Haverty Furniture Companies Inc (HVT) 2013 Q4 法說會逐字稿

Welcome to the Haverty's Q4 and year end 2013 results conference call. (Operator Instructions).

I will now turn the presentation over to Dennis Fink, EVP and CFO. Please go ahead, sir.

Thank you, John. Good morning, everybody. During this conference we will make forward-looking statements which are subject to risk and uncertainties. Actual results may differ materially from those made or implied in such statementswhich speak only as of the date they are made in which we undertake no obligation to publicly update or revise. Factors that can cause actual results to differ include economic and competitive conditions, and other uncertainties and details of the Company's reports filed with the SEC. Our President, CEO, and Chairman, Clarence Smith, will now give you an update.

Thank you for joining our fourth quarter and full year 2013 conference call. We're pleased to report strong earnings for the fourth quarter of $0.42 compared to $0.30 for the same period last year.

For the full year, 2013, we had an all time high record profit of $1.41 per share compared to $0.67 for 2012. The fourth quarter of 2013 was the 9th consecutive quarter of same-store sales increases.

We ended the full year with comp store sales up 11%, and an increase in average ticket of 7.8%. Third and fourth quarters of 2013 produced pretax earnings of 8% of net sales. For the full year we have pretax earnings of 7%.

Our gross margins were strong at 54% for Q4 2013, and 53.8% for the year. The trends of a higher percentage in custom ordered merchandise, upgraded exclusive products in the upper middle price points, lower in-bound ocean freight, and our improved supply chain and buying functions which reduced markdowns, all contributed to a higher gross margin. We believe that our gross margins will be 53.8% again for 2014.

Our same-store written sales for the first quarter-to-date, 2014, are 3.6% over the low teens percent increase last year. They there have been some new head winds to business this year but we believe much of those sale impediments should subside in the upcoming weeks as we move towards spring.

Our initiatives for expanding our in-home design service this past year has been a success and helped us reach and serve a more fashion-oriented customer. We now have 60 full-time designers in our key markets to assist our sales associates by helping them pull together our products to fit our customers style and desires.

For purchases with an in-home designer involved, the average ticket is approximately 2.5 times the overall average ticket in those stores.

We branded our design program "H" design with the tag line, "inspire, dream, desire." We expect to expand the program increasing the number of designers by 40% and offering the free service and up to 100 of our stores by the end of 2014. We believe this will help Haverty's to get credit for the fine service we provide in addition to increasing our average ticket.

This is the same attention to the customer's need that we use to create top drawer delivery and service programs this past year. We have only Haverty staffing our in-home delivery and our service departments and they take great pride in providing the best service levels in the industry. This is why we branded the teams along with the trucks and the uniforms with the logo top drawer delivery, prominently displayed.

The branding sets higher expectations for our service levels and a real sense of pride for our associates. This is one more way that we're separating ourselves from the competition.

Upholstery is it our largest category and has been the main driver of our sales volume. The special order and custom choice of upholstery program sales were up 20% last year and a key to the increases to our total upholstery business.

We're continuing to work closely with our top special order suppliers to further shorten ship times so that we can provide delivery to the customer faster. We believe that quicker ship times on custom orders is a competitive advantage and a higher price point merchandise and important to earning the trust and business of our customer.

Our store plans for the past several years have been dedicated to upgrading and refreshing our entire store base of stores under the Bright Inspirations program. We're now in the final stages of that six-year program and expect to finish that by next year.

This past year we remodeled 18 stores with several of them major projects in three expansions. For 2014, we expect to remodel 17 stores and a dozen more in 2015. This is has been an important reinvestment in upgrading our presentation to our customers and to strengthen our brand.

In 2014, we're beginning a growth and repositions program of our stores to continue to reach our customer better and serve them better. This year, we have current plans to open six stores. Three of those are relocations and three of those are stores in our largest markets.

We're also closing two stores at the end of the lease term. This will result in approximately 1.8% growth in retail-square-footage in 2014.

Our planned CapEx spend for this year is expected to be $35 million.

We are reviewing projects for five new stores that we would plan to open in 2015, all of which are in new markets that we currently do not serve but could reach with our existing distribution network. This year we'll also be adding major enhancements to our in-store and website digital tools to assist in the special order process.

Late this year, we'll have a new 3-D room planner, as well as a fabric mapping program both online and on the iPad for our associates and our customers. We recognize that we need to engage our customers early on in their creative plans and shopping process to serve them properly. We believe that when these programs are in place, we'll have the most engaging and interactive website at home, on the go, or in any of our stores in our Company and best in the industry. We'll report more on these enhancements later.

2013 was an exciting year where we reached a number of our goals and produced an all-time record earnings performance. Our teams are energized and focused on serving our target customer better than our competition. We know that we'll have to continue upgrading our professionalism, our service levels, our systems, to earn her continued business and to gain market share.

We're excited about our plans to open new stores, reaching new customers, as well as expanding the Haverty's brand reach. Now, I'll turn the call back over to Dennis.

Thank you, Clarence. The financial highlights were covered in our press release last night so I won't repeat all of those points on this call but please do take note of the expectation section in the press release.

For 2014 we're expecting our gross profit margin to increase modestly over the adjusted 2013 results. At the beginning of every year it's hard to predict what the impact will be from using the LIFO inventory accounting method. We've had a small positive impact in 2013 but normally we have a small annual charge and assume that will again be the case for 2014 in giving our 53.8% anticipated figure in the press release.

Fixed and discretionary type expenses within SG&A are expected to grow between 4.1% and 5% for 2014 versus last year. More of those increases will come in the third and fourth quarter when all of our replacement store and new store openings will take place.

During 2014, we expect to increase our retail-square-footage by 1.8%. Starting off the year and for most of the first half, we have two less stores open than a year ago. Based on our current roll out plans the change in this year's weighted average square footage compared to last year for each quarter will be as follows.

First quarter we expect to be 1.8 % below last years weighted average square footage. Second quarter and third quarter are both expected to be four tenths of a percentbelow, and finally, in the fourth quarter we expect to have nine tenths of a percent increase in the weighted average square footage.

For the year, that will be three tenths of a percent less average square footage open in 2014 versus 2013. This is all just because of the timing back end loaded for the store increases compared to when the changes were made over the last couple years in store-square-footage. That's useful in modeling the revenue for the Company. Combine that with comp store sales expectations and you can come up with a total sales increase that's pretty reflective of what will happen.

We expect an effective income tax rate for 2014 of about 38.5% which is similar to the 2014 rate. Our year-over-year inventory in 2013 was $5.5 million lower than a year ago. A few months ago, I had actually been anticipating a year-over-year inventory increase of a similar size in our financial models, so together with better earnings, that helped our cash provided by operating activities for 2013 to be higher than originally expected and it came in at about $55.9 million.

Our ending unrestricted cash balance also grew $30 million for the year to finish at $83 million. We do expect increase inventory levels during 2014 and our $35 million CapEx plan will be about $14 million higher than the average of the CapEx we have put in place over the last three years.

Operator, that's all I have at the moment so we'll take questions from the audience.

Perfect. Thank you. (Operator Instructions). First question today will come from Brad Thomas with KeyBanc Capital Markets. Please go ahead, sir

Hey, good morning guys, and congratulations on another great quarter and a great year.

Thank you, Brad.

I wanted to first start off talking about the recent trends. Obviously your press release references, you know, the written business being up 3.6% quarter-to-date. On your balance sheet we can see that the customer deposits are down about 9.3% year-over-year. As we model , the first quarter based on those trends, you anything that you would want us to keep in mind as we make our forecasts for the first quarter?

Well, Brad, at this time we usually give you the written sales. We do have some catch-up to do on deliveries which we hope to be able to do. We had some delays in getting some product in, as you would guess, and we also were closed a couple of days each month both January and February. So we've got some catch-up on deliveries and that's what we're working to do. It is an unusual situation in that regard, but we feel that we've got a good opportunity to catch up to our written sales.

And then the Easter shift will benefit you at the end of the quarter, won't it?

It benefits the written business. It really doesn't have much impact on delivered sales when we recognize revenue.

Great. And then just with respect to cash, you all continue to build this big cash balance obviously increased dividend this year. Any new thinking on how you might want to allocate cash and capital going forward?

Well, we gave you our CapEx budget, and it is up over last year. We're looking at that and the board's looking at it closely. In the past, we have done a special dividend. That's possible. We've done buy-backs and we certainly be looking at both of those opportunities for us but we haven't made decisions

Our first choice would be expanding the business where we see good opportunities. So we're looking hard at that.

And to that end, you are coming close to the end of the upgrade to the new right inspirations format. I know you all don't rest on your laurels. What point might you start testing the next generation format?

Well, actually, our store that we're opening here in Buckhead, which we're excited about, is a smaller format. It's in the mid 20s, and we're coming up with some new designs specifically to reach the denser markets with a more custom focus, and you'll see that. That will be done in the third quarter and a lot of those elements we will be rolling into our new stores going forward. So we're excited about some of the new plans and designs that are a little more focused on the fashion customer, a little more contemporary, more upholstery focused because that is our growth area. But we are enhancing that, and I think you'll be able to see that in the third quarter.

That sound great. Thanks so much and congratulations again on a great year.

Thank you, Brad.

Your next question will come from Todd Swartzman, with Sidoti.

I just wanted to talk about the weather. I noticed that you've obviously not been affected as much as some other folks but could you maybe walk through any closures if there were by market, maybe quantify what downtime was taken or if there were not closures, where traffic was dramatically reduced for a period of days, or even weeks, if it stretched that long?

Well, we were determined not to give a weather report. Most people understood thesituation. I mentioned just a minute ago, we were closed two days in January, and two days in February, in about 35 stores. That certainly affected our business. But one of the things that affected us also, that was in the sense unexpected, was just getting the products in. The ports were backed up. Some of them were locked down. And then there's just been a backlog of getting in some of the products that we need to make deliveries and fulfill our customers' need. So that's being caught up.

We're receiving aggressively now but it's taken a good while to correct that. And that was one thing that frankly was somewhat unexpected is the difficulty in getting the trucks in. I mean there was a time here in Georgia where the Governor said, don't bring trucks through Atlanta. I mean, that's a problem. I think that's behind us. And we feel pretty good about business right now.

So, product availability back to normal but from a store perspective, was there any meaningful damage to any of those 35 stores?

We didn't have any damage of any significance, just that we were down. We were closed. But no damage, and fortunately , not much damage or significant issues with employees.

So with that in mind, Clarence, looking at the level of discounting for the first quarter as a whole versus last year's Q1 promotional activity, how does that shape up?

No real difference. We haven't changed our plans. Anything as far as promotions or pricing and we stayed consistent with our program and I don't see any changes there.

Okay. Now, I don't know if this is too granular a question to ask, but you had mentioned that upholstery, again, really drove the growth. Can you give us any color on stationary versus motion?

Well, motion is still a big driver of our business. And I think that continues to be. We are growing more stationary, particularly in the custom order and the special order category which we're growing at. So the higher end customer prefers upholstery probably to stationary but the real growth in our business for several years has been in motion and sectionals and the family room furniture, and that continues.

Got it. On the in-home design you talked about the bump-up that you see typically an average ticket. What percentage of consumers are availing themselves of that service currently, and how does that compare with last year at this time?

I would say it's in the high teens. 15% to 20% of our customers are interested in that category and that's what I think will appeal to and so that's new business for us. We weren't doing that in the past. We were not getting into our customers' homes to any significant degree and we're hiring experts at that. We're hiring designers. They're comfortable with it. Our people are getting more comfortable with it. It's an important driver of our business. I mentioned it was 20% for the overall category. But it's almost 50% for this custom special order. It's up that percentage for the custom special order. So it's an important new focus and we recognize that we have to upgrade the professionalism of the associates that are doing this work and that's a big focus for us this year.

And to get from 60 now to 100 designers, is that your plan by year end 2014 or is that a 2015?I forgot what you said.

It's by 2015.

By the end of 2015?

Yes. We should have 100 of our stores up by that time.

Okay. Regarding the new markets that you're looking at in 2014 possibly. I don't know how many you're referring to, but would those represent your initial entry into those, or would you be returning to at least one market that you're not in now?

Most of them are initial entries into adjacent markets that we can reach.

Okay. Terrific. Thanks. That's all I've got. Appreciate it.

Okay, thank you, Todd.

Your next question will come from Budd Bugatch, from Raymond James

Hi, guys. This is Bobby filling in for Budd. Thanks for taking my questions, and congrats on another great program. I jumped in the call late from another call, I don't know if you guys provided. Can you provide any color on the accessories mix for the quarter and where maybe at a high level you see that going to?

We did not comment on that. The accessories continues to grow at a higher percent than the other categories but from a lower base. We are seeing the in-home design program where we're getting into customers' homes help drive that because the decorator is more comfortable with it and the customer understands combining the package with accessories. So it's continuing to be a growth category. We're focusing on it. We're continuing to refine it and make sure that we're a real player in those categories.

Perfect. And then just a follow-up again on the written order for the year-to-date. I know you guys don't want to get into too much granularity over the weather and what not. But at a high level though, can you give a little bit of color on maybe the performance of some of the areas that weren't as impacted, you know, compared to the 3.6% that was reported?

Well, Florida was not impacted and Florida's been good. I would say that when we didn't have the snow and ice, we did better and there's a reason that people move to Florida. It's nice weather there.

Yes, it is. Thank you. I appreciate the color, and best of luck going forward.

Thank you, Bob.

(Operator Instructions). Your next question will come from Christine Kerber, with [inaudible] Securities.

Hi, good morning. A couple of questions. First,you mentioned working on shortening the lead times on upholstery furniture. Just kind of refresh my memory. What the current lead times are and where do you planning to with those?

We have been quoting in some cases particularly for the custom order, 8-10 or 8-12 weeks. We're trying to move that down to 4-6 weeks. And we have been quoting that in the past but we're moving to that because our vendors have been able to aggressively reduce those lead times. So ideally, we would love to get that product in here and have it be able to be delivered in a month. The main vendors we're dealing with here are domestic and in North Carolina and in Mississippi and they've done a really good job of shortening that lead time so we can in many cases get it in three weeks I will mean for delivery in three weeks. We're working to try to get that down to a month and I think now we quote 4-6 weeks.

Is that on all the custom, or what percentage of custom is affected by that?

It's the majority of it.

Okay. Great. And then you talked about the new store in Buckhead, the smaller-square-footage. As far as that store layout, are the categories that you're down-sizing? What's different in that store?

We haven't finalized that actually. Over team's still working on that layout and display. I will say that formal dining room will probably be less and probably be fewer bedrooms and more focus on the entire upholstery category, the accessory category and special order. It depends on the market and it depends on in that particular case, that's where the direction's going but we haven't finalized it.

Okay. So basically left on the case good side, the business at this point is what you're thinking?

Particularly on the formal case goods, yes.

Okay. I'm sorry, go ahead

I was just going to go say that contemporary in that market will be important.

Got it. Okay. And then you mentioned inventory. You plan inventory to be up this year. Can you quantify how much you're looking for inventory to be up?

It went down too much frankly. Dennis, do you have numbers on that?

I would think $10 million to $15 million depending on the rate of sale, second half of the year. But we would expect second half is normally stronger, a lot stronger than the first half so we would need to be ready for that

Okay. And then lastly, sales per-square-foot, what was the number at year end?

I believe $176. We have articulated a goal of getting back to $200 a foot. We were over $200 in 2006. And that's been a real focus of our Company and why we put so much into remodeling our existing stores and getting those comp stores back up. So it was a nice improvement, and we hope to get back to that level soon.

Great. Thank you. And good luck.

Okay. Thank you, Christine.

And we seem to have no further questions at this time. I'm turn the call back over to Mr. Fink forany closing comments.

We'd like to thank you for joining our call and for your interest to Haverty's. Thank you.

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation. You may now disconnect your lines.