Haverty Furniture Companies, Inc. - 10-K Summary (Fiscal Year Ended Dec 31, 2009)
Business Context and Reporting Period
Haverty Furniture Companies, Inc. is a specialty retailer of residential furniture and accessories operating 121 stores across 17 states in the Southern and Midwest regions. The company targets middle to upper-middle income consumers and does not franchise its stores. This report covers the fiscal year ended December 31, 2009, a period characterized by a severe recession in the retail home furniture sector, declining housing sales, and tightened consumer credit.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net Sales | $588.3 million | $691.1 million |
| Gross Profit | $305.5 million (51.9% margin) | $357.1 million (51.7% margin) |
| Net (Loss) Income | $(4.2) million | $(12.1) million |
| EPS (Basic, Common) | $(0.20) | $(0.57) |
| Operating Cash Flow | $38.5 million | $40.7 million |
| Total Debt | $7.2 million | $7.5 million |
| Cash and Equivalents | $44.5 million | $3.7 million |
| Debt to Total Capital | 2.9% | 3.0% |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 14.9% year-over-year, driven by a 14.2% decline in comparable store sales. This was attributed to low housing sales, declining home values, and reduced consumer access to financing.
- Profitability Improvement: Despite the revenue drop, the net loss narrowed significantly from $12.1 million in 2008 to $4.2 million in 2009. This improvement was due to aggressive cost-cutting measures, including a 16% reduction in full-time headcount and a 14.7% decrease in SG&A expenses.
- Liquidity Strengthening: Cash and cash equivalents increased dramatically from $3.7 million to $44.5 million, bolstered by strong operating cash flow and a $6.6 million sale-leaseback transaction.
- Inventory Management: Inventory levels were reduced by 10.0% to $93.3 million to align with lower sales volumes.
Guidance, Outlook, and Risks
2010 Outlook: Management expects total sales and comparable store sales to be positive in 2010 due to the severity of the 2009 declines, though total sales are projected to remain below 2008 levels. Gross margins are expected to return to 2008 levels (approx. 51.5%). The company plans to reduce retail square footage by 1% to 2% in 2010 through store closures and relocations.
Dividends: After suspending dividends in Q4 2008, the Board approved a dividend in Q4 2009 ($0.0225 per Common share).
Risks and Contingencies:
- Economic Conditions: Continued weakness in the housing market and consumer credit availability poses a significant risk to discretionary spending.
- Supply Chain: Approximately 71% of furniture purchases are imported; exchange rate fluctuations and tariffs could impact costs.
- Deferred Tax Assets: A valuation allowance of $18.7 million was maintained against deferred tax assets due to cumulative losses, though the company expects to utilize these assets in future profitable periods.
- Debt Covenants: The company has a $60 million revolving credit facility with net availability of $40.7 million. While currently compliant, a significant loss in inventory value could reduce borrowing capacity.
Investor Verification Checklist
- Verify the sustainability of the 14.2% comparable store sales decline and the trajectory of housing market recovery in the company's 17-state footprint.
- Confirm the adequacy of the $1.0 million allowance for doubtful accounts given the economic environment and the shift toward third-party financing.
- Review the $18.7 million valuation allowance on deferred tax assets and the company's timeline for returning to profitability to utilize these assets.
- Assess the impact of the planned 1% to 2% reduction in retail square footage on future revenue generation and fixed cost leverage.
- Monitor the $60 million credit facility covenants, specifically the fixed charge coverage ratio which currently limits net availability.