HOFT 10-K & 10-Q changes, risk factors and insider trading

The furniture industry is particularly sensitive to cyclical variations in the general economy and the current macro-economic uncertainties, including the current sustained economic downturn caused by persistent inflation and higher interest rates, the slow housing market, and after-effects of COVID-19. Home furnishings are generally considered a discretionary and postponable purchase by most consumers. Economic downturns could affect consumer spending habits by decreasing the overall demand for home furnishings. Changes in interest rates, consumer confidence, new housing starts, existing home sales, the availability of consumer credit and broader national or geopolitical factors have particularly significant effects on our business. We have seen negative effects on all of these measures due to the COVID-19 pandemic and persistent macroeconomic headwinds of the last few years. A recovery in our sales could lag significantly behind a general recovery in the economy after an economic downturn, due to, among other things, the nature and relatively significant cost of home furnishings purchases resulting in a temporary shift in consumer discretionary spending away from home furnishings, or scarcity of transportation and Asian manufacturing capacity during times of increased demand. Additionally, most of our sales are of wooden or metal Casegoods products, which have a slower replacement cycle than our upholstered home furnishings products. These factors also impact retailers, who are our primary customers, possibly adversely affecting our sales, earnings, financial condition and liquidity.

ThereChanges in U.S. trade policies, including the imposition of new tariffs, increases in existing tariffs, or other trade restrictions, could adversely affect our business. A significant portion of our products is a potential that the current U.S. administration will impose additional reciprocal tariffs on nearly all the countriessourced from whichforeign we source our product,manufacturers, including Vietnam and China, which accounted for 76%87% and 13%5% of our total imports in fiscal 2025,2026, respectively. As a result, our cost of goods sold and supply chain could be significantly affected by changes in tariffs or other trade measures imposed by the U.S. or other countries. Inability to mitigate the tariff impact and reduce product costs, costs, pass through price increases or find other suitable manufacturing sources may have a material adverse impact on sales volume, earnings and liquidity. In addition, the tariffs, and our responses to the tariffs, may cause our products to become less competitive due to price increases or less profitable due to lower margins. Our inability to effectively manage the negative impacts of changing U.S. and foreign trade policies could adversely affect our business and financial results.

Manufacturing and delivery lead times for our imported products necessitate that we make forecasts and assumptions regarding current and future demand for these products. If our forecasts and assumptions are inaccurate, we may purchase excess or insufficient amounts of inventory. If we purchase too much or the wrong mix of inventory, we may be forced to sell it at lower margins, which could adversely affect our sales, earnings, financial condition and liquidity. These risks may be even more pronounced with new product launches, like our current Margaritaville product launch. If we purchase too little or the wrong mix of inventory, we may not be able to fill customer orders and may lose market share and weaken or damage customer relationships, which also could adversely affect our sales, earnings, financial condition and liquidity.

Transportation costs on our imported products are affected by a myriad of factors including the global economy, petroleum prices and ocean freight carrier capacity. Ongoing geopolitical conflicts and instability, including disruptions to key shipping routes, have increased volatility in global shipping markets and have resulted in higher ocean freight rates, longer transit times, and reduced carrier capacity. In the recent past, especially after the COVID-19 pandemic, transportation costs, including ocean freight costs and domestic trucking costs, on imported products represented a significant portion of the cost of those products. We saw a significant spike in these costs during that time and our profitability was materially impacted. To mitigate the increased costs, we implemented price increases and surcharges; however, there can be no assurance that we will be successful in increasing prices or receiving freight surcharges in the future or that we can do it quickly enough to offset increased costs. Increased transportation costs, both domestically and internationally, in the future would likely adversely affect our earnings, financial condition and liquidity.

Changes in political, economic and social conditions, including geopolitical conflicts or instability affecting key global shipping routes and our suppliers, as well as in the laws and regulations in the foreign countries from which we source our products could adversely affect our sales, earnings, financial condition and liquidity. These changes could make it more difficult to provide products and service to our customers or could increase the cost of those products. International trade regulations and policies of the United States and the countries from which we source finished products could adversely affect us. Imposition of trade sanctions relating to imports, taxes, import duties and other charges on imports affecting our products could increase our costs and decrease our earnings.

The facilities in which we store our inventory in Virginia, North Carolina, GeorgiaCarolina and California are critical to our success. Our corporate and divisional headquarters, which house our administration, sourcing, sales, finance, merchandising, customer service and logistics functions for our imported and domestic products are located in Virginia, North Carolina and California. Additionally, our primary showrooms are located in North Carolina.

Our domestic upholstery manufacturing facilities are located in Virginia, North Carolina and California. Furniture manufacturing creates large amounts of highly flammable wood dust and may utilize other highly flammable materials such as foam, varnishes and solvents in its manufacturing processes and is therefore subject to the risk of losses arising from explosions and fires. Additionally, our domestic operations could be negatively affected by natural disasters such as hurricanes and floods, and public health events, such as the COVID-19 pandemic.events. Any disruption affecting our domestic facilities, even for a relatively short period of time, could adversely affect our ability to ship our furniture products and disrupt our business, which could adversely affect our sales, earnings, financial condition and liquidity.

At February 2,1, 2025,2026, we had $65.3$38.8 million in net long-lived assets, consisting primarily of property, plant and equipment, trademarks, trade names and goodwill. Our goodwill, some trademarks and tradenamestrade names have indefinite useful lives and, consequently, are not subject to amortization for financial reporting purposes, but are are tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired. Our definite-lived assets consist of property, plant and equipment and certain intangible assets related to our recent acquisitions and are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. The outcome of impairment testing could result in the write-down of all or a portion of the value of these assets. A write-down of our assets would, in turn, reduce our earnings and net worth.

During fiscal 2025,2026, we reviewed triggering events under ASU 2021-03, Intangibles – Goodwill and Other (Topic 350). Due to theadverse declineeconomic conditions, including declines in revenueour drivenmarket value, byas thewell downturnas in the furniture industry, increased freight costs,other changes in management’smarket strategy, and the bankruptcy of a key customer,dynamics, we identified triggering events that necessitated a valuation of theour indefinite-lived trade namesgoodwill and intangible trademarksassets. We engaged an independent third-party valuation firm to assist in the Home Meridian segment. Consequently, we performed a valuation usingperforming the discountedassessment. cash flow method. This methodology involved cash flow projections and growth rates for each trade name over the next five years, provided by management, along with a royalty rate benchmark for companies engaged in similar activities. Based on this analysis, we recorded non-cash impairment charges of $2.8$14.5 million forrelated certainto indefinite-livedthe tradeimpairment namesof Sunset West goodwill within the HomeDomestic Upholstery Meridiansegment, $558,000 for the trade name in the remaining HMI business classified in All Other, and $556,000 for the Bradington-Young trade name in the Domestic Upholstery segment. See Note 109 to our Consolidated Financial Statements for additional information.

One customer accounted for approximately 6%9% of our consolidated sales in fiscal 2025,2026, and our top five customers accounted for about 24%26% of our fiscal 20252026 consolidated sales. Approximately 36%23% of our consolidated accounts receivable is concentrated in our top five customers. Should any one of these receivables become uncollectible, it would have an immediate and material adverse impact on our financial condition and liquidity. The loss of any one or more of these customers could adversely affect our sales, earnings, financial condition and liquidity. The loss of several of our major customers through business consolidations, the loss of major product placements, failures or otherwise, could adversely affect our sales, earnings, financial condition and liquidity and the resulting loss in sales may be difficult or impossible to replace. Amounts owed to us by a customer whose business fails, or is failing, may become uncollectible (in whole or in part), and we could lose future sales, any of which could adversely affect our sales, earnings, financial condition and liquidity. In fiscal 2025, we recorded $3.1 million in bad debt expense due to a large customer’s bankruptcy.

We grant payment terms to most customers ranging from 30 to 60 days and do not generally require collateral. However, in some instances we provide longer payment terms. We purchase credit insurance on certain customers’ receivables and factor certain other customer accounts. Some of our customers have experienced, and may in the future experience, credit-related issues. Were an economic downturn, pandemic or another major, unexpected event with negative economic effects to occur, we may not be able to collect amounts owed to us or such payment may only occur after significant delay. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable. Credit evaluations involve significant management diligence and judgment, especially in the current environment. We may be unable to obtain sufficient credit insurance on certain customers’ receivable balances. Should more customers than we anticipate experience liquidity issues, if payment is not received on a timely basis, or if a customer declares bankruptcy or closes stores, we may have difficulty collecting amounts owed to us by these customers, which could adversely affect our sales, earnings, financial condition and liquidity. In fiscal 2026 and 2025, we recorded approximately $1 million and $3.1 million in bad debt expense due to bankruptcies of two large customers.

In Management’s Discussion and Analysis, we analyze and explain the annual changes in some specific line items in the consolidated financial statements for fiscal 20252026 compared to fiscal 2024.2025. We also provide information regarding the performance of each of our operating segments and All Other. The discussion below comparing fiscal 2026 to fiscal 2025 excludes discontinued operations, except where otherwise noted. The analysis and discussions discussions of fiscal 20242025 compared to fiscal 20232024 results are in our 20242025 Form-10K available through Hooker Furnishings and SEC websites.

Unless otherwise indicated, references to the “Company,” “we,” “ourus” orand “usour” refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information. All references to the “Hooker,” “Hooker Division,Division(s),” “Hooker Legacy Brands” or “traditional Hooker” divisions or companies refer to theall current componentsbusiness ofunits ourand brands except for those in the former Home Meridian segment. The Hooker Branded segment,segment theincludes Hooker Casegoods and Hooker Upholstery. The Domestic Upholstery segment includingincludes Bradington-Young, HF Custom,Custom (formerly Sam Moore), Shenandoah Furniture and Sunset West,West. All Other includes intercompany eliminations and All Otheroperating whichsegments includesthat Hare Contract,not andindividually BOBO.reportable.

Furnishings sales account for all of our net sales. For financial reporting purposes, we are organized into threetwo reportable segments-segments - Hooker Branded, Home MeridianBranded and Domestic Upholstery, withUpholstery. ourOur other businesses that includedare innot individually reportable and intercompany eliminations are aggregated into “All Other.Other”. We regularly monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary. See Note 1617 to our consolidated financial statements for additional financial information regarding our segments.

Executive Summary-Summary - Fiscal 20252026 Results of Operations

Results of Operations – Continuing Operations

Because we report on a fiscal year that ends on the Sunday closest to January 31st of each year, the 20252026 fiscal year was one week longershorter than the comparable 20242025 fiscal year. year. The following table presents average net sales per shipping day in thousands for the 20252026 and 20242025 fiscal years:

Intangible asset amortization expense stayeddecreased slightly flat in fiscal 2025.2026, Theprimarily $2.8due millionto non-cashthe impairmentabsence chargeof wasamortization related to certainthe indefinite-livedSam Moore trade namesname and reduced amortization associated with the remaining HMI business classified in theAll HomeOther. Meridian segment. See Note 109, Intangible Assets and GoodwillGoodwill, to ourthe Consolidated Financial Statements for additional information about theregarding impairment charges and our amortizable intangible assets.

The Company reported an operating loss of $18.1$16.5 million in fiscal 20252026 due to $15.6 million non-cash impairment charge, decreased salesoverall volume,net $4.9sales, approximately $2.0 million in restructuring costs, $3.1 million in bad debt, and $2.8 million in intangible asset impairment, as well as other factors discussed above.

Consolidated interest expense decreased slightly in fiscal 2026, 2025primarily due to decreaseda significantly lower average principal balance,balance as well as reduced interest rates inthroughout the secondyear halfcompared ofto the prior fiscal year.

We recorded incomeIncome tax benefit offrom $3.9continuing millionoperations was for fiscal 2025, compared to income tax expense of $2.6$4.3 million for fiscal 2024.2026, compared to $1.9 million for fiscal 2025. The effective tax rates were 25.0% and 23.6% for fiscal 2025 2026 and fiscal 2024 were 23.9% and 20.7%,2025, respectively. The increase in the effective tax rate was higher in fiscal 20252026 was primarily due to the impact ofhigher state tax benefits and the cash surrender value of company-owned life insurance which were added to the favorable tax impact of the pretax loss, versus a subtraction from tax expense in the case of a pretax profit in the previous year.benefits. See Note 1716 Income Taxes to our Consolidated Financial Statements for additional information about our income taxes.

Net (Loss) /from IncomeContinuing Operations and (Loss)Earnings Per / Earnings Per Share

Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for inventory, lease payments and payroll), quarterly dividend payments and capital expenditures related primarily to our showroom renovations and upgrading systems, buildings and equipment. The timing of our working working capital needs can vary greatly depending on demand for and availability of raw materials and imported finished goods but is generally the greatest in the mid-summer as a result of inventory build-up for the traditional fall selling season. Long-term cash requirements relate primarily to repayment of long-term debt and funding lease payments.

We incurred $480,000 in fiscal 2025 and an additional $118,000 in fiscal 2026 in debt issuance costs in connection with our term loans. As of February 2,1, 2025,2026, unamortized loan costs of $464,000 $476,000 were netted against the carrying value of our term loans on our consolidated balance sheets.

As of February 2,1, 2025,2026, we had $22.1$3.6 million principal amount of outstanding loans and $6.7$3.6 million face amount of letters of credit. We had $41.2$62.8 million of Availability based on the current Borrowing Base. There were no additional borrowings outstanding under the Amended and Restated Loan Agreement as of February 2,1, 2025.2026. We believe that our existing liquidity and capital resources are sufficient to meet our anticipated needs over the next 12 months.

In fiscal 2023,2026 fourth quarter, our Board of Directors authorized authorized the repurchase of up to $20$5 million of the Company’s common shares. The authorization did not obligate us to acquire a specific specific number of shares during any period and did not have an expiration date, but it could be modified, suspended, or discontinued at any time at the discretion of our Board of Directors. Repurchases could be made from time to time in the open market, or through privately negotiated negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to our cash requirements for other purposes, compliance with the covenants under the loanAmended agreementand forRestated ourLoan revolving credit facilityAgreement and other factors we deem relevant. InWe did fiscal 2024 second quarter, our Board of Directors approved an additional $5 million for thenot repurchase any of our common shares,shares adding to the $20 million authorization it approved induring fiscal 2023.2026.

We expect to spend between $2 million toapproximately $3 million in in capital expenditures in fiscal 20262027 to maintain and enhance our operating systems and facilities.

All references to the “Company,” “we,” “us” and “our” in this document refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information. The Hooker Branded segment includes Hooker Casegoods and Hooker Upholstery. The Domestic Upholstery segment includes Bradington-Young, HF Custom (formerly Sam Moore), Shenandoah Furniture and Sunset West. “All Other” includes Samuel Lawrence Hospitality product line,Hospitality, intercompany eliminations and operating segments that are not individually reportable.

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2027 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “firstsecond quarter” or “quarterly period”) that began May 4, 2026 and the twenty-six-week period (also referred to as “six months”, “six-month period”, or “first half”) that began February 2, 20262026, andwhich both ended MayAugust 3,2, 2026. This report discusses our results of operations for thisthese periodperiods compared to the 2026 fiscal year thirteen-week period that began May 5, 2025, and the twenty-six-week period that began February 3, 20252025, andwhich both ended MayAugust 4,3, 2025; and our financial condition as of MayAugust 3, 2, 2026 compared to February 1, 2026.

At August May 3,2, 2026, our backlog of unshipped orders was as follows:

Consolidated backlog at the end of the firstsecond quarter of fiscal 2027 increased 4.5%6.2% compared towith the end of the prior-year second quarter and 8.4% from the end of the first quarter.quarter of fiscal 2027. The increaseincreases waswere primarily driven by higher backlogHooker inBranded Hooker Branded.backlog. Domestic Upholstery backlog increasedalso modestlyincreased, comparedprimarily due to both the prior-year first quarter and fiscal 2026 year-end, driven by higher private labelprivate-label orders. All Other backlog decreased significantly comparedduring tothe both periods,six-month period, primarily due to large hospitality shipments during the currentfirst quarter and the project-based nature of the hospitality business.

Tariff UpdateTariff-related matters:

In February 2026, the U.S. Supreme Court ruled that certain tariffs imposed underpursuant to the International Emergency Economic Powers Act (“IEEPA”) wereexceeded notthe authorizedauthority bygranted under the statute. In March 2026, the U.S. Court of International Trade directed U.S. Customs and Border Protection to implementestablish a process for refunding tariffs previously collected duties.under IEEPA.

Our fiscal 2027 firstsecond quarter and first-half performance is discussed in greater detail below under “Results of Operations – Continuing Operations” and “Results of Operations – Discontinued Operations”.

Fiscal 2027 2027Second Quarter and First QuarterHalf Compared to Fiscal 2026 Second Quarter and First QuarterHalf

Consolidated gross netprofit salesincreased decreasedby $1.7$2.9 million, ormillion 2.4%,and in$5.5 million during the second quarter and first quartersix months of fiscal 2027, drivenrespectively, compared with the corresponding prior-year periods. Gross margin increased by 690 and 560 basis points during the respective periods. These improvements were primarily driven by lower net sales at Hooker Branded and, to a lesser extent, Domestic Upholstery. These decreases wereUpholstery, partially offset by increasedlower net salesgross profit in All Other, primarily due to significantlylower highernet shipments during the quarter.sales.

Consolidated selling and administrative (“S&A”) expenses increased in absolute terms and as a percentage of net sales,sales during the second quarter and first six months of fiscal 2027, driven by higher expenses in Hooker Branded and partially offset by decreases in Domestic Upholstery and All Other.

Intangible asset amortization decreased compared to the prior-year firstsecond quarter, primarily due to the absence of amortization related to the Home Meridian trade name allocated to the hospitality business, which was reclassified to All Other,Other. andThe decrease during the six-month period also reflected the absence of amortization expenses related to the Sam Moore trade name amortization.name. See Note 9 to our condensed consolidated financial financial statements for additional information.

OurGiven outlookthese forconditions, the fiscalCompany 2027 second quarter is cautious, given the current macro-economic pressures. While we dodoes not expect meaningful near-term improvement in market conditions, ourdemand. moreHowever, efficientchanges to the Company’s cost structure and streamlined portfolio shouldare helpdelivering tangible usbenefits and are expected to deliversupport improved results versuscompared with the prior-year period, even if current conditions persist.

Retailer commitments response to Margaritaville products,remains galleries, and free-standing stores continue to exceed our expectations,encouraging, with commitments to approximately 100 in-store galleries and 10 free-standing retail stores, storesroughly to-date,double as comparedthe with about half those numbers when welevels reported in December. MeaningfulShipments shipmentsbegan are expected to begin induring the second half of fiscal 2027quarter and are expected to build through the second endhalf of thefiscal current2027 and into fiscal year2028. and beyond. CombinedTogether with continuedHooker momentumBranded inorder incomingmomentum, the Margaritaville rollout positions the orders across our core businesses, we believe we are well positionedCompany to capitalize on opportunities as demand recovers.

We incurred $598,000 in previous fiscal years in debt issuance costs in connection with our term loans. As of MayAugust 3,2, 2026, unamortized loan costs of $444,000$415,000 were recorded in other assets on our condensed consolidated balance sheets.

As of MayAugust 3,2, 2026, there were no outstanding loans, other than $3.2 million face amount of letters of credit. We had $54.2$51.8 million of Availability based on the current Borrowing Base. There were no additional borrowings outstanding under the Amended and Restated Loan Agreement as of MayAugust 3,2, 2026.

During fiscal 2027 first quarter,half, we used approximately $96,000 $1.3 million of the authorization to purchase 7,61592,357 of our common shares (at an average price of $12.53$13.68 per share), with approximately $4.9 $3.7 million remaining available for future purchases under the authorization.

On September June 9,3, 2026, our board of directors declared a quarterly cash dividend of $0.115 per share which will be paid on JuneSeptember 30, 2026, to shareholders of record at JuneSeptember 19,15, 2026.