HAVERTY FURNITURE COMPANIES INC - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

OR

Commission file number:    1-14445

HAVERTY FURNITURE COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ⌧     No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ⌧   No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐     No ⌧

The numbers of shares outstanding of the registrant’s two classes of $1 par value common stock as of August 6, 2020, were:  Common Stock – 17,286,821; Class A Common Stock – 1,531,505.

HAVERTY FURNITURE COMPANIES, INC.

INDEX

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

HAVERTY FURNITURE COMPANIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to these condensed consolidated financial statements.

HAVERTY FURNITURE COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See notes to these condensed consolidated financial statements.

HAVERTY FURNITURE COMPANIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to these condensed consolidated financial statements.

(in thousands)		Common Stock				Class A Common Stock				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Treasury Stock				Total
Balances at March 31, 2020		$	29,458			$	2,054			$	93,835			$	294,068			$	(2,056	)		$	(164,912	)		$	252,447
Net income															13,640												13,640
Dividends declared:
Common Stock, $0.15 per share															(2,593	)											(2,593	)
Class A Common Stock, $0.14 per share															(215	)											(215	)
Restricted stock issuances			80								(634	)															(554	)
Amortization of restricted stock											1,064																1,064
Directors’ Compensation Plan											316												244				560
Other comprehensive income																			29								29
Balances at June 30, 2020		$	29,538			$	2,054			$	94,581			$	304,900			$	(2,027	)		$	(164,668	)		$	264,378

(in thousands)		Common Stock				Class A Common Stock				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Treasury Stock				Total
Balances at December 31, 2019		$	29,431			$	2,054			$	93,208			$	295,999			$	(2,087	)		$	(158,102	)		$	260,503
Net income															15,459												15,459
Dividends declared:
Common Stock, $0.35 per share															(6,052	)											(6,052	)
Class A Common Stock, $0.33 per share															(506	)											(506	)
Acquisition of treasury stock																							(6,810	)			(6,810	)
Restricted stock issuances			107								(980	)															(873	)
Amortization of restricted stock											2,037																2,037
Directors’ Compensation Plan											316												244				560
Other comprehensive income																			60								60
Balances at June 30, 2020		$	29,538			$	2,054			$	94,581			$	304,900			$	(2,027	)		$	(164,668	)		$	264,378

(in thousands)		Common Stock				Class A Common Stock				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Treasury Stock				Total
Balances at March 31, 2019		$	29,113			$	2,280			$	91,888			$	289,126			$	(1,456	)		$	(129,025	)		$	281,926
Net income															6,046												6,046
Dividends declared:
Common Stock, $0.18 per share															(3,338	)											(3,338	)
Class A Common Stock, $0.17 per share															(261	)											(261	)
Acquisition of treasury stock																							(17,843	)			(17,843	)
Restricted stock issuances			83								(878	)															(795	)
Class A conversion			222				(222	)																			—
Amortization of restricted stock											890																890
Directors’ Compensation Plan											(53	)											680				627
Other comprehensive income																			8								8
Balances at June 30, 2019		$	29,418			$	2,058			$	91,847			$	291,573			$	(1,448	)		$	(146,188	)		$	267,260

(in thousands)		Common Stock				Class A Common Stock				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Treasury Stock				Total
Balances at December 31, 2018		$	29,079			$	2,280			$	91,394			$	282,366			$	(1,465	)		$	(129,025	)		$	274,629
Net income															9,668												9,668
Dividends declared:
Common Stock, $0.36 per share															(6,725	)											(6,725	)
Class A Common Stock, $0.34 per share															(560	)											(560	)
Acquisition of treasury stock																							(17,843	)			(17,843	)
Restricted stock issuances			117								(1,445	)															(1,328	)
Class A conversion			222				(222	)																			—
Amortization of restricted stock											1,951																1,951
Directors’ Compensation Plan											(53	)											680				627
Other comprehensive income																			17								17
Cumulative effect adjustment															6,824												6,824
Balances at June 30, 2019		$	29,418			$	2,058			$	91,847			$	291,573			$	(1,448	)		$	(146,188	)		$	267,260

		Three Months Ended June 30,																Six Months Ended June 30,
		2020								2019								2020								2019
(In thousands)		Net Sales				% of Net Sales				Net Sales				% of Net Sales				Net Sales				% of Net Sales				Net Sales				% of Net Sales
Merchandise:
Case Goods
Bedroom Furniture		$	19,284				17.5	%		$	31,417				16.4	%		$	46,928				16.2	%		$	61,937				16.3	%
Dining Room Furniture			12,852				11.7				20,265				10.6				31,074				10.7				39,862				10.5
Occasional			11,199				10.2				14,568				7.6				27,450				9.5				30,945				8.2
			43,335				39.4				66,251				34.5				105,452				36.4				132,744				35.0
Upholstery			44,455				40.4				77,146				40.2				118,084				40.8				150,178				39.6
Mattresses			10,377				9.4				21,976				11.5				29,195				10.1				43,234				11.4
Accessories and Other(1)			11,800				10.7				26,520				13.8				36,669				12.7				52,978				14.1
		$	109,968				100.0	%		$	191,893				100.0	%		$	289,400				100.0	%		$	379,134				100.0	%

(1)	Includes delivery charges and product protection.

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Operating lease cost		$	11,083			$	10,465			$	21,515			$	20,693
Short-term lease cost			—				30				—				40
Variable lease cost			584				1,281				2,198				2,812
Total lease expense		$	11,667			$	11,776			$	23,713			$	23,545

		Six Months Ended June 30,
		2020				2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	14,028			$	20,085
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		$	77,772			$	22,519

		Service-Based Restricted Stock Awards								Performance-Based Restricted Stock Awards								Stock-Settled Appreciation Rights
		Shares or Units (#)				Weighted-Average Award Price ($)				Shares or Units (#)				Weighted-Average Award Price ($)				Rights (#)				Weighted-Average Award Price ($)
Outstanding at December 31, 2019			234,810				20.93				214,809				21.38				7,500				18.14
Granted/Issued			145,375				20.42				120,727				20.42				—
Awards vested or rights exercised(1)			(122,114	)			20.62				(44,875	)			22.12				(7,500	)			18.14
Forfeited			(4,750	)			20.40				(76,493	)			20.29				—				—
Outstanding at June 30, 2020			253,321				20.79				214,168				21.08				—				—
Restricted Units expected to vest			253,321				20.79				188,372				21.15				—				—

(1)	Includes shares repurchased from employees for employee’s tax liability.

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Numerator:
Common:
Distributed earnings		$	2,593			$	3,338			$	6,052			$	6,725
Undistributed earnings			9,987				2,260				8,211				2,194
Basic			12,580				5,598				14,263				8,919
Class A Common earnings			1,060				448				1,196				749
Diluted		$	13,640			$	6,046			$	15,459			$	9,668
Class A Common:
Distributed earnings		$	215			$	261			$	506			$	560
Undistributed earnings			845				187				690				189
		$	1,060			$	448			$	1,196			$	749
Denominator:
Common:
Weighted average shares outstanding - basic			17,245				18,642				17,353				18,716
Assumed conversion of Class A Common Stock			1,532				1,621				1,532				1,689
Dilutive options, awards and common stock equivalents			208				279				241				318
Total weighted-average diluted Common Stock			18,985				20,542				19,126				20,723
Class A Common:
Weighted average shares outstanding			1,532				1,621				1,532				1,689
Basic earnings per share:
Common Stock		$	0.73			$	0.30			$	0.82			$	0.48
Class A Common Stock		$	0.69			$	0.28			$	0.78			$	0.44
Diluted earnings per share:
Common Stock		$	0.72			$	0.29			$	0.81			$	0.47
Class A Common Stock		$	0.69			$	0.27			$	0.78			$	0.44

Six months ended December 31, 2020		$	2,191
Year ended December 31, 2021			4,434
Year ended December 31, 2022			4,523
Year ended December 31, 2023			4,613
Year ended December 31, 2024			4,706
Subsequent to 2024			54,966
Total future minimum lease payments		$	75,433

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes contained herein and with the audited consolidated financial statements, accompanying notes, related information and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Forward-Looking Statements

Some statements in this quarterly report on Form 10-Q constitute forward-looking statements that are subject to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in the future tense and all statements accompanied by words such as “expect,” “likely,” “outlook,” “forecast,” “preliminary,” “would,” “could,” “should,” “position,” “will,” “project,” “intend,” “plan,” “on track,” “anticipate,” “to come,” “may,” “possible,” “assume,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Senior officers may also make verbal statements to analysts, investors, the media and others that are forward-looking. These forward-looking statements include, without limitation, our expected ability to operate and protect our team members and customers during the COVID-19 pandemic, the execution and effect of our cost savings initiatives, our efforts and initiatives to help us emerge from the pandemic well-positioned, and our liquidity position to continue to operate during these highly uncertain times.

We caution that our forward-looking statements involve risks and uncertainties, and while we believe that our expectations for the future are reasonable in view of currently available information, you are cautioned not to place undue reliance on our forward-looking statements. Actual results or events may differ materially from those indicated as a result of various important factors. Such factors may include, among other things, the extent and duration of the disruption to our business operations caused by the health crisis associated with the COVID-19 pandemic, including the effects on the financial health of our business partners and customers, on supply chains and our suppliers, and on access to capital and liquidity provided by the financial and capital markets; our ability to maintain compliance with debt covenants and amend such credit facilities as necessary; disruptions in our suppliers' operations, including from the impact of COVID-19, including potential problems with inventory availability and the potential result of the volatility or higher cost of product and international freight due to the high demand of products and low supply for an unpredictable period of time; disruptions in our third-party producers’ operations in foreign countries; changes in national and international legislation or government regulations or policies, including changes to import tariffs and the unpredictability of such changes; failure of vendors to meet our quality control standards or to react to changes in legislative or regulatory frameworks; disruptions in our distribution centers; changes in general economic conditions, including unemployment, inflation (including the impact of tariffs); labor shortages and the Company's ability to successfully attract and retain employees in the current labor market; uncertain credit markets and other macroeconomic conditions; competitive product, service and pricing pressures; failure or weakness in our disclosure controls and procedures and internal controls over financial reporting; disruptions caused by a failure or breach of the Company's information systems and information technology infrastructure, as well as other risks and uncertainties discussed herein and in the Company's Annual Report on Form 10-K for 2019 (all of which risks may be amplified by the COVID-19 pandemic) and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 and from time to time in the Company's subsequent filings with the SEC.

Forward-looking statements describe our expectations only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any further disclosures we make on related subjects in our subsequent Forms 10-K, 10-Q, 8-K and other reports filed with the SEC.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Impact of COVID-19 on Our Business

The COVID-19 pandemic has resulted in significant economic disruption and adversely impacted our business. We closed our stores and ceased delivery operations in the second half of March. Affected team members were paid during this period and most corporate personnel transitioned to working remotely. On April 1, we extended our store closure for another 30 days and furloughed 3,033 team members or approximately 87% of our workforce. During this period, we paid the cost of enrolled health benefits of those furloughed. Given the dramatic shock to the economy caused by the pandemic and uncertainty of the ongoing impact, we made a permanent reduction in our workforce of approximately 1,200 team members effective April 30 and extended the furlough of approximately 730 team members until June 1. We reopened 103 of our stores on May 1 and the remaining 17 were opened by June 20 and deliveries began on May 5. As we restart all aspects of our operations, we continue to work closely with local authorities and follow the guidance of the Centers for Disease Control and Prevention (“CDC”), implementing enhanced cleaning measures, social distancing, and the utilization of face masks for the safety of team members, customers, and communities.

We have taken several steps to strengthen our financial position and maintain financial flexibility by reviewing operating expenses, evaluating merchandise purchases, reducing capital expenditures,  temporarily borrowing $43.8 million on our credit facility (which has since been repaid), and completing a $70.0 million sale-leaseback transaction in May.

As the COVID-19 pandemic is complex and rapidly evolving, the Company's plans as described in this report may change. At this point, we cannot reasonably estimate the duration and severity of this pandemic and its impact on our business, results of operations, financial position and cash flows.

Net Sales

Our sales are generated by customer purchases of home furnishings. Revenue is recognized upon delivery to the customer.

Comparable-store or “comp-store” sales for the periods presented are sales made on our website and from stores open throughout the period and the corresponding prior year period.  If a store expansion results in a 10% or greater increase in selling square footage, its sales are removed from the comparable store sales base until it has been open a full 12 months. Accordingly, our comp-store sales may not be comparable to other entities. The computation of comp-store sales for the first and second quarters of 2020 and six months ended June 30, 2020 is not meaningful (“NM”) since all stores were closed for a period of time during these periods.

The following outlines our sales and comp-store sales increases and decreases for the periods indicated (dollars in millions, amounts and percentages may not always add to totals due to rounding):

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

We closed our stores on March 19 and ceased delivery operations on March 21. Most stores reopened on May 1 and total 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.  Deliveries resumed on May 5 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.

Our delivery capacity was reduced as part of our business continuity plan. The pace of our written business since reopening has lengthened the time between customer orders and delivery. We are working to adjust our operations to restore our previous delivery time frames.

Gross Profit

Gross profit for the second quarter of 2020 was 54.2%, up 20 basis points compared to the prior year period of 54.0%. The increase is primarily due to merchandise pricing and mix, and reductions in inventory markdowns. Gross profit for the first half of 2020 was 55.0% compared to 54.5% for the same period of 2019.

We are not providing guidance at this time as to our estimated gross profit margins for the remainder of 2020.

Substantially all of our occupancy and home delivery costs are included in selling, general and administrative expenses (“SG&A”) as are a portion of our warehousing expenses. Accordingly, our gross profit may not be comparable to those entities that include these costs in cost of goods sold.

Selling, General and Administrative Expenses

Our SG&A costs for the second quarter reflect the impact of our stores being closed in April and the operational changes implemented under our business continuity plan. SG&A dollars decreased $23.1 million for the second quarter of 2020 and $24.5 million for the six months ended June 30, 2020 compared to the same prior year periods.

During April, virtually all team members in our store and distribution operations were furloughed and warehouse and corporate office personnel were furloughed to a minimum level for necessary operations. We covered the health benefits premiums for those furloughed which totaled approximately $2.1 million. Salaries and wages associated with the furloughed team members was approximately $9.9 million.

We reduced our workforce by approximately 35% effective April 30 and paid severance costs of approximately $1.7 million. The annualized compensation costs related to this reduction in personnel is approximately $42.6 million. We are analyzing our staffing needs and accelerating hiring in our delivery operations due to the pace of our business since reopening.

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 for occupancy, advertising, and administrative costs are classified as fixed and discretionary because these costs do not fluctuate with sales.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

The variable expenses were higher as a percentage of sales in the second quarter of 2020 primarily due to severance costs and the payment of health benefits for furloughed team members. The variable expenses were higher as a percentage of sales for the six months period of 2020 due to our payment of approximately $4.3 million in wages during the last weeks of March when stores were closed and deliveries were halted. We have offset a portion of the wages and health benefits costs with an expected recovery via the CARES Act as described in Note B of the Notes to the Condensed Consolidated Financial Statements.

Fixed and discretionary expenses were impacted in the second quarter by the reductions in compensation costs discussed above and lower advertising spending of $3.5 million as compared to the prior year quarter. Reductions in these categories were the primary drivers of the reductions for the six months ended June 30.

We are not providing guidance at this time as to our estimated SG&A costs for the remainder of 2020.

Liquidity and Capital Resources

Historically, our primary cash requirements were for working capital needs, contractual obligations, income tax liabilities, capital expenditures, payment of dividends, and share repurchases and were funded primarily through cash generated from operations.

As business slowed and we closed our stores in March, we proactively implemented several actions to reduce cash outlays and expenses and enhance our liquidity position and financial flexibility. We drew $43.8 million on our $60.0 million credit facility in late March as a proactive measure given the uncertain environment and repaid these borrowings in late June. Refer to Note F of the Notes to the Condensed Consolidated Financial Statements. We worked with our landlords on rent deferrals and we delayed non-essential capital projects and new store openings where possible.

On May 18, 2020 we entered into a sale-leaseback transaction which provided an additional $70.0 million in gross proceeds. Refer to Note L of the Notes to the Condensed Consolidated Financial Statements for additional information concerning this transaction.

We believe that we have sufficient liquidity to finance our operations and expected capital requirements for at least 12 months should we need to reinstitute our business continuity plan. We will continue to monitor our liquidity closely given the volatility created by the COVID-19 pandemic.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Summary of Cash Activities

Our cash flows provided by operations was $24.5 million in the first six months of 2020 compared to $14.8 million for the same period of 2019. This increase was primarily due to larger increases in customer deposits in 2020 versus 2019 and increases in accrued liabilities in 2020 versus decreases in 2019. For additional information about the changes in our assets and liabilities refer to our Balance Sheet Changes discussion below.

Our cash flows provided by investing activities totaled $65.1 million in the first six months of 2020 versus $5.5 million used in investing net activities for the same period of 2019. This increase in 2020 was primarily due to $69.5 million in net proceeds from our sale-leaseback transaction partly offset by higher capital expenditures in 2019 compared to 2020.

Financing activities used cash of $14.2 million in the first six months of 2020 compared to a use of cash of $26.5 million for the same period of 2019. This difference was primarily due to common stock purchases of $6.8 million in 2020 versus $17.5 million in 2019.

Balance Sheet Changes for the Six Months Ended June 30, 2020

Our balance sheet as of June 30, 2020, as compared to our balance sheet as of December 31, 2019, changed as follows:

•	increase in cash and cash equivalents of $75.3 million primarily due to the $69.5 million of net proceeds from the sale-leaseback transaction;

•	increase in prepaid expenses of $2.7 million primarily related to refundable income taxes paid for prior years;

•	decrease in property and equipment, net of $44.3 million primarily due to the sale-leaseback of three warehouse facilities;

•	increase in right-of-use lease assets of $58.6 million primarily due to the sale-leaseback of three warehouse facilities;

•	decrease in accounts payable of $5.0 million primarily due to decreases for amounts owed for merchandise and advertising;

•	increase in customer deposits of $27.4 million due to an increase in undelivered sales;

•	increase in accrued liabilities of $6.1 million resulting primarily from increases for current year income taxes and deferred rent payments offset by reductions for accrued advertising; and

•	increase of $59.2 million of lease liabilities due to the sale-leaseback transaction.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Store Plans and Capital Expenditures

Net selling space in 2020 is expected to be slightly down compared to 2019.  Total capital expenditures are estimated to be $9.2 million in 2020 depending on the timing of spending for new projects.

Off-Balance Sheet Arrangements

As of June 30, 2020, we had no off-balance sheet arrangements or obligations.

Critical Accounting Estimates

Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. Our critical accounting estimates are identified and described in our annual report on Form 10-K for the year ended December 31, 2019. We had no significant changes in those critical accounting estimates since our last annual report.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Item 4.  Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, our management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding disclosure.

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 that occurred during the Company’s fiscal quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As a result of the COVID-19 pandemic, team members have shifted to a rotating work from home and office environment. We have reviewed our financial reporting process to provide reasonable assurance that we could report our financial results accurately and timely, and we will continue to evaluate the impact of any related changes to our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Information regarding legal proceedings is described under the subheading “Business and Basis of Presentation” in Note A of the Notes to the Condensed Consolidated Financial Statements set forth in this Form 10-Q.

Item 1A.  Risk Factors

In addition to the other information set forth in this report, including the risk factor set forth below, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition or future results.

In December 2019, a novel strain of coronavirus, now labeled COVID-19 was detected in China and has now spread globally. The COVID-19 outbreak was declared a national health emergency by the United States effective March 1, 2020. Federal, state and local governments, and businesses have implemented significant actions in an effort to mitigate this public health crisis. Although the ultimate severity of the COVID-19 pandemic is uncertain at this time, the pandemic has had, and will continue to have, adverse impacts on the Company's financial condition and results of operations, including, but not limited to:

•	We closed all of our 120 stores on March 19 in response to the COVID-19 pandemic with the expectation to reopen on April 1.

•

On April 1, we extended our store closure for another 30 days and furloughed 3,033 team members or approximately 87% of our workforce. Given the dramatic shock to the economy caused by the pandemic and uncertainty of the ongoing impact, we made a permanent reduction in our workforce of approximately 1,200 team members effective April 30 and extended the furlough of approximately 730 team members until June 1.

•	We opened 103 stores on May 1 and the remaining 17 were opened by June 20.

•

Health concerns, social distancing measures or changes in consumer spending behaviors due to COVID-19 may continue to impact traffic in our stores as they resume operations  and if customers do not perceive our response to be adequate or appropriate, we could suffer damage to our reputation and brand, which could adversely affect our business in the future. These items could have a material impact on our sales and profits and could lead to higher third-party financing costs and asset impairment charges, among other things.

•	We may incur significant additional costs to ensure we meet the needs of our team members and customers, including additional cleanings of our stores and other facilities.

•	The demand by our customers is likely to be volatile due to their concerns over their actual or perceived financial condition.

•

We have experienced temporary or long-term disruptions in our supply chain, as the pandemic has resulted in travel disruptions and has impacted manufacturing and distribution throughout the world. The receipt of merchandise sourced from impacted areas has been slowed or disrupted and our merchandise suppliers are expected to face similar challenges in receiving materials and fulfilling our orders. Furthermore, transportation delays and cost increases, more extensive travel restrictions, closures or disruptions of businesses and facilities or social, economic, political or labor instability in the affected areas, may impact our or our suppliers' operations.

•

We may be required to change our plans for inventory receipts which would place financial pressure on our merchandise suppliers. Such actions may negatively impact our relationships with our merchandise suppliers or adversely impact their financial performance and position. If this occurs, our current merchandise suppliers’ ability to meet their obligations to us may be impacted or we may also be required to establish new relationships with new merchandise suppliers.

•

Our liquidity has been negatively impacted and will be subject to further negative impact as long as our stores are not able to sustain normal operations. We may be required to pursue additional sources of financing to meet our financial obligations. Obtaining such financing is not guaranteed and is largely dependent upon market conditions and other factors.

•	The extent of the impact of the COVID-19 pandemic on our operations and financial results depends on future developments and is highly uncertain due to the unknown duration and severity of the pandemic. The situation is changing rapidly, and future impacts may materialize that are not yet known.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

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. A program was initially approved by the board on November 3, 1986 with subsequent authorizations made as to the number of shares to be purchased or amount to be purchased in total dollars. No purchases were made during the quarter ended June 30, 2020. The balance of the current authorization for purchases was approximately $29.7 million at June 30, 2020.

Item 6.          Exhibits

(a)  Exhibits

The exhibits listed below are filed with or incorporated by reference into this report (those filed with this report are denoted by an asterisk). Unless otherwise indicated, the exhibit number of documents incorporated by reference corresponds to the exhibit number in the referenced documents.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.