Haverty Furniture(HVT) Seeking Alpha·2024-09-16 17:43Core Viewpoint - Haverty Furniture is facing significant challenges in a contracting residential furniture market, with a notable decline in sales, but potential catalysts such as anticipated interest rate cuts could improve its outlook in the near future [2][4][8]. Company Overview - Haverty Furniture operates 120 stores across 17 states, focusing on premium products in the middle to upper-middle price ranges, and offers in-house designer services [2]. - The company has a dual-class share structure, with HVT holders receiving 105% of dividends compared to HVT.A holders, who have superior voting rights [3]. Financial Performance - Year-to-date, HVT and HVT.A shares have declined by -21% and -26% respectively, while the broader small-cap discretionary stocks have gained nearly 4% [3]. - Sales for Haverty have fallen by 16% in H1-24, compared to a 7% contraction in the overall furniture market [4]. - The SG&A margin has increased to 58.6% in H1-24, up from 53% in H1-23, indicating that cost reductions have not kept pace with declining sales [6]. Strategic Initiatives - Despite the downturn, Haverty is investing in new store openings and upgrades, aiming to open five new stores each in FY24 and FY25 [5]. - The company has maintained stable gross margins at 60.4%, with expectations to remain within the 60-60.5% range for FY24 [7]. Market Outlook - Anticipated interest rate cuts by the Federal Reserve could revive the housing market, benefiting premium retailers like Haverty as it approaches its strongest sales quarter [8]. - Comp-store sales declines have been easing, with Q1 at -18.5% and Q2 at -13.6%, suggesting potential for recovery [10]. Valuation and Investment Appeal - The expected EPS for FY25 is 23-35 levels, indicating a favorable risk-reward scenario [17]. Conclusion - Given the stable gross margin, potential earnings growth, attractive valuations, and institutional support, the recommendation for Haverty has been revised from HOLD to BUY [18].