Havertys Furniture Companies, Inc. — Q2 2023 Form 10-Q Summary
Business Context and Reporting Period
Havertys is a single-segment retailer of residential furniture serving middle- to upper-middle-income markets. The filing covers the three and six months ended June 30, 2023; financial statements are unaudited.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Net sales | $206.3 million | $253.2 million | $431.0 million | $492.2 million |
| Gross profit | $124.9 million | $146.6 million | $257.7 million | $287.6 million |
| Gross margin | 60.5% | 57.9% | 59.8% | 58.4% |
| SG&A expense | $110.0 million | $118.1 million | $228.4 million | $233.3 million |
| SG&A as a percentage of sales | 53.3% | 46.7% | 53.0% | 47.4% |
| Income before interest and taxes | $14.9 million | $28.5 million | $29.3 million | $54.2 million |
| Net income | $11.8 million | $21.7 million | $24.2 million | $41.1 million |
| Diluted EPS—Common Stock | $0.70 | $1.27 | $1.44 | $2.37 |
| Operating cash flow | Not separately provided | Not separately provided | $40.1 million | $26.3 million |
Q2 net margin was approximately 5.7%, compared with 8.6% in the prior-year quarter. Six-month net margin was approximately 5.6%, compared with 8.3% in 2022.
- Cash and cash equivalents were $109.1 million at June 30, 2023, plus $7.0 million of restricted cash.
- Inventory was $114.7 million, compared with $118.3 million at December 31, 2022.
- Total liabilities were $350.6 million and stockholders’ equity was $305.6 million.
- The company had no outstanding borrowings under its $80.0 million revolving credit facility, which matures October 24, 2027. Net availability was $80.0 million.
- Capital expenditures were $40.5 million in the first six months, including the purchase of the Lakeland, Florida distribution facility.
- Cash used in financing activities was $13.5 million, including $9.4 million of dividends and $4.1 million of taxes on vested restricted shares. No share repurchases occurred.
Material Changes Versus the Prior Comparable Period
- Q2 sales declined 18.5%, and comparable-store sales declined 19.1%. Six-month sales declined 12.4%, with comparable-store sales down 13.1%.
- Management attributed weaker demand to inflationary pressures, stock market volatility, rising interest rates, and reduced discretionary spending.
- Written business declined 14.7% in Q2, while written comparable-store sales declined 15.2%. Designers generated 28.6% of written business, up from 24.8%, and average ticket increased 3.2%.
- Gross margin expanded 260 basis points in Q2, primarily from lower freight and product costs. The LIFO reserve provided a $3.4 million benefit in 2023 versus a $2.5 million charge in 2022.
- SG&A dollars decreased 6.9%, but SG&A increased as a percentage of sales because sales fell faster than expenses. Savings included lower advertising, selling, occupancy, warehouse, and delivery costs.
- Operating cash flow increased despite lower net income, primarily due to working-capital changes, including inventory and customer-deposit movements.
- Investing cash outflows increased by $27.0 million year over year, primarily because of higher capital spending and the Florida distribution-center purchase.
- Cash used in financing activities decreased by $22.0 million, primarily because the company repurchased $25.0 million of stock in the prior-year period and none in 2023.
Guidance, Outlook, Risks, and Unusual Items
- Management expects full-year 2023 gross margin of 59.5% to 60.0%.
- Variable SG&A is expected to be 19.5% to 19.7% of sales; fixed and discretionary expenses are expected to be approximately $286.0 million to $289.0 million.
- Full-year 2023 capital expenditures are estimated at approximately $57.0 million, depending on project timing.
- Store plans include openings in Charlotte, Dayton, Richmond, Memphis, Destin, Miami, and Tampa, an Atlanta outlet closure, and four additional locations expected to open in the first half of 2024 following leases obtained from Bed Bath & Beyond’s bankruptcy.
- The Lakeland distribution facility was purchased for approximately $28.2 million in May 2023. The transaction and a retail-lease termination reduced right-of-use assets and lease liabilities by approximately $16.0 million.
- Management stated that cash, operating cash flow, credit availability, and access to capital markets should fund operations, capital expenditures, dividends, and lease obligations for the next several years.
- Key risks include consumer sensitivity to inflation and interest rates, discretionary-spending weakness, inventory and freight costs, promotional timing, lease obligations, execution of store expansion, litigation, and changes in LIFO estimates. Management reported no material changes to the risk factors in the 2022 Form 10-K.
- The company reported ordinary-course claims and litigation but no pending matter believed reasonably likely to have a material adverse effect. Actual outcomes could differ.
- Interim LIFO calculations depend on estimated inventory levels and inflation rates and may change at year-end.
Important Facts for Investors to Verify
- Whether the pronounced sales and comparable-store declines persist and whether consumer demand improves.
- Whether the guided 59.5%–60.0% full-year gross margin is achieved, including the effect of freight, product costs, promotions, and final LIFO valuation.
- Whether SG&A can be reduced sufficiently to offset lower sales and protect operating margins.
- The timing and returns associated with the Lakeland facility purchase, planned store openings, Atlanta closure, and four Bed Bath & Beyond replacement locations.
- Cash requirements for capital expenditures, dividends, leases, and the remaining approximately $20.0 million share-repurchase authorization.
- Changes in cash balances, customer deposits, inventory, and borrowing-base availability as demand and working capital evolve.