Haverty Reports Second Quarter Earnings Drop

Furniture World Magazine

Haverty Furniture Companies, Inc., reported earnings for the second quarter ended June 30, 2005. Net income for the second quarter was $1.3 million or $0.06 per diluted share of Common Stock, as compared to the second quarter 2004 net income of $3.6 million or $0.16 per diluted share of Common Stock. For the six months ended June 30, 2005, net income was $4.5 million or $0.20 per diluted share of Common Stock versus net income of $9.7 million or $0.42 per diluted share of Common Stock for the same period in 2004. Net sales for the second quarter of 2005 were $192.4 million, an increase of 7.1% over sales of $179.6 million for the corresponding quarter in 2004. As previously reported, comparable-store sales increased 2.3% for the quarter. Clarence H. Smith, president and chief executive officer, said, "We noted in our June sales release that our second quarter earnings would be significantly below the prior year's quarter. These disappointing results were due to weak sales during May and June and exacerbated by the increased fixed costs associated with our distribution system. We believe that sales for big- ticket furniture items have been hampered by a number of factors including: rising fuel costs, continued negative impressions concerning the economy in the media, and heavy promotional activity by the automobile industry. Our marketing and merchandising teams have developed a slightly more promotional strategy for implementation in the second half of the year to more aggressively compete for our customers' dollars. We believe that we will have improvement in our gross profit margins during the third and fourth quarters as all of the planned closures of local market warehouses and related inventory liquidations have been completed. "Our second quarter total SG&A costs have risen sharply compared to last year but decreased 4.6% from the first quarter level. Second quarter sales, normally the seasonally weakest of the year, fell 7.3% on a sequential quarter basis, more than is typical. The distribution system that we now operate is effective but the fixed costs are higher. To properly leverage these costs we must generate greater sales volume and not fall short of the sales we are staffed and scheduled to serve. Our operations team is now able to assess the fully functional consolidated distribution system, and we expect to make certain refinements, reducing costs where possible. We anticipate that our total SG&A expenses for the second half will be at or slightly below last year's second half costs as a percent of sales if we can achieve a total sales increase of approximately seven percent. "We are pleased to announce that Steven Langer has joined our team as Assistant Vice President, Supply Chain. He has developed considerable expertise in this field during his career working with global companies such as Georgia Pacific and Delta Airlines. Product flow is a key area of importance to us as we source from Asia and other parts of the world and expand to new markets. Steven fills the vacancy left by the retirement of a senior member of our team. "Actual net sales for July 2005 will be announced on Thursday, August 4th. Preliminary figures show sales of approximately $66.6 million, 5.5% below July last year in total and 8.8% lower on a comparable-store basis. Written orders in July were up approximately 3.2% in total versus last year with comps off 1%. The July 4th holiday weekend was disappointing, but written orders on a comp basis were modestly positive for the remainder of July. "There was one less delivery day in July this year as compared to last year which impacted total sales by an estimated 4%. Comp-store sales for July last year were up 9.9%, so the comparison was difficult. Comp-store sales for August and September last year were down 4.1% and 8.4% respectively, largely due to disruptions from four hurricanes, so the comparisons should be much easier. "During the fourth quarter we will be opening stores near Castleton Mall in Indianapolis, IN and by the Polaris Mall in Columbus, OH, both new markets for Havertys. Two older stores in Shreveport, LA will be replaced with a single, better-located showroom, and we will be expanding our Woodbridge, VA store in our growing presence in the Washington, DC metro market. We have decided to close our older, underperforming store on Airport Boulevard in Austin, TX in October and have a contract to sell the property for a profit. We are looking for a second store in Austin in the growing southwestern suburbs to compliment our beautiful store in the Lakeline Mall shopping district north of the city. The opening of our Ft. Lauderdale, FL store in the Sawgrass Mall area has been moved to early 2006. "Other new stores planned for 2006 include: Port Charlotte, FL, another new city for Havertys in the first quarter; a new store in the southeastern suburbs of Atlanta, GA near Stonecrest Mall in the second quarter; and in the third quarter, a new showroom in the Cedar Hill shopping area south of Dallas, TX," Smith concluded. Havertys is a full-service home furnishings retailer with 118 showrooms in 16 southern and central states 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 htp://www.havertys.com.