The furniture industry is in a bloodbath. The post-COVID hangover, coupled with a brutal housing market, has sent shockwaves through the sector, decimating demand and leaving a trail of bankruptcies in its wake. Amidst this carnage, Haverty Furniture Companies, a stalwart of the industry with a history stretching back to 1885, has not only survived but is showing signs of emerging stronger than ever.

While analysts focus on Haverty's year-over-year sales declines, a deeper dive into the Q1 2024 earnings call transcript reveals a fascinating trend: Haverty is expertly leveraging the current market turmoil to strategically expand its footprint and capture market share from failing competitors. This quiet, calculated approach, masked by the overall industry gloom, could position Haverty for significant gains once the housing market recovers.

Haverty's Strategic Expansion

The key to Haverty's strategy lies in their shrewd use of real estate. Instead of chasing new construction, which has slowed to a crawl, Haverty is scooping up prime locations vacated by struggling retailers, most notably former Bed Bath & Beyond stores. This allows them to enter coveted markets at highly favorable lease rates, minimizing risk and setting the stage for future dominance.

The Q1 transcript reveals an aggressive expansion plan already underway. Haverty has acquired four former Bed Bath & Beyond locations, with three new stores slated to open in Florida and a fourth in Southaven, Mississippi, a burgeoning suburb of Memphis, Tennessee. This strategic push into high-growth markets demonstrates Haverty's commitment to capitalizing on the opportunities presented by the current market landscape.

Perhaps the most audacious move revealed in the transcript is Haverty's return to Houston, Texas, a market they exited over 40 years ago. They will be opening two stores in prime Houston locations, leveraging their existing brand awareness and distribution network in the region. This aggressive move into the largest market within their footprint is a clear signal of Haverty's confidence in their ability to not only weather the storm but to emerge as a dominant player in this crucial market.

Focusing on the Customer Experience

But Haverty's strategy goes beyond simply securing advantageous real estate. They are also investing heavily in the customer experience, differentiating themselves from the "more promotional players" in the market. As Clarence Smith, Haverty's CEO, stated in the Q1 call, "We are investing in brick-and-mortar, building our team's expertise, growing our design service, upgrading products, and expanding customization and special order capabilities."

This focus on quality and service is paying off. Despite the overall decline in written business, Haverty's design business is thriving. Q1 saw a 10% increase in total design dollars, driven by a 3% increase in average design ticket. The number of customers engaging with Haverty's design program also jumped by an impressive 19%. This suggests that customers are gravitating towards Haverty's focus on personalized service and high-quality products, even in a challenging economic climate.

Key Performance Indicators

Headcount: Down from 3,500 pre-COVID to 2,500, demonstrating significant efficiency gains.

Inventory: Down almost 20% from Q1 2023, indicating excellent inventory management amidst declining demand.

Special Order Business: Up 13.5% in Q1, highlighting the strength of their design service and customization capabilities.

Design Business: Up 10% in total dollars, with an average design ticket up 3% and customer engagement up 19%.

Written Sales Trend

Hypothesis

By the end of 2025, Haverty will achieve a 5% increase in market share within their footprint, driven by their strategic expansion and focus on quality and service.

This market share gain will translate into a 10% increase in revenue and a 15% increase in earnings per share by the end of 2026, exceeding analyst expectations and solidifying Haverty's position as a leading furniture retailer.

Conclusion

While the current market turmoil presents challenges, Haverty is proving that it can also create opportunities for savvy players. Their strategic approach, combining smart real estate acquisitions, a focus on quality and service, and efficient cost management, could propel them to the forefront of the furniture industry. Investors willing to look beyond the short-term gloom may find themselves handsomely rewarded by this 139-year-old company's quiet but determined march to victory.

"Fun Fact: Havertys has paid a dividend every year since 1935, showcasing its commitment to shareholder value and its financial resilience over nearly a century."