Haverty Furniture (HVT, Financial) is specialty retailer of residential furniture and accessories in the United States, selling home furnishings through its retail stores, as well as through its website. The home furnishing company recently declared its first-quarter 2015 results. Let’s take a look at the underlying business and whether it’s a stock worth investing.
First quarter results
The home furnishing retailer reported a net sales surge of 5.3% year-over-year, primarily due to growing average ticket which has been one of the primary sales driver for several years. In addition, the improved closing rates of customers who had pre-shopped on web also added to the revenue growth. This illustrates that the retailer is connecting well with the target customers. The driving force behind the growing average ticket size has been the continued efforts to build the free H design decorating service in its retail outlets.
Upholstery sales continue to be the leading segment, clocking over 11% year-over-year growth. The company opened a new store in Rogers, Arkansas this quarter and plans to open a new store in Waco later this month, which will be the 23rd store in Texas.
Due to decent first-quarter top-line growth, Haverty reported earnings before interest and income taxes of $10.4 million, versus $10.2 million in the year-ago period.
Planning for the future
The company is gearing up for the Memorial Day sales event which is the high order market in the second quarter.
Haverty is also spending on improving the website to attract more buyers. Recent statistics have revealed that 60% of its customers are accessing the website on mobile devices. So, it is investing on website to make it smart-devices friendly and the new enhanced website should be up this summer. This should make the online buying experience for customers more user-friendly and thus engage users more effectively to drive sales going forward.
By the end of this year, Haverty plans to roll out 95 H design planning centers in its stores. New digital tools such as the greatly improved 3D room planner have helped in demonstrating the team skills, and this is what differentiates Haverty from its peers.
The retailer is also investing in square footage growth. Haverty hopes to end the fiscal 2015 with 122 stores with a square footage growth of over 3% year-over-year. Out of this, 2.6% will be during the first half and about 3.9% for the second half, averaging around 3.3% for the year.
Another tailwind for Haverty is the housing market recovery and growth. The U.S. economy is poised to grow by close to 3 percent in 2015, leading to generation of about 3 to 3.5 million additional jobs. According to Reuters, U.S. housing is set to gain steam this year as a strengthening jobs market offsets the drag from an expected increase in mortgage rates.
New home sales are expected to pick up during the second quarter and continue to rise for the rest of the year. Sales of previously owned homes were forecast at an average annual rate of 5.10 million units in the first quarter, rising to 5.17 million units in the second quarter. This will be a growth driver for retailers like Haverty going forward.
Final words
I believe that Haverty has a solid growth story and the retailer should continue to drive high-single digit revenue growth. With a trailing P/E of over 52, and forward P/E of just under 13 signifies growth in earnings going forward. Also, it’s forward PEG is below 1. For the next five years it is expected to grow at a CARG of 17.5%.
The retailer is making all the right moves to sustain the growth momentum, and improving economy should ensure that the growth targets are met. Hence, I would recommend a buy for long-term gains.
