Yahoo Finance Haverty Furniture Companies, Inc. (NYSE:HVT) Q4 2023 Earnings Call Transcript
Haverty Furniture Companies, Inc. (NYSE:HVT) Q4 2023 Earnings Call Transcript February 22, 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: Greetings and welcome to Haverty’s Fourth Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Richard Hare, Chief Financial Officer. Please go ahead, sir.
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: Good morning. Thank you for joining our 2023 fourth quarter and full-year conference call. Our fourth quarter sales were $210.7 million, down 24.9%. Total written sales were down 13.1% and written comp-store sales declined 14.3% for the quarter. Total sales for the year were $862 million and $132 million, down 17.7% from 2022. Our current sales performance returned to the pre-COVID sales trends we experienced in 2019 and 2018. In the fourth quarter, our teams did a solid job in expense control, higher gross margins and excellent inventory management. Improvement in average ticket designer sales and maintaining high-quality service helped produce pre-tax margins of 8.7% and $18.5 million. For the full year, we produced $72.7 million pre-tax earnings versus $119.5 million in 2022.
Following record sales and profit years post-COVID, the furniture industry was first hit by consumer spending on travel and entertainment and by most recently, the higher mortgage and interest rates, which significantly impacted housing sales. For Haverty's, home sales in the South have historically been highly correlated to our furniture sales. Currently, home sales have been historic lows and have clearly impacted on our customers' interest in buying furniture. These trends are reflected in our recent performances. We're encouraged that we believe that home sales seem to have bottomed out after dramatic declines. It is evident now that we've experienced a two-year pull forward of furniture and accessory sales due to COVID and now have experienced a two-year falloff in sales.
Our teams have done a fine job in reducing our cost and reaction to weakening sales trends and adjusting across all areas of our business. Our headcount compared to 2019 pre-COVID is down from approximately 3,500 to 2,500 team members making similar sales volume. We're continuing to evaluate all areas of our business for opportunities to consolidate and add productivity. We focused on serving our customers better with improved in-store and online technology, strengthening of our design service, adding customization in special order products and upgrading our product lines. All these areas will continue to separate us from the more promotional players in our markets. The acquisition of 4 former Bed Bath & Beyond locations are on track for converting the Haverty stores in the first half of 2024.
All these stores are in adjacent markets to current Haverty stores and we're leveraging existing management. We're currently training staff in nearby stores to prepare for the spring, early summer openings. We're very pleased with the three important Florida stores and 1 store outside Memphis and South Haven, Mississippi. We're in due diligence on several additional opportunities, including other former Bed Bath & Beyond locations in our regions and expect to meet our goal of five new stores per year in 2024 and 2025. Our plans are to add stores in adjacent and existing markets within our distribution footprint. This could expand to several states from our soon to be 17th state. We have several sites and locations we're evaluating and expect to see additional store opportunities soon from retailers struggling with sliding sales and refinancing debt.
Haverty's financial strength with 0 funded debt and over $100 million in cash, allows us to continue to invest in new stores and upgrading stores and systems to better serve our customers. We continue to focus on helping our customers' vision of their home come to life. We have a long history of gaining market share and building on our strengths in difficult times. We believe that we are especially well positioned to grow our business in many of the fastest-growing markets in the country in the near-term and into the future.
Steve Burdette: Thank you, Clarence, and good morning. Our fourth quarter and 2023 yearly results were certainly below our expectations, but we are proud of all our team members for providing what turned out to be our third best year for the company in sales and operating profits. Store traffic continues to be a struggle in all markets as we battle the headwinds of high interest rates along with the worst housing market in 30 years. However, we continue to see our design business and product assortment driving our overall average ticket as it increased low-single digits for the quarter and year. Also, our closing rates remained strong, but were down low-single digits for Q4 in the year. Our supply chain network has not built any impact yet that would affect our business from the geopolitical issues in the Middle East.
We have seen some extended lead times due to the shipping lanes being adjusted due to the inability to use the Suez Canal, but the impact on our customers and inventories is minimal. Our inventories are in excellent condition and were down at year-end by approximately 20%, with backlogs remaining consistent. Our special order business continues to remain strong with an increase of over 31% in Q4 and over 40% for the year. Our design business continues to be a big driver of our business as it continued to grow to over 31% of our total business in the quarter and approximately 29% of our business for the year. Designer average ticket continues to grow at high-single-digits and we are encouraged that we've been able to grow the number of customers that are engaging with our designers by 15% in Q4 and by 8% for the year.
There is still tremendous opportunity for us in our design business as we see the opportunity to grow double-digits by increasing the percentage of engaged customers and their average tickets. We have enhanced our marketing campaign, we furnish 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 and service. We have built our company's success over the last 138 years by instilling a culture of not selling a customer one-time but selling a customer for a lifetime. We believe in our products, our team members, our systems and our execution. At the same time, we are continuing to right-size our staffing to match our current business conditions through attrition in all areas of the business.
Extended financing continues to play an important part in our holiday events each quarter, as we manage these costs. However, we are experimenting with a different [Technical Difficulty] Richard?
Richard Hare: Thank you, Steve. In the fourth quarter of 2023, we reported net sales of $210.7 million, a 24.9% decrease over the prior year quarter. Comparable store sales were down 25.5% over the prior year period. Our gross profit margin increased 540 basis points to 62.4% from 57% due to reductions in freight, a positive LIFO inventory adjustment and pricing discipline. SG&A expenses decreased $13.8 million or 10.7% to $114.7 million. As a percentage of sales, these costs approximated 54.4% of sales, up from 45.8% in the prior year quarter. We experienced decreased selling costs, advertising, distribution and transportation expenses during the quarter. Other income and expense in the fourth quarter of 2024 was negligible and interest income was approximately $1.8 million during the fourth quarter, as we earned more on our cash deposits due to higher interest rates.
Income before income taxes decreased $14 million to $18.5 million. Our tax expense was $3.5 million during the fourth quarter of 2023, which resulted in an annual effective tax rate of 22.5%. The primary difference in the effective rate and the statutory rate is due to state income taxes and the additional tax benefit from the impact of the vesting of stock awards during the year. Net income for the fourth quarter of 2023 was $15 million or $0.90 per diluted share on our common stock compared to net income of $23.7 million or $1.42 per share in the comparable quarter last year. Now turning to our balance sheet, at the end of the fourth quarter, our inventories were $93.9 million, which was down $24.4 million from December 31, 2022, and down $8.4 million versus Q3 2023.
At the end of the fourth quarter, our customer deposits were $35.8 million, which was down $12.1 million from December 31, 2022, and down $10.5 million versus the Q3 2023 balance. We ended the quarter with $120.6 million of cash and cash equivalents and we have no funded debt on our balance sheet at the end of the year. Looking at some of our uses of cash flow, capital expenditures were $53.1 million for the calendar year of 2023. As a reminder, we repurchased our Florida distribution facility in the second quarter for $28.2 million. In addition, during 2023, we paid $19.1 million in quarterly dividends and $16.1 million in special dividends. During the fourth quarter, we purchased 122,850 shares of common stock under our existing stock buyback program for $3.7 million.
We have approximately $13.1 million of existing authorization in our buyback program. Our earnings release list out several additional forward-looking statements, including our future expectations on certain financial metrics. I'll highlight a few, but please refer to our press release for additional commentary. We expect our gross margins for 2024 to be between 59.5% and 60%. We anticipate gross profit margins will be impacted by our current estimates of product and freight costs and changes in our LIFO reserve. Our fixed and discretionary type SG&A expenses for 2024 are expected to be in the $295 million to $297 million range. The variable-type costs within SG&A for 2024 are expected to be in the range of 19.9% to 20.2% with the increases over 2023 primarily being inflation-driven.
Our planned CapEx for 2024 is $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. Our anticipated effective tax rate for 2024 is expected to be 26.5%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the fourth quarter financial results. Operator, we would like to open up the call for questions at this time.
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