Case goods and upholstery resource Hooker Furniture reported a 4.1% increase in net sales and a 13% drop in net income during the third fiscal quarter ended Nov. 3.

Net sales totaled $59.1 million, compared to $56.8 million last year. Net income totaled $2.1 million or 20 cents per share, down from $2.4 million or 23 cents per share last year.

For the first nine months of its fiscal year, the company's sales totaled $170.7 million, up 7.6% from $158.7 million last year. For the same period, net income was $5.9 million or 55 cents per share, up 20.3% from the $4.9 million or 46 cents per share in the same period last year.

The company said the third-quarter sales gain was its fifth consecutive quarterly increase in net sales. Sales during the quarter and the first nine months were driven largely by higher average selling prices in case goods and upholstery. The company also reported increased unit volume in the upholstery segment.

"We're pleased with our year-to-date sales performance and the strength of incoming orders and backlogs as we enter a historically strong retail furniture-selling season," said Paul Toms Jr., chairman and CEO. "This was one of our strongest shipping quarters in the last five years, and demand is up for both case goods and upholstery compared to a year ago. We had our second largest shipping quarter in five years, exceeded only slightly by last year's fourth quarter, which had an extra week."

He also said the company's written business at the October High Point Market was the best in the past three years.

He attributed the decline in net income to previously announced increased discounting in case goods aimed at selling off slow-moving inventory.

"Our case goods inventories are still above targeted levels, and we've had higher discounts, primarily related to groups and product lines we are discontinuing," Toms said, noting that inventories are about 10% above targeted levels and that discounting will continue through the fourth quarter.

He said the company has adjusted its ordering patterns, but said that it won't see the effect of these adjustments until the first quarter of its next fiscal year.

During the third quarter, the company also reported that selling and administrative expenses rose $662,000 to $10.4 million, or 17.7% of net sales. This compares to $9.8 million or 17.2% of sales last year.

The company attributed this increase to startup costs associated with its H Contract and Homeware brands. It also experienced production ramp-up costs at upholstery producer Sam Moore.

"With Homeware and H Contract, we anticipated startup costs and spending would come before revenues on both these long-term strategic initiatives," Toms said, adding, "Our profitability challenges at Sam Moore revolve around the ramp-up of production and higher labor costs to meet demand that's increased 15% to 20% per year during the last two-and-a-half years."

The company reported no long-term debt as of Nov. 3 and had $12.9 million available on its $15 million revolving credit facility, net of $2.1 million reserved for standby letters of credit.