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An Analysis of Hooker Furniture Corporation and IKEA Growth Strategy

Alexandra Lopez
Concordia University Irvine

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Table of Contents
Executive Summary .............................................................................................................................. 3
Hooker Furniture Corporation Background and Overview ................................................... 3
Hooker Furniture Corporation Strategy and Mission .............................................................. 6
Hooker Furniture Corporation Operations .................................................................................. 6
Hooker Furniture Corporation Marketing ................................................................................... 9
Hooker Furniture Corporation Finance ..................................................................................... 12
Hooker Furniture Corporation Risk Factors ............................................................................ 23
Hooker Furniture Corporation Management and Ethics ...................................................... 24
IKEA Overview .................................................................................................................................... 27
Executive Summary / Recommendation .................................................................................... 28

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Executive Summary
This comprehensive analysis report will observe Hooker Furniture Corporation and

companies similar to IKEA, in all major areas of business in order to ultimately make a

recommendation on whether or not Hooker Furniture Corporation should adopt IKEA’s growth

strategy for a new brand they are considering introducing. In order to begin, it is critical to

evaluate the overview of Hooker Furniture as a company and what they have achieved. The

Operations, Marketing, Finance, and Management disciplines will be observed for Hooker

Furniture Corporation. An examination on the Company Risk and Ethics will be examined as

well so that a valid and thorough suggestion may be made regarding this consideration of

strategy adoption. IKEA, will be carefully examined to fully gather an understanding of its

Vision, Mission, and Growth Strategy used and to diligently make a strategy recommendation

for Hooker Furniture’s growth strategy. To begin the analysis, it is essential to understand the

company history and overview of Hooker Furniture Corporation and how they evolved to what

they are today. This will provide a perspective for what Hooker Furniture represents, its

mission, and overall company strategy.

Hooker Furniture Corporation Background and Overview

Hooker Furniture Corporation is a leading supplier of furniture in the United States.

They are also a home furnishings marketing, design, and a logistics company that offers

worldwide sourcing of residential, contact case goods, upholstery, as well as domestically

produced custom leather and fabric upholstered furniture. Hooker Furniture began in 1924 by

Clyde Hooker Jr. At the time, the town of Martinsville, Virginia, was experiencing hard times, so

Hooker suggested launching a furniture factory to provide jobs. (Hooker Furniture Corporation)

The company began by specializing in bedroom suites and revenues were about $1 million in the

first year, when the plant employed only about 200 people. Come the year 2000, Clyde passed
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on the responsibility to his grandson, Paul B. Toms Jr. This makes Hooker a third-generation

company and one of the few furniture firms still led by a member of the founding family.

Today, Hooker is ranked among the nation’s top 10 largest publicly traded furniture

sources, based on 2015 shipments to U.S retailers, according to a 2015 survey published by

Furniture Today. Hooker Furniture is a key resource for residential wood, metal furniture

(commonly referred to as “case goods”), and upholstered furniture. (Hooker Furniture 10k

2016) Hooker’s major case good product categories are: accents, home office, and dining,

bedroom and home entertainment furniture under the Hooker Furniture brand. The residential

upholstered seating companies, that Hooker Furniture Corporation owns, include Bradington-

Young, which is a specialist in upscale motion and stationary leather furniture, and Sam Moore

Furniture, which is focused on upscale occasional chairs, settees, sofas and sectional seating

with an emphasis on cover-to-frame customization. Each of these product categories provides

an extensive selection of designs and formats along with finish and cover options, which makes

Hooker Corporation a comprehensive resource for retailers primarily targeting the upper-

medium price range. In addition, they also market a line of imported leather upholstery under

the Hooker Upholstery trade name and work directly with several large customers to develop

private-label, unbranded products that are exclusively for those customers. Their H contract

division supplies upholstered seating and case goods to upscale senior living facilities

throughout the country, and work with designers who specialize in the contract industry to

provide functional furniture for senior living facilities. Its customers include designers, design

firms, industry dealers and distributors, and senior living facilities throughout the United States.

The sales force for H Contract’s are independent multi-line sales representatives. Hooker

Corporation also offers Homeware, which is an online-only brand that is sold through leading

international e-commerce retailers. They supply unique chairs, sofas, and ottomans that are

designed to be assembled in minutes by the consumer with no tools or hardwire required.

Homeware’s customers are mainly online Home furnishing retailers including Wayfair,
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Hayneedle, and One King Lane. (Hooker Furniture 10k 2016) For Hooker’s core product line,

the main customers are both traditional and online retailers of residential home furnishings that

are broadly dispersed throughout the United States and in thirty-six other countries around the

globe. The customers include independent furniture stores, specialty retailers, department

stores, catalog and Internet merchants, interior designers and national and regional chains.

Over 60 independent North American sales representatives and 8 foreign sales representatives

service Hooker Corporation. (Hooker Furniture 10k 2016)

On January 5th, 2016, Hooker Furniture Corporation entered into an asset purchase

agreement with Home Meridian International, Inc. (“HMI”) to acquire substantially of HMI’s

assets. The transaction was closed on February 1st, 2016 by paying $85 million in cash and

issuing 716,910 shares of the common stock (the “Stock Consideration”) to designees of HMI.

(Hooker Furniture 10k 2016) The Stock Consideration consisted of 530, 598 shares accounting

for the $15 million of consideration payable in shares of their common stock under the Asset

Purchase Agreement, and 186,312 shares issued pursuant to working capital adjustments

detailed in the Asset Purchase Agreement. (Hooker Furniture 10k 2016) The Home Meridian

division includes five business units which are: Pulaski Furniture, Samuel Lawrence Furniture,

Samuel Lawrence Hospitality, Prime Resources International, and Right 2 Home. HMI’s

business model allows the company to create global sourcing solutions for major customers and

multiple channels of distribution. Their business model includes global sourcing and broad

experience, which allowed HMI to adapt and gain significant market share within the industry.

(Hooker Furniture 10k 2016) "The HMI team is excited to join with Hooker Furniture

Corporation to become one of the largest players in the industry," said Revington, president and

chief operating officer of the HMI division. "The success of these two companies is directly

related to how they serve their customers and the new combination will make us even more

effective and provides a great platform for future growth." (Hooker Furniture Investors) Hooker

Furniture Corporation plans on the acquisition to more than double the size of the Company on
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a net sales basis and consequently, makes them one of the top five sources for the U.S furniture

market.

Hooker Furniture Corporation Strategy and Mission

Today, Hooker Furniture’s mission is “to enrich the lives of the people we touch through

innovative home furnishings of exceptional value.” The core values Hooker stands for are:

Integrity, Caring, Listening, Innovation, Service, Responsibility, Citizenship and Honesty.

(HookerFurniture.com) Hooker Furniture Corporation’s strategy to achieving their mission is:

“to offer world-class style, quality and product value as a complete residential and contract

wood, metal, and upholstered furniture resource through excellence in product design,

manufacturing, global sourcing, marketing, logistics, sales, and customer service”, “to be an

industry leader in sales growth and profitability performance, providing an outstanding

investment for our shareholders and contributing to the well-being of our customers,

employees, suppliers, and community”, and “to nurture the relationships, teamwork and

integrity that define our corporate culture and have distinguished our company for over 90

years”. (Hooker Furniture 10k 2016) Now that the mission and strategy are understood, it is

important to examine how Hooker Furniture operates its operations.

Hooker Furniture Corporation Operations

To best understand the operations of Hooker Furniture, it is wise to carefully go over

each part of the process of developing the quality furniture Hooker provides. Hooker Furniture

has been sourcing products from foreign manufactures since 1988. (Hooker Furniture 10k 2016)

The imported casegoods and upholstered furniture together accounted for approximately 70% of

net sales for fiscal year of 2016, 71% of net sales in fiscal 2015, and 72% of net sales in fiscal

2014. (Hooker Furniture 10k 2016) The finished furniture that is imported comes in a variety of

styles, materials, and product lines. Hooker Furniture believes that “the best way to leverage
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their financial strength and differentiate their import business from the industry is through

innovative and collaborative design, extensive product lines, compelling products, value,

consistent quality, excellent customer service, easy ordering and quick delivery through

significant finished goods inventories, world-class global logistics and robust distribution

systems.” (Hooker Furniture 10k 2016) The products that are imported are predominantly from

Asia because of the large number and diverse nature of the foreign factories from which Hooker

sources the imported products. Hooker Furniture Corporation heavily relies on the China

warehouse; in fiscal 2016, the imported goods sourced from China accounted for approximately

68% of import purchases. A disruption in the supply chain from that factory could significantly

compromise the ability to fill customers orders for products manufactured at that factory or in

the country. (Hooker Furniture 10k 2016) However, given the capacity available in China, and

other low-cost producing countries, Hooker Furniture believes that the risks from these

potential supply distributions are manageable. On January 31, 2016, Hooker Furniture

operated approximately 507,400 square feet of manufacturing and supply plant capacity in

North Carolina and Virginia for their domestic upholstered furniture production. The machinery

used is modern and well maintained according to Hooker Furniture’s 10k 2016 report. Hooker

Furniture firmly believes that there are strong market opportunities for domestically produced

upholstery, particularly in the upper and upper-medium price points, which provide two key

competitive advantages compared to imported upholstery: the ability to offer customized

upholstery combinations to the upscale consumer and interior design trade, and the ability to

offer quick four to six week product delivery of custom products. The upholstered segment

operations have been profitable since fiscal 2013, with overall profitability improving each year,

primarily due to improving profitability in Hooker’s domestic upholstery, which lagged the

import operations during the economic downturn but are now seeing the impact of cost

reduction efforts and improving sales on their operations. (Hooker 10k 2016) Hooker

Furniture’s lower overhead, variable-cost import operations help drive their profitability and
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provide more flexibility to respond to changing demand by adjusting inventory purchases from

suppliers, according to the 10k 2016 report. This import model requires constant attentiveness

due to a larger investment in inventory and longer production lead times. (Hooker 10k 2016)

The Company constantly evaluates their imported furniture suppliers and when it comes to

quality, inflationary pressures, or trade barriers, such as duties and tariffs, diminish Hooker’s

value proposition, Hooker’s transition sourcing to other suppliers, that are often located in

different countries or regions. There are significant materials that are used in the manufacturing

of the upholstered furniture, which includes: leather, fabric, foam, wooden frames, and metal

mechanisms. (Hooker Furniture 10k 2016) Most of the leather is imported from Italy, South

America, and China, then is purchased as full hides, then cut and sewn in Hooker’s facilities, or

is purchased as pre-cut and sewn kits processed by their vendors to the pattern specifications.

Their five largest suppliers accounted for approximately 37% of their raw materials supply

purchases for domestic upholstered furniture manufacturing operations in fiscal 2016. (Hooker

Furniture 10k 2016) However, Hooker Furniture does not depend on any one specific seller and

sources for raw materials that are adequate. Hooker sells its products through a number of

distribution channels, including independent furniture retailers, department stores, national

membership clubs, regional stores, catalog merchandisers, specialty retailers, designers and E-

retailers, design firms and senior living facilities. The company distributes furniture to retailers

from their distribution centers and warehouses in Virginia and North Carolina and directly from

Asia via our container direct programs. (Hooker Furniture 10k 2016) Hooker Furniture has a

warehouse and distribution arrangement in China with their largest supplier of imported

products and a consolidation warehouse in Vietnam allowing customers to mix containers from

several Vietnam factories. Hooker strives to provide imported and domestically produced

furniture on-demand for their dealers. During fiscal 2016, they shipped 80% of all casegoods

orders and approximately 61% of all upholstery orders within 30 days of order receipt. It is

Hooker Furniture’s policy and industry practice to allow order cancelation for casegoods up to
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the time of shipment; therefore, customers’ orders for casegoods are not firm. However,

domestically produced upholstery products are mainly custom-built and are shipped within six

to eight weeks after an order is received and consequently, cannot be canceled once the leather

or fabric has been cut. (Hooker Furniture 10k 2016) Normally, with imported products, Hooker

Furniture negotiates firm pricing with foreign suppliers in U.S Dollars, for at least one year per

term. Since Hooker Furniture transacts imported product purchases in U.S Dollars, a relative

decline in the value of the U.S Dollar could increase the price they pay for imported products

beyond the negotiated periods. However, the U.S dollar could also increase which decreases the

cost of imported products, which is a risk Hooker Furniture considers when dealing with

warehouse and distribution. Overall, Hooker Furniture’s operations align with their current

mission and strategy as a company, which is providing quality materials and excellence in

product design. The following aspect of Hooker Furniture to analyze is the marketing strategy.

Hooker Furniture Corporation Marketing

Hooker Furniture Corporation has multiple brands, a wide variety of categories, and

styles that must be taken into account for marketing purposes. Marketing is vital within the

company for it reflects what the company represents to the consumer. Marketing introduces and

promotes to potential customers what the product or service provides. Hooker Furniture must

carefully consider what and how it would like to showcase its products to its potential

customers. This begins by identifying the underlying trends and expectations of a customer.

Hooker Furniture offers product lines that cover most major style categories, including

European and American traditional, contemporary, transitional, urban, country, casual, and

cottage designs. (Hooker Furniture 10k 2016) The materials offered come in types of wood,

metal, leather and fabric, as well as veneer and other natural woven products, often accented

with marble, stone, slate, glass, ceramic, brass and/or hand painted finishes. The major

casegoods product categories include accents, home office, dining, bedroom and home
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entertainment furniture which is marketed under the Hooker Furniture brand name, as well as

“private label” products marketed under a retailer’s brand name. The casegoods are typically

designed and marketed for the upper-medium to lower-high-end price range. (Hooker Furniture

10k 2016) Bradington-Young markets its products under the Bradington-Young brand name

and offers a broad variety of residential leather and fabric upholstered furniture and specializes

in leather reclining and motion chairs, sofas, club chairs and executive desk chairs. In addition

to the wide selection, it offers numerous leather and fabric selections for domestically produced

upholstered furniture that is targeted at the upper price range, according to the Hooker

Furniture 10k 2016. The Hooker Upholstery targets at the upper-medium price points and is an

imported line of leather upholstery while offering numerous leather and fabric selections and a

broad variety of married cover options on stationary sofa groups, recliners, office chairs, club

chairs, motion groups, and decorative ottomans. Sam Moore Furniture’s products are marketed

under the Sam Moore brand name or private label and offer upscale occasional chairs, sofas, and

other seating with an emphasis on fabric to frame customization. Sam Moore offers many

different styles of upholstered products in numerous fabric and leather selections, including

customer supplied upholstery coverings and target the upper medium and upper price ranges

within the market. (Hooker Furniture 10k 2016) The newly acquired brand, Home Meridian,

markets its items to the lower-medium price points. Home Meridian has a sales and design team

for each of their five business units and provides customized and proprietary products to

customers based on a design process that tends to be more collaborative with its customers.

(Hooker Furniture 10k 2016) Hooker Furniture Corporation currently markets to a high-end,

middle, and low-middle consumer base with its variety of brands and acquisition. Hooker

Furniture has observed that the product life cycle of home furnishings has shortened in the

recent years as consumers have demanded innovative new features, functionality, style, finishes,

and fabric, according to the Hooker Furniture 10k 2016. New styles in each of Hooker’s product

categories are designed and developed semi-annually to replace discontinued products and
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collections, and sometimes to enter a new product style or style categories. The Hooker

Furniture Corporation begins the process of the collaborative product design process with the

marketing team identifying customer needs and trends and then conceptualizing product ideas

and features. Usually, independent designers produce a variety of sketches, which prototype

furniture pieces are built. From there, Hooker Furniture creates a focus group for the market

research needed by generally having independent sales representatives and representative group

of retailers view and critique the prototypes. Based on the input they receive, the designs may be

modified and then prepared for full-scale production. The new product is then, normally,

introduced at the International Home Furnishings Market held each Fall and Spring in High

Point, N.C., and support new product launches with promotions, public relations, product

brochures, point-of-purchase consumer catalogs and materials and online marketing through

their websites, as well as through popular social media venues. (Hooker Furniture 10k 2016)

The scheduling of purchases of imported furniture and the production of domestically

manufactured upholster furniture is based upon actual and anticipated order and product

acceptance at the Spring and Fall market, according to the company’s 10k 2016 report. Hooker’s

all digital marketing strategy is centered on directly engaging the consumer, to connect them

with Hooker Furniture brands and direct them to their retail partners. This helps them build

relationships and exemplify Hooker Furniture’s core values. Based on the flexibility of both

Hooker’s global sourcing business model and the quick delivery times provided by their

domestic upholstery manufacturing presence gives them the ability to offer a large range of

styles, items and price points to a variety of retailers serving a range of consumer markets.

Examining the sales and market acceptance, Hooker furniture believes that their products

represent good value, and that the style and quality of their furniture compare favorably with

more premium priced products and for a high market. However, the acquisition of Home

Meridian has allowed Hooker to expand its growth strategy to broadening their market to a

lower-middle price range market. (Hooker Furniture 10k 2016) Hooker Furniture’s marketing
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strategy supports the Company’s mission by generating sales growth and creating customer

relationships by offering flexibility, customization, and quality service. Now that Hooker

Furniture’s marketing strategy has been analyzed, Hooker’s finance will be inspected.

Hooker Furniture Corporation Finance

Finance is one of the most important aspects in a business. Finance’s function is to

achieve business support service, lowest costs, and effective control of the environment. A

company’s success and growth occurs when the principles and procedures of corporate finance

are followed, which is the backbone of the corporation. By completing an analysis of the

financial situation of the company, the health and success is determined and ultimately

concludes the best way to make a profit; which is the purpose of business. The Stock, Financial

Condition, Working Capital Practices, Cash Flow, Liquidity, Financial Resources, Capital

Expenditures, Dividends, and a DuPont Analysis of Hooker Furniture Corporation will be

reviewed in detail to gain an understanding of how Hooker furniture uses its money. With that

said, the next step is to examine Hooker Furniture and where they stand financially. Hooker

Furniture Corporation is a publically traded company on the NASDAQ Global Select Market

under the symbol “HOFT” with a current stock price of 25.44 USD, according to the Wall Street

Journal stock profile. Hooker Furniture’s beta is .55, therefore is a low-risk stock. The table

below, from the Hooker Furniture Corporation 10k 2016 report, displays the high and low sales

prices for their common stock and the dividends per share that Hooker paid with respects to

their common stock for the periods indicated. During fiscal 2013 first quarter, Hooker’s Board of

Directors authorized the repurchase of up to $12.5 million of the Company’s common share, and
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during the rest of fiscal 2013, Hooker used a total of $671,000 to purchase $57,700 shares of

their stock at an average price of $11.63 per share, according to their 10k 2016 report. No shares

were purchased during fiscal 2014, 2015, or fiscal 2016. As of January 31, 2016, approximately

$11.8 million remains available under the board’s authorization. (Hooker Furniture 10k 2016)

According to Investopedia.com, companies issue shares to raise equity capital to fund expansion

and to make their business look more attractive to investors by reducing the number of

outstanding shares, a company’s earnings per share ratio is automatically increased. Hooker

Furniture used this strategy to their advantage in expanding its brands it offers and succeeded in

the appeal of their stock to investors because their stock value practically doubled in three years,

as shown in the graph below. (Yahoo Finance)

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The graph above shows the cumulative total return on $100 invested at the beginning of the

measurement period on Hooker’s common stock or the specified index, including reinvestment

of dividends. (Hooker 10k 2016) The Russell Index, prepared by Frank Russell Company,

measures the performance of the 2,000 smallest companies out of the 3,000 largest U.S

companies based on total market capitalization, according to Hooker 10k 2016. The Household

Furniture Index, which was prepared by Zacks Investment Research, Inc., consists of companies

under SIC Codes 2510 and 2511, which includes home furnishings companies that are publically

traded in the United States or Canada. At January 31, 2016, Zacks Investment Research, Inc.

reported that these two SIC Codes consisted of Basset Furniture Industries, Inc., Dorel

Industries, Inc., Ethan Allen Interiors, Inc., Flexsteel Industries, Inc., Hooker Furniture

Corporation, La-Z-Boy, Inc., Leggett &Platt, Inc., Natuzzi SPA-ADR, Nova Lifestyle, Inc., Select

Comfort Corporation, Stanley Furniture Company, Inc., Luvu Brands Inc., Kimball

International, Inc., and Tempur Sealy. (Hooker 10k 2016) This graph expresses what an investor

would receive when investing with a company shown above. The graph below, labeled “Stock

History”, displays Hooker Furniture’s stock history from January 2007 to February 2016.
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(Hoovers) When investors “buy” a stock, they are not buying a piece of paper; they are

becoming an owner of the company that stock represents. With that said, an investor would

naturally invest in a company that shows a consistent stock value and continues to grow, hence

the importance of Hooker Furniture’s stock history that showcases its growth and consistency as

a company.

The next step in the Hooker Furniture financial analysis is to review Hooker Furniture’s

financial condition. As of January 31, 2016, total assets increased in comparison to February 1,

2015, mainly due to increased cash and cash equivalents due to increased operating cash flows

during fiscal 2016,decreased accounts receivable due to lower sales in the fourth quarter of fiscal

2016 compared to fiscal 2015, and decreased inventories as a result of more effectively matching

inventory levels with projected demand. (Hooker 10k 2016) The chart below shows the changes

in the total assets, current assets, current liabilities, net working capital, and working capital
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ratio at January 31, 2016 compared to February 1, 2015.

Above, is a projection of Hooker Furniture’s balance sheet comparing fiscal years 2012-2016.

(Hoovers) As shown in the chart, Hooker Furniture’s Total Assets continue to become larger and

grow, which, historically, growth rate data is a good predictor for future behavior, since a long-

term basis, assets are expected to behave consistently, Sage Works. The chart below shows

Hooker Furniture’s liabilities from fiscal 2012 to fiscal 2016. (Hoovers) As shown in the chart,

Hooker Furniture does not have any debt. There are pros and cons to being debt-free.
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However, in Hooker Furniture’s case, it is beneficial for their growth strategy. First of all, it is

unquestionably beneficial for companies to not have the pressure of loan repayment, risk of

economy turning sour, or suffering from interest rates. Nevertheless, Hooker Furniture’s

decision to remain debt free is in line with their growth strategy. Being debt-free allows Hooker

to have more cash in hands of the company and allocate it to its growth prospects. (The

Economic Times) If Hooker’s management finds viable business opportunities, it is able to

retain the cash for reinvestment in the business and create value for shareholders. The chart

below shows Hooker Furniture’s Equity from fiscal 2012 to fiscal 2016. (Hoovers) Other than

determining the value of a company, equity is important to a business because it can be used to

finance expansion, which demonstrates Hooker Furniture’s strategy from acquiring HMI.

Funding business expansion by selling shares of stock to investors for cash that can be used

to fund growth. (Chron) As shown on the “Shareholder’s Equity” chart, there is no Preferred

Stock Equity for the past five years and this is because preferred stock combines features of

debt, in that it pays fixed dividends, and equity, in that it has the potential to appetite in price.

(Investopedia) This would go against Hooker Furniture’s financial strategy of having no debt in
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order to focus on their mission to grow as a company. Hooker’s ROE rose from 6.7% to 10.8%

over the last four years that translates into managements’ achievements in generating profit off

the equity they already have. (Guru)

Hooker Furniture’s working capital practices, the cash available for the day-to-day

operations of the organization, are:

• Inventory: Hooker Furniture generally imports casegoods inventory and certain

upholstery items in amounts that enable them to meet the delivery requirements of

customers, their internal in-stock goals and minimum purchase requirements from our

sourcing partners. Hooker does not carry significant amounts of domestically produced

upholstery inventory, as most of these products are built to order and are shipped shortly

after their manufacture. (10k 2016)

• Accounts receivable: Substantially all of Hooker’s trade accounts receivable are due from

retailers and dealers that sell residential home furnishings, which consist of a large

number of entities with a broad geographic dispersion. The Company performs credit

evaluations of customers and generally do not require collateral. For qualified

customers, Hooker offers payment terms, generally requiring payment 30 days from

shipment. Sam Moore factored substantially all of its accounts receivable prior to

implementing the ERP in May 2015 and Bradington-Young currently factors

substantially all of its receivables, in most cases on a non-recourse basis; however, in

order to realize operational efficiencies, cost savings, leverage best practices and present

a single face to our customers, Hooker plans to end the factoring relationship as the new

Enterprise Resource Planning system (“ERP”) becomes fully operational for Bradington-

Young in the first half of fiscal 2017. However, given the Company’s current and

projected liquidity, Hooker does not expect the transition to have a material adverse

effect on our future liquidity. (10k 2016)

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• Accounts payable: Payment for Hooker’s imported products warehoused first in Asia is

due fourteen days after the quality audit inspections are complete and the vendor invoice

is presented. Payment for goods, which are shipped to Hooker FOB Origin, is due upon

proof of lading onto a US-bound vessel and invoice presentation. Payment terms for

domestic raw materials and non-inventory related charges vary, but are generally 30

days from invoice date. (10k 2016)

Hooker Furniture Corporation’s change in working capital for fiscal 2016 was $2.6 Mil,

which means Hooker Furniture’s working capital increased by $2.6 Mil within a year. (Guru)

The changes in working capital is reported in the cash flow statement since it is one of the major

ways in which net income can differ from operating cash flow.

Cash flow is a key indicator of financial health. The importance of a strong cash flow is

vital within business; having cash puts you in a more stable position with better buying power,

such as Hooker Furniture’s ability to acquire brands in order to grow in respects to its growth

strategy. The efforts of debt management, finance, and strategy are unserviceable without cash

flow. Companies need money in order to make money. Being in position of excess cash flow

helps the company operate in a strategic and proactive way. The chart below displays the

Summary of Cash Flow Information – Operating, Investing, and Financial Activities of Hooker

Furniture Corporation from fiscal 2014 to fiscal 2016. (Hooker 10k 2016) During fiscal 2016,

$23.0 million of cash generated from operations and cash on hand funded cash dividends of

$4.3 million, purchases of property and equipment of $2.8 million and Company-owned life

insurance premium payments of $707,000. The company-owned life insurance policies are in
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place to compensate the Company for the loss of key employees and to assist business continuity

while serving as a funding mechanism for certain executive benefits. (Hooker 10k 2016) During

fiscal 2015, $22.8 million of cash generated from operations and cash on hand funded cash

dividends of $4.3 million, purchases of property and equipment of $3.0 million and Company-

owned life insurance premium payments of & 789,00. During fiscal 2014, $5.7 million of cash

generated from operations, cash on hand and proceeds received on Company-owned life

insurance policies of $517,000, funded cash dividends of $4.3 million, purchases of property

and equipment for $3.5 million and Company-owned life insurance premium payments of

$834,000. (Hooker 10k 2016) Hooker’s financial resources include: available cash and cash

equivalents, which are highly dependent on incoming order rates and their operating

performance; expected cash flow from operations; and available line of credit. The Company

believes these resources to be sufficient enough to meet the business requirements through their

fiscal 2017 and for the foreseeable future, including: capital expenditures; working capital

including capital required for insourcing the Bradington-Young trade receivables in fiscal 2017

and for Hooker’s new business initiatives; the payment of regular quarterly cash dividends on

their common stock; and the servicing of debt related to the acquisition of HMI. (Hooker 10k

2016) As of January 31, 2016, Hooker had an aggregate $13.3 million available under their

revolving credit facility to fund working capital needs. Standby letters of credit in the total

amount of $1.7 million, used to collateralize certain insurance arrangements and for imported

product purchases, were outstanding under the revolving credit facility as of January 31, 2016,

and there were no additional borrowings outstanding. Hooker’s current ratio currently is 7.71.

(Guru) This shows that Hooker is well equipped to be able to pay short-term obligations for the

ratio is over 3 which is considered to be healthy. (Investopedia) The Company’s quick ratio is

5.06. (Market Watch) Like the current ratio, the quick ratio measures the company’s ability to

meet its short-term obligations with its most liquid assets. However, it excludes inventories

from current assets and measures the dollar amount of liquid assets available for each dollar of
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current liabilities. With that said, the higher the quick ratio, the better off the company is. Thus,

a quick ratio of 5.06 means that Hooker has $5.06 of liquid assets available to cover each $1 of

current liabilities. (Guru) Hooker Furniture’s liquidity is worth more than other companies who

do not have a strong liquid cash flow because Hooker is able to use their funds instantly, grow as

a company, and does not have any debt to worry about.

Hooker Furniture Corporation is expecting to spend between $3.5 million to $5.0 million

in capital expenditures in the 2017 fiscal year to maintain and enhance their operating systems

and facilities. Of these estimated amounts, Hooker expects to spend approximately $400,000

on the implementation of their legacy Hooker Enterprise Resource Planning (ERP) system in

their upholstery segment during fiscal 2017. (Hooker 10k 2016) Hooker has the ability to invest

in itself through capital expenditures therefore making it easier for them to grow as a company.

Their new ERP system became operational for their casegoods and imported upholstery

operations early in the third quarter of fiscal 2013, at H Contract and Homeware when their

operations began in fiscal 2014 and at Sam Moore in the second fiscal quarter of 2016. (Hooker

10k 2016) Implementation is scheduled to be completed at Bradington-Young (BY) during the

first half of fiscal 2017. Once BY is operational on the ERP platform, Hooker expects to realize

operation efficiencies and cost savings as well as present a single face to their customers and

leverage best practices across the traditional Hooker organization. (Hooker 10k 2016) Cost

savings are difficult for Hooker to quantify until the ERP system becomes fully operational

across all Hooker business units. The Company expects to be able to reduce administrative

functions, which are presently duplicated across the segments and improve their purchasing

power and economies of scale. (Hooker 10k 2016) Currently, Hooker’s weighted average coast of

capital is 6.36% and their return on invested capital is 15.44%. (Guru) This means Hooker

Furniture generates higher returns on investment than it costs the company to raise the capital

needed for that investment. The Company is earning excess returns.

SIGNATURE ASSIGNMENT ANALYSIS 22

On March 1, 2016 Hooker’s Board of Directors declared a quarterly cash dividend of

$0.10 per share. Hooker declared and paid dividends of $0.40 per share or approximately $4.3

million in fiscal 2016. (Hooker 10k 2016) Hooker Furniture’s dividend yield is 1.57%, which is

considered to be average. (Capital Cube) However, this is of little importance to Hooker for they

are a growing company and retained earnings will be reinvested in the expansion opportunities

which gives shareholders profits in the form of capital gains.

By completing a DuPont Analysis, Hooker Furniture Company’s will be analyzed in its

ability to increase its return on equity. This model will break down Hooker’s return on equity

ratio to explain how it can increase its return for investors. The DuPont analysis will observe

Profit Margin, Total Asset Turnover, and Financial Leverage of Hooker Furniture over the last

four fiscal years from 2013 to 2016. This model will conclude that Hooker Furniture can raise its

ROE by maintaining a high profit margin, increasing asset turnover, or leveraging assets more

effectively. (DuPont) As shown in analysis, Hooker Furniture’s ROE has noticeably fluctuated

within four years. Overall, the financial leverage and total asset turnover from fiscal 2013 to

2016 have remained somewhat consistent. However, the profit margin has been drastically

changing within four years. Hooker Furniture is able to generate sales but has been selling

products at a smaller margin while maintaining a lower cost of goods and is able to turn over

large amounts of sales. Hooker managers will use a DuPont analysis to see where they need to

improve in these sections to increase the ROE.

Succinctly, Fiscal 2016 for Hooker Furniture Corporation’s highpoint was the

profitability improvement. All of the operating segments reported improved profitability over

the prior fiscal year. Be that as it may, Hooker Furniture believes that their sales were impacted

by an uneven national and global economy, which culminated in stock market declines during
SIGNATURE ASSIGNMENT ANALYSIS 23

fiscal 2015, but continues to believe that housing and the US economy in general will continue to

trend positively, but not without occasional downward pressures. (10k 2016) After reviewing

Hooker’s financial aspects, it is apparent that the company is growing, in profit and in efforts to

growing their company in size, with supporting financials. The next step is to consider the

selection of risks Hooker Furniture is exposed to.

Hooker Furniture Corporation Risk Factors

Hooker Furniture Corporation is subject to a variety of risks. If any risk Hooker has, such

as results of operations, financial condition, future prospects and more, becomes something

negative for the business, it could endanger the company itself. The Company sources imported

products through approximately 18 different vendors, from approximately 20 separate factories,

located in five countries. Because of the large number and diverse nature of the foreign factories

from which Hooker can source imported products, the Company has flexibility in the placement

of products in any particular factory or country. (10k 2016) Hooker Furniture relies on offshore

sourcing, particularly from China, for predominantly all of the casegoods furniture products and

for a significant portion of the upholstered products. (Hooker furniture 10k 2016) One Chinese

factory in particular accounted for approximately 68% of imported purchases. A sudden

disruption in Hooker’s supply chain from this factory or China in general, could drastically

impact the Company’s ability to fill customer orders for products manufactured at that factory

or country. (10k 2016) If such an unfortunate disruption were to occur, Hooker believes that

they would have sufficient inventory currently on hand in and in transit to the U.S. warehouse in

Martinsville, VA to meet the demand for approximately four and one-half months. In addition,

the broad spectrum of product the Company itself, that in some cases, buyers could be offered

similar product available from alternative sources that Hooker offers. Hooker Furniture is

confidant that they could source most of the products currently sourced in China from factories

in other countries and could produce certain upholstered products domestically at the U.S
SIGNATURE ASSIGNMENT ANALYSIS 24

factories. (10k 2016) Hooker Furniture has weighted the possibility of being unsuccessful in

obtaining those products from other sources, or at a comparable cost, then a sudden disruption

in the supply chain from their largest import furniture supplier, or from China in general, could

have a short-term material adverse effect on their results of operation. However, considering the

capacity available in China and other low-cost producing countries, Hooker believes the risks

from these potential supply disruptions are manageable. (10k 2016) There are countless

amounts of risk when doing business and business internationally, nevertheless, Hooker

Furniture manages risk by accepting and limiting. Some risk is inherent within the sort business

Hooker is in and is unlikely to happen, thus the company accepts that it’s a possibility. But,

Hooker Furniture is prepared and has a strategy for if a situation goes wrong, thus limiting the

situation from growing any bigger. Now that Hooker Furniture’s business departments have

been examined, it is now time to look at the team that is navigating the organization.

Hooker Furniture Corporation Management and Ethics

Managers influence all aspects within the business and guide organizations toward goals.

The role of management is to guide an organization towards its common mission. Although

Hooker Furniture’s business model has evolved as they have adapted to the realities of a global

economy, Paul B Toms, Chairman and Chief Executive Officer, and grandson of Company

founder J. Clyde Hooker, Hooker Furniture’s core values remain the same. “We built our

company one relationship at a time and realize that every interaction we have is an opportunity

to live out our values. Continuous improvement is part of our DNA, and we honestly believe that

everything we do can be improved upon.” stated Paul B Toms. (Hooker Furniture Blog) The

table below lists Hooker Furniture’s executive officers and their ages as of April 15, 2016 and the

calendar year each joined the Company. (10k 2016)

SIGNATURE ASSIGNMENT ANALYSIS 25

Hooker’s management team has noted, in their 10k 2016 report, a looking forward statement as

they progress through 2017. The management team continues to follow the evolving changes of

consumer tastes and channels and decided to address these changes, Hooker Furniture is going

to change. As stated in the 10k 2016 report, “Sometimes evolving and growing and sometimes

with big changes, such as the acquisition of Home Meridian International, which gives us access

to many new customers, distribution channels and price points and helps position us, we

believe, for market leadership well into the future.” This willingness to change demonstrates the

values and mission statement of Hooker Furniture through caring and listening to consumer

needs and wants. Going forward in fiscal 2017, Hooker has noticed the lower demand for their

products compared to the same period a year ago. But, given the mostly positive economic news

over the past year, Hooker furniture is optimistic about longer-term future with their core

business, new ventures, and in the newly acquired Home Meridian division. (10k 2016)

According to Hooker’s SEC filings, going forward in 2017, Hooker furniture will focus on:

• Evaluating ways to expand into new distribution channels;

• Successfully integrating the Home Meridian division;

• Leveraging best practices in order to lower costs, improve efficiencies and grow sales;

• Growing and improving the profitability of new business initiatives;

• Building on initial success in expanding merchandising reach in the “better” parts of

“good-better-best” casegoods product offerings;

• Growing sales of Cynthia Rowley home furnishings collection;

• Improving the product assortment and value proposition of the Hooker Upholstery

imported product line;

• Improving operating profitability and increasing production capacity at Sam Moore;

SIGNATURE ASSIGNMENT ANALYSIS 26

• Mitigating inflation on imported products and raw materials;

• Maintaining proper inventory levels and optimizing product availability on best-selling

items;

• Strengthening relationships with key vendors and sourcing product from cost-

competitive locations and from quality-conscious sourcing partners;

• Offering an array of new products and designs, which is believed will help generate

additional sales;

• Upgrading and refining information systems capabilities to support Hooker’s business,

including implementing an ERP system at Bradington-Young; and

• Controlling costs

Hooker Furniture is continuously looking forward and looking to grow internally and externally

and optimizing opportunities to do so. Not only does the Company hold a social responsibility to

deliver and perform what was promised to its customers, but holds an environmental social

responsibility as well. Hooker Furniture exemplifies an ethical effort in maintaining its

environmental social responsibility by having a mission statement specifically for the

environment: “On behalf of future generations, Hooker Furniture commits to be a good steward

of the environment through sustainable business practices that help preserve the earth’s beauty

and resources.” (Hooker) Hooker Furniture has stated, in their environmental policy, that they

are committed to building a better world through leadership in all of their business practices

and to providing safe and environmentally friendly work place for their employees. This reflects

Hooker’s management team’s values and citizenship in the furniture industry and local

communities by reducing their environmental impact. The following are Hooker Furniture’s

Environmental goals:

• Reduction of air and greenhouse gas emissions.

• Utilization of alternate fuels for a cleaner environment.

SIGNATURE ASSIGNMENT ANALYSIS 27

• Conservation of natural resources by saving energy, reducing water consumption,

recycling and using recycled materials.

• Utilization of services and expertise around the world to assist in the development of

solutions to environmental problems.

• Participation in community events to enable our communities to learn and work toward

a cleaner/healthier place to live.

• Meeting or exceeding government requirements for environmental programs by working

closely with government agencies to ensure a healthier earth.

• Development and measurement of compliance programs to ensure all environmental

regulations are being followed.

And in result of these goals, Hooker Furniture has:

• Recycled over 850,000 pounds of paper, cardboard, and plastic;

• Reduced electricity usage by an average of 5% per year; and

• Reduced natural gas usage by an average of 4% per year.

In short, Hooker Furniture’s mission and values are undoubtedly exemplified through the

management team and their environmental stewardship.

IKEA Overview
After careful examination of Hooker Furniture Corporation as a whole, IKEA’s Mission

Statement and Growth Strategy will be thoroughly reviewed in consideration to Hooker’s

recommendation. A brief overview of IKEA’s will be examined to understand where the

Company stands today. IKEA is a private multinational group of companies that designs and

sells ready-to-assemble furniture such as beds, chairs, desks, appliances and home accessories.

As of January 2008, it was named the world’s largest furniture retailer. (Wiki) The company is

known for its modern architectural designs for various types of appliances and furniture, and its

interior design work is often associated with an eco-friendly simplicity. IKEA is also known for
SIGNATURE ASSIGNMENT ANALYSIS 28

its attention to cost control, operational details, and continuous product development. Today,

IKEA’s vision statement is "Our vision is to create a better everyday life for the many people.”

The mission statement is “Offering a wide range of well-designed, functional home furnishing

products at prices so low that as many people as possible will be able to afford them.” (IKEA)

IKEA’s growth strategy is to grow by using their own resources. Essentially, IKEA earns money

before they spend it and that makes it possible to make long-term investments for the future.

IKEA’s vision is the foundation for their growth and aims at making IKEA accessible, so that

more people can create a better everyday life at home. IKEA re-invests most of its profits in

existing and new IKEA stores, as well as in product development, sustaining solutions, and by

continuously lowering prices to customers. (IKEA) IKEA has a wide variety of products,

however, their products are low quality. Despite the functionality of the product, it lacks in

value.

Executive Summary / Recommendation

This comprehensive analysis of Hooker Furniture Corporation and companies similar to

IKEA was done in efforts to recommend whether Hooker Furniture should adopt IKEA’s growth

strategy for a new brand they are considering introducing. Hooker Furniture Corporation was

analyzed by carefully examining their Background/Overview, Operations, Marketing, Finance,

Management, Risk, and Ethics. IKEA’s Vision, Mission, and Growth Strategy was well looked

over in order to gain an understanding of what they stood for and how they planned to grow.

Then, by determining the weight that each of these disciplines, a recommendation is able to be

made.

Hooker Furniture and IKEA are both leading companies in the furniture business.

However, Hooker is a leader in the high-mid market of furniture, and IKEA is a leader in the low

market of furniture. By comparing Hooker Furniture’s and IKEA’s mission statements; it is

obvious where the difference in company focus is. Hooker’s mission statement is:
SIGNATURE ASSIGNMENT ANALYSIS 29

“To enrich the lives of the people we touch through innovative home furnishings of

exceptional value.”

IKEA’s mission statement is:

“Offering a wide range of well-designed, functional home furnishing products at prices so low

that as many people as possible will be able to afford them.”

Hooker Furniture’s mission and efforts are to provide exceptional value and quality in home

furnishings. IKEA’s mission and efforts are to sell furniture that is functional to as many people

possible. By solely looking at these two companies’ mission statements, it is apparent that they

want to achieve different goals.

On March 28th, 2016, Hoovers.com reported an opportunity in the Global Luxury

Furniture Market. That market is forecast to grow more than 4% per year through 2019,

reaching a value of $26 billion. An increasing global economy and the rising number of high net

worth individuals helps drive the luxury furniture demand. With this said, it would be in

Hooker’s best interest to grow within its own growth strategy and with the high market it is

already familiar with and seize the opportunity in the luxury furniture market.

Hooker Furniture currently has two brands: H Contract and Homeware, which may fail

to meet growth and profitability targets. Homeware is an online-only brand and supplies

unique chairs, sofas, and ottomans that are designed to be assembled in minutes by the

consumer with no tools or hardwire required. However, according to Hoovers.com, online

furniture sales have become a fast-growing segment of the overall retail market. With that said,

Hooker Furniture should consider allocating its funds in growing a brand it already owns with a

promising market online.

Hooker Furniture Corporation recently acquired Home Meridian. Hooker Furniture

adapts to changes in its industry and price points have become a major supplier in Hooker’s

channels. A great deal of furniture is sold in channels and at price points in which Hooker had

never been a part of, so they wanted to find the appropriate investment to expand its reach for
SIGNATURE ASSIGNMENT ANALYSIS 30

new furniture consumers. The Home Meridian acquisition allowed Hooker Furniture to achieve

the consumer base of medium-low market and expand its business. Home Meridian allowed

Hooker Furniture to grow in a different market, yet continue to keep its brand image of

exceptional value furniture. If Hooker Furniture were to adopt IKEA’s growth strategy, it would

be repeating the acquisition with Home Meridian and would loose its brand image of quality

goods.

Hooker Furniture’s growth strategy is: “to offer world-class style, quality and product value as a

complete residential and contract wood, metal, and upholstered furniture resource through

excellence in product design, manufacturing, global sourcing, marketing, logistics, sales, and

customer service”, “to be an industry leader in sales growth and profitability performance,

providing an outstanding investment for our shareholders and contributing to the well-being of

our customers, employees, suppliers, and community”, and “to nurture the relationships,

teamwork and integrity that define our corporate culture and have distinguished our company

for over 90 years”.

IKEA’s growth strategy is: to grow by using their own resources. Essentially, IKEA earns money

before they spend it and that makes it possible to make long-term investments for the future.

IKEA’s vision is the foundation for their growth and aims at making IKEA accessible, so that

more people can create a better everyday life at home. IKEA re-invests most of its profits in

existing and new IKEA stores, as well as in product development, sustaining solutions, and by

continuously lowering prices to customers.

After considering all previously made points, Hooker Furniture should not adopt IKEA’s

growth strategy because its premise is “low price”. Hooker Furniture exhibits quality and value,

which is essential to the brand image. Adopting a growth strategy from a company whose

mission is the direct opposite will be inconsistent. Furthermore, Hooker Furniture already

acquired a lower market brand and is gaining new market share. In short, to acquire a company

like IKEA’s growth strategy would be redundant and hurtful to Hooker Furniture’s brand.
SIGNATURE ASSIGNMENT ANALYSIS 31

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SIGNATURE ASSIGNMENT ANALYSIS 33

Appendix

Appendix A: Balance Sheet for Hooker Furniture Corporations February 2012 – 2016

SIGNATURE ASSIGNMENT ANALYSIS 34

Appendix B: Cash Flows for Hooker Furniture Corporation 2012 -2016

SIGNATURE ASSIGNMENT ANALYSIS 35

Appendix C: Income Statement for Hooker Furniture Corporation 2012 – 2016

SIGNATURE ASSIGNMENT ANALYSIS 36