Haverty Furniture Companies Is Emerging Stronger Than Before
Haverty Furniture Companies (NYSE:HVT) has been on my perma-watchlist for the last couple of years because of two things. The first was its outlook for growth, the second was its position as a dividend-payer with high probability for future dividend increases. Admittedly, that thesis didn’t play out quite like I thought it would because of two things. The first was the trade war. The trade war hit furniture companies like Haverty Furniture hard in the form of tariffs; the companies supply chain was deeply rooted in China.
The first headwind, the trade war, lingered into the start of 2020 despite its apparent resolution and Haverty’s own efforts. The second headwind, the pandemic, came at the worst possible time, right when Haverty was expected to begin rebounding. In the time since, the shares have shed 50% of their value and have only now reclaimed half of that loss. The good news is that, despite a miss on second-quarter earnings, the outlook for Haverty is as bright as it’s ever been and the time to start buying (if you haven’t already) is now.
Haverty Furniture Misses Revenue Estimates
Haverty Furniture fell shy of revenue estimates for the second quarter despite having lowered its own guidance less than a month ago. The company predicted revenue would fall -42% for the quarter, the actual missed by 70 basis points, and also fell shy of the analyst’s consensus. On the bottom line, adjusted EPS of -$0.52 missed by $0.03 or about 6% but that’s the end of the bad news.
Breaking business down by month, all of the pain for the quarter was felt in the first month. The final months of the quarter, May and June, saw comp sales rise 14% YOY on strong demand for improvement and decorator items. Looking forward, the company’s written sales are up 17.5% for the two-week period and point to continued strength in the 3rd quarter.
GAAP earnings are impressive and are due to the company’s quick-thinking. Haverty Furniture Company entered into a number of sale-leaseback agreements for its properties in Texas, Virginia, and Florida. The sale put $1.24 per share into Haverty’s coffers and guarantees a minimum of 35 years occupancy in said facilities. What this means for the balance sheet is the company is more than well-capitalized. Free-cash flow is a little tight but that’s due to the downturn in 2Q business, in terms of debt and coverage there is nothing to worry about.
Haverty Furniture Company Raises Dividend
One of Haverty Furniture Company’s moves toward self-preservation includes cutting the dividend. The company cut the payout by 25% in the second quarter, from $0.20 quarterly to $015, and no one faults them for the move. Now that the company is back on track and sitting on so much capital, the board raised the payout back to the former level and reinstated the buy-back program. With the stock trading near $16, that’s a yield near 5.0%.
“Given the sustained pace of our business since reopening and our liquidity position, the board approved important shareholder actions related to dividends and the stock repurchase program. The per-share dividend for the third quarter was increased by 33%, restoring it to the first quarter’s amount, and the resumption of the stock repurchase program was approved.”
The Technical Outlook: Haverty Furniture Is Melting Up
Shares of Haverty Furniture were hit hard during the correction but the move, like with so many other furniture companies, was too much too soon and for all the wrong reasons. Now, with the outlook brightening and the dividend back in place the shares look poised for a sharp and sustained melt-up.
A move up to the June highs would be worth about 18% from Monday’s close and that is the least I think we can expect. Once resistance at the June high is overcome, a move up to the pre-COVID levels near $21 is not unreasonable. Longer-term, this company is coming out of the pandemic in much stronger position than its been in for years so I’d expect to see share prices move back to previous highs near $26 if not higher.
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