Haverty Furniture Reports Results For Third Quarter 2004

Furniture World Magazine

Haverty Furniture Companies, Inc. reported earnings for the third quarter ended September 30, 2004. Net income for the third quarter was $4.3 million or $0.19 per diluted share of Common Stock, as compared to the third quarter 2003 net income of $7.4 million or $0.33 per diluted share of Common Stock. For the nine months ended September 30, 2004, net income was $14.2 million or $0.61 per diluted share of Common Stock versus net income of $14.4 million or $0.65 per diluted share of Common Stock for the same period in 2003. Net sales for the third quarter of 2004 were $197.4 million, an increase of 1.1% over sales of $195.4 million for the corresponding quarter in 2003. As previously reported, comparable-store sales decreased 1.0% for the quarter. Clarence H. Smith, president and chief executive officer, said, "The third quarter was one of our more challenging periods in recent years. We started the quarter with strong sales and began ramping up our operations for the months ahead. Unfortunately, the severe weather which hit Florida and other southeastern markets proved detrimental to our sales and delivery efforts. August sales were off due to one hurricane and September sales were off 25% in the affected markets as three hurricanes made landfall. These lost sales were particularly significant because our Florida stores normally produce approximately 23% of our total sales. In addition to the revenue impact, the far ranging and prolonged periods of evacuations and disruptions made it difficult to control expenses. The hurricanes damaged several of our facilities including significant destruction to a local market warehouse and two stores. Our insurance coverage prevented us from incurring financial losses from the property damage. The Ft. Pierce store, which was the most severely damaged, has been closed for repairs after being hit by two hurricanes and will be reopened in mid-November. The good news for many consumers who were impacted by the severe weather is the timely receipt of their insurance settlements and we have seen a substantial increase during October in our sales order activity in these markets. "Gross margins for the third quarter were impacted by a non-recurring cost of sales adjustment of $1.2 million or 61 basis points. This adjustment resulted from our internal controls evaluations in connection with our Sarbanes-Oxley Act compliance. We had been undercosting warranty sales because of changes to our systems during 2001, when we converted to the billed-upon-delivery revenue recognition method. The amounts for the individual prior periods related to this adjustment are not material and the process for costing of warranties has been corrected. Excluding this amount, margins improved slightly during the third quarter over last year on a comparable basis. The gross margins would have shown greater improvement since we used less promotional pricing this year but this was mostly offset by an increase in the LIFO provisions of $0.3 million or 15 basis points, versus an 8 basis point decrease in the reserve in the third quarter last year. "SG&A expenses as a percent of sales for the third quarter were up significantly as compared to last year's period due to the lower than planned sales, but were relatively unchanged from the 47.3% experienced in the second quarter of this year. We continue to build our Havertys brand image with our target customers. We have increased our television advertising during 2004, particularly in our larger and newer markets and in the third quarter invested $1.0 million more than last year. "Our distribution system continues on its track to completion with the planned closing and selling of our regional warehouse in Mississippi and the conversion of our Dallas regional warehouse to a distribution center running our enhanced DC system during the fourth quarter. We experienced some storm related delays in the construction of our Florida DC and will be moving from our existing Florida Regional warehouse in Ocala into the new facility in Lakeland in January 2005. The completion of these actions will enable us to reduce our operating costs and better serve our customers. "Although our October sales order activity is very strong, October deliveries are tracking at only a modest increase over last year due to import flow issues. We have experienced some delays for product which enters through west coast ports and for groups whose production was shifted to Vietnam from China. We expect that these issues will improve in November. "We are pleased to announce the acquisition of land in the growing southeastern suburbs of metro-Atlanta near Stonecrest Mall for a new store to open late in 2005. We believe the strength of our merchandising and ability to service our customer give us a distinct advantage in gaining market share in Atlanta and in our other markets in the months ahead," Smith concluded.