Haverty Furniture Companies, Inc. (HVT) is a leading home furnishings retailer, operating 127 showrooms across 17 states, primarily in the Southern and Midwestern regions of the United States. Founded in 1885, the company has a rich history of providing quality merchandise in the middle to upper-middle price ranges to its customers.

Navigating a Turbulent Retail Environment

Haverty Furniture has faced significant headwinds in recent years, as the overall home furnishings industry has grappled with a challenging economic landscape. The company’s net sales for the nine months ended September 30, 2024, declined 17.3% to $538.5 million, with comparable store sales decreasing 17.7% compared to the same period in 2023. This decline was largely driven by a cautious consumer environment, high interest rates, and an unaffordable housing market, which have weighed heavily on discretionary spending.

Despite these challenges, Haverty has remained focused on executing its strategic initiatives to position the company for long-term success. During the third quarter of 2024, the company opened a new store in Pembroke Pines, Florida, and has plans to open three additional locations by the end of the year, ending 2024 with 129 stores. This expansion strategy reflects Haverty’s commitment to growing its footprint and capturing market share in key regions.

Company History and Evolution

Haverty’s journey began in 1885 when J.J. Haverty opened the first store in Atlanta, Georgia. Over the following decades, the company expanded across the Southern United States, establishing itself as a trusted name in home furnishings. In the mid-20th century, Haverty’s faced challenges from economic downturns and increasing competition from big-box furniture stores. However, the company successfully adapted by strengthening its customer focus and providing a wide selection of quality merchandise and personalized service.

A significant milestone in Haverty’s history was its listing on the New York Stock Exchange in 1929, which allowed the company to access capital markets and fund its growth initiatives. This move has supported Haverty’s expansion and ability to navigate through various industry disruptions, including the rise of online furniture sales. The company has consistently demonstrated its commitment to shareholder value by paying regular cash dividends for over 80 years.

Financials

Strengthening the Balance Sheet and Cash Position

Haverty’s balance sheet and cash position remain strong, providing the company with financial flexibility to navigate the current environment. As of September 30, 2024, the company had $121.2 million in cash and cash equivalents, with no funded debt on its balance sheet. This solid liquidity position, coupled with the company’s ongoing cash flow generation, allows Haverty to continue investing in its growth initiatives and return capital to shareholders through regular dividend payments.

For the fiscal year 2023, Haverty reported revenue of $862.13 million and net income of $56.32 million. Operating cash flow for 2023 was $97.20 million, with free cash flow of $44.09 million. However, the most recent quarter (Q3 2024) showed a significant decline in financial performance. Revenue for Q3 2024 was $175.913 million, down 20.2% year-over-year, while net income decreased by 71.4% to $4.928 million. Operating cash flow for the quarter was $24.447 million, with free cash flow of $16.114 million.

Liquidity

In the first nine months of 2024, Haverty generated $42.0 million in operating cash flow and $24.3 million in capital expenditures, primarily for new store openings, remodels, and enhancements to its distribution network and information technology infrastructure. The company’s free cash flow of $17.7 million during this period demonstrates its ability to generate sustainable cash flows, even in the face of ongoing challenges.

Haverty’s liquidity position remains strong, with a debt-to-equity ratio of 0.118 as of Q3 2024. The company has access to an $80 million revolving credit facility, with a $121.7 million borrowing base and $80 million net availability. The current ratio stands at 1.815, and the quick ratio is 1.171, indicating a healthy short-term liquidity position.

Product Portfolio and Performance

Haverty operates within a single reportable segment, offering a broad line of residential furniture in the middle to upper-middle price ranges. The company’s product categories and their financial performance for Q3 2024 are as follows:

Case Goods: This segment, which includes bedroom furniture, dining room furniture, and occasional furniture, generated net sales of $58.20 million, accounting for 33.10% of total net sales.

Upholstery: The upholstery segment, including sofas, chairs, and other upholstered furniture, contributed $77.75 million in net sales, representing 44.20% of the total.

Mattresses: Mattress net sales were $17.09 million, accounting for 9.70% of total net sales.

Accessories and Other: This segment, which includes delivery charges, product protection, and other miscellaneous items, generated $22.88 million in net sales, representing 13.00% of the total.

All product categories have experienced declines in sales compared to the prior year, reflecting the broader slowdown in the home furnishings market due to macroeconomic headwinds and reduced consumer spending.

Diversifying the Product Portfolio and Enhancing the Customer Experience

Haverty has been proactive in diversifying its product portfolio and enhancing the customer experience to remain competitive in the evolving retail landscape. The company’s design business, which includes in-home design consultations, continues to be a strong contributor, growing over 19% in the third quarter of 2024 and representing 34.5% of total written sales. This strategic focus on design services not only drives higher average ticket sales but also deepens customer engagement and loyalty.

Furthermore, Haverty has made investments in its digital capabilities, including website enhancements and the integration of new features like augmented reality, to improve the overall user experience and cater to the changing shopping preferences of its customers. These initiatives, combined with the company’s emphasis on curating a diverse product assortment, position Haverty to better meet the evolving needs of its clientele.

Financial Outlook and Guidance

For the full year 2024, Haverty expects gross margins to be between 60.0% and 60.5%. The company’s fixed and discretionary SG&A expenses are projected to be in the $279 million to $281 million range, which is a reduction from previous estimates. Variable costs within SG&A are expected to be in the range of 19.6% to 19.9% of net sales.

Planned capital expenditures for 2024 are set at $33 million, with $28 million allocated to new or replacement stores, remodels, and expansions. The anticipated effective tax rate for 2024 is expected to be 28%.

Navigating Market Challenges and Positioning for the Future

Haverty Furniture’s performance in the third quarter of 2024 reflects the ongoing challenges facing the home furnishings industry. However, the company’s strong financial position, strategic investments, and focus on enhancing the customer experience provide a solid foundation for weathering the current storm and positioning the business for long-term success.

Management has attributed the recent decline in revenue and profitability to a cautious consumer environment, the impact of hurricanes, and the build-up to the presidential election. However, they have noted an improvement in store traffic over the last month and expect better sales once the elections are behind them.

As Haverty navigates this turbulent retail environment, the company’s ability to adapt its strategies, diversify its offerings, and maintain a healthy balance sheet will be crucial in driving sustainable growth and value creation for its shareholders. The company’s focus on expanding its store base, particularly in the Houston market, which is the largest market in its distribution footprint where it currently does not have a presence, demonstrates its commitment to long-term growth despite near-term challenges.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.