Haverty Furniture Companies Inc (HVT.A) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Haverty Furniture Companies Third Quarter Earnings Call. At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. If anyone needs assistance at any time during the conference please press the "*" followed by "0". As a reminder this conference is being recorded today, Friday, October 29, 2004.

I would now like to go ahead and turn the conference over to President and CEO, Clarence Smith. Please go ahead, sir.

Good morning. Thank you for joining our conference call covering our third quarter earnings release. The third quarter was both challenging and disappointing. We were challenged by the well publicized blow to our business in Florida due to four hurricanes in five weeks, which caused severe disruptions to store operations and to completing deliveries in our largest volume space.

We were also disappointed in our sales follow up and the reduced earnings throughout the company in the last two months of the quarter versus the very good business we experienced in the same period last year.

Our earnings for the quarter were 19 cents per diluted share, after 3 cents was deducted for a one time adjustment for the under costing of warranty sold, which has been occurring gradually over the past several quarters. We do expect that we will se a quick rebound in business in Florida and the other affected markets in the coming months and we have seen a well appreciated recovery in our incoming written order in the past weeks.

In November, we will reopen our only storm related store closure that continued for more than a few days. This is our retail site in Fort Pierce, which was hit by both hurricanes Frances and Jeanne.

Our October order rate to date companywide is approximately 12% in total with the improved volume coming at regular gross margins. The greatest strength is being shown in Florida. However, our October delivered sales are tracking flat in total with our comp store sales down a low single digit percentage versus last year’s strong 8% comps due to import flow and some shipment problems. We have experienced some delays for products with entered through the West Coast ports. This has been a particular problem for bedroom merchandise as productions was shifted to Vietnam from China due to the anti-dumping issues. We are now receiving product and expect that these product flow issues will significantly improve in November and December.

We had increases in our SG&A which were larger than expected and more than they should have been even with the sales declines. We invested in additional advertising which we believe should pay dividends in our brand building in the months ahead, but those ads did not produce expected returns in the third quarter. This was due to partly to ad placed in Florida and areas affected by storms as only some of these ads were able to be cancelled when the hurricanes threatened.

Start up costs related to our new Florida distribution center in Lakeland have added to our cost in the third quarter and we will have additional impact on our fourth quarter expenses as well. Fuel costs have continued to rise and we expect that to be an ongoing cost issue which we don’t expect to drop significantly in the months or years ahead. We've increased our customer charges for home deliveries in most markets which helped increase our margins but doesn’t fully cover the rising fuel cost.

We are reviewing store staffing for all our markets to make sure that we are fully maximizing the newer technologies and systems that have been put in place over the past few years. By analyzing our traffic patterns we are establishing staffing templates for different sized stores and high volume hours. We believe that we can that we can fine tune our non-selling store staff, and reduce our personal expenses by the first quarter of 2005. This will be a high priority for our operations team.

We have invested heavily in fully integrated new systems and technology to better serve our customers. In the months ahead, we believe we will be in the best position of any furniture retailer, to satisfy our demanding customer base with a well coordinated, hassle free buying experience, from the first store visit to the scheduling and completing professional home deliveries. We will have in place multiple communication points, utilizing phone interactive voice response and web access throughout the entire process for our customer to track the status of the order.

We will be closing our Jackson, Mississippi regional warehouse in the fourth quarter and consolidating the inventory and operations into our recently converted western distribution center in Dallas, which has operated most recently as our Dallas market area warehouse. We expect the $3 million in Q4 pre tax gains from the sale of owned warehouses we will vacate will much more than offset the Q4 cost of closing and consolidating old facilities including those cost of winding down, closing and moving of our Florida regional warehouse in Ottawa to the new Florida distribution center in Lakeland. We will complete the move of the Florida regional warehouse in January 2005.

We also expect to have approximately $900,000 in gains on the sale of vacated warehouses in the first quarter of 2005. Those gains should offset a large portion of the cost of moving into the Florida DC and in the subsequent few months closing the five local market warehouses serving our stores in all but the northern part of the state. Those local market facilities were used for merchandise prep, staging, home delivery, truck loading functions, which will now be performed in the single [EDC] managed by the best distribution associates in the region.

The completion of the rollout of our enhanced distribution system throughout the company by the second quarter 2005 will be the culmination of over four years of effort to transform our distribution and customer delivery system. We will have moved from a structure of five regional warehouses feeding 48 local market warehouses to three main distribution centers, North Georgia, Dallas, Texas, and Central Florida. Three home delivery centers and 16 preexisting local market call [stock] attached to retail stores.

Since 2001 a total of 53 warehouse facilities were reduced to 22, only six of which is stand alone. We have moved from a model of 60 square feet of warehouse per 100 feet of retail, to 37 square feet of warehouse to 100 feet of retail by 2005.

During this time we designed and implemented a highly automated customer service department which allows us to grow and to service our customers in existing and new markets without adding additional staff. We believe that we will begin to see the efficiencies we planned in reduced warehouse rents, operating expenses and better controlled delivery expenses. We expect to reduce our headcount and distribution employees and related clerical by 5% to 10% in the Mid South Texas and Florida areas by the end of the first quarter of 2005. This should amount to $500,000 to $1 million in annual personnel cost savings.

More importantly however, we have built a customer service standard and home delivery system which gives Haverty's a real and significant advantage over any company in the furniture business.

Our continual focus on the final customer, in serving her faster and better than our competitors who'll be our main operational advantage, and allow us to add stores in few new market shares throughout our regions. This is an important to Haverty's brand, as unique and exclusive product we developed for our customer. Most all of the product we are developing and sourcing from our suppliers is being branded for Haverty's and is exclusive in our markets.

We have worked with our main suppliers to have broader exclusive distribution in some cases nationwide exclusive product is being developed. We are on track to resize all of 50% run rate of our sales by the end of the year in Haverty's Collections. And its success is driving our business in all our stores.

We do not have a long range target for the percentage of Haverty's Collections to total sales. But because of its acceptance by our customers, we believe that with the exception of our very limited number of name brands, Haverty's Collections will continue to be an importance in our total sales. We are strengthening our name recognition while providing better values to our customer.

We have recently announced that we created a position to have the development of Haverty's Imports with the addition of [Matt Scal] as Director. Matt has extensive agent sourcing experience having served as Vice President La-Z-Boy Global Services and VP of American [inaudible] Import. We are pleased to have Matt's expertise to help us better flow and source Haverty's products. Matt will report to Tony Wilkerson, SVP of Marketing. This week we announced the management shift to strengthen our merchandise and supply team with the appointment of Jerry Hohman as VP of Supply Chain. Jerry's extensive experience with Haverty's includes regional manager, VP of Operations, as well as VP of Human Resources. Supply chain is an important area as we centralize our buying process and increase our imported product from overseas. We will maintain the ability to react regionally to our different customer tastes with the three regionally located distribution centers. We are aggressively working to open profitable stores in 2005, with the goal of six to seven additions by year-end. Our planned opening of a store near a Stonecrest Mall in southeast Atlanta late in 2005 will bring our greater Atlanta store count to 12. We believe in our philosophy of building the density of our stores in the best markets of our regions to maximize distribution, advertising coverage and to leverage our existing management.

We are optimistic about our current order trend and expect to have a better opportunity for improving sales and profit performance as we finish 2004. I like now turn over the commentary to Dennis Fink, CFO.

Thank you, Clarence. And good morning everybody. I'd first like to draw your attention to page 3, of our earnings press release. There is a table there that’s worth reading. There is a comparability classification, that’s taken care of in this table where we have we classified our vendor allowances and according to the EITF 02-16, we have moved all of the vendor allowances we receive up into the cost of good sold area so that the net affect is that this years SG&A costs are higher. That’s were those allowances used to be recorded and this years gross margin is higher relative to last year. So this table shows what it would -- the comparison properly should be if you make those adjustments to last year's figures and it shows for the quarter the gross profit was down 60 basis points Clarence mentioned in the press release that we had a one time adjustment on working cost of sales that was about 61 basis points, so in other words the margin, third quarter ratio versus third quarter last year, gross margin that is was flat, also mentioned in the press release that worth reiterating is it was about a 23 basis point difference in the LIFO charge this year versus last year, so that on a FIFO basis, current cost basis the margins would have been about 23 points better in the third quarter this year.

The SG&A side the profit comparison still feels a large increase 1.89% of sales it's heavily due to the deleveraging or excuse me the lack of leveraging on fixed cost, that was experienced that sales were quite a bit below expectations. We also mentioned to give little more flavor to that the television advertising that we did additional TV was about 50 basis points higher, than the previous years third quarter, other major items making up the increase was our bank card charges were up, we had less usage of our internal credit programs that Visa, Master Card, American Express charges were higher and they were more before usage for our customers, we had utility increases, we had of course three additional stores open this year, than we get in the third quarter last year has all been larger stores that have been successful, so we are glad to have multi but there was extra cost associated with them, first three stores where the store [inaudible] Maryland in Washington D.C. metro area, also in Washington area the Columbia Maryland store and the great successful second store in St. Antonio of Texas so those three stores were here for the whole third quarter this year and had just been opened the last year. Also the other expensive area was the entire administrative area which increased about 32 basis points think again this was mostly lack of leveraging with the sale of shortfall. And heading back we hope not to see that happen again and do expect in the fourth quarter to do much better job in the SG&A as a percent of net sales.

The other thing to point out on the P&L is the other income this years figure is made up of two items its about an $800,000 gain on the sale of the local market warehouse in Florida and the other $200,000 gain that makes up approximately a million dollars in that line item is for the net gain on all of the reimbursements so the insurance proceeds for the damage done during the hurricanes we had deductible per storm of $250,000 and we also head the top of course but replacement of the fixed assets for the properties the repair and restoration of those of course were done at current cost extended the roofs and the lights of some of those buildings so would you account properly for this there is a new features on these different pieces of real estate that are put at current value. So the net effect was just on this line item a $200,000 gain from all the insurance activity that went on. That is not to say that this was a net profitable endeavor. Obviously for the company it was very costly.

The other item on the P&L we are pointing out is just the provision for doubtful accounts It was down significantly this year to only around a $100,000 and it's the performance of the portfolio receivables, the collectibility is very strong and the bankruptcy rate of our customers has been moderating. We are very well pleased with the way the portfolio is performing. In addition of course we have a lower level of accounts receivable than a year ago. Last year, in September total receivables were about 105 million and where in September this year, they are down to 87 million as we have outsourced more receivables. The programs that we offer, that are run by the third party finance company has been more popular in the recent months, because they have been a little more aggressive than in prior years. Still in total as I mentioned before, the overall amount of business finance has been less this year, running around 42% versus 46% a year ago.

On the balance sheet I'd like to just point out the leverage, we do have about -- this point about 21% debt in the capital structure, at down from 24% at December 31, 2003. Also, we still have a nice cash position of about $20.6 million. And we are going to be putting that to use, we have program of expansion first of all for the remainder of this quarter. We are opening as we previously announced in Cincinnati, Ohio a new store in mid-November. Also in Baton Rogue in mid-December, Baton Rogue Louisiana will have a store opening and within a week we will be opening about 5000 foot expansion in our Savannah store.

The total capital expenditures for this year have been revised downwards mostly due to timing and we now expect about 45.7 million of total capital expenditures this year, that’s before considering $20 million of leased facilities that we will be buying out from under those leases.

Next year’s figure is going to about 48 million for capital expenditures. We have several stores lined up most of which we can’t announce yet and this will be heavily oriented towards the late part of the year next year and we are still evaluating some of those properties and have not made commitments, but our initial estimate is about 48 million. In our previous 10-Q and conference call we had indicated this year's capital expenditures would be 55 million. So we have taken that figure down about $9.5 million.

And operator that concludes my comments and we'd like to now open it up for questions. I also have here joining us in the answers is Clancy Ridley, our Chairman, and Tony Wilkerson, our Senior VP of Marketing.

Thank you very much, sir. Ladies and gentleman, at this time we will begin the questions and answer session. If you have a question please press the "*" followed by the "1" on your pushbutton phone. If you would like to decline from the polling process please press the "*" followed by the "2". You will hear a three tone prompt acknowledging your selection. Your questions will be polled in the order that they are received. If you are using speaker equipment you will need to lift the handset before pressing the numbers. One moment please for the first question; our first question comes from Rex Henderson (phonetic). Please go ahead with your question, sir.

Good morning and again as you said it was a relatively tough quarter and hopefully you won't ever have to cope with four hurricanes again.

And we hope you don’t either Rex.

It was not fun down here. A question related to that, I know that you said that lot of your SG&A as percentage of sales went up because of lost leverage. I also know from been down that you kept a number of employees occupied during the storms when you really didn't have any sales for those positions. Do you have any sense of how much that might have contributed to the SG&A line?

Rex I don’t have an exact figure on that. I think it's probably a few hundred thousand dollars and we did have people actually helping stores pick up, put back in shape the parking lots, that sort of thing. We tried to keep people occupied and busy during that downtime, but it was not a major factor but I think it was one that was very well appreciated by employees and we did try to keep them occupied and busy doing things that would be productive for us.

Okay. You know, another SG&A related question. on the ad spend, how exactly should we think -- first of all is this elevated level of additional spend, is that something we can expect to continue going forward and how should we think about in terms of the percentage of sales, as a function of the store count, as a function of the number of markets you are in, how exactly should we be thinking about ad spend and how to model it?

Rex I think the historical number, the one we have been running the last year and half or so of 6 % is the number that you should be looking at. Our mix is going to be moving more towards television than print has been historically. We have beefed up in some of our new bigger markets the television presence and that was some of what was the addition also. And I think that's the right way for us to go to get our message across about our brand. So, to answer your question, I think the 6% number is the right number.

And is there any seasonality in that? Is it heavier in that third, fourth quarter period?

I don’t think -- it is a heavier dollar amount but it wouldn’t be heavier than --

Heavier in terms of percentage sales, okay. Hi. Finally, as you are getting closer to getting the DC system all rolled out and you know I guess I wanted to return to a question that came up when you opened the Braselton facility and that is your return rate. How well has that been managed and can you kind of give us a sense of how well you are doing in terms of on time and factory deliveries?

I think we are lot better than what you saw when you came in. And return rate we were building this new facility and bring in on new people was a problem several years ago. I think it is well under control. We feel it's pretty finely tuned. It's not a significant problem. I mean the furniture business, returns are an issue but I don’t think it is a significant problem and I think certainly improved significantly over the past. We just converted our Dallas facility to this regional warehouse operation. For the past week that went smoothly. We've learnt how to convert now more easily and I think our experience will help us in getting the Florida facility up and going as rapidly without hampering returns and damages.

Okay. Fine. Did you call out a number on have Haverty brand as a percentage of total sales?

I said that it would be a -- what our target was, which was to be at a 50% run rate by the end of the year and we will exceed that. We will be right there and on target.

And can you say what it was this quarter?

I think it was --

42% of total sales.

Okay. Alright. Finally one other question, lost orders due to the delays in the West Coast, you know, you say your order rate is up 12%, any sense of how much of that may run off before you get them delivered?

You know, I don't think there are other people who are able to respond better than we are. So, there is going to be some fallout in some lost order, but those goods are coming in right now, we are receiving them. We just received some the last few days; we will be receiving a lot of it in the next coming weeks. We are scheduling those deliveries. There is always fallout, Rex, but I think we are able to get product as well or better than anyone else. So I don't anticipate it being a big fallout.

Alright. Well, thanks a lot. I will let someone else have it.

Thank you, Rex.

Thank you very much. Our next question comes from Joe Harvard (phonetic). Please go ahead with your question, sir.

Thank you. Good morning, guys.

Morning, Joe.

I guess big picture if you could -- those of us who haven't had the experience of being through this sort of situation before. You could give us Clarence sort of a history lesson. The company's experience in the timing of the rebound as consumers get their house back in order literally, does that carry over the next quarter? Is it good for sort of a plus ex-comp in that market for two quarters of the following year? That's the kind of background I am looking?

Our experience is its a long term return which lasts up to two years, 18 months to two years and what we are already seeing is a very strong incoming order rate in the affected areas. It's come back rapidly. It comes in waves. The initial orders are those who had damaged the -- they have thrown their furniture out, they've have to have it, we have delayed payments and that type of thing and they don’t have to wait for the insurance. Or they are preparing their condos for rental in the coming season, so they want to do something immediately. And then you have those who are getting the insurance checks and I believe those are just starting to come in and that will last for a couple of months, may be a couple of quarters and then those people who have had their homes destroyed, we had reports for instance on the Panhandle there were up to 700 homes destroyed in the Pensacola area. Those are going to be rebuilt to better specs and standards and probably better homes; they will be buying furniture nine months, a year from now. So --

Right.

So we see it as a long term tick to orders in the affected areas and we are already seeing that as I mentioned. We think it's going to be big.

And to tie that back to 12, I wrote down 12% order rate. That was system wide or is that Florida specific?

System wide.

That was system wide. So I guess the way we think about this is 20% of your store base, kind of got whacked in September, may have had a good earlier quarter -- okay earlier quarter but probably went in the toilet in the last month and then we ought to see a stronger than normal historical comp you know with fits and starts over the next year too out of that 20% plus of --

Out of that 20%. That’s correct. And I think the other thing, Joe -- maybe the rest of the country doesn’t realizes, is that when there is a series of storms, as serious as they were it affects all of the Southeast. It affect certainly Georgia, Carolina, Virginia because and then Alabama because there are all preparing for these storms and it did affect us across those areas and I think there is some rebound of lets say pent up demand a little bit right now happening and hopefully the next several months.

Okay. The other big picture type question you talked about pulling back or reviewing I think was, you used on staffing levels. Can you give us some confidence that this isn’t and overreaction to you know that the near term troubles? What is it structurally that makes you think you can run the store with? It sound like fewer people but then I wanted to clarify later I wasn't sure that you didn’t mean the staffing things didn’t relate more to the sort of final push on the distribution front.

I think it’s more that we have automated so many things and have been able to centralize more operations. So that now that it's fully in place for instance particularly in Florida and in the Mid South those warehouse operations are moving to our new distribution system and customer service system, we know that we can start to eliminate some duplicate positions. But they might move into more a productive position like sales.

Okay.

So it's really the non-selling function, the clerical function which is more systems related rather than demand related and we are also trying to fine tune to make sure we do staff exactly when our customers are there.

Okay. This isn’t you are going -- every store is mandated to remove two sales people. This is the sort of final benefit as the DC systems and IT systems are fully implemented.

Absolutely. And we are emphasizing these are non-selling --

Okay.

In terms of clerical position to what is being centralized.

Okay, good. Thank you for the clarification. Finally Dennis if you could give me the real estate sales again? Clarence or don't remember which one of you said, I think there was 3 million near term, another 1 million or so falling over into Q1, did get those?

That's right 3 million for Q4 and 900,000 for the first quarter.

Got it. Alright guys. Thank you, good luck.

Thank you.

Thank you very much. Our next question does come from Laura Champine (phonetic). Please go head with your question ma'am.

Good morning, Dennis can you clarify -- go through with me once more the CapEx adjustments? I heard 45.2 million this year. What's that 20million you mentioned as well?

Yeah, the 20 million is not new facility. The 20 million is existing facilities that are under a lease. Basically they are off balance sheet leases that are not capital leases and we are buying out the properties and we will bring them on balance sheet and there is a -- essentially there is three stores and distribution center under two different leases. One is for roughly 13 million and one is for 7 million and we will be buying both of those out in the fourth quarter. So that’s 20 million of cash out and those assets will now appear in our balance sheet.

Okay. And that’s in addition to the 45.2 million?

That's right. The 45.2 is really new properties, correct.

Okay. And Clarence this one is probably for you. I noticed that at this year's furniture market that some national recognized brands -- I am thinking Broyhill specifically where you had ordered products from them and but had decided not to use their brand instead to use the Havertys brand. What would be the driver for that type of decision?

We have got Tony here and I'll let Tony address that.

Hey, Laura. How are you doing?

Good.

You know, we are -- we have a multi-prong marketing affect here in terms of imports and domestic products. We are continuing to grow our Havertys Collection and Havertys Premium Collection in a couple of ways. One, certainly is working with stocking agents and closer to the bounds of resources I would say, to develop product. The other way is to work with a broad range of existing suppliers that we have dealt with over the years. We have -- as the entire landscape changes in our industry and companies like Havertys do more direct products, particularly Havertys, we have encountered that a lot of the people we've dealt with over the years want to continuing dealing with. And they have an option to do that and providing products to Havertys for our brand. This includes companies of every size, including we mentioned some of the larger brands we talked in the market. So we have that option and in those instances where they develop products for Havertys, we have product where you were highly involved in the development of that, the design, the targeting of the product and price point and so forth. We also see product that they bring to us, that are going to be wanting to come out, so let say in a particular market, it's generally a multiple product offering. We look through these product offerings and we will review those opportunities to brand for Havertys. So we continued to look to brand -- our brand, we know there are some national brands and as Clarence mentioned earlier, we expect to continue to carry some national brand. In some instances, we may carry the national brands from the company but also they produce products for us to brand under our Collections and Premium Collections name.

If you don’t use your vendors brand name will you get better pricing?

I will tell you that value is a key element in everything we put Havertys Collection. I will tell you that those values we put in are mandatory. They are not negotiable. So in relationship to the value of the brand, the value of the Haverty brand has to be outstanding and meet certain criteria.

Okay. Well I am proud owner of your Studio/One-bedroom suite and its working out pretty well. So --

Right. Can I use that in an ad?

That’s good.

Thank you Laura.

Thanks.

Thank you very much. Our next question does come from Charles Grom (phonetic). Please go ahead with your first question, sir.

Good morning guys. Could you elaborate a little bit on the October delivery delays? How much is related to the ports versus issues with getting products sourced from Vietnam and I guess second of that why you have so much confidence it's going to fixed over the next four weeks?

But one thing we are receiving the product now. I mean when we moved some of these groups and frankly these were our best group, when we moved them from China to Vietnam due to the dumping threat there were some delays in getting that product and we knew that these some glitches, they were. It was up to about five weeks delay and so it hit us on some of our best selling merchandise but it's in. I mean it's coming in Tony.

Yeah. How would I phrase it? First of all it's a limited number of collections that we had this instance on. We started back early part of this year actually because of the anti-dumping, wanting to protect some of our major collections, ship that productions. We didn’t want to get into the final days and find it, looks the tariff effect we wouldn’t live with it and that point we moved it. There were some important collection and want happened is these shifts were [actually] just a number of a few weeks. The problem is a month is only four weeks long. So some of these products that were build in the later part of September into October, we had -- those factories had to deal with production start ups issues and those get resolved in a few weeks which shelved those shipments out. We lost a few days to a week on some of the important issues but -- so it is really just an [operated] number of groups and those are already starting to arrive. So it is not extremely broad based issue.

Okay. Fair enough. I guess I am a little bit surprised that negative 1 comp in a quarter would cause so much deleveraging in SG&A. Is that historically been you know what we have seen in the third quarter and I guess second to that, could you just give us a little bit of sense on and may be quantify what you think your SG&A would be in the fourth quarter for us?

Alright. I think that it is unusual that a negative 1% comp would create this kind of SG&A spike as a percent of sales. There is really a number of factors came together and we covered some of those already. I think as Clarence said in his comments that the first month was very strong and we geared up to have a big quarter and gearing up means getting all the people ready, putting advertising in place, preparing ourselves to deliver a lot of furniture. So we were quite surprised both with the tone of business and of course with the ridiculous weather that we encountered. But it was unusual that that would have happened. I think we will see to it that it doesn’t happen again, but we have had time where we have actually continued costs very well. I think back to -- the quarter after 9/11 we were surprised business was good and it was good. We are expecting it to terrible and we had cut cost and showed a tremendous leverage on a fairly modest increase in sales. So I think it is all a matter of mindset and we look back at it and think of several things we might have done. There is no way we could have known what was coming; I think it is only other part of it. In terms of going forward this quarter we have the extra cost from accelerating some of these warehouse moves. The warehouse we had in Mississippi, there was buyer and we have accelerated exiting that facility. We announced that a month or so ago that we did accelerate that and so those expenses are moving quickly to get out of that warehouse and move into our Dallas facility, are getting hit but then in terms of the pre tax earnings we have much more coming in the way of gain from that facility. But I think that with that in there it is going to take -- is probably going to take 3% to 5 % comps to see our SG&A been similar, flat with last year as a percent of sales, last year's fourth quarter and I don’t think that we are going to have that situation going forward. I think modest, after the fist quarter where we get all of this all pretty much behind us, all this warehouse and distribution center restructuring, I believe that you will see very modest increases in comps will give you very good leverage in SG&A.

And I'll comment on the third quarter SG&A also. It's difficult to overemphasize that Florida is our fastest growing state and region and are most profitable regions. So when it gets hit in the gut it will definitely effect that us, we lose a lot of the leverage that we been able to get. So that did happen in the third quarter and as Dennis talked about on the warehouses and that’s not something that’s going to happen all at one time again.

Okay. Fair enough. Clarence can you speak a little about the health of the consumer absent or may be outside of Florida, you know for national brands like [La-Z-Boy] and get kind of mixed results -- the tone at high point was pretty bad, can you just kind of comment what you seeing out there and are expecting some kind of recovery you know once the election passes next week?

I think the elections are a big deal. We did see and I have mentioned it a slowdown in the last few months of the quarter all across our regions and I think there was a certain hesitation on our customers and we are starting to see that comeback. I think there is some positive feeling and we are encouraged about the fourth quarter.

Okay. Last question and then I'll pass on to others. Can you just touch on, if you guys have looked at any real estate opportunities in Philie with [Bruner's]?

We have looked at them and that’s not something we are -- we are going to consider further.

You are not going to consider it?

No, not [Bruner's] in Philadelphia.

Okay, Thanks guys.

Okay.

Thank you very much. Our next question is from Margaret Whelan (phonetic). Please go ahead with your question ma'am.

Hi, good morning guys.

Good morning.

And you did a good job of explaining the de-lever on the hurricane. I'm just wondering bigger picture, in terms of the Havertys brand itself is accelerating I guess and evolving more quickly than we had anticipated couple of years ago. Do you still getting the same margins premium on that, that you were may be three years ago I'm just wondering relative to a new tariffs that are coming in, some of the disruption that we are seeing?

Margaret the premium that we used to talk about it is what we got over the average of our prior mix and now that it’s the largest -- everything we carry, it is driving our business. So we do get a little higher margin on this than say the most promotional [inaudible] or something like that but we are not seeing it fall back. We are not seeing it come down. We do expect to continue to have margin improvement not maybe at the rate that we had in the past but slightly up because I think we are going to brining in more values that can make us competitive against standard players and we are expecting to see better values which is what Tony's team is working on.

To clarify Tony's answer to Laura's questions. The branded manufacturing in the U.S. are doing some private labels for your right now. Is it?

Yes, yes, they are.

Okay.

All of our suppliers that we've asked are now going -- are providing goods for Havertys.

How long has that been going on?

Very recently in some cases.

Like 12 months or [18 months].

As of market.

Okay. And then in terms of the retail environment, there are retailers that are struggling in your neighborhood. Is that impacting your business at all? Are you gaining share or losing share --

Well it's hard to say we are gaining shares when our sales aren’t going up. We have said.

But everything else's are going down.

Well that’s what we don’t know. Margaret we think that we are doing a good job and gaining our customer base and we believe we are gaining share. We don’t have numbers yet on that. It's been a tough environment for the last several months.

Okay. And then finally as the branded stores come into your markets, do you see that as a threat or do you believe that given the plenty of this value and a variety of products that you are in a better position?

I think we are in a better position, because we are focusing on how to serve the customer, our customer now. We’ve got in place the system and we can get the product to her quicker. However, when you have a lot of new retailers coming next door to us that affects your business.

Yeah.

People come in, they shop and buy from them, it might not be a good experience, but it takes him a while to see that. So we -- we are not encouraging people to come in to our market. But I think we’ve got a model that will out in the near term and the long term.

Okay. And then could you just clarify exactly what is the premium on the branded products right now and if that is changed the tariff from some of your vendors that have moved to Vietnam?

The premium on our branded product over the average?

Yes.

It's still probably 200-400 basis point.

Of EBIT?

To the average of the other. To the average of the other.

Okay.

That’s right.

Okay. Thank you.

Okay, Margaret.

Thank you very much. The next question does come from Mike Behink (phonetic). Please go ahead with your question sir.

Thanks. Is it possible to separate the order and delivered sales numbers that you mentioned into hurricane affected areas and non hurricane areas?

This is Dennis and I can give you this much on the order side, we said we are up about 12% in total months to date on incoming orders. Quarter was up about twice that. It was up about 24%. So all of the areas except Florida would be up about 8%. And also obviously when Florida is up more, it was bigger percent of the total so far in October than it is normally because businesses are strong there.

Okay. And on the delivered sale side you said there was comping in the negative low single digits?

That's where I believe it would be for a month at this point with deliveries looking at this morning. And yes low single digit well is what we are thinking flat -- roughly flat in total.

Okay.

And we will announce that pretty quickly. We will be announcing that Wednesday morning, next week, the 3rd. We are going to be at a conference in -- you want to go ahead and [head] that information out.

Okay. How long before the delivered sales sort of catch up to the 12% increase you have seen in orders?

Well usually that's -- there is a week to two weeks lag and sort of thing but that’s just through the normal process of the customer been ready for their delivery and us having the truck available to get it there. Now we have this flow issue that Dennis has talked about. So that's held us this month from -- and the backlog is higher than normal. So we expect that we can catch up on that. There is only one caveat, it is November, December the two best months of the year and so you don’t want to go into them too far backlog. It is harder time to get caught up. But our people are anxious to show us how much they can get delevered.

Okay, great. And finally how might the promotional activity in the fourth quarter vary from what we saw last year?

For others you mean or for us?

For you specifically?

Tony you want to comment on how the promotional activities lined up.

Yeah. We did what we do every fourth quarter which is we [inaudible] we have a very strong promotional calendar and it is comparable to last year which is also a strong calendar year. So we put lot effort in the fourth quarter this also.

Okay. So comparable to last year?

Yeah.

Okay, great. Thank you very much.

Thank you.

Thank you very much our next question comes from Ted Cloveford (phonetic). Please go a head with your question sir.

Thank you, good morning.

Good morning.

I just wanted to ask you about the dumping duties, what store did you guys have that still remains in China? What you have moved to other countries and also what combine rate will really started to hurt to you incrementally and force you to look for other alternatives?

This is Clancy Ridley. I think that our defensive moves that Tony Wilkerson described to get our best selling bedroom sourced from countries other than China are going to be very helpful to us. Now we still have goods that we would buy from China if there is a very low rate that we now look to source from elsewhere perhaps. What the rate would be to cause us to start hurting I had said six months ago that 20% or higher would be very difficult. I now think that’s a lower figure. Tony, what would you guess 15% maybe what. What would the rate be where we would say we couldn’t stand additional cost, we have to continue to buy from Indonesia or Vietnam or Philippines that are not so [high].

Well certainly you are right, 15% would be tough to swallow especially in light of the fact that we have extremely strong relationships with factories over there who are expected to get either no tariffs, extremely low tariffs or tariffs that are very workable. So if you know with some of the companies such as [inaudible] while some of those companies could have or really the expectation almost to cost [inaudible] that some of those companies will have to prepare that are seem to be available, that we have had meetings recently with some of those people [inaudible] where we have access to products or they will at extremely lowest rate of available at that [time].

Ted as you know the [inaudible] space how that comes out and how many of the [individual rate] companies get less than 2%, that combination will make possibly a fundamental difference than what the rate is. I think as [Bud Modash] forecasted in his last publication on this topic, it could get up well above 20%. But we are certainly doing everything we can to make sure to make sure answers are reached by Department of Commerce and the RTC.

Okay. And just to clarify you did say that your two relationships in Vietnam, the problems with those are largely behind you?

We believe so. We are now receiving that product and it is coming in good condition. We are pleased with it.

And if you had to you could expand these relationships?

(A): That’s correct.

Okay, thank you.

Thank you very much. Ladies and gentlemen if there are any additional questions please press the "*" followed by the "1". As a reminder if you are using speaker equipment please pick up the handset before pressing the numbers. Mr. Smith, at this time there are no more additional questions please go ahead.

We would like to thank you very much for joining our call. I appreciate it.

Ladies and gentleman, this concludes the Haverty Furniture third quarter earnings call. If you would like to listen to our replay of today's conference please dial 1-800-405-2236, the pass code is 11013235#. Once again that number is 800-405-2236, with the pass code of 11013235#. Thank you very much. You may disconnect and thank you for using AT&T.