Haverty Furniture Companies, Inc.

During the quarter, we saw traffic down low single digits despite the disruptions that we experienced with weather in January over a 10-day period in the beginning of Operation Epic Fury. Special order business rose 10.1% to 34.5% of our upholstered business, driven by our continued success in design. Having the ability to offer a customer a choice of over a thousand fabrics with different styles, patterns, and colors creates opportunities for our sales and design teams to ensure our customers are getting their desired selection. Our merchandising and supply teams continue to focus on bringing in the latest trends to meet customer demand. The Merchandising team has become more nimble in assortment planning, enabling us to get newer products to the floors faster. We are in the fashion business, so updating our products with fresh new looks creates excitement not only for our sales and design teams, but for our customers. From a category perspective for the quarter, occasional was up double digits, Upholstery and dining room were up mid single digits. Mattresses were up low single digits. Bedrooms were flat and accessories were down slightly. Inventories increased 10.7 million to 106.9 million during the quarter. This increase was planned and driven by three factors. The introduction of new products across our lineups, our continued focus on having best sellers in stock, and the pull forward of orders ahead of Chinese New Year to ensure continuous product availability. We expect to see our inventory drop below 100 million by the end of Q2, putting us at the level we feel is needed to meet our customers' delivery expectations. We will start to see the effects of the administration's new reduced Section 122 tariffs implemented in February during Q2. However, we expect further changes to the tariff percentages by the administration in early Q3 as we approach the expiration of these Section 122 tariffs in mid-July. Also, because of the prolonged Epic Fury operation, rising oil prices will impact us in Q2 in several areas across the business. Vendor input costs are rising, resulting in price increases, fuel surcharges on bunker fuel rates on containers, rising fuel expense for dedicated fleets serving DC to DC, and rising fuel expenses at the pumps for home delivery fleet serving our customers. These rising costs will impact margins and expenses. However, these costs are factored into our margin and expense guidance, which Richard will address in his comments along with updates on LIFO. Our marketing, creative, and media plans continue to resonate with our customers through connected TV, broadcast TV, social media, and other digital channels. We're leveraging AI data and technology to optimize our media placement and customize messaging by market. In February, we brought on a new technology partner that allows us to measure the full customer journey from seeing an ad to visiting the website to visiting a store. This allows us to better measure our customer's path to purchase as well as determine which tactics and messages drive more store visits. We will continue to lean in on direct mail in Q2 leading up to our biggest promotion of the first half of the year, Memorial Day. Our improving organic traffic to the site is supported by strengthening the SEO foundation and laying the groundwork for AI search optimization. Our written e-commerce sales continue to outperform, increasing double digits for the quarter. Our marketing dollars were flat for the quarter as a percent of net sales as we continue to leverage this expense. Our use of 60 months no interest financing for competitive reasons has increased our credit costs during the quarter. However, we expect to still be aggressive with our credit offerings going forward to ensure our customers have the financing they need to meet their furnishing needs. We ended the quarter with 128 stores. On April 3rd, we opened our Fenton, Missouri store, which will be our second store in the St. Louis market. The store is off to a fast start with traffic performing in the top tier of our stores in April. And on May 8th, we will open our fourth store in the Nashville market in the Mount Juliet area. Our other three stores, Pittsburgh and two in Houston, are still on plan for Q4 2026 and Q1 2027 opening. We are excited to announce that we have signed three additional leases that will all open this year. We acquired from the American Signature Bankruptcy a store in Fredericksburg, Virginia that will open in late Q3. We will be relocating our Snellville store in East Atlanta, which will increase that footprint by approximately 50% with significantly more drive-by and foot traffic potential. Finally, we will open in McKinney in Northeast Dallas, taking over an existing building that was a former furniture store. Both stores in Atlanta and Dallas will open in Q4. These three new additions to our store growth plans in 26 and early 27 will give us a total of eight new stores. We have scaled back our remodels from four stores to two stores, allowing us to focus on these new stores in the second half of this year. However, we are still committed to our ongoing refresh of our mattress departments and design centers, which will be completed in all stores by 2027. Along with this aggressive store growth, we have made the difficult decision to close two additional stores in San Angelo, Texas, which will close in June, and in College Station, Texas, which will close in August. Both stores are in markets that do not fit our long-term growth strategies due to demographic shifts, weak housing growth, or the level of investment the market would require. We want to thank all our team members who have served the San Angelo and College Station customers over the years. The distribution, home delivery, and customer service teams continue to outperform with excellent controls on our backend costs. These dedicated Haverty team members focus on providing our customers with a world-class experience on each delivery. The growth that Haverty's will have in 2026 could not be possible without these team members' passion and commitment to furnishing happiness. All our growth will be done within our existing infrastructure, again, allowing us to further leverage these fixed costs. We are optimistic for the remainder of 2026 for several reasons. Our customer remains resilient during these difficult times. Our aggressive growth plans for this year, our third quarter in a row with positive comps in both written and delivered, and our commitment to new products arriving every month creating excitement for our teams and customers. And we can do all of this because we are debt-free, we value our vendor partnerships, We remain customer-focused. We're providing complementary design services. We offer Haverty branded quality products. We are committed to executing with integrity, and we offer a regret-free experience that gives our customers and team members confidence in the Haverty brand. I would like to thank our 2,400 team members across our 17 states for their hard work and dedication that contributes to Haverty's 141 years of success. I will now turn the call over to Richard.

Thanks, Steve, and good morning. In the first quarter of 2026, we reported net sales of $189.1 million, a 4.1% increase over the prior year quarter. Comparable store sales were up 4.3% over the prior year period. Our gross profit margin increased 30 basis points to 61.5% from 61.2%, excluding the impact Of the $524,000 LIFO expense in Q1 of 2026 and the $24,000 LIFO expense in the prior quarter, our adjusted gross profit margin increased 60 basis points to 61.8% from 61.2%. Selling, general and administrative expenses increased $4.1 million or 3.8% to $111.3 million. As a percentage of sales, these costs approximated 58.9% of sales, down from 59% in the prior year's quarter. We experienced increased selling, occupancy, and administrative costs during the quarter. Other income expense for the first quarter of 2026 was $53,000 and interest income was approximately $967,000 during the first quarter of 2026. Income before income taxes increased $667,000 to $6 million. Our tax expense was $1.7 million in the first quarter of 2026, which resulted in an effective tax rate of 28.5% versus 28.6% in the prior year period. Net income for the first quarter of 2026 was $4.3 million or 26 cents per share. compared to net income of 3.8 million or 23 cents per share in the comparable quarter last year. Now turning over to our balance sheet, at the end of the first quarter, our inventories were 106.9 million, which was up $10.7 million from December 31st, 2025, and up 18.2 million versus Q1, 2025. At the end of the first quarter, our customer deposits were 40.4 million, which was up $4.9 million from the December 31, 2025 balance and down $2.3 million from the Q1 2025 balance. We ended the quarter with $107.5 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of Q1 2026. Looking at some of our cash flow usage, capital expenditures were $7 million for Q1 2026 and we paid out $5.3 million of regular dividends during the quarter. We purchased $2 million of common stock during the quarter at an average price of $21.97, and we have approximately $16.4 million of existing authorization under 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. Our 2026 guidance reflects tariffs currently in effect as of May 5th, 2026. We are closely monitoring the tariff developments to manage our exposure and minimize the impact on our business. We expect our gross margins for 2026 to remain between 60.5 and 61%. We anticipate gross profit margins will be impacted by our current estimates of product, freight, and LIFO expenses. Our fixed and discretionary type SG&A expenses for 2026 are expected to remain in the $307 to $309 million range. The increases over 2025 are primarily related to store growth and modest inflation. The variable type costs with an SG&A for 2026 are expected to remain in the range of 18.6 to 18.8%. Our planned capital expenditures for 2026 is $34 million. An increase of half a million dollars from our previous guidance. Anticipated newer replacement stores, remodels, and expansions account for $27.7 million. Investments in our distribution network are expected to be $3.2 million. And investments in our information systems technology are expected to be approximately $3.1 million. Our anticipated effective tax rate in 2026 remains 26%. projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the first quarter financial results. Operator, we would like to open up the call for questions at this time.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Christina Fernandez with Telsey Advisory Group. Please proceed with your question.