Strike Three for Hooker

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History repeated itself in North Carolina yesterday as furniture maker and Motley Fool Hidden Gems selection Hooker Furniture (Nasdaq: HOFT) announced that it will close its third N.C. wood furniture manufacturing plant in as many years. Hooker closed its Maiden plant last August and its Kernersville plant in 2003. The latest victim of sagging demand for U.S.-produced wood furniture is Hooker's plant in Pleasant Garden.

This continuing movement toward production "right-sizing," as the company calls it, is explained in large part by an observation that my fellow Fool Nathan Parmelee made last month: "Domestically produced wood furniture is Hooker's ... big problem. Sales were off 23% versus last year."

With Pleasant Garden devoted to producing apparently unwanted wood furniture, closing the plant -- while a harsh measure and one unlikely to be welcomed by either the plant's employees or "Buy American" groups -- seems the only logical decision. (For the most part, the laid-off employees will not be relocated to Hooker's two other U.S.-based plants.)

But here's what's strange: We usually see the market react positively when a struggling manufacturer like Delphi (NYSE: DPH) or GM (NYSE: GM) closes a plant and pulls production capacity offline. When Kodak (NYSE: EK) announced closure of a plant in Australia in September of last year, it helped to spark a 10% rise in the company's shares over the next few weeks. Likewise, when Hooker announced the closure of its Maiden plant last year, investors bid the company's shares up slightly on the news, and put Hooker's stock on a slow upward trend over the ensuing weeks.

Not so today. As of this writing, investors have sent Hooker's stock down by nearly 13% on the Pleasant Garden news. Unswayed by the company's assurance that closing the plant will yield savings of $2 million to $2.5 million per year, investors focused instead on the company's warning that closing Pleasant Garden will shave $0.22 to $0.28 off of the company's profits per share, with the bulk of that charge being taken in the current fiscal quarter.

Right-sizing is all well and good, and so is lowering the cost of doing business in the future. But Hooker has now produced three quarters of underwhelming results in quick succession, and with its inventories of unsold goods mounting ever higher, it's understandable that investors are less than eager to stick around to see how its latest plan plays out.

Fool contributor Rich Smith continues to own shares of Hooker Furniture, but he does not own shares of any other company named above.