Havertys Furniture Companies, Inc. — Form 10-Q Summary
Business context and reporting period
Havertys is a single-segment retailer of residential furniture serving middle- to upper-middle-income customers through company-operated stores and its website. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the same periods in 2020.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $250.0 million | $110.0 million | $486.5 million | $289.4 million |
| Gross profit | $141.5 million | $59.6 million | $276.5 million | $159.2 million |
| Gross margin | 56.6% | 54.2% | 56.8% | 55.0% |
| Net income | $22.9 million | $13.6 million | $42.3 million | $15.5 million |
| Diluted EPS, Common Stock | $1.21 | $0.72 | $2.25 | $0.81 |
| Operating cash flow | Not separately provided | Not separately provided | $57.6 million | $24.5 million |
- Q2 comparable-store sales increased 46.9%; first-half comparable-store sales increased 27.0%. Total sales increased 127.3% in Q2 and 68.1% year to date, partly reflecting store closures and reduced deliveries in the 2020 comparison period.
- SG&A was $112.4 million in Q2, or 45.0% of sales, versus $72.6 million, or 66.1%, in the prior-year quarter. First-half SG&A was $222.2 million, or 45.7% of sales, versus 58.8% in 2020.
- Cash and cash equivalents were $235.3 million at June 30, 2021, with restricted cash of $6.7 million. Total current assets were $380.6 million versus $316.2 million at December 31, 2020.
- Inventory increased to $115.1 million from $89.9 million at year-end, while customer deposits increased to $116.1 million from $86.2 million.
- The company had no borrowings outstanding under its $60.0 million revolving credit facility. Net availability was $13.6 million, and the facility matures September 27, 2024.
- Total lease liabilities were $247.3 million, comprising $33.8 million current and $213.5 million noncurrent liabilities.
- First-half investing cash flow was a use of $10.9 million, including $10.9 million of capital expenditures. Financing cash flow was a use of $11.4 million, primarily dividends of $8.6 million and taxes on vested restricted shares of $2.9 million.
Material changes versus the prior comparable period
- Sales and profitability increased substantially as operations were fully open in 2021, whereas stores were closed or operating at reduced capacity during portions of the 2020 comparison period.
- Gross margin improved by 240 basis points in Q2 and 180 basis points for the first half. Management attributed the improvement to pricing actions and sales mix, which offset higher product costs, freight, and LIFO reserve increases.
- Operating cash flow increased by $33.2 million year over year, supported by higher net income and a $29.9 million increase in customer deposits, partly offset by a $25.1 million inventory investment.
- The prior-year first half benefited from $69.5 million of proceeds from property sales and a $31.6 million gain from a May 2020 sale-leaseback transaction; no comparable gain occurred in 2021.
- The company renewed leases covering ten retail locations in June 2021, increasing right-of-use assets by approximately $17.6 million and lease liabilities by approximately $20.6 million, partly offset by $3.0 million of tenant incentives.
Guidance, outlook, risks and unusual items
- Management estimates full-year 2021 gross margin of 56.5% to 56.8%, variable SG&A of 17.3% to 17.5% of sales, fixed and discretionary expenses of approximately $275.0 million to $278.0 million, and capital expenditures of approximately $37.0 million.
- Planned or ongoing store activity includes a new location in The Villages, Florida, a Dallas closure, an Austin opening, and the purchase of the Virginia home delivery center previously included in the 2020 sale-leaseback.
- Demand remained strong, but product availability, manufacturing delays, raw material shortages, transportation constraints, and labor shortages limited deliveries and distribution capacity. Custom upholstery lead times increased from four to six weeks before the pandemic to approximately 16 weeks.
- COVID-19 remains a material uncertainty. Vendor shutdowns, virus variants, renewed restrictions, and changes in consumer demand could materially affect results. Management stated that the duration and financial effects cannot reasonably be estimated.
- Manufacturing interruptions in Vietnam and Indonesia could affect merchandise availability beginning in the fourth quarter if not resolved. The company also noted that customer demand has shifted toward readily available products.
- Legal claims arise in the ordinary course of business; management believes any resulting liability will not materially affect financial condition, results of operations, or cash flows. No material changes to previously disclosed risk factors were reported.
- The company believes cash, operating cash flow, credit availability, and access to capital markets are sufficient to fund operations, capital expenditures, dividends, and lease obligations for the next several years.
Important facts for investors to verify
- Verify whether elevated demand persists after the easy comparison with 2020 pandemic closures.
- Monitor inventory, customer deposits, delivery backlogs, and the $13.6 million of revolver availability as indicators of working-capital and liquidity pressure.
- Assess whether supply-chain disruptions, labor shortages, and extended upholstery lead times affect future sales recognition and margins.
- Compare actual full-year gross margin, SG&A, and capital expenditures with management’s stated ranges.
- Evaluate the effect of lease commitments, planned real-estate purchases, dividends, and any resumed share repurchases on future liquidity.
- Consider the comparability impact of the $31.6 million 2020 sale-leaseback gain and the unusually disrupted 2020 operating base.