Q1 2021 Haverty Furniture Companies Inc Earnings Call
[music].
Good day and welcome to the H V T first quarter 2021 financial results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Richard Hare, Chief Financial Officer. Please go ahead.
Thank you operator during this conference call, we will make forward looking statements, which are subject to risks and uncertainties.
Actual results may differ materially from those made or implied in such statements, which speak only as the date. They are made of which we undertake no obligation to publicly update or revise.
Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the Companys reports filed with the Securities Exchange Commission.
Our chairman and CEO Clarence Smith will now give you an update on our results and then our president Steve for that will provide additional commentary about our business.
Good morning, Thank you for joining our 2021 first quarter conference call.
We're very pleased with the results for the first quarter and are encouraged with the continuing momentum that we're seeing with increased written sales higher traffic and higher at closing rates and average tickets.
Even though our undelivered backlog is up almost four times last year.
Our current incoming orders of continuing at the.
The elevated pace, we have seen since January.
We have not seen a slowing of orders or significantly higher cancellation rates, even with the longer wait times for furniture.
While we do not know how long we will see these dramatic increases in incoming orders, we believe that the importance and the value of the home has risen dramatically in the past year.
We believe this trend will continue for 2021 because of the large backlog of orders the very strong housing market. The government cash subsidies and the increased demand for furniture and other home related products.
We also believe that the elevated importance of home is a longer term sustainable trend in America.
Our supply of merchandising and distribution teams, who have been tirelessly working with our suppliers and shippers to bring in the product to fill orders and reduce our record backlog.
The delays in shipping challenges are well known now.
But they are well beyond anything that our industry has experienced.
We're planning to increase our inventories as the production and product flow improves and are investing in additional warehouse capacities at our distribution network.
We opened a new store in Myrtle Beach, South Carolina of this past quarter.
And are excited to open a desire of oriented store in the villages in Central Florida. This summer.
We expect to open a third store in northeast Austin, Texas later this year.
We believe there are a number of good of additional markets that we can serve within our distribution footprint and are actively investigating and pursuing new store opportunities.
We're very excited about the rollout of a major new multimedia marketing campaign in May, which we believe will more clearly separate haverty as from our competitors and raise the bar on service quality furniture and design.
We'll be sharing more on the campaign early next month.
I would now like to turn the call over to our President Steve Burdette.
Thank you Clarence and good morning, I'd like to provide an update on the operations during the quarter, specifically, our supply chain efforts as well as our distribution home delivery and service areas.
Our supply chain team face many headwinds during the first quarter.
Which included availability of container capacity as we approach Chinese new year was difficult container freight costs or unreliable as we faced pricing surcharges due to the scarcity.
We experienced port delays, especially at la <unk> on some of our inbound product of up to three weeks.
February is winter storm impact to our Dallas distribution center caused us to close we're seeding operations for one week. The same storm impacted two of the main chemical manufacturers for a film suppliers, which caused our upholstery embedding vendors to see further delays in their production and finally, the Suez Canal situation.
Cause some additional delays for product arriving in the early part of second quarter.
Even with all of these headwinds we were able to receive approximately 10% more product in Q1 versus Q4, we expect that we will be able to match or exceed the same flow of product in Q2 lease.
We're still experiencing some delays with container availability in the early part of Q2.
However, we have been able to secure new contracts with our freight carriers, which will bring stability to our freight cost also.
The flow of funds should resume back to normal production by the middle of May which will be a big lift for the domestic production for upholstery embedding in the back half of the quarter at.
Distribution home delivery and service teams did a masterful job adjusting to the headwinds we faced within the quarter.
We had to close deliveries for all stores serviced by our DC in Dallas, and our cross docks at Memphis, and Cincinnati for one week due to the same storm in February.
Our delivery schedules resumed back to normal the week after the storm.
Staffing remains our number one concern in this area.
Extended unemployment benefits until the September along with the stimulus checks being distributed in December and March have made it difficult to attract and retain talent in our warehouses at home delivery the.
The challenge is not unique to our company as it is a challenge for many industries in this economy.
Overall I'm very pleased with the results of our operations in the first quarter of this year I. Appreciate the efforts of the entire haverty team as well as our vendor partners that made it happen.
I will turn it over to Richard now.
Thank you, Steve and looking at our financial results for the quarter and the first quarter of 2021 delivered sales for $236 $5 million at 31, 8% increase over the quarter. If you recall our retail operations were closed in the last two weeks of the first quarter of 2020 due to the COVID-19 pandemic.
At <unk>.
Total written sales for the first quarter of 2020, we're up 54, 5% over the prior year period.
Payables store sales were up 11, 5% over the prior year period. This includes stores that were opened for a full month in both periods. So March is excluded.
Our gross profit margin increased 160 basis points from 55, 5% of 57, 1% due to better merchandising price and mix and less promotional activity. During the quarter. These improvements were partially offset by an increase in our LIFO reserve as we continue to see increased freight and product cost.
<unk>.
Selling general and administrative expenses increased $12 $2 million or 12, 5% to $109 8 million, primarily due to increased sales activity.
However, as a percentage of sales of these cost declined 800 basis points of 46, 4% from 54, 4% as demonstrated in the past two quarters, our financial model has substantial operating leverage at these sales levels.
Income before income taxes increased $23 1 million to $25 4 million our tax expense was $6 million during the first quarter of 2021, which resulted in an effective tax rate of 23, 5%. The primary difference in the effective rate and the statutory rate is due to the state income taxes and the <unk>.
The benefit from vested stock awards.
Net income for the first quarter of 2021 was $19 4 million or $1 <unk> per diluted share on our common stock compared to net income of $1 8 million or <unk> <unk> per share in the comparable quarter last year.
Now looking at our balance sheet at the end of the first quarter, our inventories were $103 6 million, which was up $13 $7 million over the December 31, 2020 balance and down $6 9 million versus the first quarter of last year's balance.
At the end of the first quarter, our customer deposits were 100 for $7 million, which was up $18 $5 million from the December 31, 2020 balance end up $78 $6 million versus the Q1 2020 balance.
We ended the quarter with $210 million of cash and cash equivalents and we have no funded debt on our balance sheet at the end of the first quarter of 2021.
Looking at some of the uses of our cash flow Capex for the quarter was $4 $7 million and we also paid $4 million of the dividends during the first quarter of 2021.
During the first quarter, we did not purchase any common shares in our buyback program. We currently of $16 $8 million remaining under authorization for this program.
Our earnings release list out several additional forward looking statements, indicating our future expectations of certain financial metrics.
I will highlight a few but please refer to our press release for additional commentary.
We expect our gross margins for 2020 wanted to be between 56, 5% 57%.
We anticipate gross profit margins will be impacted by our current estimate of product and freight costs and changes in our LIFO reserve are.
Our fixed and discretionary type of SG&A expenses for 2021 are expected to be in the $265 million to $268 million range of slight increase over our previous 2021 estimate due to rising benefit costs.
The variable type costs within SG&A for 2020 are expected to be in the range of 17, 5% to 17, 8% the slight increase over the most recent quarter based on potential increases in selling and delivery costs.
Our planned Capex for 2021 remains at $23 million anticipated new replacement stores Remodels and expansions of account for $12 9 million investments in our distribution network are expected to be $6 4 million and investments in our information technology are expected to be approximately $3 7 million.
<unk>.
Our anticipated effective tax rate in 2021 is expected to be 24%. This projection excludes the impact of investing of stock awards and any potential new tax legislation legislation.
This completes our commentary on the first quarter.
Thank you for your participant at patient in today's call operator, we would now like to open the call up for questions at this time.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again price.
Star one to ask a question.
Well pause for just a moment to allow everyone an opportunity to signal for questions.
We'll take our first question from Anthony <unk> with Sidoti <unk> Company.
Good morning, and thank you for taking the question. So certainly a very impressive performance both top and bottom line in the quarter here.
Just wondering even with the.
You called out obviously of the width of storm impact of any ideas.
How much.
In terms of the revenue impact that was on the quarter in terms of the winter storm I'm just trying to get a sense is that that would happen what would the revenue perhaps be.
Yes, that'd be speculating the Anthony if we were to do that because of what's happened on President's day itself and then the week after that.
We did our sales we were able to open stores back as far as two.
For the retail business, but we deliveries of oil, we really were impacted and receiving on the distribution side.
We lost some business from Presidents' day, but I'll tell you of business has been so strong at this point I don't know that it impacted the total quarter.
The whole Scott.
Yeah, Thanks for that Steve So as for.
For us.
The product segments.
Just wondering where are you seeing the biggest of sales increases when you look at the different the <unk>.
Product areas that you sell.
The interesting in this past quarter, our case goods have been the strongest category of bedroom dining room occasional upholstery is still the driver, but the big increases were in case goods and I think part of that was because we had the product.
We were able to deliver.
And it was flowing in but.
It's great to see those categories, because historically we've been for.
Strong end case goods and I think that's starting to come through.
And Clarence just to piggyback off of that are.
As a percentage of sales we were at 34, 6% last year in case goods in the quarter and it went up to 37, 6% during the first quarter of this year.
Okay, Yes, thank you for that and then.
That's the last question for me here, so looking at the different supply chain constraints that are out there, which have been certainly well publicized for bogey for you guys, specifically where are you guys seeing the greatest pressure points.
In terms of the supply chain.
Anthony This is Steve I would tell you.
Certainly our vendors or haven't same hurdles that we are hiring people and being able to have staff and be able to handle the production at the volume that we're right in the business right now to keep up at that pace.
The first quarter was impacted as we said with the winter storm the upholstery side of the business got hurt more of a cost of that because of the phone supply. They got pushed out and that had certainly an impact in that.
But as we still deal with the container capacity.
Capacity, I think thats still going to be an issue for us as we move through the quarter end of the third quarter, but hopefully that will.
Resolve itself as we move toward the end of the year end towards the fourth quarter, but we do expect that to be because of the increased demand that's out there.
And then from our side here.
How old is staffing that I told you about in distribution, that's what we're focused on.
That would be our biggest thing we've got the orders out of our supply chain team has them out with the vendors.
And we're programmed out for six months on orders.
To have the flow coming in to be able to meet the demand.
Got it okay, well, thank you very much and the best of luck.
Thank you for it.
Again to ask a question please press star one.
We'll take our next question from Brad Thomas with Keybanc.
Hi, good morning, Congrats on the great quarter here.
My first question was just around.
Yeah.
Modeling sales I, just wanted to make sure I'm understanding some of the right.
I'm.
Really impressive sales growth of over 30%.
As we look at the trend in written orders delivered same store sales most of typically been lining up at the time of the 10% to 20% range in the north of 20 per cent for last few months at is the reason we were able to get to that 30% growth range for total revenues just because March was turning into such an easy comparison when you the closed stores last year is that.
How that works.
For the most part of it is yes, and then just take a look at how the performance in the fourth quarter and the first quarter, we don't give revenue guidance, but Clarence talk about the position of our backlog Steve talked about how much.
Im much more production of our orders we got the product flow, we got in the first quarter over over the last quarter.
That could probably.
As good as we could do in terms of forecasting for you, yes, and we will close the last two weeks of March so.
That was not only for stores, but for delivered too so.
That was the big jump, but.
We're seeing the income and orders consistent so we feel pretty good about that.
Yes, yes, no just to read.
Really impressive revenue number.
So as we think about.
QQ.
Akeley Heritage is often had QQ seasonally come in with revenue is not too far off from <unk> and Youre, obviously sitting in a fantastic position from the backlog perspective, it looks like the customer deposits are at the highest in company history. The written orders of obviously been very strong.
We think about maybe the dollar value of sales that you might be able to generate at <unk>.
Assuming the demand holds up is there any reason you couldnt deliver sales something in the neighborhood of.
Generally of what you did here at <unk>.
You know, Brad we really we really don't give out revenue guidance.
Again, I'd go back and look at I think the thought process going back and look at how we did in the first quarter end.
The the message that clearance and Steve gave on our backlog and on our.
Our receipts is probably youre heading in the right direction, but we can't really firm that up for you.
Great.
And then and then just the last one if I could.
I'd be curious just what you're hearing from customers and what you're hearing out of the feel of in terms of.
Maybe how.
Consumer spending is evolving.
How sustainable you think this all can be.
And at what the customer is buying from the aim is changing at all of late.
Well I mentioned the case goods are coming up but it's across the board I think the weakest growth has been in mattresses and some of that I think was because of the supply issues.
We feel good about what people believe in.
For furniture in their home.
And we also like where we are.
Our biggest states.
Florida, Texas.
Georgia, Virginia, but particularly Florida, and Texas and the growth there is strong I don't see that slowing down housing is good so.
We feel pretty good about where we are and the fact that.
Home in the house is important and that's what we do.
That's great. Thanks, so much an end.
Congrats and good luck keeping up the momentum here.
Thank you Brian Thanks, Brad.
That concludes today's question and answer session. At this time I will turn the conference back over to Mr. Richard Hare, Chief Financial officer for additional or closing remarks.
Well, we appreciate your participation in today's call and we certainly look forward to talking to you with you in the future when we release, our second quarter results of a good day.
This concludes today's call. Thank you for your participation you may now disconnect.
[music].
[music].
[music].
[music].