Edgar Filing: HOOKER FURNITURE CORP

hookerfurniture10q110214.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended November 2, 2014

Commission file number 000-25349

HOOKER FURNITURE CORPORATION

(Exact name of registrant as specified in its charter)

Virginia	54-0251350
(State or other jurisdiction of incorporation or organization)	(IRS employer identification no.)

440 East Commonwealth Boulevard, Martinsville, VA 24112

(Address of principal executive offices, zip code)

(276) 632-0459

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer o	Accelerated filer x
Non-accelerated Filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of December 5, 2014:

Common stock, no par value	10,773,675
(Class of common stock)	(Number of shares)

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.	Financial Information	3

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION

Item 6.	Exhibits	29

Signature		30

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

As of	November 2,		February 2,
	2014		2014
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	33,328	$	23,882
Trade accounts receivable, less allowance for doubtful accounts of $1,244 and $1,243 on each respective date		29,885		29,393
Inventories		47,432		49,016
Prepaid expenses and other current assets		3,034		2,413
Deferred taxes		1,472		1,664
Income tax recoverable		-		682
Total current assets		115,151		107,050
Property, plant and equipment, net		22,979		23,752
Cash surrender value of life insurance policies		20,053		18,891
Deferred taxes		4,063		4,051
Intangible assets		1,382		1,382
Other assets		2,077		355
Total non-current assets		50,554		48,431
Total assets	$	165,705	$	155,481

Liabilities and Shareholders’ Equity
Current liabilities
Trade accounts payable	$	9,325	$	7,077
Accrued salaries, wages and benefits		4,092		3,478
Accrued commissions		899		934
Customer deposits		724		659
Income tax accrual		1,167		-
Other accrued expenses		896		759
Total current liabilities		17,103		12,907
Deferred compensation		8,072		7,668
Income tax accrual		141		103
Other long-term liabilities		343		-
Total long-term liabilities		8,556		7,771
Total liabilities		25,659		20,678

Shareholders’ equity
Common stock, no par value, 20,000 shares authorized, and 10,774 and 10,753 shares issued and outstanding, respectively, on each date		17,795		17,585
Retained earnings		122,171		117,120
Accumulated other comprehensive income		80		98
Total shareholders’ equity		140,046		134,803
Total liabilities and shareholders’ equity	$	165,705	$	155,481

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	November 2,		November 3,		November 2,		November 3,
	2014		2013		2014		2013

Net sales	$	63,168	$	59,125	$	179,447	$	170,721

Cost of sales		47,137		45,527		134,149		129,950

Gross profit		16,031		13,598		45,298		40,771

Selling and administrative expenses		11,148		10,443		32,758		31,742

Operating income		4,883		3,155		12,540		9,029

Other income (expense), net		85		9		183		(45	)

Income before income taxes		4,968		3,164		12,723		8,984

Income tax expense		1,764		1,048		4,443		3,054

Net income	$	3,204	$	2,116	$	8,280	$	5,930

Earnings per share
Basic	$	0.30	$	0.20	$	0.77	$	0.55
Diluted	$	0.30	$	0.20	$	0.77	$	0.55

Weighted average shares outstanding:
Basic		10,742		10,724		10,733		10,721
Diluted		10,771		10,753		10,766		10,748

Cash dividends declared per share	$	0.10	$	0.10	$	0.30	$	0.30

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	November 2,			November 3,			November 2,			November 3,
	2014			2013			2014			2013

Net Income	$	3,204		$	2,116		$	8,280		$	5,930
Other comprehensive income:
Amortization of actuarial gain		(13	)		(27	)		(38	)		(81	)
Income tax effect on amortization of actuarial gains		11			10			20			30
Adjustments to net periodic benefit cost		(2	)		(17	)		(18	)		(51	)

Comprehensive Income	$	3,202		$	2,099		$	8,262		$	5,879

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	November 2,			November 3,
	2014			2013
Operating Activities:
Net income	$	8,280		$	5,930
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,927			1,818
Gain on disposal of assets		(37	)		(6	)
Deferred income tax expense (benefit)		274			(331	)
Noncash restricted stock and performance awards		405			500
Provision for doubtful accounts		728			191
Changes in assets and liabilities:
Trade accounts receivable		(1,220	)		1,536
Inventories		1,584			877
Income tax recoverable		682			-
Gain on life insurance policies		(586	)		(480	)
Prepaid expenses and other current assets		(612	)		46
Trade accounts payable		2,248			880
Accrued salaries, wages, and benefits		614			(248	)
Accrued income taxes		1,167			(519	)
Accrued commissions		(35	)		(229	)
Customer deposits		65			-
Other accrued expenses		139			(317	)
Deferred compensation		136			139
Other long-term liabilities		41			-
Net cash provided by operating activities		15,800			9,787

Investing Activities:
Purchases of property and equipment		(2,460	)		(2,608	)
Proceeds received on notes for sale of assets		24			30
Acquisition of Homeware.com URL		-			(125	)
Proceeds from sale of property and equipment		69			31
Premiums paid on life insurance policies		(758	)		(802	)
Proceeds received on life insurance policies		-			516
Net cash used in investing activities		(3,125	)		(2,958	)

Financing Activities:
Cash dividends paid		(3,229	)		(3,225	)
Net cash used in financing activities		(3,229	)		(3,225	)

Net increase in cash and cash equivalents		9,446			3,604
Cash and cash equivalents - beginning of year		23,882			26,342
Cash and cash equivalents - end of quarter	$	33,328		$	29,946

Supplemental schedule of cash flow information:
Income taxes paid, net	$	(2,311	)	$	(3,904	)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated)

(Unaudited)

For the Thirty-Nine Weeks Ended November 2, 2014

1. Preparation of Interim Financial Statements

The condensed consolidated financial statements of Hooker Furniture Corporation and subsidiaries (referred to as “we,” “us,” “our,” “Hooker” or the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these statements include all adjustments necessary for a fair statement of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) are condensed or omitted pursuant to SEC rules and regulations. However, we believe that the disclosures made are adequate for a fair presentation of our results of operations and financial position. Operating results for the interim periods reported herein may not be indicative of the results expected for the fiscal year. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended February 2, 2014 (“2014 Annual Report”).

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect both the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from our estimates.

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q and include:

our results of operations for the thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 4, 2014 and the thirty-nine week period (also referred to as “nine months,” “nine-month period”) that began February 3, 2014, which both ended November 2, 2014, compared to the thirteen-week period that began August 5, 2013 and the thirty-nine week period that began February 4, 2013, which both ended November 3, 2013; and

§	our financial condition as of November 2, 2014 compared to February 2, 2014.

References in these notes to the condensed consolidated financial statements of the Company to:

§	the 2015 fiscal year and comparable terminology mean the fiscal year that began February 3, 2014 and will end February 1, 2015; and

§	the 2014 fiscal year and comparable terminology mean the fiscal year that began February 4, 2013 and ended February 2, 2014.

2. Change in Presentation of Consolidated Statement of Cash Flows

GAAP permits the direct or indirect methods of computing cash flows. Beginning with our fiscal 2014 annual report on Form 10-K, we elected to change the presentation of our cash flow statements from the direct to indirect method of computing cash flows. We believe the indirect method is preferable because:

§	it provides a more straight-forward presentation of the reconciliation between consolidated net income and consolidated cash flows;

§	it helps financial statement users to better understand how non-cash transactions are factors of consolidated net income but not sources of consolidated cash flows; and

§	it helps financial statement users to better understand the different linkages among our consolidated financial statements.

Consequently, we have recast our prior-year condensed consolidated statements of cash flows to conform to the fiscal 2015 presentation under the indirect method.

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3. Accounts Receivable

	November 2,			February 2,
	2014			2014

Trade accounts receivable	$	22,999		$	22,776
Receivable from factor		8,130			7,860
Allowance for doubtful accounts		(1,244	)		(1,243	)
Accounts receivable	$	29,885		$	29,393

“Receivable from factor” represents amounts due with respect to factored accounts receivable. We factor substantially all of our domestically-produced upholstery accounts receivable without recourse to us.

Under our factoring agreement, invoices for domestically produced upholstery products are generated and transmitted to our customers, with copies to the factor on a daily basis, as products are shipped to our customers. The factor collects the amounts due and remits collected funds to us semi-weekly, less factoring fees. We retain ownership of the accounts receivable until the invoices are 90 days past due. At that time, the factor pays us the net invoice amount, less factoring fees, and takes ownership of the accounts receivable. The factor is then entitled to collect the invoices on its own behalf and retain any subsequent remittances. The invoiced amounts are reported as accounts receivable on our condensed consolidated balance sheets, generally from the date the merchandise is shipped to our customer until payment is received from the

factor.

A limited number of our accounts receivable for our domestically produced upholstery are factored with recourse to us. The amounts of these receivables at November 2, 2014 and February 2, 2014 were $257,000 and $324,000, respectively. If the factor is unable to collect the amounts due, invoices are returned to us for collection. We include an estimate of potentially uncollectible receivables in our calculation of our allowance for doubtful accounts.

4. Inventories

	November 2,			February 2,
	2014			2014
Finished furniture	$	57,873		$	58,515
Furniture in process		768			804
Materials and supplies		8,375			8,068
Inventories at FIFO		67,016			67,387
Reduction to LIFO basis		(19,584	)		(18,371	)
Inventories	$	47,432		$	49,016

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5. Property, Plant and Equipment

	Depreciable Lives	November 2,		February 2,
	(In years)	2014		2014

Computer software and hardware	3 - 10	$	22,769	$	22,294
Buildings and land improvements	15 - 30		22,180		24,026
Machinery and equipment	10		4,788		4,495
Leasehold improvements	5		2,839		2,765
Furniture and fixtures	3 - 8		2,215		2,060
Other	5		668		689
Total depreciable property at cost			55,459		56,329
Less accumulated depreciation			36,690		36,447
Total depreciable property, net			18,769		19,882
Land			1,067		1,152
Construction-in-progress			3,143		2,718
Property, plant and equipment, net		$	22,979	$	23,752

At November 2, 2014, construction-in-progress consisted of approximately $2.5 million of expenditures related to our ongoing Enterprise Resource Planning (ERP) conversion efforts and approximately $690,000 related to various other projects to enhance our facilities and operations.

The $1.8 million decline in buildings and land improvements during the fiscal 2015 first nine months is primarily due to the completion of the sale of our Cloverleaf warehouse facility in April 2014. We recognized a gain of $34,000 on the sale in our fiscal 2015 year-to-date financial statements. See Item 2 of this report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, for additional information regarding this transaction.

6. Fair Value Measurements

Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability (an exit price) in an orderly transaction between market participants on the applicable measurement date. We use a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1, defined as observable inputs such as quoted prices in active markets for identical assets and liabilities;

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of November 2, 2014 and February 2, 2014, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs. The fair value of the Company-owned life insurance is determined by inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Additionally, the fair value of the Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period.

As of November 2, 2014, a mortgage note receivable was measured at fair value on a non-recurring basis using Level 3 inputs. The note receivable was delivered to us by the buyer as part of the purchase price for our Cloverleaf facility during the fiscal 2015 first quarter and was recorded at approximately $1.6 million, the original face value of the note. The carrying value of the note is assumed to approximate its fair value. We measure the probability that amounts due to us under this note will be collected primarily based on the buyer’s payment history. Specifically, we consider the buyer’s adherence to the contractual payment terms for both timeliness and payment amounts. Should it become probable that we would be unable to collect all amounts due according to the contractual terms of the note, we would measure the note for impairment and record a valuation allowance against the note, if needed, with the related expense charged to income for that period. The note is included in the “Other assets” line of our condensed consolidated balance sheets.

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Our assets measured at fair value on a recurring and non-recurring basis at November 2, 2014 and February 2, 2014, were as follows:

	Fair value at November 2, 2014								Fair value at February 2, 2014
Description	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(In thousands)
Assets measured at fair value
Company-owned life insurance	$	-	$	20,053	$	-	$	20,053	$	-	$	18,891	$	-	$	18,891
Mortgage note receivable		-		-		1,575		1,575		-		-		-		-

7. Intangible Assets

		November 2,		February 2,
Non-amortizable Intangible Assets	Segment	2014		2014
Trademarks and trade names - Bradington-Young	Upholstery	$	861	$	861
Trademarks and trade names - Sam Moore	Upholstery		396		396
URL- Homeware.com	All other		125		125
Total trademarks and tradenames		$	1,382	$	1,382

8. Long-Term Debt

As of November 2, 2014, we had an aggregate $13.1 million available under our $15.0 million unsecured revolving credit facility to fund working capital needs. Standby letters of credit in the aggregate amount of $1.9 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under our revolving credit facility as of November 2, 2014. There were no additional borrowings outstanding under the revolving credit facility on November 2, 2014. Any principal outstanding under the revolving credit facility is due July 31, 2018.

9. Employee Benefit Plans

We maintain a supplemental retirement income plan (“SRIP”) for certain former and current executives. The liability for the SRIP at November 2, 2014 and February 2, 2014 was $7.8 million and $7.7 million, respectively, and is shown in our condensed consolidated balance sheets as follows:

	November 2,		February 2,
	2014		2014
Accrued salaries, wages and benefits (current portion)	$	354	$	354
Deferred compensation (long-term portion)		7,427		7,308
Total liability	$	7,781	$	7,662

Total deferred compensation in the long-term liabilities section of our consolidated balance sheets is $8.1 million at November 2, 2014 and $7.7 million at February 2, 2014. These totals include the amounts shown in the deferred compensation line in the table above, as well as additional long-term compensation-related items unrelated to our SRIP.

Components of net periodic benefit cost for the SRIP are included in our condensed consolidated statements of income in selling and administrative expenses:

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	November 2,			November 3,			November 2,			November 3,
	2014			2013			2014			2013
Net periodic benefit cost
Service cost	$	25		$	64		$	76		$	192
Interest cost		85			73			254			219
Actuarial gain		(13	)		(26	)		(38	)		(79	)
Net periodic benefit cost	$	97		$	111		$	292		$	332

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10. Earnings Per Share

We refer you to the discussion of Earnings Per Share in Note 1-Summary of Significant Accounting Policies, in the financial statements included in our 2014 Annual Report, for additional information concerning the calculation of earnings per share.

We have issued restricted stock awards to non-employee members of the board of directors since 2006 and restricted stock units (RSUs) and/or restricted stock to certain senior executives and other key employees since fiscal 2012 under the Company’s Stock Incentive Plan. Each RSU entitles the recipient to receive one share of the Company’s common stock if the recipient remains continuously employed with the Company through the end of a three-year service period. The RSUs may be paid in shares of our common stock, cash or both at the discretion of the Compensation Committee of our board of directors. We expect to continue to grant these types of awards annually in the future. The following table sets forth the number of outstanding restricted stock awards and RSUs, net of forfeitures and vested shares, as of the fiscal period-end dates indicated:

	November 2,		February 2,
	2014		2014

Restricted shares		28		29
Restricted stock units		24		32
		52		61

All restricted shares and RSUs awarded that have not yet vested are considered when computing diluted earnings per share. The following table sets forth the computation of basic and diluted earnings per share:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	November 2,		November 3,		November 2,		November 3,
	2014		2013		2014		2013

Net income	$	3,204	$	2,116	$	8,280	$	5,930
Less: Unvested participating restricted stock dividends		3		3		8		9
Net earnings allocated to unvested participating restricted stock		8		6		22		16
Earnings available for common shareholders		3,193		2,107		8,250		5,905

Weighted average shares outstanding for basic earnings per share		10,742		10,724		10,733		10,721
Dilutive effect of unvested restricted stock and RSU awards		29		29		33		27
Weighted average shares outstanding for diluted earnings per share		10,771		10,753		10,766		10,748

Basic earnings per share	$	0.30	$	0.20	$	0.77	$	0.55

Diluted earnings per share	$	0.30	$	0.20	$	0.77	$	0.55

11. Income Taxes

We recorded income tax expense of $1.8 million for the fiscal 2015 third quarter compared to $1.0 million for the comparable prior year period. The effective tax rates for the fiscal 2015 and 2014 third quarters were 35.5% and 33.1%, respectively. The effective tax rate was higher in the fiscal 2015 third quarter due to the diminished effects of permanent tax rate benefits (that do not vary due with sales or taxable income) on higher taxable income in the current year quarter. These permanent benefits were company-owned life insurance, our captive insurance arrangement and inventory contributions.

We recorded income tax expense of $4.4 million for the fiscal 2015 first three quarters compared to $3.1 million for the comparable prior year period. The effective tax rate for the fiscal 2015 and 2014 nine-month periods was 34.9% and 34.0%, respectively. The effective tax rate was higher in the fiscal 2015 third quarter due to the diminished effects of permanent tax rate benefits (that do not vary due with sales or taxable income) on higher taxable income in the current year quarter. These permanent benefits were company-owned life insurance, our captive insurance arrangement and inventory contributions.

The net unrecognized tax benefits as of November 2, 2014 and February 2, 2014, which, if recognized, would impact our effective tax rate are $419,000 and $303,000, respectively. In fiscal 2014, an uncertain tax position was identified and accrued for which forthcoming remediation will effectively settle the uncertainty in the next 12 months. In fiscal 2014, we also established a reserve for an uncertain tax position related to the use of a portion of state loss carryforwards in our current tax returns. The balance of that reserve was $141,000 at November 2, 2014 and $103,000 at February 2, 2014.

The tax years ending 2012 through 2014 remain subject to examination by federal taxing authorities. State tax returns for the years ending 2011 through 2014 remain subject to examination.

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12. Segment Information

For financial reporting purposes, we are organized into three operating segments – casegoods furniture, upholstered furniture and all other. Prior to the fiscal 2015 third quarter just ended, we reported our results of operations in two operating segments- casegoods and upholstery. We aggregated the results of our two new business ventures – H Contract and Homeware- with our casegoods segment in accordance with the provisions of ASC 280 Segment Reporting. We did this primarily due to the similarity of the nature of the products, production processes, distribution methods, types of customers and regulatory environment. These similarities persist and although H Contract and Homeware are likely to remain immaterial to our consolidated results of operations for the near-to-medium term, we believe that information about these businesses would be beneficial to the readers of our financial statements; therefore, we have elected to separately disclose information about them in an “All other” segment. The following table presents segment information for the periods, and as of the dates, indicated:

	Thirteen Weeks Ended												Thirty-Nine Weeks Ended
	November 2, 2014						November 3, 2013						November 2, 2014						November 3, 2013

				% Cons. Net Sales						% Cons. Net Sales						% Cons. Net Sales						% Cons. Net Sales
Net Sales
Casegoods	$	39,798			63.0	%	$	37,190			62.9	%	$	111,142			61.9	%	$	107,224			62.8	%
Upholstery		22,046			34.9	%		21,409			36.2	%		65,311			36.4	%		62,725			36.7	%
All other		1,634			2.6	%		545			0.9	%		3,691			2.1	%		791			0.5	%
Intercompany eliminations		(310	)		-0.5	%		(19	)		0.0	%		(697	)		-0.4	%		(19	)		0.0	%
Consolidated	$	63,168			100.0	%	$	59,125			100.0	%	$	179,447			100.0	%	$	170,721			100.0	%

				% Segment Net Sales						% Segment Net Sales						% Segment Net Sales						% Segment Net Sales
Gross Profit & Margin
Casegoods	$	11,227			28.2	%	$	9,431			25.4	%	$	31,683			28.5	%	$	28,458			26.5	%
Upholstery		4,332			19.6	%		3,978			18.6	%		12,565			19.2	%		12,005			19.1	%
All other		484			29.7	%		206			37.9	%		1,067			28.9	%		326			41.2	%
Intercompany eliminations		(12	)		3.8	%		(17	)		92.5	%		(17	)		2.4	%		(18	)		92.5	%
Consolidated	$	16,031			25.4	%	$	13,598			23.0	%	$	45,298			25.2	%	$	40,771			23.9	%

				% Segment Net Sales						% Segment Net Sales						% Segment Net Sales						% Segment Net Sales
Operating Income & Margin
Casegoods	$	4,226			10.6	%	$	2,997			8.1	%	$	11,307			10.2	%	$	8,252			7.7	%
Upholstery		878			4.0	%		543			2.5	%		2,135			3.3	%		2,045			3.3	%
All other		(209	)		-12.8	%		(368	)		-67.3	%		(885	)		-24.0	%		(1,250	)		-158.1	%
Intercompany eliminations		(12	)		3.8	%		(17	)		92.5	%		(17	)		2.4	%		(18	)		92.5	%
Consolidated	$	4,883			7.7	%	$	3,155			5.3	%	$	12,540			7.0	%	$	9,029			5.3	%

Depreciation & Amortization
Casegoods	$	416					$	388					$	1,171					$	1,150
Upholstery		252						245						756						668
All other		-						-						-						-
Consolidated	$	668					$	633					$	1,927					$	1,818

Capital Expenditures
Casegoods	$	421					$	590					$	1,804					$	1,817
Upholstery		19						292						635						791
All other		21												21						-
Consolidated	$	461					$	882					$	2,460					$	2,608

	As of November 2, 2014					As of February 2, 2014
			% Total Assets					% Total Assets
Total Assets
Casegoods	$	130,282		78.6	%	$	121,316		78.0	%
Upholstery		33,850		20.4	%		33,136		21.3	%
All other		1,573		0.9	%		1,029		0.7	%
Consolidated	$	165,705		100.0	%	$	155,481		100.0	%

13. Subsequent Events

Dividends

On December 1, 2014, our board of directors declared a quarterly cash dividend of $0.10 per share, payable on December 29, 2014 to shareholders of record at December 15, 2014.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 4, 2014, and the thirty-nine week period (also referred to as “nine months,” or “nine-month period”) that began February 3, 2014, and which both ended November 2, 2014. This report discusses our results of operations for these periods compared to the fiscal year 2014 thirteen-week period that began August 5, 2013 and the thirty-nine week period that began February 4, 2013, which both ended November 3, 2013 and our financial condition as of November 2, 2014 compared to February 2, 2014.

The following discussion should be read in conjunction with the condensed consolidated financial statements, including the related notes, contained elsewhere in this quarterly report. We also encourage users of this report to familiarize themselves with all of our recent public filings made with the Securities and Exchange Commission (“SEC”), especially our 2014 annual report on Form 10-K (“2014 Annual Report”) filed with the SEC on April 18, 2014. Our 2014 Annual Report contains critical information regarding known risks and uncertainties we face, critical accounting policies and information on commitments and contractual obligations which are not reflected in our consolidated financial statements, as well as a more thorough and detailed discussion of our corporate strategy and new business initiatives. Our 2014 Annual Report and our other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurniture.com.

For financial reporting purposes, we are organized into three operating segments – casegoods furniture, upholstered furniture and all other. The all other segment includes our new H Contract and Homeware business initiatives. References in this report to “we,” “us,” “our,” “Hooker,” “Hooker Furniture” or “the Company” refer to Hooker Furniture Corporation and our consolidated subsidiaries, unless specifically referring to segment information.

References in this report to:

§	the 2015 fiscal year and comparable terminology mean the fiscal year that began February 3, 2014 and will end February 1, 2015; and

§	the 2014 fiscal year and comparable terminology mean the fiscal year that began February 4, 2013 and ended February 2, 2014.

Dollar amounts presented in the tables below are in thousands except for per share data.

Nature of Operations

Hooker Furniture Corporation is a home furnishings marketing, design and logistics company offering worldwide sourcing of residential casegoods and upholstery, as well as domestically-produced custom leather and fabric-upholstered furniture. We were incorporated in Virginia in 1924 and are ranked among the nation’s top 10 largest publicly traded furniture sources, based on 2013 shipments to U.S. retailers, according to a 2014 survey published by Furniture Today, a leading trade publication. We are a key resource for residential wood and metal furniture (commonly referred to as “casegoods”) and upholstered furniture. Our major casegoods product categories include accents, home office, dining, bedroom and home entertainment furniture under the Hooker Furniture brand. Our residential upholstered seating companies include Bradington-Young, a specialist in upscale motion and stationary leather furniture and Sam Moore Furniture, a specialist in upscale occasional chairs, settees, sofas and sectional seating with an emphasis on cover-to-frame customization. An extensive selection of designs and formats along with finish and cover options in each of these product categories makes us a comprehensive resource for home furnishings retailers primarily targeting the upper-medium price range. For our core product line, our principal customers are retailers of residential home furnishings that are broadly dispersed throughout the United States. Our customers also include home furniture retailers in Canada and in more than 10 other countries internationally. Other customers include independent furniture stores, specialty retailers, department stores, catalog and internet merchants, interior designers and national and regional chains.

To expand and grow beyond our core business, we launched two start-up brands during the 2014 fiscal year focused on serving the needs of emerging consumer groups on the opposite ends of the age and life stage spectrum. One, H Contract, focuses on the burgeoning senior living market for retirees. The other, Homeware, primarily focuses on younger and more mobile consumers in the early stages of their careers.

H Contract supplies upholstered seating and casegoods to upscale senior living facilities throughout the country, working with designers specializing in the contract industry to provide functional furniture that meets the style and comfort expectations of today’s retirees.

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To address the needs of younger furniture shoppers, as well as those living in urban or smaller spaces, we launched Homeware. Homeware is an online-only brand that is sold through leading international e-commerce retailers as well as our own e-commerce website, homeware.com. In addition to unique chairs and ottomans designed to be assembled in minutes by the consumer with no tools or hardware required, Homeware also offers home accessories and living room tables. Homeware plans to expand into multi-seat upholstery in late fiscal 2015 and into casual dining and entertainment centers in the first three quarters of fiscal 2016.

For financial reporting purposes, we are organized into three operating segments – casegoods furniture, upholstered furniture and all other. Prior to the fiscal 2015 third quarter just ended, we reported our results of operations in two operating segments- casegoods and upholstery. We aggregated the results of our two new business ventures – H Contract and Homeware- with our casegoods segment in accordance with the provisions of ASC 280 Segment Reporting. We did this primarily due to the similarity of the nature of the products, production processes, distribution methods, types of customers and regulatory environment. These similarities persist and although H Contract and Homeware are likely to remain immaterial to our consolidated results of operations for the near-to-medium term, we believe that information about these businesses would be beneficial to the readers of our financial statements; therefore, we have elected to separately disclose information about them in an “All other” segment. Our operating segments and their associated brands are as follows:

Hooker Furniture Corporation
Operating Segments

Casegoods	Upholstery	All other
Brands:	Brands:	Brands:
Hooker Furniture	Bradington-Young	H Contract
	Hooker Upholstery	Homeware
	Sam Moore

Overview

Consumer home furnishings purchases are driven by an array of factors, including general economic conditions such as:

§	consumer confidence;

§	availability of consumer credit;

§	energy and other commodity prices; and

§	housing and mortgage markets;

as well as lifestyle-driven factors such as changes in:

§	fashion trends;

§	disposable income; and

§	household formation and turnover.

Economic and economic-related factors, such as high unemployment and changing consumer priorities, have resulted in a somewhat depressed retail environment for discretionary purchases, including home furnishings and related products since 2008. The extended weakness in housing and housing-related industries has begun to show signs of sustained recovery, and mostly positive news on housing and consumer confidence is encouraging. However, we acknowledge that some economic headwinds persist.

Our lower overhead, variable-cost import operations have driven our profitability over the last few years and provide us with more flexibility to respond to changing demand by adjusting inventory purchases from suppliers. On the other hand, our import model requires a larger investment in inventory and longer production lead times. In addition, we must constantly evaluate our imported furniture suppliers and when quality concerns, inflationary pressures, or trade barriers, such as duties and tariffs diminish the value proposition offered by our current suppliers, transition sourcing to other suppliers, often located in different countries or regions.

Results for our domestic upholstery operations, which have significantly higher overhead and fixed costs than our import operations, have been particularly affected by the decline in demand for home furnishings and experienced operating losses or reduced operating profitability beginning with our fiscal 2009 second quarter through the second quarter of fiscal 2013. We initiated extensive cost reduction efforts over that time, which mitigated the effect of the weakness in demand. Our upholstery segment operations have been profitable for the last two fiscal years, as well as for the first three quarters of fiscal 2015, however domestic upholstery profitability continues to lag behind our imported products.

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Overview of Fiscal 2015 Third Quarter and Nine-Month Results of Operations

Consolidated net sales increased by $4.0 million or 6.8% to $63.2 million in the fiscal 2015 third quarter and net income increased by $1.1 million or 51.4% to $3.2 million. The following are the primary factors that affected our consolidated results of operations for the three-month period ended November 2, 2014 compared to the three-month period ended November 3, 2013:

§	Net sales increased primarily due to higher average selling prices in all segments;

§	Gross profit increased by $2.4 million, or nearly 18%, primarily due to:

o	increased net sales in all segments;

o	decreased casegoods segment discounting; and

o	a sizeable increase in net sales for our H Contract business initiative, as that business begins to establish itself in the contract furniture industry.

§	Selling and administrative expenses were essentially flat as a percentage of net sales, but increased in absolute terms by 6.8% or $705,000, due to a variety of factors discussed below.

§	Consolidated operating profitability increased by $1.7 million or 54.7%, primarily due to a casegoods segment operating profitability increase of $1.2 million or 41% and upholstery segment operating profitability increase of $335,000 or 61.6%.

Consolidated net sales increased by $8.7 million or 5.1% to $179.4 million in the first nine months of fiscal 2015 and net income increased by $2.3 million or 39.6% to $8.3 million. The following are the primary factors that affected our consolidated results of operations for the nine-month period ended November 2, 2014 compared to the nine-month period ended November 3, 2013:

§	Net sales increased primarily due to higher average selling prices in our casegoods and upholstery segments;

§	Gross profit increased by $4.5 million or 11.1%, primarily due to:

o	decreased casegoods segment discounting, partially offset by increased returns and allowances;

o	a $560,000 gross profit increase in our upholstery segment due primarily to higher net sales; and

o	a substantial increase in net sales at our H Contract business initiative as that business completes its first year in operation and begins to establish itself in the contract furniture industry.

§	Selling and administrative expenses were essentially flat as a percentage of net sales, but increased in absolute terms by $1.0 million primarily due to higher selling expenses associated with increased net sales, partially offset by a variety of factors which are discussed in greater detail below.

§	Consolidated operating profitability increased by $3.5 million or 38.9%, primarily due to a casegoods segment operating profitability increase of $3.1 million or 37%.

Detailed Results of Operations

The following table sets forth the percentage relationship to net sales of certain items included in the condensed consolidated statements of income included in this report.

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	November 2,			November 3,			November 2,			November 3,
	2014			2013			2014			2013
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		74.6			77.0			74.8			76.1
Gross profit		25.4			23.0			25.2			23.9
Selling and administrative expenses		17.6			17.7			18.3			18.6
Operating income		7.7			5.3			7.0			5.3
Other income, net		0.2			-			0.1			-
Income before income taxes		7.9			5.4			7.1			5.3
Income tax expense		2.8			1.8			2.5			1.8
Net income		5.1			3.6			4.6			3.5

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Fiscal 2015 Third Quarter Compared to Fiscal 2014 Third Quarter

	Net Sales
	Thirteen Weeks Ended
	November 2, 2014						November 3, 2013						$ Change			% Change
				% Net Sales						% Net Sales
Casegoods	$	39,798			63.0	%	$	37,190			62.9	%	$	2,608			7.0	%
Upholstery		22,046			34.9	%		21,409			36.2	%		637			3.0	%
All other		1,634			2.6	%		545			0.9	%		1,089			199.8	%
Intercompany eliminations		(310	)		-0.5	%		(19	)		0.0	%		(291	)		-1537.8	%
Consolidated	$	63,168			100.0	%	$	59,125			100.0	%	$	4,043			6.8	%

Unit Volume	FY15 Q3 % Change vs. FY14 Q3			Average Selling Price	FY15 Q3 % Change vs. FY14 Q3

Casegoods		-4.0	%	Casegoods		12.2	%
Upholstery		1.2	%	Upholstery		2.0	%
All other		164.3	%	All other		15.9	%
Consolidated		-0.8	%	Consolidated		8.7	%

The increase in consolidated net sales for the fiscal 2015 third quarter was primarily due to higher average selling prices in all operating segments, partially offset by lower casegoods segment unit volume. Unit volume decreases in our casegoods segment were primarily due to reduced sales of the lower-priced Opus Designs and Envision products, as we exit those product lines, and increased sales of products in the ‘best’ segment of our ‘good-better-best’ product assortment. Upholstery net sales increased primarily due to net sales gains at Bradington-Young, which were due primarily to higher average selling prices. We believe that all other segment percentages shown are of limited use since the businesses in this segment are starting from a very low base, and are completing their first full fiscal year in operation.

	Gross Income and Margin
	Thirteen Weeks Ended
	November 2, 2014						November 3, 2013						$ Change		% Change
				% Segment Net Sales						% Segment Net Sales
Casegoods	$	11,227			28.2	%	$	9,431			25.4	%	$	1,796		19.0	%
Upholstery		4,332			19.6	%		3,978			18.6	%		354		8.9	%
All other		484			29.7	%		206			37.9	%		278		134.7	%
Intercompany eliminations		(12	)		3.8	%		(17	)		92.5	%		5		32.0	%
Consolidated	$	16,031			25.4	%	$	13,598			23.0	%	$	2,433		17.9	%

Consolidated gross profit increased in the fiscal 2015 third quarter, primarily due to:

§	Increased net sales in all segments;

§	Lower casegoods segment discounting, as a percentage of net sales and in absolute terms, as a result of successful efforts to reduce slow-moving inventory earlier in fiscal 2015; and

§	Lower upholstery segment cost of goods sold as a percentage of net sales due to improved material utilization and lower overhead costs at Sam Moore.

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	Selling and Administrative Expenses
	Thirteen Weeks Ended
	November 2, 2014					November 3, 2013					$ Change		% Change
			% Segment Net Sales					% Segment Net Sales
Casegoods	$	7,001		17.6	%	$	6,434		17.3	%	$	567		8.8	%
Upholstery		3,454		15.7	%		3,435		16.0	%		19		0.6	%
All other		693		42.4	%		574		105.3	%		119		20.8	%
Consolidated	$	11,148		17.6	%	$	10,443		17.7	%	$	705		6.8	%

Consolidated selling and administrative expenses were essentially flat as a percentage of net sales, but increased in absolute terms, primarily due to increases in the casegoods and the all other operating segments.

Casegoods segment selling and administrative expenses increased both as a percentage of net sales and in absolute terms, primarily due to increased:

§	bonus expense due to higher earnings;

§	commissions due to higher net sales; and

§	bad debts expense due to the write-off of a customer account during the period.

These and other smaller increases were partially offset by lower:

§	benefits expense due to decreases in medical claims expense and increases in the cash surrender value of Company-owned life insurance; and

§	professional service expenses due to lower compliance costs.

Upholstery segment selling and administrative expenses were essentially flat in absolute terms but decreased as a percentage of net sales primarily due to higher net sales.

All other segment selling and administrative expenses decreased as a percentage of net sales primarily due to higher net sales, but increased in absolute terms due primarily to increased:

§	salaries, wages and benefits as we grow these new business initiatives; and

§	commissions due to higher sales.

	Operating Profit and Margin
	Thirteen Weeks Ended
	November 2, 2014						November 3, 2013						$ Change		% Change
				% Segment Net Sales						% Segment Net Sales
Casegoods	$	4,226			10.6	%	$	2,997			8.1	%	$	1,229		41.0	%
Upholstery		878			4.0	%		543			2.5	%		335		61.6	%
All other		(209	)		-12.8	%		(368	)		-67.3	%		159		43.2	%
Intercompany eliminations		(12	)		3.8	%		(17	)		92.5	%		5		32.0	%
Consolidated	$	4,883			7.7	%	$	3,155			5.3	%	$	1,728		54.7	%

Operating profitability increased for the fiscal 2015 third quarter, both as a percentage of net sales and in absolute terms, due to the factors discussed above.

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	Income Taxes
	Thirteen Weeks Ended
	November 2, 2014						November 3, 2013						$ Change		% Change
				% Net Sales						% Net Sales
Consolidated income tax expense	$	1,764			2.8	%	$	1,048			1.8	%	$	716		68.3	%

Effective Tax Rate		35.5	%					33.1	%

We recorded income tax expense of $1.8 million for the fiscal 2015 third quarter compared to $1.0 million for the comparable prior year period. The effective tax rates for the fiscal 2015 and 2014 third quarters were 35.5% and 33.1%, respectively. The effective tax rate was higher in the fiscal 2015 third quarter due to the diminished effects of permanent tax rate benefits (that do not vary with sales or taxable income) on higher taxable income in the current year quarter. These permanent benefits were company-owned life insurance, our captive insurance arrangement and inventory contributions.

	Net Income and Earnings Per Share
	Thirteen Weeks Ended
	November 2, 2014					November 3, 2013					$ Change		% Change
Net Income			% Net Sales					% Net Sales
Consolidated	$	3,204		5.1	%	$	2,116		3.6	%	$	1,088		51.4	%

Earnings per share	$	0.30				$	0.20

Fiscal 2015 First Nine Months Compared to Fiscal 2014 First Nine Months

	Net Sales
	Thirty-Nine Weeks Ended
	November 2, 2014						November 3, 2013						$ Change			% Change
				% Net Sales						% Net Sales
Casegoods	$	111,142			61.9	%	$	107,224			62.8	%	$	3,918			3.7	%
Upholstery		65,311			36.4	%		62,725			36.7	%		2,586			4.1	%
All other		3,691			2.1	%		791			0.5	%		2,900			366.6	%
Intercompany eliminations		(697	)		-0.4	%		(19	)		0.0	%		(678	)		-3568.4	%
Consolidated	$	179,447			100.0	%	$	170,721			100.0	%	$	8,726			5.1	%

Unit Volume	FY15 YTD % Change vs. FY14 YTD			Average Selling Price	FY15 YTD % Change vs. FY14 YTD

Casegoods		-6.0	%	Casegoods		10.6	%
Upholstery		0.0	%	Upholstery		4.5	%
Other		406.5	%	Other		-6.5	%
Consolidated		-2.1	%	Consolidated		8.1	%

The increase in consolidated net sales for the fiscal 2015 first nine months was principally due to higher average selling prices in casegoods and upholstery segments. The higher average selling prices in the casegoods and upholstery segment were primarily the result of a shift in the mix of products sold toward some of our higher priced items. We believe the all other segment percentages shown above are of limited use since the businesses in this segment are starting from a very low base as they complete their first full fiscal year in operation.

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Gross Profit

Thirty-Nine Weeks Ended

November 2, 2014

November 3, 2013

$ Change

% Change