HOFT - Hooker Furnishings: Facing Headwinds That Could Lead To Underperformance

2024-03-09 23:54:51 ET

Summary

• Hooker Furnishings’ revenue growth has been underwhelming, as it has failed to modernize and has struggled to develop as a larger business following 2 transformational acquisitions.
• Its foundational business model is solid, as is its commercial position, yet Management has been unable to exploit this. We believe competition is depressing the company.
• Looking ahead, we expect economic conditions to weigh heavily, contributing to further downside in 2024, followed by an improvement subsequently.
• HOFT is considerably underperforming its peers, with limited scope to close the gap sufficiently to make it attractive.
• We see further downside potential at its current valuation, despite the decline observed since 2021.

Introduction and Thesis

Hooker Furnishings Corporation ( HOFT ) stands as a distinguished player in the furniture industry, renowned for its commitment to craftsmanship and innovation. With a rich history dating back to 1924, the company has established itself as a provider of high-quality home furnishings, catering to a diverse clientele.

HOFT has serially underperformed during the last decade, owing to a number of commercial factors that Management has struggled to respond to. This has contributed to declining market share and increased difficulty in "stemming the bleeding". This has translated to its financial performance, with worsening margins and uninspiring organic growth. The risk is that HOFT continues to experience a slow relative decline, leading to a languishing share price....

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