Havertys 2023 Form 10-K Summary
Business Context and Reporting Period
Haverty Furniture Companies, Inc. is a specialty retailer of residential furniture and accessories serving middle- to upper-middle-income customers. The filing covers the fiscal year ended December 31, 2023, with quarterly comparisons including the fourth quarter. Havertys operated 124 stores in 16 states, covering approximately 4.4 million retail square feet, and employed 2,574 team members at year-end.
Revenue is recognized when merchandise is delivered. Approximately 3.3% of 2023 sales were completed online, and in-home design consultations contributed approximately 28.5% of sales. Slightly less than one-third of sales were financed through third-party providers, with no related credit or collection recourse to Havertys.
Financial Performance and Key Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $862.1 million | $1,047.2 million | Down 17.7% |
| Gross profit | $523.1 million | $604.2 million | Down 13.4% |
| Gross margin | 60.7% | 57.7% | Up 300 bps |
| SG&A expense | $455.8 million | $486.3 million | Down 6.3% |
| SG&A as a percentage of sales | 52.9% | 46.4% | Up 650 bps |
| Income before taxes | $72.7 million | $119.5 million | Down 39.2% |
| Net income | $56.3 million | $89.4 million | Down 37.0% |
| Diluted EPS, Common Stock | $3.36 | $5.24 | Down 35.9% |
| Operating cash flow | $97.2 million | $51.0 million | Up $46.2 million |
Fourth-quarter net sales were $210.7 million, down 24.9%, and comparable-store sales declined 25.5%. Full-year comparable-store sales declined 18.4%. Average ticket increased 3.4% to $3,278, partially offsetting lower customer traffic and order volume.
Gross-margin improvement primarily reflected lower freight and product costs and a favorable $9.4 million LIFO impact in 2023, compared with a $10.8 million unfavorable LIFO impact in 2022. The company reported no impairment losses in 2023.
At December 31, 2023, cash and cash equivalents were $120.6 million and restricted cash equivalents were $7.1 million. Havertys had no funded debt and $80.0 million of available capacity under its revolving credit facility, which matures October 24, 2027. Operating lease liabilities totaled $217.8 million, including $37.4 million due within 12 months.
Capital expenditures were $53.1 million, dividends paid were $35.2 million, and share repurchases were $6.9 million. Inventory declined to $94.0 million from $118.3 million. Total assets were $654.1 million and stockholders’ equity was $308.4 million at year-end.
Material Changes Versus the Prior Comparable Period
- Sales declined sharply as the housing market softened, inflation persisted, and consumers shifted spending toward traditional holiday periods.
- Quarterly sales declines accelerated through the year, from 5.9% in the first quarter to 24.9% in the fourth quarter.
- Gross margin expanded despite lower sales, benefiting from lower freight and product costs and favorable LIFO effects.
- SG&A dollars decreased, but expenses increased materially as a percentage of sales because fixed costs were less leveraged.
- Operating cash flow improved substantially, aided by a $24.4 million reduction in inventory, although customer deposits decreased by $12.1 million.
- The store base increased from 122 to 124 locations. Havertys opened four stores and closed two during 2023.
- Capital expenditures increased to $53.1 million from $28.4 million, primarily reflecting distribution-related investment, including the purchase of a previously leased distribution facility.
- Share repurchases declined from $30.0 million to $6.9 million, while cash dividends increased from $33.9 million to $35.2 million.
Guidance, Outlook, Commentary, Risks and Unusual Items
Management’s objectives are to gain market share and improve profitability through new products, high-touch service, technology, targeted marketing, productivity improvements, gross-margin management, and store expansion. Subject to market conditions and suitable sites, Havertys plans to open five stores per year and expects approximately 2.8% growth in retail square footage in 2024. Planned 2024 capital expenditures are approximately $32.0 million.
Management expects current cash, operating cash flow, credit availability, and access to debt markets to fund operations, capital expenditures, dividends, and lease obligations for the next several years. The filing does not provide formal 2024 revenue, earnings, or comparable-store sales guidance.
Key risks include discretionary consumer demand, housing-market weakness, inflation and interest rates, intense retail and e-commerce competition, changing consumer preferences, foreign sourcing and tariffs, supply-chain and transportation disruptions, labor availability and costs, dependence on a limited number of distribution centers, cybersecurity incidents, product safety or quality issues, and litigation. Approximately 61% of furniture purchases, excluding accessories and mattresses, were sourced from goods not produced domestically.
The company uses LIFO inventory accounting; the favorable 2023 LIFO effect materially supported gross profit. The company also has substantial operating lease commitments and is self-insured for certain claims, with total self-insurance reserves of approximately $7.7 million at year-end. Management reported no pending legal matter expected to have a material adverse effect, no material cybersecurity impact to date, and effective internal control over financial reporting. Grant Thornton issued unqualified audit opinions and identified no critical audit matters.
Important Facts for Investors to Verify
- Whether weak housing activity, inflation, interest rates, and reduced traffic continue to pressure comparable-store sales in 2024.
- Whether the 2023 gross-margin improvement is sustainable after the favorable LIFO and freight-cost effects.
- Whether fixed SG&A costs can be leveraged if sales recover, or will continue to pressure operating margins.
- Execution of planned store openings, closures, approximately 2.8% square-footage growth, and the $32.0 million 2024 capital budget.
- Cash generation after capital expenditures, dividends, share repurchases, and lease obligations.
- Availability and covenant restrictions under the $80.0 million revolving credit facility, including dividend limitations if unused availability falls below $12.5 million.
- Exposure to foreign sourcing, tariffs, transportation costs, supplier performance, and potential supply-chain disruptions.
- Customer deposit trends, inventory levels, return liabilities, and the effects of LIFO accounting on reported earnings.
- The company’s ability to maintain customer service, staffing, cybersecurity controls, and distribution-center reliability during expansion.