History repeated itself in North Carolina yesterday as furniture maker and Motley Fool Hidden Gems selection Hooker Furniture
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
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.