HAVERTY FURNITURE COMPANIES INC (HVT)

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. The discussion in this Form 10-K generally focuses on the year ended December 31, 2024 compared to the year ended December 31, 2023. A discussion of our results of operations and changes in financial condition for the 2023 year compared to 2022 has been excluded from this report, but can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-K for the year ended December 31, 2023.

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. 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. Our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles. Our commissioned sales team members receive a high level of product training and are provided a number of tools with which to serve our customers. We also have over 120 in‑home designers serving most of our stores. 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. 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. 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 increasing sales volume, maintaining strong gross margins, implementing targeted marketing initiatives, improving productivity and processes, and adopting efficiency and cost-saving measures. Our focus is to serve our customers better and distinguish ourselves in the marketplace.

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Key Performance Indicators

We evaluate our performance based on several key metrics which include store traffic, conversion rates, 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. The goal of utilizing these measurements is to provide tools for economic decision-making, including decisions related to store growth, capital allocation and product pricing.

Net sales is the revenue from merchandise sales and related fees, net of expected returns and sales tax. We record our sales when the merchandise is delivered to the customer.

Comparable-store or “comp-store” sales is a measure which indicates the performance of our existing stores and website by comparing the growth in sales in store and online for a particular month over the corresponding month in the prior year. Stores are considered non-comparable if they were not open during the corresponding month in the prior year or if the selling square footage has been changed by more than 10%. Large clearance sales events from warehouses or temporary locations are also excluded from comparable store sales. The method we use to compute comp-store sales may not be the same method used by other retailers.

We also track written sales and written comp-store sales. Written sales reflect those instances when a customer makes a deposit or pays in full when placing an order. Written sales shows the current pace or trend of customer transactions. As a retailer, comp‑store sales and written comp‑store sales are an indicator of relative customer spending and store performance. Comp-store sales, total written sales and written comp-store sales are intended only as supplemental information and are not a substitute for net sales presented in accordance with US GAAP.

Sales per weighted average (“WAVG”) square foot is calculated by dividing net sales by WAVG square footage. 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.

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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.

(1)Stores were closed and delivery operations were paused for approximately six weeks due to COVID-19.

(2)Includes gain of $31.6 million on a sale-leaseback transaction in 2020 which impacted diluted earnings per share $1.24.

(3)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.

(4)We have no funded debt.

(5)Average ticket is calculated by dividing total sales by the number of orders.

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Net Sales

The following outlines our sales and comp-store sales increases and decreases for the periods indicated. (Amounts and percentages may not always add to totals due to rounding.)

Net sales in 2024 decreased $139.2 million or 16.1% compared to 2023. The housing recession, inflationary pressures, and cautious consumer spending due to economic uncertainty contributed to the sales decline. Our sales associates and design consultants are providing excellent service to each customer. The average ticket value in 2024 was $3,371, up 3.0% over last year. Design consultant engagement increased in 2024 and accounted for 33.6% of our 2024 total written sales, with an average written ticket of $7,222. (See Note 2, "Revenues and Segment Reporting" of the Notes to Consolidated Financial Statements).

Gross Profit

Our cost of goods sold consists primarily of the purchase price of the merchandise together with inbound freight, handling within our distribution centers and transportation costs to the local markets we serve. Our gross profit is primarily dependent upon vendor pricing, the mix of products sold and promotional pricing activity. Substantially all of our occupancy and home delivery costs are included in selling, general and administrative expenses as is a portion of our warehousing expenses. Accordingly, our gross profit may not be comparable to those entities that include some of these expenses in cost of goods sold.

Gross profit as a percentage of net sales was 60.7% in 2024 and 2023. The positive impact generated from the change in the LIFO reserve decreased by $8.6 million to $0.8 million in 2024. Excluding the impact of LIFO, our gross profit margins increased 100 basis points due to product selection and merchandising mix.

Selling, General and Administrative Expenses

SG&A expenses are comprised of five categories: selling, occupancy, delivery and certain warehousing costs, advertising, and administrative. Selling expenses are primarily comprised of compensation of sales team members and sales support staff, and fees paid to credit card and third-party finance companies. Occupancy costs include rents, depreciation charges, insurance and property taxes, repairs and maintenance expense and utility costs. Delivery costs include personnel, fuel costs, and depreciation and rental charges for rolling stock.

Warehouse costs include personnel, supplies, depreciation, and rental charges for equipment. Advertising expenses are primarily TV and digital media production and space expenditures, 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.

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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.

The following table outlines our SG&A expenses by classification:

Our SG&A costs as a percent of sales for 2024 were 58.0% versus 52.9% in 2023. SG&A dollars decreased $36.6 million, or 8.0%, for 2024 compared to 2023. The change was driven by the reduction in sales, lower variable costs, and less leveraging of fixed costs. Our selling expenses decreased $18.5 million, largely due to lower commissioned-based compensation and third-party creditor costs. Warehouse, delivery, and transportation expenses decreased $13.7 million from 2023 to 2024, primarily due to reduced personnel levels and lower variable transportation and fuel costs. Our administrative expenses decreased $6.4 million from 2023 due to lower salary and stock-based compensation costs. Advertising expenses decreased $3.0 million from 2023 to 2024, aligning with the reduction of sales. Occupancy costs increased $5.6 million, primarily due to increased depreciation expense and a $3.3 million reduction of rent expense in the prior year, which was attributed to an incentive to vacate a property before the end of its lease term.

Interest (Income) Expense, Net

We earned $0.6 million more interest income, net of interest expense, in 2024 than in 2023 due to higher rates paid on cash, cash equivalents, and restricted cash equivalents.

Provision for Income Taxes

Our effective tax rate was 23.7% in 2024 compared to 22.5% in 2023. See Note 7, “Income Taxes” of the Notes to Consolidated Financial Statements for further information about our income taxes.

Liquidity and Capital Resources

At December 31, 2024, we had $120.0 million in cash and cash equivalents, and $6.3 million in restricted cash equivalents. See Note 1 to our consolidated financial statements for further discussion of our restricted cash equivalents. We believe that our current cash position, cash flow generated from operations, funds available from our credit agreement, and access to the long-term debt capital markets should be sufficient for our operating requirements and to enable us to fund our capital expenditures, dividend payments, and lease obligations through the next several years.

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. We may also return excess cash to shareholders in the form of share repurchases or special cash dividends. We expect capital expenditures of approximately $27.1 million in 2025 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.

Long-Term Debt

We currently have a $80.0 million revolving credit facility (the "Credit Agreement") with a bank. As of December 31, 2024, we had no outstanding borrowings and $80.0 million of available borrowings under the Credit Agreement. The Credit Agreement matures October 24, 2027. See Note 5, “Credit Arrangement” of the Notes to Consolidated Financial Statements for information about our Credit Agreement.

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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, 2024, we had aggregate lease obligations of $218.4 million, with $36.3 million payable within 12 months. See Note 8, “Leases” of the Notes to Consolidated Financial Statements for further discussion of our operating leases.

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. We made cash payments of $5.0 million for repurchases of 214,500 shares of our Common Stock through open market purchases during 2024 and there is approximately $8.1 million at December 31, 2024 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. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy costs.

Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, inventory selection, the timing of cash receipts and payments, and vendor payment terms.

Net cash provided by operating activities in 2024 was $58.9 million driven primarily by net income of $20.0 million and non-cash adjustments to net income of $27.9 million consisting primarily of depreciation and amortization, stock-based compensation expense and changes in working capital. The changes in working capital were driven primarily by a $10.5 million decrease in inventories, a $7.0 million decrease in other assets and liabilities, and a $4.9 million increase in customer deposits offset by a $11.4 million decrease in accrued liabilities and vendor repayments.

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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.

Investing Activities. Cash used in investing activities in 2024 consisted primarily of $32.1 million of capital expenditures.

Cash used in investing activities in 2023 primarily reflected $53.1 million of capital expenditures.

Financing Activities. Cash used in financing activities in 2024 consisted primarily of $20.5 million of quarterly cash dividends and $5.0 million of share repurchases.

Cash used in financing activities in 2023 primarily reflected $19.1 million of quarterly cash dividends, $16.1 of special cash dividends, and $6.9 million of share repurchases.

Our investing activities in stores and operations in 2024, 2023 and 2022 and planned outlays for 2025 are categorized in the table below. Capital expenditures for stores in the years noted do not necessarily coincide with the years in which the stores open.

(1)In 2023 we purchased one distribution facility that was previously leased.

Critical Accounting Estimates and Assumptions

Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and evaluate our estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.

Accounting estimates are considered critical if both of the following conditions are met: (a) the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change and (b) the effect of the estimates and assumptions is material to the financial statements.

We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented.

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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. 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. 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. 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. Our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles. Our commissioned sales team members receive a high level of product training and are provided a number of tools with which to serve our customers. We also have over 110 in‑home designers serving most of our stores. 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. 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. 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. Our focus is to serve our customers better and distinguish ourselves in the marketplace.

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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. The goal of utilizing these measurements is to provide tools for economic decision-making, including decisions related to store growth, capital allocation and product pricing.

Net sales is the revenue from merchandise sales and related fees, net of expected returns and sales tax. We record our sales when the merchandise is delivered to the customer.

Comparable-store or “comp-store” sales is a measure which indicates the performance of our existing stores and website by comparing the growth in sales in store and online for a particular month over the corresponding month in the prior year. Stores are considered non-comparable if they were not open during the corresponding month in the prior year or if the selling square footage has been changed by more than 10%. Large clearance sales events from warehouses or temporary locations are also excluded from comparable store sales. The method we use to compute comp-store sales may not be the same method used by other retailers.

We also track written sales and written comp-store sales. Written sales reflect those instances when a customer makes a deposit or pays in full when placing an order. Written sales shows the current pace or trend of customer transactions. 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. Comp-store sales, total written sales and written comp-store sales are intended only as supplemental information and are not a substitute for net sales presented in accordance with US GAAP.

Sales per weighted average (“WAVG”) square foot is calculated by dividing net sales by WAVG square footage. 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.

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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.

(1)Stores were closed and delivery operations were paused for approximately six weeks due to COVID-19.

(2)Includes impairment loss of $2.4 million, or $1.8 million after tax, on a retail store in 2019 which impacted diluted earnings per share $0.09.

(3)Includes gain of $31.6 million on a sale-leaseback transaction in 2020 which impacted diluted earnings per share $1.24.

(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. 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.

(7)Average ticket is calculated by dividing total sales by the number of orders.

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Net Sales

The following outlines our sales and comp-store sales increases and decreases for the periods indicated. (Amounts and percentages may not always add to totals due to rounding.)

Sales in 2023 were below the record levels of the previous two years. 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. 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. 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).

Gross Profit

Our cost of goods sold consists primarily of the purchase price of the merchandise together with inbound freight, handling within our distribution centers and transportation costs to the local markets we serve. Our gross profit is primarily dependent upon vendor pricing, the mix of products sold and promotional pricing activity. Substantially all of our occupancy and home delivery costs are included in selling, general and administrative expenses as is a portion of our warehousing expenses. Accordingly, our gross profit may not be comparable to those entities that include some of these expenses in cost of goods sold.

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. 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. Selling expenses are primarily comprised of compensation of sales team members and sales support staff, and fees paid to credit card and third-party finance companies. Occupancy costs include rents, depreciation charges, insurance and property taxes, repairs and maintenance expense and utility costs. Delivery costs include personnel, fuel costs, and depreciation and rental charges for rolling stock.

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.

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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.

The following table outlines our SG&A expenses by classification:

Our SG&A costs as a percent of sales for 2023 were 52.9% versus 46.4% in 2022. 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. 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. 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.

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.

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. We believe that our current cash position, cash flow generated from operations, funds available from our credit agreement, and access to the long-term debt capital markets should be sufficient for our operating requirements and to enable us to fund our capital expenditures, dividend payments, and lease obligations through the next several years.

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. 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.

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. See Note 5, “Credit Arrangement” of the Notes to Consolidated Financial Statements for information about our Credit Agreement.

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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, 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.

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. 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. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy costs.

Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, inventory selection, the timing of cash receipts and payments, and vendor payment terms.

Net cash provided by operating activities 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.

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.

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Investing Activities. 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.

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. The following outlines the change in our selling square footage for each of the three years ended December 31 (square footage in thousands):

The following table summarizes our store activity in 2023 and current plans for 2024.

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.

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Our investing activities in stores and operations in 2023, 2022 and 2021 and planned outlays for 2024 are categorized in the table below. Capital expenditures for stores in the years noted do not necessarily coincide with the years in which the stores open.

(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.

Critical Accounting Estimates and Assumptions

Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and evaluate our estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.

Accounting estimates are considered critical if both of the following conditions are met: (a) the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change and (b) the effect of the estimates and assumptions is material to the financial statements.

We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented.

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. 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. Our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles. Our commissioned sales team members receive a high level of product training and are provided a number of tools with which to serve our customers. We also have over 110 in‑home designers serving most of our stores. These individuals work with our sales team members to provide customers

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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. 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. 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. 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.

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. The goal of utilizing these measurements is to provide tools for economic decision-making, including decisions related to store growth, capital allocation and product pricing.

Net sales is the revenue from merchandise sales and related fees, net of expected returns and sales tax. We record our sales when the merchandise is delivered to the customer.

Comparable-store or “comp-store” sales is a measure which indicates the performance of our existing stores and website by comparing the growth in sales in store and online for a particular month over the corresponding month in the prior year. Stores are considered non-comparable if they were not open during the corresponding month in the prior year or if the selling square footage has been changed by more than 10%. Large clearance sales events from warehouses or temporary locations are also excluded from comparable store sales. The method we use to compute comp-store sales may not be the same method used by other retailers.

We also track written sales and written comp-store sales. Written sales reflect those instances when a customer makes a deposit or pays in full when placing an order. Written sales shows the current pace or trend of customer transactions. 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. Comp-store sales, total written sales and written comp-store sales are intended only as supplemental information and are not a substitute for net sales presented in accordance with US GAAP.

Sales per weighted average (“WAVG”) square foot is calculated by dividing net sales by WAVG square footage. 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.

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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.

(1)Stores were closed and delivery operations were paused for approximately six weeks due to COVID-19.

(2)Includes impairment loss of $2.4 million, or $1.8 million after tax, on a retail store in 2019 which impacted diluted earnings per share $0.09.

(3)Includes gain of $31.6 million on a sale-leaseback transaction in 2020 which impacted diluted earnings per share $1.24.

(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.

(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.

(7)Average ticket is calculated by dividing total sales by the number of orders.

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Net Sales

The following outlines our sales and comp-store sales increases and decreases for the periods indicated. (Amounts and percentages may not always add to totals due to rounding.)

Sales in 2022 set new records, with each quarter exceeding the comparable prior period quarter. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Our business was very strong upon reopening; total

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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. 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%.

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. 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.

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. 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. 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. 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. 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.

Gross Profit

Our cost of goods sold consists primarily of the purchase price of the merchandise together with inbound freight, handling within our distribution centers and transportation costs to the local markets we serve. Our gross profit is primarily dependent upon vendor pricing, the mix of products sold and promotional pricing activity. Substantially all of our occupancy and home delivery costs are included in selling, general and administrative expenses as is a portion of our warehousing expenses. Accordingly, our gross profit may not be comparable to those entities that include some of these expenses in cost of goods sold.

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 56.7% in 2021 compared to 56.0% in 2020. 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%. This assumes changes in merchandise and freight costs and their impact on the LIFO reserve.

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Selling, General and Administrative Expenses

SG&A expenses are comprised of five categories: selling, occupancy, delivery and certain warehousing costs, advertising, and administrative. Selling expenses are primarily comprised of compensation of sales team members and sales support staff, and fees paid to credit card and third-party finance companies. Occupancy costs include rents, depreciation charges, insurance and property taxes, repairs and maintenance expense and utility costs. Delivery costs include personnel, fuel costs, and depreciation and rental charges for rolling stock.

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.

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.

The following table outlines our SG&A expenses by classification:

Year-to-Year Comparisons

Our SG&A dollars as a percent of sales increased to 46.4% in 2022 from 45.1% in 2021. 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. 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. 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. 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. 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. 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 the $292.0 to $295.0 million range for 2023. 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. This increase is primarily driven by wage inflation and higher delivery and third-party financing costs.

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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. 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.

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. We believe that our current cash position, cash flow generated from operations, funds available from our credit agreement, and access to the long-term debt capital markets should be sufficient for our operating requirements and to enable us to fund our capital expenditures, dividend payments, and lease obligations through the next several years. In addition, we believe we have the ability to obtain alternative sources of financing. We expect capital expenditures of approximately $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. 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. Aggregate lease obligations include $2.8 million related 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. 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.

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Cash Flows Summary

Operating Activities. Cash flow generated from operations provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy costs.

Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, inventory selection, the timing of cash receipts and payments, and vendor payment terms.

Net cash provided by operating activities 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 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. 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 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.

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Contractual Obligations

We have no short-term borrowings or funded debt. The following summarizes our contractual obligations and commercial commitments as of December 31, 2022 (in thousands):

(1)These amounts are for our undiscounted lease obligations recorded in our consolidated balance sheets, as lease liabilities. 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. 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. The following outlines the change in our selling square footage for each of the three years ended December 31 (square footage in thousands):

The following table summarizes our store activity in 2022 and plans for 2023.

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.

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Our investing activities in stores and operations in 2022, 2021 and 2020 and planned outlays for 2023 are categorized in the table below. Capital expenditures for stores in the years noted do not necessarily coincide with the years in which the stores open.

(1)In 2021 we purchased one retail location and one distribution facility that were previously leased.

Critical Accounting Estimates and Assumptions

Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and evaluate our estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.

Accounting estimates are considered critical if both of the following conditions are met: (a) the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change and (b) the effect of the estimates and assumptions is material to the financial statements.

We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented.

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. These
factors remain tempered by rising consumer debt, home inventory constraints, and tight access to home mortgage credit, all of which provide impediments to industry growth.

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. Our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles. Our
commissioned sales team members receive a high level of product training and are provided a number of tools with which to serve our customers. We also have over 120 in‑home designers serving most of our stores. 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. We are recognized as a provider of high-quality fashionable products and exceptional service in the markets we serve.

Impact of COVID-19

The COVID-19 pandemic continues to impact numerous aspects of our business.

Our sales remain at record levels as we have experienced unprecedented customer demand for our products during the COVID-19 pandemic. Consumers not negatively impacted financially are spending on their homes. Our online shopping and chat
continued to surge during 2021 and outpaced similar activity in 2020. Store traffic remained strong as customers shop online but want to touch, see, and comfort test before purchasing. Consumers are also favoring quality over price and our
average ticket rose in 2021 compared to 2020. Our main priority continues to be the health, safety and well-being of our customers and employees. We continue to invest in supplies for the protection of our employees and customers and increased
the frequency of cleaning and disinfecting our stores. Demand is outpacing product availability in many categories. Manufacturers are challenged to ensure safe work environments and have encountered raw material shortages and transportation
capacity issues. Our supply chain and sales teams, supported by a strong IT infrastructure, are working to communicate with customers and manage delivery expectations.

The long-term impact to our business remains unknown as we are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity and transmissibility of the disease, the duration of the
outbreak, the likelihood of additional variants and resurgences of the outbreak, actions that may be taken by governmental authorities in response to the disease, the distribution, efficacy and public acceptance of vaccines, and unintended
consequences of the foregoing. Furthermore, the continuing pandemic and related economic uncertainty may result in prolonged disruption and volatility to our business and magnify certain risks, including risks associated with our supply chain and
sourcing quality merchandise domestically and outside the U.S.; our ability to promptly adjust inventory levels to meet fluctuations in customer demand; our ability to comply with complex and evolving laws and regulations related to customers’
and employees’ health and safety; our ability to open new store locations and expand or remodel existing stores; and our ability to hire and train qualified employees to address temporary or sustained labor shortages.

At this point, we cannot reasonably estimate the duration of the pandemic’s influence on consumers and the “nesting” economy.

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Management Objectives

Management is focused on capturing more market share and increasing sales per square foot of showroom space. 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. 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.

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. The goal of utilizing these measurements is to provide tools in economic decision-making such as store growth, capital allocation and product pricing.

Net sales is the revenues from merchandise sales and related fees, net of expected returns and sales tax. We record our sales when the merchandise is delivered to the customer.

Comparable-store or “comp-store” sales is a measure which indicates the performance of our existing stores and website by comparing the growth in sales in store and online for a particular month over the corresponding month in the prior year.
Stores are considered non-comparable if they were not open during the corresponding month in the prior year or if the selling square footage has been changed by more than 10%. Large clearance sales events from warehouses or temporary locations are
also excluded from comparable store sales. The method we use to compute comp-store sales may not be the same method used by other retailers.

We also track written sales and written comp-store sales. Written sales are when a customer makes a deposit or pays in full, and places an order. Written sales shows the current pace or trend of customer transactions. The lag time between
customers placing orders and delivery grew in 2020 and remained high during 2021 due to demand outpacing merchandise supply and disruptions in supply chain. As a retailer, comp‑store sales and written comp‑store sales are an indicator of relative
customer spending and store performance. Comp-store sales, total written sales and written comp-store sales are intended only as supplemental information and is not a substitute for net sales presented in accordance with US GAAP.

Sales per weighted average (“WAVG”) square foot is calculated by dividing net sales by WAVG square footage. 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.

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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.

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Net Sales

The following outlines our sales and comp-store sales increases and decreases for the periods indicated. (Amounts and percentages may not always add to totals due to rounding.)