Haverty Furniture(HVT) - 2022 Q4 - Annual Report

Part I Business Havertys is a specialty retailer of residential furniture and accessories operating over 120 stores - Havertys operates over 120 stores in 16 states, primarily in the Southern and Midwest regions, and does not franchise its stores[26] - The company targets well-educated women in middle to upper-middle-income households, offering a wide range of styles from traditional to contemporary[27][28] - The in-home design service is a significant driver of sales, accounting for approximately 24.7% of business in 2022, with an average sales ticket double that of in-store sales[31] - Total online sales were approximately 3.8% of total sales in 2022, making the website the company's highest-performing 'store'[35] - The company's supply chain relies heavily on imports, with the top ten suppliers accounting for 41.3% of product purchases in 2022[37] - As of December 31, 2022, Havertys employed 2,831 people, with the majority in retail store operations (1,599) and warehouse/delivery (990)[45] Risk Factors The company faces risks from competition, supply chain reliance on foreign suppliers, and IT vulnerabilities - The home furnishings retail market is highly fragmented and competitive, with threats from internet-only retailers, specialty stores, and national chains[59] - Approximately 77% of the company's furniture purchases in 2022 were from foreign sources, exposing it to risks from tariffs, exchange rates, and political instability[64] - The business relies on three large distribution centers, making it operationally vulnerable if one is damaged or experiences significant interruption[73] - The company is extensively dependent on IT systems for daily operations, making it susceptible to disruptions from cyber-attacks and security breaches[74][76] - The business is sensitive to general economic conditions affecting consumer spending on discretionary items, such as inflation, recession fears, and interest rates[83] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[89] Properties The company operates 122 stores across 16 states, owning 40 locations and leasing the remaining 82 Store Count by State (Top 3) | State | Number of Stores | | :--- | :--- | | Florida | 30 | | Texas | 22 | | Georgia | 16 | - At year-end 2022, the company owned 40 retail locations and leased the other 82[90] - The company leases most of its distribution facilities, with the largest being an 808,000 square foot center in Braselton, Georgia[91] Legal Proceedings Management believes no pending legal cases will have a material adverse effect on the company's financials - The company reports no pending legal proceedings that are expected to have a material adverse effect on its financials[93] Mine Safety Disclosures This item is not applicable to the company - Not applicable[94] Information about our Executive Officers This section details the company's executive officers, their positions, and business experience - Clarence H Smith serves as Chairman of the Board and Chief Executive Officer[97] - Richard B Hare is the Executive Vice President and Chief Financial Officer[97] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, it pays regular dividends, and repurchased $30 million in shares in 2022 - The company's Common Stock (HVT) and Class A Common Stock (HVTA) are traded on the New York Stock Exchange (NYSE)[99] - Havertys has paid a cash dividend every year since 1935 and intends to continue paying quarterly dividends, subject to Board approval[103] - During 2022, the company spent $30.0 million to repurchase 1.1 million shares of Common Stock, with $20.0 million remaining under the authorization[105] Management's Discussion and Analysis of Financial Condition and Results of Operations Record 2022 sales of $1.047 billion were driven by backlog fulfillment, though net income slightly declined Results of Operations Record 2022 net sales were offset by higher SG&A expenses, resulting in slightly lower net income Key Financial Performance (2022 vs 2021) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,047.2M | $1,012.8M | +3.4% | | Gross Profit | $604.2M | $574.6M | +5.2% | | Gross Profit % | 57.7% | 56.7% | +100 bps | | SG&A Expenses | $486.3M | $456.3M | +6.6% | | SG&A as % of Sales | 46.4% | 45.1% | +130 bps | | Net Income | $89.4M | $90.8M | -1.6% | | Diluted EPS | $5.24 | $4.90 | +6.9% | Quarterly Net Sales and Comp-Store Sales Growth (%) vs Prior Year | Period | 2022 Net Sales % Increase | 2022 Comp-Store % Increase | | :--- | :--- | :--- | | Q1 | 1.0% | 0.2% | | Q2 | 1.3% | 1.1% | | Q3 | 5.4% | 6.3% | | Q4 | 5.5% | 5.7% | | Year | 3.4% | 3.4% | - The 100 basis point increase in gross profit margin for 2022 was primarily due to merchandise price increases and disciplined discounting[129] - SG&A expenses as a percentage of sales increased to 46.4% in 2022 from 45.1% in 2021, driven by higher selling, warehouse, and administrative costs[136] - For 2023, the company expects annual gross profit margins between 58.0% and 58.5% and variable SG&A costs between 19.5% and 19.7% of sales[131][139] Liquidity and Capital Resources The company maintained a strong liquidity position with $123.1 million in cash and no debt at year-end 2022 - As of December 31, 2022, the company had $123.1 million in cash and cash equivalents and no outstanding long-term debt[142][143] Cash Flow Summary (in millions) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $51.0 | $97.2 | | Net cash used in investing activities | ($28.3) | ($34.0) | | Net cash used in financing activities | ($65.6) | ($97.1) | - Net cash from operating activities decreased to $51.0 million in 2022, largely due to a $50.9 million reduction in customer deposits as the company worked through its order backlog[149] Capital Expenditures (in thousands) | Category | Proposed 2023 | 2022 Actual | | :--- | :--- | :--- | | New or replacement stores | $9,700 | $7,700 | | Remodels/expansions | $2,900 | $4,400 | | Distribution | $5,800 | $6,900 | | Information technology | $2,500 | $2,800 | | Total | $27,600 | $28,400 | - The company plans to open five new stores in 2023 and close two, resulting in a net selling space increase of approximately 2.2%[157] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuation, which is not considered material - The company's main market risk is interest rate fluctuation on its cash and cash equivalents[165] - Management does not believe a 100 basis point change in interest rates would have a material effect on operating results or financial condition[165] Controls and Procedures Management and the independent auditor concluded that the company's controls and procedures were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[168] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[169] - The independent auditor, Grant Thornton LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting[170][174] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership Information on governance, compensation, and ownership is incorporated by reference from the 2023 Proxy Statement - Information regarding Directors, Executive Officers, and Corporate Governance (Item 10) is incorporated by reference from the 2023 Proxy Statement[183] - Details on Executive Compensation (Item 11) are incorporated by reference from the 'Compensation Discussion and Analysis' section of the 2023 Proxy Statement[184] - Information on Security Ownership (Item 12) and Certain Relationships and Related Transactions (Item 13) is incorporated by reference from the 2023 Proxy Statement[185][187] - Information on Principal Accounting Fees and Services (Item 14) is incorporated by reference from the 'Audit Matters' section of the 2023 Proxy Statement[189] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the 10-K report - This section provides a list of all documents filed with the report, including financial statements, schedules, and exhibits[191][192] Financial Statements and Supplementary Data Consolidated Balance Sheets Total assets and liabilities decreased in 2022, driven by lower cash and customer deposits respectively Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $649,049 | $686,290 | | Cash and cash equivalents | $123,126 | $166,146 | | Inventories | $118,333 | $112,031 | | Total Liabilities | $359,650 | $430,320 | | Customer deposits | $47,969 | $98,897 | | Total lease liabilities | $221,287 | $230,352 | | Total Stockholders' Equity | $289,399 | $255,970 | Consolidated Statements of Comprehensive Income Net sales and gross profit increased in 2022, but higher SG&A led to a slight decline in net income Income Statement Highlights (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Sales | $1,047,215 | $1,012,799 | $748,252 | | Gross Profit | $604,225 | $574,625 | $418,994 | | SG&A | $486,298 | $456,267 | $377,288 | | Net Income | $89,358 | $90,803 | $59,148 | | Diluted EPS (Common) | $5.24 | $4.90 | $3.12 | Consolidated Statements of Cash Flows Operating cash flow decreased significantly in 2022 due to a reduction in customer deposits Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,015 | $97,242 | | Net cash (used in) provided by investing activities | $(28,325) | $(34,002) | | Net cash used in financing activities | $(65,622) | $(97,149) | | (Decrease) increase in Cash | $(42,932) | $(33,909) | Note 2: Revenues and Segment Reporting The company operates as a single segment, with upholstery and case goods as the top product categories Net Sales by Product Category (% of Net Sales) | Category | 2022 | 2021 | | :--- | :--- | :--- | | Upholstery | 42.5% | 42.8% | | Case Goods | 35.5% | 34.8% | | Mattresses | 8.1% | 8.9% | | Accessories and Other | 13.8% | 13.5% | - Customer deposits on undelivered merchandise totaled $47.97 million at the end of 2022, down from $98.90 million at the end of 2021[254] Note 8: Leases The company holds $221.3 million in operating lease liabilities with a weighted-average term of 7.6 years Operating Lease Liabilities (in thousands) | Liability Type | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Current lease liabilities | $34,442 | $33,581 | | Non-current lease liabilities | $186,845 | $196,771 | | Total operating lease liabilities | $221,287 | $230,352 | - The weighted-average remaining lease term was 7.6 years and the weighted-average discount rate was 5.52% as of year-end 2022[276] - In May 2020, a sale and leaseback transaction of three facilities generated a gain of $31.6 million[273]