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Shanghai Struggle Hobbles Havertys

Furniture retailer Haverty Furniture Companies reported a modest 1 percent increase in sales for the first quarter of 2022, which ended March 31, to $238.9 million, up from $236.5 million during Q1 2021.

Comparable store sales for the quarter increased by just 0.2 percent, while total written sales for the first quarter dropped 8.8 percent and written comp store sales were down 9.6 percent.

The company reported continued supply chain disruptions and slowed consumer spending as impacting sales during the quarter.

“During the early part of the quarter our delivered and written business was good compared to the historic results in 2021,” said Clarence H. Smith, chairman and CEO of Havertys, which operates 100-plus stores in 16 Southern and Midwestern states. “We experienced a return to increased consumer interest around traditional shopping holiday events and had a record Presidents’ Day. However, we encountered significant declines in in-store traffic and written business in March. We believe discretionary consumer spending has been adversely impacted by rising inflation, including fuel costs, market volatility, and geopolitical concerns.”

The company pointed to no end of challenges with sourcing. “Our import vendors have been slower to recover from the shutdowns in 2021 and the recent COVID restrictions in Shanghai have not helped,” Steven Burdette, Havertys president, told Wall Street analysts in a conference call Tuesday. “However, we do remain optimistic that we are seeing an increase in production over the last 60 days out of Vietnam, which should help to offset some of these delays.”

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The company imports roughly 55 percent of product, of which 20 to 25 percent comes from China, he added. “Our biggest struggle there is because we’re outside of Shanghai. It’s the trucking side of it that has caused some disruption in getting it out of the ports. But our vendors are certainly trying to find creative ways to get the stuff to the ports and we can get it out. And we are seeing some shipments come out, just not at the velocity we had expected and we’re hoping to see that solve itself here soon.”

In the U.S., domestic upholstery vendors have reduced their lead times by 10 to 25 percent, Burdette added.

Havertys posted net income of $19.36 million, or $1.11 per share compared to $19.4 million, or $1.04 per diluted share for the same period in 2021. The company made a gross profit of $141 million, up from $135 million last year, resulting in gross margins rising 1.9 percentage points to 59.0 percent in 2022 from 57.1 percent in the first quarter of 2021.

“Our merchandising team has responded to cost increases by judiciously adjusting retail pricing,” Smith said. “Sales generated by our free in-home design service are improving as Covid-19 concerns abate and were 23.5 percent of deliveries this quarter compared to 21.0 percent in the first quarter of last year. Covid-19 does remain a factor in our supply chain, and ongoing delays in case goods have impacted sales in this category.

The company generated $20.6 million in cash from operating activities due to solid earnings performance and the funding of $7.8 million in inventories and a $4.7 million increase in payables and other operating assets and liabilities.

Havertys reported $169.1 million in cash and cash equivalents, and the company purchased 438,499 shares of common stock for $12.5 million and paid $4.3 million in quarterly cash dividends.

Fixed and discretionary SG&A expenses for the full year are expected to be from $295 million to $298 million, and variable SG&A expenses are expected to range from 18 to 18.2 percent, an increase from the company’s previous estimate based on increases in selling and delivery costs.

Looking forward, the company said it expects gross profit margins for 2022 to increase over its prior estimate to between 57.7 percent and 58 percent.

CEO’s Take: While Havertys has certainly felt the pinch of continued supply chain disruptions and consumer uncertainty due to factors like inflation and the conflict in Ukraine, Smith said the company remains optimistic for the longterm.

“We have a forward-thinking and resilient team, and coupled with our competitive and financial strengths, we are confident in meeting near-term challenges and progressing on long-term goals,” he said.