Havertys Furniture Companies, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
Havertys is a specialty retailer of residential furniture and accessories, operating 121 company-owned stores in 16 Southern and Midwestern states, with approximately 4.4 million retail square feet at December 31, 2021. The company also sells through havertys.com and offers third-party customer financing. The filing covers the fiscal year ended December 31, 2021; fourth-quarter results are included but the filing is an annual report.
- Online sales increased 28.9% from 2020 and represented approximately 4.1% of 2021 sales.
- Workforce was 2,845 employees at year-end; no employees were covered by a union contract.
- Revenue is recognized when merchandise is delivered, not when ordered.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change/comment |
|---|---|---|---|
| Net sales | $1,012.8 million | $748.3 million | Up 35.4% |
| Comparable-store sales | Up 17.9% | Up 5.0% | Includes online sales |
| Gross profit | $574.6 million | $419.0 million | Margin increased to 56.7% from 56.0% |
| SG&A | $456.3 million | $377.3 million | 45.1% of sales versus 50.4% |
| Income before taxes | $118.5 million | $76.7 million | Margin increased to 11.7% from 10.3% |
| Net income | $90.8 million | $59.1 million | Margin increased to 9.0% from 7.9% |
| Diluted EPS, Common Stock | $4.90 | $3.12 | Up 57.1% |
| Operating cash flow | $97.2 million | $130.2 million | Down $33.0 million |
| Capital expenditures | $34.1 million | $10.9 million | Higher store and distribution investment |
- 2021 gross margin benefited from retail price increases and disciplined discounting, which offset higher product and freight costs. The LIFO method reduced gross profit by approximately $12.3 million, compared with a $0.6 million charge in 2020.
- SG&A increased in dollars but declined as a percentage of sales because fixed costs were leveraged against record revenue. Advertising expense increased to $49.3 million from $39.9 million.
- The effective tax rate was 23.4%, compared with 22.9% in 2020.
- Product mix included upholstery at 42.8% of sales, case goods at 34.8%, mattresses at 8.9%, and accessories and other at 13.5%.
Balance sheet, debt, liquidity, and capital allocation
- Cash and cash equivalents were $166.1 million, with restricted cash of $6.7 million, at December 31, 2021.
- Inventories increased to $112.0 million from $89.9 million, reflecting efforts to address supply constraints.
- Havertys had no outstanding borrowings under its $60.0 million revolving credit facility. Net availability was $29.2 million at year-end, and the facility matures September 27, 2024.
- Operating lease liabilities totaled $230.4 million, including $33.6 million current and $196.8 million noncurrent. Undiscounted future operating lease payments totaled $290.7 million.
- Customer deposits increased to $98.9 million from $86.2 million, representing payments for merchandise not yet delivered.
- Cash dividends paid were $52.4 million, including a special fourth-quarter dividend. Share repurchases were $41.8 million, with approximately $25.0 million remaining under the authorization at year-end.
- Management expected approximately $37.0 million of capital expenditures in 2022 and stated that cash, operating cash flow, credit availability, and debt-market access should fund operating needs, capital expenditures, dividends, and lease obligations for the next several years.
Material changes versus the prior comparable period
- Sales reached record levels in every quarter of 2021. Fourth-quarter sales were $265.9 million, up 10.2%, with comparable-store sales up 9.2%.
- 2020 comparisons were affected by approximately six weeks of store closures and paused deliveries related to COVID-19; therefore, year-over-year growth should be interpreted in that context.
- Average ticket increased to $2,865 from $2,482, while sales per weighted-average retail square foot increased to $232 from $173.
- Upholstery sales increased 37.3% and gained 60 basis points as a percentage of sales. Mattress sales remained below the company’s pre-pandemic mix.
- Operating cash flow declined despite higher net income, primarily because inventory investment increased by $22.1 million and customer deposits provided a smaller inflow than in 2020.
- The company opened two stores and closed one during 2021, ending with 121 stores versus 120 at the end of 2020. It also purchased a previously leased distribution facility and a retail location.
- 2020 included a $31.6 million gain from a sale-leaseback transaction; no comparable gain was recorded in 2021.
Guidance, outlook, management commentary, and risks
- Management projected 2022 gross margins of approximately 56.6% to 57.0%.
- 2022 fixed and discretionary SG&A was expected to be $295.0 million to $298.0 million, while variable SG&A was expected to be 17.2% to 17.4% of sales.
- Management planned approximately 1% net growth in retail square footage in 2022, including new stores, a relocation, a distribution expansion, and selected closures.
- Management could not predict post-pandemic consumer spending or the duration of COVID-19’s effect on demand and the “nesting” economy.
- Supply-chain constraints remained significant. In-stock merchandise was generally delivered within three to five days late in 2021, but out-of-stock items could take 8 to 12 weeks and special orders 12 to 20 weeks.
- Factory closures in Vietnam particularly affected bedroom furniture, and management expected related effects could continue into the second quarter of 2022.
- Principal risks include COVID-19, inflation, wage and transportation cost increases, labor shortages, foreign sourcing and tariffs, raw-material availability, vendor and product-safety issues, intense retail and e-commerce competition, consumer-spending volatility, distribution-center disruption, cybersecurity, and dependence on qualified personnel.
- The company reported no legal proceedings believed likely to have a material adverse effect, no unresolved SEC staff comments, and effective disclosure controls and internal control over financial reporting. The independent auditor issued unqualified opinions and identified no critical audit matters.
Important facts for investors to verify
- Whether strong pandemic-era demand and elevated average tickets persist after housing, consumer, and “nesting” trends normalize.
- The effect of freight, labor, raw-material, tariff, and other inflationary costs on the projected 2022 gross-margin range.
- Progress in reducing out-of-stock and special-order backlogs and restoring delivery times.
- Inventory levels, LIFO charges, customer deposits, and the conversion of written orders into recognized revenue.
- Cash generation after dividends, share repurchases, lease payments, and planned capital expenditures.
- Compliance with credit-agreement covenants, including dividend restrictions tied to borrowing availability.
- Execution of 2022 store, distribution-center, website, and information-technology investments.