Hooker Furniture Corporation Faces Challenges Amid Economic Downturn

Hooker Furniture Corporation (NASDAQ: HOFT) has reported a challenging first quarter for FY26, with revenues slightly below consensus estimates at $85.3M, marking an 8.8% year-over-year decrease. The decline is primarily due to reduced volumes and the impact of tariffs on the HMI segment. Despite these challenges, the company has seen a consolidated gross profit margin increase of 173 basis points quarter-over-quarter, reaching 22.3%.

The macroeconomic environment remains tough for the furniture retail sector, with factors such as varying interest rates, a persistent housing shortage, and elevated home prices contributing to the downturn. In response, Hooker Furniture is focusing on controllable factors to position itself for future growth, including a 25% reduction in fixed costs, amounting to approximately $25.0M, with full realization expected by FY27.

On the capital allocation front, HOFT continues its commitment to being a consistent dividend payer, distributing $0.23 per share this quarter. The company ended the quarter with $18.0M in cash, which was used to pay down all outstanding borrowings on the revolving credit facility, leaving HOFT with about $3.0M in cash and $63.3M in borrowing capacity.

Inventory management has been a bright spot for HOFT, with the company taking strategic steps to strengthen its balance sheet and inventory position. The new Vietnam warehouse has significantly reduced lead times, allowing the company to hold less security stock and providing more flexibility in inventory management.

Despite a slight decrease in backlog to $51.2M from $52.6M in the previous quarter, backlogs remain elevated compared to pre-pandemic levels. The company's efforts to streamline its supply chain, including exiting the Savannah warehouse and improving warehousing in Vietnam, are expected to provide a competitive advantage once the macroeconomic environment stabilizes.

Valuation analyses, including Dividend Discount Model, DCF Model, and EV/EBIT comp analysis, suggest a valuation range for HOFT, with the company also noted for paying one of the highest dividend yields in its comparison set. These financial strategies and operational adjustments underscore HOFT's resilience and strategic planning in navigating current market challenges.