Haverty Furniture Companies Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 1, 2025

There are 5 speakers on the call.

Operator

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Hare, Chief Financial Officer. Thank you, sir. You may begin.

Speaker 1

Thank you, operator, and good morning. 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 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 President and CEO, Steve Burdett, will provide additional commentary about our business.

Speaker 2

Good morning. Thank you for joining our twenty twenty five first quarter conference call. While the first quarter has felt more like a roller coaster ride with the ups and downs, we are very satisfied with our results. Our Q1 sales were $181,600,000 which was down 1.3% with comps down 4.8%. Total written sales were down 2.6% with comps down 6.3%.

Speaker 2

Gross margins remained strong for the quarter coming in at 61.2% compared to 60.3%. Our pretax profits for the quarter were $5,300,000 or 2.9 operating margin compared with $3,200,000 or 1.7% operating margin in Q1 twenty twenty four. Richard will provide additional details later on this call. Despite the housing market continuing to operate at thirty year lows, fueled by affordability issues, inflated interest rates, and declining consumer confidence, the quarter's written sales began positively. However, by mid January, our business faced disruptions from several winter storms over the next thirty days, impacting several markets throughout our footprint.

Speaker 2

The presidential inauguration on January 20 shifted the mood from optimism to cautious concern due to the magnitude of executive orders coming from the White House and the potential tariff discussion. Sales for our biggest event of the quarter, Presidents' Day, were disappointing, down roughly 10% over the two week period. However, we saw a bounce back in written sales to roughly flat after Presidents' Day until the March. While our traffic did soften over the quarter, it remained positive in the low single digit. Conversions rates continue to stabilize with some improvement compared to last year.

Speaker 2

Our average ticket rose by approximately 4% to just over $3,300 Our design business continued to improve to approximately 33% of our business or 15 plus percent of our tickets driven by our special order business. Our designer average ticket grew to over $7,400 which was up over 9%. The merchandising team is continuing to push new products to our floors, creating excitement for the sales and design teams as well as our customers. Motion furniture with zero gravity recline and triple power, stationary upholstery with color options, and bedrooms and more contemporary designs with upholstery bed upholstered beds and sleek clean line. While our upholstery bedroom and mattress categories are performing in line with our business, we have seen some weakness in our dining and occasional categories.

Speaker 2

As mentioned in our last call, we will begin rolling out our new point of purchase and tagging program later this quarter. This initiative will improve the in store customers' experience by centralizing our special order fabrics to improve the ease of choice and introducing a new tagging system that visually provides our customers with more choices that are not shown on the floors. Also, it simplifies for our sales and design consultants the available configurations by collection. We aim to complete this rollout by Labor Day. Our merchants have been working very closely with our suppliers to address the ongoing tariff issue.

Speaker 2

The ninety day reprieve on April 9 was very helpful from the percentages that were first being floated out. Resolving the tariff issues beyond the ninety day period will enable us to make longer term decisions around our pricing and supply chain. Our suppliers have been great partners, helping us navigate through these difficult times of uncertainty. Due to their partnership, we were able to keep our inventories moving without any disruption. We will see price increases for products from Vietnam, Cambodia, India, Indonesia, and Europe due to the tariff.

Speaker 2

However, these increases will be minimal due to our supplier support. Also, there will be pricing impacts on our domestic upholstery suppliers who source parts and fabric from China. The majority of our products from Mexico will not see any price increases as this product is exempt from tariffs under the USMCA agreement implemented in 2020. We have halted most direct shipments from China due to the tariffs, which would be applied to our products at an additional hundred and 45 percent. We expect this to cause some temporary supply disruptions for these suppliers as they look to move production to Vietnam, Cambodia, or Mexico.

Speaker 2

Currently, approximately 15% of our total purchases come directly out of China, mainly in motion and stationary leather. What will happen after the ninety days expires in early July is a guessing game right now, making supply chain planning very difficult. We need the administration to provide clarity around these tariffs prevent further disruption for the consumer. Our supply chain team started executing our strategy to increase inventories of best selling products during q one. Inventories have risen approximately $5,000,000 or about 6% since year end twenty twenty four, and our expectations are that they will continue to rise another 3,000,000 to $5,000,000 in Q2.

Speaker 2

Our initial expectations to increase inventories was focused on providing faster service to our customers as we felt we became too dependent on just in time inventory with our suppliers. However, we have inadvertently pushed the impact of the tariffs out into the latter part of Q2 or early Q3 because most of this inventory increase will be tariff free. Our merchants have proactively collaborated with the marketing and store operation teams to test more impactful promotions within our stores during Q1. We marked the kickoff of our one hundred and fortieth anniversary by sending a private email to our current email subscribers expressing gratitude for their loyal support by presenting them with a special savings offer. This initiative was extremely successful, generating over $8,000,000 in revenue in q one.

Speaker 2

Our credit costs remain well controlled. We are implementing additional promotional strategies and credit offerings to increase the savings story in our marketing and stores, further enhancing the purchasing decisions of our customers. We continue our push to open five new stores a year, but we'll be cautious in our approach based on current conditions. We are re relocating our Daytona store due to a lease expiration. Our real estate team has secured an old Bed Bath and Beyond location, which opens tomorrow, enabling us to remain in the same area to serve our customers.

Speaker 2

Also, we are planning our third store in Houston to open in the Valley Ranch area of Northeast Houston in late q three. Additionally, we are looking to open two more stores in the Houston market in mid to late twenty twenty six, giving us five stores in the Houston area, moving us closer to our goal of having six plus stores to properly serve the market. We have decided to close two stores this year. Our Buckhead store in the Atlanta, Georgia market on June 30 and our Waco, Texas store on September 30. Our decisions regarding closures are always based on lease expirations and the store's long term profitability.

Speaker 2

While we have several stores that are stores that are in the LOI phase in existing markets, we are unable to provide any further updates at this time. Our goals remain to leverage our current distribution network as we grow the company during these very uncertain times. Our distribution, home delivery, and customer service teams continue to furnish happiness to our customers. Our regret free experience is an integral part of our service that we provide to our customers. We are able to flex the staffing in these areas of our business with the current business trends due to the natural turnover, which has allowed us to maintain nice controls over our expenses.

Speaker 2

The issues facing us today, housing affordability, high interest rates, tariffs, market volatility, inflation concerns, and recession fears are something we have experienced many times in our hundred and forty year history. We are well positioned to grow the from these challenges due to our strong brand, debt free balance sheet, consistency in our operations, integrity, customer focus and our people. I will now turn the call over to Richard.

Speaker 1

Thanks, Steve. In the first quarter of twenty twenty five, we reported net sales of one hundred and eighty one point six million point three percent decrease over the prior year quarter. Comparable store sales were down 4.8% over the prior year period. Our gross profit margin increased 90 basis points to 61.2% from 60.3%. This increase was due to product selection and merchandise mix.

Speaker 1

SG and A expenses decreased $2,200,000 or 1.9% to $107,200,000 As a percentage of sales, these costs approximated 59%, down from 59.4% in the prior year quarter. We experienced decreased selling costs, advertising, warehouse and delivery expenses during the quarter. Income before income taxes increased 2,100,000 to 5,300,000.0 Our tax expense was $1,500,000 for the first quarter of twenty twenty five, which resulted in an effective tax rate of 28.6% compared to an effective tax rate of 25.1 in the prior year quarter. The primary difference in the effective rate in the statutory rate is due to the expected state income taxes and nondeductible items for the year. Net income for the first quarter of twenty twenty five was $3,800,000 or $0.23 per diluted share on our common stock compared to net income of $2,400,000 or $0.14 per share in the comparable quarter last year.

Speaker 1

Now turning over to our balance sheet. At the end of the first quarter, our inventories were 88,700,000 which was up $5,300,000 from 12/31/2024, and down $3,400,000 versus Q1 twenty twenty four balance. At the end of the fourth quarter, our customer deposits were $42,800,000 which was up $2,000,000 from the 12/31/2024 balance and up $1,800,000 versus the Q1 twenty twenty four balance. We ended the quarter with $111,900,000 of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of Q1 twenty twenty five. Looking at some of our cash flow usage, CapEx was $6,100,000 for Q1 twenty twenty five, and we also paid out $5,200,000 of regular dividends during the quarter.

Speaker 1

We purchased approximately $2,000,000 of common shares under our share repurchase program during the first quarter of twenty twenty five, and we have approximately $6,100,000 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. Our 2025 guidance includes tariffs currently in effect as of April 30 and does not include the effect of additional proposed tariffs that have been paused by the Trump administration. We expect our gross margins for 2025 to be between 6060.5%.

Speaker 1

We anticipate gross profit margins will be impacted by our current estimates of product and freight costs. Our fixed and discretionary type SG and A expenses for 2025 are expected to be in the $291,000,000 to $293,000,000 range, which is an increase over the prior year resulting primarily from our store growth and inflation. The variable type costs within SG and A for 2025 are expected to be in the range of 18.6% to 19%. We anticipate continued reductions in third party credit costs and warehouse and delivery expenses. Our planned CapEx for 2025 has been reduced to $24,000,000 Anticipated new or replacement stores, remodels and expansions account for $19,600,000 Investments in our distribution network are expected to be $1,800,000 and investments in our information technology are expected to be approximately $2,600,000 Our anticipated effective tax rate for 2025 is expected to be 26.5.

Speaker 1

This 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 the call up for questions at this time.

Operator

Thank you. We will now be conducting a question and answer session. 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.

Operator

Our first question comes from Anthony Levitsynski with Sidoti and Co. Please proceed with your question.

Speaker 3

Good morning, everyone, and thank you for taking the questions, and certainly nice to see the better than expected q one results. Yeah. Good morning, guys. So thanks for providing the information about the monthly, trends, how that progressed. Any way to put a number as far as as far as the impact of your winter storms?

Speaker 3

And just also curious whether you saw any notable changes in in terms of the geographic composition of your written comps.

Speaker 1

Let me start off, Anthony, good morning, with with our written business trends by month, and then Steve can give some additional commentary. But January, we were down almost 2% in written business. Then February, we were down, on the same same day a week basis about 5%, and then we were flat in March. We saw a pretty good improvement there in March for the quarter being down about 2.6%.

Speaker 2

Yeah. Anthony, this is Steve. We don't quantify we know usually, we don't talk about weather, but it was just an inordinate amount of storm. I think it was about four to five different storms that impacted us. And it impacted usually, that will impact one or two stores.

Speaker 2

They they just equally intended to impact greater quantity. We we did not quantify that exact have an exact number on that. But certainly that plus what as we scattered the latter part after the inauguration, we started to see things slow. We were disappointed in Presidents' Day, as we said. Event was not, and I think the industry, the retail world was a little disappointed at that time.

Speaker 2

But we did. We were very encouraged of what we saw after the fact, as Richard just said, in in ending the quarter out in March.

Speaker 3

Gotcha. Okay. Yeah. Thanks for that. And so so given the increased tariffs, have you guys implemented any price increases so far this quarter in response to that?

Speaker 2

Yeah. We are. We're gonna we're gonna get in front of that like we did before, but it won't be across the board deal. It will be targeted. Our merchandising team is looking at that based on the product and the vendor and whether we're trying to maintain our good, better, best price points.

Speaker 2

So but there will be price increases that will, you know, go into effect basically immediately, and then we'll kind of monitor that as we go forward. But they will be minimal, as I said. Our suppliers have worked with us. And if the tariffs stay where they are right now, I really don't see much impact to the consumer and that we will be able to navigate through this fine. If tariffs go back to 4050% of where they were, that'll be a different story.

Speaker 3

Okay. So it sounds like you think it's not going to have much of an impact on unit volumes, whatever price increases you'll be putting in place?

Speaker 2

We're not anticipating that. Right now, where we are.

Speaker 3

Okay. Okay. And then, just thinking about, like, you know, what's what's going on here as of late here, have you seen any notable changes from the competition in your markets, you know, just in response to everything that's going on with concerns about the economy and and also tariffs?

Speaker 2

You know, we've seen some marketing where people are trying to take advantage of the tariffs and, you trying to get out in front of that to push that out to the consumer, and trying to keep the price points advertised, their price point deals. But April is not a big marketing month, especially with Easter in it, you know, overall for the industry. But as far as Presidents Day itself, I mean, it was a typical, you know, pretty aggressive, you know, promotions and whether it's credit or whether it was discount percentages that our competitors were advertising.

Speaker 3

Understood. Okay. And lastly for me, as far as the reduction in CapEx guidance, I think it was about $3,000,000 less. What exactly is that for? Just wanted to get more color on that.

Speaker 1

Yeah. So so we took out about $3,000,000 for right now in terms of our store expansion. Steve talked about in his comments earlier, you know, we're focused on Houston. But just with the tariff uncertainty, we thought it'd be wise to just kinda hold back a little bit on on CapEx until the dust settles.

Speaker 3

Understood. Alright. Well, thank you very much, guys, and best of luck.

Speaker 2

Thank you. Thank you.

Operator

Our next question comes from Cristina Fernandez with TAG. Congratulations

Speaker 4

on the good results for the quarter. I had a couple of questions as well. The first one is on the tariffs. I just wanna confirm on the guidance that what you're assuming on the gross margin is that the tariffs that are in place now as of yesterday are in place for the full year. Is that what you're assuming that that 10% tariff on Vietnam and a lot of the Asian countries gets extend you know, gets extended and stays that way?

Speaker 2

That's correct. And we feel comfortable with that guidance.

Speaker 4

Okay. Thanks. And then on the on the piece that's out of China, that 15% that you're currently pausing, I guess at what point do you need to make a decision whether to ship that out to other countries or, place some orders, just to not have big holes in your assortment as we move through the year?

Speaker 2

Our vendors have already been in that, and we're already ahead of that in the first quarter moving in case something were to happen. So, they are securing or in the midst of securing additional production, in, like I said, in either Vietnam, Cambodia, or Mexico. And some already had production there, so they just they've got to move what they were producing in China to those particular factories. That will be some of the disruption. But again, Christine, I mentioned about our inventories increasing.

Speaker 2

We brought in a lot of inventory ahead of time on our bestsellers, so we we don't think that'll be an impact and will allow us time or allow them time, to get repositioned.

Speaker 4

Okay. That's that's helpful. And and then I wanted to go back to the performance on on some of the big weekends. I mean, pre the pre they did weekend this year. It seems like there was a weather impact as well.

Speaker 4

But more broadly, as you look at some of the big events and weekends over the past year, you know, we definitely seen some weakness on some of the prior ones. I know a lot of players are getting very competitive and promotional in those weekends. So do you feel like it's the consumer or perhaps that, you know, Haverley's is not being as promotional as others are on those weekends and that's leading to some share losses?

Speaker 2

I don't think it's the promotional activity. We were last year, Presidents' Day twenty twenty four, we were very pleased. We had a very, very good Presidents' Day. Memorial Day, Labor Day were disappointing. July 4 was a good promotion for us.

Speaker 2

New after Thanksgiving was good for us, and New Year's was good for us. So I don't think that's it, but I mentioned in my commentary there that we're you know, we certainly are looking. We did some testing of things we did, and, you know, we're gonna get, you know, more aggressive with our promotional activities to make sure we're there. And we're looking forward to Memorial Day, which is the biggest holiday event of the first half of the year.

Speaker 4

And and then my last question's on the new store openings last year. It seems like they're doing well based on the spread between total written orders and the comp orders. So can you talk more about how those stores are ramping up? What kind of benefit you're seeing? I think, you know, some of them have been open for six, nine months.

Speaker 4

So any color on the new stores would be helpful.

Speaker 2

Yeah. We've been very pleased overall with the new stores. It allows us to leverage because we're using our current distribution. And of course, that's the strength of ours. And you've seen our expenses there.

Speaker 2

We've been able to control it. So it's created more leverage certainly within our distribution. We still got opportunities with them, Christina. They're new stores. Our conversion rate, our closing rates tend to take a little bit of time to grasp with a new team as we go forward.

Speaker 2

But we certainly are pleased with where they're moving. Houston was new, opening up in December and February. We need to get that store count there so we can increase our marketing. But we initial reports and initial traffic has been good, and we're pleased with where we're heading. So overall, all positive, and we're looking forward to getting that third store open in Houston in third quarter.

Speaker 2

And, of course, we're looking forward to the relocation of Daytona that happens tomorrow. But that that should be that's basically, know, within right next to where we were. We just moved buildings because of lease expiration.

Speaker 4

Great. Thank you.

Speaker 2

Thank you.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Richard Hare for closing comments.

Speaker 1

Well, thank you for your participation in today's call, and we look forward to talking to you in the future when we release our second quarter results later this year.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Our Q1 net sales were $181.6 million, comps down 4.8%, with gross margin improving to 61.2% and pretax profit rising to $5.3 million (2.9% operating margin).
  • We expect minimal consumer price impact from current tariffs thanks to a 90-day reprieve and supplier support, but are halting most direct shipments from China to avoid up to 145% duties.
  • Inventories rose by $5 million (6%) in Q1 and are planned to increase another $3–5 million in Q2 to ensure product availability and faster customer service.
  • Our 140th anniversary email campaign generated over $8 million in revenue, and we are rolling out new point-of-purchase tagging and targeted promotions to boost sales.
  • We remain debt-free, reduced 2025 CapEx guidance to $24 million, will open five new stores cautiously (including our 3rd Houston location), and are closing two underperforming sites.
A.I. generated. May contain errors.
Earnings Conference Call
Haverty Furniture Companies Q1 2025
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