Haverty Furn Cl A SC (HVT.A) Risk Analysis

The retail market for home furnishings is highly fragmented and intensely competitive. We currently compete against a diverse group of retailers, including internet-only retailers, regional or independent specialty stores, dedicated franchises of furniture manufacturers and national retailers and department stores. In addition, there are few barriers to entry into our current and contemplated markets, and new competitors may enter our current or future markets at any time. Our existing competitors or new entrants into our industry may use a number of different strategies to compete against us, including aggressive advertising, pricing and marketing, social media campaigns and extension of credit to customers on terms more favorable than we offer. Furthermore, some of our competitors have greater financial resources and larger customer bases than we have, and as a result may have a more advanced multichannel platform, be able to adapt quicker to changes in consumer behavior, have attractive customer loyalty programs, and maintain higher profitability in an aggressive low-pricing environment. Competition from any of these sources could cause us to lose market share, revenues and customers; increase expenditures; or reduce prices, any of which could have a material adverse effect on our results of operations.

Maintaining and enhancing our brand is critical to our ability to retain and expand our base of customers and may require us to make substantial investments. Our advertising campaigns utilize digital, television, and social media to maintain and enhance our existing brand equity. We cannot provide assurance that our marketing, advertising, and other efforts to promote and maintain awareness of our brand, grow our business, attract new clients and retain existing clients will be successful and we may incur substantial costs in such efforts. Furthermore, our brand and reputation could be harmed by negative media, including social media, attention, negative online reviews, cybersecurity incidents, product liability or safety concerns or other matters. If our marketing, advertising, and other efforts are unsuccessful or our brand or reputation is damaged, our business, operating results and financial condition could be adversely affected.

We believe that our copyrights, trademarks, service marks, trade secrets, and all of our other intellectual property are important to our success. We rely on trademark, copyright and trade secret laws, and confidentiality and restricted use agreements, to protect our intellectual property and may seek licenses to intellectual property of others. Some of our intellectual property is not covered by any patent, trademark, or copyright or any applications for the same. In addition, we cannot provide assurance that agreements designed to protect our intellectual property will not be breached, that we will have adequate remedies for any such breach, or that the efforts we take to protect our proprietary rights will be sufficient or effective. Any significant impairment of our intellectual property rights or failure to obtain licenses of intellectual property from third parties could harm our business or our ability to compete. Moreover, we cannot provide assurance that the use of our technology or proprietary know-how or information does not infringe the intellectual property rights of others. If we have to litigate to protect or defend any of our rights, such litigation could result in significant expense to our business.

Cyber threats are rapidly evolving, and those threats and the means for obtaining access to information in digital and other storage media are becoming increasingly sophisticated. Cyber threats and cyber-attackers, including ransomware attacks, can be sponsored by countries or sophisticated criminal organizations or be the work of single "hackers" or small groups of "hackers." We invest in industry standard security technology to protect the Company's data and business processes against risk of data security breach and cyber-attack. Our data security management program includes identity, trust, vulnerability and threat management business processes as well as adoption of standard data protection policies. We measure our data security effectiveness through industry accepted methods. We are continuously installing new and upgrading existing information technology systems. We use employee awareness training around phishing, malware, and other cyber risks to ensure that the Company is protected, to the greatest extent possible, against cyber risks and security breaches. We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. Additionally, we certify our major technology suppliers and any outsourced services through accepted security certification standards. Nevertheless, as cyber threats evolve, change and become more difficult to detect and successfully defend against, one or more cyber-attacks might defeat our or a third-party service provider's security measures in the future and could result in the leak of personal information of customers, employees or business partners. Employee error or other irregularities may also result in a failure of our security measures and a breach of information systems. Moreover, hardware, software or applications we use may have inherent defects of design, manufacture or operations or could be inadvertently or intentionally implemented or used in a manner that could compromise information security. A security breach and loss of information may not be discovered for a significant period of time after it occurs. While we have no knowledge of a material security breach to date, any compromise of data security could result in a violation of applicable privacy and other laws or standards, the loss of valuable business data, or a disruption of our business. In addition, the costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in potential theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations. Moreover, a security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information could give rise to unwanted media attention, materially damage our customer relationships and reputation, and result in litigation or fines, fees, or potential liabilities, which may not be covered by our insurance policies, each of which could have a material adverse effect on our business, results of operations and financial condition.

Our ability to operate our business from day to day, in particular our ability to manage our point-of-sale, distribution system and payment information, largely depends on the efficient operation of our computer hardware and software systems. We use management information systems to communicate customer information, provide real-time inventory information, and to handle all facets of our distribution system from receipt of goods in the DCs to delivery to our customers' homes. These systems are subject to damage or interruption from power outages, computer and telecommunications failures, viruses, phishing attempts,cyber-attacks, malware and ransomware attacks, security breaches, severe weather, natural disasters, and errors by employees. The failure of these systems to operate effectively, problems with integrating various data sources, challenges in transitioning to upgraded or replacement systems, difficulty in integrating new systems, or a breach in security of these systems could adversely impact the operations of our business. Though losses arising from some of these issues would be covered by insurance, interruptions of our critical business information technology systems or failure of our back-up systems could result in longer production times or negatively impact customers resulting in damage to our reputation and a reduction in sales. If our critical information technology systems or back-up systems were damaged or ceased to function properly, we might have to make a significant investment to repair or replace them. We have and plan to continue to partner with third parties that utilize artificial intelligence ("AI") tools and to invest in AI technologies to enhance our customers' shopping experience and our employees' work experience and to improve efficiencies of our supply chain, operations, management functions and talent recruitment and development. These are evolving technologies and there are inherent operational and legal complexities associated with implementation of these technologies within our business. When integrating and introducing AI technologies into our platforms, processes and systems, we may be exposed to new or expanded liabilities and risks due to evolving governmental regulations, litigation, data privacy risks and compliance issues in a disparate and at times conflicting regulatory environment, all of which could negatively affect our financial performance and business reputation.

We are subject to a broad range of federal, state and local laws and regulations in connection with our core business, including labor and employment, customs, privacy and cybersecurity, health and safety, real estate, environmental and zoning and occupancy laws, and other laws and regulations that otherwise govern our business. Our products and their manufacturing, labeling, marketing and sale are also subject to various aspects of the Federal Trade Commission Act, state consumer protection laws and state warning and labeling laws. In addition, various jurisdictions may seek to adopt similar or additional product labeling or warning requirements. As a retail business, changes in laws related to employee benefits and treatment of employees, including laws related to limitations on employee hours, supervisory status, leaves of absence, mandated health benefits or overtime pay, could negatively impact our business increasing compensation and benefits costs for overtime and medical expenses. Changes to U.S. health care laws, or potential global and domestic greenhouse gas emission requirements and other environmental legislation and regulations, could result in increased direct compliance costs for us (or may cause our vendors to raise the prices they charge us in order to maintain profitable operations because of increased compliance costs), increased transportation costs or reduced availability of raw materials. Failure by us, our manufacturers, or our vendors to comply with applicable laws and regulations or to obtain and maintain necessary permits, licenses, and registrations relating to our operations could subject us to administrative and civil penalties, including significant fines, civil liability, criminal liability or sanctions, or other enforcement actions. Any of these actions could result in a material effect on our operating results, business and financial condition, including increased operating costs. Our business involves receiving, processing, storing, using and sharing data, some of which contains personal information. We are subject to complex and rapidly evolving laws and contractual obligations addressing data protection, and companies are under increased regulatory scrutiny with respect to privacy and data security. The interpretation and application of existing laws regarding this subject are continuing to evolve and many states are considering new regulations in this area. Applicable U.S. privacy laws or new state or federal laws may limit our ability to collect and use data, require us to modify our data processing practices or result in the possibility of fines, litigation or orders which may have an adverse effect on our business and results of operations. We cannot yet fully determine the impact that such future privacy requirements may have on our business or operations. The burdens imposed by these and other laws and regulations that may be enacted, or new interpretations of existing laws and regulations, may also require us to incur substantial costs to reach compliance, change the manner in which we use data, and adversely affect the profitability of our private label credit card program. In addition, to the extent we expand our operations as a result of engaging in new business initiatives or product lines, or expanding into new markets, we may become subject to new regulations and regulatory regimes. In addition to increased regulatory compliance, if the regulations applicable to our business operations were to change, it could make conducting our business more expensive or otherwise change the way we do business. We may need to continually reassess our compliance procedures, personnel levels and regulatory framework in order to keep pace with our business initiatives, and there can be no assurance that we will be successful in doing so. Failure by us, our manufacturers, or our vendors to comply with applicable laws and regulations or to obtain and maintain necessary permits, licenses, and registrations relating to our operations could subject us to administrative and civil penalties, including significant fines, civil liability, criminal liability or sanctions, or other enforcement actions. Any of these actions could result in a material effect on our operating results, business and financial condition, including increased operating costs.

We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including commercial, consumer safety, product liability, employment and intellectual property claims. We currently do not expect the outcome of any pending matters to have a material adverse effect on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more pending claims asserted against us, or claims that may be asserted in the future that we are currently not aware of, or adverse publicity resulting from any such litigation, could adversely impact our business, reputation, sales, profitability, cash flows and financial condition. Furthermore, there is no guarantee that our insurance program will cover all such legal proceedings or be sufficient to cover losses resulting from such proceedings.

Historically, the home furnishings industry has been subject to cyclical variations in the general economy. Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence general consumer spending on discretionary items, including home furnishings in particular. Factors influencing consumer spending include: - general economic conditions,- consumer disposable income,- fuel prices,- inflation,- recession and fears of recession,- unemployment,- inclement weather,- availability of consumer credit,- consumer debt levels,- conditions in the housing market,- interest rates,- sales tax rates and rate increases,- sustained periods of inflation,- civil disturbances and terrorist activities,- foreign currency exchange rate fluctuations,- consumer confidence in future economic and political conditions,- natural disasters, and - consumer perceptions of personal well-being and security, including health epidemics or pandemics. Prolonged or pervasive economic downturns could slow the pace of new store openings or cause current stores to temporarily or permanently close. Adverse changes in factors affecting discretionary consumer spending have reduced and may continue to further reduce consumer demand for our products, thus reducing our sales and harming our business and operating results.

Our operations, supply chain, and customer demand may be negatively affected by natural or man-made disasters or other disruptive events, including severe weather, fires, power or utility interruptions, public health events, social unrest, or geopolitical instability. Many of our vendors and logistics partners are located in areas that may be vulnerable to such events, which could disrupt the production, availability, or transportation of our merchandise. In addition, such events may adversely affect consumer spending patterns or overall economic conditions. If any of our distribution facilities, stores, or customer service operations were significantly disrupted or forced to close, we could experience inventory shortages, increased costs, delays in fulfilling customer orders, or lost sales. Future large-scale events could present challenges that are difficult to anticipate or mitigate. Any of these factors could adversely affect our business, results of operations, or financial condition.

Our future success, including our ability to achieve growth and increased profitability, is dependent on the ability of our management team to execute on our long-term business strategy, which includes: - increasing our retail footprint,- expanding our online presence,- increasing the efficiency and profitability of our operations,- introducing new products in the marketplace, and driving increased traffic to our retail stores and e-commerce site through updated marketing efforts, and - providing excellent service to our customers. If any of these initiatives are not successful, or require extensive investment beyond our expectations, our growth may be limited, and we may be unable to achieve or maintain expected levels of growth and profitability. Furthermore, our ability to expand our retail footprint is dependent on our ability to identify, secure and develop new retail locations, which involves factors outside of our control.