Foolish Forecast: Hooker Beat Down

Its conversion to a new fiscal calendar complete, and its fiscal year 2007 cut abruptly short, Motley Fool Hidden Gems recommendation Hooker Furniture (Nasdaq: HOFT) continues to report this year's numbers as part of "fiscal 2008." Speaking of which, the third installment of those numbers is due out Thursday.

What analysts say:

• Buy, sell, or waffle? Two analysts follow Hooker. One says buy. The other says hold.
• Revenues. The shift in Hooker's financial calendar makes year-over-year comparisons difficult. That said, the analysts predict $81.4 million in sales in this year's Q3.
• Earnings. On average, they're predicting $0.45 per share in profits.

What management says:
Seeing shares of Hooker hammered on Friday, you might have thought the company issued an earnings warning of some sort -- or that one of its rivals had given a statement suggesting furniture sales were swooning again. But as far as I can tell, neither of those things happened.

Hooker hasn't filed an 8-K since reporting earnings last quarter. And a review of recent news out of Bassett (Nasdaq: BSET), Ethan Allen (NYSE: ETH), Furniture Brands (NYSE: FBN), La-Z-Boy (NYSE: LZB), and Stanley (Nasdaq: STLY) similarly turned up nothing of interest, and certainly nothing that would explain Friday's swoon.

Interestingly, the two stocks in this industry that were hardest hit Friday were Hooker and La-Z-Boy. Hmm. Maybe 60 Minutes is about to do an expose on the effects of upholstered furniture on lower back pain?

What management does:
Whatever the reason for Friday's fall, it appears it was short-lived. With La-Z-Boy and Ethan Allen, Hooker was one of the few furniture makers to see its shares rebound on Monday. And rightly so. Its string of plant closures complete, Hooker has been doing a fine job of growing its gross, operating, and net margins.

Margins	2/06	5/06	8/06	11/06	4/07	7/07
Gross	26.9%	29.6%	28.3%	30.7%	28.6%	31.3%
Operating	7.0%	10.5%	5.9%	10.3%	7.9%	10.8%
Net	4.2%	6.4%	1.5%	3.9%	5.5%	6.6%

Data courtesy of Capital IQ, a division of Standard & Poor's. Due to the fiscal year change, the data reflects performance for the quarters ended in the named months -- not trailing-12-months.

One Fool says:
It remains nearly impossible to compare apple wood to apple wood at Hooker, as the lopsided two-month shift in the firm's financial calendar means year-over-year comparisons no longer line up. Everything's off by one month or four, depending how you look at it.

That said, and taking the numbers with a few grains of salt, the business does appear to be improving in the midst of a rough sales environment. Sales in the quarter ending July 29, 2007, compared unfavorably to those booked in the quarter ending August 31, 2006. Using average daily sales, revenue fell about 10%. That said, other declines look more propitious. For example, the cost of goods sold declined 15% and operating costs fell 19%. Even with the quarters not lining up exactly straight, this suggests Hooker is improving the efficiency with which it cranks out furniture.

It's also cranking out a lot less of it, which should free up working capital for more profitable use. Comparing where inventories stood at the end of last quarter to where they were on August 31, 2006, the decline appears precipitous -- 32%.

We'll look forward to seeing similar, if similarly hard to parse, news on Thursday.

What did we expect from Hooker last quarter, and what did we get? Find out in:

• Hooker Furniture Hooks a Profit
• Foolish Forecast: Hooker Back on the Street