Q2 2023 Haverty Furniture Companies Inc Earnings Call
Greetings and welcome to <unk> second quarter 2023 earnings call.
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A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
Now I'd like to turn the conference over to your host Richard Hare, Chief Financial Officer. Please go ahead.
Thank you operator during this 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 in the company's reports filed with.
The SEC.
Our chairman and CEO Clarence Smith will now give you an update on our results and our president Steve or Deb will provide additional commentary about our business.
Good morning.
Thank you for joining our second quarter conference call.
Consolidated sales decreased 18, 5% to $206 $3 million, reflecting the consumers pulled back and home related spending and the impact of higher interest rates on home sales.
Incoming orders are written sales were down 14, 7%.
With written comp store sales down 15, 2%.
Our earnings per share came in at 70 versus $1 27 last year.
Recognizing the significant shift in consumer spending and inflationary pressures I believe that we delivered a solid performance.
The quarter sales were negatively impacted the most in April .
And began to improve along with the increased temperature.
We saw a very nice increase in our average sales driven by increases in special order and customer and custom design oriented sales.
We continue to gain recognition for our quality products service and free design.
While we are investing heavily in our website is the first way customers learn about us and shop.
Physical store and the personal relationship that we develop as the primary way we serve our customers.
That in person relationship has increased in importance since COVID-19.
As our design focus and customization helps drive our average sale over $3000.
The importance of our brick and mortar stores, where customers can see and touch their selections and gain knowledgeable input from a team member becomes more critical.
We're strengthening our store locations and the footprint, we are positioned for Maryland to Texas.
There are several existing store opportunities that we believe will allow us to build on our base as well as our brand awareness and that can be served by our current distribution.
Late this year, we plan to open three stores Concord, North Carolina, our third store in Charlotte.
Dayton, Ohio served by our expanded Cincinnati home delivery center, and an outlet stores South of Richmond, Virginia.
In the second quarter, we bought back our Florida distribution center in Lakeland, which will allow us to be able to expand the facility in the future.
We are pleased to have acquired the leases on four stores in the bed Bath <unk> beyond bankruptcy auction.
Three of these stores are an important Florida locations, which allows us to reach new areas and leverage our marketing and distribution in those fast growing markets.
The Pembroke Pines location is our farthest south near Miami and strengthens our position in southeast Florida.
St Petersburg, and some major market near Tampa, where we have been underrepresented.
The deaths and location is ideally located to further penetrate that dynamic Emerald coast.
With the addition of these units will have 33 stores in Florida.
The fourth store in South Haven, Mississippi reaches an important growth suburbs south of Memphis and adds our 17th state to our footprint.
We're in a in an exceptionally strong position with our solid balance sheet and experienced management team to grow our store count and sales in our regions.
We are keenly focused on executing our strategic plan of opening five stores a year within our distribution footprint and growing our market share.
While we experienced a falloff on the post COVID-19 surge in the first half we are encouraged by recent improvements in incoming orders customers reactions to new product introduction and the new growth opportunities that we're tackling.
We are driven to help our customers' vision of their home come to life.
We deliver on that commitment, we will gain share and build on our returns for our shareholders.
This is an exciting time to extend <unk> reach.
I'll now turn the call over to Steve <unk>, our president thank.
Thank you Clarence and good morning, Q2 proved to be very a very difficult quarter for us with weaker than expected results. However, the efforts by our team members have become even more important as well.
We have made tremendous strides in making sure that we're getting back to basics and serving our customers' needs to ensure that we are furnishing happiness to each and every customer.
Our supply chain network is functioning with no real headwinds.
Our inventories were down 14, 4% from Q2 last year and our backlogs remain consistent.
Our lead times from our vendors remain at approximately six weeks, helping us to continue to drive our special order business.
For Q2, our special order business was up over 50% over last year and represents 30% of our upholstery business for the quarter.
These increases have continued to be driven by our design business, which grew to over 28% of our business for the quarter with average ticket growing close to 6% over last year.
Also we are encouraged by the increase in the number of customers that have engaged with design and the opportunity to expose our design services to more customers in the future.
We are making progress with our website with our new business partner we.
We are seeing improvements in site performance and now are getting more robust analytics that will help us to continue to improve the user experience as well as drive more AB testing and personalization.
We are looking forward to our biggest holiday promotion of the year Labor day, which occurs in a few weeks the new products that our merchandising teams brought in earlier. This year are starting to gain traction with our sales and design teams.
As Clarence mentioned in his remarks, we are excited about the four new stores that will that we will open from the bed Bath <unk> beyond bankruptcy.
We feel these stores will be an easy fit into our retail and distribution footprints as additional branches in existing markets in 2024.
Finally, we continue to focus on our execution training and retention across the organization.
As I mentioned on our last call in May we were matching our staffing levels in our retail distribution and delivery networks to the current business conditions.
The plan was to produce over 200 positions through normal attrition by the end of Q2, which we have been able to achieve.
Now I will turn the call over to Richard.
Thank you, Steve and good morning.
In the second quarter of 2023 net sales were $206 3 million 18, 5% decrease over the prior year quarter comparable store sales were down 19, 1% over the prior year period.
Our gross profit margins increased 260 basis points to 16, 5%.
From 57, 9% due primarily to reductions in freight and a positive LIFO inventory adjustment.
Selling general and administrative expenses decreased $8 1 million or six 9% to $110 million as a percentage of sales. These costs approximated 53, 3% of sales up from 46, 7% in the prior year quarter, we experienced decreased selling advertising.
And transportation expenses during the quarter.
Other income and expense for the second quarter of 2024 was negligible in interest income was approximately $1 billion during the second quarter as we earn more on our cash deposits due to higher interest rates.
Income before income taxes decreased $12 8 million to $15 8 million our tax expense was $4 million during the second quarter of 2023, which resulted in an effective tax rate of 25, 5%. The primary difference in the effective rate and the statutory rate is due to state income taxes.
Net income for the second quarter of 2023 was $11 8 million or 70 cents per diluted share on our common stock compared to net income of $21 7 million or $1 27 per share in the comparable quarter last year.
Now turning to our balance sheet at the end of the second quarter. Our inventories were $114 7 million, which was down $3 6 million from December 31, 2002, and down $19 3 million versus our Q2 2022 balance.
At the end of the second quarter, our customer deposits were $45 6 million.
Which was down $2 4 million from the December 31, 2022 balance and down $45 2 million versus the Q2 2022 balance.
We ended the quarter with $109 $1 million of cash and cash equivalents and we have no funded debt on our balance sheet at the end of the second quarter.
Looking at some of our uses of cash flow capital expenditures were $33 8 million for the second quarter. As a reminder, we repurchased our Florida distribution facility at the beginning of the quarter for $28 2 million. In addition, during the second quarter, our board of directors authorized a seven 1% increase in the quarterly.
Dividend from 28 per share to <unk> 30 per share, resulting in a payment of $4 $9 million of regular dividends.
During the second quarter, we didn't purchase any common shares under our existing stock buyback program and we have approximately $20 million of existing authorization in our buyback program.
Our earnings release list out several additional forward looking statements, indicating our future expectations of certain financial metrics I will highlight a few but please refer to our press release for additional commentary.
We expect our gross profit margins for 2023 to be between 59, and a half and 60% we.
We anticipate gross margins will be impacted by our current estimates of product and freight costs changes in our LIFO reserve.
Our fixed and discretionary type SG&A expenses for 2023 are expected to be in that 286% to $289 million range.
The variable type costs within SG&A for 2023 are expected to be in the range of 19, 5% to 19, 7%.
With increases over 2022, primarily being inflation driven.
Our planned Capex for 2023 has increased to $57 million and.
In addition to our current year to date spending we anticipate spending an incremental $3 million during the calendar year on refurbishing and Reformatting. The four former bed Bath beyond stores, we secured through the bankruptcy lease auction.
Anticipated or new replacement stores, Remodels and expansions account for $19 9 million.
Investments in our distribution network are expected to be $34 $3 million and investments in our information technology are expected to approximately be $2 $8 million this year.
Our anticipated effective tax rate in 2023 is expected to be 25% and.
And this projection excludes the impact of vesting of stock awards and any potential tax legislation.
This completes my commentary on our second quarter financial results operator, we would like to open the call up for any questions at this time.
Ladies and gentlemen, if you would like to ask a question. Please press <unk> on your.
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And our first question comes from the lineup Anthony.
<unk> with Sidoti <unk> Company. Please proceed.
Hey, good morning, guys. Thank you for taking the questions.
So just wanted to follow up about the comments about the recent improvements of incoming orders.
Can you shed some more color on what you've seen.
Anything you can help us out with that would be great.
Yeah, Anthony Let me, let me kind of go back through our written business trends back back to Q1 to now so.
In the first quarter.
Written trends each each month January from February we're in the low teens down 10, 5% in January and down about the same around 14%, 11% to 12% in February and March.
In the second quarter, we saw a pretty big drop in April we were down 20% business.
But then we saw some improvement in May we were down approximately 13% between $12, 813% and then we were we're down about 11% in June so we've certainly seen <unk>.
<unk> from April I believe Clarence mentioned that in his remarks.
That April was.
The most challenging in the quarter, but we've seen kind of more of a leveling back to the low teens in may and June .
Okay got it so so so less bad I guess.
Okay.
Just wanted to get that clarification and so so thank you for that.
And then in terms of the average ticket obviously at an all time high.
Your freight costs are down.
And demand is still there.
Apparently.
They'll soft here so how should we think about the sustainability of the average ticket here going forward.
Anthony This is Steve I don't we've seen our average ticket grow and is continuing to grow.
Mainly driven by obviously.
Design business and a continued increase there.
I talked about it were up to 28% and we're really.
<unk>.
The exposure that to more customers as they come in the door. So we really think there's an opportunity to continue to grow that so average ticket has not been an issue for us and we don't see that being an issue going forward.
Okay sounds good and then.
As far as your outlook for credit promotions, how should we think about that looks.
It looks like right now you're offering zero percent financing for 36 months, but.
Obviously as we all know interest rates have gone up.
And who knows where we go from here, but just wanted to get your take on that as far as is.
Is that the main demand lever you see or is there anything else.
Do you plan to deal with it to try to increase the demand.
<unk>.
Anthony This is Richard just from the credit perspective, as we said last quarter, we are being more disciplined on offering extended credit terms to 60 months, we still do that and certain promotions, but we're doing it for less.
Less smaller time period during the promotion period, but Steve do you want to.
We still are using the 60 months to drive around a major holidays, Anthony and we will continue to do that but the time period is what you say we are being more disciplined we're not running it for.
At the same time periods that we did last year, but we are still actively run them in.
Bigger promotions.
Bigger event.
Best of luck going forward.
Alright, Thanks Anthony.
Our next question comes from the line of Michael Legg with the Benchmark Company. Please proceed.
Hi, Good morning, this is Nicky on behalf of Mike.
Just a quick one here I'm just curious what you're seeing from a promotional environment in the industry as far as your competitors go I know you guys don't engage in too much of that aside.
So just curious.
What youre seeing from your competitors.
Mickey I haven't seen anything really different I think.
The industry Youre seeing the sales issues and declines across the board, but I don't see anything radically different with promotions.
There are people, who are using credit pretty heavily but.
I haven't seen anything.
Significantly different.
Okay great.
Like what we like to hear.
That's all from US today, thanks for that.
Thank you. Thank you.
Our next question comes from the line of Cristina Fernandez with Telsey Advisory Group. Please proceed.
Hi, Good morning, I have a couple of questions.
The first one I wanted to see if you could expand on the demand commentary.
Bonds to Anthony's question.
Thank you.
You mentioned initially that there was some impact from cooler weather in the quarter.
Can you give some color about what categories that are affected and the.
Are the trends, you're seeing pretty broad based across categories or any areas performing better than others.
Yes, Kristina this is Steve I would say our categories are still performing the same area we did.
In a lot of new case goods bedroom dining room, and the first quarter and we've seen certainly an uptick in that category, but still upholstery is strong for us. So there's no real <unk>.
Trend change, we have seen some improvement embedding.
She has been a nice thing to see.
And that's been a category that we have been struggling and we've seen some improvement in that through the quarter, but all in all things are pretty steady.
Then the second question I have is around.
The expenses last quarter, you did a head count reduction to try to align the structure.
The sales level do you.
Seem like you need to make more reductions.
As you saw this quarter.
To have a better profitability on the back half are you comfortable with where you are.
Right now Christina we're comfortable where we are because we just transitioned through that through the quarter.
But we will constantly review that and look at that and we will continue to make changes if necessary in our distribution and delivery and service side at.
At the store side.
Adjustments there had been more on the number of sales associates that are needed, but we have a next minimum number that are needed to run the stores.
I don't see much adjustment on the store side, but.
Any further adjustments that would be native there'll be lacoste conditions worsen would be.
The delivery and distribution side, but.
We're hopeful that that's not going to be the case in that.
<unk> right to carry us forward for the rest of the year.
Then the last question I have on the buyback.
Yeah, Lisa congratulations on dose one.
As you said today when do you think those stores can open.
<unk>.
What is the type of work required to get those to your to your standard.
Hey, Kristina this is Richard we anticipate being done with that in the first half of next year, probably more in this in.
In the Q2 time period.
We've allocated $3 million of capital for this year.
Each each locations probably between 253 million of capital required to go in and refurbish it and make it a <unk> location. We did we just took the leases over.
Beginning of this month and so we are going to.
Obviously start paying rent on those now and we baked that into our expense forecast that we shared with you guys.
Also going to sublease or we have plans to sublease on a temporary basis.
These locations to our seasonal tenant as we ramp these things up so that will offset or partially offset some of the rent, but we're really excited about these locations that we think.
It says a lot that we're investing in our future during a downturn in the business.
It's actually one one clarifying question.
As we think about the store openings next year will this core location.
Kind of meets our target profile.
Openings a year or two.
Or even go beyond those five openings.
I think next year could go beyond that yes that would be our hope yes, we do.
We do have a number of sites that we're looking at.
<unk>.
Have lois out that we think could workforce, but we don't know that and we don't announce leases until they're signed.
So it could be a year of more next year Kristina and I'll.
I'll go back in our history at year 2000, we took over I think nine homelife stores from Sears and we were able to open those over basically 18 months or so so.
We're very good at converting existing boxes to <unk>, and we think theyre going to be opportunities for us.
Thank you and best of luck this quarter.
<unk>.
Thank you.
Ladies and gentlemen, this concludes.
Today's question and answer session I would like to turn the call back to Richard <unk> for closing remarks.
We appreciate everybody's participation on the call today, and we look forward to talking to you in the future when we release our third quarter results later this year.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you.
Thank you for your participation.
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Yes.
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