Haverty Furniture Companies Inc (HVT) 2015 Q1 法說會逐字稿

Good day and welcome to Haverty's first-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.

Good morning, everyone. During this conference we will 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 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, Clarence Smith, will now give you a brief update.

Thank you, Dennis, good morning. Thank you for joining our first-quarter 2015 conference call. Earnings before interest and income taxes for Q1 were $10.4 million, slightly higher than last year's $10.2 million. Total net sales increased 5.3% largely from our growing average ticket, the key sales driver for several years as well as an improved closing rate in our stores.

I believe that the continued increase in the average ticket combined with the customers that have pre-shopped with us on the web are important trends. They demonstrate that we are reaching and appealing to our target customer and improving the execution of a custom product and in-home design program, services that were insignificant several years back.

We continue to build our free H Design decorating service in our stores and that has been a significant part of driving the larger average ticket. We're strengthening the design service in more markets with over 100 designers and have broader and improved product lines as well as faster shipping on our customized upholstery programs.

By the end of this year we will have 95 H Design planning centers in our stores. New digital tools such as the greatly improved 3D room planner has aided in demonstrating our team's skills and separated us from our competitors.

We are pleased with the [strengthened] sales team and continue to place a great deal of emphasis and investment on hiring and training top-quality sales and decorating associates to better serve our customer. We have branded our in-house training program Selling by Design to emphasize the importance of building a relationship with our customers.

As we've previously discussed, the West Coast port slowdown has affected our ability to deliver this year, but we are seeing improvement and expect that we should be in a better in-stock position and reduce our sales backlog by the end of the quarter.

Our upholstery sales continue to be the most important category with special order and custom upholstery increasing 11.1%. We've seen a nice sales increase across the case goods lineup led by a double-digit increase in dining sales. Our strengthened accessory program is also having double-digit increases and is certainly helping our decorators complete the desired look in our customers' homes.

We opened a new store in Rogers, Arkansas this quarter and expect to open a new store in Waco later this month, our 23rd store in Texas. Late this summer we will open our 30th store in Fort Lauderdale after extensive remodeling of a former furniture location. That store will strengthen our position in Southeast Florida which has been a priority market for us for several years.

With the addition of this location we feel that we can effectively serve and advertise to that dense and growing market area. We developed a South Florida product mix to better appeal to this customer. This coastal lineup features lighter fabrics and finishes as well as a full outdoor product program which is just hitting the Florida floors.

We expect to end the year with about 3.2% retail square footage growth and 122 stores. Our 2015 CapEx plan of over $32 million is heavily weighted to new stores and major store remodeling projects.

(Technical difficulty) very heavily in improving our website and mobile accessibility. Recent stats show that 60% of our customers access us on mobile devices and we realize that our mobile site must be state-of-the-art to properly appeal to our customers. Our new enhanced website should be up this summer.

We are gearing up for the important Memorial Day sales event which is the high water mark of the second quarter. We are very well positioned in our markets and should have a strong inventory supply to support deliveries to our customer for this important event and into the summer months. I will now turn the call back over to Dennis Fink.

Thank you, Clarence. The first-quarter earnings press release last night covered the financial highlights and I will touch on a few of those points now before we open up the call for your questions.

As a reminder, 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 sales within a few days after each quarter end. And we also disclose how sales for the new quarter to date are trending when we announce quarterly earnings, as we did last night.

The first-quarter 2015 SG&A expenses were flat with last year as a percent of sales and overall in line with our expectations. The fixed and discretionary type expenses within SG&A came in at $57.9 million, a little lower than expected mainly from deferring some advertising spend.

These lower than planned expenses were offset by higher variable costs within SG&A that were 18% of sales, partly from additional sales and designer associates coming on board and being trained as well as starting in their initial positions.

2015 full-year fixed and discretionary SG&A expense is estimated to be $239 million to $241 million, as reiterated last night, and consistent with prior guidance. Each of the remaining three quarters will vary from $60 million to $61.5 million for the second, third and fourth quarter each.

We now plan for four store openings in 2015 and one closing late in the year. There was one other new location we were working on and still are and it will likely open next year, 2016. The weighted average retail square footage is expected to increase by about 3.3% for the full year and that is about 2.6% for the first half and about 3.9% for the second half, averaging for the year at 3.3%.

Our inventory increased during Q4 and we held that level through the end of the first quarter. We want to have faster delivery fulfillment to customers going forward and be a little less susceptible to lead time fluctuation caused by availability of slots on container ships, labor issues in ports and other events out of our control.

Our product assortment is wider now but we do expect to contain the inventory level even as sales increase seasonally in the second half and sales also grow from the new stores we have opened.

One fact just to point out the -- for purposes of earnings per share calculation, the common stock weighted average diluted shares outstanding for the quarter were 22,977,000.

Operator, that is all I've got for now, let's turn it over for questions.

(Operator Instructions). Todd Schwartzman, Sidoti & Company.

Wanted to focus on some of the -- or actually the two new markets, the recent one that you have entered in Rogers and also upcoming in Waco. Clarence, if you could talk a little about merchandising mix, what's -- and also just maybe kind of touch on what you may have learned at this early juncture in Arkansas.

Just kind of talk about how the product assortment differs or is similar to some of your other markets, especially maybe the similarities or differences between Waco and the DFW market.

Oh, I don't think there is going to be much difference between Waco. I mean it's only an hour and a half from Dallas, it's certainly Texas. We understand Texas, we have got plenty of stores there. We are really just filling in markets to something that -- an area that we really understand. And Rogers has only been open a week or so. So we don't expect that to be any different than our Texas or our Mid-South mix, which is kind of the heart of our core lineup.

We do have a bit of a Western flavor for the Texas distribution center, they are darker, heavier looking products -- darker finishes. So I don't see these stores being any different than what we already provide for that region.

And how does the density of your target higher net worth, higher income customer in these two newest markets compare with your existing markets?

Oh, well, Waco and Rogers are not of the same higher income as the best of our higher -- larger markets like Dallas, Atlanta, Washington type thing. But we understand these middle markets, we have been in middle markets for over 100 years in these regions, we know them quite well. The demographics there are pretty good for our customer mix, we study that pretty closely before we ever go in. We feel good about our estimates in those markets and I think they will both be very successful.

The Rogers market, as you might know, is the headquarters for Walmart and that is where most of the Walmart executives as well as the sales -- regional sales managers who serve that company live. And it is a very nice market, it is probably the nicest market in Arkansas. So that is why we sought that out.

Got it. And on the gross margin guidance, I know that is still stable at 53.3% I think it is for the full year?

Yes.

Based on the first-quarter performance can you give us a sense of -- obviously the full-year guidance is unchanged, but did that first quarter surprise you positively or negatively or is that about what you would expect it?

It is a little better than we had guided and still a lot of it is determined by the timing of product turnover and closeouts and also competition of course. And then finally, the inflation that we have for the full year, which isn't expected to be much, but that is always -- since we are on LIFO that always is something we don't get a real good read on until further into the year.

So taking all those puts and takes into consideration, Dennis, is there anything that would lead you to believe that Q1 is likely seasonally strongest for this year?

Well, it might be the strongest for this year, yes. But I wouldn't call it seasonally. I would just -- yes, the Q1 is probably higher than the rest of the quarters, correct.

Great. Okay, that is all I've got. Thanks, guys.

(Operator Instructions). Brad Thomas, KeyBanc Capital Markets.

Just to talk a little bit about the trends that you all are seeing. The written comps look like they slowed a little bit as we moved into April. Of course if memory serves me, you are up against I think the toughest comparison in that month relative to the second quarter. But maybe if you could just talk a little bit more about how you are feeling about the cadence of the business.

Well, the word cadence is a good one. Part of the -- part of it is the advertising cadence or the -- when the placement of the advertising is. And it is probably a little heavier weighted towards the end of the second quarter. And you are right about prior years two years ago we had a super strong April.

Last year adjusting for Easter it was good and it wasn't really outside of our expectations the performance in April, but we would hope to see better percentage increases as we go into the quarter. We will find out along with you.

Great. And then geographically anything that you would call out in the quarter or more recently?

Well, we are still seeing nice growth in Florida, it has been pretty balanced. Texas has been hit a little bit because of the oil, but it is coming out like we expected frankly. We haven't seen anything that's unusual. You know that we are investing, as I mentioned, heavily in Florida and the growth there is good. But we are seeing about what we expected across the regions.

Great, great. On the expenses, Dennis, I think the variable is going to be up slightly from the prior guidance. Is that a function of the sales cadence or will you be spending a little bit more? What is the reason for the change?

Yes, we did spend more and we have expanded our sales staff both for the new stores that have opened and that are coming up. Waco and Rogers are both new markets for us and so they require hiring sales staff ahead of time and going through some training, bringing in some people. There is more of that that was happening in the first quarter than typical. And we did also add some salespeople just for some stores we thought were understaffed.

The designers are expensive or an extra expense for us, it is a free service and it does help grow sales and average ticket. But that was part of it. We had a little more expense in credit promotions and there was some of the West Coast issues with this sporadic -- I guess the sporadic receipt of goods during the quarter increased our cost somewhat, our variable cost and distribution and in delivery.

So, I think that we will see -- the second half we should see some efficiencies. It won't show up until then, it will still be tough in the second quarter.

Great, well, thank you so much and good luck in this upcoming quarter.

Kristine Koerber, Barrington Research Associates.

First, can you just talk about the competition in the Dallas market? Have you seen any impact so far from the large competitor that has moved in there?

Well, Nebraska has opened up their -- they opened up in March, soft opening, I guess they would call it that. I would say it is not unlike what we expected. We're trying to separate ourselves, provide a better service, build a relationship with our customers, we have exclusive product. I would say it is what we expected. And we of course watch it closely, we for several years have repositioned our stores to be serving the entire Dallas-Fort Worth market well. So nothing unexpected.

Okay, that's helpful. And then with regard to the backlogs at quarter end, what were the backlogs and can you quantify the impact of the West Coast port issues on the quarter?

Well, it is higher. Dennis, you want to comment on the (multiple speakers)?

Yes, we usually don't give that out, but it is definitely higher. You can see our customer deposits are up and it's higher than a year ago, somewhat similar to where we were at year end in terms of higher than the prior year.

We would hope to be able to get that down by the end of the quarter.

Yes, we hope to deliver out more this quarter percentagewise than our written sales, although if written sales are fantastic that is fine too. But the -- on a normal basis you would think we would catch up somewhat in this quarter and show better deliveries.

Okay. And then can you quantify the impact of the West Coast port on the quarter?

It is tough to give specifics to that. It definitely impacted us. And as Dennis mentioned about some of the expenses, when it does come in it all comes in at one time. So there have been a lot of surges, it has caused us to have to add overtime and that type of thing and bringing the product and when it does come in.

The problem is it is not predictable, it is completely unpredictable. And it doesn't allow us to sell into what we were prior. As far as product flowing to us, we could sell into those goods, we can't do that now because it is unpredictable. So it has affected us in a number of ways across the board but it is hard to quantify exactly.

Yes, one thing I could just put it in the ballpark, Kristine, it is about a quarter of our volume, the import volume overall that flows through that distribution center in the West. The other three quarters comes through East Coast ports or Gulf Coast ports.

So that part of our business was impacted, then also you had people loading heavier on containers coming to the East Coast. So that got -- that did get a little more expensive and a little less predictable just on the East Coast because everybody was moving away from the West to the extent they could.

Okay, thanks. And then with regard to the outdoor furniture category that you are adding in the Florida stores, it's going to be an every store in Florida and how is it doing thus far in the Coconut Creek store?

Well, that is where it started, Kristine, and we have a full selection down there. We are excited about it. We will have for the first time a digital catalog that comes out this week. So we really haven't been able to tell the customers we had it except if they came into the stores. So it is too new to rate to be frank.

We are very excited about it, it is a beautiful program, you can see it online later this week. And it is for the coastal stores specific -- starting specifically in Florida and more intensely in South Florida and then it is available through some of the coastal stores and markets in the Atlantic Coast region. But it is a roll out in process and one that we are optimistic and excited about.

Okay great. And then just lastly, is the promotional environment -- is that -- have you seen any changes there, has it gotten any more intense?

I don't see anything that's significantly different this year than last year. Now as you well know, we are coming up to the most important holiday of the first half and that is Memorial Day and everybody throws a lot of money at that event, which I think is going to be good for everybody.

But that will be when you see most of the promotion and see how intense people are about it. We think we will be very competitive. We are excited about our new marketing plan and program which just -- the new television commercials just roll out next week and we are excited about that.

So we are very product specific, we are promotional on particular categories that are sensitive like mattresses. But we have our own specific products, so we want to make sure people know what we have and the values there.

Okay, great. Thank you so much.

(Operator Instructions). Budd Bugatch, Raymond James.

Good morning, Clarence and Dennis, this is David on for Budd. I was wondering if you could just comment on the performance of the Buckhead style studio since it has been open. Maybe give us how that store has been performing versus the rest of the portfolio and any plans to try a format like that in another market?

We don't have any plans now to do anything like that in other markets, it is a test for us. I would say it is like we expected, it is not going to change the way we open our stores or market them, we are going to use a number of the display techniques in the new stores we're opening which we are excited about.

Certainly the emphasis on special order and custom that you see when you walk in there, that has been a very big part of their business. There is more design business done there.

So it is really about as we expected. And it is specific to this market, it is unique to this market. There are not many places in the regions we serve that would require us or we would want to open up something different like that. But we're going to look at it closely and it could happen in some of the denser markets, but I don't see any plan now to roll out more of these specific style studios.

Okay. And product categories that are doing well quarter to date so far, is it pretty similar to what we saw in the first quarter with upholstery and custom order upholstery doing well?

Well, I mentioned in my comments that we are pleased with the case goods program that has come back now that we are better in stock, specifically dining room has been good, accessories have been very good and continue to be. And as we mentioned in upholstery, special order is the driver there. So the encouraging different trend that we are seeing is the improvement in our case goods program.

Got it.

(Multiple speakers) really just being better in stock.

Okay, so better in stock. Are there -- are the case good products that are doing well, are they different styles than what you have had before now that you have gone to exclusive product designs for Haverty? Or is it a similar style of product as you (multiple speakers) carrying before?

We had a lot of new collections come in late last year and early this quarter -- or early the first quarter, which are selling well -- our new products are coming in well and we are very pleased with most of that. And we have some issues in being out of stock on some of the better sellers because they came in stronger than we thought they were going to. And we will get back in stock by the end of this quarter. So we are pleased with the program and are adjusting where we think we need to.

Okay, great. And one last question for modeling purposes. Dennis, maybe you can help me with this. The variable cost within SG&A as a percentage of sales, as we go forward and maybe lap this quarter and lap this year do you see that number getting down to more of the long-term rate of around 17.3% down from the levels that you have guided to for 2015?

Well, we are sure trying to make that happen. I think we have a little more expensive set-up right now and you would hope that it drives sales more. But there is a little more variable cost component. So I think that we are probably looking at a little higher number. I think we can improve certainly where it is this year. But I think just the model is slightly different.

All right, best of luck going forward. Thanks a lot.

It appears there are no further questions in the queue at this time. I would like to turn the conference back to Mr. Dennis Fink for any closing or additional remarks.

We want to thank you for joining us on our call and for your interest in Haverty's.

This concludes today's conference. Thank you for your participation.