Tic-tac-toe, investors want to know: Will furniture retailer Haverty (NYSE:HVT) make it three in a row for earnings beats when it reports its fiscal Q3 2006 numbers Thursday afternoon?

What analysts say:

  • Buy, sell, or waffle? Seven analysts follow Haverty. Of these, three each rate the stock a buy and a hold, and there's one sell.
  • Revenues. On average, they expect to see quarterly sales rise 10% to $221.6 million.
  • Earnings. . but they also expect profits to stay flat at $0.17 per share.

What management says:
Maybe Haverty is due for a break from its spurt of outperformance. Flipping back through the SEC filings to its Q2 report, we see that Haverty nearly tripled its profits year over year last quarter, and that they've almost doubled year to date. According to CEO Clarence Smith, the firm owes its success mainly to two factors: better sales in May and June 2006, and "improved gross profit margins . [on the company's] proprietary Havertys Collections branded products."

Smith also argues that the firm's expanded main distribution center has helped it to improve order flow, narrowing the time between when an order is placed and when it is delivered, and also making sure that the stores have the right kinds of merchandise in stock to fulfill customer demand.

What management does:
There's no arguing with his gross margin assessment, at least. Rolling gross margins have been trending upward over the whole past year, and operating and net margins began to follow about six months ago.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

47.5

46.9

47.8

47.9

48.5

48.9

Op.

3.6

3.1

2.7

2.5

2.6

3.0

Net

2.5

2.1

2.1

1.8

2.0

2.3
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Lucky that's true, though -- because year to date, all the money has been in the gross margin improvement. On the operating-costs line, in contrast, selling, general, and administrative costs have outpaced sales gains 7% to 5% so far this year.

Haverty's balance sheet shows a similarly mixed picture. Accounts receivable are certainly down -- 20% year over year, in fact -- which speaks volumes to the improved efficiency Smith was talking about. But inventories are up a hair more than sales (6%). That's probably due to stocking up the expanded main distribution center, but just to be safe, let's keep an eye on that issue on Thursday.

On a final note, I see reason for investors in some of Haverty's suppliers to feel a little nervous over Smith's remark about how Haverty's Collections are so much more profitable. If Haverty is smart, chances are it will begin (or continue?) emphasizing its own more profitable private-line wares over those of the suppliers it sells for. That could spell trouble for suppliers who depend on Haverty for significant portions of their own revenue streams.

Competitors:

  • Costco (NASDAQ:COST)
  • Wal-Mart (NYSE:WMT)

Suppliers:

  • Hooker Furniture (NASDAQ:HOFT)
  • La-Z-Boy (NYSE:LZB)
  • Sealy (NYSE:ZZ)
  • Tempur-Pedic (NYSE:TPX)

Speaking of Haverty's suppliers, what have they been up to recently? Find out in:

Wal-Mart is anInside Valuerecommendation. Costco is aStock Advisorselection. Hooker is aMotley Fool Hidden Gemspick, and La-Z-Boy is anIncome Investorrecommendation. Since we have a newsletter to suit any investment need, try the one the meets your needs. It's free for 30 days. If you order Stock Advisor today, we'll send you afree market report.

Fool contributorRich Smithdoes not own shares of any company named above.