Haverty Furniture: A Great Play on Furniture Space (NYSE: HVT)

J. Michael Jones/iStock Editorial via Getty Images

Furniture is a necessary part of the modern home, office, or pretty much any other real estate. And a company dedicated to providing such furniture is Haverty furniture companies (HVT), a small company founded in 1885 in Atlanta, Georgia. Since then, the business has grown considerably, but is still small compared to most investment opportunities in the market. Over the past few years, the company’s financial performance has been less than ideal, fluctuating both up and down. But given that the company’s shares are cheap, it can be an attractive opportunity for those who don’t mind such volatility at work.

A specialist in furniture

Haverty Furniture is today a specialty retailer of residential furniture and accessories. Currently, the company operates 120 stores across 16 states in the southern and midwestern regions of the United States. These stores are also spread across 84 different cities, and combined, they’re nearly 4.4 million square feet, with most stores averaging around 35,000 square feet each. The company also sells its furniture through its online channels, but these represent a very small portion of its overall revenue. The total amount, in 2020, stands at 4.4% of sales. And that was after seeing a 65% increase from fiscal year 2019.

The company does not currently franchise any of its sites. Instead, they belong to the company. While this has the downside of lower margins, it brings with it the benefit of greater control over the business and the quality of user experience. As for the furniture it sells, the company said it gets around 45% of its products from its top ten customers, some of whom are imports. these imports come from Asia, as well as from Mexico. Basically all of their wood products, for example, are imported from Asia.

In recent years, the financial results achieved by Haverty Furniture have been rather mixed. After seeing its revenue hit $821.57 million in 2016, it began a steady descent, dropping every year until it hit $748.25 million in 2020. But then in 2021, driven by strong demand for its products and favorable prices, sales surged. For the first nine months of this year, sales amounted to $746.86 million. This compares to $506.91 million generated a year earlier.

Historical financial data

Author – SEC EDGAR Data

It should be noted that the contributors to the change in revenue made by the company over time have been rather mixed. In three of the five years ending in 2020, for example, same-store sales for the company have been positive. Overall, comparable store sales during this period increased by 4.6%. The number of stores for the company, meanwhile, declined but has since leveled off. It grew from 124 locations in 2016 to the 120 locations the company has today. This suggests the possibility that business is stabilizing.

Although revenues have been declining in recent years, profits have remained stuck in a fairly narrow range of between $21.08 million and $30.31 million. It wasn’t until 2020 that net profits broke out of that range, reaching $59.15 million for the year. 2021 appears to have been an even better year based on the data provided so far. For the full year, no estimate was provided. But we do know that for the first nine months, profits totaled $66.50 million. That’s about double the $33.72 million generated in the first nine months of 2020.

Historical financial data

Author – SEC EDGAR Data

There are, of course, other important profitability parameters to consider. One of them is operating cash flow. It followed a similar trajectory to what we saw with net earnings. It eventually peaked at $130.19 million in 2020. Adjusted for changes in working capital, we see the picture was much more consistent but still volatile, nonetheless. Between 2016 and 2020, it would have varied from a low point of $45.12 million to a high point of $64.92 million, with the low point taking place in 2020. But then, in the first nine months of 2021, operating cash flow fell from $99.82 million to $89 million. If, however, we adjust for changes in working capital, it would have totaled $83.49 million for the first nine months of last year, up from the $18.10 million generated a year earlier. EBITDA, meanwhile, grew from $76.86 million in 2016 to $53.48 million in 2019. It then reached $64.29 million in 2020. In the first nine months of 2021 , however, it rebounded from $28.42 million the previous year to $104.78 million. .

Management has not provided any real guidance for fiscal year 2021, but if we annualize the results observed for the first nine months of this year, we should anticipate net profits of approximately $116.6 million, a flow of operating cash of $208.2 million and EBITDA of approximately $237.1. million. By taking these numbers, we can effectively assess the company. However, I would prefer to use 2020 data as it would be more conservative and since we don’t know if the recent surge in demand the company has seen, like what so many other companies have seen, will continue as a paradigm constant change. In doing so, we see that the shares are still cheap, with the company trading at a price/earnings multiple of 8.9, a price/operating cash flow multiple of 11.7 and an EV/EBITDA multiple. of 4.6. But the picture becomes even more interesting when you consider that the company has zero debt and cash exceeds debt by $232.39 million. If you reduce that from the market value of the business, you find that the actual multiples of the business drop dramatically. The price/earnings ratio, for example, would drop to just 5.0, and the price/operating cash flow ratio would be 6.6.

Trading multiples

Author – SEC EDGAR Data

To put all these prices into perspective, I decided to compare the company to five similar companies. On a price-earnings basis, these companies ranged from a low of 7.6 to a high of 38.4. Relative to price and operating cash flow, they ranged from 6.4 to 17.8. And on an EV to EBITDA basis, they traded down just 0.9 to 72.9. By all accounts, our prospect was among the cheapest on this list, with only one company being cheaper than her in two of the three approaches and three being cheaper in the other. And that doesn’t take into account the impact associated with the excess cash the company brings with it.

Society Prizes / Earnings Price / Operating Cash EV / EBITDA
Haverty furniture companies 8.9 11.7 4.6
Aaron’s Company (AAN) 7.6 6.7 0.9
Sleep number (SNBR) 9.0 6.4 6.3
Williams-Sonoma (WSM) 10.7 8.3 6.4
HR (HR) 18.3 17.8 9.2
Bed Bath and Beyond (BBBY) 38.4 13.6 72.9

To take with

Based on the data provided, I have to say that Haverty Furniture is an intriguing prospect right now. I have no idea if future trends will look like what we’ve seen recently, but that doesn’t matter. As long as the company can match what the company achieved in 2020, the company’s shares are trading at attractive levels. Add to that the extra cash the company has on hand, and it’s hard not to like what I’m looking at.

About Oscar L. Smith

Check Also

Half of Sunriver Restaurant’s Outdoor Furniture Disappeared After Fake Online Advertisement Says It’s Closing, Come Take It

Owner moved to tears; the police call it ‘a puzzle’ BEND, Ore. (KTVZ) — A …