Q4 2019 Earnings Call

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That's conference call today's conference is being recorded at this time I would like to turn the conference over to Richard be Harris. Please go ahead.

Thank you operator during this conference call will make forward looking statements, which are subject to risk and uncertainties.

Actual results may differ materially from those made or implied in such statements, which speak only as of the day, they're made at which we undertake no obligation to publicly update or revise factors that could cause actual results to differ.

The economic and competitive conditions and other uncertainties detailed in the Companys reports filed with the FCC.

Our president and CEO and Chairman Clarence Smith will now give you an update on our results and provide commentary about our business.

Good morning, Thank you for joining our 2019 fourth quarter and for your conference call.

Fourth quarter sales were 213.8 million, a 2.3% increase over last year and with comp store sales up 1.4%.

We are encouraged with the first positive quarterly sales increase for the year and we have a good backlog of and deliver goods. It was carried into the 2020.

Q4, we had a positive closing rate and positive customer traffic.

Net earnings for the quarter with 31 cents per diluted share versus 45 cents per fully diluted share in Q4 2018.

Earnings were negatively affected by a non cash impairment loss of 2.4 million or a net nine cents per diluted share.

The full year 2019, our average sale increased 6.4% to 20 323.

20, onest consecutive quarterly increase in average ticket.

The average ticket for H design. This was twice the store average sale.

Our average sales were helped by mid single digit increase in custom upholstery.

2019, we moved a significant amount of our products to Vietnam factories from China and.

And here in 2019, approximately 15% to 20% of our children furniture purchase as well produced in China.

We are a better position with our in stock products as we start this year compared to the tariff impacted situation and the first half from 2019.

We've built up our inventory of much of our best selling goods prior to this year's Chinese new year, which has helped the stocking position.

Our merchandising in supply chain teams are closely watching the impact of the delayed opening of Chinese factories due to the Corona virus.

The ability of Chinese workers to return to work in Vietnamese factories and delays in critical parts will likely effect product delivery dates.

We expect to have some product shipment delays, which could affect stock availability in the second quarter.

We're in constant contact with all of our key suppliers in factories to make sure that we have our best selling goods ongoing.

Our key sourcing team members are traveling later this week to our Vietnamese factories.

We expect a retail sales square footage to be flat in 2020.

With significant relocation and positioning of stores over the past five years stayed level at approximately 4.4 million square feet.

Average sales per square foot for 2019 was $183.

We feel very good about our store positioning in our markets and we stay focused on evaluating store opportunities and potential markets within our distribution footprint.

Our team member Count of 30, 425, this level with last year.

Unlike most furniture operations, we have a dedicated warehouse delivery and service team of over a thousand haverty employees, who are dedicated to making sure the last mile in home contact with our customers as a positive experience.

Our customers track their truck on line with text, along with photos and names of Haverty team members, who will be in their home from the delivery and full set up a furniture.

This is a significant commitment to building the havertys brand and each of our customers with each of our customers that we believe a major differentiator from our competitors.

In January we engage DP and company the Greenville, South Carolina agency, along with its media partner trillion.

It is our creative and media agency of record.

BP in company will work with our internal marketing teams on media creative and digital planning efforts.

This was a several months project led by hailing Battista.

Nice president of marketing, who joined us in the third quarter last year.

Were dedicated to making sure that I creative message and our media placement reaches our target customers with our strong statement to help our customers vision of their home come to life.

This year, we're kicking off our celebration of 135 years of history.

We began rolling out this message to unfold team chain wide. This week, emphasizing heritage growth and the ongoing changes to understand reach and serve our customers the way she wants.

Our message to our customers is that we have 135 years of wisdom and every piece of furniture.

Our team members are energized to make 2020, a breakthrough year in delivering premium service and market share gains I'll turn it back over to Richard now [noise].

Thank you Clarence and good morning in the fourth quarter of 2019 sales were 230.8 million a 2.3% increase over the prior year quarter, our comparable store sales were up 1.4%.

Our gross profit margin decreased 60 basis points from 54.8% to 54.2% due to merchandising pricing and mix and slightly more aggressive promotions during the quarter.

In addition, tariffs and increased product cost generated higher higher LIFO reserve.

Selling general and administrative expenses increased $6.7 million to $108.6 million. This increase was largely driven by 2.4 million dollar noncash impairment charge related to one about properties as well as increased selling marketing and advertising expenses.

We recorded net interest income of $308000 in the fourth quarter of 29 team. We recorded net interest expense of $239000 in the fourth quarter of 22018, resulting in the variance of $546000 over the prior year period. This variance is the result of your day.

Option of the new lease accounting standard we adopted in the first quarter of 2019.

Income before income taxes decreased $4.7 billion to 7.6 million in the fourth quarter of 2019 versus 12.3 million in the same quarter last year.

Our tax expense was one and a half million dollars during the fourth quarter between 19, which resulted in an effective tax rate of 19.7% and our effective tax rate for the year was approximately 23.8%.

Net income for the fourth quarter, 2019 was $6.1 million or 31 cents per diluted share a common stock compared to net income of $9.4 million or 45 cents per share in the comparable quarter last year, excluding the impact of the noncash impairment charge recorded during the fourth quarter of 2019 adjusted earnings.

<unk> per share was 40 cents.

Now turning to our balance sheet at the end of the fourth quarter, our inventories were $104.8 million, which was up $4.9 billion over the third quarter of 29 team and down $1 million over the fourth quarter of 2018.

We ended the quarter was $75.7 billion of cash and cash equivalents and our $60 million revolving credit facility remains untapped.

As a reminder, we have no funded debt on our balance sheet.

Looking at some of the uses of cash flow capital expenditures were 4.4 million dollar for the fourth quarter 2019, and $16.8 million for the year. In 2019, we also paid $3.9 million in regular quarterly dividends, representing 20 cents per common share and for the year, we paid 15.1 million.

Dollars of regular dividends.

We purchased $10.4 million of common stock, which equates to 516762 shares during the fourth quarter of this year and for the year, we bought back $29.8 billion of shares which equates to 1.605 million 336 shares.

We have $6.5 million remaining under our current authorization and our buyback program.

As previously disclosed on January the first 29 team, we adopt the new lease accounting standards that requires companies to capitalize or lease obligations on their balance sheet, along with additional qualitative and quantitative disclosures further details regarding our implementation of the standard are included in the nodes in the financial statements in our Q4 2019 earnings press release.

Please.

In addition, our earnings release list out several additional forward looking statements, indicating our future expectations of certain financial metrics.

I'll highlight a few but please refer to our press release for additional commentary.

In 2020, we continue to expect our gross profit margin for the full year to be approximately 54.6%.

Fixed and discretionary type expenses within SGN, a are expected the and the $265 million to $267 million range for 2020.

Variable as DNA cost for 2020 are expected to be 18.4% to 18.6% as a percentage of sales.

Our planned Capex for 2020, a $17 million, which includes opening three locations.

One of the Dallas Fort worth market when in Myrtle Beach, and then market for US and then another store in a market there will be announced in the future.

We expect our overall effective tax rate in 2020, 25%, excluding any impact from the vesting of stock based compensation Awards.

This completes our commentary on the fourth quarter financial results and our 2020 expectations. We appreciate your participation in today's call operator, we'd like to open up a call for any questions. Thank you. It's either back to ask a question. Please take note by pressing star one on your telephone keypad.

Yeah, using a speaker phone please make sure your mute function it's turned off.

You're saying no to reach out equipment again press star one to ask a question well pause for just a moment to allow everyone an opportunity to signal for questions.

Well take our first question Anthony Lebiedzinski.

Yes, good morning, and gentlemen, thank you for taking the questions. So.

Well certainly you've you've had a very impressive track record of delivering a as you said Clarence a 21 consecutive quarters of increases in the average ticket.

How optimistic or do you feel as far as being able to sustain that momentum.

I think it'll continue to grow it it may not grow at the rate than it had but.

We're building them at whole area of design, we're doing more custom more special order.

I think we're starting to get more credit for the fact that we offer the service and we want to make sure that the market understands that and that's one of the one of the charges that weve given the agency is to make sure we get credit for.

Our design service.

Delivery expertise all of the things, we think we do better than our competition.

Got it okay, well, thanks for that and.

As far as to your same store sales.

Obviously that they were up in the in the fourth quarter. Overall can you give us a sense as to how you're doing so far in the Q1 of this year, including the President's day holiday.

We're not gonna give those numbers out we you knew a couple of quarters ago will now. So we're we're only going to give out our sales when we release our earnings.

Right. We did say that we were in good position, our inventories and better position. We feel we had a backlog that we're now they able to deliver a little better so.

We had as you know last year, a very difficult quarter because of the tariff in the impact of that so.

We feel we feel pretty good about that.

Got it okay. The that's that's helpful and and lastly, as far as the Corona virus the impact so it sounds like it's just it's just too.

Reiterate that sounds like you guys feel comfortable through the end of the first quarter that you should be in good inventory position, but if things don't get better there in China, then, perhaps it could be it to Q issue.

I think it could be a and and we did build up our inventories pretty good and in our best sellers prior to the Chinese new year, but.

And the factors just started back up but what we're already seeing and the someone supplies that they need and have been getting from China.

Going to be delayed which will slow down shipment of product and then there they're trying to replace some of that Bob we we'd positioning it in Vietnam I'm talking about mainly things like metal hardware those type of things that have been coming out of China. So it should continue.

A continued evolution of product movement and manufacturing from China to other countries and words, it's Vietnam for US and also actually in upholstery, but we still do as I said, 15% to 20% of product out of China and it's.

Important to us.

It's it's much of its a better quality in some areas and we expect that to stay there.

Unless something dramatic drastically changes so if the tariff was reduced that'd be a big deal, but we're not anticipating.

Sure.

Okay, and lastly, I'm, especially your expense outlook <unk> one of the items that you called out was <unk>.

<unk> increased advertising and marketing spending for 2020 can you give us a sense as to the magnitude of the planned increase.

For advertising and marketing you anticipate for 2020.

I don't I don't see that we're anticipating much difference there we have a new agency we were looking at how we put the media out there. We did some so we did some real testing late last year in several markets.

Some additional marketing dollars.

But I don't see that the overall percent the advertising should go up and you know we do include.

Advertising in our and that will be term, our fix s. DNA cost Anthony So that that you know we came in at 260 for 2019 were estimated to 65 to 67, a big part of that is yeah. We do anticipate increased advertising market expenses, but as a percent of revenue it should be consistent with prior years right in saying ballpark.

Okay. Thank you very much and best of luck.

Sure. Thank you Anthony to Anthony.

Again to ask your question. Please press star one well take our next question for badly Thomas.

Hey, Good morning, this is Andrew on for Brad.

Wanted to ask a question about hey, good morning.

I ask question about how you are thinking about your mattress segment and 2020, particularly now that mattress firm is carrying Tempur Pedic and I was wondering if he thinks every partnership or will have an effect on you going forward.

Well the mattress business was really good for us than 2019, and we expect to be good 2020, yes, Matt from was not selling Tempur pedic as you know when they have their fall out and they do now [noise].

We we built a really good reputation as being the place to go for that they'll get some business they'll push it.

I think.

I'm not that worried about it we do we've got several brands that are important to us and including beauty arrest and and Stearns <unk> Foster other lines, but also I don't see that we would have a decrease in that in that particular categories, but.

That's yet to be seen link.

We compete very aggressively with anybody selling mattresses against us. So we don't expect to lose share.

Okay. Okay. That's good to hear and maybe my next question is just what does your outlook for raw materials going into 2020.

How do you expect these trends to impact the margin outlook for the year.

You're talking about price increases on raw materials is that what you're referring to tracks.

I I don't see any significant inflation.

You got anything he is the only thing I'd say.

This is Richard when we did you know bacon in <unk> gross profit margin guidance. We came in at 54.2 for 2019 to 2020, we think that's going to go back up to 54.6, a you know we have less terrorists disruption there's been some increase in freight, but that's kind of been factored in our pricing. We do see that you know just if you look at our.

Margins, we do see that improvement kinda coming in the second half of the year 2020, because we had the margin erosion in the second half between 19, but that's kind of where we see a the margins going.

Okay understood.

That's my last question and I'm wondering if you could give us any additional detail on how you're thinking about your overall promotional strategy for 25.

I don't see any any real change from what we have been doing I think we probably will not have to be as aggressive in some areas. As we work, which is one of the reasons I think our margins are going to be better. We we have repositioned the number of stores, we closed a major clearance center, which was.

Here in Atlanta, which was a drag so that's behind US we had some store closings behind us so.

I I don't see that as a big issue for this year.

Okay, great. Thanks, that's a that's all for me.

Okay. Thanks I appreciate it.

We have no more questions in the queue at this time.

Well, we thank you for your participation in today's call. We look forward to talking with you in the future. When we released our first quarter results.

This concludes todays call. Thank you for your participation you may now disconnect.

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