Stonegate Updates Coverage on Hooker Furniture Corporation (NASDAQ: HOFT) Q4 2023

DALLAS, TX -- April 15th, 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 $96.8M, $0.3M, and $0.06, respectively. This compares to our/consensus estimates of $101.1M/$99.7M, $1.5M/$1.5M, and $0.12/$0.10. It is noted that revenues were in-line with consensus estimates and a decrease of 26.3% year over year. This was primarily due to the current headwinds seen in the macro environment. Despite these headwinds HOFT reporting consolidated GPM of 24.5%, an increase of ~2,394bps since this quarter last year when the Company was impacted by a $24.4M inventory valuation charge. The macro picture remains challenging in the short term, however, increasing building permits and single-family housing starts and reducing decreases in mortgage interest rates gives us reason to be cautiously optimistic. As HOFT looks through the current market turbulence it has begun work to consolidate the merchandising for its legacy brands. We believe this will position the Company for growth as a whole home consumer[1]centric resource for its customers.
• 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 5.0% dividend yield. This was flat since the prior quarter and equal to a 4.5% increase from the same quarter last year. This is in addition to the $11.7M spent to repurchase shares of common stock in FY24. To fund capital allocation priorities HOFT ended the year with $43.2M in cash, up from $19.0M to end FY23. This is coupled with $28.3m in revolver availability for total liquidity of $71.5M, up from $67.0M 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 FY24. As of 4Q24, HOFT has reduced its inventory by $34.9M y/y. We expect working capital to fluctuate modestly with business demand and note that the Company has stronger inventory management processes in place. By rightsizing the balance sheet, HOFT is simultaneously improving liquidity, improving gross profit margins, and improving working capital levels. This is expected to allow the Company to acquire market share as the industry improves.
• Backlog: HOFT reported a backlog of ~$72.0M, an increase of ~3.4% from $69.4M in the last quarter and a decrease of ~24.7% from $95.4M in 4Q23. Since the end of the quarter backlogs have increased further to ~$85.0M with the HMI segment showing strong demand, leading to increasing orders. We expect orders and backlog to increase further over the next 12-18 months due to the concentrated efforts to increase customer interactions.
• 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 $21.47 to $27.86 with a mid-point of $24.27. Our DCF analysis produces a valuation range of $23.35 to $27.34 with a mid-point of $25.15. Our EV/EBIT valuation results in a range of $19.67 to $24.74 with a mid-point of $22.20. Lastly, HOFT pays one of the highest dividend yields of the comp set.