Haverty Furniture Companies Inc (HVT.A) 2015 Q4 法說會逐字稿

Good morning and welcome to the Haverty's fourth-quarter 2015 financial results conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Dennis Fink, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Good morning, everybody. During this conference, we'll make forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those made or applied in such statements, which speak only as of the date they are made and which we undertake no obligation to publicly update or revise. Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the Company's reports filed with the SEC.

Our President, CEO, and Chairman Mr. Clarence Smith will now give you an update on our results and direction. Clarence?

Good morning. Thanks for joining our 2015 fourth-quarter and full-year conference call. Earnings for the fourth quarter were $0.41 per share versus a GAAP loss of $0.45 and adjusted earnings per share of $0.46 for the same period in 2014.

Earnings for the full year of 2015 or $1.22 per share compared to $0.37 for GAAP and adjusted earnings per share of $1.28 for 2014. The earnings were consistent with our expectations based on our previously released 1.4% Q4 net sales increase.

We are encouraged by improvement in sales for the first quarter of 2016 to date, with total delivered sales up 4.9% and total written sales up 1.4%. Comparative-store delivered sales are up 3.9%, with written sales up 0.3%. These increases were on top of good Q-to-date results a year ago, where total delivered sales had been up 7.7% and total written sales were up 7.2%. Our 2015 4.7% total sales increase was driven by the identical percentage increase in average ticket.

We continue to enhance and improve our design capabilities through our 120 H Design associates in our stores. The design staff has helped us grow the special order and custom upholstery business up 11.8% over the previous year.

In addition to our strong sales in upholstery, we've seen an increase in our dining category, particularly in the more casual groups. Our accessory business shows nice increases, another benefactor of our growth in H Design business.

We continue to develop and source exclusive Haverty's products across several categories using the best designers in the industry. We've strengthened our sourcing team and our quality control organization with the addition of key new positions both here and in Asia.

We recognize the need to be onsite more for preproduction and production runs of our products from Asia. We've already seen that this deeper involvement with our team has helped us improve the product quality and reduce returns.

Since mid-December, we've seen a significant increase in our Internet sales, which we believe is driven primarily by a major website upgrade late last year. The upgrade included major enhancements to speed the display of photographic images and graphics, better search algorithms, a much easier transactional process, and a greatly improved mobile experience. We've found that over 60% of the users are on mobile devices and the enhancements fit right into our customers' preferences.

We continue to enhance and upgrade the usability of havertys.com and our customers are becoming very comfortable with using them to help see, shop, and order our products. We want to help our customers interact with Haverty's however she wishes in a seamless manner.

In 2015, we made $27.1 million in important capital expenditures in our business and $14 million in purchases of treasury stock. Our planned CapEx for 2016 is $33 million, of which approximately half is investments in IT and distribution that we expect will help us to operate more efficiently and serve our customers more quickly.

With the recent hiring of Abir Thakurta, Vice President of Supply Chain, and the plan linkup to GT Nexus cloud platform in the next months, we believe that we'll have one of the best supply chain organizations in the industry. We know how critical it is to have visibility through the ocean carriers back to the production lines in Asia to be able to meet and facilitate home deliveries.

In the past two years, we've invested a great deal in training and development of our sales team, with a formal standardized program for all of our managers and sales associates. The selling-by-design program emphasizes one-on-one training with the manager and the sales associate to help meet self-determined goals. We built a team that's very focused and fully engaged to best serve our customers. We are beginning to see positive results of our ongoing coaching and training program and expect to see reduced turnover and higher productivity in the year ahead.

We believe that as the general economy improves and consumer spending in the housing market strengthens, our business will benefit. We feel that the major investments we've made in the past six years in our stores, our exclusive products, special order tools, developing our associates' skills, and in great technology positions us to grow our business in all the regions we serve.

I'll now turn the call back over to Dennis.

Thank you, Clarence. Last night's earnings press release covered our financial highlights and I'll just touch on a few of those points now before we open the call up to your questions. We customarily give guidance for expected gross margins and SG&A expenses for the current year within each of our earnings releases.

We don't publicize any sales forecasts, but do announce our actual results and sales in a few days after each quarter end and then disclose how sales for the new quarter to date are trending when we announce quarterly earnings.

Our first-quarter 2016 to-date sales have shown better percent increases over last year's same time period than we experienced year-over-year in the fourth quarter. However, Easter falls on the last weekend in March this year versus the first weekend of April in 2015. Our stores are closed on Easter Sunday and sales over the long weekend for us and most furniture stores are very soft. So this year, we will have some shifted sales out of Q1 and into Q2 as compared to 2015.

Fourth-quarter gross profit margins at 53.8% were a little better than we had expected. We anticipate that the full-year 2016 gross profit margins will be close to the 53.5% actual results for the 2015 full year. I want to reiterate the point in the release about expected 2016 fixed and discretionary type expenses within SG&A increasing more year over year in the first half of 2016 than in the second half. That is the opposite of how our normal consecutive quarterly sales levels run and will result in 2016 profitability being negatively impacted in the first two quarters versus a typical year.

Operator, at this time, we'll take questions from the audience.

(Operator Instructions) Budd Bugatch.

Good morning, Clarence and Dennis. This is David Vargas on for Budd. Thank you for taking my question. I was wondering if you could just talk a little bit about what you're seeing so far Q1 to date in terms of how the customer is acting differently maybe than in Q4, given the pretty strong quarter-to-date sales numbers on top of a strong Q1-to-date same period last year.

We are seeing a little better balance across the regions than we had earlier, let's say, the previous year. The quarter to date, you know, had some different issues. January weather was certainly a factor. February has come back nicely. Deliveries are better. I think we are in better stock position of our bestsellers than we were last year. So I think it's a combination.

I also think some of the things that we've invested in and done in our stores and in our design program are helping us. But it's a combination of things overall. It's not a big difference, but it's certainly positive.

Okay, thanks. And just expanding on that, you said you have 120 H Design associates in the stores now. What's your ultimate end target for that number? Where do you see that going? And then to follow-up on that, to what extent do you think customers are now coming into the stores because they are aware of and they plan to use the H Design service versus in the past?

I think where we are is about where we want to be. We've got 121 stores. I think that the 120 designers is about where we want to be. We may move them around to different stores and have more than one in some of our best stores.

I do think that customers are now coming to us or we're getting some credit for the fact that we offer this free service. And I think it was something that we didn't provide in the past that our customers wanted. And the fact that we now have it, we're getting some traction with it, it's growing as a percentage of our overall business, people are recognizing it. So we have an internal goal to get that to about 25% of our business. It's less than that now. But I think it is clearly a main focus and I think some of our advertising gets that message across also.

Great. Thanks a lot and good luck this quarter.

Brad Thomas.

I wanted to just ask first about gross margin. And perhaps, Clarence, if you could talk a little bit more about, you know, the puts and takes and maybe the opportunity to drive gross margin higher, not necessarily this year, but in years down the road as you refine some of the merchandising.

As you know, we are developing more of the exclusive product and I think we are getting better at it. We are better at sourcing also. So I think we can get more credit for that, higher gross margins with our new products that we got coming in.

Some of the challenges that Dennis has mentioned. This year, we do have some product that we need to get out of the system. It's not necessarily distressed at all, but it's just product that is not selling like some of the new product. So that is a little bit of pressure this year, but I do think that we will be getting higher margins on the exclusive products we are developing, not only in cases, but in special -- in upholstery.

And also, as we grow our special order business, that gives us the opportunity to gain some margin there. So I do think -- I think there is an upside in the future for higher margins.

Great. And as you contemplate the benefit from refining some of your promotional strategy, hopefully that would result in an increased traffic, of course, and conversion. But is there any anticipated impact on gross margin, either positive or negative, from refining promotions?

No. I don't think we expect to have our margins. I think Dennis's guidance has been to be about where it is right now. And I think the main thing we are doing there, Brad, is we are pricing product, let's just say, on the television that we haven't in the past. We are pricing more product that we feature on the Internet. And I think it's just getting us more credit for the value we offer. So I don't think it's going to impact negatively our margins.

Got you. That's very helpful. Then just lastly, for every retailer, really, there are questions around Texas. And of course, you all don't have exposure to Houston in particular. But I was hoping you could just offer a little bit more color around what's been happening in that state from a demand standpoint and to the extent you can comment on it from a competition standpoint.

Sure. As you know, we'll be anniversarying in the next month or so the entry of Nebraska into Dallas, which was a major impact for that market. And we are already seeing some positives coming back there. I think that that's going to be less of a factor in the next few months. It's certainly better now. I think that we are getting more credit for the services and the product that we offer there and that impact will be less. So that is a major issue for Texas.

As you might have read here, we did lose a key store, which is out of business right now, in Lubbock. We'll have a temporary location coming back and we'll be rebuilding that store, but that won't complete until next year.

The oil part of Texas, West Texas is definitely affected. The south parts of Texas, we are doing pretty well. Austin, San Antonio, we are doing pretty well. But I'd say overall, it's going to be for this year compared to last year probably positive because of the improvement in Dallas.

That's very helpful. Thank you, Clarence, and good luck.

(Operator Instructions) Kristine Koerber.

A few questions. First, I just wanted to follow-up on a gross margin question and some of the new product that you are introducing with higher margin. Can you kind of quantify the margin differential between some of the new product? The exclusive product you are introducing and some of the old product, and give some idea how much higher the margin is?

I'd say the overall average is a couple of percentage. It's primarily in case goods as exclusive collections we develop. The average would be, I'd say, a couple of percentage points. But overall, we do have some collections that we can get a significant advance in. It's primarily in case goods. It wouldn't be as much in upholstery because that's a little more competitive.

Okay, that's helpful. And then with regards to advertising, you indicated that you plan to spend more in Q1. How is the TV advertising working and what's your plan for 2016 as far as advertising goes?

We just introduced a new campaign that we kicked off for Presidents weekend and we are happy with that. It does emphasize more the whole home and what we can do for the home and change the customers' life with what we can offer. That is now rolling out. It will continue to rollout. We've got continuation of that campaign next month and into the spring.

So television is about the same spend as we had previously. We are spending more on the digital and Internet world. But it's a campaign we are excited about.

Okay. And then as far as Internet goes, the e-commerce -- you indicated that you are getting traction there. What are consumers buying? Are they -- is it more accessory -- smaller type -- smaller ticket type items or are you starting to see customers purchase furniture online?

We are seeing -- we did kind of a deep dive on that because it's up nicely this year from a low basis, I will say. And at what we are seeing is people are buying sectionals, buying more upholstery, which is interesting. In the past, it's probably been focused around items like desks and entertainment centers, and used furniture, recliners, that type of thing.

But now they are buying a bigger ticket. Some of that is because we're offering tools that allow them to see the product a lot better than in the past and allow them to see exactly what color it's going to look like and what the upholstery will look like before they buy it.

But again, it's a very low base. I will mention that the base last year for the first quarter, it was only 1% of our business, and now it's 1.5% of our business. So it's up significantly and it could get up to approach 2%, but it's not a large part of our business right now.

Okay. So I just want to -- so the long-term strategy with regards to e-commerce is not going to change. People are still using it to do research and then come into the store.

I think that's absolutely primarily what people are doing. But they are becoming more comfortable ordering online. And it's easier, because we made it easier, and it looks better and they trust us that we can make it -- make the delivery in good condition. So I think it will continue to grow. It will be more important.

Okay, great. Then as far as new stores, what is the timing of the new store openings? That you have two new stores?

I'll let Dennis comment on that one.

Yes, in 2016, we are going to have an opening in August in a new market and then one in September.

All right; in September. Okay. And then just lastly, can you just talk about the Florida DC expansion, what needs to be done there. I know you broke ground and kind of the timing. And then what about the Dallas DC expansion? I believe you were going to expand that facility as well. Thank you.

The Florida facility is underway and we expect it to be complete this summer. So we'll be bringing a product in there directly from our sources in Asia as opposed to flowing them through our Braselton facility. It will allow us to serve the customer quicker. Less handling and a lower inbound cost, so we are excited about that. It will also allow us to warehouse more of the exclusive product for the Florida region.

We do not have plans today to expand the western facility in Dallas. We will at some point, but that's not on the agenda right now.

Okay. Thank you.

Currently there are no further questions in the queue at this time.

Okay. Thank you very much for joining our conference call and we appreciate your interest in Haverty's.

This does conclude your teleconference for today. Thank you for your participation. You may disconnect at any time.