Havertys swings to $9.2 million quarterly profit

Reverses loss in last year's fourth quarter

Clint Engel -- Furniture Today, March 2, 2010

ATLANTA — Havertys posted a fourth-quarter profit of $9.2 million, rebounding from a loss for the same period a year ago, thanks to a combination of cost-cutting initiatives and a slight pickup in business.

The 119-store Top 100 company indicated that business has continued to improve this year, but said it remains cautious and committed to lean operations.

Sales for the quarter were up less that 1% to $162.4 million while same store sales increased 2%.

In last year's fourth quarter, the retailer posted a loss of $9.3 million, largely because of an $8.2 million non-cash charge to increase the valuation allowance for deferred tax assets. In the latest period, that charge was just $600,000.

Excluding the charges, net income was $9.8 million for the fourth quarter of 2009, compared with a $1.1 million loss a year earlier.

For the full year, sales decreased 14.9% in 2009 to $588.3 million and same store sales fell 14.2%. The net loss for the year was $4.2 million or 20 cents per share, an improvement from the net loss of $12.1 million or 57 cents per share in 2008. Excluding the tax expense charges, the net losses were $3.5 million and $3.9 million in 2009 and 2008, respectively.

Havertys is "pleased with the earnings leverage that we achieved on a small increase in sales," said President and CEO Clarence Smith.

"The return to positive comparable-store sales in the fourth quarter was a good sign since it historically is the strongest period for furniture retailers. We believe by carefully highlighting great merchandise values in our advertising we are stimulating sales and protecting our brand," Smith said.

He said gross profit margins for the quarter improved and that the retailer saw modest deflation in product costs and lower ocean freight rates in 2009.

Selling, general and administrative costs in the quarter were down 8.7% or $7.5 million, reflecting efficiency and cost-cutting steps.

"We reduced spending in each major category, with more than half of the savings coming in advertising and marketing expenditures, occupancy and administrative expenses," Smith said.

He said ad spending fell by more than 11% in the fourth quarter, "yet our surveys ... demonstrate our brand strength is growing." He said the retailer is using more TV during key selling periods, and has increased its direct and Web-based efforts.

For the year, SG&A costs were cut by $53.6 million or 14.7%, in line with the sales decline. Gross profit margins improved slightly in 2009.

Havertys said it increased its cash position by $40.8 million during 2009, and ended the year with no borrowings on its $60 million revolving credit facility.

Smith said the company will focus on increasing same-store sales and sales-per-square-foot this year, while "carefully monitoring" profit margins and maintaining tight inventory control. Capital spending will be up this year - to about $15 million - for new and remodeled stores and computer upgrades, but it expects to fund the work with operating cash.

"Our solid balance sheet and healthy liquidity puts the company on solid footing, which is critical during a difficult economic cycle," Smith said.

Total written business in the first quarter to date is up about 8% in spite of interruptions in some key markets due to winter storms.

"The economic climate is fragile and although pleased with recent trends, we remain cautious and committed to our leaner operating strategies," Smith said.

"We believe that the cost-cutting and cash conservation steps taken during the past year, while difficult for our associates and our stockholders, have helped us weather this challenging period. As the economic cycle stabilizes and improves, we look forward to reaping the benefits of these actions, gaining market share and sharing the returns with our stockholders."