Haverty Furniture Companies Inc (HVT) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Havertys Furniture fourth-quarter and year-end 2007 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today, Friday, February 22, 2008.

I would now like to turn the conference over to Mr. Dennis Fink, EVP and CFO. Please go ahead, sir.

Good morning, everyone. During this conference, we will make forward-looking statements which are subject to risk and uncertainties, and assumptions that are difficult to predict. Actual results may differ materially from those expressed 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 Haverty's actual results to differ materially from the expected results are disclosed in the Company's reports filed with the SEC. We caution you to give consideration to those possibilities.

Now, our President and CEO, Clarence Smith, will give you an update on Haverty's progress. Clarence?

Good morning. Thank you for joining our fourth-quarter call. The fourth-quarter results showed an improvement over the performance of the previous three quarters. While we were disappointed with the total sales drop of 4.7% and the decline in net income to $1.6 million, we have had several encouraging trends.

Gross profit margins improved 29 basis points, reflecting lower markdowns and the ability to achieve better margins due to exclusive designs and sourcing capabilities. We expect to continue to improve our gross margins in 2008.

We had effective expense control in most all areas of our business. Advertising, delivery and administrative costs were reduced, demonstrating good controls in a tough environment.

Our inventories were well managed at $102 million, down from $124 million at the end of 2006. Inventories were up $8.7 million from the end of the third quarter, bringing us up to more optimal levels for serving our customers.

We're very pleased with our merchandising, supply chain, and forecasting teams' developing expertise in deploying goods in a timely manner from up to 12 time zones away.

We just finished a strong Presidents Weekend sale with total written sales up low double digits over a weak 2007, a very encouraging performance. February month to date total written sales are slightly up over last year.

We are also encouraged by our website traffic, which has jumped dramatically over last year. We believe that our improved Havertys.com site has helped drive presold buyers into our stores. We go live with the second phase of the enhanced Havertys.com and the ability to make transactions seamlessly throughout, through our operating systems early next month. We believe that our multichannel abilities to serve our customers will help us strengthen our competitive advantage.

As the home furnishings industry changes, so does our Company, our brand reputation, as well as our customers. The tougher the macroenvironment gets, the more important it becomes to separate and distinguish ourselves. I'm more convinced today that we have the right merchandise values and a more tightly developed and attractive brand that our customers want.

Our merchandising, marketing, and operations teams are doing a fine job of developing new, exclusive designs and showing them in the best overall presentation to excite both our associates and our customers. We're dedicated to providing a better product at a better value than what our competition can offer.

We're now beginning to demonstrate the difference between Havertys and the other players in the business. In addition, I believe that we're building a lead in our service levels over our competition, which will finally make the real difference in winning the sale.

Earlier this month at our annual managers' review meeting, we focused on bridging the gap between performance and budget. Over the past six months, we began a comprehensive and exhaustive budget process that involved every operation and manager in the Company. We established realistic budgets, with specific ownership of each line item. Detailed evaluation of every area of our business is an ongoing priority as well as further reducing our cost to adjust to the conditions.

This year, our regional setup was adjusted to better balance the workload and supervision of our stores. We now have a structure of five regions with a similar store count and dollar volume -- Eastern, Central, Florida, Western, and Southern. We believe that the improved balance and the new incentive structure we now have in place will work to help our individual markets achieve their budgets and to improve our service levels.

In this difficult economy, we know that cash is king. We're very strong financially with zero outstanding on our bank revolver at year end and debt-to-cap under 10%. Besides hitting our budgeted goals, the top priority for 2008 is to maintain our strong balance sheet.

We are investing selectively in our systems and retail locations, while planning to close some older locations as the leases expire or as the local markets deteriorate.

We're shepherding our cash, while opportunistically buying back stock well below our $13 per share book value. Our plans are to continue paying the dividend at the current rate. We believe our 72-year record of dividend payouts is an important part of providing returns to our stockholders.

We're well positioned to gain market share now, and we will react to existing boxes in our regions as they become available and as the markets for home furnishings improve. We feel sure that we will see better real estate values in the coming months and years ahead.

I am confident in our plans and in our position in the industry. These tough times will allow us to come out stronger as conditions improve in our markets.

I would now like to turn the call over to Dennis Fink.

Thank you, Clarence. First, some P&L comments. Within our SG&A expenses, the fourth-quarter advertising and marketing spend decreased $1.8 million, or 48 basis points of net sales, versus the prior year's fourth quarter. The annual 2007 advertising and marketing spend decreased $5.5 million compared to 2006 and stayed flat as a percent of net sales.

The biggest change in our fourth-quarter selling expenses was the cost of expanding the offering of free interest credit promotions to our customers through a third-party finance company. This expense was up $3 million over the fourth quarter last year, and it was essentially flat with the level of spending in the third quarter.

Compared to 2006 as a full year, selling expenses decreased $2.9 million, but increased 75 basis points of net sales. This was comprised of sales commission decreasing with the lower volume, which was offset mostly in dollars by credit promotion expenses, which for the year increased $2.5 million over 2006.

These credit promotions were offered to help stimulate sales during the third and fourth quarter and for a little bit of the second quarter, actually. We promoted longer-term free interest financing for our customers and required less down payments. The credit program costs are expected to continue at near the level they are now, or were for the third and fourth quarter, throughout 2008, due to the higher anticipated usage and more frequency with which we offer these promotions. Also the lower expected down payments is also planned to continue.

Occupancy expenses increased $1.3 million or 107 basis points of sales for the quarter. For the year, occupancy expenses rose $4.1 million or 138 basis points.

The higher costs were mainly due to four new store openings in 2007. Specifically those were one store in north of Tampa; a store in Rockville, Maryland; one in Huntsville, Alabama; and a second store for us in Austin, Texas. There were also two relocations, a beautiful store in Birmingham, Alabama, and a relocation in Wilmington, North Carolina.

There was a full year of expenses also in 2007 for the four stores we opened and one relocation from 2006. But this also impacted the yearly comparison for 2007 versus 2006, since again there was a full year of expenses.

Delivery expenses were down as expected in the fourth quarter compared to the prior year period. In response to lower sales levels, during the third quarter we actually adjusted our routes in many of our markets, reducing total headcount and related delivery expenses. These decreases were partly offset by the costs generated due to the operations of new stores.

Our administrative costs were down in the third quarter, and for the full year of 2007 they were down $3.9 million. This decrease is due in large part to reduction in compensation expenses.

Now moving to the provision for doubtful accounts, we had an increase in the provision during the quarter and actually the last half, as delinquencies on our internal portfolio moved modestly higher. Delinquencies had been at all-time lows in the prior two years. This increase was fairly modest, but is likely to sustain itself in terms of the provision during the year of 2008.

Provision for income taxes was a small number for the year. Tax expense was impacted by certain discrete items during the fourth quarter. These included the recognition of state net operating losses; items related to a change in method for valuing inventory for tax purposes; and changes in our deferred tax assets. Tax rate for 2008 exclusive of any discrete items is expected to be approximately 40%.

Our cash flow statement, I want to point out a change that impacts the cash and accounts payable and accrued liabilities balances that we show. In the fourth quarter of 2007, for efficiency and cost purposes we consolidated our disbursement accounts into the same bank that handles our concentration account and several of our depository accounts. After this operational change, the correct accounting treatment is now to net outstanding checks against the cash balances we hold at that bank, rather than classifying these obligations in accounts payable until the checks ultimately clear.

This difference in presentation reduced our cash that we showed on the balance sheet and decreased our accounts payable by approximately $12 million at year-end 2007. It also reduced cash provided by operating activities. It's essentially a onetime change in impact on the cash flow statement, but there is some fluctuation in the amounts of cash and outstanding checks at the end of every quarter, as you would expect.

On the balance sheet, just to point out the other assets, we're $10.9 million higher than a year ago. This was mostly from an increase in noncurrent deferred income taxes. These rise from differences between the timing of book and tax income expenses.

The capital expenditures in 2008 are likely to be very similar to those in 2009 -- or excuse me, 2007 -- were $13.8 million was expended.

We have a less ambitious rollout schedule as you would expect in new stores. We plan on opening three new stores, two of which are relocated. One of those stores has already opened in Orlando in the Winter Garden area. Just opened today, in fact, the grand opening.

There will also be selected closings that we will announce later during the year that are based primarily on new stores being opened in a market where we can get by with fewer stores because of the location and prominence of the new store. And also some stores that are and ending their lease terms and we don't feel it is worthwhile to renew the leases.

One comment on our book value. It is now $13 per share, which is based on the actual outstanding shares at the end of 2007, which is 21,445,000 shares. That is different and lower than the weighted average diluted shares, both because of the dilution issue and also the fact that we were buying down shares throughout the quarter.

So at the end of the year, the total of the two classes again was 21,445,000 shares. That number of shares, divided into the stockholders equity of $278.8 million.

As a reminder, our inventory is value at LIFO cost, and the reserve is approximately $16.5 million. We also have no goodwill recorded on our books. So the book value figure we quote is tangible and conservative.

We will take questions from the audience now. We would like to give everyone an opportunity, so please limit yourself to two questions. If you have follow-ups, we would appreciate it if you would re-enter the queue. Operator, please proceed with your instructions and poll the audience.

(OPERATOR INSTRUCTIONS) Laura Champine with Morgan Keegan.

Good morning. Clarence, we all know that business is tough. What is your sense of when same-store sales might turn for you?

Well, as has been pointed out, there have been 16 straight months of negative comps. It is certainly a priority. We would hope that would be soon, but it is something that is too difficult to predict under the circumstances.

Okay. Dennis, you mentioned in the store opening comments that you expect to add three stores and that two of those are replacement stores, and then talked about later about store closures. Are those store closures in addition to the two stores that you are relocating?

Yes. They are.

Is there any preliminary sense you might be able to offer us for where your store count might be at year end?

We think the store count will probably go down in 2008 very modestly. Again, the closings are for the most part natural closings, where the lease term is up. Or, in one possible scenario, somebody wants to sublease the store from us, we might let them.

Got it. Thank you.

[Mark Buckley-Jones] with Berman Capital.

I just wanted to get a little bit more color on the share buyback program. Do you, by any chance, have a number for the accretion to EPS that would have come about as a result of the buyback?

Yes, on the -- let me get that. It is very small so far, because so much of the buyback was in the fourth quarter. If you have another question go ahead, as I am looking for that number; it will just take a second.

Okay. I mean it is all related to the buyback. Is that -- you said that you bought back 6% of the shares that were outstanding as of the start of the year. Are there any fixed targets for how much you want to repurchase?

I know you also mentioned that your target was about $13, of which obviously now it is trading down around $10.

Well, no, we said that we would be buying below that book, which is $13. I think the average was $9.

It was [$9.32].

$9.30, right.

Yes, but I guess what we're leading to is that in these difficult times, would it perhaps maybe make sense to suspend the buyback program and strengthen the balance sheet further using that cash?

Well, that is a good point. We are watching it very closely. We don't want to build debt, certainly not to buy stock back. So we are protecting that balance sheet and are going to be very conservative about this buyback, and only do it when we have cash to support it. Unless it goes very, very low.

So I think you are correct, we want to be conservative. We want to watch our cash, and buying back stock might not be the right thing. It just depends on the circumstances.

Okay, and what is your --?

Just answering your other question, the share count, the weighted average diluted shares for the quarter were down 4.3% from last year's fourth quarter.

For the year, the share count was down 1.3% on a weighted average diluted basis. Most of that is due to the buyback; a little bit of it was due to lower stock price and less dilution.

Okay. You mentioned that your debt-to-cap ratio at the moment is about 10%. Is that the sort of target you are aiming for?

Well, our strategic plan is to stay under 25%. This as low as it has been since I have been with the Company. I wouldn't say that is a target. I think under the circumstances, it is a good position to be in, as you mentioned, of the tough conditions.

Okay, thank you very much.

Rex Henderson with Raymond James & Associates.

Good morning. I want to talk a little bit about the costs. You did a good job in cost control. Dennis, when you were talking about some of the puts and takes you said that the credit cost would continue through 2008 as a negative to the cost structure.

But some of the benefits you have seen from payroll reduction and from some of the other benefits, when do we start anniversary those? How much more opportunity do you have to continue paring down the cost structure?

We think we have some other opportunities. We're continuing to look at our routing and our distribution. I think there are some opportunities there. There are some personnel issues that are non-selling-involved that we're continuing to evaluate.

I think we are getting down to -- we don't want to hurt our service levels in our stores; and as you know it takes a number of people to staff those. So other than those areas, I think we are probably pretty close to what cuts can be taken.

So, when? We will begin anniversarying some of these cuts you have been making in, what, the third quarter? Is that right?

Actually, we had lower expenses in the first quarter last year in advertising. But we still do still plan on having lower expenditures because we're targeting so much better.

The other cuts in the distribution area were mostly late second quarter.

That is right. So in a few months, those would be anniversaried.

Yes, and in the first quarter last year, we had very low credit costs. We had run more internal, which is less expensive, but it ties up more money, obviously.

Also, our sales were down quite a bit. Part of our effort to keep sales flat or even increasing a little would be based on this credit promotion and lower down payments, which is attractive to consumers right now kind of for obvious reasons.

Okay. Second question revolves around the website. I think that's great that you're getting some response to your website. Can you kind of quantify how much the traffic is up there and how much conversion you're getting from the website into the stores? Have you been measuring?

Well, I don't think we can measure that conversion yet. We will know a lot more once we go live on the transaction, which will be next month. We have doubled the traffic -- and I don't have those numbers at hand -- from last year. It is pretty dramatic.

We improved our site, as you know, late last year, and it has been very well received. We're spending more money promoting the site, doing some search advertising, and some banner advertising. We have hired a new agency to help us do that, and that has helped drive it there, too.

So we think it is a very positive new trend. I think we will see some potential traction there in the next coming months.

Okay, that is my two questions and I will get back in the queue.

Bruce Baughman with Franklin Advisory Services.

Morning. Nice job on cost control and balance sheet management.

Well, thank you.

Thank you. My only remaining question gets back to the matter of the deferred tax increase over the year. Can you just flesh out what goes into that?

There's a lot of items that goes into that. The largest part of it -- or one of the larger parts, let me say, is just the depreciation for book and tax purposes.

We have done several tax-free exchanges, which defers the gain on the sale of a property for tax purposes, and lowers the value of the property you replace it with. Therefore, the depreciation expense going forward is lower, so the write-off or the depreciation you get for book is not impacted by that, but it is for tax.

The other thing is, of course, with real estate there is an oxymoron called a tax benefit of real estate, which is interesting. Because most building materials and construction costs are for tax purposes spread over 39 years, which is very long. For book purposes, most businesses use a shorter period to depreciate the building over. So, you have an automatic built-in differential there with making depreciation expense slower for tax purposes.

Then finally, we have got inventory differences. We are on LIFO for tax and book, but the figures are different that we use. One is based on an external index, the external tax figure; and it is fairly complex analysis to come up with this.

Those are the highlights. We're put a little more disclosure on it in the 10-K when that comes out in a few weeks.

Okay, and that particular item regarding the tax-free exchange of property, does the effect to deferred taxes come subsequent to the transaction with the somewhat distorted result on depreciation? Or does some of it arise from the transaction?

It arises upon the transaction; and then over the course it goes back the other way.

I see. So to the extent that there was one or more transactions of that sort during the year, it increase the deferred tax account; and then over time that would tend the other way.

The answer is yes. Probably if you would like to talk more about that, we may want to go of line. (multiple speakers)

Okay, yes, I won't ask any more. Thank you.

Yes, but it is worthy discussion. I just might have to get some details in front of us and we could go over that.

Okay, that's fine. I will wait until the K comes out, and if I still want to talk about it we will get together.

Very good.

Thank you.

John Baugh with Stifel Nicolaus.

Thank you and well managed I would say in this environment. Question, can you talk about competition? What you're seeing in general, what you're seeing specifically in Florida.

I guess what I'm driving at is typically you have the pain of going out of business sales that competitors are doing in these times; of course with the long-term gain of eliminating competition. Are you seeing any of that? Just general comments there.

Well, John, we just opened a store in West Orlando; the grand opening is today, but they opened a week ago. Steve Burdette brought back a business section from the Orlando Sentinel yesterday that has on the front page Sofa Slowdown, and it is about the slowdown and the region's retailers failing. The furniture retailers mentioned in the article are all the independents, and that is what is happening.

We see that happening in all of our markets, but it is probably stronger in Florida just because it is tougher there. I think that the independents who have dominated in this industry will hurt the worst; they will fall out the fastest; and we are starting to see that. I think that will be where we gain the share first.

The major players in the markets we are in, the Rooms To Go, the Ashleys, they're going to be there. They are on the lower end of our business. We're trying -- and I think we're doing a good job of separating ourselves to be the better player.

I think the department stores are losing share, because they are deemphasizing the category. I think that will be where we try to gain share.

So, in this kind of environment, I think the smaller independents are going to be hit the hardest.

So the Citys and the Carls you know, the bigger -- I assume those are the bigger, quote, independents are going to survive; but we're not reading about them?

I don't speak for them because they are all independent. But you know, I think there are going to be some of them fall out, too. It is just too difficult in Florida, if you want to be specific.

Okay.

Florida is just very, very brutal, and I don't see that getting much better for a little while.

So when you talk to February being better, did you see that in Florida? Again, the question relating to Florida, do the sort of liquidation sales or going out of business, does that sort of hurt you even that much more than Florida is already hurting? But then of course, we get the benefit later.

I don't know. In some markets, it might for a little while. We had a major independent go out in Tallahassee that probably affected us a little bit. But that has been one of the better markets, frankly. Tallahassee is one of the better Florida markets.

So you know, it might affect us temporarily, but many times these smaller players as they go out, by the time they go out they are not much of a factor, so.

I'm sorry, did you see that lift in February in Florida at all?

In some markets but not overall.

Okay. Then the other question was basically on the cash implications of the change. Dennis, I understand there was an accounting change. Was that a cash change too? A onetime cash change? How do I think about that?

Yes, that is a good question. It is really a classification change, not per se an accounting change, because the accounting rules didn't change; it is just that the circumstances we have now fit into showing it nets.

It is not any real change, but the cash flow statement did show a $12 million lower provided by operating activities because you just -- what in essence we have done is took something we had as a payable and netted it against the cash balance.

So it is not -- that money, in terms of its availability, we sometimes have cash balances that are short-term investments overnight. Usually around $10 million is the number when we have a -- in previous statements when we had a cash balance of over $10 million, the excess over that was invested in overnight and interest-bearing.

So you have kind of a level there that is just clearings in transit coming in, credit card receipts, deposits for customers' checks, in effect in-transit. Then on the other side you have the outstanding checks that have not yet cleared. So there is a certain level of cash that isn't really available to you under the old treatment.

Under the new treatment or because of the new circumstances, the two get netted together and it's really a onetime change on the cash flow. Does that help at all?

Yes, that's good. Thank you. I appreciate it.

Sure thing.

Todd Schwartzman with Sidoti & Company.

Good morning. Could you talk about the average ticket during the quarter, how it fared both sequentially and year-over-year?

The average ticket is down slightly, and that has been the trend over the last year. We have seen that drop.

And versus Q3?

I think it is up over October Q3, but it is down over the previous quarter -- or previous year.

Got it. I was curious, Clarence, regarding your change in your approach to your media strategy, what you have done thus far, what you plan to do in the year ahead and beyond. I wonder if you could talk a little bit about what you mean by closer analysis of individual markets that you referenced in the press release.

In other words, do you have a better handle now on specific preferences, characteristics of certain of your markets versus previously? Or just maybe add some color to that.

Well, I think that we definitely do. We have centralized the buying of all of our media here. We definitely have a better feel of what is happening in the individual markets because we are hiring firms that help us analyze that. We're spending a lot of energy on that.

We're spending less money in newspaper and spending more on Internet, direct-mail, and trying to reach our customer directly. So, I'm very confident that in the last 60 to 90 days we have significantly improved our ability to get our message out.

And it took us a while in this transition, but I know we're doing a better job today than we were a year ago, and then we were several years ago. But this end of the business, the advertising, is changing dramatically; and we're dedicated to staying on top of that.

Is it also your own experience and time in some of these newer markets, in addition to some of this outside third-party help you have gotten?

Well, sure. Yes. We know the markets pretty well. We have been there a long time, and we know the different players in the different stations and that type of thing. I think we're just getting a much better handle on it, controlling the costs better, reacting quicker to opportunities, and understanding what our customers prefer, and targeting her that way.

In hindsight, was the learning curve a little bit more problematic in some of these newer markets than you expected?

I would say that is true.

Okay, thanks.

(OPERATOR INSTRUCTIONS) Mark Buckley-Jones.

A couple of quick follow-up questions, please. With you guys reducing your inventory, how do you think that is going to affect your ability to generate same-store sales?

We got a little lean in the third quarter, and I think it hurt us. I believe, we're back, balanced now. We cut back pretty heavily midyear last year; and because the supply chain is so far away, we weren't able to react as quickly as we would have liked. We had some supplier issues, some bankruptcy issues, etc.

But I think we're in a good position now. I like our inventory levels where we are. I like our product mix. I think we're better able to serve our customer today than we were a year ago, or certainly 90 days ago.

So we were a little too lean. I think we're about where we should be right now.

Okay, that sounds hopeful. Then, with regards to your receivables, your total receivables have come down about 15%. Yet your provision for doubtful debt expense on the income statement has almost doubled.

Have you identified bad debt as becoming a problem? Will it get worse given the current state of the markets?

Good question. What we have seen is that the last two years, 2005 and '06, were incredibly low in delinquencies and write-offs and overall bad debt expense.

That provision is made each quarter based on the status of the accounts that we have and the trends that we are seeing. So I would not expect a big increase from the run rate of the third and fourth quarter on that line item.

But, just running at that rate is an increase over the first half of 2007 and it is certainly an increase over 2005 and '06. But we have a very good credit quality customer. We're confident the portfolio is strong. But it is in the big sea, and the tide is changing; we're certainly impacted by that as well.

So it is still a write-off rate between 2% and 3%; and that is looking at annual write-offs as a percent of the average AR balance. That is still at the lower side of credit card portfolios, so we are pleased with it in that sense. But you're right, it is costing us more right now.

So is your policy -- do you have one to provide for debts as they get older? Or do you specifically provide for specifically identified bad debt?

We look at the trend in write-offs and the status of the accounts. The status means how -- the aging of it, and we do it really by category. Also the status means, has there been trouble reaching the customer? Has the customer told us they're thinking about filing bankruptcy? Are they with a credit collection agency? Which is a good thing, but still we have factors that we apply to all of these statuses.

We don't look specifically at account at a time as you would perhaps in a bank because we do have liked 50,000, 60,000 accounts that we have. So we categorize them.

I have got it. Well, thank you very much and good luck.

You're welcome. Appreciate it.

Budd Bugatch with Raymond James.

Good morning, Dennis. Good morning, Clarence. I have two kind of larger questions, one larger, one maybe more near-term.

Can you talk a little bit about the strategy? You have talked a little bit about the stresses we see in the industry. We have seen some fairly notable departures from the industry recently of some well-known names or soon-to-be departures.

In the past, when we have had that kind of situation, you have taken advantage of those real estate opportunities and moved into new markets. How are you looking at it now with what we're seeing of a 45-store chain and some other large departures?

I know this is a tough time for the industry, but you all have a history of looking longer-term.

Yes, we do look long-term, Budd. I would say that the bankruptcies that we have seen, we look at all of those stores. I will be specific; we looked at the Sofa Express stores. There was really only one or two that was even interesting to us.

The bankruptcy with Wickes are in markets that are outside our footprint, and we're not interested in moving outside our footprint right now.

So, we look at all of them. We will continue to. There are some that we're looking at now. But I haven't seen anything that is a value particularly and anything that would be important to us within our footprint. And we're very specific about that. We do not want to move outside of this distribution network.

Even -- well, you did in the past. That was what --

We did it in the past, when we were making more money and we were a little more aggressive. I would say that our move into the Midwest was a tough one for us. We are there, we're going to stay there, but I don't see us expanding it until there are opportunities that are terrific values for us.

It does cost us more to get the goods there. We're very pleased about our move into Virginia, but that was in our territory. It is still further from the supply chain.

But there are going to be opportunities for us here, and we want to be earning more before we take more risk outside.

Budd, I might add, we want to be more confident in the general appetite for home furnishings. When at some point there will be a return to better business, and we would like to time our -- any expansions we have, even if bargains, more with when these -- when we think there is going to be some turnaround.

Okay. My second question has to go -- can you kind of characterize the success in merchandising this year? When we look at the K, what is going to be the better merchandise performers in terms of classifications this year? Where will we see some deltas?

I think that -- well, overall the sales were down in total anyway. But the better-performing classes were the upholstery classes and have been. The case goods have been a bigger ticket and tougher.

But we are seeing some good growth -- well, let me put it this way. We're seeing improvement in those categories.

I am very pleased with the product mix that has taken us a while to develop in coming direct from Asia. It is coming in now, it is all exclusive to us, and it has been well received.

I think that the improvement will show quicker in case goods, because that was a decline. I think that we are good at it, and we will improve on that.

How about bedding?

Bedding has been good. Bedding is the better category of any. That has held on. The big tickets are incredible, the prices what people are paying for bedding. But that is still a challenge to beat the previous year.

Got you. Thank you very much. Good luck on this, on 2008.

(OPERATOR INSTRUCTIONS) Management, there are no further questions. Please continue with any closing remarks.

I would like to thank you for your interest in Havertys and for joining us on the call. We appreciate it.

Ladies and gentlemen, this concludes the Havertys Furniture fourth-quarter and year-end 2007 earnings conference call. You may now disconnect. Thank you for using AT&T conferencing. Have a pleasant day and a good weekend.