Haverty Furniture Companies, Inc.

Good day and welcome to the Haverty's first quarter 2020 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Richard Hare. Please go ahead, sir.

Thank you, operator. 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 in which we undertake no obligation to publicly update or revise. Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the company's reports filed with the Securities and Exchange Commission. Our President, CEO, and Chairman Clarence Smith will now give you an update on our results and provide commentary about our business.

Good morning. Thank you for joining our call. We have experienced a lifetime of changes since our earnings call in February. We just reported Q4 2019, which was the first positive quarterly sales increase for the year. And in 2019, we moved a significant amount of products to Vietnam factories from China because of the tariffs. At year-end 2019, only 17% of our total furniture purchases were produced in China, down from over 35%. We had just begun to be in stock on best sellers as we started the year compared to the tariff impacted situation of the first half of 2019. We built up our inventory of much of our best selling goods prior to this year's Chinese New Year. We were scrambling to get product to complete our double digit sales increases. Our sourcing team members were on the way to visit our Vietnamese factories to speed up deliveries. Our merchandising and supply teams We're closely watching the impact of the delayed opening of the Chinese factories due to the coronavirus. We were concerned with the ability of Chinese workers to return to work in the Vietnamese factories and in China, and the delays in critical parts would affect product delivery dates. We expected to have some product shipment delays, which could affect stock availability in the second quarter. For the first two months of 2020, we were up 12%. with solid profits and strong closing rates, along with increases in H design sales and average sale. And then COVID-19 changed the world. We started the year with team member counts of 3425 level with 2018. We watched what other retailers were doing and heard what the government said about closing non-essential businesses And on March 19, we closed all our stores and shut down distribution two days later, leading our industry for what we'd hoped would be two weeks, and we paid our team members during this time. Even though we closed the last two weeks of March, our strong start to the quarter allowed us to produce profits of $0.09 versus $0.17 last year. At the first of April, we made the painful decision to furlough over 3,000 team members. We canceled orders for the first time in many years to try to handle the incoming orders without overwhelming us. During the closure, our executive team, regional managers, general managers, and the distribution centers made extensive preparations and ultimately the difficult decision to have a reduction in force of 1,200 team members. We set the opening plans for May 1, where the states allowed, again, leading most of the industry. We made the decision to pull down our revolver. Even with over $60 million in cash, we suspended the stock buyback program and reduced CapEx to $5 million. In early April, we worked on our largest financial transaction in our history. with a $70 million sale lease back on our three owned distribution centers, two of which we had recently expanded. We moved with record speed to close that transaction this past Monday. The expected gain will help offset the anticipated losses in the second quarter. With most of our stores now open, I believe that we are one of the strongest public furniture retailers in the industry, and well positioned to come through this pandemic and financial crisis. You have seen the recent retail bankruptcies. Unfortunately, I believe there will be more closings in the furniture industry. We were very pleased to be able to open many of our stores on May 1. We began with 103 stores out of 120, operating with about 25% of our sales staff on limited hours. We're pleased with the opening results and now have 116 stores open for the Memorial Day weekend. This past weekend, we added back much of our furloughed sales staff, which brings us back to about 50% of our former sales staffing. The expansion of chat has been an important program for maintaining our relationship with our customers. During the six weeks that we were closed, we added store managers, and general managers to our chat team. We expanded hours to 7 a.m. to 12 a.m. and added chat agents of store managers, corporate buyers, and office supervisors. Chats have increased 65%. We also created a new process for virtual design so that we can still provide design services with higher average tickets when customers prefer to work from home on their projects. Internet sales are now close to 6%, triple the rate last year. We will continue to work towards making our website easier to use. We will significantly increase our spend in digital and social marketing to reach our target customers. We've just begun our broadcast and connected TV advertising, and our teams are energized to be back with our best producers on the floor. We're seeing strong upholstery sales as families are motivated to have their family rooms comfortable. Our new campaign of Better Together started last weekend, billing for Memorial Day weekend, and we come back with Take Comfort in June, which I think should resonate with our customers. We now expect our retail sales square footage to be down 1.7% in 2020 with the planned closings and delaying of openings. I feel it is somewhat ironic and prophetic that we just began our celebration of 135 years of history. We've emphasized our long history and our ability to survive 22 recessions. Our entire team is now being severely tested, unlike ever before. Our customer has changed very quickly, and we are changing with her. As we said during the celebration that began late last year, Haverty's has always gained the most in tough times, and these are the toughest times we've ever seen in our history. I'm immensely proud of our team, which has stepped up very quickly and reacted to these changes. We are listening and responding to the challenges. Haverty's is moving fast and learning to understand, reach, and serve our customers the way she wants. Our team is energized to make the second half of 2020 a comeback, an opportunity to strengthen Haverty's position in delivering outstanding value and service and gain profitable market share. I'll now turn the call back over to Richard.