Feb 18, 2020 4:11 PM
Net earnings for the quarter ended
Net earnings for the fourth quarter and the year were negatively impacted by an impairment loss for a retail store. The non-cash pre-tax charge was approximately $2.4 million, or $1.8 million after tax, equaling $0.09 per diluted share.
FY 2019
Sales for 2019 were
Net earnings for the year ended
The coronavirus outbreak in
The near-term economic foundations are positive indicators for increased home-related spending, particularly in the regions we serve. Low interest rates, strong consumer confidence, solid job growth, and more recently housing turnover are good signs for growth in furniture spending. We are well positioned to capture that growth and gain profitable market share in 2020.”
Key Results
(amounts in millions, except per share amounts)
Q4 2019 | Q4 2018 | FY 2019 | FY 2018 | |||||||||
Sales | $ | 213.8 | $ | 209.0 | $ | 802.3 | $ | 817.7 | ||||
Gross Profit | 115.8 | 114.5 | 434.5 | 446.5 | ||||||||
Gross profit as a % of sales | 54.2 | % | 54.8 | % | 54.2 | % | 54.6 | % | ||||
SGA | ||||||||||||
Variable | $ | 39.0 | $ | 38.2 | $ | 147.5 | $ | 150.0 | ||||
Fixed | 69.6 | 63.7 | 260.0 | 254.9 | ||||||||
Total | $ | 108.6 | $ | 101.9 | $ | 407.5 | $ | 404.9 | ||||
Diluted earnings per share (“EPS”) | $ | 0.31 | $ | 0.45 | $ | 1.08 | $ | 1.42 | ||||
Adjusted EPS | $ | 0.40 | $ | 0.45 | $ | 1.17 | $ | 1.42 |
(see the reconciliation of the non-GAAP metrics at the end of the release)
Sales increased each quarter during 2019 as merchandise availability improved and selection stabilized. Average ticket increased 8.5% in Q4 2019 and 6.4% in FY 2019 compared to the same periods in 2018.
Gross profit was impacted during 2019 by higher product and freight costs and slightly more aggressive promotions. We had a negative impact from charges to our LIFO reserve, caused in part by tariffs, of
Variable SGA costs as a percentage of sales were comparable for Q4 and the year. Fixed SGA costs rose in Q4 2019 and FY 2019 over their comparable periods due to greater advertising spend, increased compensation costs, and the
During Q4 2019 we completed a store relocation in
Liquidity Measures
(amounts in millions)
Free Cash Flow | FY 2019 | FY 2018 | Cash Returns to Shareholders | FY 2019 | FY 2018 | |||||||||
Operating cash flow | $ | 63.4 | $ | 70.4 | Share repurchases | $ | 29.8 | $ | 18.7 | |||||
Dividends | 15.0 | 15.0 | ||||||||||||
Capital expenditures | 16.8 | 21.5 | Special dividends | — | 20.5 | |||||||||
Free cash flow | $ | 46.6 | $ | 48.9 | Cash returns to shareholders | $ | 44.8 | $ | 54.2 |
(see the reconciliation of the non-GAAP metrics at the end of the release)
During 2019 we repurchased 1,605,336 shares of common stock and increased our per share quarterly dividends to common stockholders by 5.6%.
2020 Expectations
Our gross profit margin for FY 2020 is expected to be 54.6%. Gross profit margins fluctuate quarter to quarter in relation to our promotional cadence. We anticipate gross profit margins will run 30 to 60 basis points lower than the annual rate in the first half and 30 to 45 basis points higher in the second half.
Fixed and discretionary expenses within SGA are expected to be in the
Our effective tax rate for 2020 is expected to be 25% excluding the impact from the vesting of stock-based awards.
Planned capital expenditures are
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data – Unaudited)
Three Months Ended | Year Ended | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
$ | 213,837 | $ | 208,968 | $ | 802,291 | $ | 817,733 | |||||
Cost of goods sold | 98,007 | 94,502 | 367,803 | 371,191 | ||||||||
Gross Profit | 115,830 | 114,466 | 434,488 | 446,542 | ||||||||
Credit service charges | 18 | 23 | 79 | 103 | ||||||||
Gross profit and other revenue | 115,848 | 114,489 | 434,567 | 446,645 | ||||||||
Expenses: | ||||||||||||
Selling, general and administrative | 108,632 | 101,914 | 407,456 | 404,856 | ||||||||
Provision for doubtful accounts | 24 | 10 | 90 | 68 | ||||||||
Other income, net | (93 | ) | (12 | ) | (416 | ) | (110 | ) | ||||
Total expenses | 108,563 | 101,912 | 407,130 | 404,814 | ||||||||
Income before interest and income taxes | 7,285 | 12,577 | 27,437 | 41,831 | ||||||||
Interest (income) expense, net | (307 | ) | 239 | (1,287 | ) | 1,423 | ||||||
Income before income taxes | 7,592 | 12,338 | 28,724 | 40,408 | ||||||||
Income tax expense | 1,492 | 2,909 | 6,859 | 10,101 | ||||||||
Net income | $ | 6,100 | $ | 9,429 | $ | 21,865 | $ | 30,307 | ||||
Diluted earnings per share: | ||||||||||||
Common Stock | $ | 0.31 | $ | 0.45 | $ | 1.08 | $ | 1.42 | ||||
Class A Common Stock | $ | 0.30 | $ | 0.44 | $ | 1.03 | $ | 1.39 | ||||
Diluted weighted average shares outstanding: | ||||||||||||
Common Stock | 19,719 | 20,957 | 20,261 | 21,295 | ||||||||
Class A Common Stock | 1,535 | 1,761 | 1,611 | 1,765 | ||||||||
Cash dividends per share: | ||||||||||||
Common Stock | $ | 0.20 | $ | 1.18 | $ | 0.76 | $ | 1.72 | ||||
Class A Common Stock | $ | 0.19 | $ | 1.12 | $ | 0.72 | $ | 1.63 | ||||
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)
2019 | 2018 | |||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 75,739 | $ | 71,537 | ||
Restricted cash equivalents | 6,663 | 8,272 | ||||
Accounts receivable, net | 1,527 | 1,833 | ||||
Inventories | 104,817 | 105,840 | ||||
Prepaid expenses | 7,652 | 8,106 | ||||
Other current assets | 8,125 | 6,262 | ||||
Total current assets | 204,523 | 201,850 | ||||
Accounts receivable, long-term, net | 195 | 226 | ||||
Property and equipment, net | 156,534 | 216,852 | ||||
Right-of-use lease assets | 175,474 | — | ||||
Deferred income tax | 13,198 | 12,544 | ||||
Other assets | 10,148 | 8,707 | ||||
Total assets | $ | 560,072 | $ | 440,179 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current liabilities | ||||||
Accounts payable | $ | 27,830 | $ | 19,840 | ||
Customer deposits | 30,121 | 24,465 | ||||
Accrued liabilities | 39,654 | 39,903 | ||||
Current lease liabilities | 29,411 | — | ||||
Current portion of lease obligations | — | 4,018 | ||||
Total current liabilities | 127,016 | 88,226 | ||||
Noncurrent lease liabilities | 149,594 | — | ||||
Lease obligations, less current portion | — | 46,785 | ||||
Other liabilities | 22,959 | 30,539 | ||||
Total liabilities | 299,569 | 165,550 | ||||
Stockholders’ equity | 260,503 | 274,629 | ||||
Total liabilities and stockholders’ equity | $ | 560,072 | $ | 440,179 | ||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands – Unaudited)
Year Ended | ||||||
2019 | 2018 | |||||
Cash Flows from Operating Activities: | ||||||
Net income | $ | 21,865 | $ | 30,307 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation and amortization | 20,596 | 29,806 | ||||
Net loss on asset impairment | 2,415 | — | ||||
Stock-based compensation expense | 3,435 | 4,358 | ||||
Deferred income taxes | (2,691 | ) | (439 | ) | ||
Provision for doubtful accounts | 90 | 68 | ||||
Gain on insurance recovery | — | (307 | ) | |||
Proceeds from insurance recovery received for business interruption and destroyed inventory | — | 266 | ||||
Other | 616 | 863 | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | 247 | 535 | ||||
Inventories | 1,023 | (2,403 | ) | |||
Customer deposits | 5,656 | (3,348 | ) | |||
Other assets and liabilities | 1,586 | 9,196 | ||||
Accounts payable and accrued liabilities | 8,581 | 1,490 | ||||
Net cash provided by operating activities | 63,419 | 70,392 | ||||
Cash Flows from Investing Activities: | ||||||
Capital expenditures | (16,841 | ) | (21,473 | ) | ||
Proceeds from sale of property and equipment | 2,270 | 2,446 | ||||
Proceeds from insurance for destroyed property and equipment | — | 55 | ||||
Net cash used in investing activities | (14,571 | ) | (18,972 | ) | ||
Cash Flows from Financing Activities: | ||||||
Payments on lease obligations | — | (3,788 | ) | |||
Dividends paid | (15,056 | ) | (35,464 | ) | ||
Common stock repurchased | (29,757 | ) | (18,732 | ) | ||
Taxes on vested restricted shares | (1,442 | ) | (1,233 | ) | ||
Net cash used in financing activities | (46,255 | ) | (59,217 | ) | ||
Increase (decrease) in cash, cash equivalents and restricted cash equivalents | 2,593 | (7,797 | ) | |||
Cash, cash equivalents and restricted cash equivalents at beginning of year | 79,809 | 87,606 | ||||
Cash, cash equivalents and restricted cash equivalents at end of year | $ | 82,402 | $ | 79,809 | ||
Comparable Store Sales
Comparable store sales include those made on our website and in stores, and excludes locations opened, closed or otherwise non-comparable during the last 12 months.
Cost of Goods Sold and SGA Expense
We include substantially all our occupancy and home delivery costs in SGA expense as well as 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.
We classify our SGA 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.
Leases
In
As part of the adjustment for ASU 2016-02 effective
Since we are not restating prior periods as part of adopting this guidance, our results in 2019 will not be directly comparable to our results for periods before 2019. Specifically, for those leases that were previously recognized on our balance sheet prior to 2019, their associated depreciation and interest expense will be replaced by rent expense. For these properties in our lease portfolio for 2019, the amount of rent expense is less than the associated depreciation and interest expense by approximately
Adjusted EPS
Adjusted diluted earnings per share (“Adjusted EPS”) is considered a non-GAAP financial measure under the
We have calculated Adjusted EPS for the three months and year ended
Q4 2019 | FY 2019 | |||||
Diluted earnings per share: | ||||||
Reported EPS | $ | 0.31 | $ | 1.08 | ||
Adjustments: | ||||||
Non-cash impairment charge: pre-tax | 0.12 | 0.12 | ||||
Tax impact of impairment charge(1) | (0.03 | ) | (0.03 | ) | ||
Net adjustment | 0.09 | 0.09 | ||||
Adjusted EPS | $ | 0.40 | $ | 1.17 |
(1) Calculated based on nature of item and rates applied.
Free Cash Flow
We define free cash flow as net cash provided by operating activities in a period minus payments for property and equipment made in that period. We had net cash provided by operating activities of
Free cash flow is considered a non-GAAP financial measure. Management believes, however, that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use in evaluating the company's financial performance. Free cash flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.
Additionally, our definition of free cash flow is limited, in that it does not represent residual cash flows available for discretionary expenditures, and due to the fact that the measure does not deduct the payments required for lease payments and other contractual obligations. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our Consolidated Statements of Cash Flows.
Although other companies report their free cash flow, numerous methods may exist for calculating a company's free cash flow. As a result, the method we use may differ from the methods used by other companies.
The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by operating activities, which we believe to be the
Year Ended | ||||||
2019 | 2018 | |||||
(Dollars in thousands) | ||||||
Net cash provided by operating activities | $ | 63,419 | $ | 70,392 | ||
Payments for property and equipment (capital expenditures) | (16,841 | ) | (21,473 | ) | ||
Free cash flow | $ | 46,578 | $ | 48,919 | ||
Net cash used in investing activities1 | $ | (14,571 | ) | $ | (18,972 | ) |
Net cash used in financing activities | $ | (46,255 | ) | $ | (59,217 | ) |
1 | "Net cash used in investing activities" includes payments for property and equipment, which is also included in our computation of free cash flow. |
Conference Call Information
The company invites interested parties to listen to the live audiocast of the conference call on
About Havertys
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; the imposition of tariffs and the effect of retaliatory trade measures; new regulations or taxation plans, as well as other risks and uncertainties discussed in the company's reports filed from time to time with the
Contact:
404-443-2900
EVP & CFO
SVP, Finance and Corporate Secretary
SOURCE: Havertys