Business Context and Reporting Period
Company: Haverty Furniture Companies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 1994
Business Overview: A retail furniture store chain with characteristics of a finance company due to carrying customer accounts receivable. The company focuses on interior remodeling, showroom expansion, and upscaling merchandise lines to attract middle- to upper-middle-income consumers.
Key Financial Metrics
| Metric (in thousands) | Q1 1994 | Q1 1993 |
|---|---|---|
| Net Sales | $88,016 | $77,734 |
| Gross Profit | $41,509 | $36,387 |
| Net Income | $2,726 | $1,902 |
| Earnings Per Share | $0.24 | $0.21 |
| Cash and Equivalents | $637 | $1,829 |
| Total Debt (Current + Long-Term) | $119,213 | N/A |
| Net Cash Used in Operating Activities | ($861) | ($2,058) |
Note: Total Debt calculated as Notes payable to banks ($17,300) + Current portion of long-term debt ($8,488) + Long-term debt ($93,425).
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 13.2% year-over-year, driven by an 11.2% increase in comparable-store sales.
- Profitability: Net income rose 43.3% to $2.7 million. Gross margin percentage improved by 0.4% due to a lower LIFO provision.
- Expenses: Selling, general, and administrative (SG&A) expenses increased 12.0% in absolute dollars but decreased 0.5% as a percentage of net sales due to economies of scale.
- Interest Costs: Interest expense increased 7.2% due to a higher effective interest rate (up 49 basis points) following the issuance of $30 million in 7.16% unsecured senior notes in December 1993.
- Liquidity: Cash used in operating activities improved significantly (from $2.1 million used to $0.9 million used), though cash balances declined due to increased receivables and inventory levels.
Outlook, Risks, and Management Commentary
- Capital Expenditures: The company plans approximately $40 million in capital expenditures over 1994-1995 for 16 store remodels, 8 new stores, and a new regional warehouse in Florida.
- Financing Strategy: Management intends to consider securitizing up to 50% of accounts receivable in 1994 or 1995 to improve operating cash flow. Currently, 81% of total debt is interest-rate protected.
- Liquidity Sources: The company has access to $99 million in bank lines of credit ($26.9 million unused committed lines and $44.8 million unused uncommitted lines).
- Risks: Interim LIFO inventory calculations are based on management estimates and are subject to final year-end valuation. The company relies on short-term borrowings to finance capital expenditures and manage working capital.
Investor Verification Checklist
- Verify the final year-end LIFO inventory valuation to confirm interim profit margins.
- Monitor the execution of the planned $40 million capital expenditure program and its impact on cash flow.
- Track the status of the potential accounts receivable securitization transaction expected in 1994 or 1995.
- Review the renewal status of the $99 million bank line-of-credit agreements, which are reviewed annually.
- Confirm the impact of the 3-for-2 stock split (June 1993) on share count and per-share metrics in future filings.