Q2 2021 Haverty Furniture Companies Inc Earnings Call
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.
<unk> and 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.
Thank you for Joan and our 2021 second comp second quarter Conference call.
We're very pleased with our record results for the second quarter with sales of 200.
CEO million.
We've done a good job and our expense controls across the board and combined with pricing discipline from the merchandising teams and stores, we achieved solid gross margins and 11, 7% pre tax operating profits.
Our ongoing objectives are to grow market share and our existing distribute.
50 footprint and maintain double digit operating margins.
We believe that the increase and importance of home that was jumpstarted with the impact of Covid last spring is a longer term trend.
While we don't expect the Russia impacted our industry to be at the elevated levels, we experienced in recent quarters.
<unk>.
We do believe that home is a priority and a sustainable trim for the near future.
The strong desire for homeownership, combined with haverty strong positioning and Florida, Texas and the southeast puts us in an ideal position for today and for the future.
Orders are supply and merchandising and distribution teams are working with our factories and shippers to bring and product to fill orders and reduce our record backlog and the.
Shipping challenges that home related industries are experiencing have caused major delays from furniture, which we believe will be problems until.
And of 2022.
We are working to increase our inventories as the production and product flow improves.
We're investing and our distribution capacity to support growth over $1 billion over our regions.
We just completed additional racking to our mother ship, the eastern distribution Center and.
Browser, and Georgia, which adds 20% more storage capacity.
We will evaluate potential expansions to our network to better serve our planned growth.
Our current focus is on building market share and our key markets with store positioning and target marketing to our core customers.
Customer and new homeowners.
Examples of this with the opening of Myrtle Beach earlier this year the opening of a third store in Austin.
And the fast growing Pfluger Bill round rock markets, and our store openings tomorrow, and the villages and Central Florida.
We're in a deep.
And reviewing potential locations and our best markets, which will reach the fastest growing areas and leverage our existing infrastructure.
We expect to announce several new fill and locations for the 2022 openings.
We're very excited about the rollout of the we furnished happiness marketing campaign.
We believe more clearly separates <unk> from our competitors and continues to raise the bar on service quality furniture and design.
We continue to be focused on our front door haverty stock com, we've committed to significant investments and <unk> and state of the art systems to better.
And to reach and appeal to our customers.
We are a major ongoing investment and reworking a website for better presentation and ease of use.
We've contracted with Adobe to bring on a collection of applications and services that will lay the foundation for an unmatched customer experience.
The.
The New foundation will improve functionality help us create content easier and faster provide better personalization using using AI, driven automation and enhance our analytics and reporting.
Our goal is to have the best in class website experience.
We'll turn the call over to steeper to present.
Thank you Clarence.
And I'm very excited with our results for the second quarter. This performance was due to the commitment passion and determination of the store distribution home delivery service and home office teams, whom I want to congratulate personally.
And I will now for their efforts.
Our supply chain network has been able to increase the flow of products into our warehouses over the second quarter, even with all the headwinds.
And container capacity continues to be under pressure with a continued increase in demand across all of retail.
We expect this to continue to be an issue for.
And there are the year, even if there is a softening in demand.
Also container prices on the spot market continued to increase with prices varying between 12000 and.
And $22000 and container.
We have been able to balance our shifting mix, so that no more than 20% to 30% is on the water at.
The remaining non at these increase rates.
As I stated last quarter, we finalized our contracts on May 1 which are significantly below the spot market rates.
Volume continues to be an issue for some of our domestic vendors. However, their production has increased during the second quarter, but still not at 1.
1%.
Our important vendors are not having any film issues.
The recent closures and Vietnam due to the increased spread of the Delta variant are not expected to have an impact on our customers. If the closures remain at the projected 2 weeks.
And they are expected to open back up beginning the week of 8.2.
100, <unk>, if the closures or prolonged 4 to 6 weeks and there may be and impact to our customers, who already bought and future customer lead times.
Also we are seeing port congestion and Vietnam, and China, along with continued issues at the la port and rail yards.
Our merchandising and supply chain teams are monitoring the.
However, very closely with our vendors.
Our pool is now approximately 2 times larger than last year with average pool age stretching to approximately 8 weeks from 6 weeks over the last 90 days.
Special order lead times have increased to 12 weeks to 20 weeks, depending on the vendor.
Essentially, causing some softening and our special order business.
Our distribution home delivery service network delivered a record quarter over 90% of our markets are delivering within a week to the customer's home once we have the product and our warehouses.
Staffing continues to be our number 1 concern and both distributions.
And home delivery.
The extra unemployment monies that have stopped and most of the states. We operate our warehouses, but there is still not enough people looking for work to fill the jobs available.
However, we remain optimistic that we will see this improve during the third quarter.
Again, I want to and thank.
Thank the entire haverty.
Probation for all their efforts during the second quarter now I'll turn the call over to Richard.
Thank you, Steve and good morning, and the second quarter of 2021 delivered sales were $250 million and 127, 3% increase over the prior year quarter. If you recall, our retail operations were closed due.
The pandemic and the month of April and 2020.130 stores reopened on May 1.2020, and the remaining stores reopened by June 20th.
Total written sales for the second quarter of 2021 were up 67, 5% over the prior year period.
Comparable store sales were up 46.
And over the prior year period. This only includes stores and we're open for a full month and both periods.
Our gross profit margin increased 200, 240 basis points from 54, 2% to 56, 6% due to better merchandising pricing and.
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 cost.
Selling general and administrative expenses increased $39.8 million or 54, 7%.
$912.4 million.
Primarily due to increased sales activity. However.
However, as a percentage of sales these costs declined over 2000 and basis points to 45% from 66, 1%.
And as demonstrated in the past 3 quarters, our financial model has substantial operating leverage.
So at these sales levels.
Their income and the second quarter of 2020 was $31.8 billion, which included the gain on the sales lease back transaction of 3 distribution facilities and 2020, if you recall the gross proceeds from the sale was approximately $70 million.
Income before income taxes increased $10.5 million.
$29.2 million.
Our tax expense was $6.3 million during the second quarter of 2021, which resulted in an effective tax rate of 21, 6% for.
The primary difference and the effective rate and.
Leverage Detroit rate due to state income taxes, and the tax benefit from vested stock awards.
Net income for the second quarter of 2021 was $22.9 million or $1.21 per diluted share on our common stock compared to net income of $13.6 million.
Our 72 per share and the comparable period last year.
Excluding the gain and with sale of our distribution assets in 2020, our adjusted earnings per share and the second quarter of last year was at 52 net loss.
Now turning to our balance sheet at the end of the second quarter.
And set inventories were $115 million, which was up $25 million.
From the December 31, 2020 balance and up $10.2 million versus the second quarter of 2020.
At the end of the second quarter, our customer deposits were $116.1 million.
Which was up 20.
$99.9 million from the December 31, and balanced and up $58.5 million versus Q2 of 2020.
We ended the quarter with $235.3 million of cash cash equivalents, we have no funded debt on our balance sheet at the end of the second quarter of 2000.
'twenty 1.
Looking at some of our uses of cash flow capital expenditures were $10.9 million for the first half of 2021, and we paid $8.6 million of regular dividend during the first half of 2021.
During the second quarter, we did not purchase any common shares and our buyback program.
And we have $16.8 billion remaining under current authorization for this buyback program.
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.
We expect our gross margins for 2021 to be 56, 5% to 56, 8%. We anticipate gross profit margins will be impacted by our current estimates of product and freight costs and changes and our LIFO reserve.
Our fixed and discretionary type SG&A expenses.
Ram 2021 are expected to be and the $2.75 million to $278 million range.
This is an increase over our previous estimate primarily due to rising warehouse compensation and benefit costs.
The variable type costs within SG&A for 2021 are expected to be and a range of $17.3.
And for <unk> to 17, 5%.
A slight decrease over our previous guidance.
Our planned Capex for 2021 has increased from $23 million to $37 million.
And this anticipated new or replacement stores Remodels and expansions.
3 account for $18.7 million.
Investments and our distribution network are expected to be $15.2 million and.
<unk> and our information technology are expected to be approximately $3.1 billion.
The largest increase and our planned capex for 2021 is.
<unk> and distribution network.
And the third quarter of this year, we will be buying back our Virginia warehouse, which we sold and lease back last year.
This is a key distribution asset that may be expanded India and the upcoming years owning this asset gives us more flexibility.
As in order to evaluate our future growth plans.
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.
This completes our commentary on.
On the second quarter financial results. We appreciate your participation in today's call and now I'd like to ask the operator to open up the call for questions.
Thank you.
He would like to ask a question. Please signal by pressing star 1 on your telephone keypad, if you're using a speaker phone. Please make sure that your mute function is turned.
Turned off to allow your signal to reach our equipment again that star 1 if you would like to ask a question.
Pause for just a moment to allow everyone an opportunity to signal for questions.
Our first question comes from Anthony Ladies and ski with Sidoti.
Good morning, and thank you for taking the questions. So.
You talked about the demand still being positive here in the store a quarter, which is good to see.
Can you talk about other than.
The fact that people are buying more and stock merchandise, where our customers are you seeing any other changes as to what people are buying I know you touched on mattress sales.
And also being up and the quarter, but maybe just if you could just talk about like as far as if youre seeing any sort of differences as to what the where people are buying that would be helpful.
I think over the last months, we have seen our case goods business improve a little bit more and some of the other categories.
<unk> Street, while up is a little less.
Yes.
Because of the customization that we just were having delays on products. So in some cases, we've had to suspend a few categories few vendors on customization and special orders so.
The main thing.
We're seeing growth across all categories, I think case goods, because we were able to get the product and bring it in and have been a little stronger and bedroom and diamond room.
Got it okay, that's very helpful and.
So.
You guys have done a nice job over the last few years, improving your gross margins.
Thing, even with some headwinds so just overall how can we think about the potential for gross margins going forward and future years.
Anthony This is Steve I would say.
We're committed you saw the guidance that.
Richard has provided you and we don't certainly provide guidance on that going forward.
And that.
And we still feel confident with what rich and put out there and a 56, 5% to 50.56 8 for the remainder of the year.
Okay.
Got it and then.
Okay, and then as far as the.
It's just usage of cash so it's obviously that <unk>.
You guys have the balance sheet. So as you continue to build up cash I mean would you be perhaps purchase additional stores our distribution facilities or.
Dividends or buybacks I mean, how should we think about that.
Sure.
<unk> or preferences for usages FBR.
Your excess cash flow.
Well Anthony we we've got a board meeting next week, we meet and discuss this at every board meeting, yes, we are generating a good deal of cash and also <unk>.
Points out.
Okay.
Opportunity, we had to buy back our distribution center, which I think is a real plus we may.
And have to invest and that which could be significant.
We look at buybacks, we look at dividends.
And if we don't need the cash we do like to return it and stockholders as we've done historically, but.
We'll review that and.
Look at it every quarter.
Got it okay, Thanks, and best of luck.
Okay, great. Thank you Anthony.
We will take our next question from Bradley Thomas with Keybanc capital markets.
Hi, Good morning, Steve and Richard This is Andrew.
Brad I wanted to start.
And talking about your written sales trends.
And is encouraging to see the positive written sales growth quarter to date, even against a tough comparison last year in <unk> 'twenty and as we look to the rest and the Korea could you remind us what the comparison for written sales growth looks like for August and September.
And you compare it to July.
And in other words does does the comparison for written sales growth get more difficult or easier as we progress through the third quarter.
Yeah, Andrew This is Richard I'm thinking.
First of all I. Appreciate the question, we typically don't get into that level of detail.
And months, but just generally speaking the back half of the year for Q3 Q4 on written and deliver both obviously more challenging. So we were very pleased to report.
The positive sales trends and both of those categories.
To date for the third quarter, and we're certainly optimistic about the rest of the year.
Understood and in your commentary.
And that I think there was a moderation and pandemic patients among consumers and that's led to a shift and product mix away from custom merchandise could you just talk about how that shift is impacting margins and do you.
You expect this shift to grow and intensity over the next few months.
I don't think thats going to impact margin total too yes.
I don't see this is Steve I don't see any impact I did say, we have seen because of the delays and the extension of lead times.
With our vendors our domestic vendors, we have seen some delay.
Custom orders.
But I'm seeing that already bounce back and the early part of July from where it was and the second quarter.
And not back to the levels, where we were but it's moving back up so.
But I definitely don't see any impact to the margins.
Because of the reduction and the special order.
Okay, Great and work and we're optimistic that we are optimistic that would pick up as we as vendors get more online and get back things flow and as we move through the third quarter and the fourth quarter.
Great and could you talk a little bit more about the <unk> and the changes and product and freight costs that you are seeing.
And do you expect to eventually offset these these changes.
Your own price adjustments.
We have already we are addressing that as it happens we do.
As soon as we are aware of that.
Merchandising and supply chain teams are immediately addressing that.
And passing those along so those have been those are passed on as we are finding and them out from our vendors.
Got it.
And and given the resurgence of COVID-19, particularly and <unk>.
Some of the southern States have you seen any changes and consumer behavior as a result.
At this resurgence.
We haven't seen anything.
<unk>.
Traffic is pretty balanced across the regions.
No we haven't seen anything.
It could come to be more significant but we haven't seen anything to date.
Got it.
Okay, I think Thats all for me. Thank you.
Thank you thank you Andrew.
This concludes today's question and answer session I will now turn it back to Richard here for closing remarks.
Well, we appreciate your participation in today's call and we look forward to talking to you and the future when we released.
<unk> quarter results. Thanks again.
Ladies and gentlemen. This concludes today's call. Thank you for your participation you may now disconnect your phone lines.
[music].
Yeah.
Yeah.
Yeah.
Hum.
Uh huh.
Okay.
Yeah.
Cool.
Yeah.
[music].
And then.
[music].
And.
[music].
And then.
[music].
[music].
[music].
[music].