Hooker Furniture Corp. :HOFT-US: Earnings Analysis: Q2, 2018 By the Numbers : September 11, 2017

Hooker Furniture Corp. reports financial results for the quarter ended July 31, 2017.

We analyze the earnings along side the following peers of Hooker Furniture Corp. – Flexsteel Industries, Inc., LaZBoy Incorporated, Stanley Furniture Company, Inc. and Select Comfort Corporation (FLXS-US, LZB-US, STLY-US and SCSS-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 156.31 million, Net Earnings of USD 7.76 million.
  • Gross margins widened from 20.32% to 20.97% compared to the same period last year, operating (EBITDA) margins now 8.40% from 7.55%.
  • Year-on-year change in operating cash flow of -141.05% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-07-31 2017-04-30 2017-01-31 2016-10-31 2016-07-31
Relevant Numbers (Quarterly)
Revenues (mil) 156.31 130.87 173.93 145.3 136.16
Revenue Growth (%YOY) 14.79 7.42 187.17 122.38 126.41
Earnings (mil) 7.76 4.73 10.95 6.44 5.33
Earnings Growth (%YOY) 45.46 89.96 164.22 39.53 35.9
Net Margin (%) 4.96 3.62 6.3 4.43 3.92
EPS 0.67 0.41 0.95 0.56 0.46
Return on Equity (%) 3.78 2.37 5.68 3.48 2.96
Return on Assets (%) 9.96 6.02 14.05 8.57 7.33

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Market Share Versus Profits

Revenues History
Earnings History

HOFT-US‘s change in revenue this period compared to the same period last year of 14.79% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that HOFT-US is holding onto its market share. Also, for comparison purposes, revenues changed by 19.44% and earnings by 63.97% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 20.32% to 20.97% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 7.55% to 8.40% compared to the same period last year. For comparison, gross margins were 21.25% and EBITDA margins were 6.47% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

HOFT-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 90.09, compared to last year’s level of 89.14 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

HOFT-US‘s change in operating cash flow of -141.05% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 6.11% to 7.55% and (2) one-time items. The company’s pretax margins are now 7.68% compared to 6.05% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Hooker Furniture Corp. is a home furnishings marketing and logistics company. It offers worldwide sourcing of residential casegoods and upholstery, as well as domestically-produced custom leather and fabric-upholstered furniture. The company operates its business through three segments: Casegoods, Upholstered and All Other. Its major casegoods product categories include home entertainment, home office, accent, dining and bedroom furniture under the Hooker Furniture brand, and youth furniture sold under the Opus Designs by Hooker brand. The company designs and markets its furniture, both as stand-alone products and as part of a group of products within multi-piece groups or broader collections offering a unifying style, design theme and finish. Its collections include offerings, such as Abbott Place, Beladora, Harbour Pointe and Sanctuary collections. The company’s residential upholstered seating companies, include Bradington-Young LLC, a specialist in upscale motion and stationary leather furniture, and Sam Moore Furniture LLC, a specialist in upscale occasional chairs, settees and sectional seating with an emphasis on cover-to-frame customization. Its customers include independent furniture stores, specialty retailers, department stores, catalog and internet merchants, interior designers and national and regional chains. Hooker Furniture was founded in 1924 and is headquartered in Martinsville, VA.

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