There’s A Short-Squeeze In Haverty Furniture Company Waiting To Happen
Those who’ve been reading Marketbeat.com for a while will know that we are fond of the U.S. furniture industry including Haverty Furniture Company NYSE: HVT. Suffice it to say that these are, generally speaking, healthy companies and industry fundamentals that had them ahead of the game in terms of the supply chain log-jam, and business is supported by secular tailwinds. We could go on.
The point today is that the share price for Haverty Furniture Company has been wallowing at one-year lows for the last few months under the pressure of short-sellers and we think a squeeze is in the works. Short-interest is near 25% and at levels that we consider to be extreme. In light of the strong Q4 results and outlook for 2022, we’re not surprised to see shares up by 5% in premarket trading so perhaps short-covering has already begun. The question now is if the market will follow through on this move and squeeze the shorts out.
Haverty Furniture Company Exceeds Expectations, Guides Strong
Haverty Furniture Company had a fabulous quarter in Q4 producing record-setting operating results and capping off a record year. The company reported $265.9 million in net revenue for a gain of 10.2% over last year which outpaces the Marketbeat.com consensus by 500 basis points. The strength was driven by comps and expansion with comps up 9.2% on volume and pricing. Written sales fell -3.5%, -4.7% on a comp basis, and indicate momentum may be waning but business is still tracking 13% higher in the 2-year stack. A little giveback from the pandemic peaks is to be expected.
Moving down the report, the company logged a 60 basis point decline in the gross margin but this is a non-cash impairment due to accounting and LIFO reserves. Those reserves shaved 193 basis points off the margin which more than offsets the difference. The operating margin also contracted, by 140 basis points, with labor and commission cost increases amplified by the cost of expansion including 4 new stores in 2022. The takeaway is that margin compression was less than expected and internal efforts are offsetting inflation. On the bottom line, the GAAP $1.35 is down YOY but only by $0.02 and it did beat the consensus by $0.13
Haverty Furniture Company Is On Track To Increase Its Capital Returns
Haverty management did not give formal guidance for revenue or earnings but did guide margins wider, for cash flow to cover expansions, and for capital returns to increase. The company is expecting to repurchase at least $25 million shares in the Q1 period alone, compared to $41.8 million for all of 2021, and to increase the dividend. The company is already yielding a safe 3.5% and the outlook for an increase is robust.
The payout ratio is a low 23% of the forecast for 2022 earnings with few impediments to the cash flow. The company has very little debt, low leverage, and high coverage with revenue and margins expected to expand in the coming year so we are expecting another big increase as well. The CAGR is running near 17% which might be high but we won't be surprised to see a 10% increase this year, or another special dividend either.
The Technical Outlook: A Reversal For Haverty Furniture Company
We see a reversal for Haverty Furniture Company if not a short-squeeze. The stock is and has confirmed support at the $28 level and now moving higher in pre-market action. With shares above the short-term moving average, we expect to see short-covering begin and possibly be quite vigorous. Regardless, a move higher is expected without the short interest to consider and we think it could be a big one. The stock is trading at only 6X its earnings which is a bargain in anybody’s book.
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