DALLAS, TX -- September 6th, 2024 --Hooker Furniture Corporation (NASDAQ: HOFT): Stonegate Capital Partners updates their coverage on Hooker Furniture Corporation (NASDAQ: HOFT)
Company Update
- Quarterly Results: HOFT reported revenue, operating income, and adj EPS of $95.1M, ($3.1)M, and ($0.19), respectively. This compares to our/consensus estimates of $99.3M/$99.3M, $0.0M/$0.0M, and $0.01/$0.01. It is noted that while revenues were below consensus estimates and a slight decrease of 2.8% from 2Q24, sequentially we are encouraged by the moderation in Y/Y declines compared to last quarter’s substantial Y/Y sales decline. The declines were due to the current headwinds seen in the macro environment leading to decreased volumes. Despite the headwinds, HOFT reported consolidated GPM of 22.0%. The macroeconomic and furniture retail environment remains challenging, with high interest rates, a housing shortage, and elevated home prices contributing to a prolonged downturn. Despite this, the company is focusing on controllable factors to position itself for future growth. As HOFT looks through the current market turbulence it has stated the goal to reduce fixed costs by 10%, or approximately $10.0M in FY25 and is on pace to reach this goal. \
- Capital Allocation: HOFT maintains its commitment to being a consistent dividend payer by distributing $0.23 per share for an annualized rate of $0.92 per share, equivalent to a 6.0% dividend yield. This was flat since the prior quarter and equal to a 4.4% increase from the same quarter last year. To fund capital allocation priorities HOFT ended the quarter with $42.1M in cash. This cash is coupled with $28.3M in revolver availability for total liquidity of $70.4M, a slight increase from $69.2M last quarter.
- Strengthening Liquidity: The Company has taken impressive steps to normalize its balance sheet and liquidity position over the last year. This is highlighted by the reduction in the Company’s inventory levels over the last 6 quarters. As of 2Q25, HOFT has reduced its inventory by $39.6M since FY23. By rightsizing the balance sheet, HOFT is simultaneously improving liquidity, improving gross profit margins, and improving working capital levels. This strong balance sheet position is expected to allow the Company to acquire market share as the industry improves.
- Backlog: HOFT reported a backlog of ~$77.9M, a decrease of ~11.7% from $88.2M in 2Q24 and a decrease of ~9.2% from $85.8M in 1Q25. Despite this sequential decrease in order backlog, year-to-date backlogs are still up 8.4% and remain elevated from pre-pandemic levels. This, combined with unit volumes increasing in the Hooker Branded segment of 11.6% Y/Y, gives us confidence that a turnaround is beginning. Additionally, we expect orders and backlog to increase further over the next 12-18 months. HOFT provided further confidence in market demand, as shown by planned initial cuttings prior to the High Point Market in October. This increased stock allows HOFT to get ahead of supply chains to increase speed-to-market availability.
- Valuation: We use a Dividend Discount Model, DCF Model and EV/EBIT comp analysis to guide our valuation. Our Dividend Discount Model arrives at a valuation range of $19.23 to $24.27 with a mid-point of $21.47. Our DCF analysis produces a valuation range of $18.37 to $21.75 with a mid-point of $19.90. Our EV/EBIT valuation results in a range of $19.33 to $21.56 with a mid-point of $20.44. Lastly, HOFT pays one of the highest dividend yield of the comp set.
About Stonegate
Stonegate Capital Partners is a leading capital markets advisory firm providing investor relations, equity research, and institutional investor outreach services for public companies. Our affiliate, Stonegate Capital Markets (member FINRA) provides a full spectrum of investment banking services for public and private companies.
