10-Q: Havertys Q2 2025: Sales Up, Profit Down Amid Tariffs

Havertys Furniture reports a slight increase in Q2 2025 net sales but a decline in six-month net income and earnings per share, navigating new tariffs and a soft housing market.

Summary

• Net sales for Q2 2025 increased by 1.3% to $181.0 million compared to Q2 2024.
• Year-to-date net sales for the six months ended June 30, 2025, were comparable to the prior year at $362.6 million.
• Comp-store sales decreased by 2.3% in Q2 2025 and 3.5% for the six months ended June 30, 2025.
• Net income for the six months ended June 30, 2025, was $6.5 million, down from $6.8 million in the prior year period.
• Diluted earnings per share for Common Stock decreased to $0.39 for the six months ended June 30, 2025, from $0.41 in the prior year.
• Gross profit margin improved to 60.8% in Q2 2025 (up 40 basis points) and 61.0% for the six months (up 60 basis points) due to product selection, merchandise pricing, and mix.
• Selling, General, and Administrative (SG&A) expenses increased by 4.1% in Q2 2025 and 1.0% for the six months, primarily due to higher administrative, occupancy, and advertising costs.
• Cash and cash equivalents decreased to $107.4 million at June 30, 2025, from $120.0 million at December 31, 2024.
• Net cash provided by operating activities decreased to $13.4 million for the six months ended June 30, 2025, from $17.5 million in the prior year period.
• The company repurchased $2.0 million of common stock in the first six months of 2025.
• Cash dividends per share for Common Stock increased to $0.64 for the six months ended June 30, 2025, from $0.62 in the prior year.

Sentiment

Score: 4

Explanation: The company shows resilience with slight Q2 revenue growth and improved gross margins, but overall profitability (net income, EPS) and cash from operations declined for the six-month period. The persistent decline in comparable-store sales and the significant new tariff risks create a challenging outlook, indicating a weakening financial position despite management's positive liquidity assessment.

Positives

• Net sales for the second quarter of 2025 increased by 1.3% to $181.0 million compared to the same period in 2024.
• Gross profit margin improved by 40 basis points to 60.8% in Q2 2025 and by 60 basis points to 61.0% for the six months ended June 30, 2025, driven by product selection, merchandise pricing, and mix.
• The free in-home design service continues to drive strong customer engagement, contributing to 33.4% of total written sales in Q2 2025 with a higher average written ticket of $7,631.
• Capital expenditures decreased by $4.2 million in the first six months of 2025 compared to the same period in 2024, indicating more efficient capital deployment.
• The company increased cash dividends per share for Common Stock to $0.64 for the six months ended June 30, 2025, from $0.62 in the prior year.
• The company repurchased $2.0 million of common stock in the first six months of 2025, signaling confidence in its valuation.
• Disclosure controls and procedures were evaluated as effective, and no material changes to internal control over financial reporting were identified.

Negatives

• Net income for the six months ended June 30, 2025, decreased to $6.5 million from $6.8 million in the prior year period.
• Diluted earnings per share for Common Stock decreased to $0.39 for the six months ended June 30, 2025, from $0.41 in the prior year.
• Comp-store sales decreased by 2.3% in Q2 2025 and 3.5% for the six months ended June 30, 2025.
• Net cash provided by operating activities decreased to $13.4 million for the six months ended June 30, 2025, from $17.5 million in the prior year period, primarily due to changes in working capital, including increased inventories.
• Selling, General, and Administrative (SG&A) expenses increased by 4.1% in Q2 2025 and 1.0% for the six months, leading to SG&A as a percentage of sales increasing to 59.3% and 59.2% respectively.
• Cash and cash equivalents decreased to $107.4 million at June 30, 2025, from $120.0 million at December 31, 2024.
• The company faces continued pressure from a soft housing market and cautious consumer spending due to economic uncertainty, which continues to create a challenging demand environment for the home furnishings industry.
• New tariffs ranging from 10% to 41% on imports from over 67 countries, effective August 7, 2025, are expected to impact the supply chain and cost structure.

Risks

• Competition from national, regional, and local home furnishings retailers.
• Inability to anticipate changes in consumer preferences.
• Challenges in successfully implementing growth and other strategies.
• Difficulty in maintaining and enhancing the brand.
• Risks associated with importing merchandise from foreign sources, including the impact of tariffs.
• Fluctuations and volatility in the cost of raw materials and components.
• Dependence on third-party producers to meet requirements.
• Vendors' ability to meet quality control standards or comply with product safety regulations.
• Supply chain risks, including price, availability, and quality of raw materials and components, and the ability to forecast supply chain needs.
• Reliance on third-party transportation vendors for product shipments.
• Effects of labor disruptions or labor shortages and the ability to attract and retain key employees.
• Rise of oil and gasoline prices and increased transportation costs.
• Damage to distribution centers.
• Vulnerability of information technology infrastructure to cyber-attacks, breaches, and other disruptions.
• Changes in general domestic and international economic conditions such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs, recessions, and changing government policies, laws, and regulations.
• Pending or unforeseen litigation.
• New tariffs imposed by the U.S. government, effective August 7, 2025, ranging from 10% to 41% on imports from over 67 countries, with specific rates for the European Union (15%), Cambodia, Indonesia, Vietnam (19-20%), Canada (35% on non-compliant goods), and ongoing discussions for Chinese goods (currently 55%).

Future Outlook

The company continues to assess the impact of new U.S. government tariffs on its supply chain and cost structure, actively monitoring developments and evaluating mitigation strategies. Management believes current cash, operating cash flow, credit facility, and access to debt markets will be sufficient for operating requirements, capital expenditures, dividends, and lease obligations for the next several years, with the ability to obtain alternative financing if needed. The company plans to end 2025 with 129 stores, with several new store openings and closures planned through Q4 2026.

Management Comments

• Net sales for the second quarter of 2025 increased $2.4 million, or 1.3%, compared to the same period in 2024. This growth was achieved despite continued pressure from a soft housing market and cautious consumer spending due to economic uncertainty, which continues to create a challenging demand environment for the home furnishings industry.
• Our free in-home design service continues to provide strong customer engagement.
• 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 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, if needed.

Industry Context

The home furnishings industry continues to face a challenging demand environment due to a soft housing market and cautious consumer spending, as indicated by the company's performance. The imposition of new U.S. government tariffs on imports from numerous countries, including key sourcing regions, introduces significant cost and supply chain uncertainties across the industry, potentially impacting profitability for all players reliant on global sourcing.

Comparison to Industry Standards

• The company's gross profit margin improvement to 61.0% for the six months ended June 30, 2025, is a positive indicator of effective product selection and pricing strategies, potentially outperforming competitors struggling with cost inflation or discounting pressures.
• The decline in comparable-store sales by 3.5% for the six months ended June 30, 2025, suggests that Havertys is experiencing similar demand headwinds as other furniture retailers, which have generally reported softness due to macroeconomic factors.
• The increase in SG&A as a percentage of sales to 59.2% for the six months ended June 30, 2025, indicates potential challenges in cost leverage compared to industry peers who might be more effectively managing fixed costs or achieving higher sales volumes.
• The company's continued investment in its free in-home design service, driving 33.3% of total written sales with a high average ticket of $7,525, positions it favorably against competitors that may not offer such value-added services, potentially capturing a higher-value customer segment.
• The impact of new tariffs, ranging from 10% to 41% on imports, will be a shared challenge across the furniture retail industry, and Havertys' ability to mitigate these costs will be critical for competitive positioning.

Legal Proceedings

• No pending claims or legal proceedings are believed to be reasonably likely to have a material adverse effect on financial condition, results of operations, or cash flows.
• Future litigation or unfavorable outcomes in existing claims could still materially impact the business, reputation, financial position, cash flows, or results of operations.

Stakeholder Impact

• Shareholders: Decreased net income and EPS may negatively impact shareholder returns, though increased dividends and stock repurchases offer some offset. New tariffs introduce uncertainty regarding future profitability.
• Employees: Changes in warehouse and delivery costs due to lower salaries and related benefits suggest potential headcount adjustments in those areas. Increased administrative expenses due to higher salaries and performance-based incentive compensation for some employees.
• Customers: Continued pressure from a soft housing market and cautious consumer spending indicates a challenging environment for customer demand. The free in-home design service aims to enhance customer engagement and average ticket size.
• Suppliers: New tariffs on imports from numerous countries will directly impact the cost structure for suppliers and the company, potentially leading to renegotiations or sourcing changes. Dependence on third-party producers and transportation vendors highlights supply chain risks.
• Creditors: The company maintains an $80.0 million revolving credit facility with no outstanding borrowings, indicating a healthy liquidity position relative to its debt, which is positive for creditors.

Next Steps

• Evaluate the impacts of the One Big Beautiful Bill Act ("OBBBA") tax law change.
• Actively monitor developments and evaluate mitigation strategies for the new U.S. government tariffs.
• Open new retail locations in Houston, TX (Q4-25, Q3-26, Q4-26), and St. Louis, MO (Q1-26), Nashville, TN (Q2-26).
• Relocate a store in Daytona, FL (Q2-25).
• Close stores in Atlanta, GA (Q2-25) and Waco, TX (Q3-25).
• Continue to evaluate the impact of any related changes to internal control over financial reporting.

Key Dates

Recommendation

While Havertys demonstrated resilience with a slight Q2 net sales increase and improved gross margins, the overall six-month performance shows a decline in net income and EPS, coupled with persistent negative comparable-store sales. The challenging macroeconomic environment, particularly the soft housing market and cautious consumer spending, continues to weigh on demand. Furthermore, the newly imposed U.S. tariffs introduce significant cost and supply chain uncertainties. Although the company maintains a strong liquidity position, increased dividends, and a stock repurchase program, the deteriorating profitability and ongoing headwinds suggest that the stock may face continued pressure. A "hold" recommendation is appropriate, advising investors to monitor how the company navigates the tariff impacts and whether it can reverse the negative trend in comparable sales and profitability in the coming quarters.

Keywords

Furniture Retail, Home Furnishings, SEC Filing, Quarterly Report, Financial Results, Tariffs, Supply Chain, Consumer Spending, Retail Industry, Haverty Furniture, HVT, Earnings, Sales, Profit Margin, Cash Flow, Stock Repurchase, Dividends, Economic Uncertainty