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Hooker Furniture Reports 71% Higher Net Income For Fiscal 2013

Stocks in this article: HOFT

Upholstery segment net sales for the 2013 fiscal year increased 3.6% compared to last year, primarily due to increased average selling prices, partially offset by lower unit volume.

Consolidated net income was negatively impacted in both the fiscal 2012 fourth quarter and 2012 fiscal year by a $1.8 million pretax ($1.1 million after tax, or $0.10 per share) intangible asset impairment charge to write down the value of the Company's Bradington-Young trade name. Improved profitability in the current year was driven primarily by higher average selling prices and lower sales discounting for both segments and reduced upholstery segment manufacturing costs. These improvements were partially offset by modestly higher costs on some of our imported products.

Additional fiscal 2013 highlights (compared to fiscal 2012):

  • Gross profit increased as a percentage of net sales to 24.1%, from 22%, primarily due to higher average selling prices, decreased casegoods and upholstery segment discounting and reduced upholstery segment manufacturing costs.
  • Selling and administrative expenses decreased in absolute terms by 1.9%, or $769,000, to $39.6 million, but remained flat as a percentage of net sales at 18.1% in both fiscal periods.
  • Operating income increased both as a percentage of net sales to 5.9%, from 3.0%, and in absolute terms by $6.3 million, or 93.9%, from $6.7 million to $12.9 million. Excluding the effects of intangible asset impairment charges recorded in the prior year, operating income increased $4.5 million, or 52.5%.  
  • Due primarily to higher pre-tax income, income tax expense increased $2.5 million, or 131.4%, to $4.4 million from $1.9 million. The Company's effective tax rate increased to 33.6% of pre-tax income from 27.2%, due to the smaller impact of favorable permanent differences on the higher pre-tax income.  
  • Net income increased both as a percentage of net sales to 4.0%, from 2.3%, and in absolute terms by $3.6 million, or 70.6%, to $8.6 million, or $0.80 per share, compared to $5.1 million, or $0.47 per share.  

Additional fiscal 2013 fourth quarter highlights (compared to the fiscal 2012 fourth quarter):

  • Gross profit increased as a percentage of net sales to 28.2%, from 23.8%, primarily due to higher average selling prices, lower than expected inflation on imported casegoods, which resulted in the reversal of previously accrued LIFO expense, decreased casegoods and upholstery segment discounting and reduced upholstery segment manufacturing costs.
  • Selling and administrative expenses increased in absolute terms by 10.6%, or $1.1 million, to $11.5 million, and as a percentage of net sales to 19.3% from 19.1%.
  • Operating income increased both as a percentage of net sales to 8.9%, from 1.3%, and in absolute terms by $4.6 million, or 631.4%, from $726,000 to $5.3 million.  Excluding the effects of intangible asset impairment charges recorded in the prior year, operating income increased $2.8 million, or 109.0%.  
  • Due primarily to higher pre-tax income, income tax expense increased $1.4 million to $1.6 million from $171,000. The Company's effective tax rate increased to 29.8% of pre-tax income from 21.4%.  
  • Net income increased both as a percentage of net sales to 6.2%, from 1.2%, and in absolute terms by $3.1 million to $3.7 million, or $0.34 per share, compared to $628,000, or $0.06 per share.  

GAAP to Non-GAAP Operating Margin Reconciliation

For the 2013 fiscal year, operating income increased to 5.9% of net sales as compared to 3.8% of net sales in the comparable prior-year period, excluding asset impairment charges recorded in the fiscal 2012 fourth quarter. The following table reconciles operating income as a percentage of net sales ("operating margin") to operating margin excluding asset impairment charges as a percentage of net sales for each period:

  Fourteen Thirteen Fifty-three Fifty-Two
  Weeks Ended Weeks Ended Weeks Ended Weeks Ended
  February 3, 2013 January 29, 2012 February 3, 2013 January 29, 2012
    % Net   % Net   % Net   % Net
  $ Sales $ Sales $ Sales $ Sales
                 
Operating income, including fiscal 2012 asset impairment charges  $ 5,311 8.9%  $ 726 1.3%  $ 12,940 5.9%  $ 6,673 3.0%
Intangible asset impairment charges  --   --   1,815 3.3%  --   --   1,815 0.8%
Operating income, excluding fiscal 2012 asset impairment charges  $ 5,311 8.9%  $ 2,541 4.7%  $ 12,940 5.9%  $ 8,488 3.8%

Operating income and margin excluding the impact of 2012 asset impairment charges are "non-GAAP" financial measures. We provide this information because we believe it is useful to investors in evaluating our ongoing operations. These non-GAAP financial measures are intended to provide insight into our operating profit and margin, and should be evaluated in the context in which they are presented. These measures are not intended to reflect our overall financial results.  

Cash, Inventory and Debt Levels

Cash and cash equivalents decreased $14.0 million to $26.3 million as of February 3, 2013, from $40.4 million on January 29, 2012, due primarily to a $15.7 million increase in inventories, which is the result of casegoods and imported upholstery restocking efforts, and a $2.5 increase in accounts receivable, due to higher sales. These increased balances were partially offset by a $2.4 increase in accounts payable, due to higher accrued import purchases at year-end. "The composition of our inventory is much improved. We are in stock on best sellers, and service and shipments to our customers have improved across the board," Toms said. "We expected cash to decrease as we improved our inventory position. However, we have been rebuilding cash over the last six to eight weeks and expect this trend will continue."

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