Haverty Furniture Companies, Inc. — Q1 2022 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. The filing covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. The financial statements are unaudited.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $238.9 million | $236.5 million | 1.0% increase |
| Gross profit | $141.0 million | $135.0 million | 4.4% increase |
| Gross margin | 59.0% | 57.1% | 190 basis-point increase |
| SG&A expense | $115.2 million | $109.8 million | 4.9% increase |
| SG&A as a percentage of sales | 48.2% | 46.4% | 180 basis-point increase |
| Income before interest and taxes | $25.6 million | $25.3 million | 1.3% increase |
| Net income | $19.4 million | $19.4 million | Essentially unchanged |
| Diluted EPS — Common Stock | $1.11 | $1.04 | Increase |
| Net cash from operating activities | $20.6 million | $19.6 million | Increase |
| Capital expenditures | $7.1 million | $4.7 million | Increase |
Net income margin was approximately 8.1% in Q1 2022, compared with approximately 8.2% in the prior-year quarter. The effective income tax rate was 24.7%, versus 23.5%.
Cash, cash equivalents and restricted cash totaled $169.1 million at March 31, 2022, including $162.3 million of unrestricted cash. Inventory was $119.9 million, up from $112.0 million at December 31, 2021. Total liabilities were $433.5 million, including $231.2 million of operating lease liabilities. The company had no revolver borrowings and reported $34.7 million of net availability under its $60.0 million revolving credit facility, which matures September 27, 2024.
Material changes versus the prior comparable period
- Comp-store sales increased 0.2%, while written sales declined 8.8% and written comp-store sales declined 9.6%.
- Upholstery sales increased to $111.2 million from $95.6 million and represented 46.5% of sales, compared with 40.4% in Q1 2021.
- Case goods sales declined to $74.2 million from $88.8 million, with its sales mix falling to 31.0% from 37.6%, primarily reflecting supply-chain and inventory delays.
- Gross margin improved due primarily to merchandise pricing and mix.
- SG&A increased $5.4 million, driven by higher selling costs, distribution and delivery costs, occupancy expenses, compensation costs and fuel costs.
- Operating cash flow increased modestly despite a $7.8 million inventory investment. Financing cash use increased because the company repurchased 438,499 common shares for approximately $12.5 million.
- Cash dividends paid increased to $4.3 million from $4.0 million; declared quarterly dividends were $0.25 per Common share and $0.23 per Class A share.
Guidance, outlook, risks and unusual items
- Management expects full-year 2022 gross margin of 57.7% to 58.0%, below Q1’s 59.0% but above prior guidance.
- Variable SG&A is expected to be 18.0% to 18.2% of sales, and fixed and discretionary expenses are expected to be approximately $295.0 million to $298.0 million.
- Full-year 2022 capital expenditures are expected to be approximately $37.0 million. Net selling space is expected to be slightly higher than in 2021, with planned openings, relocations and closures during 2022.
- Management stated that cash, operating cash flow, credit availability and access to debt markets should fund operations, capital expenditures, dividends and lease obligations for the next several years.
- COVID-19-related supply-chain disruption, rising product prices, volatile freight costs, inflation, fuel costs, higher interest rates, stock-market volatility and geopolitical instability, including the war in Ukraine, adversely affected demand and operations.
- Out-of-stock merchandise delivery times were approximately 8 to 12 weeks. Management reported significant declines in store traffic and written business during March after stronger early-quarter demand and record Presidents’ Day activity.
- Various ordinary-course legal claims exist, including product liability and personal injury matters, but management does not believe any pending matter is reasonably likely to have a material adverse effect. The filing notes that future litigation outcomes remain uncertain.
- Interim LIFO inventory calculations rely on management estimates and may change when final year-end inventory valuations are completed.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether declining written sales and March traffic trends persist and convert into lower delivered sales in subsequent quarters.
- The duration and financial effect of supply-chain disruptions, freight inflation, inventory shortages and extended delivery times.
- Whether the guided 57.7%–58.0% full-year gross margin is achieved amid changing product, freight and promotional costs.
- Progress and total spending on the planned 2022 store openings, relocations, closure and approximately $37.0 million capital-expenditure program.
- Remaining share-repurchase authorization, future repurchase pace and the effect on share count and EPS.
- Revolving-credit availability, lease obligations and liquidity under weaker consumer demand or higher interest rates.
- Potential changes to interim LIFO reserves, tax rates and other management estimates at year-end.