Haverty Furniture Companies, Inc., reported earnings for the fourth quarter and the year ended December 31, 2004. Earnings for the fourth quarter were $8.6 million, or $0.37 per diluted share, compared with $9.8 million, or $0.43 per diluted share, before the cumulative effect of a change in accounting principle in the fourth quarter of 2003, a 13.1% and 13.3% decrease, respectively. Earnings for the 2004 year were $22.8 million, or $0.99 per diluted share, compared with $24.3 million, or $1.08 per diluted share for 2003, before the cumulative effect of a change in accounting principle, a 6.4% and 9.0% decrease, respectively.
As previously reported, sales for the fourth quarter were $216.8 million, or 5.6% greater than the sales in the corresponding quarter in 2003. Sales for the year increased 5.3% to $784.2 million from $744.6 million in 2003. Comparable-store sales in 2004 increased 3.0% for the fourth quarter and 2.1% for the year.
Clarence H. Smith, president and chief executive officer, said, "The earnings for the fourth quarter of 2004 reflect the impact of several strategic activities to improve our distribution capabilities, enhance our competitive service position and expand our presence into new markets. These activities did impact our earnings more than planned and we also had some unusual adjustments during the quarter.
"Although we are disappointed with these earnings, we completed several major tasks related to our transition to fewer distribution centers and warehouses. We closed our regional warehouse in Mississippi that had served the mid-south states and also vacated two local market warehouses. The service responsibility for this area is now handled by our Western Distribution Center in Dallas, Texas. In preparation for the January opening of our new Florida Distribution Center in Lakeland, we readied our Florida regional warehouse and five local market warehouses for their closures during the first quarter. This process generated higher than normal inventory mark downs which impacted margins by approximately 20 basis points and increased Selling, General and Administrative costs by approximately $1.0 million. We expect that the first quarter of 2005 will also be similarly impacted as we complete our distribution transition. The fourth quarter results also include approximately $3.3 million in gains from the sale of our regional warehouse in Mississippi.
"We opened stores in two new markets for Havertys - Cincinnati, Ohio and Baton Rouge, Louisiana during the fourth quarter of 2004. The start-up expense for entry into new markets is more costly than adding additional locations in existing markets. The S,G&A for the fourth quarter of 2004 includes approximately $600,000 in start-up costs for these two new markets.
"Earnings for the fourth quarter of 2004 include an adjustment of $418,000 increasing S,G&A which is related to our accounting for leases. Like many other companies, we have reviewed our methodology due to recent questions about the correct interpretation of generally accepted accounting principles (GAAP) as applied to leases or leasehold improvements. Although our policies were substantially in compliance with GAAP, the adjustment relates primarily to leases on five stores previously operated by other furniture retailers that we assumed in 2001. During the fourth quarter, we also had an unfavorable adjustment totaling $1.1 million related to our group medical costs in conjunction with a change in our carrier.
"We are excited to announce the planned openings of stores in Columbus, Ohio and Ft. Lauderdale, Florida, both in great new markets for Havertys. We are also expanding our retail footprint into Indiana with a new store in Indianapolis. All of these locations are expected to open in the fourth quarter of 2005. Three of our best stores are also being physically expanded during 2005 as we seek to gain more share in these excellent locations. We plan to open approximately six stores in 2006. These include a location near Stonecrest Mall, east of Atlanta, a relocated store in south Dallas in the Cedar Hill area, a new store in Boca Raton, Florida and three additional stores in Florida. We are aggressively evaluating other possible new locations which we believe will become available in existing retail sites in the near term. Our strategy is to pursue opportunities in denser markets which we can serve using our existing distribution," Smith concluded.
Havertys' February sales increased 10.6% to $68.2 million, compared with $61.7 million in February 2004. On a comparable-store basis, February sales increased 6.1%. Comparable-store sales do not include stores or locations opened, closed or otherwise non-comparable during the last 12 months. Sales for the first two months of 2005 increased 5.6% to $134.4 million compared with $127.3 million in 2004. On a comparable-store basis, sales increased 1.7% for the first two months.
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