Havertys Furniture Companies, Inc. — Q1 2024 Form 10-Q
Business context and reporting period
Havertys is a single-segment retailer of residential furniture operating exclusively under the Havertys brand. The filing covers the three months ended March 31, 2024, compared with the same period in 2023. The financial statements are unaudited.
Financial performance and liquidity
- Net sales: $184.0 million, down 18.1% from $224.8 million. Comparable-store sales declined 18.5%; written business declined 12.6%.
- Gross profit: $111.0 million; gross margin was 60.3%, compared with 59.1% in the prior-year quarter.
- SG&A: $109.4 million, down 7.6% year over year, but increased to 59.4% of sales from 52.7% because of lower revenue.
- Operating income: $1.6 million, compared with $14.4 million.
- Net income: $2.4 million, compared with $12.4 million. Diluted EPS was $0.14 for Common Stock and $0.13 for Class A Common Stock, versus $0.74 and $0.71, respectively.
- Cash flow: Operating cash flow was $3.1 million, down from $11.1 million. Capital expenditures were $6.4 million, and cash dividends paid were $4.8 million.
- Cash and liquidity: Cash and cash equivalents were $111.8 million, with $6.0 million of restricted cash. The company had no revolver borrowings and reported $80.0 million of net availability under its revolving credit facility, which matures October 24, 2027.
- Balance sheet: Total assets were $640.5 million and stockholders’ equity was $306.7 million. Operating lease liabilities totaled $212.3 million, including current and noncurrent portions.
- Dividends: The May 1, 2024 declaration provided for quarterly dividends of $0.32 per Common Stock share and $0.30 per Class A share, totaling approximately $5.2 million.
Material changes versus the prior comparable period
- Sales declined substantially amid inflationary pressure, economic uncertainty, reduced discretionary spending, post-COVID normalization, higher interest rates and weakness in the housing market.
- Gross margin improved 120 basis points, primarily due to product selection and merchandising mix.
- SG&A dollars decreased by $9.0 million, including lower selling, warehouse and delivery, and advertising costs; however, SG&A as a percentage of sales increased materially.
- Operating cash flow decreased $7.9 million, primarily due to lower net income and working-capital changes.
- Customer deposits increased to $40.9 million from $35.8 million at year-end 2023, while inventories declined to $92.1 million from $94.0 million.
- The company opened a Memphis, Tennessee location and closed a Pine Bluff, Arkansas location during the quarter. Planned openings include Destin in Q2, Tampa and Miami in Q3, and Houston in Q4. Planned activity is expected to increase year-end 2024 net selling space by approximately 3.4%.
Guidance, outlook, risks and unusual items
- Management expects full-year 2024 gross margin of 60.0% to 60.5%, a 50-basis-point improvement from its previous estimate.
- Variable SG&A is expected to be 19.9% to 20.2% of sales. Fixed and discretionary SG&A is expected to be approximately $290.0 million to $292.0 million, $5.0 million below prior guidance.
- Full-year 2024 capital expenditures are estimated at approximately $32.0 million.
- Management believes cash, operating cash flow, credit availability and access to debt markets will fund operating needs, capital expenditures, dividends and lease obligations for the next several years.
- Key risks include discretionary consumer demand, inflation, interest rates, housing-market conditions, inventory and LIFO estimation, execution of store expansion, lease obligations and ordinary-course legal claims. Management reported no pending legal matter expected to have a material adverse effect, while noting that future litigation outcomes could materially affect results.
- Effective tax rate increased to 25.1% from 19.9%, primarily due to state taxes and the impact of vested stock awards.
- Interim LIFO results depend on estimates of year-end inventory and inflation or deflation and may change at year-end.
- Management stated that market-risk exposure had not materially changed since December 31, 2023, and that disclosure controls and procedures were effective.
Investor verification checklist
- Verify whether sales and written-business trends improve as housing and consumer-spending conditions change.
- Assess whether the projected 60.0%–60.5% gross margin is achieved without additional promotional pressure.
- Monitor SG&A leverage, particularly fixed costs, as sales fluctuate.
- Reconcile operating cash flow with earnings and working-capital movements, including customer deposits and accounts payable.
- Confirm execution, timing and capital requirements for planned store openings and the targeted 3.4% increase in selling space.
- Review liquidity after dividends, capital expenditures and operating lease payments, notwithstanding the absence of revolver borrowings.
- Track LIFO adjustments, tax-rate changes, performance-based compensation and any developments in legal claims.