Havertys Furniture Companies, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual report, although quarterly fourth-quarter information is also provided. Havertys operates 122 company-owned stores in 16 Southern and Midwestern states, with approximately 4.4 million retail square feet, and sells residential furniture and accessories through stores and its website.
Business Context and Operating Model
- Havertys targets middle- to upper-middle-income consumers and offers furniture, mattresses, accessories, custom upholstery, third-party financing, and free in-home design services.
- Online sales represented approximately 3.8% of 2022 sales. In-home design consultations contributed approximately 24.7% of sales, with average tickets substantially above ordinary in-store transactions.
- Supply-chain conditions improved during the second half of 2022, with more predictable supplier lead times and a return toward normal inventory, staffing, and delivery capacity.
- Approximately 77% of furniture purchases, excluding accessories and mattresses, were for goods not produced domestically, creating exposure to international sourcing, tariffs, freight, and supplier risks.
Financial Performance and Key Metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $1,047.2 million | $1,012.8 million | 3.4% increase |
| Comparable-store sales | 3.4% increase | 17.9% increase | Decelerated |
| Gross profit | $604.2 million | $574.6 million | 5.2% increase |
| Gross margin | 57.7% | 56.7% | 100 basis-point increase |
| SG&A expense | $486.3 million | $456.3 million | 6.6% increase |
| SG&A as a percentage of sales | 46.4% | 45.1% | 130 basis-point increase |
| Income before taxes | $119.5 million | $118.5 million | 0.8% increase |
| Net income | $89.4 million | $90.8 million | 1.6% decrease |
| Diluted EPS, Common Stock | $5.24 | $4.90 | Increase |
| Operating cash flow | $51.0 million | $97.2 million | 47.5% decrease |
- Fourth-quarter sales were $280.6 million, up 5.5%, while fourth-quarter net income was $23.7 million compared with $24.3 million in the prior-year quarter.
- Average ticket increased 10.7% to $3,171. Management attributed sales growth to deliveries of new and previously written orders, despite an 8.8% decline in written business from the unusually strong 2021 level.
- Gross-margin expansion reflected merchandise price increases and disciplined discounting, which offset higher product and freight costs. The LIFO method reduced 2022 gross profit by approximately $10.8 million, compared with a $12.3 million reduction in 2021.
- SG&A increased due primarily to higher sales commissions, benefits, third-party financing costs, wages, fuel, transportation, utilities, repairs, and advertising.
- The effective income-tax rate increased to 25.2% from 23.4%, primarily reflecting state income taxes and the level of available state tax credits.
Cash Flow, Liquidity, Debt, and Capital Allocation
- Cash and cash equivalents were $123.1 million at year-end, with an additional $6.8 million of restricted cash equivalents.
- Operating cash flow declined to $51.0 million, principally because customer deposits decreased by $50.9 million as previously deposited orders were delivered.
- Capital expenditures were $28.4 million. Management expects approximately $27.6 million to $28.0 million of 2023 capital expenditures, primarily for stores, distribution, and information technology.
- Havertys had no outstanding borrowings under its $80.0 million revolving credit facility. The facility matures October 24, 2027, and net availability was $80.0 million at year-end.
- Lease liabilities totaled $221.3 million, including $34.4 million payable within 12 months. Total undiscounted operating lease obligations were approximately $274.0 million.
- The company paid $33.9 million in dividends and repurchased approximately 1.1 million Common Stock shares for $30.0 million during 2022. Approximately $20.0 million remained available under the repurchase authorization at year-end.
- Contractual obligations totaled $362.6 million, including $274.0 million of operating leases, $88.1 million of purchase orders, and $0.5 million of rent deferrals.
Material Changes Versus the Prior Comparable Period
- Sales increased modestly after a record 2021, while written orders and traffic outside traditional peak shopping periods weakened as consumer behavior normalized.
- Inventory and fulfillment improved as pandemic-related supply constraints abated, supporting deliveries of backlog orders.
- Gross margin improved by 100 basis points, but SG&A grew faster than sales, limiting operating-income and net-income growth.
- Operating cash flow fell substantially because the prior year benefited from customer-deposit inflows, while 2022 reflected a large reduction in deposits.
- Cash declined from $166.1 million to $123.1 million, primarily reflecting dividends, share repurchases, capital expenditures, and lower operating cash generation.
- The company opened three stores and closed two during 2022, ending with 122 stores compared with 121 at year-end 2021.
Guidance, Outlook, Risks, and Unusual Items
- Management expects 2023 gross margin of approximately 58.0% to 58.5%, subject to merchandise and freight costs and the effect of LIFO accounting.
- 2023 fixed and discretionary SG&A is expected to be approximately $292.0 million to $295.0 million; variable SG&A is expected to be 19.5% to 19.7% of sales.
- Management plans additional store expansion, with expected 2023 net selling-space growth of approximately 2.2% and a long-term objective of opening about five stores annually, subject to market conditions and suitable sites.
- Key uncertainties include inflation, rising interest rates, economic and housing-market weakness, discretionary consumer spending, competition, labor costs and availability, transportation costs, tariffs, foreign sourcing, raw-material prices, supplier performance, and renewed supply-chain or public-health disruptions.
- The company is operationally concentrated in three distribution centers, creating potential disruption if a facility is damaged or unavailable. Information-technology failures and cyberattacks also remain material risks.
- There were no material pending legal proceedings identified, no impairment losses in 2022, and no borrowings under the revolving credit facility. The 2020 sale-leaseback gain of $31.6 million was not repeated in 2022.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls, and the auditor identified no critical audit matters.
Investor Verification Checklist
- Verify whether 2023 gross-margin and SG&A guidance is achieved as freight, wage, financing, and merchandise costs evolve.
- Monitor written sales, store traffic, average ticket, comparable-store sales, and the conversion of backlog into delivered revenue.
- Assess whether operating cash flow normalizes after the 2022 decline in customer deposits and whether cash generation supports dividends, repurchases, expansion, and lease obligations.
- Review the sustainability of gross-margin gains under LIFO accounting and potential changes in import costs, tariffs, and discounting.
- Evaluate consumer sensitivity to inflation, interest rates, housing conditions, and discretionary-spending pressures.
- Track store openings, closures, capital expenditures, distribution-center concentration, and the company’s $221.3 million of recognized lease liabilities.