limit capital expenditures to no more than $15.0 million during any fiscal year.
In addition to our cash balance, we have an aggregate of $27.9 million available under our $35 million revolving credit facility with BofA (the “Existing Revolver”) to fund working capital needs and have access to $26.5 million in cash surrender value of Company-owned life insurance policies.
In addition to our cash balance, at fiscal 2023 third quarter end, we had $26.4 million available under our $35 million revolving credit facility with BofA (the “Existing Revolver”) to fund working capital needs and have access to $27.6 million in cash surrender value of Company-owned life insurance policies.
On March 1, 2022, our Board of Directors declared a quarterly cash dividend of $0.20 per share, payable on March 31, 2022 to shareholders of record at March 17, 2022. Our Board of Directors will continue to evaluate the appropriateness of the current dividend rate considering our performance and economic conditions in future quarters. COVID-19 As discussed under "Item 1A.
On March 3, 2023, our Board of Directors declared a quarterly cash dividend of $0.22 per share, payable on March 31, 2023 to shareholders of record at March 17, 2023. Our Board of Directors will continue to evaluate the appropriateness of the current dividend rate considering our performance and economic conditions in future quarters.
They also limit our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions.
The Existing Loan Agreement also limits our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions.
Dividends We declared and paid dividends of $0.74 per share or approximately $8.8 million in fiscal 2022, an increase of 12.1% or $0.08 per share compared to $0.66 per share in fiscal 2021.
Dividends We declared and paid dividends of $0.82 per share or approximately $9.6 million in fiscal 2023, an increase of 10.8% or $0.08 per share compared to $0.74 per share in fiscal 2022.
Unless otherwise indicated, references to the “Company”, "we," "our" or "us" refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information.
Unless otherwise indicated, references to the “Company,” “we,” “our” or “us” refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information.
Results of Operations The following table sets forth the percentage relationship to net sales of certain items for the annual periods included in the consolidated statements of income: Fifty-two weeks ended January 30, January 31, February 2, 2022 2021 2020 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 82.9 79.1 81.3 Gross profit 17.1 20.9 18.7 Selling and administrative expenses 14.2 14.9 14.5 Goodwill impairment charges - 7.3 - Trade name impairment charges - 0.9 - Intangible asset amortization 0.4 0.4 0.4 Operating income/(loss) 2.5 (2.7 ) 3.7 Other income (expense), net 0.1 0.1 0.1 Interest expense, net - 0.1 0.2 Income/(loss) before income taxes 2.6 (2.7 ) 3.6 Income tax expense/(benefit) 0.6 (0.8 ) 0.8 Net income/(loss) 2.0 (1.9 ) 2.8 Fiscal 2022 Compared to Fiscal 2021 Net Sales Fifty-two weeks ended January 30, 2022 January 31, 2021 $ Change % Change % Net Sales % Net Sales Hooker Branded $ 200,692 33.8 % $ 162,442 30.1 % $ 38,250 23.5 % Home Meridian 278,902 47.0 % 282,423 52.3 % (3,521 ) -1.2 % Domestic Upholstery 102,283 17.2 % 83,678 15.5 % 18,605 22.2 % All Other 11,735 2.0 % 11,538 2.1 % 197 1.7 % Consolidated $ 593,612 100 % $ 540,081 100 % $ 53,531 9.9 % 28 Table of Contents Unit Volume and Average Selling Price ( “ ASP ” ) Unit Volume FY22 % Increase / (Decrease) vs.
Results of Operations The following table sets forth the percentage relationship to net sales of certain items for the annual periods included in the consolidated statements of income: Fifty-two weeks ended January 29, January 30, 2023 2022 Net sales 100.0 % 100.0 % Cost of sales 79.1 82.3 Inventory write downs 4.9 0.6 Gross profit 16.0 17.1 Selling and administrative expenses 16.4 14.2 Intangible asset amortization 0.6 0.4 Operating (loss)/income (1.0 ) 2.5 Other income (expense), net 0.1 0.1 Interest expense, net 0.1 - (Loss)/Income before income taxes (1.0 ) 2.6 Income tax (benefit)/expense (0.3 ) 0.6 Net (loss)/income (0.7 ) 2.0 27 Table of Contents Fiscal 2023 Compared to Fiscal 2022 Net Sales Fifty-two weeks ended January 29, 2023 January 30, 2022 $ Change % Change % Net Sales % Net Sales Hooker Branded $ 199,602 34.2 % $ 200,692 33.8 % $ (1,090 ) -0.5 % Home Meridian 216,338 37.1 % 278,902 47.0 % (62,564 ) -22.4 % Domestic Upholstery 156,717 26.9 % 106,827 18.0 % 49,890 46.7 % All Other 10,445 1.8 % 7,191 1.2 % 3,254 45.3 % Consolidated $ 583,102 100 % $ 593,612 100 % $ (10,510 ) -1.8 % Unit Volume and Average Selling Price ( “ ASP ” ) Unit Volume FY23 % Increase / (Decrease) vs.
In fiscal 2022, dividends totaled $0.74 per share or $8.8 million in the aggregate paid, an increase of 12.1% or $0.08 per share, compared to the prior year representing the sixth consecutive annual dividend increase.
In fiscal 2023, dividends totaled $0.82 per share or $9.6 million in the aggregate, an increase of 10.8% or $0.08 per share, compared to the prior year.
Supply disruptions and delays on selected items could occur for six months or longer before the impact of remedial measures would be reflected in our results.
In some cases, we were able to provide substitutions using inventory on hand, in-transit and from our domestic warehouses, but not enough to entirely mitigate the lost sales. Supply disruptions and delays on selected items could occur for six months or longer before the impact of remedial measures would be reflected in our results.
This amount of variable consideration included in the transaction price, and measurement of net sales, is included in net sales only to the extent that it is probable that there will be no significant reversal in a future period. 36 Table of Contents Net sales are comprised of gross revenues from sales of home furnishings and hospitality furniture products and are recorded net of allowances for trade promotions, estimated product returns, rebate advertising programs and other discounts.
This amount of variable consideration included in the transaction price, and measurement of net sales, is included in net sales only to the extent that it is probable that there will be no significant reversal in a future period.
Collectability is reasonably assured since we extend credit to customers for whom we have performed credit evaluations and/or from whom we have received a down payment or deposit. Due to the highly-customized nature of our hospitality products, we typically require substantial prepayments on these orders, with the balance due within 30 days of delivery.
Other revenues, primarily royalties, are immaterial to our overall results. Payment is typically due within 30-60 days of shipment for customers qualifying for payment terms. Collectability is reasonably assured since we extend credit to customers for whom we have performed credit evaluations and/or from whom we have received a down payment or deposit.
Revolving Credit Facility Availability As of January 30, 2022, we had an aggregate $27.9 million available under the Existing Revolver to fund working capital needs. Standby letters of credit in the aggregate amount of $7.1 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of January 30, 2022.
Standby letters of credit in the aggregate amount of $8.6 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of January 29, 2023. There were no additional borrowings outstanding under the Existing Revolver as of January 29, 2023.
Operating Profit/(Loss) and Margin Fifty-two weeks ended January 30, 2022 January 31, 2021 $ Change % Change %Segment Net Sales %Segment Net Sales Hooker Branded $ 30,667 15.3 % $ 22,827 14.1 % $ 7,840 34.3 % Home Meridian (21,260 ) -7.6 % (26,071 ) -9.2 % 4,811 18.5 % Domestic Upholstery 4,304 4.2 % (12,418 ) -14.8 % 16,722 134.7 % All Other 1,132 9.6 % 1,298 11.3 % (166 ) -12.8 % Consolidated $ 14,843 2.5 % $ (14,364 ) -2.7 % $ 29,207 203.3 % Consolidated operating profitability increased both in absolute terms and as a percentage of net sales in fiscal 2022 compared to the same prior-year period due to the factors discussed above. 31 Table of Contents Interest Expense, net Fifty-two Weeks Ended January 30, 2022 January 31, 2021 $ Change % Change % Net Sales % Net Sales Interest expense, net $ 110 0.0 % $ 540 0.1 % $ (430 ) -79.6 % Consolidated interest expense decreased in fiscal 2022 due to the payoff of our term loans in fiscal 2021 fourth quarter.
Operating (Loss)/Profit and Margin Fifty-two weeks ended January 29, 2023 January 30, 2022 $ Change % Change % Segment Net Sales % Segment Net Sales Hooker Branded $ 20,529 10.3 % $ 30,667 15.3 % $ (10,138 ) -33.1 % Home Meridian (37,181 ) -17.2 % (21,260 ) -7.6 % (15,921 ) -74.9 % Domestic Upholstery 8,871 5.7 % 4,675 4.4 % 4,196 89.8 % All Other 1,735 16.6 % 761 10.6 % 974 128.0 % Consolidated $ (6,046 ) -1.0 % $ 14,843 2.5 % $ (20,889 ) -140.7 % Operating profitability decreased both in absolute terms and as a percentage of net sales in fiscal 2023 compared to the prior-year period due to the factors discussed above.
The most significant components of our working capital are inventory, accounts receivable and cash and cash equivalents reduced by accounts payable and accrued expenses. Our primary cash needs are for imported finished goods and raw materials for our domestic upholstery operations and lease payments on our distribution centers, administrative facilities and showrooms.
The most significant components of our working capital are inventory, accounts receivable and cash and cash equivalents reduced by accounts payable and accrued expenses.
Selling and Administrative Expenses (S&A) Fifty-two weeks ended January 30, 2022 January 31, 2021 $ Change % Change % Segment Net Sales % Segment Net Sales Hooker Branded $ 32,479 16.2 % $ 29,005 17.9 % $ 3,474 12.0 % Home Meridian 35,139 12.6 % 36,632 13.0 % (1,493 ) -4.1 % Domestic Upholstery 14,117 13.8 % 12,108 14.5 % 2,009 16.6 % All Other 2,740 23.4 % 2,665 23.1 % 75 2.8 % Consolidated $ 84,475 14.2 % $ 80,410 14.9 % $ 4,065 5.1 % Consolidated selling and administrative expenses increased in absolute terms but decreased as a percentage of net sales in fiscal 2022. ■ Hooker Branded segment S&A expenses increased in absolute terms in fiscal 2022 driven by increased selling costs as the result of higher net sales, increased salaries and wages due primarily to inflation, increased professional service expenses related to the recent Sunset West acquisition, increased ERP project expenses, and increased showroom, samples, travel and other general spendings as business returned to more normal levels.
Selling and Administrative Expenses ( “ S&A ” ) Fifty-two weeks ended January 29, 2023 January 30, 2022 $ Change % Change % Segment Net Sales % Segment Net Sales Hooker Branded $ 38,814 19.4 % $ 32,479 16.2 % $ 6,335 19.5 % Home Meridian 33,215 15.4 % 35,139 12.6 % (1,924 ) -5.5 % Domestic Upholstery 21,584 13.8 % 15,135 14.2 % 6,449 42.6 % All Other 2,202 21.1 % 1,722 23.9 % 480 27.9 % Consolidated $ 95,815 16.4 % $ 84,475 14.2 % $ 11,340 13.4 % Consolidated selling and administrative expenses increased in absolute terms and as a percentage of net sales driven by increased S&A expenses at Hooker Branded segment and the addition of Sunset West expenses. ■ Hooker Branded segment S&A expenses increased in absolute terms and as a percentage of net sales driven by general spending increases as business returned to more normal levels and because of inflation in multiple line items including wages and benefits.
Intangible Asset Amortization Fifty-two weeks ended January 30, 2022 January 31, 2021 $ Change % Change % Net Sales % Net Sales Intangible asset amortization $ 2,384 0.4 % $ 2,384 0.4 % $ - 0.0 % Intangible asset amortization expense was unchanged compared to the prior year period.
Intangible Asset Amortization Fifty-two weeks ended January 29, 2023 January 30, 2022 $ Change % Change % Net Sales % Net Sales Intangible asset amortization $ 3,512 0.6 % $ 2,384 0.4 % $ 1,128 47.3 % Intangible asset amortization expense was higher in fiscal 2023 due to Sunset Acquisition-related amortization expense.
Enterprise Resource Planning During calendar 2021, our Board of Directors approved an upgrade to our current ERP system and implementation efforts began shortly thereafter. We expect to implement the ERP upgrade in our legacy Hooker divisions in the second half of fiscal 2023, with the Home Meridian segment and the Shenandoah division following afterwards.
Capital Expenditures We expect to spend between $2.5-$3.5 million in capital expenditures in fiscal 2024 to maintain and enhance our operating systems and facilities. 33 Table of Contents Enterprise Resource Planning During calendar 2021, our Board of Directors approved an upgrade to our current ERP system and implementation efforts began shortly thereafter.
In the third quarter of fiscal 2022, our Board of Directors approved the increase of our quarterly dividend to $0.20 per share, an increase of 11.1% or $0.02 per share.
During fiscal 2023, we received $25 million in term loan proceeds to replenish cash used to make the Sunset Acquisition. In the third quarter of fiscal 2023, our Board of Directors approved the increase of our quarterly dividend to $0.22 per share, an increase of 10% or $0.02 per share, representing the seventh consecutive annual dividend increase.
Executive Summary- Fiscal 2022 Results of Operations Consolidated net sales increased by $53.5 million, or 9.9%, compared to the prior year period, due to over 20% increases in sales in both Hooker Branded and Domestic Upholstery segments, partially offset by a 1.2% sales decrease in the Home Meridian segment.
Overview Executive Summary- Fiscal 2023 Results of Operations Consolidated net sales decreased by $10.5 million, or 1.8%, compared to the previous fiscal year. The decrease was driven by a $62.6 million, or 22.4% sales decline in the Home Meridian segment, which was largely offset by a significant increase of $49.9 million or 46.7% in the Domestic Upholstery segment.
The Hooker Branded segment ’ s net sales increased by $38.3 million, or 23.5%, as compared to the prior fiscal year, which was attributable to increased sales volume and lower discounting driven by higher demand.
The Hooker Branded segment ’ s net sales slightly decreased by $1.1 million, or 0.5%, as compared to the all-time record net sales this segment achieved in the prior fiscal year.
Gross Profit and Margin Fifty-two weeks ended January 30, 2022 January 31, 2021 $ Change % Change % Segment Net Sales % Segment Net Sales Hooker Branded $ 63,146 31.5 % $ 51,832 31.9 % $ 11,314 21.8 % Home Meridian 15,213 5.5 % 39,832 14.1 % (24,619 ) -61.8 % Domestic Upholstery 19,471 19.0 % 17,121 20.5 % 2,350 13.7 % All Other 3,872 33.0 % 3,963 34.4 % (91 ) -2.3 % Consolidated $ 101,702 17.1 % $ 112,748 20.9 % $ (11,046 ) -9.8 % 29 Table of Contents Consolidated gross profit and margin both decreased as compared to the prior fiscal year due principally to significantly decreased gross profit and margin in the Home Meridian segment. ■ Hooker Branded segment gross profit increased while margin decreased slightly in fiscal 2022.
Unit volume increased as all divisions were operating near full capacity and working through backlog. ■ All Other net sales increased significantly in fiscal 2023 driven by increased sales volume at H Contract due to the recovery of the senior living industry after the COVID pandemic. 28 Table of Contents Gross Profit/(Loss) and Margin Fifty-two weeks ended January 29, 2023 January 30, 2022 $ Change % Change % Segment Net Sales % Segment Net Sales Hooker Branded $ 59,344 29.7 % $ 63,146 31.5 % $ (3,802 ) -6.0 % Home Meridian (2,620 ) -1.2 % 15,213 5.5 % (17,833 ) -117.2 % Domestic Upholstery 32,633 20.8 % 20,860 19.5 % 11,773 56.4 % All Other 3,937 37.7 % 2,483 34.5 % 1,454 58.6 % Consolidated $ 93,294 16.0 % $ 101,702 17.1 % $ (8,408 ) -8.3 % Consolidated gross profit and margin both decreased as compared to the prior year, attributed primarily to a gross loss at the Home Meridian segment, while partially offset by an increase in gross profit and margin at Domestic Upholstery segment. ■ The Hooker Branded segment gross profit and margin decreased due to increased warehousing costs which exceeded such costs in the prior year by 160 bps.
Income Taxes Fifty-two weeks ended January 30, 2022 January 31, 2021 $ Change % Change % Net Sales % Net Sales Consolidated income tax expense/(benefit) $ 3,388 0.6 % $ (4,142 ) -0.8 % $ 7,530 181.8 % Effective Tax Rate 22.4 % 28.4 % We recorded income tax expense of $3.4 million for fiscal 2022, as compared to income tax benefit of $4.1 million for fiscal 2021, of which an income tax benefit of $10.6 million was recorded related to goodwill and trade name impairment charges.
Interest Expense, net Fifty-two Weeks Ended January 29, 2023 January 30, 2022 $ Change % Change % Net Sales % Net Sales Interest expense, net $ 519 0.1 % $ 110 0.0 % $ 409 371.8 % Consolidated interest expense increased in fiscal 2023 due primarily to interest on new term loans and the amounts drawn on the revolving credit facility throughout the year. 30 Table of Contents Income Taxes Fifty-two weeks ended January 29, 2023 January 30, 2022 $ Change % Change % Net Sales % Net Sales Consolidated income tax (benefit)/expense $ (1,837 ) -0.3 % $ 3,388 0.6 % $ (5,225 ) -154.2 % Effective Tax Rate 29.9 % 22.4 % We recorded income tax benefit of $1.8 million for fiscal 2023, compared to income tax expense of $3.4 million for fiscal 2022.
Physical product returns are very rare due to the high probability of damages to our products in return transit. Other revenues, primarily royalties, are immaterial to our overall results. Payment is typically due within 30-60 days of shipment for customers qualifying for payment terms.
Net sales are comprised of gross revenues from sales of home furnishings and hospitality furniture products and are recorded net of allowances for trade promotions, estimated product returns, rebate advertising programs and other discounts. Physical product returns are very rare due to the high probability of damages to our products in return transit.
We believe our primary sources of liquidity will satisfy our cash requirements over both the short-term (the next twelve months) and long-term. 33 Table of Contents Loan Agreements and Revolving Credit Facility We paid off the term loans which were related to the Home Meridian acquisition at the end of fiscal 2021 and currently have the Existing Revolver.
While we generally fund short-term and long-term cash requirements with cash from operating activities, during fiscal 2023, at various times we borrowed and repaid amounts totaling $36.2 million on our revolving line of credit. We believe our primary sources of liquidity will satisfy our cash requirements over both the short-term (the next twelve months) and long-term.
During fiscal 2022, we used a portion of the $19.2 million generated from operations and $372,000 in life insurance proceeds to pay $8.8 million in cash dividends to our shareholders, $6.7 million in capital expenditures in our newly opened Georgia distribution center and enhancements of other facilities and systems.
During fiscal 2023, we used a portion of cash on hand and cash collected from accounts receivable to fund $19 million increase in inventory, $13.3 million share repurchases, $9.6 million in cash dividends to our shareholders, $5.4 million for development of our new cloud-based ERP system, and $4.2 million capital expenditure for enhancements of other systems and facilities.
FY21 Hooker Branded 6.0 % Hooker Branded 16.1 % Home Meridian -8.9 % Home Meridian 1.4 % Domestic Upholstery 9.6 % Domestic Upholstery 10.8 % All Other -7.0 % All Other 6.8 % Consolidated -5.7 % Consolidated 12.2 % Consolidated net sales increased due to sales increases at Hooker Branded and Domestic Upholstery segments, partially offset by a small sales decrease at Home Meridian segment. ■ Hooker Branded segment’s net sales increased significantly in fiscal 2022 driven by increased demand.
Consolidated net sales decreased primarily due to sales decline in the Home Meridian segment, partially offset by revenue growth at Domestic Upholstery segment and All Other. ■ Hooker Branded segment’s net sales remained essentially flat as compared to the prior year’s robust sales, which were driven by a surge in demand following the initial outbreak of COVID-19.
To complete the ERP system implementation as anticipated, we will be required to expend significant financial and human resources. We anticipate spending approximately $5.5 million over the course of this project, with a significant amount of time invested by our associates.
The ERP system went live at Sunset West in December 2022 and is expected to go-live in our legacy Hooker divisions in fiscal 2024, with the Home Meridian segment following afterwards. To complete the ERP system implementation as anticipated, we will be required to expend significant financial and human resources.
Removed
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.
Added
Before the fiscal 2023, H Contract’s results included sales of seating products sourced from HF Custom. Due to a change in the way management internally evaluates operating performance, beginning with fiscal 2023 first quarter, HF Custom’s results, which are included in Domestic Upholstery, now include sales of seating products formerly included in H Contract’s results.
Removed
Lifestyle Brands is a business in its start-up phase targeted at the interior designer channel. The Hooker Branded and Home Meridian segments were unchanged.
Added
Fiscal 2022 results discussed below have been recast to reflect this change. The Hooker Branded and Home Meridian segments are unchanged.
Removed
See Note 16 to our consolidated financial statements for additional financial information regarding our segments. 25 Table of Contents Overview Hooker Furnishings Corporation, incorporated in Virginia in 1924, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture and fabric-upholstered furniture for the residential, hospitality, contract and outdoor markets.
Added
Additionally, based on our analysis and the requirements of ASC 280: Segment Reporting, the operational results of the newly acquired Sunset West division are included in the Domestic Upholstery segment starting in the first quarter of fiscal 2023 on a prospective basis. See Note 18 to our consolidated financial statements for additional financial information regarding our segments.
Removed
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 2020 shipments to U.S. retailers, according to a 2021 survey by a leading trade publication.
Added
Hooker Branded segment net sales had a minor decrease of $1.1 million, or 0.5%. Despite being a small portion of the consolidated results, All Other revenue increased by 45.3% or $3.3 million.
Removed
Despite the sales increases and slight sales decrease in the Home Meridian segment, consolidated gross profit and margin both decreased due to excess freight costs and product cost inflation in the Home Meridian segment and, to a lesser extent, in the Hooker Branded segment, as well as ready-to-assemble (“RTA”) product cancellation costs in the Home Meridian segment incurred as we exited that product category.
Added
Consolidated gross profit and margin decreased by $8.4 million and 110 bps, respectively, primarily due to the gross loss in the Home Meridian segment resulting from the $24.4 million write down of ACH and other excess inventories, and to a lesser extent, a decrease in gross profit and margin in the Hooker Branded segment.
Removed
Consolidated operating income was $14.8 million compared to a $14.4 million operating loss in the prior year period. The prior year loss was driven by $44.3 million ($33.7 million net of tax) non-cash intangible assets impairment charge.
Added
The charge was initially expected to be $34 million, but estimates were refined during our year-end financial close and was ultimately less than originally estimated in part as sales of the inventory thus far in fiscal 2024 have been at less of a discount than originally expected. These decreases were partially offset by increased profitability in the Domestic Upholstery segment.
Removed
Review We started fiscal 2022 with strong order backlogs carried over from the prior year end and reported significantly increased sales and profits in the first two quarters.
Added
The Company reported a consolidated operating loss of $6.0 million or (1.0%) operating margin, as compared to operating income of $14.8 million in the previous fiscal year.
Removed
Although we were pleased that favorable demand for home furnishings continued through the year, ongoing global supply chain disruptions, the COVID lockdowns in Vietnam and Malaysia and the slower than expected re-openings of our suppliers in those two countries, coupled with freight and product inflationary pressures adversely affected our sales and profitability.
Added
Review Fiscal 2023 was a challenging year as we faced macro-economic uncertainties, ongoing inflation, volatile interest rates and a slowdown in the demand for home furnishings following the prior year’s demand surge after the initial COVID crisis.
Removed
We reported a 9.9% consolidated net sales increase and $14.8 million in operating income and finished fiscal 2022 with a consolidated order backlog 25% higher over the level at the end of our fiscal 2021 year-end.
Added
Despite these challenges, we were encouraged by the improvements in the global supply chain, a strong labor market, and our overseas vendors returning to normal production levels.
Removed
About 80% of the net sales increases were in our casegoods non-container business as we were better able to manage our inventory availability and keep our best-selling products in stock during the first half of fiscal 2022.
Added
As discussed below, we were pleased to report solid results in both Hooker Branded and Domestic Upholstery segments; however, we had to make difficult but necessary decisions aimed at optimizing our resources and improving profitability in the Home Meridian segment.
Removed
However, the unexpected COVID-related lockdown at our suppliers in Vietnam and Malaysia for nearly three months, beginning in August and their slow re-openings coupled with continued difficulty obtaining shipping containers and vessel space caused low inventory receipts in the second half of this year which resulted in out-of-stock issues and decreased net sales in the fourth quarter.
Added
At the beginning of the fiscal year, this segment experienced inventory unavailability due to the COVID-related lockdown at our suppliers in Vietnam and their slow re-openings in late 2021 and early 2022. Inventory levels increased throughout fiscal 2023, allowing us to fulfill a significant portion of the large order backlog carried over from the prior year.
Removed
On a more positive note, the majority of shipments in this segment carried the price increases we implemented in July 2021 to mitigate higher ocean freight and product cost inflation. Hooker Branded reported $30.7 million operating income or 15.3% operating margin, an increase of $7.8 million or 34.3% as compared to the prior year.
Added
However, in the third quarter, there was a temporary delay in shipments due to inventory mix issues. Dealers delayed receipts of orders until collections could ship complete. This was resolved in the fourth quarter.
Removed
Given the current economic conditions, we are pleased to have maintained Hooker Branded segment profitability. Incoming orders increased by 24.2% as compared to prior year period when business dramatically rebounded.
Added
By the end of fiscal year 2023, inventory had increased by $35 million in this segment compared to the previous year-end and more than doubled compared to fiscal 2020 and 2021 year-end.
Removed
Backlog remained historically high and nearly doubled as compared to the prior year end when backlog was already at a high level, with part of that increase being due to lower shipments in the fourth quarter. The Home Meridian segment had a difficult year with net sales decreasing by $3.5 million, or 1.2%, as compared to the prior year.
Added
Meanwhile, gross profit and margin for the segment decreased by $3.8 million or 180 bps due to much higher-than-expected demurrage expenses and increased warehousing labor costs, driven by the large inventory volume as well as port and warehouse congestion in the U.S..
Removed
This segment also reported a $21.3 million operating loss.
Added
Operating income decreased to $20.5 million, with an operating margin of 10.3%, compared to $30.7 million and 15.3%, respectively, in the prior year.
Removed
Despite the disappointing financial results, we believe the challenges are short-term and the strategic decisions made by management will provide us with opportunities to significantly improve profitability in the coming year. ● Net sales decreased due to sales declines with e-commerce and Clubs channels, and the hospitality business, nearly offset by sales increases with mass merchants and major furniture chains driven by higher demand.
Added
The decline was due to higher compensation expenses (due to increased headcount, wage inflation and favorable performance to budget which affected staff variable compensation), higher professional services and training expenses, higher lease expense at the new Hooker showroom in High Point, NC, which is expected to come online in April 2023, and other increased operating expenditures as business returned to the pre-pandemic environment.
Removed
E-commerce sales decreased by 30% due to lower demand (which was driven by higher product costs due to excess freight costs) and inventory availability issues. Clubs sales decreased due to lower volume (which was intentional as we began exiting this channel in fiscal 2022) and $2.9 million of higher than expected chargebacks which negatively impacted net sales.
Added
Despite a significant decrease in incoming orders compared to the strong rebound in the prior year, order backlog remained 76% higher than pre-pandemic levels at fiscal 2020 year end. The Home Meridian segment experienced a decline of $62.6 million, or 22.4% in net sales, compared to the prior year.
Removed
Hospitality sales also decreased during the year as capital spending in the hospitality industry is still recovering from the COVID crisis. On a more positive note, hospitality order backlog at fiscal 2022 year-end was higher than prior year end.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThere was no outstanding balance under our Existing Revolver as of January 30, 2022, other than amounts reserved for standby letters of credit in the amount of $7.1 million. Raw Materials Price Risk We are exposed to market risk from changes in the cost of raw materials used in our domestic upholstery manufacturing processes; principally, wood, fabric and foam products.
Biggest changeA 1% increase in the BSBY rate would result in an annual increase in interest expenses on our terms loans of approximately $237,000. Raw Materials Price Risk We are exposed to market risk from changes in the cost of raw materials used in our domestic upholstery manufacturing processes; principally, wood, fabric and foam products.
The Chinese currency floats within a limited range in relation to the U.S. Dollar, resulting in exposure to foreign currency exchange rate fluctuations. 38 Table of Contents Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar could increase the price we pay for imported products beyond the negotiated periods.
The Chinese currency floats within a limited range in relation to the U.S. Dollar, resulting in exposure to foreign currency exchange rate fluctuations. 36 Table of Contents Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar could increase the price we pay for imported products beyond the negotiated periods.
We manage our exposure to this risk through our normal operating activities. Interest Rate Risk Borrowings under the Existing Revolver bears interest based on LIBOR plus 1.0%. As such, this debt instrument exposes us to market risk for changes in interest rates.
We manage our exposure to this risk through our normal operating activities. Interest Rate Risk Borrowings under the Existing Revolver, the Secured Term Loan and the Unsecured Term loan bear interest based on BSBY plus 1.00%, BSBY plus 0.90% and BSBY plus 1.40%, respectively. As such, these debt instruments expose us to market risk for changes in interest rates.
Added
There was no outstanding balance under the Existing Revolver as of January 29, 2023 other than standby letters of credit in the amount of $8.6 million. As of January 29, 2023, $24.3 million was outstanding under our term loans.

Other HOFT 10-K year-over-year comparisons