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spk01: 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 the date they are made and which we undertake no obligation to publicly update or revise. Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the company's reports filed with the SEC. Our chairman and CEO, Clarence Smith, will now give you an update on our results, and our president, Steve Burdett, will provide additional commentary about our business.
spk00: Good morning. Thank you for joining our 2022 third quarter conference call. We're very pleased to report the third quarter sales performance of $274.5 million and earnings per share of $1.46. The third quarter was the all-time highest sales and operating profit in the company's history. Average has produced the highest sales quarters in our history over the past eight quarters, going back to the fourth quarter of 2020. While we have seen a slowdown in store traffic, which has impacted written orders, we particularly like our position of appealing to a higher-income customer in the fastest-growing states in the country. we're seeing stronger custom orders and more design sales, which is increasing our average sale and helping build profitable market share across our regions. Compared to Q3 2019 pre-COVID, our written sales are up 15.8%. Average sale ticket is up 35% compared to 2019, with a double-digit higher closing rate. Store traffic and units continue to be lower compared to Q3 2019, but with the average ticket over $3,000, a higher closing rate, and strong margins, our focus teams are producing record profits. We continue to see a return to more historically normal sales patterns with holiday events and weekend sales more than the middle-week sales of 2021. Our merchandising teams have recently returned from the High Point Furniture Market. This year, the importance of partnerships and relationships was especially emphasized. With the dramatic change we're struggling with out-of-stock shipping delays these past months, Haverty's long history of solid partnerships with our suppliers was evident and emphasized more than I can. Suppliers are now scrambling with the need for orders in every category, especially in imports. Our solid relationship over many years is a major strength of Haverty's and will help keep our best sellers in stock and provide strong values in the months ahead. In the third quarter, bedroom and dining room sales were higher because we were filling heavy back orders, which will continue in the fourth quarter. We expect to see a return to the historic percentage of sales by class later this year into the first quarter of 2023. We're very excited about the extensive collection of new merchandise coming to our floors in the next several months. We've had great success with new products moving quickly to top sellers after almost two years of holding back on new fashions due to prioritizing the large unfilled backlog. Our management and store sales and designers are already selling into some of these new collections en route. We are very pleased with our record performance. We do have challenges with lower traffic and lower written orders because of high inflation and slowing housing sales. We're encouraged by our team's commitment to serving our customers better with fashion, value, design, and customization. We strongly believe that we will earn a larger share by helping our customers' vision of their home come true in the months ahead. I'll now turn the call over to Steve Burdette, President.
spk05: Thank you, Clarence, and good morning. Our record results for the third quarter were fantastic thanks to the outstanding efforts of our team members. It was nice to see our written business continue to improve from Q2 on a comparable basis, powered by our record performance over the Labor Day weekend. At the end of September, our momentum was hurt by Hurricane Ian's landfall just north of Fort Myers. The impact was devastating to the communities in Southwest Florida and was felt throughout Central and North Florida, as well as the Carolinas. We were very fortunate with only a small number of team members directly impacted. and nominal damage to our locations. Approximately 15% of our stores were closed for three days, impacting deliveries and written business for the quarter. However, we feel that the delivery business missed due to the closings will be shifted to Q4. The written business is lost from the closings in Q3. It should come back with upside for 2023 and 2024 in the highly impacted areas. Our supply chain network continues to improve with our domestic vendors inching closer and closer to pre-pandemic lead times of four to six weeks, while our import vendors' production has returned to pre-pandemic lead times. However, we are seeing longer shipping times with continued port delays in Savannah and the rail disruptions out of Long Beach. We are encouraged that the Savannah port should return to normal operations by the end of November. Our inventories are 15.4% over last year in Q3, while our backlogs remain healthy, but does continue to decrease with our average age remaining consistent at 11 weeks. We are continuing to experience a reduction in our freight rates, both on the spot market, as well as with our new contracted rates from May 2022. Our special order business has made tremendous improvements in Q3. moving to 22.5% of our total upholstered sales from 19% in Q2. Our sales and design team's confidence has been restored due to the continued improvement in our lead times as we move back to our special order goal of 25% of upholstered sales. We are continuing to be encouraged by our design business as it grew to over 25% of our written business for Q3. We have just finished conducting proprietary qualitative and quantitative research to better understand the barriers and triggers for our design business. We'll use these insights to better focus our marketing efforts on building awareness of our design service, as well as communicating the benefits to consumers. We believe there's tremendous upside by exposing more consumers to our design capabilities. Staffing in our distribution centers home delivery areas, and customer service centers is that our expected goals needed to serve our billion-dollar-plus business. Our focus for our teams will remain on training, execution, and retention. We are appreciative to all our team members for their dedication and passion, furnishing happiness to all our customers every day. Now I'll turn the call over to Richard.
spk01: Thanks, Steve. In the third quarter of 2022, net sales were $274.5 million, or a 5.4% increase over the prior year quarter. Comparable store sales were up 6.3% over the prior year period. Our gross profit margin increased 30 basis points to 57.1% from 56.8% due to better pricing discipline and merchandise mix. Selling, general, and administrative expenses increased $8.4 million, or 7.2%, to $124.5 million. As a percentage of sales, these costs approximated 45.4% of sales, up from 44.6% in the prior quarter. As expected, we continue to see increased selling, distribution, and transportation expenses during the quarter over the prior year quarter. Income before income taxes increased $700,000 to $32.6 million. Our tax expense was $8 million during the third quarter of 2022, which resulted in an effective tax rate of 24.7%. The primary difference in the effective rate and the statutory rate is due to state income taxes and the tax benefit from vested stock awards. That income for the third quarter of 2022 was $24.6 million, or $1.46 per diluted share on our common stock compared to net income of $24.2 million or $1.31 per share in a comparable quarter last year. Now, turning to our balance sheet, at the end of the third quarter, our inventories were $137.3 million, which was up $25.3 million from the December 31st balance and up $3.3 million versus the Q2 2022 balance. At the end of the third quarter, our customer deposits were $79.7 million, which was down $19.2 million from the December 31, 2021 balance and down $11.1 million versus the Q2, 2022 balance. We ended the quarter with $137.2 million of cash and cash equivalents. We have no funded debt on our balance sheet at the end of the third quarter of 2022. Subsequent to the end of the quarter, we amended our revolving credit facility and increased the revolving loan commitments from $60 million to $80 million. We extended the term of the commitment to October of 2027, and we've replaced the LIBOR rate with the SOFR rate as the interest rate benchmark. Looking at some of the uses of cash flow, CapEx were $22.1 million for the first nine months of 2022. and we paid $13.4 million of regular dividends during the first nine months of this year. During the third quarter, we purchased approximately $5 million of common shares. That's 187,488 shares. During the first nine months of 2022, we have purchased approximately $30 million of common shares, which amounted to 1,087,378 shares. At the end of the third quarter of 2022, we have approximately $20 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. I will highlight a few, but please refer to our press release for additional commentary. We continue to expect our gross margins for 2022 to be between 57.7% and 58%. We anticipate gross margins will be impacted by our current estimates of product and freight costs and changes in our LIFO reserve. Our fixed and discretionary type of SG&A expenses for 2022 are expected to be in the $290 to $293 million range. The variable type costs within SG&A for 2022 are expected to be in the range of 18.2% to 18.4%. Our planned CapEx for 2022 is $30 million. Anticipated new or replacement stores, remodels, and expansions account for $18.1 million. Investments in our distribution network are expected to be approximately $7.2 million. And investments in our information technology are expected to be approximately $4.7 million. Our anticipated effective tax rate in 2022 is expected to be 25%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This concludes my commentary on the third quarter financial results. Operator, we would like to open the call up for questions at this time.
spk03: Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. Please hold while we poll for questions. Okay, our first question comes from Anthony with Sedolci. Please state your question.
spk04: Yes, good morning, gentlemen, and thank you for taking the question. So your comments are consistent with what we've heard from others as far as a return to seasonal buying as far as furniture around the holidays. Can you give us a sense as to, like, what the difference in traffic patterns are that you've seen around, let's say, Labor Day versus the rest of the quarter? Just some additional color would be helpful. Thank you.
spk05: Yeah, Anthony, this is Steve. You know, our traffic probably stayed pretty consistent as far as, you know, July through September, but we did see better traffic patterns over the Labor Day weekend itself. Still down over the previous year, but it certainly was better than what our trend was for the quarter itself.
spk04: Got it. Okay. Thanks for that. And then... Just, you know, in terms of the retailers that we've tracked, I mean, a lot of them have too much inventory, you know, quite a change from a year ago. So just, you know, thinking about, you know, the fact that, you know, there seems to be a glut of inventory out there at the retail level. So, you know, if this persists into next year, you know, how should we think about your gross margins?
spk00: I think our gross margins are going to be able to hold, Anthony. Our inventory is up, and as I pointed out in my comments, we brought in heavy in bedroom and dining rooms, so our percentage of sales in those categories are up dramatically because they had been down. We're now filling those orders. We don't see that there's going to be pressure to bring down our gross margins anytime in the near future. Most of this product was already sold. But now that we're back in stock in those categories, we're also growing the overall category and feel good about that. Our inventory has increased. We only have a few groups that are in an oversold position. And the stock outs are pretty much in transit. So we don't see that we have a glut. I think what we do have, we can work through and feel good about the balance
spk04: Um, by the end of the year, and my comment was about the, the industry itself. And then that's I did not mean to say that you guys have a glut of inventory. It was more of a common saying, you know, a lot of retailers have too much.
spk00: Yeah, we have heard. Right. Okay.
spk04: Got it. Okay. Thanks for that. And then just thinking about your store-based expansion for the rest of the year and then into next year, how should we think about that as far as the number of stores that you're looking to open and which markets, if you've identified those?
spk00: Well, we do have a goal of five stores a year for next year. We have struggled with getting stores open because of supply chain issues, getting product for the stores, not inventory, but just to build the facilities out, and that's still going to be a challenge. I see there are going to be opportunities for us, but we recognize there's a challenge. I think there are going to be some very good positions in our existing footprint that we're going to be able to move into. And we're looking at every market aggressively for second stores if necessary, some new markets. We think they're going to be opportunities for us to grow with a footprint and a size that is a little bit smaller than we have done in the past. We're looking at store sizes in the 25 range, even smaller in some cases, but 25 to 30,000 square feet where our average is 35 and many we have in the And the 50,000 square foot, so we think there are opportunities. We do have a goal of 5 stores a year. In some markets, it's a challenge to find those locations.
spk04: Got it. Okay. That makes sense. And the last question here. So, you know, given the decline in traffic and written sales, what are the main demand levers that you're using to try to boost traffic?
spk05: Yeah, Anthony, we're still going to – we're using credit as our driver. I mean, you know, and that's our promotion and what we're doing. We're not, you know, looking – we still run promotions, and we'll still be consistent with those. But we're not looking to be, at this point, any more aggressive on those than we have been. We want to make sure we're offering value to our consumers. But the real key trigger we're going to pull is going to be our credit. We've run that more frequently this year. That was a plan. Our credit costs are up. As a result of that, and also the increase in the interest rates, but that will be still our plan going into 2023.
spk04: Got it. Okay. Well, thank you very much and best of luck. Thank you. Thanks, Anthony.
spk03: Okay. Our next question comes from Christina Hernandez with Telsey Advisory Group. Please state your question.
spk02: Yeah, good morning, and congratulations on a good quarter. I had a couple of questions. The first one is sort of a follow-up to Anthony's question about the traffic trends. As we look at to the next quarter or two, are there any periods that are as significant as Labor Day weekend and driving, furniture sales? And on the press release, there was a comment around the last quarter of the year being challenging. Wanted to see if that was more related to overall industry and macro trends or anything specific that you're seeing.
spk05: So, Christina, this is Steve. I would tell you that our anticipation for the fourth quarter, obviously holidays are big, and as we said, we have seen more seasonality return to that. And in this quarter, obviously Veterans Day after Thanksgiving, and then as we move into after Christmas and New Year's promotions. Those are the big drivers and keys that we'll see. More of the concerns that we talk about in the fourth quarter being challenging are more in the macro area and level. It's not, you know, anything else there. And, you know, something to look through in our September numbers of traffic, we were impacted, obviously, with the closings of the stores through Hurricane Ian, you know, had a tremendous impact on that traffic as well. So we feel comfortable where we're going with it. You have Columbus Day, which has already passed. And then you've got the other holidays, and we feel November is obviously a key month in the quarter.
spk02: Thank you. And then on the inventory side, you know, perhaps a different angle. If I look at the inventories being higher, would that, I mean, does that imply that we'll be able to see a greater reduction in the backlog in customer deposits, just being able to deliver more than you have the last quarter to give and you have better inventory position?
spk01: Yeah, Christina, this is Richard. You should expect to see the backlog come down as we, with this inventory levels that we have, we're able to provide, you know, shipments to our customers. So, you should see the, you know, I would anticipate seeing the backlog come down and return to more normalized levels sometime next year. And so, thus, you would also expect to see, as you've seen in the prior quarters, the customer deposit number come down accordingly.
spk02: Then on the SG&E, on the fixed and discretionary side, there was, you know, a small decrease to the outlook for the year, but can you comment on what is, you know, what's driving that, you know, those savings?
spk01: Yeah, I think we brought down the forecast maybe two or three million dollars, and it's basically two buckets. The first and the largest is our We're self-insured on our healthcare, and our healthcare claims are trending much better than we anticipated. So that's a big piece of that. And secondarily, our media buys have been slightly below what we had projected. So those are the two big things, but group insurance being the more significant of the two. Thanks.
spk02: And then the last one I had, any update on the timing of the website launch? Is that still planned before the end of the year?
spk00: We still have it planned for the end of the year. We know we have to work it around the holiday season, and so there may be some timing issues on that, but it is still planned to go live by the end of the year. It's a major emphasis for us and a huge change in the way that site operates, it's going to be a lot more efficient. It involved more than we expected and has been a challenge, but we do expect to go live by the end of the year.
spk02: Thank you, and best of luck this quarter.
spk05: Thank you. Thank you, Kristen.
spk03: And that was our final question. I'll turn it back over to you, Richard, for closing remarks.
spk01: Well, thank you for your participation in today's call. We look forward to talking to you in the future when we release our fourth quarter results.
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