Digital Innovations And Expanding Footprint Fuel Retail Growth In Key Markets

Key Takeaways

• Expanding retail and digital enhancements could boost revenue through increased market presence and online sales.
  
• Strong cash reserves and debt-free status offer strategic investment flexibility and operational stability.
  
• Declining sales, economic factors, and natural disasters challenge Haverty's revenue, profitability, store operations, and profit margin stability.

Catalysts

Operates as a specialty retailer of residential furniture and accessories in the United States.

• Havertys is expanding its retail footprint by opening new stores, especially in key growth markets like Houston, which could boost future revenue through increased market presence.
  
• The company is integrating digital enhancements such as augmented reality into its website to improve customer experience, potentially driving higher online sales and increasing revenue.
  
• Investments in distribution network expansion, particularly in Dallas to support new Houston stores, may improve operating efficiencies and enhance net margins.
  
• The growth of Havertys' design business, which is seeing a significant increase in customer participation and average ticket size, can positively impact revenue by attracting higher-spending clientele.
  
• Maintaining a debt-free status with strong cash reserves provides Havertys flexibility for strategic investments and operational stability, potentially enhancing earnings resilience in challenging market conditions.

Haverty Furniture Companies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Haverty Furniture Companies's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 8.7% in 3 years time.
• Analysts expect earnings to reach $72.1 million (and earnings per share of $4.36) by about November 2027, up from $26.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2027 earnings, down from 13.9x today. This future PE is lower than the current PE for the US Specialty Retail industry at 16.0x.
• Analysts expect the number of shares outstanding to grow by 0.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.91%, as per the Simply Wall St company report.

Haverty Furniture Companies Future Earnings Per Share Growth

Risks

• The 20.2% decline in consolidated sales from the previous year and decreased earnings per share indicate a significant challenge in maintaining revenue growth and profitability.
  
• The ongoing impact of high interest rates and an unaffordable housing market combined with political uncertainties could continue to suppress consumer spending and thus reduce revenue in the near term.
  
• Store closures due to hurricanes have disrupted operations and will have a lingering effect on sales and revenue recovery, particularly in significantly affected markets like Asheville, North Carolina, and parts of Florida.
  
• Comparable store sales have experienced a notable decline of 20.5%, suggesting potential issues with consumer demand or increased competition impacting revenue.
  
• The decrease in gross profit margin due to unfavorable impacts like the LIFO reserve adjustments indicates potential risks to maintaining stable profit margins.

Valuation

• The analysts have a consensus price target of $35.0 for Haverty Furniture Companies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $25.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $827.5 million, earnings will come to $72.1 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 7.9%.
• Given the current share price of $22.6, the analyst's price target of $35.0 is 35.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.