Haverty Furniture Companies, Inc. (HVT) Q4 2022 Earnings Call Transcript

Haverty Furniture Companies, Inc. (NYSE:HVT) Q4 2022 Earnings Conference Call February 22, 2023 10:00 AM ET

Company Participants

Clarence Smith - Chairman of nan Board and Chief Executive Officer

Richard Hare - Executive Vice President and Chief Financial Officer

Steve Burdette - President

Conference Call Participants

Anthony Lebiedzinski - Sidoti

Cristina Fernandez - Chelsea Advisory Group

Operator

Hello. And invited to today’s convention call. Haverty reports operating results for Fourth Quarter 2022. [Operator Instructions] As a reminder, this convention is being recorded.

It is now my pleasance to move nan telephone complete to CFO, Richard Hare. Please spell ahead, sir.

Richard Hare

Thank you, operator. During this convention call, we’ll make forward-looking statements, which are taxable to risks and uncertainties. Actual results whitethorn disagree materially from those made aliases implied successful specified statements, which speak only arsenic of nan day they are made and which we undertake nary responsibility to publically update aliases revise. Factors that could origin existent results to disagree see economical and competitory conditions and different uncertainties elaborate successful nan company's reports revenge pinch nan SEC.

Our Chairman and CEO, Clarence Smith, will now springiness you an update connected our results and past our President, Steve Burdette, will supply further commentary astir our business.

Clarence Smith

Good morning. Thank you for joining our 2022 4th fourth and afloat twelvemonth convention call. We're very pleased to study a grounds 4th fourth and afloat twelvemonth performance. Haverty has produced nan highest income quarters successful our history complete nan past 9 quarters going backmost to nan 4th fourth of 2020. For 2 consecutive years, we person reached $1.1 cardinal successful nett income pinch grounds net per share. The nett income successful 2022 of $1.05 cardinal was 3.4% higher than nan grounds income achieved successful 2021. The net per stock of $5.24 was up 6.9% complete nan anterior twelvemonth record. As we day our business against nan outsize request generated during nan pandemic, our written business for nan 4th was down 6.2% compared to nan 4th fourth of 2021 but up compared to 2019. Store postulation is besides tracked lower. However, we proceed to adjacent more visits, and we've accrued our mean summons 25% complete nan 4th fourth successful 2019.

The value of successful customer engagement has ne'er been much critical. Our H creation programme is competitory advantage, driving our mean summons increase, an important differentiator from our competition. When a H Design professionals progressive successful a waste nan mean summons increases complete 90%. 2022 saw a return to much historically normal income patterns pinch holidays and weekends driving volume. To substance our historical sales, we brought successful much equipment than ever before. In summation to grounds sales, we're capable to replenish nan inventory successful our warehouses. We are amended position now than immoderate clip successful nan past 3 years to fulfill a customer's order. Our pricing subject and guidance of nan full distribution process from shipping containers to nan last mile of location transportation has allowed america to execute grounds margins for nan year.

We proceed to amended our already beardown shop positions successful our markets. Our maturation strategy successful nan distribution footprint is focused connected adding stores successful nan hottest existent property markets successful nan United States. In nan 4th quarter, we relocated our Indianapolis shop and unfastened a caller shop successful Gainesville, Virginia, a precocious maturation marketplace extracurricular of Washington DC. Last week, we opened our caller shop successful Durham, North Carolina, and a erstwhile HH Greg successful that move market. We person plans to unfastened 3 much stores this year, 1 successful a caller marketplace and two, to heighten sum successful existing markets. Our superior expenditures successful 2022 were $28.4 million. We scheme connected spending conscionable nether that successful nan coming year. However, our beardown equilibrium expanse provides flexibility, and we will proceed to hunt for maturation opportunities. Our extremity of 5 stores a twelvemonth for nan adjacent 3 years remains. Capital investments will proceed to attraction connected stores, distribution, and IT enhancements. These investments are focused connected driving maturation successful our existing footprint.

Our merchandising teams are excited to beryllium yet processing and bringing successful caller designs, which we put connected nan backmost burner during nan proviso concatenation and mill delays complete nan past year. We person important caller arrivals opening successful nan adjacent fewer months successful upholstery, bedroom, eating and mattresses. These collections will spot a use from little freight rates. We are very pleased pinch our grounds performance. We're facing challenges pinch little postulation and written orders erstwhile compared to 2021 and 2022. Inflation and slowing lodging income are impacting our business successful galore of our markets. Our squad is committed to serving our customers pinch fashion, value, design, customization, and fantabulous service. Over our history, we've consistently gained marketplace stock successful challenging times. We powerfully judge that we will gain a larger stock of nan marketplace by helping our customers imagination of their location travel existent successful nan months ahead.

I'll move nan telephone complete now to Steve Burdette, President.

Steve Burdette

Thank you, Clarence and bully morning. We're excited astir nan grounds results successful nan 4th fourth and for nan year. We are very appreciative to each our squad members for their difficult activity and dedication to furnishing happiness to our customers. Our written business successful Q4 was down 6.2%. But our mean summons was up complete 9% and our closing percent was up astir 2%. Our ft postulation successful Q4 remains down astatine a accordant gait pinch erstwhile quarters. Our proviso concatenation web is backmost to operating astatine pre- pandemic levels, our lead times, shipping times, instrumentality costs and larboard obstruction delays are backmost operating wrong normal tolerances. Our inventories were 5.6% complete Q4 past year, but person decreased 13.8% from Q3. Our backlog continues to alteration pinch our mean property for nan backlog dropping beneath 10 weeks, mounting our expectations that our backlog will beryllium backmost to pre-pandemic levels sometime mid-year unless we spot a bounce successful written business. Our typical bid business continues to show betterment successful Q4 moving to 23.1% of our full upholstery sales. The lead times from our vendors are accordant pinch our expectations, allowing our income and creation teams to supply our customers pinch options arsenic they shop without immoderate hesitation connected delayed presence times.

In fact, we are experimenting pinch offering much typical bid options from our upholstery import vendors owed to their accumulation improvements. Obviously, nan lead times will beryllium longer than a home vendor. But we consciousness offering nan customer much choices create much opportunities for her to purchase. Our expectations are that we will beryllium good supra our typical bid extremity pinch 25% of upholstered income successful Q1, 2023. We are continuing to beryllium encouraged by our creation programs written business arsenic it grew by astir 8% successful nan quarter. We person learned from our investigation that our creation services springiness our customers a emotion of support passim their journey. However, 1 of our biggest barriers to flooded is creating much consciousness of nan creation services. The caller website and our caller instal constituent and acquisition programme will summation our consciousness of our creation services.

We proceed to attraction connected our execution, training and retention wrong our distribution centers, location transportation and customer service. We are continuing to show our staffing to make judge that is aligned pinch our existent business expectations. Normal attrition will let america to scope these levels without incurring immoderate further cost. We stay cautiously optimistic moving into 2023. The costs of our shop locations passim nan south, wherever much customers are moving because of our caller website will springiness america much accusation astir our customers shopping behaviors, expanding nan consciousness of our creation services. The accrued preamble of caller products to our floors, creating excitement for our teams and customers. And past finally, nan scheme to unfastened 5 caller stores to further leverage our existent distribution network.

Now I'll move nan telephone complete to Richard.

Richard Hare

Thanks Steve. In nan 4th fourth of 2022, nett income were $280.6, a 5.5% summation complete nan anterior quarter. Comparable shop income were up 5.8% complete nan anterior year. Our gross profit margins accrued 60 ground points to 57% from 56.4% owed to amended pricing subject and merchandising. SG&A expenses accrued $10.5 cardinal aliases 8.9% to $128.5 million. As a percent of income these costs approximated 45.8% up from 44.4% successful nan anterior quarter. As expected, we saw accrued selling, distribution and proscription expenses during nan quarter. Other income and disbursal successful nan 4th fourth of 2022 was negligible, but our liking income accrued $920,000 during nan 4th quarter, arsenic liking earned connected our rate deposits accrued this past twelvemonth arsenic liking rates person increased. Income earlier income taxes accrued $400,000 to $32.5 million. Our taxation disbursal was $8.8 cardinal during nan 4th fourth of ‘22 which resulted successful an effective taxation complaint of 26.9%. For nan 2022 year, our effective taxation complaint was 25.2%. Net income for nan 4th fourth of 2022 was $23.7 cardinal aliases $1.42 per diluted stock connected our communal banal compared to nett income of $24.3 cardinal aliases $1.35 per stock successful nan comparable 4th past year.

Now looking astatine our equilibrium sheet, astatine nan extremity of nan 4th quarter, our inventories were $118.3 cardinal which was up $6.3 cardinal complete nan yearend equilibrium of ’21 and down $90 cardinal versus nan Q3, 2022 balance. At nan extremity of nan 4th quarter, our customer deposits were $48 million, which was down $50.9 cardinal aliases 51% from nan December 31, 2021 equilibrium and down $31.8 cardinal aliases 40% versus nan Q3, 2022 balance. We ended nan 4th pinch $123.1 cardinal of rate and rate equivalents. And again, we person nary funded indebtedness connected our equilibrium expanse astatine nan extremity of Q4, 2022. During nan 4th fourth of 2022, we amended our revolving in installments installation and accrued nan revolving indebtedness commitments from $60 cardinal to $80 million, extended nan word of nan committedness to October 2027 and switch nan LIBOR complaint pinch a SOFR complaint arsenic nan liking complaint benchmark.

Looking astatine immoderate of our usage of nan rate flow, CapEx was $28. 4 cardinal for nan year. During nan twelvemonth we besides paid $17.8 cardinal of regular dividends and $16.1 cardinal successful nan shape of typical dividends successful Q4 of 2022. During nan 4th quarter, we didn't acquisition immoderate communal shares nether our existing banal buyback program. But during nan year, we did acquisition $30 cardinal of communal shares equating to 1,087,378 shares. And astatine nan extremity of nan 4th fourth of 2022, we person astir $20 cardinal of existing authorization successful our buyback program. And arsenic you'll statement present successful nan 2022 year, nan institution has returned astir $64 cardinal to shareholders successful nan shape of stock repurchases, regular dividends, and typical dividends. Our net merchandise database retired respective further guardant looking statements indicating our early expectations of definite financial metrics. I'd for illustration to item a fewer but please mention to our property merchandise for further commentary. We expect our gross profit margins for 2023 to beryllium betwixt 58% and 58.5%. We expect gross profit margins will beryllium impacted by our existent estimates of merchandise and freight costs and changes successful our LIFO reserve.

Our fixed and discretionary type SG&A expenses for 2023 are expected to beryllium successful nan $292 cardinal to $295 cardinal range. The adaptable type costs wrong SG&A for 2023 are expected to beryllium successful nan scope of 19.5% to 19.7% pinch nan summation is complete 2022 chiefly being ostentation driven and accrued 3rd statement financing costs. Our planned CapEx for 2023 is $28 million. Anticipated caller aliases replacement stores, remodels and description s relationship for $19.3 million. Investments successful our distribution web are expected to beryllium $5.8 million, and investments successful our accusation exertion are expected to beryllium astir $2.9 million. This estimate continues to bespeak a deferral of nan conversion of our location transportation halfway astatine Virginia to a location distribution installation owed to nan readiness and pricing of definite building materials. Our anticipated effective taxation complaint successful 2023 is expected to beryllium 25%. This projection excludes nan effect of from vesting of banal awards and immoderate imaginable caller taxation legislation. This completes my commentary connected nan 4th fourth financial results. Operator, we would for illustration to unfastened nan telephone up for questions astatine this time.

Question-and-Answer Session

Operator

[Operator Instructions]

Our first mobility is coming from Anthony Lebiedzinski from Sidoti.

Anthony Lebiedzinski

Good morning, gentlemen. And convey you for taking nan questions. So first, conscionable connected nan 4th fourth delivered sales. Can you springiness america a unsmooth estimation arsenic acold arsenic nan breakdown from upholstery versus lawsuit goods, mattresses, conscionable successful position of nan delivered income growth.

Richard Hare

Yes, Anthony for that, fto maine springiness it to you for nan year. I person that successful beforehand of me. So for successful position of sales, nan lawsuit equipment were astir 35.5% of nan full income for nan year. Upholstery was 42.5%, mattresses were 8.1%, and accessories and different was 13.8%. So it looks successful wide position annually, it looks for illustration nan lawsuit equipment class is holding astir nan aforesaid is somewhat up from past twelvemonth towards nan backmost half of 2022. We did get caught up rather a spot connected that. Earlier successful nan year, we had much upholstery, but we've gotten caught up connected that. You benignant of spot much on nan lines of what you typically spot successful position of nan conception breakout.

Anthony Lebiedzinski

Got it. And I deliberation mattress income were down, right?

Richard Hare

Mattress income are somewhat down. They were 8.9% of income successful 2021, and successful 2022 they're 8.1%.

Anthony Lebiedzinski

Okay, sewage it. Thanks for that, Richard. And past successful position of nan written business, like, was location immoderate notable variety period to month? And also, do you person a 4Q written aforesaid shop income compared to 2019?

Richard Hare

The aforesaid shop income written would beryllium astir nan aforesaid arsenic what we released, nan 6.2% connected nan written side. In position of nan cadence during nan months our written business was down successful October, precocious azygous digits and past debased azygous digits successful November, December.

Steve Burdette

And I deliberation we're still successful importantly double digits, right, debased double digits.

Anthony Lebiedzinski

Okay, truthful you're up debased double digits versus 4Q, 2019, okay, that's bully to hear. Okay, I sewage you. And past conscionable lastly, arsenic acold arsenic nan shop opening plans, it looks for illustration you haven't shared nan locations of those, but conscionable arsenic acold arsenic timing of erstwhile those stores, I judge 1 store, I deliberation you said opened past week successful Durham. But successful position of nan remainder of nan shop openings, benignant of by quarter, erstwhile do you expect to adjacent 1 of nan stores?

Steve Burdette

They're going to beryllium towards nan second portion of nan year. There whitethorn beryllium a fewer really successful nan 4th quarter. I mean, these are stores that we're finalizing. Some of them were finalizing leases. Some of them were successful nan process of moving connected that, truthful I would opportunity they're backend weighted importantly this year. I mean, we are seeing, I will show you, Anthony, we are seeing immoderate really bully opportunities that we're encouraged by that those though would astir apt spell into adjacent year. We still person a target of 5 this twelvemonth and 5 adjacent twelvemonth and we are encouraged by immoderate of nan opportunities.

Operator

Next mobility is coming from Cristina Fernandez from Chelsea Advisory Group.

Cristina Fernandez

Yes. Good greeting and congratulations connected a bully quarter. I had a mates of questions. The first 1 and I deliberation Steve alluded to this successful his remarks, but pinch nan customer deposit equilibrium you person now connected nan backlog, really overmuch longer tin reported income outpace written bid trends?

Richard Hare

Let maine commencement it off, Cristina. So yes, arsenic you know, our backmost -- our customer deposit trends and our backlog trends are very similar. They correlate pinch 1 another. And truthful we did person a important driblet successful nan backlog pinch these deliveries successful nan 4th quarter. As I mentioned earlier, it went down 40% successful 1 quarter, 50% for nan year. I judge Steve mentioned successful his commentary that we expect to get backmost to these levels, nan humanities levels sometime mid-year.

Steve Burdette

A batch is going to dangle connected nan existent written business, Cristina, really that performs successful ‘23.

Cristina Fernandez

Yes, that makes sense. But it seems for illustration based connected what you're seeing today, disagreement second, 3rd 4th that reported income and written bid income would beryllium much successful line. Is that a adjacent assumption?

Richard Hare

Are you referring to this 2023 aliases 2022?

Cristina Fernandez

2023.

Richard Hare

Okay. Well, we really can't forecast overmuch astir 2023 different than we tin opportunity what we expect. We still expect that our backlog will beryllium backmost to much humanities levels. It really is going to dangle connected what nan written business is. We did spot much of a driblet successful nan backlog successful nan third, from Q3 to Q4 than we had expected pinch nan exceptional deliveries that we had.

Steve Burdette

In our written business successful nan 4th fourth we thought was going to beryllium a small stronger than it came in.

Cristina Fernandez

Okay, understood. Then nan 2nd mobility I had was connected nan adaptable SG&A arsenic a percent of sales. It was a small spot higher than what I anticipated. And evidently measurement up from 2022. Can you parse retired wherever you're seeing ostentation and really overmuch is ostentation crossed wages aliases different parts of nan business versus that 3rd statement financing cost.

Richard Hare

Yes, Cristina. It’s -- nan mostly of that is nan 3rd statement financing cost. So if you recall, our statement pinch Synchrony is based connected LIBOR. So if you look astatine nan LIBOR trends complete nan past 4 quarters, we get, our LIBOR rates get group often during nan year. Sometimes we get caught up pinch them. So you'll person rates spell up much successful 1 period, and past they'll complaint america successful second periods, their rates will spell up. But large picture, if you've sewage astir a 3rd of our income aliases in installments sales, and you're seeing a 200 to 300 ground constituent summation successful LIBOR complete those 4 quarters, you're going to spot these kinds of numbers deed you. So we saw it successful nan 4th quarter, and past we proceed to spot rates rise. And truthful that’s we fundamentally took nan 18.9% adaptable G&A number for Q4, and we're seeing wherever rates person gone up, and we deliberation they're going to proceed to spell up. And truthful that's erstwhile we pushed up our adaptable G&A guidance from 18.9% to 19.5% to 19.7%.

Cristina Fernandez

Okay, that makes sense. The different taxable I wanted to talk astir was, what are you seeing from nan caller website arsenic acold arsenic customer engagement? And connected nan backmost of that launch, immoderate changes successful your trading plans aliases societal media arsenic we move done 2023?

Steve Burdette

Yes, Cristina, arsenic we said, and we thought we were excited to get it launched successful December, what we person seen has been encouraging arsenic we person seen an summation successful engagement from our visitors, and we person seen an summation successful caller visitors and besides an betterment pinch our integrated postulation there. So those are encouraging things we are doing. And person started experimenting pinch immoderate personalization and AB testing, but still very early successful nan process. And I would opportunity astatine this clip we person not made immoderate strategical changes successful nan first 2 months successful our trading plan. But surely we are excited astir what we're going to study from it arsenic we spell guardant and that will effect our guidance arsenic to really we spell astir that arsenic acold arsenic reaching to our customer, whether it's done societal aliases done our different media tv sources that we're using.

Cristina Fernandez

And past nan past mobility I had was connected stock repurchases and conscionable superior deployment successful general. You didn't make immoderate successful nan 4th quarter. Just your thoughts, fixed nan situation wherever we're coming astir being fierce connected stock repurchases, expanding dividends, each that for 2023. Thanks.

Steve Burdette

Well, that's thing that nan committee decides. Obviously, we person accrued our dividend each twelvemonth for a number of years, and we for illustration that way record. We do person nan expertise to bargain nan stock. We person not announced thing connected that. So we look astatine that opportunity each 4th pinch our board, and we do meet pinch them this week.

Operator

Thank you. We reached extremity of our question-and-answer session. I’d for illustration to move nan level backmost complete to guidance for immoderate further aliases closing comments.

Richard Hare

Well, we admit your information successful today’s call. And we look guardant to talking to you successful nan early erstwhile we merchandise our first quarte results later this year. Thank you.

Operator

Thank you. That does reason today’s teleconference. You whitethorn disconnect your statement astatine this time. And person a awesome day. We convey you for your information today.