HAVERTY FURNITURE COMPANIES INC

Previous wording

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 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.

Current wording

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 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.

Previous wording

Management is focused on capturing more market share and improving profitability. This growth will be driven by concentrating our efforts on our customers, with improved interactions highlighted by new products, high-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.

Current wording

Management is focused on capturing more market share and improving profitability. This growth will be driven by concentrating our efforts on our customers, with improved interactions highlighted by new products, high-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 increasing sales volume, maintaining strong gross margins, implementing targeted marketing initiatives, improving productivity and processes, and adopting efficiency and cost-saving measures. Our focus is to serve our customers better and distinguish ourselves in the marketplace.

Previous wording

We evaluate our performance based on several key metrics which include net sales, comparable store sales and written comparable store sales; sales per weighted average square foot; gross profit, selling, general and administrative costs as a percentage of sales; operating income; cash flow; and earnings per share. The goal of utilizing these measurements is to provide tools for economic decision-making, including decisions related to store growth, capital allocation and product pricing.

Current wording

We evaluate our performance based on several key metrics which include store traffic, conversion rates, net sales, comparable store sales and written comparable store sales; sales per weighted average square foot; gross profit, selling, general and administrative costs as a percentage of sales; operating income; cash flow; and earnings per share. The goal of utilizing these measurements is to provide tools for economic decision-making, including decisions related to store growth, capital allocation and product pricing.

Previous wording

We also track written sales and written comp-store sales. Written sales reflect those instances when a customer makes a deposit or pays in full when placing an order. Written sales shows the current pace or trend of customer transactions. The lag time between customers' order placement and delivery grew in 2020 and continued through mid-2022 due to disruptions in supply 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 are not a substitute for net sales presented in accordance with US GAAP.

Current wording

We also track written sales and written comp-store sales. Written sales reflect those instances when a customer makes a deposit or pays in full when placing an order. Written sales shows the current pace or trend of customer transactions. 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 are not a substitute for net sales presented in accordance with US GAAP.

Previous wording

(3)Includes gain of $31.6 million on a sale-leaseback transaction in 2020 which impacted diluted earnings per share $1.24.

Current wording

(2)Includes gain of $31.6 million on a sale-leaseback transaction in 2020 which impacted diluted earnings per share $1.24.

Previous wording

(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.

Current wording

(3)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.

Previous wording

(6)We have no funded debt.

Current wording

(4)We have no funded debt.

Previous wording

(7)Average ticket is calculated by dividing total sales by the number of orders.

Current wording

(5)Average ticket is calculated by dividing total sales by the number of orders.

Previous wording

Sales in 2023 were below the record levels of the previous two years. The soft housing market has contributed to the slowing pace of sales along with persistent inflationary pressures and shifts in consumer spending. During the first quarter of 2023 we benefited 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 2023 and accounted for 28.5% of our 2023 sales, with an average written ticket of $6,486. Merchandise sales for most categories have returned to their historical pre-COVID percentages of total sales, with the exception of mattresses. (See Note 2, "Revenues and Segment Reporting" of the Notes to Consolidated Financial Statements).

Current wording

Net sales in 2024 decreased $139.2 million or 16.1% compared to 2023. The housing recession, inflationary pressures, and cautious consumer spending due to economic uncertainty contributed to the sales decline. Our sales associates and design consultants are providing excellent service to each customer. The average ticket value in 2024 was $3,371, up 3.0% over last year. Design consultant engagement increased in 2024 and accounted for 33.6% of our 2024 total written sales, with an average written ticket of $7,222. (See Note 2, "Revenues and Segment Reporting" of the Notes to Consolidated Financial Statements).

Previous wording

Gross profit as a percentage of net sales was 60.7% in 2023 compared to 57.7% in 2022. The increase of 300 basis points was primarily due to reductions in freight and product costs. The change in the LIFO reserve generated a positive impact on gross profit of $9.4 million for 2023 compared to a negative impact of $10.8 million in 2022.

Current wording

Gross profit asa percentage of net sales was 60.7% in 2024 and 2023. The positive impact generated from the change in the LIFO reserve decreased by $8.6 million to $0.8 million in 2024. Excluding the impact of LIFO, our gross profit margins increased 100 basis points due to product selection and merchandising mix.

Previous wording

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.

Current wording

Warehouse costs include personnel, supplies, depreciation, and rental charges for equipment. Advertising expenses are primarily TV and digital media production and space expenditures, 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.

Previous wording

Our SG&A costs 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 2022. The change is driven by the reduction in sales 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 2022 to 2023 as we adjusted personnel levels, fuel prices fell, and our accessorial charges declined. Advertising expenditures were $7.9 million lower in 2023 compared to 2022 and our occupancy costs were relatively flat. Our total administrative expenses were basically unchanged for 2023 compared to 2022 as lower compensation costs were offset by higher professional service fees.

Current wording

Our SG&A costs as a percent of sales for 2024 were 58.0% versus 52.9% in 2023. SG&A dollars decreased $36.6 million, or 8.0%, for 2024 compared to 2023. The change was driven by the reduction in sales, lower variable costs, and less leveraging of fixed costs. Our selling expenses decreased $18.5 million, largely due to lower commissioned-based compensation and third-party creditor costs. Warehouse, delivery, and transportation expenses decreased $13.7 million from 2023 to 2024, primarily due to reduced personnel levels and lower variable transportation and fuel costs. Our administrative expenses decreased $6.4 million from 2023 due to lower salary and stock-based compensation costs. Advertising expenses decreased $3.0 million from 2023 to 2024, aligning with the reduction of sales. Occupancy costs increased $5.6 million, primarily due to increased depreciation expense and a $3.3 million reduction of rent expense in the prior year, which was attributed to an incentive to vacate a property before the end of its lease term.

Previous wording

We earned $3.9 million more interest income, net of interest expense, in 2023 than in 2022 due to higher rates paid on cash, cash equivalents, and restricted cash equivalents.

Current wording

We earned $0.6 million more interest income, net of interest expense, in 2024 than in 2023 due to higher rates paid on cash, cash equivalents, and restricted cash equivalents.

Previous wording

Our effective tax rate was 22.5% in 2023 compared to 25.2% in 2022. The rates vary from the U.S. federal statutory rate primarily due to state income taxes. See Note 7, “Income Taxes” of the Notes to Consolidated Financial Statements for further information about our income taxes.

Current wording

Our effective tax rate was 23.7% in 2024 compared to 22.5% in 2023. See Note 7, “Income Taxes” of the Notes to Consolidated Financial Statements for further information about our income taxes.

Previous wording

At December 31,2023, we had $120.6 million in cash and cash equivalents, and $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.

Current wording

At December 31,2024, we had $120.0 million in cash and cash equivalents, and $6.3 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.

Previous wording

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 follow a disciplined approach to capital allocation. This approach first prioritizes investing in the business, followed by paying dividends. We may also return excess cash to shareholders in the form of share repurchases or special cash dividends. We expect capital expenditures of approximately $32.0 million in 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.

Current wording

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 follow a disciplined approach to capital allocation. This approach first prioritizes investing in the business, followed by paying dividends. We may also return excess cash to shareholders in the form of share repurchases or special cash dividends. We expect capital expenditures of approxima tely $27.1 million in 2025 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.

Previous wording

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 matures October 24, 2027. See Note 5, “Credit Arrangement” of the Notes to Consolidated Financial Statements for information about our Credit Agreement.

Current wording

We currently have a $80.0 million revolving credit facility (the "Credit Agreement") with a bank. As of December 31,2024, we had no outstanding borrowings and $80.0 million of available borrowings under the Credit Agreement. The Credit Agreement matures October 24, 2027. See Note 5, “Credit Arrangement” of the Notes to Consolidated Financial Statements for information about our Credit Agreement.

Previous wording

At December 31,2023, we had aggregate lease obligations of $217.8 million, 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.

Current wording

At December 31,2024, we had aggregate lease obligations of $218.4 million, with $36.3 million payable within 12 months. See Note 8, “Leases” of the Notes to Consolidated Financial Statements for further discussion of our operating leases.

Previous wording

The board of directors has authorized management, at its discretion, to purchase and retire limited amounts of our Common Stock and Class A Common Stock. We made cash payments of $6.9 million for repurchases of approximately 227,000 shares of our Common Stock through open market purchases during 2023 and there is approximately$13.1 million at December 31,2023 that may yet be purchased under the existing authorization.

Current wording

The board of directors has authorized management, at its discretion, to purchase and retire limited amounts of our Common Stock and Class A Common Stock. We made cash payments of $5.0 million for repurchases of 214,500 shares of our Common Stock through open market purchases during 2024 and there is approximately $8.1 million at December 31,2024 that may yet be purchased under the existing authorization.

Previous wording

Net cash provided by operating activities in 2022 was $51.0 million driven primarily by net income of $89.4 million and non-cash adjustments to net income of $25.8 million consisting primarily of depreciation and amortization and stock-based compensation expense, and by working capital changes driven primarily by a $50.9 million reduction in customer deposits.

Current wording

Net cash provided by operating activities in 2024 was $58.9 million driven primarily by net income of $20.0 million and non-cash adjustments to net income of $27.9 million consisting primarily of depreciation and amortization, stock-based compensation expense and changes in working capital. The changes in working capital were driven primarily by a $10.5 million decrease in inventories, a $7.0 million decrease in other assets and liabilities, and a $4.9 million increase in customer deposits offset by a $11.4 million decrease in accrued liabilities and vendor repayments.

Previous wording

Investing Activities. Cash used in investing activities in 2023 consisted primarily of $53.1 million of capital expenditures.

Current wording

Investing Activities. Cash used in investing activities in 2024 consisted primarily of $32.1 million of capital expenditures.

Previous wording

Cash used in investing activities in 2022 primarily reflected $28.4 million of capital expenditures.

Current wording

Cash used in investing activities in 2023 primarily reflected $53.1 million of capital expenditures.

Previous wording

Financing Activities. Cash used in financing activities in 2023 consisted primarily of $19.1 million of quarterly cash dividends, $16.1 of special cash dividends, and $6.9 million of share repurchases.

Current wording

Financing Activities. Cash used in financing activities in 2024 consisted primarily of $20.5 million of quarterly cash dividends and $5.0 million of share repurchases.

Previous wording

Cash used in financing activities in 2022 primarily reflected $17.9 million of quarterly cash dividends, $16.1 of special cash dividends, and $30.0 million of share repurchases.

Current wording

Cash used in financing activities in 2023 primarily reflected $19.1 million of quarterly cash dividends, $16.1 of special cash dividends, and $6.9 million of share repurchases.

Previous wording

Our investing activities in stores and operations in 2023,2022 and 2021 and planned outlays for 2024 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.

Current wording

Our investing activities in stores and operations in 2024,2023 and 2022 and planned outlays for 2025 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.

Previous wording

(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.

Current wording

(1)In 2023 we purchased one distribution facility that was previously leased.