Hour Loop, Inc SEC 10-Q Report

Hour Loop, Inc., a company specializing in the sale of home/garden décor, toys, kitchenware, apparel, and electronics primarily through Amazon, has released its Form 10-Q report for the quarter ended September 30, 2024. The report highlights significant financial growth, strategic initiatives aimed at expanding the business, and the challenges and risks the company faces in its operational environment.

Financial Highlights

Hour Loop, Inc. reported robust financial performance for the three and nine months ended September 30, 2024:

• Total Revenues: $31.08 million for the three months ended September 30, 2024, representing a 6.6% increase compared to the same period in 2023. For the nine months ended September 30, 2024, total revenues were $83.83 million, a 15.41% increase from the same period in 2023.
• Gross Profit: $17.04 million for the three months ended September 30, 2024, compared to $15.33 million for the same period in 2023. For the nine months ended September 30, 2024, gross profit was $47.12 million, up from $36.31 million in the same period in 2023.
• Income (loss) from operations: $0.72 million for the three months ended September 30, 2024, compared to $0.07 million for the same period in 2023. For the nine months ended September 30, 2024, income from operations was $3.20 million, compared to a loss of $(2.39) million in the same period in 2023.
• Net Income (loss): $0.47 million for the three months ended September 30, 2024, compared to a loss of $(0.02) million for the same period in 2023. For the nine months ended September 30, 2024, net income was $2.18 million, compared to a loss of $(2.02) million in the same period in 2023.
• Basic and diluted income (loss) per common share: $0.01 for the three months ended September 30, 2024, compared to $(0.00) for the same period in 2023. For the nine months ended September 30, 2024, basic and diluted income per share was $0.06, compared to a loss of $(0.06) for the same period in 2023.

Business Highlights

Hour Loop, Inc. demonstrated strong operational performance and strategic business initiatives:

• Revenue Segments: The company generated revenues from multiple product categories, maintaining over 100,000 SKUs to meet diverse customer needs.
• Geographical Performance: For the nine months ended September 30, 2024, the company reported $86.95 million in revenue from the American market and $2.88 million from international markets, highlighting the American market as the primary revenue driver.
• Sales Units: The company processed approximately 1,472,515 orders in the three months ended September 30, 2024, a 9.49% increase from the same period in 2023. For the nine months ended September 30, 2024, total orders were approximately 3,864,609, a 19.67% increase from the same period in 2023.
• Operational Efficiency: Advanced software systems help identify product gaps and optimize inventory management, ensuring product availability year-round.
• Advertising Strategy: The company allocates its advertising budget based on historical demand data, primarily advertising on Amazon to maximize the return on investment.
• Future Outlook: Plans to expand the business by increasing the number of business managers, vendors, and SKUs, aiming for further growth in revenues and operational efficiency.
• Key Vendor Dependency: Approximately 99% of the company’s revenue for the nine months ended September 30, 2024, was generated through the Amazon sales platform.
• Foreign Operations: The company operates a wholly owned subsidiary, Flywheel Consulting Ltd., in Taiwan, contributing to international revenue and operational capabilities.
• Sales Returns and Discounts: Sales return rates were 6.00% and 6.45% of gross sales for the nine months ended September 30, 2024, and 2023, respectively. The company also offers price discounts to stimulate sales.
• Inventory Management: As of September 30, 2024, the company had an inventory allowance of $578,622 for obsolete and slow-moving inventories.

Strategic Initiatives

Hour Loop, Inc. has undertaken several strategic initiatives to drive long-term growth and operational efficiency:

• Business Expansion: The company is focused on expanding its business by increasing the number of business managers, vendors, and SKUs.
• Subsidiary Formation: The formation of Flywheel Consulting Ltd. in Taiwan to provide business operating consulting services exclusively to Hour Loop.
• Inventory Management: Active management of inventory to ensure product availability year-round, including during the holiday season.
• Capital Management: The company maintains a line of credit with Taishin International Bank, extended to November 24, 2024, with an outstanding balance of $632,911 as of September 30, 2024. Additionally, loans and advances from stockholders amount to $4,170,418, due by December 31, 2024.
• Future Outlook: Plans to continue rapid business expansion, enhance operational efficiency, and manage capital effectively, including maintaining its line of credit and managing related party loans. The company also plans to continue issuing shares as compensation to align the interests of its executives and directors with those of its shareholders.

Challenges and Risks

Hour Loop, Inc. faces several challenges and risks that could impact its business operations and financial performance:

• Market Risks: Heavy reliance on Amazon exposes the company to significant market risks, including changes in Amazon's policies, fees, and competitive dynamics.
• Operational Risks: The wholesale business model presents challenges such as maintaining relationships with brand manufacturers and managing inventory effectively. Dependence on Amazon’s fulfillment services means any disruption could significantly impact the company’s ability to deliver products.
• Regulatory Risks: Compliance with various state sales tax regulations is required, with an estimated $288,466 owed in sales taxes, penalties, and interest as of September 30, 2024.
• Financial Risks: The company’s financial obligations include a line of credit with an outstanding balance of $632,911 and loans from related parties amounting to $4,170,418, which could strain liquidity and capital resources.
• Foreign Currency Exchange Risk: Exposure to foreign currency exchange risk through its subsidiary in Taiwan, with no hedging against this risk.
• Advertising and Promotion Expenses: Advertising expenses increased to $3,096,997 for the nine months ended September 30, 2024, from $2,617,318 for the same period in 2023, necessitating effective allocation to maintain profitability.

SEC Filing: Hour Loop, Inc [ HOUR ] - 10-Q - Nov. 12, 2024