With the housing downturn and credit crisis, retailers have been struggling this year. Home-related retailers like Lowe's (NYSE: LOW) and Home Depot (NYSE: HD) have been hit particularly hard, but the furniture segment is also in a tailspin.
Furniture retailer Haverty (NYSE: HVT) reported second-quarter results last Friday, and the numbers reflect the general weakness of everything related to the home. Net sales declined 11.3% to $187.1 million, with a slide in comparable-store sales of 12.7%. The company reported a net loss in the second quarter of $1.4 million, or $0.06 per share.
For investors unfamiliar with Haverty, the company is a full-service home-furnishing retailer with 122 stores in 17 states, primarily the South and Midwest. It services a middle to upper-middle income customer. Yahoo Finance lists Williams-Sonoma (NYSE: WSM) and Ethan Allen (NYSE: ETH) as primary competitors, but Haverty really offers lower price points than these retailers.
Gross margins for Haverty's second quarter were 64 basis points lower than last year, because of clearance activity. Management tightly controlled sales, general, and administrative expenses, which fell $4.9 million, and the company reported expense reductions in all major categories except occupancy. Occupancy for a retailer represents store rent, utilities, and other costs related to occupying the real estate -- which can't be leveraged down with lower sales.
There are two bright spots in the release. Inventories declined 13% year over year, showing that Haverty is making the necessary markdowns to prevent inventories from becoming bloated. In addition, sales are showing initial signs of improvement. While the second-quarter comps were down 12.7%, they were up against strong 7.8% positive comps in the prior year.
The two most recent months (June and July) combined show comp sales down only in the 3%-4% range. While still negative, an improving trend is becoming apparent. The upcoming third quarter will be a challenge, up against strong 8.2% comps last year, but comparisons become easier in the holiday quarter, when Haverty's sales slide began last year.
Haverty's was founded in 1885 and has experienced steady but not spectacular growth. The stock sells for 23 times trailing-12-month earnings, which feels pretty rich to me, with Ethan Allen at 15 times and Williams-Sonoma at 17 times. On the other hand, the stock price is only 85% of book value. Maybe it's time to head to the coach to learn a bit more.
Find out more about Haverty:
Home Depot is a
Motley Fool Inside Value
recommendation.
Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles, but doesn't own stock in any of the other companies mentioned in this article.
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