Haverty Furniture(HVT) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for Haverty Furniture Companies, Inc. Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Haverty Furniture Companies, Inc., including the balance sheets, statements of comprehensive income, and cash flows, along with detailed notes explaining the company's business, accounting policies, and specific financial items Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time | Item | March 31, 2021 (Unaudited, In thousands) | December 31, 2020 (In thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $210,124 | $200,058 | | Inventories | $103,569 | $89,908 | | Total current assets | $342,700 | $316,244 | | Total assets | $708,272 | $680,372 | | Liabilities | | | | Customer deposits | $104,728 | $86,183 | | Total current liabilities | $214,928 | $204,041 | | Total liabilities | $437,958 | $427,405 | | Stockholders' Equity | | | | Total stockholders' equity | $270,314 | $252,967 | - Total assets increased by $27.9 million from December 31, 2020, to March 31, 2021, driven primarily by increases in cash and cash equivalents and inventories[8] - Customer deposits, a current liability, significantly increased by $18.5 million, reflecting higher advance payments from customers[8] Condensed Consolidated Statements of Comprehensive Income This statement outlines the company's financial performance over a period, showing net sales, gross profit, and net income | Item | Three Months Ended March 31, 2021 (In thousands, except per share data) | Three Months Ended March 31, 2020 (In thousands, except per share data) | | :--- | :--- | :--- | | Net sales | $236,491 | $179,432 | | Gross profit | $135,034 | $99,553 | | Income before interest and income taxes | $25,308 | $2,086 | | Net income | $19,406 | $1,819 | | Basic earnings per share (Common Stock) | $1.07 | $0.10 | | Diluted earnings per share (Common Stock) | $1.04 | $0.09 | | Cash dividends per share (Common Stock) | $0.22 | $0.20 | - Net sales increased by 31.8% to $236.5 million in Q1 2021 compared to $179.4 million in Q1 2020[9] - Net income saw a substantial increase from $1.8 million in Q1 2020 to $19.4 million in Q1 2021[9] Condensed Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities over a period | Item | Three Months Ended March 31, 2021 (In thousands) | Three Months Ended March 31, 2020 (In thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $19,601 | $(21,579) | | Net cash used in investing activities | $(4,745) | $(2,476) | | Net cash (used in) provided by financing activities | $(4,788) | $32,922 | | Increase in cash, cash equivalents and restricted cash equivalents | $10,068 | $8,867 | | Cash, cash equivalents and restricted cash equivalents at end of period | $216,839 | $91,269 | - Operating activities generated $19.6 million in cash in Q1 2021, a significant improvement from a $21.6 million cash usage in Q1 2020[11] - Cash used in investing activities increased to $4.7 million in Q1 2021, primarily due to higher capital expenditures[11] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements NOTE A – Business and Basis of Presentation Haverty Furniture Companies, Inc. operates as a retailer of residential furniture within a single reportable segment. The unaudited interim financial statements are prepared in accordance with Form 10-Q, relying on management estimates, and the company believes any potential liabilities from ordinary course legal proceedings will not materially impact its financial condition - The Company operates as a retailer of residential furniture in the middle to upper-middle price ranges, exclusively under the Havertys brand, and reports within a single segment[13] - Interim financial statements are unaudited and prepared in accordance with Form 10-Q, requiring management estimates and assumptions[13][14] - The Company believes that liabilities from ordinary course legal proceedings will not have a material adverse effect on its financial condition, results of operations, or cash flows[15] Note B – COVID-19 The COVID-19 pandemic led to store closures and delivery halts in March 2020, with phased reopenings by June 2020. Post-reopening, business has been strong due to increased consumer spending on homes, but the company faces challenges with product shortages, supply chain delays, and staffing issues, with the pandemic's long-term influence remaining uncertain - Havertys closed all stores and halted deliveries in mid-March 2020, reopening 103 locations by May 1, 2020, and the remaining 17 by June 20, 2020[16] - Since reopening, business has been strong, with consumers spending more on homes, but manufacturers face demand challenges, product shortages, and distribution/delivery capacity issues due to staffing[17] - The duration of the pandemic's influence on consumers, the 'nesting' economy, and the business cannot be reasonably estimated, and future estimates and assumptions could change significantly[18] NOTE C – Stockholders' Equity Stockholders' equity increased from $252.967 million at December 31, 2020, to $270.314 million at March 31, 2021, primarily driven by net income of $19.406 million, partially offset by dividends declared | Item | Balances at Dec 31, 2020 (In thousands) | Net income (In thousands) | Dividends declared (In thousands) | Balances at Mar 31, 2021 (In thousands) | | :--- | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $252,967 | $19,406 | $(3,987) | $270,314 | | Common Stock | $29,600 | - | - | $29,789 | | Class A Common Stock | $1,996 | - | - | $1,842 | | Retained Earnings | $304,626 | $19,406 | $(3,987) | $320,045 | - Net income contributed $19.406 million to retained earnings for the three months ended March 31, 2021[19] - Dividends declared for Common Stock were $0.22 per share ($3.717 million total) and for Class A Common Stock were $0.20 per share ($0.270 million total) in Q1 2021[19] NOTE D – Interim LIFO Calculations The company's interim LIFO calculations are based on management's estimates of inventory levels and inflation rates, which are subject to change upon final year-end inventory valuations - Interim LIFO calculations are based on management's estimates of inventory levels and inflation rates[21] - These interim results are subject to change based on final year-end LIFO inventory valuations[21] NOTE E – Fair Value of Financial Instruments The fair values of short-term financial instruments like cash, receivables, and payables approximate their carrying values. Assets and liabilities related to self-directed, non-qualified deferred compensation plans are valued using Level 1 quoted market prices - Fair values of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, and customer deposits approximate their carrying values due to their short-term nature[22] - Assets for deferred compensation plans were approximately $8.8 million at March 31, 2021, and $7.9 million at December 31, 2020, valued using Level 1 quoted market prices[22] - Related liabilities for deferred compensation plans were approximately $8.9 million at March 31, 2021, and $8.1 million at December 31, 2020[22] NOTE F – Credit Agreement The company has a $60.0 million revolving credit facility, maturing September 27, 2024, secured by various assets. Borrowings of $43.8 million in March 2020 were repaid by June 2020, and as of March 31, 2021, there were no outstanding amounts with $15.5 million net availability - The Credit Agreement is a $60.0 million revolving credit facility, secured by inventory, accounts receivable, cash, and other personal property, maturing on September 27, 2024[24] - The company borrowed $43.8 million in March 2020 and repaid it in June 2020[25] - As of March 31, 2021, the borrowing base was $15.5 million, with no outstanding letters of credit, resulting in $15.5 million net availability[25] Note G – Revenues Revenue from merchandise sales and service fees is recognized upon delivery, net of returns and sales tax. Customer deposits, recorded upon receipt, totaled $104.7 million at March 31, 2021. The company disaggregates revenue by major product categories, showing Upholstery as the largest segment - Revenue is recognized from merchandise sales and related service fees, net of expected returns and sales tax, at the time of delivery to the customer[27] - Customer deposits increased to $104.7 million at March 31, 2021, from $86.2 million at December 31, 2020[27] | Product Category | Q1 2021 Net Sales (in thousands) | % of Net Sales (Q1 2021) | Q1 2020 Net Sales (in thousands) | % of Net Sales (Q1 2020) | | :--- | :--- | :--- | :--- | :--- | | Case Goods | $88,841 | 37.6% | $62,106 | 34.6% | | Upholstery | $95,626 | 40.4% | $73,629 | 41.0% | | Mattresses | $20,481 | 8.7% | $18,821 | 10.5% | | Accessories and Other | $31,543 | 13.3% | $24,876 | 13.9% | | Total | $236,491 | 100.0% | $179,432 | 100.0% | NOTE H – Leases The company utilizes operating leases for retail stores, offices, warehouses, and equipment, with terms ranging from 1 to 14 years and extension options. Variable lease payments, based on sales or usage, are expensed as incurred. Total lease expense for Q1 2021 was $13.3 million, with $13.1 million in operating cash flows from operating leases - The company has operating leases for retail stores, offices, warehouses, and equipment, with remaining terms of 1 to 14 years and options to extend up to 20 years[29] - Variable lease payments, based on sales volume or asset usage, are not included in the initial measurement of right-of-use assets or lease liabilities and are recorded as lease expense when incurred[30] | Item | Three Months Ended March 31, 2021 (In thousands) | Three Months Ended March 31, 2020 (In thousands) | | :--- | :--- | :--- | | Operating lease cost | $11,806 | $10,431 | | Variable lease cost | $1,508 | $1,615 | | Total lease expense | $13,314 | $12,046 | | Operating cash flows from operating leases | $13,093 | $9,996 | NOTE I – Income Taxes The effective tax rate for the three months ended March 31, 2021, was 23.5%, an increase from 20.9% in the prior year, primarily due to state income taxes and additional tax expense from vested stock awards - The effective tax rate was 23.5% for Q1 2021, up from 20.9% for Q1 2020[34] - The primary difference from the statutory rate was due to state income taxes and additional tax expense from vested stock awards[34] NOTE J – Stock Based Compensation Plan The company's stock-based compensation plan includes service-based and performance-based restricted stock awards. For Q1 2021, 114,368 service-based and 91,485 performance-based awards were granted/issued. Total compensation expense recognized was $2.7 million, with $12.2 million in unvested costs expected to be recognized over 2.1 years | Award Type | Outstanding at Dec 31, 2020 (Number of Awards) | Granted/Issued (Q1 2021, Number of Awards) | Awards vested or rights exercised (Q1 2021, Number of Awards) | Outstanding at Mar 31, 2021 (Number of Awards) | | :--- | :--- | :--- | :--- | :--- | | Service-Based Restricted Stock Awards | 239,281 | 114,368 | — | 352,424 | | Performance-Based Restricted Stock Awards | 213,895 | 91,485 | (56,578) | 326,067 | - The total fair value of performance-based restricted stock awards that vested during Q1 2021 was approximately $2.0 million[37] - Compensation expense for all awards was approximately $2.7 million for Q1 2021, up from $1.0 million in Q1 2020, with $12.2 million in unvested costs remaining[38] NOTE K – Earnings Per Share The company reports earnings per share using the two-class method, reflecting the preferential dividend rate of Common Stock over Class A Common Stock. For Q1 2021, basic EPS for Common Stock was $1.07 and for Class A Common Stock was $1.00 - Earnings per share are reported using the two-class method, assuming 100% of earnings are distributed as dividends based on contractual rights[40] - Common Stock has a preferential dividend rate of at least 105% of the dividend paid on Class A Common Stock[41] | Earnings Per Share | Three Months Ended March 31, 2021 (Dollars per Share) | Three Months Ended March 31, 2020 (Dollars per Share) | | :--- | :--- | :--- | | Basic earnings per share: | | | | Common Stock | $1.07 | $0.10 | | Class A Common Stock | $1.00 | $0.09 | | Diluted earnings per share: | | | | Common Stock | $1.04 | $0.09 | | Class A Common Stock | $0.98 | $0.09 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, discussing the impact of COVID-19, sales trends, profitability, expenses, liquidity, and capital resources for the three months ended March 31, 2021 Forward-Looking Statements This subsection includes a cautionary statement regarding forward-looking statements, noting that they involve risks and uncertainties that could cause actual results to differ materially from expectations, and the company undertakes no obligation to update them - Statements in the Form 10-Q that are not historical facts are considered 'forward-looking statements' and involve risks and uncertainties[44] - Known material risk factors are described in 'Item 1A. Risk Factors' of the company's Form 10-K[44] - The company undertakes no obligation to publicly update or revise any forward-looking statements unless required by law[44] Impact of COVID-19 on Our Business The COVID-19 pandemic caused significant disruption, leading to store closures, furloughs, and workforce reductions in early 2020. The company implemented financial strengthening measures. Since reopening, business has been strong due to increased home spending, but challenges persist with product shortages, supply chain issues, and staffing difficulties, making the pandemic's future impact uncertain - The company closed stores and ceased delivery in mid-March 2020, furloughed 87% of its workforce, and made permanent reductions of approximately 1,200 team members[45] - Financial strengthening steps included reviewing operating expenses, reducing capital expenditures, temporary borrowing ($43.8 million repaid), and a $70.0 million sale-leaseback transaction[46] - Post-reopening, business has been strong due to increased consumer spending on homes, but product shortages, supply chain delays, and distribution/delivery staffing issues persist[47] Net Sales Net sales for Q1 2021 increased by 31.8% to $236.5 million compared to Q1 2020, with comparable-store sales (excluding March 2020) up 11.5%. Written business for the first two months of 2021 grew by 24.9%, indicating strong customer demand despite supply chain disruptions affecting mattress sales | Period | Net Sales Total Dollars (2021, In millions) | Net Sales % Change (2021) | Comp-Store Sales % Change (2021) | Net Sales Total Dollars (2020, In millions) | Net Sales % Change (2020) | Comp-Store Sales % Change (2020) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Q1 | $236.5 | 31.8% | 11.5% | $179.4 | (4.2)% | 11.6% | - Total sales for Q1 2021 increased by $57.1 million or 31.8% compared to 2020[52] - Written business for the first two months of 2021 was up 24.9% compared to the same period in 2020, with mattress business declining 180 basis points due to supply-chain disruption[52][53] Gross Profit Gross profit margin for Q1 2021 improved to 57.1%, a 160 basis point increase from 55.5% in the prior year, primarily due to merchandise pricing and mix, partially offset by a larger negative LIFO impact. The company anticipates annual gross profit margins for 2021 to be between 56.5% and 57.0% - Gross profit for Q1 2021 was 57.1%, an increase of 160 basis points from 55.5% in Q1 2020[54] - The increase in gross profit is primarily attributed to merchandise pricing and mix, partially offset by a larger negative LIFO impact[54] - Annual gross profit margins for 2021 are expected to be in the range of 56.5% to 57.0%[54] Selling, General and Administrative Expenses SG&A costs as a percentage of sales decreased to 46.4% in Q1 2021 from 54.4% in Q1 2020, despite a $12.2 million dollar increase. This increase was driven by higher selling expenses, delivery costs, and incentive compensation, partially offset by reduced travel and occupancy costs. Variable expenses leveraged with sales growth, while fixed and discretionary expenses rose due to incentive compensation, health insurance, and advertising - SG&A costs as a percent of sales decreased to 46.4% in Q1 2021 from 54.4% in Q1 2020[56] - SG&A dollars increased by $12.2 million in Q1 2021, driven by higher selling expense ($3.7 million), delivery costs ($1.4 million), and incentive compensation ($4.9 million)[56] | Item | Q1 2021 (In thousands) | % of Net Sales (Q1 2021) | Q1 2020 (In thousands) | % of Net Sales (Q1 2020) | | :--- | :--- | :--- | :--- | :--- | | Variable | $40,707 | 17.2% | $35,337 | 19.7% | | Fixed and discretionary | $69,055 | 29.2% | $62,198 | 34.7% | | Total | $109,762 | 46.4% | $97,535 | 54.4% | Liquidity and Capital Resources The company maintains a strong liquidity position with $210.1 million in cash and cash equivalents at March 31, 2021, supplemented by a $60.0 million revolving credit facility with $15.5 million available. Cash flow from operations significantly improved, and the company expects sufficient funds for operating requirements, capital expenditures, dividends, and lease obligations - At March 31, 2021, the company had $210.1 million in cash and cash equivalents and $6.7 million in restricted cash equivalents[62] - The company believes its current cash position, operating cash flow, credit agreement funds, and access to debt markets are sufficient for operating requirements, capital expenditures, dividend payments, and lease obligations for the next several years[62] - Net cash provided by operating activities was $19.6 million in Q1 2021, a significant improvement from a $21.6 million use of cash in Q1 2020[68] Cash and Cash Equivalents at End of Year As of March 31, 2021, the company held $210.1 million in cash and cash equivalents, along with $6.7 million in restricted cash. Management believes these resources, combined with operating cash flow and credit facilities, are sufficient to meet future financial obligations and capital expenditures - Cash and cash equivalents totaled $210.1 million, with restricted cash and cash equivalents at $6.7 million, as of March 31, 2021[62] - The company expects its current cash position, operating cash flow, credit agreement, and access to debt markets to be sufficient for operating requirements, capital expenditures, dividend payments, and lease obligations for the next several years[62] Long-Term Debt The company has a $60.0 million revolving credit facility, maturing September 27, 2024. As of March 31, 2021, there were no outstanding amounts, and $15.5 million was available to borrow - The company has a $60.0 million revolving credit facility, maturing September 27, 2024[63] - As of March 31, 2021, there were no outstanding amounts under the facility, and $15.5 million was available to borrow[63] Leases The company utilizes operating leases to finance a portion of its real estate, including retail stores, distribution centers, and support spaces - Operating leases are used to fund a portion of the company's real estate, including stores, distribution centers, and store support space[64] Share Repurchases In February 2020, the Board authorized an additional $30.0 million for the share repurchase program. The program was suspended between March and August 2020, with approximately $16.8 million remaining under the authorization as of March 31, 2021 - An additional $30.0 million was authorized for the share repurchase program in February 2020[65] - The program was suspended from March to August 2020[65] - Approximately $16.8 million remained available for repurchases under the existing authorization as of March 31, 2021[65] Cash Flows Summary The company experienced a significant shift in cash flows, with operating activities providing $19.6 million in Q1 2021 compared to a $21.6 million use in Q1 2020. Investing activities used $4.7 million, primarily for capital expenditures, while financing activities used $4.8 million, mainly for dividends - Net cash provided by operating activities was $19.6 million in Q1 2021, a substantial improvement from a $21.6 million use of cash in Q1 2020[68] - Cash used in investing activities increased by $2.3 million in Q1 2021, primarily due to capital expenditures[69] - Cash used in financing activities was $4.8 million in Q1 2021, mainly reflecting $4.0 million in cash dividends paid[69] Operating Activities Operating activities generated $19.6 million in cash in Q1 2021, a significant improvement from a $21.6 million cash usage in Q1 2020, driven by increased net income and favorable changes in working capital - Net cash provided by operating activities was $19.6 million in Q1 2021, compared to a use of cash of $21.6 million in Q1 2020[68] - This improvement was primarily driven by an increase in net income and favorable changes in customer deposits, accounts payable, and inventories[68] Investing Activities Cash used in investing activities increased by $2.3 million in Q1 2021 compared to Q1 2020, primarily due to higher capital expenditures - Cash used in investing activities increased by $2.3 million in Q1 2021 compared to Q1 2020, primarily due to higher capital expenditures[69] Financing Activities Cash used in financing activities was $4.8 million in Q1 2021, mainly reflecting $4.0 million of cash dividends paid, contrasting with cash provided in Q1 2020 from credit facility proceeds - Cash used in financing activities was $4.8 million in Q1 2021, primarily reflecting $4.0 million of cash dividends paid[69] - In Q1 2020, cash provided by financing activities was $32.9 million, mainly from $43.8 million in revolving credit facility proceeds, partially offset by $6.8 million in share repurchases and $3.8 million in dividends[70] Store Plans and Capital Expenditures The company plans to open new stores in Myrtle Beach, SC (Q1 2021), The Villages, FL (Q3 2021), and Austin, TX (Q4 2021), while closing a store in Dallas, TX (Q3 2021). Net selling space is expected to slightly increase in 2021, with total capital expenditures estimated at $23.0 million | Location | Actual or Planned Opening Quarter | Category | | :--- | :--- | :--- | | Myrtle Beach, SC | Q-1-21 | Open-New Market | | The Villages, FL | Q-3-21 | Open | | Dallas, TX | Q-3-21 | Closure | | Austin, TX | Q-4-21 | Open | - Net selling space in 2021 is expected to be slightly up compared to 2020[71] - Total capital expenditures are estimated to be $23.0 million for the full year 2021[71] Off-Balance Sheet Arrangements As of March 31, 2021, Haverty Furniture Companies, Inc. reported no off-balance sheet arrangements or obligations - As of March 31, 2021, the company had no off-balance sheet arrangements or obligations[72] Critical Accounting Estimates The company defines critical accounting estimates as those requiring significant, subjective judgments due to inherent uncertainties. Management reviewed its estimates and found none to be critical for the periods presented in the 10-K, with no significant changes since the last annual report - Critical accounting estimates are defined as those requiring difficult, subjective, or complex judgments due to inherently uncertain matters[73] - Management reviewed its accounting estimates and deemed none to be critical for the periods presented in the Form 10-K[73] - There have been no significant changes in accounting estimates since the last annual report[73] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the company's Form 10-K for detailed quantitative and qualitative disclosures about market risk, stating that there have been no material changes to its market risk exposure since December 31, 2020 - For market risk disclosures, refer to Item 7A, 'Quantitative and Qualitative Disclosures About Market Risk,' of the company's Form 10-K[74] - The company's exposure to market risk has not changed materially since December 31, 2020[74] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021. No material changes to internal control over financial reporting were identified, although the company continues to evaluate the impact of the COVID-19 pandemic's shift to remote work on its financial reporting processes - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[75] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the company's internal control during Q1 2021[76] - The company continues to evaluate the impact of the COVID-19 pandemic's shift to a rotating work-from-home environment on its internal control over financial reporting[76] PART II. OTHER INFORMATION This section covers other information including legal proceedings, risk factors, and a list of exhibits filed with the Form 10-Q Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from the 'Business and Basis of Presentation' section in Note A of the Notes to the Condensed Consolidated Financial Statements within this Form 10-Q - 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[78] Item 1A. Risk Factors This section refers to the company's Form 10-K for a discussion of known material risk factors, noting that there have been no material changes to these risk factors since the filing of the 10-K - 'Item 1A. Risk Factors' in the company's Form 10-K includes a discussion of known material risk factors[79] - There have been no material changes from the risk factors described in the Form 10-K[79] Item 6. Exhibits This section lists all exhibits filed with or incorporated by reference into the Form 10-Q, including organizational documents, certifications from the CEO and CFO, and the financial statements formatted in inline XBRL - Exhibits include Articles of Amendment and Restatement of the Charter, By-laws, Certifications of CEO and CFO (pursuant to Rules 13a-14(a), 15d-14(a), and 18 U.S.C. Section 1350), and financial statements in inline XBRL[81] - The financial statements formatted in inline XBRL include the Condensed Consolidated Balance Sheets, Statements of Comprehensive Income, Statements of Cash Flows, and Notes to Condensed Consolidated Financial Statements[81]