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Havertys Reports Results For Third Quarter 2010

HAVERTY FURNITURE COMPANIES, INC. (NYSE: HVT and HVT.A) reports third quarter 2010 operating results, with increased sales of 3.4% and improved earnings. The earnings per share for the third quarter of 2010 are $0.05 compared to $0.02 for the same period of 2009. The earnings for the nine months ended September 30, 2010 are $0.13 compared to a loss per share of ($0.62) for 2009.

Clarence H. Smith, president and chief executive officer, said, “Although our performance in 2010 has improved over last year, we have previously reported a softening of demand trends in the most recent months. The fourth quarter is historically our strongest of the year and our results will be against more difficult comparisons. We are confident that our shopping experience, both in-store and on-line, the stylish and affordable merchandise we offer, excellent service and strength of our brand will allow us to continue to grow market share. Our ongoing evaluation of stores will result in future new store locations and the exiting of other sites similar to our entrance in the Columbus, Georgia market in October and the closing of our Abilene, Texas location in December. We will also be investing in our operations to upgrade information systems. The competitive advantages that we have developed and our financial strength will support our efforts in growing our business.”

Financial Highlights

Third Quarter 2010 Compared to Third Quarter 2009

  • Net sales increased 3.4% to $157.1 million and comparable store sales increased 4.3%.
  • Gross profit margins were 51.3% as a percent of sales compared to 52.1%. The decrease is mostly due to the negative impact of a $0.4 million (0.3% of sales) increase in the LIFO inventory reserve due to inflation compared to the positive impact of a $0.5 million (0.3% of sales) reduction in the reserve in 2009.
  • Selling, general and administrative costs decreased 1.1% as a percent of net sales. Occupancy costs continued to benefit from lower depreciation expense and improved efficiencies were realized in most major cost categories.
  • Income tax expense includes a decrease to our valuation allowance on deferred tax assets of $0.4 million, an increase of $0.02 in per share earnings compared to the prior period increase in the allowance of $0.1 million, which had a negligible impact on earnings per share.
  • Our retail store count at September 30 was 118 versus 121.

Nine Months ended September 30, 2010 Compared to Same Period of 2009

  • Net sales increased 7.6% to $458.2 million and comparable store sales increased 9.0%.
  • Gross profit margins remained flat at 51.5% as a percent of sales due to pricing discipline and product mix, offset by the negative impact of a $1.0 million increase in the LIFO inventory reserve compared to a $0.5 million reduction in the reserve in 2009.
  • Selling, general and administrative costs decreased by 3.6% as a percent of net sales. Improved efficiencies were realized in the major categories as fixed costs were leveraged.
  • Income tax expense includes a reduction in our valuation allowance on deferred tax assets of $1.1 million, an increase of $0.05 in per share earnings compared to the prior period increase in the allowance of $5.2 million, which decreased earnings $0.24 per share.

Expectations and Other

  • Total delivered sales for the fourth quarter to date of 2010 are 2.5% lower than the same period last year while total written business is up slightly.
  • 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 third quarter levels.
  • We closed our store in Bowling Green, Kentucky as its lease expired at the end of the third quarter. We opened a store in Columbus, Georgia, a new market for us in early October. During the fourth quarter, we will also close our Abilene, Texas, store as its lease expires.
  • Cash flow from operations for the nine months ended September 30, 2010 was $26.8 million.
  • Cash at the end of the third quarter of 2010 totaled $67.1 million. We have no funded debt and $34.1 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 Nine Months Ended
  September 30,   September 30,

 

2010

 

 

2009

 

2010

 

 

2009

 
 
Net sales $ 157,137 $ 151,945 $ 458,248 $ 425,865
Cost of goods sold   76,558     72,840   222,130     206,376  
Gross profit 80,579 79,105 236,118 219,489
 
Credit service charges   167     267   566     971  
Gross profit and other revenue   80,746     79,372   236,684     220,460  
 
Expenses:
Selling, general and administrative 79,272 78,314 233,025 232,052
Interest, net 202 212 616 592
Provision for doubtful accounts 71 150 277 812
Other (income) expense, net   (45 )   -   (255 )   20  
Total expenses   79,500     78,676   233,663     233,476  
 
Income (loss) before income taxes 1,246 696 3,021 (13,016 )
 
Income tax expense   59     195   86     328  
 
Net income (loss) $ 1,187   $ 501 $ 2,935   $ (13,344 )
 
Basic earnings (loss) per share:
Common Stock $ 0.05 $ 0.02 $ 0.14 $ (0.63 )
Class A Common Stock $ 0.05 $ 0.02 $ 0.13 $ (0.60 )
 
Diluted earnings (loss) per share:
Common Stock $ 0.05 $ 0.02 $ 0.13 $ (0.62 )
Class A Common Stock $ 0.05 $ 0.02 $ 0.13 $ (0.60 )
 
Basic weighted average shares outstanding:
Common Stock 18,472 17,437 18,040 17,386
Class A Common Stock 3,371 3,983 3,637 3,991
 
Diluted weighted average shares outstanding:
Common Stock 22,013 21,607 21,955 21,377
Class A Common Stock 3,371 3,983 3,637 3,991
 
 
HAVERTY FURNITURE COMPANIES, INC. and SUBSIDIARIES
                   
Condensed Consolidated Balance Sheets
(In thousands)
 
 
September 30, December 31, September 30,

 

2010

 

2009

 

2009

(Unaudited) (Unaudited)
Assets
Current assets
Cash and cash equivalents $ 67,084 $ 44,466 $ 46,125
Accounts receivable 13,682 15,299 14,488
Inventories 88,184 93,301 88,188
Prepaid expenses 8,804 8,813 9,229
Other current assets   6,304   6,422   5,042
Total current assets 184,058 168,301 163,072
 
Accounts receivable, long-term 632 844 977
Property and equipment 172,547 176,363 179,804
Deferred income taxes 11,249 9,114 7,730
Other assets   5,674   6,311   6,367
 
$ 374,160 $ 360,933 $ 357,950
 
 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 21,179 $ 19,128 $ 18,461
Customer deposits 17,849 14,002 19,470
Accrued liabilities 32,166 30,208 30,549
Deferred income taxes 7,450 7,750 6,901
Current portion of lease obligations   501   357   337
Total current liabilities 79,145 71,445 75,718
 
Lease obligations, less current portion 8,727 6,826 6,929
Other liabilities   33,938   38,105   42,341
Total liabilities   121,810   116,376   124,988
 
Stockholders' equity   252,350   244,557   232,962
 
$ 374,160 $ 360,933 $ 357,950
 
 
HAVERTY FURNITURE COMPANIES, INC. and SUBSIDIARIES
             
Condensed Consolidated Statements of Cash Flows
(In thousands - Unaudited)
 
 
Nine Months Ended September 30,

 

2010

 

 

2009

 
 
Cash flows from Operating Activities
Net income (loss) $ 2,935 $ (13,344 )
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 12,689 14,809
Share-based compensation expense 1,373 1,363
Provision for doubtful accounts 277 812
Deferred income taxes (2,322 ) 93
Net gain on sale of property and equipment (107 ) (19 )
Other (212 ) 300
 
Changes in operating assets and liabilities   12,213     34,342  
 
Net cash provided by operating activities   26,846     38,356  
 
Cash flows from Investing Activities
Capital expenditures (6,906 ) (1,921 )
Proceeds from sale-leaseback transaction - 6,625
Proceeds from sale of property and equipment 207 29
Other investing activities   -     43  
 
Net cash (used in) provided by investing activities   (6,699 )   4,776  
 
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 (255 ) (229 )
Proceeds from exercise of stock options 3,319 -
Other financing activities   (593 )   (475 )
 
Net cash provided by (used in) financing activities   2,471     (704 )
 
Increase in cash and cash equivalents during the period 22,618 42,428
 
Cash and cash equivalents at beginning of period   44,466     3,697  
 
Cash and cash equivalents at end of period $ 67,084   $ 46,125  
 
 
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). Because of rounding the per share data will not necessarily add.
 
Quarter Ended Quarter Ended
September 30, 2010 September 30, 2009
GAAP Non-GAAP GAAP Non-GAAP
 
Increase before income taxes $ 1,246 $ 0.06 $ 1,246 $ 0.06 $ 696 $ 0.03 $ 696 $ 0.03
 
Income taxes:
Current and deferred
tax expense 448 0.02 448 0.02 102 0.00 102 0.00
Valuation allowance (decrease)
increase   (389 )   (0.02 )           93     0.00          
 

Total tax expense

  59     0.00     448   0.02   195     0.00     102     0.00  
 
Net income $ 1,187   $ 0.05   $ 798 $ 0.04 $ 501   $ 0.02   $ 594   $ 0.03  
 
Nine Months Ended Nine Months Ended
September 30, 2010 September 30, 2009
GAAP Non-GAAP GAAP Non-GAAP
 
Income (loss) before income taxes $ 3,021 $ 0.14 $ 3,021 $ 0.14 $ (13,016 ) $ (0.61 ) $ (13,016 ) $ (0.61 )
 
Income taxes:
Current and deferred
tax expense (benefit) 1,148 0.05 1,148 0.05 (4,870 ) (0.23 ) (4,870 ) (0.23 )
Valuation allowance (decrease)
increase   (1,062 )   (0.05 )           5,198     0.24          
 
Total tax expense (benefit)   86     0.00     1,148   0.05   328     0.01     (4,870 )   (0.23 )
 
Net income (loss) $ 2,935   $ 0.13   $ 1,873 $ 0.09 $ (13,344 ) $ (0.62 ) $ (8,146 ) $ (0.38 )
 
 

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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