Havertys Reports Earnings for Fourth Quarter and Full Year 2018

GlobeNewswire - finance.yahoo.com Posted 5 years ago

ATLANTA, Feb. 19, 2019 (GLOBE NEWSWIRE) -- HAVERTYS (NYSE:HVT and HVT.A) reports earnings for the quarter ended December 31, 2018 of $0.45 per share compared to $0.13 per share for the same period of 2017.  The earnings per share for the full year 2018 were $1.42 compared to $0.98 per share for 2017.

Clarence H. Smith, chairman, president and CEO, said, “Our results reflect the impact of our efforts to more closely align gross profit margins with the quality of our Havertys branded merchandise and gains from operational efficiencies against the backdrop of difficult sales conditions.

“The fourth quarter was a challenge for our teams dealing with the tariffs placed on goods from China. We have addressed the disruption to product selection, sourcing, vendor pricing, supply chain and merchandise availability. We expect to continue to manage and work through the effect of the current 10% tariff without material impact to our business. Should the slated increase to 25% in March occur, we believe we can handle this change as well as any other company in our industry.

“We closed five locations during 2018, improving our comparable store sales results and future operating costs. In addition to strict analysis of our store base, SG&A costs are under rigorous scrutiny to ensure that we remain profitable and competitive. We made investments in our people during 2018 as we increased minimum hourly wages, made additional contributions to employees’ 401(k) savings accounts, expanded our sick leave policy and wellness program, and absorbed additional costs related to employee health care benefits.

“The current retail environment highlights the imperative of connecting and meeting the needs of the consumer. We are making continued investments in our online presence and website capabilities, and our brick-and-mortar portfolio has never been in better shape. Coupled with our sales consultants and in-home designers, we provide an exceptional start to finish shopping experience followed by first-class delivery service. Our entire team is committed to achieving profitable sales growth, efficient operations, and satisfying our customers.”

Financial Highlights

Fourth Quarter 2018 Compared to Fourth Quarter 2017

  • As previously reported, net sales declined 2.8%.  On a comparable store basis, sales were down 1.6%.  Total written sales were down 5.2% and written comparable store sales declined 3.9% over the same period last year.
  • Average written ticket increased 6.7% over last year’s quarter and custom upholstery written business increased 5.8%.
  • Gross profit margin increased 73 basis points to 54.8%.  The improvement was primarily from product pricing and mix.
  • Selling, general and administrative costs declined $1.7 million and as a percent of sales increased 60 basis points to 48.8% from 48.2%. Fixed and discretionary expenses were relatively flat. The increases in advertising and marketing expenses of $0.6 million and warehouse costs of $0.3 million were partly offset by a $0.5 million decrease in depreciation. Variable expenses were 18.3% as a percent of sales in 2018 compared to 18.6% in 2017. The savings were driven by reductions in our selling expenses.
  • Other income in 2017 includes $1.9 million in gains from insurance recoveries.
  • Tax expense in 2017 includes $5.9 million for the enactment of the Tax Act, which increased our effective tax rate to 79.2% and reduced diluted earnings per share $0.27.
  • During 2018, we paid a special cash dividend of $1.00 per share to common stockholders and $0.95 per share to Class A common stockholders.
  • During 2018, we purchased 202,663 shares of common stock for $4.3 million.

Twelve Months ended December 31, 2018 Compared to Same Period of 2017

  • As previously reported, net sales totaled $817.7 million, compared with $819.9 million in 2017, representing a decrease of 0.3%.  Comparable store sales were up 0.3%.
  • Average written ticket was $2,184, an increase of 4.4%, and custom upholstery written business increased 8.7%.
  • Gross profit margin increased 30 basis points to 54.6% from 54.3%.
  • Selling, general and administrative costs as a percent of sales increased 40 basis points to 49.5% from 49.1%. Fixed and discretionary expenses increased $1.8 million to $255.0 million. The increase was primarily from administrative costs which grew $1.6 million driven by increased group medical costs. Spending on advertising and marketing increased $0.5 million and warehouse expenses rose $0.5 million, which were partly offset by $0.7 million in lower depreciation. Variable expenses increased to 18.3% as a percent of sales in 2018 from 18.2% in 2017 primarily due to higher delivery costs.
  • Other income in 2017 includes $2.9 million in gains from insurance recoveries.
  • Tax expense in 2017 includes $5.9 million for the enactment of the Tax Act, which increased our effective tax rate to 51.2% and reduced diluted earnings per share $0.27.
  • During 2018, we purchased 890,225 shares of common stock for $18.7 million.
  • Our retail store count at the end of 2018 was 120, as we closed five locations and opened one in a new market.

Expectations and Other

  • Our gross profit margin for the full year of 2019 is expected to be 54.6%. First half gross profit margin is projected to be 10 basis points lower than the average for 2019, with the second half running approximately 10 basis points higher. These estimates assume that there will be no increases in the existing tariffs being paid on imports.
  • Fixed and discretionary type expenses within SG&A are expected to be in the $260 to $262 million range for 2019. This includes an estimated $2.0 million impact from the new lease accounting standard, which will reduce interest expense by a similar amount. The expected increase is also due to higher occupancy costs from new and relocated stores and inflation. Variable SG&A expenses for 2019 are anticipated to be 18.2% as a percent of sales.
  • Our effective tax rate for 2019 is expected to be 25% excluding the impact from the vesting of stock-based awards.
  • Planned capital expenditures for 2019 are $19 million, which include opening a store in two new markets, a new location in the Atlanta market, and a store relocation. Retail square footage is expected to increase 2% in 2019. Investments of $4.0 million in information technology are also included in our planned capital expenditures.


HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data – Unaudited)


  Three Months Ended
December 31,		   Year Ended
December 31,		  
  2018   2017   2018   2017  
                         
Net Sales $ 208,968   $ 214,962   $ 817,733   $ 819,866  
Cost of goods sold   94,502     98,769     371,191     374,943  
Gross Profit   114,466     116,193     446,542     444,923  
Credit service charges   23     35     103     161  
Gross profit and other revenue   114,489     116,228     446,645     445,084  
                         
Expenses:                        
Selling, general and administrative   101,914     103,573     404,856     402,884  
Provision for doubtful accounts   10     43     68     224  
Other income, net   (12 )   (1,927 )   (110 )   (3,358 )
Total expenses   101,912     101,689     404,814     399,750  
                         
Income before interest and income taxes   12,577     14,539     41,831     45,334  
Interest expense, net   239     469     1,423     2,111  
                         
Income before income taxes   12,338     14,070     40,408     43,223  
Income tax expense (1)   2,909     11,149     10,101     22,148  
Net income (1) $ 9,429   $ 2,921   $ 30,307   $ 21,075  
                         
Diluted earnings per share:                        
Common Stock (1) $ 0.45   $ 0.13   $ 1.42   $ 0.98  
Class A Common Stock $ 0.44   $ 0.13   $ 1.39   $ 0.94  
                         
Diluted weighted average shares outstanding:                        
Common Stock   20,957     21,647     21,295     21,599  
Class A Common Stock   1,761     1,790     1,765     1,801  
                         
Cash dividends per share:                        
Common Stock $ 1.18   $ 0.1500   $ 1.72   $ 0.5400  
Class A Common Stock $ 1.12   $ 0.1425   $ 1.63   $ 0.5100  
                         

(1) In December 2017, the 2017 Tax Cuts and Job Act was enacted and significantly impacted U.S. tax law. As a result of this legislation, our fourth quarter and full year 2017 income tax expense increased $5.9 million, which impacted net income and earnings per share.  Our diluted earnings per common share decreased $0.27 for both the fourth quarter and full year 2017.



HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)


  December 31,  
  2018   2017  
ASSETS            
Current assets            
  Cash and cash equivalents $ 71,537   $ 79,491  
  Restricted cash equivalents   8,272     8,115  
  Accounts receivable, net   1,833     2,408  
  Inventories   105,840     103,437  
  Prepaid expenses   8,106     11,314  
  Other current assets   6,262     5,922  
    Total current assets   201,850     210,687  
             
Accounts receivable, long-term, net   226     254  
Property and equipment, net   216,852     229,215  
Deferred income tax   12,544     12,375  
Other assets   8,707     8,798  
    Total assets $ 440,179   $ 461,329  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities            
  Accounts payable $ 19,840   $ 20,501  
  Customer deposits   24,465     27,813  
  Accrued liabilities   39,903     37,582  
  Current portion of lease obligations   4,018     3,788  
    Total current liabilities   88,226     89,684  
             
Lease obligations, less current portion   46,785     50,803  
Other liabilities   30,539     26,700  
    Total liabilities   165,550     167,187  
             
Stockholders’ equity   274,629     294,142  
    Total liabilities and stockholders’ equity $ 440,179   $ 461,329  




HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands – Unaudited)


  Year Ended December 31,  
  2018   2017  
Cash Flows from Operating Activities:            
  Net income $ 30,307   $ 21,075  
  Adjustments to reconcile net income to net cash
 provided by operating activities:		            
    Depreciation and amortization   29,806     30,516  
    Gain on insurance recovery   (307 )   (2,848 )
    Proceeds from insurance recovery received for business
 interruption and destroyed inventory		   266     2,867  
    Stock-based compensation expense   4,358     3,818  
    Deferred income taxes   (439 )   5,559  
    Provision for doubtful accounts   68     224  
    Other   863     82  
  Changes in operating assets and liabilities:            
    Accounts receivable   535     1,820  
    Inventories   (2,403 )   (2,112 )
    Customer deposits   (3,348 )   2,890  
    Other assets and liabilities   9,196     (932 )
    Accounts payable and accrued liabilities   1,490     (10,502 )
      Net cash provided by operating activities   70,392     52,457  
             
Cash Flows from Investing Activities:            
  Capital expenditures   (21,473 )   (24,465 )
  Proceeds from sale of property and equipment   2,446     951  
  Proceeds from insurance for destroyed property and equipment   55     1,987  
      Net cash used in investing activities   (18,972 )   (21,527 )
             
Cash Flows from Financing Activities:            
  Construction allowance receipts   -     1,590  
  Payments on lease obligations   (3,788 )   (3,482 )
  Excess tax benefit from stock-based plans   -     -  
  Dividend paid   (35,464 )   (11,392 )
  Common stock repurchased and retired   (18,732 )   -  
  Taxes on vested restricted shares   (1,233 )   (1,555 )
      Net cash used in financing activities   (59,217 )   (14,839 )
             
Increase (decrease) in cash, cash equivalents and restricted cash equivalents   (7,797 )   16,091  
             
Cash, cash equivalents and restricted cash equivalents at beginning of year   87,606     71,515  
             
Cash, cash equivalents and restricted cash equivalents at end of year $ 79,809   $ 87,606  


SG&A Expense Classification

  • 1