Hooker Furniture Corporation Stock

Thank you. Good day and thank you for standing by. Welcome to the Hooker Furnishings Corporation Second Quarter 2027 Earnings Webcast. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, C. Earl Armstrong III, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, Tonya, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2027 second quarter, which began on May 4, 2026, and ended on August 2, 2026. Joining me today is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation. During our call, we may make forward-looking statements, which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2027 second quarter results. Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. Before we jump into results, we want to discuss tariffs.

We've included a table in our earnings release showing the impacts of this quarter's tariff recoveries by operating segment and for the total company. Obviously, tariff recoveries significantly and favorably impacted our Q2 results. However, it's important to note that tariff costs significantly and adversely affected our prior year results, too. Prior to the U.S. Supreme Court's February 2026 decision invalidating IEPA tariffs, we incurred an estimated $10.3 million of cumulative pre-tax costs related to tariffs in our fiscal 2026 results, which significantly exceeded the tariff recoveries we are reporting today. In fiscal 2026, we reported a net loss of nearly $27 million. Following the imposition of IEPA tariffs beginning in April 2025, we elected to honor pricing on existing customer backlog and for competitive and administrative reasons did not immediately adjust pricing on certain other products. Our pricing reflects our total cost structure and the competitive and macroeconomic environment in which we operate, with tariffs being only one of many factors considered.

On to results. Despite continued weaknesses in the housing market, soft retail demand for furniture and home furnishings, and persistent macroeconomic challenges, we delivered a consolidated net income of $1.7 million, marking our third consecutive profitable quarter. Results benefited from tariff recoveries received during the quarter, the sustained impact of our prior cost reduction initiatives, and improved profitability in our reportable segments. Consolidated net sales decreased $6 million, or about 9%, compared to the prior year period, reflecting lower sales across each of our operating segments. Despite the sales decline, gross profit increased $2.9 million and gross margin improved 690 basis points to 31.8%, while operating income improved to $1.3 million compared to an operating loss of $0.5 million in the prior year period. Now I'll turn the call over to Jeremy for his comments on fiscal 2027 second quarter results.

Thank you, Earl. Good morning, everyone. The significant costs we incurred due to the IEPA tariffs significantly and adversely affected our prior year results, and we are grateful to have recovered some of those costs in our fiscal 2027 second quarter. The substantial administrative burden these tariffs placed on our team over many months cannot be recovered. In addition to the tariffs paid, we incurred incremental costs associated with the IEPA tariffs, including increased customs bond costs, legal and professional fees, financing and working capital costs, and other administrative and supply chain related expenses. Although we do not believe that the tariff recoveries make us whole for the significant cost incurred by us in fiscal 2026, I am grateful to the Hooker team for their persistence and extraordinary effort in navigating an unprecedented and highly complex environment and ultimately securing these recoveries for our shareholders. We are also deeply appreciative of the work that they do. of the commitment and partnership of our suppliers and customers as we navigated this period of extraordinary uncertainty for our industry. We are encouraged to report $1.7 million in consolidated net income for the quarter, marking our third consecutive quarter of profitability and a $4.9 million improvement over the prior year's second quarter.

These results were achieved despite continued weakness in the housing activity, low consumer confidence, and the seasonally softer demand environment we typically experience in the first half of our fiscal year. The improvement reflects the benefit of tariff recoveries received during the quarter, as well as the sustained impact of the $17.5 million in annualized fixed cost reductions implemented across continuing operations in the prior year. These actions have helped position us to remain profitable despite continued pressure on sales. From a segment perspective, Hooker Branded and Domestic Upholstery both delivered improved profitability compared to the prior year quarter. Hooker Branded benefited from tariff recoveries and higher selling prices, while Domestic Upholstery benefited from tariff recoveries, lower imported material costs, and improved overhead absorption. In addition to tariff recoveries, Hooker Branded Profitability was impacted by shifts in channel and sales mix dynamics during the quarter. Seasonally softer summer shipments to brick and mortar retailers resulted in a greater mix of e-commerce sales along with targeted promotional activity designed to support consumer engagement.

A lean out of channel mix and elevated promotional activity pressured margins during the quarter. We expect promotional activity to normalize during the second half of the fiscal year, much like we saw in July, the last month of our fiscal second quarter. It's important to note that our core fiscal July results, absent any tariff recoveries, significant improvement over prior year as we had mitigated many of the supply challenges referenced earlier. We believe that positive momentum will continue into the second half of the fiscal year. I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments, along with our cash, debt, inventory, and capital allocation strategies.

Thank you, Jeremy. Starting with Hooker Branded, net sales decreased $1.6 million, or 4.5%, in the second quarter, primarily due to lower unit volume, higher promotional discounts, and key SKU out of stocks due to significantly longer lead times out of Asia. These headwinds were partially offset by higher average selling prices. Inventory constraints and imported upholstery that began in the first quarter had largely eased by quarter end. Despite the decrease in sales, Hooker Branded gross profit increased $3.2 million and gross margin improved 1,000 basis points to nearly 40%. The improvement primarily reflected tariff recoveries and higher selling prices, partially offset by promotional discounting and higher warehousing and distribution costs. The segment generated $870,000 of operating income for the quarter, compared with approximately break-even results in the prior year period. The backlog increased nearly 35% compared to the prior year second quarter.

Turning now to Domestic Upholstery, net sales decreased $1.5 million, or 5.3%, in the second quarter. This lower sales of upscale leather and custom fabric upholstery were partially offset by double digit growth in private label and outdoor furnishings. Gross profit increased $928,000 and gross margin improved 450 basis points to 23%, supported by tariff recoveries on imported materials, lower imported material costs, and improved overhead absorption. The segment generated operating income of $833,000 compared with an operating loss of $408,000 in the prior year quarter, reflecting the improved gross margin as well as the benefit of previously implemented cost reduction actions. The Domestic Upholstery's backlog increased nearly 5% compared to the prior year quarter, primarily reflecting higher private label orders. In all other, net sales decreased $2.8 million or about 66% in the second quarter, primarily due to project timing in its hospitality business, with approximately 80% of first half shipments occurring during the first quarter. Lower second quarter shipments resulted in an operating loss for the quarter.

However, the business remained profitable for the first 6 months of fiscal 2027. Turning to Disc Ops, although the divestiture was completed in the prior fiscal year, Disc Ops generated second quarter pre-tax income of $587,000, reflecting tariff recoveries, customer-related adjustments, and other post-divestiture activity. Results included approximately $1.6 million of tariff recoveries recognized as a reduction of cost of sales, partially offset by approximately $0.6 million of customer credits recorded as a reduction of revenue. Period activity also included approximately $0.5 million of additional charges, arising from the net settlement of various divestiture-related balances with the buyer. Turning now to cash, debt, and inventory. Cash and cash equivalents stood at $18.7 million at quarter end, an increase of $8.1 million from the end of the first quarter, and $17.5 million from the fiscal 2026 year end. Cash generated from operations during the first 6 months was $24 million. Cash was used to repay $3.6 million on our credit facility, distribute $2.5 million in cash dividends, repurchase $1.3 million of our common shares, and fund $1.1 million in CapEx.

Inventory levels decreased by $5.3 million from $48.7 million at fiscal 2026 year end to $43.4 million at the end of the second quarter. We maintained our financial flexibility with $51.8 million in available borrowing capacity under our amended and restated loan agreement as of quarter end, net of standby letters of credit, and no outstanding balances on the facility. As of yesterday, we had approximately $21 million in cash on hand. Finally, I'll discuss our capital allocation strategy. During the first 6 months of fiscal 2027, we repurchased 92,357 shares of our common stock for approximately $1.3 million at an average price of $13.68 per share. Quarter end, approximately $3.7 million remained available for future purchases under our 5 million share repurchase authorization. As we position the company for sustainable growth, the share repurchase program and adjusted dividend continue to provide a balanced framework for returning capital to shareholders while preserving flexibility to invest in strategic priorities. We believe this approach supports both near-term returns and long-term shareholder value.

Now I'll turn the discussion back to Jeremy for his outlook.

Looking to the second half of fiscal 2027, consumer spending remains selective. Housing turnover and big-ticket discretionary demand remain weak, and we do not expect meaningful near-term improvement in market conditions. At the same time, the changes we have made to our cost structure and portfolio are delivering tangible benefits and showing that we are moving forward. Help position us to deliver improved results compared with the prior year period, even if current conditions persist. With the major cost reduction initiatives behind us, our focus is on disciplined execution across our core businesses. Consolidated backlog increased 6.2% compared to prior year second quarter and 8.4% sequentially, led by Hooker Branded and Domestic Upholstery. We are also encouraged by the continued retail response to Margaritaville. We now have commitments for approximately 100 in-store galleries and 10 freestanding retail stores.

Shipments began in the second quarter and are expected to build through the second half of fiscal 2027 and into fiscal 2028. We believe we are well positioned to capitalize on opportunities as demand recovers. This ends the formal part of our discussion, and at this time I will turn the call back over to our operator, Tonya, for questions.

Thank you. [Operator Instructions]. Please stand by while we compile our Q&A roster. And our first question will be coming from the line of Anthony Lebiedzinski of Sidoti. Your line is open.

Thank you and good morning, everyone, and thanks for taking the questions. Certainly nice to see the improved profitability in the quarter. First, just wanted to ask as far as the impact of the key SKU out of stocks at Hooker Branded. How significant was this? I mean, it sounds like it's no longer an issue, but just wanted to see if you could comment further on that topic, please.

You know, I can't comment further specifically, but it was definitely a headwind for us, and it had a lot to do with lead times overseas, which, you know, it definitely was a headwind for us. Ended kind of unpredictably. So as I mentioned in the script, the July, we feel like we started to get through that once we reached July. And our results in that month of the quarter, you know, gave us pretty positive view of where we can be in the second half.

Okay, thanks. And then, you know, as far as Domestic Upholstery, just curious, what's the mix of business nowadays between private label and outdoor products and custom upholstery? I mean, where is that business nowadays and how do you see that going forward? Yes.

We tend to look at it at the segment level, Anthony. I think that's basically all we can say at this point. I think we're seeing strength in outdoor furnishings, especially given the seasonality. And like we mentioned, private label too is doing well. Yes, I'll mention too with outdoor.

This year, we don't have a warehouse move from Savannah, for example, for Sunset West. We don't have, earlier, they had an ERP conversion with D365. So they've got, as clear of a path as they've had, you know, due to us not having those type of movements going on. So it's really good business for us, and the category is strong. So we're excited about the opportunity.

That's good to hear. Then just curious, you mentioned that shipments of Margaritaville started late in the quarter. Just wondering if you could comment on the revenue from Margaritaville and how do we think about the second half of the year as it relates to Margaritaville?

We can't get specific on that, but I will tell you that a big part of it is going to be in the second half, which we're in now. And many of those galleries are opening throughout the country, so that's probably all I can say on that.

Okay. And just to follow up on the galleries, you know, as far as those are concerned, I know you talked about 100 of those being open, but as far as, you know, the cost to do those galleries is that being done by you guys or by the retailers and like, you know, just wondering about if you could comment on that and, you know, if you could.

Share more details. That won't be significant to our capital allocation.

Okay, got you. Okay. And lastly for me, I mean, so we just had Labor Day, which is an important holiday for the home furnishings industry. I know it's only been a few days since the holiday, but, you know, can you share any comments as to what you've heard from your retail customers about Labor Day? Even small anecdotes would be helpful.

I think that, I mean, the feedback that we've received has been, you know, fairly positive. You know, I've been in this, I think, 30 years, and I think every one of those 30 years, retailers, our partners, are always grateful to be to the end of summer and actually to a point where you can start the fall. So I think there's a lot of optimism for just getting into that fall selling season. And I think Labor Day was reasonably good.

Okay, thanks very much and best of luck. Yes, appreciate Anthony. Thank you.

And our next question will be coming from the line of Dave Storms of Stonegate. Your line is open, Dave.

Morning, and I appreciate you taking my questions. Just wanted to maybe start with your comments around promotions. Expect us to come down in the second half here, in light of the challenging macro environment, how should we be thinking about maybe your confidence to bring down promotions despite the macro environment?

High confidence because we mentioned July. You do that in the summer months. You just simply don't balance it enough with enough regular business. We're confident that that's not going to be, a trend moving forward.

Understood. So then looking into the second half here, should that follow pretty regular seasonality with maybe a little bit of Margaritaville input, or I guess maybe said a different way, how should we think about price and mix and volume discounting in the second half?

I think you should think about it as where we would normalize more and, you know, we're pretty optimistic on the second half.

Understood. And I got to imagine the strong backlog that you have gives you a healthy dose of confidence there. Is there anything more you can tell us about the backlog? Maybe the texture of the margins, how much that is Margaritaville, anything in that vein?

Can't get that specific, but we're encouraged by our backlog, and we feel good about the second half.

Understood. Appreciate that. And then maybe just one more on Margaritaville. I know you've mentioned it a couple times here, you know, very excited to see how that develops over the next 6 to 12 months, but how should we be thinking about the sales funnel evolving from last quarter to this quarter? Are you seeing more firm commitments? You know, I know you started shipping a little bit. Just anything more there would be great.

You know, overall with Margaritaville, we just continue to be really encouraged by the amount of support, participation that our partners are giving us. They're as excited about the brand as we are. And, you know, there's going to be a significant amount of, if you think about 100 gallery commitments and 10 retail stores, that's real estate that we didn't have before. We feel really good about our position and that, and our ability to gain some market share in a different way than Hooker. One thing that is encouraging for us is that that's not taking, you know, Hooker's position in the marketplace. So it's real. It has a chance to be really creative to our business and give us a real chance of growth in those categories.

Understood. No, really looking forward to see how that shakes out. Thank you for taking our questions.

And good luck on the next order. Yes, thank you. We appreciate it.

And I would now like to turn the call back to Jeremy for closing remarks.

Thank you. I would like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal 2027 third quarter results in December. Take care.

And this concludes today's conference call. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

Thank you. I'm going to show you how to do it. on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Earl Armstrong, Senior Vice President and Chief Financial Officer. Sir, please go ahead. Thank you.

Thank you, Michelle, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2027 first quarter. Our 2027 first quarter began on February 2nd, 2026, and ended on May 3rd, 2026. Joining me today is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation. During our call, we may make forward-looking statements, which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2027 first quarter results. Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call.

Despite continued weakness in the housing market, soft retail demand for furniture and home furnishings, and persistent macroeconomic challenges, we delivered net income of 1.1 million for the quarter, reflecting the benefits of our cost reduction initiatives, improved gross margin performance, and ongoing progress toward a leaner, higher margin operating model. Consolidated net sales decreased 1.7 million, or 2.4%, compared to the prior year period. The decrease was primarily driven by lower sales in the hooker branded and domestic upholstery segments, partially offset by higher shipments in the all other components hospitality business. Despite the sales decrease, profitability improved significantly. Consolidated gross profit increased by 2.7 million, while gross margin improved 440 basis points compared to the prior year period. This improvement was primarily driven by stronger profitability in Hooker Branded. For the quarter, the company generated operating income of $1.6 million compared to an operating loss of $498,000 in the prior year period. presenting a $2.1 million improvement.

Consolidated net income was $1.1 million, or $0.10 per diluted share. These results reflect the benefit of improved gross margin, prior cost reduction initiatives, and our continued focus on building a more efficient and profitable business model. Now I'll turn the call over to Jeremy for his comments on our fiscal 2027 first quarter results.

Thank you, Earl, and good morning, everyone. We are encouraged to report $1.1 million in consolidated net income for the quarter, marking a $4.1 million improvement over the prior year first quarter. These results were achieved despite a challenging demand environment characterized by depressed housing activity and low consumer confidence. confidence. The improvement reflects the benefit of the $17.5 million reduction in fixed costs related to continuing operations that we achieved in the prior year, as well as continued progress toward a more efficient operating model. From a segment perspective, Hooker Branded performed exceptionally well despite lower sales compared to the prior year, supported by stronger gross margin performance. Domestic upholstery's results continue to be impacted by lower sales volume, but were supported by operational efficiencies implemented late last year. Looking forward, retailer commitments to Margaritaville products, galleries, and freestanding stores continue to exceed our expectations with meaningful shipments expected to begin in the second half of fiscal 27.

We are also encouraged by the positive retailer response and commitments to products debuted at the April 26 Hyatt Fair. During market, we introduced Hooker Custom Upholstery, bringing together the Sam Moore and Bradenton Young brands under a unified platform. This updated market approach combines these upscale product lines under a unified premium Hooker Custom Upholstery identity supported by a refreshing presentation, enhanced marketing efforts, and a mix of new introductions and established products. The initiative is further supported by the capabilities of our new website launched in February 26. Once market conditions improve, we believe this strategy will ultimately drive higher sales by creating a more cohesive brand narrative and presenting all offerings under the hooker name, which carries the strongest brand recognition across our portfolio. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments, along with our cash, debt, inventory, and capital allocation strategies. Thank you.

Thank you, Jeremy. Starting with Hooker Branded, net sales decreased 1.8 million, or 4.8 percent, in the first quarter of fiscal 27. Seventy percent of that decrease was primarily due to lower volume in the imported upholstery part of that business. These headwinds were partially offset by higher average selling prices from price increases implemented to mitigate higher product costs. Despite the decrease in sales, Hooker-branded gross profit increased $2.9 million, and gross margin increase improved 960 basis points. The segment contributed $1.2 million. of the operating income to the company's consolidated operating income of $1.6 million for the quarter. Backlog increased nearly 30% compared to the prior year first quarter, reflecting retailer commitments to new products, including Margaritaville, with meaningful shipments expected to begin in the second half of the current fiscal year. Turning to domestic upholstery, net sales decreased 558,000, or 1.9%, in the first quarter of fiscal 27, primarily due to the continued soft demand environment.

Gross profit decreased 315,000, and gross margin decreased 80 basis points, driven primarily by lower revenue and higher overhead. The segment recorded an operating loss of $689,000, primarily driven by its indoor residential furnishings businesses. domestic upholstery backlog increased modestly compared to both the prior year first quarter and fiscal 2026 year end. In all other, performance was driven largely by increased sales and operating income in the hospitality division. Improved operating income reflected higher sales, as well as lower costs, resulting from cost-cutting measures implemented in the previous fiscal year. Turning now to cash, debt, and inventory. Cash and cash equivalents stood at $10.6 million at quarter end, an increase of $9.5 million from the prior year fiscal end, and the company had no debt. Cash generated from operations was used to repay $3.6 million, and the company and the principal amount of our outstanding loans, distribute $1.3 million in cash dividends, and fund $403,000 in capital expenditures.

Inventory levels decreased by $3.7 million from $48.7 million at fiscal 2026 year-end to $45 million at the end of the first quarter. Despite these outflows, the company maintained its financial flexibility with $54.2 million in available borrowing capacity under its amended and restated loan agreement as of quarter end, net of standby letters of credit. and no outstanding balance on the credit facility. As of yesterday, the company had over 15 million dollars in cash on hand. Finally, I'll discuss our capital allocation strategy. In late fiscal 26, we announced that our board authorized a new share repurchase program under which we intend to repurchase up to $5 million of our outstanding common shares beginning in fiscal 2027. In connection with the repurchase authorization, the Board recalibrated the annual dividend to 46 cents per share, beginning with the company's December 31st, 2025 dividend payment. The share repurchase program began on April 21, 2026, pursuant to a plan structured to comply with the safe harbors of Rules 10B-5-1 and 10B-18, which included a customary 90-day waiting period before the first purchases were made.

During the quarter, we purchased about 7,600 shares of our stock for approximately $96,000 at an average price of $12.53 per share. As we position the company for sustainable growth, the new share repurchase program and adjusted dividend provide a balanced framework for returning capital to shareholders shareholders while preserving flexibility to invest in strategic priorities. We believe this approach supports both near-term returns and long-term shareholder value.

I'll turn the discussion back to Jeremy for his outlook. Thank you, Earl. Looking at the early part of the second quarter, consolidated incoming orders increased 8% in May compared to the prior year period, while backlog was up more than 14% year over year. This improvement was primarily driven by Margaritaville orders, which had their initial shipment in May. Retailer commitments to Margaritaville products, galleries, and freestanding stores continue to exceed our expectations. Today, To date, we have commitments for 100 in-store galleries and 10 freestanding retail stores, compared with approximately half those numbers when we reported in December. Meaningful shipments are expected to begin in the second half of fiscal 27 and build through the end of the current fiscal year and beyond. While these order and backlog trends are encouraging, the broader demand environment remains challenging.

Housing activity remains pressured, and recent consumer confidence readings continue to reflect a very cautious consumer environment. The Department of Commerce's April advance monthly estimates showed retail sales for furniture and home furnishing stores decreased 2% from March and 3%. 3.6% from the prior year. Given these macroeconomic pressures, our outlook for fiscal 27 second quarter remains cautious. While we do not expect meaningful near-term improvement in market conditions, our more efficient cost structure and streamlined portfolio should help position us to deliver improved results versus the prior year period, even if current conditions persist. Our advantage is a sharper focus on our core businesses, a more disciplined operating model, and an organization aligned around profitable growth. We believe the actions taken over the past year have positioned the company to generate improved and more consistent earnings as market conditions improve. Combined with continued mobilization minimum incoming orders across our core businesses, we believe we are well positioned to capitalize on opportunities as demand recovers.

This ends the formal part of our discussion, and at this time, I will turn the call over to our operator, Michelle, for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question. Our first question is going to come from the line of Anthony Leibodzinski with.

Sedoti. Your line is open. Please go ahead. Thank you. Good morning, everyone, and thanks for taking the questions. Certainly nice to see the improved bottom line results here. So I guess as we look back at the just reported quarter, just wondering if you guys saw any significant monthly variations in revenue as you went from February to April, given all the geopolitical noise that we saw during the quarter and, um, uh, Yes, just wondering since typically, seasonally speaking, fiscal Q1 tends to be lower in terms of revenue than fiscal Q4. So maybe you could just speak to that as to how the quarter flowed earlier. during, again, from February through April.

You know, I would say that, you know, as we get further removed from what we dealt with in the latter part of last year, which was, you know, You could probably categorize as turmoil trying to sell the two companies and everything we did to position the company where we are. I think that earlier in the quarter we're getting our feet underneath us and as the quarter progressed we're getting more and more focused and I would just say that, you the further, the longer we have, the better I think we get at positioning ourselves to where we're headed, if that makes sense.

Mm-hmm. Okay. Got it. And then, could you just speak to pricing versus unit volumes? I know you guys typically put this in your 10Q, but if you could just maybe give us just general framework as to what pricing was versus unit volumes in the quarter. Sure.

Anthony, we don't have that in front of us. Like you said, it will be in the queue for tomorrow that we file tomorrow afternoon. I'd say definitely. Yes, go ahead.

Okay. Go ahead, Anthony. Okay. So, so, I know there was some notion of increased pricing during the quarter. All right, so we'll wait for the details in the 10-Q. That's fine. Okay, and then I guess my next question as far as the gross margin, it was up more than expected, especially at Hooker Branded. Was there anything unusual to speak of, or do you think this,.

type of gross margin is sustainable going forward? I would say two things. One is, you know, product mix has a lot to do with where gross margin ends up for us. know as usual so depending on certain things that ship and certain things that don't that can change that dynamic but number two you know we're on as you know we're on life oh and yes that can significantly change things depending on the timing of how that life plays out so those are the really the two factors.

Got you, okay. And lastly, can you talk about what you've seen or heard from your retail partners about Memorial Day traffic, which... is uh has historically been a big holiday event for the furniture industry so if you could just maybe maybe speak to what you've heard in regards to uh your uh retail partners as far as what they've talked about as far as traffic and any buying activity around the key holiday.

Yes, I'd say the contacts we made with our customers and partners were pretty optimistic about what they experienced over the Memorial Day holiday with sales and whatnot and traffic. They said it was pretty good considering what we're in with everything we talked about. So pretty good. Yes.

is the general general sentiment on Memorial weekend Well, all right, that sounds great. Well, thank you very much. I'll pass along.

We appreciate it. Thanks, Anthony. Thank you. And one moment for our next question.

Our next question comes from the line of Dave Storms with StoneGate. Your line is open. Please go ahead.

Good morning, and thank you for taking the questions. Sure. I wanted to start with Margaritaville. You know, you doubled the number of commitments from 50 to 100 in-store galleries and then added the 10 freestanding retail stores. But how should we think about that going forward? As you start to shift meaningfully in the second half here, would we expect to see those in-store commitment numbers to increase? increase or do you think it will level out and then it will be a pivot to volumes and.

Well, I'll answer that just based off of my experience with things that you launch, you know, with that type of magnitude, which I guess I'd have to say I've never been a part of something that we feel like is that that big, which I said, I think it's the largest one Hooker has had. But however, you know, when you first launch, you get some. people that, you know, customers that jump on right away. And then the more, if the program's right, and if you execute, you know, you can get more and more participation, more and more galleries. So, I mean, I would, I'm definitely taking a glass half full approach with it. I'm optimistic that we'll keep increasing.

what we've already done and that's of course the goal. No, understood, so we'd expect some traction there. And then I guess, and this is kind of going back to the margins question from earlier, I know your backlog is starting to represent some of the Margaritaville ordering. Is there any sense of the texture of the margin profile for that backlog. Should we expect it to be maybe similar or a little bit stronger than maybe this last quarter?.

Yes, I would say the word is consistent. We're not separating that out as a different margin profile publicly, but I would say we're going to be consistent with what we're trying to do from a margin standpoint.

That's very fair. Maybe one more for me. I know you mentioned, or it was mentioned in your release, that there were some supply constraints and shipping delays and custom upholstery. Maybe taking a more macro view on that, are you seeing any sort of supply chain constraints across the industry in terms of maybe freight increases due to the shutdown industry over mute, you know, anything like that that's causing supply chain hiccups?.

No, so just first of all, it wasn't custom upholstery that we said was the delay. We said that on import upholstery. Custom upholstery is our domestic upholstered business, so very different. Regarding the other part of your question, we really haven't had noticeable... delays or whatnot from straight over movies or anything going on in the world, thankfully. You know, it's not, supply chain from overseas is never perfect, but we feel pretty good about our position right now. And we had, the issues really were pretty targeted on that hooker upholstery, import upholstery model. Had a couple of factories where we had some issues, but that's not across the board.

Understood. Thank you for taking my questions. Yes, you're welcome. Thank you.

Thank you and one moment for our next question. Our next question comes from the line of John Dasher with Pinnacle. Your line is open. Please go ahead.

Hi, good morning. Most of my questions were answered, but I just was curious, what was the... the backlog and the orders numbers for the first quarter, please. One second. Let's see. Pardon me.

For hooker branded, at the end of Q1,.

You can just give me the total if it's easier. I do.

Consolidated at the end of Q1 was orders were 19.4, backlog was 39 million. Borders 19.4 and backlog 39 million? Correct. Okay.

Okay, great. And in terms of the tariffs, can you give us any feel for the rebate number that you're seeking and when that might be received?.

John, we've decided not to disclose that publicly, at least on the call. I think that process is still ongoing, and there'll be some additional disclosure in the queue. But the way we're working with it now is we've not recorded anything in first quarter for anticipating any of that. Under US GAAP, it's not realized or realizable at this point. The receipt's not probable, which is why we've not recognized anything. But to date, we've not disclosed that number publicly, just because there's There's so much uncertainty regarding the refunds themselves.

Right. Okay, that makes sense. Do you know if any other industry players have actually received checks?.

Yes, we don't have that type of information from others, no.

All right, fair enough. We'll take a look at the queue. Thank you. Okay, thank you.

Thank you, and I would now like to hand the conference back over to Jeremy Hoff for closing remarks.

for their interest in hooker furnishings. We look forward to sharing our fiscal 27 second quarter results in September. Take care.

This concludes today's conference call. Thank you for participating and you may now disconnect. Everyone have a great day.

[Call has ended.]

Good day, and thank you for standing by. Welcome to the Hooker Furnishings Corp. Fourth Quarter 2026 Earnings Webcast. [Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Earl Armstrong, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, Tanya, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 fourth quarter and full year. Our 2026 fiscal year began on February 3, 2025, and the fourth quarter began on November 3, 2025, both periods ending on February 1, 2026.

Joining me today is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation today. During our call, we may make forward-looking statements, which are subject to risks and uncertainties. A discussion of the factors that could cause our actual results to differ materially from our expectations is contained in our press release and SEC filing announcing our fiscal 2026 results. Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call.

During the fourth quarter, we completed the previously announced sale of the Pulaski Furniture and Samuel Lawrence Furniture casegoods brands, part of our former Home Meridian segment. Consolidated net sales from continuing operations were $67 million, a decrease of $17.2 million or about 21% compared to the prior year period. The decline was partially attributable to the current fourth quarter being 1 week shorter than the prior year period, which reduced sales -- net sales by approximately $5.5 million based on average daily sales. The decrease also reflects lower sales in our hospitality business due to its project-based nature as several large projects shipped in the prior year did not recur in the current year.

Additionally, we estimate severe winter weather experienced in January '26 in a significant part of the United States and in most of our largest markets, reduced net sales for the quarter by $3 million to $4 million. Despite lower net sales, we reported operating income of $629,000 for the quarter. This was driven by operating income of $1.2 million in Hooker Branded and $617,000 in All Other, partially offset by an operating loss of $1.2 million in Domestic Upholstery. Notably, despite 1 week less of sales and severe winter weather, Domestic Upholstery reduced its operating loss by more than half compared to a $2.5 million loss in the prior year fourth quarter.

Hooker Branded operating income was consistent with the prior year period despite fewer selling days and the weather disruptions. Net income from continuing operations for the fourth quarter was $874,000 or $0.08 per diluted share. Following the divestiture of Pulaski and Samuel Lawrence on December 12 of last year, results of these businesses are reported through that date. Discontinued operations incurred a net loss of $338,000 in the quarter. Consolidated net income for the fourth quarter was $536,000 or $0.05 per diluted share. For the full fiscal year of 2026, net sales from continuing ops were $278.1 million, a decrease of $39.2 million or 12.4% compared to the prior year.

This decline was primarily driven by lower sales in the hospitality business within All Other and to a lesser extent, a shorter fiscal year and the severe winter weather we mentioned earlier. Gross profit declined in absolute dollars due to lower sales. However, gross margin improved by 180 basis points, reflecting margin improvements in the Hooker Branded and Domestic Upholstery segments. Continuing operations reported an operating loss of $16.5 million for fiscal '26, primarily due to $15.6 million in noncash intangible asset impairment charges recorded in the third quarter, triggered by our stock price as of the end of the third quarter.

These included $14.5 million related to goodwill in the Sunset West division and $556,000 related to the Bradington-Young trade name, both within Domestic Upholstery as well as $558,000 related to the remaining HMI business in All Other. Additionally, continuing operations incurred approximately $2 million in restructuring costs primarily related to severance, to a lesser extent, warehouse consolidation, all as part of our completed cost reduction initiatives. Net loss from continuing operations was $12.8 million or $1.20 per diluted share. Discontinued operations included approximately 10 months of activity in fiscal '26. Sales declined due to ongoing macro pressures and tariff-related purchasing hesitancy among its customers, particularly large furniture retailers.

Discontinued ops incurred a pretax loss of $19 million, including $3.9 million in restructuring costs, of which $2.4 million related to the Savannah warehouse exit, a $6.9 million loss from classification as held for sale, which included $2.6 million of trade name impairment, $3.5 million in fair value write-downs and $735,000 in selling costs. Discontinued operations also incurred $1 million in bad debt expense related to a customer bankruptcy. Consolidated net loss for fiscal '26 was $27 million or $2.54 per diluted share.

Now I'll turn the call over to Jeremy for his comments on our fiscal '26 fourth quarter and full year results.

Thank you, Earl, and good morning, everyone. We are encouraged to report net income of $536,000 for the quarter. Fiscal '26 was incredibly transformative as we navigated significant disruptive tariffs on our imports, opened a successful fulfillment warehouse in Asia and exited 2 unprofitable divisions, all while reducing fixed costs by about $26.3 million or 25%, of which approximately $17.5 million in fixed cost savings is related to continuing operations.

At the same time, we delivered slight market share growth overall with key strength in key businesses offsetting isolated softness and launched our Margaritaville line, which is delivering on our expectations to be the most impactful product launch in company history. Today, we move forward as a leaner, higher-margin business with a much lower breakeven point and the potential for significant profitability as demand returns.

We believe we are positioned for a significant improvement in earnings in fiscal '27 with our expectations bolstered by the early indications of strength within our Margaritaville product line, and we see a clear path to sustained profitable growth by focusing on our core expertise of better to best home furnishings. Despite significant headwinds, we are encouraged to report that the Hooker Branded segment reported $1.9 million in operating income for the year compared to a prior year operating loss of $433,000. Additionally, despite a significant impairment charge in the third quarter, the Domestic Upholstery segment showed improvements in the fourth quarter, reducing its operating loss by more than 50% as compared to the prior year quarter due to cost reduction initiatives and operational improvements.

I'd like to also comment on import tariffs, which were a significant disruptor for Hooker and the industry in fiscal '26. After our fiscal year-end in February '26, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act were not authorized by statute. In March 26, the U.S. Court of International Trade directed U.S. Customs and Border Protection to implement a refund process for previously collected duties. We are evaluating the potential recovery of these amounts.

Additionally, the administration appears poised to pivot to new tariffs under different legal authority within the next few months. We continue to monitor developments in this area. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments, along with our cash, debt, inventory and capital allocation strategies.

Thank you, Jeremy. At Hooker Branded, net sales decreased 2.9% for fiscal '26, with the decline entirely driven by a $5.5 million decrease in the fourth quarter, primarily due to 1 fewer selling week as well as supplier delays and weather-related shipping disruptions. Unit volume declined, partially offset by a 5.7% increase in average selling price implemented to mitigate higher costs and tariffs. Despite lower sales, full year gross margin expanded by 200 basis points, driven primarily by lower freight costs and pricing actions.

Operating income improved to $1.9 million for the year compared to an operating loss in the prior year, while fourth quarter operating income of $1.2 million was consistent with the prior year despite reduced selling days. Incoming orders were flat year-over-year, while backlog increased nearly 26%. Domestic Upholstery net sales decreased 2.7% for fiscal '26, reflecting lower unit volumes in certain divisions, partially offset by growth in contract, private label and outdoor channels. Gross margin improved by 230 basis points for the full year, driven by lower material costs, reduced labor and overhead expenses and benefits from cost reduction initiatives. The segment reported an operating loss of $16.9 million for the year, largely due to $15 million in noncash impairment charges compared to an operating loss of $5.4 million in the prior year.

In the fourth quarter, operating loss was $1.2 million, reduced by more than half from the prior year, reflecting cost reduction actions despite lower sales. Incoming orders decreased slightly by about 2%, while backlog increased about 8% year-over-year. Regarding cash, debt and inventory, as of the fiscal year-end, cash and cash equivalents stood at $1.1 million, a decrease of $5.2 million from prior year-end. However, amounts due under our revolver decreased by $18.5 million to $3.6 million at year-end. Cash generated from operations was used to repay $18.5 million of our former term loan, distribute $8.8 million in cash dividends, fund $3.2 million in capital expenditures.

Inventory levels decreased by $17.5 million from $66.2 million at year-end to $48.7 million at fiscal year-end. We received approximately $5.5 million in cash proceeds from the sale of the discontinued ops. Despite these outflows, we've maintained financial flexibility with $62.8 million available in borrowing capacity under our amended and restated loan agreement as of fiscal year-end. This is net of standby letters of credit. As of yesterday, we had over $12 million in cash on hand with over $64 million in available borrowing capacity, net of standby letters of credit with $0 outstanding on our credit facility. Regarding capital allocation, late last year, we announced that our Board authorized a new share repurchase program under which the company intends to repurchase up to $5 million of our outstanding common shares beginning in fiscal '27.

In connection with the repurchase authorization, the Board recalibrated the annual dividend to $0.46 per share, which began with the company's December 31, 2025 dividend payment. As Hooker transitions to a more focused growth-oriented company, the new share repurchase program, together with the adjusted dividend enables us to return capital to shareholders while maintaining the balance sheet flexibility needed to invest in the business. We believe these actions appropriately balance capital returns with liquidity while supporting long-term shareholder value.

Now I'll turn the discussion back to Jeremy for his outlook.

In the Hooker Branded and Domestic Upholstery segments, incoming orders have increased year-over-year for 3 consecutive quarters adjusted for the extra week in last year's fourth quarter. Housing activity and consumer confidence remain weak and the Department of Commerce's February advanced monthly estimates reflect that reality, showing that retail sales for furniture and home furnishings decreased by 5.6% as compared to the prior year and lower than January of '26.

We don't anticipate near-term meaningful improvement in conditions. However, with a more efficient cost structure and a streamlined portfolio, we believe we are positioned to report improved results even if current market conditions persist. Our advantage is a clear focus on our core businesses with the organization fully aligned to drive organic growth and deliver more consistent, sustainable earnings over time. Margaritaville product and gallery commitments continue to scale with shipments expected to begin in the second half of fiscal '27. This ends the formal part of our discussion.

And at this time, I will turn the call back over to our operator, Tanya, for questions.

[Operator Instructions] And our first question will come from the line of Anthony Lebiedzinski of Sidoti.

Certainly nice to see the return to profitability in the fourth quarter. So first, looking at the Hooker Branded segment, you had a gross margin of over 39%, which was certainly much better than what we had expected. Was there anything unusual that helped the quarter in terms of the gross margin? And how should we think about the sustainability of your gross margin at Hooker Branded?

Sustainability, I believe we said in the call just now gross margin 200 basis points better or improvement. So your question was how do we look at it going forward?

You say in the Yes. And was there anything unusual in terms of the fourth quarter, 39% versus 32% a year ago for the quarter?

No. We can't think of anything unusual for the quarter that would be driving that really other than the things we've mentioned.

Okay. Okay. That sounds good. And then -- so going forward, it sounds like you expect continued strong margins at Hooker Branded, right?

Yes.

Okay. Sounds good. Okay. And then so switching gears to the Domestic Upholstery segment. So you had a nice year-over-year improvement there, though it was lower than what it was in the third quarter. Maybe if you could just kind of talk about the various puts and takes impacting the gross margin and at domestic upholstery. And are you seeing any increases in costs there? I mean there's been some talk of foam prices costs going up there. So maybe if you could just touch on what you're seeing as it relates to foam and other raw material costs.

Yes. So Domestic Upholstery, when we talk about Domestic Upholstery, I'm going to talk about Bedford and Hickory, which has been Sam Moore and Bradington-Young. Shenandoah is a different part of that, of course. And then you get Sunset West, it's under that same reporting name.

So regarding BY and Sam Moore, we announced recently that we're combining both of those to become Hooker custom upholstery, which is part of a larger strategic initiative that's a part of collected living, which is -- means just putting really everything together and showing all of our strengths in one collection, for example, which we believe we figured out is a much more powerful stance moving forward. As we've done that, we're combining things like frames that can cross over from fabric to leather to different factories. So factories have become a capability that can be utilized for the strength of the Hooker custom line versus a silo here that makes leather, another one that makes fabric. So it's a very powerful unified message.

Now in doing that, we've changed such a big part of that strategic direction that in the timing of revenue with what's going on macro, revenues really our only challenge in those divisions. The efficiencies of those factories are significantly improved, which is why you're seeing the improvements in the profit. But we're not there yet. And we're -- we need more revenue, which we're working on, and that's why we're doing the entire strategy that I just described. But we feel really good about the direction, and we feel actually as good as we felt about that part of our domestic upholstery really since we purchased them.

Got you. Okay. And just a follow-up on as far as any -- are you given the...

Sorry, the foam part. Yes, sorry. The additional costs are definitely coming at the industry. Foam in specific, there's been some disruption. There was a fire at a major Texas facility that affected the entire -- I can't say the entire, but much of the industry was affected from that supplier that had the fire.

So there's some things going on that are driving cost up in that way. And then, of course, the Middle East war going on has driven different chemicals and oil up and different things that are going through raw materials, and that affects not just foam and what you referenced, but it affects overseas as well. So there's a lot of balls in the air with different costs that are rising and -- but we don't have enough data right now to really tell you exactly what that could be, but it's definitely.

Okay. So sounds good. And then with respect to Margaritaville, it sounds like you're still well on track to start shipments in the back half of the year. Can you just expand maybe a little bit more as far as what the interest level you're seeing from retailers since your last call? Has that increased or been kind of as you expected? Just wondering about that as far as placements and whether this could be even better than what you maybe had originally expected?

Yes. So our -- I believe we reported that we had over 50 committed galleries last call, and that number has grown. So we're -- we feel even better than we did about where it's positioned and how it's going to impact our organic growth second half and beyond of next year, so -- or this year, excuse me. And then when you look at -- when you think about the fact that High Point Market, not all dealers come to every market. It's actually probably a little -- over half come to each market. So a good number have not even seen Margaritaville yet from -- as far as in our showroom. And so we continue to be even more optimistic about where that's going to go and how that's going to help our growth.

And our next question will come from the line of Dave Storms with Stonegate.

Just wanted to start with maybe some of the weather disruptions that you mentioned. How much of that is recoverable and maybe just changes the timing and maybe makes Q1 look a little stronger than it normally seasonally would?

We had the same experience in Q1, unfortunately, in early February with a storm that was a little more severe than this. But I would expect by the end of Q1, that backlog should be mostly caught up, the shipping backlog at least.

Perfect. And then just with shipping, just given all the conflicts, are you seeing any second order impacts to your shipping lanes? And maybe just any commentary around the general supply chain environment?

We really are not.

Perfect. And then the last one, and I know you touched on this in your prepared remarks around tariffs. We can obviously all see the headlines. But I guess on the ground with some of these Section 122 tariffs, my understanding is they only have 150-day runway. Are you seeing participants in the industry kind of look through this? Or did you see a bunch of ordering ahead? I guess maybe any thoughts around what you saw on the ground with regards to this change in tariff environment?

I think that due to the kind of somewhat obviously, disruptive nature of what has happened where I think people unfortunately, maybe have become used to the up and down. And I feel like our industry is somewhat used to the disruption, if that makes sense. It is what it is. So we're managing through it as an industry. And we -- none of us pretend like we know what is going to happen next. We know that something is brewing for -- we think something is brewing for how he'll replace the tariffs that the Supreme Court shot down. But obviously, no one knows what that is.

And our next question will be coming from the line of John Deysher of Pinnacle.

It seems like a lot of heavy lifting was done over the past year or so. And I was just curious if there's any other future potential divestitures or plant closures, warehouse closures or anything like that, that might be forthcoming in the future.

Yes. Thank you. No, we're really -- we feel very good about our position and the companies that we have at this point and the capabilities that we have. And if you look at our overall strategic focus on better and best in the home furnishings industry, the companies we have are exactly that. So we feel good about where we are. We don't feel like we have anything that is not eventually sustainably profitable and a great part of our strategic direction.

Great. That's good to hear. And regarding the tariffs, some companies have disclosed what the amount of their rebate they are seeking is. I was just curious if you could put a number on the rebate that you might be attempting to recoup.

Yes, it's material. We're not going to disclose that at this point.

Okay. And then I guess, finally, what was the backlog at the end of the year? And what was the total number of orders for the year versus a year ago?

Order backlog at the end of the year was roughly $36 million. And what was the second question?

Total orders for the year versus a year ago.

I don't have that in front of me.

Do you have orders in the quarter?

It does.

Total orders in '26 were $256 million, just slightly higher than the prior year at $257 million.

[Operator Instructions]

And I am showing no further questions at this time. I would now like to turn the conference back to Jeremy Hoff for closing remarks.

I'd like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal '27 first quarter results in June. Take care.

And this concludes today's program. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to Hooker Furnishings Corp. Third Quarter 2026 Earnings Webcast. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Earl Armstrong. Please go ahead.

Thank you, Kevin, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 third quarter which began August 4 and ended November 2, 2025. Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation today. During our call, we may make forward-looking statements, which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2026 third quarter results. Any forward-looking statement speaks only as of today and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call. For the third quarter, consolidated net sales from continuing operations were $70.7 million, a decrease of $11.9 million or 14.4% compared to the prior year period.

The decline was largely due to the timing of shipments in our hospitality business, where several large projects shipped in last year's third quarter. These impacts were partially offset by solid sales in our core operations with Domestic Upholstery up 3% and Hooker Branded up 1.1%. Gross profit decreased by $2.4 million, which was expected given the lower sales volume. However, gross margin improved to 25.6%, up from 24.8% last year, reflecting margin expansion at Hooker Branded and stable performance in Domestic Upholstery which helped to offset the volume-driven margin pressure within our hospitality business. Our operating results for this quarter also reflect a $22.1 million or $16.7 million net of tax in noncash impairment charges. These charges included $14.5 million on Sunset West goodwill, $3.2 million for certain Home Meridian trade names, of which $2.6 million related to the discontinued businesses and $558,000 for the remaining and $556,000 for Bradington-Young trade name.

The noncash impairment charges also include $3.9 million associated with the sale of the discontinued operations. Similar to the volatility experienced in 2020, today's macroeconomic environment is creating unusual pressure across the home furnishings and the broader consumer discretionary sectors. These pressures contributed to a sustained decline in our share price during third quarter, which dropped to a low not seen in quite some time. This triggered an interim impairment analysis under U.S. GAAP. The market-based valuation inputs, including trading multiples and discount rates were adversely affected, and this resulted in the impairment. Importantly, these are noncash accounting charges, they do not change our strategic view of these brands or businesses nor affect our liquidity in our ongoing operations.

Additionally, we recorded approximately $600,000 in restructuring costs this quarter, primarily severance associated with our cost-reduction initiatives. After incorporating these items, operating loss from continuing operations totaled $16.3 million and net loss from continuing operations was $12.5 million or $1.18 per diluted share. Turning to the year-to-date results. Consolidated net sales from continuing ops for the first 9 months were $211.1 million, down $22 million or 9.4% compared to the prior year. Similar to the quarterly trend, the decline was driven by lower hospitality shipments following unusually large project activity in the prior fiscal year. This was partially offset by a 1.1% decrease -- increase in Hooker Branded sales, while Domestic Upholstery remained essentially flat for the 9-month period.

Gross profit for the 9-month period decreased $2.9 million, but consolidated gross margin improved to 25%, up from 23.9% in the prior year period. This margin expansion reflects meaningful improvements in Domestic Upholstery supported by lower direct labor, warehousing labor and material cost, while margins at Hooker Branded remained stable. Operating loss from continuing operations was $17.4 million, which includes the same $15.6 million impairment charge and $1.7 million in restructuring costs. Net loss from continuing ops for the 9-month period was $13.6 million or $1.29 per diluted share. Also, as previously disclosed on December 1, 2025, the company announced a strategic divestiture of value-priced home furnishings brands, Pulaski Furniture and Samuel Lawrence Furniture formerly held within the Home Meridian segment. These brands are being reported for the fiscal '26 third quarter as discontinued operations and held for sale.

The remaining former division of HMI, Samuel Lawrence Hospitality, will be redesignated to the all other category within our segment reporting. We expect to close on this transaction later this month. Speaking to discontinued operations, combined net sales for PFC and SLF declined down $11.3 million in the third quarter and $22.5 million year-to-date, driven by significantly lower unit volume as macroeconomic pressures and tariff-related hesitation continued to weigh on value-oriented consumers. We also incurred $2.6 million in restructuring charges for the quarter and $4.1 million year-to-date tied to the exit of our Savannah warehouse in the third quarter. Now I'll turn the call over to Jeremy for his comments on our fiscal 2026 third quarter results.

Thank you, Earl, and good morning, everyone. During one of the most persistent downturns in industry history, we've spent the past 2 years taking disciplined actions to reshape Hooker Furnishings into a higher margin design-driven company. As part of this strategy, it became increasingly apparent we needed to exit low-margin, more tariff sensitive categories and direct our focus towards our strongest brands. At the same time, our multiphase cost reduction measures have reset our expense structure driving over $25 million in annualized savings through structural improvements that we believe will result in profitability even in a sustained tough environment. With our stronger balance sheet $7.5 million returned through dividends and $63.8 million of available borrowing capacity at quarter end, we're also enhancing shareholder returns through a new share repurchase authorization and a recalibrated dividend that preserves flexibility today while building long-term shareholder value.

Our operations delivered modest sales and margin improvements this quarter in Hooker Branded and Domestic Upholstery. We are encouraged by commitments to our new Margaritaville license collection at the recent Fall High Point Market. Margaritaville represents a significant organic growth opportunity supported by the immersive 14,000 square foot showroom experience we debuted at High Point Market and the 55 committed retail galleries across the U.S. The excitement for this launch and the initial purchase commitments we've received are beyond historic levels for any Hooker product line the company has launched by about 3 to 4 times. We believe Margaritaville home furnishings will drive meaningful incremental revenue across the business, especially moving into the second half of next year when the collection is shipped and placed at retail. We also believe that Margaritaville's growth will be truly incremental, not cannibalizing existing product placements and will be a profitability driver as well.

We think we have essentially created a whole new business for Hooker. We believe the launch of Margaritaville together with the recently announced expected sale of Pulaski and Samuel Lawrence Furniture enables us to realign our portfolio around our strongest brands and position Hooker Furnishings for consistent long-term performance. At the same time, we have made significant strides with our cost reduction initiatives to achieve higher-than-anticipated savings and have completed our new expense structure which will provide continued savings in fiscal '27. Together with the major shift in our warehousing strategy, we've also been able to mitigate tariff exposure and better serve customers by allowing collections from our various suppliers to be mixable in single containers and provide 6- to 10-week fulfillment to our customers' door. We are more confident today that Hooker has the potential to shift from a cost reduction story to an organic growth story, and we see a clear path to profitable growth by focusing on our core expertise of better to best home furnishings.

I'd also like to comment on our adjustments to import tariff increases and uncertainties. Over 40% of our net sales are produced or assembled domestically, significantly reducing our tariff exposure. We believe the tariff environment has largely stabilized with a 20% tariff on casegood imports from Vietnam and a 30% lumber tariff on all imported upholstery -- upholstered furniture implemented November 1. In addition, since tariffs disproportionately affect the more value-priced HMI lines that are held for sale, the divestiture will be beneficial in mitigating current or future tariffs. Coupled with targeted pricing actions and strong vendor partnerships we have largely mitigated the tariff impact. Now I want to turn the discussion back over to Earl, who will discuss highlights in each of our segments, along with our cash, debt, inventory and capital allocation strategies.

Thank you, Jeremy. Beginning with Hooker Branded. Net sales increased 1.1% in both the third quarter and the 9-month period, driven by higher average selling prices despite lower unit volume. Gross revenue was essentially flat, but reduced discounts and lower returns and allowances slightly lifted net sales. Gross profit rose $1.2 million in the quarter with a 300 basis point margin improvement supported by price increases and reduced discounts. Warehousing cost increased modestly due to higher rent and labor tied to consolidation activities. For the 9-month period, gross profit increased $653,000 while gross margin stayed flat as price increases and lower returns were offset by reduced margins on discounted inventory balancing and slightly higher warehousing costs. S&A expenses decreased $990,000 in the quarter or 310 basis points with current year restructuring costs of $390,000 compared to $950,000 last year. Over 9 months, S&A fell by $1.7 million, with lower compensation and spending partly offset by other costs.

The segment reported GAAP operating income of $711,000 for the third quarter compared to a loss of $1.5 million. Hooker Branded backlog grew 17.2% from fiscal year-end and 7.9% from the prior quarter, supported by a 4.1% increase in incoming orders. On the Domestic Upholstery front, its net sales rose $870,000 or 3% in the third quarter and were essentially flat for the 9-month period. Gross profit increased $261,000 in the third quarter with gross margin remaining consistent year-over-year as major cost components held steady. For the 9-month period, gross profit rose $1.5 million and gross margin improved 170 basis points due to lower direct material and labor costs and improved production efficiencies. S&A expenses in that segment decreased $263,000 in the third quarter, with restructuring costs significantly lower than last year. Over 9 months, S&A expenses declined $560,000.

The segment reported GAAP operating loss of $14.7 million for the third quarter, driven entirely by the $15.6 million in noncash intangible impairment charge. Domestic Upholstery backlog fell from year-end but rose year-over-year on a 3.5% increase in orders. Concerning discontinued operations, combined net sales for PFC and SLF declined, falling $11.3 million in the third quarter and $22.5 million over the 9-month period. Profitability there was further impacted by a $2.5 million fixed asset write-off tied to the Savannah warehouse exit, elevated freight costs and low sales volumes that caused under-absorption of warehouse and international operating expenses. Persistently low sales, and unfavorable product and customer mix, restructuring costs and $2.6 million trade name impairment contributed to the significant operating losses in both periods.

Turning to cash, debt and inventory. Cash and cash equivalents stood at $1.4 million, a decrease of $4.9 million from year-end as cash generated from ops was used to repay $17.9 million of the term loan, distribute $7.5 million in cash dividends and fund $2.4 million in capital expenditures. Inventory levels decreased from $66.2 million at year-end to $52.1 million at quarter end. Despite these outflows, the company maintained its financial flexibility with $63.8 million in available borrowing capacity under its amended and restated loan agreement as of quarter end. This was net of standby letters of credit. As of December 9, 2025, the company had approximately $2 million in cash on hand with $63.7 million in available borrowing capacity, again, net of standby letters of credit. We also announced today that our Board has authorized a new share repurchase program, under which we may repurchase up to $5 million of our -- $5 million of our outstanding common shares.

In connection with the repurchase authorization, the Board is recalibrating the annual dividend, which will result in a 50% reduction to $0.46 per share annually beginning with our expected December 31, 2025 dividend payment of $0.115 per share. We believe these actions appropriately balance capital return and liquidity needs and will enhance long-term shareholder value. As we transition to a leaner growth-oriented company, the new repurchase program, coupled with a reduced dividend, allows us to continue returning capital to shareholders while providing greater balance sheet flexibility to continue investing in the company. This action also reflects direct feedback we've received from shareholders regarding the dividend and broader capital allocation strategies.

This repurchase authorization doesn't obligate us to acquire a specific number of shares during any period, does not have an expiration date, but it may be modified, suspended or discontinued at any time at the discretion of the Board. Repurchases may be made from time to time in the open market or through privately negotiated transactions or otherwise in compliance with applicable laws, rules and regulations and subject to the company's cash requirements for other purposes, compliance with covenants under our loan agreements and other factors that deems relevant. Now I'll turn the discussion back to Jeremy for his outlook.

Incoming orders for branded segments have increased quarter-over-quarter for 2 consecutive quarters. While macroeconomic headwinds, including elevated housing prices, inflation, low consumer confidence and ongoing tariffs remain largely unchanged. These challenges were most acute in the higher volume, lower-margin discontinued business. With our more efficient cost structure and sharper portfolio, we believe we are better positioned to improve profitability even in a prolonged downturn. Our real advantage going forward is focus. Our team is now fully aligned around our core businesses, enabling us to drive organic growth and build sustainable profitability. This ends the formal part of our discussion. And at this time, I will turn the call back over to our operator, Kevin, for questions.

[Operator Instructions] Our first question comes from Anthony Lebiedzinski with Sidoti.

So first, just wanted to go over some of the timing of shipments in your hospitality division. You did note that it impacted sales. Any way to put a number on that as far as how much of an impact that had on the quarter?

No, we've not really typically disclosed that individually for that brand. I can tell you that, that brand last year was fortunate enough to have a huge part in 2 of the largest hotel projects in the United States. It's a project-based business, and they just unfortunately, don't repeat like that every time.

Okay. Got you. All right. So you guys have certainly done a lot to improve the business certainly with these changes strategically. So as we think about the core business, Hooker Branded and Domestic Upholstery both had the sales gains, which was good to see in the quarter here. How should we think about your ability to sustain these sales gains kind of going forward? Would love to hear your thoughts on that.

I would -- Anthony, I would say that those -- both Domestic Upholstery and Hooker Branded, we feel some momentum from a product standpoint in both of those segments. And in our industry, it's -- product is what wins the game. So we've had -- we've put together several markets in a row of significant product introductions. And of course, this last one we just talked about that being the kind of the biggest ever that we've had as far as amount of commitments that we came out of the market with. So having said all of that, we can't really do anything about the environment we're in macroeconomic-wise. But I feel as good as I felt about those areas of our business as far as how we can compete and how we can compete for market share for sure.

Got you. And just curious, what have you guys heard from your retail partners about Black Friday sales and traffic to their stores? Any sort of -- can you give us any sort of commentary that you've heard from your customers?

I mean there's still -- I'm hearing relative positivity from our customers at these peak retail times. I mean we heard it for Labor Day. I think Black Friday is coming back as fairly good. But we just need in our markets, we just -- everyone needs more consistency. We need more consistent demand. And I think you could say that for every business out there. So we're -- I think these peaks are pretty good, but we just need the rest of the times to be better than they are currently.

Understood. Okay. Got you. Okay. And then -- so as we think about the discontinued operations, can you give us a sense as to how much revenue those 2 brands did for HMI for last fiscal year or maybe the trailing 12 months? And kind of how much of a drag was that on your operating income as we look to recalibrate our models?

Last question first, it was a significant drag on operating income. We're going to -- and I believe the statements that you'll see in the 10-Q which we expect to file on time in the day, Friday. And then there's also an associated 8-K that will have some pro forma financial information in there, I think that will that will help. I would tell you now, but we're still in the process of quality checks and finalizing those to make sure we're spot on.

Understood. Okay. Got you. I guess, Earl, last question, think about the business longer term. So obviously, you recognize that the current environment is still choppy or challenging. But as we look back historically before HMI was acquired approaching 10 years ago, I think, or 9 years ago. As we think about the company back then that you guys were posting operating margins in the high single digits, approaching 10% actually, I think, in 1 year. So with all these changes to the business that you've put in place, is it reasonable that when things get better, you guys could back to the historical type of operating margins?

Yes.

Okay. That's great to hear. All right. Well, best of luck, and I'll pass it on to others.

Thanks, Anthony.

Thank you.

Our next question comes from Dave Storms with Stonegate.

Appreciate you taking my questions. I want -- I did want to start with one check. I noticed on the announcement for the HMI sale that the lease for the High Point showroom, will be a part of that. Are you expecting to maintain your showrooms in Atlanta and Vegas? Or are those also operations that you're looking to exit in the near future?

We've already -- we exited Atlanta, I believe, last year, Earl. Is that correct?

Exactly.

And we have our flagship showroom, I'll call it at Showplace, which will, of course, remain. And we will keep probably a small presence in Las Vegas, which is really somewhat insignificant from a cost standpoint.

Understood. And excuse me for misspeaking around the Atlanta showroom.

That's okay.

Perfect. Appreciate that. My next question, I did want to touch on Margaritaville. There's obviously a lot of excitement around that going into next year. Is there anything you could do to help us understand maybe what the margin profile for that new line will look like maybe relative to your current margin profile or some of the other backlog that you're seeing right now?

I would say if you just simply look at historical Hooker Branded margins, and it's actually somewhat of a hybrid. So you have some Domestic Upholstery in there, too, and maybe look at it from a 60-40, which is our company makeup of percentage of casegoods to Domestic Upholstery. I think if you look at it kind of from that standpoint, you could come up with a pretty close answer.

That's perfect. And then I did want to ask one question around maybe cost cutting. I know you guys are well ahead of your targets there. It was mentioned that you're looking to see continued savings in fiscal '27. Any sense of maybe the magnitude of areas of focus there? Is that going to look like just regular corporate cost cutting? Or is there going to be a number put on it the way you did with this last round of cost cutting?

I would say we'll be able to better hone in on a number at our next -- when we announce next. And then if you think about the fact we just got out of the High Point -- we're getting out of the High Point showroom for HMI, that was a major expense. There are things that -- the reason -- one of the biggest reasons we're able to get additional savings is the divestiture of those brands. And that's going to create additional opportunity. Having said that, we did hit over the $25 million mark at the end of the third quarter, as we had said in the previous call, which we're really proud of, and it really puts us in a strong position in our cost structure to win. And I said in my comments that shifting from cost savings to organic growth story, I can tell you, I'm very excited about that. That's a lot more fun to talk about. So we're looking forward to getting into that mode.

No, perfectly reasonable. I appreciate that. One more question, if I could. We've seen the Fed has been cutting rates and the quantitative tightening. You mentioned the branded orders are improving. Are there any other green shoots that you're starting to see that might show demand coming back? I know you're well positioned for when demand does come back, but just anything that you're seeing that might indicate that time line for some of that demand to come back?

I wouldn't say that we're necessarily seeing green shoots. I would say that we're seeing a level of cautious optimism from our partners, our retailers, our -- you hear from designers. So the market was very optimistic. But it's not really necessarily from, as you stated, green shoots. So we're looking for those daily, and we're ready to see them. But on a really positive note, we feel really confident where we are from an expense structure standpoint and from a business standpoint to kind of weather whatever this is for a period of time.

Understood. That's all very helpful. I appreciate the time, and good luck in the next quarter.

Thank you.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Jeremy for any further remarks.

I'd like to thank everyone on the call for their interest in Hooker Furnishings. We wish everyone happy holidays and a prosperous and healthy new year. We look forward to sharing our fiscal 2026 full year results in April '26. Take care.

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

Good day. Thank you for standing by. Welcome to the Hooker Furnishings Corporation Second Quarter 2026 Earnings Webcast. [Operator Instructions] Please be advised that today's conference may be recorded.

I will now hand the conference over to your speaker host, Earl Armstrong, the company's CFO. Please go ahead, sir.

Thank you, Olivia, and good morning, everyone. Welcome to our quarterly conference call to review financial results for the fiscal 2026 second quarter which began May 5 and ended August 3, 2025.

Joining me this morning is Jeremy Hoff, our Chief Executive Officer. We appreciate your participation today.

During our call, we may make forward-looking statements, which are subject to risks and uncertainties. A discussion of factors that could cause our actual results to differ materially from management's expectations is contained in our press release and SEC filing announcing our fiscal 2026 second quarter results.

Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after today's call.

The results across segments were mixed in the fiscal 2026 second quarter. On the Hooker Legacy side, Hooker Branded net sales were up 1.3% year-over-year, and Domestic Upholstery net sales were consistent with the prior year second quarter.

Hooker Branded reached breakeven compared to a $329,000 loss in the same quarter last year despite absorbing $655,000 in restructuring costs primarily related to severance.

Domestic Upholstery, which recorded $152,000 restructuring costs this quarter, reduced its operating loss from $1.3 million to $408,000. These improvements reflect the progress of our cost-reduction and restructuring initiatives.

In contrast, Home Meridian net sales were down 44.5% compared to the prior year second quarter as this segment was heavily impacted by tariff-related buying hesitancy and persistent macroeconomic pressures among its value-focused customer base.

Additionally, shipments in its hospitality business declined compared to the prior year second quarter due to the timing associated with the project-based nature of this business. The loss of a major customer due to its bankruptcy last year accounted for about 25% of Home Meridian's sales decrease. As a result, consolidated net sales for the second quarter were $82.1 million, down $13 million or 13.6% from the same period last year, driven primarily by sales declines at Home Meridian.

Consolidated operating loss was $4.4 million compared to $3.1 million in the prior year quarter, reflecting lower sales volume and unfavorable customer mix at Home Meridian as well as $2 million in total restructuring costs. The consolidated net loss was $3.3 million or $0.31 per share.

During the first 6 months of fiscal '26, consolidated net sales declined by $21 million or 11.2% compared to the same period last year. The decrease was also driven primarily by lower sales at Home Meridian due to the factors just discussed, along with a modest 1.7% decline in Domestic Upholstery, reflecting soft demand. Including $2.5 million in restructuring costs recorded during the period and significant sales volume decline, the consolidated operating loss of $8 million remained consistent with the prior year period, reflecting improvements on the legacy Hooker side. Net loss for the 6-month period was $6.3 million or $0.60 per diluted share.

Now I'll turn the call over to Jeremy for his comments on our fiscal 2026 second quarter results.

Thank you, Earl, and good morning, everyone. Hooker Furnishings is taking decisive steps to return the business to profitability. Our cost-reduction efforts and focus on growth initiatives will position the company to maintain resilience in today's challenging environment and to strategically capture growth when demand returns.

As Earl mentioned, Hooker Branded broke even in the quarter despite weak demand and $655,000 in restructuring charges and Domestic Upholstery reduced its operating loss nearly 70%, even including $152,000 of restructuring costs.

At HMI, we have derisked it significantly over the last several years and continue to further that effort. These actions have been obscured by weak demand in the home furnishings industry due to an extremely weak housing environment and tariff buying hesitancy in the market segment in which HMI competes.

By the end of our fiscal '26 third quarter, we believe HMI's fixed cost structure will be aligned to support what we believe to be a sustainable business and one in which sales can be significantly scaled from current levels when demand returns.

Barring additional tariffs or other significant disruptive events, we expect HMI's performance to be significantly enhanced by the end of the current fiscal year. We are confident that the actions we've taken, scaling fixed costs, reducing debt and launching compelling new product lines provide the foundation for long-term value creation.

Importantly, we are on track to have our new expense structure largely in place by the end of the third quarter, supporting a path to profitability even at current revenue levels. Our multi-phased plan to scale our fixed cost structure for sustained profitability and a downturn is on track and beginning to yield significant results.

While HMI results were challenged by tariff concerns and unfavorable customer and product mix, we had a $1.2 million improvement in operational results at Hooker Branded and Domestic Upholstery during the second quarter despite the inclusion of about $800,000 in restructuring costs in the results.

We are becoming leaner and more efficient, underscored by efforts within Domestic Upholstery, where our focus on improving labor to revenue ratios is showing early progress and already reflected in stronger factory performance metrics.

We are on target for our new expense structure, which reduces our fixed cost from fiscal '25 by 25%, mostly in place by the end of the fiscal '26 third quarter. We believe our enhanced operating discipline will support a path back to profitability in future periods even as macroeconomic challenges and uncertainties persist. Critically the thoughtful and deliberate way in which we are implementing this restructuring will not limit our ability to grow or fulfill orders and serve customers as market conditions improve.

While our comprehensive restructuring efforts continue across all 3 segments, we continue to adapt to the changing industry and invest in the highest growth opportunities.

Our upcoming Margaritaville launch at the October High Point market positions us well for the second half of fiscal '27. Ahead of the launch and expected benefit, our new Vietnam fulfillment warehouse is already delivering on its promise of shortening container lead times from 6 months to roughly 4 to 6 weeks and creating new opportunities for customers to mix product collections on containers. Additionally, we believe these efficiencies will lower our overall global inventory.

Finally, I'd like to comment on our adjustments to tariffs on imported furniture and components. In late July, the U.S. government announced a 20% tariff rate on imports from Vietnam, the main source country for Hooker and the home furnishings industry effective August 1, 2025.

Each of our segments is taking a different approach to mitigating the Vietnam tariffs. For Domestic Upholstery, the impact is on component parts and fabrics, and we're able to mitigate through incremental measures such as new fabric sourcing. For Hooker Branded, we remerchandised the line to manage the impact of the 20% tariff, evaluating pricing on a SKU-by-SKU basis rather than a blanket price increase. At HMI, we believe we have implemented near-term mitigation efforts to balance the value equation in the more price-sensitive and competitive segment.

Now I want to turn the discussion back over to Earl, who will outline the details of our cost-reduction strategy as well as discuss highlights in each of our segments.

Thank you, Jeremy. We're well into our multiphase cost-reduction plan to eliminate roughly $25 million or 25% of our fixed cost. This includes an estimated $11 million in warehousing and distribution expenses, which is reported in cost of sales and $14 million in selling and administrative expenses.

In fiscal '25, we identified $10 million in expense reductions, and we're able to achieve $3 million in savings in that fiscal year. In fiscal '26, we identified an additional $15 million in expense reductions. In the first half of fiscal '26, we achieved $3.7 million in expense reductions despite having recorded $1.7 million in restructuring charges.

We expect to achieve additional savings in the second half of the year from both initiatives and we believe we are on track to achieve $25 million in annualized cost savings beginning in fiscal '27, which should largely be in place by the end of the fiscal 2026 third quarter.

Now I'd like to review our segment reporting versus prior year periods. Hooker Branded. The Hooker Branded segment posted modest growth in the second quarter of fiscal '26 with net sales up $465,000 or 1.3%.

Higher average selling prices drove the increase, partly offset by higher discounting. For the first 6 months, sales rose $766,000 or 1.1%, reflecting higher unit volume, partially offset by discounting to balance inventory mix and levels.

Gross profit declined $167,000 in the second quarter with gross margins down 80 basis points, mainly due to lower margins on discounted items, and to a lesser extent, tariff-related product costs. For the 6-month period, gross profit decreased $560,000, with margin down 100 basis points due to the same factors.

Hooker Branded achieved breakeven operating results for the quarter and 6-month period. Restructuring cost of $655,000 and $782,000 were recorded in these periods, respectively. Incoming orders grew by nearly 11% during the quarter. The quarter end backlog remained consistent with the previous year's second quarter end, but increased by nearly 20% from fiscal year-end.

Home Meridian. The Home Meridian segment's net sales declined $13.6 million or about 44.5% in the second quarter of fiscal '26. About 40% of the decline came from the project-based hospitality business, where 2 large projects entered the shipping phase in the second quarter of last year. 35% of the decline came from traditional furniture channels due to macroeconomic pressures and tariff-related hesitancy, and 25% of the decline came from the loss of a major customer that filed for bankruptcy last year. Average selling prices also dropped sharply due to unfavorable product mix, inventory liquidation at the Georgia warehouse ahead of its closure. For the 6-month period, net sales fell $21.2 million or 37.2%.

Gross profit decreased $4.9 million in the second quarter, primarily due to lower net sales. Gross margin decreased driven by unfavorable customer and product mix, higher warehousing consolidation expenses, severance costs and losses from inventory liquidation at the Georgia warehouse. For the 6-month period, gross profit decreased $5.6 million, while gross margin contracted 590 basis points.

Home Meridian incurred operating losses of $3.9 million for the second quarter and $6.8 million for the first half. Restructuring costs of $1.2 million and $1.4 million were recorded for the quarter and the 6-month period, respectively.

Incoming orders and backlog decreased significantly due to reduced demand from traditional channels and the loss of a major customer due to its bankruptcy. Reduced demand was compounded by fewer orders in the project-based hospitality business.

Domestic Upholstery. The Domestic Upholstery segment's net sales were essentially flat in the second quarter compared to last year. Three divisions in the segment posted sales increases, while the outdoor brands saw sales fall around 10% due to supply chain disruptions in Vietnam and China, which stabilized after quarter end. For the 6-month period, segment sales declined $1 million or about 1.7%.

Gross profit for the segment rose $659,000 in the second quarter and $1.2 million year-to-date, with margins expanding by 220 and 240 basis points, respectively. Direct material costs remained steady while labor and indirect costs declined supported by improved absorption from higher sales and increased production capacity. Warehousing and distribution expenses also decreased across most categories, further strengthening profitability.

Our Domestic Upholstery divisions are making strides in operational efficiency. We are focused on improving labor-to-revenue ratios and early progress is already reflected in stronger factory performance.

Domestic Upholstery significantly reduced operating losses by $877,000 or 68% and $1.6 million or 61% compared to the second quarter and first half of last year, respectively. Restructuring costs of $152,000 and $265,000 were recorded for the quarter and 6-month period, respectively. Incoming orders in that segment increased by 1.6%, with quarter end backlog increasing from about -- by about 7% from the prior year second quarter and year-end.

I'd like to conclude my remarks with comments on our capital allocation strategy. Over the past year, we reduced debt, strengthened liquidity and continued returning capital to shareholders through dividends supported by the extensive cost-saving measures we've embedded throughout the organization. These efforts are enhancing near-term liquidity and creating a foundation for strategic growth.

As of yesterday, the company had approximately $1.9 million in cash on hand, no outstanding amounts due under its credit facility with $67.9 million in available borrowing capacity, net of standby letters of credit. As we progress through the year, our focus will remain on capital allocation strategies that drive long-term value creation and balancing our cost initiatives with key growth priorities.

Now I'll turn the discussion back to Jeremy for his outlook.

At the beginning and end of the quarter, we saw an encouraging momentum in Hooker Legacy orders with July orders up 24% year-over-year at both Hooker Branded and Domestic Upholstery. For the quarter, Hooker Branded orders were up nearly 11% and Domestic Upholstery were up 1.6%. That said, the home furnishings industry continues to face headwinds from low existing home sales, elevated mortgage rates and persistent inflation, all of which are weighing on consumer confidence and demand.

We remain focused on factors within our control, scaling our cost structure for profitability preparing for the October debut of the Margaritaville collection and pursuing growth in hospitality, contract and outdoor channels supported by the new Vietnam warehouse. These initiatives position us well to navigate near-term challenges and capitalize on opportunities when the market recovers, creating long-term value for our shareholders.

This ends the formal part of our discussion. And at this time, I will turn the call back over to our operator, Olivia, for questions.

[Operator Instructions] And our first question coming from the line of Anthony Lebiedzinski with Sidoti.

So my first question is, what's driving the increased orders or the momentum that you're seeing at Hooker Branded and Domestic Upholstery?

I think there's some subtle macro improvements happening at the retail level. We heard from a lot of our partners that Labor Day was very good for a lot of our customers. And I think there's some, like I said, somewhat subtle momentum. I don't -- no one knows if that's going to continue, but it seems to have been a pretty good push at least that time of the year.

Got you. Okay. Yes. So certainly, Labor Day is an important holiday. So was this kind of across the board that you heard this holiday momentum here in September? Or did you see any sort of pockets of particular strength in some markets versus others?

It really was pretty consistent. We make a habit of talking to as many as we can across the country to get a read on whether it's regionalized or more of an overall push, and it seemed to be pretty consistent across the board.

Got you. Okay. That's definitely encouraging to hear. So you've done a lot with HMI to improve the business, still -- unfortunately, it's still your kind of biggest kind of weak spot. So how do we think about just getting that segment back to profitability? I don't know if it's an easy answer for you guys to say, but I mean how much annual revenue do you guys need to get that segment to at least breakeven?

I'm going to generalize because I have to, but the -- really, the main driver to getting to short-term profitability, meaning, call it, getting to that end of the third quarter when we've said that our cost savings will really be mostly intact, which is a 25% reduction from fiscal '25 until the end of third quarter. That's how much we will have saved in our overall spending. Much of that has come out of the HMI overhead picture.

So really, right now, for us, that is a big key to what you're asking. And once we're there, I believe we have really good ways of growing that business too. And that really comes down to a lot of focus on the customers that we drive that business with and really focusing more on what matters to driving the revenue at that company.

Got you. Okay. Understood. Okay. And I guess last question, just to clarify some of the restructuring impacts. So it looks like it was overall $2 million for the quarter. Just roughly speaking, how much is that cost of goods versus selling and administrative costs in terms of how we think about the impact that had on the quarter?

Impact on the quarter, about 2/3 was in COGS and 1/3 in SG&A roughly, and that would apply for the 6-month period as well.

Our next question coming from the line of Dave Storms with Stonegate.

Just wanted to start maybe with Margaritaville, great to have that on the horizon. Is there anything more you can tell us about maybe the logistics remaining before the reveal or any early indicators of interest there?

Sorry, I missed part of your question. Did you say the logistics?

Yes, both the logistics to launch remaining and maybe any early indicators of interest before the launch.

It's been a massive undertaking from a product development standpoint, mainly because we see it as such a large opportunity for the company. So it's going to be a significant number of SKUs. It's going to be a really significant presence in our showroom this October market for Hooker Legacy and really Sunset West as well.

So we're really excited. I'd say it's been an 18-month progression as far as when we started this to now. And we're -- we've had some really positive early indicators from our partners that we're close with and talk to frequently about the direction, the name, how much that brand means and how much people recognize that it's really a different level for us from a brand perspective than really what we've really ever experienced. I mean Hooker is a good furniture brand, but it's not a consumer brand. And I think that could -- that has the potential to be pretty large for us.

Understood. That's very helpful. And then I was also hoping to get your thoughts around the price increases. I know you mentioned that you're evaluating going pricing on a SKU-by-SKU basis. Just curious as to when you think you'll maybe have your arms fully around that? Or is that going to be more macro-driven?

I would say that I think additional coming out that stays at the 20%. I would say our arms are clear around it at this point. And we went through -- the industry went through so many gyrations of costing because you go back to pandemic, you had all the ocean freight increases and everything that was so volatile for a pretty significant period of time. And a lot of companies, including us, did, what I would call, more of a peanut butter approach, raising overall prices, lowering prices and that's why on this particular thing, we went back and said, over time, you lose your -- some of your merchandising strategy if you don't really do the exercise SKU by SKU. So we really took that time. It took us a little longer than we usually like to take in these things. But I think in this situation, ride is more important than fast, and we took the time to do what I feel was a great exercise for the company.

And are you seeing -- understanding downstream of that? Or are you seeing any major sticking points for those increases?

We really aren't. We -- our company has a history, particularly on the Hooker side of it of honoring our backlog for our customers. So really, from our standpoint, the timing of increases coming in versus the timing of our price increase settling into our backlog and shipping is always a little off. But due to the high percentage of domestic warehouse shipment of that business, it can turn fairly quick compared to a container business overall because of the lead times being quicker, so you can turn your backlog quicker. So that's not as big of a factor on the Hooker side as it is usually.

Understood. That's super helpful. One more for me, if I could, more of a modeling question. It was mentioned that you're expecting an additional $2 million in charges in the second half of fiscal '26. Is it safe to assume that those are going to be timed in 4Q to coincide with the Savannah warehouse exit in October? Or is there anything else we should maybe be keeping an eye out for there?

You're correct. It should be most all related to the closing of that warehouse.

And I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Jeremy Hoff for any closing remarks.

I would like to thank everyone on the call for their interest in Hooker Furnishings. We look forward to sharing our fiscal '26 third quarter results in December. Take care.

Ladies and gentlemen, this concludes today's conference.