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Havertys Reports Earnings for Third Quarter 2019

934 Days ago

ATLANTA, Oct. 30, 2019 (GLOBE NEWSWIRE) -- HAVERTYS (NYSE: HVT and HVT.A) reports earnings per share of $0.31 for the third quarter ended September 30, 2019 compared to $0.39 for the same period of 2018. The earnings per share for the nine months ended September 30, 2019 is $0.77 compared to $0.98 for the same period in 2018.

Clarence H. Smith, chairman, president and chief executive officer, said, “The third quarter continued to challenge our teams with product flow disruption and merchandise pricing. Our vendors are working closely with us to ensure that our supply chain information is timely as manufacturing locales shift. The changes in costs have tested our retail pricing strategies and pressured gross profit margins. 

Our written business for the third quarter was positive compared to last year’s third quarter and we continue to generate good cash flow. The low interest rate and unemployment environment and recent uptick in housing are positive indicators for future home furnishings sales. We believe our focus on merchandising, stores, and operational plans will enable us to profitably grow our business in the future.”

Financial Highlights

Third Quarter 2019 Compared to Third Quarter 2018

  • Net sales decreased 0.6% to $209.3 million. Comparable store sales decreased 0.4%. 
  • Total written sales for the third quarter of 2019 were up 1.6% and written comparable store sales rose 1.5%. 
  • Average written ticket increased 4.7% and custom upholstery business was up 13.9%. 
  • Gross profit margins fell 130 basis points to 53.5% in 2019 versus 54.8% in 2018. Most of the decline is due to merchandise pricing and mix as we used slightly more aggressive promotions and incurred higher product and freight costs.
  • SG&A costs increased $1.0 million and as a percent of sales increased 80 basis points to 49.8% from 49.0%. Fixed and discretionary expenses were up approximately $0.5 million primarily from higher employee benefits costs and additional costs for two new locations. Variable expenses were 18.2% as a percent of sales in 2019 compared to 17.9% in 2018. This increase is due in part to higher third‑party credit costs.
  • We repurchased 83,348 shares of common stock for $1.5 million during the third quarter of 2019.
  • We adopted the new lease accounting standard on January 1, 2019 which significantly impacted our balance sheet. See the notes after the following financial statements.

Nine Months ended September 30, 2019 Compared to Same Period of 2018

  • Net sales decreased 3.3% to $588.5 million. Comparable store sales decreased 2.4%. 
  • Average ticket increased 5.7% and custom upholstery business rose 10.0%. 
  • Gross profit margins were 54.2% compared to 54.6%.
  • SG&A costs as a percent of sales was 50.8% in 2019 and 49.8% in 2018. Total SG&A dollars decreased $4.1 million. Fixed and discretionary expenses were $190.4 million in 2019 versus $191.2 million in 2018. The variable type costs were 18.4% of sales in 2019 and 2018.

Expectations and Other

  • We expect that gross profit margins for the full year 2019 will be approximately 54.1%.
  • Our estimate for fixed and discretionary type SG&A expenses for 2019 is in the $257.0 to $258.0 million range, compared to $254.9 million for these same costs in 2018. The variable type costs within SG&A for the full year of 2019 are expected to be 18.4% compared to 18.3% in 2018.
  • We expect selling square footage will increase approximately 1.4% in 2019. We opened a location in a new market in St. Louis, MO in August, an additional store in the Atlanta market in Newnan, GA in September, and will complete a store relocation in Baton Rouge, LA in November. Total capital expenditures are estimated to be approximately $18.5 million in 2019.
  • We have approximately $16.9 million remaining in current board authorization for common stock repurchases.
(in thousands, except per share data – Unaudited)  
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2019   2018   2019   2018  
Net sales    $ 209,320    $ 210,547    $ 588,455    $ 608,765  
Cost of goods sold     97,301     95,175     269,796     276,689  
  Gross profit     112,019     115,372     318,659     332,076  
Credit service charges     19     24     60     81  
  Gross profit and other revenue     112,038     115,396     318,719     332,157  
  Selling, general and administrative     104,161     103,185     298,824     302,942  
  Provision for doubtful accounts     42     34     66     58  
  Other (income) expense, net     (42 )   713     (323 )   (98 )
   Total expenses     104,161     103,932     298,567     302,902  
Income before interest and income taxes     7,877     11,464     20,152     29,255  
Interest (income) expense, net     (292 )   260     (980 )   1,184  
Income before income taxes     8,169     11,204     21,132     28,071  
Income tax expense     2,072     2,852     5,367     7,192  
  Net income    $ 6,097    $ 8,352    $ 15,765    $ 20,879  
Diluted earnings per share:                          
  Common Stock    $ 0.31    $ 0.39    $ 0.77    $ 0.98  
  Class A Common Stock    $ 0.30    $ 0.38    $ 0.73    $ 0.94  
Diluted weighted average shares outstanding:                          
  Common Stock     19,893     21,230     20,444     21,408  
  Class A Common Stock     1,536     1,765     1,637     1,766  
Cash dividends per share:                          
  Common Stock    $ 0.20    $ 0.18    $ 0.56    $ 0.54  
  Class A Common Stock    $ 0.19    $ 0.17    $ 0.53    $ 0.51  

(in thousands - Unaudited)  
    September 30,
  December 31,
  September 30,
    (Unaudited)       (Unaudited)  
Current assets                    
  Cash and cash equivalents    $ 89,528    $ 71,537    $ 96,269  
  Restricted cash and cash equivalents     6,632     8,272     8,226  
  Accounts receivable, net     1,570     1,833     1,827  
  Inventories     99,958     105,840     108,344  
  Prepaid expenses     10,476     8,106     9,818  
  Other current assets     6,449     6,262     6,291  
    Total current assets     214,613     201,850     230,775  
Accounts receivable, long-term, net     204     226     227  
Property and equipment, net     158,087     216,852     220,286  
Right of-use lease assets     183,524          
Deferred income taxes     12,202     12,544     12,896  
Other assets     9,873     8,707     9,400  
    Total assets    $ 578,503    $ 440,179    $ 473,584  
Current liabilities                    
  Accounts payable    $ 27,495    $ 19,840    $ 24,926  
  Customer deposits     34,852     24,465     30,541  
  Accrued liabilities     41,163     39,903     41,713  
  Current lease liabilities     29,283          
  Current portion of lease obligations         4,018     3,938  
    Total current liabilities     132,793     88,226     101,118  
Noncurrent lease liabilities     155,046          
Lease obligations, less current portion         46,785     47,829  
Other liabilities     21,942     30,539     32,214  
    Total liabilities     309,781     165,550     181,161  
Stockholders’ equity     268,722     274,629     292,423  
    Total liabilities and stockholders’ equity    $ 578,503    $ 440,179    $ 473,584  

(in thousands – Unaudited)  
    Nine Months Ended
September 30,
    2019   2018  
  Net income   $ 15,765   $ 20,879  
  Adjustments to reconcile net income to net
 cash provided by (used in) operating activities:
    Depreciation and amortization     15,412     22,650  
    Share-based compensation expense     2,690     3,781  
    Deferred income taxes     (1,942 )   (592 )
    Provision for doubtful accounts     66     58  
    Other     615     825  
  Changes in operating assets and liabilities:              
    Accounts receivable     219     550  
    Inventories     5,882     (4,907 )
    Customer deposits     10,387     2,728  
    Other assets and liabilities     316     6,534  
    Accounts payable and accrued liabilities     8,957     9,988  
      Net cash provided by operating activities     58,367     62,494  
  Capital expenditures     (12,446 )   (18,231 )
  Proceeds from sale of property and equipment     2,268     2,421  
  Other         55  
      Net cash used in investing activities     (10,178 )   (15,755 )
  Payments on lease obligations         (2,824 )
  Taxes on vested restricted shares     (1,328 )   (1,233 )
  Dividends paid     (11,194 )   (11,337 )
  Common stock repurchased     (19,316 )   (14,456 )
      Net cash used in financing activities     (31,838 )   (29,850 )
Increase in cash, cash equivalents and restricted cash equivalents during the period     16,351     16,889  
Cash, cash equivalents and restricted cash equivalents at beginning of period     79,809     87,606  
Cash, cash equivalents and restricted cash equivalents at end of period   $ 96,160   $ 104,495  

Comparable Store Sales 
Comparable store sales include those made on our website and in stores, and excludes locations opened, closed or otherwise non-comparable during the last 12 months. 

Cost of Goods Sold and SG&A Expense 
We include substantially all our occupancy and home delivery costs in SG&A expense as well as a portion of our warehousing expenses.  Accordingly, our gross profit may not be comparable to those entities that include these costs in cost of goods sold. 

We classify our SG&A expenses as either variable or fixed and discretionary.  Our variable expenses are comprised of selling and delivery costs.  Selling expenses are primarily compensation and related benefits for our commission-based sales associates, the discount we pay for third party financing of customer sales and transaction fees for credit card usage.  We do not outsource delivery, so these costs include personnel, fuel, and other expenses related to this function.  Fixed and discretionary expenses are comprised of rent, depreciation and amortization and other occupancy costs for stores, warehouses and offices, and all advertising and administrative costs. 

In February 2016, the Financial Accounting Standards Board (FASB) issued an accounting standards update (ASU 2016-02), which amended various aspects of existing guidance for leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The main difference between ASU 2016-02 and previous U.S. GAAP is the recognition of lease assets and lease liabilities by lessees on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. As a result, we have recognized a liability representing our lease payments and a right-of-use asset representing our right to use the underlying asset for the lease term on the balance sheet. We adopted the requirements of the new lease standard effective January 1, 2019 using the modified retrospective method and have not restated comparative periods.  

As part of the adjustment for ASU 2016-02 effective January 1, 2019, we derecognized certain assets and liabilities associated with certain legacy build-to-suit arrangements and the deferred gain on previous sale leaseback transactions. Accordingly, $53.5 million of net property and equipment, $50.8 million of financing obligations, $9.3 of other net liabilities, and $2.3 million of deferred tax assets recorded on the balance sheet as of December 31, 2018 were removed as part of our transition adjustment. Effective January 1, 2019, we recognized right-of-use lease assets totaling $177.9 million and recorded lease liabilities totaling $175.4 million. The net adjustment recorded to equity as of January 1, 2019 was a credit of $6.8 million.  

Since we are not restating prior periods as part of adopting this guidance, our results in 2019 will not be directly comparable to our results for periods before 2019. Specifically, for those leases that were previously recognized on our balance sheet prior to 2019, their associated depreciation and interest expense will be replaced by rent expense. For these properties in our lease portfolio for 2019, the amount of rent expense is less than the associated depreciation and interest expense by approximately $2.0 million. The adoption of ASU 2016-02 had an immaterial impact on our consolidated statement of cash flows for the nine-month period ended September 30, 2019.

Conference Call Information

The company invites interested parties to listen to the live audiocast of the conference call on October 31, 2019 at 10:00 a.m. ET at its website, havertys.com under the investor relations section. If you cannot listen live, a replay will be available on the day of the conference call at the website or via telephone at approximately 1:00 p.m. ET through, November 7. The number to access the telephone playback is 1‑888‑203‑1112 (replay passcode: 6331827).

About Havertys

Havertys (NYSE: HVT and HVT.A), established in 1885, is a full-service home furnishings retailer with 122 showrooms in 16 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, havertys.com.

Safe Harbor 
This press release includes statements that constitute forward-looking statement within the meaning of the federal securities laws.  Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which are not historical in nature. We intend for all forward-looking statements contained herein or on our website, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Forward-looking statements may relate to, for example, future operations, financial condition, economic performance (including gross profit margins and expenses), capital expenditures, and demand for our products.  The Company cautions that its forward-looking statements involve risks and uncertainties, and while we believe that our expectations for the future are reasonable in view of currently available information, you are cautioned not to place undue reliance on our forward-looking statements.  Actual results or events may differ materially from those indicated as a result of various important factors.  Such factors may include, among other things, the state of the economy; state of the residential construction and housing markets; the consumer spending environment for big ticket items; effects of competition; management of relationships with our suppliers and vendors and disruptions in their operations; the imposition of tariffs and the effect of retaliatory trade measures; new regulations or taxation plans, as well as other risks and uncertainties discussed in the company's reports filed from time to time with the Securities and Exchange Commission.  You are urged to consider such factors.  The Company assumes no obligation for updating any such forward-looking statements. 

Haverty Furniture Companies, Inc., 404-443-2900
Richard B. Hare
Jenny Hill Parker
  SVP, Finance and Corporate Secretary

SOURCE:  Havertys


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