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Havertys Reports Results For Second Quarter 2010

HAVERTY FURNITURE COMPANIES, INC. (NYSE: HVT and HVT.A) reports second quarter 2010 operating results, with increased sales of 11.9%, solid gross profit margins and leveraging of operating costs. The loss per share for the second quarter of 2010 is ($0.03) compared to a loss per share of ($0.31) for the same period of 2009. The earnings for the six months ended June 30, 2010 are $0.08 compared to a loss per share of ($0.65) for 2009.

Clarence H. Smith, president and chief executive officer, said, “We believe we are continuing to grow our market share as second quarter comparable store sales were up 13.2%. Recent sales trends and consumer confidence reports however indicate the tenuous nature of the recovery. Shipping lines are cautiously managing capacity, and although we have not experienced the level of disruption in receiving products from overseas suppliers that others have encountered, increases in contract container freight rates have modestly reduced our gross profit margins. Our discipline in holding operating costs in check kept SG&A expenses controlled. Despite today’s economic uncertainty, we are not complacent in our approach to gaining market share. We are investing in our current store base and our internet site because we believe that focusing on the customer experience is vital to our continued success.”

Financial Highlights

Second Quarter 2010 Compared to Second Quarter 2009

  • Net sales increased 11.9% to $145.1 million and comparable store sales increased 13.2%.
  • Gross profit margins were 51.2% as a percent of sales compared to 51.4%. The decrease is due to the negative impact of a $0.6 million (0.4% of sales) increase in the LIFO inventory reserve due to inflation partly offset by certain improvements.
  • Selling, general and administrative costs decreased 4.6% as a percent of net sales. Occupancy costs continued to benefit from lower depreciation expense and improved efficiencies were realized in all major cost categories.
  • Income tax benefit includes an increase to our valuation allowance on deferred tax assets of $0.2 million, a decrease of $0.01 in per share earnings compared to the prior period increase in the allowance of $2.4 million, which decreased earnings $0.11 per share.
  • Our retail store count is 119 versus 121.

Six Months ended June 30, 2010 Compared to Same Period of 2009

  • Net sales increased 9.9% to $301.1 million and comparable store sales increased 11.6%.
  • Gross profit margins increased to 51.7% as a percent of sales from 51.3% due to pricing discipline and product mix, offset in part by the impact of a $0.6 million increase in the LIFO inventory reserve.
  • Selling, general and administrative costs decreased by 5.0% as a percent of net sales. Improved efficiencies were realized in all major categories as fixed costs were leveraged.
  • Income tax expense includes a reduction in our valuation allowance on deferred tax assets of $0.7 million, an increase of $0.03 in per share earnings compared to the prior period increase in the allowance of $5.1 million, which decreased earnings $0.24 per share.

Expectations and Other

  • Delivered sales for the third quarter to date of 2010 have increased 7% over the same period last year while written business is up 1%.
  • Gross profit margins for the remainder of the year will be impacted by increased costs as recognized under our LIFO inventory accounting method. We expect that gross profit margins for the full year will be near the second quarter levels.
  • During the fourth quarter, we will enter the Columbus, Georgia market with one store and close our single stores as leases expire in Bowling Green, Kentucky and Abilene, Texas.
  • Our anticipated annual capital expenditures for 2010 are $13.5 million.
  • Cash flow from operations for the six months ended June 30, 2010 was $18.0 million.
  • Cash at the end of the second quarter of 2010 totaled $62.1 million. We have no funded debt and $34.5 million of availability under our credit facility.
HAVERTY FURNITURE COMPANIES, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data - Unaudited)
                     
 
Quarter Ended Six Months Ended
June 30, June 30,

2010

2009

2010

2009

 
Net sales

$

145,075

$

129,683

$

301,111

$

273,921

Cost of goods sold   70,800     63,062     145,571     133,537  

Gross profit

74,275 66,621 155,540 140,384
 
Credit service charges   184     311     398     704  

Gross profit and other revenue

  74,459     66,932     155,938     141,088  
 
Expenses:

Selling, general and administrative

74,875 72,860 153,753 153,738

Interest, net

206 203 414 380

Provision for doubtful accounts

43 247 206 662

Other (income) expense, net

  (8 )   141     (210 )   20  

Total expenses

  75,116     73,451     154,163     154,800  
 
(Loss) income before income taxes (657 ) (6,519 ) 1,775 (13,712 )
 
Income tax (benefit) expense   (51 )   63     27     133  
 

Net (loss) income

$

(606

)

$

(6,582

)

$

1,748

 

$

(13,845

)

 
Basic and diluted (loss) earnings per share:

Common Stock

$

(0.03

)

$

(0.31

)

$

0.08

$

(0.65

)

Class A Common Stock

$

(0.03

)

$

(0.30

)

$

0.08

$

(0.62

)

 
Basic weighted average shares outstanding:

Common Stock

18,060 17,397 17,820 17,360

Class A Common Stock

3,673 3,987 3,773 3,996
 
Diluted weighted average shares outstanding:

Common Stock

21,733 21,384 21,945 21,356

Class A Common Stock

3,673 3,987 3,773 3,996
 
HAVERTY FURNITURE COMPANIES, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
               
 

June 30,

December 31,

June 30,

2010

2009

2009

(Unaudited)

(Unaudited)

Assets
Current assets
Cash and cash equivalents

$

62,141

$

44,466

$

22,355

Accounts receivable 13,721 15,299 14,982
Inventories, at LIFO cost 89,002 93,301 93,421
Prepaid expenses 9,638 8,741 10,050
Other current assets   5,674   6,494   4,097

Total current assets

180,176 168,301 144,905
 
Accounts receivable, long-term 614 844 1,240
Property and equipment 170,608 176,363 183,825
Deferred income taxes 10,685 9,114 7,813
Other assets   5,618   6,311   6,327
 

$

367,701

$

360,933

$

344,110

 
 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable

$

18,007

$

19,128

$

16,803

Customer deposits 17,862 14,002 14,726
Accrued liabilities 29,598 30,208 24,901
Deferred income taxes 7,615 7,750 6,891
Current portion of lease obligations   406   357   332

Total current liabilities

73,488 71,445 63,653
 
Lease obligations, less current portion 6,609 6,826 7,014
Other liabilities   37,109   38,105   41,440

Total liabilities

  117,206   116,376   112,107
 
Stockholders' equity   250,495   244,557   232,003
 

$

367,701

$

360,933

$

344,110

 
HAVERTY FURNITURE COMPANIES, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands - Unaudited)
           
 

Six Months Ended June 30,

2010

2009

 
Cash flows from Operating Activities
Net income (loss)

$

1,748

$

(13,845

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 8,528 10,115
Share-based compensation expense 1,008 955
Provision for doubtful accounts 206 662
Deferred income taxes (1,706 ) -
Net gain on sale of property and equipment (117 ) (19 )
Other (169 ) 300
 
Changes in operating assets and liabilities   8,550     15,679  
 

Net cash provided by operating activities

  18,048     13,847  
 
 
Cash flows from Investing Activities
Capital expenditures (3,137 ) (1,263 )
Proceeds from sale-leaseback transaction - 6,625
Proceeds from sale of property and equipment 206 29
Other investing activities   -     43  
 

Net cash (used in) provided by investing activities

  (2,931 )   5,434  
 
 
Cash flows from Financing Activities
Proceeds from borrowings under revolving credit facility - 5,800
Payments of borrowings under revolving credit facility   -     (5,800 )
 
Net change in borrowings under revolving credit facility - -
Payments on lease obligations (168 ) (148 )
Proceeds from exercise of stock options 3,319 -
Other financing activities   (593 )   (475 )
 

Net cash provided by (used in) financing activities

  2,558     (623 )
 
Increase in cash and cash equivalents during the period 17,675 18,658
 
Cash and cash equivalents at beginning of period   44,466     3,697  
 
Cash and cash equivalents at end of period

$

62,141

 

$

22,355

 
 
HAVERTY FURNITURE COMPANIES, INC. and SUBSIDIARIES
                                     
Valuation Allowance and GAAP to Non-GAAP Reconciliation
 
Our income tax expense (benefit) in 2010 and 2009 included a non-cash (benefit) or charge for a valuation allowance related to our deferred tax assets. The adjustments to this valuation allowance do not result in ongoing cash expenditures, and, in our view, do not otherwise have a material impact on our ongoing business operations. Accordingly, we believe that providing non-GAAP financial measures that exclude the impact of this valuation expense allows investors and analysts to make meaningful comparisons of our ongoing core business operating results. The following table excludes the effect of changes in this valuation allowance from our calculation of the following: non-GAAP net income (loss) and non-GAAP diluted earnings (loss) per common share and reconciles these amounts to our GAAP results (amounts in thousands except per share data):
 

Quarter Ended

Quarter Ended

June 30, 2010

June 30, 2009

GAAP

Non-GAAP

GAAP

Non-GAAP

 
Loss before income taxes

$

(657

)

$

(0.03

)

$

(657

)

$

(0.03

)

$

(6,519

)

$

(0.30

)

$

(6,519

)

$

(0.30

)

 
Income taxes:

Current and deferred tax (benefit) expense

(269 ) (0.01 ) (269 ) (0.01 ) (2,342 ) (0.10 ) (2,342 ) (0.10 )
Valuation allowance increase   218     0.01         2,405     0.11      
 
Total tax (benefit) expense   (51 )   0.00     (269 )   (0.01 )   63     0.01     (2,342 )   (0.10 )
 
Net loss

$

(606

)

$

(0.03

)

$

(388

)

$

(0.02

)

$

(6,582

)

$

(0.31

)

$

(4,177

)

$

(0.20

)

 

Six Months Ended

Six Months Ended

June 30, 2010

June 30, 2009

GAAP

Non-GAAP

GAAP

Non-GAAP

 
Income (loss) before income taxes

$

1,775

$

0.08

$

1,775

$

0.08

$

(13,712

)

$

(0.64

)

$

(13,712

)

$

(0.64

)

 
Income taxes:

Current and deferred tax expense (benefit)

700 0.03 700 0.03 (5,008 ) (0.23 ) (5,008 ) (0.23 )

Valuation allowance increase (decrease)

  (673 )   (0.03 )       5,141     0.24      
 
Total tax expense (benefit)   27     0.00     700     0.03     133     0.01     (5,008 )   (0.23 )
 
Net income (loss)

$

1,748

 

$

0.08

 

$

1,075

 

$

0.05

 

$

(13,845

)

$

(0.65

)

$

(8,704

)

$

(0.41

)

 

Havertys, established in 1885, is a full-service home furnishings retailer with 119 showrooms in 17 states in the Southern and Midwestern regions providing its customers with a wide selection of quality merchandise in middle to upper-middle price ranges. Additional information is available on the company's website at www.havertys.com.

News releases include forward-looking statements, which are subject to risks and uncertainties. Factors that might cause actual results to differ materially from future results expressed or implied by such forward-looking statements include, but are not limited to, general economic conditions, the consumer spending environment for large ticket items, competition in the retail furniture industry and other uncertainties detailed from time to time in the company's reports filed with the SEC.

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