Haverty Furniture Reports Loss For Year

Furniture World Magazine

Havertys Reports Fourth Quarter and 2008 Results Haverty Furniture Companies, Inc. reported its results of operations for its year and quarter ended December 31, 2008. As previously reported, Havertys' sales for the fourth quarter 2008 decreased 21.3% to $161.9 million, compared with $205.8 million for the fourth quarter of 2007. On a comparable-store basis, sales for the quarter decreased 22.6%. The net loss for the fourth quarter of 2008 was $10.1 million, or $0.48 per diluted share. This loss includes a non-cash charge to tax expense of $8.7 million to establish a valuation allowance against the Company's net deferred tax assets. Excluding this charge, which impacts comparability, the Company had a non-GAAP fourth quarter net loss of $1.4 million or $0.07 per diluted share. (Please see the GAAP to non-GAAP reconciliation later in this release.) Results for the fourth quarter of 2007 were earnings of $1.6 million or $0.07 per diluted share. Sales for the twelve months of 2008 totaled $691.1 million, compared with $784.6 million in 2007, representing a decrease of 11.9%. On a comparable- store basis, sales decreased 14.3% for the twelve months. The net loss for fiscal 2008 was $12.9 million or $0.61 per diluted share. Excluding the charge to tax expense for the valuation allowance, the Company had a non-GAAP net loss of $4.2 million or $0.20 per diluted share. Earnings for the full-year of 2007 were $1.8 million or $0.08 per diluted share. Clarence H. Smith, president and chief executive officer, said, "The difficult economic environment in 2008 and continuation of the slump in residential housing have together been bigger challenges to our top line sales than we could overcome with better merchandising, cost cutting and efficiency improvements. During the fourth quarter we made good progress in expense control and working capital management which resulted in a lower 2008 pre-tax loss and smaller outstanding debt levels than were expected when we announced our third quarter results in November. Gross margins for the fourth quarter were up 137 basis points over the 2007 quarter and improved 200 basis points for the year. Reductions in markdowns and our cessation of in-house free financing for terms greater than one year were the primary contributors to the improvement in gross margins. We have maintained our pricing discipline and strengthened our product sourcing which also aided our gross margins results. We had taken extra steps to rid ourselves of problem inventory in 2007 and have since maintained better control over the creation of these categories. Fourth quarter total SG&A costs were $16.5 million or 16.1% lower than the same period last year. We reduced spending in each major category with more than half of the savings coming in selling, advertising and marketing expenditures. We were much more selective in our media mix choices for our advertising spend and targeted key retail selling time periods while refining and increasing our direct and web based efforts. Warehouse, delivery and administrative expenses were lowered largely by headcount reductions, less incentive payouts and reduced fuel costs. Occupancy expenses are mostly fixed but the total dollars were still reduced slightly in spite of higher rents associated with two new and two relocated stores. For the full year total SG&A costs were reduced by $27.0 million or 6.9% compared to 2007. The only area of spending that increased was a 1.1% rise in occupancy costs. We took several steps to rationalize operations by reducing costs across our business as the difficult year progressed with the largest part of the positive impact realized later in the year. Fuel prices and various supplies and materials costs that spiked in the middle of the year subsided in the last few months of 2008. As we encounter continued tough selling conditions in 2009, we believe we have considerably reduced our break-even sales level. We were able to pay off $21.2 million of debt during 2008 and ended the year with no borrowings on our $60 million revolving credit facility. The primary source of cash was the $38.7 million reduction of our in-house customer accounts receivable as we outsourced more of our sales on credit to a third party finance provider. Depreciation and amortization expense of $21.6 million was over twice the level of capital expenditures for the year which also contributed to positive cash flow. Our solid balance sheet and healthy liquidity puts the Company on solid footing, which is critical during a difficult economic cycle. We suspended the payments of our dividend in the fourth quarter of 2008 to conserve about $6 million of cash per year. Our pension plan was overfunded at the end of 2007. The market value of our pension plan assets was hurt by the equity markets' extremely poor performance causing a negative 17.9% overall return for the year. This decline, together with regular payments to plan participants, resulted in our plan being underfunded and the recording of an $11.7 million long-term liability on our balance sheet at December 31, 2008. No funding contributions were required for our pension plan in 2008 nor will contributions be required in 2009. Our plans for 2009 include carefully monitoring our gross profit margins and maintaining tight controls over inventory. We expect further reductions in our accounts receivables and limiting capital spending to result in minimum usage of our credit lines. "Our total written business in the first quarter to date is down approximately 13% versus the same period last year. We are operating in the midst of a very tough economic climate for any retailer and exceptionally difficult for those in the home furnishings sector. It has been over 65 years, during World War II, since Havertys has recorded an annual loss. These are very difficult times requiring hard choices concerning cost-cutting and cash conservation which we acknowledge affect our associates and our shareholders. While we are disappointed with the year's results, we believe we are being careful stewards of the Company's resources, including its brand, and are well positioned to weather this challenging economy," Smith concluded. Valuation Allowance and GAAP to Non-GAAP Reconciliation The Company's income tax expense for the quarter included a non-cash charge for a valuation allowance related to its deferred tax assets, in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. Although this valuation allowance reduces the amount of the net deferred tax assets on the balance sheet, the Company will be able to utilize these assets to reduce tax expense in future profitable periods. We have excluded the effect of this valuation allowance from our calculation of the following: non-GAAP net income (loss), and non-GAAP net income (loss) per share. The establishment of this valuation allowance does not result in ongoing cash expenditures, and, in our view, does not otherwise have a material impact on our ongoing business operations. Accordingly, we believe that providing non-GAAP financial measures that exclude this valuation expense allows investors and analysts to make meaningful comparisons of our ongoing core business operating results. Havertys is a full-service home furnishings retailer with 122 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 www.havertys.com .