Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Haverty's First Quarter 2024 Earnings Call. Please note this conference is being recorded. I will now turn the conference over to your host, Richard Hare, Chief Financial Officer.

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

Thank you for joining our first quarter conference call. Our Q1 sales were down 18.1% to $184 million, with comparable store sales down 18.5%. Total written sales were down 12.6%. We continued with strong gross margins at 60.3% and controlled costs, which allowed us to produce a pretax profit of $3.2 million compared to $15.4 million in last year's Q1. We are well prepared for the Memorial Day event, the most important of the first half, with energized marketing plans and an exciting lineup of new products, excellent balanced inventories, and new in-store signage. Our Board approved a 6.7% increase in our quarterly dividend, which is our 12th year of consistent dividend increases. Haverty's has paid a dividend every year since 1935. Our strong balance sheet with over $100 million in cash allows us to return capital to our shareholders and invest in infrastructure in our stores in our markets. In 139 years of furnishing homes throughout our regions, Haverty's has consistently gained market share, especially in difficult times. The falloff in furniture demand following the dramatic sales increases due to COVID has had a major impact on the industry. The industry struggled to supply timely furniture deliveries in the gangbuster years during COVID. But once that backlog cleared up, we experienced a significant negative impact throughout the industry. We pulled forward roughly two years of sales and then experienced a two-year slide back to pre-COVID levels. This time, there will be many players who won't survive the recovery. While the first weakness was felt at the lower end of the market, it has now impacted the entire industry, and we believe that will continue until housing begins to edge back positive. Home sales in the South have a very high correlation to our business. Clearly, interest rates are a major factor in housing. In the past year, we've seen numerous furniture failures among major manufacturers and retailers with the demand slide, and we expect to see more competitors struggling and some players failing. These are times when it becomes clear that this industry, closely tied to housing, cannot handle heavy debt leverage. Major debt positions combined with higher interest rates lead to a fast slide to bankruptcy in the furniture world. We have zero funded debt and are strongly positioned in the best states and fastest-growing markets in the country. We believe that we are uniquely well positioned to continue to grow our market share in these important growth areas in the coming years. We are investing in store growth and upgrading our store and operating systems to better serve our customers. We have a couple of major remodeling projects underway in major markets, which should be completed by next month. We believe in financial resilience for sustained financial growth. We are on track to reach our goal of opening five new stores this year and five in 2025. I recently attended our new store opening in South Haven, Mississippi, entering our 17th state in a major suburb of Memphis, Tennessee. South Haven was the first store opening of four from former Bed Bath & Beyond stores, which will allow us to gain strong locations in market areas where we have not been able to find sites. In the next three months, we will open stores in three markets in Florida: Destin, central to the Emerald Coast; St. Petersburg, in the southern coastal site of our Tampa region; and Pembroke Pines, our southernmost store in Southeast Florida reaching into Miami. All these stores are in adjacent markets and locations where we have significant brand awareness, existing distribution, and experienced management in place. We know that these strengths, combined with excellent locations at below-market rates, provide a solid foundation for success. By Labor Day, we will have 33 stores throughout the Sunshine State, our largest state, followed by Texas with 22 stores. We're very excited to announce plans to return to Houston, Texas. Haverty's left Houston over 40 years ago, and it is the largest market in our footprint where we do not have stores. We will open our first store in a former Bed Bath & Beyond building in the Woodlands area later this year and follow with the Baybrook Village store in Q1 2025. We expect to have more stores positioned to serve the Greater Houston market in the next two years. We have delivered furniture in the northern suburbs of Houston for many years from our Austin and College Station stores. We believe that we will be well positioned and well received in Houston, which will greatly strengthen our position in Texas. We are investing in brick-and-mortar, building our team's expertise, growing our design services, upgrading products, and expanding customization and special order capabilities. All our teams are driven to be the best home furniture company in the country and to gain profitable market share throughout our regions. I'll now turn the call over to Steve Burdett, President.

Thank you, Clarence, and good morning. Our first quarter results continue to show the headwinds that we are facing due to the housing crisis and interest rates. However, we continue to be encouraged by our team's efforts to ensure that Haverty's is furnishing happiness to our customers. Store traffic continues to be a struggle in all markets. However, we did see a slight improvement in February and March compared to January, which was impacted by weather. Our design business continues to gain momentum with an increase of over 10% in total dollars for the quarter, driven by our average design ticket increasing over 3%. The number of customers engaging with our design program was up over 19%. Our supply chain network continues to operate without any significant disruptions. We have been able to negotiate our new freight rates for 2024, beginning in May, so that we feel confident with our margin projections for the year. Our inventories continue to be in excellent condition, and we're down at quarter end, almost 20% from Q1 2023 and almost 2% from year-end 2023. Our vendors continue to be great partners as lead times remain from four to seven weeks. This has helped to continue to drive our special order business, which was up 13.5% in dollars for the quarter. As you know, we introduced our new marketing campaign, 'Furnishing Happiness' to include a regret-free experience. This messaging revolves around four pillars that we feel are key to our customers' happiness and experience: choices, quality, design, and service. Our concern with the decrease in written business has centered around our decrease in traffic. As a result, we recently made a change in our media planning and buying partner. Effective April 1, we brought in Carmichael Lynch Media to overhaul our paid media approach. We believe that how they buy, manage, and optimize media will result in better targeting and greater efficiencies, leading to a higher return on our media investments. Carmichael Lynch Media will partner with EP & Co, our agency of record, to develop impactful communication strategies tailored to increase awareness of Haverty's and our 'Furnishing Happiness with a Regret-Free Guaranteed' campaign. Our new media approach will be fully implemented for Memorial Day, our largest promotion in the first half of the year. Additionally, we are focusing on more local store marketing efforts to help complement our paid advertising campaigns. We believe this combination of awareness-building media with community-focused local store efforts will positively impact traffic. Extending financing will continue to be a part of our holiday promotional events, and we are continuing to rightsize our staffing to match current conditions through attrition in all areas of the business. Now I will turn the call over to Richard.

Thanks, Steve, and good morning. In the first quarter of 2024, net sales were $184 million, an 18.1% decrease over the prior year quarter. Comparable store sales were down 18.5% over the prior year period. Our gross profit margin increased 120 basis points to 60.3% from 59.1%, primarily due to product selection and merchandising mix. SG&A expenses decreased $9 million, or 7.6%, to $109.4 million. As a percentage of sales, these costs approximated 59.4% of sales, up from 52.7% in the prior year quarter. We experienced decreased selling costs, advertising, distribution, and transportation expenses during the quarter. Our interest income was approximately $1.6 million during the first quarter as we earned more on our cash deposits due to higher interest rates. Income before income taxes decreased $12.2 million to $3.2 million. Our tax expense was $800,000 during the first quarter of 2024, resulting in an effective annual tax rate of 25.1%. The primary difference in the effective rate and statutory rate is due to state income taxes and an additional tax benefit from the vesting of stock awards during the year. Net income for the first quarter of 2024 was $2.4 million or $0.14 per diluted share on our common stock, compared to net income of $12.4 million or $0.74 per share in the comparable quarter last year. Now, turning to our balance sheet. At the end of the first quarter, our inventories were $92.1 million, down $1.9 million from the year-end balance and down $22.2 million versus Q1 of 2023. At the end of the first quarter, our customer deposits were $40.9 million, up $5.1 million from the December 31, 2023 balance and down $5.5 million versus the Q1 2023 balance. We ended the quarter with $111.8 million of cash and cash equivalents, with no funded debt on our balance sheet at the end of the first quarter. Looking at some of the uses of our cash flow, CapEx was $6.4 million in the first quarter, and we also paid out $4.8 million of regular dividends. We did not utilize any of our share repurchase program during the first quarter of 2024, and we have approximately $13.1 million of existing authorization in our buyback program. Our earnings release lists several additional forward-looking statements indicating our future expectations of certain financial metrics. I will highlight a few, but please refer to our press release for additional commentary. We do expect our gross margins for 2024 to be between 60% and 60.5%. We anticipate gross profit margins will be impacted by current estimates of product and freight costs. Our fixed and discretionary type SG&A expenses for 2024 are expected to be in the $290 million to $292 million range. The variable-type costs within SG&A for 2024 are expected to be in the range of 19.9% to 20.2%. Our planned CapEx for 2024 remains at $32 million, with anticipated new replacement stores, remodels, and expansions accounting for $27 million. Investments in our distribution network are expected to be $2.5 million, and investments in our information technology are expected to be approximately $2.5 million. We do expect our anticipated effective tax rate in 2024 to be 26.5%. This projection excludes the impact of vesting of stock awards and any potential new tax legislation. This completes my commentary on the first quarter financial results. Operator, we would like to open up the call for questions at this time.

At this time, we will be conducting a question-and-answer session. Our first question is from Mickey Legg with the Benchmark Company.

Into the decision to enter the Houston market again. Maybe can you elaborate on why you chose Houston and the opportunity you see there?

Well, Houston is the largest market that is in our distribution footprint. We used to be there. We talked about that, and we've been trying to figure out a strategy to come back in for quite a while. So we have one store — a main store that we're going into in the Woodlands area, a former Bed Bath & Beyond store that we've secured under lease, and it's an extraordinarily good lease. The second store down in Baybrook Village is also one of their spin-off companies and also in a great position. So we know that it's a major market, and we need to have more than a couple of stores. So we have plans to expand that over the next several years and reach out to the growth areas of Houston. We can serve it now from our Dallas facility that's in place. We already delivered there, as I mentioned, in the northern markets — it is a terrific large market where they know who we are, and we can serve it well, and we're finally getting positioned to move back in.

That's super helpful. Great to hear. And then as a follow-up, maybe if you could just comment on the competition and promotion you're seeing out there in the industry, how promotional are some of your competitors getting in this market environment? And then maybe a quick comment on just any price increases you've been able to put in place.

Yes. This is Steve. I would tell you, we really haven't seen a change in our competitors' cadence regarding promotions and pricing. So we really have not seen any adjustment there. I mentioned in the last call, we did see credit promotions tightening down because of the costs. We have seen that were not being offered on that side. So from that vantage point, we don't see any real changes off of that. Now from our side of it, as I mentioned, we made a change in our media partner, and we're very excited about that and what that can bring to us. We're focused on driving traffic. One thing they're really going to do is look at a plan by market, an individualized plan instead of having fewer plans. We're going to basically have individual plans by market that we're really excited about. Because Dallas is going to be different than Birmingham, which is going to be different than Tampa. So we're really excited about that, and we're looking forward to seeing the results of that.

Our next question comes from Anthony Lebiedzinski with Sidoti & Company.

Nice to see the balance sheet strength here and the dividend increase as well. So I know you touched on it a little bit, but just wanted to see if you guys can quantify as far as the trends in the written business. You mentioned that February and March were better than January because of the weather. So if you could just maybe go over the numbers. Also, I don't know if this is significant to you guys or not, but Easter fell earlier this year than last year. Did that have any notable impact on the business?

Anthony, it's Richard. Let me address the written business, and then Steve's got some comments on Easter. In terms of the cadence, January, we were down in written business almost 20%, a very difficult month. In February, we were down about 8%. Then in March, it improved; we were down about 5%. So you can see it started out in a really difficult environment in January with improvements in February and March.

Yes. And the Easter effect was really offset by the leap year effect of February. So we look at those two together when you analyze it, Anthony. If you combine them, I think we were down a little less than 7% combined between the two months. So there were equal days when you lost Easter, but you picked up leap year.

Got it. Okay. I guess I forgot about that. And thanks for pointing that out. So obviously, good to hear that you're reentering Houston. You have a strong balance sheet. Would it be possible for you guys to accelerate the growth? I know you talked about five stores that you're looking to open this year and next. But again, given the dynamics in the marketplace that are going on now, is there a chance that you may accelerate that in future years, the pace of store openings?

I think so. It depends on the opportunities. As I mentioned, I think there are going to be more opportunities. We are very good at converting existing space to Haverty's. Most of our growth has been that. We will open and we'll open a new store that's being built when we have to do that, and there'll be a few of those in the next years or we are planning. I believe there are going to be more opportunities for us, and we're prepared to do it. We've got a team to do it and a staff to do it, and we're good at converting. So as those things happen, we're ready, and we're going to be ready to capitalize on them. Yes, if you look way back, Anthony, the biggest acquisitions of stores we did were Home Life, which was Sears Home Life done around 2000, and I think we opened nine or ten at one time, and we were able to execute that, and that was 20 years ago. So we know we can do it. We just want to make sure there are good opportunities. We expect that to be there.

All right. And then Steve, you mentioned some efforts to rightsize staffing. Did that already take place in the first quarter? Are you looking to do that coming up here and kind of which areas of the business? I know you guys did a big staffing reduction right after COVID initially hit four years ago, then you rehired some people back. But how should we think about that as far as timing and potential size as far as personnel reductions?

I would think about it as ongoing and fluid. We're managing it to the business as we go. So we're constantly evaluating that, Anthony.

Yes. Let me add to that, Steve. Anthony, we reassess and evaluate all areas of our business for cost efficiencies. During this past quarter, our headcount was down to 2,487. I think we were down 71 people versus the end of the year. Most of that was in distribution and home delivery as the demand came down, along with the need for additional support in that area. Generally speaking, in other areas of the business, we're evaluating our entire lease portfolio for opportunities for further reductions of expenses. We're looking at all of our retail distribution and corporate leases for areas where we can secure savings and extend the term on certain leases. So it's a constant process.

Got it. And last question for me before I pass it on to others. Given where your share price is today, what is your appetite now for share repurchases?

Well, we meet with our Board every quarter, and we have a meeting later this month, and we evaluate it every quarter. We've got authority now for about $13 million, and we'll act as it makes sense for us.

Our next question is from Budd Bugatch with Water Tower Research.

Clarence, Steve, and Richard, I know these are challenging times for the industry, as you noted, Clarence, and you talked about expecting to see more disruption and we've seen enough of it already. Are you seeing any of that with your suppliers? I know, Steve, you mentioned you got four to seven weeks and a good supply pattern with your suppliers, but I'm just curious to see if you can give us any more color that you may be seeing.

I can't say I've seen anything that will impact our direct suppliers. I must admit I was a little concerned with the Liggett release. They're the main player in the industry. It tells you a lot about what the industry is going through there. But we haven't seen anything that's disrupted our flow of product with our main suppliers.

And you talked about January and February and gave us the cadence on that, but in conjunction with what you just mentioned and other things that we're hearing, April has seemed to have hit another real significant air pocket. And I know you don't like to comment on the current quarter, but I also know you don't want to surprise people either. So can you give us a flavor of what you're seeing in the industry now or macro or how it affects Haverty's?

We’ve both been around a long time, and I will say that historically, April is one of the slowest months of the year for a couple of reasons. One is because of Easter, and the other is because of tax season. I don't think you'll see anything much different than what we've historically seen in April.

I mean, TSL has made the same comments about being the slowest month. And I know April, with Easter and Passover, we always used to joke that when I was doing what you do, it was either later or early, but it was never on time.

Well, the good thing is that it's behind us. Easter hit early, so now we're moving on.

Okay. When do you open up St. Petersburg? Just curious from that standpoint?

Budd, we're hoping for the third quarter, mid-third quarter. We're hoping to get it open before Labor Day.

All of the problems have just been getting the approvals from Florida; as you know, it is difficult.

We double that remark. I understand.

I understand. Richard, thank you for the detailed information on the expense side, which is very helpful in understanding the structure of furniture retail. Are you encountering any concerning cost issues? We are beginning to see wage rate challenges, so I am interested to know if you are experiencing anything similar or if you can provide any insights on that.

Yes. I would just say there's nothing that really keeps me up at night. Just your standard inflationary increases, but they're low single digits. Steve, I think, mentioned it in his opening remarks that we've locked in our freight contracts. So we've got that behind us, and things are back to more historical levels. But I guess it's probably not so much a cost problem but a revenue issue with the way business is. However, we continuously look at other areas to find cost efficiencies, and we'll continue to do that.

Are you experiencing any freight issues in Baltimore or any disruptions on the oceans?

No, we do not use the Baltimore port, so that has not caused us any disruptions. The issues overseas, like what's happening in the Red Sea, have already been redirected, taking a different route. This has only extended the lead time by a couple of weeks, but it does not impact our customers. We prepare for this and are aware of the situation. Therefore, there are no disruptions that will affect our customers.

Thank you very much, and best wishes on the balance of this year and beyond.

Thank you, Budd.

Our next question is from Cristina Fernandez with the Telsey Group.

I wanted to ask about the industry or revenue assumptions behind the guidance. And maybe Clarence, you can touch on it. It seems like the order trends were a little better less worse as the quarter progressed, but at the same time, you talked about the challenges in the industry with some businesses going out of business. So do you think we should expect similar trends as we saw in the first quarter, or are we getting closer to that point where there could be an inflection in demand at some point this year?

We have previously mentioned that we anticipated improvements in the second half. It's unclear if we genuinely feel that way or are simply basing it on what we're hearing from the Fed and the market. The situation is certainly challenging. Our written business has been declining for an extended period, and while I expect some moderation in that decline, I don't have enough visibility to suggest that we'll see positive results in the near future. The same conditions seem to be affecting the industry at large, as I haven't heard any encouraging news from others in the field. This trend appears to be established, and I hope for a turnaround soon. We are well-positioned for that, and I hope the new initiatives Steve mentioned, such as the revamped marketing and fresh merchandise, will help facilitate that change.

Yes, that makes sense. And that seems consistent with what we're hearing. So I wanted to follow up on that point with Steve, on the marketing side. Can you expand more on where the efficiencies are, or what's changing from what you've been doing to what you're going to do going forward? Anything else in addition to the, I guess, market-specific marketing? Are we going to see a change in medium, digital versus print? I don't think you need too much print, but perhaps TV or some of the other channels that you've been traditionally using.

Cristina, we're not going to reveal our strategy for now because we haven't executed it yet. I mean, we're just now starting it, and our big advertising for the quarter will be around and focused on Memorial Day. But obviously, all those things that you just mentioned are on the table. I mean we're looking at it by market. To me, that's one of the most exciting things. The villages, for example, will require different marketing than Atlanta and those areas. So yes, in some markets, we could use print while in others we may be doing more broadcast. We will look at it individually and tailor it to how we can create more awareness to drive people into the funnel and get them to our stores. So there will be more to report on that as we move forward with it, but we are excited about it. They are making changes that are different from our previous approach, so we’ll have to see the results as they unfold.

And the last question I had was on merchandising. Last call, there was some talk about how lower-end merchandise was being introduced and expanded. Any comments on the early results, how that's doing? Or any other merchandising initiatives we can track for the rest of the year?

Well, from an outdoor perspective, it is in now. We got it in and we're glad to see it. We've seen some early results. It's not in all our stores, but a little less than half our stores, but the early results have been very positive. It's two different groups along with some fire pits and other items. So it's not a huge assortment, but enough to satisfy customers' requests if they need that. In terms of category strength, we're seeing strength in upholstery, which continues to do well. I talked about the special order business, which continues to trend up and was up 13.5%. We're very excited about that and what our designers can provide with the options we're able to offer our customers. Bedding has been relatively stable right now, while bedroom and dining room categories have been a bit of a struggle, softer than we had hoped in the first quarter. However, we do have a lot of new product coming in, and we're in that cadence now. Our merchants are actively flowing in new products, and we're excited about it. Our teams are enthusiastic as it provides new choices for our customers.

There are no further questions at this time. I'd like to turn the call back to Richard Hare for closing comments.

We appreciate and thank you for your participation in today's call, and we look forward to talking to you in the future when we release our second quarter results later this year.

Thank you. This concludes today's conference. You may disconnect your lines at this time.