Yahoo Finance Haverty Furniture Companies, Inc. (NYSE:HVT) Q1 2024 Earnings Call Transcript
Haverty Furniture Companies, Inc. (NYSE:HVT) Q1 2024 Earnings Call Transcript May 2, 2024
Haverty Furniture Companies, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Haverty's First Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Richard Hare, Chief Financial Officer.
Richard Hare: Thank you, operator. During this conference call, we'll make forward-looking statements, which are subject to risks 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 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 Burdette, will provide additional commentary about our business.
Clarence Smith: Thank you for joining our first quarter conference call. Our Q1 sales were down 18.1% to $184 million with comparable store sales down 18.5%. Total written sales were down 12.6%. We continued with strong gross margins at 60.3% and controlled cost, which allowed us to produce a pre-tax profit of $3.2 million compared to $15.4 million in last year's Q1. We're well prepared for the Memorial Day event, the most important of the first half, with energized marketing plans and exciting lineup of new products, excellent balanced inventories and new in-store signage. Our Board approved a 6.7% increase in our quarterly dividend, which is our 12th year of consistent dividend increases. Haverty has paid a dividend every year since 1935.
Our strong balance sheet with over $100 million in cash, allows us to return capital to our shareholders and invest in infrastructure and stores in our markets. In 139 years of furnishing homes throughout our regions, Haverty has consistently gained market share, especially in difficult times. The falloff in furniture demand following the dramatic sales increases due to COVID has had a major impact on the industry. The industry struggled to supply timely furniture deliveries in the gangbuster years during COVID, but once that backlog cleared up, we experienced a significant negative impact throughout the industry. We pulled forward roughly two years of sales and then experienced a two year slide back to pre-COVID. This time, there will be many players who won't survive the recovery.
While the first weakness was felt at the lower end of the market, it has impacted all the industry. And we believe that that will continue until housing begins to edge back positive. Home sales in the South have a very high correlation to our business. Clearly, interest rates are a major factor in housing. In the past year, we've seen numerous furniture failures of major manufacturers and retailers with the demand slot and we expect to see more competitors struggle and players fail. These are times when it becomes clear that, this industry closely tied to housing, cannot handle heavy debt leverage. Major debt positions combined with higher interest rates is a fast slide to bankruptcy in the furniture world. We have zero funded debt and are strongly positioned in the best states and fastest-growing markets in the customer.
We believe that we are uniquely well-positioned to continue to grow our market share in these important growth areas in the coming years. We're investing in store growth and upgrading our store and operating systems to better serve our customers. We have a couple of major remodeling projects underway in major markets, which should be completed by next month. We believe in financial resilience for sustained financial growth. We're on track to reach our goal of opening five new stores this year and five in 2025. I recently attended our new store opening in South Haven, Mississippi, entering our 17th state and a major growth suburb of Memphis, Tennessee. South Haven was the first store opening of four from former Bed Bath & Beyond stores, which will allow us to gain strong locations in market areas, where we have not been able to find sites.
In the next three months, we will be opening stores in three markets in Florida. Destin, central to the Emerald Coast; St. Petersburg, submitting the -- Southern coastal site in our Tampa region and Suez Canal, our southernmost store in Southeast Florida, reaching into Miami. All these stores are in adjacent markets and locations, where we have significant brand awareness, existing distribution and experience management in place. We know that, these strengths combined with excellent locations, at below market rates are a solid foundation for success. By Labor Day, we will have 33 stores throughout Southern Sunshine State, our largest state, followed by Texas, with 22 stores. We're very excited to announce plans to return to Houston, Texas. Haverty has left Houston over 40 years ago, and it is the largest market in our footprint where we do not have stores.
We will open our first store in a former Bed Bath & Beyond building in The Woodlands area later this year and follow with the Baybrook Village store in Q1 2025. We expect to have more stores positioned to serve the Greater Houston market in the next two years. We have delivered furniture in the northern suburbs of Houston for many years from our Austin and College Station stores. We believe that, we'll be well-positioned and well-received in Houston and a major strengthening of our position in Texas. We are investing in brick-and-mortar, building our team's expertise, growing our design service, upgrading products and expanding customization and special order capabilities. All our teams are driven to be the best home furniture in the country and to gain profitable market share throughout our regions.
I'll now turn the call over to Steve Burdette, President.
Steve Burdette: Thank you, Clarence, and good morning. Our first quarter results continue to show the headwinds that we are facing with the housing crisis and interest rates. However, we continue to be encouraged by our team's efforts to ensure that Haverty is furnishing happiness to our customers. Store traffic continues to be a struggle in all market, however, we did see a slight improvement in February and March and our traffic numbers coming off January, which was impacted by weather. Our design business continues to gain momentum, with an increase of over 10% in total dollars for the quarter, driven by our average design ticket increasing over 3%. The number of customers engaging with our design program was up over 19%.
Our supply chain network continues to operate without any significant disruptions. We have been able to negotiate our new freight rates for 2024 beginning in May, so that we feel comfortable with our margin projections for the year. Our inventories continue to be in excellent condition and we're down at quarter end almost 20% from Q1 2023 and almost 2% from year end 2023. Our vendors continue to be great partners as lead times remain from four to seven weeks. This has helped to continue to drive our special order business, which was up 13.5% in dollars for the quarter. As you know, we introduced our new marketing campaign, FURnishing Happiness, to include with a regret free experience. This messaging circles around four pillars that we feel are key to our customers' happiness and experience: choices, quality, design, service.
Our concern with the decrease in written business has centered around our decrease in traffic. As a result, we have recently made a change in our media planning and buying partner. Effective April 1st, we brought in Carmichael Lynch media to overhaul our paid media approach. We believe that, how they buy, manage and optimize media will result in better targeting and greater efficiencies, resulting in a higher return on our media investments. Carmichael Lynch Media will partner with EP+Co, our agency of record, to develop impactful communication strategies tailored to increase awareness of Haverty and our furnishing happiness with a regret-free guarantee campaign. Our new media approach will be fully implemented for Memorial Day, our largest promotion in the first half of the year.
Additionally, we are focusing on more local store marketing efforts to help complement our paid advertising campaigns. We feel this combination of awareness building media with community building local store efforts will positively impact traffic. Extending financing will continue to be a part of our holiday promotional events and we continue to right size our staffing to match our current conditions through attrition in all areas of the business. Now, I will turn the call over to Richard.
Richard Hare: Thanks, Steve, and good morning. In the first quarter of 2024, net sales were $184 million or an 18.1% decrease over the prior year quarter. Comparable store sales were down 18.5% over the prior year period. Our gross profit margin increased 120 basis points to 60.3% from 59.1%, primarily due to product selection and merchandising mix. SG&A expenses decreased $9 million or 7.6 %, to $109.4 million. As a percentage of sales, these costs approximated 59.4% of sales, up from 52.7% in the prior year quarter. We experienced decreased selling costs, advertising, distribution and transportation expenses during the quarter. Our interest income was approximately $1.6 million during the first quarter, as we earned more on our cash deposits due to higher interest rates.
Income before income taxes decreased $12.2 million to $3.2 million. Our tax expense was $800,000 during the first quarter of 2024, which resulted in an effective annual tax rate of 25.1%. The primary difference in the effective rate and statutory rate is due to state income taxes and additional tax benefit from the vesting of stock awards during the year. Net income for the first quarter of 2024 was $2.4 million or $0.14 per diluted share on our common stock, compared to net income of $12.4 million or $0.74 per share in the comparable quarter last year. Now turning to our balance sheet. At the end of the first quarter, our inventories were $92.1 million which was down $1.9 million from the year-end balance and down $22.2 million versus Q1 of 2023.
At the end of the first quarter, our customer deposits were $40.9 million, which was up $5.1 million from the December 31, 2023 balance and down $5.5 million versus the Q1 2023 balance. We ended the quarter with $111.8 million of cash and cash equivalents, and we have or we had no funded debt on our balance sheet at the end of the first quarter. Looking at some of the uses of our cash flow, CapEx was $6.4 million in the first quarter and we also paid out $4.8 million of regular dividends. We did not utilized any of our share repurchase program during the first quarter of 2024, and we have approximately $13.1 million of existing authorization in our buyback program. Our earnings release lists out several additional forward-looking statements, indicating our future expectations with certain financial metrics.
I will highlight a few, but please refer to our press release for additional commentary. We do expect our gross margins for 2024 to be between 60% and 60.5%. We anticipate gross profit margins will be impacted by current estimates of product and freight cost. Our fixed and discretionary type SG&A expenses for 2024 are expected to be in the $290 million to $292 million range. The variable type costs within SG&A for 2024 are expected to be in the range of 19.9% to 20.2%. Our planned CapEx for 2024 remains at $32 million, anticipated new or replacement stores, remodels and expansions account for $27 million. Investments in our distribution network are expected to be $2.5 million and investments in our information technology are expected to be approximately $2.5 million.
We do expect our anticipated effective tax rate in 2024 to be 26.5%. This projection excludes the impact of 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.
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