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HVT > SEC Filings for HVT > Form 10-Q on 5-May-2014All Recent SEC Filings

Show all filings for HAVERTY FURNITURE COMPANIES INC

Form 10-Q for HAVERTY FURNITURE COMPANIES INC


5-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Net Sales

Our sales are generated by customer purchases of home furnishings. Revenue is
recognized upon delivery to the customer.

The following outlines our sales and comp-store sales increases and decreases
for the periods indicated (dollars in millions, amounts and percentages may not
always add to totals due to rounding):

                                            2014                                                                         2013
                          Net Sales                           Comp-Store Sales                           Net Sales                         Comp-Store Sales
                                 %              $             %               $                                 %             $             %             $
Period    Total Dollars        Change        Change         Change         Change        Total Dollars        Change       Change         Change        Change
 Q1      $         181.7          (2.3 )%   $    (4.4 )        (0.9 )%    $    (1.6 )   $         186.1          13.8 %   $    22.5          11.5 %    $   18.7

Stores are non-comparable if open for less than one year or if the selling square footage has been changed significantly during the past 12 full months. Large clearance sales events from warehouse or temporary locations are excluded from comparable store sales as are periods when stores are closed.

The severe winter weather during the first quarter of 2014 impacted approximately 75% of our locations. Our 30 most southern locations which were not affected posted increased comparable store sales of 7.3% for the quarter.

Our average written ticket continues to grow and for the first quarter was up 5.1% over the prior year corresponding period and up 3.3% sequentially. This growth was driven by product mix and our in-home design program. The custom order segment of our upholstery continued to show strength in the first quarter of 2014 as written business increased 11.0%.

Gross Profit

Gross profit for the first quarter of 2014 was 53.8%, up 30 basis points compared to the prior year period. In the first quarter of 2013 gross profit was 53.5%, excluding the 45 basis point positive impact of an $0.8 million or $0.02 per share out-of-period adjustment.

Factors in generating the improvement in gross profit were: our expansion of upper-middle price point products in our assortment, our focus on pricing discipline, and continued favorable trends for inbound ocean freight costs.

We plan to remain competitive, but not overly aggressive with our pricing structure. We expect our gross profit for the 2014 year will be 53.8% barring the effect of LIFO accounting for any future changes in landed merchandise costs.

Substantially all of our occupancy and home delivery costs are included in selling, general and administrative expenses as are a portion of our warehousing expenses. Accordingly, our gross profit may not be comparable to those entities that include these costs in cost of goods sold.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses are comprised of five categories: selling; occupancy; delivery and certain warehousing costs; advertising and marketing; and administrative.


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Total SG&A dollars for the first quarter of 2014 increased $1.0 million compared to the prior year period. We had higher planned expenditures for advertising and marketing in the first three months of 2014 compared to 2013 and ran fewer vendor supported events in 2014 resulting in a $0.6 million increase in expense. Our warehouse and delivery expense rose $0.9 million in the current year period as personnel and insurance costs increases together with some disruptions from winter storms were not offset by reductions from slightly fewer deliveries. Our administrative expenses declined $0.4 million as increased wages, stock compensation expense and travel costs were offset by reductions in incentive compensation.

Our fixed and discretionary type expenses within SG&A costs for the full year 2014 are expected to be approximately $231 million to $234 million versus the $224 million for the same costs in 2013. These expenses are expected to be incurred at a slightly higher rate in the second half of the year. The variable costs within SG&A for the full year 2014 are anticipated to be 17.0% to 17.2% as a percent of sales.

Liquidity and Capital Resources

Our primary cash requirements include working capital needs, contractual obligations, benefit plan contributions, income tax obligations and capital expenditures. We have funded these requirements primarily through cash generated from operations. We have no funded debt and our lease obligations are primarily due to arrangements that are not considered capital leases but must be recorded on our balance sheets. We believe funds generated from our expected results of operations and available cash and cash equivalents will be sufficient to fund our primary obligations, dividends, stock repurchases and complete capital projects that we have underway or currently contemplate.

We also have a $50.0 million revolving credit facility. Availability fluctuates under a borrowing base calculation and is reduced by outstanding letters of credit. The borrowing base was $50.0 million and there were no outstanding letters of credit at March 31, 2014. Amounts available are based on the lesser of the borrowing base or the $50.0 million line amount and reduced by $6.2 million since a fixed charge coverage ratio test was not met for the immediately preceding twelve months, resulting in a net availability of $43.8 million. There were no borrowed amounts outstanding under the facility at March 31, 2014.

Summary of Cash Activities

Our cash flows provided by operating activities totaled $8.4 million in the first three months of 2014 compared to $5.4 million for the same period of 2013. This increase was primarily due to an increase in customer deposits and a decrease in other current assets and an increase in other liabilities partially offset by increased inventories and lower earnings in 2014. For additional information about the changes in our assets and liabilities refer to our Balance Sheet Changes discussion.

Our cash flows used in investing activities totaled $5.1 million in the first three months of 2014 versus $4.0 million for the same period of 2013. This increase was primarily due to increased funds held in an escrow account as collateral for our insurance coverages.

Financing activities used cash of $2.0 million in the first three months of 2014 compared to $1.1 million for the same period of 2013. The increase was due to the doubling of the dividend per share paid.


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Balance Sheet Changes for the three Months Ended March 31, 2014

Our balance sheet as of March 31, 2014, as compared to our balance sheet as of December 31, 2013, changed as follows:

increase in inventories of $4.5 million as is typical for the first quarter;
decrease in other current assets of $1.6 million primarily due to a lower receivable from our third party credit provider;
decrease in accounts payable of $3.7 million due to timing of payments and receipt of inventory;
increase in customer deposits of $5.7 million as special order and undelivered cash sales increased; and
decrease in accrued liabilities of $4.1 million due to timing of payments partly offset by additional amounts related to insurance.

Store Plans and Capital Expenditures

Planned capital expenditures for 2014 are $35.0 million. We expect to open six new locations in existing markets and complete one major expansion during the year. Three of the new stores are relocations and we plan to close two additional stores at the end of their lease term. These changes will increase selling square footage approximately 1.8% and increase our store count to 120 assuming the store changes occur as planned.

Our current plans for 2015 include opening five stores each in a new market within our distribution network.

Off-Balance Sheet Arrangements

As of March 31, 2014 we had no off-balance sheet arrangements or obligations.

Critical Accounting Estimates

Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. Our critical accounting estimates are identified and described in our annual report on Form 10-K for the year ended December 31, 2013. We had no significant changes in those critical accounting estimates since our last annual report.

Forward-Looking Information

Certain of the statements in this Form 10-Q, particularly those anticipating future performance, business prospects, growth and operating strategies and similar matters, and those that include the words "believes," "anticipates," "estimates" or similar expressions constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. For those statements, Havertys claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. There can be no assurance that the forward-looking statements will be accurate because they are based on many assumptions, which involve risks and uncertainties. The following important factors could cause future results to differ: changes in the economic environment; changes in the housing market; changes in industry conditions; competition; merchandise costs; energy costs; timing and level of capital expenditures; introduction of new products; rationalization of operations; and other risks identified in Havertys' SEC reports and public announcements.


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