Haverty Furniture Reports Results for First Quarter 2005
Furniture World Magazine
Haverty Furniture Companies, Inc. reported earnings for the first quarter ended March 31, 2005. Results for the three months ended March 31, 2004, and all other amounts as necessary, have been restated in connection with the Company's review of its lease accounting. Net income for the first quarter of 2005 was $3.2 million or $0.14 per diluted common share, a 47.4% and 47.3% decrease, respectively, compared to the first quarter 2004 net income of $6.0 million or $0.26 per diluted common share, as restated.
As previously reported, net sales for the first quarter of 2005 were $207.6 million, an increase of 9.1% over sales of $190.3 million for the corresponding quarter in 2004. Comparable-store sales increased 4.7% for the quarter.
Clarence H. Smith, president and chief executive officer, said, "We are disappointed in our earnings for the first quarter. Our operations were significantly affected by the last major phase of our distribution transition. The overall impact from closing and consolidating six warehouses into our new Florida Distribution Center, while operating in the height of the season, was more costly than we had estimated. The expenses associated with operating duplicative facilities, moving, training and severance costs were approximately $1.9 million. Increased demurrage charges related to larger quantities of imported goods arriving during this transition were an unexpected additional impact of approximately $0.6 million. While this transition has been difficult and demonstrably expensive in period costs and human capital, we believe it was necessary. We are better positioned to more efficiently handle our growing share of the dynamic Florida markets and have improved our ability to add new markets and stores in our largest and fastest growing state.
"We also experienced increased costs during the quarter related to ongoing operations for fuel, insurance and professional service fees. Rising energy costs impact our business from the inbound freight we pay for our inventory shipments to the expenses associated with moving product from our distribution centers to local market delivery points and the final delivery to our customers' homes. Our inbound freight costs have risen and our transportation fuel costs increased $0.4 million on a period-over-period basis. We are analyzing modifications to our routes and delivery schedules to reduce fuel usage and may raise the fee we charge our customers for delivery. Insurance costs are up $0.9 million compared to last year's first quarter, primarily in the areas of medical and workers' compensation. The new regulatory requirements and the cost of compliance with Sarbanes-Oxley contributed to a $0.5 million increase in professional service fees in this year's first quarter as compared to last year's first quarter. These rising operating costs have given our management team new challenges and we are reviewing and implementing steps to ensure that we are operating our business as efficiently as possible.
"With April's comparative sales up 7.7% following March's 10.8% increase, we believe that we are gaining share on our competition and building the Havertys brand throughout our regions. We have had solid sales performance for the stores opened in markets we entered later last year and strong customer response to our newest store that opened in February in Northern Virginia.
"As anticipated, our gross profit margins were in line with the results in the most recent three quarters. We expect gross margins to improve in the last half of the year, due to new merchandising programs, exclusive products and fewer closeouts. Our current inventory mix is well balanced with our best sellers having sufficient quantities in stock to better serve our customers. Although we are disappointed with the earnings results for the first quarter of this year, we are confident that our long-term strategies for distribution and merchandising provide significant competitive advantages and better position us to enhance market share and profitability."
Havertys is a full-service home furnishings retailer with 118 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 .