Paul B. Toms Jr., chairman, CEO and president of Hooker Furniture (NASDAQ: HOFT) gave a less-than-inspiring business outlook the other day in the company's press release announcing fiscal 2009 third-quarter results.
"Over the course of the last several months, the economy has worsened with continued business closings, cutbacks and layoffs across many industries, including the home furnishings industry. Consumer confidence levels are at historical lows. With continued instability in the real estate, financial and credit markets, prospects for a near-term economic recovery appear dim."
Toms believes that the consumer will stay on the sidelines until the real estate and financial markets stabilize and some improvement in credit availability and consumer confidence materializes, which could be another nine to 12 months.
Predictably the shares sold off following the news. After all, even if entertainment units, office, dining, bedroom, accent, occasional and leather upholstered furniture for the home are high on people's holiday wish list this year, these items are likely not within their financial reach.
But there's more to this story than meets the eye.
Once people got around to reading the actual text of the release, they realized things might not be so bad. Take out the Sarbanes-Oxley stuff and you'll find that the company might very well have a future.
So, do current prices represent a good entry point?
Despite all of the troubles in its industry, HOFT is still solidly profitable, earning 27 cents per share in the recently completed quarter. Though most operating metrics showed year-over-year declines, operating income margin improved compared to the second-quarter of fiscal 2009, due to higher net sales compared with that period and cost-cutting measures taken by the company.
The 2009 third-quarter operating margin improved to 6.8% compared with 4.8% in the second quarter of 2009, and 5.2% for the first half of fiscal 2009.
Mr. Toms mentioned that while the company wasn't able to operate at historical profit levels, he believes the business model has again proven the ability to keep the company competitive, well-positioned and profitable despite economic adversity.
"Given the unprecedented economic stress and historically low levels of consumer confidence, we're modestly pleased with our third-quarter results," he said.
Think about that statement for a minute. In the worst economic crisis of our lifetimes, this guy is "modestly pleased" with results. He should be.
Clearly, the macroeconomic issues that dominate the headlines will determine which way HOFT shares go on any given day, but investors with a longer-term time horizon may want to consider these shares. I think it's safe to say a bottom has been reached.
HOFT has continued to invest in itself during this downturn by buying back 800,000 shares during a nine-month period. The company has gained strong retail placements on a comprehensive new product collection at higher average price points at a recent High Point, N.C., furniture market, and order rates for the third quarter look impressive.
These are baby steps in a recovery for certain, but it sure beats the alternative. Get your hooks into Hooker before it's too late.
Jamie Dlugosch is a contributor to OptionsZone.com.
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