Haverty Furniture Companies, Inc. - 10-K Summary (Fiscal Year Ended Dec 31, 2010)
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2010. Haverty Furniture Companies, Inc. is a specialty retailer of residential furniture and accessories operating 118 stores across 17 states in the Southern and Midwest regions. The company targets middle to upper-middle income households and operates without franchising. As of year-end, the company employed approximately 3,100 people.
Key Financial Metrics
| Metric | 2010 | 2009 | 2008 |
|---|---|---|---|
| Net Sales | $620.3 million | $588.3 million | $691.1 million |
| Gross Profit | $318.8 million | $305.5 million | $357.1 million |
| Gross Margin | 51.4% | 51.9% | 51.7% |
| Net Income | $8.4 million | ($4.2 million) | ($12.1 million) |
| Diluted EPS (Common) | $0.38 | ($0.20) | ($0.57) |
| Operating Cash Flow | $24.2 million | $38.5 million | $40.7 million |
| Total Debt | $9.1 million | $7.2 million | $7.5 million |
| Cash and Equivalents | $58.0 million | $44.5 million | $3.7 million |
| Capital Expenditures | $14.1 million | $3.3 million | $9.5 million |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 5.5% ($32.1 million) compared to 2009, driven by a 7.0% increase in comparable store sales. This rebounded from a 14.9% decline in 2009.
- Profitability: The company returned to profitability with $8.4 million in net income, reversing a $4.2 million loss in 2009. This was aided by a $3.1 million release of deferred tax asset valuation allowance.
- Expense Management: Selling, General, and Administrative (SG&A) expenses increased slightly by 0.4% in absolute dollars but decreased as a percentage of sales from 52.8% to 50.3%, demonstrating operating leverage.
- Store Count: The company reduced its store count from 121 to 118, closing 4 underperforming locations while opening 1 new store.
- Inventory: Inventory levels decreased slightly to $91.9 million, reflecting improved inventory management and a $1.5 million increase in the LIFO reserve.
Guidance, Outlook, and Risks
2011 Outlook: Management expects total sales and comparable store sales to be positive in 2011, though total sales are projected to remain below 2008 levels due to the difficult macro environment for big-ticket home furnishings. Fixed and discretionary SG&A expenses are expected to increase by approximately 1.5% to between $207 million and $208 million. Gross margins are expected to be similar to 2010 levels despite pressure from rising freight and labor costs.
Key Risks and Contingencies:
- Economic Conditions: Demand is highly sensitive to consumer confidence, housing starts, and credit availability.
- Supply Chain: Approximately 74% of furniture purchases are imported; the company faces risks related to exchange rates, tariffs, and raw material costs.
- Credit Facility: The $60 million revolving credit facility expires in December 2011. While there were no borrowings outstanding at year-end, the company must secure replacement financing.
- Deferred Taxes: A valuation allowance of $16.7 million remains against deferred tax assets, though a portion was released in 2010.
Investor Verification Checklist
- Credit Facility Renewal: Verify the status of the $60 million revolving credit facility renewal, which is critical for liquidity given the December 2011 expiration.
- Comparable Store Sales Sustainability: Assess whether the 7.0% comp-store sales growth in 2010 can be sustained given the expectation that 2011 sales will remain below 2008 levels.
- Deferred Tax Valuation: Monitor the $16.7 million valuation allowance on deferred tax assets and the criteria for future releases or increases.
- Store Optimization: Review the impact of the "Bright Inspirations" store refresh program and the net reduction in store count on profitability per square foot.
- Inventory Valuation: Confirm the impact of LIFO liquidations and reserve changes on reported gross margins.