Q1 2021 Haverty Furniture Companies Inc Earnings Call

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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 and 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 and the company's 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 and Steve or 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 and the first quarter and encouraged with the continuing momentum that we're seeing with increased written sales and higher traffic and higher closing rates and average tickets.

Even though our undelivered backlog is up almost four times last year.

Our current incoming orders are continuing.

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 and 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 and America.

Our supply merchandising and distribution teams have been tirelessly working with our suppliers and shippers to bring and the product to fill orders and reduce our record backlog.

And the delays and 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 our investing and additional warehouse capacities and our distribution network.

We opened a new store and Myrtle Beach, South Carolina this past quarter.

And are excited to open a desire and oriented store and the villages and Central Florida. This summer.

We expect to open a third store and northeast Austin, Texas later this year.

We believe there are a number 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 <unk> from our competitors and raise the bar on service quality furniture and design.

We will be sharing more on the campaign early next month.

And now I'd like to turn the call over to our President Steve Burdette.

Thank you Clarence and good morning, I'd like to provide and update on our 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 scarcity.

We experienced port delays, especially at la 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 and their production and finally, the Suez Canal situation.

Cause from additional delays from product, arriving and the early part of second quarter.

Even with all these headwinds we were able to receive approximately 10% more product and Q1 versus Q4, we expect that we will be able to match or exceed the same flow of product and Q2.

We are still experiencing some delays with container availability and 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.

The flow of funds should resume back to normal production by the middle of May which will be a big lift to the domestic production for upholstery and bedding in the back half of the quarter.

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 D C and Dallas, and our cross docks and Memphis and Cincinnati for one week due to the same minor storm in February.

Our delivery schedules resumed back to normal the week after the storm.

Staffing remains our number one concern and this area.

Extended unemployment benefits until September along with the stimulus checks being distributed in December and March have made it difficult to attract and retain talent and our warehouses and home delivery.

This challenge is not unique to our company as it is a challenge for many industries and this economy.

Overall, I'm very pleased with the results of our operations and 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.

And 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 were $236 5 million and <unk>.

31, 8% increase over the quarter. If you recall, our retail operations were closed and the last two weeks of the first quarter of 2020 due to the COVID-19 pandemic.

Total written sales for the first quarter of 2020, we're up 54, 5% over the prior year period.

<unk> store sales were up 11, 5% over the prior year period. This includes stores that were opened for a full month and both periods. So March is excluded.

Our gross profit margin increased 160 basis points from 55, 5% to 57, 1% due to better merchandising price and mix and less promotional activity. During the quarter. These improvements were partially offset by an increase and our LIFO reserve as we continue to see increased freight and product.

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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. These costs declined 800 basis points to 46, 4% from 54, 4% is.

Demonstrating 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 and the effective rate and the statutory rate is due to the state income taxes and the <unk>.

<unk> 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 and 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 $104 $7 million, which was up $18 $5 million from the December 31, 2020 balance and up $78 6 million versus the Q1 and 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 dividends during the first quarter of 2021.

During the first quarter, we did not purchase any common shares and our buyback program. We currently have $16 $8 million remaining under authorization for this program.

Our earnings release list out several additional forward looking statements, indicating our future expectations and 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 five and 57%.

We anticipate gross profit margins will be impacted by our current estimate of product and freight costs and changes and our LIFO reserve or.

Our fixed and discretionary type SG&A expenses for 2021 and are expected to be and the $265 million to $268 million range, a 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 and the range of 17, 5% to 17, 8% a slight increase over the most recent quarter based on potential increases and selling and delivery costs.

Our planned Capex for 2021 remains at $23 million anticipated new replacement stores, Remodels and expansions account for $12 9 million investments and our distribution network are expected to be $6 4 million and investments and our information technology are expected to be approximately $3 7 million.

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Our anticipated effective tax rate in 2021 is expected to be 24%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation legislation.

This completes our commentary on the first quarter.

Thank you for your participating patient and 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.

And if youre using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again.

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 and company.

Good morning, and thank you for taking the question. So certainly a very impressive performance, both top and bottom line and the quarter here.

Just wondering even with the.

And you called out obviously with the storm impact if any idea as to how much.

And in terms of revenue impact that was on a on a quarter and in terms of the winter storm I'm, just try and get a sense is that that had happened what would revenue perhaps be.

Yes, that'd be speculate and Anthony.

If we were to do that because it was 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, where we really were impacted and receiving on the distribution side.

And we lost some business from presence day, but I'll tell you our business has been so strong and at this point I don't know that it impacted the total quarter.

Hello, Scott.

Yes, thanks for that Steve So.

As far as.

And your product segments.

Just wondering where are you seeing the biggest sales increases when you look at the different <unk>.

Product areas that you sell.

Interesting and this past quarter, our case goods have been the strongest category and bedroom dining room occasional.

Pollsters 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 have been.

Strong and case goods and I think that's starting to come through.

And Clarence.

Piggybacking off of that are.

Or as a percentage of sales and we were at 34, 6% last year and case goods and the quarter and it went up to 37, 6% during the first quarter of this year.

Okay, Yes, thank you for that and then.

Last question from me here, so looking at the different supply chain constraints that are out there, which have been certainly well publicized but 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 havent 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 with that pace.

The first quarter was impacted as we said with the winter storm the upholstery side of the business got hurt more because of that because of the phone supply. They got pushed out and that had certainly an impact and that but as we still deal with the container capacity I think that's still going to be an issue for us as we move through the quarter and into the third quarter, but hopefully that will.

Resolve itself as we move towards the end of the year and towards the fourth quarter, but we do expect that to be because of the increased demand thats out there.

And then from our side here.

And our world is staffing that I told you about and distribution and that's what we're focused on.

And that would be our biggest thing we've got the orders out 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 and to be able to meet the demand.

Got it okay, well, thank you very much and the best of luck.

Thank you and it.

Again to ask a question please press star one.

We'll take our next question from Brad Thomas with Keybanc.

Hi, Good morning, guys on a great quarter here.

My first question was just around.

Yeah.

And modeling sales I just wanted to make sure I'm understanding some of this right.

And I'm really impressed.

<unk> sales growth over 30%.

As we look at the trend and written orders and delivered same store sales.

Typically been lining up and the kind of 10% to 20% range and north of 20%. The last few months I think.

Is the reason we were able to get to that 30% growth rate for total revenue just because march was turning into such an easy comparison. When you close stores last year is that mathematically how that works.

For the most part it is yes, and then just take a look at how the performance and the fourth quarter and the first quarter, we don't give revenue guidance, but clearance and talk about the position of our backlog Steve talked about how much.

And much more production of our orders, we get product flow, we got in and the first quarter over over last quarter and that could probably.

And as good as we can do in terms of forecasting for you, yes, and we were closed the last two weeks of March so.

That was not only for stores for delivery to so.

I think that was.

And the big jump, but.

And we're seeing income and orders consistent so we feel pretty good about that.

Yes, yes.

Really impressive revenue and Andrew.

And so.

As we think about.

<unk>.

Historically average is often had QQ seasonally come in with revenue is not too far off from <unk> and Youre, obviously sitting and a fantastic position from a backlog perspective. It looks like your customer deposits are the highest in company history written orders have obviously been very strong.

As we think about maybe the dollar value of sales that you might be able to generate and <unk>.

Assuming that demand holds up is there any reason you couldnt deliver sales something in the neighborhood of.

Generally what you did here and <unk>.

You know, Brad we really really don't give out revenue guidance.

Again, I'd go back and look at I think.

<unk> process going back and look and how we did and the first quarter and.

And the message that clearance and Steve gave on our backlog and on our our receipts.

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.

And I'd be curious just what you're hearing from customers and what you're hearing out of the field in terms of.

And maybe how.

Consumer spending is evolving.

How sustainable you think this all can be.

And if what.

What the customer is buying from you and 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 and <unk>.

Mattresses and some of that I think was because of the supply issues.

We feel good about what people believe in.

And for furniture and 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.

See that slowing down.

Housing is good so.

We feel pretty good about where we are and the <unk>.

Fact that.

Home and the house is important and that's what we do.

That's great. Thanks, so much and and.

Congrats and good luck and keeping up and momentum here. Thank.

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 and the future when we release, our second quarter results have a good day.

This concludes today's call. Thank you for your participation you may now disconnect.

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