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Havertys Reports Earnings for Fourth Quarter and Full Year 2015

/EIN News/ -- ATLANTA, Feb. 24, 2016 (GLOBE NEWSWIRE) -- HAVERTYS (NYSE:HVT) (NYSE:HVT.A) reports earnings for the quarter ended December 31, 2015 of $0.41 per share compared to a loss of $(0.45) and adjusted earnings of $0.46 per share for the same period of 2014. The earnings per share for the full year 2015 were $1.22 compared to $0.37 and adjusted earnings per share of $1.28 for 2014.

      Three Months Ended
December 31,
      Year Ended
December 31,
 
      2015     2014       2015     2014  
                                     
  Earnings (loss) per diluted share    $ 0.41      $ (0.45 )      $ 1.22      $ 0.37  
  Non-cash pension settlement expense           0.90               0.90  
                                     
  Adjusted earnings per diluted share   $ 0.41     $ 0.46       $ 1.22     $ 1.28  
                                     
  Due to rounding amounts may not add to the totals.

The Company previously reported that during the fourth quarter of 2014 it completed the termination of its defined benefit pension plan. The details of that event are provided at the end of this release.

Clarence H. Smith, chairman, president and CEO, said, “Earnings for the fourth quarter were in line with our expectations based on our previously released sales results. Our promotional efforts in the fourth quarter were not as aggressive as many retailers and our gross margins were up year over year.

We are separating Havertys from the promotional furniture stores and reaching the more discriminating on-trend customer. This has required significant investments to improve our in-store and e-commerce experience. Our store management and sales associates have participated in an extensive revamping of the coaching and skills learning process. We have also increased the number of in-home design staff by 30% in 2015. The investments in stores and people are generating higher average tickets aided by increased custom upholstery sales. In 2015 our average ticket rose 4.7% and custom upholstery sales were up 11.8%. We do need to generate greater sales growth and we are fine-tuning our marketing and promotional strategies. We have recently introduced a new creative television campaign and are evaluating targeted price advertising on select items to increase traffic during traditional sales events.

Our 2016 capital expenditures will improve operating efficiencies through both expansion of our Florida distribution center and significant technology investments and also provides for two new stores. The economic and competitive environments are uncertain but we are well-positioned in the regions we serve and our teams are prepared to respond and grow our business.”

Financial Highlights

Fourth Quarter 2015 Compared to Fourth Quarter 2014

  • As previously reported, net sales increased 1.4% to $215.9 million. On a comparable store basis, sales decreased 0.9%. Total written business was down 1.3% and written comparable sales declined 3.6% over the same period last year.
  • Gross profit margins increased 20 basis points to 53.8% from 53.6% as the favorable impact of our merchandise pricing and mix was partially offset by increases in product markdowns.
  • Selling, general and administrative costs as a percent of sales increased 120 basis points to 46.8% from 45.6%. Fixed and discretionary expenses increased $2.7 million. We incurred additional administrative costs of $0.9 million largely from compensation expense, $0.3 million of which was from new stores. New locations and improvements also generated increases in depreciation and other occupancy costs of $0.8 million. Variable expenses were 17.8% as a percent of sales in 2015 compared to 17.5% in 2014 as sales from our in-home design program increased.
  • In 2014, a non-cash charge of $21.6 million was recorded for pension expense from the termination and settlement of all obligations of our defined benefit plan.
  • Income tax expense for 2014 includes $6.9 million from the release of a valuation allowance in accumulated other comprehensive income related to the settled pension obligations.
  • We closed a location in Memphis, Tennessee at the end of its lease term. Our store in Lubbock, Texas sustained significant damage from a blizzard in late December and is closed for reconstruction.

Twelve Months ended December 31, 2015 Compared to Same Period of 2014

  • As previously reported, net sales increased 4.7% to $804.9 million. Comparable store sales were up 2.5%.
  • Gross profit decreased 20 basis points to 53.5% from 53.7%. The closeout sales of discontinued product, damaged merchandise and increased reserves offset the favorable impact of merchandise pricing and mix.
  • Selling, general and administrative costs increased 30 basis points to 47.8% from 47.5%. Fixed and discretionary expenses increased $10.5 million to $240.9 million. We had $4.7 million in additional administrative costs primarily from greater compensation expense, $1.4 million of which related to new stores. Depreciation and other occupancy costs from new stores and improvements increased expenses $4.2 million. Variable expenses as a percent of sales were 17.9% in 2015 versus 17.5% in 2014 as we added sales associates in new locations and our in-home design program expanded.
  • We returned to stockholders via stock repurchases and dividends $22.1 million in 2015 and $30.6 million in 2014.
  • Our retail store count increased to 121, with a net two new stores in 2015 as we opened four, closed one and lost one to damage.

Expectations and Other

  • Total delivered sales for the first quarter to date of 2016 are up approximately 4.9% over the same period last year and comparable store sales are up 3.9%. Total written sales for the first quarter to date of 2016 are up approximately 1.4% over the same period last year and written comparable store sales are up approximately 0.3%.
  • Our gross profit margins for the full year of 2016 are expected to be similar to the 53.5% level of 2015. We are continuing to introduce fashionable new merchandise that carries slightly higher gross margins but do face increased competition in certain of our markets and will be moving out additional discontinued products and mismatched inventory to make way for new arrivals.
  • Fixed and discretionary type expenses within SG&A are expected to be approximately $251.0 million for 2016, up $10.1 million or 4.2% over those same costs in 2015. The increase is largely due to depreciation on capital expenditures, occupancy costs from new and relocated stores, staffing increases and inflation. First quarter 2016 advertising costs are expected to be higher than last year's quarter but comparatively flat for the remainder of 2016. Fixed and discretionary type expenses in total should average approximately $62.0 million per quarter in the first half of 2016 and $63.5 million per quarter in the second half. For 2015 these expenses averaged $58.2 million per quarter in the first half and $62.3 million in the second half. Variable SG&A expenses for 2016 are anticipated to be at the 17.9% rate incurred in 2015 and other non-SG&A costs, net of credit revenues, are expected to be $1.9 million.
  • Our effective tax rate for 2016 is expected to be in the 38.7% to 38.9% range.
  • Planned Capital expenditures for 2016 are $33.0 million. Our 2016 plans include two new locations, each in a new market, a temporary location for our Lubbock, Texas operations and the expansion and remodeling of two existing stores. We also plan to close one store at the end of its lease term. These changes will increase selling square footage approximately 1.4% and our store count will increase by two during 2016 to 123 assuming the store changes occur as planned. In addition to store investments, we are also expanding our Florida distribution center to better flow product and serve our customers and improving our technology infrastructure.


HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data – Unaudited)


    Three Months Ended
December 31,
  Year Ended
December 31,
 
    2015   2014   2015   2014  
                           
Net sales    $ 215,886    $ 212,999    $ 804,870    $ 768,409  
Cost of goods sold     99,681     98,843     374,094     356,043  
Gross profit     116,205     114,156     430,776     412,366  
Credit service charges     73     75     286     298  
 Gross profit and other revenue     116,278     114,231     431,062     412,664  
                           
Expenses:                          
Selling, general and administrative     101,034     97,139     384,801     364,654  
Pension settlement expense         21,623         21,623  
Provision for doubtful accounts     147     54     314     257  
Other income, net     (671 )   8     (1,617 )   (178 )
Total expenses     100,510     118,824     383,498     386,356  
                           
Income (loss) before interest and income taxes     15,768     (4,593 )   47,564     26,308  
Interest expense, net     675     385     2,289     1,051  
                           
Income (loss) before income taxes     15,093     (4,978 )   45,275     25,257  
Income tax expense     5,912     5,214     17,486     16,668  
Net income    $ 9,181    $ (10,192 )  $ 27,789    $ 8,589  
                           
Other comprehensive income, net of tax:                          
 Defined benefit pension plan adjustments:                          
Settlement of pension plan    $    $ 13,641    $    $ 13,641  
Other     55     (641 )   230     (397 )
Total comprehensive income    $ 55    $ 13,000    $ 230   $ 13,244  
                           
 Comprehensive income    $ 9,236    $ 2,808    $ 28,019   $ 21,833  
                           
Basic earnings (loss) per share:                          
Common Stock    $ 0.42    $ (0.45 )  $ 1.24    $ 0.38  
Class A Common Stock    $ 0.40    $ (0.43 )  $ 1.18    $ 0.33  
                           
Diluted earnings (loss) per share:                          
Common Stock    $ 0.41    $ (0.45 )  $ 1.22    $ 0.37  
Class A Common Stock    $ 0.39    $ (0.43 )  $ 1.17    $ 0.33  
                           
Basic weighted average shares outstanding:                          
Common Stock     20,109     20,551     20,430     20,426  
Class A Common Stock     2,045     2,129     2,067     2,199  
                           
Diluted weighted average shares outstanding:                          
Common Stock     22,473     20,551     22,798     22,940  
Class A Common Stock     2,045     2,129     2,067     2,199  
                           
Cash dividends per share:                          
Common Stock    $ 0.100    $ 0.080    $ 0.36    $ 1.32  
Class A Common Stock    $ 0.095    $ 0.075    $ 0.34    $ 1.25  
                           


HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)


  December 31,  
  2015     2014  
ASSETS            
Current assets            
Cash and cash equivalents  $ 70,659    $ 65,481  
Investments   12,725     7,250  
Restricted cash and cash equivalents   8,005     8,017  
Accounts receivable   5,948     7,146  
Inventories   108,896     107,139  
Prepaid expenses   6,137     6,418  
Other current assets   6,341     8,010  
Total current assets   218,711     209,461  
             
Accounts receivable, long-term   655     731  
Property and equipment   229,283     225,162  
Deferred income tax   17,245     17,610  
Other assets   5,357     8,023  
Total assets  $ 471,251    $ 460,987  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities            
Accounts payable  $ 27,815    $ 24,152  
Customer deposits   21,036     23,687  
Accrued liabilities   42,060     39,960  
Deferred income tax       5,689  
Current portion of lease obligations   3,051     2,387  
Total current liabilities   93,962     95,875  
             
Lease obligations, less current portion   50,074     46,678  
Other liabilities   25,476     26,351  
Total liabilities   169,512     168,904  
             
Stockholders’ equity   301,739     292,083  
Total liabilities and stockholders’ equity  $ 471,251    $ 460,987  
                 




HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands – Unaudited)


    Year Ended December 31,  
    2015   2014  
Cash Flows from Operating Activities:              
Net  income   $ 27,789   $ 8,589  
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation and amortization     25,756     22,613  
Stock-based compensation expense     4,033     3,319  
Excess tax benefit from stock-based plans     (397 )   (896 )
Deferred income taxes     (3,019 )   4,800  
Provision for doubtful accounts     314     257  
Pension settlement expense         21,623  
Other     (160 )   641  
Changes in operating assets and liabilities:              
Accounts receivable     960     870  
Inventories     (2,305 )   (15,656 )
Customer deposits     (2,650 )   4,679  
Other assets and liabilities     (590 )   (2,023 )
Accounts payable and accrued liabilities     2,501     6,638  
Net cash provided by operating activities     52,232     55,454  
               
Cash Flows from Investing Activities:              
Capital expenditures     (27,143 )   (30,882 )
Maturities of certificates of deposit     7,250      
Purchase of commercial paper and certificates of deposit     (9,975 )   (10,000 )
Restricted cash and cash equivalents     12     (1,001 )
Other investing activities     1,501     511  
Net cash used in investing activities     (28,355 )   (41,372 )
               
Cash Flows from Financing Activities:              
Construction allowance receipts     6,701     1,050  
Payments on lease obligations     (2,534 )   (1,088 )
Excess tax benefit from stock-based plans     397     896  
Dividend paid     (8,060 )   (29,780 )
Common stock repurchased and retired     (14,002 )   (804 )
Taxes on vested restricted shares     (1,201 )   (2,060 )
Net cash used in financing activities     (18,699 )   (31,786 )
Increase (decrease)  in cash and cash equivalents     5,178     (17,704 )
Cash and cash equivalents at beginning of year     65,481     83,185  
Cash and cash equivalents at end of year   $ 70,659   $ 65,481  
               

Pension Settlement

During the fourth quarter of 2014 as reported on our Form 10-K for the year ended December 31, 2014, we completed the termination of our defined benefit pension plan. The plan participants received their earned benefits through the payment of lump-sum cash distributions, roll-over payments to other retirement accounts, and the purchase of annuity contracts from a third-party insurance company. Havertys’ plan was fully funded so no Company contributions were required in 2014 to completely settle the plan’s obligations. As expected, the settlement of these liabilities triggered the non cash recognition of $21.6 million in pension settlement expenses and a tax benefit of $0.9 million in the quarter for a total impact on consolidated net income of $20.7 million. The termination resulted in the reclassification adjustment of $13.6 million out of accumulated other comprehensive income (loss) on the Company’s balance sheet to increase other comprehensive income for 2014. These adjustments did not impact cash flow and resulted in a net reduction in total stockholders’ equity of $7.1 million.

Non-GAAP Financial Measures and Definitions of Certain Financial Measures:

Reconciliations – EBIT, Adjusted Net Income and Adjusted Earnings per Diluted Share

We have included financial measures that are not prepared in accordance with GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such. We use the non-GAAP measures “EBIT,” “adjusted net income” and “adjusted earnings per diluted share.” Management believes these non-GAAP financial measures provide our board of directors, investors, potential investors, securities analysts and others with useful information to evaluate the performance of the Company because it excludes the impact of the pension settlement expense and another specific item that management believes are not indicative of the ongoing operating results of the business. The Company and our board of directors use this information to evaluate the Company's performance relative to other periods. We believe that the most directly comparable GAAP measures to EBIT, adjusted net income and adjusted diluted earnings per share are “Income before interest and income taxes,” “Net income” and “Diluted earnings per share.” Set forth at the beginning of this press release is a reconciliation of adjusted diluted earnings per share to diluted earnings per share. EBIT is equal to Income before interest and income taxes and set forth below is a reconciliation of adjusted net income to Net income:

    Three Months Ended
December 31,
  Twelve Months Ended
December 31,
 
  (in thousands)   2015   2014   2015   2014  
                           
EBIT   $ 15,768   $ (4,593 ) $ 47,564   $ 26,308  
                           
Pension settlement expenses         21,623         21,623  
Adjusted EBIT   $ 15,768   $ 17,030   $ 47,564   $ 47,931  
                           
Adjusted EBIT as a percent of net sales     7.3 %   8.0 %   5.9 %   6.2 %
                           
Adjusted EBIT   $ 15,768   $ 17,030   $ 45,564   $ 47,931  
Interest expense, net     675     385     2,289     1,050  
Adjusted income before income taxes   $ 15,093   $ 16,645   $ 45,275   $ 46,881  
                           
                           
Net income (loss)   $ 9,181   $ (10,192 ) $ 27,789   $ 8,589  
Pension settlement expense, net of tax         20,725         20,725  
                           
Adjusted net income   $ 9,181   $ 10,533   $ 27,789   $ 29,314  
                           

SG&A Expense Classification

We classify our SG&A expenses as either variable or fixed and discretionary. Our variable expenses are comprised of selling and delivery costs. Selling expenses are primarily compensation and related benefits for our commission based sales associates, the discount we pay for third party financing of customer sales and transaction fees for credit card usage. We do not outsource delivery so these costs include personnel, fuel, and other expenses related to this function. Fixed and discretionary expenses are comprised of rent, depreciation and amortization and other occupancy costs for stores, warehouses and offices, as well as all advertising and administrative costs.

About Havertys

Havertys (NYSE:HVT) (NYSE:HVT.A), established in 1885, is a full-service home furnishings retailer with 121 showrooms in 16 states in the Southern and Midwestern regions providing its customers with a wide selection of quality merchandise in middle to upper-middle price ranges. Additional information is available on the company’s website, havertys.com.

News releases include forward-looking statements, which are subject to risks and uncertainties. Factors that might cause actual results to differ materially from future results expressed or implied by such forward-looking statements include, but are not limited to, general economic conditions, the consumer spending environment for large ticket items, competition in the retail furniture industry and other uncertainties detailed from time to time in the company’s reports filed with the SEC.

Conference Call Information

The company invites interested parties to listen to the live audiocast of the conference call on Thursday, February 25, 2016 at 10:00 a.m. ET at its website, havertys.com under the investor relations section. If you cannot listen live, a replay will be available on the day of the conference call at the website or via telephone at approximately 1:00 p.m. ET through Thursday, March 3, 2016. The number to access the telephone playback is 1-888-203-1112 (access code: 4842888).

Contact:
Havertys 404-443-2900

Dennis L. Fink
EVP & CFO

Jenny Hill Parker
SVP, finance, secretary and treasurer

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