Greetings, and welcome to the Haverty's Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Hare, Chief Financial Officer. Thank you, Mr. Hare, you may begin.

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, in 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 Securities and Exchange Commission. Our Chairman and CEO, Clarence Smith, will now give you an update on our results and our President, Steve Burdette, will provide additional commentary.

Thank you for joining our second quarter conference call. Total sales were $178.6 million, down 13.4% from last year, but an improvement over the 18.1% decline in the first quarter. We've been proactive in reducing costs where appropriate, and that has helped us produce a pretax profit of $6.5 million. Gross margins continue to be strong at 60.4%. Our cash position of over $100 million remains solid and continues to be a major strength. Our balance sheet allows us to continue to invest in future growth opportunities even in tough times for the industry. We're excited to announce the addition of our second store in Indianapolis, in Greenwood, Indiana, which will open late this year. This location will be our fifth new store to open in 2024 and the fifth former Bed Bath & Beyond building. Late this year, we'll open a new store in Pembroke Pines area in Southeast Florida and a store in St. Petersburg, strengthening our position in the Tampa-St. Pete region, both a part of the Bed Bath & Beyond lease acquisition. With these openings, we will have 33 stores serving Florida, our largest state. Our expanded Lakeland, Florida distribution center is ideally located off I-4 and allows for coastal specific products and quick delivery to the region. We have been furnishing Texas homes for over 100 years. Our Austin and College Station stores have been serving the northern part of Houston. And now our move back to Houston, Texas will be a significant effort for the coming years. We plan to open in Woodlands, Texas late this year and add a second store in 2025 in Baybrook, Texas. We will end this year with 22 Texas stores, our second largest state. We're actively working to add stores in the Greater Houston market to add density and to support marketing, and to build Havertys's brand position. All these stores will be served by our expanded Dallas, Texas distribution center, allowing for quick delivery and more western specific and regional merchandising. We are on target for our goal to open five new stores in 2024 and in 2025, strengthening our service position throughout our 17 states. We're very pleased with the new merchandise that is hitting our floors, which has quickly moved up to best sellers. We've added several locations to the better end of our lineup, which, along with our enhanced special order and custom products, have helped move design business to 35% of sales. These are tough times for a cyclical industry like home furnishings. We're closely tied to housing and interest rates. What we have learned these past decades is the importance of consistent investment in serving and inspiring our customers. This means new locations, upgrading stores, cutting IT systems, and then, most importantly, investing in talent. And these are expensive commitments in tough times. We believe that the down cycles provide important opportunities when we can make strategic investments for future growth and position Havertys for significant gains in the months and years ahead. I'll now turn the call over to Steve Burdette.

Thank you, Clarence, and good morning. Our second quarter results faced the difficulties of higher interest rates and frozen housing activity. Our Memorial Day event was disappointing, which affected the outcome of the quarter. We hope the potential interest rate cuts being discussed for the September Fed meeting will start to get the housing market moving as we head into 2025. During the quarter, we were excited about the opening of our two new stores in South Haven, Mississippi, which is a part of our Memphis market, and Destin, Florida, which is a part of our Pensacola market. Store traffic in both stores has been robust, and we are pleased with the early results. Overall, our store traffic has continued to improve slightly during the quarter, but we are seeing a more deliberate consumer, which has caused our closing rates to slip. However, those customers that are buying are spending more as our average ticket continues to rise by over 4% to almost $3,500. Our design business continues to be a bright spot by growing over 24% for the quarter as a percentage of our business. Our design and sales teams have been able to increase the number of customers participating in design to almost 19% of our customers, which continues to grow at a double-digit pace. Our average ticket is the driver of our design business as it moved higher to approximately $7,000, which is a 7% increase for the quarter. Our supply chain network continues to operate efficiently, which we feel puts Havertys at a competitive advantage. We have seen a minimal increase in our freight rates due to the container imbalance and the issues around the Red Sea, but have seen no real disruptions due to our partnerships with our carriers and suppliers. Our inventories continue to remain in excellent condition and were relatively flat with Q1 and approximately 20% down from Q2 2023. This gives us confidence that we will be able to maintain our margin guidance for the year. Our vendors continue to provide us with excellent lead times that vary between four to six weeks. This has helped us to drive our special order business, which was up approximately 9% in dollars for the quarter. Extended financing continues to be a part of our promotional calendars, but we continue to manage the use and length of terms, which has helped us to lower our credit cost for the quarter by over 16% as a percent of the business. Also, we have been continuing to make the necessary adjustments with our headcount throughout the organization to ensure that we are rightsized for the current business conditions. We are optimistic heading into what is historically our largest promotional event of the year, Labor Day. I want to thank all the Havertys team members across the company for their hard work and dedication to furnishing happiness to our customers every day. Now I'll turn the call over to Richard.

Thank you, Steve. In the second quarter of 2024, net sales were $178.6 million, a 13.4% decrease over the prior year quarter. Comparable store sales were down 13.6% over the prior year period. Our gross profit margin decreased 10 basis points to 60.4% from 60.5%. The decrease was driven by the change in the LIFO reserve, which generated an immaterial impact on gross profit in 2024 compared to a positive impact of $3.4 million in the second quarter of 2023. Excluding the impact of our LIFO reserve, our gross margins increased over 170 basis points over the prior year period. Selling, general and administrative expenses decreased $6.9 million or 6.3% to $103.1 million. As a percentage of sales, these costs approximated 57.7% of sales, up from 53.3% in the prior year quarter. We experienced decreased selling costs, advertising, warehouse, and delivery expenses during the quarter. Interest income was approximately $1.5 million during the second quarter as we earned more on our cash deposits due to higher interest rates. Income before income taxes decreased $9.4 million to $6.5 million. Our tax expense was $2.8 million during the first six months of 2024, which resulted in an effective annual tax rate of 29.2%. The primary difference in the effective rate and statutory rate is due to expected state income taxes and non-deductible items for the year. Net income for the second quarter of 2024 was $4.4 million or $0.27 per diluted share on our common stock compared to net income of $11.8 million or $0.70 per share in the comparable quarter last year. Now turning to our balance sheet. At the end of the second quarter, our inventories were $92.4 million, which was down $1.6 million from the year-end balance and down $22.3 million versus the second quarter of 2023. At the end of the second quarter, our customer deposits were $38.7 million, which was up $2.9 million from the December 31, 2023 balance and down $6.9 million versus the Q2 2023 balance. We ended the quarter with $109.9 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of the second quarter of 2024. Looking at some of our uses of cash flow, capital expenditures were $16 million for the first six months of 2024. We also paid out $10.1 million of regular dividends in the first six months of 2024. We utilized our share repurchase program during the second quarter of this year, 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 60.0% and 60.5%. We anticipate gross profit margins will be impacted by our current estimates of product and freight costs. Our fixed and discretionary type SG&A expenses for 2024 are expected to be in the $282 million to $284 million range, which is a reduction in our previous estimate. We anticipate continued reductions in advertising, incentive compensation, and professional fees. The variable-type costs within SG&A for 2024 are expected to be in the range of 19.7% to 20%. We anticipate continued reductions in third-party credit costs as well as delivery costs. Our planned CapEx for 2024 is $33 million; anticipated new or replacement stores, remodels, and expansions account for $28 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. Our anticipated effective tax rate in 2024 is expected to be 27.5%. This projection excludes the impact of vesting of stock awards and any potential new tax legislation. This completes the commentary on the second quarter financial results. Operator, we would like to open the call at this time for any questions.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question is from Anthony Lebiedzinski from Sidoti. Please proceed.

Good morning, gentlemen. And thank you for taking the questions. So firstly, just wondering if you could comment on the sales trends throughout the quarter. I know you talked about Memorial Day being somewhat disappointing. But just overall, as we look from April through June, how did that go in terms of written comps or however you want to handle that?

Sure, Anthony. Good morning. This is Richard. Regarding the written and delivery trends, in April, our written business was down about 14%. As Steve mentioned, we had a disappointing Memorial Day in May, resulting in a decline of around 18%. In June, we experienced a decrease of approximately 8%. For deliveries, in April, we were down about 12%, approximately 6% in May, and about 20% in June.

That's very helpful, Richard. Thanks for that. And then so on your last conference call now, you guys talked about a new media firm and a new media approach. Can you talk about that and what you've learned from that? And how are you guys thinking about that for the back half of the year?

Yeah, Anthony, this is Steve. Yeah, we did introduce Carmichael Lynch, which started in April. Really, the first impact that we started seeing from that would have been in May. It's too early to tell, though. One of our indicators is traffic that we're looking at, and I made a comment that we're starting to see a little bit of improvement in traffic. So we consider that to be a positive with what they're doing. Some of the changes I looked at that I talked about is from a TV perspective; we're still doing streaming in OTT, but we're also doing a little bit more broadcast in our bigger markets on a balance there, and then we've kind of changed up our search direction. What we're doing there in search to drive more traffic to the stores. So we're encouraged right now. And so that's kind of why we're optimistic heading into the third quarter, and we'll continue to see those traffic trends improve.

Got you. Yeah, thanks, Steve. And then I guess with the upcoming election and your pivot to broadcast TV with the election coming up, will that kind of prevent you guys from doing as much broadcast TV as you would have normally liked to do?

Well, we could be basically cut off because the election takes priority for those ads, but we won't know that until we get there. And there will probably be more so in certain states than others. Those states that like Georgia, maybe North Carolina, Virginia are really the states in our market where our footprint is that are considered to be swing states. So in those states, possibly so. But we'll monitor that and manage that. Our marketing team will with our external partners.

Got it. Okay. And then my last question before I pass it on to others. So you mentioned that you're happy with the two new stores that just opened. But just overall, given the acceleration in store growth that you've had, can you talk more broadly about some of the other recent store openings? How have those done relative to your expectations?

Yeah. So I mentioned on the call, as you said, South Haven and Destin have both exceeded our expectations. And then we opened last year, Dayton, Ohio, and Concord, North Carolina. Both of those stores, from a traffic perspective, have done as well. Our closing out of the two new stores this year has been stronger than the two new stores last year from their initial start, but they are getting better and building strength there, but we have been pleased with all four of those store openings and look forward to the two more that we're adding this year in Pembroke Pines down in South Florida and then obviously, St. Pete in Tampa. Again, Florida being our largest concentration of stores. We're really looking forward to that, along with Indiana and then getting into Houston.

Got it. Well thank you very much. And best of luck.

Thank you.

Our next question comes from Cristina Fernandez from Telsey Advisory Group. Please proceed.

Hi, good morning. I wanted to follow up on Anthony's question on demand. And I wanted to see, as you looked at how the quarter progressed, in particular, with Memorial Day event being disappointing, I guess what are you planning differently? How does it change your approach for the back half, particularly for the big promotional holiday weekends like Labor Day, which you mentioned is the biggest of the year? That would be helpful? Thank you.

Yeah, Christina, this is Steve. We're not going to pursue aggressive promotions or lower prices right now because we don't see that as necessary. We will continue with our usual promotions and credit financing. What we are really optimistic about is our new media partner and the strategies we are using to engage consumers and increase traffic to our stores. The key focus for us is driving more customers into the stores, which will help us close more sales. As we come out of the second quarter, we have noticed some positive trends, particularly as we just initiated our first promotion for Memorial Day. We feel confident in our promotional strategies and do not see a need for changes. We believe consumers are simply being more cautious in this environment, and our goal is to maintain our margins while providing quality and value to our customers.

Thanks. And then the second question I have for Clarence, or Steve. Clarence, you talked about investments in the business and talent and IT. Can you expand on specifics, like what areas? Where do you need more talent and on IT, like is it systems? Is it supply chain?

The main investments we continue to do there is enhancing our website and just everything about that to make sure that we're reaching the customer better than anybody else and getting our message across. It is a continual investment and it escalates. It's just so important that we are looked at as one of the better sites and easier to operate. So we spend a lot of energy there. A lot of our team is dedicated to it. And certainly, we're trying to stay on the leading edge for website and just making sure that we can easily communicate with our customer there.

And then anything on talent, where you need to make investments?

We have some changes planned over the next several months, particularly in the merchandise area. We've experienced a couple of retirements, including one we've already announced. We will be enhancing our team by adding creative talent, which we are excited about. This process is already in motion. We just promoted Greg Davis to head of IT following a retirement in that area, and we have a strong team in place. Our primary focus right now is on enhancing our merchandising team under John Gill.

Cristina, this is Steve. We are making several investments to enhance the in-store experience. Currently, we have two test stores focused on point of purchase materials that assist both consumers and salespeople in communication, aiming to improve the closing rate by providing better information. We're excited about this initiative. Additionally, we are making changes to our design centers, investing in more options such as rug choices, larger screens, and bigger TVs to elevate the consumer experience. We are also testing these changes. On the website front, as Clarence mentioned, we are continuously engaging in A/B testing to evolve and improve.

Thank you. And the last question I had was with the election coming up, there's also increased talk perhaps concern around tariffs on goods from China. I know your exposure has decreased to 15%. Can you talk, if there were to be tariffs, how you can manage them this time and maybe remind us of what you did last time? Is it pricing, shifting goods to other countries, etc.?

Yes, Cristina, our merchants are already collaborating with our suppliers. We primarily have leather coming from China, along with some fabric. Most of our vendors have alternative production options in Cambodia, Vietnam, and Mexico, and they are actively working on that. Therefore, we have alternatives in place and do not anticipate any impact from potential additional tariffs on goods from China.

Thank you.

Thank you.

Our next question comes from Budd Bugatch from Water Tower Research. Please proceed.

Good morning. And thank you for taking my questions. First, congratulations on really managing pretty well through this difficult period; it's been a real challenge, and your financials, they don't compare as well as you would like them. They look strong. So congratulations on that. I do have a couple of questions about the written business. And as you went through that, Richard, I think you said that June was down 8% or so. When you look at the change in customer deposits at the end of the quarter, that's down in the mid-teens. And I wonder if there's any relationship or any change in the relationship with deposits to backlog or what you're looking for out of the retail system going forward in terms of deliveries?

Yeah. Budd, it's Richard. The overall relationship hasn't really changed over the quarter in terms of the relationship between deposits in our backlog. So backlog is fairly consistent now with what it's been throughout this calendar year.

I know that Memorial Day might have been a disappointment. Steven, I was wondering if you have any thoughts on why that might be. We heard that Memorial Day had mixed results across the industry. What do you think you did right or wrong during Memorial Day, if anything?

I don't know what happened, but we were on the wrong side of the situation you just described. Obviously, we're not happy about it. It was still a great weekend, but it didn't meet our expectations or match last year's performance. It was likely on par with our President's Day results, which is typically a stronger holiday. So it wasn't a terrible weekend, just disappointing compared to what we achieved in the past. I think consumers are being a bit more cautious and deliberate with their spending right now. However, we feel good about where we stand, what we're doing, and the products we have. As Clarence mentioned, we have new products coming in that are filling some price gaps we previously had, and they are resonating well with consumers. We have more to come, and we're excited to get those into the market.

We are noticing trends from other industries indicating a shift towards consumers opting for lower-priced options as the economy seems to be heading in that direction in the near term. While your inventories are in excellent condition, there's a question of whether they might be too well-stocked. Additionally, how will you adapt to this shift in consumer behavior? Haverty’s is not typically associated with this trade-down strategy, which I wouldn't want you to change, but it’s important to remain aware of the market dynamics around you.

Yeah. Budd, we feel really good about our position. I do think we're reaching a better customer. Actually, our deposits and the better product is higher than it was. We're doing more custom special order, Steve talked about that. The bottom end of this industry is being devastated right now. The bankruptcies that you're seeing, the closures and maybe Bed Bath & Beyond is devastating to the promotional end of this business, and we certainly don't want to go get into that realm. I was talking with some of our suppliers about the Mississippi parts of the market, which is where the promotional upholstery comes from, and they are absolutely devastated. We are not going down in price point. We are targeting a better customer. It's working. I do think we get more credit for it. We get more margin. I think we're taking some from that end of the market. And I think it will pay off for us. It might take a little while, but I think it will pay off for us.

I completely agree with you. Could you remind me of your plans for the remainder of this year? You have St. Pete, and...

Yeah, we hope to open in Pembroke Pines before Labor Day is what we're hoping. St. Pete before the end of the quarter. In the third quarter, we open up Greenwood, Indiana, and sometime in the middle of the fourth quarter, we'll open up Houston, our first store there; the Woodlands will be opened in late fourth quarter. So that's what we have planned for the remainder of this year; we should, with that store count, get us somewhere around 129 stores for the year.

Budd, you can walk down the street for our store opening in St. Pete. We'll just see you there.

I do that fairly often. And there's not as much activity there going on as I'd like to see. So I'd like to see that open before the end of the quarter.

We'll buy you a cup of coffee.

Our next question comes from Mickey Legg from the Benchmark Company. Please proceed.

Hey, guys. Thanks for taking my questions. Looks like you touched on the business already, so I'll try to frame it from a fresh perspective. If you could just talk about the competitive landscape a little bit. Are you seeing more companies going out of business? And I know you don't engage in pricing promotion too much on your end, but are you seeing any trends on competitors using more promotions? And I think you also talked a little bit about this in your prepared remarks about maybe any weather-related impact that may have impacted sales, or how you were able to avoid that? Any color on that would be helpful.

We try not to give weather reports. I mean, sometimes it does impact it, but no, we haven't really had any major impact there. These clearance sales really don't affect us, and that's not something that I feel impacts us. Most of the time, that's by closeout people. It's on the lower end of the market. We don't see that really affecting us. There will be a lot of it certainly in parts of our market, but I don't think it might have a very short-term impact, but nothing significant.

Yeah, Mickey, it's Steve. On the promotional side, I think it's still consistent. The lower-end players are going to be aggressive with credit and price points to attract customers. I don't see any changes compared to what they've been doing. They might be looking for better values in their offerings, but from our perspective, it seems the same. The upper end continues to promote service and design rather than credit. Overall, I don't notice any significant changes; promotions increase around the holidays, and there's still a lot of activity.

Got it. Got it. That's helpful. And then maybe just some additional color on the interest rate environment going forward. We're expecting cuts over the next 12 months. How do you see that impacting the consumer environment and maybe a little bit on the timing of that impact?

This is Richard. We certainly are pleased to see the Fed's recent indications or signals that the rates are going to be coming down this year. We're tied to housing and mortgage rates. And so we know it's coming. We just don't know exactly when; but we certainly feel like based on what you're reading in the industry publications and things of that nature, next year we should see an improvement in overall demand for housing, which certainly will affect us in a positive way.

All right, great. That’s all for me.

Thanks, Mickey.

This concludes our question-and-answer session. I would like to turn the floor back over to Mr. Richard Hare for closing comments.

Well, we thank you for your participation in today's call. And we look forward to talking to you in the future when we release our third quarter results later this year. Thank you.

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