Q1 2023 Haverty Furniture Companies Inc Earnings Call
I believe that we are in the best position in our industry.
As well as in our history to deliver on that vision.
As we deliver on that promise, we will gain share and build a return for our shareholders.
I'll turn the call now over to Steve Burdick President.
Clarence and good morning, while we were hoping for stronger results in the first quarter. We are appreciative of the hard work that our team members are putting in everyday to ensure that we are furnishing happiness to each and every customer.
Our supply chain network continues to operate with normalized lead times.
Our inventories were down four 7% from Q1 last year.
However, our backlog continues to decrease with our average age of the <unk> backlog dropping below six weeks.
We continue to feel that our backlog will be back to pre pandemic levels by early summer.
We are encouraged to continue to see freight rates continuing to drop as we just finalized our contracted rates for the upcoming year beginning may one.
Our special order business was a bright spot for the quarter as we increased our business by over 40% year over year to be almost 30% of our total upholstery sales.
Our experiment with offering more special order collar options from our upholstery important leather vendors has been a hit as we look to expand to other vendors.
Our design business continues to show improvement as it grew to 26% of our business for the quarter.
We expect our design business continued to grow as we create more awareness and focus on each customers experience.
A key metric for design as our average ticket, which increased for the quarter approximately 11%.
We will be testing in the third quarter, a new in store point of purchase program to help elevate the customer's experience within our stores and provide our sales and design consultants with more tools to serve our customers' needs.
We continue working on expected refinements to the website.
We have engaged a new business partner to identify incremental optimizations and opportunities.
Including a road map for meaningful personalization, a robust AB testing plan.
Continued technical and user experience optimizations, all driven by improved site behavior analytics.
We will start to see some of these implementations in place before the memorial day promotion.
Our merchandising team has brought in lots of new products in Q1 with more arriving to help elevate the excitement of our sales teams and customers heading into the memorial day, which is our largest promotional period for the first half of the year.
We will continue to use credit as a trigger to entice the consumers. During this important holiday, but will be more prudent in the use of credit in the non holiday sale periods due to the increased cost from rising interest rates.
Finally, we continue to focus on our execution training and retention across the organization.
However, due to the drop in our backlogs and the current written trends, we will match, our staffing levels to the current business trends.
The expectation is that through normal attrition this will be a reduction of over 200 positions or approximately 7% of the workforce by the end of the second quarter.
Now I will turn the call over to Richard Thanks, Steve.
In the first quarter of 2023 net sales were $224 8 million five 9% decrease over the prior year quarter comparable store sales were down six 7% over the prior year period.
Our gross profit margin increased 10 basis points to 59, 1% from 59% due to better pricing discipline and merchandising mix reduced freight costs and a positive LIFO inventory adjustment.
Selling general and administrative expenses increased $3 2 million or two 8% to $118 4 million.
As a percentage of sales these costs approximated 52, 7% up from 48, 2% in the prior year quarter.
We experienced decreased selling administrative and occupancy costs, which were partially offset by reduced distribution and transportation expenses during the quarter.
Other income and expense in the first quarter was negligible and interest income increased to $1 million during the first quarter as interest earned on our cash deposits increased this past year as interest rates have increased.
Income before income taxes decreased $10 3 million to $15 4 million.
Our tax expense was $3 1 million during the first quarter of 2023, which resulted in an effective tax rate of 19, 8%. The primary difference in the effective tax rate and the statutory rate is due to the state income taxes.
<unk>.
The tax benefit from vested stock awards.
Net income for the fourth quarter of 2023 was $12 4 million or <unk> 74 per diluted share on our common stock compared to net income of $19 4 million or $1 11 per share in the comparable quarter last year.
Now looking at our balance sheet at the end of the first quarter, our inventories were $114 3 million, which was down $4 1 million from year end at the end of the first quarter our customers.
Our customer deposits were $46 4 million.
Which was down $1 6 million from year end and down $52 1 million versus the Q1 2022 balance Wayne.
We ended the quarter with $122 million of cash and cash equivalents and we have no funded debt on our balance sheet at the end of Q1 2023.
During the first quarter of 2023, we amended and extended our retail program agreement with Synchrony Bank, who provides our customers with credit alternatives to purchase our products.
We extended our agreement for an additional seven year term and repeal and replace the LIBOR rate with a certain U S Treasury securities rate as the interest rate benchmark.
Looking at some of our uses of cash flow capital expenditures were $6 7 million in the first quarter and we also paid $4 $5 million of.
Of regular dividends during the quarter.
During the first quarter, we didn't purchase any common shares under our existing stock buyback program and we have approximately $20 million of existing authorization and.
And our 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 2023 to be between 58, five and 59%.
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 SG&A expenses for 2023 are expected to be in the $289 million to $292 million range.
And the variable type costs within SG&A for 2023 are expected to be in the range of 19, 5% to 19, 7% with.
With the increases over 2022, primarily being inflation driven.
Our planned Capex for 2023 has increased to $53 $1 million.
As previously disclosed we are in the process of purchasing our Florida distribution center for approximately $28 2 million.
We anticipate closing on this transaction in the second quarter of this year.
<unk> anticipated, new or replacement stores, Remodels and expansions account for an additional $16 7 million investments in our distribution network are expected to be $5 8 million and investments in our information technology are expected to be approximately $2 5 billion.
Our.
<unk> effective tax rate for 2023 remains at 25%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation.
This completes my commentary on our first quarter financial results operator, we would like to open the call up for questions at this time.
Thank you we will now be conducting a question and answer session.
To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Press Star two if you'd like to have your question from the queue.
Vince using speaker equipment may be necessary to pick up your handset before pressing Mr. Keith one moment. Please poll for your questions.
Our first question comes from the line of Anthony <unk> with Sidoti <unk> Company. Please proceed with your question.
Hi, good morning, and thank you for taking the questions.
So first.
Just going back to Q1.
Just give us a little bit more details please as far as the written sales trends just curious to see if you guys saw any notable variation month to month, obviously, I know Presidents' day that key holiday.
Within the quarter, but.
Just wanted to get us access to whether the business was kind of a steady or was there a much difference month to month and as far as product categories. If you can also comment on that as well.
How that trended that'd be very helpful.
Sure Anthony it's Richard on the written sales trends were pretty consistent during the quarter of January February and March were all.
Low single digits.
January was February was almost mid single digit excuse me.
Slightly above double digit.
And then low double digit in March so fairly consistent on the written side.
The delivery side was a little different our deliveries were up in January very low single digits and then we were down mid single digits in February and very low double digits in March so that pattern with somewhat different.
Just in terms of our.
Category revenue by category.
We did see an increase in case goods in the first quarter. It went from 31% up to 35% in terms of deliveries and sales.
Poultry flip from $46 five down to 42, 6% mattresses were pretty flat at 882 to eight 3%.
And that kind of rounded out the revenue mix.
Alright, Thank you Richard for that and then.
Yes Memorial holiday is obviously, an important holiday for fracture shopping.
So how would you describe your strategy as far as demand levers.
For this holiday versus last year, I know you said that youll use credit, although obviously its got more expensive. So maybe if you could just talk about what your strategy is here for for their key Memorial day holiday.
Yes, Anthony this is Steve.
We're going to have the same pretty much promotional calendar going for the memorial day as we did last year.
From a sale period as far as pricing et cetera, and then from a credit side of things, we will be using the 60 months.
During that time period.
I made a comment to us we will not be using in the non promotional periods, we would just folks sit around the.
The Memorial day event, and the two week holiday event kind of leading up to it.
Uh-huh gotcha, Okay, and a couple of other questions if I could so.
You talked about outdoor furniture.
Category.
Is this going to be in stores and online or just just online and as far as like the number of Skus that you plan to offer can you give us a sense of that as I just wanted to see what the potential opportunity could be.
Anthony it'll be both we are adding.
Product to about half of our stores.
That'll be in stock and exclusive to us and we also will be offering some.
<unk> opportunities.
That will be available most of that is going to be.
Later this quarter and next month.
It's really set up for later in the year.
We think it will be an important add to our stores, particularly the ones that are in Florida and Texas.
It's not going to be a big category, we're going to be careful with it but it's going to be addition.
Understood, Yes, Thanks, Clarence and then lastly, as far as.
Share repurchases.
Richard I know you said you have $20 million left on the buyback.
Although over time, you guys have done a terrific job of returning cash to shareholders through share repurchases as well as dividends, but specifically as far as share buybacks.
Haven't seen anything last couple of quarters, how should we think about.
Share repurchases here on a go forward basis.
We review that every quarter with our board and we have a meeting coming up in May.
That's that's to be determined.
Okay.
Sounds good all right well, thanks and best of luck.
Okay. Thank you.
Thank you. Our next question comes from the line of Cristina Fernandez with Telsey Advisory Group. Please proceed with your question.
Hi, good morning.
A couple of questions. The first one is on the.
On the SG&A expense.
The increase.
<unk> side about 300 basis points in the fed.
This quarter relative to last year.
The overall margin came in.
Your line is six 4% so in the past you've talked about maintaining a double digit operating margin.
Wanted to see.
Your outlook was there anything specific to the first quarter I know that the volume tends to be a little bit light, but that will allow you to get closer to that double digit operating margin as we move through the rest of the year.
Hey, good morning, Kristina This is Richard so yes, our variable.
G&A component was up I believe 20% this past quarter.
The volume was pretty low, which really exacerbated that percentage.
With the attrition in the head count reduction that Steve mentioned, I believe of approximately 7% of the workforce of 20%.
<unk>.
That should that should help us on an ongoing basis and so that's kind of what we're guiding back down to the 19, 5% to 19, 7% of G&A.
And then on the guidance that came down on the G&A for the non variable is mostly related to advertising and warehousing costs. So we expect to.
Our levels of written business to the current trends will adjust slightly our.
Advertising strategy and then we don't expect to see de merge type expenses that we saw in the prior years, we think that will certainly help us out in the future on the non variable fees.
Thank you.
Clarify Dan on the on the gross margin the 50 basis points of improvement.
<unk> for the year were where exactly is that coming from.
It's in a number of places.
Reduction in freight cost is driving that primarily.
And we're seeing those rates of return back to pre pandemic levels, if not better.
And secondarily, just the overall LIFO impact.
Last year in the first quarter, we had I believe about $1 million expense we booked.
In the first quarter of this year was approximately $1 million pickup. So we should see some improvement in LIFO. The last two years, we've had significant expense and we would expect to see some recovery of that.
Ongoing this year.
And then my last question any thoughts around.
The impact of bed Bath <unk> beyond on your business.
They're not a direct competitor, but we've seen other furnace company would be a little bit more promotional so did you expect any impact near term and perhaps longer term talk about.
Let me also state strategy and any opportunities that could arise.
Coming on the market.
Well they have not impacted our sales, we really don't overlap with bed Bath <unk> beyond merchandising, but we are very interested in looking at the opportunities.
For store locations in existing markets and some target markets that we can add as you know there are several hundred of them.
That will all be done through auction and also working with some of the landlords.
We are interested in it were very active in evaluating it.
We think this could be an opportunity for us.
Similar to what we've done in the past we've been very good at converting existing retail boxes to however these.
We've done it with linens N things Hh Greggs March Circuit City home life, and we've got some of those buildings in our portfolio today. So.
We think there could be opportunities there and we're very closely evaluating those potentials.
Thank you.
Thank you there are no further questions at this time I'd like to turn the call back over to Mr. <unk> for any 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 second quarter results. Later this year have a great day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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