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What changed in HAVERTY FURNITURE COMPANIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HAVERTY FURNITURE COMPANIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+142 added−158 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-08)

Top changes in HAVERTY FURNITURE COMPANIES INC's 2023 10-K

142 paragraphs added · 158 removed · 105 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeCustomers may make their purchase in the store or opt to return home and finalize their decisions, place their orders online and set delivery. We limit internet sales of our furniture to within our delivery network, and internet sales of our accessories to within the continental United States.
Biggest changeOur sales consultants also use online tools to further engage our customers while they are in the store. Customers may make their purchase in the store or opt to return home and finalize their decisions, place their orders online and set delivery.
We have avoided offering lower quality, promotional price-driven merchandise favored by many regional and national chains, which we believe would devalue the Havertys brand with the consumer. We carry nationally well-known mattress product lines such as Tempur-Pedic®, Serta®, Sealy® and Stearns and Foster®. Our customers use varying methods to purchase or finance their sales.
We have avoided offering lower quality, promotional price-driven merchandise favored by many regional and national chains, which we believe would devalue the Havertys brand with the consumer. We carry nationally well-known mattress product lines such as Tempur-Pedic®, Serta®, Stearns and Foster®, Beautyrest®, and Sealy®. Our customers use varying methods to purchase or finance their sales.
We also offer a free in-home design service to those customers seeking a more in-depth personalized shopping experience. The average sales ticket for a customer that has a designer visit their home is generally twice that of our average in-store sales ticket.
We also offer a free in-home design service to those customers seeking a more in-depth personalized experience. The average sales ticket for a customer that has a designer visit their home is generally twice that of our average in-store sales ticket.
In addition to the information about us contained in this 2022 Form 10-K, information about us can be found on our Investor Relations website at www.ir.havertys.com. This website contains a significant amount of information about us, including our corporate governance principles and practices and financial and other information.
In addition to the information about us contained in this 2023 Form 10-K, information about us can be found on our Investor Relations website at www.ir.havertys.com. This website contains a significant amount of information about us, including our corporate governance principles and practices and financial and other information.
We are not including this or any other information on our website as a part of, nor incorporating it by reference into, this 2022 Form 10-K or any of our other filings with the Securities and Exchange Commission ("SEC").
We are not including this or any other information on our website as a part of, nor incorporating it by reference into, this 2023 Form 10-K or any of our other filings with the Securities and Exchange Commission ("SEC").
We have a strong safety program that focuses on implementing policies and training programs to ensure our team members can leave their job and return home safely every day. Diversity Integrity and teamwork are two of our core values.
We have a strong safety program that focuses on implementing policies and training programs to ensure our team members can leave their job and return home safely every day. Culture and Engagement Integrity and teamwork are two of our core values.
During 2022, our business began reverting to its more historical patterns, with a return to increased shopping on weekends and during traditional extended holiday periods. Trademarks and Domain Names We have registered our various logos, trademarks and service marks. We believe that our trademark position is adequately protected in all markets in which we do business.
During 2022, our business began reverting to its more historical patterns, with a return to increased shopping on weekends and during traditional extended holiday periods. 4 Table of Contents Trademarks and Domain Names We have registered our various logos, trademarks and service marks. We believe that our trademark position is adequately protected in all markets in which we do business.
In 2022, Havertys team members consumed approximately 123,000 hours of learning. We also offer the opportunity for team members to pursue degree programs, professional certificates, and individual courses in strategic fields of study through our tuition reimbursement program. Competition The retail sale of home furnishings is a highly fragmented and competitive business.
In 2023, Havertys team members consumed approximately 93,000 hours of learning. We also offer the opportunity for team members to pursue degree programs, professional certificates, and individual courses in strategic fields of study through our tuition reimbursement program. Competition The retail sale of home furnishings is a highly fragmented and competitive business.
These drive our approach in our everyday operations with our customers, suppliers and teammates and we believe that the best results happen when we work together. At Havertys, we see strength in America’s many faces, cultures, and colors. Each person offers a unique point of view and presents a fresh perspective.
These drive our approach in our everyday operations with our customers, suppliers and teammates and we believe that the best results happen when we work together. At Havertys, we see strength in America’s many faces, cultures, and colors. Each person offers a unique point of view and presents a fresh perspective integral to supporting innovation.
None of our team members is a party to a union contract. Health and Safety We care about our teammates, customers, and the communities we serve. We believe a hazard-free environment is a critical enabler for the success of our business.
None of our team members is a party to a union contract. 3 Table of Contents Health and Safety We care about our teammates, customers, and the communities we serve. We believe a hazard-free environment is a critical enabler for the success of our business.
We consider the expansion of our custom order capabilities, free in-home design service, the tailoring of merchandise on a local market basis, and the ability to make prompt delivery of orders through maintenance of inventory to be significant competitive advantages. 4 Table of Con tents Seasonality Our business is affected by traditional retail seasonality, advertising and promotion programs, and general economic trends.
We consider our custom order capabilities, free in-home design service, the tailoring of merchandise on a local market basis, and the ability to make prompt delivery of orders through maintenance of inventory to be significant competitive advantages. Seasonality Our business is affected by traditional retail seasonality, advertising and promotion programs, and general economic trends.
Our merchandising team provides input to the automated procurement process in an effort to maintain overall inventory levels within an appropriate range and reduce the number of written sales awaiting 2 Table of Con tents product delivery.
Our merchandising team provides input to the automated procurement process in an effort to maintain overall inventory levels within an appropriate range and reduce the number of written sales awaiting product delivery.
Suppliers and Supply Chain We buy our merchandise from numerous foreign and domestic manufacturers and importers, the largest ten of which accounted for approximately 41.3% of our product purchases during 2022. Most of our wood products, or “case goods,” are imported from Asia.
Suppliers and Supply Chain We buy our merchandise from numerous foreign and domestic manufacturers and importers, the largest ten of which accounted for approximately 40.2% of our product purchases during 2023. Most of our wood products, or “case goods,” are imported from Asia.
Havertys has grown to over 120 stores in 16 states in the Southern and Midwest regions. All of our retail locations are operated using the Havertys name, and we do not franchise our stores.
Havertys has grown to ove r 120 stores in 16 states i n the Southern and Midwest regions. All of our retail locations are operated using the Havertys name, and we do not franchise our stores.
We are very intentional in having open shopping spaces and our disciplined merchandise display ensures uniformity of presentations in-store, online and in our advertising. Our goal, subject to market conditions and identifying suitable sites, is to open five new stores per year and expect an approximate 2.2% increase in our retail square footage in 2023.
We are very intentional in having open shopping spaces and our disciplined merchandise display ensures uniformity of presentations in-store, online and in our advertising. Our goal, subject to market conditions and identifying suitable sites, is to open five new stores per year and to increase our retail square footage by approximately 2.8% in 2024.
Time between purchase and delivery averages 3 to 5 days for in-stock items and 5 to 7 weeks for special order items. 3 Table of Con tents Human Capital Resources As of December 31, 2022, Havertys’ total workforce was 2,831: 1,599 in our retail store operations, 990 in our warehouse and delivery points, 179 in our corporate operations, and 63 in our customer-service call centers.
Time between purchase and delivery averages 3 to 5 days for in-stock items and 5 to 7 weeks for special order items. Human Capital Resources As of December 31, 2023, Havertys’ total workforce was 2,574: 1,561 in our retail store operations, 779 in our warehouse and delivery points, 177 in our corporate operations, and 57 in our customer-service call centers.
We use real-time information to closely follow our import orders from the manufacturing plant through each stage of transit and using this data can more accurately set customer delivery dates prior to receipt of product. Manufacturers were challenged by raw material and labor shortages as a result of the COVID-19 pandemic.
We use real-time information to closely follow our import orders from the manufacturing plant through each stage of transit and using this data can more accurately set customer delivery dates prior to receipt of product.
Approximately 24.7% of our business in 2022 resulted from consultations with our in-home designers. 1 Table of Con tents Stores As of December 31, 2022, we operated 122 stores serving 85 cities in 16 states with approximately 4.4 million retail square feet.
Approximately 28.5% of our sales in 2023 resulted from consultations with our in-home designers. 1 Table of Contents Stores As of December 31, 2023, we operated 124 stores serving 86 cities in 16 states with approximately 4.4 million retail square feet.
We also implemented a new content management system, AI driven automation, and improved site reporting to gain insight around customer pathing and content effectiveness. We believe offering a direct-to-customer business complements our retail store operations as we serve the customer in the method of their choosing and leverage the power of high-touch service and online capabilities.
We believe offering a direct-to-customer business complements our retail store operations as we serve the customer in the method of their choosing and leverage the power of high-touch service and online capabilities.
Our direct import team works with industry designers and manufacturers in some of the best factories throughout Asia. Approximately 20.2% of our case goods sales and 9.2% of our upholstery sales in 2022 were generated by our direct imports.
Our direct import team works with industry designers and manufacturers in some of the best factories throughout Asia.
The longer lead times required for deliveries from overseas factories and the production of merchandise exclusively for Havertys makes it imperative for us to have both warehousing capabilities and end-to-end supply chain visibility.
Approximately 19.4% of our case goods sales and 9.2% o f our upholstery sales in 2023 were generated by our direct imports. 2 Table of Contents The longer lead times required for deliveries from overseas factories and the production of merchandise exclusively for Havertys makes it imperative for us to have both warehousing capabilities and end-to-end supply chain visibility.
The HDCs provide service to markets within an additional 250 miles. We had announced the conversion of our Virginia HDC to a DC during 2022 but given the dramatic construction cost increases e have deferred that project. We use third parties to handle over-the-road delivery of product from the DCs to the HDCs and market areas.
The HDCs provide service to markets within an additional 250 miles. We use third parties to handle over-the-road delivery of product from the DCs to the HDCs and market areas.
Most customers will use the internet for inspiration and as a start to their shopping process to view products and prices.
Most customers will use the internet for inspiration and as a start to their shopping process to view products and prices. Our website features a variety of helpful tools including a design center with a 3-D room planner, upholstery customization, and inspired accessories.
The next stop in the purchase journey for most consumers is a visit to a store to touch, sit, and see merchandise in person. Our sales consultants also use online tools to further engage our customers while they are in the store.
A large number of product reviews written by our customers are also provided, which some consumers find important in the decision-making process. The next stop in the purchase journey for most consumers is a visit to a store to touch, sit, and see merchandise in person.
We periodically conduct an Employee Engagement Survey (the “Survey”) as a means of measuring employee engagement and satisfaction, and offering employees the chance to feel heard. We are committed to supporting our teammates’ continuous development of professional, technical and leadership skills through corporate training programs, access to digital learning resources and through partnerships with local technical learning institutions.
We also offer competitive benefits, including access to healthcare plans, financial and physical wellness programs, paid time off, parental leave and retirement benefits. We are committed to supporting our teammates’ continuous development of professional, technical and leadership skills through corporate training programs, access to digital learning resources and through partnerships with local technical learning institutions.
Havertys’ total compensation for teammates comprises a variety of components, including competitive pay consistent with positions, skill levels, experience, and knowledge. We also offer competitive benefits, including access to healthcare plans, financial and physical wellness programs, paid time off, parental leave and retirement benefits.
Retention and Development Our compensation programs are designed to attract, retain, and motivate team members to achieve superior results. Havertys’ total compensation for teammates comprises a variety of components, including competitive pay consistent with positions, skill levels, experience, and knowledge.
We are committed to diverse representation across all levels of our workforce to reflect the vibrant and thriving diversity of the communities in which we live and work. Retention and Development Our compensation programs are designed to attract, retain, and motivate team members to achieve superior results.
We are committed to differing perspectives across all levels of our workforce to improve our business and reflect the vibrant and thriving diversity of the communities in which we live and work. We periodically conduct an Employee Engagement Survey (the “Survey”) as a means of measuring employee engagement and satisfaction and offering employees the chance to feel heard.
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Our website features a variety of helpful tools including a design center with a 3-D room planner, upholstery customization, and inspired accessories.A large number of product reviews written by our customers are also provided, which some consumers find important in the decision-making process.
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We limit internet sales of our furniture to within our delivery network, and internet sales of a selection of our accessories to within the continental United States. Our total sales completed online for 2023 were approximately 3.3% of our total 2023 business. We made significant investments in our website during 2022.
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Our total sales completed online for 2022 were approximately 3.8% of our total 2022 sales. This level of sales makes our website our highest performing "store." We made significant investments in our website during 2022. The new design and enhancements were launched in the fourth quarter and include better search functionality, improved navigation, enriched product pages, and faster site speed.
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The site was launched in the fourth quarter featuring a new design and replatformed on a suite of Adobe solutions allowing for better search functionality, navigation, and enriched product pages. At the beginning of 2023, we onboarded a new business partner with deep Adobe experience to further improve the overall customer experience by optimizing site performance and usability.
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Product manufactured in Asia was also impacted by shipping capacity challenges. Each of these factors, in addition to others, led to significantly constrained and delayed supply chains in the home furnishings industry which began to abate during 2022. In the second half of 2022, we experienced a return to more predictable lead times from most of our suppliers.
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We also added more conversion event, traffic and conversion variables in Adobe Analytics which has allowed more refined and sophisticated A/B testing and improved insight into customer behavior.
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On the whole, our staffing, delivery capacity, and vendor response times returned to their pre-pandemic levels during 2022.
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We continue to fine-tune the content management system as well as find opportunities to add more AI driven automation in an effort to improve the customer experience and increase sales conversion rates through our website and increase traffic to our stores.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeMoreover, a security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information could give rise to unwanted media attention, materially damage our customer relationships and reputation, and result in litigation or fines, fees, or potential liabilities, which may not be covered by our insurance policies, each of which could have a material adverse effect on our business, results of operations and financial condition.
Biggest changeIn addition, the costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in potential theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations. 9 Table of Contents Moreover, a security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information could give rise to unwanted media attention, materially damage our customer relationships and reputation, and result in litigation or fines, fees, or potential liabilities, which may not be covered by our insurance policies, each of which could have a material adverse effect on our business, results of operations and financial condition.
Such changes, if they occur, could have one or more of the following impacts: • we could be forced to raise retail prices so high that we are unable to sell the products at current unit volumes; • if we are unable to raise retail prices commensurately with the cost increases, gross profit as recognized under our LIFO inventory accounting method could be negatively impacted; or • we may be forced to find alternative sources of comparable product, which may be more expensive than the current product or of lower quality, or the vendor may be unable to meet our requirements for quality, quantities, delivery schedules or other key terms. 6 Table of Con tents We are dependent upon the ability of our third-party producers to meet our requirements; any failures by these producers, or the unavailability of suitable suppliers at reasonable prices or limitations on our ability to source from third-party producers may negatively impact our ability to deliver quality merchandise to our customers on a timely basis or result in higher costs or reduced net sales.
Such changes, if they occur, could have one or more of the following impacts: • we could be forced to raise retail prices so high that we are unable to sell the products at current unit volumes; • if we are unable to raise retail prices commensurately with the cost increases, gross profit as recognized under our LIFO inventory accounting method could be negatively impacted; or • we may be forced to find alternative sources of comparable product, which may be more expensive than the current product or of lower quality, or the vendor may be unable to meet our requirements for quality, quantities, delivery schedules or other key terms. 6 Table of Contents We are dependent upon the ability of our third-party producers to meet our requirements; any failures by these producers, or the unavailability of suitable suppliers at reasonable prices or limitations on our ability to source from third-party producers may negatively impact our ability to deliver quality merchandise to our customers on a timely basis or result in higher costs or reduced net sales.
Our vendors might fail in meeting our quality control standards or reacting to changes to the legislative or regulatory framework regarding product safety. All of our vendors must comply with applicable product safety laws and regulations, and we are dependent on them to ensure that the products we buy comply with all safety standards.
Our vendors might fail in meeting our quality control standards or reacting to changes to the legislative or regulatory framework regarding product safety. All of our vendors must comply with applicable product safety laws and regulations, and we are dependent on them to ensure that the products we buy comply with all safety standards as well applicable quality standards.
Prolonged or pervasive economic downturns could slow the pace of new store openings or cause current stores to temporarily or permanently close. Adverse changes in factors affecting discretionary consumer spending have reduced and may continue to further reduce consumer demand for our products, thus reducing our sales and harming our business and operating results.
Prolonged or pervasive economic downturns could slow the pace of new store openings or cause current stores 10 Table of Contents to temporarily or permanently close. Adverse changes in factors affecting discretionary consumer spending have reduced and may continue to further reduce consumer demand for our products, thus reducing our sales and harming our business and operating results.
Our existing competitors or new entrants into our industry may use a number of different strategies to compete against us, including aggressive advertising, pricing and marketing, social media 5 Table of Con tents campaigns and extension of credit to customers on terms more favorable than we offer.
Our existing competitors or new entrants into our industry may use a number of different strategies to compete against us, including aggressive advertising, pricing and marketing, social media campaigns and extension of credit to customers on terms more favorable than we offer.
If such an interruption were to occur, our ability to deliver our products in a timely manner would likely be impacted. We rely extensively on information technology systems to process transactions, summarize results, and manage our business. Disruptions in our information technology systems could adversely affect our business and operating results.
If such an interruption were to occur, our ability to deliver our products in a timely manner would likely be impacted. 8 Table of Contents We rely extensively on information technology systems to process transactions, summarize results, and manage our business. Disruptions in our information technology systems could adversely affect our business and operating results.
Our data security management program includes identity, trust, vulnerability and threat management business processes as well as adoption of standard data protection policies. We measure our data security effectiveness through industry accepted methods. We are continuously 8 Table of Con tents installing new and upgrading existing information technology systems.
Our data security management program includes identity, trust, vulnerability and threat management business processes as well as adoption of standard data protection policies. We measure our data security effectiveness through industry accepted methods. We are continuously installing new and upgrading existing information technology systems.
While the global supply chain challenges experienced as a result of the COVID-19 pandemic lessened in 2022, there can be no assurance that further challenges, including shutdowns and shipping delays, will not occur.
While the global supply chain challenges experienced as a result of the COVID-19 pandemic lessened over the past two years, there can be no assurance that further challenges, including shutdowns and shipping delays, will not occur.
Because of our limited number of distribution centers, our operating results could suffer if one is damaged. We utilize three large distribution centers to flow our merchandise from the vendor to the consumer. This system is very efficient for reducing inventory requirements but makes us operationally vulnerable should one of these facilities become damaged or experience significant business interruption.
We utilize three large distribution centers to flow our merchandise from the vendor to the consumer. This system is very efficient for reducing inventory requirements but makes us operationally vulnerable should one of these facilities become damaged or experience significant business interruption.
There also remains a risk that one or more of our foreign manufacturers will not adhere to applicable legal requirements or our compliance standards such as fair labor standards, the prohibition on child labor and other product safety or manufacturing safety standards.
Resulting penalties or enforcement actions could delay future imports or otherwise negatively impact our business. There also remains a risk that one or more of our foreign manufacturers will not adhere to applicable legal requirements or our compliance standards such as fair labor standards, the prohibition on child labor and other product safety or manufacturing safety standards.
Any actual, potential or perceived product safety concerns could expose us to government enforcement action or private litigation and could result in recalls and other liabilities. Such exposure could harm our brand’s image and negatively affect our business and operating results. Significant fluctuations in the price, availability and quality of raw materials and components could adversely affect our profits.
Any actual, potential or perceived product safety concerns could expose us to government enforcement action or private litigation and could result in recalls and other liabilities. Such exposure could harm our brand’s image and negatively affect our business and operating results.
In addition, governmental efforts to combat climate change through reduction of greenhouse gases may result in higher fuel costs through taxation or other means. We deliver substantially all of our customers’ purchases to their homes.
In addition, governmental efforts to combat climate change through reduction of greenhouse gases may result in higher fuel costs through taxation or other means.
We often make commitments to purchase products from our vendors in advance of proposed production dates. Significant deviation from the projected demand for products that we sell may have an adverse effect on our results of operations and financial condition, either from lost sales or lower margins resulting from inventory-driven price reductions.
Significant deviation from the projected demand for products that we sell may have an adverse effect on our results of operations and financial condition, either from lost sales or lower margins resulting from inventory-driven price reductions. Disruptions to our supply chain could result in late product arrivals.
Such supply chain disruptions could materially adversely impact the ability of our suppliers to fulfil our orders in a timely manner, if at all, and could lead to increased prices, which we may not be able to pass through to our customers.
Such supply chain disruptions could materially adversely impact the ability of our suppliers to fulfil our orders in a timely manner, if at all, and could lead to increased prices, which we may not be able to pass through to our customers. 7 Table of Contents Our revenue can be adversely affected by our ability to successfully forecast our supply chain needs and our foreign manufacturers’ ability to comply with international trade rules and regulations.
Our products must appeal to our target consumers whose preferences, tastes and trends cannot be predicted with certainty and are subject to change. We continuously monitor changes in home design trends through attendance at international industry events and fashion shows, internal marketing research, and regular communication with our retailers and design professionals who provide valuable input on consumer tendencies.
We continuously monitor changes in home design trends through attendance at international industry events and fashion shows, internal marketing research, and regular communication with our retailers and design professionals who provide valuable input on consumer tendencies. However, as with all retailers, our business is susceptible to changes in consumer tastes and trends.
However, as with all retailers, our business is susceptible to changes in consumer tastes and trends. Our success depends upon our ability to anticipate and respond in a timely manner to fashion trends relating to home furnishings. If we fail to successfully identify and respond to these changes, our sales may decline.
Our success depends upon our ability to anticipate and respond in a timely manner to fashion trends relating to home furnishings. If we fail to successfully identify and respond to these changes, our sales may decline. Our future success is largely dependent on our ability to successfully implement our growth and other strategies.
Our distribution system, which utilizes three DCs and multiple home delivery centers is very transportation dependent to reach the 22 states we deliver to from our stores across 16 Southern and Midwestern states.
Our distribution system, which utilizes three DCs and multiple home delivery centers is very transportation dependent and includes the use of third-party providers to reach the 22 states and the District of Columbia that we serve from our stores across 16 Southern and Midwestern states. Merchandise is delivered to customers' homes by Havertys delivery teams.
Additionally, investors and shareholder advocates are placing ever increasing emphasis on how corporations address ESG issues in their business strategy when making investment decisions and when developing their investment theses and proxy recommendations.
Additionally, investors and shareholder advocates are placing ever increasing emphasis on how corporations address ESG issues in their business strategy when making investment decisions and when developing their investment theses and proxy recommendations. We may incur meaningful costs with respect to our ESG efforts and if such efforts are negatively perceived, our reputation and stock price may suffer.
If we are unable to hire and retain store and other personnel capable of consistently providing a high level of customer service, our ability to open new stores and service the needs of our customers may be impaired, the performance of our existing and new stores and operations could be materially adversely affected and our brand image may be negatively impacted. 9 Table of Con tents General Risks An overall decline in the health of the economy and consumer spending may affect consumer purchases of discretionary items, which could reduce demand for our products and materially harm our sales, profitability and financial condition.
If we are unable to hire and retain store and other personnel capable of consistently providing a high level of customer service, our ability to open new stores and service the needs of our customers may be impaired, the performance of our existing and new stores and operations could be materially adversely affected and our brand image may be negatively impacted.
Some of the products we purchase are also subject to tariffs. If tariffs are imposed on additional products or the tariff rates are increased, our vendors may increase their prices.
All our purchases are denominated in U.S. dollars. As exchange rates between the U.S. dollar and certain other currencies become unfavorable, the likelihood of price increases from our vendors increases. Some of the products we purchase are also subject to tariffs. If tariffs are imposed on additional products or the tariff rates are increased, our vendors may increase their prices.
Rapidly evolving technologies are altering the manner in which retailers communicate and transact with customers, led by internet-based and multichannel retailers that have made significant investments in recent years, including with pricing technology and shipping capabilities.
Rapidly evolving technologies are altering the manner in which retailers communicate and transact with customers, led by internet-based and multichannel retailers that have made significant investments in recent years, including with pricing technology and shipping capabilities. 5 Table of Contents Competition from any of these sources could cause us to lose market share, revenues and customers; increase expenditures; or reduce prices, any of which could have a material adverse effect on our results of operations.
We cannot assure you that we will be successful in attracting and retaining qualified executives and personnel. Furthermore, a significant portion of our success depends in part upon our ability to attract, motivate and retain a sufficient number of store and other employees who understand and appreciate our corporate culture and customers. Turnover in the retail industry is generally high.
We may be unable to attract, train, engage and retain key teammates. Our long-term success and ability to implement our strategic and business planning goals depends on our ability to attract, motivate and retain a sufficient number of store and other employees who understand and appreciate our corporate culture and customers. Turnover in the retail industry is generally high.
In addition, there is a risk that compliance lapses by our foreign manufacturers could occur which could lead to investigations by U.S. government agencies responsible for international trade compliance. Resulting penalties or enforcement actions could delay future imports or otherwise negatively impact our business.
Increased levels of out-of-stock merchandise and loss of confidence by customers in our ability to deliver goods as promised could negatively affect sales. In addition, there is a risk that compliance lapses by our foreign manufacturers could occur which could lead to investigations by U.S. government agencies responsible for international trade compliance.
If transportation costs exceed amounts we are able to effectively pass on to the consumer, either by higher prices and/or higher delivery charges, then our profitability will suffer. The ongoing COVID-19 pandemic and its contributory effects on the economy or new health related emergencies could adversely impact our business, financial condition, liquidity, capital and results of operations.
If transportation costs exceed amounts we are able to effectively pass on to the consumer, either by higher prices and/or higher delivery charges, then our profitability will suffer. ESG risks could adversely affect our reputation and shareholder, employee, customer and third-party relationships and may negatively affect our stock price.
Excessive employee turnover will result in higher employee costs associated with finding, hiring and training new store employees.
Excessive employee turnover will result in higher employee costs associated with finding, hiring and training new store employees. Furthermore, labor shortages and competition may make it more difficult for us to adequately staff our retail stores and distribution operations and may result in increased labor expenses to us.
We import a substantial portion of our merchandise from foreign sources. This exposes us to certain risks that include political and economic conditions. Changes in exchange rates or tariffs could impact the price we pay for these goods, resulting in potentially higher retail prices and/or lower gross profit on these goods.
Changes in exchange rates or tariffs could impact the price we pay for these goods, resulting in potentially higher retail prices and/or lower gross profit on these goods. Based on product costs, approximately 61% of our total furniture purchases (which exclude accessories and mattresses) in 2023 were for goods that were not produced domestically.
Our revenue can be adversely affected by our ability to successfully forecast our supply chain needs and our foreign manufacturers’ ability to comply with international trade rules and regulations. Optimal product flow is dependent on demand planning and forecasting, supplier production according to such planning, and timely transportation.
Optimal product flow is dependent on demand planning and forecasting, supplier production according to such planning, and timely transportation. We often make commitments to purchase products from our vendors in advance of proposed production dates.
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Competition from any of these sources could cause us to lose market share, revenues and customers; increase expenditures; or reduce prices, any of which could have a material adverse effect on our results of operations. If we fail to successfully anticipate or respond to changes in consumer preferences in a timely manner, our sales may decline.
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If we fail to successfully anticipate or respond to changes in consumer preferences in a timely manner, our sales may decline. Our products must appeal to our target consumers whose preferences, tastes and trends cannot be predicted with certainty and are subject to change.
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Our future success is largely dependent on our ability to successfully implement our growth and other strategies.
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Inability to maintain and enhance our brand may materially adversely impact our business. Maintaining and enhancing our brand is critical to our ability to retain and expand our base of customers and may require us to make substantial investments. Our advertising campaigns utilize digital, television, and social media to maintain and enhance our existing brand equity.
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Based on product costs, approximately 77% of our total furniture purchases (which exclude accessories and mattresses) in 2022 were for goods that were not produced domestically. All our purchases are denominated in U.S. dollars. As exchange rates between the U.S. dollar and certain other currencies become unfavorable, the likelihood of price increases from our vendors increases.
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We cannot provide assurance that our marketing, advertising, and other efforts to promote and maintain awareness of our brand will be successful and we may incur substantial costs in such efforts. Furthermore, our brand and reputation could be harmed by negative media, including social media, attention, negative online reviews, cybersecurity incidents, product liability or safety concerns or other matters.
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Disruptions to our supply chain could result in 7 Table of Con tents late product arrivals. Increased levels of out-of-stock merchandise and loss of confidence by customers in our ability to deliver goods as promised could negatively affect sales.
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If our marketing, advertising, and other efforts are unsuccessful or our brand or reputation is damaged, our business, operating results and financial condition could be materially adversely affected. We import a substantial portion of our merchandise from foreign sources. This exposes us to certain risks that include political and economic conditions.
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In addition, the costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in potential theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations.
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Furthermore, concerns around the quality of the products we sell could damage our reputation and result in loss of future revenues. Significant fluctuations in the price, availability and quality of raw materials and components could adversely affect our profits.
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Our business is dependent on certain key personnel; if we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed. The success of our business depends upon our ability to retain continued service of certain key personnel, and to attract and retain additional qualified key personnel in the future.
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We rely on third party transportation providers for substantially all of our product shipments from our vendors. We rely on third party service providers for substantially all of our product shipments from our vendors, both domestic and foreign, to our DCs and also to handle over-the-road delivery of product from the DCs to our HDCs and some market areas .
Removed
We face risks related to loss of any key personnel and we also face risks related to any changes that may occur in key senior leadership executive positions.
Added
Our and our vendors’ utilization of these shipping services is subject to risks that are outside of our control, including increases in fuel prices and labor costs, employee strikes, labor shortages, strikes and union organizing activity, delays in shipping (including congestion at domestic and foreign ports), delays in unloading cargo from ships, availability of adequate trucking or railway providers, adverse weather, natural disasters, possible acts of terrorism and outbreaks of disease.
Removed
Any disruption in the services of our key personnel could make it more difficult to successfully operate our business and achieve our business goals and could adversely affect our results of operation and financial condition. These changes could also increase the volatility of our stock price.
Added
All of these risks may impact our ability to receive products from our vendors to necessary points in our distribution system in a cost-effective and timely manner. Any increases in these shipping costs may result in higher costs to us, and we may be unsuccessful in passing along these costs to our customers, negatively impacting our margins and profitability.
Removed
Competition for qualified employees and personnel in the retail industry is intense and we may be unable to retain personnel that are important to our business or hire additional qualified personnel. The process of identifying personnel with the combination of skills and attributes required to carry out our goals is often lengthy.
Added
Furthermore, a ny delays in receiving products may negatively impact our ability to deliver these products to our customers in a timely manner.
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Our success depends to a significant degree upon our ability to attract, retain and motivate qualified management, marketing and sales personnel, and store managers, and upon the continued contributions of these people. In addition, our operations require the services of qualified and experienced management personnel, with expertise in areas including information technology, merchandising, and supply chain management.
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Failure to make timely customer deliveries or long lead times for products could cause customers to cancel their orders or not place orders, which, could damage our brand and reputation and negatively impact our business, financial condition, operating results and prospects. Because of our limited number of distribution centers, our operating results could suffer if one is damaged.
Removed
While the level of disruption caused by, and the economic impact of, the COVID-19 pandemic lessened in 2022, there is no assurance that the pandemic will not worsen again, included as a result of the emergence of new strains of the virus, or another health related emergency will not emerge.
Added
We must also be able to attract, motivate and retain the teammates who staff our distribution centers, customer service centers, and deliver product to our customers, and professionals to implement our technology and other strategic initiatives.
Removed
Any worsening of the pandemic, a new health related emergency and their effects on the economy could have an adverse impact on our business, financial condition and results of operations. ESG risks could adversely affect our reputation and shareholder, employee, customer and third party relationships and may negatively affect our stock price.
Added
Our ability to meet our labor needs while controlling labor costs is subject to numerous external factors, including market pressures with respect to prevailing wage rates, equity compensation, unemployment levels, and health and other insurance costs; the impact of legislation or regulations governing labor and employee relations, immigration, federal and state minimum wage requirements, and benefit costs; changing demographics; and our reputation within the labor market.
Removed
We may incur meaningful costs with respect to our ESG efforts and if such efforts are negatively perceived, our reputation and stock price may suffer. 10 Table of Con tents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Added
If we are unable to attract and retain a workforce that meets our needs, our operations, service levels, support functions, and competitiveness could suffer and our results could be adversely affected.
Added
A failure to recruit, develop and retain effective leaders or the loss or shortage of personnel with key capacities and skills could impact our strategic growth plans and jeopardize our ability to meet our business performance expectations and growth targets.
Added
Our ability to continue to grow our business depends substantially on the contributions and abilities of our executive leadership team and other key management personnel. Changes in senior management could expose us to significant changes in strategic direction and initiatives.
Added
A failure to maintain appropriate organizational capacity and capability to support our strategic initiatives or to build adequate bench strength with key skillsets required for seamless succession of leadership, could jeopardize our ability to meet our business performance expectations and growth targets.
Added
If we are unable to attract, develop, retain and incentivize sufficiently experienced and capable management personnel, our business and financial results may suffer. General Risks An overall decline in the health of the economy and consumer spending may affect consumer purchases of discretionary items, which could reduce demand for our products and materially harm our sales, profitability and financial condition.
Added
Pending or unforeseen litigation and the potential for adverse publicity associated with litigation could have a material adverse effect on us. We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including commercial, consumer safety, product liability, employment and intellectual property claims.
Added
We currently do not expect the outcome of any pending matters to have a material adverse effect on our consolidated results of operations, financial position or cash flows.
Added
Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more pending claims asserted against us, or claims that may be asserted in the future that we are currently not aware of, or adverse publicity resulting from any such litigation, could adversely impact our business, reputation, sales, profitability, cash flows and financial condition.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe remaining 82 locations are leased by us with various termination dates through 2035 plus renewal options. Distribution Facilities We lease all of our distribution facilities except for the Virginia property.
Biggest changeThe remaining 85 locations are leased by us with various termination dates through 2035 plus renewal options. 13 Table of Contents Distribution Facilities All of our distribution facilities at December 31, 2023 were leased except for the Florida and Virginia properties.
Our regional distribution facilities are in the following locations: Location Approximate Square Footage Braselton, Georgia 808,000 Coppell, Texas 394,000 Lakeland, Florida 335,000 Colonial Heights, Virginia 129,000 Fairfield, Ohio 72,000 Theodore, Alabama 42,000 Memphis, Tennessee 30,000 Corporate Facilities We lease approximately 48,000 square feet on two floors of a suburban mid-rise office building located at 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia.
Our regional distribution facilities are in the following locations: Location Approximate Square Footage Braselton, Georgia 808,000 Coppell, Texas 409,000 Lakeland, Florida 335,000 Colonial Heights, Virginia 129,000 Fairfield, Ohio 72,000 Theodore, Alabama 42,000 Memphis, Tennessee 30,000 Corporate Facilities We lease approximately 48,000 square feet on two floors of a suburban mid-rise office building located at 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia.
We believe that our facilities are suitable and adequate for present purposes, and that the productive capacity in such facilities is substantially being utilized. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this report under Item 7 of Part II. 11 Table of Con tents
We believe that our facilities are suitable and adequate for present purposes, and that the productive capacity in such facilities is substantially being utilized. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this report under Item 7 of Part II.
ITEM 2. PROPERTIES Stores Our retail store space at December 31, 2022 totaled approximately 4.4 million square feet for 122 stores.
ITEM 2. PROPERTIES Stores Our retail store space at December 31, 2023 totaled approximately 4.4 million square feet for 124 stores .
The following table sets forth the number of stores we operated at December 31, 2022 by state: State Number of Stores State Number of Stores Florida 30 Maryland 4 Texas 22 Arkansas 3 Georgia 16 Louisiana 3 North Carolina 8 Kentucky 2 Virginia 9 Missouri 2 South Carolina 7 Ohio 2 Alabama 6 Indiana 1 Tennessee 6 Kansas 1 The 40 retail locations which we owned at December 31, 2022 had a net book value for land and buildings of $67.7 million.
The following table sets forth the number of stores we operated at December 31, 2023 by state: State Number of Stores State Number of Stores Florida 30 Maryland 4 Texas 21 Arkansas 3 Georgia 15 Louisiana 3 North Carolina 10 Ohio 3 Virginia 10 Kentucky 2 South Carolina 7 Missouri 2 Alabama 6 Indiana 1 Tennessee 6 Kansas 1 The 39 retail locations which we owned at December 31, 2023 had a net book value for land and buildings of $65.0 million.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

6 edited+0 added−2 removed1 unchanged
Biggest changeBautista 56 Senior Vice President, Marketing 2021 Vice President, Marketing for Havertys, 2019-March 1, 2021; Senior Vice President Group Account Director, 2018-2019, Vice President Group Account Director 2016-2018, Group Account Director, 2013-2016 all for Fitzco, a McCann World Group Agency Kelley A.
Biggest changeHare 57 Executive Vice President and Chief Financial Officer 2017 Has held this position for the last five years. Helen B. Bautista 57 Senior Vice President, Marketing 2021 Vice President, Marketing for Havertys, 2019-March 1, 2021; Senior Vice President Group Account Director, 2018-2019 for Fitzco, a McCann World Group Agency Kelley A.
Name, age and office (as of March 1, 2023) and year elected to office Principal occupation during last five years other than office of the Company currently held Clarence H. Smith 72 Chairman of the Board Chief Executive Officer 2012 2002 President and Chief Executive Officer, 2002-March 1, 2021 Director 1989 Steven G.
Name, age and office (as of March 1, 2024) and year elected to office Principal occupation during last five years other than office of the Company currently held Clarence H. Smith 73 Chairman of the Board Chief Executive Officer 2012 2002 President and Chief Executive Officer, 2002-March 1, 2021 Director 1989 Steven G.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 12 Table of Con tents INFORMATION ABOUT OUR EXECUTIVE OFFICERS Our executive officers are elected or appointed annually by the Board of Directors for terms of one year or until their successors are elected and qualified, subject to removal by the Board at any time.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 14 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS Our executive officers are elected or appointed annually by the Board of Directors for terms of one year or until their successors are elected and qualified, subject to removal by the Board at any time.
Taylor 61 Senior Vice President, General Counsel 2010 Has held this position for the last five years Rawson Haverty, Jr. and Clarence H. Smith are first cousins. 13 Table of Con tents PART II
Taylor 62 Senior Vice President, General Counsel 2010 Has held this position for the last five years Clarence H. Smith and one of our directors, Rawson Haverty, Jr., are first cousins. 15 Table of Contents PART II
Fladger 53 Senior Vice President and Chief Human Resources Officer 2019 Vice President, Human Resource Services, 2016-2019 and Chief Diversity and Inclusion Officer, 2017-2019 for Perdue Farms, Inc.
Fladger 54 Senior Vice President and Chief Human Resources Officer 2019 Vice President, Human Resource Services, 2016-2019 and Chief Diversity and Inclusion Officer, 2017-2019 for Perdue Farms, Inc. Jenny Hill Parker 65 Senior Vice President, Finance, and Corporate Secretary 2019 Senior Vice President, Finance, Treasurer and Corporate Secretary 2010-2019 Janet E.
Burdette 61 President 2021 Executive Vice President, Operations 2017-March 1, 2021 Executive Vice President, Stores, 2008-2017 J. Edward Clary 62 Executive Vice President, and Chief Information Officer 2015 Senior Vice President, Distribution and Chief Information Officer 2008-2015 John L.
Burdette 62 President 2021 Executive Vice President, Operations 2017-March 1, 2021 Executive Vice President, Stores, 2008-2017 J. Edward Clary 63 Executive Vice President, and Chief Information Officer 2015 Has held this position for the last five years. John L. Gill 60 Executive Vice President, Merchandising 2019 Senior Vice President, Merchandising 2018-2019; Vice President, Merchandising 2017-2018 Richard B.
Removed
Gill 59 Executive Vice President, Merchandising 2019 Senior Vice President, Merchandising 2018-2019; Vice President, Merchandising 2017-2018; Vice President, Operations 2015-2017 Richard B. Hare 56 Executive Vice President and Chief Financial Officer 2017 Senior Vice President, Finance, Treasurer and Chief Financial Officer of Carmike Cinemas, Inc., 2006-2016 Helen B.
Removed
Rawson Haverty, Jr. 66 Senior Vice President, Real Estate and Development 1988 Has held this position for the last five years Director 1992 Jenny Hill Parker 64 Senior Vice President, Finance, and Corporate Secretary 2019 Senior Vice President, Finance, Treasurer and Corporate Secretary 2010-2019 Janet E.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+2 added−1 removed4 unchanged
Biggest changeA program was initially approved by the board on November 3, 1986 and the board has subsequently authorized additional amounts for repurchase. The stock repurchase program has no expiration date but may be terminated by our board at any time. We did not make any repurchases of Havertys' common stock during the fourth quarter of 2022.
Biggest changeThe program was initially approved by the board on November 3, 1986 and the board has subsequently authorized additional amounts for repurchase. The current repurchase authorization was approved on August 5, 2022, when the board of directors authorized an additional $25.0 million for our stock repurchase program.
Equity Compensation Plans For information regarding securities authorized for issuance under our equity compensation plans, see Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” Issuer Purchases of Equity Securities The board of directors has authorized management, at its discretion, to purchase and retire limited amounts of our Common Stock and Class A Common Stock.
Equity Compensation Plans For information regarding securities authorized for issuance under our equity compensation plans, see Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” Issuer Purchases of Equity Securities The board of directors has authorized management, at its discretion, to purchase limited amounts of our Common Stock and Class A Common Stock.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our stock began trading pubicly in October 1929.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our stock began trading publicly in October 1929.
Stock Performance Graph The following graph compares the performance of Havertys’ Common Stock and Class A Common Stock against the cumulative return of the NYSE/AMEX/Nasdaq Home Furnishings & Equipment Stores Index (SIC Codes 5700 – 5799) and the S&P SmallCap 600 Index for the period of five years commencing December 31, 2017 and ending December 31, 2022.
Stock Performance Graph The following graph compares the performance of Havertys’ Common Stock and Class A Common Stock against the cumulative return of the NYSE/AMEX/Nasdaq Home Furnishings & Equipment Stores Index (SIC Codes 5700 – 5799) and the S&P SmallCap 600 Index for the period of five years commencing December 31, 2018 and ending December 31, 2023.
The graph assumes an initial investment of $100 on January 1, 2016 and reinvestment of dividends. NOTE: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2022. Index Data: Copyright Standard and Poor’s, Inc. Used with permission.
The graph assumes an initial investment of $100 on January 1, 2018 and reinvestment of dividends. NOTE: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2024. Index Data: Copyright Standard and Poor’s, Inc. Used with permission.
All rights reserved. 2017 2018 2019 2020 2021 2022 HVT $ 100.00 $ 89.99 $ 100.42 $ 153.47 $ 185.11 $ 194.02 HVT-A $ 100.00 $ 84.84 $ 96.58 $ 153.56 $ 173.92 $ 187.58 S&P SmallCap 600 Index $ 100.00 $ 91.52 $ 112.37 $ 125.05 $ 158.59 $ 133.06 SIC Codes 5700-5799 $ 100.00 $ 80.95 $ 123.19 $ 162.11 $ 221.19 $ 143.34 14 Table of Con tents Stockholders Based on the number of individual participants represented by security position listings, there are approximately 12,300 holders of our common stock and 200 holders of our Class A common stock as of February 23, 2023.
All rights reserved. 2018 2019 2020 2021 2022 2023 HVT $ 100.00 $ 111.59 $ 170.53 $ 205.69 $ 215.60 $ 274.78 HVT-A $ 100.00 $ 113.83 $ 180.99 $ 204.99 $ 221.09 $ 272.82 S&P SmallCap 600 Index $ 100.00 $ 122.78 $ 136.64 $ 173.29 $ 145.39 $ 168.73 SIC Codes 5700-5799 $ 100.00 $ 150.35 $ 205.18 $ 277.11 $ 182.77 $ 212.77 16 Table of Contents Stockholders Based on the number of individual participants represented by security position listings, there are approximately 11,400 holders of our common stock and 200 holders of our Class A common stock as of February 5, 2024.
Removed
We made cash payments of approximately $30.0 million for repurchases of approximately 1.1 million shares of our Common Stock through open market purchases during 2022. There is approximately $20.0 million at December 31, 2022 that may yet be purchased under the existing authorization. ITEM 6. RESERVED
Added
The stock repurchase program has no expiration date but may be terminated by our board at any time.
Added
The following table presents information with respect to our repurchase of Havertys’ common stock during the fourth quarter of 2023: (a) Total Number of Shares Purchased (b) Average Price Paid Per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs October 1 - October 31 — $ — — $ 16,814,000 November 1 - November 30 99,768 $ 29.55 99,768 $ 13,865,000 December 1 - December 31 23,082 $ 32.61 23,082 $ 13,113,000 Total 122,850 122,850

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

33 edited+11 added−33 removed17 unchanged
Biggest changeStatement of Earnings Data Year Ended December 31, (Dollars in thousands, except per share data) 2022 2021 2020 (1) 2019 2018 Net sales $ 1,047,215 $ 1,012,799 $ 748,252 $ 802,291 $ 817,733 Gross profit 604,224 574,625 418,994 434,488 446,542 Percent of net sales 57.7 % 56.7 % 56.0 % 54.2 % 54.6 % Selling, general and administrative expenses (2) 486,298 456,267 377,288 407,456 404,856 Percent of net sales 46.4 % 45.1 % 50.4 % 50.8 % 49.5 % Income before income taxes (2)(3) 119,501 118,535 76,731 28,724 40,408 Percent of net sales 11.4 % 11.7 % 10.3 % 3.6 % 4.9 % Net income (2)(3) 89,358 90,803 59,148 21,865 30,307 Percent of net sales 8.5 % 9.0 % 7.9 % 2.7 % 3.7 % Share Data Diluted earnings per Common share (2)(3) $ 5.24 $ 4.90 $ 3.12 $ 1.08 $ 1.42 Cash dividends – per share: Common Stock (4) $ 2.06 $ 2.97 $ 2.77 $ 0.76 $ 1.72 Class A Common Stock (4) $ 1.96 $ 2.79 $ 2.62 $ 0.72 $ 1.63 Diluted weighted average common shares outstanding 17,038 18,543 18,932 20,261 21,295 Balance Sheet Data Total assets $ 649,049 $ 686,290 $ 680,372 $ 560,072 $ 440,179 Inventories 118,333 112,031 89,908 104,817 105,840 Net property and equipment (5) 137,475 126,099 108,366 156,534 218,852 Right-of-use lease assets 207,390 222,356 228,749 175,474 — Lease liabilities 221,287 230,352 233,666 179,055 — Customer deposits 47,969 98,897 86,183 30,121 24,465 Total debt (6) — — — — 50,803 Stockholders’ Equity 289,399 255,970 252,967 260,503 274,629 Statement of Cash Flows Data Net cash provided by operating activities $ 51,015 $ 97,242 $ 130,191 $ 63,419 $ 70,392 Depreciation and amortization (5) 16,926 16,304 18,207 20,596 29,806 Capital expenditures 28,411 34,090 10,927 16,841 21,473 Dividends paid 33,948 52,446 50,521 15,056 35,464 Share repurchases 29,998 41,809 19,708 29,757 18,732 Other Supplemental Data and Metrics Number of stores 122 121 120 121 120 Retail square footage at year-end 4,363 4,354 4,352 4,426 4,417 Sales per WAVG retail square foot $ 256 $ 232 $ 173 $ 183 $ 185 Average ticket (7) $ 3,171 $ 2,865 $ 2,482 $ 2,323 $ 2,184 Net sales increases (%) 3.4 % 35.4 % (6.7) % (1.9) % (0.3) % Comparable store sales increase (%) 3.4 % 17.9 % 5.0 % (1.4) % 0.3 % Employees 2,831 2,845 2,766 3,425 3,418 (1) Stores were closed and delivery operations were paused for approximately six weeks due to COVID-19.
Biggest changeStatement of Earnings Data Year Ended December 31, (Dollars in thousands, except per share data) 2023 2022 2021 2020 (1) 2019 Net sales $ 862,133 $ 1,047,215 $ 1,012,799 $ 748,252 $ 802,291 Gross profit 523,092 604,224 574,625 418,994 434,488 Percent of net sales 60.7 % 57.7 % 56.7 % 56.0 % 54.2 % Selling, general and administrative expenses (2) 455,812 486,298 456,267 377,288 407,456 Percent of net sales 52.9 % 46.4 % 45.1 % 50.4 % 50.8 % Income before income taxes (2)(3) 72,711 119,501 118,535 76,731 28,724 Percent of net sales 8.4 % 11.4 % 11.7 % 10.3 % 3.6 % Net income (2)(3) 56,319 89,358 90,803 59,148 21,865 Percent of net sales 6.5 % 8.5 % 9.0 % 7.9 % 2.7 % Share Data Diluted earnings per Common share (2)(3) $ 3.36 $ 5.24 $ 4.90 $ 3.12 $ 1.08 Cash dividends – per share: Common Stock (4) $ 2.18 $ 2.09 $ 2.97 $ 2.77 $ 0.76 Class A Common Stock (4) $ 2.05 $ 1.96 $ 2.79 $ 2.62 $ 0.72 Diluted weighted average common shares outstanding 16,774 17,038 18,543 18,932 20,261 Balance Sheet Data Total assets $ 654,133 $ 649,049 $ 686,290 $ 680,372 $ 560,072 Inventories 93,956 118,333 112,031 89,908 104,817 Net property and equipment (5) 171,588 137,475 126,099 108,366 156,534 Right-of-use lease assets 202,306 207,390 222,356 228,749 175,474 Lease liabilities 217,754 221,287 230,352 233,666 179,055 Customer deposits 35,837 47,969 98,897 86,183 30,121 Total debt (6) — — — — — Stockholders’ Equity 308,366 289,399 255,970 252,967 260,503 Statement of Cash Flows Data Net cash provided by operating activities $ 97,203 $ 51,015 $ 97,242 $ 130,191 $ 63,419 Depreciation and amortization (5) 18,603 16,926 16,304 18,207 20,596 Capital expenditures 53,115 28,411 34,090 10,927 16,841 Dividends paid 35,240 33,948 52,446 50,521 15,056 Share repurchases 6,895 29,998 41,809 19,708 29,757 Other Supplemental Data and Metrics Number of stores 124 122 121 120 121 Retail square footage at year-end 4,387 4,363 4,354 4,352 4,426 Sales per WAVG retail square foot $ 197 $ 241 $ 232 $ 173 $ 183 Average ticket (7) $ 3,278 $ 3,171 $ 2,865 $ 2,482 $ 2,323 Net sales (decrease) increase (%) (17.7 %) 3.4 % 35.4 % (6.7) % (1.9) % Comparable store sales (decrease) increase (%) (18.4 %) 3.4 % 17.9 % 5.0 % (1.4) % Employees 2,574 2,831 2,845 2,766 3,425 (1) Stores were closed and delivery operations were paused for approximately six weeks due to COVID-19.
These factors remain tempered by impediments to industry growth, such as inflation, higher interest rates, rising consumer debt, home inventory constraints, and tight access to home mortgage credit. Our Business We sell home furnishings in our retail stores and via our website and record revenue when the products are delivered to our customer.
These factors remain tempered by impediments to industry growth, such as inflation, higher interest rates, rising consumer debt, home inventory constraints, tight access to home mortgage credit, and continuing economic uncertainty. Our Business We sell home furnishings in our retail stores and via our website and record revenue when the products are delivered to our customer.
Net cash provided by operating activities in 2022 was $51.0 million driven primarily by net income of $89.4 million and non-cash adjustments to net income of $25.8 million consisting primarily of depreciation and amortization and stock-based compensation expense, and by working capital changes driven primarily by a $50.9 million reduction in customer deposits.
Net cash provided by operating activities in 2022 was $51.0 million driven primarily by net income of $89.4 million and non-cash adjustments to net income of $25.8 million consisting primarily of depreciation and amortization and stock-based compensation expense, and by working capital changes driven primarily by a $50.9 million reduction in customer deposits. 23 Table of Contents Investing Activities.
These individuals work with our sales team members to provide customers 15 Table of Con tents additional confidence and inspiration in their furniture purchase journey. We do not outsource the delivery function, something common in the industry, but instead ensure that the “last contact” is handled by a customer-oriented Havertys delivery team.
These individuals work with our sales team members to provide customers additional confidence and inspiration in their furniture purchase journey. We do not outsource the delivery function, something common in the industry, but instead ensure that the “last contact” is handled by a customer-oriented Havertys delivery team.
(Approximate in thousands) Proposed 2023 2022 2021 2020 Stores: New or replacement stores (1) $ 9,700 $ 7,700 $ 7,000 $ 1,000 Remodels/expansions 2,900 4,400 4,300 600 Other improvements 6,700 6,600 4,500 3,200 Total stores 19,300 18,700 15,800 4,800 Distribution (1) 5,800 6,900 15,300 3,600 Information technology 2,500 2,800 3,000 2,500 Total $ 27,600 $ 28,400 $ 34,100 $ 10,900 (1) In 2021 we purchased one retail location and one distribution facility that were previously leased.
(Approximate in thousands) Proposed 2024 2023 2022 2021 Stores: New or replacement stores (1) $ 17,000 $ 9,300 $ 7,700 $ 7,000 Remodels/expansions 3,500 2,500 4,400 4,300 Other improvements 6,700 6,900 6,600 4,500 Total stores 27,200 18,700 18,700 15,800 Distribution (1) 2,300 32,400 6,900 15,300 Information technology 2,500 2,000 2,800 3,000 Total $ 32,000 $ 53,100 $ 28,400 $ 34,100 (1) In 2023 we purchased one distribution facility that was previously leased and in 2021 we purchased one retail location and one distribution facility that were previously leased.
The lag time between customers' order placement and delivery grew in 2020 and remained high during 2021 and continued through mid-2022 due to disruptions in supply chain and demand that outpaced merchandise supply. As a retailer, comp‑store sales and written comp‑store sales are an indicator of relative customer spending and store performance.
The lag time between customers' order placement and delivery grew in 2020 and continued through mid-2022 due to disruptions in supply chain and demand that outpaced merchandise supply but normalized in 2023. As a retailer, comp‑store sales and written comp‑store sales are an indicator of relative customer spending and store performance.
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 expenses as these amounts will generally move in tandem with our level of sales. The remaining categories and expenses are classified as fixed and discretionary because these costs do not fluctuate with sales.
Our variable expenses include the costs in the selling and delivery categories and certain warehouse expenses as these amounts will generally move in tandem with our level of sales. The remaining categories and expenses are classified as fixed and discretionary because these costs do not fluctuate with sales.
(7) Average ticket is calculated by dividing total sales by the number of orders. 17 Table of Con tents Net Sales The following outlines our sales and comp-store sales increases and decreases for the periods indicated.
(7) Average ticket is calculated by dividing total sales by the number of orders. 20 Table of Contents Net Sales The following outlines our sales and comp-store sales increases and decreases for the periods indicated.
WAVG square footage is a daily WAVG based on the ratio of the days open in a period to the total days in the period. 16 Table of Con tents Results of Operations and Non-GAAP Measures The table and discussion below should be read in conjunction with our consolidated financial statements and related notes included in this report.
WAVG square footage is a daily WAVG based on the ratio of the days open in a period to the total days in the period. 19 Table of Contents Results of Operations The table and discussion below should be read in conjunction with our consolidated financial statements and related notes included in this report.
The following outlines the change in our selling square footage for each of the three years ended December 31 (square footage in thousands): 2022 2021 2020 Store Activity: # of Stores Square Footage # of Stores Square Footage # of Stores Square Footage Opened 3 97 2 44 1 28 Closed 2 88 1 42 2 102 Year end balances 122 4,363 121 4,354 120 4,352 The following table summarizes our store activity in 2022 and plans for 2023.
The following outlines the change in our selling square footage for each of the three years ended December 31 (square footage in thousands): 2023 2022 2021 Store Activity: # of Stores Square Footage # of Stores Square Footage # of Stores Square Footage Opened 4 110 3 97 2 44 Closed 2 86 2 88 1 42 Year end balances 124 4,387 122 4,363 121 4,354 The following table summarizes our store activity in 2023 and current plans for 2024.
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.
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.
Liquidity and Capital Resources Cash and Cash Equivalents at End of Year At December 31, 2022, we had $123.1 million in cash and cash equivalents, and $6.8 million in restricted cash equivalents. See Note 1 to our consolidated financial statements for further discussion of our restricted cash equivalents.
Liquidity and Capital Resources At December 31, 2023 , we had $120.6 million in cash and cash equivalents, and $7.1 million in restricted cash equivalents. See Note 1 to our consolidated financial statements for further discussion of our restricted cash equivalents.
Key Performance Indicators We evaluate our performance based on several key metrics which include net sales, comparable store sales and written comparable store sales; sales per weighted average square foot; gross profit, selling, general and administrative costs as a percentage of sales; operating income; cash flow; and earnings per share.
Our focus is to serve our customers better and distinguish ourselves in the marketplace. 18 Table of Contents Key Performance Indicators We evaluate our performance based on several key metrics which include net sales, comparable store sales and written comparable store sales; sales per weighted average square foot; gross profit, selling, general and administrative costs as a percentage of sales; operating income; cash flow; and earnings per share.
Cash used in investing activities in 2022 consisted primarily of $28.4 million of capital expenditures. Cash used in investing activities in 2021 primarily reflected $34.1 million of capital expenditures. Financing Activities. Cash used in financing activities in 2022 consisted primarily of $17.9 million of quarterly cash dividends, $16.1 of special cash dividends, and $30.0 million of share repurchases.
Cash used in investing activities in 2023 consisted primarily of $53.1 million of capital expenditures. Cash used in investing activities in 2022 primarily reflected $28.4 million of capital expenditures. Financing Activities. Cash used in financing activities in 2023 consisted primarily of $19.1 million of quarterly cash dividends, $16.1 of special cash dividends, and $6.9 million of share repurchases.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Industry The retail residential furniture industry’s results are influenced by the overall strength of the economy, new and existing housing sales, consumer confidence, spending on large ticket items, interest rates, and availability of credit.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-K for the year ended December 31, 2022. Industry The retail residential furniture industry’s results are influenced by the overall strength of the economy, new and existing housing sales, consumer confidence, spending on large ticket items, interest rates, and availability of credit.
(4) Includes special dividends of $1.00 for Common Stock and $0.95 for Class A Common Stock paid in the fourth quarter of 2022, $2.00 for Common Stock and $1.90 for Class A Common Stock paid in the fourth quarter of 2021 and 2020 and $1.00 for Common Stock and $0.95 for Class A Common Stock paid in the fourth quarter of 2018.
(4) Includes special dividends of $1.00 for Common Stock and $0.95 for Class A Common Stock paid in the fourth quarter of 2023 and 2022, and $2.00 for Common Stock and $1.90 for Class A Common Stock paid in the fourth quarter of 2021 and 2020. (5) We adopted ASC 840 effective January 1, 2019.
Location Opening (Closing) Quarter Actual or Planned Category Austin, TX Q-2-22 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 Atlanta, GA Q-2-23 Closure Charlotte, NC Q-3-23 Open Dayton, OH Q-4-23 Open Location to be announced Q-4-23 Open Location to be announced Q-4-23 Open Assuming the new stores open and existing stores closed as planned, the above activity and other changes should increase net selling space in 2023 approximately 2.2% over 2022. 23 Table of Con tents Our investing activities in stores and operations in 2022, 2021 and 2020 and planned outlays for 2023 are categorized in the table below.
Location Opening (Closing) Quarter Actual or Planned Category Durham, NC Q-1-23 Open Atlanta, GA Q-3-23 Closure - Outlet Charlotte, NC Q-4-23 Open Dayton, OH Q-4-23 Open Dallas, TX Q-4-23 Closure Richmond, VA Q-4-23 Open - Outlet Pine Bluff, AR Q-1-24 Closure Memphis, TN Q-1-24 Open Destin, FL Q-2-24 Open Tampa, FL Q-2-24 Open Miami, FL Q-3-24 Open To Be Announced Q-4-24 Open Assuming the new stores open and existing stores close as planned, the above activity and other changes should increase net selling space in 2024 approximately 2.8% compared to 2023. 24 Table of Contents Our investing activities in stores and operations in 2023 , 2022 and 2021 and planned outlays for 2024 are categorized in the table below.
See Note 5, “Credit Arrangement” of the Notes to Consolidated Financial Statements for information about our Credit Agreement. Leases We use operating leases to fund a portion of our real estate, including our stores, distribution centers, and store support space. At December 31, 2022, we had aggregate lease obligations of $221.3 million, with $34.4 million payable within 12 months.
See Note 5, “Credit Arrangement” of the Notes to Consolidated Financial Statements for information about our Credit Agreement. 22 Table of Contents Leases We use operating leases to fund a portion of our real estate, including our stores, distribution centers, and store support space.
We made cash payments of $30.0 million for repurchases of 1.1 million shares of our Common Stock through open market purchases during 2022 and there is approximately $20.0 million at December 31, 2022 that may yet be purchased under the existing authorization. 21 Table of Con tents Cash Flows Summary Operating Activities.
We made cash payments of $6.9 million for repurchases of approximately 227,000 shares of our Common Stock through open market purchases during 2023 and there is approximately $13.1 million at December 31, 2023 that may yet be purchased under the existing authorization. Cash Flows Summary Operating Activities. Cash flow generated from operations provides us with a significant source of liquidity.
The rates vary from the U.S. federal statutory rate primarily due to state income taxes. The rates in 2022, 2021 and 2020 also benefited from the recognition of state tax credits of $899,000, $481,000 and $1,206,000, respectively. See Note 7, “Income Taxes” of the Notes to Consolidated Financial Statements for further information about our income taxes.
Provision for Income Taxes Our effective tax rate was 22.5% in 2023 compared to 25.2% in 2022. The rates vary from the U.S. federal statutory rate primarily due to state income taxes. See Note 7, “Income Taxes” of the Notes to Consolidated Financial Statements for further information about our income taxes.
The Company’s strategies for profitability include gross margin focus, targeted marketing initiatives, productivity and process improvements, and efficiency and cost-saving measures. Our focus is to serve our customers better and distinguish ourselves in the marketplace.
In addition, our growth strategy includes the expansion of our retail operations to increase our footprint within our distribution network. The Company’s strategies for profitability include gross margin focus, targeted marketing initiatives, productivity and process improvements, and efficiency and cost-saving measures.
Warehouse costs include supplies, depreciation, and rental charges for equipment. Advertising expenses are primarily media production and space expenditures, direct mail costs, market research expenses and agency fees. Administrative expenses are comprised of compensation costs for store personnel exclusive of sales team members, information systems, executive, accounting, merchandising, advertising, supply chain, real estate and human resource departments.
Warehouse costs include supplies, depreciation, and rental charges for equipment. Advertising expenses are primarily media production and space expenditures, direct mail costs, market research expenses and agency fees.
(5) We adopted ASC 840 effective January 1, 2019. The cumulative effect included a reduction of property and equipment, net of $53,519,000. Amortization of buildings under lease was included in depreciation expense. (6) Debt is comprised completely of lease obligations accounted for under ASC 840, prior to adoption of ASU 2016-02.
The cumulative effect included a reduction of property and equipment, net of $53,519,000. Amortization of buildings under lease was included in depreciation expense. (6) We have no funded debt.
(Amounts and percentages may not always add to totals due to rounding.) December 31, 2022 2021 2020 Net Sales Comp-Store Sales Net Sales Comp-Store Sales Net Sales Comp-Store Sales Period Ended Dollars in millions % Increase (decrease) over prior period % Increase (decrease) over prior period Dollars in millions % Increase (decrease) over prior period % Increase (decrease) over prior period Dollars in millions % Increase (decrease) over prior period % Increase (decrease) over prior period Q1 $ 238.9 1.0 % 0.2 % $ 236.5 31.8 % 11.5 % $ 179.4 (4.2) % 11.6 % Q2 253.2 1.3 1.1 250.0 127.3 46.9 110.0 (42.7) (15.2) Q3 274.5 5.4 6.3 260.4 19.7 17.7 217.5 3.9 4.0 Q4 280.6 5.5 5.7 265.9 10.2 9.2 241.3 12.9 13.7 Year $ 1,047.2 3.4 % 3.4 % $ 1,012.8 35.4 % 17.9 % $ 748.3 (6.7) % 5.0 % Sales in 2022 set new records, with each quarter exceeding the comparable prior period quarter.
(Amounts and percentages may not always add to totals due to rounding.) December 31, 2023 2022 Net Sales Comp-Store Sales Net Sales Comp-Store Sales Period Ended Dollars in millions % Increase (decrease) over prior period % Increase (decrease) over prior period Dollars in millions % Increase (decrease) over prior period % Increase (decrease) over prior period Q1 $ 224.8 (5.9) % (6.7) % $ 238.9 1.0 % 0.2 % % Q2 206.3 (18.5) (19.1) 253.2 1.3 1.1 Q3 220.3 (19.7) (20.7) 274.5 5.4 6.3 Q4 210.7 (24.9) (25.5) 280.6 5.5 5.7 Year $ 862.1 (17.7) % (18.4) % $ 1,047.2 3.4 % 3.4 % % Sales in 2023 were below the record levels of the previous two years.
In addition, we believe we have the ability to obtain alternative sources of financing. We expect capital expenditures of approximately $28.0 million in 2023. Long-Term Debt At December 31, 2022, we had a $80.0 million revolving credit facility (the "Credit Agreement") with a bank. The Credit Agreement matures October 24, 2027.
Long-Term Debt We currently have a $80.0 million revolving credit facility (the "Credit Agreement") with a bank. As of December 31, 2023, we had no outstanding borrowings and $80.0 million of available borrowings under the Credit Agreement. The Credit Agreement matures October 24, 2027.
Net cash provided by operating activities in 2021 was $97.2 million driven primarily by net income of $90.8 million and non-cash adjustments to net income of $25.5 million consisting primarily of depreciation and amortization and stock-based compensation expense, and by working capital inflows driven primarily by customer deposits and outflows for inventory turnover and timing of inventory purchases. Investing Activities.
Net cash provided by operating activities in 2023 was $97.2 million driven primarily by net income of $56.3 million and non-cash adjustments to net income of $26.7 million consisting primarily of depreciation and amortization and stock-based compensation expense, and by working capital changes driven primarily by a $24.4 million decrease in inventories partly offset by a $12.1 million reduction in customer deposits.
We are recognized as a provider of high-quality fashionable products and exceptional service in the markets we serve. Management Objectives Management is focused on capturing more market share and increasing sales per square foot of showroom space.
We are recognized as a provider of high-quality fashionable products and exceptional service in the markets we serve. Management Objectives Management is focused on capturing more market share and improving profitability. This growth will be driven by concentrating our efforts on our customers, with improved interactions highlighted by new products, high-touch service and better technology.
This assumes changes in merchandise and freight costs and their impact on the LIFO reserve. 19 Table of Con tents Selling, General and Administrative Expenses SG&A expenses are comprised of five categories: selling, occupancy, delivery and certain warehousing costs, advertising, and administrative.
The change in the LIFO reserve generated a positive impact on gross profit of $9.4 million for 2023 compared to a negative impact of $10.8 million in 2022. Selling, General and Administrative Expenses SG&A expenses are comprised of five categories: selling, occupancy, delivery and certain warehousing costs, advertising, and administrative.
Merchandise sales for most categories have returned to their historical percentages of total sales, with the exception of mattresses. (See Note 2, "Revenues and Segment Reporting" of the Notes to Consolidated Financial Statements). Sales in 2021 set a record pace as furniture demand remained strong despite ongoing COVID-19 concerns and supply chain challenges.
Design consultant engagement increased in 2023 and accounted for 28.5% of our 2023 sales, with an average written ticket of $6,486. Merchandise sales for most categories have returned to their historical pre-COVID percentages of total sales, with the exception of mattresses. (See Note 2, "Revenues and Segment Reporting" of the Notes to Consolidated Financial Statements).
The following table outlines our SG&A expenses by classification: 2022 2021 2020 (In thousands) % of Net Sales % of Net Sales % of Net Sales Variable $ 193,675 18.5 % $ 173,810 17.2 % $ 135,286 18.1 % Fixed and discretionary 292,623 27.9 282,457 27.9 242,002 32.3 $ 486,298 46.4 % $ 456,267 45.1 % $ 377,288 50.4 % Year-to-Year Comparisons Our SG&A dollars as a percent of sales increased to 46.4% in 2022 from 45.1% in 2021.
The following table outlines our SG&A expenses by classification: 2023 2022 (In thousands) % of Net Sales % of Net Sales Variable $ 170,472 19.8 % $ 193,675 18.5 % Fixed and discretionary 285,340 33.1 292,623 27.9 $ 455,812 52.9 % $ 486,298 46.4 % Our SG&A costs as a percent of sales for 2023 were 52.9% versus 46.4% in 2022.
Year-to-Year Comparisons Gross profit as a percentage of net sales was 57.7% in 2022 compared to 56.7% in 2021. The increase of 100 basis points was primarily due to merchandise price increases and disciplined discounting which offset product cost and freight increases. The use of the LIFO method generated a $10.8 million charge in 2022 versus $12.3 million in 2021.
Gross profit as a percentage of net sales was 60.7% in 2023 compared to 57.7% in 2022. The increase of 300 basis points was primarily due to reductions in freight and product costs.
Consumers have returned to their historical shopping patterns of concentrating spending around traditional holiday events. We have had declines in in-store traffic particularly outside these peak periods. Our written business was down 8.8% compared to the extraordinary pace set in 2021.
Consumers have returned to their historical shopping patterns of concentrating spending around traditional holiday events and our in-store traffic has declined, particularly outside these peak periods. Our sales associates and design consultants are providing excellent service to each customer, and average ticket value was up 3.4% over last year.
Aggregate lease obligations includ e $2.8 million rel ated to leases not yet commenced. See Note 8, “Leases” of the Notes to Consolidated Financial Statements for further discussion of our operating leases. Share Repurchases In August 2022, our Board of Directors authorized additional amounts under a share repurchase program.
At December 31, 2023 , we had aggregate lease obligations of $217.8 million, with $37.4 million payable within 12 months. See Note 8, “Leases” of the Notes to Consolidated Financial Statements for further discussion of our operating leases.
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This growth will be driven by concentrating our efforts on our customers, with improved interactions highlighted by new products, high-touch service and better technology. In addition, our growth strategy includes the expansion of our retail operations to increase our footprint within our distribution network.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion provides an analysis of the Company’s financial condition and results of operations from management's perspective and should be read in conjunction with the consolidated financial statements and related notes included in this report.
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We restored our normal operating level of inventory as supply chain issues abated in the second half of the year. This trend benefited our net sales, as we were able to deliver both new and previously written orders (or "backlog") during this period, which offset the slowing pace of new written orders.
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The discussion in this Form 10-K generally focuses on the year ended December 31, 2023 compared to the year ended December 31, 2022. A discussion of our results of operations and changes in financial condition for the 2022 year compared to 2021 has been excluded from this report, but can be found in Part II, Item 7.
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Our sales associates and design consultants are providing excellent service to each customer, and average ticket value was up 10.7% over last year. Design consultant engagement increased in 2022 and accounted for 24.% of our 2022 business, with an average ticket of $5,990.
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The soft housing market has contributed to the slowing pace of sales along with persistent inflationary pressures and shifts in consumer spending. During the first quarter of 2023 we benefited from the delivery of previously written orders.
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The comparisons to 2020 reflect the impact of our store closures in mid‑March and re-opening on May 1, 2020, and the surge in business that followed. In response to increasing product and freight costs, we raised our retail prices. The impact of the supply chain disruptions is reflected in our sales by merchandise category.
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Administrative expenses are comprised of compensation costs for store personnel exclusive of sales team members, information systems, executive, accounting, merchandising, advertising, supply chain, real estate and human resource departments. 21 Table of Contents We classify our SG&A expenses as either variable or fixed and discretionary.
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Our mattress and bedroom furniture sales were particularly affected by such supply chain disruptions. Sales of upholstery in 2021 increased 37.3% as a result of our upholstery suppliers making good strides towards meeting demand with increased production. Sales in this category increased 60 basis points as a percent of total sales over 2020 levels.
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SG&A dollars decreased $30.5 million, or 6.3%, for 2023 compared to 2022. The change is driven by the reduction in sales and lower variable costs and less leveraging of fixed costs. Our selling expenses were $14.1 million lower, inclusive of an $0.8 million increase in third-party credit costs due to rate increases.
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COVID-19 concerns continued to affect sales generated by our in-home designers in 2021, and such sales, as a percent of our total sales remained at the 2020 level of 22.8% for 2021. Our ability to deliver customer orders improved in 2021 compared to 2020 but was still longer than pre-pandemic time frames.
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Warehouse, delivery, and transportation expenses declined $10.2 million from 2022 to 2023 as we adjusted personnel levels, fuel prices fell, and our accessorial charges declined. Advertising expenditures were $7.9 million lower in 2023 compared to 2022 and our occupancy costs were relatively flat.
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Manufacturers began to recover from raw material shortages but were still challenged by labor shortages and disruptions in transportation logistics. Our warehouse and delivery operations adjusted due to personnel shortages. Due to staffing constraints, time between purchase and delivery lengthened from our pre-pandemic average of 3 to 5 days for in-stock items to 1 to 2 weeks.
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Our total administrative expenses were basically unchanged for 2023 compared to 2022 as lower compensation costs were offset by higher professional service fees. Interest (Income) Expense, Net We earned $3.9 million more interest income, net of interest expense, in 2023 than in 2022 due to higher rates paid on cash, cash equivalents, and restricted cash equivalents.
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We added additional team members and during the last quarter of 2021, purchases of in-stock product were generally delivered within 3 to 5 days. The disruptions to our supply chain resulted in lower inventory, and for out‑of‑stock merchandise, delivery times ran 8 to 12 weeks.
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Our material cash requirements include contractual and other obligations arising in the normal course of business. These obligations primarily include operating lease obligations and purchase obligations. In addition to our cash requirements, we follow a disciplined approach to capital allocation. This approach first prioritizes investing in the business, followed by paying dividends.
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Our vendor partners for special order products continued to experience delays with delivery of these orders averaging 12 to 20 weeks. Sales in 2020 were impacted by COVID-19. Our written sales suffered during the first weeks of March as information and news coverage concerning the pandemic increased. We closed our stores and paused operations mid-March.
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We may also return excess cash to shareholders in the form of share repurchases or special cash dividends. We expect capital expenditures of approximately $32.0 million in 2024 to support our operations and strategic expansion, however these plans are subject to other potential opportunities, the economic environment, general business conditions and our financial performance.
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We enacted our business continuity plan in April which anticipated continued low levels of sales. Most stores reopened on May 1 with approximately 76% of their original staff, store hours were reduced 17%, and delivery capacity was also reduced.
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Share Repurchases The board of directors has authorized management, at its discretion, to purchase and retire limited amounts of our Common Stock and Class A Common Stock.
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Our business was very strong upon reopening; total 18 Table of Con tents written sales for the two months ended June 30, 2020 were up 13.9%; and written comparable store sales were up 17.5% compared to the same two-month period in 2019.
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Cash used in financing activities in 2022 primarily reflected $17.9 million of quarterly cash dividends, $16.1 of special cash dividends, and $30.0 million of share repurchases. Store Expansion and Capital Expenditures We have entered new markets and made continued improvements and relocations of our store base.
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Our written sales remained strong during the third quarter of 2020, with total written sales up 22.8% and written comparable store sales up 22.6% over the same period in 2019. Our written sales in the fourth quarter were up 16.7%, and written comp-store sales rose 17.5%.
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Our delivery capacity in 2020 was intentionally reduced as part of our business continuity plan. Deliveries resumed on May 5, 2020, with reduced personnel and capacity and total sales from May 5 through June 30, 2020 were down 13.4% compared with the same period of 2019.
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Demand quickly began to outpace supply, and we worked during the third quarter to increase our inventory levels and delivery capacity. We adjusted our operations during the third quarter, adding additional personnel, and worked with our vendors to accelerate orders.
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Revenues by product category as a percentage of net sales in 2020 increased over 2019 by 220 basis points in upholstery sales and by 60 basis points in home office due to “nesting” buying, and our mattress business declined 160 basis points due to supply-chain disruption caused by COVID-19.
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Our in-home designer sales were hampered during 2020 but were 22.8% of our total sales compared to 25.3% in 2019. Total sales for 2020 decreased $54.0 million, or 6.7% compared to 2019. Our comp-store sales, which includes online sales, increased 5.0%, or $32.7 million, in 2020 compared to 2019.
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The remaining $86.8 million of the change was primarily from our store closures in March through April and from new, closed and otherwise non-comparable stores. 2023 Outlook We cannot predict the impact of inflation, rising interest rates, market volatility, and geopolitical concerns on consumer spending on home furnishings.
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We believe we benefit from our footprint that covers many of the fastest-growing markets in the country. In addition, we have improved our customers’ online experience and continue to deploy targeted marketing efforts. We believe that our existing stores are well-positioned in their respective markets and plan to open additional locations during the year.
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We believe that our offerings of on-trend merchandise, knowledgeable salespeople, free in-home design service, and special-order capabilities help make us a market leader in the residential furniture industry and will continue to strengthen our business in the year ahead.
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Gross profit as a percentage of net sales was 56.7% in 2021 compared to 56.0% in 2020.
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The increase was primarily due to merchandise price increases and disciplined discounting offsetting product cost and freight increases.The use of the LIFO method generated a $12.3 million charge in 2021 versus $0.6 million in 2020, or a negative 110 basis points impact to the total gross profit change. 2023 Outlook Our expectations for 2023 are for annual gross profit margins of approximately 58.0% to 58.5%.
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Advertising expenditures increased approximately $2.3 million. Our selling expenses increased $13.5 million primarily from increased sales commissions, benefits, and third-party financing costs. Our occupancy costs increased $2.7 million due to increases in utilities, state and local taxes, and repairs and maintenance. Warehouse, delivery, and transportation expenses rose $6.9 million from 2021 driven by higher personnel and fuel costs.
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Administrative expense increased $4.7 million primarily from increased wages and related expense and higher travel costs that were partly offset by lower group health insurance expense. Our SG&A dollars as a percent of sales decreased to 45.1% in 2021 from 50.4% in 2020.
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We were able to leverage our fixed and discretionary costs as we achieved record sales throughout the year. We increased our advertising spend $9.5 million in 2021 to $49.3 million.
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Our occupancy costs increased $3.9 million, driven by greater rent expense - primarily for the distribution facilities in the sale-leaseback in 2020 - and higher utilities and repairs and maintenance that were partly offset by lower depreciation expense.
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Warehouse and transportation expense rose $10.6 million on higher salaries and benefits, and temporary labor costs and $4.2 million in accessorial and demurrage fees.
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Administrative expense increased $18.9 million, primarily from increased wages and related costs, higher amortization expense on performance stock awards, and increased incentive compensation costs. 2023 Outlook Fixed and discretionary expenses within SG&A are expected to be in th e $292.0 to $295.0 million range for 2023.
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We anticipate higher costs in 2023 due to rising inflationary pressures and additional costs associated with new stores. Fixed and discretionary expenses are expected to be at similar quarterly levels in 2022 as in 2021, as adjusted for the overall increases. Variable costs within SG&A for 2023 are expected to be between 19.5% and 19.7% as a percent of sales.
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This increase is primarily driven by wage inflation and higher delivery and th ird-party financing costs. 20 Table of Con tents Interest (Income) Expense, Net We earned $1.4 million more interest income in 2022 than in 2021 due to higher rates. Provision for Income Taxes Our effective tax rate was 25.2% in 2022, 23.4% in 2021 and 22.9% in 2020.
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Cash used in financing activities in 2021 primarily reflected $17.4 million of quarterly cash dividends, $35.0 million of special cash dividends, and $41.8 million of share repurchases. 22 Table of Con tents Contractual Obligations We have no short-term borrowings or funded debt.
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The following summarizes our contractual obligations and commercial commitments as of December 31, 2022 (in thousands): Payments Due or Expected by Period Total Less than 1 Year 1-3 Years 4-5 Years After 5 Years Operating leases (1) $ 273,983 $ 45,427 $ 77,893 $ 58,500 $ 92,163 Rent deferrals (2) 533 119 226 — 188 Purchase orders 88,127 88,127 — — — Total contractual obligations (3) $ 362,643 $ 133,673 $ 78,119 $ 58,500 $ 92,351 (1) These amounts are for our undiscounted lease obligations recorded in our consolidated balance sheets, as lease liabilities.
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For additional information about our leases, refer to Note 8, “Leases” of the Notes to the Consolidated Financial Statements. (2) Lease concessions related to the impact of COVID-19. For additional information about our leases, refer to Note 8, “Leases” of the Notes to the Consolidated Financial Statements. (3) The contractual obligations do not include any amounts related to retirement benefits.
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For additional information about our plans, refer to Note 10, “Benefit Plans” of the Notes to the Consolidated Financial Statements. Store Expansion and Capital Expenditures We have entered new markets and made continued improvements and relocations of our store base.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−0 removed3 unchanged
Biggest changeDuring 2022 and 2021, we had no outstanding borrowings under our Credit Agreement (as discussed in Note 5 to the Consolidated Financial Statements), which bears interest based on variable rates. 24 Table of Con tents
Biggest changeDuring 2023 and 2022 , we had no outstanding borrowings under our Credit Agreement (as discussed in Note 5 to the Consolidated Financial Statements), which bears interest based on variable rates. 25 Table of Contents

Other HVT 10-K year-over-year comparisons