•we may be forced to find alternative sources of comparable product, which may be more expensive than the current product or of lower quality, or the vendor may be unable to meet our requirements for quality, quantities, delivery schedules or other key terms.
We are dependent upon the ability of our third-party producers to meet our requirements; any failures by these producers, or the unavailability of suitable suppliers at reasonable prices or limitations on our ability to source from third-party producers may negatively impact our ability to deliver quality merchandise to our customers on a timely basis or result in higher costs or reduced net sales.
We source substantially all of our products from non-exclusive, third-party producers, many of which are located in foreign countries. Although we have long-term relationships with many of our suppliers, we must compete with other companies for the production capacity of these independent manufacturers. We regularly depend upon the ability of third-party producers to secure a sufficient supply of raw materials, develop a skilled workforce, adequately finance the production of goods ordered and maintain sufficient manufacturing and shipping capacity. Although we monitor production and quality in many third-party manufacturing locations, we cannot be certain that we will not experience operational difficulties with our manufacturers, such as the reduction of availability of production capacity, errors in complying with product specifications, insufficient quality control, failures to meet production deadlines or increases in manufacturing costs. Such difficulties may negatively impact our ability to deliver quality products to our customers on a timely basis, which may, in turn, have a negative impact on our customer relationships and result in lower net sales.
We also require third-party producers to meet certain standards in terms of working conditions, environmental protection and other matters before placing business with them. As a result of costs relating to compliance with these standards, we may pay higher prices than some of our competitors for products. In addition, failure by our independent manufacturers to adhere to ethical labor or other laws or business practices, accepted as ethical, and the potential litigation, negative publicity and political pressure relating to any of these events, could disrupt our operations or harm our reputation.
Our vendors might fail in meeting our quality control standards or reacting to changes to the legislative or regulatory framework regarding product safety.
All of our vendors must comply with applicable product safety laws and regulations, and we are dependent on them to ensure that the products we buy comply with all safety standards as well applicable quality standards. Any actual, potential or perceived product safety concerns could expose us to government enforcement action or private litigation and could result in recalls and other liabilities. TheseSuch exposure could harm our brand’s image and negatively affect our business and operating results.
Furthermore, concerns around the quality of the products we sell could damage our reputation and result in loss of future revenues.
Significant fluctuations in the price, availability and quality of raw materials and components have resulted in increased costs and caused production delays which, if continued, could result in a decline in sales, either of which could materially adversely impactaffect our earnings.
profits.
The primary materials our vendors use to produce and manufacture our products are various woods and wood products, resin, steel, leather, cotton, and certain oil-based products. On a global and regional basis, the sources and prices of those materials and components are susceptible to significant price fluctuations due to supply/demand trends, transportation costs, government regulations and tariffs, changes in currency exchange rates, price controls, the economic and political climate, and other unforeseen circumstances. Furthermore, global supply chains have been negatively impacted by COVID-19 shutdowns and shipping delays. TheseWhile the global supply chain challenges could continueexperienced as a result of the COVID-19 pandemic lessened over the past two years, there can be no assurance that further challenges, including shutdowns and in turnshipping delays, will not occur. Such supply chain disruptions could materially adversely impact the ability of our suppliers to fulfil our orders in a timely manner, itif at all, and maycould lead to increased prices, which we may not be able to pass through to our customers.
Our revenue can be adversely affected by our ability to successfully forecast our supply chain needs and our foreign manufacturers’ ability to comply with international trade rules and regulations.
Optimal product flow is dependent on demand planning and forecasting, supplier production according to plan by suppliers,such planning, and timely transportation. We often make commitments to purchase products from our vendors in advance of proposed production dates. Significant deviation from the projected demand for products that we sell may have an adverse effect on our results of operations and financial condition, either from lost sales or lower margins due to the need to reduce prices to dispose of excess inventory.resulting from inventory-driven price reductions. Disruptions to our supply chain could result in late arrivals of product. This could negatively affect sales due to increasedproduct arrivals. Increased levels of out-of-stock merchandise and loss of confidence by customers in our ability to deliver goods as promised.
promised could negatively affect sales.
In addition, there is a risk that compliance lapses by our foreign manufacturers could occur which could lead to investigations by U.S. government agencies responsible for international trade compliance. Resulting penalties or enforcement actions could delay future imports or otherwise negatively impact our business. There also remains a risk that one or more of our foreign manufacturers will not adhere to applicable legal requirements or our compliance standards such as fair labor standards, the prohibition on child labor and other product safety or manufacturing safety standards. The violation of applicable legal requirements, including labor, manufacturing and safety laws, by any of our manufacturers, the failure of any of our manufacturers to adhere to our global compliance standards or the divergence of the labor practices followed by any of our manufacturers from those generally accepted in the U.S., could disrupt our supply of products from our manufacturers, could result in potential liability to us andor could harm our reputation and brand, any of which could negatively affect our business and operating results.
Recent supply chain management disruption has had, and could continue to have, a material adverse effectWe rely on our results of operations.
Supply chain challenges have been faced by the entire home furnishings industry, including the Company, as a result of COVID-19 related labor shortages and supply chain disruptions. These supply chain disruptions have created significant delays in our ability to fulfill customer orders and increased backlogs. The receipt of inventory sourced from impacted areas has been slowed or disrupted and our merchandise suppliers are expected to face similar challenges in receiving materials and fulfilling our orders. In addition, ocean freight capacity issues continue to persist worldwide due to the ongoing global COVID-19 pandemic as there is much greater demandthird party transportation providers for shipping and reduced capacity and equipment, which has resulted in recent price increases per shipping container. Streamline ships are charging priority booking fees to allocate space as they have less ships and workers operating. While we continue to manage and evaluate our freight carriers, there is no indication that shipping container rates will return to historical levels in the near-term and these increases could have a material adverse effect on our consolidated results of operations.
Furthermore, transportation delays, higher oil and gasoline prices, increases on shipping containers rates, more extensive travel restrictions, closures or disruptions of businesses and facilities or social, economic, political or labor instability in the affected areas, may impact our or our suppliers’ operations and in turn could adversely affect our profitability. We deliver substantially all of our customers’ purchasesproduct shipments from our vendors.
We rely on third party service providers for substantially all of our product shipments from our vendors, both domestic and foreign, to their homes.our DCs and also to handle over-the-road delivery of product from the DCs to our HDCs and some market areas. Our and our vendors’ utilization of these shipping services is subject to risks that are outside of our control, including increases in fuel prices and labor costs, employee strikes, labor shortages, strikes and union organizing activity, delays in shipping (including congestion at domestic and foreign ports), delays in unloading cargo from ships, availability of adequate trucking or railway providers, adverse weather, natural disasters, possible acts of terrorism and outbreaks of disease.All of these risks may impact our ability to receive products from our vendors to necessary points in our distribution system in a cost-effective and timely manner.
Any increases in these shipping costs may result in higher costs to us, and we may be unsuccessful in passing along these costs to our customers, negatively impacting our margins and profitability. Furthermore, any delays in receiving products may negatively impact our ability to deliver these products to our customers in a timely manner. Failure to make timely customer deliveries or long lead times for products could cause customers to cancel their orders or not place orders, which, utilizes three DCscould damage our brand and multiple home delivery centers is very transportation dependent to reach the 22 states we deliver to fromreputation and negatively impact our stores across 16 Southernbusiness, financial condition, operating results and Midwestern states.prospects.If transportation costs exceed amounts we are able to effectively pass on to the consumer, either by higher prices and/or higher delivery charges, then our profitability will suffer.
Because of our limited number of distribution centers, should one become damaged, our operating results could suffer.
suffer if one is damaged.
We utilize three large distribution centers to flow our merchandise from the vendor to the consumer. This system is very efficient for reducing inventory requirements but makes us operationally vulnerable should one of these facilities become damaged or experience significant business interruption. If such an interruption were to occur, our ability to deliver our products in a timely manner would likely be impacted.
We rely extensively on information technology systems to process transactions, summarize results, and manage our business. Disruptions in our information technology systems could adversely affect our business and operating results.
Our ability to operate our business from day to day, in particular our ability to manage our point-of-sale, distribution system and payment information, largely depends on the efficient operation of our computer hardware and software systems. We use management information systems to communicate customer information, provide real-time inventory information, and to handle all facets of our distribution system from receipt of goods in the DCs to delivery to our customers’ homes. These systems are subject to damage or interruption from power outages, computer and telecommunications failures, viruses, phishing attempts, cyber‑attacks, malware and ransomware attacks, security breaches, severe weather, natural disasters, and errors by employees.
The failure of these systems to operate effectively, problems with integrating various data sources, challenges in transitioning to upgraded or replacement systems, difficulty in integrating new systems, or a breach in security of these systems could adversely impact the operations of our business. Though losses arising from some of these issues would be covered by insurance, interruptions of our critical business information technology systems or failure of our back-up systems could result in longer production times or negatively impact customers resulting in damage to our reputation and a reduction in sales. If our critical information technology systems or back-up systems were damaged or ceased to function properly, we might have to make a significant investment to repair or replace them.
Successful cyber-attacks and the failure to maintain adequate cyber-security systems and procedures could materially harm our business.
Cyber threats are rapidly evolving, and those threats and the means for obtaining access to information in digital and other storage media are becoming increasingly sophisticated. Cyber threats and cyber-attackers, including ransomware attacks, can be sponsored by countries or sophisticated criminal organizations or be the work of single “hackers” or small groups of “hackers.”
We invest in industry standard security technology to protect the Company’s data and business processes against risk of data security breach and cyber-attack. Our data security management program includes identity, trust, vulnerability and threat management business processes as well as adoption of standard data protection policies. We measure our data security effectiveness through industry accepted methods. We are continuously installing new and upgrading existing information technology systems. We use employee awareness training around phishing, malware, and other cyber risks to ensure that the Company is protected, to the greatest extent possible, against cyber risks and security breaches. We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. Additionally, we certify our major technology suppliers and any outsourced services through accepted security certification standards.
Nevertheless, as cyber threats evolve, change and become more difficult to detect and successfully defend against, one or more cyber-attacks might defeat our or a third-party service provider’s security measures in the future and obtaincould result in the leak of personal information of customers, employees or business partners. Employee error or other irregularities may also result in a failure of our security measures and a breach of information systems. Moreover, hardware, software or applications we use may have inherent defects of design, manufacture or operations or could be inadvertently or intentionally implemented or used in a manner that could compromise information security. A security breach and loss of information may not be discovered for a significant period of time after it occurs. While we have no knowledge of a material security breach to date, any compromise of data security could result in a violation of applicable privacy and other laws or standards, the loss of valuable business data, or a disruption of our business. In addition, the costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful resulting potentiallyand could result in thepotential theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations.
Moreover, a security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information could give rise to unwanted media attention, materially damage our customer relationships and reputation, and result in litigation or fines, fees, or potential liabilities, which may not be covered by our insurance policies, as well as risk of litigation, each of which could have a material adverse effect on our business, results of operations and financial condition.
Our business is dependent on certain key personnel; if we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed.
The success of our business depends upon our ability to retain continued service of certain key personnel, and to attract and retain additional qualified key personnel in the future. We face risks related to loss of any key personnel and we also face risks related to any changes that may occur in key senior leadership executive positions. Any disruption in the services of our key personnel could make it more difficult to successfully operate our business and achieve our business goals and could adversely affect our results of operation and financial condition. These changes could also increase the volatility of our stock price.
Competition for qualified employees and personnel in the retail industry is intense and we may be unable to attract, train, engage and retain personnel that are important to our business or hire additional qualified personnel. The process of identifying personnel with the combination of skillskey teammates.
Our long-term success and attributes required to carry out our goals is often lengthy. Our success depends to a significant degree upon our ability to attract, retainimplement our strategic and motivate qualified management, marketing and sales personnel, and store managers, and upon the continued contributions of these people. In addition, our operations require the services of qualified and experienced management personnel, with expertise in the areas including information technology and supply chain management. We cannot assure you that we will be successful in attracting and retaining qualified executives and personnel.
Furthermore, a significant portion of our successbusiness planning goals depends in part uponon our ability to attract, motivate and retain a sufficient number of store and other employees who understand and appreciate our corporate culture and customers. Turnover in the retail industry is generally high. Excessive employee turnover will result in higher employee costs associated with finding, hiring and training new store employees. Furthermore, labor shortages and competition may make it more difficult for us to adequately staff our retail stores and distribution operations and may result in increased labor expenses to us. If we are unable to hire and
retain store and other personnel capable of consistently providing a high level of customer service, our ability to open new stores and service the needs of our customers may be impaired, the performance of our existing and new stores and operations could be materially adversely affected and our brand image may be negatively impacted.
We must also be able to attract, motivate and retain the teammates who staff our distribution centers, customer service centers, and deliver product to our customers, and professionals to implement our technology and other strategic initiatives. Our ability to meet our labor needs while controlling labor costs is subject to numerous external factors, including market pressures with respect to prevailing wage rates, equity compensation, unemployment levels, and health and other insurance costs; the impact of legislation or regulations governing labor and employee relations, immigration, federal and state minimum wage requirements, and benefit costs; changing demographics; and our reputation within the labor market. If we are
Risks Relatedunable to attract and retain a workforce that meets our needs, our operations, service levels, support functions, and competitiveness could suffer and our results could be adversely affected.
A failure to recruit, develop and retain effective leaders or the loss or shortage of personnel with key capacities and skills could impact our strategic growth plans and jeopardize our ability to meet our business performance expectations and growth targets.
Our Industryability to continue to grow our business depends substantially on the contributions and abilities of our executive leadership team and other key management personnel. Changes in senior management could expose us to significant changes in strategic direction and initiatives. A failure to maintain appropriate organizational capacity and capability to support our strategic initiatives or to build adequate bench strength with key skillsets required for seamless succession of leadership, could jeopardize our ability to meet our business performance expectations and growth targets. If we are unable to attract, develop, retain and incentivize sufficiently experienced and capable management personnel, our business and financial results may suffer.
General Risks
An overall decline in the health of the economy and consumer spending may affect consumer purchases of discretionary items, which could reduce demand for our products and materially harm our sales, profitability and financial condition.
Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence general consumer spending on discretionary items in particular. Factors influencing consumer spending include general economic conditions, consumer disposable income, fuel prices, inflation, recession and fears of recession, unemployment, inclement weather, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, sales tax rates and rate increases, sustained periods of inflation, civil disturbances and terrorist activities, foreign currency exchange rate fluctuations, consumer confidence in future economic and political conditions, natural disasters, and consumer perceptions of personal well‑being and security, including health epidemics or pandemics, such as the COVID-19 pandemic. Prolonged or pervasive economic downturns could slow the pace of new store openings or cause current stores
to temporarily or permanently close. Adverse changes in factors affecting discretionary consumer spending have reduced and may continue to further reduce consumer demand for our products, thus reducing our sales and harming our business and operating results.
Historically, because customers consider home furnishings to be postponable purchases, the home furnishings industry has been subject to cyclical variations in the general economy and to uncertainty regarding future economic prospects. Should the current economic recovery falter or the current recovery
The rise of oil and gasoline prices could affect our profitability.
A significant increase in housing starts to stall, consumer confidenceoil and demand for home furnishings could deteriorate, whichgasoline prices could adversely affect our profitability. In addition, governmental efforts to combat climate change through reduction of greenhouse gases may result in higher fuel costs through taxation or other means. Our distribution system, which utilizes three DCs and multiple home delivery centers is very transportation dependent and includes the use of third-party providers to reach the 22 states and the District of Columbia that we serve from our stores across 16 Southern and Midwestern states. Merchandise is delivered to customers' homes by Havertys delivery teams. If transportation costs exceed amounts we are able to effectively pass on to the consumer, either by higher prices and/or higher delivery charges, then our profitability will suffer.
ESG risks could adversely affect our reputation and shareholder, employee, customer and third-party relationships and may negatively affect our stock price.
Businesses face increasing public scrutiny related to environmental, social and governance (“ESG”) activities. We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as environmental stewardship, including with respect to climate change, human capital management, support for our local communities, corporate governance and transparency, or fail to consider ESG factors in our business through its impactoperations.
Additionally, investors and shareholder advocates are placing ever increasing emphasis on how corporations address ESG issues in their business strategy when making investment decisions and when developing their investment theses and proxy recommendations. We may incur meaningful costs with respect to our ESG efforts and if such efforts are negatively perceived, our reputation and stock price may suffer.
Pending or unforeseen litigation and the performancepotential for adverse publicity associated with litigation could have a material adverse effect on us.
We are involved from time to time in various legal proceedings arising in the ordinary course of our stores.business, including commercial, consumer safety, product liability, employment and intellectual property claims. We currently do not expect the outcome of any pending matters to have a material adverse effect on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more pending claims asserted against us, or claims that may be asserted in the future that we are currently not aware of, or adverse publicity resulting from any such litigation, could adversely impact our business, reputation, sales, profitability, cash flows and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. Cybersecurity
Risk management and strategy
We have processes in place to identify, assess and monitor material risks from cybersecurity threats. These processes are part of our overall enterprise risk management process and are part of our operating procedures, internal controls, and information systems. These risks include, among other things, operational risks; fraud; extortion; harm to employees or customers; violation of privacy or security laws and other litigation and legal risk; and reputational risks. We have developed and implemented a cybersecurity framework intended to assess, identify and manage risks from threats to the security of our information, systems, and network using a risk-based approach. The framework is informed in part by the National Institute of Standards and Technology (NIST) Cybersecurity Framework, although this does not imply that we meet all technical standards, specifications or requirements under the NIST.
Our key cybersecurity processes include the following:
•Risk-based controls for information systems and information on our networks: We seek to maintain an information technology infrastructure that implements physical, administrative and technical controls that are calibrated based on risk and designed to protect the confidentiality, integrity and availability of our information systems and information stored on our networks, including customer and employee information.
•Cybersecurity incident response plan and testing: We have a cybersecurity incident response plan and dedicated teams to respond to cybersecurity incidents. When a cybersecurity incident occurs or we identify a vulnerability, we have cross-functional teams that are responsible for leading the initial assessment of priority and severity, and external experts may also be engaged as appropriate. Our cybersecurity teams assist in responding to incidents depending on severity levels and seek to improve our cybersecurity incident management plan through periodic tabletops or simulations.
•Training: We provide security awareness training to help our employees understand their information protection and cybersecurity responsibilities. We also provide additional training to some employees based their roles.
•Supplier risk assessments: Our processes also address cybersecurity threat risks associated with our use of third-party service providers, including those in our supply-chain or who have access to our customer and employee data on our systems. Third-party risks are included within our risk management assessment program, as well as our cybersecurity-specific risk identification program. These considerations affect the selection and access to our systems, data, or facilities. We also seek contractual commitments from key suppliers to appropriately secure and maintain their information technology systems and protect our information that is processed on their systems.
•Third-party assessments: We have third-party cybersecurity companies engaged to periodically assess our cybersecurity posture, to assist in identifying and remediating risks from cybersecurity threats. We have implemented several cybersecurity processes, technologies, and controls to aid in our efforts to assess, identify, and manage such risks.
As part of the above processes, we regularly engage with consultants, auditors, and other third-parties, including reviewing our cybersecurity program to help identify areas for continued focus, improvement and/or compliance.
To date, risks from cybersecurity threats or incidents have not materially affected the Company. However, the sophistication of and risks from cybersecurity threats and incidents continues to increase, and the preventative actions we have taken and continue to take to reduce these risks and protect our systems and information may not successfully protect against all cybersecurity threats and incidents. For more information on how cybersecurity risk could materially affect our business strategy, results of operations, or financial condition, please refer to Item 1A Risk Factors.
The board of directors, as a whole, has oversight responsibility for our strategic and operational risks. The audit committee regularly reviews and discusses with management the strategies, processes and controls pertaining to the management of our information technology operations, including cyber risks and cybersecurity. Our Chief Information Officer (CIO) and other internal members of our technology team provide regular reports to the audit committee regarding the evolving cybersecurity landscape, including emerging risk, as well as our processes, program and initiatives for managing these risks. The audit committee, in turn, periodically reports on its review with the board of directors.
Management is responsible for day-to-day assessment and management of cybersecurity risks. Our cybersecurity risk management and strategy processes are led by our CIO, VP Information Technology, and Manager of Security. Such individuals have collectively over 50 years of work experience in various roles managing information security, developing cybersecurity strategy, and implementing effective information and cybersecurity programs.
The CIO also presents at least annually to the Board an overview of our cybersecurity threat risk management and strategy processes covering topics such as data security posture, results of third-party assessments, our incident response plan, and cybersecurity threat risks or incidents and developments, as well as the steps management has taken to respond to such risks.
ITEM 2.PROPERTIES
Stores
Our retail store space at December 31, 20212023 totaled approximately 4.4 million square feet for 121 stores.124 stores. The following table sets forth the number of stores we operated at December 31, 20212023 by state:
State | Number of Stores | | State | Number of Stores |
Florida | 30 | | Maryland | 4 |
Texas | 21 | | Arkansas | 3 |
Georgia | 17 | | Louisiana | 3 |
North Carolina | 8 | | Kentucky | 2 |
Virginia | 8 | | Missouri | 2 |
South Carolina | 7 | | Ohio | 2 |
Alabama | 6 | | Indiana | 1 |
Tennessee | 6 | | Kansas | 1 |
| | | | | | | | | | | | | | |
State | Number of Stores | | State | Number of Stores |
Florida | 30 | | Maryland | 4 |
Texas | 21 | | Arkansas | 3 |
Georgia | 15 | | Louisiana | 3 |
North Carolina | 10 | | Ohio | 3 |
Virginia | 10 | | Kentucky | 2 |
South Carolina | 7 | | Missouri | 2 |
Alabama | 6 | | Indiana | 1 |
Tennessee | 6 | | Kansas | 1 |
The 4039 retail locations which we owned at December 31, 20212023 had a net book value for land and buildings of $65.4$65.0 million. The remaining 8185 locations are leased by us with various termination dates through 2035 plus renewal options.
Distribution Facilities
We lease allAll of our distribution facilities at December 31, 2023 were leased except for the Florida and Virginia property.properties. Our regional distribution facilities are in the following locations:
| | | | | |
Location | | Approximate Square Footage | |
Braselton, Georgia | | | 808,000 | |
Coppell, Texas | | | 394,000 | 409,000 |
Lakeland, Florida | | | 335,000 | |
Colonial Heights, Virginia | | | 129,000 | |
Fairfield, Ohio | | | 50,000 | 72,000 |
Theodore, Alabama | | | 42,000 | |
Memphis, Tennessee | | | 30,000 | |
Corporate Facilities
We lease approximately 48,000 square feet on two floors of a suburban mid-rise office building located at 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia.
We believe that our facilities are suitable and adequate for present purposes, and that the productive capacity in such facilities is substantially being utilized. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this report under Item 7 of Part II.
ITEM 3. LEGAL PROCEEDINGS
From timeThe Company is subject to time, we may become involved in various lawsuitsclaims and legal proceedings whichcovering a wide range of matters, including with respect to product liability and personal injury claims, that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in theseits business activities. We currently have no pending claims or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe willwould be reasonably likely to have a material adverse effect on our business, financial condition, results of operations or operating results.cash flows. However, there can be no assurance that either future litigation or an unfavorable outcome in existing claims will not have a material impact on our business, reputation, financial position, cash flows or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Our executive officers are elected or appointed annually by the Board of Directors for terms of one year or until their successors are elected and qualified, subject to removal by the Board at any time. The following are the names, ages and current positions of our executive officers and, if they have not held those positions for the past five years, their former positions during that period with Havertys or other companies.
Name, age and office (as of March 1, 2022) and year elected to office | | Principal occupation during last five years other than office of the Company currently held |
Clarence H. Smith | 71 | Chairman of the Board Chief Executive Officer Director | 2012 2002 1989 | | President and Chief Executive Officer, 2002-March 1, 2021 |
Steven G. Burdette | 60 | President | 2021 | | Executive Vice President, Operations 2017-March 1, 2021 Executive Vice President, Stores, 2008-2017 |
J. Edward Clary | 61 | Executive Vice President, and Chief Information Officer | 2015 | | Senior Vice President, Distribution and Chief Information Officer 2008-2015 |
John L. Gill | 58 | Executive Vice President, Merchandising | 2019 | | Senior Vice President, Merchandising 2018-2019; Vice President, Merchandising 2017-2018; Vice President, Operations 2015-2017; Eastern Regional Manager 2016-2018. |
Richard B. Hare | 55 | Executive Vice President and Chief Financial Officer | 2017 | | Senior Vice President, Finance, Treasurer and Chief Financial Officer of Carmike Cinemas, Inc., 2006-2016 |
Helen B. Bautista | 55 | Senior Vice President, Marketing | 2021 | | Vice President, Marketing for Havertys, 2019-March 1, 2021; Senior Vice President Group Account Director, 2018-2019, Vice President Group Account Director 2016-2018, Group Account Director, 2013-2016 all for Fitzco, a McCann World Group Agency |
Kelley A. Fladger | 52 | Senior Vice President and Chief Human Resources Officer | 2019 | | Vice President, Human Resource Services, 2016-2019 and Chief Diversity and Inclusion Officer, 2017-2019 for Perdue Farms, Inc.; Vice President, People Strategy and Corporate Human Resources 2014-2016 for Belk, Inc. |
| | | | | | | | | | | | | | |
Name, age and office (as of March 1, 2024) and year elected to office | Principal occupation during last five years other than office of the Company currently held |
Clarence H. Smith | 73 | Chairman of the Board Chief Executive Officer | 2012 2002 | President and Chief Executive Officer, 2002-March 1, 2021 |
| | Director | 1989 | |
Steven G. Burdette | 62 | President | 2021 | Executive Vice President, Operations 2017-March 1, 2021 Executive Vice President, Stores, 2008-2017 |
J. Edward Clary | 63 | Executive Vice President, and Chief Information Officer | 2015 | Has held this position for the last five years. |
John L. Gill | 60 | Executive Vice President, Merchandising | 2019 | Senior Vice President, Merchandising 2018-2019; Vice President, Merchandising 2017-2018 |
Richard B. Hare | 57 | Executive Vice President and Chief Financial Officer | 2017 | Has held this position for the last five years. |
Helen B. Bautista | 57 | Senior Vice President, Marketing | 2021 | Vice President, Marketing for Havertys, 2019-March 1, 2021; Senior Vice President Group Account Director, 2018-2019 for Fitzco, a McCann World Group Agency |
Kelley A. Fladger | 54 | Senior Vice President and Chief Human Resources Officer | 2019 | Vice President, Human Resource Services, 2016-2019 and Chief Diversity and Inclusion Officer, 2017-2019 for Perdue Farms, Inc. |
| | | | |
Jenny Hill Parker | 65 | Senior Vice President, Finance, and Corporate Secretary | 2019 | Senior Vice President, Finance, Treasurer and Corporate Secretary 2010-2019 |
Janet E. Taylor | 62 | Senior Vice President, General Counsel | 2010 | Has held this position for the last five years |
Name, age and office (as of March 1, 2022) and year elected to office
| | Principal occupation during last five years other than office of the Company currently held |
Rawson Haverty, Jr. | 65 | Senior Vice President, Real Estate and Development Director | 1988 1992 | | Has held this position for the last five years |
Jenny Hill Parker | 63 | Senior Vice President, Finance, and Corporate Secretary | 2019 | | Senior Vice President, Finance, Treasurer and Corporate Secretary 2010-2019 |
Janet E. Taylor | 60 | Senior Vice President, General Counsel | 2010 | | Has held this position for the last five years |
Clarence H. Smith and one of our directors, Rawson Haverty, Jr. and Clarence H. Smith, are first cousins.
Our executive officers are elected or appointed annually by the Board of Directors for terms of one year or until their successors are elected and qualified, subject to removal by the Board at any time.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our stock began trading publicly in October 1929. We have two classes of common stock which trade on The New York Stock Exchange (“NYSE”("NYSE") under the symbol HVT for our common stock ("Common Stock") and HVT.A for our Class A Common stock ("Class A Common Stock").
Stock Performance Graph
The trading symbolfollowing graph compares the performance of Havertys’ Common Stock and Class A Common Stock against the cumulative return of the NYSE/AMEX/Nasdaq Home Furnishings & Equipment Stores Index (SIC Codes 5700 – 5799) and the S&P SmallCap 600 Index for the common stock is HVTperiod of five years commencing December 31, 2018 and for Class A common stock is HVT.A.ending December 31, 2023. The graph assumes an initial investment of $100 on January 1, 2018 and reinvestment of dividends. NOTE: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2024. Index Data: Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| | | | | | | | | | | |
HVT | $ | 100.00 | | | $ | 111.59 | | | $ | 170.53 | | | $ | 205.69 | | | $ | 215.60 | | | $ | 274.78 | |
HVT-A | $ | 100.00 | | | $ | 113.83 | | | $ | 180.99 | | | $ | 204.99 | | | $ | 221.09 | | | $ | 272.82 | |
S&P SmallCap 600 Index | $ | 100.00 | | | $ | 122.78 | | | $ | 136.64 | | | $ | 173.29 | | | $ | 145.39 | | | $ | 168.73 | |
SIC Codes 5700-5799 | $ | 100.00 | | | $ | 150.35 | | | $ | 205.18 | | | $ | 277.11 | | | $ | 182.77 | | | $ | 212.77 | |
Stockholders
Based on the number of individual participants represented by security position listings, there are approximately 12,46911,400 holders of our common stock and 181200 holders of our Class A common stock as of February 10, 2022.
5, 2024.
Dividends
We have historically paid and expect to continue to pay for the foreseeable future, quarterly cash dividends on our Common Stock and Class A Common Stock. The payment of dividends and the amount are determined by the Board of Directors and depend upon, among other factors, our earnings, operations, financial condition, capital requirements and general business outlook at the time such dividend isdividends are considered. We have paid a cash dividend in each year since 1935. Our credit agreement includes covenants that may restrict our ability to pay dividends. For more information, see Note 5, “Credit Arrangement,” and Note 9, “Stockholders’ Equity,” in the Notes to Consolidated Financial Statements.
Equity Compensation Plans
For information regarding securities authorized for issuance under our equity compensation plans, see Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Issuer Purchases of Equity Securities
In AugustThe board of directors has authorized management, at its discretion, to purchase limited amounts of our Common Stock and Class A Common Stock. The program was initially approved by the board on November 2021, our Board of Directors3, 1986 and the board has subsequently authorized additional amounts under a sharefor repurchase. The current repurchase authorization was approved on August 5, 2022, when the board of directors authorized an additional $25.0 million for our stock repurchase program. We made cash payments of $41.8 million for repurchases ofThe stock repurchase program has no expiration date but may be terminated by our common stock through open market purchases during 2021 and there is approximately $25.0 millionboard at December 31, 2021 that may yet be purchased under the existing authorization.
any time.
The following table presents information with respect to our repurchasesrepurchase of Havertys’ common stock during the fourth quarter of 2021:2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| (a) Total Number of Shares Purchased | | (b) Average Price Paid Per Share | | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | (d) Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs |
October 1 - October 31 | — | | | $ | — | | | — | | | $ | 16,814,000 | |
November 1 - November 30 | 99,768 | | | $ | 29.55 | | | 99,768 | | | $ | 13,865,000 | |
December 1 - December 31 | 23,082 | | | $ | 32.61 | | | 23,082 | | | $ | 13,113,000 | |
Total | 122,850 | | | | | 122,850 | | | |
| | (a) | | | (b) | | | (c) | | | (d) | |
| |
Total Number of Shares Purchased | | |
Average Price Paid Per Share | | |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | |
Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs | |
October 1 – October 31 | | | — | | | | — | | | | — | | | $ | 22,321,200 | |
November 1 – November 30 | | | 403,627 | | | $
| 33.08 | | | | 403,627 | | | $ | 33,970,000 | |
December 1 – December 31 | | | 291,000 | | | $
| 30.80 | | | | 291,000 | | | $ | 25,006,000 | |
Total | | | 694,627 | | | | | | | | 694,627 | | | | | |
Stock Performance Graph
The following graph compares the performance of Havertys’ common stock and Class A common stock against the cumulative return of the NYSE/AMEX/Nasdaq Home Furnishings & Equipment Stores Index (SIC Codes 5700 – 5799) and the S&P SmallCap 600 Index for the period of five years commencing December 31, 2016 and ended December 31, 2021. The graph assumes an initial investment of $100 on January 1, 2015 and reinvestment of dividends. NOTE: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2022. Index Data: Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved.
| | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | |
| | | | | | | | | | | | | | | | | | |
HVT | | $ | 100.00 | | | $ | 97.18 | | | $ | 87.46 | | | $ | 97.59 | | | $ | 149.14 | | | $ | 179.89 | |
HVT-A | | $ | 100.00 | | | $ | 101.11 | | | $ | 85.79 | | | $ | 97.65 | | | $ | 155.27 | | | $ | 175.86 | |
S&P SmallCap 600 Index | | $ | 100.00 | | | $ | 113.23 | | | $ | 103.63 | | | $ | 127.24 | | | $ | 141.60 | | | $ | 179.58 | |
SIC Codes 5700-5799 | | $ | 100.00 | | | $ | 127.28 | | | $ | 102.02 | | | $ | 151.70 | | | $ | 206.24 | | | $ | 286.79 | |
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion provides an analysis of the Company’s financial condition and results of operations from management's perspective and should be read in conjunction with the consolidated financial statements and related notes included in this report. The discussion in this Form 10-K generally focuses on the year ended December 31, 2023 compared to the year ended December 31, 2022. A discussion of our results of operations and changes in financial condition for the 2022 year compared to 2021 has been excluded from this report, but can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-K for the year ended December 31, 2022.
Industry
The retail residential furniture industry’s results are influenced by the overall strength of the economy, new and existing housing sales, consumer confidence, spending on large ticket items, interest rates, and availability of credit. These factors remain tempered by impediments to industry growth, such as inflation, higher interest rates, rising consumer debt, home inventory constraints, and tight access to home mortgage credit, all of which provide impediments to industry growth.
and continuing economic uncertainty.
Our Business
We sell home furnishings in our retail stores and via our website and record revenue when the products are delivered to our customer. Our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles. Our commissioned sales team members receive a high level of product training and are provided a number of tools with which to serve our customers. We also have over 120 over 110 in‑home designers serving most of our stores. These individuals work with our sales team members to provide customers additional confidence and inspiration in their furniture purchase journey. We do not outsource the delivery function, something common in the industry, but instead ensure that the “last contact” is handled by a customer-oriented Havertys delivery team. We are recognized as a provider of high-quality fashionable products and exceptional service in the markets we serve.
Impact of COVID-19
The COVID-19 pandemic continues to impact numerous aspects of our business.
Our sales remain at record levels as we have experienced unprecedented customer demand for our products during the COVID-19 pandemic. Consumers not negatively impacted financially are spending on their homes. Our online shopping and chat continued to surge during 2021 and outpaced similar activity in 2020. Store traffic remained strong as customers shop online but want to touch, see, and comfort test before purchasing. Consumers are also favoring quality over price and our average ticket rose in 2021 compared to 2020. Our main priority continues to be the health, safety and well-being of our customers and employees. We continue to invest in supplies for the protection of our employees and customers and increased the frequency of cleaning and disinfecting our stores. Demand is outpacing product availability in many categories. Manufacturers are challenged to ensure safe work environments and have encountered raw material shortages and transportation capacity issues. Our supply chain and sales teams, supported by a strong IT infrastructure, are working to communicate with customers and manage delivery expectations.
The long-term impact to our business remains unknown as we are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity and transmissibility of the disease, the duration of the outbreak, the likelihood of additional variants and resurgences of the outbreak, actions that may be taken by governmental authorities in response to the disease, the distribution, efficacy and public acceptance of vaccines, and unintended consequences of the foregoing. Furthermore, the continuing pandemic and related economic uncertainty may result in prolonged disruption and volatility to our business and magnify certain risks, including risks associated with our supply chain and sourcing quality merchandise domestically and outside the U.S.; our ability to promptly adjust inventory levels to meet fluctuations in customer demand; our ability to comply with complex and evolving laws and regulations related to customers’ and employees’ health and safety; our ability to open new store locations and expand or remodel existing stores; and our ability to hire and train qualified employees to address temporary or sustained labor shortages.
At this point, we cannot reasonably estimate the duration of the pandemic’s influence on consumers and the “nesting” economy.
Management is focused on capturing more market share and increasing sales per square foot of showroom space.improving profitability. This growth will be driven by concentrating our efforts on our customers, with improved interactions highlighted by new products, high touchhigh-touch service and better technology. In addition, our growth strategy includes the expansion of our retail operations to increase our footprint within our distribution network. The Company’s strategies for profitability include gross margin focus, targeted marketing initiatives, productivity and process improvements, and efficiency and cost-saving measures. Our focus is to serve our customers better and distinguish ourselves in the marketplace.
Key Performance Indicators
We evaluate our performance based on several key metrics which include net sales, comparable store sales and written comparable store sales,sales; sales per weighted average square foot,foot; gross profit, selling, general and administrative costs as a percentage of sales,sales; operating income,income; cash flow,flow; and earnings per share. The goal of utilizing these measurements is to provide tools infor economic decision-making, such asincluding decisions related to store growth, capital allocation and product pricing.
Net sales is the revenuesrevenue from merchandise sales and related fees, net of expected returns and sales tax. We record our sales when the merchandise is delivered to the customer.
Comparable-store or “comp-store” sales is a measure which indicates the performance of our existing stores and website by comparing the growth in sales in store and online for a particular month over the corresponding month in the prior year. Stores are considered non-comparable if they were not open during the corresponding month in the prior year or if the selling square footage has been changed by more than 10%. Large clearance sales events from warehouses or temporary locations are also excluded from comparable store sales. The method we use to compute comp-store sales may not be the same method used by other retailers.
We also track written sales and written comp-store sales. Written sales arereflect those instances when a customer makes a deposit or pays in full and placeswhen placing an order. Written sales shows the current pace or trend of customer transactions. The lag time between customers placing orderscustomers' order placement and delivery grew in 2020 and remained high during 2021continued through mid-2022 due to demand outpacing merchandise supply and disruptions in supply chain.chain and demand that outpaced merchandise supply but normalized in 2023. As a retailer, comp‑store sales and written comp‑store sales are an indicator of relative customer spending and store performance. Comp-store sales, total written sales and written comp-store sales are intended only as supplemental information and isare not a substitute for net sales presented in accordance with US GAAP.
Sales per weighted average (“WAVG”) square foot is calculated by dividing net sales by WAVG square footage. WAVG square footage is a daily WAVG based on the ratio of the days open in a period to the total days in the period.
Results of Operations and Non-GAAP Measures
The table and discussion below should be read in conjunction with our consolidated financial statements and related notes included in this report.
Statement of Earnings Data | | Year Ended December 31, | |
(Dollars in thousands, except per share data) | | 2021 | | | 2020(1) | | | 2019 | | | 2018 | | | 2017 | |
Net sales | | $ | 1,012,799 | | | $ | 748,252 | | | $ | 802,291 | | | $ | 817,733 | | | $ | 819,866 | |
Gross profit | | | 574,625 | | | | 418,994 | | | | 434,488 | | | | 446,542 | | | | 444,923 | |
Percent of net sales | | | 56.7 | % | | | 56.0 | % | | | 54.2 | % | | | 54.6 | % | | | 54.3 | % |
Selling, general and administrative expenses(2) | | | 456,267 | | | | 377,288 | | | | 407,456 | | | | 404,856 | | | | 402,884 | |
Percent of net sales | | | 45.1 | % | | | 50.4 | % | | | 50.8 | % | | | 49.5 | % | | | 49.1 | % |
Income before income taxes(2)(3) | | | 118,535 | | | | 76,731 | | | | 28,724 | | | | 40,408 | | | | 43,223 | |
Percent of net sales | | | 11.7 | % | | | 10.3 | % | | | 3.6 | % | | | 4.9 | % | | | 5.3 | % |
Net income(2)(3) | | | 90,803 | | | | 59,148 | | | | 21,865 | | | | 30,307 | | | | 21,075 | |
Percent of net sales | | | 9.0 | % | | | 7.9 | % | | | 2.7 | % | | | 3.7 | % | | | 2.6 | % |
Share Data | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per Common share(2)(3) | | $ | 4.90 | | | $ | 3.12 | | | $ | 1.08 | | | $ | 1.42 | | | $ | 0.98 | |
Cash dividends – per share: | | | | | | | | | | | | | | | | | | | | |
Common Stock(4) | | $ | 2.97 | | | $ | 2.77 | | | $ | 0.76 | | | $ | 1.72 | | | $ | 0.54 | |
Class A Common Stock(4) | | $ | 2.79 | | | $ | 2.62 | | | $ | 0.72 | | | $ | 1.63 | | | $ | 0.51 | |
Diluted weighted average common shares outstanding | | | 18,543 | | | | 18,932 | | | | 20,261 | | | | 21,295 | | | | 21,599 | |
Balance Sheet Data | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 686,290 | | | $ | 680,372 | | | $ | 560,072 | | | $ | 440,179 | | | $ | 461,329 | |
Inventories | | | 112,031 | | | | 89,908 | | | | 104,817 | | | | 105,840 | | | | 103,437 | |
Net property and equipment(5) | | | 126,099 | | | | 108,366 | | | | 156,534 | | | | 218,852 | | | | 229,215 | |
Right-of-use lease assets | | | 222,356 | | | | 228,749 | | | | 175,474 | | | | — | | | | — | |
Lease liabilities | | | 230,352 | | | | 233,666 | | | | 179,055 | | | | — | | | | — | |
Customer deposits | | | 98,897 | | | | 86,183 | | | | 30,121 | | | | 24,465 | | | | 27,813 | |
Total debt(6) | | | — | | | | — | | | | — | | | | 50,803 | | | | 54,591 | |
Stockholders’ Equity | | | 255,970 | | | | 252,967 | | | | 260,503 | | | | 274,629 | | | | 294,142 | |
Statement of Cash Flows Data | | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | $ | 97,242 | | | $ | 130,191 | | | $ | 63,419 | | | $ | 70,392 | | | $ | 52,457 | |
Depreciation and amortization(5) | | | 16,304 | | | | 18,207 | | | | 20,596 | | | | 29,806 | | | | 30,516 | |
Capital expenditures | | | 34,090 | | | | 10,927 | | | | 16,841 | | | | 21,473 | | | | 24,465 | |
Dividends paid | | | 52,446 | | | | 50,521 | | | | 15,056 | | | | 35,464 | | | | 11,392 | |
Share repurchases | | | 41,809 | | | | 19,708 | | | | 29,757 | | | | 18,732 | | | | — | |
Other Supplemental Data and Metrics | | | | | | | | | | | | | | | | | | | | |
Number of stores | | | 121 | | | | 120 | | | | 121 | | | | 120 | | | | 124 | |
Retail square footage at year-end | | | 4,354 | | | | 4,352 | | | | 4,426 | | | | 4,417 | | | | 4,517 | |
Sales per WAVG retail square foot ($) | | | 232 | | | | 173 | | | | 183 | | | | 185 | | | | 185 | |
Average ticket ($)(7) | | | 2,865 | | | | 2,482 | | | | 2,323 | | | | 2,184 | | | | 2,091 | |
Net sales increases (%) | | | 35.4 | % | | | (6.7 | )% | | | (1.9 | )% | | | (0.3 | )% | | | (0.2 | )% |
Comparable store sales increase (%) | | | 17.9 | % | | | 5.0 | % | | | (1.4 | )% | | | 0.3 | % | | | (1.3 | )% |
Employees | | | 2,845 | | | | 2,766 | | | | 3,425 | | | | 3,418 | | | | 3,551 | |
(1) | Stores were closed and delivery operations were paused for approximately six weeks due to COVID-19. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Statement of Earnings Data | | Year Ended December 31, |
(Dollars in thousands, except per share data) | | 2023 | | 2022 | | 2021 | | 2020(1) | | 2019 |
Net sales | $ | 862,133 | | $ | 1,047,215 | | $ | 1,012,799 | | $ | 748,252 | | $ | 802,291 | |
Gross profit | | 523,092 | | | 604,224 | | | 574,625 | | | 418,994 | | | 434,488 | |
Percent of net sales | | 60.7 | % | | 57.7 | % | | 56.7 | % | | 56.0 | % | | 54.2 | % |
Selling, general and administrative expenses(2) | | 455,812 | | | 486,298 | | | 456,267 | | | 377,288 | | | 407,456 | |
Percent of net sales | | 52.9 | % | | 46.4 | % | | 45.1 | % | | 50.4 | % | | 50.8 | % |
Income before income taxes(2)(3) | | 72,711 | | | 119,501 | | | 118,535 | | | 76,731 | | | 28,724 | |
Percent of net sales | | 8.4 | % | | 11.4 | % | | 11.7 | % | | 10.3 | % | | 3.6 | % |
Net income(2)(3) | | 56,319 | | | 89,358 | | | 90,803 | | | 59,148 | | | 21,865 | |
Percent of net sales | | 6.5 | % | | 8.5 | % | | 9.0 | % | | 7.9 | % | | 2.7 | % |
Share Data | | | | | | | | | | |
Diluted earnings per Common share(2)(3) | $ | 3.36 | | $ | 5.24 | | $ | 4.90 | | $ | 3.12 | | $ | 1.08 | |
Cash dividends – per share: | | | | | | | | | | |
Common Stock(4) | $ | 2.18 | | $ | 2.09 | | $ | 2.97 | | $ | 2.77 | | $ | 0.76 | |
Class A Common Stock(4) | $ | 2.05 | | $ | 1.96 | | $ | 2.79 | | $ | 2.62 | | $ | 0.72 | |
Diluted weighted average common shares outstanding | | 16,774 | | | 17,038 | | | 18,543 | | | 18,932 | | | 20,261 | |
Balance Sheet Data | | | | | | | | | | |
Total assets | $ | 654,133 | | $ | 649,049 | | $ | 686,290 | | $ | 680,372 | | $ | 560,072 | |
Inventories | | 93,956 | | | 118,333 | | | 112,031 | | | 89,908 | | | 104,817 | |
Net property and equipment(5) | | 171,588 | | | 137,475 | | | 126,099 | | | 108,366 | | | 156,534 | |
Right-of-use lease assets | | 202,306 | | | 207,390 | | | 222,356 | | | 228,749 | | | 175,474 | |
Lease liabilities | | 217,754 | | | 221,287 | | | 230,352 | | | 233,666 | | | 179,055 | |
Customer deposits | | 35,837 | | | 47,969 | | | 98,897 | | | 86,183 | | | 30,121 | |
Total debt(6) | | — | | | — | | | — | | | — | | | — | |
Stockholders’ Equity | | 308,366 | | | 289,399 | | | 255,970 | | | 252,967 | | | 260,503 | |
Statement of Cash Flows Data | | | | | | | | | | |
Net cash provided by operating activities | $ | 97,203 | | $ | 51,015 | | $ | 97,242 | | $ | 130,191 | | $ | 63,419 | |
Depreciation and amortization(5) | | 18,603 | | | 16,926 | | | 16,304 | | | 18,207 | | | 20,596 | |
Capital expenditures | | 53,115 | | | 28,411 | | | 34,090 | | | 10,927 | | | 16,841 | |
Dividends paid | | 35,240 | | | 33,948 | | | 52,446 | | | 50,521 | | | 15,056 | |
Share repurchases | | 6,895 | | | 29,998 | | | 41,809 | | | 19,708 | | | 29,757 | |
Other Supplemental Data and Metrics | | | | | | | | | | |
Number of stores | | 124 | | | 122 | | | 121 | | | 120 | | | 121 | |
Retail square footage at year-end | | 4,387 | | | 4,363 | | | 4,354 | | | 4,352 | | | 4,426 | |
Sales per WAVG retail square foot | $ | 197 | | $ | 241 | | $ | 232 | | $ | 173 | | $ | 183 | |
Average ticket (7) | $ | 3,278 | | $ | 3,171 | | $ | 2,865 | | $ | 2,482 | | $ | 2,323 | |
Net sales (decrease) increase (%) | | (17.7 | %) | | 3.4 | % | | 35.4 | % | | (6.7) | % | | (1.9) | % |
Comparable store sales (decrease) increase (%) | | (18.4 | %) | | 3.4 | % | | 17.9 | % | | 5.0 | % | | (1.4) | % |
Employees | | 2,574 | | | 2,831 | | | 2,845 | | | 2,766 | | | 3,425 | |
(2) | Includes impairment loss of $2.4 million, or $1.8 million after tax, on a retail store in 2019 which impacted diluted earnings per share $0.09. |
(1)Stores were closed and delivery operations were paused for approximately six weeks due to COVID-19.(3) | Includes gain of $31.6 million on a sale-leaseback transaction in 2020 which impacted diluted earnings per share $1.24. |
(2)Includes impairment loss of $2.4 million, or $1.8 million after tax, on a retail store in 2019 which impacted diluted earnings per share $0.09.(4) | Includes special dividends of $2.00 for Common Stock and $1.90 for Class A Common Stock paid in the fourth quarter of 2021 and 2020 and $1.00 for Common Stock and $0.95 for Class A Common Stock paid in the fourth quarter of 2018. |
(3)Includes gain of $31.6 million on a sale-leaseback transaction in 2020 which impacted diluted earnings per share $1.24.(5) | We adopted ASC 840 effective January 1, 2019. The cumulative effect included a reduction of property and equipment, net of $53,519,000. Amortization of buildings under lease was included in depreciation expense. |
(4)Includes special dividends of $1.00 for Common Stock and $0.95 for Class A Common Stock paid in the fourth quarter of 2023 and 2022, and $2.00 for Common Stock and $1.90 for Class A Common Stock paid in the fourth quarter of 2021 and 2020.(6) | Debt is comprised completely of lease obligations accounted for under ASC 840, prior to adoption of ASU 2016-02. |
(5)We adopted ASC 840 effective January 1, 2019. The cumulative effect included a reduction of property and equipment, net of $53,519,000. Amortization of buildings under lease was included in depreciation expense.(7) | Average ticket is calculated by dividing total sales by the number of orders. |
(6)We have no funded debt.(7)Average ticket is calculated by dividing total sales by the number of orders.
Net Sales
The following outlines our sales and comp-store sales increases and decreases for the periods indicated. (Amounts and percentages may not always add to totals due to rounding.)
| | December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | Net Sales | | | Comp-Store Sales | | | Net Sales | | | Comp-Store Sales | | | Net Sales | | | Comp-Store Sales | |
Period Ended | | Dollars in millions | | % Increase (decrease) over prior period | | | % Increase (decrease) over prior period | | | Dollars in millions | | % Increase (decrease) over prior period | | | % Increase (decrease) over prior period | | | Dollars in millions | | % Increase (decrease) over prior period | | | % Increase (decrease) over prior period | |
Q1 | | $ | 236.5 | | | 31.8 | % | | | 11.5 | % | | $ | 179.4 | | | (4.2 | )% | | | 11.6 | % | | $ | 187.2 | | | (6.1 | )% | | | (4.7 | )% |
Q2 | | | 250.0 | | | 127.3 |
| | | 46.9 |
| | | 110.0 | | | (42.7 | ) | | | (15.2 | ) | | | 191.9 | | | (3.5 | ) | | | (2.3 | ) |
Q3 | | | 260.4 | | | 19.7 |
| | | 17.7 |
| | | 217.5 | | | 3.9 | | | | 4.0 | | | | 209.3 | | | (0.6 | ) | | | (0.4 | ) |
Q4 | | | 265.9 | | | 10.2 |
| | | 9.2 |
| | | 241.3 | | | 12.9 | | | | 13.7 | | | | 213.8 | | | 2.3 | | | | 1.4 | |
Year | | $ | 1,012.8 | | | 35.4 | % | | | 17.9 | % | | $ | 748.3 | | | (6.7 | )% | | | 5.0 | % | | $ | 802.3 | | | (1.9 | )% | | | (1.4 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2023 | | 2022 | | |
| | Net Sales | | Comp-Store Sales | | Net Sales | | Comp-Store Sales | | | | |
Period Ended | | Dollars in millions | | % Increase (decrease) over prior period | | % Increase (decrease) over prior period | | Dollars in millions | | % Increase (decrease) over prior period | | % Increase (decrease) over prior period | | | | | | |
Q1 | | $ | 224.8 | | | (5.9) | | % | | (6.7) | | % | | $ | 238.9 | | | 1.0 | | % | | 0.2 | % | % | | | | | | |
Q2 | | 206.3 | | | (18.5) | | | | (19.1) | | | | 253.2 | | | 1.3 | | | | 1.1 | | | | | | | | |
Q3 | | 220.3 | | | (19.7) | | | | (20.7) | | | | 274.5 | | | 5.4 | | | | 6.3 | | | | | | | | |
Q4 | | 210.7 | | | (24.9) | | | | (25.5) | | | | 280.6 | | | 5.5 | | | | 5.7 | | | | | | | | |
Year | | $ | 862.1 | | | (17.7) | | % | | (18.4) | | % | | $ | 1,047.2 | | | 3.4 | | % | | 3.4 | % | % | | | | | | |
Sales in 2021 reached2023 were below the record levels for each quarter as customer demand remained strong despite ongoing COVID concerns and supply chain challenges. The comparisons for 2020 reflect the impact of our store closures in mid‑March and re-opening on May 1, and the surge in business that followed. In response to increasing product and freight costs, we raised our retail prices. The impact of the supply chain disruptions is reflected in our sales by merchandise category. Our mattress business, as a percent of total sales, continues to lag at 8.9% compared to its pre-pandemic level of 11.3%.previous two years. The impact of the factory closures in Vietnam affected our sales of bedroom furniture, particularly in the fourth quarter, and we expect this may continue into the second quarter of 2022. Our upholstery suppliers made good strides towards meeting demand and sales in this category in 2021 increased 37.3% over 2020 and as a percent of total sales increased 60 basis points. COVID concerns continue to affect sales generated by our in-home designers and as a percent of our total sales they remain at the 2020 level of 22.8%.
Our ability to deliver customer orderssoft housing market has improved from 2020 but is still longer than pre-pandemic time frames. Manufacturers are beginning to recover from raw material shortages but are still challenged by worker shortages. Transportation logistics continue to contributecontributed to the supply chain disruption. Our warehouseslowing pace of sales along with persistent inflationary pressures and delivery operations are also adjusting to personnel shortages. Time between purchase and delivery lengthened from our pre-pandemic average of 3 to 5 days forshifts in stock items to 1 to 2 weeks due to staffing constraints. We have added additional team members and purchases of in stock product were generally delivered within 3 to 5 days during the last quarter of 2021. The disruptions to our supply chain have resulted in lower inventory and for out‑of‑stock merchandise delivery times can be 8 to 12 weeks. Our vendor partners for special order products continue to experience delays, but are reducing their backlogs and delivery on these orders are now 12 to 20 weeks on average.
Sales in 2020 were impacted by COVID-19. Our written sales suffered during the first weeks of March as information and news coverage concerning the pandemic increased. We closed our stores and paused operations mid-March. We enacted our business continuity plan in April which anticipated continued low levels of sales. Most stores reopened on May 1 with approximately 76% of their original staff, store hours were reduced 17%, and delivery capacity was also reduced. Our business was very strong upon reopening, total written sales for the two months ended June 30, 2020 were up 13.9% and written comparable store sales were up 17.5% compared to the same two-month period in 2019. Our written sales remained strong during the third quarter of 2020 with total written sales up 22.8% and written comparable store sales rose 22.6% over the same period in 2019. Our written sales in the fourth quarter were up 16.7% and written comp-store sales rose 17.5%.
Our delivery capacity was reduced as part of our business continuity plan in 2020. Deliveries resumed on May 5 with reduced personnel and capacity and total sales from May 5 through June 30, 2020 were down 13.4% compared with the same period of 2019. Demand quickly began to outpace supply and we worked during the third quarter to increase our inventory levels and delivery capacity. We adjusted our operations during the third quarter, adding additional personnel and worked with our vendors to accelerate orders.
Revenues by product category as a percentage of net sales in 2020 increased over 2019 by 220 basis points in upholstery sales and by 60 basis points in home office due to “nesting” buying, and our mattress business declined 160 basis points due to supply-chain disruption caused by COVID-19. Our in-home designer sales were hampered during 2020 but were 22.8% of our total sales compared to 25.3% in 2019. Total sales for 2020 decreased $54.0 million or 6.7% compared to 2019. Our comp-store sales, which includes online sales, increased 5.0% or $32.7 million in 2020 compared to 2019. The remaining $86.8 million of the change was primarily from our store closures in March through April and from new, closed and otherwise non-comparable stores.
Sales in 2019 declined for the year due to severe supply-chain disruptions as we moved several product lines out of China due to the increased tariffs. Although these changes were not fully resolved untilconsumer spending. During the first quarter of 2020,2023 we did see improvement latebenefited from the delivery of previously written orders. Consumers have returned to their historical shopping patterns of concentrating spending around traditional holiday events and our in-store traffic has declined, particularly outside these peak periods. Our sales associates and design consultants are providing excellent service to each customer, and average ticket value was up 3.4% over last year. Design consultant engagement increased in the third quarter2023 and accounted for 28.5% of 2019. Revenues by product category reflected the supply-chain disruptionour 2023 sales, with a drop in case goods sales. Our mattress business saw an increaseaverage written ticket of 6.5% over 2018 due to customer purchases of new higher price point offerings. We offer a number of custom upholstery items and sales in this category rose 6.8% in 2019 over 2018. Total$6,486. Merchandise sales for 2019 decreased $15.4 million or 1.9% comparedmost categories have returned to 2018. Comp-storetheir historical pre-COVID percentages of total sales, decreased 1.4% or $11.6 million in 2019 compared to 2018with the exception of mattresses. (See Note 2, "Revenues and the remaining $3.8 millionSegment Reporting" of the change was from closed, new and otherwise non-comparable stores. Notes to Consolidated Financial Statements).
2022 Outlook
We cannot predict the impact of consumer spending on home furnishings post-pandemic. We believe the strong housing market benefits our business as our footprint covers many of the fastest growing markets. We are improving our customers’ online experience and furthering our targeted marketing. We have well positioned stores, and we offer on-trend merchandise, knowledgeable salespeople, free in-home design service, and special-order capabilities.
Gross Profit
Our cost of goods sold consists primarily of the purchase price of the merchandise together with inbound freight, handling within our distribution centers and transportation costs to the local markets we serve. Our gross profit is primarily dependent upon vendor pricing, the mix of products sold and promotional pricing activity. Substantially all of our occupancy and home delivery costs are included in selling, general and administrative expenses as is a portion of our warehousing expenses. Accordingly, our gross profit may not be comparable to those entities that include some of these expenses in cost of goods sold.
Year-to-Year Comparisons
Gross profit as a percentage of net sales was 56.7%60.7% in 20212023 compared to 56.0%57.7% in 2020.2022. The increase of 70300 basis points was primarily due to merchandise price increasesreductions in freight and disciplined discounting offsetting product cost and freight increases.costs. The use ofchange in the LIFO methodreserve generated a $12.3positive impact on gross profit of $9.4 million charge in 2021 versus $0.6for 2023 compared to a negative impact of $10.8 million in 2020, or a negative 110 basis points impact to the total gross profit change. 2022.
Gross profit as a percentage of net sales was 56.0% in 2020 compared to 54.2% in 2019. The increase was primarily due to less discounting and sales promotions and product mix. The use of the LIFO method generated a $0.6 million charge in 2020 versus $1.8 million in 2019. The impact of changes in reserves, including LIFO, contributed approximately 23 basis points to the total gross profit improvement.
2022 Outlook
Our expectations for 2022 are for annual gross profit margins of approximately 56.6% to 57.0%. This assumes changes in merchandise and freight costs and its impact on the LIFO reserve.
Selling, General and Administrative Expenses
SG&A expenses are comprised of five categories: selling, occupancy, delivery and certain warehousing costs, advertising, and administrative. Selling expenses are primarily are comprised of compensation of sales team members and sales support staff, and fees paid to credit card and third-party finance companies. Occupancy costs include rents, depreciation charges, insurance and property taxes, repairs and maintenance expense and utility costs. Delivery costs include personnel, fuel costs, and depreciation and rental charges for rolling stock.
Warehouse costs include supplies, depreciation, and rental charges for equipment. Advertising expenses are primarily media production and space expenditures, direct mail costs, market research expenses and agency fees. Administrative expenses are comprised of compensation costs for store personnel exclusive of sales team members, information systems, executive, accounting, merchandising, advertising, supply chain, real estate and human resource departments.
We classify our SG&A expenses as either variable or fixed and discretionary. Our variable expenses include the costs in the selling and delivery categories and certain warehouse expenses as these amounts will generally move in tandem with our level of sales. The remaining categories and expenses are classified as fixed and discretionary because these costs do not fluctuate with sales.
The following table outlines our SG&A expenses by classification:
| 2021 | | | 2020 | | | 2019 | |
(In thousands) | | | % of Net Sales | | | | | % of Net Sales | | | | | | % of Net Sales | |
Variable | $ | 173,810 | | | 17.2 | % | | $ | 135,286 | | | 18.1 | % | | $ | 147,415 | | | 18.4 | % |
Fixed and discretionary | | 282,457 | | | 27.9 | | | | 242,002 | | | 32.3 | | | | 260,041 | | | 32.4 | |
| $ | 456,267 | | | 45.1 | | | $ | 377,288 | | | 50.4 | % | | $ | 407,456 | | | 50.8 | % |
Year-to-Year Comparisons | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | |
(In thousands) | | | % of Net Sales | | | | % of Net Sales | | | | |
Variable | $ | 170,472 | | | 19.8 | % | | $ | 193,675 | | | 18.5 | % | | | | |
Fixed and discretionary | 285,340 | | | 33.1 | | | 292,623 | | | 27.9 | | | | | |
| $ | 455,812 | | | 52.9 | % | | $ | 486,298 | | | 46.4 | % | | | | |
Our SG&A dollarscosts as a percent of sales for 2023 were 52.9% versus 46.4% in 2022. SG&A dollars decreased $30.5 million, or 6.3%, for 2023 compared to 45.1%2022. The change is driven by the reduction in 2021sales and lower variable costs and less leveraging of fixed costs. Our selling expenses were $14.1 million lower, inclusive of an $0.8 million increase in third-party credit costs due to rate increases. Warehouse, delivery, and transportation expenses declined $10.2 million from 50.4% in 2020. We were able2022 to leverage our fixed and discretionary costs2023 as we achieved record sales throughout the year. We increasedadjusted personnel levels, fuel prices fell, and our advertising spend $9.5 million in 2021 to $49.3 million. Our occupancy costs increased $3.9 million driven by greater rent expense primarily on the distribution facilities in the sale-leaseback in 2020 and higher utilities and repairs and maintenance partly offset by lower depreciation expense. Warehouse and transportation expense rose $10.6 million on higher salaries and benefits, temporary labor and $4.2 million in accessorial and demurrage fees. Administrative expense increased $18.9 million primarily from increased wages and related costs, higher amortization expense on performance stock awards, and increased incentive compensation costs.
Our SG&A dollars as a percent of sales decreased 40 basis points to 50.4% in 2020 from 50.8% in 2019. Our fixed and discretionary expenses fell $18.0 million or 6.9% in 2020 over 2019. This drop was due to actions taken as part of our business continuity plan.charges declined. Advertising expenditures decreased approximately $9.4 million. Ourwere $7.9 million lower in 2023 compared to 2022 and our occupancy costs were down $5.4 million in 2020 versus 2019 duerelatively flat. Our total administrative expenses were basically unchanged for 2023 compared to rent abatements in 2020 and a $2.4 million impairment charge in 2019. The workforce reduction in April also contributed to the reduction in our fixed and discretionary costs. Our variable expenses decreased 30 basis points as a percent of sales due to reduced third-party financing costs.
2022 Outlook
Fixed and discretionary type expenses within SG&A are expected to be in the $295.0 to $298.0 million range for 2022. We anticipate higher advertising and marketing costs in 2022, increased compensation and incentive expense, and additional costs associated with new stores. Fixed and discretionary type expenses are expected to be at similar quarterly levels in 2022 as in 2021, as adjusted for the overall increases.lower compensation costs were offset by higher professional service fees.
Variable costs within SG&A for 2022 are expected to be between 17.2% and 17.4% as a percent of sales. This increase is primarily driven by wage inflation and higher delivery costs.
Interest (Income) Expense, Net
We earned $0.1$3.9 million lessmore interest income, net of interest expense, in 20212023 than in 20202022 due to lowerhigher rates paid on cash, cash equivalents, and incurred $0.2 million less interest expense under our credit agreement.restricted cash equivalents.
Provision for Income Taxes
Our effective tax rate was 23.4%22.5% in 2021, 22.9%2023 compared to 25.2% in 2020 and 23.9% in 2019.2022. The rates vary from the U.S. federal statutory rate primarily due to state income taxes. The rates in 2021 and 2020 also benefitted from the recognition of state quality jobs credits of $481,000 and $1,527,000, respectively. See Note 7, “Income Taxes” of the Notes to Consolidated Financial Statements for further information about our income taxes.
Liquidity and Capital Resources
Cash and Cash Equivalents at End of Year
At December 31, 2021,2023, we had $166.1$120.6 million in cash and cash equivalents, and $6.7$7.1 million in restricted cash equivalents. See Note 1 to our consolidated financial statements for further discussion of our restricted cash equivalents. 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 to enable us to fund our capital expenditures, dividend payments, and lease obligations through the next several years.
Our material cash requirements include contractual and other obligations arising in the normal course of business. These obligations primarily include operating lease obligations and purchase obligations. In addition to our cash requirements, we believe we havefollow a disciplined approach to capital allocation. This approach first prioritizes investing in the abilitybusiness, followed by paying dividends. We may also return excess cash to obtain alternative sourcesshareholders in the form of financing.share repurchases or special cash dividends. We expect capital expenditures of approximately $37.0$32.0 million in 2022.
2024 to support our operations and strategic expansion, however these plans are subject to other potential opportunities, the economic environment, general business conditions and our financial performance.Long-Term Debt
In May 2020, we entered into the Third Amendment to our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”We currently have a $80.0 million revolving credit facility (the "Credit Agreement") with a bank. As of December 31, 2023, we had no outstanding borrowings and $80.0 million of available borrowings under the Credit Agreement. The Credit Agreement which matures September 27, 2024, provides for a $60.0 million revolving credit facility.October 24, 2027. See Note 5, “Credit Arrangement” of the Notes to Consolidated Financial Statements for information about our Credit Agreement.
Leases
We use operating leases to fund a portion of our real estate, including our stores, distribution centers, and store support space.
On May 18, 2020,At December 31, 2023, we completed a sale and leaseback transactionhad aggregate lease obligations of three facilities which we initiated in April as part of our business continuity plan. The total sales price for these properties, excluding costs and taxes, was $70.0$217.8 million, and their net book value was approximately $37.9 million. In August 2021, we purchased one of these facilities.with $37.4 million payable within 12 months. See Note 8, “Leases” of the Notes to Consolidated Financial Statements for further discussion of our operating leases.
Share Repurchases
In AugustThe board of directors has authorized management, at its discretion, to purchase and November 2021,retire limited amounts of our Board of Directors authorized additional amounts under a share repurchase program.Common Stock and Class A Common Stock. We made cash payments of $41.8$6.9 million for repurchases of approximately 227,000 shares of our common stockCommon Stock through open market purchases during 20212023 and there is approximately $25.0$13.1 million at December 31, 20212023 that may yet be purchased under the existing authorization.
Cash Flows Summary
Operating Activities. Cash flow generated from operations provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy costs.
Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, inventory selection, the timing of cash receipts and payments, and vendor payment terms.
Net cash provided by operating activities in 20212023 was $97.2 million driven primarily by net income of $90.8$56.3 million and non-cash adjustments to net income of $25.5$26.7 million consisting primarily of depreciation and amortization and stock-based compensation expense, and by working capital inflowschanges driven primarily by a $24.4 million decrease in inventories partly offset by a $12.1 million reduction in customer deposits and outflows for inventory turnover and timing of inventory purchases.deposits.
Net cash provided by operating activities in 20202022 was $130.2$51.0 million driven primarily by net income of $59.1$89.4 million and non-cash adjustments to net income of $14.0$25.8 million consisting primarily of gains from sales of property and equipment, depreciation and amortization and stock-based compensation expense, and changes in deferred income taxes, and by working capital inflowschanges driven primarily by a $50.9 million reduction in customer deposits, inventory turnover and timingdeposits.
Investing Activities. Cash used in investing activities in 20212023 consisted primarily reflected $34.1of $53.1 million of capital expenditures.
Cash provided byused in investing activities in 20202022 primarily reflected $76.3 million of proceeds from sale of property and equipment, primarily from the sale-leaseback transaction, net of $10.9$28.4 million of capital expenditures.
Financing Activities. Cash used in financing activities in 20212023 consisted primarily reflected $52.4of $19.1 million of quarterly cash dividends, paid$16.1 of special cash dividends, and $41.8$6.9 million of share repurchases.
Cash used in financing activities in 20202022 primarily reflected $50.5$17.9 million of quarterly cash dividends, paid$16.1 of special cash dividends, and $19.7$30.0 million of share repurchases.
Contractual Obligations
We have no short-term borrowings or funded debt. The following summarizes our contractual obligations and commercial commitments as of December 31, 2021 (in thousands):
| | Payments Due or Expected by Period | |
| | Total | | | Less than 1 Year | | | 1-3 Years | | | 3-5 Years | | | After 5 Years | |
Operating leases(1) | | $ | 290,696 | | | $ | 45,277 | | | $ | 78,992 | | | $ | 59,622 | | | $ | 106,805 | |
Rent deferrals(2) | | | 351 | | | | 131 | | | | — | | | | 32 | | | | 188 | |
Purchase orders | | | 201,520 | | | | 201,520 | | | | — | | | | — | | | | — | |
Total contractual obligations (3) | | $ | 492,567 | | | $ | 246,928 | | | $ | 78,992 | | | $ | 59,654 | | | $ | 106,993 | |
(1) | These amounts are for our undiscounted lease obligations recorded in our consolidated balance sheets, as lease liabilities. For additional information about our leases, refer to Note 8, “Leases” of the Notes to the Consolidated Financial Statements. |
(2) | Lease concessions related to the impact of COVID-19. For additional information about our leases, refer to Note 8, “Leases” of the Notes to the Consolidated Financial Statements. |
(3) | The contractual obligations do not include any amounts related to retirement benefits. For additional information about our plans, refer to Note 10, “Benefit Plans” of the Notes to the Consolidated Financial Statements. |
Store Expansion and Capital Expenditures
We have entered new markets and made continued improvements and relocations of our store base. The following outlines the change in our selling square footage for each of the three years ended December 31 (square footage in thousands):
| | 2021 | | | 2020 | | | 2019 | |
Store Activity: | | # of Stores | | | Square Footage | | | # of Stores | | | Square Footage | | | # of Stores | | | Square Footage | |
Opened | | | 2 | | | | 44 | | | | 1 | | | | 28 | | | | 3 | | | | 98 | |
Closed | | | 1 | | | | 42 | | | | 2 | | | | 102 | | | | 2 | | | | 88 | |
Year end balances | | | 121 | | | | 4,354 | | | | 120 | | | | 4,352 | | | | 121 | | | | 4,426 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Store Activity: | # of Stores | | Square Footage | | # of Stores | | Square Footage | | # of Stores | | Square Footage |
Opened | 4 | | 110 | | 3 | | 97 | | 2 | | 44 |
Closed | 2 | | 86 | | 2 | | 88 | | 1 | | 42 |
Year end balances | 124 | | 4,387 | | 122 | | 4,363 | | 121 | | 4,354 |
The following table summarizes our store activity in 20212023 and current plans for 2022.2024.
| | | | | | | | |
Location | Opening (Closing) Quarter Actual or Planned
| Category |
Myrtle Beach, SCDurham, NC | Q-1-21Q-1-23 | Open-New Market Open |
The Villages, FLAtlanta, GA | Q-3-21Q-3-23 | Open Closure - Outlet |
Dallas, TXCharlotte, NC | Q-3-21Q-4-23 | Closure Open |
Austin, TXDayton, OH | Q-2-22Q-4-23 | Open |
Indianapolis, INDallas, TX | Q-3-22Q-4-23 | Relocation Closure |
Metro DCRichmond, VA | Q-3-22Q-4-23 | Open - Outlet |
Atlanta, GAPine Bluff, AR | Q-3-22Q-1-24 | Closure |
TBAMemphis, TN | Q-4-22Q-1-24 | Open |
Destin, FL | Q-2-24 | Open |
Tampa, FL | Q-2-24 | Open |
Miami, FL | Q-3-24 | Open |
To Be Announced | Q-4-24 | Open |
These plansAssuming the new stores open and existing stores close as planned, the above activity and other changes should increase net selling space in 2022 2024 approximately 1% over 2021 assuming the new stores open and existing stores close as planned.2.8% compared to 2023.
Our investing activities in stores and operations in 2021, 20202023, 2022 and 20192021 and planned outlays for 20222024 are categorized in the table below. Capital expenditures for stores in the years noted do not necessarily coincide with the years in which the stores open.
(Approximate in thousands) | | Proposed 2022 | | | 2021 | | | 2020 | | | 2019 | |
Stores: | | | | | | | | | | | | |
New or replacement stores(1) | | $ | 10,000 | | | $ | 7,000 | | | $ | 1,000 | | | $ | 5,700 | |
Remodels/expansions | | | 3,600 | | | | 4,300 | | | | 600 | | | | 500 | |
Other improvements | | | 5,700 | | | | 4,500 | | | | 3,200 | | | | 4,100 | |
Total stores | | | 19,300 | | | | 15,800 | | | | 4,800 | | | | 10,300 | |
Distribution(1) | | | 13,500 | | | | 15,300 | | | | 3,600 | | | | 2,700 | |
Information technology | | | 4,200 | | | | 3,000 | | | | 2,500 | | | | 3,800 | |
Total | | $ | 37,000 | | | $ | 34,100 | | | $ | 10,900 | | | $ | 16,800 | |
(1) | In 2021 we purchased one retail location and one distribution facility that were previously leased. |
25
| | | | | | | | | | | | | | | | | | | | | | | |
(Approximate in thousands) | Proposed 2024 | | 2023 | | 2022 | | 2021 |
Stores: | | | | | | | |
New or replacement stores(1) | $ | 17,000 | | | $ | 9,300 | | | $ | 7,700 | | | $ | 7,000 | |
Remodels/expansions | 3,500 | | | 2,500 | | | 4,400 | | | 4,300 | |
Other improvements | 6,700 | | | 6,900 | | | 6,600 | | | 4,500 | |
Total stores | 27,200 | | | 18,700 | | | 18,700 | | | 15,800 | |
Distribution(1) | 2,300 | | | 32,400 | | | 6,900 | | | 15,300 | |
Information technology | 2,500 | | | 2,000 | | | 2,800 | | | 3,000 | |
Total | $ | 32,000 | | | $ | 53,100 | | | $ | 28,400 | | | $ | 34,100 | |
(1)In 2023 we purchased one distribution facility that was previously leased and in 2021 we purchased one retail location and one distribution facility that were previously leased.
Critical Accounting Estimates and Assumptions
Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and evaluate our estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.
Accounting estimates are considered critical if both of the following conditions are met: (a) the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change and (2)(b) the effect of the estimates and assumptions is material to the financial statements.
We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the potential loss arising from adverse changes in the value of financial instruments. The risk of loss is assessed based on the likelihood of adverse changes in fair values, cash flows or future earnings.
In the ordinary course of business, we are exposed to various market risks, including fluctuations in interest rates. Our exposure to interest rate risk relates to the interest income generated by cash, cash equivalents, and interest expense on the Credit Facility. The primary objective of our investment policy is to preserve principal while maximizing income without significantly increasing risk. We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition. During 2021,2023 and 2022, we had no outstanding borrowings under our Credit Agreement (as discussed in Note 5 to the Consolidated Financial Statements), which bears interest based on variable rates.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of our independent registered public accounting firm, the Consolidated Financial Statements of Havertys and the Notes to Consolidated Financial Statements, and the supplementary financial information called for by this Item 8, are set forth on pages F-1 to F-22 of this report. Specific financial statements and supplementary data can be found at the pages listed in the following index:
| Index | | Page | | |
Financial StatementsIndex | | Page |
| |
| | F-1 |
| | F-2 |
| | F-3 |
| | F-4 |
| | F-5 |
| | F-6 |
| | F-22 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.CONTROLS AND PROCEDURES
(a)Disclosure Controls and Procedures. Our management has evaluated, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective for the purpose of providing reasonable assurance that the information we must disclose in reports that we file or submit under the Securities Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.
(b)Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that evaluation, our management concluded that our internal control over financial reporting is effective as of December 31, 2021.
2023.
Attestation Report of the Independent Registered Public Accounting Firm. Grant Thornton LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this annual report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting.
(c)Changes in Internal Control over Financial Reporting. During the fourth quarter of 2021,2023, there were no changes in our internal control over financial reporting that have affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Haverty Furniture Companies, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Haverty Furniture Companies, Inc. (a Maryland Corporation) and subsidiary (the “Company”) as of December 31, 2021,2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021,2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2021,2023, and our report dated March 1, 20227, 2024 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
March 1, 2022
7, 2024
ITEM 9B.OTHER INFORMATION
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We have adopted a Code of Conduct (the “Code”) for our directors, officers (including our principal executive officer, and principal financial and accounting officer) and team members. The Code is available on our website at www.havertys.comwww.ir.havertys.com. In the event we amend or waive any provisions of the Code applicable to our principal executive officer or principal financial and accounting officer, we will disclose the same by filing a Form 8-K. The information contained on or connected to our Internet website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this or any other report that we file or furnish to the SEC.
We provide some information about our executive officers in Part I of this report under the heading “Information about our Executive Officers.” The remaining information called for by this item is incorporated by reference to “Proposal 1: Nominees for Election by Holders of Class A Common Stock and Nominees for Election by Holders of Common Stock,” “Corporate Governance,” “Committees of the Board” and “Certain Relationships and Related Transactions – Delinquent Section 16(a) Reports” in our 20222024 Proxy Statement.
ITEM 11.EXECUTIVE COMPENSATION
The information contained in our 20222024 Proxy Statement with respect to executive compensation and transactions under the heading “Compensation Discussion and Analysis” is incorporated herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information contained in our 20222024 Proxy Statement with respect to the ownership of common stockCommon Stock and Class A common stockCommon Stock by certain beneficial owners and management, and with respect to our compensation plans under which equity securities are authorized for issuance under the headings “Ownership by our Directors and Management” and “Equity Compensation Plan Information,” is incorporated herein by reference in response to this item.
For purposes of determining the aggregate market value of our common stockCommon Stock and Class A common stockCommon Stock held by non-affiliates, shares held by all directors and executive officers have been excluded. The exclusion of such shares is not intended to, and shall not, constitute a determination as to which persons or entities may be “affiliates” as defined under the Securities Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information contained in our 20222024 Proxy Statement with respect to certain relationships, related party transactions and director independence under the headings “Certain Relationships and Related Transactions” and “Corporate Governance – Governance Guidelines and Policies – Director Independence” is incorporated herein by reference in response to this item.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information under the heading “Audit Matters” in our 20222024 Proxy Statement is incorporated herein by reference to this item.
PART IV
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) | The following documents are filed as part of this report:
|
(a)The following documents are filed as part of this report:
(1)Financial Statements.
Consolidated Balance Sheets – December 31, 20212023 and 2020.2022.
Consolidated Statements of Comprehensive Income – Years ended December 31, 2021, 20202023, 2022, and 2019.2021.
Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2021, 20202023, 2022, and 2019.2021.
Consolidated Statements of Cash Flows – Years ended December 31, 2021, 20202023, 2022, and 2019.2021.
Notes to Consolidated Financial Statements
(2)Financial Statement Schedule.
The following financial statement schedule of Haverty Furniture Companies, Inc. is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements:
Schedule II – Valuation and Qualifying Accounts
All other schedules have been omitted because they are inapplicable, or the required information is included in the Consolidated Financial Statements or notes thereto.
(3)Exhibits:
Our SEC File Number is 1-14445 for all exhibits filed with the Securities Exchange Act reports.
| | | | | |
Exhibit No. | Exhibit |
3.1 | |
3.2 | |
4.1 | |
10.1 | Amended and Restated Credit Agreement by and among Haverty Furniture Companies, Inc. and Havertys Credit Services, Inc., as the Borrowers, SunTrust Bank, as the Issuing Bank and Administrative Agent and SunTrust Robinson Humphrey, Inc. as Lead Arranger, dated September 1, 2011 (Incorporated by reference to Exhibit 10.1 to our 2011 Third Quarter Form 10-Q). First Amendment to Amended and Restated Credit Agreement, dated March 31, 2016(Incorporated (Incorporated by reference to Exhibit 10.1 to our 2016 First Quarter Form 10‑Q); Second Amendment to Amended and Restated Credit Agreement by and among HavertyArticles of Amendment and Restatement of the Charter of Haverty Furniture Companies, Inc. effective May 2006Furniture Companies, Inc. and Havertys Credit Services, Inc., as the Borrowers, and SunTrust Bank, as the Issuing Bank and Administrative Agent (Incorporated by reference to Exhibit 10.1 to our 2019 Third Quarter Form 10-Q).Third Amendment to Amended and Restated Credit Agreement by and among Haverty Furniture Companies, Inc. and Havertys Credit Services, Inc. as Borrowers, and Truist Bank (successor by merger to SunTrust Bank) as the Issuing Bank and Administrative Agent (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated May 20, 2020).Fourth Amendment to Amended and Restated Credit Agreement by and among Haverty Furniture Companies, Inc. and Havertys Credit Services, Inc., as the Borrowers, Truist Bank (as successor to SunTrust Bank), as the Administrative Agent and Issuing Bank and Administrative Agent and Lead Arranger (as successor to SunTrust Robinson Humphrey, Inc,), dated September 1, 2011 (Incorporated by reference to Exhibit 10.1 to our 2022 Third Quarter Form 10-Q). |
10.2 | Haverty Furniture Companies, Inc., Class A Shareholders Agreement (the “Agreement”), made as of June 5, 2012, by and among, Haverty Furniture Companies, Inc., Villa Clare Partners, L.P., Clarence H. Smith, H5, L.P., Rawson Haverty, Jr., Ridge Partners, L.P. and Frank S. McGaughey (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed June 8, 2012); Parties added to the Agreement and Revised Annex I as of November 1, 2012 – Marital Trust FOB Margaret M. Haverty and Marital Trust B FOB Margaret M. Haverty; Parties added to the Agreement as of December 11, 2012 – Margaret Munnerlyn Haverty Revocable Trust (Incorporated by reference to Exhibit 10.1 to our First Quarter 2013 Form 10-Q); Parties added to the Agreement as of July 5, 2013 – Richard McGaughey (Incorporated by reference to Exhibit 10.1 to our Second Quarter 2013 Form 10-Q).Amendment to Class A Shareholders Agreement, as of December 30, 2016 removing Ridge Partners, L.P. and Frank S. McGaughey (Incorporated by reference to Exhibit 10.2.1 to our 2016 Form 10-K);Parties added to the Agreement as of May 1, 2019 – H5-MHG, LLC, H5-JMH, LLC, H5-JRH, LLC, H5-MEH, LLC, H5-BMH, LLC (Incorporated(Incorporated by reference to Exhibit 99.1 to H5, L.P.’s Schedule 13 D/A filed May 22, 2019). |
+10.3 | |
+10.4 | |
| |
+10.6 | |
+10.7 | |
| | | | | |
Exhibit No. | Exhibit |
+10.8 | |
+10.8.1 | |
+10.13
| |
+10.14 10.12 | |
*+10.15 10.13 | |
*+10.13.1 | |
10.16 *+10.13.2 | Lease Agreement dated July 26, 2001; Amendment No. 1 dated November 2001 and Amendment No. 2 dated July 29, 2002 between Haverty Furniture Companies, Inc. as Tenant and John W. Rooker, LLC as Landlord (Incorporated by reference to Exhibit 10.1 to our 2002 Third Quarter Form 10-Q). Amendment No. 3 dated July 29, 2005 and Amendment No. 4 dated January 22, 2006 between Haverty Furniture Companies, Inc. as Tenant and ELFP Jackson, LLC as successorof Performance Restricted Units (Sales) Award Notice in interest to John W. Rooker, LLC as Landlordconnection with the 2021 Long-Term Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.15.1 to our 2006 Form 10-K). Fifth Amendment entered into as of December 3, 2018 to Lease Agreement dated July 26, 2001, as amended by and between 1090 Broadway Avenue Distribution Investors, LLC, as successor in interest to ELFP Jackson, LLC as Landlord and Haverty Furniture Companies, Inc., as Tenant. (Incorporated by reference to Exhibit 10.21.1 to our 2018 Form 10-K). |
| 10.17
| | | | |
| |
10.14 | |
10.18
| |
10.19
| |
10.20*21.1
| Purchase Agreement, dated as of May 18, 2020 between Haverty Furniture Companies, Inc. (“Seller”), and HF Coppel TX Landlord, LLC, HF Lakeland FL Landlord, LLC and HF Colonial Heights VA Landlord, LLC (each a “Buyer” and collectively, the “Buyers”) (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated May 20, 2020). |
10.21
| |
10.22
| |
*21.1 | Subsidiaries of Haverty Furniture Companies, Inc. |
| |
| |
| |
101 | The following financial information from our Report on Form 10-K for the year ended December 31, 2021,2023, formatted in inline XBRL: (i) Consolidated Balance Sheets ended December 31, 20212023 and 2020,2022, (ii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 20202023, 2022 and 2019,2021, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, 20202023, 2022 and 2019,2021, (iv) Consolidated Statements of Cash Flow for the years ended December 31, 2021, 20202023, 2022 and 2019,2021, and (v) the Notes to Consolidated Financial Statements. |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
*Filed herewith.
+ Indicates a management contract or compensatory plan or arrangement required to be filed as exhibits pursuant to Item 15(b) of Form 10-K.
# Furnished herewith.
ITEM 16. FORM 10-K SUMMARY
None.
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Haverty Furniture Companies, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Haverty Furniture Companies, Inc. (a Maryland corporation) and subsidiary (the “Company”) as of December 31, 20212023 and 2020,2022, the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021,2023, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20212023 and 2020,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021,2023, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021,2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 1, 20227, 2024 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2016.
Atlanta, Georgia
March 1, 2022
7, 2024
HAVERTY FURNITURE COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
| | December 31, | |
(In thousands, except per share data) | | 2021 | | | 2020 | |
Assets | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 166,146 | | | $ | 200,058 | |
Restricted cash equivalents | | | 6,716 | | | | 6,713 | |
Inventories | | | 112,031 | | | | 89,908 | |
Prepaid expenses | | | 12,418 | | | | 9,580 | |
Other current assets | | | 11,746 | | | | 9,985 | |
Total current assets | | | 309,057 | | | | 316,244 | |
Property and equipment, net | | | 126,099 | | | | 108,366 | |
Right-of-use lease assets | | | 222,356 | | | | 228,749 | |
Deferred income taxes | | | 16,375 | | | | 15,814 | |
Other assets | | | 12,403 | | | | 11,199 | |
Total assets | | $ | 686,290 | | | $ | 680,372 | |
| | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable | | $ | 31,235 | | | $ | 31,429 | |
Customer deposits | | | 98,897 | | | | 86,183 | |
Accrued liabilities | | | 46,664 | | | | 52,963 | |
Current lease liabilities | | | 33,581 | | | | 33,466 | |
Total current liabilities | | | 210,377 | | | | 204,041 | |
Noncurrent lease liabilities | | | 196,771 | | | | 200,200 | |
Other liabilities | | | 23,172 | | | | 23,164 | |
Total liabilities | | | 430,320 | | | | 427,405 | |
Stockholders’ equity | | | | | | | | |
Capital Stock, par value $1 per share | | | | | | | | |
Preferred Stock, Authorized – 1,000 shares; Issued: NaNne | | | 0 | | | | 0 | |
Common Stock, Authorized – 50,000 shares; Issued: 2021 – 29,907; 2020 – 29,600 | | | 29,907 | | | | 29,600 | |
Convertible Class A Common Stock, Authorized – 15,000 shares; Issued: 2021 – 1,809; 2020 – 1,996 | | | 1,809 | | | | 1,996 | |
Additional paid-in capital | | | 102,572 | | | | 96,850 | |
Retained earnings | | | 342,983 | | | | 304,626 | |
Accumulated other comprehensive loss | | | (2,293 | ) | | | (2,560 | ) |
Treasury stock at cost – Common Stock (2021 – 14,069; 2020 – 12,862) and Convertible Class A Common Stock (2021 and 2020 – 522) | | | (219,008 | ) | | | (177,545 | ) |
Total stockholders’ equity | | | 255,970 | | | | 252,967 | |
Total liabilities and stockholders’ equity | | $ | 686,290 | | | $ | 680,372 | |
| | | | | | | | | | | |
| December 31, |
(In thousands, except per share data) | 2023 | | 2022 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 120,635 | | | $ | 123,126 | |
Restricted cash equivalents | 7,142 | | | 6,804 | |
Inventories | 93,956 | | | 118,333 | |
Prepaid expenses | 17,067 | | | 9,707 | |
Other current assets | 12,793 | | | 18,283 | |
Total current assets | 251,593 | | | 276,253 | |
Property and equipment, net | 171,588 | | | 137,475 | |
Right-of-use lease assets | 202,306 | | | 207,390 | |
Deferred income taxes | 15,641 | | | 15,501 | |
Other assets | 13,005 | | | 12,430 | |
Total assets | $ | 654,133 | | | $ | 649,049 | |
| | | |
Liabilities and Stockholders’ Equity | | | |
Current liabilities | | | |
Accounts payable | $ | 18,781 | | | $ | 23,345 | |
Customer deposits | 35,837 | | | 47,969 | |
Accrued liabilities | 46,289 | | | 48,676 | |
Current lease liabilities | 37,357 | | | 34,442 | |
Total current liabilities | 138,264 | | | 154,432 | |
Noncurrent lease liabilities | 180,397 | | | 186,845 | |
Other liabilities | 27,106 | | | 18,373 | |
Total liabilities | 345,767 | | | 359,650 | |
Stockholders’ equity | | | |
Capital Stock, par value $1 per share | | | |
Preferred Stock, Authorized – 1,000 shares; Issued: None | | | |
Common Stock, Authorized – 50,000 shares; Issued: 2023– 30,220; 2022 – 30,006 | 30,220 | | | 30,006 | |
Convertible Class A Common Stock, Authorized – 15,000 shares; Issued: 2023 – 1,804; 2022 – 1,806 | 1,804 | | | 1,806 | |
Additional paid-in capital | 113,307 | | | 108,706 | |
Retained earnings | 419,472 | | | 398,393 | |
Accumulated other comprehensive loss | (983) | | | (756) | |
Treasury stock at cost – Common Stock (2023 – 15,355; 2022 – 15,140) and Convertible Class A Common Stock (2023 and 2022 – 522) | (255,454) | | | (248,756) | |
Total stockholders’ equity | 308,366 | | | 289,399 | |
Total liabilities and stockholders’ equity | $ | 654,133 | | | $ | 649,049 | |
The accompanying notes are an integral part of these consolidated financial statements.
HAVERTY FURNITURE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | Year Ended December 31, | |
(In thousands, except per share data) | | 2021 | | | 2020 | | | 2019 | |
Net sales | | $ | 1,012,799 | | | $ | 748,252 | | | $ | 802,291 | |
Cost of goods sold | | | 438,174 | | | | 329,258 | | | | 367,803 | |
Gross profit | | | 574,625 | | | | 418,994 | | | | 434,488 | |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Selling, general and administrative | | | 456,267 | | | | 377,288 | | | | 407,456 | |
Other expense (income), net | | | 54 | | | | (34,899 | ) | | | (405 | ) |
Total expenses | | | 456,321 | | | | 342,389 | | | | 407,051 | |
| | | | | | | | | | | | |
Income before interest and income taxes | | | 118,304 | | | | 76,605 | | | | 27,437 | |
Interest income, net | | | 231 | | | | 126 | | | | 1,287 | |
Income before income taxes | | | 118,535 | | | | 76,731 | | | | 28,724 | |
Income tax expense | | | 27,732 | | | | 17,583 | | | | 6,859 | |
Net income | | $ | 90,803 | | | $ | 59,148 | | | $ | 21,865 | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | |
Defined benefit pension plan adjustments; net of tax expense (benefit) of $89, $(159) and $(238) | | $ | 267 | | | $ | (473 | ) | | $ | (622 | ) |
| | | | | | | | | | | | |
Comprehensive income | | $ | 91,070 | | | $ | 58,675 | | | $ | 21,243 | |
| | | | | | | | | | | | |
Basic earnings per share: | | | | | | | | | | | | |
Common Stock | | $ | 5.06 | | | $ | 3.18 | | | $ | 1.10 | |
Class A Common Stock | | $ | 4.75 | | | $ | 3.04 | | | $ | 1.04 | |
| | | | | | | | | | | | |
Diluted earnings per share: | | | | | | | | | | | | |
Common Stock | | $ | 4.90 | | | $ | 3.12 | | | $ | 1.08 | |
Class A Common Stock | | $ | 4.69 | | | $ | 3.04 | | | $ | 1.03 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands, except per share data) | 2023 | | 2022 | | 2021 |
Net sales | $ | 862,133 | | | $ | 1,047,215 | | | $ | 1,012,799 | |
Cost of goods sold | 339,041 | | | 442,990 | | | 438,174 | |
Gross profit | 523,092 | | | 604,225 | | | 574,625 | |
| | | | | |
Expenses: | | | | | |
Selling, general and administrative | 455,812 | | | 486,298 | | | 456,267 | |
Other expense (income), net | 77 | | | 44 | | | 54 | |
Total expenses | 455,889 | | | 486,342 | | | 456,321 | |
| | | | | |
Income before interest and income taxes | 67,203 | | | 117,883 | | | 118,304 | |
Interest income, net | 5,508 | | | 1,618 | | | 231 | |
Income before income taxes | 72,711 | | | 119,501 | | | 118,535 | |
Income tax expense | 16,392 | | | 30,143 | | | 27,732 | |
Net income | $ | 56,319 | | | $ | 89,358 | | | $ | 90,803 | |
Other comprehensive (loss) income, net of tax: | | | | | |
Defined benefit pension plan adjustments; net of tax expense (benefit) of $(76), $513 and $89 | $ | (227) | | | $ | 1,537 | | | $ | 267 | |
| | | | | |
Comprehensive income | $ | 56,092 | | | $ | 90,895 | | | $ | 91,070 | |
| | | | | |
Basic earnings per share: | | | | | |
Common Stock | $ | 3.48 | | | $ | 5.43 | | | $ | 5.06 | |
Class A Common Stock | $ | 3.29 | | | $ | 5.17 | | | $ | 4.75 | |
| | | | | |
Diluted earnings per share: | | | | | |
Common Stock | $ | 3.36 | | | $ | 5.24 | | | $ | 4.90 | |
Class A Common Stock | $ | 3.25 | | | $ | 5.07 | | | $ | 4.69 | |
The accompanying notes are an integral part of these consolidated financial statements.
HAVERTY FURNITURE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | Year Ended December 31, | |
(In thousands, except per share data) | | 2021 | | | 2020 | | | 2019 | |
| | Shares | | | Dollars | | | Shares | | | Dollars | | | Shares | | | Dollars | |
Common Stock: | | | | | | | | | | | | | | | | | | |
Beginning balance | | | 29,600 | | | $ | 29,600 | | | | 29,431 | | | $ | 29,431 | | | | 29,079 | | | $ | 29,079 | |
Conversion of Class A Common Stock | | | 187 | | | | 187 | | | | 58 | | | | 58 | | | | 226 | | | | 226 | |
Stock compensation transactions, net | | | 120 | | | | 120 | | | | 111 | | | | 111 | | | | 126 | | | | 126 | |
Ending balance | | | 29,907 | | | | 29,907 | | | | 29,600 | | | | 29,600 | | | | 29,431 | | | | 29,431 | |
Class A Common Stock: | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | | 1,996 | | | | 1,996 | | | | 2,054 | | | | 2,054 | | | | 2,280 | | | | 2,280 | |
Conversion to Common Stock | | | (187 | ) | | | (187 | ) | | | (58 | ) | | | (58 | ) | | | (226 | ) | | | (226 | ) |
Ending balance | | | 1,809 | | | | 1,809 | | | | 1,996 | | | | 1,996 | | | | 2,054 | | | | 2,054 | |
Treasury Stock: | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance (includes 522 shares Class A Stock for each of the years presented; remainder are Common Stock) | | | (13,384 | ) | | | (177,545 | ) | | | (12,372 | ) | | | (158,102 | ) | | | (10,822 | ) | | | (129,025 | ) |
Directors’ Compensation Plan | | | 25 | | | | 346 | | | | 21 | | | | 265 | | | | 55 | | | | 680 | |
Purchases | | | (1,232 | ) | | | (41,809 | ) | | | (1,033 | ) | | | (19,708 | ) | | | (1,605 | ) | | | (29,757 | ) |
Ending balance | | | (14,591 | ) | | | (219,008 | ) | | | (13,384 | ) | | | (177,545 | ) | | | (12,372 | ) | | | (158,102 | ) |
Additional Paid-In Capital: | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | | | | | | 96,850 | | | | | | | | 93,208 | | | | | | | | 91,394 | |
Stock option and restricted stock issuances | | | | | | | (3,014 | ) | | | | | | | (1,063 | ) | | | | | | | (1,568 | ) |
Directors’ Compensation Plan | | | | | | | 523 | | | | | | | | 330 | | | | | | | | (53 | ) |
Stock-based compensation | | | | | | | 8,213 | | | | | | | | 4,375 | | | | | | | | 3,435 | |
Ending balance | | | | | | | 102,572 | | | | | | | | 96,850 | | | | | | | | 93,208 | |
Retained Earnings: | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | | | | | | 304,626 | | | | | | | | 295,999 | | | | | | | | 282,366 | |
Impact of adoption of new accounting pronouncement | | | | | | | 0 | | | | | | | | 0 | | | | | | | | 6,824 | |
Net income | | | | | | | 90,803 | | | | | | | | 59,148 | | | | | | | | 21,865 | |
Cash dividends (Common Stock: 2021 – $2.97; 2020 - $2.77; and 2019 – $0.76; per share Class A Common Stock: 2021 - $2.79; 2020 - $2.62; and 2019 – $0.72; per share) | | | | | | | (52,446 | ) | | | | | | | (50,521 | ) | | | | | | | (15,056 | ) |
Ending balance | | | | | | | 342,983 | | | | | | | | 304,626 | | | | | | | | 295,999 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss: | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | | | | | | (2,560 | ) | | | | | | | (2,087 | ) | | | | | | | (1,465 | ) |
Pension liabilities adjustment, net of taxes | | | | | | | 267 | | | | | | | | (473 | ) | | | | | | | (622 | ) |
Ending balance | | | | | | | (2,293 | ) | | | | | | | (2,560 | ) | | | | | | | (2,087 | ) |
Total Stockholders’ Equity | | | | | | $ | 255,970 | | | | | | | $ | 252,967 | | | | | | | $ | 260,503 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands, except per share data) | 2023 | | 2022 | | 2021 |
| Shares | | Dollars | | Shares | | Dollars | | Shares | | Dollars |
Common Stock: | | | | | | | | | | | |
Beginning balance | 30,006 | | | $ | 30,006 | | | 29,907 | | | $ | 29,907 | | | 29,600 | | | $ | 29,600 | |
Conversion of Class A Common Stock | 2 | | | 2 | | | 3 | | | 3 | | | 187 | | | 187 | |
Stock compensation transactions, net | 212 | | | 212 | | | 96 | | | 96 | | | 120 | | | 120 | |
Ending balance | 30,220 | | | 30,220 | | | 30,006 | | | 30,006 | | | 29,907 | | | 29,907 | |
Class A Common Stock: | | | | | | | | | | | |
Beginning balance | 1,806 | | | 1,806 | | | 1,809 | | | 1,809 | | | 1,996 | | | 1,996 | |
Conversion to Common Stock | (2) | | | (2) | | | (3) | | | (3) | | | (187) | | | (187) | |
Ending balance | 1,804 | | | 1,804 | | | 1,806 | | | 1,806 | | | 1,809 | | | 1,809 | |
Treasury Stock: | | | | | | | | | | | |
Beginning balance (includes 522 shares Class A Stock for each of the years presented; remainder are Common Stock) | (15,662) | | | (248,756) | | | (14,591) | | | (219,008) | | | (13,384) | | | (177,545) | |
Directors’ Compensation Plan | 12 | | | 197 | | | 16 | | | 250 | | | 25 | | | 346 | |
Purchases | (227) | | | (6,895) | | | (1,087) | | | (29,998) | | | (1,232) | | | (41,809) | |
Ending balance | (15,877) | | | (255,454) | | | (15,662) | | | (248,756) | | | (14,591) | | | (219,008) | |
Additional Paid-In Capital: | | | | | | | | | | | |
Beginning balance | | | 108,706 | | | | | 102,572 | | | | | 96,850 | |
Shares issued under incentive plans, net | | | (4,289) | | | | | (1,768) | | | | | (3,014) | |
Directors’ Compensation Plan | | | 880 | | | | | 707 | | | | | 523 | |
Stock-based compensation expense | | | 8,010 | | | | | 7,195 | | | | | 8,213 | |
Ending balance | | | 113,307 | | | | | 108,706 | | | | | 102,572 | |
Retained Earnings: | | | | | | | | | | | |
Beginning balance | | | 398,393 | | | | | 342,983 | | | | | 304,626 | |
| | | | | | | | | | | |
Net income | | | 56,319 | | | | | 89,358 | | | | | 90,803 | |
Cash dividends per share: Common Stock: 2023 – $2.18; 2022 - $2.09; and 2021 – $2.97 Class A Common Stock: 2023 - $2.05; 2022 - $1.96; and 2021– $2.79 | | | (35,240) | | | | | (33,948) | | | | | (52,446) | |
Ending balance | | | 419,472 | | | | | 398,393 | | | | | 342,983 | |
| | | | | | | | | | | |
Accumulated Other Comprehensive Loss: | | | | | | | | | | | |
Beginning balance | | | (756) | | | | | (2,293) | | | | | (2,560) | |
Pension liabilities adjustment, net of taxes | | | (227) | | | | | 1,537 | | | | | 267 | |
Ending balance | | | (983) | | | | | (756) | | | | | (2,293) | |
Total Stockholders’ Equity | | | $ | 308,366 | | | | | $ | 289,399 | | | | | $ | 255,970 | |
The accompanying notes are an integral part of these consolidated financial statements.
HAVERTY FURNITURE COMPANIES, INC.
The accompanying notes are an integral part of these consolidated financial statements.