Stonegate Initiates Coverage on Hooker Furniture Corporation (NASDAQ: HOFT)

DALLAS, TX -- September 12th, 2023 --Hooker Furniture Corporation (NASDAQ: HOFT): Stonegate Capital Partners initiates their coverage on Hooker Furniture Corporation (NASDAQ: HOFT)

Company Update

• 2Q23 Results: HOFT reported revenue, adj EBITDA, and adj EPS of $97.8M, $1.3M, and $0.07, respectively. This compares to consensus estimates of $145.4M, $4.3M, and $0.28. It is noted that the revenue miss was in large part due to the divestiture of the Home Meridian business along with overall decreases in shipments and unit volume. This divestiture is showing dividends as consolidated gross margin increased 200bps from the prior year. On a segment basis, both Hooker Branded and Domestic Upholstery saw GPM expansion of 627bps and 201bps, respectively.
• Capital Allocation: HOFT maintains its commitment to being a consistent dividend payer by distributing $0.22 per share for an annualized rate of $0.88 per share, equivalent to a 4.7% dividend yield. This is in addition to the ~$22.0m spent to repurchase 1.3m shares of common stock. The Company still had approximately $2.5M left on its share repurchase program.
• Strengthening Liquidity: The Company remains on track with its plans to improve the balance sheet. This is highlighted by the reduction in both the Company’s warehouse footprint and the Company’s inventory levels. As of 2Q23, HOFT has reduced its inventory by $70.0m y/y, which is ahead of the original targets. This is in concert with the reduction of 200,000 sq/ft in warehouse footprint. By rightsizing the balance sheet, HOFT is simultaneously improving liquidity, reducing the Home Meridian breakeven point by ~$150.0m, and improving working capital levels. This is expected to allow the Company to acquire market share as the industry improves.
• Growing Backlog: HOFT reported a backlog of $88.2m, an increase of 1.0% from $87.4m last quarter. We expect the backlog to grow as management has noted that end markets are beginning to turn as destocking decreases and demand improves. This was seen as incoming orders increased by 36.7% compared to the prior-year quarter. This is expected to increase further due to the concentrated efforts to increase customer interactions, which saw a 366.7% y/y increase from 3,000 to 14,000.
• Acquisitions Remain in Focus: HOFT announced the acquisition of BOBO Intriguing objects, an Atlanta-based lighting, décor, and accents designer. This transaction gives HOFT the ability to expand their product offerings into the categories of lighting, wall art, textiles, and décor. This gives Hooker the ability to service the whole room. This transaction was finalized on June 12, 2023 for $2.4M in cash.
• Valuation: We use a Dividend Discount Model, DCF Model and EV/EBIT comp analysis to guide our valuation. Our Dividend Discount uses the HOFT trailing 3-year average dividend growth rate to arrive at a valuation range of $21.12 to $28.16 with a mid-point of $24.20. Our DCF analysis produces a valuation range of $24.70 to $28.97 with a mid-point of $26.63. Our EV/EBIT valuation results in a range of $22.90 to $27.66 with a mid-point of $25.28. Lastly, we note that HOFT pays one of the highest dividend yields of the comp set.