Edgar Filing: HOOKER FURNITURE CORP

hookerfurniture10q080215.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 August 2, 2015

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 September 4, 2015:

Common stock, no par value	10,811,507
(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	12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25

Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION

Item 6.	Exhibits	26

Signature		27

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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	August 2,			February 1,
	2015			2015
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	43,631		$	38,663
Trade accounts receivable, less allowance for doubtful accounts of $1,020 and $1,329 on each respective date		28,544			32,245
Inventories		47,019			44,973
Prepaid expenses and other current assets		2,138			2,353
Deferred taxes		1,227			1,704
Income tax recoverable		233			-
Total current assets		122,792			119,938
Property, plant and equipment, net		22,808			22,824
Cash surrender value of life insurance policies		21,312			20,373
Deferred taxes		3,982			4,188
Intangible assets		1,382			1,382
Other assets		2,051			2,050
Total non-current assets		51,535			50,817
Total assets	$	174,327		$	170,755

Liabilities and Shareholders’ Equity
Current liabilities
Trade accounts payable	$	10,049		$	10,293
Accrued salaries, wages and benefits		3,908			4,824
Income tax accrual		-			1,368
Accrued commissions		850			916
Customer deposits		803			853
Other accrued expenses		915			813
Total current liabilities		16,525			19,067
Deferred compensation		8,429			8,329
Income tax accrual		161			90
Other long-term liabilities		388			360
Total long-term liabilities		8,978			8,779
Total liabilities		25,503			27,846

Shareholders’ equity
Common stock, no par value, 20,000 shares authorized, and 10,812 and 10,774 shares issued and outstanding, respectively, on each date		18,462			17,852
Retained earnings		130,642			125,392
Accumulated other comprehensive loss		(280	)		(335	)
Total shareholders’ equity		148,824			142,909
Total liabilities and shareholders’ equity	$	174,327		$	170,755

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				Twenty-Six Weeks Ended
	August 2,		August 3,		August 2,		August 3,
	2015		2014		2015		2014

Net sales	$	60,140	$	54,883	$	121,096	$	116,279

Cost of sales		44,047		41,226		88,628		87,012

Gross profit		16,093		13,657		32,468		29,267

Selling and administrative expenses		10,234		10,243		21,367		21,610

Operating income		5,859		3,414		11,101		7,657

Other income, net		51		52		183		98

Income before income taxes		5,910		3,466		11,284		7,755

Income tax expense		1,972		1,194		3,874		2,679

Net income	$	3,938	$	2,272	$	7,410	$	5,076

Earnings per share
Basic	$	0.36	$	0.21	$	0.69	$	0.47
Diluted	$	0.36	$	0.21	$	0.69	$	0.47

Weighted average shares outstanding:
Basic		10,783		10,731		10,770		10,728
Diluted		10,806		10,767		10,796		10,762

Cash dividends declared per share	$	0.10	$	0.10	$	0.20	$	0.20

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						Twenty-Six Weeks Ended
	August 2,			August 3,			August 2,			August 3,
	2015			2014			2015			2014

Net Income	$	3,938		$	2,272		$	7,410		$	5,076
Other comprehensive income:
Amortization of actuarial loss (gain)		44			(12	)		90			(25	)
Income tax effect on amortization		(16	)		4			(34	)		9
Adjustments to net periodic benefit cost		28			(8	)		56			(16	)

Total comprehensive Income	$	3,966		$	2,264		$	7,466		$	5,060

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)

	Twenty-Six Weeks Ended
	August 2,			August 3,
	2015			2014
Operating Activities:
Net income	$	7,410		$	5,076
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,339			1,259
Loss/(Gain) on disposal of assets		41			(37	)
Deferred income tax expense		754			499
Noncash restricted stock and performance awards		315			272
Provision for doubtful accounts		(280	)		94
Changes in assets and liabilities:
Trade accounts receivable		3,981			4,075
Inventories		(2,046	)		4,422
Income tax recoverable		(233	)		646
Gain on life insurance policies		(559	)		(477	)
Prepaid expenses and other current assets		414			618
Trade accounts payable		(296	)		1,631
Accrued salaries, wages, and benefits		(758	)		(183	)
Accrued income taxes		(1,368	)		-
Accrued commissions		(66	)		(170	)
Customer deposits		(49	)		(60	)
Other accrued expenses		102			53
Deferred compensation		292			55
Other long-term liabilities		27			23
Net cash provided by operating activities		9,020			17,796

Investing Activities:
Purchases of property and equipment		(1,313	)		(1,999	)
Proceeds received on notes for sale of assets		10			16
Proceeds from sale of property and equipment		-			69
Premiums paid on life insurance policies		(589	)		(670	)
Net cash used in investing activities		(1,892	)		(2,584	)

Financing Activities:
Cash dividends paid		(2,160	)		(2,151	)
Net cash used in financing activities		(2,160	)		(2,151	)

Net increase in cash and cash equivalents		4,968			13,061
Cash and cash equivalents - beginning of year		38,663			23,882
Cash and cash equivalents - end of quarter	$	43,631		$	36,943

Supplemental schedule of cash flow information:
Income taxes paid, net	$	4,688		$	1,563

Supplemental schedule of noncash investing activities:
Increase in property and equipment through accrued purchases	$	51		$	-

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 Twenty-Six Weeks Ended August 2, 2015

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 1, 2015 (“2015 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,” “second quarter” or “quarterly period”) that began May 4, 2015 and the twenty-six week period (also referred to as “six months,” “six-month period” or “first half”) that began February 2, 2015, which both ended August 2, 2015, compared to the thirteen-week period that began May 5, 2014 and the twenty-six week period that began February 3, 2014, which both ended August 3, 2014; and

§	our financial condition as of August 2, 2015 compared to February 1, 2015.

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

§	the 2016 fiscal year and comparable terminology mean the fiscal year that began February 2, 2015 and will end January 31, 2016; and

§	the 2015 fiscal year and comparable terminology mean the fiscal year that began February 3, 2014 and ended February 1, 2015.

2.	Accounts Receivable

	August 2,			February 1,
	2015			2015
Trade accounts receivable	$	25,727		$	25,322
Receivable from factor		3,837			8,252
Allowance for doubtful accounts		(1,020	)		(1,329	)
Accounts receivable	$	28,544		$	32,245

“Receivable from factor” represents amounts due with respect to factored accounts receivable. Before the fiscal 2016 second quarter, we factored substantially all of our domestically-produced upholstery accounts receivable without recourse to us. However, we ended our Sam Moore factoring relationship as our new ERP system became fully operational at Sam Moore at the beginning of the fiscal 2016 second quarter. We are presently managing Sam Moore’s accounts receivable in-house. As of August 2, 2015, $167,000 in Sam Moore receivables represent outstanding receivables for which payment is due to us from the factor as part of its residual obligations under Sam Moore’s legacy factoring agreement.

Under our current factoring agreement, which continues to serve Bradington-Young (BY), invoices for domestically produced BY 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.

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A limited number of our accounts receivable for our domestically produced BY upholstery products are factored with recourse to us. The amounts of these receivables at August 2, 2015 and February 1, 2015 were $219,000 and $237,000, respectively, of which $6,000 and $13,000, respectively, represented Sam Moore recourse receivables. 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 the calculation of our allowance for doubtful accounts.

3.	Inventories

	August 2,			February 1,
	2015			2015
Finished furniture	$	57,461		$	54,896
Furniture in process		682			615
Materials and supplies		9,312			9,131
Inventories at FIFO		67,455			64,642
Reduction to LIFO basis		(20,436	)		(19,669	)
Inventories	$	47,019		$	44,973

4.	Property, Plant and Equipment

	Depreciable Lives	August 2,		February 1,
	(In years)	2015		2015

Buildings and land improvements	15 - 30	$	22,294	$	22,162
Computer software and hardware	3 - 10		15,110		18,444
Machinery and equipment	10		4,800		4,757
Leasehold improvements	5		2,658		2,840
Furniture and fixtures	3 - 8		1,437		2,240
Other	5		564		628
Total depreciable property at cost			46,863		51,070
Less accumulated depreciation			26,247		32,790
Total depreciable property, net			20,616		18,280
Land			1,067		1,067
Construction-in-progress			1,125		3,477
Property, plant and equipment, net		$	22,808	$	22,824

The decreases in computer software and hardware, furniture and fixtures and accumulated depreciation line items above are primarily due to the write-off of fully depreciated assets that are no longer in use.

At August 2, 2015, construction-in-progress primarily consisted of $270,000 of expenditures related to our ongoing Enterprise Resource Planning (ERP) conversion efforts and $855,000 related to various other projects to enhance our facilities and operations.

The decrease in the construction-in-progress line item above is primarily due to placing our ERP asset in-service when the Sam Moore division went-live on our ERP platform during the fiscal 2016 second quarter. This partially offset the decreases in the computer software and hardware line item discussed above.

5.	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.

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As of August 2, 2015 and February 1, 2015, 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 August 2, 2015, a mortgage note receivable (related to the previously announced sale of our Cloverleaf facility during the fiscal 2015 first quarter) was measured at fair value on a non-recurring basis using Level 3 inputs. The note receivable was recorded at approximately $1.6 million, which was the face value of the note issued for the mortgage. The carrying value of the note receivable is assumed to approximate its fair value. We measure the probability to collect amounts due to us under this note receivable primarily based on the buyer’s payment history. Specifically, we consider the buyer’s adherence to the contractual payment terms for both the 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 underlying loan agreement, we would measure the note for impairment and record a valuation allowance against the note receivable, if needed, with the related expense charged to income for that period. The note receivable is included in the “Other assets” line of our condensed consolidated balance sheets.

Our assets measured at fair value on a recurring and non-recurring basis at August 2, 2015 and February 1, 2015, were as follows:

	Fair value at August 2, 2015								Fair value at February 1, 2015
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	$	-	$	21,312	$	-	$	21,312	$	-	$	20,373	$	-	$	20,373
Mortgage note receivable		-		-		1,575		1,575		-		-		1,575		1,575

6.	Intangible Assets

		August 2,		February 1,
Non-amortizable Intangible Assets	Segment	2015		2015
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

7.	Long-Term Debt

As of August 2, 2015, we had an aggregate $13.5 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 $1.5 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under our revolving credit facility as of August 2, 2015. There were no additional borrowings outstanding under the revolving credit facility on August 2, 2015. Any principal outstanding under the revolving credit facility is due July 31, 2018.

8.	Employee Benefit Plans

We maintain a supplemental retirement income plan (“SRIP”) for certain former and current executives. The liability for the SRIP at August 2, 2015 and February 1, 2015 was $8.6 million and $8.4 million, respectively, and is shown in our condensed consolidated balance sheets as follows:

	August 2,		February 1,
	2015		2015
Accrued salaries, wages and benefits (current portion)	$	354	$	354
Deferred compensation (long-term portion)		8,231		8,031
Total liability	$	8,585	$	8,385

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

	Thirteen Weeks Ended					Twenty-Six Weeks Ended
	August 2,		August 3,			August 2,		August 3,
	2015		2014			2015		2014
Net periodic benefit cost
Service cost	$	101	$	25		$	202	$	51
Interest cost		72		85			144		170
Actuarial gain		45		(13	)		90		(26	)
Net periodic benefit cost	$	218	$	97		$	436	$	195

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9.	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 2015 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) to certain senior executives since fiscal 2012 under the Company’s Stock Incentive Plan. Each RSU entitles the executive to receive one share of the Company’s common stock if the executive 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:

	August 2,		Feb 1,
	2015		2015

Restricted shares		25		27
Restricted stock units		20		25
		45		52

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				Twenty-Six Weeks Ended
	August 2,		August 3,		August 2,		August 3,
	2015		2014		2015		2014
Net income	$	3,938	$	2,272	$	7,410	$	5,076
Less: Unvested participating restricted stock dividends		3		3		3		6
Net earnings allocated to unvested participating restricted stock		10		7		10		15
Earnings available for common shareholders		3,925		2,262		7,397		5,055

Weighted average shares outstanding for basic earnings per share		10,783		10,731		10,770		10,728
Dilutive effect of unvested restricted stock and RSU awards		23		36		26		34
Weighted average shares outstanding for diluted earnings per share		10,806		10,767		10,796		10,762

Basic earnings per share	$	0.36	$	0.21	$	0.69	$	0.47

Diluted earnings per share	$	0.36	$	0.21	$	0.69	$	0.47

10.	Income Taxes

We recorded income tax expense of $2.0 million for the fiscal 2016 second quarter compared to $1.2 million for the comparable prior year period. The effective tax rates for the fiscal 2016 and 2015 second quarters were 33.4% and 34.4%, respectively. Our effective tax rate was lower in the fiscal 2016 second quarter as compared to fiscal 2015 second quarter, primarily due to the settlement of an uncertain tax position during the fiscal 2016 second quarter.

We recorded income tax expense of $3.9 million for the fiscal 2016 first-half compared to $2.7 million for the comparable prior year period. The effective tax rates for the fiscal 2016 and 2015 six-month periods were 34.3% and 34.5%, respectively. Our effective tax rate was lower in the fiscal 2016 six-month period as compared to fiscal 2015 six-month period, primarily due to the settlement of an uncertain tax position during the fiscal 2016 six-month period.

The net unrecognized tax benefits as of August 2, 2015 and February 1, 2015, which, if recognized, would affect our effective tax rate are $345,000 and $426,000, respectively.

Our Federal tax returns for the fiscal years 2012, 2014 and 2015 remain subject to examination by federal taxing authorities. An examination of fiscal year 2013 with federal taxing authorities was completed during the quarter with no adjustments. Our state tax returns for the fiscal years ending 2012 through fiscal 2015 remain subject to examination by state taxing authorities. An examination of our North Carolina state tax returns for fiscal years 2012 and 2013 is underway by the North Carolina Department of Revenue.

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11.	Segment Information

For financial reporting purposes, we are organized into three operating segments – casegoods furniture, upholstered furniture and an “all other” segment, which includes our two new businesses, H Contract and Homeware. The financial information for the fiscal 2015 second quarter and first-half appearing in the table below has been updated to conform to the current presentation of our operating segments. The following table presents segment information for the periods, and as of the dates, indicated:

	Thirteen Weeks Ended												Twenty-Six Weeks Ended
	August 2						August 3						August 2						August 3
	2015						2014						2015						2014
				% Net						% Net						% Net						% Net
Net Sales				Sales						Sales						Sales						Sales
Casegoods	$	37,314			62.0	%	$	33,092			60.3	%	$	75,797			62.6	%	$	71,345			61.4	%
Upholstery		20,696			34.4	%		20,887			38.1	%		41,999			34.7	%		43,265			37.2	%
All other		2,193			3.6	%		1,146			2.1	%		3,525			2.9	%		2,055			1.8	%
Intercompany eliminations		(63	)					(242	)					(225	)					(386	)
Consolidated	$	60,140					$	54,883					$	121,096					$	116,279

Gross Profit & Margin
Casegoods	$	10,904			29.2	%	$	9,365			28.3	%	$	22,205			29.3	%	$	20,457			28.7	%
Upholstery		4,532			21.9	%		4,000			19.2	%		9,251			22.0	%		8,233			19.0	%
All other		649			29.6	%		299			26.1	%		999			28.3	%		582			28.3	%
Intercompany eliminations		8						(7	)					13						(5	)
Consolidated	$	16,093			26.8	%	$	13,657			24.9	%	$	32,468			26.8	%	$	29,267			25.2	%

Operating Income & Margin
Casegoods	$	4,456			11.9	%	$	3,015			9.1	%	$	8,557			11.3	%	$	7,081			9.9	%
Upholstery		1,307			6.3	%		726			3.5	%		2,755			6.6	%		1,258			2.9	%
All other		88			4.0	%		(320	)		-27.9	%		(224	)		-6.4	%		(677	)		-32.9	%
Intercompany eliminations		8						(7	)					13						(5	)
Consolidated	$	5,859			9.7	%	$	3,414			6.2	%	$	11,101			9.2	%	$	7,657			6.6	%

Capital Expenditures
Casegoods	$	571					$	705					$	940					$	1,383
Upholstery		358						286						417						616
All other		6						-						7
Consolidated	$	935					$	991					$	1,364					$	1,999

Depreciation & Amortization
Casegoods	$	478					$	388					$	874					$	755
Upholstery		238						258						459						504
All other		3						-						6
Consolidated	$	719					$	646					$	1,339					$	1,259

	As of			% Total			As of			% Total
Identifiable Assets	Aug 2, 2015			Assets			Feb 1, 2015			Assets
Casegoods	$	137,946			79.1	%	$	135,403			79.3	%
Upholstery		33,866			19.4	%		33,788			19.8	%
All other		2,542			1.5	%		1,605			0.9	%
Intercompany eliminations		(27	)					(41	)
Consolidated	$	174,327			100.0	%	$	170,755			100.0	%

12.	Subsequent Events

Dividends

On September 3, 2015, our board of directors declared a quarterly cash dividend of $0.10 per share, payable on September 30, 2015 to shareholders of record at September 15, 2015.

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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,” “second quarter” or “quarterly period”) that began May 4, 2015, and the twenty-six week period (also referred to as “six months,” “six-month period” or “first half”) that began February 2, 2015, and which both ended August 2, 2015. This report discusses our results of operations for these periods compared to the fiscal year 2015 thirteen-week period that began May 5, 2014 and the twenty-six week period that began February 3, 2014, which both ended August 3, 2014 and our financial condition as of August 2, 2015 compared to February 1, 2015.

References in this report to:

§	the 2016 fiscal year and comparable terminology mean the fiscal year that began February 2, 2015 and will end January 31, 2016; and

§	the 2015 fiscal year and comparable terminology mean the fiscal year that began February 3, 2014 and ended February 1, 2015.

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

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 2015 annual report on Form 10-K (“2015 Annual Report”) filed with the SEC on April 17, 2015. Our 2015 Annual Report contains critical information regarding known risks and uncertainties that we face, critical accounting policies and information on commitments and contractual obligations that are not reflected in our condensed consolidated financial statements, as well as a more thorough and detailed discussion of our corporate strategy and new business initiatives.

Our business is subject to a number of significant risks and uncertainties, including our reliance on offshore sourcing, any of which can adversely affect our business, results of operations, financial condition or future prospects. For a discussion of risks and uncertainties that we face, see Item 1A, “Risk Factors” and “Forward-Looking Statements” beginning on page eleven of our 2015 Annual Report.

Our 2015 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.

Nature of Operations

Hooker Furniture Corporation (referred to as “we,” “us”, “our”, “Hooker” or “the Company”) 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 2014 shipments to U.S. retailers, according to a 2015 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, Hooker Upholstery, a line of imported leather upholstery, 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 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 nearly 40 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 of retirees. The other, Homeware, focuses on younger and more mobile consumers in the early stages of their careers, as well as those living in smaller or urban spaces.

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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, we reported our results of operations in two operating segments- casegoods and upholstery. We aggregated the results of our two new businesses – 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 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 separate information about these businesses would be beneficial to the readers of our financial statements, as it is to management; therefore, we have separately disclosed information about them in the “All other” segment. The financial information in the fiscal 2015 second quarter and first-half appearing in the tables and narratives contained in this item has been updated to conform to the current presentation of our operating segments.

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.

Beginning in 2008, economic and economic-related factors, such as high unemployment and changing consumer priorities, resulted in a somewhat depressed retail environment for discretionary purchases, including home furnishings and related products. However, 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. We believe that our business and the home furnishings industry in general are gaining momentum as the U.S. economy continues to recover from an extended and severe downturn.

Our lower overhead, variable-cost import operations help drive our profitability and provide us with more flexibility to respond to changing demand by adjusting inventory purchases from suppliers. This import model requires constant vigilance due to a larger investment in inventory and longer production lead times. We constantly evaluate our imported furniture suppliers and when quality concerns, inflationary pressures, or trade barriers, such as duties and tariffs, diminish our value proposition, we transition sourcing to other suppliers, often located in different countries or regions.

Our domestic upholstery operations have significantly higher overhead and fixed costs than our import operations, and their profitability has been and can be adversely affected by economic downturns. During the most recent downturn, we initiated extensive cost reduction efforts, which helped to mitigate the effect of adverse economic conditions, including declining demand. Our upholstery segment operations have been profitable for the last three fiscal years, with overall profitability improving each year; however, domestic upholstery profitability continues to lag behind our imported products.

Executive Summary-Results of Operations

Consolidated net sales for the fiscal 2016 second quarter increased nearly 10% or $5.3 million to $60.1 million, while net income increased by over 73%, or $1.7 million, to $3.9 million, in each case compared to the fiscal 2015 second quarter.

Consolidated net sales for the fiscal 2016 first-half increased over 4% or $4.8 million to $121.1 million, while net income increased by 46%, or $2.3 million, to $7.4 million, in each case compared to the first-half of fiscal 2015.

As discussed in greater detail under “Results of Operations” below, the following are the primary factors that affected our consolidated fiscal 2016 second quarter and first-half results of operations:

§	Increased net sales. Consolidated net sales increased in both the quarter and year-to-date periods primarily due to net sales increases in our casegoods and all other operating segments, partially offset by net sales decreases in our upholstery segment.

Increased gross profit. Consolidated gross profit increased primarily due to increased net sales and decreased discounting and returns and allowances in our casegoods segment which helped offset cost increases on our imported products, improved operating efficiencies and decreased contract manufacturing in our upholstery segment, decreased medical claims expenses in all segments and increased net sales in our all other segment.

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Flat (Q2) and decreased (YTD) selling and administrative expenses. Consolidated selling and administrative expenses were essentially flat for the fiscal 2016 second quarter, but decreased slightly as a percentage of net sales due primarily to decreased donations of distressed inventory, lower bad debt expense and lower selling expenses, partially offset by increased commissions expense, benefits expense and depreciation expense. For the fiscal 2016 first-half, consolidated selling and administrative expenses decreased both in absolute terms and as a percentage of net sales primarily due to decreased medical claims expenses, decreased donations of distressed inventory, decreased banking expenses, decreased brand management expenses and decreased bad debts expense, partially offset by increased professional services and sales commission expenses.

Increased operating income. Due to the factors discussed above, consolidated operating income increased both in absolute terms and as a percentage of net sales. Our casegoods segment generated an operating margin of over 10% for the fourth consecutive fiscal quarter and upholstery segment operating income more than doubled in the fiscal 2016 first-half and nearly doubled in the fiscal 2016 second quarter.

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						Twenty-Six Weeks Ended
	August 2,			August 3,			August 2,			August 3,
	2015			2014			2015			2014
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		73.2			75.1			73.2			74.8
Gross profit		26.8			24.9			26.8			25.2
Selling and administrative expenses		17.0			18.7			17.6			18.6
Operating income		9.7			6.2			9.2			6.6
Other income, net		0.1			0.1			0.2			0.1
Income before income taxes		9.8			6.3			9.3			6.7
Income tax expense		3.3			2.2			3.2			2.3
Net income		6.5			4.1			6.1			4.4

Fiscal 2016 Second Quarter Compared to Fiscal 2015 Second Quarter

	Net Sales
	Thirteen Weeks Ended
	August 2, 2015						August 3, 2014						$ Change			% Change
				% Net Sales						% Net Sales
Casegoods	$	37,314			62.0	%	$	33,092			60.3	%	$	4,222			12.8	%
Upholstery		20,696			34.4	%		20,887			38.1	%		(191	)		-0.9	%
All Other		2,193			3.6	%		1,146			2.1	%		1,047			91.4	%
Intercompany Elimination		(63	)					(242	)					179
Consolidated	$	60,140			100.0	%	$	54,883			100.0	%	$	5,257			9.6	%

Unit Volume	FY16 Q2 % Increase vs. FY15 Q2			Average Selling Price	FY16 Q2 % Increase vs. FY15 Q2

Casegoods		8.4	%	Casegoods		3.8	%
Upholstery		-5.7	%	Upholstery		4.7	%
All Other		63.2	%	All Other		16.2	%
Consolidated		5.4	%	Consolidated		3.4	%

Consolidated net sales increased for the fiscal 2016 second quarter primarily due to:

§	increased unit volume in our casegoods segment; and

§	increased average selling prices in all segments.

Those increases were partially offset by essentially flat upholstery segment net sales, primarily due to decreases at Sam Moore which were due to a combination of:

§	exiting low margin sales programs at the expense of net sales; and

§	post-ERP implementation challenges, which had stabilized by the end of the fiscal 2016 second quarter.

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Sam Moore’s sale decreases were mostly offset by increased net sales at both Hooker Upholstery and BY due to well-performing new products and improved retail conditions. We believe the increase in our fiscal 2016 second quarter net sales results compared to our fiscal 2015 second quarter net sales results is primarily due to better product availability in our casegoods segment. Also, our all other segment contributed positively to sales in the fiscal 2016 second quarter compared to the prior-year period, driven by H Contract’s sales growth, but is still a small component of our overall sales.

	Gross Income and Margin
	Thirteen Weeks Ended
	August 2, 2015					August 3, 2014						$ Change		% Change
			% Net Sales						% Net Sales
Casegoods	$	10,904		29.2	%	$	9,365			28.3	%	$	1,539		16.4	%
Upholstery		4,532		21.9	%		4,000			19.2	%		532		13.3	%
All Other		649		29.6	%		299			26.1	%		350		117.1	%
Intercompany Elimination		8					(7	)					15
Consolidated	$	16,093		26.8	%	$	13,657			24.9	%	$	2,436		17.8	%

Consolidated gross profit increased in the fiscal 2016 second quarter, primarily due to:

§	Improved casegoods segment gross profit due to lower returns and allowances as a result of better product quality and, to a lesser extent, decreased discounting due to product mix;

Improved upholstery segment gross profit due to net sales increases at Hooker Upholstery and BY and essentially flat gross profit at Sam Moore despite a net sales decrease, as well as other operating efficiencies such as better materials management, labor efficiency, decreased contract manufacturing and lower medical claims expense in that segment; and

§	Improved all other segment gross profit due primarily to increased net sales at H Contract.

	Selling and Administrative Expenses
	Thirteen Weeks Ended
	August 2, 2015					August 3, 2014					$ Change			% Change
			% Net Sales					% Net Sales
Casegoods	$	6,448		17.3	%	$	6,349		19.2	%	$	99			1.6	%
Upholstery		3,225		15.6	%		3,274		15.7	%		(49	)		-1.5	%
All Other		561		25.6	%		620		54.1	%		(59	)		-9.5	%
Consolidated	$	10,234		17.0	%	$	10,243		18.7	%	$	(9	)		-0.1	%

Consolidated selling and administrative expenses decreased as a percentage of net sales primarily due to higher net sales and were essentially flat in absolute terms, primarily due to:

§	decreased bad debt expense in all segments due to better collections experience;

§	lower contributions of distressed inventory in our casegoods segment due to better quality experience; and

§	lower selling expenses in our casegoods and all other segment due to the refinement of our digital marketing strategy.

These increases were substantially offset by:

§	increased commissions expense in our casegoods and all other segments due to higher sales;

increased benefits expense due to increased deferred compensation expense in the casegoods segment which was the result of changes in the discount rate of the plan at the 2015 fiscal year-end, partially offset by decreased medical claims expense in the current year due to plan design changes and better claims experience in all segments; and

§	increased depreciation expense due to the placement of our phase two ERP-related asset into service during the quarter.

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	Operating Profit and Margin
	Thirteen Weeks Ended
	August 2, 2015					August 3, 2014						$ Change		% Change
			% Net Sales						% Net Sales
Casegoods	$	4,456		11.9	%	$	3,015			9.1	%	$	1,441		47.7	%
Upholstery		1,307		6.3	%		726			3.5	%		581		80.0	%
All Other		88		4.0	%		(320	)		-27.9	%		408		-127.5	%
Intercompany Elimination		8					(7	)					15
Consolidated	$	5,859		9.7	%	$	3,414			6.2	%	$	2,445		71.6	%

Operating profitability increased for the fiscal 2016 second quarter, both as a percentage of net sales and in absolute terms, due to the factors discussed above.

	Income Taxes
	Thirteen Weeks Ended
	August 2, 2015						August 3, 2014						$ Change		% Change
				% Net Sales						% Net Sales
Consolidated income tax expense	$	1,972			3.3	%	$	1,194			2.2	%	$	778		65.2	%

Effective Tax Rate		33.4	%					34.4	%

	Net Income
	Thirteen Weeks Ended
	August 2, 2015					August 3, 2014					$ Change		% Change
Net Income			% Net Sales					% Net Sales
Consolidated	$	3,938		6.5	%	$	2,272		4.1	%	$	1,666		73.3	%

Earnings per share	$	0.36				$	0.21

Fiscal 2016 First Half Compared to Fiscal 2015 First Half

	Net Sales
	Twenty-Six Weeks Ended
	August 2, 2015						August 3, 2014						$ Change			% Change
				% Net Sales						% Net Sales
Casegoods	$	75,797			62.6	%	$	71,345			61.4	%	$	4,452			6.2	%
Upholstery		41,999			34.7	%		43,265			37.2	%		(1,266	)		-2.9	%
All Other		3,525			2.9	%		2,055			1.8	%		1,470			71.5	%
Intercompany Elimination		(225	)					(386	)					161
Consolidated	$	121,096			100.0	%	$	116,279			100.0	%	$	4,817			4.1	%

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Unit Volume	FY16 YTD % Increase vs. FY15 YTD			Average Selling Price	FY16 YTD % Increase vs. FY15 YTD

Casegoods		1.1	%	Casegoods		4.4	%
Upholstery		-7.9	%	Upholstery		5.3	%
All Other		89.0	%	All Other		-9.0	%
Consolidated		0.4	%	Consolidated		3.1	%

The increase in consolidated net sales for the fiscal 2016 first half was principally due to higher average selling prices in our casegoods segment (due to the mix of products sold and lower discounting) on essentially flat consolidated unit volume. We believe the flat unit volume in our casegoods segment was due to product availability challenges due to expanding lead times and late deliveries of certain of our more popular October market introductions in that segment during the fiscal 2016 first quarter. We received most of the October market introductions and delivered standing orders to customers during the fiscal 2016 second quarter. Unit volume decreases in our upholstery segment were primarily caused by decreases at Sam Moore due to the effects of discontinuing unprofitable sales programs at the expense of net sales and post-ERP implementation challenges during the fiscal 2016 second quarter.

	Gross Income and Margin
	Twenty-Six Weeks Ended
	August 2, 2015					August 3, 2014						$ Change		% Change
			% Net Sales						% Net Sales
Casegoods	$	22,205		29.3	%	$	20,457			28.7	%	$	1,748		8.5	%
Upholstery		9,251		22.0	%		8,233			19.0	%		1,018		12.4	%
All Other		999		28.3	%		582			28.3	%		417		71.6	%
Intercompany Elimination		13					(5	)					18