Inflation Wreaks Havoc On Haverty Furniture Company

Rising Prices Cut Into Haverty Furniture Company Results 

Haverty Furniture Company (NYSE: HVT) did not have a bad quarter by any means but there are signs within the report that point to darker times ahead. The company says demand is falling and noticeably in tune with inflation’s rise and we think this is just the beginning. The FOMC is about to begin hiking rates in a manner that will at first only accentuate inflation and then possibly cause an economic recession. Regardless of the Fed, supply chain issues and rising gas prices are also a factor putting pressure on both the top and bottom lines. The takeaway for us is that, as much as we like Haverty Furniture Company, the market may move lower because of these results. There is already a very high 24% short interest in the stock and these results don’t lead us to believe a short-covering rally is about to begin. 

"During the early part of the quarter, our delivered and written business was good compared to the historic results in 2021. 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,” says Haverty Furniture Company CEO Clarence H. Smith. 

Haverty Furniture Company Grows On Price Increases 

Haverty Furniture Company had a decent Q1 but the results echo what we’ve been seeing throughout the market. The $238.95 million in net revenue is up 1.0% from last year and beat the Marketbeat.com consensus by 100 basis points but the strength is due to price and mix, not volume. On a comp basis, sales are up a more tepid 0.2% with top-line results boosted by expansion. Written sales, however, the forward-looking metric, fell 8.8% across the network and are down 9.6% versus last year. If this persists as we think it will this means Haverty Furniture Company is going to experience a decline in business over the next quarter or two at least. 

Moving down, there is some good news in the margin but the bigger picture is that margins are mixed. The gross margin improved by 190 basis points to 59% of sales but SG&A increased as well. SG&A increased by 180 basis points as a percentage of sales and nearly offset the entire gain in gross margin. This left the EBIT margin up 10 basis points and the net margin down 10 and both driving solid results on the bottom line. The GAAP EPS of $1.11 is up $0.06 from last year (aided by share repurchases) and beat the consensus by $0.25. 

The company did not give formal guidance for revenue or earnings but is expecting gross margin and operating margin at levels slightly above the prior forecast. This is good news but offset by our expectation for revenue to decline so take it with a grain of salt. The actual good news is that balance sheet health has been maintained, cash and debt levels are flat YOY including an increase in inventory, and the 3.90% dividend yield is safe.  

The Technical Outlook: Haverty Might Be At A Bottom 

The price action in Haverty Furniture Company has been in a correction for months but might be at the bottom now. The price action is extended at this level and driven by a high short interest so there is a chance of rebounding. The indicators are also in line with this view but there is a caveat. If the stock is still in a downtrend the indicator setup could just as easily lead to a sell signal as a reversal in prices. Until the outlook for economic activity picks back up or the market proves us wrong, we are very cautious on this name and the furniture industry.