Hooker Furniture Suffers Another Hit

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For investors in Hooker Furniture (Nasdaq: HOFT), the hits just keep on coming. The hits to earnings, that is.

Unfortunately for many of the investors who are also employees of the Virginia and North Carolina furniture maker -- the company has a very large employee shareholder base -- the job losses keep coming as well. Between 2003 and 2005, Hooker had already closed down three of its North Carolina-based wood furniture manufacturing plants: in Kernersville, Pleasant Garden, and Maiden. On Friday, the closings marched north to Virginia and claimed Roanoke.

In Friday's announcement, Hooker advised that it will shutter the 265,000-square-foot Roanoke plant and lay off the entire workforce. As has come to be the norm with the company, Hooker blamed its latest closure on "a continuing trend of decreased order and shipment rates for the company's domestically produced wood furniture."

Four down, one to go
The Roanoke closing will leave Hooker with exactly one wood furniture plant remaining in the United States -- the massive 760,000-square-foot facility located in its headquarters town of Martinsville, Va. By consolidating all U.S.-based wood furniture manufacturing here, Hooker expects to shave about $2.1 million off its operating costs in future years. Shorter-term, though, investors should expect to see the costs of closing the plant and paying severance to ex-employees slash $0.23 per share from Q3 earnings, and another two or three pennies from Q4.

When will the fifth shoe drop?
That's what investors are wondering today. It seems not a year goes by without Hooker closing a plant and subtracting the costs from its profits. But with just one wood furniture plant remaining, the firm is just about out of things to close. It does still have two North Carolina shops that make upholstered furniture, but with those sales doing relatively well, their closure seems unlikely.

So we're done with the closures?
Not necessarily. The market for U.S.-produced wood furniture continues to contract -- otherwise, management wouldn't have closed the Roanoke plant. And further market contraction could mean its Martinsville plant may become underused. Given the Martinsville plant's massive size, carrying all its fixed costs without being able to put all of its floor space to use could be become an expensive proposition.

Meanwhile, the firm continues to do quite well with its imported furniture, which has become a larger and larger part of the business in each of the past three years and currently provides more than 60% of Hooker's net sales. That lure of profits without fixed costs has to be appealing. And a Fool looking several years into the future shouldn't have much difficulty seeing the Martinsville plant going the way of Kernersville, Pleasant Garden, Maiden, and Roanoke -- and Hooker becoming exclusively a design and marketing firm, with just a bit of locally made upholstery tacked on.

Hooker Furniture is a Motley Fool Hidden Gems recommendation. Find the market's leading small caps before Wall Street does -- try out Hidden Gems free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above.