HVT

Haverty Furniture Companies, Inc. - 10-Q Summary

Business Context and Reporting Period

This filing is a Quarterly Report (Form 10-Q) for Haverty Furniture Companies, Inc., a full-service home furnishings retailer operating under the Havertys brand. The report covers the quarterly and six-month periods ended June 30, 2009. The company operates primarily in the southeastern United States and does not franchise its concept.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 23.0% ($38.7 million) in Q2 2009 and 22.6% ($79.7 million) for the first six months compared to 2008. Comparable store sales dropped 22.6% in Q2 and 22.7% year-to-date.
• Profitability: The company reported a net loss of $6.6 million for Q2 2009, compared to a loss of $2.3 million in Q2 2008. Year-to-date losses widened to $13.8 million from $1.3 million in the prior year.
• Expense Reduction: Selling, General, and Administrative (SG&A) expenses decreased by $17.4 million in Q2 and $31.5 million year-to-date, driven by reduced advertising, lower delivery costs, and administrative headcount reductions.
• Liquidity Improvement: Cash and cash equivalents increased by $18.7 million to $22.4 million, driven by strong operating cash flow ($13.8 million) and proceeds from a sale-leaseback transaction ($6.6 million).
• Inventory Management: Inventories decreased by $10.3 million as the company adjusted purchases to match weak sales demand.

Outlook, Risks, and Management Commentary

• Market Conditions: Management cites historically low housing sales, declining home values, tightened lending, and rising unemployment as primary drivers of reduced consumer spending. No significant rebound in demand is anticipated for the remainder of 2009.
• Strategic Actions: The company is utilizing aggressive pricing on select merchandise, promoting longer-term no-interest financing (though for shorter periods than previously), and focusing on price-point sensitive items. Store closures and lease renegotiations are being evaluated.
• Capital Resources: The company has a $60 million revolving credit facility. While no amounts were borrowed as of June 30, 2009, net availability is $39.5 million due to a failure to meet a fixed charge coverage ratio test and outstanding letters of credit.
• Tax Position: Due to cumulative losses, the company increased its valuation allowance against deferred tax assets by approximately $5.1 million in the first six months of 2009, resulting in a tax expense despite the net loss.
• Risks: Key risks include continued volatility in capital and credit markets, potential increased borrowing costs, and the uncertain duration of the economic downturn in the home furnishings sector.

Investor Verification Checklist

• Credit Facility Covenants: Verify the impact of the missed fixed charge coverage ratio test on future borrowing availability and potential covenant waivers.
• Deferred Tax Assets: Review the $18.0 million valuation allowance and the additional $5.1 million increase to understand the long-term tax implications if profitability is not restored.
• Store Rationalization: Monitor the execution of store closures and lease renegotiations to assess the effectiveness of cost-cutting measures.
• Accounts Receivable Quality: Note the increase in the allowance for doubtful accounts as a percentage of receivables (7.4% vs 4.0% prior year) despite the reduction in total receivables.
• Capital Expenditures: Confirm adherence to the planned $4.2 million capital expenditure budget for 2009 amidst reduced cash flow from operations.