Haverty Furniture Companies, Inc. Q4 FY2023 earnings call

• Expense control, higher gross margins, and excellent inventory management were key in Q4. Pre-tax margins were 8.7% with $18.5 million pre-tax earnings. Full-year pre-tax earnings were $72.7 million vs. $119.5 million in 2022.
• Headcount has decreased from ~3,500 pre-COVID to ~2,500, aligning with similar sales volume. Evaluating business for consolidation and productivity improvements.
• Focus on better customer service with improved tech, design services, customization, and product line upgrades. Acquired 4 Bed Bath & Beyond locations for conversion in H1 2024, leveraging existing management and training staff.
• Right-sizing staffing through attrition, experimenting with new financing programs (e.g., moving to 48-month financing instead of 60-month), and enhancing marketing campaign 'furnish happiness' around choices, quality, design, and service.

In the fourth quarter of 2023, net sales were $210.7 million, a 24.9% decrease from the prior year. Comparable store sales were down 25.5%. Gross profit margin increased to 62.4% from 57% due to reductions in freight, positive LIFO inventory adjustment, and pricing discipline. The design business was a significant driver, with design sales making up over 31% of total sales in Q4. For the full year, total sales were $862 million, down 17.7% from 2022. Design sales accounted for approximately 29% of the full-year business, and special order sales saw over 40% growth for the year.

• Gross margins for 2024 expected to be between 59.5% and 60%.
• Fixed and discretionary SG&A expenses for 2024 expected in the $295 million to $297 million range.
• Variable-type SG&A costs for 2024 expected in 19.9% to 20.2% range, with increases due to inflation.
• Planned CapEx for 2024 is $32 million, with $27 million for new/replacement stores, remodels, expansions; $2.5 million for distribution network; $2.5 million for IT.
• Anticipated effective tax rate for 2024 is 26.5%, excluding stock award vesting impact and new tax legislation.

• Economic and competitive conditions, including impact of housing market trends (historically low home sales affecting furniture demand).
• Weather impacts, such as severe weather affecting operations.
• Geopolitical issues affecting supply chain, though minimal impact on inventories and customers so far.

Q: Can you talk about the cadence of written sales as the quarter progressed and any notable changes in geographies or regions?

A: No significant changes in geography or regions. Written business was down ~21% in October, ~9% in November, and ~11%-12% in December, totaling a 13.1% decrease for the quarter. Deliveries were down mid-20s each month.

Q: Any directionally on how the current year has started, like weather impact?

A: Weather was a factor, especially in the mid-South area, but no specific numbers on current quarter provided yet.

Q: What's the employee count comparison to pre-pandemic and prior year?

A: Down about 1,000 associates from pre-pandemic, and down about $250 million from last year, continuing to right-size to business needs.

Q: Can you expand on new alternative financing programs?

A: Made a decision to utilize 48-month financing more than 60-month, adjusted minimum purchases and down payment percentages, and no impact seen on business so far.

Q: What percent of sales were financed and approval rates?

A: Around one-third of sales are on credit, and no significant change in approval rates.

Q: View on competitors' promotion and margin guidance?

A: Some competitors are more aggressive on price, but Haverty's is focused on quality and value, comfortable with 59.5%-60% gross margin guidance.

Q: Store growth and designer staffing?

A: Planning to open 5 stores in 2024 and 2025, with some stores having two designers in better locations; monitoring staffing based on traffic.

Q: How does compensation for salespeople look?

A: Compensation down ~10% in 2023, but average salesperson still made over $85,000, adjusted based on traffic to ensure better customer experience.

Q: Status of outdoor product launch?

A: Just started, initial response good but not all stores have it yet.

Q: View on housing market and store opening contribution?

A: Housing market affects business, new houses help; average store sales ~$6-7 million, takes about a year to break even and fully ramp up by year three.