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 day, 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 in the company's reports filed with the Securities Exchange Commission.
Our chairman and <unk>.
Clarence Smith will now give you an update on our results.
And then our president Steve or debt will provide additional commentary about our business.
Thank you for joining on our 2021, the second comp second quarter Conference call.
We're very pleased with the record results for the second quarter with sales of 200.
CEO of <unk>.
We've done a good job on our expense controls across the board and combined with pricing discipline from the merchandising teams of stores.
We achieved solid gross margins of 11, 7% pre tax operating profits.
Our ongoing objectives are to grow market share on our existing distribution.
50 foot print and maintain double digit operating margins.
We believe that the increase the importance of home that was jump started with the impact of Covid last spring is the longer term trend.
While we don't expect the Russia impacted on our industry to be at the elevated levels, we experienced in recent quarters.
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We do believe that home is a priority and the sustainable trim for the near future.
The strong desire for homeownership combined with haverty strong positioning in Florida, Texas of the southeast puts us in an ideal position for today and for the future.
<unk> supply of merchandising and distribution teams of working with our factories and shippers to bring in product to fill orders and reduce our record backlog.
The shipping challenges that home related industries are experiencing have caused major delays from furniture, which we believe will be problems until.
Of 2022.
We are working to increase our inventories as the production and product flow improves.
We're investing on our distribution capacity to support growth over $1 billion over our regions we.
We just completed additional racking to our mother ship, the eastern distribution center and browser.
Of the spreads on 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 in our key markets with store positioning and target marketing to our core customer.
Browser and new homeowners.
Examples of this with the opening of Myrtle Beach earlier this year the opening of a third store in Austin.
On the fast growing Pfluger Bill round rock markets and the store opening tomorrow in the villages in Central Florida.
We're in a deep dive.
<unk> reviewing potential locations on our best markets, which will reach the fastest growing areas and leverage our existing infrastructure.
We expect to announce several new fill in locations for the 2022 openings.
We're very excited about the rollout of the we furnished happiness marketing campaign.
Customer I 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 <unk> dot com, we've committed to significant investments in <unk> in the state of the art systems to better.
The reach and appeal of our customers.
We have a major ongoing investment and reworking on our 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 the 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 the steeper the present.
Thank you Clarence on.
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.
<unk> 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 of the headwinds.
Container capacity continues to be under pressure with the continued increase in demand across all of retail.
We expect this to continue to be an issue for.
I will now open during the year, even if there is a softening in demand.
Also container prices on the spot market continued to increase with price is varying between 12000 and.
$22000 of container.
We have been able to balance our shipping mix, so that no more than 20% to 30% is on the water at.
Of the remain at these increased rates.
As I stated last quarter, we finalized our contracts on May 1 which are significantly below the spot market rates.
Foam 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.
100%.
Our important vendors of not having any film issues.
The recent closures on 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.
They are expected to open back up beginning the week of 8.2.
However.
However, if the closures of prolonged 4 to 6 weeks then there may be an impact of our customers, who already bought and future customer lead times.
Also we are seeing port congestion in Vietnam, and China, along with continued issues at the la port and rail yards.
Our merchandising and supply chain teams are monitoring the sit.
Cash and very closely with our vendors.
Our pool is now approximately 2 times larger than last year with the average pool, a stretching to approximately 8 weeks from 6 weeks over the last 90 days.
The special order lead times of increased to 12 weeks to 20 weeks, depending on the vendor.
Causing some softening in 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 in our warehouses.
<unk> continues to be our number 1 concern in both distributions.
Situated on 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.
Thank the entire haverty.
<unk> for all of their efforts during the second quarter now I will turn the call over to Richard.
Thank you, Steve and good morning in the second quarter of 2021 delivered sales were $250 million of 127, 3% increase over the prior year quarter. If you recall, our retail operations were closed due to.
Of the pandemic in the month of April in 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 $46.9.
9% over the prior year period. This only includes stores that were opened for a full month in both periods.
Our gross profit margin increased 200, 240 basis points from 54, 2% to 56, 6%.
Due to better merchandising pricing and mix.
Mix and less promotional activity during the quarter. These.
These improvements were partially offset by an increase in our LIFO reserve as we continued to see increased freight and product cost.
Selling general and administrative expenses increased $39.8 million or 54, 7% to 100.
Hundred $12.4 million.
Primarily due to increased sales activity.
However, as a percentage of sales these costs declined over 2000 basis points to 45% from 66, 1%.
As demonstrated in the past 3 quarters, our financial model has substantial operating leverage.
If the sales levels.
Other income in the second quarter of 2020 was $31.8 million, which included the gain on the sales leaseback transaction of 3 distribution facilities. In 2020, if you recall the gross proceeds from the sale was approximately $70 million.
Income before income taxes increased $10.5 million, the $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%.
The primary difference on the effective rate.
And statutory rate is due to the 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 in the comparable period last year.
Excluding the gain on the sale of our distribution assets in 2020, our adjusted earnings per share in the second quarter of last year was at 52 loss.
Now turning to our balance sheet at the end of the second quarter.
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.
$9.9 million from the December 31 balance 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 of capital expenditures were $10.9 million for the first half of 2021, and we paid $8.6 million of regular dividends during the first half of 2021.
During the second quarter, we did not purchase any common shares in our buyback program.
And we have $16.8 billion remaining.
Under our 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% of 56, 8%. We anticipate gross profit margins will be impacted by our current estimates of product and freight costs and changes in our LIFO reserve.
Our fixed and discretionary type of SG&A expenses.
As for 2021 are expected to be in 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 in the range of 17.
The 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 expansion.
3%.
Account for $18.7 million <unk>.
Investments in our distribution network are expected to be $15.2 million.
On investments in our information technology or expect the approximately $3.1 million.
The largest increase in our planned capex for <unk>.
'twenty 1 is in our distribution network.
In the third quarter of this year, we will be buying back our Virginia warehouse, which we sold and leased back last year.
This is of key distribution assets that may be expanded India and the upcoming years owning this asset gives us more flex.
<unk> ability as we 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.
<unk> of Metairie 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. Thank you I 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. Thank.
On your mute function is turned off to allow your signal to reach our equipment again Thats star..1 of you would like to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Our first question comes from Anthony <unk> with Sidoti.
Good morning, and thank you for taking the question.
So.
You talked about the <unk>.
The still being positive here in the third quarter, which is good to see can you talk about other.
Other than the fact that people are buying more in stock merchandise from our customers are you seeing any other changes as to what people are buying I know you touched.
On the mattress sales also being up in 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 what 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 from.
Some of the other categories.
The upholstery, while up is a little less.
Less because of the customization that we just were.
Having delays on products. So in some cases, we've had to suspend a few categories.
<unk> vendors on customization and special order so.
The main thing as well.
We're seeing growth across all categories, I think case goods, because we were able to get the product and bring it in have been a little stronger in bedroom and dining room.
Got it okay. That's very helpful on.
No.
You guys have done a nice job over the last 2 years improving your gross.
Margins.
Even with some headwinds so just the overall how shall we think about the potential for gross margins going forward in future years.
Anthony This is Steve I would say we're.
We're committed you saw the guidance that.
Richard has provided you and we don't certainly provide guidance.
On that going forward.
We still feel confident with what rich you put out there of the 56, 5% to 50.56 8 for the.
Remainder of the year.
Okay.
Got it and then.
Okay, and then as far as the.
Just usage of cash so it's.
Obviously the <unk>.
You guys have the balance sheet. So as you can continue to build up cash.
Would you be to perhaps purchase of additional stores or distribution of facilities or <unk>.
Dividends or buybacks.
Shall we think about the.
The priority so of preferences for for.
Usages of 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 it also.
Points out the.
The.
Opportunity, we had to buy back our distribution center, which I think is.
The real plus we may have to invest on 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 at the stockholders as we've done historically, but.
We'll review that in.
Look at it every quarter.
Got it okay, Thanks, and best of luck.
Okay. Thank you Anthony.
We will take our next question from Bradley Thomas with Keybanc capital markets.
Hi, Good morning, Stephen Richard This is Andrew.
Brad I wanted to start.
On talking about your written sales trends.
It was encouraging to see the positive written sales growth quarter to date, even against the tough comparison last year in <unk> 'twenty net as we look to the rest of the quarter could you remind us what the comparison the written sales growth looks like for August and September.
Timber when you can pack in July.
In other words.
JJ comparison for written sales growth get more difficult or easier as we progress through the third quarter.
Yes, Andrew this is Richard.
Thank you.
First of all of I. Appreciate the question, we typically don't get into that level of detail.
On months, but just generally speaking on the back half of the year for Q3 Q4 on written and deliver of both obviously more challenging. So we were very pleased the report.
The positive sales trends in both of those categories.
Month to date for the third quarter, and we're certainly optimistic about the rest of the year.
Understood.
Your commentary.
There was a moderation in pandemic patients among consumers and Thats led to the shift in product mix away from cost of merchandise could you just talk about how the shift is impacting margins and do you.
We expect this shift to grow in intensity over the next few months.
I don't think thats going to impact margins I don't see the yes.
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 the lead times.
With our vendors our domestic vendors, we have seen some delay.
And the custom orders.
I'm seeing that already bounced back in the early.
Part of July from where it was in the second quarter.
Not back to the levels, where we were but it's moving back up so, but I definitely don't see any impact of the margins.
The cost of the reduction in the special order.
Okay, Great and we're on we're optimistic that we are optimistic that would pick up as we as vendors get more online and get back things flow in as we move through the third quarter and the fourth quarter.
Great and could you talk a little bit more about the batting cage and the changes in product and freight costs that youre seeing.
And do you expect to eventually offset the east changing mix of your own price adjustments.
We have already we are addressing that as it happens.
As soon as we are aware of that.
The 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 them out from our vendors.
Got it.
And on given the resurgence of COVID-19, particularly in <unk>.
Some of the southern States have you seen any changes in consumer behavior as a result.
At this resurgence.
We haven't seen anything.
<unk>.
On 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 from 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 in the future when we release our.
<unk> of where results. Thanks again.
Ladies and gentlemen. This concludes today's call. Thank you for your participation you may now disconnect your phone lines.
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