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. for the period ended September 30, 2002. The company operates as a retailer of furniture and home furnishings. As of October 31, 2002, there were 17,198,558 shares of Common Stock and 4,536,076 shares of Class A Common Stock outstanding.
Key Financial Metrics
| Metric | Q3 2002 | Q3 2001 | 9 Months 2002 | 9 Months 2001 |
|---|---|---|---|---|
| Net Sales ($000s) | $175,680 | $170,645 | $515,525 | $490,359 |
| Gross Profit ($000s) | $84,636 | $81,623 | $247,050 | $233,374 |
| Gross Margin % | 48.2% | 47.8% | 47.9% | 47.6% |
| Net Income ($000s) | $5,909 | $5,611 | $16,381 | $12,481 |
| Diluted EPS | $0.27 | $0.26 | $0.74 | $0.58 |
| Cash from Operations ($000s) | N/A | N/A | $68,136 | $34,168 |
| Cash and Equivalents ($000s) | $7,057 | $727 | $7,057 | $727 |
| Total Debt ($000s) | $96,375 | $167,969 | $96,375 | $167,969 |
Note: Total Debt calculated as Notes payable ($9,300) + Current portion of long-term debt ($11,615) + Long-term debt ($75,460). Prior year debt calculated similarly from Dec 31, 2001 balance sheet.
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 3.0% in Q3 and 5.1% for the nine-month period compared to 2001. Comparable-store sales rose 0.3% in Q3 and 3.3% for the nine months.
- Margin Expansion: Gross profit margin improved to 48.2% in Q3 from 47.8% in the prior year, attributed to a higher mix of imported products and private-label merchandise (which grew from 18% to 30% of the core assortment).
- Expense Management: Selling, general, and administrative (SG&A) expenses as a percent of sales increased to 45.2% in Q3 from 42.3% in 2001, partly due to $3.1 million in expenses for opening seven new stores and two distribution facilities.
- Debt Reduction: The company significantly reduced debt, with average debt levels down 29.4% for the quarter. Borrowings under revolving credit facilities were reduced by $63.7 million during the nine-month period.
- Asset Sales: The company completed a sale-leaseback transaction generating $41.5 million and sold two vacated warehouses for $6.8 million, resulting in a $3.7 million gain on other income.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects remaining 2002 capital expenditures to be approximately $20 million. The preliminary estimate for 2003 is $32 million, including new store construction in San Antonio and remodeling projects.
- Liquidity: The company maintains $95.1 million in unused borrowing capacity under its credit facilities. Cash from operations was strong at $68.1 million for the nine months ended September 30, 2002.
- Risks: Management cites concerns over the economy, equity markets, and Middle East hostilities as factors causing consumers to postpone big-ticket purchases. Other risks include supplier relationships, real estate availability, and competition.
- Unusual Items: A $2.0 million payment was made related to the termination of a Treasury lock agreement associated with the sale-leaseback transaction. Additionally, a $3.4 million deferred gain from the sale-leaseback is being amortized over the lease term.
Investor Verification Checklist
- Verify the sustainability of the gross margin expansion driven by the increased mix of private-label and imported goods.
- Monitor the impact of the $4.4 million annual increase in rent expense resulting from the recent sale-leaseback transaction.
- Assess the company's ability to maintain comparable-store sales growth amidst cited economic concerns and consumer hesitation.
- Review the execution of the $32 million capital expenditure plan for 2003, specifically the new San Antonio store and distribution center.
- Confirm the stability of the credit provision rate (0.4% in Q3) given the outsourcing of one credit program and potential economic volatility.