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spk01: Good day and welcome to the HVT third quarter 2021 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the presentation over to Mr. Richard Herr, Chief Financial Officer. Please go ahead, sir.
spk06: 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 report filed with the Securities and Exchange Commission. Our chairman and CEO, Clarence Smith, will now give you an update on our results, and then our president, Steve Burdette, will provide additional commentary about our business.
spk08: Good morning. Thank you for joining our 2021 third quarter conference call. We're very pleased with another record quarter with sales at $260.4 million and net income of $24.2 million. Our team's done an outstanding job in producing this performance during the ongoing COVID concerns, significant product pricing increases, major hiring challenges, especially in warehouse and distribution, rising operating costs, and unprecedented supply chain disruptions. I believe that we've outperformed the competition in being able to deliver to our customers. We're very pleased with the efforts of our merchandising team and the pricing discipline at the store level. Even with the unusual and significant demurrage and LIFO charges, we increased our gross margins and reached record operating profits. Our available inventory is in the best shape we've had in over a year. We're finally restarting new product development that was on hold due to COVID and the massive backlog of sold orders. Clearly, our priority focus is bringing in sold merchandise to bring down our backlogs and to better serve our customers. However, we're a home furnishings retailer, and fashion and style are important drivers of sales. We're always excited to see the latest design and styles hit our floors which is an important differentiator for Havreys. In the past several months, we've added over 500 online exclusive products, including outdoor products and specially occasional items, which have had good response. We greatly appreciate our manufacturing partners in China and Vietnam who struggled with COVID shutdowns in the past several months, but are opening back up and increasing their production levels. Because of the COVID related shutdowns, we will have gaps in imported products, creating some out of stocks, especially in case goods. Our merchandise and supplies teams have a strategy to soften this gap related to the Vietnam factory shutdowns. We expect to end 2021 with 121 stores, one store over last year. In 2022, We have plans to open five stores, netting three. We're evaluating numerous opportunities for locations which we can serve in our distribution footprint. We've been pleased with our strategy of converting existing retail space to Haverty stores. Recently, we've had very good results with stores in the 30 to 35,000 square foot size, a building size with more availability. With the importance of our website and special order tools, we can present a large selection set of merchandise without requiring a much larger store. We're in the process of planning 2022 CapEx. We expect we'll be in the same range as we had this year, approximately $35 million net. Investments in stores and renovations are the largest block. Our single largest investment will be expansion of our Virginia Distribution Center, which we bought back earlier this year. We're converting the facility from a regional home delivery center to a full distribution center to better serve our Atlantic Coast growth. The expansion will allow us to receive direct shipments from the Norfolk port, reducing shipment costs, and allow for quicker deliveries. Our IT and marketing teams are amid major investments in remaking and upgrading our website to be the best in class industry leader. We're focused on ease of use and inspiring our customers throughout the process utilizing the Adobe platform. It will align with an upgraded 3D floor planner, significantly improve graphics, design, and search. The new site will have enhanced personalization, better presentation tools for H designers, and upgraded analytics and reporting. We're expecting the rollout of the new site early in the second quarter next year. As we just released, our fourth quarter written sales are down approximately 3.5% from the same period last year, with delivered sales up 17.5% over last year. For perspective, this year's Q4 written sales to date are up 20.9% and delivered are up 41.5% over 2019. We're having record delivery weeks as we receive more incoming sold product and having much better inventory compared to last year. As all of retail is struggling with delayed shipments for Christmas, we also have real challenges in supply chain and I'd like to ask Steve Burdette, President, to give us an update on our supply chain status.
spk03: Thank you, Clarence. I am thrilled with our results for the third quarter. Our performance could not have happened without the dedication of our entire team in the stores, distribution centers, home delivery, service, and home office whom I want to congratulate personally for their efforts. Our supply chain network has been able to increase the flow of products into our warehouses over the third quarter. Our warehouse inventory levels rose over 8% for the third quarter, and we are seeing our inventories continue to rise so far in October. We will expect to see a slowdown in imports arriving in the November-December timeframe. The headwinds during the quarter continued with the Vietnam shutdown beginning in late July, rising container rates, container congestion at the ports along with container capacity, staffing issues with the continued spread of the Delta variant, and trucking pressures moving products within our network. There was a bright spot during the quarter with the foam supply as our vendors do not see this as an issue moving into the fourth quarter. Vietnam began its shutdown in late July and things accelerated in August where a majority of our factories were closed for the months of August and September. We are getting positive news from our vendors that they began opening at the beginning of October. However, it will be a slow process to get back to 100% production. Majority of the vendors feel like they will be able to get back to 50% to 75% of production by Chinese New Year with a return to 100%, not happening until late first quarter next year. A few vendors did give a more upbeat outlook that they will be back to 100% production by the end of November because of the safety and medical protocols that they had in place. Also, we continue to see shipments coming from Vietnam now. Container capacity, container rates, and port congestion continue to be areas of concern. We expect these issues to continue well into 2022. Our container prices on the spot market continue to increase during the quarter. However, we are seeing a downward trend in October. We continue to balance our shipping mix so that no more than 20 to 30% is on the water at one time at these spot market rates. Due to our focus on ensuring that we could provide our customers with a more consistent flow of product, we incurred higher freight costs during the quarter and a substantial amount of demurrage and detention expense that we expect will be reduced significantly during the fourth quarter. Staffing continues to be a concern as it is not only impacting our distribution, delivery, and service areas, but it's impacting our manufacturers and trucking partners. We continue to evaluate each of our areas of the business to ensure that we are competitive so that we are attracting the best talent. We did start seeing some traction in the latter part of the quarter but still have opportunities. We consider our people our most valued asset as we know our service is what sets us apart from our competitors. We have seen our average age of the undelivered pool continuing to increase to nine weeks from eight weeks over the quarter. Our special order lead times have stabilized due to the improvement in foam supplies, and we have started seeing higher production quantities from our domestic suppliers over the last four weeks. Our special order business is still suffering from these delays, but we feel confident that we will be able to see a bounce back due to a more confident sales team seeing the improvement in our lead times. We remain optimistic for the fourth quarter. Our teams are doing a wonderful job communicating with our customers regarding any delays with their products. While there will be a slowdown on import receipts from Vietnam, we are expecting improved shipping times from our domestic suppliers and improvements in shipments from our bedding suppliers to help offset some of these delays. I would like to once again thank the entire Haverty team and our suppliers for all their support and efforts in making the third quarter a record for Haverty's. Now I'll turn the call over to Richard.
spk06: Thank you, Steve, and good morning. In the third quarter of 2021, Delivered sales for $260.4 million, a 19.7% increase over the prior year quarter. Total written sales for the third quarter of 2021 were up 2% over the prior year period. Comparable store sales were up 17.7% over the prior year period. Our gross profit margin increased 60 basis points from 56.2% to 56.8% due to better merchandise pricing and mix, and less promotional activity during the quarter. These improvements were partially offset by an increase in our LIFO reserve as we continue to see increased freight and product costs. Selling, general, and administrative expenses increased $16.1 million, or 16%, to $116.2 million, primarily due to increased sales activity. However, as a percentage of sales, these costs declined 1,400 basis points to 44.6% from 46%. As Steve mentioned earlier, during the third quarter of 2021, we did experience increased port congestion, and we incurred significant demurrage costs of approximately $2.3 million, which negatively impacted our selling general and administrative costs. However, as demonstrated in the past four quarters, our financial model has substantial operating leverage at these sales levels. Other income in the third quarter of 2020 was $2.4 million, which included the gain on surplus property that was adjacent to our distribution center in Dallas, Texas. Income before income taxes increased $7.4 million to $31.9 million. Our tax expense was $7.7 million during the third quarter of 2021, which resulted in an effective tax rate of 24%. The primary difference in the effective rate and statutory rate is due to state income taxes and the tax benefit from vested stock awards. Net income for the third quarter of 2021 was $24.2 million, or $1.31 per diluted share on our common stock compared to net income of $18.3 million, or $0.97 per share in the comparable quarter last year. Now, looking at our balance sheet at the end of the third quarter, our inventories were $119 million, which was actually up $29.1 million from the December 31, 2020 balance, and up $28 million versus the Q3 2020 balance. At the end of the third quarter, our customer deposits were $120.1 million, which was up $34 million from the December 31, 2020 balance, and up $31.7 million versus the Q3 2020 balance. We ended the quarter with $232.3 million of cash and cash equivalents. We have no funded debt on our balance sheet at the end of Q3 2021. Looking at some of the uses of cash flow, capital expenditures were $28.1 million for the first nine months of 2021 And we paid $13 million of regular dividends during the first nine months of 2021. During the third quarter, we purchased $19.5 million of common stock. That's 537,196 shares. As previously reported, our board of directors authorized an additional $25 million of share repurchases. At the end of the third quarter of 2021, we have $22.3 million remaining under current authorization in our buyback program. Our earnings release lists out several additional forward-looking statements indicating our future expectations of certain financial metrics. I'd like to highlight a few, but please refer to our press release for additional commentary. We continue to expect our gross profit margins for 2021 to be between 56.5% and 56.8%. We anticipate gross profit margins will be impacted by our current estimates of product and freight costs and changes in our LIPO reserve. Our fixed and discretionary type SG&A expenses for 2021 are expected to be in the $278 to $281 million range, an increase over our previous estimate primarily due to rising warehouse and demurrage costs. The variable type costs within SG&A for 2021 are expected to be in the range of 17 to 17.3%. Our planned cap acts for 2021 remains at $37 million. Anticipated new replacement stores, remodels, and expansions account for 18.7 million. Investments in our distribution network are expected to be 15.2 million. and investments in our information technology are expected to be approximately $3.1 million in 2021. Our anticipated effective tax rate for this year is expected to be 24%. This projection excludes the impact on vesting of stock awards and any potential new tax legislation. This completes my commentary on the third quarter financial results. I'd like to turn the call back over to Clarence Smith, our chairman and CEO.
spk08: We're very pleased with the record performance year underway. We're comparing well with the second half records of 2020 and against 2019. We believe that the dramatic return to home that COVID precipitated has changed the importance of home for years to come. We agree with a recent editorial from Jerry Epperson, an industry veteran and analyst in furniture today this week. Quote, following the boomers, the millennials and Gen Xers have moved to desiring homes because of life changes related to having children. We're having another housing boom where people want to move to the suburbs. We're getting back to the 67% of our households being homeowners. The home will continue to grow in importance. You can now shop, bank, see the doctor, and go to church from home. This is going to transform our nation in terms of level of productivity, innovation, and new ideas, unquote. Haverty's 136-year history and strength is in serving the home furnishing needs in the 16 southern, Atlantic, and central states. These areas are gaining the most transplants from the rest of the country. We think that our locations, premium product merchandising, H design services, and dedicated distribution positions us to continue to grow from the all-time record set in the past years. We believe we have the experience, the deep resources, and strong commitment to growing our sales and maintain strong double-digit operating profits in the years ahead. Operator, we'd like to now open the call up for questions.
spk01: Yes, sir. And if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star 1 if you would like to ask a question. And we'll now take a question from Brad Thomas with KeyBank Capital Markets.
spk05: Hi, good morning, Clarence, Steve, and Richard. I hope you're doing well, and congrats on all the strong momentum here, year-to-date, really on track for quite a year in a difficult operating environment.
spk10: Thank you, Brad.
spk05: A couple of questions, if I could. The first is just how to think about the size of the backlog that you all are working with right now and how big that order book is and and what kind of benefit in dollars that could potentially be to sales as that starts to normalize for you. How should we think about quantifying that to the extent you want to share anything with us?
spk06: Hey, Brad, this is Richard. I would say we still have a very healthy backlog. Last year's backlog in the third quarter was exceptional. This year's backlog is is up over 40% from last year. So we do have indeed a very healthy backlog going into the fourth quarter.
spk08: But it's come down in the quarter. It is healthy. We feel like it's something we're now managing. So it's significant. We feel good about what's going to happen this quarter because a lot of it will be delivered this quarter.
spk05: Gotcha. Really helpful. And moving on to the written side of the business, you know, you noted that quarter to date, the written sales are down a little bit here. Can you talk about maybe what may be affecting that? Have there been any changes in how you're promoting, any changes in perhaps what you're seeing out of customer behavior? How do you feel about the cadence of the written orders? As we think about kind of modeling the year over year growth, obviously from an absolute value, you're running at tremendous levels versus pre-pandemic. Just trying to think about what that growth rate may look like going forward.
spk08: Well, out of stocks, certainly affected. And some of our best sellers were flowing in. A lot of the product coming in is already sold going out. So if you're coming in today on some of our best selling, let's just say case goods, the delivery is going to be out. It could be months. It could be in the next year. So people will delay if they can't get the product. What we do find is any product that we get back in stock immediately become our best sellers. So the backlog that affects our best sellers definitely affects what people feel about buying product now. They want to know that they can get it. And I think one of the things that they're recognizing if they – or planning on this, is that they need to place the order to be able to get in line to get it. So the out-of-stocks, even though it's better than last year overall, does affect it. It also, and Steve referred to this, it particularly affects our special orders. And we've been pushing when it first started that we'd be out about a month on a special order. You order upholstery and get it in about a month. We're pleased with domestic producers now increasing their product and being able to get it to us quicker, but it's still something pushed out there from what has been driving our business. In other words, special orders, as you remember, was about 20% of our upholstery business. We've had to back off of some of that, and customers react to it because they can't get it and they don't know when they're going to get it. So having the product, affects incoming orders. It's still a very strong level, but it does affect what people feel about making a purchase.
spk05: That's really helpful. Thanks so much, Clarence, and good luck to you all in the fourth quarter.
spk09: Thank you, Brad. Thanks, Brad.
spk01: And once again, that is star one.
spk00: If you would like to ask a question, and we'll pause for just a moment. And it appears there are no further telephone questions.
spk01: I'd like to turn the conference back over to our presenters for any additional or closing remarks.
spk06: Well, thank you for your participation in today's call. We look forward to talking with you in the future when we release our fourth quarter results.
spk01: And once again, that does conclude today's conference. We thank you all for your participation. you Thank you. I'm going to go ahead and do that. Thank you. you Good day and welcome to the HVT third quarter 2021 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the presentation over to Mr. Richard Herr, Chief Financial Officer. Please go ahead, sir.
spk06: 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 report filed with the Securities and Exchange Commission. Our chairman and CEO, Clarence Smith, will now give you an update on our results, and then our president, Steve Burdette, will provide additional commentary about our business.
spk08: Good morning. Thank you for joining our 2021 third quarter conference call. We're very pleased with another record quarter with sales at $260.4 million and net income of $24.2 million. Our team's done an outstanding job in producing this performance during the ongoing COVID concerns, significant product pricing increases, major hiring challenges, especially in warehouse and distribution, rising operating costs, and unprecedented supply chain disruptions. I believe that we've outperformed the competition in being able to deliver to our customers. We're very pleased with the efforts of our merchandising team and the pricing discipline at the store level. Even with the unusual and significant demurrage and LIFO charges, we increased our gross margins and reached record operating profits. Our available inventory is in the best shape we've had in over a year. We're finally restarting new product development that was on hold due to COVID and the massive backlog of sold orders. Clearly, our priority focus is bringing in sold merchandise to bring down our backlogs and to better serve our customers. However, we're a home furnishings retailer, and fashion and style are important drivers of sales. We're always excited to see the latest design and styles hit our floors which is an important differentiator for Haverty's. In the past several months, we've added over 500 online exclusive products, including outdoor products and specially occasional items, which have had good response. We greatly appreciate our manufacturing partners in China and Vietnam who struggled with COVID shutdowns in the past several months, but are opening back up and increasing their production levels. Because of the COVID-related shutdowns, we will have gaps in imported products, creating some out of stocks, especially in case goods. Our merchandise and supplies teams have a strategy to soften this gap related to the Vietnam factory shutdowns. We expect to end 2021 with 121 stores, one store over last year. In 2022, We have plans to open five stores, netting three. We're evaluating numerous opportunities for locations which we can serve in our distribution footprint. We've been pleased with our strategy of converting existing retail space to Haverty stores. Recently, we've had very good results with stores in the 30 to 35,000 square foot size, a building size with more availability. With the importance of our website and special order tools, we can present a large selection set of merchandise without requiring a much larger store. We're in the process of planning 2022 CapEx. We expect we'll be in the same range as we had this year, approximately $35 million net. Investments in stores and renovations are the largest block. Our single largest investment will be expansion of our Virginia Distribution Center, which we bought back earlier this year. We're converting the facility from a regional home delivery center to a full distribution center to better serve our Atlantic Coast growth. The expansion will allow us to receive direct shipments from the Norfolk port, reducing shipment costs, and allow for quicker deliveries. Our IT and marketing teams are amid major investments in remaking and upgrading our website to be the best in class industry leader. We're focused on ease of use and inspiring our customers throughout the process utilizing the Adobe platform. It will align with an upgraded 3D floor planner, significantly improve graphics, design, and search. The new site will have enhanced personalization, better presentation tools for H designers, and upgraded analytics and reporting. We're expecting the rollout of the new site early in the second quarter next year. As we just released, our fourth quarter written sales are down approximately 3.5% from the same period last year, with delivered sales up 17.5% over last year. For perspective, this year's Q4 written sales to date are up 20.9% and delivered are up 41.5% over 2019. We're having record delivery weeks as we receive more incoming sold product and having much better inventory compared to last year. As all of retail is struggling with delayed shipments for Christmas, we also have real challenges in supply chain, and I'd like to ask Steve Burdette, President, to give us an update on our supply chain status.
spk03: Thank you, Clarence. I am thrilled with our results for the third quarter. Our performance could not have happened without the dedication of our entire team in the stores, distribution centers, home delivery, service, and home office whom I want to congratulate personally for their efforts. Our supply chain network has been able to increase the flow of products into our warehouses over the third quarter. Our warehouse inventory levels rose over 8% for the third quarter, and we are seeing our inventories continue to rise so far in October. We will expect to see a slowdown in imports arriving in the November-December timeframe. The headwinds during the quarter continued with the Vietnam shutdown beginning in late July, rising container rates, container congestion at the ports along with container capacity, staffing issues with the continued spread of the Delta variant, and trucking pressures moving products within our network. There was a bright spot during the quarter with the foam supply as our vendors do not see this as an issue moving into the fourth quarter. Vietnam began its shutdown in late July and things accelerated in August where a majority of our factories were closed for the months of August and September. We are getting positive news from our vendors that they began opening at the beginning of October. However, it will be a slow process to get back to 100% production. Majority of the vendors feel like they will be able to get back to 50% to 75% of production by Chinese New Year with a return to 100%, not happening until late first quarter next year. A few vendors did give a more upbeat outlook that they will be back to 100% production by the end of November because of the safety and medical protocols that they had in place. Also, we continue to see shipments coming from Vietnam now. Container capacity, container rates, and port congestion continue to be areas of concern. We expect these issues to continue well into 2022. Our container prices on the spot market continue to increase during the quarter. However, we are seeing a downward trend in October. We continue to balance our shipping mix so that no more than 20 to 30% is on the water at one time at these spot market rates. Due to our focus on ensuring that we could provide our customers with a more consistent flow of product, we incurred higher freight costs during the quarter and a substantial amount of demurrage and detention expense that we expect will be reduced significantly during the fourth quarter. Staffing continues to be a concern as it is not only impacting our distribution, delivery, and service areas, but it's impacting our manufacturers and trucking partners. We continue to evaluate each of our areas of the business to ensure that we are competitive so that we are attracting the best talent. We did start seeing some traction in the latter part of the quarter, but still have opportunities. We consider our people our most valued asset as we know our service is what sets us apart from our competitors. We have seen our average age of the undelivered pool continuing to increase to nine weeks from eight weeks over the quarter. Our special order lead times have stabilized due to the improvement in foam supplies, and we have started seeing higher production quantities from our domestic suppliers over the last four weeks. Our special order business is still suffering from these delays, but we feel confident that we will be able to see a bounce back due to a more confident sales team seeing the improvement in our lead times. We remain optimistic for the fourth quarter. Our teams are doing a wonderful job communicating with our customers regarding any delays with their products. While there will be a slowdown on import receipts from Vietnam, we are expecting improved shipping times from our domestic suppliers and improvements in shipments from our bedding suppliers to help offset some of these delays. I would like to once again thank the entire Haverty team and our suppliers for all their support and efforts in making the third quarter a record for Haverty's. Now I'll turn the call over to Richard.
spk06: Thank you, Steve, and good morning. In the third quarter of 2021, Delivered sales for $260.4 million, a 19.7% increase over the prior year quarter. Total written sales for the third quarter of 2021 were up 2% over the prior year period. Comparable store sales were up 17.7% over the prior year period. Our gross profit margin increased 60 basis points from 56.2% to 56.8% due to better merchandise pricing and mix, and less promotional activity during the quarter. These improvements were partially offset by an increase in our LIFO reserve as we continue to see increased freight and product costs. Selling, general, and administrative expenses increased $16.1 million, or 16%, to $116.2 million, primarily due to increased sales activity. However, as a percentage of sales, these costs declined 1,400 basis points to 44.6% from 46%. As Steve mentioned earlier, during the third quarter of 2021, we did experience increased port congestion, and we incurred significant demurrage costs of approximately $2.3 million, which negatively impacted our selling general and administrative costs. However, as demonstrated in the past four quarters, our financial model has substantial operating leverage at these sales levels. Other income in the third quarter of 2020 was $2.4 million, which included the gain on surplus property that was adjacent to our distribution center in Dallas, Texas. Income before income taxes increased $7.4 million to $31.9 million. Our tax expense was $7.7 million during the third quarter of 2021, which resulted in an effective tax rate of 24%. The primary difference in the effective rate and statutory rate is due to state income taxes and the tax benefit from vested stock awards. Net income for the third quarter of 2021 was $24.2 million or $1.31 per diluted share on our common stock compared to net income of $18.3 million or 97 cents per share in the comparable quarter last year. Now, looking at our balance sheet at the end of the third quarter, our inventories were $119 million, which was actually up $29.1 million from the December 31, 2020 balance, and up $28 million versus the Q3 2020 balance. At the end of the third quarter, our customer deposits were $120.1 million, which was up $34 million from the December 31, 2020 balance, and up $31.7 million versus the Q3 2020 balance. We ended the quarter with $232.3 million of cash and cash equivalents. We have no funded debt on our balance sheet at the end of Q3 2021. Looking at some of the uses of cash flow, capital expenditures were $28.1 million for the first nine months of 2021 And we paid $13 million of regular dividends during the first nine months of 2021. During the third quarter, we purchased $19.5 million of common stock. That's 537,196 shares. As previously reported, our board of directors authorized an additional $25 million of share repurchases. At the end of the third quarter of 2021, we have $22.3 million remaining under current authorization in our buyback program. Our earnings release lists out several additional forward-looking statements indicating our future expectations of certain financial metrics. I'd like to highlight a few, but please refer to our press release for additional commentary. We continue to expect our gross profit margins for 2021 to be between 56.5% and 56.8%. We anticipate gross profit margins will be impacted by our current estimates of product and freight costs and changes in our LIPO reserve. Our fixed and discretionary type SD&A expenses for 2021 are expected to be in the $278 to $281 million range, an increase over our previous estimate primarily due to rising warehouse and demurrage costs. The variable type costs within SD&A for 2021 are expected to be in the range of 17 to 17.3%. Our planned cap acts for 2021 remains at $37 million. Anticipated new replacement stores, remodels, and expansions account for 18.7 million. Investments in our distribution network are expected to be 15.2 million. and investments in our information technology are expected to be approximately $3.1 million in 2021. Our anticipated effective tax rate for this year is expected to be 24%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the third quarter financial results. I'd like to turn the call back over to Clarence Smith, our chairman and CEO.
spk08: We're very pleased with the record performance year underway. We're comparing well with the second half records of 2020 and against 2019. We believe that the dramatic return to home that COVID precipitated has changed the importance of home for years to come. We agree with a recent editorial from Jerry Epperson, an industry veteran and analyst in furniture today this week. Quote, following the boomers, the millennials and Gen Xers have moved to desiring homes because of life changes related to having children. We're having another housing boom where people want to move to the suburbs. We're getting back to the 67% of our households being homeowners. The home will continue to grow in importance. You can now shop, bank, see the doctor, and go to church from home. This is going to transform our nation in terms of level of productivity, innovation, and new ideas, unquote. Haverty's 136-year history and strength is in serving the home furnishing needs in the 16 southern, Atlantic, and central states. These areas are gaining the most transplants from the rest of the country. We think that our locations, premium product merchandising, age-designed services, and dedicated distribution positions us to continue to grow from the all-time record set in the past years. We believe we have the experience, the deep resources, and strong commitment to growing our sales and maintain strong double-digit operating profits in the years ahead. Operator, we'd like to now open the call up for questions.
spk01: Yes, sir. And if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star 1 if you would like to ask a question. And we'll now take a question from Brad Thomas with KeyBank Capital Markets.
spk05: Hi, good morning, Clarence, Steve, and Richard. I hope you're doing well, and congrats on all the strong momentum here, year-to-date, really on track for quite a year in a difficult operating environment.
spk10: Thank you, Brad.
spk05: A couple of questions, if I could. The first is just how to think about the size of the backlog that you all are working with right now and how big that order book is and and what kind of benefit in dollars that could potentially be to sales as that starts to normalize for you. How should we think about quantifying that to the extent you want to share anything with us?
spk06: Hey, Brad, this is Richard. I would say we still have a very healthy backlog. Last year's backlog in the third quarter was exceptional. This year's backlog is is up over 40% from last year. So we do have indeed a very healthy backlog going into the fourth quarter.
spk08: But it's come down in the quarter. It is healthy. We feel like it's something we're now managing. So it's significant. We feel good about what's going to happen this quarter because a lot of it will be delivered this quarter.
spk05: Gotcha. Really helpful. And moving on to the written side of the business, you noted that quarter to date, the written sales are down a little bit here. Can you talk about maybe what may be affecting that? Have there been any changes in how you're promoting, any changes in perhaps what you're seeing out of customer behavior? How do you feel about the cadence of the written orders? As we think about kind of modeling the year over year growth, obviously from an absolute value, you're running at tremendous levels versus pre-pandemic. Just trying to think about what that growth rate may look like going forward.
spk08: Well, out of stocks, certainly affected. And some of our best sellers were flowing in. A lot of the product coming in is already sold going out. So if you're coming in today on some of our best selling, let's just say case goods, the delivery is going to be out. It could be months. It could be in the next year. So people will delay if they can't get the product. What we do find is any product that we get back in stock immediately become our best sellers. So the backlog that affects our best sellers definitely affects what people feel about buying product now. They want to know that they can get it. And I think one of the things that they're recognizing if they – or planning on this, is that they need to place the order to be able to get in line to get it. So the out-of-stocks, even though it's better than last year overall, does affect it. It also, and Steve referred to this, it particularly affects our special orders. And we've been pushing when it first started that we'd be out about a month on a special order. You order upholstery and get it in about a month. We're pleased with domestic producers now increasing their product and being able to get it to us quicker, but it's still something pushed out there from what has been driving our business. In other words, special orders, as you remember, was about 20% of our upholstery business. We've had to back off of some of that, and customers react to it because they can't get it and they don't know when they're going to get it. So having the product, affects incoming orders. It's still a very strong level, but it does affect what people feel about making a purchase.
spk05: That's really helpful. Thanks so much, Clarence, and good luck to you all in the fourth quarter.
spk09: Thank you, Brad. Thanks, Brad.
spk01: And once again, that is star one.
spk00: If you would like to ask a question, and we'll pause for just a moment. And it appears there are no further telephone questions.
spk01: I'd like to turn the conference back over to our presenters for any additional or closing remarks.
spk06: Well, thank you for your participation in today's call. We look forward to talking with you in the future when we release our fourth quarter results.
spk01: And once again, that does conclude today's conference. We thank you all for your participation.
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