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In September 1983 Warren Buffett acquired a majority (80%) interest in Nebraska Furniture Mart for around $55 Million. Like many of the other Berkshire Hathaway (BRK.B) acquisitions, Nebraska Furniture Mart is a company built upon exceptional value (to the customer) and exceptional economics for the owners. The primary strategy for Buffett’s furniture strategy was to acquire a low-cost producer where the demand model is stable or growing.

Haverty Furniture an Established Furniture Brand

Founded in 1885, Haverty Furniture Companies, Inc. (HVT) is a true retailing institution. The namesake’s founder, J.J. Haverty began the business in 1885 in Atlanta, Georgia. The company grew to 18 stores and then went public in October 1929. In 2008, the company marked its 125 year anniversary. Currently, the prominent full-service home furnishings retailer has 118 showrooms in 79 cities across 17 states in the Southern and Midwestern regions.

Indeed the past couple of years have not been good ones for furniture retailers and a lot of red ink has been shed. However, over the past few quarters we’ve seen a clear revival in the furniture sector. Based upon the company’s most recent results, it is clear that Havertys has started to build some positive momentum.

Recent Results

Clarence H. Smith, president and CEO of Haverty, recently commented,

Our company returned to profitability for the 2010 year and its position is strong. In a difficult industry environment, where sales were meager and retailer closings were the business order of the day, Haverty's remained squarely focused on improving operations, offering the best values and designs in better home furnishings, enriching the shopping experience, both online and in our stores and providing exceptional service to our customers.

Here are some 2010 summarized results:

  • Total sales increased by 5.5% from $ 588,264 million to $ 620,331 million
  • Net income increased from <4,179> million in 2009 to a positive $8,444 million in 2010
  • Comp. Sales for 2010 increased by 7.0%
  • Grew bedding business by approximately 19% or $11.4 million
  • Strong earnings and strong cash position in 2010 allowed $2.2 million cash dividend for shareholders. (The company had paid a quarterly dividend since 1935 but given the economic decline the board suspended the dividend in the fourth quarter of 2008. The board approved a dividend in the fourth quarter of 2009 and 2010.)

In addition, Forbes named Haverty's as one of its “Most Trustworthy Companies in 2010” and Chain Store Age named Havertys as one of its “10 Healthiest Retailers."

In the second half of 2009, Haverty's began to return to profitability. Here are some historical data from 2004 – 2010:

Havertys Historical Stats

2010

2009

2008

2007

2006

2005

2004

Net Sales

620,331

588,264

691,079

784,613

859,101

827,658

784,162

Gross Profit

318,767

305,498

357,089

389,750

426,155

395,567

378,597

Number of Stores

118

121

122

123

120

118

117

Retail Square Footage

4,230

4,278

4,292

4,324

4,208

4,144

4,068

Real Estate

As of December 31, 2010, Havertys operated 118 stores serving 70 cities in 17 states with approximately 4.2 million retail square footage. Here is a summary of the number of stores by state.

Haverty Retail Stores By State

Florida

28

Texas

20

Georgia

16

North Carolina

8

Virginia

8

Alabama

7

South Carolina

7

Tennessee

6

Louisiana

4

Kentucky

3

Maryland

3

Arkansas

2

Ohio

2

Indiana

1

Kansas

1

Mississippi

1

Missouri

1

Total

118

In addition, 41 of the retail stores are corporately owned and the net book value as of December 2010, for land and building was $89.7 million. Also, the company leases or owns regional distribution facilities in the following locations:

Haverty's Regional Distribution Facilities

Location

Lease/Own

SF

Braselton, GA

Leased

808,000

Coppell, TX

Owned

238,000

Lakeland, FL

Owned

226,000

Colonial Heights, VA

Owned

129,000

Fairfield, OH

Leased

50,000

Jackson, MS

Leased

26,000

Memphis, TN

Leased

30,000

Total

1,507,000

Company guidance for 2011 indicates one or two new store (new market) openings in 2011, three re-locations and one closure.

Competition

Based upon Haverty's most recent results, the company is increasing its customer traffic and improving its inventory management systems. The 126-year-old has proven astute in meeting its challenges and capitalizing on strengthening its brand. As the U.S. economy improves, Havertys is well positioned to provide its quality merchandise to the middle to upper-middle price point consumer.

Compared to its peer competition, Haverty's maintains one of the lowest long term debt rations in the industry. As of December 31, 2010, Havertys enjoyed a long-term-debt-to-capital ratio of 3.5%. In addition, Haverty's maintains a strong cash balance (as of December 31, 2010) of $58.045 million (up from $44.466 million in 2009). Here is a chart summarizing Haverty's and its peer group:

Haverty's & Peer Group

Key Statistics

Symbol

Market Cap

Cash

Long Term Debt

Debt / Market Cap

Havertys

HVT

281.44

58.04

8.57

3%

Ethan Allen

ETH

637.45

73.85

199.37

31%

Hooker Furn

HOFT

130.70

37.99

na

na

Stanley Furn

STLY

72.87

25.53

na

na

Pier 1

PIR

1,150.00

187.91

19.00

2%

La-Z-Boy

LZB

474.56

108.42

46.92

10%

Based upon the results of Haverty's and its peer group, Haverty's was the only retailer to increase sales year over year:

Haverty's & Peer Group

Symbol

2010 Rev

2009 Rev

Change

2010 Net Income

Havertys

HVT

621.05

589.47

5.08%

8.44

Ethan Allen

ETH

590.05

674.28

-14.28%

-44.32

Hooker

HOFT

233.35

261.16

-11.92%

3.01

Stanley

STLY

137.01

160.45

-17.11%

-43.79

Pier 1

PIR

1,290.85

1,320.68

-2.31%

86.85

La-Z-Boy

LZB

1,179.21

1,226.67

-4.02%

32.54

Based upon the comparative results, it is clear to see that Haverty's is seeing increased customer traffic and revenue. Most industry analysts agree that 2011 will be better for furniture retailers than 2010. According to Epperson reports (Jerry Epperson is a furniture analyst with Menn, Armistead, & Epperson Ltd.)

2011 will see 5.5% growth in the mattress and residential furniture sector, and 2012 will see 6.5% growth ... usually, when people buy these fancy TV sets, they buy new furniture as well.

I have a comparative chart illustrating Haverty's recent stock price and the related peer group vs. a year ago:

Furniture Sector Stock Prices

Company

Symbol

Recent

1 Year Ago

Difference

Havertys

HVT

12.87

16.58

-29%

Ethan Allen

ETH

22.19

21.12

5%

Hooker

HOFT

12.15

15.64

-29%

Stanley

STLY

5.08

9.98

-96%

Pier 1

PIR

9.81

6.64

32%

La-Z-Boy

LZB

9.15

13.05

-43%

Summary

As Warren Buffett said, “price is what you pay, and value is what you get." For over 126 years, Haverty's has provided its customers with quality home furnishing merchandise and reasonable prices. With its healthy balance sheet and its resiliency to compete in a difficult economic period, Havertys should continue to grow sales and expand its 126 year old brand. As consumer indicators continue to improve, Haverty's is well positioned to increase market share and return to prior profitability.

Source: Haverty Furniture: An Institutional Retail Brand to Consider