Form 10-Q HAVERTY FURNITURE COMPAN For: Jun 30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 |
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___ |
Commission file number: 1-14445
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | (Zip Code) | ||||
( | |||||
(Registrant’s telephone number, including area code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
x | Accelerated filer | o | Non-accelerated filer | o | |||||||||||||
Smaller reporting company | Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The numbers of shares outstanding of the registrant’s two classes of $1 par value common stock as of August 1, 2022, were: Common Stock – 15,051,761 ; Class A Common Stock – 1,283,260 .
HAVERTY FURNITURE COMPANIES, INC.
INDEX
Page No. | ||||||||
June 30, 2022 (unaudited) and December 31, 2021 | ||||||||
Three and Six Months Ended June 30, 2022 and 2021 (unaudited) | ||||||||
Six Months Ended June 30, 2022 and 2021 (unaudited) | ||||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) | June 30, 2022 | December 31, 2021 | |||||||||
(Unaudited) | |||||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash and cash equivalents | |||||||||||
Inventories | |||||||||||
Prepaid expenses | |||||||||||
Other current assets | |||||||||||
Total current assets | |||||||||||
Property and equipment, net | |||||||||||
Right-of-use lease assets | |||||||||||
Deferred income taxes | |||||||||||
Other assets | |||||||||||
Total assets | $ | $ | |||||||||
Liabilities and Stockholders’ Equity | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | $ | |||||||||
Customer deposits | |||||||||||
Accrued liabilities | |||||||||||
Current lease liabilities | |||||||||||
Total current liabilities | |||||||||||
Noncurrent lease liabilities | |||||||||||
Other liabilities | |||||||||||
Total liabilities | |||||||||||
Stockholders’ equity | |||||||||||
Capital Stock, par value $ | |||||||||||
Preferred Stock, Authorized – | |||||||||||
Common Stock, Authorized – | |||||||||||
Convertible Class A Common Stock, Authorized – | |||||||||||
Additional paid-in capital | |||||||||||
Retained earnings | |||||||||||
Accumulated other comprehensive loss | ( | ( | |||||||||
Less treasury stock at cost – Common Stock (2022 – | ( | ( | |||||||||
Total stockholders’ equity | |||||||||||
Total liabilities and stockholders’ equity | $ | $ |
See notes to these condensed consolidated financial statements.
1
HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data - unaudited) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net sales | $ | $ | $ | $ | |||||||||||||||||||
Cost of goods sold | |||||||||||||||||||||||
Gross profit | |||||||||||||||||||||||
Expenses: | |||||||||||||||||||||||
Selling, general and administrative | |||||||||||||||||||||||
Other expense (income), net | ( | ( | ( | ||||||||||||||||||||
Total expenses | |||||||||||||||||||||||
Income before interest and income taxes | |||||||||||||||||||||||
Interest income, net | |||||||||||||||||||||||
Income before income taxes | |||||||||||||||||||||||
Income tax expense | |||||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||||
Adjustments related to retirement plans; net of tax expense of $ | $ | $ | $ | $ | |||||||||||||||||||
Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
Basic earnings per share: | |||||||||||||||||||||||
Common Stock | $ | $ | $ | $ | |||||||||||||||||||
Class A Common Stock | $ | $ | $ | $ | |||||||||||||||||||
Diluted earnings per share: | |||||||||||||||||||||||
Common Stock | $ | $ | $ | $ | |||||||||||||||||||
Class A Common Stock | $ | $ | $ | $ | |||||||||||||||||||
Cash dividends per share: | |||||||||||||||||||||||
Common Stock | $ | $ | $ | $ | |||||||||||||||||||
Class A Common Stock | $ | $ | $ | $ |
See notes to these condensed consolidated financial statements.
2
HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - unaudited) | Six Months Ended June 30, | ||||||||||
2022 | 2021 | ||||||||||
Cash Flows from Operating Activities: | |||||||||||
Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | |||||||||||
Share-based compensation expense | |||||||||||
Other | ( | ||||||||||
Changes in operating assets and liabilities: | |||||||||||
Inventories | ( | ( | |||||||||
Customer deposits | ( | ||||||||||
Other assets and liabilities | ( | ( | |||||||||
Accounts payable and accrued liabilities | ( | ||||||||||
Net cash provided by operating activities | |||||||||||
Cash Flows from Investing Activities: | |||||||||||
Capital expenditures | ( | ( | |||||||||
Proceeds from sale of land, property and equipment | |||||||||||
Net cash used in investing activities | ( | ( | |||||||||
Cash Flows from Financing Activities: | |||||||||||
Dividends paid | ( | ( | |||||||||
Common stock repurchased | ( | ||||||||||
Other | ( | ( | |||||||||
Net cash used in financing activities | ( | ( | |||||||||
(Decrease) increase in cash, cash equivalents and restricted cash equivalents during the period | ( | ||||||||||
Cash, cash equivalents and restricted cash equivalents at beginning of period | |||||||||||
Cash, cash equivalents and restricted cash equivalents at end of period | $ | $ |
See notes to these condensed consolidated financial statements.
3
HAVERTY FURNITURE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A - Business and Basis of Presentation
The Company is subject to various claims and legal proceedings covering a wide range of matters, including with respect to product liability and personal injury claims, that arise in the ordinary course of its business activities. We currently have no pending claims or legal proceedings that we believe would be reasonably likely to have a material adverse effect on our financial condition, results of operations or cash flows. However, there can be no assurance that either future litigation or an unfavorable outcome in existing claims will not have a material impact on our business, reputation, financial position, cash flows or results of operations.
Note B – COVID-19
4
NOTE C – Stockholders’ Equity
The following outlines the changes in each caption of stockholders’ equity for the current and comparative periods and the dividends per share for each class of shares.
For the three months ended June 30, 2022:
(in thousands) | Common Stock | Class A Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||
Balances at March 31, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
Net income | |||||||||||||||||||||||||||||||||||||||||
Dividends declared: | |||||||||||||||||||||||||||||||||||||||||
Common Stock, $ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Class A Common Stock, $ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Class A conversion | ( | ||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | ( | ( | |||||||||||||||||||||||||||||||||||||||
Restricted stock issuances | ( | ( | |||||||||||||||||||||||||||||||||||||||
Amortization of restricted stock | |||||||||||||||||||||||||||||||||||||||||
Directors' Compensation Plan | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ |
For the six months ended June 30, 2022:
(in thousands) | Common Stock | Class A Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||
Balances at December 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
Net income | |||||||||||||||||||||||||||||||||||||||||
Dividends declared: | |||||||||||||||||||||||||||||||||||||||||
Common Stock, $ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Class A Common Stock, $ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Class A conversion | ( | ||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | ( | ( | |||||||||||||||||||||||||||||||||||||||
Restricted stock issuances | ( | ( | |||||||||||||||||||||||||||||||||||||||
Amortization of restricted stock | |||||||||||||||||||||||||||||||||||||||||
Directors' Compensation Plan | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ |
5
For the three months ended June 30, 2021:
(in thousands) | Common Stock | Class A Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||
Balances at March 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
Net income | |||||||||||||||||||||||||||||||||||||||||
Dividends declared: | |||||||||||||||||||||||||||||||||||||||||
Common Stock, $ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Class A Common Stock, $ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Class A conversion | ( | ||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | |||||||||||||||||||||||||||||||||||||||||
Restricted stock issuances | ( | ( | |||||||||||||||||||||||||||||||||||||||
Amortization of restricted stock | |||||||||||||||||||||||||||||||||||||||||
Directors' Compensation Plan | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
For the six months ended June 30, 2021:
(in thousands) | Common Stock | Class A Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||
Balances at December 31, 2020 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
Net income | |||||||||||||||||||||||||||||||||||||||||
Dividends declared: | |||||||||||||||||||||||||||||||||||||||||
Common Stock, $ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Class A Common Stock, $ | ( | ( | |||||||||||||||||||||||||||||||||||||||
Class A conversion | ( | ||||||||||||||||||||||||||||||||||||||||
Restricted stock issuances | ( | ( | |||||||||||||||||||||||||||||||||||||||
Amortization of restricted stock | |||||||||||||||||||||||||||||||||||||||||
Directors' Compensation Plan | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
6
NOTE D – Interim LIFO Calculations
NOTE E – Fair Value of Financial Instruments
NOTE F – Credit Agreement
We have a $60.0 million revolving credit facility (the “Credit Agreement”) which matures on September 27, 2024 and is secured primarily by our inventory. Availability fluctuates based on a borrowing base calculation reduced by outstanding letters of credit.
At June 30, 2022 and December 31, 2021, there were no outstanding borrowings under the Credit Agreement. The borrowing base and net availability was $47.1 million at June 30, 2022.
Note G – Revenues
We recognize revenue from merchandise sales and related service fees, net of expected returns and sales tax, at the time the merchandise is delivered to the customer. We record customer deposits when payments are received in advance of the delivery of merchandise. Such deposits totaled $90.8 million and $98.9 million at June 30, 2022 and December 31, 2021, respectively. Of the customer deposit liabilities at December 31, 2021, approximately $4.0 million have not been recognized through net sales in the six months ended June 30, 2022.
The following table presents our revenues disaggregated by each major product category and service (dollars in thousands, amounts and percentages may not always add due to rounding):
(In thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Net Sales | % of Net Sales | Net Sales | % of Net Sales | Net Sales | % of Net Sales | Net Sales | % of Net Sales | ||||||||||||||||||||||||||||||||||||||||
Merchandise: | |||||||||||||||||||||||||||||||||||||||||||||||
Case Goods | |||||||||||||||||||||||||||||||||||||||||||||||
Bedroom Furniture | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
Dining Room Furniture | |||||||||||||||||||||||||||||||||||||||||||||||
Occasional | |||||||||||||||||||||||||||||||||||||||||||||||
Upholstery | |||||||||||||||||||||||||||||||||||||||||||||||
Mattresses | |||||||||||||||||||||||||||||||||||||||||||||||
Accessories and Other (1) | |||||||||||||||||||||||||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % |
(1) | Includes delivery charges and product protection. |
NOTE H – Leases
7
years. We determine if an arrangement is or contains a lease at lease inception. Our leases do not have any residual value guarantees or any restrictions or covenants imposed by lessors. We have lease agreements for real estate with lease and non-lease components, which are accounted for separately.
Certain of our lease agreements for retail stores include variable lease payments, generally based on sales volume. The variable portion of payments are not included in the initial measurement of the right-of-use asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. Certain of our equipment lease agreements include variable lease costs, generally based on usage of the underlying asset (mileage, fuel, etc.). The variable portion of payments are not included in the initial measurement of the right-of-use asset or lease liability due to uncertainty of the payment amount and are recorded in the period incurred.
As of June 30, 2022, we had entered into one lease for an additional retail location which had not yet commenced.
Lease expense is charged to selling, general and administrative expenses. Components of lease expense were as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
Variable lease cost | |||||||||||||||||||||||
Total lease expense | $ | $ | $ | $ |
Supplemental cash flow information related to leases is as follows (in thousands):
Six Months Ended June 30, | |||||||||||
2022 | 2021 | ||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
Operating cash flows from operating leases | $ | $ | |||||||||
Right-of-use assets obtained in exchange for lease obligations: | |||||||||||
Operating leases | $ | $ |
NOTE I – Income Taxes
8
NOTE J – Stock Based Compensation Plans
As more fully discussed in Note 12 of the notes to the consolidated financial statements in our 2021 Annual Report on Form 10-K, we have awards outstanding for Common Stock under stock-based employee compensation plans.
The following table summarizes our award activity during the six months ended June 30, 2022:
Service-Based Restricted Stock Awards | Performance-Based Restricted Stock Awards | ||||||||||||||||||||||
Shares or Units (#) | Weighted-Average Award Price ($) | Shares or Units (#) | Weighted-Average Award Price ($) | ||||||||||||||||||||
Outstanding at December 31, 2021 | $ | $ | |||||||||||||||||||||
Granted/Issued | |||||||||||||||||||||||
Awards vested or rights exercised(1) | ( | ( | |||||||||||||||||||||
Forfeited | ( | ||||||||||||||||||||||
Additional units earned due to performance | |||||||||||||||||||||||
Outstanding at June 30, 2022 | $ | $ | |||||||||||||||||||||
Restricted units expected to vest | $ | $ |
(1) | Includes shares repurchased from employees for employee’s tax liability. |
The total fair value of service-based restricted stock awards that vested during the six months ended June 30, 2022 was approximately $3.3 million. The aggregate intrinsic value of outstanding service-based restricted stock awards was approximately $5.7 million at June 30, 2022. The restrictions on the service-based awards generally lapse or vest annually, primarily over one-year and three-year periods.
The total fair value of performance-based restricted stock awards that vested during the six months ended June 30, 2022 was approximately $1.0 million. The aggregate intrinsic value of outstanding performance awards at June 30, 2022 expected to vest was approximately $10.6 million. The performance awards are based on one-year performance periods but cliff vest in approximately three years from grant date.
The compensation for all awards is charged to selling, general and administrative expense over the respective grants’ vesting periods, primarily on a straight-line basis. The amount charged was approximately $4.2 million and $4.7 million for the six months ended June 30, 2022 and 2021, respectively. Forfeitures are recognized as they occur. As of June 30, 2022, the total compensation cost related to unvested equity awards was approximately $9.9 million and is expected to be recognized over a weighted-average period of two years .
9
NOTE K – Earnings Per Share
We report our earnings per share using the two-class method. The income per share for each class of common stock is calculated assuming 100 % of our earnings are distributed as dividends to each class of common stock based on the contractual rights of the classes.
The Common Stock of the Company has a preferential dividend rate of at least 105 % of the dividend paid on the Class A Common Stock. The Class A Common Stock, which has ten votes per share as opposed to one vote per share for the Common Stock (on all matters other than the election of directors), may be converted at any time on a one-for-one basis into Common Stock at the option of the holder of the Class A Common Stock.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Numerator: | |||||||||||||||||||||||
Common: | |||||||||||||||||||||||
Distributed earnings | $ | $ | $ | $ | |||||||||||||||||||
Undistributed earnings | |||||||||||||||||||||||
Basic | |||||||||||||||||||||||
Class A Common earnings | |||||||||||||||||||||||
Diluted | $ | $ | $ | $ | |||||||||||||||||||
Class A Common: | |||||||||||||||||||||||
Distributed earnings | $ | $ | $ | $ | |||||||||||||||||||
Undistributed earnings | |||||||||||||||||||||||
$ | $ | $ | $ | ||||||||||||||||||||
Denominator: | |||||||||||||||||||||||
Common: | |||||||||||||||||||||||
Weighted average shares outstanding - basic | |||||||||||||||||||||||
Assumed conversion of Class A Common Stock | |||||||||||||||||||||||
Dilutive options, awards and common stock equivalents | |||||||||||||||||||||||
Total weighted-average diluted Common Stock | |||||||||||||||||||||||
Class A Common: | |||||||||||||||||||||||
Weighted average shares outstanding | |||||||||||||||||||||||
Basic earnings per share: | |||||||||||||||||||||||
Common Stock | $ | $ | $ | $ | |||||||||||||||||||
Class A Common Stock | $ | $ | $ | $ | |||||||||||||||||||
Diluted earnings per share: | |||||||||||||||||||||||
Common Stock | $ | $ | $ | $ | |||||||||||||||||||
Class A Common Stock | $ | $ | $ | $ |
10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes contained herein and with the audited consolidated financial statements, accompanying notes, related information and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021 (“Form 10-K”).
Forward-Looking Statements
Statements in this Form 10-Q that are not historical facts, including statements about our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Known material risk factors applicable to us that could cause our actual results to differ from these forward-looking statements are described in "Item 1A. Risk Factors" of our Form 10-K and in the subsequent reports we file with the SEC. All forward‑looking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report except as required by law.
Net Sales
Our sales are generated by customer purchases of home furnishings. Revenue is recognized upon delivery to the customer. Comparable-store or “comp-store” sales is a measure which indicates the performance of our existing stores and website by comparing the growth in sales in store and online for a particular month over the corresponding month in the prior year. Stores are considered non-comparable if they were not open during the corresponding month in the prior year or if the selling square footage has been changed significantly. Stores closed due to COVID-19 were excluded from comp-store sales. The method we use to compute comp-store sales may not be the same method used by other retailers. We record our sales when the merchandise is delivered to the customer. We also track “written sales” and “written comp-store sales” which represent customer orders prior to delivery. The disruptions to our supply chain have resulted in lower inventory in certain categories and for out-of-stock merchandise delivery times can be 8 to 12 weeks. As a retailer, comp-store sales and written comp-store sales are an indicator of relative customer spending and store performance. Comp-store sales, total written sales and written comp-store sales are intended only as supplemental information and none are substitutes for net sales presented in accordance with US GAAP.
The following table outlines our sales and comp-store sales increases and decreases for the periods indicated:
2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Sales | Comp-Store Sales | Net Sales | Comp-Store Sales | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Period | Total Dollars | % Change | $ Change | % Change | $ Change | Total Dollars | % Change | $ Change | % Change | $ Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Q1 | $ | 238.9 | 1.0 | % | $ | 2.5 | 0.2 | % | $ | 0.4 | $ | 236.5 | 31.8 | % | $ | 57.1 | 11.5 | % | $ | 15.4 | ||||||||||||||||||||||||||||||||||||||||||
Q2 | $ | 253.2 | 1.3 | % | $ | 3.2 | 1.1 | % | $ | 2.7 | $ | 250.0 | 127.3 | % | $ | 140.0 | 46.9 | % | $ | 48.8 | ||||||||||||||||||||||||||||||||||||||||||
YTD Q2 | $ | 492.1 | 1.2 | % | $ | 5.7 | 0.7 | % | $ | 3.2 | $ | 486.5 | 68.1 | % | $ | 197.1 | 27.0 | % | $ | 64.2 |
Total sales for the second quarter of 2022 increased $3.2 million, or 1.3%, compared to 2021. Our comp-store sales increased 1.1%, or $2.7 million, in the second quarter of 2022 compared to 2021.
Our free in-home design service continues to grow as COVID-19 concerns abate, and designer sales were 24.8% of our total written business for the second quarter of 2022 compared to 24.6% for 2021. COVID-19 continues to impact our supply chain, and ongoing delays in our case goods inventory impacted our business. Sales in this category as a percent of our total sales were 34.3% in the second quarter of 2022 compared to 36.7% in 2021. We did begin to receive and restore case goods and other items to a more normal operating inventory level during the second quarter which allowed us to deliver customer orders.
The declines in in-store traffic and written business which began in March 2022 continued through June 2022. Written business for the second quarter of 2022 was down 13.3% compared to 2021. We continued to experience a return to increased consumer interest around traditional shopping events and had very strong business for the Fourth of July holiday. Our written business for the second quarter of 2022 compared to the
11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
"normal" pre-pandemic second quarter of 2019 was up 23.2% as customers are still investing in their homes. In the second half of 2022, we expect that our business will continue to be affected as rising inflation, including fuel costs, stock market volatility, higher interest rates and concerns regarding a recession impact discretionary consumer spending.
Gross Profit
Gross profit for the second quarter of 2022 was 57.9%, up 130 basis points compared to the prior year period of 56.6%. The increase is primarily due to pricing discipline and merchandise pricing mix.
We expect annual gross profit margins for 2022 will be 57.7% to 58.0%. Gross profit margins fluctuate quarter to quarter in relation to our promotional cadence. Our estimated gross profit margins are based on anticipated changes in product and freight costs and their impact on our LIFO reserve.
Substantially all of our occupancy and home delivery costs are included in selling, general and administrative expenses (“SG&A”) as are a portion of our warehousing expenses. Accordingly, our gross profit may not be comparable to those entities that include these costs in cost of goods sold.
Selling, General and Administrative Expenses
Our SG&A costs as a percent of sales for the second quarter of 2022 were 46.7% versus 45.0% for 2021. SG&A dollars increased $5.7 million, or 5.1%, for the second quarter of 2022 compared to the same prior year period. The increase is driven by higher costs associated with selling expense of $2.3 million, distribution and delivery costs of $2.6 million, and occupancy expenses of $0.6 million.
We classify our SG&A expenses as either variable or fixed and discretionary. Our variable expenses include the costs in the selling and delivery categories and certain warehouse and distribution expenses as these amounts will generally move in tandem with our level of sales. The remaining categories and expenses for occupancy, advertising, and administrative costs are classified as fixed and discretionary because these costs do not fluctuate with sales.
The following table outlines our SG&A expenses by classification:
(In thousands) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
$ | % of Net Sales | $ | % of Net Sales | $ | % of Net Sales | $ | % of Net Sales | |||||||||||||||||||||||||||||||||||||||||||
Variable | $ | 45,955 | 18.2 | % | $ | 41,958 | 16.8 | % | $ | 90,339 | 18.4 | % | $ | 82,665 | 17.0 | % | ||||||||||||||||||||||||||||||||||
Fixed and discretionary | 72,174 | 28.5 | % | 70,439 | 28.2 | % | 142,944 | 29.0 | % | 139,494 | 28.7 | % | ||||||||||||||||||||||||||||||||||||||
$ | 118,129 | 46.7 | % | $ | 112,397 | 45.0 | % | $ | 233,283 | 47.4 | % | $ | 222,159 | 45.7 | % |
The variable expenses in dollars were higher in the second quarter of 2022 compared to 2021 due to the increase in compensation costs for selling and delivery personnel and rising fuel costs.
Fixed and discretionary expenses were impacted in the second quarter of 2022 primarily by increases in warehouse and other occupancy costs compared to the prior year quarter.
Our variable type expenses within SG&A for the full year of 2022 are anticipated to be 18.2% to 18.4%, an increase from our previous estimate based on increases in selling and delivery costs. Fixed and discretionary expenses are expected to be approximately $293.0 to $295.0 million for the full year of 2022, a decrease from our previous guidance based on changes in our marketing spend.
Liquidity and Capital Resources
Cash and Cash Equivalents at End of Year
At June 30, 2022, we had $143.5 million in cash and cash equivalents, and $6.7 million in restricted cash equivalents. We believe that our current cash position, cash flow generated from operations, funds available from our credit agreement, and access to the long-term debt capital markets should be sufficient for our
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
operating requirements and to enable us to fund our capital expenditures, dividend payments, and lease obligations through the next several years. In addition, we believe we have the ability to obtain alternative sources of financing. We expect capital expenditures of approximately $32.0 million for the full year of 2022.
Long-Term Debt
In May 2020, we entered into the Third Amendment to our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) with a bank. The Credit Agreement, which matures September 27, 2024, provides for a $60.0 million revolving credit facility. Amounts available to borrow fluctuate and availability at June 30, 2022 was $47.1 million and we had no amounts outstanding.
Leases
We use operating leases to fund a portion of our real estate, including our stores, distribution centers, and store support space.
Share Repurchases
In November 2021, our Board of Directors authorized an additional $25.0 million for our share repurchase program. During the three months ended June 30, 2022 we purchased 461,391 shares of common stock for approximately $12.5 million. During the six months ended June 30, 2022 we purchased 899,890 shares of common stock for approximately $25.0 million. Substantially all funds under the current authorization have been used as of June 30, 2022.
Cash Flows Summary
Operating Activities. Cash flow generated from operations provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy costs.
Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, inventory selection, the timing of cash receipts and payments, and vendor payment terms.
Net cash provided by operating activities was $26.3 million in the first six months of 2022 compared to $57.6 million during the same period in 2021. This difference was primarily driven by changes associated with customer deposits, accounts payable, and inventories.
Investing Activities. Cash used in investing activities increased by $2.6 million in the first six months of 2022 compared to the first six months of 2021, as the result of greater capital expenditures.
Financing Activities. Cash used in financing activities increased by $24.1 million in the first six months of 2022 compared to the first six months of 2021, primarily due to the $25.0 million of share repurchases in 2022.
Store Plans and Capital Expenditures
Location | Opening Quarter Actual or Planned | Category | ||||||
Austin, TX | Q-1-22 | Open | ||||||
Atlanta, GA | Q-2-22 | Closure | ||||||
Metro DC | Q-3-22 | Open | ||||||
Indianapoli, IN | Q-4-22 | Relocation | ||||||
Allen, TX | Q-4-22 | Closure | ||||||
Durham, NC | Q-1-23 | Open | ||||||
Net selling space in 2022 is expected to be flat compared to 2021. Total capital expenditures are estimated to be $32.0 million in 2022 depending on the timing of spending for new projects.
13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Estimates
Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. We reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented in our Form 10-K. We had no significant changes in those accounting estimates since our last annual report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Form 10-K. Our exposure to market risk has not changed materially since December 31, 2021.
Item 4. Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, our management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report and provide reasonable assurance that information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding disclosure.
There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 that occurred during the Company’s fiscal quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As a result of the COVID-19 pandemic, team members have shifted to a rotating work from home and office environment. We have reviewed our financial reporting process to provide reasonable assurance that we could report our financial results accurately and timely, and we will continue to evaluate the impact of any related changes to our internal control over financial reporting.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is described under the subheading “Business and Basis of Presentation” in Note A of the Notes to the Condensed Consolidated Financial Statements set forth in this Form 10-Q.
Item 1A. Risk Factors
"Item 1A. Risk Factors” in our Form 10-K includes a discussion of our known material risk factors. There have been no material changes from the risk factors described in our Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The board of directors has authorized management, at its discretion, to purchase and retire limited amounts of our Common Stock and Class A Common Stock. A program was initially approved by the board on November 3, 1986. On November 5, 2021, the board authorized an additional amount under such stock repurchase program. The stock repurchase program has no expiration date but may be terminated by our board at any time.
The following table presents information with respect to our repurchase of Havertys’ common stock during the second quarter of 2022:
(a) Total Number of Shares Purchased | (b) Average Price Paid Per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs | ||||||||||||||||||||
April 1 - April 30 | — | — | — | $ | 12,504,000 | ||||||||||||||||||
May 1 - May 31 | 159,700 | $ | 27.47 | 159,700 | $ | 8,482,700 | |||||||||||||||||
June 1 - June 30 | 301,691 | $ | 26.89 | 301,691 | $ | 4,700 | |||||||||||||||||
Total | 461,391 | 461,391 |
15
Item 6. Exhibits
(a)Exhibits
The exhibits listed below are filed with or incorporated by reference into this report (those filed with this report are denoted by an asterisk). Unless otherwise indicated, the exhibit number of documents incorporated by reference corresponds to the exhibit number in the referenced documents.
Exhibit Number | Description of Exhibit (Commission File No. 1-14445) | |||||||
Articles of Amendment and Restatement of the Charter of Haverty Furniture Companies, Inc. effective May 26, 2006 (Exhibit 3.1 to our Second Quarter 2006 Form 10-Q). | ||||||||
By-laws of Haverty Furniture Companies, Inc. as amended and restated effective May 8, 2018 (Exhibit 3.1 to our Current Report on Form 8-K dated May 10, 2018). | ||||||||
*31.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as amended. | |||||||
*31.2 | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as amended. | |||||||
**32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350. | |||||||
101 | The following financial statements from Haverty Furniture Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in inline XBRL, include: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements. | |||||||
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
HAVERTY FURNITURE COMPANIES, INC. (Registrant) | ||||||||
Date: August 5, 2022 | By: | /s/ Clarence H. Smith | ||||||
Clarence H. Smith Chairman of the Board and Chief Executive Officer (principal executive officer) | ||||||||
By: | /s/ Richard B. Hare | |||||||
Richard B. Hare Executive Vice President and Chief Financial Officer (principal financial and accounting officer) |
Exhibit 31.1
I, Clarence H. Smith, certify that:
1.I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2022 of Haverty Furniture Companies, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2022 | /s/ Clarence H. Smith | ||||
Clarence H. Smith Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
I, Richard B. Hare, certify that:
1.I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2022 of Haverty Furniture Companies, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2022 | /s/ Richard B. Hare | ||||
Richard B. Hare Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Haverty Furniture Companies, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022 (the “Report”), I, Clarence H. Smith, Chairman of the Board and Chief Executive Officer of the Company, and I, Richard B. Hare, Executive Vice President and Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 5, 2022 | /s/ Clarence H. Smith | ||||
Clarence H. Smith Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | |||||
/s/ Richard B. Hare | |||||
Richard B. Hare Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
A signed original of this written statement required by Section 906 has been provided to Haverty Furniture Companies, Inc. and will be retained by Haverty Furniture Companies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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