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spk03: Good morning. Our third quarter results were weaker than expected, fueled by a weak Labor Day event proving to be slower than anticipated as our written sales were down roughly 16% from our record Labor Day event last year. Store traffic continues to be our biggest obstacle. However, we were pleased to see our overall average ticket rise low single digits and our closing rate percentage remain basically flat for the quarter when compared to Q3 last year. Our supply chain network is continuing to experience no headwinds with production or shipping times from our vendors. Our inventories were down approximately 26% from Q3 last year. Our backlogs continue to remain consistent with pre-pandemic levels, and our inventories are balanced to the current business conditions. Our lead times from our vendors continue to help drive our special order business. For Q3, our special order business was up approximately 47%, over last year and represents 33% of our upholstered business for the quarter. These increases have continued to be driven by our design business, which grew to 29% of our business for the quarter, with our designer average ticket growing just over 10%. Our focus is to continue to make sure that we are exposing all our customers to our complimentary design services and increasing the number of customers that are engaging with our designers, which will help drive continue to drive our average ticket higher. Our business partner continues to work with us as we are seeing improvements in our website's performance. Additionally, our more robust analytics have allowed us to make progress on our A-B testing roadmap that is leading to more personalization and improved user experience. We continue to get good feedback from our sales and design teams on the new products that our merchandising teams are bringing to our stores. Extended financing continues to play an important part in our largest promotional holiday events each quarter as we manage these costs with rising interest rates. Distribution, home delivery, and service are executing well, staying focused on getting it right the first time for our customers. Finally, I want to thank all of our team members throughout the company for all they do every day to help set Haverty's apart from our competition. Now I'll turn the call over to Richard.
spk00: Thank you, Steve. Looking at our income statement in the third quarter of 2023, net sales were $220.3 million, a 19.7% decrease over the prior year quarter. Comparable store sales were down 20.7% over the prior year period. Our gross profit margin increased 370 basis points to 60.8% from 57.1 due to reductions in freight, a positive LIFO inventory adjustment, and better pricing disciplines. SDNA expenses decreased 11.8 million, or 9.5%, to $112.7 billion. As a percent of sales, these costs approximated 51.1% of sales, up from 45.4% in the prior year quarter. We experienced decreased selling costs, advertising, distribution, and transportation expenses during the quarter. Other income and our expense in the third quarter of 2023 was negligible, and interest income was approximately $1.7 million during the third quarter, as we earned more on our cash deposits due to higher interest rates. Income before income taxes decreased $9.7 million to $22.9 million. Our tax expense was $5.8 million during the third quarter of 2023, which resulted in an effective tax rate of 25.2%. The primary difference in the effective rate and statutory rate is due to state income taxes. Net income for the third quarter of 2023 was $17.2 million, or $1.02 per diluted share on our common stock, compared to net income of $24.6 million, or $1.46 per share in the comparable quarter last year. Now turning to our balance sheet, at the end of the third quarter, our inventories were $102.3 million, which was down $16 million from December 31st, 2022 balance, and down $35 million versus Q3 2022 balance. At the end of the third quarter, our customer deposits were $46.3 million, which was down $1.7 million from December 31st, 2022, and down $33.4 million versus the Q3 2022 balance. We entered the quarter with $134.3 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of the third quarter of 2023. Looking at some of our uses of cash flow, capital expenditures were $46.4 million for the first nine months of 2023. As a reminder, we repurchased our Florida distribution facility in the second quarter for $28.2 million. In addition, during the first nine months of 2023, we paid $14.3 million in quarterly dividends. During the third quarter, we purchased 104,221 shares of common stock under our existing buyback program for $3.2 million. We have approximately $16.8 billion 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'll highlight a few, but please refer to our press release for additional commentary. We expect our gross margins for 2023 to be between 60 and 60.2%. We anticipate gross profit margins will be impacted by our current estimate of product and freight costs and changes in our LIPO reserves. Our fixed and discretionary type SG&A expenses for 2023 are expected to be in the $286 to $288 million range. The variable type costs within SG&A for 2023 are expected to be in the range of 19.6 to 19.8%. Our planned CapEx for 2023 is $55 million. Anticipated new or replacement stores, remodels, and expansions account for $19 million. Investments in our distribution network are expected to be $33.5 million, and investments in our information technology are expected to be approximately $2.5 million. Our anticipated effective tax rate in 2023 is expected to be 25%. This projection excludes the impact from investing of stock awards in any potential new tax legislation. This completes my financial commentary on the third quarter results. Operator, we would like to open up the call for questions at this time.
spk05: Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate 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 key. Our first question comes from the line of Anthony Levizinski with Sidoti & Company. Please proceed with your question.
spk06: Good morning, gentlemen, and thank you for taking the questions. So, you know, as I look actually, you know, the first quarter written trends, they were actually down less than what you guys had in the second quarter. So I guess there was some sequential improvement there. I know you guys talked about Labor Day, but just wondering, you know, as far as like the rest of the business throughout the quarter, how did that perform, you know, versus your expectations? And did you see any big changes, you know, versus what you had, you know, thought about as far as business progression?
spk00: Yeah, hey, Anthony, good morning. This is Richard. Just in terms of our written business and cadence during the quarter, if you recall, in the second quarter, I believe we were down around 14.7%. In July, we were down a little slightly over 8% down, so there was a nice improvement there. And then in August and September, we kind of went back to the same range that we saw for the quarter, you know, in the second quarter overall. So we saw some slight improvement in July and then back to you know, the 14.7% range in August and then slightly lower than that, but still double digits in September.
spk06: Okay, that's a helpful color, Richard. So, and do you know as far as like what drove that? Was there anything competitively happening in your marketplace or, you know, or is it just macro headwinds?
spk01: I think it's just macro. We haven't seen anything dramatically different with any of our competition, and there wasn't anything happening differently with us. So I think it's just the overall mood of the market.
spk03: And as I commented, Richard, I mean, Anthony, about the Labor Day event, that drove the August-September number, you know, looking at it over a two-week promotional period. I mean, we were down more over that two weeks than we were outside of it, you know, for those two months. But it drove the overall on both of them. We were encouraged coming out of July, you know, with the single digits. But certainly, we were going against a record Labor Day last year. We had a fabulous, you know, promotional period last year, an all-time high. So, we were down off of that. And that's what contributed to the bigger decreases in August and September.
spk06: Okay. So, it sounds like it was a tough comparison. Okay. And then, Clarence, you mentioned the outdoor furniture. Just wondering about the opportunity there as far as what we can see, whether this and also will this be in all stores or just some stores? How should we think about that?
spk01: Well, I said it was a new category. It's a new category because we dropped the last iteration of it several years back. We're going to do it the right way this time. It will not be in all of our stores, but it'll be in the ones that make the most sense for us, and eventually probably all of our stores. So, it'll be a more limited program, and there are some special order opportunities in it. I don't see it as a significant part of our business. It could be a couple of percent, maybe, 2% to 3% ultimately, but I think it's important, particularly for our special order custom design sales, which is now a bigger part of our business. Our customers want to have the hold home done, and this allows us to do that. So we're excited about it.
spk06: Okay. Thanks, Clarence. And then, you know, last question for me before I pass it on to others. So Your gross margin has certainly done very well. It's had a nice tailwind from LIFO. How should we think about the overall gross margins beyond this year?
spk00: Anthony, this is Richard. This is a great question. This particular quarter, we had a pickup of around $2.3 million in the third quarter. Last year, it was an expense of about the same amount, $2.5 million. So the overall improvement in gross margins for the quarter in terms of our merchandise margins, freight, and product discipline, that was about 45% of the increase. 55% of it is LIFO. We expect that to continue for the remainder of this year. We're still, you know, forecasting next year's, and we'll release our, you know, on the fourth quarter call, we'll give guidance for gross margins for 2024.
spk06: Gotcha. Okay. Well, thank you very much and best of luck. Thanks, Anthony.
spk05: Our next question comes from the line of Michael Legg with the Benchmark Company. Please proceed with your question.
spk02: Thanks. Good morning, everyone. Congrats on a nice quarter. Can you talk just a couple quick questions? One, from the competition perspective, what you're seeing from a promotional perspective in your regions and how that's playing out? Second, your design initiatives obviously are doing well. Can you talk about any opportunity to expand that? You know, how many designers do you have in each store? Is that something you're looking to expand? And then just on the outdoor furniture, what's that margin profile like compared to the rest of the company products? Thanks.
spk03: Okay. So, Mike, this is Steve. So, from a competitive standpoint, I would say, you know, activity certainly has picked back up. People are I've seen probably a little more conservative approach to the financing. People are looking at that because of the rising cost and what goes on there. But obviously, you're still seeing the activity around the holiday events. And from the promotional players, you're seeing maybe increased activity at those levels as well. But really no real change overall from discounts or anything like that that they're offering Those have been pretty consistent. From a designer opportunity, I think, you know, we have certainly opportunity to grow that. We average right now about one designer per showroom. And, you know, our opportunity is to look at how can we increase that to get seven-day coverage and what does that look like. And we're doing some experimentations of adding either a designer to additional stores where it makes sense. to make sure we got that coverage in our bigger showrooms, and then we'll continue to see how we can expand that out. So, you know, I do think we'll increase that number as we go forward into 2024 so that we can have that coverage in our bigger stores. So we, you know, probably could push toward, you know, one and a half per showroom on average as you go forward into 2024. And then as far as the margins on the outdoor furniture, I don't anticipate it to be any different than our regular margins that we get.
spk02: uh and attending so it won't be a hindrance on our margins and it won't be a plus it'll be in line with all the other merchandise hope that answers your questions yep thanks and then just to follow up on the designer piece um when you when you look at that is is there an opportunity to get higher scale furniture with that? I mean, it's almost like you're getting into a different category of, you know, custom designing. And is there, does that change the price point at maybe the high end of furniture you may start to carry longer term?
spk03: We are carrying, we do have access and have more products available to our designers that are special order that they have access to. Our sales consultants do as well. We think that's an important piece to fill in, and that is on the better end side of the product line that we see. But I do think our opportunity there is getting into the home. And so if we can get into the home, we will see our average tickets continue to increase. We know that that is, you know, the largest average ticket is when we get to the home. If we involve the designer in the showroom, we know that that's obviously increased, you know, about, you know, 50% from where it is today. you know, on average for the company. You know, we're running about 3,300 now. So there is opportunity to grow it, and it is opportunity we're looking at better products. Not necessarily that we'll bring into the lineup, but that we can access the special order to be able to meet their needs.
spk02: Great. Thanks and congratulations.
spk05: Thank you. Our next question comes from the line of Christina Fernandez with Kelsey Group. Please proceed with your questions.
spk07: Hi, good morning. I had a couple of questions. The first one is on the ticket trends. You're seeing the up 2%. It's still good to see it up year over year, but it's decelerating, even with the designer penetration going up. So I wanted to see what's the offset on the ticket side, and do you think ticket can continue to move up as we go through the next couple of quarters?
spk03: Yeah, Christine, I definitely do. I think we can continue to increase that. Is it going to be at the same rate we did over the, you know, from 19 as we came out? No. You know, so obviously I think it'll stay in that low single digits. But I think the opportunity lies with our designer and us continuing to increase and drive that. You know, I talk about it, the number of customers. We're really focused on trying to engage more of our customers and And so, we're seeing that increase, and I think we, you know, still have a lot of leg room there to go and opportunities. So, yes, we have seen, you know, maybe there's some smaller tickets that drove a little bit of that decrease that you saw. You're looking at it being in the 2% range, but we're not, we see it long-term as an opportunity for us to continue to grow, but it will be in the low single-digit range.
spk01: I think it's not just the designers. We're also adding some better lines to our whole collection here, some upper-end product that allows for more customization that we've ever had before, and I think it will be well-received. So the combination, I believe, will help us continue to drive the average ticket up.
spk07: And then following on that comment, Clarence, you mentioned earlier on the call about the teams going to Vietnam and coming up with the new collection. So should we think about the newness that's coming in next year higher than what you saw this year, or is it just, you know, count the same overall percentage of the timing a little bit different?
spk01: I think we're emphasizing the better end of the market across our lineup and, and, We're getting great results from it, and I think we're getting more workability with the vendors to do customization across the line. For instance, we're bringing in leather from China, actually, on some of our best-selling upholstery that is custom, and we're getting it in quick ship. from China, but I think the overall trend is towards the upper end with us and where we're having the most success.
spk07: Then the second question I had was around the store openings for next year, particularly the Bed Bath & Beyond stores. How are the retrofits progressing and is the timing still to open those stores in the first quarter of next year?
spk03: It's going to stretch a little bit, Christina. This is Steve. We've had a little bit of a delay in some permitting, especially in Florida. It's taken us a little bit longer than anticipated. And if you remember, when we acquired those stores, we talked about, I believe on the last call, we basically brought in the Halloween spirit stores for a temporary period to help offset some costs. And so we took those stores back over here in the next couple of weeks here, and we'll start the redo process and then working on the permitting process. as part of that, but it will start, one of the stores will open up. We anticipate late first quarter and the other three will come in the second quarter.
spk07: Thank you. And then last question on the buybacks. It was good for us to see you buying back stocks. You hadn't done it in the three prior quarters. So what gave you the confidence to go ahead and do that this quarter?
spk01: Well, our cash position and the fact that we feel our position in the marketplace is strong. I mean, sales are tough, but we know that we're able to gain share. We like all of our work here. We think that we're in a position to grow our business. So the main thing is that we've got the cash and the opportunity to do it. The stock did drop some, and we were back in the market. Now, we meet... next Friday with our board and we go over this every single board meeting and that'll be clearly a conversation that we'll bring back up as far as giving cash back to our shareholders.
spk07: Thank you and best of luck this quarter.
spk05: Thank you. Our next question comes from the line of Bud McGratch with Water Tower Research. Please proceed with your question.
spk04: Good morning, and thank you for taking my questions. Good morning, clients, Steve and Richard. Congratulations on the profit performance of this quarter. Very impressive.
spk01: Welcome back, Bud. It's been a long time.
spk04: Thank you. Thank you. Thank you, clients. Good to be back. The questions I have primarily relate to the sales impact, and you all have got a wide swath in stores and talk to a lot of consumers in the stores as you visit the stores. And we've had the, and Clarence, you noted the twin effects of movement from focusing on the home, which we saw during COVID and then the higher interest rates, kind of a double whammy to industry demand right now. I wonder if you, as you talk to consumers, are you seeing that change? It seems like we've, we watched this diversion to, uh, to services away from the home now for maybe three to five quarters. So are you seeing that come to an end? Do you sense that as you talk to consumers in the stores?
spk01: Well, Steve and I have been with the industry players, and we're listening to what's happening out there. It's certainly an impact, and I don't see a clear ending to it. Some of the terms we've heard is the second half of next year. it might start to get better. That's probably as good as I can give you as far as what we anticipate. I mean, we're in a tough situation now for the industry. And those who have debt and need to refinance will have issues. And there are going to be opportunities for us. So we're prepared to take advantage of converting existing boxes to Haverty's. We're very good at that. And that's what we're looking at. So it is a tough time. And I don't see a clear ending to it. But I would think late next year should be better.
spk04: And Steve, are you seeing any change in the cycle times of when customers start the process? And I'm particularly thinking of design customers. They begin and you go through a process. Is the sales cycle at all changed? And
spk03: Can you... But on that side of it, yeah, from a designer standpoint, it hasn't changed. I mean, it's still the same. I mean, you know, somebody's either moving, they're redoing a home, and that's been part of the process. What may have sped it up is our availability of product. We can get it quicker and provide it quicker to them where a year ago, two years ago, we were struggling with that. And so that stretched it out because of us. Now it's because... It's where the consumer is, and so we're able to meet them. So I'd say from that standpoint, it has condensed because the consumers, you know, we're able to deliver the product quicker to the consumer based on their needs. But overall, I'd say the cycle is still, you know, the same. We can deliver quickly on in-stock product. We still deliver within less than a week and, you know, some cases within two to three days. It just depends on the area we're going to and when that market, you know, when that's available.
spk04: That's always been a strength of Haverty's, so... And you have a number of different regions. Are you seeing any geographical differences between the regions in terms of comps and order comps?
spk03: We really aren't, but, I mean, it's pretty much across the board, you know, across all the districts. You know, we've got seven districts, and they're all, you know, equally down within a percentage or two of each other. So there's no real difference there.
spk04: Okay. And the quarter-ending backlog versus the quarter-beginning backlog, can you comment? Is there much change in that? I know you had less – the orders were down less than delivery, so that would say that the backlog probably grew during the quarter. Is that a good way to look at it?
spk00: Hey, Bud, it's Richard. I'd say the backlog number in the last quarter and the end of quarter and the third quarter is basically flat. And our customer deposit number – at the end of the third quarter versus the end of the second quarter, you know, is basically flat as well. So we're kind of at a, you know, we're back to the old backlog. We're delivering what the orders that we take in.
spk04: And you haven't made any changes. I'm sorry.
spk00: Go ahead, Clarence.
spk04: I said what you kill again, bud. Gotcha. I know that phrase, Clarence. In our industry, we're very familiar with that phrase. The issue that you mentioned, and I think it's very accurate, you're a strong player with your suppliers, and the suppliers have got to be hurting maybe even worse than the customers are, than their customers are. And you have some opportunity there. What are you hearing from them? And you talked about some of the new collections coming in. obviously you're not going to take advantage of them, but that doesn't mean that you don't get great new product and great new pricing.
spk01: I mentioned John Gill in Vietnam last week, and he told me that a number of our key suppliers who are the best players in the industry are down anywhere from 30 to 50%, and they're all looking for orders. So I mean, we're not worried about these guys failing or anything like that, but it is hitting the manufacturers, I think, more dramatically than the retailers right now, and that all catches up. So everything was on hold last year. I mean, it took us sometimes up to nine months to get product, and now it's down to normal or even shorter. A number of vendors are hurting, but I think our suppliers we feel very good about. And the partnership there are strong. And they come to us and give us great values. And we appreciate that.
spk04: Okay. And you did mention you were bringing in some leather from China. Are there any geopolitical issues that are going on that might worry you with China? The country's got its own issues.
spk01: You know, we... We used to do almost everything from China, now only basically the better in leather. They're very good suppliers. We like them. We do, it does make us uncomfortable with what's happening, but they're able to work through it, and we're getting the product, and they're good partners. So they still, with even the tariff on top of them, are offering better quality product than we're getting elsewhere. But you certainly have to look at moving it to other places like Vietnam or even Cambodia, things like that. We're looking at all of that. But right now, we have some very strong players in China that we're still doing good business with.
spk04: And much of the leather in China, as I recall, was being imported from Italy and actually tanned either in Italy or also in China because of their lack of environmentalism. Is it still coming from Italy?
spk01: I'm sorry. And it comes from the U.S. too and South America. But that's where most of it is anyway.
spk04: Okay. And last for me, I'm always curious to get into the outdoor furniture business. When I was in the retail business, it was the product category I both hated and loved the most because of the seasonality and and the differences. So you said you're going to do it right this time. Can you maybe give us a feeling of what you meant by that and what was different about this time?
spk01: It's fewer collections. It's only two or three collections that we'll have available, and then we do the rest of it throughout suppliers who do it as a third-party arrangement. And we won't roll it out everywhere. We'll start where we know it's going to do the best and expand it from there. And these suppliers are very good at it. We're just going to be more controlled, more focused, more strategic.
spk04: And Haverty's branded, that's an area where there are brands in outdoor. Is it Haverty's branded or is it national branded? Oh, no, it'll be Haverty's branded product. Okay. And what about accessories like fire pits and the other stuff that you're thinking with that category?
spk01: We'll have some of that, but it'll still be Hamity's branding.
spk04: Gotcha. Well, good luck on it. Be interested to see it in the stores. When does it hit? When does it hit in the stores? It starts arriving in December and then January. Okay. Great. Thank you and good luck on next quarter and the year. Thank you. Thank you, bud.
spk05: There are no further questions in the queue. I'd like to hand the call back to Mr. Hare for closing remarks.
spk00: Well, thank you for your participation in today's call. We look forward to talking with everybody in the future when we release our fourth quarter results later on this year. Thank you.
spk05: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
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