Q4 2021 Haverty Furniture Companies Inc Earnings Call
Please standby.
Good day and welcome to the H V T fourth quarter and year end 2021 results Conference call. Today's conference is being recorded at this time I'd 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 of 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 in the Companys reports filed with the SEC.
Our chairman and CEO Clarence Smith will now give you an update on our results and then our president Steve Burdette will provide additional commentary about our business.
Good morning.
Thank you for joining our 2021 fourth quarter and full year conference call.
We're very pleased to report a record fourth quarter and full year performance.
For the first time in our history, we reached $1 billion in net sales and had a record earnings per share of $4 90 versus our previous record earnings last year of $3 12.
We are well positioned in the fastest growing markets in the country.
Housing in our regions continues to be a tailwind for growth.
With our best in class balance sheet, we're continuing to invest in all parts of our company as well as the important and evolving E Commerce business.
We're particularly proud of all of our teams who operated in challenging circumstances related to COVID-19 concerns unrelenting supply chain disturbances and ongoing price increases in our product and in shipping cost.
We believe that we outperformed many of our competitors by working closer with our suppliers to bring in products and providing better service levels.
We believe that because we manage the entire distribution process from shipping containers to the final mile home delivery, we offer a faster and more reliable service level.
Our store positioning in the <unk> state footprint is focused on adding stores in the hottest real estate markets in the United States.
We have the most stores in Florida, Texas, Georgia, North Carolina and Virginia.
This year, we plan to open stores in Northern Virginia Gateway.
<unk> Bill and a relocation in Indianapolis.
And our branch store in an existing market.
We're positioned in nine out of the top 10 hottest housing markets recently noted by Zillow.
We plan to open four and net two stores this year.
We will have 10 led lighting conversions, completing our multi year effort to upgrade all of our stores.
We have six major remodeling projects planned for the year.
Our real estate portfolio is in the best position in our long history.
We are planning five stores a year for the next three years beginning in 2023.
We're strengthening our distribution capabilities to better serve all the markets, we can reach with quicker deliveries and better service and.
In 2021, we added capacity to allow for 20% more storage in our main distribution center in Brazelton, Georgia.
We're investing in regional facilities to allow for further growth in the mid Atlantic and mid American regions.
We plan to relocate to a larger home delivery facility in Cincinnati, Ohio later this year.
We have plans underway to double the size of our Virginia home delivery center and convert that to a whole DC in 2023.
The expansion will increase that storage capacity by 150%.
The Virginia, DC will allow us to support more Atlantic coast store growth with quicker deliveries and to be able to import directly through the Norfolk, Virginia port, reducing our inbound and transfer costs.
We accept expect that our capital expenditures for 2022 will be approximately $37 million, depending on the timing of several properties.
The key investments are in stores distribution and <unk> enhancements.
These investments allow us to serve 100% of our footprint and set us up for continued sales growth into the future.
We are using the Adobe suite of applications and services as the foundation to re platform our website.
However, these dot com as our front door and almost all of our customers utilize the site and the sales process.
While our pure Internet sales transactions are in the mid single digits percentage of sales. After the relaunch we believe that we can move to the 10% range.
Our top merchandising priority is to bring in product to reduce our backlog and to build back inventory to serve our customers more quickly.
We're also working with our suppliers to provide curated product selections that are held in third party warehouses.
This will allow us to expand our selections more quickly serve our customers and move into new home furnishings categories.
We began this program in 2021, and we're pleased with the customer's response we.
We saw new and expanded success and outdoor furnishings occasional home office and upholstery.
We have a goal of tripling our third party curated collections this year.
Our merchandising teams are excited to finally be developing and bringing in new designs, which we put on the back burners due to the supply chain and factory delays over the past year.
We expect to see these products coming and beginning in the second quarter.
2021 was a record in almost every measure.
I am so proud of all of our teams terrific efforts to serve our customers and to create this performance.
We have set a foundation and operations level, which we will build on to reach New records in the years ahead.
I'll now turn the call over to Steve <unk>, our president Thank you Clarence.
I want to offer my congratulations as well to the entire haverty team for the outstanding fourth quarter results as well as the record 2021 yearly results achieving $1 billion took a great deal of commitment hard work.
<unk> and patients from each of our team members as they had so many headwinds to overcome during the year.
Again, my sincere thanks to each of them.
As expected our supply and supply chain network was impacted during the latter part of Q4 2021 and the early part of Q1 2022 due to the Vietnam shutdowns in August and September last year, along with a slow ramp up times as they reopen beginning in October 2021.
Also most of our domestic suppliers closed for two weeks and the Christmas and new year's timeframe to give their associates needed time off and to do maintenance on their equipment.
These two issues caused a reduction in our saving of approximately 10% in December and January .
However, we are seeing our imports and domestic shipments increasing and expect that our receiving levels will return to normalized levels in the February March timeframe as our vendors are getting back to normal operations.
Our undelivered pool continues to remain healthy, but our average age has increased to just over 10 weeks in the last 90 days. We are seeing this start to stabilize and expect a reduction in the average age of the undelivered pool by the end of Q1.
We have seen an improvement in our vendors lead times with special orders.
With these improvements we are expecting a return in our special order business to our targeted 25% of upholstered sales by mid year.
Container rates and container capacity continue to remain a concern.
While it appears that there has been some settling in the rates they remain elevated.
However, we are still able to move the majority of our products under our contracted rates.
Port congestion continues to be an issue at some of the China ports and on the West Coast.
However over 80% of our imported products come through the east coast with the Savannah Port handling most of those shipments.
It is worth noting that we are experiencing no congestion at the Savannah afford at this time.
The omicron Varian has put pressure on our staffing needs both at our vendors and our facilities we.
We saw an increase in our absenteeism in December and January .
But due to the reduction in the number of days. The person is required to be out it has allowed us to be able to adapt.
On a positive note over the last couple of weeks, we have seen an improvement in absenteeism.
Also we have seen our hiring improve over the last 45 days across all areas of the business.
But retention continues to be a focus of our management teams.
Finally, I wanted to update you on the progress and improvements we are making with the re platforming of our web site at.
As Clarence mentioned, we are working with Adobe and our implementation partners to get this completed sometime in Q3.
This will be an optimized digital front door that provides inspirational content dynamic product features and streamline transactional experiences for our browsers and shoppers.
The new site will have improved search functionality.
Enable quicker speed to market to meet the trends and demands of our customers.
Enhanced product and category pages.
Better targeting of content and personalization.
A b testing.
And overall better site reporting.
Again, I would like to thank the entire haverty team and our suppliers for all their support and efforts in making Q4 and 2021 a record for <unk> now.
Now I will turn the call over to Richard.
Thanks, Steve and good morning in the fourth quarter of 2021 net sales were $265 9 million, a 10, 2% increase over the prior year quarter comparable store sales were up nine 2% over the prior year period.
Our gross profit margin decreased 60 basis points from 57% to $56 four.
Due to an increase in our LIFO reserve as we continue to see increased freight and product cost.
Selling general and administrative expenses increased $10 9 million or 10, 2% to $118 million.
Primarily due to increased sales as a percentage of sales these costs were basically flat.
We did experience increased port congestion and we incurred significant emerge costs of approximately $1 $8 million, which negatively impacted our selling general and administrative costs.
Other income in the fourth quarter of 2021 was negligible and in the fourth quarter of 2020, we recognized a $600000 gain on surplus property.
Income before income taxes increased $800000 to $32 1 million.
Our tax expense was $7 $8 million during the fourth quarter of 2021, which resulted in an effective tax rate of 24, 3%.
Prior year's fourth quarter tax rate of 18, 7% was impacted by the recognition of certain state job creation tax credits the primary.
Difference in the effective rate and the statutory rate is due to the state income taxes and tax benefits from vested stock awards.
Net income for the fourth quarter of 2021 was $24 $3 million or $1 35 per diluted share on our common stock compared to net income of $25 4 million or $1 37 per share in the comparable quarter last year.
Now turning to our balance sheet at the end of the fourth quarter, our inventories were $112 million, which were up $22 1 million from December 31, 2020, and down $6 9 million versus the Q3 2021 balance.
At the end of the fourth quarter, our customer deposits were $98 9 million, which was up $12 7 million from December 31, 2020 balance and down $21 $3 million versus the Q3 2021 balance.
We ended the quarter with $166 1 million of cash and cash equivalents and.
And we have no funded debt on our balance sheet at the end of Q4 2021.
Looking at some of our uses of cash flow capital expenditures were $34 1 million for 2021, and we paid $17 4 million of regular dividends and $35 million of special dividends during 2021.
During the fourth quarter, we purchased $22 3 million of common shares approximating 694000 shares for the calendar year, we purchased $41 8 million of common shares, which approximated $1 2 million shares which is approximately 8% of our current market capitalization.
At the end of the fourth quarter of 2021, we have $25 million remaining under the current authorization in our buyback program.
And at our current equity valuation, we intend on exhausting this authorization prior to the third quarter of this year.
Our earnings release list out several additional forward looking statements, indicating our future expectations of certain financial metrics Im going to highlight a few but please refer to our press release for additional commentary.
We continue to expect our gross profit margins for 2020 to be between $56.
757%, we anticipate gross profit margins will be impacted by our current estimates of product and freight costs and changes in our LIFO Reserve. We also expect gross margins to ramp up to these levels over the course of the year from the Q4 2021 gross margin of 56, 4%.
Our fixed and discretionary type SG&A expenses for 2022 are expected to be in the $295 million to $298 million range, which is a 5% increase over the prior year levels.
The variable type costs within SG&A for 2021 are expected to be in the range of $17 2 million to 17, 4%.
Our planned Capex for 2022 was $37 million.
Anticipated, new or replacement stores remodeled and expansions account for $19 3 million.
Investments in our distribution network are expected to be $13 5 million and investments in our information technology are expected to be approximately $4 2 million.
Our anticipated effective tax rate in 2022 is expected to be 25%. This projection excludes the impact from vesting of stock awards and any potential new tax legislations.
This completes my financial commentary on the fourth quarter results operator, we would like to open the call for questions now.
Thank you if you would like to signal with questions. Please press star.
One on your Touchtone telephone if you are joining us today use a speaker phone. Please make sure. Your mute function is turned off July your signal to reach our equipment.
Again that is star one if you would like to signal what questions Starwood.
And our first question will come from Anthony Lubensky with Sidoti and company.
Thank you and good morning, gentlemen.
Thanks for taking the questions so far.
Yes.
Versus pre pandemic levels. So what is your view of the sustainability of demand and also are you seeing any notable order cancellations.
Well I'll start with that we haven't seen any notable cancellations our backlog is very healthy its up over last year.
<unk> you know <unk>.
Pre COVID-19 , we announced that we wouldn't be releasing sales.
<unk> mid quarter.
But with COVID-19, we have to issue a lot of different information that we gave both written and delivered often last several quarters.
In addition, this particular quarter.
We are significantly affected by the calendar. The most important event is upcoming presence weekend.
Its next weekend and last year. It was last weekend. So the calendar is not comparable so we also don't like given weather reports not going to do that but.
We're only going to be releasing our current business conditions, when we release earnings and that'll be obviously a couple of months. So we'll talk all you want about what happened.
Well I was just more curious about your longer term view and not necessarily what you're seeing quarter to date, but yes.
I think you've heard us mark yet.
Yes.
You heard that in our presentation, we feel very good about our position.
Feel very good about the year.
A lot of unknowns.
We feel like we're in very strong position and we've got a really strong backlog, which we expect to be be able to help carry us for the next couple of quarters.
Okay.
Yes.
Did you guys quantify the backlog or is that something that will come out in the 10-K.
We did not quantify but it's up over last year.
Okay Fair enough, Okay, Alright, and then.
Class you've talked about.
Accelerating the store growth.
Look at say opened five new stores per year, I assume that's mostly going to be within your current geographic footprint.
Fair assumption.
It's within our distribution footprint it could go into other states.
But it is within where we can serve out of the distribution that we currently have in place and you heard that we're expanding the capabilities for a couple of our facilities, which will help us grow also.
Got you, Okay and then.
For this year as far as the store openings and closings whats the.
Ballpark estimate as to when you expect that to open and close those deals. So I think it gets talked about for openings in two closings.
They're going to be later in the year, Richard you won't yet.
One opening will be earlier this year the rest will be the latter part of the year and the closures will be third or fourth quarter of this year.
Gotcha Okay.
Alright, well Thats all I have thanks, and best of luck going forward.
Thank you Anthony.
Thank you and once again, if you would like to signal what questions. Please press star one on your Touchtone telephone.
It is star one if you would like to signal and our next question will come from Andrew <unk>.
With Keybanc capital markets.
Hi, Good morning, Clarence Stephen Richard Thank you for taking our questions and I'd like to add my congratulations on your $1 billion sales milestone you all changed last year.
So my first question is more on the written cadence during the quarter I was wondering if you could provide any more color on how demand trended throughout the quarter I know that from an industry perspective, we've obviously heard broader concerns about omicron weather and lapping stimulus payments, which had been a <unk>.
Especially impactful in January but I'm curious to hear how you're seeing demand evolve in the past couple of months in your business.
Let me hit the written part for Q4, and then Clarence Steve talk about the business in general, but the written trends were a little soft in October November and it was a positive written trend in December .
Yes.
December was a little bit of a challenge compared with previous year, because we had such a record.
But and also part of our issue is that in couple of categories, particularly case goods were so low in our inventory that thats been a drag we expect that to clear up starting now we've got a lot of product on the water a lot coming in but.
It was more of a challenge late in the year because of inventory on some of our bestsellers.
Yeah.
Got it understood.
And then I know that promotions ran relatively lean during the height of the pandemic last year and in 2020, but could you talk about how promotions.
Our tracking more recently in your own business as well as what you've observed in the competitive environment and how you expect that environment to change in 2022.
Yes, Andrew this is Steve.
I would tell you that we have not really changed our cadence.
We have looked at.
Credit and seeing what needs to be done there to be competitive we still see that being aggressively used.
And so we may be a little more aggressive with that if needed, but overall promotion schedule in calendar will not change.
What we do our marketing efforts will continue to focus on more digital efforts to attract the consumer.
And bring them in but obviously still use in broadcast and those mediums as well.
Got it Thats helpful.
And your gross margin guidance for the year was encouraging as it reflects.
Similar to improve margins versus the strength you saw last year could you provide more detail on your expectations for freight and product cost for the year and how they play into all of that gross margin outlook you're forecasting.
Well this is Steve again, Andrew we basically as we said in the deal we have seen some leveling out on the container rates certainly the premium rates have gone downtown but they still exist they are still high.
We're still bringing product.
Needed basis that we need to get it for our consumers and we are still paying some premium rates, but we have all of this factored into our pricing.
Thats been in there and we do not see any impact in that.
Leading in through 2022, and that's why we put the margin guidance out there of 56 $7 57.
Great well that's all for me. Thank you.
Thank you Andrew Thank you Andrew.
Thank you and that does conclude the question and answer session. Mr. Here I will now turn the call back over to you for any additional or closing remarks.
Great. Thank you for your participation in today's call. We certainly look forward to talking to you in the future when we release, our first quarter results.
Thank you and that does conclude today's conference. We do thank you for your participation.
Okay.
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