8-K: Havertys Reports Lower Q2 Earnings Amidst Sales Decline, Expands Store Footprint

Havertys' second-quarter earnings per share decreased to $0.27 from $0.70 year-over-year, with sales declining by 13.4% to $178.6 million.

Summary

• Havertys reported a decrease in diluted earnings per share to $0.27 for the second quarter of 2024, compared to $0.70 in the same period last year.
• Consolidated sales for the quarter fell by 13.4% to $178.6 million, with comparable-store sales also decreasing by 13.6%.
• The company's gross profit margin was 60.4%, slightly down from 60.5% in the second quarter of 2023.
• Havertys is planning to open a net of five new stores in 2024 and 2025, including a new store in Greenwood, Indiana, expected to open in the fourth quarter of 2024.
• The company's total written sales were down 15.2% and written comp-store sales declined 15.8% for the quarter.
• SG&A expenses decreased by $6.9 million, primarily due to reduced warehouse, delivery, selling, administrative, and advertising costs.
• Havertys generated $17.5 million in cash from operating activities and invested $16.0 million in capital expenditures during the first six months of 2024.
• The company paid $10.1 million in cash dividends during the first six months of 2024.
• Havertys expects its gross profit margins for 2024 to be between 60.0% and 60.5%.
• Fixed and discretionary SG&A expenses for 2024 are projected to be between $282.0 and $284.0 million, a reduction from previous guidance.
• Variable SG&A expenses are anticipated to be in the 19.7% to 20.0% range for 2024.
• The effective tax rate for 2024 is expected to be 27.5%, an increase from the previous guidance of 26.5%.
• Planned capital expenditures for the full year of 2024 are approximately $33.0 million.
• Retail square footage is expected to increase by approximately 3.4% in 2024 over 2023.

Sentiment

Score: 3

Explanation: The document indicates a significant downturn in sales and earnings, despite some positive aspects like cost reductions and store expansion plans. The overall tone is cautious, reflecting the challenging economic environment.

Positives

• Havertys is expanding its store footprint with a new store in Greenwood, Indiana, and plans for five net new stores in 2024 and 2025.
• The company has a strong financial position with no debt and $80.0 million in credit availability.
• SG&A expenses decreased by $6.9 million due to cost reductions in various areas.
• The company generated $17.5 million in cash from operating activities in the first six months of 2024.
• Havertys is maintaining its gross profit margin guidance between 60.0% and 60.5%.

Negatives

• Diluted earnings per share decreased significantly to $0.27 in Q2 2024 from $0.70 in Q2 2023.
• Consolidated sales decreased by 13.4% to $178.6 million, and comparable-store sales declined by 13.6%.
• Total written sales were down 15.2% and written comp-store sales declined 15.8% for the quarter.
• The company's pre-tax income decreased to $6.5 million from $15.8 million year-over-year.
• Net income decreased to $4.4 million from $11.8 million year-over-year.
• EBITDA decreased to $16.8 million from $38.3 million year-over-year.

Risks

• The company is facing a significant decrease in sales and earnings, indicating a challenging demand environment.
• The decrease in sales and earnings could be impacted by broader economic conditions.
• The company's performance is subject to fluctuations in gross profit margins due to promotional activities.
• The company's forward-looking statements are subject to various risks and uncertainties, including economic conditions and supply chain disruptions.

Future Outlook

Havertys expects its gross profit margins for 2024 to be between 60.0% and 60.5%, fixed and discretionary SG&A expenses to be between $282.0 and $284.0 million, variable SG&A expenses to be in the 19.7% to 20.0% range, and an effective tax rate of 27.5%. Planned capital expenditures for the full year of 2024 are approximately $33.0 million, and retail square footage is expected to increase by approximately 3.4% in 2024 over 2023.

Management Comments

• Clarence H. Smith, Chairman and CEO, stated that the company is evaluating all aspects of the business, from top-line growth to operating efficiencies and cost reductions.
• He also mentioned that the company is mindful of measures taken in the near-term and their potential impact on the Havertys brand.
• The CEO highlighted the addition of a second store in the Indianapolis market and that the company's store growth strategy is on track.
• Management believes that Havertys' strong financial position enables them to make important investments during demand downturns.

Industry Context

The furniture retail industry is currently facing challenges due to decreased consumer demand and economic uncertainty. Havertys' results reflect these broader industry trends, with a significant decline in sales and earnings. The company's focus on cost reductions and strategic investments aligns with common strategies employed by retailers during economic downturns.

Comparison to Industry Standards

• Comparing Havertys to peers like Ethan Allen and La-Z-Boy, which also operate in the mid-to-upper price range of the furniture market, shows a similar trend of declining sales in the current economic climate.
• While specific financial results vary, the general industry trend is a decrease in consumer spending on discretionary items like furniture.
• Havertys' gross profit margin of 60.4% is relatively consistent with industry averages, but the significant drop in sales and earnings is a concern.
• The company's focus on cost reduction and strategic investments is a common approach in the industry to navigate economic downturns, similar to actions taken by other retailers like Williams-Sonoma and Restoration Hardware.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings and sales.
• Employees may be affected by cost reduction measures, including potential changes in compensation.
• Customers may experience changes in promotional activities and store offerings.
• Suppliers may be impacted by changes in the company's purchasing patterns.

Next Steps

• The company plans to open a new store in Greenwood, Indiana, in the fourth quarter of 2024.
• Havertys will continue to evaluate all aspects of its business, including top-line growth, operating efficiencies, and cost reductions.
• The company will host a conference call on August 1, 2024, to discuss the results.

Key Dates

Keywords

furniture, retail, earnings, sales, store expansion, financial results, profit margin, SG&A expenses, EBITDA, dividends