Haverty Furniture Companies Inc (HVT.A) 2020 Q4 法說會逐字稿

Good day, everyone, and thank you for standing by. Welcome to today's Haverty Furniture Companies, Inc. Fourth Quarter and Full Year 2020 Financial Results. Today's conference is being recorded. And at this time, I'd like to turn the floor over to Richard Hare, CFO.

Thank you, operator.

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, CEO and Chairman, Clarence Smith, will now give you an update on our results and provide commentary about our business.

Good morning, and thank you for joining our 2020 fourth quarter and full year conference call.

2020 was a disruptive and wild year for Havertys, our industry and our communities. After closing our stores in mid-March and reopening most of them May 1, we came back exceptionally strong and fought to complete deliveries and reduce our record backlog of undelivered sales. For the second half, we were very lucky and especially blessed to be part of the homebody economy, where the entire country focused on making their homes safer and more comfortable to ride through the pandemic. We broke Q4 records with sales of $241.3 million, up 12.9%; and earnings per share of $1.37 versus $0.31 in 2019.

Several trends come to the forefront: higher gross margins due to better pricing discipline, fewer promotions, lower markdowns and more special orders, an overall trend that we expect to continue; lower SG&A of 44.3% of sales compared to 50.8% last year with shorter store hours and reduced staff. Our largest markets produced at record levels and were major profit contributors. Internet sales were our highest producing store at 4.3% of sales since reopening; buy online, pick up in store is running at 16%, up triple over past years, which, along with significant chat, increases or new growth and service factors. Written sales continued to grow faster than our delivered sales with double-digit gains. Undelivered sales backlogs are at record levels due to suppliers experiencing across-the-board shortages of materials, labor and import containers.

We're very excited about next week's opening of our first store in Myrtle Beach, South Carolina, a market that we have served from surrounding locations, but did not have a physical presence. We're opening a store in Central Florida in The villages midyear and are planning an additional store in an existing market in the fourth quarter. We expect to have 1 store closing and end the year with 122 stores. We are studying all our major markets closely to make sure that we are well positioned for growth in the future.

With our strong store position and brand recognition throughout our regions and over half our stores in Florida, Texas and Georgia, we are well located in the fastest-growing markets in the country.

2021 should be the year to finally reach and exceed our long-term productivity goal of sales over $200 per square foot.

For the first time since we began tracking, we've seen consistent sales periods where we had increases in all 3 key performance metrics: average ticket, closing rate and traffic count. We continued to have very strong increases in our written sales even while struggling to bring in product to complete deliveries.

We believe in staying in front of supply challenges that are playing a part in the inevitable disruption in our industry that is experienced -- that the industry is experiencing across the board. All our teams have a very high priority of working closely with all our suppliers and shippers to expedite deliveries. We believe we will come out much stronger in this disruption and with improved service levels over our competitors.

We recognize the importance of a top-tier website and are planning significant investments in the coming year to make our site an industry leader. We're determined to make it as easy as possible for our customers to interact with us any way she wants. We know that our website is our front door, and we are dedicated to making everything about havertys.com the best in the industry.

We believe that one of Havertys major strengths is our fully integrated unified operating system, which allows our customers and our team members to have better visibility and quicker response on product availability, delivery times and service levels. We realize the high importance of fast response and full visibility and our passion about keeping Havertys at the highest standards.

2020 was a wild extraordinary year. I'm very proud of all the Havertys team members and their dedication to serve our customers during this pandemic. I believe we have the best operating teams in the industry. We've set standards and operating disciplines that will contribute to higher performance in the years ahead and strengthen Havertys premier position in serving our region's home furnishings needs.

I'll turn it back over to Richard.

Thank you, Clarence, and good morning.

In the fourth quarter of 2020, delivered sales were $241.3 million, a 12.9% increase over the prior year quarter. Comparable store sales were up 13.7%. Total written sales for the fourth quarter of 2020 were up 16.7%, and written comparable store sales were up 17.5% over the prior year period. Our gross profit margin increased 280 basis points from 54.2% to 57% due to better merchandising mix and less promotional activity.

Selling, general and administrative expenses decreased $1.6 million or 1.5% to $107 million and fell to 44.3% of sales from 50.8%. This was due to reduced advertising and occupancy costs, which were partially offset by increased selling and incentive expenses.

Other income in the fourth quarter of 2020 was $600,000 and it included the gain on the sale of surplus property during the quarter.

We recorded net interest income of $61,000 in the fourth quarter of 2020 versus interest income of $307,000 in the fourth quarter of last year.

Income before income taxes increased $23.7 million to $31.3 million.

Our tax expense was $5.8 million during the fourth quarter of 2020, which resulted in an effective tax rate of 18.7%. The effective rate benefited from the recognition of $1.5 million of certain state job creation tax credits.

Net income for the fourth quarter of 2020 was $25.4 million or $1.37 per diluted share on our common stock compared to net income of $6.1 million or $0.31 per share in our comparable quarter last year.

Now turning over to our balance sheet. At the end of the fourth quarter, our inventories were $89.9 million, which was down $14.9 million from the December 31, 2019, balance and down $1 million versus the Q3 2020 balance. At the end of the fourth quarter, our customer deposits were $86.2 million, which was up $56.1 million from the December 31, 2019, balance and down $2.2 million versus the Q3 2020 balance. We ended the quarter with $200 million of cash and cash equivalents. We have no funded debt on our balance sheet at the end of Q4 2020.

Looking at some of the uses of our cash flow. Capital expenditures were $3.7 million for Q4 2020 and $10.9 million for the full year. We also paid $40 million of dividends during the fourth quarter of 2020, $36 million on a special $2 share dividend and $4 million on our regularly core dividend.

During the fourth quarter, we did not purchase any common shares in our buyback program. For the year, we purchased a total of 19 million -- $19.7 million or 1,033,165 shares. We have $16.8 million remaining worth remaining under our current authorization in our buyback program.

For the calendar year 2020, we have returned approximately $70 million to our shareholders, $14 million in quarterly dividends, $36 million in a special dividend and approximately $20 million in share repurchases.

Our earnings release list 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.

We expect our gross margin for 2021 to be between 55.3% and 55.8%. We anticipate gross profit margins will be impacted by our current estimate of product and freight cost and changes in our LIFO reserve.

Our fixed and discretionary type SG&A expenses for 2021 are expected to be in the $261 million to $263 million range, a slight increase over the 2019 level of $260 million. The variable type costs within SG&A for 2021 are expected to be in the range of 18.2% to 18.4%, based on potential increases in selling and delivery costs.

Our planned capital expenditures for 2021 is approximately $23 million. Anticipated new or replacement stores, remodels and expansions totaled $12.9 million. Investments in our distribution network are expected to be $6.4 million. And investments in our information technology are expected to be approximately $3.7 million.

Our anticipated effective tax rate for 2021 is expected to be 24%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation.

This completes our commentary on the fourth quarter financial results. We appreciate your participation in today's call.

Operator, we would like to open the call up for questions at this time.

(Operator Instructions) It looks like first up, from Sidoti & Company, we have Anthony Lebiedzinski.

So first, I just wanted to look at -- go back to the fourth quarter. So if you could give us a sense as to how the quarter progressed in terms of your same-store sales. Was there a consistent drop during the quarter? Or was there any one particular month that saw greater sales growth than the others? Just curious as far as how that progressed.

Sure, Anthony. This is Richard. So just in terms of the cadence in the fourth quarter in terms of delivered sales, we were up in the plus 20% range in October. We were actually down mid-single digits in November and then up in the plus 20% range in December. So that was kind of the cadence of the delivered sales in the quarter.

Got it. Okay. And then in terms of the traffic versus ticket and then just curious also about the customer order penetration, where you guys are now?

Well, our average ticket continues to go up. We're doing a little more special order and more custom and I think that will continue to be a big driver as we are able to get more decorators in people's homes. And also, I think we're just selling a more custom product and just doing a better job of better quality.

Traffic has been up, which is something, as you know, over the last several years has been a challenge. So we're very pleased to see that. And our closing rate has been up consistently all during this pandemic because I think anybody coming into the store is more focused on buying and not shopping or they've already done the pre-shopping.

So all 3 are continuing to be consistent, and I think we'll see that trend continue probably for this year.

Okay. Great. That's good to hear. Yes. And then in terms of the supply chain constraints, in the release, you talked about the mattress sales a little bit. But overall, I mean can you -- Clarence, maybe you could just kind of go over as far as which product categories are you seeing the most issues with inventory availability?

Well, I mean we're having challenges both on domestic upholstery, primarily due to labor and supplies. But also, just as far as import, the containers are a huge issue and you know about that. I do think that we're now though in a little better condition with our bestsellers. We've been flowing those, and frankly, spending some premiums to get that. So I think we're in better position on our best-selling product now than we were, let's just say, several months ago. I think we're in the best inventory position since last summer. And I hope that, that will improve in the coming months. I mean Chinese New Year is here. We've got a number -- a good number of containers out, but we still have a backlog that's the highest we've had in our history.

So we've got challenges. I think we're doing a good job. We're very happy with our relationships with our vendors and our suppliers. And we're paying a premium to get the product to make sure we can serve our customers.

Got it. Okay. And then last couple of questions for me. So as far as -- you said -- you just said that you're paying a premium so -- to get those products delivered. Do you think you'll be able to offset that with higher prices at retail to offset the cost of that?

And then last question. As far as the backlog, if you could quantify that, that would be great.

Well, we are increasing prices. We recognize that we're going to be -- have to -- we have to recover that. Freight, we think, will come back down later in the year. So as Richard pointed out, we're looking at a little bit lower margins because some of that's going to hit us now this quarter, in the second quarter. We think it will start to alleviate in the back half of the year, maybe sooner.

So yes, we're going to try to gain those price increases. Unfortunately, on some of our products, some, we can't. But we know that we've got to recover that for our investors.

Got it. Okay. And then as far as the backlog, is there a way you guys could quantify? Maybe I missed that if you say. I know it's a record high, but did you give a dollar amount for the backlog?

It's a record high. We have not given that number out, but it's several multiples higher than last year.

And next question will come from Brad Thomas with KeyBanc Capital Markets.

Congrats on strong execution in a challenging year and all the momentum in the business right now. I wanted to ask a little bit more about working through the strong backlog. And how long do you think at this point it might take for the supply chain to catch up with the demand that you've been seeing? Is this something that we should expect to continue through 2Q as well?

Well, it will go through the summer. I mean we are already placing orders that we know that we won't get till summer. And Chinese New Year, we still have product over there that we didn't get out and that's going to be a challenge, as you've seen for the rest of the industry.

I think that by the fall, this should be settling down. But I know the industry has a huge backlog, and I think we've got a relationship. And as I mentioned, we're willing to pay to get the product where it's necessary. But it's going to carry over through the summer, I would think.

Yes. And just -- I know you're not giving a sales guidance. But if we look at the last 2 quarters, you've delivered over $200 million, and this past quarter over $240 million of sales. Given the backlog that we're working with, is it reasonable for us to think you can work through that backlog and potentially generate over $200 million in sales these next couple of quarters if the written demand holds up?

But I know you're not asking about sales.

Exactly.

Yes. Rich, I'll let you answer that.

I would just say that we have a strong backlog, which bodes well for 2021. And we're fighting through these supply chain issues like everybody else, but I think we're in -- compared to some of our other peers, I think we're in a good spot in terms of how we handle the supply chain.

Okay. Fair enough. And as we think about some of the gross margin puts and takes, and I appreciate the guidance. You did guide that. You commented about some issues like freight. Can you help us think about the magnitude of maybe how much headwind and basis points you may be looking at as you consider freight and perhaps promotions at some time returning to normal?

Yes. I'd say we came in at 56% for the total year. Margins were up to 57% in the fourth quarter. You've got the freight headwinds going into 2021, and you've seen the -- in all the trade journals, the reports about how expensive freight is now. We have contracted freight rates, but due to volume, we're having to take additional shipments and those rates are significantly higher than what our contract rates are.

So we factor that into our 55.3% to 55.8% guidance for 2021. In addition to those freight issues with the margins, you've also got to factor in LIFO. And just as a point of reference, back in 2019, when we had price pressure on costs due to the tariffs, our LIFO hit -- or our LIFO reserve changed $1.8 million, and it was only about 1/3 of that in 2020. So you've got to factor in potential LIFO hits on that margin in 2021.

So I think as we progress through the year, you'll -- I hope to have that guidance tightened up a bit. But right now, that's the best we can forecast.

Okay. Great. And then just circling back on some of your comments on the mattress category. It sounds like you dealt with some inventory challenges there. What categories is that in specifically? And what line of sight do you have on that area improving for you?

Well, our mattress business has been challenged with just capacity and supplies. It has improved recently, and we commented on that. The steel was an issue. I think there's still a drag there, but it's improved over what it was last quarter. So we feel better about it. It's improving. But it is still a challenge to get the product in the right mix at the right time.

If I could squeeze one more in just with the topic dominating the news here of the weather. Really unusual times. Can you give us any comments on if kind of that presents much of a risk around that President's Day weekend and around deliveries?

Yes. It hit us pretty hard. We were down about 1/3 of our stores or 30% of our stores for at least 4 days and they're still down. And the same thing goes with our deliveries. Our deliveries, we weren't able to get out about 30%. Very heavily impacted, as you know, in Texas and still are. We probably can't get open in many of those stores this weekend. And it did hit over the most important event of the quarter, which is President's weekend.

So that has impacted us. It still impacts us. We're struggling with a lot of our own stores. But we're concerned about our associates, our team members, their houses. They don't have water. They don't have heat. The same thing applies to our customers. And this next storm is coming through now and will hit us in the east, in the Virginia, D.C. area.

So we are impacted now. It's wintertime, it happens. It's rare that it happens like this over a holiday weekend. But we mentioned in our comments that our written business is up double digit and that includes where we are today.

So there's a drag. There's an impact. We're concerned. But we feel pretty good about where our business is.

And ladies and gentlemen, with no further questions remaining in the queue, I'd like to turn the floor back to Mr. Richard Hare for any additional or closing remarks.

Well, thank you for your participation in today's call. We look forward to talking to you in the future when we release our first quarter results.

All right. Ladies and gentlemen, that will conclude our call for today. We do appreciate you joining us. You may now disconnect.