Haverty Furniture Companies Inc. - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Haverty Furniture Companies Inc., covering the period ended September 30, 1994. The company operates as a retail furniture chain with characteristics of a finance company due to its management of customer accounts receivable. As of November 10, 1994, the company had 8,429,584 shares of Common Stock and 3,064,551 shares of Class A Common Stock outstanding.
Key Financial Metrics (Nine Months Ended Sept 30, 1994)
| Metric | 1994 (Unaudited) | 1993 (Unaudited) |
|---|---|---|
| Net Sales | $267,292,000 | $230,789,000 |
| Gross Profit | $125,732,000 | $108,773,000 |
| Net Income | $7,733,000 | $5,832,000 |
| Earnings Per Share | $0.68 | $0.56 |
| Cash and Equivalents (End of Period) | $1,213,000 | $1,629,000 |
| Total Debt (Current + Long-Term) | $133,821,000 | $114,576,000 |
| Net Cash Used in Operating Activities | ($1,242,000) | ($3,913,000) |
| Net Cash Used in Investing Activities | ($16,012,000) | ($9,246,000) |
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 15.8% for the nine-month period and 16.4% for the quarter compared to the prior year. Comparable-store sales rose 11.0% (nine months) and 9.9% (quarter), marking the ninth consecutive quarter of growth exceeding 9%.
- Profitability: Net income increased 32.6% to $7.7 million. Gross margin percentage decreased slightly by 0.1% due to price competition in larger markets and a shift toward higher-price-point lines with lower margins.
- Expenses: Selling, general, and administrative (SG&A) expenses increased 14.3% in dollars but declined 0.6% as a percentage of sales. Interest expense rose 11.1% due to higher average debt levels.
- Balance Sheet: Accounts receivable increased by $13.2 million and inventories by $10.0 million to support sales growth and expansion. Total debt increased significantly to fund inventory, receivables, and store remodeling.
Outlook, Management Commentary, and Risks
- Expansion Strategy: The company continues to remodel and expand stores with an "upscale interior look." Since September 1993, it has opened three new stores and expanded seven, adding 153,000 square feet. Plans for late 1994 and 1995 include remodeling nine locations, adding eight new stores, and completing a new regional warehouse in Florida.
- Capital Expenditures: Estimated expenditures for the remainder of 1994 and through 1995 are approximately $50 million, though $20–25 million of new properties will be financed via off-balance-sheet operating leases.
- Liquidity and Financing: The company has $104 million in available credit lines ($49 million committed, $55 million uncommitted). Management is considering securitizing up to 50% of accounts receivable in 1995 to improve operating cash flow.
- Seasonality: While not strictly seasonal, sales are typically higher in the second half of the year, particularly in the fourth quarter.
- Risks: Interim LIFO inventory calculations are estimates subject to final year-end valuation. The company relies on short-term borrowings to fund operations and capital expenditures, exposing it to interest rate fluctuations.
Key Facts for Investor Verification
- Verify the sustainability of the 9%+ comparable-store sales growth in the context of the broader economic climate.
- Monitor the impact of the $50 million capital expenditure plan on future cash flows and debt levels.
- Assess the potential benefits and risks of the proposed 1995 accounts receivable securitization.
- Review the final year-end LIFO inventory valuation to confirm interim profit estimates.
- Track the utilization of the $104 million credit facility and the company's ability to refinance short-term debt.