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Form 10-Q HAVERTY FURNITURE COMPAN For: Mar 31

May 6, 2022 12:19 PM EDT

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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 March 31, 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

graphic

HAVERTY FURNITURE COMPANIES, INC.
(Exact name of registrant as specified in its charter)

Maryland
 
58-0281900
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
780 Johnson Ferry Road, Suite 800
Atlanta, Georgia
 
 
30342
(Address of principal executive offices)
 
(Zip Code)
(404) 443-2900
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
HVT
NYSE
Class A Common Stock
HVTA
NYSE

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   No

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   No

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.

Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
Smaller reporting company
 
Emerging growth company
     

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

The numbers of shares outstanding of the registrant’s two classes of $1 par value common stock as of October 28, 2021, were:  Common Stock – 15,419,859; Class A Common Stock – 1,283,260.



HAVERTY FURNITURE COMPANIES, INC.
INDEX

 
Page No.
     
PART I.
 
     
   
     
 
March 31, 2022 (unaudited) and December 31, 2021
1
     
 
Three Months Ended March 31, 2022 and 2021 (unaudited)
2
     
 
Three Months Ended March 31, 2022 and 2020 (unaudited)
3
     
 
4
     
 
11
     
 
14
     
 
14
     
PART II.
 
     
 
15
     
 
15
     
  15
     
  Item 6. Exhibits
16


PART I.  FINANCIAL INFORMATION
 
Item 1.  Financial Statements

HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)
 
March 31,
2022
   
December 31,
2021
 
   
(Unaudited)
       
Assets
           
Current assets
           
Cash and cash equivalents
 
$
162,340
   
$
166,146
 
Restricted cash and cash equivalents
   
6,715
     
6,716
 
Inventories
   
119,857
     
112,031
 
Prepaid expenses
   
10,633
     
12,418
 
Other current assets
   
13,585
     
11,746
 
Total current assets
   
313,130
     
309,057
 
Property and equipment, net
   
128,721
     
126,099
 
Right-of-use lease assets
   
221,083
     
222,356
 
Deferred income taxes
   
18,252
     
16,375
 
Other assets
   
12,699
     
12,403
 
Total assets
 
$
693,885
   
$
686,290
 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Accounts payable
 
$
32,415
   
$
31,235
 
Customer deposits
   
98,528
     
98,897
 
Accrued liabilities
   
48,876
     
46,664
 
Current lease liabilities
   
33,923
     
33,581
 
Total current liabilities
   
213,742
     
210,377
 
Noncurrent lease liabilities
   
197,265
     
196,771
 
Other liabilities
   
22,478
     
23,172
 
Total liabilities
   
433,485
     
430,320
 
                 
Stockholders’ equity
               
Capital Stock, par value $1 per share
               
Preferred Stock, Authorized – 1,000 shares; Issued:  None
   
     
 
Common Stock, Authorized – 50,000 shares; Issued: 202229,924; 202129,907
   
29,924
     
29,907
 
Convertible Class A Common Stock, Authorized – 15,000 shares; Issued: 20221,809; 20211,809
   
1,809
     
1,809
 
Additional paid-in capital
   
104,345
     
102,572
 
Retained earnings
   
358,084
     
342,983
 
Accumulated other comprehensive loss
   
(2,253
)
   
(2,293
)
Less treasury stock at cost – Common Stock (202214,507 and 202114,069 shares) and Convertible Class A Common Stock (2022 and 2021522 shares)
   
(231,509
)
   
(219,008
)
Total stockholders’ equity
   
260,400
     
255,970
 
Total liabilities and stockholders’ equity
 
$
693,885
   
$
686,290
 

See notes to these condensed consolidated financial statements.

HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
Three Months Ended
March 31,
 
(In thousands, except per share data - unaudited)
 
2022
   
2021
 
             
Net sales
 
$
238,946
   
$
236,491
 
Cost of goods sold
   
97,985
     
101,457
 
Gross profit
   
140,961
     
135,034
 
                 
Expenses:
               
Selling, general and administrative
   
115,154
     
109,762
 
Other expense (income), net
   
161
   
(36
)
Total expenses
   
115,315
     
109,726
 
                 
Income before interest and income taxes
   
25,646
     
25,308
 
Interest income, net
   
74
   
56
 
                 
Income before income taxes
   
25,720
     
25,364
 
Income tax expense
   
6,359
     
5,958
 
Net income
 
$
19,361
   
$
19,406
 
                 
Other comprehensive income
               
Adjustments related to retirement plans; net of tax expense of $14 in 2022 and $16 in 2021
 
$
40
   
$
49
 
                 
Comprehensive income
 
$
19,401
   
$
19,455
 
                 
Basic earnings per share:
               
Common Stock
 
$
1.14
   
$
1.07
 
Class A Common Stock
 
$
1.08
   
$
1.00
 
                 
Diluted earnings per share:
               
Common Stock
 
$
1.11
   
$
1.04
 
Class A Common Stock
 
$
1.05
   
$
0.98
 
                 
Cash dividends per share:
               
Common Stock
 
$
0.25
   
$
0.22
 
Class A Common Stock
 
$
0.23
   
$
0.20
 

See notes to these condensed consolidated financial statements.
HAVERTY FURNITURE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands - unaudited)
 
Three Months Ended
March 31,
 
   
2022
   
2021
 
Cash Flows from Operating Activities:
           
Net income
 
$
19,361
   
$
19,406
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
4,272
     
3,992
 
Share-based compensation expense
   
2,307
     
2,679
 
Other
   
(1,877
)
   
(915
)
Changes in operating assets and liabilities:
               
Inventories
   
(7,826
)
   
(13,661
)
Customer deposits
   
(369
)
   
18,545
 
Other assets and liabilities
   
1,120
     
(2,777
)
Accounts payable and accrued liabilities
   
3,590
     
(7,668
)
Net cash provided by operating activities
   
20,578
     
19,601
 
                 
Cash Flows from Investing Activities:
               
Capital expenditures
   
(7,107
)
   
(4,745
)
Net cash used in investing activities
   
(7,107
)
   
(4,745
)
                 
Cash Flows from Financing Activities:
               
Proceeds from borrowings under revolving credit facility
   
     
 
Payments of borrowings under revolving credit facility
   
     
 
Net change in borrowings under revolving credit facility
   
     
 
                 
Dividends paid
   
(4,260
)
   
(3,987
)
Common stock repurchased
   
(12,501
)
   
 
Other
   
(517
)
   
(801
)
Net cash used in financing activities
   
(17,278
)
   
(4,788
)
                 
(Decrease) increase in cash, cash equivalents and restricted cash equivalents during the period
   
(3,807
)
   
10,068
 
Cash, cash equivalents and restricted cash equivalents at beginning of period
   
172,862
     
206,771
 
Cash, cash equivalents and restricted cash equivalents at end of period
 
$
169,055
   
$
216,839
 

See notes to these condensed consolidated financial statements.

HAVERTY FURNITURE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE A - Business and Basis of Presentation

Haverty Furniture Companies, Inc. (“Havertys,” “the Company,” “we,” “our,” or “us”) is a retailer of a broad line of residential furniture in the middle to upper-middle price ranges. We operate all of our stores using the Havertys brand and do not franchise our concept. We operate within a single reportable segment. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes required by United States of America generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. The Company believes that the disclosures made are adequate to make the information not misleading. The financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. We believe all adjustments, normal and recurring in nature, considered necessary for a fair presentation have been included. We suggest that these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our latest Annual Report on Form 10-K.

The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results could differ from those estimates.

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

The novel coronavirus disease (“COVID-19”) pandemic and its contributory effects on the economy continue to impact our business and results of operations. During the three months ended March 31, 2022, we experienced, among other things, rising product prices, volatile transportation costs, and supply chain disruptions. Furthermore, discretionary consumer spending has been adversely impacted by rising inflation, including fuel costs, and interest rates. All of these factors, impacted our business in the first quarter of 2022. The extent and duration of any future impact resulting from the COVID-19 pandemic is not fully known, and we may experience additional significant COVID-19 related disruptions in the future as a result.

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 March 31, 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
 
$
29,907
   
$
1,809
   
$
102,572
   
$
342,983
   
$
(2,293
)
 
$
(219,008
)
 
$
255,970
 
Net income
                           
19,361
                     
19,361
 
Dividends declared:
                                                       
Common Stock, $0.25 per share
                           
(3,964
)
                   
(3,964
)
Class A Common Stock, $0.23 per share
                           
(296
)
                   
(296
)
Acquisition of treasury stock
                                            (12,501 )     (12,501 )
Restricted stock issuances
    17               (534 )                             (517 )
Amortization of restricted stock
                   
2,307
                             
2,307
 
Other comprehensive income
                                   
40
             
40
 
Balances at March 31, 2022
 
$
29,924
   
$
1,809
   
$
104,345
   
$
358,084
   
$
(2,253
)
 
$
(231,509
)
 
$
260,400
 

For the three months ended March 31, 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
 
$
29,600
   
$
1,996
   
$
96,850
   
$
304,626
   
$
(2,560
)
 
$
(177,545
)
 
$
252,967
 
Net income
                           
19,406
                     
19,406
 
Dividends declared:
                                                       
Common Stock, $0.22 per share
                           
(3,717
)
                   
(3,717
)
Class A Common Stock, $0.20 per share
                           
(270
)
                   
(270
)
Class A conversion
    154       (154 )                                      
Restricted stock issuances
    35      
    (835 )                             (800 )
Amortization of restricted stock
                   
2,679
                             
2,679
 
Other comprehensive income
                                   
49
             
49
 
Balances at March 31, 2021
 
$
29,789
   
$
1,842
   
$
98,694
   
$
320,045
   
$
(2,511
)
 
$
(177,545
)
 
$
270,314
 

NOTE D – Interim LIFO Calculations

We calculate the LIFO index annually. Accordingly, interim LIFO calculations must necessarily be based on management’s estimates of inventory levels and inflation rates. Since these estimates may be affected by factors beyond management’s control, interim results are subject to change based upon the final year-end LIFO inventory valuations.

NOTE E – Fair Value of Financial Instruments

The fair values of our cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and customer deposits approximate their carrying values due to their short-term nature. The assets related to our self-directed, non-qualified deferred compensation plans for certain executives and employees are valued using quoted market prices multiplied by the number of shares held, a Level 1 valuation technique. 

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 March 31, 2022 and December 31, 2021, there were no outstanding borrowings under the Credit Agreement. The borrowing base and net availability was $34.7 million at March 31, 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, which totaled $98.5 million and $98.9 million at March 31, 2022 and December 31, 2021, respectively. Of the customer deposit liabilities at December 31, 2021, approximately $17.0 million has not been recognized through net sales in the three months ended March 31, 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):

 
Three Months Ended March 31,
 
   
2022
   
2021
 
(In thousands)
 
Net Sales
   
% of
Net Sales
   
Net Sales
   
% of
Net Sales
 
Merchandise:
                       
Case Goods
                       
Bedroom Furniture
 
$
31,348
     
13.1
%
 
$
39,178
     
16.6
%
Dining Room Furniture
   
26,022
     
10.9
     
27,599
     
11.7
 
Occasional
   
16,818
     
7.0
     
22,064
     
9.3
 
     
74,188
     
31.0
     
88,841
     
37.6
 
Upholstery
   
111,186
     
46.5
     
95,626
     
40.4
 
Mattresses
   
19,733
     
8.3
     
20,481
     
8.7
 
Accessories and Other (1)
   
33,839
     
14.2
     
31,543
     
13.3
 
   
$
238,946
     
100.0
%
 
$
236,491
     
100.0
%

(1)
 Includes delivery charges and product protection.

NOTE H – Leases

We have operating leases for retail stores, offices, warehouses, and certain equipment. Our leases have remaining lease terms of 1 year to 14 years, some of which include options to extend the leases for up to 20 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 March 31, 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 March 31,
 
   
2022
   
2021
 
Operating lease cost
 
$
11,739
   
$
11,806
 
Variable lease cost
   
1,695
     
1,508
 
Total lease expense
 
$
13,434
   
$
13,314
 

Supplemental cash flow information related to leases is as follows (in thousands):

 
Three Months Ended March 31,
 
   
2022
   
2021
 
Cash paid for amounts included in the measurement of lease liabilities:
           
Operating cash flows from operating leases
 
$
9,629
   
$
13,093
 
Right-of-use assets obtained in exchange for lease obligations:
               
Operating leases
 
$
8,382
   
$
4,125
 

NOTE I – Income Taxes

Our effective tax rate for the three months ended March 31, 2022 and 2021 was 24.7% and 23.5%, respectively. The primary difference in the effective rate and the statutory rate was due to state income taxes and the impact from vested stock awards.

NOTE JStock 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 three months ended March 31, 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
   
219,082
     $
27.10
     
328,267
     $
23.96
 
Granted/Issued
   
153,681
     
28.86
     
103,104
     
28.86
 
Awards vested or rights exercised(1)
   
   
     
(34,940
)
   
20.28
 
Forfeited
   
(2,050
)
   
33.01
     
     
 
Additional units earned due to performance
   
     
     
59,249
     
31.39
 
Outstanding at March 31, 2022
   
370,713
     $
27.80
     
455,680
     $
26.54
 
Restricted units expected to vest
   
     
     
455,680
     $
26.54
 

(1)
Includes shares repurchased from employees for employee’s tax liability.

The aggregate intrinsic value of outstanding service-based restricted stock awards was approximately $10.2 million at March 31, 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 three months ended March 31, 2022 was approximately $1.0 million. The aggregate intrinsic value of outstanding performance awards at March 31, 2022 expected to vest was approximately $12.5 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 $2.3 million and $2.7 million for the three months ended March 31, 2022 and 2021, respectively. Forfeitures are recognized as they occur. As of March 31, 2022, the total compensation cost related to unvested equity awards was approximately $11.8 million and is expected to be recognized over a weighted-average period of 2.0 years.

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
March 31,
 
   
2022
   
2021
 
Numerator:
           
Common:
           
Distributed earnings
 
$
3,964
   
$
3,717
 
Undistributed earnings
   
14,008
     
14,262
 
Basic
   
17,972
     
17,979
 
Class A Common earnings
   
1,389
     
1,427
 
Diluted
 
$
19,361
   
$
19,406
 
                 
Class A Common:
               
Distributed earnings
 
$
296
   
$
270
 
Undistributed earnings
   
1,093
     
1,157
 
   
$
1,389
   
$
1,427
 
Denominator:
               
Common:
               
Weighted average shares outstanding - basic
   
15,706
     
16,793
 
Assumed conversion of Class A Common Stock
   
1,287
     
1,431
 
Dilutive options, awards and common stock equivalents
   
520
     
507
 
Total weighted-average diluted Common Stock
   
17,513
     
18,731
 
                 
Class A Common:
               
Weighted average shares outstanding
   
1,287
     
1,431
 
                 
Basic earnings per share:
               
Common Stock
 
$
1.14
   
$
1.07
 
Class A Common Stock
 
$
1.08
   
$
1.00
 
                 
Diluted earnings per share:
               
Common Stock
 
$
1.11
   
$
1.04
 
Class A Common Stock
 
$
1.05
   
$
0.98
 

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
 

Total sales for the first quarter of 2022 increased $2.5 million, or 1.0%, compared to 2021. Our comp-store sales increased 0.2%, or $0.4 million, in 2022 compared to 2021. Written business for the first three months of 2022 compared to the same period of 2021 was down 8.8% and written comp-store sales were down 9.6%.
 
Our free in-home design service continues to grow as COVID-19 concerns abate, and designer sales were 23% of our total written business for the first three months of 2022 compared to 21% 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 31.0% in 2022 compared to 37.6% in 2021.

11


Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our business was good during the early part of the quarter in both delivered and written business compared to the very strong results in 2021. We experienced a return to increased consumer interest around traditional shopping events and had record business for the Presidents’ Day holiday. However, we experienced significant declines in in-store traffic and written business in March. We believe consumers are being impacted by rising inflation, including fuel costs, stock market volatility, higher interest rates and concerns regarding geopolitical instability, including the war in Ukraine.

Gross Profit

Gross profit for the first quarter of 2022 was 59.0%, up 190 basis points compared to the prior year period of 57.1%. The increase is primarily due to merchandise pricing and mix.

We expect annual gross profit margins for 2022 will be 57.7% to 58.0%. This is an increase over our previous guidance and lower than the first quarter’s results. 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 first three months of 2022 were 48.2% versus 46.4% for 2021. SG&A dollars increased $5.4 million, or 4.9%, for the first quarter of 2022 compared to the same prior year period. The increase is driven by higher costs associated with selling expense of $1.8 million, distribution and delivery costs of $1.5 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:

   
Three Months Ended March 31,
 
 
 
2022
   
2021
 
(In thousands)
       
% of
Net Sales
         
% of
Net Sales
 
Variable
 
$
44,384
     
18.6
%
 
$
40,707
     
17.2
%
Fixed and discretionary
   
70,770
     
29.6
%
   
69,055
     
29.2
%
   
$
115,154
     
48.2
%
 
$
109,762
     
46.4
%

The variable expenses in dollars were higher in the first 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 first quarter of 2022 primarily by increases in warehouse and other occupancy costs compared to the prior year quarter.

12


Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations


Our variable type expenses within SG&A for the full year of 2022 are anticipated to be 18.0% to 18.2%, an increase from our previous estimate based on increases in selling and delivery costs. Fixed and discretionary expenses are expected to be approximately $295.0 to $298.0 million for the full year of 2022.

Liquidity and Capital Resources
 
Cash and Cash Equivalents at End of Year 
At March 31, 2022, we had $162.3 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 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 $37.0 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 March 31, 2022 was $34.7 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 March 31, 2022 we purchased 438,499 shares of common stock for approximately $12.5 million. There is approximately $12.5 million at March 31, 2022 that may yet be used for purchases under the current authorization. 

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 $20.6 million in the first three months of 2022 compared to $19.6 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 $2.4 million in the first three months of 2022 compared to the first three months of 2021, as the result of greater capital expenditures.

Financing Activities. Cash used in financing activities increased by $12.5 million in the first three months of 2022 compared to the first three months of 2021, primarily due to the $12.5 million of share repurchases in 2022.

13


Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Store Plans and Capital Expenditures

Location
Opening Quarter
Actual or Planned
Category
Austin, TX
Q-2-22
Open
Indianapolis, IN
Q-3-22
Relocation
Metro DC
Q-3-22
Open
Atlanta, GA
Q-3-22
Closure
TBA
Q-4-22
Open

Net selling space in 2022 is expected to be slightly up compared to 2021. Total capital expenditures are estimated to be $37.0 million in 2022 depending on the timing of spending for new projects.

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 March 31, 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 balance of the current authorization for purchases was approximately $12.5 million at March 31, 2022.

The following table presents information with respect to our repurchase of Havertys’ common stock during the first 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
 
January 1 – January 31
   
     
     
   
$
25,006,000
 
February 1 – February 28
   
180,000
   
$
27.47
     
180,000
   
$
20,061,000
 
March 1 – March 31
   
258,499
   
$
29.23
     
258,499
   
$
12,504,000
 
Total
   
438,499
             
438,499
         



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).
 
Form of Restricted Stock Unit Award Agreement (Exhibit 10.1 to our Current Report on Form 8-K dated February 1, 2022).
 
Form of Performance Contingent Restricted Stock Unit (EBITDA) Agreement (Exhibit 10.2 to our Current Report on Form 8-K dated February 1, 2022.
 
Form of Performance Contingent Restricted Stock Unit (Sales) Agreement (Exhibit 10.2 to our Current Report on Form 8-K dated February 1, 2022).
 
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as amended.
 
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as amended.
 
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 March 31, 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: May 6, 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)




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