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Item 3 — Quantitative and Qualitative Disclosures About Market Risk
Hooker Furnishings Corporation · 10-Q · Q2 FY2026 · Period ended May 3, 2026
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We are exposed to various types of market risk
in the normal course of our business, including the impact of interest rate changes, raw materials price risk and changes in foreign currency
exchange rates, which could impact our results of operations or financial condition. We manage our exposure to this risk through our normal
operating activities.
Interest Rate Risk
Borrowings under the Amended and Restated Loan
Agreement will bear interest at a rate per annum equal to the then-current Term SOFR Rate for a period of one month plus 0.10% plus a
margin of 1.75%. The Term SOFR Rate will be adjusted on a monthly basis. As such, these debt instruments expose us to market risk for
changes in interest rates. As of May 3, 2026, there were no outstanding loans, other than amounts reserved for standby letters of credit
in the amount of $3.2 million.
Raw Materials Price Risk
We are exposed to market risk from changes in
the cost of raw materials used in our domestic upholstery manufacturing processes; principally, wood, fabric, and foam products. Increases
in home construction activity could result in increases in wood and fabric costs. Additionally, the cost of petroleum-based foam products
we utilize are sensitive to crude oil prices, which vary due to supply, demand, and geo-political factors.
Currency Risk
For imported products, we generally negotiate
firm pricing denominated in U.S. Dollars with our foreign suppliers, typically for periods of at least one year. We accept the exposure
to exchange rate movements beyond these negotiated periods. We do not use derivative financial instruments to manage this risk but could
choose to do so in the future. Most of our imports are purchased from suppliers located in Vietnam and China. The Chinese
currency floats within a limited range in relation to the U.S. Dollar, resulting in exposure to foreign currency exchange rate fluctuations.
Since we transact our imported product purchases
in U.S. Dollars, a relative decline in the value of the U.S. Dollar could increase the price we pay for imported products beyond the negotiated
periods. We generally expect to reflect substantially all of the effect of any price increases from suppliers in the prices we charge
for imported products. However, these changes could adversely impact sales volume or profit margins during affected periods.