Q2 2025 Haverty Furniture Companies Inc Earnings Call

Operator: Greetings and welcome to the Haverty second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Hare, CFO. Thank you, sir. You may begin.

Greetings and welcome to the habit of the second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation if anyone should require operator assistance,

Richard Hare: Thank you and good morning. During this conference call, we'll make forward-looking statements which are subject to risk 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 company's reports filed with the SEC. Our President and CEO, Steve Burdette, will now provide additional commentary about our business.

During the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Haier CFO. Thank you sir. You may begin.

Thank you and good morning.

During this conference call we'll make forward-looking statements which are subject to risk 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 advise.

Steve Burdette: Good morning. Thank you for joining our 2025 second quarter conference call. We are excited to report our first increase in written and delivered sales for Q2 in over two years. While this progress is encouraging, we remain focused on returning to positive same-store sales. Our sales for Q2 were 181 million, which was up 1.3%, with comps down 2.3%. Total written sales were up 0.4%, with comps down 2.1%. Gross margins continue to show our discipline and consistency, coming in at 60.8% compared to 60.4%. Our pre-tax profits for the quarter were 4.3 million, or 2.4% operating margin, compared with 6.5 million, or 3.6% operating margin in Q2 2024. Our EPS for the quarter came in at 16 cents compared to 27 cents. Richard will provide additional details later in this call regarding the increase in SG&A expenses for the quarter.

Our president CEO, Steve Reed will now provide additional commentary about our business.

Good morning, thank you for joining our 2025 second quarter conference call.

First increase in written and delivered sales for Q2 and over 2 years.

While this progress is we remain focused on returning to positive same store sales.

Our sales for Q2 were 181 million which was up 1.3% with comps down 2.3%.

Total written sales were up 0.4% with comps down 2.1%.

Gross margins. Continue to show our discipline and consistency coming in at 60.8% compared to 60.4%.

Our pre-tax profits for the quarter were 4.3 million or 2.4%, operating margin compared with 6.5 million or 3.6% operating margin in Q2 20224.

our EPS for the quarter came in at 16 cents compared to 27 cents,

Steve Burdette: During the quarter, we continue to see a struggling housing market with high interest rates and rising home prices, lack of clarity around tariffs, inflation concerns, ongoing geopolitical issues, and consumer confidence remaining low. Despite all this noise in the economy, the consumer has remained amazingly resilient. Traffic in the quarter remained positive in the mid-single digit compared to the same period last year. Our average ticket decreased slightly but remained strong at just under $3,400, while designer average ticket continued to grow at approximately 5% to over $7,600. However, our overall design and special order business was down mid-single digits for the quarter. A portion of the decrease can be attributable to the 145% additional tariffs placed on China imports in early April, which caused us to temporarily suspend our special order capabilities from our China vendors.

which Richard will provide additional details later in this. Call regarding the increase in sgna expenses for the quarter.

During the quarter, we continue to see a struggling housing market with high interest rates and Rising home prices.

Lack of clarity around terrorists, inflation concerns ongoing geopolitical issues and consumer confidence, remaining low.

despite all this noise in the economy, the consumer has remained amazingly resilient

Traffic in the quarter remained positive in the mid-single digits compared to the same period last year.

Our average ticket decreased slightly, but remains strong at just under 3400. While designer, average, ticket continued to grow at approximately 5% to over 7600.

However, our overall design and special order business was down mid single digits for the quarter.

Steve Burdette: We got more clarity in mid-May when the additional China tariff was reduced from 145% to 30%. During the quarter, our supply chain and merchandising teams have been realigning our production moves out of China with our import vendors. We should be fully operational in Q3, allowing us to resume our special order business. Conversion rates showed a nice improvement in the quarter, moving from a double-digit decrease in Q1 to a mid-single digit decrease in Q2. Memorial Day is the company's largest event in the first half of the year. Sales increased by just over 3% during the two-week period and by more than 14% over the four-day period. The company noted improvements during the four-day event in all key metrics. Traffic was up double digits, average ticket was just under $4,000, and conversion rates were consistent with last year.

A portion of the decrease can be attributable to the 145%. Additional tariffs, placed on China Imports in early April, which caused us to temporarily suspend. Our special order capabilities for my China vendors.

We got more clarity in mid-may when the additional China Tariff was reduced from 145% to 30%.

During the quarter, our supply chain and Merchandising teams have been realigning. Our production moves out of China with our import vendors

We should be fully operational in Q3 allowing us to resume our special order of business.

Conversion rates showed a nice Improvement in the quarter. Moving from a double digit decrease in q1 to Aid, single decrease.

Uh, digit, decrease in Q2.

Memorial Day is the company's largest event in the first half of the year.

Sales increased by just over 3%. During the 2-week period. And by more than 14% over the 4-day period.

The company noted improvements during the 4-day event and all key metrics.

Steve Burdette: Our marketing, creative, and media plans continue to reach our customers through broadcasts, OTT, and digital marketing channels. We continue to use AI algorithms to learn from our first and second-party data to ensure our digital ads are efficient and more effective in driving engaged site traffic. In June, we converted all product page traffic and listing page traffic, in addition to the homepage, which was converted in Q4 to Adobe's Edge delivery service. Since this change, we have seen a 15.6% increase in organic traffic, which we feel this, combined with the more engaged site traffic, has contributed to our web sales growth of 8.4% for the quarter. We invested an additional 1.1 million over the quarter to get our messaging out, as we promoted 60 months no interest to be more competitive and strengthen our credit offerings. However, we did not experience an increase in our credit usage.

Traffic was up double digits. Average. Ticket was just under 4,000 and conversion rates were consistent with last year.

Our marketing and creative and media plans, continue to reach our customers through broadcast Ott and digital marketing channels.

We continue to use AI algorithm algorithms to learn from our first and second party data. To ensure our digital ads are efficient and more effective in driving engaged site traffic.

In June, we converted all product page traffic and listing page traffic.

In addition to the homepage, which was converted in Q4 to adobe's Edge delivery service.

Since this change, we have seen a 15.6% increase in organic traffic which we feel this combined with the more engaged site traffic has contributed to our website sales growth of 8.4% for the quarter.

We invested additional 1.1 million over the quarter to get our messaging out as we promoted. 60 months. No interest to be more competitive and strengthen our credit offerings.

Steve Burdette: In fact, our overall credit costs for the quarter decreased double digits compared to last year's Q2. We implemented a more aggressive promotional strategy by increasing sale offerings both externally and internally. The loyalty email campaign referenced in the Q1 call generated approximately $17 million in Q2, resulting in a year-to-date total of over $25 million, with an average ticket of just under $2,800, which contributed to our slight decrease in our overall average ticket for the quarter. A merchandising team returned from a trip to Vietnam in early May, where they followed up with our vendors on their progress with the movement of our products out of China. The trip was very informative and productive, as it enabled the team to reassure our vendors of our commitment to our strategic partnerships.

However, we did not experience an increase in our credit usage. In fact, our overall credit cost for the quarter, decreased double digits compared to last year's Q2.

We implemented a more aggressive promotional strategy by increasing. Sell offerings, both externally and internally.

The Loyalty email campaign reference to the q1 call generated approximately 17 million dollars in Q2.

Resulting in a year-to-date total of over 25 million dollars with an average ticket of just under 2,800, which contributed to our slight decrease in our overall average ticket for the quarter.

A merchandising team returned from a trip to Vietnam in early May where they followed up with our vendors, on their progress with a movement of our products out of China.

Steve Burdette: From a category performance, upholstery and bedroom outperformed all other categories with positive sales in the low to mid-single digits, followed by bedding and occasional, which were down low single digits, and dining room and decor, which were down high single digits. As mentioned in our last call, we are rolling out our new point of purchase and tagging program in Q3. As a reminder, this should improve the in-store customer's experience by centralizing our special order fabrics to improve the ease of choice while introducing a new tagging system that visually provides our customers with more choices that are not shown on the floors. Also, it simplifies for our sales and design consultants the available configurations by collection. Our goal is to have this fully implemented by the end of Q3 in all stores.

The trip was very informative and productive as it enabled. The team to reassure our vendors of our commitment, to our strategic Partnerships.

Performance Upholstery and bedroom outperformed. All other categories with positive sales in the low to mid single digits, followed by betting an occasional which were down low single digits and dining room and Decor which were down high single digits.

as mentioned in our last call, we are rolling out our new point of purchase and tagging program in Q3

As a reminder, this should improve the in-store, customers experience, a centralizing our special order, Fabrics to improve the ease of choice. While introducing a new tagging system that visually provides our customers with more choices that are not shown on the floors.

Also.

Steve Burdette: While the tariff issues are continuing to create uncertainty within the industry, our merchants are proactively working with our vendors and preparing for potential price changes once the tariffs are finalized. The team's preparation and communication give us confidence to maintain our current gross margin guidance. There is a possibility that some products will return to being manufactured in China, depending on how tariff policies develop in other countries. Decor and lighting products may remain in China if new tariff rates make it more economical compared to establishing production facilities elsewhere. In Vietnam, there are concerns about potential labor shortages and wage challenges resulting from increased production demands. Resolving the uncertainties around tariffs will allow us to be more focused on serving our customers' needs. Our supply chain team executed a strategy to increase inventories of best-selling products during Q2. Inventories rose approximately 4.6 million, or about 5% since Q1.

It simplifies for our sales and Design Consultants available configurations by collection. Our goal is to have this fully implemented by the end of Q3 in all stores.

While the Tariff issues are continuing to create uncertainty within the industry. Our Merchants are proactively working with our vendors and preparing for potential price changes. Once the tariffs are finalized

The team's preparation and communication. Give us confidence to maintain our current gross margin guidance.

There is a possibility that some products will return to being manufactured in China, depending on how tariff policies develop in other countries.

Decor and lighting Products May remain in China. If new tariff rates, make it more economical compared to establishing production facilities. Elsewhere,

In Vietnam, there are concerns about potential labor, shortages and wage challenges, resulting from increased production demands.

Resolving the uncertainties around terrorists will allow us to be more focused on serving our customers needs.

Our supply chain ex our supply chain team executed a strategy to increase inventories of best selling products during Q2.

Steve Burdette: We anticipate that inventories will remain relatively flat for the remainder of the year. We continue our push to open five new stores a year. However, in 2025, we will open two new stores in Houston, Texas, and one relocation in Daytona Beach. And we'll be closing two locations, one in Atlanta and one in Waco, Texas, leaving us with 129 stores at year-end. We have finalized four additional leases for 2026 openings that we are able to announce. In Q1 2026, we will open our second store in the St. Louis market in the Fenton area, southwest of the city. In Q2 of '26, we will open our fourth store in the Nashville market in the Mount Juliet area, east of Nashville.

Inventories Rose approximately 4.6 million or about 5% since q1. We anticipate that inventories will remain relatively flat for the remainder of the year.

We continue our push to open 5 new stores a year. However in 2025, we will open 2, new stores in Houston, Texas and 1 relocation in Daytona Beach. And we'll be closing 2 locations, 1 in Atlanta and 1 in Waco. Texas leaving us with a 129 stores at year end.

We have finalized 4 additional leases for 2026 openings that we are able to announce.

In q1 2026. We will open a second, our second store in the St. Louis market, and the Fenton area Southwest of the city.

Steve Burdette: The other two leases will be in the Houston market, the Alliana area, southwest of Houston, and the Baytown area, east of Houston, opening in the latter part of 2026, giving us five stores in the market. As you can see, we are actively looking at opportunities to grow our footprint to allow us to leverage our customer, our current distribution network, and return to our five new stores a year goal in 2026. Our distribution, home delivery, and customer service teams continue to do an excellent job controlling expenses while furnishing happiness to our customers. Each team does a great job of balancing the number of team members to the workflow demand needed due to natural turnover. Our success in distribution, home delivery, and customer service is due to Haverty team members controlling all aspects of the final mile delivery to the customer.

In Q2 of 26, we will open our fourth store in the National Market in the Mount Juliet area east of Nashville.

The other 2 leases will be in the Houston Market. The Aliana area, Southwest of Houston and the Baytown area east of Houston opening in the latter part of 2026 given us file stores in the market.

As you can see, we are actively looking at opportunities to grow our footprint, to allow us to leverage our customer, our current distribution Network, and return to our 5 new stores, a year ago in 2026.

Our distribution home delivery and customer service teams continue to do. An excellent job controlling expenses while Furnishing happiness to our customers.

Each team does a great job of balancing the number of team members to the workflow demand needed due to Natural turnover.

Steve Burdette: We do not outsource any of these key functions of our business to a third-party company. And we are proud that our regret-free experience is an integral part of our unwavering service that helps separate us from our competitors. Throughout our 140-year journey, we have navigated economic headwinds similar to today's challenges: housing affordability, high interest rates, tariffs, inflation concerns, and geopolitical uncertainties. What sets us apart is our trusted Haverty brand, our debt-free balance sheet, our operational consistency, our integrity, our consumer-focused in-home design, and our dedicated Haverty team members. Looking into the future, these competitive advantages position us to capture market share. I will now turn the call over to Richard.

Our success in distribution home delivery, and customer service is due to have any team members controlling all aspects of the final mile delivery to the customer.

We do not Outsource any of these key functions of our business, to a third party company.

And we are proud that our regret free experience is an integral part of our unwavering service that helps separate us from our competitors.

Throughout 140-year Journey. We have navigated economic headwinds some of today's challenges.

Housing affordability.

High interest rates.

Tariffs.

Inflation concerns and geopolitical uncertainties.

What sets us apart in our is our trusted H brand.

Our debt-free balance sheet, our operational consistency.

Our integrity.

Our consumer focused.

In home design and our dedicated cavity team members.

Richard Hare: Thank you, Steve. In the second quarter of 2025, we reported net sales of $181 million, a 1.3% increase over the prior year quarter. Comparable store sales were down 2.3% over the prior year period. Our gross profit margin increased 40 basis points to 60.8 from 60.4%. This increase was due to product selection and merchandising mix that Steve mentioned previously. Selling general and administrative expenses increased $4.2 million, or 4.1%, to $107.3 million. As a percentage of sales, these costs approximated 59.3% of sales, up from 57.7% in the prior year's quarter. Within this expense category, we experienced increases in advertising, occupancy, and administrative costs, which was partially offset by decreases in selling and warehouse and delivery expenses. Other income expense in the second quarter of 2025 was $65,000, and interest income was approximately $1.5 million. Income before income taxes decreased $2.1 million to $4.3 million.

Looking into the Future these competitive advantageous position us to capture market, share, I will now turn the call over to Richard.

Thank you, Steve. In the second quarter of 2025, we reported a net sales of 181 million of 1.3%. Increase over the prior year. Quarter comparable store sales were down 2.3% over the prior year period.

A gross profit margin increased 40, basis points to 60.8 from 60.4%.

This increase was due to product selection and Merchandising mix, that Steve mentioned previously.

4.2 million or 4.1% to 107.3 million as a percentage of sales. These costs approximated 59.3% of sales up from 57.7% in the prior Year's quarter.

Within this expense category, we experienced increases in advertising occupancy and administrative costs, which was partially offset by decreases and selling warehouse and warehouse and delivery expenses.

Richard Hare: Our tax expense was $1.6 million for the second quarter of 2025, which resulted in an effective tax rate of 37.8% compared to an effective tax rate of 31.2% in the prior year period. The primary difference in the effective rate and statutory rate is due to expected state income taxes and additional tax expense associated with the vesting of stock awards. Net income for the second quarter of 2025 was $2.7 million, or 16 cents per diluted share on our common stock, compared to net income of $4.4 million, or 27 cents per share in a comparable quarter last year. Now, turning to our balance sheet, at the end of the second quarter, our inventories were $93.3 million, which was up $9.9 million from December 31st, 2024, and up $900,000 versus Q2 of 2024.

Other income expenses in the second quarter of 2025. With 65,000 in interest income was approximately, 1.5 million income before income taxes, decreased 2.1 million to 4.3 million. Our tax expense was 1.6 million for the second quarter of 2025 which resulted in an effective tax rate of 37.8% compared to an effective tax rate of 31.2% in the prior year period, the primary difference in the effective rate and statutory rate is due to expected state income taxes and additional tax expense associated with the vesting of stock awards.

Net income for the second quarter of 2025 was 2.7 million or 16 cents per diluted share on our common stock compared to net income of 4.4 million or 27 cents per share and the comparable quarter last year.

Richard Hare: At the end of the second quarter, our customer deposits were $39.4 million, which was down $1.4 million from the December 31st, 2024 balance, and up $600,000 versus the Q2 2024 balance. We ended the quarter with $107.4 million of cash and cash equivalents. We have no funded debt on our balance sheet at the end of the second quarter of 2025. Looking at some of the cash flow usage, CapEx was $5.6 million for the second quarter of 2025, and we also paid out $5.2 million of regular dividends in the quarter. We did not purchase any common shares of stock under our share repurchase program during the second quarter of 2025, and we have approximately $6.1 million of existing authorization in our buyback program. Our earnings release lists out several additional forward-looking statements indicating our future expectations of certain financial metrics.

Now, turning to our balance sheet, at the end of the second quarter, our inventories were 93.3 million, which was up 9.9 million from December, 31st 2024, and up 900,000 versus Q2 of 2024.

At the end of the second quarter, our customer deposits were 39.4 million which was down 1.4 million from the December. 31st 2024 balance.

And up 6, 0 0.

We ended the quarter with 107.4 million of cash and cash equivalents. We have no funded debt on our balance sheet, at the end of the second quarter of 2025.

We did not purchase any common shares of stock under our share repurchase program during the second quarter of 2025.

And we have approximately 6.1 million of existing authorization in our buyback program.

Richard Hare: I will highlight a few, but please refer to our press release for additional commentary. Our 2025 guidance includes tariffs currently in effect as of July 30th, 2025, and do not include the effects of additional proposed tariffs that are not finalized by the Trump administration. We continue to expect our gross margins for 2025 to be between 60 and 60.5%. We anticipate gross profit margins will be impacted by our current estimates of product and freight costs. Our fixed and discretionary type SG&A expenses for 2025 are expected to be in the $291 to $293 million range, which is unchanged from our previous guidance. The variable type costs within SG&A for 2025 are expected to be in the range of 18.5% to 18.8%. We anticipate continued efficiencies in warehouse and delivery costs during the remainder of this year. Our planned CapEx for 2025 remains at $24 million.

Our earnings release lists 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. Our 2025 guidance includes tariffs currently in effect as of July 30th 2025 and do not include the

Effects of additional proposed tariffs that are not finalized by the Trump Administration.

We continue to expect our gross margins for 2025 to be between 60 and 60.5%. We anticipate gross profit margins will be impacted by our current estimates of product and freight cost.

Our fixed and discretionary type sg&a, expenses for 2025 are expected to be in a 2919 range which is unchanged from our previous guidance.

The variable type cost within sgna for 2025 or expected to be in the range of 18 and a half to 18.8%.

We anticipate continued efficiencies and warehousing delivery costs during the remainder of this year.

Richard Hare: Anticipated new or replacement stores, remodels, and expansions account for $19.6 million. Investments in our distribution network are expected to be approximately $1.8 million, and investments in our information technology are expected to be approximately $2.6 million. Our anticipated effective tax rate for 2025 is expected to be 26.5%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the second quarter financial results. Operator, we would like to open the call up for questions.

Our plan capex for 2025 remains at 24 million anticipated, new, or replacement stores, remodels and expansions account for 19.6 million investments. In our distribution, Network are expected to be approximately, 1.8 million and investments. In our information technology are expected to be approximately 2.6 million.

Our anticipated effective tax rate for 2025 is expected to be 26.5%. This projection excludes the impact from the investing of stock awards. In any potential new tax legislation,

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Anthony Liebnitzky with Sedota Inco. Please proceed with your question.

This completes my commentary on the second quarter Financial results. Operator we would like to open the call up for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2. If you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

1 moment, please, while we pull for questions.

Anthony Lebiedzinski: Good morning, and thank you for taking the questions. And it's certainly nice to see the sales and gross margin increase in the quarter. So first question here is just, can you guys speak to the cadence of your written sales throughout the quarter and whether or not you saw any notable regional differences in your performance?

Bonky with sidonian Co please proceed with your question.

Good morning, and thank you for taking the questions and surely nice to see the sales and gross margin increase, uh, in the quarter.

Richard Hare: Sure, Anthony. High level, our written business was down around 2% in April. It was up slightly, almost to 1% in May, and then it was up around 2.5% in June. But that's the cadence for the written business. Our delivered business for the quarter was, we were up around 5% in April, and then around 2% in May, and then slightly down around almost 3% in June. And Steve, you want to highlight any of the regional?

Um, so first question here is just just to can you guys speak to the Cadence of your written sales throughout the quarter and uh, whether or not you saw any notable Regional differences in your performance?

Steve Burdette: Yeah, Anthony. I would say, you know, it's pretty much across the board in all of our districts. We didn't see anything. You know, we had some regions that performed a little bit better, but we saw that all of them were trending in the, you know, right in the same direction as we're seeing ourselves.

Anthony Lebiedzinski: Gotcha. Thanks for that. And then, is there any way you guys can quantify what the impact may have been as far as your decision to suspend some of the special orders from China? You know, how much impact that was on your same-store business?

Sure Anthony uh high level. Um I've ridden business was was down uh, around 2% in April. Uh it was up slightly almost almost a 1% in May and then it was up around 2 and a half percent in June, uh, but that's the Cadence for the red business. Our delivery business for the quarter was we were up around 5% in April uh and then around 2% in May and then slightly down around almost 3% in June um and Steve you want to highlight any of the regional jobs. Yeah, Anthony. I would say you know it's pretty much across the board uh in all of our our districts we didn't see anything you know we had some regions that performed a little bit better but uh we saw the all of them were training in the you know, right? The same direction as we're seeing ourselves.

Steve Burdette: That's hard to sit there and quantify for us, Anthony. I mean, we know it is, we feel like it certainly impacted our design business. You know, as far as the ability there is the number of customers, the percent of business we were doing. But we have not been able to quantify that, you know, exactly what the impact is overall. It affected certain groups out of China that we were unable to, as we were moving the production, we just had to focus in on the, you know, the core items that we were carrying on the floor. And the special order items we had just had to pause. So we feel we'll be back onto that in Q3 with all vendors and feel real good about what the merchandising supply chain teams have been able to do working with our vendors.

Gotcha, thanks for that. And then, um, is there any way you guys can quantify, what the impact may have? Been, as far as your decision to suspend some of this special orders from from China? Um, you know how much, uh, impact that was on on your same store business?

We know.

It's certainly impacted our design business.

Uh, you know, as far as the ability there is, is the number of customers, the percent of business we were doing. Um, but we have not been able to quantify that, you know, exactly what the impact is overall. Uh, it it affected certain groups out of China that we were unable to. As we were moving the production, we just had to focus in on them.

Anthony Lebiedzinski: Gotcha. Okay. And then, so just in terms of the tariff impact, have you guys taken any pricing actions, or do you expect to do that in your back half? What kind of how are you thinking about that?

You know, the core items that we were carrying on the floor and the special order items. We had just had to pause. So, but we feel we'll be back on to that uh, in Q3 uh, with all vendors. And um, feel real good about what the merchandising supply chain teams have been able to do working with our vendors.

Steve Burdette: Yeah, we did in May. We took some beginning of May with the initial, the 10% that came across. And then, as I just said in my comments there, we're poised and ready to go based on what the tariffs end up with. We're just waiting on a final answer, Anthony, quite honestly. I mean, we're sitting here on July 31st. They go live tomorrow, and nothing's been, you know, posted out there to the registry. We understand there's a 20%. We understand there's a deal with Cambodia that we deal with. And you know, we understand China is going to be extended out further. Indonesia has got a deal out, but there's nothing out on the site, you know, that's been posted out there on the registry to let us know exactly how to move forward with it. So, but we're prepared and we're ready to go.

Got you, okay? And then, um, just, you know, in terms of the the Tariff impact that have you guys taken any pricing actions, or do you expect to do that in your back half for kind of how you're thinking about that.

Steve Burdette: Our merchants have already been talking with our vendors, and we're prepared with, if we take on more tariffs, we will make adjustments in the pricing accordingly.

Anthony Lebiedzinski: Gotcha. So, so at this point, your gross margin guidance does, just to be clear, your gross margin guidance does not include any pricing actions right now, right? Is that fair to say?

Yeah, we we did in may, we we took some, uh, beginning of May, uh, with the initial, the 10% that uh, came across. And then, as I just said, in my uh, comments there, we're we're poised and ready to go based on what the, uh, uh, tariffs end up with. We're just waiting on a final answer Anthony quite honestly. I mean, we're sitting here on July 31st, they go live tomorrow and nothing's been, you know, posted out there to the registry. We we understand, there's a 20%, we understand, there's a deal with Cambodia, uh, that we deal with. And and, you know, we understand China's going to be extended out further, uh, Indonesia's got a deal out, but there's nothing out on the site. Uh, you know, there's been posted out there on the registry to let us know exactly how to move forward with it. So but we are prepared and we're ready to go. Our Merchants have already been talking with our vendors and, uh, we're prepared with, uh, if we take on more tariffs, we will make adjustments in the pricing accordingly.

Richard Hare: I'd say that, you know, you saw our margins went down slightly Q1 versus Q2. So we still feel good about the margin guidance. There's a little bit of, you know, we could have more promotions, gives us the opportunity to do that. And then you do have some unknowns of the tariffs. So we'll pass along most of the price increase, but there's a little buffer of that in the margin guidance.

Gotcha. So so so at this point your gross margin guidance does just to be clear your gross margin. Guidance does not include any pricing actions right now, right? Is that the fair to say,

I'd say that, you know, you saw our margins went down slightly Q1 versus Q2. So we still feel good about the margin guidance; there's a little bit of.

Steve Burdette: Well, we feel comfortable with that guidance. You know, even with what's coming, Anthony, we feel comfortable with it that we'll be able to manage through that.

Anthony Lebiedzinski: Gotcha. Got it. Okay. All right. And then, you know, so lastly for me, as far as just, you know, thinking about the different marketing and promotional strategies, it sounds like you guys are upbeat about that concern. So, as we look at the, you know, the back half of the year, I mean, which ones, which of these strategies you think will be the most impactful in terms of driving same-store sales?

Um, you know, we could have more promotions uh gives us the opportunity to do that and then you do have some unknowns of the tariffs. So we'll have we'll pass along most of the price increase. But there's a little buffer of that in the in the margin guidance. But we feel comfortable with that guidance, you know, even with what's coming, Anthony. We feel comfortable with it, there will be able to manage through that.

Got you got it? Okay. All right. And then, you know, so so lastly for me as far as to just, um, you know, thinking about the different, uh, marketing and, and promotional strategies sounds like you guys are are, uh, upbeat about the, that, that concerns. So, um, as we look at the, you know, the the back half of the year, I mean,

Steve Burdette: Well, I mean, Anthony, I'd say definitely our new pricing, you know, strategy that we put in place that really was in effect as of May 1, you know, with the team with the stores. And so we've seen a positive impact with that. I think our marketing and what we're doing with the small market plan that we attacked them with a separate individual plan is working and helping to drive traffic in those stores. You know, and I think the mailer that we did was a huge success that basically ended at the end of the quarter. But that turned out to be a huge success in driving conversion rates, but also traffic to the stores. So, you know, we invested more. We talked about that in the second quarter. We're going to continue that investment and invest more in the third quarter in our marketing.

Which ones which of these strategies uh you think will be the most impactful in terms of driving? Uh same store sales.

Well, I mean Anthony, I'd say definitely our our new pricing you know, strategy that we put in place that really was in effect as of May 1.

With the stores. Uh and so we've seen a positive impact with that. I think our marketing and what we're doing with the small Market plan that we attack them with a separate individual plan is working and helping to drive traffic in those stores.

Steve Burdette: You know, one successful Memorial Day, we extended that promotion from basically two weeks to three weeks. From a marketing perspective, we will do the same with Labor Day. And then also, we're going to get back into the direct mail business. We've got a new direct mail that will go out the beginning of August that we're excited about to see that impact that it'll have across our markets overall. So, you know, we've got a lot going on. We feel real positive about it. We feel good about the trend and what we've seen. You know, if you look from fourth quarter to first quarter to where we are today, we've seen gradual improvement. And our goal is to get back to positive things to our sales and grow it from there.

Um, you know, I think the mailer that we did was a huge success, uh, that basically ended at the end of the quarter. Uh, but that turned out to be a huge success, uh, in driving conversion rates but also traffic to the stores. Uh, so, you know, we invested more. We talked about that in the second quarter. We're going to continue that investment, invest more in the third quarter, and our marketing. Uh, you know, a successful Memorial Day, we extended that promotion from basically 2 weeks to 3 weeks from a marketing perspective. We will do the same with Labor Day.

Uh, and then also, we're going to get back into the direct mail, uh, business. We've got a new direct mail that will go out uh the beginning of August that we're excited about to see, uh, that impact that it'll have across our markets, uh, overall. So, um, you know, we've got a lot going on. We feel real positive about it. We feel good about the trend and what we've seen. You know, if you look from fourth quarter to first quarter to where we are today, we we've seen gradual Improvement and uh,

Anthony Lebiedzinski: Got it. Well, thank you very much, and best of luck.

Our goal is to get back to positive, things to ourselves, and, and grow it from there.

Steve Burdette: Yep. Thanks, Anthony.

Anthony Lebiedzinski: Thanks.

Operator: Our next question comes from Christina Fernandez with Chelsea Advocacy Group. Please proceed with your question.

Got it. Well, thank you very much, and best of luck. Yep. Thanks, Anthony. Thanks.

Cristina Fernandez: Hi. Good morning. I wanted to ask about the promotional environment you're seeing across the industry. It seems like it's picked up a little bit, and you know, you as well have used promotions to drive traffic. So I guess your thoughts on the industry and the environment, and how do you plan to use promotions going forward, you know, strategically so it drives traffic, but at the same time doesn't depress margins or, you know, change the perception of the brand?

Our next question comes from Christina. Fernandez with Chelsea, add adversity group. Please proceed with your question.

Hi, good morning. I wanted to ask about the

The promotional environment you're seeing across the industry. It seems like it's picked up a little bit and, and, you know, you as well have used promotions to drive traffic. So I guess your thoughts on the industry and the environment, and how do you

Plan to use promotions going forward. You know strategically so it drives

Traffic. But at the same time, doesn't

Steve Burdette: Yeah. No, you know, Christina, we, you know, we feel good about where our promotions are and what we're doing and what our marketing plan is. I mean, we've increased, we felt like we were a little light coming out of the first quarter. And with the trends that we were seeing with traffic remaining positive and sales, and with our pricing policies that we were getting out with a little more aggressive pricing, that we needed to invest more in marketing to get that message out. We're going to continue that. We're going to, you know, amp that up a little bit in the third quarter, even more. Labor Day is our obvious, the biggest event of the year. So Memorial Day is second, you know, to that of Labor Day. So we're excited for that and what it can do. And then, you know, everything we got set.

Depress margins or, you know, change the perception of the brand.

Yeah. No, you know Christina we

You know, we feel good about where our promotions are and what we're doing. And uh, what our marketing plan is, I mean we've increased, we felt like we were a little light coming out of the first quarter uh and and with the trends that we were seeing with uh traffic uh remaining positive, and and sales and with our pricing policies that we were getting out with a little more aggressive aggressive pricing uh, that we needed to invest more in marketing to get that message out. Uh, we're going to continue that we're going to, you know, amp that up a little bit. In the third quarter even more uh Labor Day is our obvious.

That's the biggest event of the year.

Steve Burdette: We're not doing anything to go against our brand. I think everything fits right into what we're doing and getting our message out to the consumer and how we want to serve them. As far as our competitors, they're certainly aggressive in pushing out there. You're seeing more pricing discounts. I think you're seeing, you know, a lot of the ones that run the percentages off have gone up in those percentages somewhere anywhere from 5 to 10 percent to get more aggressive. They're offering clearance products, things of this nature. So, you know, we're going to continue to do and make sure we offer what we do and provide the service to our customers and be consistent with it, but we're going to do it a little bit more aggressively. And I mentioned to you the 60 months. We had not run that in almost a year.

Steve Burdette: And we did that in the second quarter. We put it on Memorial Day. We put it on the website. We didn't actually put it in any of our TV ads that run through broadcast and OTT. But we will be adding that into the third quarter. So, you know, we're going to get a little bit more aggressive with that. But as I said, the customer, we're still not seeing an increase in our credit usage. And we're actually seeing, you know, credit costs in the second quarter went down compared to last year. So they don't, they still don't need the 60 months, but it's nice to have it out there as a competitive advantage, you know, against those that are running it.

Uh so uh Memorial Day is second, you know, to that of to Labor Day. So we're excited for that and what it can do and then you know, everything we got set, we're not doing anything to go against our brand, I think everything fits right into what we're doing and uh getting our message out to the consumer and how we want to serve them as far as our competitors. They're they're certainly aggressive and pushing out there. You're seeing more pricing discounts. I think you're seeing um, you know, a lot of the ones that run the percentages off have have gone up in those percentages somewhere, anywhere from 5 to 10% to get more aggressive, they're offering clearance products, things of this nature. So, um, you know, we're going to continue to do and make sure we offer what we do and provide the service to our customers, uh, and be consistent with it. But we're going to do it a little bit more aggressively and I mentioned to you, the 60 months, we had not run that in almost a year and uh we did that in the uh, second quarter. We put it on Memorial Day, we put it on the website, we didn't actually put it in any of our TV ads.

Cristina Fernandez: And then my second question is, as it relates to pricing, I understand the the need to have to raise prices more to offset the tariff. But can you talk about what you've seen so far from the consumer and those products where you raise prices? Are you seeing any pushback? And do you feel like the consumer can absorb, you know, higher prices as, you know, most retailers will have to raise prices more if these tariffs get finalized?

Uh, that were that run through broadcast and Ott. But we will be adding that into the third quarter. So, you know, we're going to get a little bit more aggressive with that. Uh, but as I said the customer, we're still not seeing an increase in our credit usage. In uh, we actually seeing you know, credit costs in the second quarter went down compared to last year. So they don't they still don't need the 60 months, but it's nice to have it out there as a competitive Advantage, you know, against those that are running it.

Steve Burdette: Yeah. At this point, we have not seen an impact. As a matter of fact, our, you know, our unit sales now follow pretty much to what our sales are in general. So, I mean, that's a good thing. That was not the trend back, you know, the early part of the pandemic and coming out of it in '21, '22. So, you know, we recovered on that. Our unit sales are now trending to what our overall sales are, and we're encouraged by that. We're going to be very strategic in how we execute these pricing changes. And where we can get more, we will get more. And where we have to stay aggressive, we'll stay aggressive. But the end result will be that we will still be able to maintain our margin guidance that we've given y'all of 60 to 60.5.

And then my second question is, as it relates to pricing understand the the need to have to raise prices more to have said the tariffs. But can you talk about what you've seen so far from the consumer in those products where you raise prices? Are you seeing any push back and do you feel like the consumer can absorb, you know, higher prices as you know most uh retailers will have to raise prices more at these tariffs get finalized?

Yeah, at this point we have not seen an impact. Uh as a matter of fact, our you know,

Steve Burdette: And, you know, Christina, we're encouraged by the trend. I mean, you know, traffic remains positive. We've seen it from the fourth quarter to first to second. We've seen our business get better. And so we certainly are optimistic and encouraged.

Our sales are in general. So I mean that's a good thing. That was not the trend back, you know, early part of the pandemic, uh, and coming out of in 2122. So, you know, we've recovered on that, our our unit sales are now trending to what our overall sales are. And we're encouraged by that. We're going to be very strategic in how we execute these pricing changes, uh, and where we can get more, we will get more and where we have to stay aggressive. We'll stay aggressive, but the end result will be that we will still be able to maintain our margin guidance that we've given you all of 60 to 60 and a half. Um, and you know, Christina, we're encouraged by the trend. I mean, you know, traffic remains positive. We've seen it from the fourth quarter to 1st to 2nd.

Cristina Fernandez: And my last question is on real estate. I think if I understood your comment correctly, it seems like some store openings are getting pushed to 26 from 25. Can you confirm if that's the case? And then what, I guess, what are you seeing from the real estate environment broadly? And you feel confident in your ability to have those five openings at a reasonable rent?

Uh, we've seen our business get better, and so we certainly are optimistic and encouraged.

And, uh, my last question on real.

I think I if I understood your comment correctly, it seems like some store openings for getting pushed to 26 from 25. Um, can you confirm that if that's the case and then what? Um,

Steve Burdette: Yes, they are. Rents have not gone down, though. I will tell you that. Now, I will say, if you noticed back on our first quarter call, we had told you that we had reduced our CapEx at that point. And so we kind of put on hold things for, you know, 60 to 90 days. We had some deals going and looking at things. We've gotten back into that. We feel more comfortable now. You heard us mention about the Fenton St. Louis store. That was one we were hoping was going to open this year. It got pushed into next year. The Mount Juliet store, we were able to just finalize that lease in Nashville. And that store will open in Q2. Those are existing stores. The Fenton store is an old Big Lock store. And then the other store in Mount Juliet is a JoAnn store.

I guess what you're seeing from the real estate environment broadly, and you feel confident in your ability to have those 5 openings at a reasonable rent.

Uh, yes, they are. Rents have not gone down though. I will tell you that. Um, now I will say, if you notice back on our first quarter call, we had told you that we had, we reduced our capex at that point.

Steve Burdette: So we feel good about those boxes being converted. The two Houston stores are basically bills. So those are going to take a little bit longer to get executed and brought in line. But, you know, our goal is to get back to the stores a year. We won't make it this year. We'll end up flat at 129 stores, which is where we were at the end of the year in '24. So, but we do feel encouraged with what we got going right now. And it's still, you know, we're still looking. We got things that we're looking at right now, new markets, as well as adding existing to existing markets.

Uh, and so we kind of put on hold things for, you know, 60 to 90 days. We had some deals going and looking at things, we've gotten back into that, we feel more comfortable now. Uh, you heard us mention about the fence in the St. Louis store, that was 1. We were hoping to open this year, it got pushed in the next year. The Mount Juliet store. We were able to just uh finalize that lease in Nashville. Uh, and that store will open in Q2. Uh, those are existing stores. The fence in stores is a, is an old Big Lot store. Uh, and then the other store in Mount Juliet is a Jo-Ann store. So, um, we feel good about those boxes being converted, the 2 Houston stores are basically, uh bills. So, uh, those are going to take a little bit longer to get executed and brought in line. But, you know, our goal is to get back to that 5 stores. A year, we won't make it this year. We'll end up flat at 129 stores, which is where we were at the end of the year and 24. So, um, but but we do feel encouraged with what we got going.

Cristina Fernandez: Thank you.

And, uh, right now and it's still, you know, we're still looking, we got things that we're looking at right now, new markets, as well as uh, adding existing to existing markets.

Steve Burdette: Yes, ma'am.

Thank you.

Operator: There are no further questions at this time. I would now like to turn the floor back over to Richard Hare for closing comments.

Yes, ma'am.

Richard Hare: Well, thank you for your participation in today's call. We look forward to talking with you in the future when we release our third quarter results later this year.

There are no further questions at this time. I would now like to turn the floor, back over to Richard care for closing comments.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Well, thank you for your participation in today's call, we look forward to talking with you in the future. When we release our third, quarter results later this year,

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