Haverty Furniture's Fourth Quarter Profit Falls

Furniture World Magazine

Haverty Furniture Companies, Inc., reported earnings for the fourth quarter and the year ended December 31, 2005. Earnings for the fourth quarter were $6.8 million, or $0.30 per diluted share, compared with $8.7 million, or $0.38 per diluted share, a 22.4% and 21.1% decrease, respectively. Earnings for the year ended December 31, 2005 year were $15.1 million, or $0.66 per diluted share, compared with $22.6 million, or $.98 per diluted share for 2004, a 33.5% and 32.7% decrease, respectively. As previously reported, sales for the fourth quarter were $225.6 million, or 4.1% greater than the sales in the corresponding quarter in 2004. Sales for the year ended December 31, 2005 increased 5.5% to $827.7 million from $784.2 million in 2004. Comparable-store sales in 2005 increased 1.2% for the fourth quarter and 1.8% for the year. Clarence H. Smith, president and chief executive officer, said, "Our fourth quarter earnings were below the same period last year reflecting modest sales increases and improving gross profit margins offset by higher SG&A costs and much lower other income from property dispositions. "The gross profit margins were 59 basis points better than the fourth quarter last year and the highest of any 2005 quarter. We attribute this progress to increased sales of our Havertys Collections® private label products replacing sales of widely distributed merchandise sold under certain manufacturers' brands. "SG&A costs increased 137 basis points due to higher energy prices, increased delivery and transportation expenses and what we expect to be the last period of abnormally high demurrage charges. Demurrage expense for the fourth quarter was $1.2 million or 52 basis points of sales versus only $0.1 million last year. The ocean and inter-modal carriers charge demurrage fees when containers carrying imported merchandise are not unloaded and returned to the port within the carriers' prescribed time periods. Our imports have increased considerably in the past few years and our distribution centers were not large enough to accommodate the product flow for the breadth of our line up. The second expansion phase of our main distribution center will be completed in April and we began receiving product in the first phase during January. We are improving our supply chain techniques, systems and controls and are managing our product line more closely in 2006. These improvements are expected to greatly reduce demurrage costs and to allow for more prompt and accurately scheduled deliveries to our customers. "Other income for this year's fourth quarter was $1.2 million compared to $3.6 million last year, a reduction of $2.4 million or 111 basis points of sales. This income was generated primarily from gains on property dispositions in both periods. "We ended 2005 with our balance sheet in very good shape, with total assets lower and stockholders' equity $7.0 million higher than the prior year end. Financial leverage decreased during 2005 with debt as a percent of total capital decreasing from 19.2% to 14.8%. "For Havertys, 2005 was a challenging year as we expended capital and energy transforming our operations and product sourcing. In the first half, we completed the physical moves and systems changes to revamp distribution and customer service in our growing Florida markets. During the second half, warehousing and delivery functions for all of our operations were running on the same software and telecom systems which give us the ability to coordinate home deliveries and service functions throughout our chain from any of our call centers. We entered two key Midwest markets in the fourth quarter, opening new stores in both Indianapolis and Columbus. "The Havertys brand has become a central focus for our future and key to further improving gross profit margins. We believe we can increase market share in 2006 as we strive to better connect with our customers and earn more of their business," Smith concluded. Havertys is a full-service home furnishings retailer with 118 showrooms in 17 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 http://www.havertys.com.