Haverty Furniture Companies, Inc. Price & Performance (HVT)

Thank you, operator. During this conference call, we'll make forward looking statements, which are subject to risks and uncertainties Actual results may differ materially from those made or implied in such which speak only as of the date they are made and which we undertake no obligation to publicly update or revise Factors that could cause actual results to differ including economic and competitive conditions, and other uncertainties detailed in the company's reports filed with the SEC.

Our President and CEO, Steve Burdett, will now provide additional commentary about the quarter. Good morning. Thank you for joining our twenty twenty four fourth quarter and full year conference call. Our fourth quarter sales were $184,400,000 which was down 12.5% with comps down 13.7%.

Total written sales were down 6.7% with comps down 8.7%. Total sales for the year were down 16.1% to $722,900,000 and comps were down 16.7%. Gross margins did remain strong for the company coming in at 61.9% for the quarter, and 60.7% for the year. Our pre tax profit for the quarter was $9,600,000 or 5.2% operating margin And for the year, we produced a $26,200,000 pre tax profit or 3.6% operating margin.

We ended the year with zero funded debt and over $120,000,000 in cash. The interest rate cuts late in Q3 and in Q4 have not translated into lower mortgage rates. In fact, we have seen mortgage rates rise continuing to put in question the affordability of the housing market. Getting the elections behind us was a positive lift as we saw traffic improve over the quarter which gave us our first positive gain year over year in traffic, in the low single digits [indiscernible] Conversion rates stabilized over the quarter as we saw written sales improve throughout the quarter. Average ticket rose during the quarter by approximately four Our design business continued to improve during the quarter to approximately 32% of our business or 15.5% of our tickets driven by our special order business. Our designer average ticket grew to over $7,200 which was up over 8%. The new merchandising team is really collaborating well together as they are actively visiting vendors, stores and competitors as they look to shore up any holes within our Good Butter and Best lineups. We continue to see upholstery perform at a high level but also saw a nice lift in bedrooms and mattresses during the quarter.

We will begin to roll out our new point of purchase and tagging program to all stores beginning in Q2. This will be a two to three year project to get fully implemented. It is a collaboration of our merchandising, marketing and store operation teams which will provide our stores with a revamped mattress department, an enhanced design center to improve the presentation process for our customers, a more centralized area for special order fabrics to improve the ease of choice, a new tagging system that simplifies for our sales consultants and customers the configurations that are available within the specific collections. During the quarter, our marketing team pushed new technology from Adobe onto our website to improve performance. In fact, after implementing to the home page, which makes up approximately 20% of our site traffic, We saw a double digit lift in organic traffic. Our plans are to have this rolled out to all our product listing pages and and our product display pages by late Q1. As you know, brought in our new media partner in April 2024, Carmichael Lynch, we believe has contributed to the changes in our traffic patterns over the year. They made some adjustments with our advertising mix moving to more broadcast in some of our larger markets for the bigger events shifting our digital optimizations from product views to store visits, overhauling our search program and adding Pinterest in Q4.

In early November, we opened new stores in St. Petersburg, Florida followed by Greenwood, Indiana And then in mid December, we opened The Woodland store marking our return to Houston after forty plus years. All three openings are meeting our expectations. In 2024, this totaled six new stores and one closure, giving us a total of 129 stores at year end. Earlier this month, we opened our second store in Southeast Houston in the Bay Brook Mall area and have planned a relocation of our Daytona store in the Orlando market in Q2. Are finalizing leases to open a third Houston store in late twenty five followed by two additional stores in 2026. This will give us five stores our plan is to have six to eight stores to serve the Houston market. Our supply chain team has effectively managed our inventories. Reducing them over 11% for the year. However, we see an opportunity to work with our partners to increase inventories on our best sellers. Which will help us serve our customers quicker. We have relied on our just in time system with our partners in a time when there are too many unknowns. To support our new initiative in store growth, we expect inventories to rise approximately 5% to 10% over the next few quarters.

On a positive note, we were fortunate to avoid the port disruptions from the potential strike that was looming in January. As it was resolved with no real impact on our flow of products. However, we are dealing with tariff issues with China, Canada and Mexico. The tariffs have already begun in China, with Canada and Mexico being pushed out to March. We are hopeful that this is the administration for other concessions from Canada and Mexico. But we are getting prepared as if this will happen. Are fortunate to have great partners who are willing to work with us as they did in 2018, 2019. We will have to deal with each of our partners based on their capabilities regarding production opportunities and or pricing opportunities. We will adjust retail pricing or look to reassort the lineup. But do not expect this to impact our current margin guidance or flow of product. Our distribution, home delivery and customer service teams continue to increase productivity across all areas. We ended the year at just over 2,330 team members, which is approximately down 9.5% from year end 2023.

I am expecting to see this number increase in 2025 as we continue to grow I want to conclude by recognizing all our team members as we celebrate our one hundred and fortieth year in business. This is something special as we continue to do the same thing today that we did one hundred and forty years ago, but with different people and different assets. We remind our team members every day that at the point of contact with the customer, you are Havertys.

Our team is committed to getting our company back to $1,000,000,000 I will now turn the call over to Richard.

Thank you, Steve. We reported in the fourth quarter of twenty twenty four, net sales were $184,400,000 a 12.5% decrease over the prior year quarter. Comparable store sales were down 13.7% over the prior year period. Our gross profit margin decreased 50 basis points to 61.9% from 62.4%. The decrease was driven primarily by the change in the life positive impact on gross profit margins in Q4 of twenty twenty four, [indiscernible] positive impact of $2,800,000 in the fourth quarter of twenty twenty three. Excluding the impact of our LIFO reserve, our gross margins increased 40 basis points over the prior year quarter. Selling, general and administrative expenses decreased $8,900,000 or 7.7% to $105,800,000 As a percentage of sales, these costs approximated 57.4% of sales up from 54.4% in the prior year quarter. We experienced decreased selling cost, advertising, administrative, warehouse and delivery [indiscernible] the quarter, Our other income expense in the fourth quarter of twenty twenty four was $200,000 in income was approximately $1,500,000 Income before income taxes decreased $8,900,000 to 9.6 Our tax expense was $6,200,000 for the calendar year compared to an effective tax rate of 22.5% in the prior year. The primary difference in the effective rate in the statutory rate is due to state income taxes and non deductible items.

Net income for the fourth quarter of twenty twenty four was $8,200,000 or $0.49 per diluted share of our common stock compared to net income of $15,000,000 or $0.9 per share in the comparable quarter last year. Now turning to our balance sheet. At the end of the quarter, our inventories were $83,400,000 which was down $10,500,000 from the year end balance of last year and down $5,300,000 versus Q3 twenty twenty four balance. At the end of the fourth quarter, our customer deposits were $40,700,000 which was up $4,900,000 from the 12/31/2023 balance and down $3,200,000 versus the Q3 twenty twenty four balance. We ended the quarter with $120,000,000 of cash and cash equivalents and we have no funded debt on our balance sheet at the end of the fourth quarter of twenty twenty four. Looking at some of our cash flow usage, CapEx was $32,100,000 for the year in 2024, We also paid out $20,500,000 of regular dividends in the 2024 calendar year.

We did purchase approximately $5,000,000 of common shares under our share repurchase program during the fourth quarter of twenty twenty four, and we have approximately $8,100,000 of existing authorization in our buyback program. Our earnings release lists out several additional forward looking statements indicating our future expectations of certain financial metrics, will highlight a few, but please refer to our press release for additional commentary. We expect our gross profit margins for 2025 to be between six we anticipate gross profit margins will be impacted by our current estimates of product and freight costs. Our fixed and discretionary type SG and A expenses $291,000,000 to $293,000,000 range which is an increase over the prior year resulting from our store growth and inflation. The variable type cost within SG and A for 2025 are expected to be in the range of 19% to 19.3%. Our planned CapEx for 2025 is $27,100,000 Anticipated new or replacement stores, remodels and expansions account for $22,700,000 investments in our distribution network are expected to be 1,800,000.0 and investments in our information technology are expected to be approximately $2,600,000 Our anticipated effective tax rate in twenty twenty twenty five is expected to be 26.5% This projection excludes the impact of vesting of stock awards to street items and potential new tax legislation.

This completes my commentary on the fourth quarter financial results Operator, we would like to open up the call for questions at this time.

Thank you. We will now be conducting a question and answer session. [indiscernible] Our first question comes from Anthony Leibnzinski with [indiscernible] Thank you and good morning everyone and thanks for taking the questions. [indiscernible] thanks for sharing some of the color about traffic trends and just curious if you could provide maybe more details as maybe some numbers as far as what you saw in the monthly trends, either written sales or delivered sales, however you want to address those? Just curious to get comments on that?

Sure. Good morning, Anthony. It's Richard. On the delivered side, it was pretty consistent Pretty consistent during the quarter, October, November, December, we're down in the low teens. The average was 12.5 for the quarter. On the written business, it was a little different. We were down low teens in October, mid single digits in November and then we were almost flat in December in terms of RID business and then the quarter as you know was was down 6.7%. So we saw a nice delta there in the last month of the of the year.

Got you. All right. That's definitely where reassuring. And any of this positive momentum carried over into the first quarter or if you I don't know if you can Presidents' Day holiday, which is important holiday were Haverty Anthony, I appreciate your persistence on trying to get us to give guidance. We don't talk about the current quarter. And what's going on there. So we're going to maintain that that basically that place us standing on that. We're not going to comment on Q1.

All right. I figured I would try, but all right. And then then just in terms of the regional differences, did you see much in the fourth quarter, much variation or was it consistent all Haverty operating area?

We did see some. I mean, Florida has seen a little bit of a bounce back. Obviously, in kind of through the central part of the country. A little bit of the West and the East has been a little bit weaker, but not a huge difference though between all of them, but certainly Florida up through Georgia and Central Park has been a little bit stronger.

All right. Thanks, Steve. And my last question before I pass it on to others. So terms of your gross margin guidance, you mentioned product and freight costs. Can you expand on that? And and also share with us what you're thinking as far as what the potential impact from tariffs might be Yes.

So let me start and Steve can finish. So as Steve indicated in his remarks, we're going to mitigate the tariff impact on our margins. So we will work with our vendors and take the appropriate steps in terms of our relations with them. And then if we have some exposure there, we'll certainly pass that along in terms of our retail pricing.

So we've got some experience with that. As you said, in 2018, and 2019, And then on the normal product cost in freight, in the prior years, I think we've kind of indicated the margins were going to go up. I think we're saying we feel like they're going to be stable in 2025.

Yes. And I think, Anthony, we are committed to driving volume. And so we are comfortable where the margins are and we want to [indiscernible] every lever we can to try to do what we can do to try to move the volume needle and then get us back into a positive territory. So that's kind of where we maintained our flat margin guidance on that side going forward. And as Richard said on the tariffs and as I mentioned to you, we will make our adjustments Our merchandising team is already working on that.

Obviously, that will change. Canada is not much of an impact on us. Mexico will be a bigger impact. But we will either look to reassort or work with our vendors to make pricing adjustments and move forward with that. But we do not see any of that having an impact on our margins margin guidance going forward.

Understood. Well, thank you very much and best of luck.

Thank you.

Our next question comes from Christina Fernandez with Telsey Advisory Adversarial Group. Please proceed with your question.

Thank you and good morning everyone. I wanted to see if you could talk more about the demand environment you expect in 2025 was positive to see traffic improve and the sequential improvement through the fourth quarter. But at the same time, you talked about higher mortgage rates and that's having on affordability. So I guess based on what you've seen in the fourth quarter and to date, I guess how are you thinking about the demand environment for 2025?

I think we think Christine, this is Steve. And we believe it's still going to be tough. I mean, I don't think there's any question about it. I mean, housing is still a struggle. The election is behind us and we move forward into 2025, you're dealing with after the inauguration, a lot of tense things going on or change going on with the wielding of the pin from the President. And so we'll have to just see how things proceed forward. And then obviously, all the talk about tariffs that's not helping things. It's getting people into place. To where they are from tariffs of 2018 and 2019, it's not the same deal. There we were dealing with production and moving. We don't have those kind of disruptions that we would expect out of this these tariffs and obviously the China tariffs are already in place. So So we feel like it won't be any disruption of product flow like we experienced in 2018, 2019. So there'll be no supply issues going into 2025, which will be a positive. We hope certainly as we move toward the latter part of the year that we see things start to ease, the Fed make some cuts and we see a relief in the mortgage rates and we see a little bit of a bounce.

But that's kind of our that's an industry overview and I guess things you've gathered from from others. That you've already heard from.

Yes. That's helpful. And as you think about capitalizing on that traffic increase. What's the biggest challenge? Is it I guess, is it conversion that's really, I guess, preventing from translating more of that trap increase into orders?

Well, obviously, we're not having an issue with average ticket. We continue to drive average ticket. It's nice to see the traffic trends starting to improve. And we'll see how those move forward into 2025. So I do believe that conversion is still our opportunity. And we're working with our teams and we're testing things as outlined with you to see what we can't do to move that needle. And we'll have hopefully more to report to you when we give you a Q1 update on how those tests are working.

And then my last question is on the On the fixed SG and A guidance, it's about a 4% increase year over year. So could you give more details about what's driving that? I guess, where are the buckets that you're seeing inflation in and how many stores do you plan to open This year.

Yes. So our goal is to make sure sense, Richard. Our goal is to open five. So we've we've got a few that we've already announced that that's our standing goal. In terms of the fixed non variable piece, the guidance is $2.91 to $2.93 it is a within that range of 4% to 5% increase. In terms of the buckets, I'd say half of that is just general inflationary and then the other half I'd say is around $4,000,000 or so is occupancy costs. We have new stores that we opened up in latter part of last year and the ones we just announced. And then we're also planning on spending some additional funds in advertising and marketing in 2025. On the variable piece, we came in at I think 18.9% in the fourth quarter. And so we ended the year at 19.3%. So we're pretty comfortable with with the 19% to 19.3% for 2025 on the variable side.

Thank you. Thank you. There are no further questions at this time. I would now like to turn the floor back for closing comments.

We are excited for 2025 as we build on our one hundred and forty year brand strength. Debt free financial position, increasing store count, and expanding design business appeal. We look forward to talking with you in the future when we release first quarter results later this year. Thank you, operator.