Haverty Furniture Companies, Inc.

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.

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.

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.