Every so often, it's nice to call one right.
Last week, previewing the Q4 earnings for Haverty Furniture
As gratifying as it was to read those words, however, the following was less so: "Our inventories are up from the 2005 levels which had been admittedly too low to properly serve our customer." And indeed, reviewing the balance sheet, we see that while sales declined 4% in the fourth quarter, inventories are up 16% in comparison to this time last year. As I argued as far back as November, one of the things I liked best about Haverty was its success in reducing inventories in the face of a worsening retail environment. The way I see it, the more inventory a retailer has, the more it needs to sell -- and if customers aren't particularly inclined to buy, the retailer will face pressure to discount its wares to boost sales.
Meanwhile, Smith describes the "furnishings sales environment" as being "very difficult," and notes that February sales to date are down 12% in comparison with last year. The situation is sufficiently dire that Haverty sees a need to review its "distribution processes for adjustment to the current business conditions." None of this sounds to me like the kinds of conditions that require an inventory build-up.
Now, Haverty may truly believe that it needed to raise inventories in order to "properly serve" its customers. Or it may just be putting a brave face on the situation -- I really don't know which is the case. What I do know is that the longer it grows its inventories faster than it grows its sales, the less credible Smith's argument will sound.
What did we expect out of Haverty last quarter, and what did we get? Find out in:
- Foolish Forecast: Haverty Lounges In
- Haverty Lounges in Style
- A Prettier Picture at Haverty: Fool by Numbers
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