HAVERTY FURNITURE COMPANIES, INC. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes contained herein and with the audited consolidated financial statements, accompanying notes, related information and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 ("Form 10-K").
Forward-Looking Statements
Statements in this Form 10-Q that are not historical facts, including statements about our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Known material risk factors applicable to us that could cause our actual results to differ from these forward-looking statements are described in "Item 1A. Risk Factors" of our Form 10-K and in the subsequent reports we file with theSEC . All forwardlooking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report except as required by law.Net Sales Our sales are generated by customer purchases of home furnishings. Revenue is recognized upon delivery to the customer. Comparable-store or "comp-store" sales is a measure which indicates the performance of our existing stores and website by comparing the growth in sales in store and online for a particular month over the corresponding month in the prior year. Stores are considered non-comparable if they were not open during the corresponding month in the prior year or if the selling square footage has been changed significantly. Stores closed due to COVID-19 were excluded from comp-store sales. The method we use to compute comp-store sales may not be the same method used by other retailers. We record our sales when the merchandise is delivered to the customer. We also track "written sales" and "written comp-store sales," which represent customer orders prior to delivery. The disruptions to our supply chain have resulted in lower inventory in certain categories, and out-of-stock merchandise delivery times can be 8 to 12 weeks. 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 none are substitutes for net sales presented in accordance with US GAAP.
The following table outlines our sales and comp-store sales increases and decreases for the periods indicated:
2022 2021
Net Sales Comp-Store Sales Net Sales
Comp-Store Sales
Total % $ % $ Total % $ % $
Period Dollars Change Change Change Change Dollars Change Change Change Change
Q1 $ 238.9 1.0 % $ 2.5 0.2 % $ 0.4 $ 236.5 31.8 % $ 57.1 11.5 % $ 15.4
Q2 $ 253.2 1.3 % $ 3.2 1.1 % $ 2.7 $ 250.0 127.3 % $ 140.0 46.9 % $ 48.8
Q3 $ 274.5 5.4 % $ 14.1 6.3 % $ 16.2 $ 260.4 19.7 % $ 42.9 17.7 % $ 38.4
YTD Q3 $ 766.7 2.7 % $ 19.8 2.6 % $ 19.3 $ 746.9 47.3 % $ 240.0 22.5 % $ 102.6 Total sales for the third quarter of 2022 increased
Our free in-home design service continues to grow, and designer sales were 25.2% of our total written business for the third quarter of 2022 compared to 24.7% for 2021. COVID-19 disruptions to our supply chain are beginning to abate, and case goods inventory received is helping to reduce our customer back orders. Sales in this category as a percent of our total sales were 37.1% in the third quarter of 2022 compared to 35.5% in 2021. The declines in in-store traffic and written business, which began inMarch 2022 , continued throughSeptember 2022 . Written business for the third quarter of 2022 was down 7.2% compared to 2021. We continued to experience a return to increased consumer interest around traditional shopping events and had very strong business for theLabor Day holiday. Our written business for the third quarter of 2022 compared 11
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
to the "normal" pre-pandemic second quarter of 2019 was up 15.8%, as customers are still investing in their homes. In the fourth quarter of 2022, we expect that our business will continue to be affected as rising inflation, including fuel costs, stock market volatility, higher interest rates, and recessionary concerns, impacts discretionary consumer spending.
Gross Profit
Gross profit for the third quarter of 2022 was 57.1%, up 30 basis points compared to the prior year period of 56.8%. The increase is primarily due to pricing discipline and merchandise mix.
We expect annual gross profit margins for 2022 will be 57.7% to 58.0%. Gross
profit margins fluctuate quarter to quarter in relation to our promotional
cadence. Our estimated gross profit margins are based on anticipated changes in
product and freight costs and their impact on our LIFO reserve.
Substantially all of our occupancy and home delivery costs are included in
selling, general and administrative expenses ("SG&A"), as are a portion of our
warehousing expenses. Accordingly, our gross profit may not be comparable to
those entities that include these costs in cost of goods sold.
Selling, General and Administrative Expenses
Our SG&A costs as a percent of sales for the third quarter of 2022 were 45.4% versus 44.6% for 2021. SG&A dollars increased$8.4 million , or 7.2%, for the third quarter of 2022 compared to the same prior year period. The increase is driven by higher costs associated with selling expense of$4.9 million , advertising and marketing expenses of$1.1 million , administrative costs of$1.5 million , and occupancy expenses of$0.5 million . We classify our SG&A expenses as either variable or fixed and discretionary. Our variable expenses include the costs in the selling and delivery categories and certain warehouse and distribution expenses, as these amounts will generally move in tandem with our level of sales. The remaining categories and expenses for occupancy, advertising, and administrative costs are classified as fixed and discretionary because these costs do not fluctuate with sales.
The following table outlines our SG&A expenses by classification:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
% of % of % of % of
(In thousands) $ Net Sales $ Net Sales $ Net Sales $ Net Sales
Variable $ 50,228 18.3 % $ 43,708 16.8 % $ 140,566 18.3 % $ 126,374 16.9 %
Fixed and discretionary 74,306 27.1 % 72,448 27.8 % 217,250 28.3 % 211,941 28.4 %
$ 124,534 45.4 % $ 116,156 44.6 % $ 357,816 46.6 % $ 338,315 45.3 %
The variable expenses in dollars were higher in the third quarter of 2022 compared to 2021 due to the increase in compensation costs for selling and delivery personnel and rising fuel costs.
Fixed and discretionary expenses were impacted in the third quarter of 2022 primarily by increases in warehouse and other occupancy costs compared to the prior year quarter.
Our variable expenses within SG&A for the full year of 2022 are anticipated to be 18.2% to 18.4%, an increase from our previous estimate based on increases in selling and delivery costs. Fixed and discretionary expenses are expected to be approximately$293.0 to$295.0 million for the full year of 2022, a decrease from our previous guidance based on changes in our marketing spend.
Liquidity and Capital Resources
Cash and Cash Equivalents at End of Year AtSeptember 30, 2022 , we had$137.2 million in cash and cash equivalents, and$6.8 million in restricted cash equivalents. We believe that our current cash position, cash flow generated from operations, funds 12
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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. In addition, we believe we have the ability to obtain alternative sources of financing. We expect capital expenditures of approximately$30.0 million for the full year of 2022. Long-Term Debt InMay 2020 , we entered into the Third Amendment to our Amended and Restated Credit Agreement (as amended, the "Credit Agreement") with a bank. The Credit Agreement, which maturesSeptember 27, 2024 , provides for a$60.0 million revolving credit facility. Amounts available to borrow fluctuate and availability atSeptember 30, 2022 was$55.7 million , and we had no amounts outstanding. InOctober 2022 , we amended the Credit Agreement to increase the revolving credit facility to$80.0 million and extend the maturity date toOctober 24, 2027 .
Leases
We use operating leases to fund a portion of our real estate, including our stores, distribution centers, and store support space.
Share Repurchases InNovember 2021 , our Board of Directors authorized$25.0 million for our share repurchase program. During the six months endedJune 30, 2022 , we purchased 899,890 shares of common stock for approximately$25.0 million . All funds were used under this authorization. InAugust 2022 , our Board of Directors authorized an additional$25.0 million for our share repurchase program. During the three months endedSeptember 30, 2022 , we purchased 187,488 shares of common stock for approximately$5.0 million . The balance on the current authorization for purchases was approximately$20.0 million atSeptember 30, 2022 .
The timing, manner and number of shares repurchased in future periods will depend on a variety of factors, including, but not limited to, the level of cash balances, credit availability, financial performance, general business conditions, the market price of the Company's stock and the availability of alternative investment opportunities.
Cash Flows Summary
Operating Activities. Cash flow generated from operations provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy costs. Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, inventory selection, the timing of cash receipts and payments, and vendor payment terms. Net cash provided by operating activities was$38.2 million in the first nine months of 2022 compared to$89.0 million during the same period in 2021. This difference was primarily driven by changes associated with customer deposits.
Investing Activities. Cash used in investing activities decreased by
Financing Activities. Cash used in financing activities increased by
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Store Plans and Capital Expenditures
Opening Quarter
Location Actual or Planned Category
Austin, TX Q-1-22 Open
Atlanta, GA Q-2-22 Closure
Metro DC Q-4-22 Open
Indianapolis, IN Q-4-22 Relocation
Durham, NC Q-1-23 Open
Net selling space at the end of 2022 is expected to be relatively flat compared
to 2021. Total capital expenditures are estimated to be $30.0 million in 2022
depending on the timing of spending for new projects.
Critical Accounting Estimates
Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. We reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented in our Form 10-K. We had no significant changes in those accounting estimates since our last annual report.
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