HAVERTYS (NYSE:HVT) (NYSE:HVT.A) reports earnings for the quarter
ended December 31, 2017 of $0.13 per share compared to $0.51 per
share for the same period of 2016. The earnings per share for
the full year 2017 were $0.98 compared to $1.30 per share for 2016.
The enactment of the 2017 Tax Cuts and Jobs Act (the Tax Act)
resulted in a reduction in diluted earnings per share of $0.27 for
both the fourth quarter and full year 2017.
Clarence H. Smith, chairman, president and CEO,
said, “Our earnings for the fourth quarter reflect the impact of
below plan sales and the Tax Act. Our sales and in-home designer
teams have increased our average ticket for the 13th straight
quarter, however generating store traffic remains challenging.
We believe the beneficial effects of the Tax Act
will begin to be realized by individuals and companies during the
next few months. The reduction in corporate tax rates will mean our
estimated effective tax rate for 2018 will be 25% compared to 38%.
We will be using some of these tax savings to increase Havertys’
match of employee contributions to our 401(k) Plan, enhance
employees’ medical flexible reimbursement accounts, and increase
starting hourly wages.
We ended the year with a strong cash position
which allows us flexibility in our capital deployment. The data
from recently completed research on our customer is being reviewed
and guiding marketing and merchandising plans in key markets. Our
teams feel a renewed sense of accountability and energy as we work
to drive sales, increase margins, improve execution, and satisfy
our customers.”
Financial Highlights
Fourth Quarter 2017 Compared to Fourth Quarter
2016
- As previously reported, net sales decreased 2.6%. On a
comparable store basis, sales were down 3.5%. Total written
sales were up 0.3% and written comparable store sales decreased
0.7% over the same period last year.
- Average written ticket increased 2.2% over last year’s quarter
and custom upholstery written business rose 11.5%.
- Gross profit margin decreased 80 basis points to 54.1%.
There was a $0.7 million increase in the LIFO reserve in 2017
versus a $0.8 million decrease in 2016, a negative change of $1.5
million or 69 basis points.
- Selling, general and administrative costs fell $0.9 million and
as a percent of sales increased 90 basis points to 48.2% from
47.3%. Fixed and discretionary expenses decreased $0.6 million. The
components of this change include: a $0.9 million increase in
advertising and marketing expenses; a $0.7 million increase in
depreciation, rent and other occupancy costs; and a $2.0 million
decrease in administrative costs primarily from reduced medical
benefit costs and incentive compensation. Variable expenses were
18.6% as a percent of sales in 2017 compared to 18.2% in 2016 as
delivery costs rose and sales from our in-home design program
increased.
- Other income in 2017 includes $1.9 million in gains from
insurance recoveries related to a damaged store in Wichita, KS and
claims related to Hurricane Irma.
- Tax expense was increased by $5.9 million for the enactment of
the Tax Act which increased our effective tax rate to 79.2% and
reduced diluted earnings per share $0.27.
Twelve Months ended December 31, 2017 Compared to Same
Period of 2016
- As previously reported, net sales totaled $819.9 million,
compared with $821.6 million in 2016, representing a decrease of
0.2%. Comparable store sales decreased 1.3%.
- Average written ticket was up 2.1 % and custom upholstery
written business increased 5.5%.
- Gross profit margin increased 30 basis points to 54.3% from
54.0%. Our LIFO inventory valuation method generated a $2.7 million
or 33 basis points negative impact in 2017.
- Selling, general and administrative costs as a percent of sales
increased 50 basis points to 49.1% from 48.6% as expenses were well
controlled but with the decline in sales not as leveraged. Fixed
and discretionary expenses increased $3.3 million to $253.2
million. This increase was driven by greater depreciation, rent,
and other occupancy costs totaling $3.7 million and greater
advertising and marketing expenses of $2.9 million. These
were partially offset by $3.0 million lower administrative costs
resulting in part from lower medical benefit costs.
- Other income in 2017 includes $2.9 million in gains from
insurance recoveries related to damaged store locations in Lubbock,
TX and Wichita, KS and claims related to Hurricane Irma.
- Tax expense was increased $5.9 million for the enactment of the
Tax Act which increased our effective tax rate to 51.2% and reduced
diluted earnings per share $0.27.
- We increased our quarterly cash dividend 25% in the third
quarter to $0.15 per common share.
- Our retail store count remained at 124 as we opened one store
in a new market, opened two replacement stores, and closed an
underperforming store.
Expectations and Other
- Total written sales for the first quarter to date are up
approximately 1.7% over the same period last year and written
comparable store sales are up 0.9%. Total delivered sales for the
first quarter to date are down 1.7% and comparable store sales
decreased 2.4% over the same period last year.
- Our gross profit margin for the full year of 2018 is expected
to be 54.7% compared to 54.3% in 2017. First half gross profit
margin is projected to be 20 basis points lower than the average
for 2018, with the second half running approximately 20 basis
points higher.
- Fixed and discretionary type expenses within SG&A are
expected to be in the $258 to $260 million range for 2018, up
approximately 2.3% over those same costs in 2017. The increase is
largely due to increased marketing expenses, higher occupancy costs
from new and relocated stores, increases in employee group medical
costs, higher employee compensation and benefits expense, and
inflation. Fixed and discretionary type expenses in total should
average $65.3 million per quarter, excluding the second quarter
which is expected to be $2.0 million lower. For 2017 these
expenses averaged $64.0 million per quarter in all but the second
quarter which was $60.9 million. Variable SG&A expenses for
2018 are anticipated to be 18.5% as a percent of sales, somewhat
higher than in 2017 due to increases in personnel costs.
- Our effective tax rate for 2018 is expected to be 25% excluding
any changes in our 2017 provision related to the Tax Act and the
impact from the vesting of stock-based compensation awards.
- Planned capital expenditures for 2018 are $20.0 million which
include opening a store in a new market in the fourth quarter. We
also have store closures planned in the first and second half of
the year. Retail square footage is expected to decline 1.4% in
2018. The 150,000 square-foot expansion of our Western Distribution
Center is expected to be completed in the second quarter.
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HAVERTY FURNITURE COMPANIES, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME |
(In thousands, except per share data –
Unaudited) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales |
|
$ |
214,962 |
|
|
$ |
220,595 |
|
|
$ |
819,866 |
|
|
$ |
821,571 |
|
Cost of
goods sold |
|
|
98,769 |
|
|
|
99,575 |
|
|
|
374,943 |
|
|
|
378,234 |
|
|
Gross
profit |
|
|
116,193 |
|
|
|
121,020 |
|
|
|
444,923 |
|
|
|
443,337 |
|
Credit
service charges |
|
|
35 |
|
|
|
56 |
|
|
|
161 |
|
|
|
229 |
|
|
|
Gross profit and other
revenue |
|
|
116,228 |
|
|
|
121,076 |
|
|
|
445,084 |
|
|
|
443.566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative |
|
|
103,573 |
|
|
|
104,427 |
|
|
|
402,884 |
|
|
|
399,236 |
|
|
Provision
for doubtful accounts |
|
|
43 |
|
|
|
97 |
|
|
|
224 |
|
|
|
383 |
|
|
Other
income, net |
|
|
(1,927 |
) |
|
|
(1,308 |
) |
|
|
(3,358 |
) |
|
|
(4,107 |
) |
|
|
Total expenses |
|
|
101,689 |
|
|
|
103,216 |
|
|
|
399,750 |
|
|
|
395,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before interest and income taxes |
|
|
14,539 |
|
|
|
17,860 |
|
|
|
45,334 |
|
|
|
48,054 |
|
Interest
expense, net |
|
|
469 |
|
|
|
513 |
|
|
|
2,111 |
|
|
|
2,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes |
|
|
14,070 |
|
|
|
17,347 |
|
|
|
43,223 |
|
|
|
45,821 |
|
Income tax
expense (1) |
|
|
11,149 |
|
|
|
6,400 |
|
|
|
22,148 |
|
|
|
17,465 |
|
|
|
Net income (1) |
|
$ |
2,921 |
|
|
$ |
10,947 |
|
|
$ |
21,075 |
|
|
$ |
28,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock (1) |
|
$ |
0.13 |
|
|
$ |
0.51 |
|
|
$ |
0.98 |
|
|
$ |
1.30 |
|
|
Class A
Common Stock |
|
$ |
0.13 |
|
|
$ |
0.51 |
|
|
$ |
0.94 |
|
|
$ |
1.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
|
|
21,647 |
|
|
|
21,476 |
|
|
|
21,599 |
|
|
|
21,847 |
|
|
Class A
Common Stock |
|
|
1,790 |
|
|
|
1,977 |
|
|
|
1,801 |
|
|
|
2,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
|
$ |
0.1500 |
|
|
$ |
1.1200 |
|
|
$ |
0.5400 |
|
|
$ |
1.4400 |
|
|
Class A
Common Stock |
|
$ |
0.1425 |
|
|
$ |
1.0625 |
|
|
$ |
0.5100 |
|
|
$ |
1.3650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In December 2017, the 2017 Tax Cuts and Job Act was enacted
and significantly impacted U.S. tax law. As a result of this
legislation, our fourth quarter and full year 2017 income tax
expense increased $5.9 million, which impacted net income and
earnings per share. Our diluted earnings per common share
decreased $0.27 for both the fourth quarter and full year 2017.
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|
|
HAVERTY FURNITURE COMPANIES, INC. |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(In thousands - Unaudited) |
|
|
|
|
December 31, |
|
2017 |
|
2016 |
ASSETS |
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
79,491 |
|
|
$ |
63,481 |
|
|
Restricted
cash and cash equivalents |
|
8,115 |
|
|
|
8,034 |
|
|
Accounts
receivable |
|
2,408 |
|
|
|
4,244 |
|
|
Inventories |
|
103,437 |
|
|
|
102,020 |
|
|
Prepaid
expenses |
|
11,314 |
|
|
|
8,836 |
|
|
Other
current assets |
|
5,922 |
|
|
|
7,500 |
|
|
|
Total current
assets |
|
210,687 |
|
|
|
194,115 |
|
|
|
|
|
|
|
|
|
Accounts
receivable, long-term |
|
254 |
|
|
|
462 |
|
Property
and equipment |
|
229,215 |
|
|
|
233,667 |
|
Deferred
income tax |
|
12,375 |
|
|
|
18,376 |
|
Other
assets |
|
8,798 |
|
|
|
7,885 |
|
|
|
Total assets |
$ |
461,329 |
|
|
$ |
454,505 |
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
Accounts
payable |
$ |
20,501 |
|
|
$ |
25,662 |
|
|
Customer
deposits |
|
27,813 |
|
|
|
24,923 |
|
|
Accrued
liabilities |
|
37,582 |
|
|
|
41,904 |
|
|
Current
portion of lease obligations |
|
3,788 |
|
|
|
3,461 |
|
|
|
Total current
liabilities |
|
89,684 |
|
|
|
95,950 |
|
|
|
|
|
|
|
|
|
Lease
obligations, less current portion |
|
50,803 |
|
|
|
52,013 |
|
Other
liabilities |
|
26,700 |
|
|
|
24,671 |
|
|
|
Total liabilities |
|
167,187 |
|
|
|
172,634 |
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
294,142 |
|
|
|
281,871 |
|
|
|
Total liabilities and
stockholders’ equity |
$ |
461,329 |
|
|
$ |
454,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAVERTY FURNITURE COMPANIES, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(In thousands – Unaudited) |
|
|
|
|
Year Ended December 31, |
|
2017 |
|
2016 |
Cash Flows
from Operating Activities: |
|
|
|
|
|
|
|
|
Net
income |
$ |
21,075 |
|
|
$ |
28,356 |
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
30,516 |
|
|
|
29,045 |
|
|
|
Gain on
insurance recovery |
|
(2,848 |
) |
|
|
(3,338 |
) |
|
|
Proceeds
from insurance recovery received for business interruption and
destroyed inventory |
|
2,867 |
|
|
|
2,599 |
|
|
|
Stock-based
compensation expense |
|
3,818 |
|
|
|
3,872 |
|
|
|
Excess tax
benefit from stock-based plans |
|
- |
|
|
|
(80 |
) |
|
|
Deferred
income taxes |
|
5,559 |
|
|
|
(1,120 |
) |
|
|
Provision
for doubtful accounts |
|
224 |
|
|
|
383 |
|
|
|
Other |
|
82 |
|
|
|
(400 |
) |
|
Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
1,818 |
|
|
|
1,514 |
|
|
|
Inventories |
|
(2,112 |
) |
|
|
6,876 |
|
|
|
Customer
deposits |
|
2,890 |
|
|
|
3,887 |
|
|
|
Other
assets and liabilities |
|
(930 |
) |
|
|
(9,508 |
) |
|
|
Accounts
payable and accrued liabilities |
|
(10,502 |
) |
|
|
(2,032 |
) |
|
|
|
Net cash provided by
operating activities |
|
52,457 |
|
|
|
60,054 |
|
|
|
|
|
|
|
|
|
Cash Flows
from Investing Activities: |
|
|
|
|
|
|
|
|
Capital
expenditures |
|
(24,465 |
) |
|
|
(29,838 |
) |
|
Maturities
of investments |
|
- |
|
|
|
12,725 |
|
|
Proceeds
from insurance for destroyed property and equipment |
|
1,987 |
|
|
|
3,011 |
|
|
Other
investing activities |
|
870 |
|
|
|
915 |
|
|
|
|
Net cash used in
investing activities |
|
(21,608 |
) |
|
|
(13,187 |
) |
|
|
|
|
|
|
|
|
Cash Flows
from Financing Activities: |
|
|
|
|
|
|
|
|
Construction allowance receipts |
|
1,590 |
|
|
|
1,574 |
|
|
Payments on
lease obligations |
|
(3,482 |
) |
|
|
(3,125 |
) |
|
Excess tax
benefit from stock-based plans |
|
- |
|
|
|
80 |
|
|
Dividend
paid |
|
(11,392 |
) |
|
|
(30,409 |
) |
|
Common
stock repurchased and retired |
|
- |
|
|
|
(21,282 |
) |
|
Taxes on
vested restricted shares |
|
(1,555 |
) |
|
|
(883 |
) |
|
|
|
Net cash used in
financing activities |
|
(14,839 |
) |
|
|
(54,045 |
) |
Increase
(decrease) in cash and cash equivalents |
|
16,010 |
|
|
|
(7,178 |
) |
Cash and
cash equivalents at beginning of year |
|
63,481 |
|
|
|
70,659 |
|
Cash and
cash equivalents at end of year |
$ |
79,491 |
|
|
$ |
63,481 |
|
|
|
|
|
|
|
|
|
2017 Tax Cuts and Jobs Act
On December 22, 2017, the 2017 Tax Cuts and Jobs
Act (the Tax Act) was enacted into law, The Tax Act contains
significant changes to corporate taxes, including a permanent
reduction of the corporate tax rate from 35% to 21% effective
January 1, 2018. The Tax Act’s other major changes applicable to
Havertys include the elimination of certain deductions and an
enhanced and extended option to claim accelerated depreciation
deductions on qualified property.
In December 2017, the Securities and Exchange
Commission (SEC) staff issued Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cuts and Jobs Act
(SAB 118), which allows us to record provisional amounts during a
measurement period not to extend beyond one year of the enactment
date.
We re-measured our deferred tax assets and
liabilities based on the rates at which they are expected to
reverse in the future, which is generally 25%. However, we
are still analyzing certain aspects of the Tax Act and refining our
calculations, which could potentially affect the measurement of
some of these balances or potentially give rise to new deferred tax
amounts. At December 31, 2017, we have made a reasonable estimate
of the effects on our existing deferred tax balances and recorded
additional tax expense of $10.6 million. This provisional amount is
primarily related to depreciation deductions and as we complete our
analysis of the Tax Act, collect and prepare necessary data, and
interpret any additional guidance issued by the IRS and other
standard-setting bodies, the provisional amount may be adjusted. We
expect to complete our analysis no later than the fourth quarter of
2018 which is within the measurement period in accordance with SAB
118. We also recognized a tax benefit of $4.7 million for the
re-measurement of deferred tax assets and liabilities for which our
accounting is complete. The total of these adjustments was
additional deferred tax expense of $5.9 million and is what we
believe is the impact of the Tax Act.
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, and all advertising and administrative
costs.
Conference Call Information
The company invites interested parties to listen
to the live audiocast of the conference call on February 21 at
10:00 a.m. ET at its website, havertys.com under the investor
relations section. If you can not 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 February 28. The
number to access the telephone playback is 1-888-203-1112 (access
code: 2730867).
About Havertys
Havertys (NYSE:HVT) (NYSE:HVT.A), established in
1885, is a full-service home furnishings retailer with 124
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.
Safe Harbor
This press release includes statements that
constitute forward-looking statement within the meaning of the
federal securities laws. Generally, the words "believe,"
"expect," "intend," "estimate," "anticipate," "project," "will" and
similar expressions identify forward-looking statements, which are
not historical in nature. We intend for all forward-looking
statements contained herein or on our website, and all subsequent
written and oral forward-looking statements attributable to us or
persons acting on our behalf, to be covered by the safe harbor
provisions for forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and the provisions
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 (which Sections were adopted as
part of the Private Securities Litigation Reform Act of 1995).
Forward-looking statements may relate to, for example, future
operations, financial condition, economic performance (including
gross profit margins and expenses), capital expenditures, and
demand for our products. The Company cautions that its
forward-looking statements involve risks and uncertainties, and
while we believe that our expectations for the future are
reasonable in view of currently available information, you are
cautioned not to place undue reliance on our forward-looking
statements. Actual results or events may differ materially
from those indicated as a result of various important
factors. Such factors may include, among other
things, the state of the economy; state of the residential
construction and housing markets; the consumer spending environment
for big ticket items; effects of competition; management of
relationships with our suppliers and vendors and disruptions
in their operations; new regulations or taxation plans, as
well as other risks and uncertainties discussed in the Company's
Annual Report on Form 10-K and from time to time in the Company's
filings with the SEC.
Contact:Havertys 404-443-2900Richard B. HareEVP & CFOJenny
Hill ParkerSVP, Finance, Secretary and Treasurer
SOURCE: Havertys
Haverty Furniture Compan... (NYSE:HVT)
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