Over 154 Years of Service to the Furniture Industry
Furniture World Logo

Haverty Reports 4th Quarter Sales Increase

Furniture World News Desk on 2/24/2015


HAVERTYS reported a loss for the quarter ended December 31, 2014 of $(0.45) per diluted share and adjusted earnings of $0.46 per diluted share. The earnings per diluted share for the full year 2014 was $0.37 and adjusted earnings per diluted share was $1.28.

During the fourth quarter Havertys completed the termination of its defined benefit pension plan as previously announced in its Form 8-K filed on May 16, 2014. The plan participants received their earned benefits through the payment of lump-sum cash distributions, roll-over payments to other retirement accounts, and the purchase of annuity contracts from a third-party insurance company. Havertys' plan was fully funded so no Company contributions were required in 2014 to completely settle the plan's obligations. As expected, the settlement of these liabilities triggered the non cash recognition of $21.6 million in pension settlement expenses and a tax benefit of $0.9 million in the quarter for a total impact on consolidated net income of $20.7 million. The termination resulted in the reclassification adjustment of $13.6 million out of accumulated other comprehensive income (loss) on the Company's balance sheet to increase other comprehensive income for 2014. These adjustments did not impact cash flow and resulted in a net reduction in total stockholders' equity of $7.1 million.

Excluding the pension expense after tax, adjusted diluted earnings per share in the fourth quarter totaled $0.46. This compares to diluted earnings per share of $0.42 in the same quarter in 2013. The diluted earnings per share for the year ended December 31, 2014 is $0.37 compared to $1.41 per share for the same period of 2013. The annual earnings for 2013 included an out-of-period adjustment recorded in the first quarter which favorably impacted gross profit by $0.8 million or $0.02 per share. Excluding this adjustment and the pension settlement expense in 2014, adjusted diluted earnings per share for the 2014 year were $1.28 compared to $1.39 for 2013.

Clarence H. Smith, chairman, president and CEO, said, "We finished 2014 with a strong fourth quarter led by solid sales growth and advancement on several operational fronts. As we reported in our January sales release, vendor supply and import flow improved enabling us to increase delivered sales. Our teams worked to ensure that we would have robust warehouse inventory levels and product on the water in advance of the Chinese New Year supply interruption to meet sales demand. The west coast port congestion caused by unresolved labor contract tension has resulted in some delivery delays to our customers in the western portion of our footprint and higher supply chain costs for imports. We are encouraged by the recent news of a settlement and will continue to take all practical mitigating steps until the ports recover.

Our store activity in the fourth quarter strengthened our position in existing markets and preparations are underway to enter three new ones in 2015. The first Havertys Style Studio opened in October and is our new urban format store featuring an enhanced focus on our design service. Our custom upholstery tool and 3D room planner are now available online to the consumer and are part of a holistic website and mobile technology improvement initiative.

We are aggressively positioning Havertys as "the preferred store" to make our customers' visions of their homes come true. This is an overarching program, encompassing better quality products, improved service, additional design tools, our H design professionals and more targeted messaging and advertising. This will allow us to further separate Havertys from the promotional furniture stores and earn the business from the discriminating on trend customer.

In December, we completed the significant process of settling the obligations related to our pension plan. This plan was frozen in 2006 as we moved to an emphasis on the employee savings/retirement 401(k) plan. The pension plan reached an overfunded status in 2013 and by terminating the Plan and settling the obligations we were able to provide continued security to the plan's participants and eliminate volatile pension costs and funding requirements in the future for Havertys.

Financial Highlights

Fourth Quarter 2014 Compared to Fourth Quarter 2013
  • As previously reported, net sales increased 8.6% to $213.0 million. Comparable store sales were up 8.3%. Total written business was up 6.7% in total and increased 5.9% for comparable stores.
  • Gross profit margins decreased 40 basis points from the all-time quarterly high last year to 53.6% consistent with the Company guidance given in our third quarter earnings release. This decrease was related to flat delivery revenue, slightly higher close-out sales and a year-over-year negative impact of $0.2 million, or 10 basis points, from changes in the LIFO reserve.

  • Selling, general and administrative costs as a percent of sales declined 50 basis points to 45.6% from 46.1%. The change results from better leverage of costs.
  • A non-cash charge of $21.6 million was recorded for pension expense from the termination and settlement of all obligations of our defined benefit plan.

  • Income tax expense includes $6.9 million from the release of a valuation allowance in accumulated other comprehensive income related to the settled pension obligations.

  • We opened three stores, two of which were relocations and one a new urban format and closed one location. We also substantially completed the efforts necessary for a new store which opened in mid-January 2015.

Twelve Months ended December 31, 2014 Compared to Same Period of 2013
  • As previously reported, net sales increased 3.0% to $768.4 million. Comparable store sales were up 3.6%.
  • Gross profit was $412.4 million, or 53.7% of net sales, which includes a year-over-year negative impact of $0.5 million from changes in the LIFO reserve. In the first quarter of 2013 a $0.8 million positive out-of-period adjustment was recorded. Excluding the impact of that adjustment, gross profit in 2013 was 53.7%, the same as in 2014.
  • Selling, general and administrative costs increased 80 basis points as a percent of sales to 47.5% from 46.7%. Our variable costs as a percent of net sales increased to 17.5% in 2014 from 16.7% and 10 basis points above guidance. This was due in part to the expansion of our in-home design program and as labor and insurance costs increased in our delivery and warehouse operations. Our fixed and discretionary expenses of $230.5 million rose 3% over the 2013 level, approximately $2.0 million below Company guidance.
  • Our retail store count at December 31, 2014 and 2013 was 119. 

Expectations and Other
  • Comparable store written business for the first quarter to date of 2015 is up approximately 6.1% over the same period last year. Total written business quarter to date is up 7.2% for the same period last year.
  • We expect our Q-1 2015 gross profit margins will be in the 53.3% to 53.5% range, as the costs of importing have increased with port congestion hurting container availability and frequency of vessel sailings resulting from the west coast port labor issues. Annual gross profit margins for 2015 are expected to be approximately 53.3% reflecting some continued higher import costs and the impact of increased competition in certain of our markets.
  • SG&A expenses for the full year in 2015 should be leveraged with continuing sales growth. We do expect increases in our period costs due to occupancy costs for new store locations, staffing, advertising spend and inflation. Fixed and discretionary type expenses within SG&A costs for 2015 are expected to be $239 to $241 million, up approximately 3.5% to 5% over those same costs in 2014. These expenses should average approximately $60 million per quarter, and are expected to be slightly higher for the second half of the year in connection with our expansion activity. Variable SG&A expenses should be in the 17.3% to 17.5% range as a percent of sales for 2015 and other non-SG&A costs, net of credit revenues, are expected to be $2.7 million.
  • Our effective tax rate for 2015 is expected to be in the 38.5% to 38.8% range.
  • Planned Capital expenditures for 2015 are $31.0 million. In addition to the store opened in January, our 2015 plans include three new locations each in a new market, one store in an existing market and the expansion and remodeling of three locations. We also plan to close one store at the end of its lease term. These changes will increase selling square footage approximately 3.8% and our store count will increase by four during 2015 to 123 assuming the store changes occur as planned. 

About Havertys:  Havertys (NYSE: HVT and HVT.A), established in 1885, is a full-service home furnishings retailer with 120 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 at www.havertys.com.